<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number 000-23353
----------------------------------------------------------
Denali Incorporated
- --------------------------------------------------------------------------------
(Exact Name of Registrant in its Charter)
Delaware 76-0454641
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1360 Post Oak Blvd., Suite 2250, Houston, Texas 77056
- --------------------------------------------------------------------------------
(Address of Principal Executive Officers) (Zip Code)
713-627-0933
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
As of April 30, 1998, the number of shares of common stock outstanding was
4,819,654.
<PAGE> 2
DENALI INCORPORATED
FORM 10-Q FOR THE QUARTER ENDED MARCH 28, 1998
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 28, 1997 and March 28, 1998 ........................................ 1
Consolidated Statements of Operations - Three and Nine Months Ended
March 29, 1997 and March 28, 1998...................................................................... 2
Consolidated Statement of Stockholders' Equity (Deficit) -
March 28, 1998 ........................................................................................ 3
Consolidated Statements of Cash Flows - Nine Months Ended
March 29, 1997 and March 28, 1998...................................................................... 4
Notes to Consolidated Financial Statements - March 28, 1998............................................ 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................................................................... 15
Item 2. Changes in Securities.................................................................................. 15
Item 3. Defaults Upon Senior Securities ....................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders.................................................... 15
Item 5. Other Information...................................................................................... 15
Item 6. Exhibits and Reports on Form 8-K....................................................................... 15
Signatures ....................................................................................................... 17
Index to Exhibits ...................................................................................................... 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DENALI INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 28, June 28,
1998 1997
-------- --------
(Unaudited) (Note)
ASSETS (In thousands)
<S> <C> <C>
Current assets:
Cash $ 369 $ 330
Investment in equity securities 310 --
Accounts and notes receivable, net of allowances of
$736,000 at March 28, 1998 and $605,000
at June 28, 1997 15,161 17,376
Inventories 8,057 6,686
Income tax receivable 111 40
Prepaid expenses 1,819 913
Deferred tax assets 769 934
-------- --------
Total current assets 26,596 26,279
Property, plant and equipment, net 12,637 7,695
Assets held for sale 699 1,520
Notes receivable 178 907
Goodwill, net 5,714 1,620
Deferred tax assets 1,530 1,953
Other assets 1,264 1,110
-------- --------
Total assets $ 48,618 $ 41,084
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 9,049 $ 10,173
Accrued liabilities 4,472 5,249
Notes payable -- 1,460
Current maturities of long-term debt 740 1,378
-------- --------
Total current liabilities 14,261 18,260
Long-term debt, less current maturities 6,421 21,186
Other long-term liabilities 616 979
Series A Preferred Stock, redeemable at $250 per share,
$.01 par value:
Authorized shares - 1,004,800
Issued and outstanding shares - None at March 28, 1998
and 4,800 at June 28, 1997 -- 1,200
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value
Authorized shares - 30,000,000
Issued and outstanding shares - 4,815,109 at
March 28, 1998 and 2,184,910 at June 28, 1997 48 22
Additional paid-in capital 29,193 297
Retained deficit (1,921) (860)
-------- --------
Total stockholders' equity (deficit) 27,320 (541)
-------- --------
Total liabilities and stockholders' equity (deficit) $ 48,618 $ 41,084
======== ========
</TABLE>
See accompanying notes.
Note: The balance sheet at June 28, 1997 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
1
<PAGE> 4
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------- ----------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 21,587 $ 13,906 $ 68,480 $ 48,579
Cost of sales 17,302 11,818 53,634 39,529
-------- -------- -------- --------
Gross profit 4,285 2,088 14,846 9,050
Selling, general and administrative expenses 3,972 2,630 12,218 7,958
Non-recurring compensation expense -- -- 2,312 --
-------- -------- -------- --------
Operating income (loss) 313 (542) 316 1,092
Interest expense 209 481 1,302 1,474
Interest income (58) (29) (105) (89)
Other income, net (52) (58) (278) (170)
-------- -------- -------- --------
Income (loss) before income taxes 214 (936) (603) (123)
Income tax expense 79 (449) 647 (59)
-------- -------- -------- --------
Net income (loss) before extraordinary item 135 (487) (1,250) (64)
Extraordinary income on early extinguishment of
debt, net of income tax (see Note 11) 238 -- 219 --
-------- -------- -------- --------
Net income (loss) 373 (487) (1,031) (64)
Dividends on Series A Preferred Stock -- (30) (30) (90)
-------- -------- -------- --------
Net income (loss) attributable to common stock $ 373 $ (517) $ (1,061) $ (154)
======== ======== ======== ========
Net income (loss) per common share:
Income (loss) before extraordinary item $ 0.03 $ (0.24) $ (0.38) $ (0.07)
Extraordinary item 0.05 -- 0.07 --
-------- -------- -------- --------
Net income (loss) per common share $ 0.08 $ (0.24) $ (0.31) $ (0.07)
======== ======== ======== ========
Net income (loss) per common share assuming dilution:
Income (loss) before extraordinary item $ 0.03 $ (0.24) $ (0.38) $ (0.07)
Extraordinary item 0.05 -- 0.07 --
-------- -------- -------- --------
Net income (loss) per common share
assuming dilution $ 0.08 $ (0.24) $ (0.31) $ (0.07)
======== ======== ======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 5
DENALI INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Common
Stock Stock Paid-In Retained
Shares Amount Capital Deficit Total
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at June 28, 1997 2,185 $ 22 $ 297 $ (860) $ (541)
Exchange of employee stock options -- -- 2,312 -- 2,312
Issuance of common stock 2,276 23 25,994 -- 26,017
Exercise of employee stock options 354 3 590 -- 593
Dividends declared -- -- -- (30) (30)
Net loss -- -- -- (1,031) (1,031)
-------- -------- -------- -------- --------
Balance at March 28, 1998 4,815 $ 48 $ 29,193 $ (1,921) $ 27,320
======== ======== ======== ======== ========
</TABLE>
3
<PAGE> 6
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
------------------------
March 28, March 29,
1998 1997
---------- ---------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,031) $ (64)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Non-recurring compensation expense 2,312 --
Depreciation 1,027 750
Amortization 182 125
Provision for losses on accounts receivable 42 49
Gain on sale of property, plant and equipment and
assets held for sale -- (52)
Changes in operating assets and liabilities:
Accounts receivable 5,327 1,058
Inventories (1,243) (199)
Prepaid expenses (870) (159)
Other assets (536) (194)
Accounts payable (2,027) (349)
Accrued liabilities (1,373) 322
Income tax receivable/payable (20) 222
-------- --------
Net cash provided by operating activities 1,790 1,509
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (9,610) (4,825)
Purchases of property, plant and equipment (1,748) (448)
Proceeds from sale of property, plant and equipment and
assets held for sale 764 60
Payments on notes receivable 816 20
Sale (Purchases) of equity securities (310) 505
-------- --------
Net cash used in investing activities (10,088) (4,688)
FINANCING ACTIVITIES:
Proceeds from note issuance -- 500
Proceeds from common stock issuance 26,017 --
Proceeds from exercise of stock options 593 --
Redemption of preferred stock (1,200) --
Preferred stock dividends paid (210) --
Net borrowings (payments) under revolving lines of credit (10,465) 1,484
Net borrowings (payments) on term notes and other long-term debt (6,398) 1,230
-------- --------
Net cash provided by (used in) financing activities 8,337 3,214
Increase in cash 39 35
Cash at beginning of period 330 124
-------- --------
Cash at end of period $ 369 $ 159
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 7
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The consolidated financial statements of Denali Incorporated and
its wholly-owned subsidiaries (the "Company") included herein have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The Company
believes that the presentations and disclosures herein are adequate to make the
information not misleading. In the opinion of management, the consolidated
financial statements reflect all elimination entries and adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the
interim periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes included in the
Company's registration statement on Form S-1 filed with the SEC on November 20,
1997.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN EQUITY SECURITIES
The Company determines the appropriate classification of investments in
equity securities at the time of purchase and confirms such designation as of
the balance sheet date. Marketable equity securities are classified as
available-for-sale securities and are stated at fair value, with any unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. Realized gains and losses are recognized based on the
specific-identification method for equity securities sold. The Company's
investments are in a mutual fund that invests principally in high quality,
short-term U.S. dollar denominated money market instruments. As of March 28,
1998, the fair value of investments in equity securities, using quoted market
prices, approximates their carrying value.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
5
<PAGE> 8
3. INVENTORIES
Inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
March 28, 1998 June 28, 1997
-------------- --------------
<S> <C> <C>
Finished goods $ 3,768 $ 2,147
Raw materials 3,015 2,805
Work in process 1,274 1,734
-------------- --------------
$ 8,057 $ 6,686
============== ==============
</TABLE>
4. INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statement and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The Company's interim provisions for
income taxes were computed using its estimated effective tax rate for the year.
The Company's provision for income taxes differs from the U.S. statutory rate of
34% due primarily to the non-recurring compensation charge, discussed in Note 7,
being non-deductible for income tax purposes, state income taxes and other
permanent differences.
5. PER SHARE INFORMATION
The following table sets forth the weighted average shares outstanding
for the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------- ---------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
--------- --------- --------- ---------
(share data in thousands)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 4,726 2,185 3,374 2,185
Dilutive securities - employee stock options 113 -- -- --
--------- --------- --------- ---------
Weighted average common shares outstanding
assuming full dilution 4,839 2,185 3,374 2,185
========= ========= ========= =========
</TABLE>
6. 1997 STOCK OPTION PLAN
In September 1997, the Company adopted an incentive stock option plan
(the "1997 Plan"). The 1997 Plan permits the granting of both incentive stock
options and non-qualified stock option awards to all employees of the Company.
Awards to acquire up to an aggregate of 362,873 shares may be granted pursuant
to the 1997 Plan. The Board of Directors selects the employees who will receive
the awards, determines the type and terms of the awards to be granted and
interprets and administers the 1997 Plan.
In September 1997, the Company awarded options to acquire 171,030 shares
of the Company's common stock. An additional option for 7,700 shares was granted
in December 1997. Options for 149,813 shares vest 40% immediately and the
remainder over a four year period. The remaining options for 28,917 shares vest
ratably over four years. All of the options were granted at fair market value.
6
<PAGE> 9
7. REORGANIZATION OF SUBSIDIARIES AND EXCHANGE OF STOCK OPTIONS
Effective in September 1997, the Company completed a reorganization of
its subsidiaries. As part of the reorganization, one of the Company's
subsidiaries, Containment Solutions, Inc. ("CSI") was merged into the Company.
As a result, the outstanding options to purchase common stock of CSI were
exchanged for options to purchase common stock of the Company. At June 28, 1997,
the CSI stock option plan had options for 1,400 shares outstanding at an
exercise price of $259. In September 1997, the Company exchanged the CSI options
for options for 254,643 shares of the Company's common stock at an exercise
price of $1.42. In connection with the exchange, the Company recognized a
non-recurring compensation charge in the quarter ended September 27, 1997 of
approximately $2.3 million.
8. INITIAL PUBLIC OFFERING
The Company filed a final registration statement with the SEC on November
20, 1997 to register the sale of shares of its common stock. In connection with
this initial public offering, the Company issued 2,276,000 shares and received
net proceeds of $26 million. The Company used the net proceeds of the sale to
repay a portion of the outstanding indebtedness under its credit facilities, to
repay $195,000 for a bank note payable, to repay $6.7 million of a subordinated
unsecured note payable to a supplier, to repay the $1.1 million unsecured note
payable (including interest) to a seller, to redeem the outstanding shares of
preferred stock totaling approximately $1.4 million, including accrued and
unpaid dividends, and to fund general working capital purposes.
9. COMMON STOCK
On September 23, 1997, the Company effected a 1,715-for-1 stock split.
All stockholders' equity balances and disclosures in the accompanying financial
statements have been retroactively restated for the stock split. The effect of
the stock split was to transfer an amount equal to the par value of the new
shares issued from additional paid-in capital to common stock.
10. ACQUISITIONS
Effective February 28, 1997, the Company acquired all of the issued and
outstanding stock of Ershigs, Inc. ("Ershigs"), a manufacturer of
fiberglass-reinforced plastic composites for corrosion-resistant applications.
The acquisition was accounted for under the purchase method of accounting
whereby the assets and liabilities of Ershigs were adjusted to their estimated
fair values at the acquisition date, which exceeded the purchase price by
approximately $1.3 million. Accordingly, the excess amount was allocated to
reduce the basis of property, plant, and equipment (except for assets held for
sale).
Effective October 1997, the Company acquired all of the issued and
outstanding stock of SEFCO, Inc. ("SEFCO"), a manufacturer of engineered
field-erected steel tanks and accessories for use in the municipal, agrochemical
and petroleum industries. The acquisition was accounted for under the purchase
method of accounting whereby the assets and liabilities of the acquired company
were adjusted to their estimated fair values at the acquisition date. Under the
purchase agreement, the Company acquired net assets of $2.4 million in exchange
for $5.1 million in cash, which is net of $700,000 cash acquired, and incurred
approximately $100,000 in acquisition costs resulting in the recording of
goodwill of approximately $2.8 million. The consolidated financial statements
reflect all operations for the acquired company since the date of acquisition.
7
<PAGE> 10
Effective October 1997, the Company acquired all of the issued and
outstanding stock of GL&V/LaValley Construction, Inc. ("LaValley"), a
manufacturer and installer of fiberglass-reinforced plastic products. The
acquisition was accounted for under the purchase method of accounting whereby
the assets and liabilities of the acquired company were adjusted to their
estimated fair values at the acquisition date. Under the purchase agreement, the
Company acquired net assets of $3.0 million, subject to finalization, in
exchange for $4.3 million in cash and incurred approximately $100,000 in
acquisition costs resulting in the recording of goodwill of approximately $1.4
million. The consolidated financial statements reflect all operations for the
acquired company since the date of acquisition.
The following unaudited results of operations have been prepared assuming
the acquisitions had occurred as of the beginning of the periods presented.
These results are not necessarily indicative of results of future operations nor
of results that would have occurred had the acquisitions been consummated as of
the beginning of the periods presented.
<TABLE>
<CAPTION>
Nine months ended
------------------------
March 28, March 29,
1998 1997
---------- ----------
(In thousands, except per
share amounts)
<S> <C> <C>
Net sales $ 74,512 $ 77,892
Net loss $ (848) $ (1,440)
Net loss per common share assuming dilution $ (0.26) $ (0.70)
</TABLE>
11. LONG-TERM DEBT
On October 24, 1997, the Company's subsidiaries entered into a senior
credit facility, as amended, with a new bank to refinance its revolving and term
credit arrangements at its wholly-owned subsidiaries, Fluid Containment, Inc.,
Hoover Containment, Inc. and Ershigs, and to finance the acquisitions of
LaValley and SEFCO. This credit facility was amended and restated on March 23,
1998. The amended and restated credit facility provides for a maximum of $23.0
million revolving credit notes due in October 2002, and a maximum of $6.2
million in term loans with equal monthly payments of $51,816 plus interest due
in October 2002 or upon the termination of the revolving credit notes. The new
revolving credit notes provide for borrowings, at the Company's option, at
either the Bank's prime rate or varying rates of LIBOR plus a margin ranging
from 1.25% to 2%. Borrowings under the new revolving credit notes will be based
on accounts receivable and inventory as specified in the agreement's borrowing
base formula. The term loans provide for borrowings, at the Company's option, at
either the Bank's prime rate or varying rates of LIBOR plus a margin ranging
from 1.25% to 2%. The new senior credit facility provides availability for
letters of credit up to $5.0 million subject to availability of borrowing
capacity under the revolving credit notes. The new senior credit facility
requires the Company's subsidiaries to maintain certain financial covenants and
requires an annual fee of 0.250% on the unused portion of the revolving credit
notes. The new senior credit facility is secured by accounts receivable,
property, equipment and general intangible assets of the Company's subsidiaries.
Also, in connection with the extinguishment of its old revolving and term
credit arrangements upon funding of the new senior credit facility in October
1997, the Company paid prepayment penalties of $323,000 and charged to expense
unamortized debt origination costs of $299,000. In addition, the Company
realized gains of $591,000 and $384,000 in November 1997 and March 1998,
respectively, from the prepayment of a supplier note. As a result of these
transactions, the Company incurred a net extraordinary gain of $353,000
($219,000 net of tax) for the nine months ended March 28, 1998.
8
<PAGE> 11
12. COMMITMENTS AND CONTINGENCIES
The Company utilizes fiberglass, resin and steel as the primary raw
materials in its production processes. Fiberglass is occasionally in short
supply and subject to price fluctuations in response to market demands. The
Company entered into a supply agreement with a major supplier, which requires
that the supplier provide and the Company purchase at least 90% of the Company's
fiberglass requirements from the supplier. The contract expires on December 31,
2000. In addition, the Company continues to negotiate with other vendors to
ensure a continued supply of fiberglass to meet the Company's production needs.
The Company is also a significant purchaser of resin and steel. The Company does
not depend upon any single supplier or source for steel or resin requirements.
The Company has not encountered any significant difficulty to date in
obtaining raw materials in sufficient quantities to support its operations at
current or expected near-term future levels. However, any disruption in raw
material supply or abrupt increases in raw material prices could have an adverse
effect on the Company's operations.
The Company and its subsidiaries are, from time to time, subject to
various lawsuits and claims and other actions arising out of the normal course
of business. The Company is also subject to contingencies pursuant to
environmental laws and regulations that in the future may require the Company to
take action to correct the effects on the environment of prior manufacturing and
waste disposal practices. In management's opinion, recorded accruals for
environmental liabilities are appropriate based on existing facts and
circumstances. Under more adverse circumstances, however, this potential
liability could be higher. Current year expenditures were not material.
While the effect on future results of these items is not subject to
reasonable estimation because considerable uncertainty exists, in the opinion of
management, the ultimate liabilities resulting from such claims will not
materially affect the consolidated financial position, results of operations or
cash flows of the Company.
13. SEASONALITY
The Company's operating results are affected by the annual construction
season slowdown resulting from winter weather especially in the period December
through March. The underground fiberglass tank products are especially impacted
during the winter months. The Company believes that the effects of seasonality
will be less severe in the future, as the Company continues to expand and
diversify its product offerings.
14. SUBSEQUENT EVENTS
On April 16, 1998, Denali Incorporated announced the signing of a
definitive agreement to purchase 100 percent of the outstanding stock of
CC&E/RPS Inc. ("CC&E") from Reinforced Plastics Systems Inc. of Mahone Bay,
Nova Scotia, Canada. CC&E is a leading North American field constructor of
fiberglass-reinforced plastic products. The stock purchase excludes the
European assets of CC&E.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Denali Incorporated is a provider of products and services for handling
critical fluids, which are liquids, liquid mixtures, and slurries that are
economically valuable or potentially hazardous to the environment. The company
is a manufacturer of fiberglass-composite, underground storage tanks; steel,
aboveground storage tanks; and engineered, fiberglass-reinforced
plastic-composite products for corrosion-resistant applications.
Since inception in 1994, the Company has acquired five businesses. Due to
the magnitude of these acquisitions and the integration of the acquired
operations with the Company's existing businesses, results of operations for
prior periods are not necessarily comparable with or indicative of current or
future periods. Each of the acquisitions has been accounted for under the
purchase method of accounting. Accordingly, the acquired businesses have been
included in the Company's results of operations from the date of acquisition.
The Company was formed in December 1994 to acquire certain assets and
assume certain liabilities of the fiberglass composite underground storage tanks
("USTs") business of Owens Corning, including five manufacturing facilities. The
purchase price was $16.6 million consisting of $5.6 million in cash, $9.3
million in notes payable and approximately $1.7 million in acquisition costs.
The Company significantly restructured the operations of this business at the
time of purchase. Two of the five manufacturing facilities of the business were
closed, resulting in a significant reduction in fixed manufacturing overhead.
Operating costs were significantly reduced throughout the Company, in part
through the elimination of approximately 20 management positions. The Company
sold the two closed and idle manufacturing facilities in fiscal 1996.
In October 1995, the Company acquired certain assets and assumed certain
liabilities of Hoover Containment, Inc., a manufacturer of steel rectangular
aboveground storage tanks ("ASTs"). The purchase price of $5.5 million consisted
of $5.4 million in cash and acquisition costs of approximately $100,000. The
addition of the steel rectangular AST product line enabled the Company to offer
a broader line of containment products and to expand its customer base. These
two businesses form the Company's Containment Products Group.
In February 1997, the Company acquired Ershigs, Inc. ("Ershigs"), a
manufacturer of engineered fiberglass reinforced products ("FRP"), as the first
of the Company's Engineered Products Group. The $6.1 million purchase price
consisted of $5.0 million in cash, $1.0 million in a note payable and
acquisition costs of approximately $80,000. Substantial operational changes were
made upon the purchase of Ershigs, including the closing of one of Ershigs'
three manufacturing plants and the restructuring of most of Ershigs' sales,
general and administrative functions, which enabled the Company to enhance
profitability.
In October 1997, the Company acquired SEFCO, Inc. ("SEFCO") for
approximately $5.1 million in net cash and $100,000 in direct acquisition costs.
SEFCO is a manufacturer of engineered field-erected aboveground steel tanks. In
October 1997, the Company also acquired GL&V LaValley Construction, Inc.
("LaValley") for $4.3 million in cash and $100,000 in direct acquisition costs.
LaValley manufactures engineered FRP products. LaValley and SEFCO, together with
Ershigs, form the Company's Engineered Products Group.
10
<PAGE> 13
RESULTS OF OPERATIONS
Three months ended March 28, 1998 compared with three months ended March 29,
1997
Net sales increased $7.7 million, or 55%, to $21.6 million in the third
quarter of fiscal 1998 from $13.9 million in the same quarter of fiscal 1997.
$5.9 million of the increase resulted from the inclusion of the Ershigs,
LaValley and SEFCO companies acquired in February 1997 (Ershigs) and October
1997 (LaValley and SEFCO). The three acquired companies form the Company's
Engineered Products Group. The remaining $1.8 million increase in sales resulted
from a 14% increase in sales at the Company's Containment Products Group from
$12.6 million in the fiscal 1997 period to $14.4 million in the fiscal 1998
period due to strong demand for the Company's petroleum storage tank products.
Gross profit increased $2.2 million, or 105%, to $4.3 million in the
fiscal 1998 period from $2.1 million in the fiscal 1997 period. $1.5 million of
the increase was related to the addition of the Engineered Products Group with
the remaining $700,000 derived from increased gross profit in the Containment
Products Group. Gross margin for the Company increased to 19.8% from 15% in the
prior year quarter due in part to an increase in the Containment Products Group
gross margins from 14.7% in the prior fiscal period to 17.6% in the current
fiscal period. The margins at the Containment Products Group increased as a
result of better volume through the Group's facilities and better raw material
pricing. Also favorably impacting margins in the quarter was the inclusion of
the higher margin Engineered Products Group in the fiscal 1998 period. The
margins at the Engineered Products Group were 24.3% for the quarter.
Selling, general and administrative expenses for the fiscal 1998 third
quarter totaled $4 million (18.4% of revenues), compared with $2.6 million
(18.9% of revenues) in the prior year fiscal period. $1 million of the increase
was due to the inclusion of the Engineered Products Group in the fiscal 1998
period with the balance of the increase resulting from both higher corporate
expenses associated with the Company's growth and increased sales and
administrative expenses at the Containment Products Group.
Interest expense decreased $272,000 from $481,000 in the 1997 fiscal
quarter to $209,000 in the 1998 fiscal quarter due to the use of proceeds from
the initial public offering to reduce the Company's indebtedness as described in
Note 8 of the Notes to the Consolidated Financial Statements.
The Company realized a gain of $384,000 in the 1998 fiscal quarter from
the prepayment of a supplier note. This transaction was recorded as an
extraordinary gain of $238,000 net of tax in the third quarter of fiscal 1998.
The Company's provision for income taxes differs from the U.S.
statutory rate due to state income taxes and other permanent differences.
Due to the above factors, net income (loss) before extraordinary item
increased from $(487,000) in the prior fiscal year period to $135,000 in the
current fiscal year period. Net income (loss) per diluted share before
extraordinary item increased from $(0.24) to $0.03. Net income after
extraordinary item and earnings per diluted share for the third quarter of
fiscal 1998 were $373,000 and $0.08, respectively.
Nine months ended March 28, 1998 compared with nine months ended March 29, 1997
Net sales increased $19.9 million, or 41%, to $68.5 million in the
first nine months of fiscal 1998 from $48.6 million in the same period of fiscal
1997. $16.1 million of the increase resulted from the inclusion in the fiscal
1998 period of the Company's Engineered Products Group. The remaining $3.8
million increase in sales resulted from an 8% increase in sales at the Company's
Containment Products Group from $47.3 million in the fiscal 1997 period to $51.1
million in the fiscal 1998 period due to strong demand for the Company's
petroleum storage tank products.
11
<PAGE> 14
Gross profit increased $5.8 million, or 64%, to $14.8 million in the
fiscal 1998 period from $9 million in the fiscal 1997 period. $4.3 million of
the increase was related to the addition of the Engineered Products Group with
the remaining $1.5 million derived from increased gross profit in the
Containment Products Group. Gross margin for the Company increased to 21.7% from
18.6% in the prior year period due in part to an increase in the Containment
Products Group gross margins from 18.7% in the prior fiscal period to 20.2% in
the current fiscal period. The margins at the Containment Products Group
increased as a result of better volume through the Group's facilities and better
raw material pricing. Also favorably impacting margins in the nine months was
the inclusion of the higher margin Engineered Products Group in the fiscal 1998
period. The margins at the Engineered Products Group were 26% for the period.
Selling, general and administrative expenses for the first nine months
of fiscal 1998 totaled $12.2 million (17.8% of revenues) compared to $8 million
(16.4% of revenues) in the prior fiscal period. $2.9 million of the increase was
due to the inclusion of the Engineered Products Group in the fiscal 1998 period
with the remaining increase resulting from both higher corporate expenses
associated with the Company's growth and increased sales and administrative
expenses at the Containment Products Group.
The Company recognized a $2.3 million non-recurring compensation charge
in the first quarter of fiscal 1998 due to the exchange of subsidiary stock
options for Denali stock options.
Interest expense decreased $172,000 from $1.5 million in the first nine
months of the prior year to $1.3 million in the current year period due to the
use of proceeds from the initial public offering to reduce the Company's
indebtedness as discussed in Note 8 of Notes to the Consolidated Financial
Statements.
The Company's provision for income taxes differs from the U.S.
statutory rate due to the non-recurring compensation charge, state income taxes
and other permanent differences.
As a result of the Company refinancing its credit facilities in October
1997, the Company paid prepayment penalties of $323,000 and charged to expense
unamortized debt organization costs of $299,000. In addition, the Company
realized gains of $591,000 and $384,000 in November 1997 and March 1998,
respectively, from the prepayment of a supplier note. As a result of these
transactions, the Company incurred a net extraordinary gain of $353,000
($219,000 net of tax) in the first nine months of fiscal 1998.
Due to the above factors, net loss before extraordinary charges in the
first nine months of fiscal 1998 was $(1,250,000), or $(0.38) per diluted share,
compared with a net loss of $(64,000), or $(0.07) per diluted share, in the
prior year nine month period. Net income and earnings per diluted share for the
first nine months of fiscal 1998 before the $2.3 million non-recurring
compensation charge were $1,062,000 and $0.31, respectively, before
extraordinary item. Net loss after extraordinary item and loss per diluted share
for the nine months of fiscal 1998 were $(1,031,000) and $(0.31), respectively.
LIQUIDITY AND CAPITAL RESOURCES
As further described in Note 8 to the Denali Incorporated Consolidated
Financial Statements, the Company received net proceeds of $26 million, after
expenses, from its initial public offering completed in the second quarter.
Working capital at March 28, 1998 was $12.3 million, as compared to
$8.0 million at June 28, 1997. The increase in working capital is primarily due
to the October 1997 acquisitions, excess proceeds from the initial public
offering and improved operating cash flow. Cash provided by operating activities
for the nine months ended March 28, 1998 was $1.8 million compared to $1.5
million for the same period last year. The improvement in cash provided by
operating activities is primarily a result of a $1.3 million increase in net
income, before an adjustment of $2.3 million for a non-recurring compensation
charge, along with increased collections of accounts receivable, offset by an
increase in inventories and reduction in payables.
12
<PAGE> 15
The principal uses of cash for the nine months ended March 28, 1998
were to fund acquisitions (net of cash acquired) of $9.6 million, net repayment
of bank debt of $14.4 million, redemption of Series A Preferred Stock totaling
$1.4 million, including accrued and unpaid dividends, and capital expenditures
of $1.7 million.
The Company's acquisition program may require significant additional
capital. The Company intends to seek additional capital as necessary to fund
such acquisitions through one or more funding sources that may include
borrowings under the Credit Facility, or offerings of debt and/or equity
securities of the Company. Cash provided by operating activities may also be
used to fund a portion of future acquisitions. Although management believes that
the Company will be able to obtain sufficient capital to fund acquisitions,
there can be no assurances that such capital will be available to the Company
at the time it is required or on terms acceptable to the Company.
The Company's credit facility with its principal lender provides for
revolving lines of credit and secured term loans of up to an aggregate of $29.2
million. As of March 28, 1998, the Company had outstanding indebtedness of $6.2
million under the term loans and no borrowings under the revolving lines of
credit. Borrowings under this credit facility are secured by liens on
substantially all of the Company's assets. See Note 11 of Notes to the
Consolidated Financial Statements for certain information regarding the credit
facility. The credit facility bears interest per annum at varying rates of LIBOR
plus a margin ranging from 1.25% to 2% or the prime rate. The credit facility
has a five year term.
The Company also has $1.0 million in Industrial Revenue Bonds ("IRBs")
assumed in connection with its acquisition of the Owens Corning fiberglass
composite UST business. The IRBs bear interest at 9.9% per annum, mature in
February 2001 and are secured by the Company's Conroe, Texas manufacturing
facility.
The Company anticipates that its operating cash flows and available
line of credit will be adequate to fund future capital commitments and working
capital requirements for the next 12 months.
IMPACT OF YEAR 2000 ISSUES
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company is currently assessing the impact of the year 2000 on its
computer software, hardware and other systems, including those of vendors,
customers and other third parties. The Company anticipates completing its
assessment no later than June 1998. Also, the Company believes that with
modifications to existing software and conversions to new software, the year
2000 issue will not pose significant operational problems for its computer
systems. The potential expense to ensure that all of the computer and other
systems are year 2000 compliant cannot be determined until such an assessment is
completed.
13
<PAGE> 16
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements as such term
is defined in the Private Securities Litigation Reform Act of 1995 and
information relating to the Company and its subsidiaries that are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words, "anticipate", "believe", "estimate", "expect" and "intend"
and words or phrases of similar import, as they relate to the Company or its
subsidiaries or Company management, are intended to identify forward-looking
statements. Such statements reflect the current risks, uncertainties and
assumptions related to certain factors including, without limitations,
competitive factors, general economic conditions, customer relations,
relationships with vendors, the interest rate environment, governmental
regulation and supervision, seasonality, distribution networks, product
introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein. Based upon
changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended.
14
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
On November 20, 1997, the Securities and Exchange Commission declared
the Company's registration statement on Form S-1, File No. 333-36857, effective.
Item 2 of Part II of the Company's 10-Q for the quarter ending December 27, 1997
set forth information regarding the Company's proceeds from the offering
pursuant to such registration statement and the Company's use of such proceeds.
The following information has changed since such disclosure.
As of April 30, 1998, the Company has utilized all of the $26.0 million
net proceeds from the offering as follows. The Company repaid approximately
$15.6 million of the outstanding indebtedness under its credit facilities,
repaid $195,000 for a bank note payable, repaid $6.7 million of the subordinated
unsecured note payable to a supplier, repaid a $1.1 million unsecured note
(including interest) to a seller and redeemed the outstanding shares of
preferred stock of the Company totaling approximately $1.4 million, including
accrued and unpaid dividends. The remaining $1.0 million of net proceeds have
been used for general working capital purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits
10.1 Amended and Restated Credit Agreement dated March 23,
1998 among Denali Incorporated, Ershigs Biloxi, Inc.,
Ershigs, Inc., Fluid Containment, Inc., and SEFCO,
Inc., and NationsBank of Texas, N.A., as agent, and the
financial institutions named therein
10.2 Form of Revolving Note of Denali Incorporated pursuant
to Amended and Restated Credit Agreement dated March
23, 1998
10.3 Guaranty dated March 23, 1998 of Denali Incorporated
10.4 Subsidiary Guaranty dated March 23, 1998 of Containment
Solutions, Inc., Denali Management, Inc., Ershigs
Biloxi, Inc., Ershigs, Inc., Fluid Containment
Property, Inc., Instrumentation Solutions, Inc.,
Specialty Solutions, Inc., Fluid Containment, Inc.,
SEFCO, Inc. and Hoover Containment, Inc.
15
<PAGE> 18
10.5 Security Agreement dated March 23, 1998 between Denali
Incorporated and NationsBank of Texas, N.A., as agent
10.6 Security Agreement dated March 23, 1998 among
Containment Solutions, Inc., Denali Management, Inc.,
Ershigs Biloxi, Inc., Ershigs, Inc., Fluid Containment
Property, Inc., Instrumentation Solutions, Inc.,
Specialty Solutions, Inc., Fluid Containment, Inc.,
SEFCO, Inc., Hoover Containment, Inc. and NationsBank
of Texas, N.A., as agent
10.7 Pledge Agreement dated March 23, 1998 between Denali
Incorporated and NationsBank of Texas, N.A., as agent
10.8 Form of Pledge Agreement dated March 23, 1998 between
NationsBank of Texas, N.A., as agent, and each of
Specialty Solutions, Inc., Fluid Containment, Inc., and
Ershigs, Inc.
27 Financial Data Schedule
B. Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter
ended March 28, 1998.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENALI INCORPORATED
-------------------
(Registrant)
Date: May 8, 1998 /s/ R. Kevin Andrews
-----------------------
R. Kevin Andrews
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
17
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
10.1 Amended and Restated Credit Agreement dated March 23,
1998 among Denali Incorporated, Ershigs Biloxi, Inc.,
Ershigs, Inc., Fluid Containment, Inc., and SEFCO,
Inc., and NationsBank of Texas, N.A., as agent, and the
financial institutions named therein
10.2 Form of Revolving Note of Denali Incorporated pursuant
to Amended and Restated Credit Agreement dated March
23, 1998
10.3 Guaranty dated March 23, 1998 of Denali Incorporated
10.4 Subsidiary Guaranty dated March 23, 1998 of Containment
Solutions, Inc., Denali Management, Inc., Ershigs
Biloxi, Inc., Ershigs, Inc., Fluid Containment
Property, Inc., Instrumentation Solutions, Inc.,
Specialty Solutions, Inc., Fluid Containment, Inc.,
SEFCO, Inc. and Hoover Containment, Inc.
10.5 Security Agreement dated March 23, 1998 between Denali
Incorporated and NationsBank of Texas, N.A., as agent
10.6 Security Agreement dated March 23, 1998 among
Containment Solutions, Inc., Denali Management, Inc.,
Ershigs Biloxi, Inc., Ershigs, Inc., Fluid Containment
Property, Inc., Instrumentation Solutions, Inc.,
Specialty Solutions, Inc., Fluid Containment, Inc.,
SEFCO, Inc., Hoover Containment, Inc. and NationsBank
of Texas, N.A., as agent
10.7 Pledge Agreement dated March 23, 1998 between Denali
Incorporated and NationsBank of Texas, N.A., as agent
10.8 Form of Pledge Agreement dated March 23, 1998 between
NationsBank of Texas, N.A., as agent, and each of
Specialty Solutions, Inc., Fluid Containment, Inc., and
Ershigs, Inc.
27 Financial Data Schedule
</TABLE>
18
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED CREDIT AGREEMENT
Among
DENALI INCORPORATED,
ERSHIGS BILOXI, INC.
ERSHIGS, INC.,
FLUID CONTAINMENT, INC., and
SEFCO, INC.,
as Borrowers,
THE FINANCIAL INSTITUTIONS
NAMED IN THIS CREDIT AGREEMENT
as Banks,
and
NATIONSBANK OF TEXAS, N.A.,
as Agent for the Banks
$29,212,000
March 23, 1998
<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 . . . . . . . . . . . . . 21
1.3 Accounting Terms; Preparation of Financials . . . . . 21
1.4 Types . . . . . . . . . . . . . . . . . . . . . . . . 21
1.5 Interpretation . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 2. CREDIT FACILITIES . . . . . . . . . . . . . . . . . . 22
2.1 Revolving Loan and Term Loan Facilities . . . . . . . 22
2.2 Letter of Credit Facility . . . . . . . . . . . . . . 26
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.4 Interest . . . . . . . . . . . . . . . . . . . . . . . 29
2.5 Breakage Costs . . . . . . . . . . . . . . . . . . . . 32
2.6 Increased Costs . . . . . . . . . . . . . . . . . . . 32
2.7 Illegality . . . . . . . . . . . . . . . . . . . . . . 33
2.8 Market Failure . . . . . . . . . . . . . . . . . . . . 33
2.9 Payment Procedures and Computations . . . . . . . . . 34
2.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 3. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . 37
3.1 Conditions Precedent to Effectiveness . . . . . . . . 37
3.2 Conditions Precedent to Each Extension of Credit . . . 39
ARTICLE 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 39
4.1 Organization . . . . . . . . . . . . . . . . . . . . . 39
4.2 Authorization . . . . . . . . . . . . . . . . . . . . 39
4.3 Enforceability . . . . . . . . . . . . . . . . . . . . 39
4.4 Absence of Conflicts and Approvals . . . . . . . . . . 40
4.5 Investment Companies . . . . . . . . . . . . . . . . . 40
4.6 Public Utilities . . . . . . . . . . . . . . . . . . . 40
4.7 Financial Condition . . . . . . . . . . . . . . . . . 40
4.8 Condition of Assets . . . . . . . . . . . . . . . . . 40
4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . 41
4.10 Subsidiaries . . . . . . . . . . . . . . . . . . . . . 41
4.11 Laws and Regulations . . . . . . . . . . . . . . . . . 41
4.12 Environmental Compliance . . . . . . . . . . . . . . . 41
4.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . 41
4.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 42
4.15 Authorization and Approvals . . . . . . . . . . . . . 42
4.16 Margin Regulations . . . . . . . . . . . . . . . . . . 42
4.17 True and Complete Disclosure . . . . . . . . . . . . . 42
4.18 Permits, Licenses, etc. . . . . . . . . . . . . . . . 42
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 5. COVENANTS . . . . . . . . . . . . . . . . . . . . . . 42
5.1 Organization . . . . . . . . . . . . . . . . . . . . . 42
5.2 Reporting . . . . . . . . . . . . . . . . . . . . . . 43
5.3 Inspection . . . . . . . . . . . . . . . . . . . . . . 44
5.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . 45
5.5 Financial Covenants . . . . . . . . . . . . . . . . . 45
5.6 Debt . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . 45
5.8 Other Obligations . . . . . . . . . . . . . . . . . . 46
5.9 Corporate Transactions . . . . . . . . . . . . . . . . 46
5.10 Distributions . . . . . . . . . . . . . . . . . . . . 47
5.11 Transactions with Affiliates . . . . . . . . . . . . . 47
5.12 Insurance . . . . . . . . . . . . . . . . . . . . . . 47
5.13 Investments. . . . . . . . . . . . . . . . . . . . . . 48
5.14 Lines of Business . . . . . . . . . . . . . . . . . . 48
5.15 Compliance with Laws . . . . . . . . . . . . . . . . . 48
5.16 Environmental Compliance . . . . . . . . . . . . . . . 48
5.17 ERISA Compliance . . . . . . . . . . . . . . . . . . . 50
5.18 Payment of Certain Claims . . . . . . . . . . . . . . 50
5.19 Subsidiaries . . . . . . . . . . . . . . . . . . . . . 50
5.20 Agreements Restricting Liens and Distributions . . . . 50
5.21 Landlord's Waiver and Consent Agreements . . . . . . . 50
ARTICLE 6. DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . 51
6.1 Events of Default . . . . . . . . . . . . . . . . . . 51
6.2 Termination of Revolving Commitments . . . . . . . . . 52
6.3 Acceleration of Credit Obligations . . . . . . . . . . 52
6.4 Cash Collateralization of Letters of Credit . . . . . 52
6.5 Default Interest . . . . . . . . . . . . . . . . . . . 53
6.6 Right of Setoff . . . . . . . . . . . . . . . . . . . 53
6.7 Actions Under Loan Documents . . . . . . . . . . . . . 53
6.8 Remedies Cumulative . . . . . . . . . . . . . . . . . 53
6.9 Application of Payments . . . . . . . . . . . . . . . 53
ARTICLE 7. THE AGENT AND THE ISSUING BANK . . . . . . . . . . . . 54
7.1 Authorization and Action . . . . . . . . . . . . . . . 54
7.2 Reliance, Etc. . . . . . . . . . . . . . . . . . . . . 55
7.3 Affiliates . . . . . . . . . . . . . . . . . . . . . . 55
7.4 Bank Credit Decision . . . . . . . . . . . . . . . . . 55
7.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . 56
7.6 Indemnification . . . . . . . . . . . . . . . . . . . 56
7.7 Successor Agent and Issuing Bank . . . . . . . . . . . 56
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 8. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . 57
8.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . 57
8.2 Indemnification . . . . . . . . . . . . . . . . . . . 57
8.3 Modifications, Waivers, and Consents . . . . . . . . . 58
8.4 Survival of Agreements . . . . . . . . . . . . . . . . 58
8.5 Assignment and Participation . . . . . . . . . . . . . 58
8.6 Notice . . . . . . . . . . . . . . . . . . . . . . . . 60
8.7 Choice of Law . . . . . . . . . . . . . . . . . . . . 61
8.8 Forum Selection . . . . . . . . . . . . . . . . . . . 61
8.9 Service of Process . . . . . . . . . . . . . . . . . . 61
8.10 Waiver of Jury Trial . . . . . . . . . . . . . . . . . 61
8.11 Counterparts . . . . . . . . . . . . . . . . . . . . . 61
8.12 No Further Agreements . . . . . . . . . . . . . . . . 61
</TABLE>
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-1 - Form of Company Guaranty
Exhibit E-2 - Form of Subsidiary Guaranty
Exhibit F-1 - Form of Company Security Agreement
Exhibit F-2 - Form of Subsidiary Security Agreement
Exhibit G-1 - Form of Company Pledge Agreement
Exhibit G-2 - Form of Subsidiary Pledge Agreement
Exhibit H - Form of Revolving Borrowing Request
Exhibit I - Form of Revolving Note
Exhibit J - Form of Joinder Agreement
SCHEDULES
Schedule I - Administrative Information
Schedule 1.1 - Real Property
Schedule 4.10 - Subsidiaries
Schedule 5.16(d) - Ershigs and FCI Environmental Action Plans
Schedule 5.16(f) - Sefco Environmental Action Plans
Schedule 5.16(g) - FCI Environmental Sampling Plans
Schedule 5.16(h) - Ershigs Environmental Sampling Plans
-iii-
<PAGE> 5
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement dated as of March 23, 1998,
is among Denali Incorporated, a Delaware corporation, Fluid Containment, Inc.,
a Delaware corporation, Ershigs, Inc., a Washington corporation, Ershigs
Biloxi, Inc., a Mississippi corporation, SEFCO, Inc., an Oklahoma corporation,
as Borrowers, the financial institutions named herein, as Banks, and
NationsBank of Texas, N.A., as Agent for the Banks.
INTRODUCTION
A. Fluid Containment, Inc., Hoover Containment, Inc., Ershigs,
Inc., SEFCO, Inc., Ershigs Biloxi, Inc. and NationsBank of Texas, N.A. are
parties to the Loan and Security Agreement dated as of October 24, 1997, as
amended by the First Amendment to Loan and Security Agreement dated as of
October 31, 1997, and the Second Amendment to Loan and Security Agreement dated
as of October 31, 1997 (as amended, the "Existing Credit Agreement").
B. The parties to the Existing Credit Agreement desire to amend
and restate the Existing Credit Agreement as herein set forth.
C. To evidence the credit facility requested hereunder, the
Borrowers, the Agent and the Banks have agreed that this Agreement is an
amendment and restatement of the Existing Credit Agreement, not a new or
substitute credit agreement or novation of the Existing Credit Agreement, and
each reference to an "Advance", a "Term Loan" or a "Letter of Credit" shall
include each Advance and Term Loan made and each Letter of Credit issued
heretofore under the Existing Credit Agreement as well as each Advance made and
each Letter of Credit issued hereafter under this Agreement.
Now, therefore, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by all parties, 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):
"Account Debtor" means a Person who is obligated on a Receivable.
"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.
"Acquisition Certificate" means an acquisition certificate executed by
a Responsible Officer of the Company in substantially the form of the attached
Exhibit A.
<PAGE> 6
"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 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 Company and the Agent for such
particular type of transaction.
"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 Total Liabilities of the Company as of
the end of the fiscal quarter then most recently ended to (b) the consolidated
Tangible Net Worth of the Company as of the end of such fiscal quarter, as
determined below:
<TABLE>
<CAPTION>
Debt to Consolidated Applicable Margin for Applicable Margin for Applicable Letter of
Tangible Net Worth LIBOR Tranches Prime Rate Tranches Credit Fees
-------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C>
< 1.00 1.25% 0.00% 1.25%
< 1.50 but > or = 1.00 1.50% 0.00% 1.50%
< 2.00 but > or = 1.50 1.75% 0.00% 1.75%
> or = 2.00 2.00% 0.00% 2.00%
</TABLE>
Beginning on the date of this Agreement, the foregoing ratio shall be deemed to
be less than 1.50 to 1.00 and greater than or equal to 1.00 to 1.00 until the
initial Reset Date. For each subsequent period from and including any Reset
Date, beginning with the initial Reset Date, but not including the next Reset
Date to occur, the Applicable Margin for that period shall be based upon the
foregoing ratio calculated as of the end of the last day of the Company's
fiscal quarter immediately preceding such Reset Date. Upon any change in the
Applicable Margin, the Agent shall promptly notify the Company and the Banks of
the new Applicable Margin.
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<PAGE> 7
"Assignment and Acceptance" means an Assignment and Acceptance in
substantially the form of the attached Exhibit B executed by an assignor Bank,
an assignee Bank, and the Agent, in accordance with Section 8.5.
"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).
"Biloxi" means Ershigs Biloxi, Inc., a Mississippi corporation
formerly known as GL&V/La Valley Construction, Inc.
"Biloxi Term Loan" means the aggregate outstanding principal amount of
the Biloxi Term Note.
"Biloxi Term Note" means the promissory note dated October 31, 1997 of
Biloxi payable to the order of NationsBank.
"Borrowers" means collectively the Company, Biloxi, FCI, Ershigs, and
Sefco.
"Borrowing Base" means, at any time, an amount equal to the sum of:
(a) 85% of Eligible Receivables, plus
(b) the lesser of:
(i) the sum of (A) 50% of the lesser of the cost
(computed on a first-in-first-out basis) and fair market value of
Eligible Inventory that is raw materials Inventory and finished goods
Inventory at such time plus (B) the lesser of (y) 35% of the lesser of
the cost (computed on a first-in-first-out basis) and fair market
value of Eligible Inventory that is work-in-process Inventory and (z)
$1,400,000, or
(ii) $10,000,000, plus
(c) the greater of (i) $4,377,713 or (ii) 100% of the orderly
liquidation value of the Credit Parties' Equipment as of the date of this
Agreement, provided that such amount shall be decreased by 1/7th of such value
as of the date hereof each February 28 beginning with February 28, 1999, minus
(d) other reserves as the Agent may determine from time to time in
the exercise of its reasonable judgment.
"Borrowing Base and Compliance Certificate" means a borrowing base and
compliance certificate executed by a Responsible Officer of the Company in
substantially the form of the attached Exhibit C.
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<PAGE> 8
"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.
"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.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Collateral" means (a) all capital stock and other property pledged
pursuant to the Security Documents, (b) all "Collateral" as defined in the
Security Documents; (c) all real property mortgaged pursuant to the Security
Documents; and (d) any property or interest provided in addition to or in
substitution for any of the foregoing.
"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.
"Company" means Denali Incorporated, a Delaware corporation.
"Company Account" means the principal operating account of Company
with the Agent or any other account of Company with the Agent which is
designated as the "Company Account" in writing by the Company to the Agent.
"Company Guaranty" means the Guaranty dated as of March 23, 1998, made
by the Company in favor of the Agent for the benefit of the Agent, the Banks,
and the Issuing Bank in substantially the form of the attached Exhibit E-1.
"Continuation/Conversion Request" means a Continuation/Conversion
Request in substantially the form of the attached Exhibit D executed by a
Responsible Officer of the Company.
"Credit Obligations" means all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by
the Borrowers to the Agent and the Banks (or with respect to the Interest Hedge
Agreements, any Affiliates of the Banks) under this Agreement, the Revolving
Notes, the Term Notes, the Letter of Credit Documents, and the other Loan
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.
"Credit Parties" means the Company and each of its Subsidiaries.
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<PAGE> 9
"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
Derivative; (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) 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.
"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.
"Derivatives" means any swap, hedge, cap, collar, put, call, option,
forward or short sale, or similar arrangement providing for the exchange or
mitigation of risks related to price changes in any commodity, including money.
"Dollars or $" means lawful money of the United States of America.
"EBITDA" means, with respect to any Person and for any period of its
determination, the consolidated net income of such Person for such period, plus
the consolidated interest expense, income taxes, and depreciation and
amortization of such Person for such period and minus any interest income and
extraordinary gains of such Person for such period and included in the
calculation of consolidated net income. For the purposes of calculating the
Fixed Charge Coverage Ratio only, (i) EBITDA shall be calculated for any period
by including the actual amount for the applicable period ending on such day,
including the EBITDA attributable to any permitted
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<PAGE> 10
Acquisitions occurring during such period on a pro forma basis from the first
day of the applicable period through the date of closing of the permitted
Acquisition, and (ii) EBITDA and interest expense for such period shall be
calculated after giving effect to any Debt incurred as a result of any
permitted Acquisition occurring during such period on a pro forma basis as if
such Debt had been incurred on the first day of such period, and the discharge
of any other Debt repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Debt as if such discharge had occurred on the first
day of such period, in each case utilizing (A) where available or required
pursuant to this Agreement, historical audited and reviewed unaudited financial
statements obtained from the seller, broken down by fiscal quarter in the
Company's reasonable judgment or (B) if no statements referred to in clause (A)
are available, unaudited financial statements reviewed internally by the
Company, broken down in the Company's reasonable judgment; provided that, all
pro forma adjustments to EBITDA resulting from permitted Acquisitions must be
(I) consistent with the SEC regulations and practices in effect as of the date
of this Agreement governing adjustments to historical EBITDA for an acquired
entity or (II) other adjustments approved by the Agent in its sole discretion.
"Effective Date" has the meaning set forth in Section 3.1.
"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 Borrowers, in either case, such approval not to be
unreasonably withheld.
"Eligible Inventory" means items of Inventory of the Credit Parties
held by any Credit Party for sale in the ordinary course of the business of any
such Credit Parties (but not including packaging or shipping materials or
maintenance supplies) which meet all of the following requirements:
(a) such Inventory is owned by a Credit Party, is subject to a
Security Interest, which is perfected as to such Inventory, and is subject to
no other Lien whatsoever other than a Permitted Lien;
(b) such Inventory consists of raw materials, finished goods or
work-in-process and does not consist of supplies or consigned goods;
(c) such Inventory is in good condition and meets all standards
applicable to such goods, their use or sale imposed by any governmental agency,
or department or division thereof, having regulatory authority over such
matters;
(d) such Inventory is currently either usable or saleable, at
prices approximating at least the cost thereof, in the normal course of a
Credit Party's business;
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<PAGE> 11
(e) such Inventory is not obsolete or returned or repossessed or
used goods taken in trade;
(f) such Inventory is located at one of the locations listed in
the Security Agreements except as otherwise disclosed in writing to and
consented to by the Agent;
(g) such Inventory is not experimental or test Inventory;
(h) such Inventory is in the possession and control of a Credit
Party and not any third party, or, if located in a warehouse or other facility
leased by any Credit Party, the warehouseman or lessor has delivered to the
Agent a warehouseman's or landlord's waiver and consent in form and substance
satisfactory to the Agent; and
(i) such Inventory is not otherwise unsalable in the Agent's
reasonable judgment.
"Eligible Receivables" means the unpaid portion of a Receivable
payable in Dollars to any Credit Party net of any returns, discounts, claims,
credits, charges or other allowances, offsets, deductions, counterclaims,
disputes or other defenses and reduced by the aggregate amount of all reserves,
limits and deductions provided for in this definition and elsewhere in this
Agreement which meets all of the following requirements:
(a) such Receivable is owned by a Credit Party;
(b) in the case of Receivables for goods sold or leased or
services rendered under a contract or agreement pursuant to which the Account
Debtor's obligation to pay such Receivable is conditioned upon such Credit
Party's completion of any further performance under such contract or agreement,
the aggregate amount of such Receivables to be included in the Borrowing Base
does not exceed $3,500,000;
(c) the time for payment for such Receivable has not been extended
by any Credit Party;
(d) such Receivable is not unpaid more than 90 days after the date
of the original invoice or past due more than 60 days after its due date, which
shall not be later than 30 days after the invoice date;
(e) such Receivable does not arise out of any transaction with any
Subsidiary, Affiliate, creditor, lessor or supplier of such Credit Party;
(f) such Receivable is not owing by an Account Debtor more than
50% of whose then-existing accounts owing to any Credit Party do not meet the
requirements for eligibility set forth in clause (d) above;
(g) if the Account Debtor with respect thereto is located outside
of the United States of America, the goods which gave rise to such Receivable
were shipped after receipt by such
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<PAGE> 12
Credit Party from the Account Debtor of an irrevocable letter of credit that
(i) has been confirmed by a financial institution acceptable to the Agent, (ii)
is in form and substance acceptable to the Agent, (iii) is payable in the full
face amount of the face value of the Receivable in Dollars at a place of
payment located within the United States, and (iv) has been duly delivered to
the Agent, provided that Receivables owing by an Account Debtor located outside
the United States may not exceed in face amount 10% of total Eligible
Receivables;
(h) such Receivable is not subject to the Assignment of Claims Act
of 1940, as amended from time to time, or any applicable law now or hereafter
existing similar in effect thereto, as determined in the sole discretion of the
Agent, or to any provision prohibiting its assignment or requiring notice of or
consent to such assignment, unless such Receivable is duly assigned to the
Agent in compliance with all applicable governmental requirements so that the
Agent is recognized by the account debtor to have all of the rights of an
assignee of such Receivable;
(i) such Credit Party is not in breach of any express or implied
representation or warranty with respect to the goods the sale of which gave
rise to such Receivable;
(j) the Account Debtor with respect to such Receivable is not
insolvent or the subject of any bankruptcy or insolvency proceedings of any
kind or of any other proceeding or action, threatened or pending, which might,
in the Agent's sole judgment, cause a Material Adverse Change on such Account
Debtor;
(k) the goods the sale of which gave rise to such Receivable were
shipped or delivered to the Account Debtor on an absolute sale basis and not on
a bill and hold sale basis (other than certain bill and hold sales by FCI where
such Receivables are approved in writing by the Agent in its sole discretion
and are supported by satisfactory signed customer authorizations and related
documentation), a consignment sale basis, a guaranteed sale basis, a sale or
return basis or on the basis of any other similar understanding, and such goods
have not been returned or rejected;
(l) such Receivable is not owing by an Account Debtor who or along
with a group of affiliated Account Debtors has then-existing accounts owing to
the Credit Parties which exceed in face amount 25% of total Eligible
Receivables, to the extent of such excess;
(m) such Receivable is evidenced by an invoice or other
documentation in form acceptable to the Agent containing only terms normally
offered by any Credit Party, and dated no later than the date of shipment;
(n) such Receivable is a valid, legally enforceable obligation of
the Account Debtor with respect thereto and is not subject to any present, or
contingent (and no facts exist which are the basis for any future), offset,
deduction or counterclaim, dispute or other defense on the part of such Account
Debtor;
(o) except provided in (b) above, if such Receivable arises from
the performance of services, such services have been fully performed;
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<PAGE> 13
(p) such Receivable is subject to a Security Interest, which is
perfected as to such Receivable, and is subject to no other Lien whatsoever
other than a Permitted Lien and the goods giving rise to such Receivable were
not, at the time of the sale thereof, subject to any Lien other than a
Permitted Lien; and
(q) such Receivable is not otherwise uncollectible in the Agent's
reasonable judgment.
"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.
"Equipment" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising equipment, machinery,
apparatus, motor vehicles, tractors, trailers, rolling stock, fittings, and
other tangible personal property (other than Inventory) of every kind and
description used in such Person's business operations or owned by such Person
or in which such Person has an interest and all parts, accessories and special
tools and all increases and accessions thereto and substitutions and
replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Ershigs" means Ershigs, Inc., a Washington corporation.
"Ershigs Term Loan" means the aggregate outstanding principal amount
of the Ershigs Term Note.
"Ershigs Term Note" means the promissory note dated as of October 24,
1997 of Ershigs payable to the order of NationsBank.
"Event of Default" has the meaning specified in Section 6.1.
"Existing Credit Agreement" has the meaning set forth in the
introduction to this Agreement.
"FCI" means Fluid Containment, Inc., a Delaware corporation.
"FCI Term Loan" means the aggregate outstanding principal amount of
the FCI Term Note.
"FCI Term Note" means the promissory note dated as of October 24, 1997
of FCI payable to the order of NationsBank.
"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
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<PAGE> 14
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 and consolidating
balance sheet of the Company and its consolidated Subsidiaries as at December
31, 1997, and the related consolidated and consolidating statements of income,
cash flow, and retained earnings of the Company and its consolidated
Subsidiaries for the fiscal year then ended, copies of which have been
furnished to the Agent, and (b) the consolidated and consolidating balance
sheet of the Company and its consolidated Subsidiaries as at September 30,
1997, and the related consolidated statements of income, cash flow, and
retained earnings of the Company and its consolidated Subsidiaries for the nine
months then ended, copies of which have been furnished to the Agent.
"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, any Borrower, or any Credit Party or any of their respective
properties.
"Guaranties" means the Subsidiary Guaranty and the Company Guaranty.
"Guarantors" means (a) the Subsidiaries of the Company that have
executed the Subsidiary Guaranty in connection with the execution of this
Agreement, including, without limitation, Biloxi, Ershigs, FCI, Sefco, Hoover
Containment, Inc., Fluid Containment Property, Inc., Denali Management, Inc.,
Specialty Solutions, Inc., Containment Solutions, Inc., and Instrumentation
Solutions, Inc., and (b) any future Subsidiaries of the Company that join the
Subsidiary Guaranty pursuant to Section 5.19.
"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
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<PAGE> 15
than applicable laws now allow. The maximum lawful rate under this Agreement
shall be the weekly indicated rate ceiling under Chapter 303 of the Texas
Finance Code and in Article 5069-1D.002 of the Revised Civil Statutes, in each
case as amended (formerly known as the indicated (weekly) rate ceiling in
Article 5069-1.04 of the Texas Revised Civil Statutes), unless any other lawful
rate ceiling exceeds the rate ceiling so determined, and then the higher rate
ceiling shall apply.
"Intellectual Property" means, as to any Person, all of such Person's
then owned existing and future acquired or arising patents, patent rights,
copyrights, works which are the subject of copyrights, trademarks, service
marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals,
reissues, divisions, continuations and continuations-in-part of any of the
foregoing and all rights to sue for past, present and future infringements of
any of the foregoing.
"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 Derivative between a 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 Revolving Advances or any Term Loan 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 applicable 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 applicable Borrower may select in the
applicable Revolving Borrowing Request or Continuation/Conversion Request
(unless there shall exist any Default or Event of Default, in which case the
applicable 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
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<PAGE> 16
(c) none of the Borrowers may, without the consent of the Agent
and the Banks, select an Interest Period for any LIBOR Tranche which ends after
the Revolver Maturity Date or the Term Maturity Date, as applicable.
"Inventory" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) goods intended for
sale or lease or for display or demonstration, (b) work in process, and (c) raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or otherwise used or
consumed in the conduct of business.
"IRB Obligations" means the obligations of FCI to the Montgomery
County Industrial Development Corporation in connection with those certain
industrial revenue bonds issued by the Montgomery County Industrial Development
Corporation, in the principal amount of $1,000,000, due February 1, 2001.
"Issuing Bank" means NationsBank and any successor issuing bank
pursuant to Section 7.7.
"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 Company or any other Credit
Party 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 Credit Party 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
Credit Party 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.
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<PAGE> 17
"Letter of Credit Exposure" means, as of any date of its
determination, the aggregate outstanding undrawn amount of Letters of Credit
plus (without duplication of any Advances made under Section 2.2(c)) the
aggregate of the reimbursement obligations of the Credit Parties under the
Letter of Credit Applications and this Agreement.
"Letter of Credit Sublimit" means $5,000,000.
"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
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.
"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).
"Loan" means any Revolving Loan or Term Loan.
"Loan Documents" means this Agreement, the Revolving Notes, the Term
Notes, the Letter of Credit Documents, the Security Agreements, the Pledge
Agreements, Guaranty, the Interest Hedge Agreements and each other agreement,
instrument, or document executed at any time in connection with this Agreement.
"Majority Banks" means, at any time, Banks holding more than 66 2/3%
of the then aggregate unpaid principal amount of the Notes held by the Banks
and the Letter of Credit Exposure of the Banks at such time; provided that if
no such principal amount of the Loans or Letter of Credit Exposure is then
outstanding, "Majority Banks" shall mean Banks having more than 66 2/3% of the
aggregate amount of the Revolving Commitments at such time.
"Material Adverse Change" means any material adverse change in or upon
(a) in the business, assets, properties, liabilities, condition (financial or
otherwise), results of operations or business prospects of any Credit Party,
(b) the ability of any Credit Party to perform any obligations under this
Agreement or any other Loan Document to which it is a party thereby causing a
Default, or (c) the
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<PAGE> 18
legality, validity, binding effect or enforceability of any Loan Document or
the ability of the Agent or any Bank to enforce any rights or remedies under or
in connection with any Loan Document.
"Mortgages" means (a) the Deed of Trust, Mortgage, Security Agreement,
Fixture Filing and Assignment of Rents dated as of October 24, 1997, executed
by Ershigs and granting a lien for the benefit of the Agent in the Real
Property in Wilson, North Carolina; (b) the Deed of Trust, Mortgage, Security
Agreement, Fixture Filing and Assignment of Rents dated as of October 24, 1997,
executed by Ershigs and granting a lien for the benefit of the Agent in the
Real Property in Bellingham, Washington; (c) the Deed of Trust, Mortgage,
Security Agreement, Fixture Filing and Assignment of Rents dated as of October
24, 1997, executed by FCI and granting a lien for the benefit of the Agent in
the Real Property in Bakersfield, California; (d) the Mortgage dated as of
October 24, 1997, executed by FCI and granting a lien for the benefit of the
Agent in the Real Property in Mount Union, Pennsylvania; (e) the Deed of Trust,
Mortgage, Security Agreement, Fixture Filing and Assignment of Rents dated as
of October 24, 1997, executed by Sefco and granting a lien for the benefit of
the Agent in the Real Property in Tulsa, Oklahoma; and (f) the Deed of Trust,
Mortgage, Security Agreement, Fixture Filing and Assignment of Rents dated as
of October 31, 1997, executed by Biloxi and granting a lien for the benefit of
the Agent in the Real Property in Biloxi, Mississippi.
"NationsBank" means NationsBank of Texas, N.A., in its individual
capacity.
"Notes" means the Revolving Notes and the Term Notes.
"PBGC" means Pension Benefit Guaranty Corporation or its successor.
"Permitted Debt" means all of the following Debt:
(a) the Credit Obligations;
(b) the IRB Obligations and any replacement, renewal, refinancing
or extension of the IRB Obligations provided that any such replacement,
renewal, refinancing or extension of the IRB Obligations does not exceed the
principal amount (plus associated fees and expenses) of the IRB Obligations at
the time of the replacement, renewal, refinancing or extension thereof by more
than $500,000;
(c) the Subordinated Debt;
(d) intercompany Debt between any Credit Party and any other
Credit Party, in each case subordinated on terms acceptable to the Agent and
Majority Banks;
(e) Debt assumed in connection with any Acquisition permitted by
this Agreement, but not incurred in connection or in anticipation of such
permitted Acquisition and any Lien securing such Debt shall not encumber any
Credit Party other than that purchased in connection with such permitted
Acquisition;
(f) Debt constituting purchase money debt incurred with respect to
the purchase of any tangible asset (other than Inventory) and obligations under
Capital Leases, provided that the sum of
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<PAGE> 19
(i) the aggregate outstanding principal amount for all such Debt under this
clause (f), and (ii) the increase in the principal amount of any replacement,
renewal, refinancing or extension of the IRB Obligations does not exceed
$2,000,000;
(g) Debt under any Interest Hedge Agreement; and
(h) Debt arising from endorsing negotiable instruments for
collection in the ordinary course of business.
"Permitted Investments" means all of the following investments:
(a) investments in (i) wholly-owned Subsidiaries of any Borrower
(ii) Persons other than wholly-owned Subsidiaries of the Borrowers 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-1 or better by Standard & Poor's Corporation
and P-1 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 demand deposit accounts, 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-1 (or better) by Standard & Poor's Corporation or P-1 (or
better) by Moody's Investors Services, Inc.; and
(f) investments in money market funds which invest solely in the
types of investments described in paragraphs (c) through (d) above.
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 any
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<PAGE> 20
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 clause (f) of the definition of Permitted Debt provided that no such Lien
covers 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 Credit Party's assets or materially interfere with any
Credit Party'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 Credit Party or the value of such property;
(d) the Lien on FCI's Conroe, Texas manufacturing facility;
(e) Liens upon property, including any attachment of property or
other legal process, prior to adjudication of a dispute on the merits, if the
same are being contested in good faith and by appropriate proceedings and if
the specified Person has set aside on its books such reserves as may be
required by GAAP;
(f) good faith pledges or deposits made to secure performance of
bids, tenders, contracts (other than for the repayment of borrowed money) or
leases (other than in connection with Capital Leases), or to secure statutory
obligations, surety or appeal bonds, or indemnity, performance or other similar
bonds in the ordinary course of business;
(g) any interest or title of a lessor in assets being leased to
any Credit Party (other than in connection with Capital Leases); and
(h) Liens listed as permitted exceptions in Exhibit B to any
Mortgage.
"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.
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<PAGE> 21
"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.
"Pledge Agreements" means a Pledge Agreement dated as of March 23,
1998 in favor of the Agent (a) from the Company, pledging its ownership
interest in all of its direct Subsidiaries in the form of the attached Exhibit
G-1, (b) from Specialty Solutions, Inc. pledging its ownership interest in all
of its direct Subsidiaries substantially in the form of the attached Exhibit
G-2, (c) from Ershigs, Inc. pledging its ownership interest in all of its
direct Subsidiaries, substantially in the form of the attached Exhibit G-2, and
(d) from FCI, pledging its ownership interest in all of its direct
Subsidiaries, substantially in the form of the attached Exhibit G-2.
"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 Borrowers have 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 Commitment at such time to the aggregate Revolving Commitments at
such time or (b) if the Revolving Commitments have been terminated, the ratio
of such Bank's aggregate outstanding Revolving Advances and share of the Letter
of Credit Exposure at such time to the aggregate outstanding Revolving Advances
and Letter of Credit Exposure at such time.
"Real Property" means the real property described in the Schedule 1.1
hereto and all improvements and buildings thereon.
"Receivables" means and includes, as to any Person, all of such
Person's then owned or existing and future acquired or arising (a) accounts,
(b) chattel paper (including, without limitation, installment sales contracts
and personal property leases), (c) contract rights, (d) rights to the payment
of money or other forms of consideration of any kind including, but not limited
to, letters of credit and the right to receive payment thereunder, tax refunds,
insurance proceeds, notes, drafts, instruments, documents, acceptances and all
other debts, obligations and liabilities in whatever form from any Person and
guaranties, security and Liens securing payment thereof, and (e) cash and
non-cash proceeds of any of the foregoing.
"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.
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<PAGE> 22
"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.
"Reset Date" means five Business Days after the date of the Agent's
receipt of the financial statements provided by the Company pursuant to Section
5.2(b).
"Responsible Officer" means, with respect to any Person, such Person's
Chief Executive Officer, President, Chief Financial Officer, any Vice
President, Treasurer, or any other officer of such Person designated by any of
the foregoing in writing from time to time.
"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.
"Revolver Maturity Date" means October 31, 2002.
"Revolving Advance" means the outstanding principal from a Bank which
represents such Bank's ratable share of a Revolving Borrowing.
"Revolving Borrowing" means any aggregate amount of principal advanced
on the same day and pursuant to the same Revolving Borrowing Request under the
revolving loan facility created in Section 2.1.
"Revolving Borrowing Request" means a Revolving Borrowing Request in
substantially the form of the attached Exhibit H executed by a Responsible
Officer of the Company and delivered to the Agent.
"Revolving Commitment" means, for any Bank, the amount set forth below
such Bank's name on the signature pages of this Agreement as its Revolving
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
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" means the aggregate outstanding principal amount of
the Revolving Borrowings.
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<PAGE> 23
"Revolving Note" means a promissory note of the Company payable to the
order of a Bank, in substantially the form of the attached Exhibit I,
evidencing the indebtedness of the Company to such Bank resulting from
Revolving Advances made by such Bank to the Company.
"SEC" means the Securities and Exchange Commission, and any successor
entity.
"Security Agreements" means (a) the Security Agreement dated as of
March 23, 1998 made by the Company in favor of the Agent for the benefit of the
Agent, the Banks, and the Issuing Bank in the form of the attached Exhibit F-1
and (b) the Security Agreement dated as of March 23, 1998 made by the Company's
Subsidiaries in favor of the Agent for the benefit of the Agent, the Banks, and
the Issuing Bank in the form of the attached Exhibit F-2.
"Security Documents" means each of (a) the Security Agreements, (b)
the Pledge Agreements, (c) the Mortgages and (d) each other writing executed
and delivered by any Person securing or guaranteeing the Credit Obligations or
evidencing such security.
"Security Interest" means the Liens in favor of the Agent for the
ratable benefit of the Banks on and in the Collateral effected hereby or by any
of the Security Documents or pursuant to the terms hereof or thereof.
"Sefco" means SEFCO, Inc., an Oklahoma corporation.
"Sefco Term Loan" means the aggregate outstanding principal amount of
all advances previously made by NationsBank to Sefco.
"Sefco Term Note" means the promissory note dated as of October 24,
1997 of Sefco payable to the order of NationsBank, evidencing the indebtedness
of Sefco to NationsBank resulting from the Sefco Term Loan made by NationsBank
to Sefco.
"Subordinated Debt" means any Debt issued by any Credit Party that (a)
is debt for borrowed money, (b) is unsecured, (c) has no recourse to any of the
other Credit Parties (whether through a guaranty executed by any such Credit
Party, a pledge of assets by such Credit Party or otherwise), which has not
been otherwise subordinated to the Agent, (d) does not amortize and has a
maturity no earlier than the Revolver Maturity Date, and (e) 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.
"Subsidiary Guaranty" means the Subsidiary Guaranty dated as of March
23, 1998, made by the Company's Subsidiaries in favor of the Agent for the
benefit of the Agent, the Banks, and the Issuing Bank in the form of the
attached Exhibit E-2.
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<PAGE> 24
"Tangible Net Worth" means, with respect to any Person and as of any
date of its determination, the total shareholders' equity (including capital
stock, additional paid-in capital and retained earnings, after deducting
treasury stock) as determined in accordance with GAAP, less the amount of all
intangible items reflected therein, including all unamortized debt discount and
expense, unamortized research and development expense, unamortized deferred
charges, goodwill, Intellectual Property, unamortized excess cost of investment
in Subsidiaries over equity at dates of acquisition, and all similar items
which should properly be treated as intangibles in accordance with GAAP.
"Term Loans" means the Biloxi Term Loan, the Ershigs Term Loan, the
FCI Term Loan and the Sefco Term Loan.
"Term Maturity Date" means October 24, 2002.
"Term Notes" means Biloxi Term Note, Ershigs Term Note, FCI Term Note,
and Sefco Term Note.
"Total Liabilities" means the sum of all of the liabilities which
appears on the financial statements most recently provided by the Company
pursuant to Section 5.2(a) or (b), as applicable.
"Tranche" means any tranche of principal outstanding under the Loans
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
Loans pursuant to Section 2.4(a)(iii) 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.
(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
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preparation of the financial statements, except as expressly set forth in this
Agreement or permitted by the Company's independent accountants.
(b) The Credit Parties 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 Credit Parties shall prepare all proforma
financial statements reflecting Acquisitions in accordance with the
requirements established by the SEC 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 Credit Parties
unless otherwise approved in writing by the Agent. All applications of the
foregoing requirements regarding proforma financial statements must be approved
by the Agent prior to the use of such financial statements in connection with
the delivery of any Borrowing Base and Compliance Certificate.
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 any Borrower has an
obligation under this Agreement and the Loan Documents, the expense of
complying with that obligation shall be an expense of such 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 Loan Documents is held to be illegal, invalid, not binding, or
unenforceable, such provision shall be fully severable and this Agreement and
the Loan 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 Loan Documents, and the remaining provisions shall remain in
full force and effect. This Agreement and the Loan 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 Loan Documents, this Agreement shall
control.
ARTICLE 2. CREDIT FACILITIES.
2.1 Revolving Loan and Term Loan Facilities.
(a)(i) Revolving 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 Advances to the Company
as such Bank's ratable share of Revolving Borrowings requested
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by the Company from time to time on any Business Day during the period
from the date of this Agreement until the Revolver Maturity Date;
provided that the aggregate outstanding principal amount of Revolving
Advances made by such Bank plus such Bank's ratable share of the
Letter of Credit Exposure shall not exceed such the lesser of (A)
Bank's Revolving Commitment and (B) such Bank's ratable share of the
Borrowing Base. Revolving Borrowings must be made in an amount equal
to or greater than (I) with respect to Revolving Advances bearing
interest based on the Prime Rate, $100,000 and in integral multiples
of $100,000 in excess thereof and (II) with respect to Revolving
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 Company may from time to time borrow, prepay,
and reborrow Revolving Borrowings. The indebtedness of the Company to
the Banks resulting from the Revolving Advances made by the Banks
shall be evidenced by Revolving Notes made by the Company.
(ii) Reduction of Revolving Commitments. The Company
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
Commitments. Each such notice shall specify the amount of the
termination or reduction and shall be irrevocable and binding on the
Company. 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 Commitment shall
be reduced pro rata. The Revolving Commitments cannot be reduced below
the amount of the Revolving Loan plus the Letter of Credit Exposure.
Any termination or reduction of the Revolving 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 Commitments.
(b)(i) Biloxi Term Loans. Before the date hereof, NationsBank made
the Biloxi Term Loan in the aggregate amount set forth opposite
NationsBank's name on the signature pages hereof as its Biloxi Term
Loan. NationsBank agrees, on the terms and conditions set forth in
this Agreement, to continue its outstanding Biloxi Term Loan. Biloxi
may not reborrow any amount of the Biloxi Term Loan that has been
repaid.
(ii) Ershigs Term Loans. Before the date hereof,
NationsBank made the Ershigs Term Loan in the aggregate amount set
forth opposite NationsBank's name on the signature pages hereof as its
Ershigs Term Loan. NationsBank agrees, on the terms and conditions
set forth in this Agreement, to continue its outstanding Ershigs Term
Loan to Ershigs. Ershigs may not reborrow any amount of the Ershigs
Term Loan that has been repaid.
(iii) FCI Term Loans. Before the date hereof, NationsBank
made the FCI Term Loan in the aggregate amount set forth opposite
NationsBank's name on the signature pages hereof as its FCI Term Loan.
NationsBank agrees, on the terms and conditions set forth in this
Agreement, to continue its outstanding FCI Term Loan to FCI. FCI may
not reborrow any amount of the FCI Term Loan that has been repaid.
(iv) Sefco Term Loans. Before the date hereof,
NationsBank made the Sefco Term Loan in the aggregate amount set forth
opposite NationsBank's name on the signature
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pages hereof as its Sefco Term Loan. NationsBank agrees, on the terms
and conditions set forth in this Agreement, to continue its
outstanding Sefco Term Loan to Sefco. Sefco may not reborrow any
amount of the Sefco Term Loan that has been repaid.
(c) Method of Advancing
(i) Each Revolving Borrowing shall be made pursuant to a
Revolving Borrowing Request given by the Company 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
Borrowing. Each Revolving Borrowing Request shall be fully completed
and shall specify the information required therein, and shall be
irrevocable and binding on the Company. If the Revolving Borrowing
Request is received by the Agent and has been correctly completed, the
Agent shall promptly forward notice of the Revolving 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 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
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
Borrowing make such Revolving Borrowing available to the Company in
immediately available funds at the Company Account.
(ii) Unless the Agent shall have received notice from a
Bank before the date of any Revolving Borrowing that such Bank shall
not make available to the Agent such Bank's ratable share of such
Revolving Borrowing, the Agent may assume that such Bank has made its
ratable share of such Revolving Borrowing available to the Agent on
the date of such Revolving Borrowing in accordance with paragraph (i)
above and the Agent may, in reliance upon such assumption, make
available to the Company 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 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 Company 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 Company,
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 Advance as part of such
Revolving Borrowing for all purposes of this Agreement even though not
made on the same day as the other Revolving Advances comprising such
Revolving 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 such Borrower, such 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 Company until
the date such amount is repaid to the Agent at the interest rate
charged to the Company for such Revolving Borrowing under the terms of
this Agreement.
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<PAGE> 28
(iii) The failure of any Bank to make available its ratable
share of any Revolving Borrowing shall not relieve any other Bank of
its obligation, if any, to make available its ratable share of such
Revolving 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 Borrowing.
(d) Prepayment.
(i) Any Borrower may prepay the outstanding principal
amount of its Loans pursuant to written notice given by the applicable
Borrower to the Agent, in case of the prepayment of any portion of a
Revolving Loan, or NationsBank, in case of the prepayment of any
portion of a Term Loan in writing or by telecopy not later than (A)
2:00 p.m. (local time at the Applicable Lending Office of the Agent or
NationsBank, as applicable) on the third Business Day before the date
of the proposed prepayment, in the case of the prepayment of any
portion of a Loan which is comprised of LIBOR Tranches, or (B) 12:00
noon (local time at the Applicable Lending Office of the Agent or
NationsBank, as applicable) on the same Business Day of the proposed
prepayment, in the case of the prepayment of any portion of a Loan
comprised solely of Prime Rate Tranches. Each such notice shall
specify the principal amount and Tranches of the Loan which shall be
prepaid, the date of the prepayment, and shall be irrevocable and
binding on such Borrower. Prepayments of any Loan shall be made in an
amount equal to (I) with respect to 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 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 such Loan to be less than $300,000, or the aggregate
outstanding principal amount of all Prime Rate Tranches comprising all
or any part of such 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 such Loan or the entire outstanding principal
amount of all Prime Rate Tranches under such Loan, as the case may be.
Upon receipt of any notice of prepayment of any portion of a Revolving
Loan, the Agent shall give prompt notice of the intended prepayment to
the Banks. For each such notice given by any Borrower, such Borrower
shall prepay the applicable Loan in the specified amount on the
specified date as set forth in such notice. No Borrower shall have
any right to prepay any principal amount of the Loans 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 exceeds either (A)
the aggregate Revolving Commitments or (B) the Borrowing Base, the
Company 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 Company 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(d) shall be
accompanied by payment of all accrued but unpaid interest on the
principal amount prepaid and any amounts required to be paid pursuant
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to Section 2.5 (and specified by the Agent or NationsBank, as
applicable, as owing) as a result of such prepayment.
(e) Repayment.
(i) The Company shall pay to the Agent for the ratable
benefit of the Banks the aggregate outstanding principal amount of the
Revolving Loan on the Revolver Maturity Date.
(ii) Biloxi shall pay to NationsBank equal monthly
installments of principal of $5,625 on the first day of each month
after the date hereof plus accrued but unpaid interest, with the
aggregate outstanding principal amount of the Biloxi Term Loan and all
accrued but unpaid interest due and payable on the Term Maturity Date.
(iii) Ershigs shall pay to NationsBank equal monthly
installments of principal of $19,066 on the first day of each month
after the date hereof plus accrued but unpaid interest, with the
aggregate outstanding principal amount of the Ershigs Term Loan and
all accrued but unpaid interest due and payable on the Term Maturity
Date.
(iv) FCI shall pay to NationsBank equal monthly
installments of principal of $24,250 on the first day of each month
after the date hereof plus accrued but unpaid interest, with the
aggregate outstanding principal amount of the FCI Term Loan and all
accrued but unpaid interest due and payable on the Term Maturity Date.
(v) Sefco shall pay to NationsBank equal monthly
installments of principal of $2,875 on the first day of each month
after the date hereof plus accrued but unpaid interest, with the
aggregate outstanding principal amount of the Sefco Term Loan and all
accrued but unpaid interest due and payable on the Term Maturity Date.
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 Company from time to time on any Business Day during the period
from the date of this Agreement until the Revolver 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
Borrowings plus the Letter of Credit Exposure shall not exceed the lesser of
(A) the aggregate amount of the Revolving 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 Revolver 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 a Credit Party to the Issuing Bank resulting from Letters
of Credit requested by such Credit Party shall be evidenced by the Letter of
Credit Applications made by such Credit Party.
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(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 Company 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 Company. 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 Company 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.
(c) Reimbursements for Letters of Credit. With respect to any
Letter of Credit and in accordance with the related Letter of Credit
Application, the Company 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(b)). If the Company 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 Borrowing. Upon such request, the Company shall be deemed to
have requested the making of a Revolving Borrowing in the amount of such
obligation and the transfer of the proceeds thereof to the Issuing Bank. Such
Revolving Borrowing shall be comprised of a Prime Rate Tranche. The Agent
shall promptly forward notice of such Revolving Borrowing to the Company 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 Borrowings, and
notwithstanding the failure of any conditions precedent, make available such
Bank's ratable share of such Revolving 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
Company hereby unconditionally and irrevocably authorizes, empowers, and
directs the Issuing Bank to make such requests for Revolving Borrowings on
behalf of the Company, and the Banks to make Revolving 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
Borrowings as the making of Revolving Borrowings to the Company under this
Agreement as if requested by the Company. Nothing herein is intended to
release any Credit Party's obligations under any Letter of Credit Application,
but only to provide an additional method of payment therefor. The making of
any Revolving Borrowing under this Section 2.2(c)
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shall not constitute a cure or waiver of any Default or Event of Default caused
by the Company'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 Revolver Maturity Date, the Company 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 Company 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
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 Company 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 Company or any Bank in connection
with the Letters of Credit or the Company'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; or (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; except that the Issuing Bank shall only be liable to the
Credit Parties or any Bank to the extent of any direct, as opposed to
consequential, damages suffered by the Credit Parties or such Bank which any
Credit Party 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 Company is required to deposit funds in the
Letter of Credit Collateral Account pursuant to Sections 2.2(d) or
6.4, then the Company and the Agent shall establish the Letter of
Credit Collateral Account and the Company shall execute any documents
and
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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
Company hereby 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 Company at the Company'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 money market funds maintained with, and under the
sole dominion and control of, the Agent or in another investment if
mutually agreed upon by the Company and the Agent 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) Unused Revolving Commitment Fees. The Company 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 Commitments exceeds (ii) the
aggregate outstanding principal amount of the Revolving Loan plus 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 Revolver Maturity Date.
(b) Fees for Letters of Credit. For each Letter of Credit issued
by the Issuing Bank, the Company 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. The Company shall pay such letter of
credit fees for each Letter of Credit quarterly in arrears on the last day of
each calendar quarter.
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2.4 Interest.
(a) Election of Interest Rate Basis. Any Borrower may select the
interest rate basis for the Loans in accordance with the terms of this Section
2.4(a):
(i) Under the Revolving Borrowing Request provided to the
Agent in connection with the making of each Revolving Borrowing, the
Company 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 Borrowing,
provided that (A) at no time shall there be more than seven separate
LIBOR Tranches outstanding for Revolving Loans 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 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 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 Borrowing
comprised of a LIBOR Tranche, upon determination by the Agent, the
Agent shall promptly notify the Company and the Banks of the
applicable interest rate for such Tranche.
(ii) Each Term Loan shall continue to bear interest from
the Effective Date at the rate in effect on the Effective Date until
continued or converted in accordance with the following paragraph
(iii).
(iii) With respect to any Tranche, any 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 applicable
Borrower to the Agent, in the case of Tranches under the Revolving
Loan, or NationsBank, in the case of Tranches under any Term Loan in
writing or by telecopy not later than 2:00 p.m. (local time at the
Applicable Lending Office of the Agent or NationsBank, as applicable)
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 such Borrower. The Agent shall
promptly forward notice of the continuation or conversion to the Banks
received with respect to the Revolving Loan. In the case of any
continuation or conversion into LIBOR Tranches, upon determination by
the Agent, the Agent or NationsBank, as applicable, shall notify the
applicable Borrower and, with respect to Tranches under the Revolving
Loan only, 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
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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 seven separate
LIBOR Tranches outstanding for the Revolving Loans or one LIBOR
Tranche outstanding for each Term Loan. 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, with
respect to Tranches under the Revolving Loan only, or NationsBank,
with respect to Tranches under the Term Loan, shall before close of
business on the date requested by the applicable Borrower for the
continuation or conversion, make such continuation or conversion.
(iv) At the end of the Interest Period for any LIBOR
Tranche if the applicable Borrower has not continued or converted such
LIBOR Tranche into new Tranches as provided for in paragraph (iii)
above, such 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 applicable Borrower
converts such Prime Rate Tranche as provided for in paragraph (iii)
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 applicable Borrower shall pay to the Agent for the ratable
benefit of the Banks, in case of any LIBOR Tranche under the Revolving Loan,
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 specified elsewhere in this
Agreement, on any date when such LIBOR Tranche is prepaid in full, and on the
Revolver Maturity Date. Interest on the Term Loans is payable as provided in
Section 2.1(e).
(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 applicable Borrower shall pay to the Agent for
the ratable benefit of the Banks, in case of any LIBOR Tranche under the
Revolving Loan, 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 Revolver Maturity Date. Interest on
the Term Loans is payable as provided in Section 2.1(e).
(d) Usury Protection.
(i) If, with respect to any Bank and any Borrower, the
effective rate of interest contracted for by such Bank with such
Borrower under the Loan Documents, including the stated rates of
interest contracted for hereunder and any other amounts contracted for
under the Loan 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 such Borrower hereunder shall bear
interest at a rate which would make the effective rate of
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interest on the loans made by such Bank to such Borrower under the
Loan Documents equal the Highest Lawful Rate until the difference
between the amounts which would have been due by such Borrower to such
Bank at the stated rates and the amounts which were due by such
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 such
Borrower hereunder shall be retroactively increased such that the
effective rate of interest on the loans made by such Bank to such
Borrower under the Loan 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, such 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 any Borrower for the use, forbearance, or detention of
money under the Loan 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 Loan Documents.
(iii) NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN
THIS AGREEMENT AND THE LOAN DOCUMENTS TO THE CONTRARY, it is the
intention of each Bank and the Borrowers to conform strictly to any
applicable usury laws. Accordingly, if any Bank contracts for,
charges, or receives any consideration from any 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 such Borrower or be refunded
to such Borrower.
2.5 Breakage Costs. If (a) 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, (b) any payment of principal on any LIBOR Tranche is not made when due,
or (c) any LIBOR Tranche is not borrowed, converted, or prepaid in accordance
with the respective notice thereof provided by the applicable Borrower to the
Agent or NationsBank as applicable, 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 such Borrower to provide the respective notice of
borrowing, conversion, or prepayment, or any other cause not specified above
which is created by any Borrower, then the applicable 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, in case of any Revolving Loan, or such Bank's LIBOR Tranche, in
case of any Term Loan, 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, in case of any Revolving Loan, or such Bank's LIBOR Tranche, in case
of any Term Loan, following any
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<PAGE> 36
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 such 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 Advance or obtaining funds for the making,
funding, or maintaining of such Bank's ratable share of any LIBOR Tranche, in
case of any Revolving Loan, or of such Bank's LIBOR Tranche, in case of any
Term Loan, 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 Borrowers shall pay to such Bank upon demand 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 Borrowers
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 Advances or making, funding, or maintaining Revolving Advances or
Term Loans 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 Borrowers 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 Borrowers 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
case of any Revolving Loan, or such Bank's LIBOR Tranche, in case of any Term
Loan, in the relevant interbank market, such Bank shall so notify the Borrowers
and the Agent, with respect to LIBOR Tranches under the Revolving Loan only,
and such Bank's
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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, in case of any Revolving Loan, or such
Bank's LIBOR Tranche, in case of any Term Loan, then if the Agent, with respect
to LIBOR Tranches under the Revolving Loan, or NationsBank, with respect to
LIBOR Tranches under any Term Loan, so notifies the Borrowers, the Banks'
commitment to create LIBOR Tranches shall be suspended until 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 Loan Documents. All payment hereunder shall be made in
Dollars. The Borrowers shall make each payment under this Agreement and under
the Notes not later than 12:00 noon (local time at the Applicable Lending
Office of the Agent, in case of any payment of the Revolving Loan, or
NationsBank, in case of any payment of any Term Loan) on the day when due to
the Agent, in case of any payment of the Revolving Loan, or NationsBank, in
case of any payment of any Term Loan at the Agent's, in case of any payment of
the Revolving Loan, or NationsBank, in case of any payment of any Term Loan
Applicable Lending Office in immediately available funds. All payments by the
Borrowers hereunder shall be made without any offset, abatement, withholding,
or reduction. With respect to any payment of the Revolving Loan only, upon
receipt of payment from the Borrowers 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. With respect to any payment of the Revolving
Loan only, unless the Agent shall have received written notice from any
Borrower prior to any date on which any payment is due to the Banks that such
Borrower shall not make such payment in full, the Agent may assume that such
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 such Borrower shall not have so made such
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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 Loan
Documents, or otherwise) in respect of any obligation of the Borrowers to pay
principal, interest, fees, or any other obligation incurred under the Loan
Documents in a proportion greater than the total amount of such principal,
interest, fees, or other obligations then owed and due by the Borrowers to such
Bank bears to the total amount of principal, interest, fees, or other
obligations then owed and due by the Borrowers 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 Borrowers to such Banks in such amount as shall result in a
participation by all of the Banks, in proportion with the Banks' respective
proportionate shares, in the aggregate unpaid amount of principal, interest,
fees, or any such other obligation, as the case may be, owed by the Borrowers
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 proportionate shares, but without interest. As used in
this paragraph, "proportionate share" means, with respect to any Bank and as of
any date of its determination, either (i) the ratio of such Bank's Revolving
Commitment and Term Loans at such time to the aggregate Revolving Commitments
and Term Loan at such time or (ii) if the Revolving Commitments have been
terminated, the ratio of such Bank's aggregate outstanding Revolving Advances,
Term Loans and share of the Letter of Credit Exposure at such time to the
aggregate outstanding Revolving Advances, the Term Loans and Letter of Credit
Exposure at such time.
(d) Authority to Charge Accounts. The Agent or NationsBank, as
applicable, if and to the extent payment owed to the Agent or any Bank with
respect to the Revolving Loan, or NationsBank, with respect to any Term Loan,
is not made when due, may charge from time to time against any account of any
Borrower with the Agent or NationsBank, as applicable, any amount so due. The
Agent or NationsBank, as applicable, agrees promptly to notify such Borrower
after any such charge and application made by the Agent or NationsBank, as
applicable, 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 and (ii) all computations of interest
based on the Federal Funds Rate (including the Adjusted Prime Rate, when
applicable), the LIBOR, and 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
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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 Loan Document, the payment shall be due and payable
on demand by the Agent or the applicable Bank.
2.10 Taxes.
(a) No Deduction for Certain Taxes. Any and all payments by the
Borrowers 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 any 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) such Borrower shall
make such deductions; and (iii) such Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) Other Taxes. The Borrowers agree 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 Loan 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 Company 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 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 Company. Each Bank which delivers to the
Company 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 Company and the
Agent
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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 occurrence of any event requiring a change in the
most recent letter and form previously delivered by it to the Company and the
Agent, and such extensions or renewals thereof as may reasonably be requested
by the Company 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 Company 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 Company
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 Company in a timely manner such forms shall reimburse
the Company upon demand for any penalties paid by the Company as a result of
any failure of the Company 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 Effectiveness. This Agreement shall
become effective and the Existing Credit Agreement shall be amended and
restated as provided in this Agreement on the date the following conditions
precedent:
(a) Documents. The Borrowers shall have delivered or caused to be
delivered each of the following documents, all of which shall be satisfactory
in form and substance to the Agent and NationsBank:
(i) this Agreement, duly executed and delivered by each
Borrower, the Agent and the Banks;
(ii) the Revolving Notes duly executed and delivered by
the Company;
(iii) the Guaranties, the Security Agreements, the Pledge
Agreements, the Mortgages and appropriate amendments thereto, and
appropriate UCC Financing Statements covering the Collateral for
filing with the appropriate authorities, together with all exhibits
and schedules;
(iv) certified copies of the articles or certificate of
incorporation and by-laws of each Credit Party as in effect on the
date hereof;
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(v) certified copies of all corporate action, including
stockholder approval, if necessary, taken by each Credit Party to
authorize the execution, delivery and performance of this Agreement
and the other Loan Documents and the borrowings under this Agreement;
(vi) certificates of incumbency and specimen signatures
with respect to each of the officers of each Credit Party that is
authorized to execute and deliver this Agreement or any other Loan
Document on behalf of such Borrower or such Guarantor or any document,
certificate or instrument to be delivered in connection with this
Agreement or the other Loan Documents and to request borrowings under
this Agreement;
(vii) to the extent not delivered in connection with the
Existing Credit Agreement, certificates evidencing the good standing
of each Credit Party in the jurisdiction of its incorporation and in
each other jurisdiction in which it is qualified as a foreign
corporation to transact business dated as of a date as close to the
date hereof as practicable;
(viii) a Borrowing Base and Compliance Certificate prepared
as of the date of this Agreement duly executed and delivered by the
chief financial officer of the Company;
(ix) a Revolving Borrowing Request from the Company
requesting the Revolving Loans to be made on the date of this
Agreement and specifying the method of disbursement;
(x) a certificate of a Responsible Officer of the Company
stating that, to the best of his knowledge and based on an examination
sufficient to enable him to make an informed statement, (a) all of the
representations and warranties made or deemed to be made under this
Agreement are true and correct as of the date hereof, both with and
without giving effect to the Loans to be made at such time and the
application of the proceeds thereof, and (b) no Default or Event of
Default exists;
(xi) a signed opinion of Gardere Wynne Sewell & Riggs,
L.L.P., counsel for each Credit Party, opining as to such matters in
connection with this Agreement as the Agent or its counsel may
reasonably request;
(xii) a signed opinion of Cathy L. Smith, general counsel
for the Company, opining as to such matters in connection with this
Agreement as the Agent or its counsel may reasonably request;
(xiii) copies of each of the other Loan Documents duly
executed by the parties thereto with evidence satisfactory to the
Agent and its counsel of the due authorization, binding effect and
enforceability of each such Loan Document on each such party and such
other documents and instruments as the Agent may reasonably request;
(xiv) amendments to each of the patent security agreements
and assignments and trademark security agreements and assignments
from each Credit Party respecting such Credit Party's Intellectual
Property, to be filed with the U.S. Patent and Trademark Office or the
Copyright Office, as appropriate; and
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(xv) evidence satisfactory to the Agent is its sole
judgment that each Borrower possesses all Governmental Approvals
required under all applicable laws, including, without limitation, all
Environmental Laws.
(b) Due Diligence. The Agent shall have completed and be
satisfied with due diligence with respect to the Credit Parties, including due
diligence regarding the individual executives and directors of the Credit
Parties and all litigation, tax, accounting, labor, insurance, and pension
liabilities, actual or contingent, with respect to the Credit Parties, all real
estate leases, debt agreements, and property ownership of the Credit Parties,
and such other matters as the Agent deems appropriate.
(c) Material Adverse Change. No Material Adverse Change shall
have occurred since December 31, 1997.
(d) No Default. No Default shall have occurred and be continuing.
(e) Representations and Warranties. The representations and
warranties contained in each Loan Document shall be true and correct in all
material respects as of such date.
3.2 Conditions Precedent to Each Extension of Credit. The
obligation of each Bank to make any extension of credit under this Agreement,
including the making of any Revolving 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, the representations and warranties
contained in each Loan 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 Loan Document as of such date); and
(b) Default. As of the date of the making of any extension of
credit hereunder, 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. Each of the Borrowers
represents and warrants to the Agent and each Bank, and with each request for
any extension of credit hereunder, including the making of any Revolving
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. Except as permitted under Section 5.9, each
Credit Party (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.
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4.2 Authorization. The execution, delivery, and performance by
each Credit Party of the Loan 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.
4.3 Enforceability. Each Loan 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 Loan Document and constitutes the legal, valid, and binding
obligation of each such Credit Party, enforceable against each such Credit
Party in accordance with such Loan 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 Loan 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 Credit Party 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 Credit Party 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 Credit Party or Affiliate thereof is a regulated public
utility.
4.7 Financial Condition.
(a) The Company 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 Company 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 Company or
any of the Company's Subsidiaries, except as disclosed therein and adequate
reserves for such items have been made in accordance with GAAP.
(c) No Material Adverse Change has occurred since the date of the
Financial Statements.
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(d) No Default exists.
4.8 Condition of Assets. Each Credit Party 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 Credit Party 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 Credit Party are in good repair, working order, and
condition, normal wear and tear excepted. The properties of each Credit Party
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 any Borrower, threatened against any Credit
Party 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 Borrowers
have no Subsidiaries except as disclosed in Schedule 4.10. The Borrowers have
no Subsidiaries which have not been disclosed in writing to the Agent.
4.11 Laws and Regulations. Each Credit Party 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 Credit Party 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 Credit Party
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 Credit Party 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) in violation of the requirements of any Environmental Law; has never
been responsible for the release of any Hazardous Materials into the
environment in connection with any such Person's operations in violation of the
requirements of any Environmental Law and has not contaminated any properties
with Hazardous Materials in violation of the requirements of any Environmental
Law; and does not and has not owned any properties
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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 Credit Party 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 Credit Party 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 Credit
Parties, 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 Credit Party 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 Credit Parties 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 Credit Parties of the Loan Documents to which each is a party, or for
the consummation of the transactions contemplated thereby. At the time of each
Revolving 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 Borrowing or the use of the proceeds of such
Revolving Borrowing.
4.16 Margin Regulations. Each Credit Party 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 Loan 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 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 Borrowers and the Credit Parties
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 Borrowers and
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each of the other Credit Parties 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 Loan Document, the Borrowers shall comply with and cause each other
Credit Party to comply with the following covenants:
5.1 Organization. The Borrowers shall cause each Credit Party 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 Borrowers shall furnish to the Agent all of
the following:
(a) Annual Reports. As soon as available and in any event not
later than 120 days after the end of each fiscal year of the Company, (i) a
copy of the annual audit report for such fiscal year for the Company, including
therein the consolidated and consolidating balance sheet of the Company as of
the end of such fiscal year and the consolidated and consolidating statements
of income, stockholders' equity, and cash flows for the Company for such fiscal
year, setting forth the consolidated and consolidating financial position and
results of the Company 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 Company;
(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 and consolidating financial statements of the
Company 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 and
consolidating balance sheet of the Company as of the end of such fiscal quarter
and the consolidated and consolidating 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 and
consolidating financial position and results of the Company for such fiscal
quarter and fiscal year to date period, all in reasonable detail and duly
certified by a Responsible Officer of the Company 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, and (ii) a completed Borrowing Base and Compliance Certificate duly
certified by a Responsible Officer of the Company;
(c) Borrowing Base and Receivables Aging Reports. As soon as
available and in any event within 30 days after the end of each fiscal quarter,
a certificate of a Responsible Officer of the Company calculating the Borrowing
Base then in effect as of the end of such calendar month and
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a report of the aging of all Receivables of each Credit Party in such
reasonable detail as the Agent may require; provided, however that if the
aggregate outstanding principal amount of the Revolving Loan plus the Letter of
Credit Exposure exceeds $12,000,000 at any time, then such Borrowing Base and
Receivables aging reports shall be delivered as soon as available and in any
event within 30 days after the end of each 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 any Acquisition, a completed Acquisition Certificate duly certified
by a Responsible Officer of the Company, which the Agent shall forward to the
Banks for any Acquisition requiring approval of the Majority Banks pursuant to
Section 5.9(c)(ii) (and prior to the consummation of the Acquisition, the
Company 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 Company shall have sent to
its stockholders generally and copies of all regular and periodic reports, if
any, which any Credit Party shall have filed with the SEC;
(f) Defaults. Promptly, but in any event within five Business
Days after the actual discovery thereof by a Responsible Officer, a notice of
any facts known to any Credit Party which constitute a Default, together with a
statement of a Responsible Officer of the Company setting forth the details of
such facts and the actions which the Company has taken and proposes to take
with respect thereto (and the Agent shall, promptly upon receipt from the
Company of a notice pursuant to this Section 5.2(f), forward a copy of such
notice to each Bank);
(g) Litigation. Promptly, but in any event within 10 Business
Days after any Borrower receives notice thereof (whether constructive or actual
notice), notice of all actions, suits, and proceedings before any Governmental
Authority affecting any Credit Party 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 a Responsible Officer acquires knowledge thereof,
notice of any actual or potential contingent uninsured liabilities in excess of
$500,000;
(i) Material Agreement Default. Promptly, but in any event within
10 Business Days after obtaining knowledge thereof, notice of any breach by
any Credit Party 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 Credit Party has knowledge, which condition or
event has resulted or could reasonably be expected to cause a Material Adverse
Change; and
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(k) Other Information. Such other information respecting the
business operations or property of any Credit Party, financial or otherwise, as
the Agent or the Majority Banks may from time to time reasonably request.
5.3 Inspection. The Borrowers shall cause each Credit Party to
permit the Agent and the Banks to visit and inspect any of the properties of
such Credit Party, 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 Company 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 Borrowings
shall be used by the Company for Acquisitions which are permitted under this
Agreement, working capital needs, Capital Expenditures, and other lawful
corporate purposes. The proceeds of the Term Loans shall be used by Biloxi,
Ershigs, FCI and Sefco, as applicable, to finance the purchase of the Real
Property. The proceeds of the Borrowings 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.
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 Company and its Subsidiaries
as of such date and for the appropriate period that are prepared by the Company
in accordance with Section 1.3(c) and presented to the Agent in accordance with
Section 5.9(c).
(a) Maximum Liabilities to Tangible Net Worth. The Company shall
not permit the ratio of (i) its consolidated Total Liabilities less
Subordinated Debt to (ii) its consolidated Tangible Net Worth plus Subordinated
Debt as of the last day of each fiscal quarter to be greater than 2.50 to 1.00.
(b) Minimum Fixed Charge Coverage Ratio. As of the last day of
each fiscal quarter, the Company shall not permit the ratio of (i)(A) its
consolidated EBITDA for the preceding four fiscal quarters then ended plus
$2,312,000 for the fiscal quarter ending September 30, 1997, less (B) its
consolidated cash taxes paid during such period, less (C) $1,200,000, to (ii)
the sum of (A) its consolidated Interest Charges during such period, (B) its
consolidated current maturities of long-term Debt on the last day of such
period, (C) 20% of the daily average outstanding principal amount of the
Revolving Loan on the last day of such period, and (D) Restricted Payments made
during such period to be less than 1.25 to 1.00.
(c) Maximum Capital Expenditures. The Company's consolidated
aggregate Capital Expenditures, other than for Acquisitions permitted
hereunder, shall not exceed $3,000,000 in any fiscal year.
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5.6 Debt. The Borrowers shall not permit any Credit Party 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 Borrowers shall not permit any Credit Party 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 Borrowers shall not permit any Credit Party 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 Borrowers shall not permit any Credit Party 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 Company of any Interest Hedge
Agreement.
5.9 Corporate Transactions. The Borrowers shall not, without the
Majority Banks' consent, permit any Credit Party 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 any Borrower may merge,
consolidate, or amalgamate into any other wholly owned Subsidiary of
such Borrower or convey, sell, lease, assign, transfer, or otherwise
dispose of any of its assets to any other wholly-owned Subsidiary of
such Borrower (and 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; and
(ii) unless otherwise approved by the Majority Banks, any
Borrower or any Subsidiary of any Borrower may make any Acquisition
(by purchase or merger) provided that (A) such Borrower or the
Subsidiary of such Borrower is the acquiring or surviving entity; (B)
the aggregate non-equity consideration paid by the Credit Parties in
connection such Acquisition does not exceed (y) 25% of the Company's
consolidated Tangible Net Worth and (z) together with all Acquisitions
in the twelve month period up to and including such Acquisition (other
than Acquisitions separately approved by the Majority Banks), 50% of
the Company's consolidated Tangible Net Worth; (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 Credit Parties in connection with such
Acquisition exceeds $5,000,000, the Company has provided to the Agent
the following information at least 10 Business Days prior to the
closing of such
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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 Borrowing Base and Compliance
Certificate evidencing proforma compliance with this Agreement.
5.10 Distributions. No Credit Party shall make any Restricted
Payment, except that (a) any wholly-owned Subsidiary of any Borrower may make
Restricted Payments to such Borrower or to any other Borrower, and (b) the
Company may make dividends and repurchases of its common stock in an amount not
to exceed in any fiscal year 25% of the Company's consolidated net income for
the preceding fiscal year, provided that no Default has occurred and is
continuing at the time of such payment or would be caused thereby.
5.11 Transactions with Affiliates. The Borrowers shall not permit
any Credit Party 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 Credit Party as the monetary or business
consideration which such Credit Party would obtain in a comparable arm's length
transaction.
5.12 Insurance. (a) Each Borrower shall and shall cause each
other Credit Party to at all times maintain insurance on the Inventory and
Equipment against loss or damage by fire, theft, burglary, pilferage, loss in
transit and such other hazards as the Agent shall reasonably specify, in
amounts and under policies issued by insurers acceptable to the Agent. All
premiums on such insurance shall be paid by such Credit Party and copies of the
policies delivered to the Agent. No Credit Party will use or permit the
Inventory or Equipment to be used in violation of any applicable law or in any
manner which might render inapplicable any insurance coverage.
(b) All insurance policies required under this Section shall name
the Agent as an additional named insured and shall contain "New York standard"
loss payable clauses in the form submitted by the Agent, or otherwise in form
and substance satisfactory to the Agent, naming the Agent as loss payee as its
interests may appear, and providing that (i) all proceeds thereunder shall be
payable to the Agent, (ii) no such insurance shall be affected by policy, and
(iii) such policy and loss payable clauses may not be cancelled, amended or
terminated unless at least 30 days' prior written notice is given to the Agent.
(c) Any proceeds of insurance referred to in this Section which
are paid to the Agent shall be, at the option of the Agent in its sole
discretion, either (i) applied to rebuild, restore or replace the damaged or
destroyed property, or (ii) applied to the payment or prepayment of the Credit
Obligations, provided, however, that if (A) no Default or Event of Default has
occurred and is continuing, (B) the property damaged is Equipment or
improvements on real property, (C) the aggregate amount of such proceeds do not
exceed $100,000 with respect to Equipment or $150,000 with respect to
improvements on real property, and (D) if (1) Borrowers desire to rebuild,
restore,
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or replace such property, (2) the rebuilding, restoration, or replacement can
be and is commenced within 30 days after receipt of such proceeds and (x) with
respect to Equipment, can be and is completed within 60 days after receipt of
such proceeds and (y) with respect to improvements on real property, can be and
is completed within 120 days after receipt of such proceeds, and (3) the Credit
Parties, during such 60- or 120-day period, as appropriate, continue to work
diligently to complete such rebuilding, restoration, or replacement, then
Borrowers shall have the option to apply the proceeds as set forth in clauses
(i) and (ii) hereof.
(d) Each Borrower shall and shall cause each other Credit Party to
at all times maintain, in addition to the insurance required by any of the
Security Documents, insurance with responsible insurance companies against such
risks and in such amounts as is customarily maintained by similar businesses or
as may be required by applicable law, including such public liability, products
liability, third party property damage and business interruption insurance as
is consistent with reasonable business practices and from time to time deliver
to the Lender upon its request a detailed list of the insurance then in effect,
stating the names of the insurance companies, the amounts and rates of the
insurance, the dates of the expiration thereof and the properties and risks
covered thereby.
5.13 Investments. The Borrowers shall not permit any Credit Party
to make or hold any direct or indirect investment in any Person, including
capital contributions to such Person, investments in the debt or equity
securities of such Person, and loans, guaranties, trade credit, or other
extensions of credit to such Person, except for Permitted Investments.
5.14 Lines of Business. The Borrowers shall not permit the Credit
Parties 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 Borrowers shall cause each Credit
Party 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.
(a) Each Borrower shall comply (except for instances of
noncompliance which would not, singly or in the aggregate cause a Material
Adverse Change) with all laws, governmental standards and regulations
applicable to it or to any of its assets in respect of occupational health and
safety laws, rules and regulations and Environmental Laws, promptly notify the
Agent of its receipt of any notice of a violation of any such law, rule,
standard or regulation and indemnify and hold the Agent and the Banks harmless
from all loss, cost, damage, liability, claim and expense incurred by or
imposed upon the Agent or any of the Banks on account of any failure to perform
its obligations under this Section 5.16;
(b) Whenever any Borrower gives notice to the Agent pursuant to
this Section 5.16 with respect to a matter that reasonably could be expected to
result in liability to such Borrower in excess of $1,000,000 in the aggregate,
such Borrower shall, at the Agent's request and such Borrower's expense, (i)
cause an independent environmental engineer acceptable to the Agent to conduct
such tests of the site where the noncompliance or alleged noncompliance with
Environmental Laws has
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occurred and prepare and deliver to the Agent a report setting forth the
results of such tests, a proposed plan to bring such Borrower into compliance
with such Environmental Laws and an estimate of the costs thereof, and (ii)
provide to the Agent a supplemental report of such engineer whenever the scope
of the noncompliance or the response thereto or the estimated costs thereof
shall materially change;
(c) Once each fiscal year or more often upon the reasonable
request of the Agent or at any time after the occurrence and during the
continuance of an Event of Default, each Borrower shall deliver to the Agent a
report, certified by such Borrower's environmental officer, (i) certifying
compliance (except for instances of noncompliance which would not, singly or in
the aggregate cause a Material Adverse Change) with all applicable
Environmental Laws, (ii) identifying any inspections conducted at any facility
owned or operated by such Borrower by any federal, state or local regulatory
agency, (iii) providing copies of documents pertaining to such inspections, and
detailing the results of such inspections, and (iv) providing the dates of any
filings or submissions made to any federal, state or local regulatory body and,
if requested, supplying copies of such filings or submissions;
(d) With respect to the Real Property located in Bellingham,
Washington, Ershigs (i) shall implement its Action Plan, attached hereto as
Schedule 5.16(d), and complete the items required thereunder by the deadlines
set forth therein and (ii) upon receipt by Ershigs of such information, shall
promptly notify the Agent respecting any state of federal efforts pertaining to
the Oeser facility or the Little Squalicum Creek;
(e) With respect to the Real Property located in Wilson, North
Carolina, Ershigs shall (i) continue to implement its Corrective Action Plan to
the extent required by the North Carolina Division of Water Quality, (ii) seek
approval to terminate corrective action and close its remediation efforts,
(iii) provide the Agent with (A) results from quarterly sampling conducted
pursuant to the Corrective Action Plan, (B) semi-annual reports submitted
pursuant to the Corrective Action Plan, and (C) any submissions seeking to
terminate corrective action or to seek approval to close its remediation
efforts, and (iv) implement its Action Plan, attached hereto as Schedule
5.16(d) and complete the items required thereunder by the deadlines set forth
therein;
(f) With respect to the Real Property located in Tulsa, Oklahoma,
Sefco will implement its Action Plan, attached hereto as Schedule 5.16(f), and
complete the items required thereunder by the deadlines set forth therein;
(g) With respect to the Real Property located in Mt. Union,
Pennsylvania, FCI will (i) implement its Action Plan, attached hereto as
Schedule 5.16(d), and complete the items required thereunder by the deadlines
set forth therein and (ii) complete the sampling specified in the sampling
plan attached hereto as Schedule 5.16(g) and report the results of such
sampling to the Agent within 30 days after the date hereof; and
(h) With respect to the Real Property located in Bakersfield,
California, Ershigs will (i) implement its Action Plan, attached hereto as
Schedule 5.16(d), and complete the items required thereunder by the deadlines
set forth therein and (ii) complete the sampling specified in the sampling
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plan attached hereto as Schedule 5.16(h) and report the results of such
sampling to the Agent within 30 days after the date hereof.
5.17 ERISA Compliance. The Borrowers shall cause each Credit Party
to (a) 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 (b) 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 Borrowers shall cause each
Credit Party 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 Company (a) shall and shall cause such Subsidiary to promptly,
but in any event within 30 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 J for the purpose of joining
such Subsidiary as a party to the Subsidiary Guaranty or the execution of such
new guaranties as the Agent determines are necessary to have the same effect in
different jurisdictions) and (b) the owner of the capital stock of such new
Subsidiary shall grant the Agent a first perfected security interest in such
capital stock by executing a pledge agreement in substantially the form of the
Pledge Agreements. In connection with the preceding requirements and within 30
days after the formation or acquisition of such new Subsidiary, the Company
shall provide corporate documentation and opinion letters reasonably
satisfactory to the Agent reflecting the corporate status of such new
Subsidiary and the enforceability of such agreements.
5.20 Agreements Restricting Liens and Distributions. The Borrowers
will not, nor will they permit any of their Subsidiaries to, enter into any
agreement (other than a Loan 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 Borrowers'
Subsidiaries to such Borrower.
5.21 Landlord's Waiver and Consent Agreements. The Company shall
use its best efforts to have landlord's waiver and consent agreements duly
executed on behalf of each landlord of real property on which any Collateral is
located.
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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 Loan
Documents:
(a) Payment Failure. Any Borrower (i) fails to pay when due any
principal amounts due under this Agreement or any other Loan Document or (ii)
fails to pay when due any interest, fees, reimbursements, indemnifications, or
other amounts due under this Agreement or any other Loan Document and such
failure has not been cured within 10 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 Loan 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 any Borrower of any of
the covenants contained in Sections 5.1(a), 5.3, 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 Loan Document and such breach is not
cured within 30 days following the receipt of written notice thereof from the
Agent;
(d) Guaranties. (i) Any Guaranty shall at any time and for any
reason cease to be in full force and effect with respect to any Guarantor or
the Company (except as permitted under Section 5.9 hereof or released by the
Agent with each of the Banks' consent) or shall be contested by any Guarantor
or the Company, or any Guarantor or the Company shall deny it has any further
liability or obligation thereunder, or (ii) any breach by any Guarantor of any
of the covenants contained in Section 4.1 of the Subsidiary Guaranty which are
not cured within the grace or notice period provided therein;
(e) Material Debt Default. (i) Any principal, interest, fees, or
other amounts due on any Debt of any Credit Party (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 20 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 20 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 Credit Party or any such Person's properties, without such Person's
consent, any petition or other request for
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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. Any judgment or order for the payment of
money not discharged or stayed pending appeal or other court action within 30
days following entry and which is not fully covered by insurance exceeds
$500,000 in amount or with respect to all such judgments and orders exceeds
$1,000,000 in amount in the aggregate shall be entered against any Credit
Party; or
(h) Security Documents. Any Security Document shall at any time
and for any reason cease to create the Lien on the property purported to be
subject to such agreement in accordance with the terms of such agreement, or
cease to be in full force and effect, or shall be contested by any Credit
Party.
6.2 Termination of Revolving Commitments. Upon the occurrence of
any Bankruptcy Event of Default, all of the commitments of the Agent and the
Banks hereunder shall 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 Borrowers 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 and NationsBank may
declare by written notice to the Borrowers 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 Borrowers waive 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 Company shall pay to the
Agent an amount equal to the Letter of Credit Exposure allocable to the Letters
of Credit requested by the Company 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 Company that the Company pay to the Agent an amount equal to the Letter
of Credit Exposure allocable to the Letters of Credit requested by the
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Company to be held in the Letter of Credit Collateral Account for disposition
in accordance with Section 2.2(g), whereupon the Company 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 or NationsBank may declare by
written notice to the Borrowers 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 Borrowers shall pay such interest to the Agent for the benefit of
the Agent and the Banks or NationsBank, as applicable, upon demand by the Agent
or NationsBank.
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 Borrowers against any and all of the obligations of the
Borrowers under this Agreement and the Loan Documents, irrespective of whether
or not the Agent or such Bank shall have made any demand under this Agreement
or the Loan Documents and although such obligations may be contingent and
unmatured. The Agent and each Bank, as the case may be, agrees promptly to
notify the Borrowers 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 Loan Documents. Following an Event of Default,
the Agent shall at the request of the Majority Banks or NationsBank may take
any and all actions permitted under the other Loan Documents, including the
Guaranties and the Security Documents.
6.8 Remedies Cumulative. No right, power, or remedy conferred to
the Agent or the Banks in this Agreement and the Loan 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
Loan 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 Revolver Maturity Date,
the Term Maturity Date or any acceleration of the Credit Obligations, all
payments made hereunder shall be applied to the Credit Obligations as directed
by the Borrowers, subject to the rules regarding the application of payments to
certain Credit Obligations provided for hereunder and in the Loan Documents.
Following the Revolver Maturity Date, the Term 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 Loan Documents;
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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 Loan Documents;
Third, ratably to the payment of all accrued but unpaid
interest and fees under the Loan Documents and obligations due
and payable under Interest Hedge Agreements;
Fourth, to the extent such amounts are payments under the
Guaranties, ratably to the payment of all outstanding
principal amount of the Revolving Loan and reimbursement
obligations for draws under Letters of Credit;
Fifth, to the extent such amounts are proceeds from Collateral
under the Pledge Agreements and the Security Agreements,
ratably to the outstanding principal amount of the Revolving
Loan and reimbursement obligations for draws under Letters of
Credit;
Sixth, to the extent such amounts are proceeds from the
Collateral under the Mortgages, ratably to the outstanding
principal amount of the Term Loans;
Seventh, 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 Borrowers 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 Loan Documents, together with such powers as are
reasonably incidental thereto. Statements under the Loan 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 Loan 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 Loan Document (including,
without limitation, enforcement or collection of the 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
the Revolving 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 Loan Document, or applicable law.
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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 Loan 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 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
Bank for any statements, warranties, or representations made in or in
connection with this Agreement or the other Loan 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 Loan
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 Loan Document; and (f) shall incur no liability under or in respect of
this Agreement or any other Loan 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 Commitments, the
Advances made by it, its interests in the Letters of Credit, and the Revolving
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.
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7.5 Expenses. To the extent not paid by the Borrowers, each Bank
severally agrees to pay to the Agent and the Issuing Bank on demand such Bank's
proportionate 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 Loan Documents,
including the reasonable fees and 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 Loan
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 Loan 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. As used
in this paragraph, "proportionate share" means, with respect to any Bank and as
of any date of its determination, either (i) the ratio of such Bank's Revolving
Commitment and Term Loans at such time to the aggregate Revolving Commitments
and Term Loan at such time or (ii) if the Revolving Commitments have been
terminated, the ratio of such Bank's aggregate outstanding Revolving Advances,
Term Loans and share of the Letter of Credit Exposure at such time to the
aggregate outstanding Revolving Advances, the Term Loans and Letter of Credit
Exposure at such time.
7.6 Indemnification. To the extent not reimbursed by the
Borrowers, 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 Loan 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 Borrowers 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 Borrowers, 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 Borrowers, 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 Borrowers, appoint a successor Agent
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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, 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 Loan 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 Loan
Documents.
ARTICLE 8. MISCELLANEOUS.
8.1 Expenses. The Borrowers 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, administration, modification, and amendment of
this Agreement and the other Loan 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 Loan 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 Borrowers agree 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 Loan 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 Notes or any other Loan
Document, nor any consent required under this Agreement, the Notes, or any
other Loan Document shall be effective unless the same shall be in writing and
signed by the Agent and Majority Banks and the Borrowers, 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 Borrowers do any of the following: (a) waive any
of the conditions specified in Section 3.1 or 3.2, (b) increase the Revolving
Commitments of the Banks, (c) forgive or reduce the amount or rate of any
principal, interest, or fees payable under the Loan Documents with respect to
the Revolving Loan, or postpone or extend the time for payment thereof, (d)
release any Guarantor from its guaranty obligations (except as otherwise
permitted or required herein), (e) release any Collateral (except as otherwise
permitted or required herein) or (f) change the percentage of Banks required to
take any action under this Agreement or the Revolving 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 Loan Documents. No modification,
waiver or consent shall unless in writing and signed by NationsBank and the
Borrowers affect the Term Loans. The Agent shall not modify or waive or grant
any consent under any other Loan Document if such action would be prohibited
under this Section 8.3 with respect to the Credit Agreement or the Notes.
8.4 Survival of Agreements. All representations, warranties, and
covenants of the Borrowers in this Agreement and the Loan Documents shall
survive the execution of this Agreement and the Loan Documents and any other
document or agreement.
8.5 Assignment and Participation. This Agreement and the Loan
Documents shall bind and inure to the benefit of the Borrowers and their
respective successors and assigns and the Agent and the Banks and their
respective successors and assigns. None of the Borrowers may assign its rights
or delegate its duties under this Agreement or any Loan 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
Commitments, the Revolving Advances owing to it, the Revolving Notes held by
it, the participation interest in the Letters of Credit owned by it, and the
Term Loans held 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 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 Commitments, shall maintain at least $5,000,000 in Revolving
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 Notes and, if applicable, Term Notes (in form
satisfactory to the relevant Borrower and the Assignee) 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
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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.
(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 Commitments and Term Loans 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
Borrowers, 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
Borrowers 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 Notes
and Term 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 Company. Within five
Business Days after its receipt of such notice, the Borrowers shall execute and
deliver to the Agent in exchange for the surrendered Revolving Notes a new
Revolving Note and a new Term Note (in form
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acceptable to the Borrower thereon and the assignee) to the order of such
Eligible Assignee in an amount equal to the Revolving Commitment and Term Loans
assumed by it pursuant to such Assignment and Acceptance and, if such Bank has
retained any Revolving Commitment hereunder, a new Revolving Note to the order
of such Bank in an amount equal to the Revolving Commitment retained by it
hereunder and a new Term Note to the order of such Bank. Such new Revolving
Notes and Term 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 Commitments, the Advances owing to it, its
participation interest in the Letters of Credit, and the Notes held by it);
provided, however, that (i) such Bank's obligations under this Agreement
(including, without limitation, its Revolving Commitments to the Company
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 Notes for all
purposes of this Agreement, (iv) the Borrowers, 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 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 Loan Documents). The Borrowers hereby agree 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.
(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 Advances
owed to such Bank) to any Federal Reserve Bank in accordance with applicable
law without notice to or the consent of the Borrowers 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 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 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 Notes;
provided
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however, Chapter 346 of the Texas Finance Code, as amended (formerly Article
5069, Chapter 15 of the Texas Revised Civil Statutes) does not apply to this
Agreement or the 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. EACH OF THE BORROWERS 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 LOAN DOCUMENTS OR ANY TRANSACTIONS RELATED THERETO.
EACH OF THE BORROWER AGREES AND SHALL NOT CONTEST THAT PROPER FORUM AND VENUE
FOR ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE LOAN 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.
EACH OF THE BORROWERS 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.
8.9 Service of Process. IN ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THE LOAN DOCUMENTS OR ANY TRANSACTIONS RELATING THERETO, EACH
OF THE BORROWERS 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 BORROWERS AT THEIR RESPECTIVE ADDRESSES 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. EACH OF THE BORROWERS, THE AGENT AND
EACH OF THE BANKS IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THE LOAN 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 LOAN
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.
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
BORROWERS:
DENALI INCORPORATED
By: /s/ R. Kevin Andrews
-----------------------------------
R. Kevin Andrews
Treasurer
ERSHIGS BILOXI, INC.
By: /s/ R. Kevin Andrews
-----------------------------------
R. Kevin Andrews
Treasurer
FLUID CONTAINMENT, INC.
By: /s/ Cathy L. Smith
-----------------------------------
Cathy L. Smith
Secretary
ERSHIGS, INC.
By: /s/ R. Kevin Andrews
-----------------------------------
R. Kevin Andrews
Treasurer
SEFCO, INC.
By: /s/ R. Kevin Andrews
-----------------------------------
R. Kevin Andrews
Treasurer
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AGENT:
NATIONSBANK OF TEXAS, N.A., as Agent
By: /s/ Mark W. Montgomery
-----------------------------------
Mark W. Montgomery
Vice President
BANKS:
NATIONSBANK OF TEXAS, N.A.
By: /s/ Mark W. Montgomery
----------------------------------
Mark W. Montgomery
Vice President
Revolving Commitment: $23,000,000
Biloxi Term Loan: $ 675,000
Ershigs Term Loan: $ 2,288,000
FCI Term Loan: $ 2,862,000
Sefco Term Loan: $ 345,000
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EXHIBIT 10.2
REVOLVING NOTE
$23,000,000 Houston, Texas March 23, 1998
For value received, the undersigned DENALI INCORPORATED, a Delaware
corporation ("Company"), hereby promises to pay to the order of NATIONSBANK OF
TEXAS, N.A. ("Bank"), the principal amount of TWENTY THREE MILLION DOLLARS
($23,000,000) or, if less, the aggregate outstanding principal amount of the
Revolving Advances (as defined in the Credit Agreement referred to below) made
by the Bank to the Company, together with accrued but unpaid interest on the
principal amount of each such Revolving Advance from the date of such Revolving
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 Note is one of the Revolving Notes referred to in, and is
entitled to the benefits of, and is subject to the terms of, the Amended and
Restated Credit Agreement dated as of March 23, 1998 (as the same may be
amended, restated, modified, or supplemented from time to time, the "Credit
Agreement"), among the Company, the other Borrowers party thereto, 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
Advances by the Bank to the Company from time to time, the indebtedness of the
Company resulting from each such Revolving Advance being evidenced by this
Revolving Note, and (b) contains provisions for, among other things,
acceleration of the maturity of this Revolving Note upon the happening of
certain events stated in the Credit Agreement and for prepayments of principal
prior to the maturity of this Revolving 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 Advances and payments of
principal made under this Revolving Note, but no failure of the Bank to make
such recordings shall affect the Company's repayment obligations under this
Revolving Note.
It is contemplated that because of prepayments there may be times when
no indebtedness is owed under this Revolving Note. Notwithstanding such
prepayments, this Revolving Note shall remain valid and shall be in force as to
Revolving Advances made pursuant to the Credit Agreement after such
prepayments.
It is the intention of the Bank and the Company 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.
DENALI INCORPORATED
By: /s/ R. Kevin Andrews
---------------------------
R. Kevin Andrews
Treasurer
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EXHIBIT 10.3
GUARANTY
This Guaranty dated as of March 23, 1998 (this "Agreement") is made by
Denali Incorporated, a Delaware corporation (the "Guarantor"), in favor of
NationsBank of Texas, N.A., in its capacity as agent (the "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 Amended and Restated
Credit Agreement dated as of March 23, 1998 (as amended, restated, modified,
or supplemented from time to time, the "Credit Agreement", the defined terms of
which are used herein unless otherwise defined herein) among Guarantor, Fluid
Containment, Inc., Ershigs, Inc., SEFCO, Inc., Biloxi Ershigs, Inc., certain
financial institutions which are or may become parties thereto (the "Banks"),
and the Agent. Each of Fluid Containment, Inc., Ershigs, Inc., SEFCO, Inc.,
and Biloxi Ershigs, Inc. (collectively, "Subsidiary Borrowers") is a Subsidiary
of the Guarantor. Because Guarantor owns the Subsidiary Borrowers, Guarantor
will obtain substantial benefit from the extensions of credit made to the
Subsidiary Borrowers under the Credit Agreement.
This Agreement is an amendment and restatement of the Unconditional
Guaranty executed in connection with the Existing Credit Agreement, not a new
or substitute guaranty agreement or a novation of the Unconditional Guaranty
executed in connection with the Existing Credit Agreement.
Therefore, to induce the Agent and the Banks to enter into the Credit
Agreement, the Guarantor agrees with the Agent as follows:
Section 1. Guaranty. The Guarantor irrevocably guarantees 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 Subsidiary
Borrowers 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, any Interest Hedge Agreements, and the other Loan Documents,
including amounts owed under the terms of the Credit Agreement and the other
Loan Documents for which the Subsidiary Borrowers have 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
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modifications of the documents and agreements creating the foregoing
obligations (collectively, the "Guaranteed Obligations"). This is a guaranty
of payment and not merely a guaranty of collection, and the Guarantor is liable
as a primary obligor. If any of the Guaranteed Obligations is not punctually
paid when due, whether by maturity, acceleration, or otherwise, and the Agent
shall notify the Guarantor of such default and make demand for payment
hereunder, the Guarantor shall immediately pay to the Agent the full amount of
the Guaranteed Obligations which are due and payable. The Guarantor shall make
each payment to the Agent in 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 the Guarantor against any and all of the obligations of the Guarantor under
this Agreement. The Agent agrees to promptly notify the 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
Guarantor 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 the Guarantor and shall continue to be
effective with respect to Guaranteed Obligations arising or created after any
attempted revocation by the Guarantor.
2.2 The Guarantor guarantees that the Guaranteed Obligations will be
paid strictly in accordance with the terms of the Credit Agreement and the
other Loan 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. The Guarantor agrees
that its obligations under this Agreement shall not be released, diminished, or
impaired by, and waives any rights which it might otherwise have which relate
to:
(a) Any lack of validity or enforceability of the Guaranteed
Obligations, any of the Loan Documents, 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
Loan Documents; any waiver or consent granted under the Loan 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 Loan Documents;
(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
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full or partial release of the Subsidiary Borrowers, the Guarantor, or any
other Person liable for the payment or performance of the Guaranteed
Obligations; any change in the organization or structure of the Subsidiary
Borrowers, the Guarantor, or any other Person liable for the payment or
performance of the Guaranteed Obligations; or the insolvency, bankruptcy,
liquidation, or dissolution of the Subsidiary Borrowers, the 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 Loan 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 Subsidiary Borrowers, the 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 the Guarantor shall not 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 the Guarantor will be required to
pay the Guaranteed Obligations pursuant to the terms hereof. It is the
unambiguous and unequivocal intention of the Guarantor that the 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 payment received against the Guaranteed
Obligations, any prior release from the terms of this Agreement given to the
Guarantor by the Agent shall be without effect, and this Agreement shall be
reinstated in full force and effect. It is the intention of the Guarantor that
the
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Guarantor's obligations hereunder shall not be discharged except by final
payment of the Guaranteed Obligations.
2.4 (a) The Guarantor owns the Subsidiary Borrowers. The
Guarantor has agreed to enter into this Agreement so that the Subsidiary
Borrowers can receive the benefits of the Guaranteed Obligations.
(b) In consummating the transactions contemplated by the Loan
Documents, the Guarantor does not intend to disturb, delay, hinder, or defraud
either present or future creditors of the Guarantor. The Guarantor is familiar
with, and has independently reviewed books and records regarding, the financial
condition of the Subsidiary Borrowers 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 the Guarantor's contingent obligations under this Agreement
and the value of the subrogation and contribution claims the Guarantor could
make in connection with this Agreement, and assuming each of the transactions
contemplated by the Loan Documents is consummated and the Subsidiary Borrowers
make full use of the credit facilities thereunder, the present realizable fair
market value of the assets of the Guarantor exceeds the total obligations of
the Guarantor, and the 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 the 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 the Guarantor shall be liable
under this Agreement only for amounts aggregating up to the largest amount that
would not render the 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) The Guarantor agrees that it and any other guarantors of
the Guaranteed Obligations shall have rights of contribution and subrogation
against each other with respect to any payments made in connection with the
Guaranteed Obligations.
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 the Guarantor under this Agreement,
to show any proof of a default by a Subsidiary Borrower, to exhaust the Agent's
remedies against the Subsidiary Borrowers, the Guarantor, or any other Person
liable for the payment or performance of the Guaranteed
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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. The 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 All Subordinated Obligations of the 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
the Guarantor means: (i) all present and future indebtedness, liabilities, and
obligations of any kind owed to the Guarantor by the Subsidiaries of the
Guarantor, any other guarantor of the Guaranteed Obligations, or any other
Person liable for the payment or performance of the Guaranteed Obligations,
including debt obligations, equity obligations, and other contractual
obligations requiring payments of any kind to be made to the Guarantor and
including any right of subrogation (including any statutory rights of
subrogation under Section 509 of the Bankruptcy Code, 11 U.S.C. Section 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 any of the Guarantor's Subsidiaries, the
Guarantor, or any other 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), the Guarantor agrees not to take any
action to enforce payment of the Subordinated Obligations, but this standstill
is not intended as a permanent waiver of the subrogation, contribution,
indemnification, reimbursement, exoneration, participation, or other rights of
the 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 any of the Guarantor's
Subsidiaries, the Guarantor, or any other Person liable for the payment or
performance of the Guaranteed Obligations, all amounts due with respect to the
Guaranteed
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Obligations shall be paid in full before the Guarantor shall be entitled to
collect or receive any payment with respect to the Subordinated Obligations,
and all payments to which the Guarantor would be entitled to collect or receive
on the Subordinated Obligations shall be paid over to the Agent for application
to the Guaranteed Obligations.
(d) Following notice from the Agent to any of the Guarantor's
Subsidiaries that a Default exists and that no further payments shall be made
on the Subordinated Obligations of the Guarantor, all amounts due with respect
to the Guaranteed Obligations shall be paid in full before the Guarantor shall
be entitled to collect or receive any payment with respect to the Subordinated
Obligations.
(e) Any lien, security interest, or assignment securing the
repayment of the Subordinated Obligations 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, the 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 the Guarantor, take any
action described in Section 2.2 without impairing or releasing the obligations
of the Guarantor hereunder.
(g) The Guarantor shall not assign or otherwise transfer to
any other Person any interest in the Subordinated Obligations without the prior
written permission of the Agent and unless the 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.
(h) If any amount shall be paid to the 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 The 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 covenants of the 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
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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
Loan Documents to which the Guarantor is a party shall be cumulative, and no
delay in enforcing this Agreement and the Loan Documents to which the 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 and as provided in the Credit
Agreement. This Agreement shall bind and inure to the benefit of the
Guarantor, the Agent, the Banks, and their respective successors and assigns.
The 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 the Guarantor and the Agent provided for in this
Agreement and the Loan Documents to which the 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 the 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 the Guarantor:
Denali Incorporated
1360 Post Oak Boulevard, Suite 2470
Houston, Texas 77056
Attn: R. Kevin Andrews
Telephone: (713) 627-0933
Telecopier: (713) 627-0937
If to the Agent:
NationsBank of Texas, N.A.,
700 Louisiana, 7th Floor
Houston, Texas 77002
Attn: Mark W. Montgomery
Telephone: (713) 247-7155
Telecopier: (713) 247-7175
4.2 WAIVER OF JURY TRIAL. THE GUARANTOR IRREVOCABLY WAIVES ANY RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
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OUT OF OR RELATING TO THE LOAN DOCUMENTS OR ANY TRANSACTIONS RELATING THERETO.
THIS WRITTEN AGREEMENT AND THE LOAN 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.
DENALI INCORPORATED
By: /s/ R. Kevin Andrews
----------------------------------
R. Kevin Andrews
Treasurer
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EXHIBIT 10.4
SUBSIDIARY GUARANTY
This Subsidiary Guaranty dated as of March 23, 1998 (this "Agreement")
is made by the undersigned subsidiaries of Denali Incorporated, a Delaware
corporation (each subsidiary a "Guarantor"), in favor of NationsBank of Texas,
N.A., in its capacity as agent (the "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 Amended and Restated
Credit Agreement dated as of March 23, 1998 (as amended, restated, modified,
or supplemented from time to time, the "Credit Agreement", the defined terms of
which are used herein unless otherwise defined herein) among Denali
Incorporated, a Delaware corporation ("Denali"), Fluid Containment, Inc.,
Ershigs, Inc., SEFCO, Inc., Biloxi Ershigs, Inc., certain financial
institutions which are or may become parties thereto (the "Banks"), and the
Agent. Each Guarantor is a Subsidiary of Denali. Because each Guarantor
receives and, as a result of its ownership by Denali, expects to continue to
receive financial and management support from Denali, each Guarantor will
obtain substantial benefit from the extensions of credit expected to be made to
the Borrowers under the Credit Agreement.
This Agreement is an amendment and restatement of the Unconditional
Guaranty executed in connection with the Existing Credit Agreement, not a new
or substitute guaranty agreement or a novation of the Unconditional Guaranty
executed in connection with the Existing Credit Agreement.
Therefore, to induce the Agent and the Banks to enter into the Credit
Agreement, each Guarantor jointly and severally agrees with the Agent as
follows:
Section 1. Guaranty. Each Guarantor irrevocably and jointly and severally
guarantees 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 Borrowers 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 Interest Hedge Agreements, and the other Loan
Documents, including amounts owed under the terms of the Credit Agreement and
the other Loan Documents for which the Borrowers have obtained relief under
bankruptcy or other laws providing for relief from creditors, and (b) any
increases,
<PAGE> 2
extensions, and rearrangements of the foregoing obligations under any
amendments, supplements, and other modifications of the documents and
agreements creating the foregoing obligations (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 is 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, each Guarantor shall, after
receipt of written notice from the Agent, 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 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 Loan 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 of the Loan Documents, 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
Loan Documents; any waiver or consent granted under the Loan 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 Loan Documents;
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(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 any 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 any
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 any 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 Loan 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 any 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 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
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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 Denali and receives and,
because of its ownership by Denali, expects to continue to receive business
opportunities, financial support, and management support from Denali. Each
Guarantor has agreed to enter into this Agreement so that the Borrowers can
receive the benefits of the Guaranteed Obligations and Denali can continue to
provide these services to such Guarantor.
(b) In consummating the transactions contemplated by the Loan
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 each 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
Loan Documents is consummated and each 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 Agreement 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 such Guarantor and any other
guarantor of the Guaranteed Obligations shall have rights of contribution and
subrogation against each other with respect to any payments made in connection
with the Guaranteed Obligations.
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
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enforce payment by any Guarantor under this Agreement, to show any proof of any
Borrower's default, to exhaust the Agent's remedies against any 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 a
Guarantor means: (i) all present and future indebtedness, liabilities, and
obligations of any kind owed to such Guarantor by any Borrower, any other
Credit Party, 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. Section 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 any 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 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
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assets for creditors, dissolution, liquidation, or marshaling of the assets of
any 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 any Borrower that a
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.
(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 Borrowers in the Credit
Agreement to the extent that
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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 Loan 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 Loan 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 Loan
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 Loan 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
Loan 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 Loan Documents that
does not expressly reference this paragraph.
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 Loan Documents to which any Guarantor is a party shall
be cumulative, and no delay in enforcing this Agreement and the Loan 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
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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 Loan 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 Denali Incorporated
1360 Post Oak Boulevard, Suite 2470
Houston, Texas 77056
Attn: R. Kevin Andrews
Telephone: (713) 627-0933
Telecopier: (713) 627-0937
If to the Agent:
NationsBank of Texas, N.A.,
700 Louisiana, 7th Floor
Houston, Texas 77002
Attn: Mark W. Montgomery
Telephone: (713) 247-7155
Telecopier: (713) 247-7175
4.5 Any present or future Subsidiary of Denali 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.
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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 LOAN DOCUMENTS OR ANY TRANSACTIONS RELATING THERETO.
[the remainder of this page is intentionally blank]
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THIS WRITTEN AGREEMENT AND THE LOAN 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.
CONTAINMENT SOLUTIONS, INC.
DENALI MANAGEMENT, INC.
ERSHIGS BILOXI, INC.
ERSHIGS, INC.
FLUID CONTAINMENT PROPERTY, INC.
INSTRUMENTATION SOLUTIONS, INC.
SPECIALTY SOLUTIONS, INC.
By: /s/ R. Kevin Andrews
----------------------------------
R. Kevin Andrews
Treasurer
FLUID CONTAINMENT, INC.
SEFCO, INC.
HOOVER CONTAINMENT, INC.
By: /s/ Cathy L. Smith
----------------------------------
Cathy L. Smith
Secretary
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EXHIBIT 10.5
SECURITY AGREEMENT
This Security Agreement dated as of March 23, 1998 (this "Agreement") is
made by Denali Incorporated, a Delaware corporation (the "Debtor"), in favor of
NationsBank of Texas, N.A., in its capacity as agent (the "Secured Party") for
certain financial institutions which are or may become parties to the Credit
Agreement described below.
INTRODUCTION
Reference is made to the Amended and Restated Credit Agreement dated as
of March 23, 1998 (as amended, restated, modified or supplemented from time to
time, the "Credit Agreement"), among the Debtor, Ershigs Biloxi, Inc., Ershigs,
Inc., Fluid Containment, Inc., SEFCO, Inc., certain financial institutions
which are or may become parties thereto (the "Banks"), and the Secured Party.
The Debtor has entered into the Guaranty dated as of March 23, 1998 (as
modified from time to time, the "Guaranty"), in favor of the Secured Party
guaranteeing the payment of the obligations of Ershigs Biloxi, Inc., Ershigs,
Inc., Fluid Containment, Inc., and SEFCO, Inc. under the Credit Agreement and
the other Loan Documents, including any Interest Hedge Agreements. It is a
condition precedent to the effectiveness of the Credit Agreement that the
Debtor secure its obligations under the Credit Agreement and the other Loan
Documents, including the Guaranty and any Interest Hedge Agreements, with this
Agreement.
This Agreement is an amendment and restatement of the security agreement
provisions of the Existing Credit Agreement (as defined in the Credit
Agreement), not a new or substitute security agreement or novation of the
security agreement provisions of the Existing Credit Agreement.
Therefore, for the consideration expressed in the Credit Agreement and
the Guaranty, and in order to induce the Secured Party and the Banks to enter
into the Credit Agreement, the Debtor agrees with the Secured Party as follows:
Section 1. Interpretation; Definitions.
1.1 Terms defined above and elsewhere in this Agreement shall have
their specified meanings. Capitalized terms used herein but not defined herein
shall have the meanings specified by the Credit Agreement. Terms defined in
Article 9 of the UCC shall have the meanings specified in Article 9 of the UCC.
<PAGE> 2
1.2 The following terms shall have the following meanings:
"Chief Executive Office Location" means the location of the chief
executive office of the Debtor as specified in the attached Schedule I.
"Collateral" has the meaning specified in Section 2.1.
"Collateral Account" means any deposit account with the Secured Party
which is designated, maintained, and under the sole control of the Secured
Party and is pledged to the Secured Party and which has been established
pursuant to the provisions of this Agreement for the purposes described in this
Agreement including collecting, holding, disbursing, or applying certain funds,
all in accordance with this Agreement. The Debtor agrees to execute any
documents reasonably requested by the Secured Party to create any Collateral
Account and pledge it to the Secured Party.
"Equipment" means all of the Debtor's present and future owned or leased
fixtures, equipment, mobile equipment, vehicles, interstate commercial
vehicles, railroad rolling stock, ships, and aircraft and inventory comprised
of such items, wherever located, including Vehicles, containers, parts
inventory, and all equipment located at the Equipment Locations, and all parts
thereof and all accessions and additions thereto.
"Equipment Location" means all of the locations designated as Equipment
Locations for the Debtor in the attached Schedule I, together with any other
locations designated as Equipment Locations by the Debtor if the Debtor has
provided the Secured Party with advance written notice of the designation
referencing this Agreement and the opportunity to perfect a first priority
security interest in any Equipment located at such location in accordance with
the terms of this Agreement.
"Inventory" means all of the Debtor's present and future inventory,
wherever located, including inventory in the form of items of Equipment that
are or become inventory, inventory in joint production with another person,
inventory in which the Debtor has an interest as consignor, and inventory that
is returned to or stopped in transit by the Debtor, all combinations and
products thereof, and any documents of title or warehouse receipts representing
or purporting to represent the foregoing.
"Proceeds" means all of the Debtor's present and future (a) proceeds of
the Collateral, whether arising from the collection, sale, lease, exchange,
assignment, licensing, or other disposition of the Collateral, (b) proceeds of
any casualty or condemnation of the Collateral (including insurance proceeds
and condemnation awards), (c) claims against third parties for
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impairment, loss, damage, or impairment of the value of the Collateral, and (d)
rights under any insurance, indemnity, warranty, or guaranty of or for any of
the foregoing, in each case whether represented as money, deposit accounts,
accounts, general intangibles, securities, instruments, documents, chattel
paper, inventory, equipment, fixtures, or goods.
"Receivables" means all of the Debtor's present and future accounts,
accounts from governmental agencies, instruments, chattel paper, and general
intangibles, including those arising from the consignment, storage, and sale of
Inventory, rights to payment under all contracts, income tax refunds, and other
rights to the payment of money.
"Records" means all of the Debtor's present and future contracts,
accounting records, files, computer files, computer programs, and other records
primarily related to the Inventory, Receivables, and Proceeds.
"Related Rights" means all of the Debtor's present and future sale
contracts, chattel paper, licenses, permits, contracts, ledgers, files,
records, computer files, computer programs, and general intangibles related to
any other items of Collateral.
"Secured Obligations" means (a) all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by
the Credit Parties to the Secured Party and the Banks (and, with respect to the
Interest Hedge Agreements, any Affiliates of the Banks) under the Credit
Agreement and the other Loan Documents, including the Guaranty and the Interest
Hedge Agreements and (b) any increases, extensions, and rearrangements of the
foregoing obligations under any amendments, supplements, and other
modifications of the agreements creating the foregoing obligations.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Texas, as amended from time to time, and any successor statute.
"Vehicles" means all of each Debtor's present and future owned or leased
motorcoaches, buses, vans, trucks, automobiles, taxicabs, tractors, and
trailers.
Section 2. Grant of Security Interest.
2.1 Grant of Security Interest. The Debtor hereby grants to the
Secured Party, for the benefit of the holders of the Secured Obligations, a
security interest in all of the Debtor's right, title, and interest in and to
the following property (the "Collateral") to secure the payment and performance
of the Secured Obligations:
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All Equipment;
All Inventory;
All general intangibles;
All Records;
All Receivables;
All Related Rights; and
All Proceeds.
To the extent that the Collateral is not subject to the UCC, the Debtor
collaterally assigns all of its right, title, and interest in and to such
Collateral to the Secured Party to secure the payment and performance of the
Secured Obligations to the full extent that such a collateral assignment is
possible under the relevant law.
2.2 Debtor Remains Liable. Anything herein to the contrary
notwithstanding: (a) the Debtor shall remain liable under any contracts and
agreements included in the Collateral to the extent set forth therein to
perform the Debtor's obligations thereunder to the same extent as if this
Agreement had not been executed; (b) the exercise by the Secured Party of any
rights hereunder shall not release the Debtor from any obligations under any
contracts and agreements included in the Collateral; and (c) the Secured Party
shall not have any obligation under any contracts and agreements included in
the Collateral by reason of this Agreement, nor shall the Secured Party be
obligated to perform or fulfill any of the obligations of the Debtor
thereunder, including any obligation to make any inquiry as to the nature or
sufficiency of any payment the Debtor may be entitled to receive thereunder, to
present or file any claim, or to take any action to collect or enforce any
claim for payment thereunder.
Section 3. General Provisions. The Debtor represents and warrants to and
agrees with the Secured Party as follows:
3.1 Ownership. The Debtor has good and indefeasible title to the
assets which comprise the Collateral of the Debtor as reflected in the Debtor's
financial statements free from any liens, security interests, assignments,
adverse claims, restrictions, or other encumbrances whatsoever except the
Permitted Liens. No effective recorded interest, financing statement, or
similar recording or filing covering any part of the Collateral of the Debtor
is on file in any recording office, except those filed in connection with
Permitted Liens. The Debtor shall not, without the prior written consent of
the Secured Party, grant any
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lien, security interest, assignment, restriction, claim, or other encumbrance
on or against the Collateral, or lease, sell, or otherwise transfer any of the
Debtor's rights in the Collateral except as otherwise permitted under this
Agreement or the Credit Agreement.
3.2 Perfection.
(a) As of the date of this Agreement, the true and correct
name of the Debtor as listed on the Debtor's certificate of incorporation is
the name specified for the Debtor on the signature pages of this Agreement.
The Debtor has had no prior names other than those listed for the Debtor in the
attached Schedule I. The Debtor has not used and does not use any trade names
other than those listed in the attached Schedule I. Without ten days' advance
written notice to the Secured Party, the Debtor shall not change its name.
(b) As of the date of this Agreement, the Debtor's chief
executive office is located at the Chief Executive Office Location for the
Debtor. Without ten days' advance written notice to the Secured Party, the
Debtor shall not change the location of the Debtor's chief executive office
from the Chief Executive Office Location for the Debtor.
(c) A carbon, photographic, or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in any
appropriate office in lieu thereof.
3.3 Priority.
(a) The security interests created by this Agreement are first
priority except as set forth below, subject only to the Permitted Liens, and
the Debtor shall preserve and maintain the status of such security interests to
the end that such security interests remain first priority security interests,
except as set forth below, in the Collateral subject only to the Permitted
Liens. Permitted Liens for taxes, assessments, or other governmental charges
or levies may be first priority to the extent required by applicable law.
(b) If the proceeds of the Secured Obligations are used to pay
any indebtedness secured by prior liens, the Secured Party is subrogated to all
of the rights and liens of the holders of such indebtedness.
3.4 Further Assurances.
(a) There are no actions, suits, proceedings, or
investigations pending or, to the knowledge of the Debtor, threatened against
or affecting any material portion of the Collateral, or involving the validity
or enforceability of this Agreement or the priority of the
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liens, security interests, or assignments created hereunder with respect to any
material portion of the Collateral. If the validity or priority of this
Agreement or of any liens, security interests, or assignments created or
purported to be created hereunder or the title of the Debtor to any Collateral
of the Debtor shall be endangered, questioned, or attacked in any material
respect or if any material legal proceedings are instituted against the Debtor
with respect thereto, the Debtor shall give prompt written notice thereof to
the Secured Party, and the action proposed to be taken by the Debtor in
connection therewith. During the existence of an Event of Default, the Debtor
shall not initiate any action with respect to such material matters without
granting the Secured Party advance written notice of the Debtor's intent to
initiate such actions and the opportunity to consult with the Debtor regarding
the Debtor's proposed actions (unless immediate action is necessary to prevent
loss to the Debtor). At the Secured Party's request, during the existence of
an Event of Default, the Debtor shall take any actions reasonably requested by
the Secured Party with respect to such matters, including diligently
endeavoring to cure any material defect existing or claimed and taking all
reasonably necessary and desirable steps for the defense of any legal
proceedings, including the employment of counsel, the prosecution or defense of
litigation, and the release or discharge of all adverse claims. During the
existence of an Event of Default, the Secured Party, whether or not named as a
party to any legal proceedings, is authorized to take any additional steps as
the Secured Party deems necessary or desirable for the defense of any such
legal proceedings or the protection of the validity or priority of this
Agreement and the liens, security interests, and assignments created hereunder,
including the employment of independent counsel, the prosecution or defense of
litigation, the compromise or discharge of any adverse claims made with respect
to any Collateral of the Debtor and the payment or removal of prior liens or
security interests, and the reasonable expenses of the Secured Party in taking
such action shall be paid by the Debtor.
(b) The Debtor agrees that at any time the Debtor shall
promptly execute and deliver all further agreements, and take all further
action, that the Secured Party may reasonably request, in order to further
evidence the liens, security interests, and assignments granted or purported to
be granted hereunder and perfect and protect the same or to enable the Secured
Party to exercise and enforce the Secured Party's rights and remedies
hereunder. Without limiting the foregoing, the Debtor shall at the Secured
Party's reasonable request execute financing statements, assignments, notices,
certificates of title and applications therefor, and such other documents and
agreements as the Secured Party may reasonably request in order to perfect and
preserve the security interests granted or purported to be granted hereunder.
The Debtor shall furnish to the Secured Party from time to time any statements
and schedules further identifying and describing any Collateral of the Debtor
and such other reports in connection with the Collateral of the Debtor as the
Secured Party may reasonably request.
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(c) During the existence of an Event of Default, the Debtor
agrees that, if the Debtor fails to perform under this Agreement, the Secured
Party may, but shall not be obligated to, after written request to the Debtor
to perform, perform the Debtor's obligations under this Agreement, and any
reasonable expenses incurred by the Secured Party in performing the Debtor's
obligations shall be paid by the Debtor. Any such performance by the Secured
Party may be made by the Secured Party in reasonable reliance on any statement,
invoice, or claim, without inquiry into the validity or accuracy thereof. The
amount and nature of any expense of the Secured Party hereunder shall be
conclusively established by a certificate of any officer of the Secured Party
absent manifest error.
(d) The Debtor irrevocably appoints the Secured Party as the
Debtor's attorney in fact, with full authority to act during the existence of
an Event of Default for the Debtor and in the name of the Debtor, to take any
action and execute any agreement which the Secured Party deems necessary or
advisable to accomplish the purposes of this Agreement, including the matters
that the Secured Party is expressly authorized to take pursuant to this
Agreement (including the matters described in paragraph (c) above), and
instituting proceedings the Secured Party deems necessary or desirable to
enforce the rights of the Secured Party with respect to this Agreement.
(e) The powers conferred on the Secured Party under this
Agreement are solely to protect the Secured Party's rights under this Agreement
and shall not impose any duty upon it to exercise any such powers. Except as
elsewhere provided hereunder, the Secured Party shall have no duty as to any of
the Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to the Collateral.
3.5 Insurance. With respect to any casualty or condemnation to the
Collateral, all proceeds of such casualty or condemnation which are due to the
Debtor, including any property insurance proceeds, condemnation awards,
proceeds from actions, and any other proceeds, are assigned to the Secured
Party and shall be paid directly to the Secured Party for disposition in
accordance with Section 5.12 of the Credit Agreement.
Section 4. General Remedies. During the existence of an Event of Default,
the Secured Party may, at the Secured Party's option, exercise one or more of
the remedies specified elsewhere in this Agreement or the following remedies:
4.1 Interim Remedies.
(a) To the extent permitted by law, the Secured Party may
exercise all the rights and remedies of a secured party under the UCC.
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(b) The Secured Party may prosecute actions in equity or at
law for the specific performance of any covenant or agreement herein contained
or in aid of the execution of any power herein granted or for the enforcement
of any other appropriate legal or equitable remedy.
(c) The Secured Party may occupy any premises owned or leased
by the Debtor where any Collateral is assembled for a reasonable period in
order to effectuate the Secured Party's rights and remedies hereunder or under
law, without obligation to the Debtor with respect to such occupation.
4.2 Foreclosure.
(a) The Secured Party may foreclose on any Collateral in any
manner permitted by the courts of or in the State of Texas or the State in
which any Collateral is located. If the Secured Party should institute a suit
for the collection of the Secured Obligations and for foreclosure under this
Agreement, the Secured Party may at any time before the entry of a final
judgment dismiss the same, and take any other action permitted by this
Agreement.
(b) To the extent permitted by law, the Secured Party may
exercise all the foreclosure rights and remedies of a secured party under the
UCC. In connection therewith, the Secured Party may sell any Collateral at
public or private sale, at the office of the Secured Party or elsewhere, for
cash or credit and upon written notice to the Debtor, such other terms as the
Secured Party deems commercially reasonable. The Secured Party may sell any
Collateral at one or more sales, and the security interest granted hereunder
shall remain in effect as to the unsold portion of the Collateral. The Debtor
hereby deems ten days advance notice of the time and place of any public or
private sale reasonable notification, recognizing that if the Collateral is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, shorter notice may be reasonable. The
Secured Party shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. The Secured Party may adjourn any sale by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was adjourned. In
the event that any sale hereunder is not completed or is defective in the
opinion of the Secured Party, the Secured Party shall have the right to cause
subsequent sales to be made hereunder. Any statements of fact or other
recitals made in any bill of sale, assignment, or other document representing
any sale hereunder, including statements relating to the occurrence of an Event
of Default, acceleration of the Secured Obligations, notice of the sale, the
time, place, and terms of the sale, and other actions taken by the Secured
Party in relation to the sale may be conclusively relied upon by the purchaser
at any sale hereunder. The Secured Party may delegate to any agent the
performance of any
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acts in connection with any sale hereunder, including the sending of notices
and the conduct of the sale.
4.3 Application of Proceeds. Unless otherwise specified herein, any
cash proceeds received by the Secured Party from the sale of, collection of, or
other realization upon any part of the Collateral or any other amounts received
by the Secured Party hereunder may be, at the discretion of the Secured Party
(a) held by the Secured Party in one or more Collateral Accounts as cash
collateral for the Secured Obligations or (b) applied to the Secured
Obligations. Amounts applied to the Secured Obligations shall be applied in
the following order:
First, to the payment of the costs and expenses of exercising the
Secured Party's rights hereunder, whether expressly provided for herein
or otherwise; and
Second, to the payment of the Secured Obligations in the order
set forth in Section 6.9 of the Credit Agreement.
Any surplus cash collateral or cash proceeds held by the Secured Party after
payment in full of the Secured Obligations and the termination of all
commitments of the Secured Party to the Debtor shall be paid over by the
Secured Party to the Debtor or to any other Persons that may be lawfully
entitled to receive such surplus.
4.4 Waiver of Certain Rights. To the full extent the Debtor may do
so, the Debtor shall not insist upon, plead, claim, or take advantage of any
law providing for any appraisement, valuation, stay, extension, or redemption,
and the Debtor hereby waives and releases the same, and all rights to a
marshaling of the assets of the Debtor, including the Collateral, or to a sale
in inverse order of alienation in the event of foreclosure of the liens and
security interests hereby created. The Debtor shall not assert any right under
any law pertaining to the marshaling of assets, sale in inverse order of
alienation, the administration of estates of decedents or other matters
whatever to defeat, reduce, or affect the right of the Secured Party under the
terms of this Agreement.
Section 5. Equipment. The Debtor represents and warrants to and agrees with
the Secured Party as follows:
5.1 Ownership.
(a) The Debtor has good and indefeasible title to the Vehicles
of the Debtor that are reflected as part of the Debtor's transportation
equipment in the Debtor's financial statements and as reflected in the Vehicle
listings for the Debtor provided to the
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Secured Party free from any liens, security interests, assignments, adverse
claims, restrictions, or other encumbrances whatsoever except the Permitted
Liens.
(b) The Debtor may sell or otherwise dispose of its Equipment
provided that such sales or other dispositions are made in accordance with
Section 5.9 of the Credit Agreement. To provide for such sales or disposition
of Equipment, upon receipt of proper notice from the Debtor and provided that
all applicable conditions for the release set forth in Section 5.9 of the
Credit Agreement have been satisfied (including that no Default exists), the
Secured Party shall release the security interests of the Secured Party in such
Equipment, deliver the certificates of title for such Equipment, and execute
all documents and instruments reasonably requested to evidence the release. In
connection with any sale or other disposition of such Equipment, the Debtor
shall provide the Secured Party with reports regarding such sales or other
dispositions as may be reasonably requested by the Secured Party.
5.2 Perfection.
(a) The Debtor shall provide the Secured Party with advance
written notice of any material purchases or acquisitions of any railroad
rolling stock, ships, or aircraft and the opportunity to perfect a first
priority security interest in any such Equipment of the Debtor. No material
amount of Equipment of the Debtor is in the form of fixtures except where the
owner of the real property to which the fixtures are attached has executed a
lien waiver in favor of the Secured Party.
(b) The Equipment of the Debtor is located only at the
Equipment Locations for the Debtor unless being used outside of the Equipment
Locations for the Debtor in the ordinary course of business, and the Debtor
shall not move the Equipment of the Debtor outside of the Equipment Locations
for the Debtor unless being used outside of the Equipment Locations for the
Debtor in the ordinary course of business, but in no event shall any of the
Equipment of the Debtor be kept outside of the Equipment Locations for the
Debtor for more than four consecutive months.
(c) The filed financing statements in favor of the Secured
Party filed in the applicable jurisdictions against the name of the Debtor and
the notation of the security interests of the Secured Party on the certificates
of title for Vehicles that are subject to certificate of title laws are the
only filings or recordings necessary to perfect the security interests
purported to be granted hereunder on the Equipment in the form of equipment,
mobile equipment, and Vehicles, and no other filing, recording, authorization,
consent, or other action is necessary to allow the Debtor to perform the
Debtor's obligations hereunder
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with respect to such Collateral or to permit the Secured Party to exercise the
Secured Party's rights and remedies hereunder with respect to such Collateral.
5.3 Value. The Equipment of the Debtor is in good working order, and
the Debtor shall maintain and preserve the Equipment in good working order and
shall make all repairs, replacements, and restorations that are necessary or
desirable to that end.
5.4 Default and Remedies. During the existence of an Event of
Default, the Secured Party may take control of the Equipment of the Debtor, and
the Debtor shall transfer to the Secured Party or execute in favor of the
Secured Party any documents necessary to take control of such Equipment. If
the Debtor fails to do so, the Secured Party may execute any documents
reasonably necessary to take such control of such Equipment. The Secured Party
shall have no obligation to take any action to assemble or otherwise take
control of the Collateral, whether for the purposes of sale or otherwise.
Section 6. Inventory. The Debtor represents and warrants to and agrees
with the Secured Party as follows:
6.1 Ownership. The Debtor may sell Inventory, other than Inventory
comprised of Equipment, in the ordinary course of business. The Debtor may
sell Inventory comprised of Equipment, which is defined as part of and treated
as Equipment under this Agreement, in accordance with Section 5.
6.2 Perfection. The Debtor does not and shall not distribute or sell
any Inventory on consignment. No document has been issued representing title
to the Inventory of the Debtor. If disposition of any of the Inventory of the
Debtor gives rise to any documents, the Debtor will promptly inform the Secured
Party thereof and deliver the documents to the Secured Party with all necessary
endorsements and assignment agreements requested by the Secured Party, or at
the request of the Secured Party negotiate the same to the Secured Party.
6.3 Default and Remedies. During the existence of an Event of
Default, the Secured Party may take control of Inventory of the Debtor held by
bailees, warehousemen, or similar parties, and the Debtor shall transfer to the
Secured Party or execute in favor of the Secured Party any documents necessary
to take control of such Inventory. If the Debtor fails to do so, the Secured
Party may execute any documents reasonably necessary to take such control of
such Inventory. The Secured Party shall have no obligation to take any action
to assemble or otherwise take control of the Collateral, whether for the
purposes of sale or otherwise.
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Section 7. Receivables. The Debtor represents and warrants to and agrees
with the Secured Party as follows:
7.1 Perfection.
(a) The Debtor shall provide the Secured Party with advance
written notice of any material increase in the amount of Receivables in the
form of accounts or general intangibles for the payment of money from
governmental agencies that require consents or other actions to assign,
perfect, or realize upon (including Receivables from the federal government
that are subject to the Federal Assignment of Claims Act), instruments, and
chattel paper and the opportunity to perfect a first priority security interest
(subject only to Permitted Liens) in any such Receivables of the Debtor. Upon
written request of the Secured Party, the Debtor shall take such actions as the
Secured Party may reasonably request to permit the Secured Party to perfect a
first priority security interest in any such Receivables of the Debtor,
including obtaining necessary consents from governmental agencies, delivery of
instruments to the Secured Party with all necessary endorsements, and delivery
of assignment agreements requested by the Secured Party.
(b) With respect to Receivables of the Debtor in the form of
chattel paper, the Debtor shall mark conspicuously all such Collateral with a
legend, in form and substance reasonably satisfactory to the Secured Party,
indicating that such Collateral is subject to the security interests granted
hereunder. The Debtor shall, during the existence of an Event of Default and
upon request by the Secured Party, promptly deliver to the Secured Party
possession of the Receivables of the Debtor in the form of chattel paper.
(c) The filed financing statements in favor of the Secured
Party filed against the name of the Debtor in the applicable jurisdictions are
the only filings or recordings necessary to perfect the security interests
purported to be granted hereunder on the Receivables of the Debtor in the form
of accounts and general intangibles for the payment of money, and no other
filing, recording, authorization, consent, or other action is necessary to
allow the Debtor to perform the Debtor's obligations hereunder with respect to
such Collateral or to permit the Secured Party to exercise the Secured Party's
rights and remedies hereunder with respect to such Collateral.
7.2 Value. The Debtor shall use the Debtor's commercially reasonable
efforts to collect payments on the Receivables of the Debtor when due. Unless
otherwise specified herein, the Debtor shall use commercially reasonable
efforts to perform the Debtor's obligations under each contract giving rise to
any Receivables of the Debtor.
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7.3 Default and Remedies
(a) During the existence of an Event of Default, the Secured
Party may establish Collateral Accounts for the purpose of collecting the
Receivables of the Debtor and holding the proceeds thereof, and may direct the
Debtor to instruct all account debtors and obligors on the Receivables of the
Debtor to make all payments on the Receivables of the Debtor directly to the
Secured Party for deposit into such Collateral Account. After such direction
to the Debtor and until such direction has been rescinded, (i) all collections
and proceeds of the Receivables of the Debtor shall be directed to such
Collateral Accounts, (ii) all proceeds of the Receivables of the Debtor which
may from time to time come into the possession of the Debtor shall be held in
trust for the Secured Party, segregated from the other funds of the Debtor, and
delivered immediately to the Secured Party in the form received with any
necessary endorsement for deposit into such Collateral Account, such delivery
in no event to be later than one Business Day after receipt thereof by the
Debtor, and (iii) the Debtor shall not adjust, settle, or compromise the amount
or payment of any Receivable of the Debtor, release wholly or partly any
account debtor or obligor for any Receivable of the Debtor, or allow any credit
or discount on any Receivable of the Debtor, without the advanced written
consent of the Secured Party.
(b) In connection with the foregoing, the Secured Party shall
have the right at any time during the existence of an Event of Default to take
any of the following actions, in the Secured Party's own name or in the name of
the Debtor: change the accounts which shall be the Collateral Accounts for the
Receivables of the Debtor; compromise or extend the time for payment of the
Receivables of the Debtor upon such terms as the Secured Party may determine;
endorse the name of the Debtor on checks, instruments, or other evidences of
payment on the Receivables of the Debtor; make written or verbal requests for
verification of amount owing on the Receivables of the Debtor from any Persons
which the Secured Party believes are account debtors or obligors on the
Receivables of the Debtor; open mail addressed to the Debtor and, to the extent
of checks or other proceeds of the Receivables of the Debtor, dispose of same
in accordance with this Agreement; take action in the Secured Party's name or
the Debtor's name to enforce collection; and take all other action necessary to
carry out this Agreement and give effect to the Secured Party's rights
hereunder. Costs and expenses incurred by the Secured Party in collection and
enforcement of the Receivables of the Debtor, including attorneys' fees and
out-of-pocket expenses, shall be reimbursed by the Debtor to the Secured Party
on demand.
Section 8. Miscellaneous.
8.1 Choice of Law. Except to the extent that the validity,
perfection, or effect of perfection or nonperfection of the security interests
created hereunder, or the remedies hereunder, in respect of any particular
Collateral are required to be governed by the laws of
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a jurisdiction other than the State of Texas, this Agreement shall be subject
to and construed and enforced in accordance with the substantive laws of the
State of Texas.
8.2 Notice. Unless otherwise specified, all notices and other
communications between the Debtor and the Secured Party provided for in this
Agreement and the Loan Documents to which the Debtor 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 the Debtor or
the Secured Party in written notice to the other party. Notice sent by
telecopy shall be deemed to be given and received when receipt of such
transmission is acknowledged, and delivered notice shall be deemed to be given
and received when receipted for by, or actually received by, an authorized
officer of the Debtor or the Secured Party, as the case may be.
If to the Debtor:
Denali Incorporated
1360 Post Oak Boulevard, Suite 2470
Houston, Texas 77056
Attn: R. Kevin Andrews
Telephone: (713) 627-0933
Telecopier: (713) 627-0937
If to the Secured Party:
NationsBank of Texas, N.A.,
700 Louisiana, 7th Floor
Houston, Texas 77002
Attn: Mark W. Montgomery
Telephone: (713) 247-7155
Telecopier: (713) 247-7175
8.3 General. 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 the Debtor 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 Secured Party demands payment therefor. The Secured Party's remedies
under this Agreement and the Loan Documents shall be cumulative, and no delay
in enforcing this Agreement and the Loan Documents shall act as a waiver of the
Secured Party's rights thereunder. The provisions of this Agreement may be
waived or amended only in a writing
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signed by the party against whom enforcement is sought. This Agreement shall
bind and inure to the benefit of the Debtor and the Secured Party and their
respective successors and assigns. The Debtor may not assign its rights or
delegate its duties under this Agreement. The Secured Party 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.
THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
DENALI INCORPORATED
By: /s/ R. Kevin Andrews
------------------------------------------
R. Kevin Andrews
Treasurer
NATIONSBANK OF TEXAS, N.A., as Agent
By: /s/ Mark W. Montgomery
------------------------------------------
Mark W. Montgomery
Vice President
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EXHIBIT 10.6
SECURITY AGREEMENT
This Security Agreement dated as of March 23, 1998 (this "Agreement"),
is made by the undersigned subsidiaries of Denali Incorporated, a Delaware
corporation (such undersigned subsidiaries being the "Debtors"), in favor of
NationsBank of Texas, N.A., in its capacity as agent (the "Secured Party") for
certain financial institutions which are or may become parties to the Credit
Agreement described below.
INTRODUCTION
Reference is made to the Amended and Restated Credit Agreement dated as
of March 23, 1998 (as amended, restated, modified or supplemented from time to
time, the "Credit Agreement"), among Denali Incorporated, Ershigs Biloxi, Inc.,
Ershigs, Inc., Fluid Containment, Inc., SEFCO, Inc., certain financial
institutions which are or may become parties thereto (the "Banks"), and the
Secured Party. Each of the Debtors has entered into the Guaranty dated as of
March 23, 1998 (as modified from time to time, the "Guaranty"), in favor of the
Secured Party guaranteeing the payment of the obligations of the Borrowers
under the Credit Agreement and the other Loan Documents, including any Interest
Hedge Agreements. It is a condition precedent to the effectiveness of the
Credit Agreement that the Debtors secure the obligations under the Credit
Agreement and the other Loan Documents, including the Guaranty and any Interest
Hedge Agreements, with this Agreement.
This Agreement is an amendment and restatement of the security agreement
provisions of the Existing Credit Agreement, not a new or substitute security
agreement or a novation of the security agreement provisions of the Existing
Credit Agreement.
Therefore, for the consideration expressed in the Credit Agreement and
the Guaranty, and in order to induce the Secured Party and the Banks to enter
into the Credit Agreement, the Debtors jointly and severally agree with the
Secured Party as follows:
Section 1. Interpretation; Definitions.
1.1 Terms defined above and elsewhere in this Agreement shall have
their specified meanings. Capitalized terms used herein but not defined herein
shall have the meanings specified by the Credit Agreement. Terms defined in
Article 9 of the UCC shall have the meanings specified in Article 9 of the UCC.
<PAGE> 2
1.2 The following terms shall have the following meanings:
"Chief Executive Office Location" means, with respect to each Debtor,
the location of the chief executive office of such Debtor as specified in the
attached Schedule I.
"Collateral" has the meaning specified in Section 2.1.
"Collateral Account" means any deposit account with the Secured Party
which is designated, maintained, and under the sole control of the Secured
Party and is pledged to the Secured Party and which has been established
pursuant to the provisions of this Agreement for the purposes described in this
Agreement including collecting, holding, disbursing, or applying certain funds,
all in accordance with this Agreement. Each Debtor agrees to execute any
documents reasonably requested by the Secured Party to create any Collateral
Account and pledge it to the Secured Party.
"Equipment" means all of each Debtor's present and future owned or
leased fixtures, equipment, mobile equipment, vehicles, interstate commercial
vehicles, railroad rolling stock, ships, and aircraft and inventory comprised
of such items, wherever located, including Vehicles, containers, parts
inventory, and all equipment located at the Equipment Locations, and all parts
thereof and all accessions and additions thereto.
"Equipment Location" means, with respect to each Debtor, all of the
locations designated as Equipment Locations for such Debtor in the attached
Schedule I, together with any other locations designated as Equipment Locations
by such Debtor if such Debtor has provided the Secured Party with advance
written notice of the designation referencing this Agreement and the
opportunity to perfect a first priority security interest in any Equipment
located at such location in accordance with the terms of this Agreement.
"Inventory" means all of each Debtor's present and future inventory,
wherever located, including inventory in the form of items of Equipment that
are or become inventory, inventory in joint production with another person,
inventory in which such Debtor has an interest as consignor, and inventory that
is returned to or stopped in transit by such Debtor, all combinations and
products thereof, and any documents of title or warehouse receipts representing
or purporting to represent the foregoing.
"Proceeds" means all of each Debtor's present and future (a) proceeds of
the Collateral, whether arising from the collection, sale, lease, exchange,
assignment, licensing, or other disposition of the Collateral, (b) proceeds of
any casualty or condemnation of the Collateral (including insurance proceeds
and condemnation awards), (c) claims against third parties for impairment,
loss, damage, or impairment of the value of the Collateral, and (d)
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rights under any insurance, indemnity, warranty, or guaranty of or for any of
the foregoing, in each case whether represented as money, deposit accounts,
accounts, general intangibles, securities, instruments, documents, chattel
paper, inventory, equipment, fixtures, or goods.
"Receivables" means all of each Debtor's present and future accounts,
accounts from governmental agencies, instruments, chattel paper, and general
intangibles, including those arising from the consignment, storage, and sale of
Inventory, rights to payment under all contracts, income tax refunds, and other
rights to the payment of money.
"Records" means all of each Debtor's present and future contracts,
accounting records, files, computer files, computer programs, and other records
primarily related to the Inventory, Receivables, and Proceeds.
"Related Rights" means all of each Debtor's present and future sale
contracts, chattel paper, licenses, permits, contracts, ledgers, files,
records, computer files, computer programs, and general intangibles related to
any other items of Collateral.
"Secured Obligations" means (a) all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by
the Credit Parties to the Secured Party and the Banks (and, with respect to the
Interest Hedge Agreements, any Affiliates of the Banks) under the Credit
Agreement and the other Loan Documents, including the Guaranty and any Interest
Hedge Agreement; and (b) any increases, extensions, and rearrangements of the
foregoing obligations under any amendments, supplements, and other
modifications of the agreements creating the foregoing obligations.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Texas, as amended from time to time, and any successor statute.
"Vehicles" means all of each Debtor's present and future owned or leased
motorcoaches, buses, vans, trucks, automobiles, taxicabs, tractors, and
trailers.
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Section 2. Grant of Security Interest.
2.1 Grant of Security Interest. Each Debtor hereby grants to the
Secured Party, for the benefit of the holders of the Secured Obligations, a
security interest in all of such Debtor's right, title, and interest in and to
the following property (the "Collateral") to secure the payment and performance
of the Secured Obligations:
All Equipment;
All Inventory;
All general intangibles;
All Records;
All Receivables;
All Related Rights; and
All Proceeds.
To the extent that the Collateral is not subject to the UCC, each Debtor
collaterally assigns all of such Debtor's right, title, and interest in and to
such Collateral to the Secured Party to secure the payment and performance of
the Secured Obligations to the full extent that such a collateral assignment is
possible under the relevant law.
2.2 Debtor Remains Liable. Anything herein to the contrary
notwithstanding: (a) each Debtor shall remain liable under any contracts and
agreements included in the Collateral to the extent set forth therein to
perform such Debtor's obligations thereunder to the same extent as if this
Agreement had not been executed; (b) the exercise by Secured Party of any
rights hereunder shall not release any Debtor from any obligations under any
contracts and agreements included in the Collateral; and (c) Secured Party
shall not have any obligation under any contracts and agreements included in
the Collateral by reason of this Agreement, nor shall Secured Party be
obligated to perform or fulfill any of the obligations of any Debtor
thereunder, including any obligation to make any inquiry as to the nature or
sufficiency of any payment any Debtor may be entitled to receive thereunder, to
present or file any claim, or to take any action to collect or enforce any
claim for payment thereunder.
Section 3. General Provisions. Each Debtor represents and warrants to and
agrees with the Secured Party as follows:
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3.1 Ownership. Such Debtor has good and indefeasible title to the
assets which comprise the Collateral of such Debtor as reflected in such
Debtor's financial statements free from any liens, security interests,
assignments, adverse claims, restrictions, or other encumbrances whatsoever
except the Permitted Liens. No effective recorded interest, financing
statement, or similar recording or filing covering any part of the Collateral
of such Debtor is on file in any recording office, except those filed in
connection with Permitted Liens. Such Debtor shall not, without the prior
written consent of the Secured Party, grant any lien, security interest,
assignment, restriction, claim, or other encumbrance on or against the
Collateral, or lease, sell, or otherwise transfer any of such Debtor's rights
in the Collateral except as otherwise permitted under this Agreement or the
Credit Agreement.
3.2 Perfection.
(a) As of the date of this Agreement, the true and correct
name of such Debtor as listed on such Debtor's certificate or articles of
incorporation is the name specified for such Debtor on the signature pages of
this Agreement. Such Debtor has had no prior names other than those listed for
such Debtor in the attached Schedule I. Such Debtor has not used and does not
use any trade names other than those listed in the attached Schedule I.
Without ten days' advance written notice to the Secured Party, such Debtor
shall not change such Debtor's name.
(b) As of the date of this Agreement, such Debtor's chief
executive office is located at the Chief Executive Office Location for such
Debtor. Without ten days' advance written notice to the Secured Party, such
Debtor shall not change the location of such Debtor's chief executive office
from the Chief Executive Office Location for such Debtor.
(c) A carbon, photographic, or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in any
appropriate office in lieu thereof.
3.3 Priority.
(a) The security interests created by this Agreement are or,
with respect to any security interest in Collateral of any Subsidiary acquired
by any of the Borrowers in an Acquisition transaction, will be within 30 days
following the closing of such Acquisition, first priority except as set forth
below, subject only to the Permitted Liens, and such Debtor shall preserve and
maintain the status of such security interests to the end that such security
interests remain first priority security interests, except as set forth below,
in the Collateral subject only to the Permitted Liens. Permitted Liens for
taxes, assessments, or other governmental charges or levies may be first
priority to the extent required by applicable law.
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(b) If the proceeds of the Secured Obligations are used to pay
any indebtedness secured by prior liens, the Secured Party is subrogated to all
of the rights and liens of the holders of such indebtedness.
3.4 Further Assurances.
(a) There are no actions, suits, proceedings, or
investigations pending or, to the knowledge of such Debtor, threatened against
or affecting any material portion of the Collateral, or involving the validity
or enforceability of this Agreement or the priority of the liens, security
interests, or assignments created hereunder with respect to any material
portion of the Collateral. If the validity or priority of this Agreement or of
any liens, security interests, or assignments created or purported to be
created hereunder or the title of such Debtor to any Collateral of such Debtor
shall be endangered, questioned, or attacked in any material respect or if any
material legal proceedings are instituted against such Debtor with respect
thereto, such Debtor shall give prompt written notice thereof to the Secured
Party, and the action proposed to be taken by such Debtor in connection
therewith. During the existence of an Event of Default, such Debtor shall not
initiate any action with respect to such material matters without granting the
Secured Party advance written notice of such Debtor's intent to initiate such
actions and the opportunity to consult with such Debtor regarding such Debtor's
proposed actions (unless immediate action is necessary to prevent loss to such
Debtor). At the Secured Party's request, during the existence of an Event of
Default, such Debtor shall take any actions reasonably requested by the Secured
Party with respect to such matters, including diligently endeavoring to cure
any material defect existing or claimed, and taking all reasonably necessary
and desirable steps for the defense of any legal proceedings, including the
employment of counsel, the prosecution or defense of litigation, and the
release or discharge of all adverse claims. During the existence of an Event
of Default, the Secured Party, whether or not named as a party to any legal
proceedings, is authorized to take any additional steps as the Secured Party
deems necessary or desirable for the defense of any such legal proceedings or
the protection of the validity or priority of this Agreement and the liens,
security interests, and assignments created hereunder, including the employment
of independent counsel, the prosecution or defense of litigation, the
compromise or discharge of any adverse claims made with respect to any
Collateral of such Debtor and the payment or removal of prior liens or security
interests, and the reasonable expenses of the Secured Party in taking such
action shall be paid by such Debtor.
(b) Such Debtor agrees that at any time such Debtor shall
promptly execute and deliver all further agreements, and take all further
action, that the Secured Party may reasonably request, in order to further
evidence the liens, security interests, and assignments granted or purported to
be granted hereunder and perfect and protect the same
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<PAGE> 7
or to enable the Secured Party to exercise and enforce the Secured Party's
rights and remedies hereunder. Without limiting the foregoing, such Debtor
shall at the Secured Party's reasonable request execute financing statements,
assignments, notices, certificates of title and applications therefor, and such
other documents and agreements as the Secured Party may reasonably request in
order to perfect and preserve the security interests granted or purported to be
granted hereunder. Such Debtor shall furnish to the Secured Party from time to
time any statements and schedules further identifying and describing any
Collateral of such Debtor and such other reports in connection with the
Collateral of such Debtor as the Secured Party may reasonably request.
(c) During the existence of an Event of Default, such Debtor
agrees that, if such Debtor fails to perform under this Agreement, the Secured
Party may, but shall not be obligated to, after written request to such Debtor
to perform, perform such Debtor's obligations under this Agreement, and any
reasonable expenses incurred by the Secured Party in performing such Debtor's
obligations shall be paid by such Debtor. Any such performance by the Secured
Party may be made by the Secured Party in reasonable reliance on any statement,
invoice, or claim, without inquiry into the validity or accuracy thereof. The
amount and nature of any expense of the Secured Party hereunder shall be
conclusively established by a certificate of any officer of the Secured Party
absent manifest error.
(d) Such Debtor irrevocably appoints the Secured Party as such
Debtor's attorney in fact, with full authority to act during the existence of
an Event of Default for such Debtor and in the name of such Debtor, to take any
action and execute any agreement which the Secured Party deems necessary or
advisable to accomplish the purposes of this Agreement, including the matters
that the Secured Party is expressly authorized to take pursuant to this
Agreement (including the matters described in paragraph (c) above), and
instituting proceedings the Secured Party deems necessary or desirable to
enforce the rights of the Secured Party with respect to this Agreement.
(e) The powers conferred on the Secured Party under this
Agreement are solely to protect the Secured Party's rights under this Agreement
and shall not impose any duty upon it to exercise any such powers. Except as
elsewhere provided hereunder, the Secured Party shall have no duty as to any of
the Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to the Collateral.
3.5 Insurance. With respect to any casualty or condemnation to the
Collateral, all proceeds of such casualty or condemnation which are due to such
Debtor, including any property insurance proceeds, condemnation awards,
proceeds from actions, and any other
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<PAGE> 8
proceeds, are assigned to the Secured Party and shall be paid directly to the
Secured Party for disposition in accordance with Section 5.12 of the Credit
Agreement.
Section 4. General Remedies. During the existence of an Event of Default,
the Secured Party may, at the Secured Party's option, exercise one or more of
the remedies specified elsewhere in this Agreement or the following remedies:
4.1 Interim Remedies.
(a) To the extent permitted by law, the Secured Party may
exercise all the rights and remedies of a secured party under the UCC.
(b) The Secured Party may prosecute actions in equity or at
law for the specific performance of any covenant or agreement herein contained
or in aid of the execution of any power herein granted or for the enforcement
of any other appropriate legal or equitable remedy.
(c) The Secured Party may occupy any premises owned or leased
by any Debtor where any Collateral is assembled for a reasonable period in
order to effectuate the Secured Party's rights and remedies hereunder or under
law, without obligation to any Debtor with respect to such occupation.
4.2 Foreclosure.
(a) The Secured Party may foreclose on any Collateral in any
manner permitted by the courts of or in the State of Texas or the State in
which any Collateral is located. If the Secured Party should institute a suit
for the collection of the Secured Obligations and for foreclosure under this
Agreement, the Secured Party may at any time before the entry of a final
judgment dismiss the same, and take any other action permitted by this
Agreement.
(b) To the extent permitted by law, the Secured Party may
exercise all the foreclosure rights and remedies of a secured party under the
UCC. In connection therewith, the Secured Party may sell any Collateral at
public or private sale, at the office of the Secured Party or elsewhere, for
cash or credit and upon written notice to such Debtor, such other terms as the
Secured Party deems commercially reasonable. The Secured Party may sell any
Collateral at one or more sales, and the security interest granted hereunder
shall remain in effect as to the unsold portion of the Collateral. Each Debtor
hereby deems ten days advance notice of the time and place of any public or
private sale reasonable notification, recognizing that if the Collateral is
perishable or threatens to decline speedily in value or is of a type
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customarily sold on a recognized market, shorter notice may be reasonable. The
Secured Party shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. The Secured Party may adjourn any sale by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was adjourned. In
the event that any sale hereunder is not completed or is defective in the
opinion of the Secured Party, the Secured Party shall have the right to cause
subsequent sales to be made hereunder. Any statements of fact or other
recitals made in any bill of sale, assignment, or other document representing
any sale hereunder, including statements relating to the occurrence of an Event
of Default, acceleration of the Secured Obligations, notice of the sale, the
time, place, and terms of the sale, and other actions taken by the Secured
Party in relation to the sale may be conclusively relied upon by the purchaser
at any sale hereunder. The Secured Party may delegate to any agent the
performance of any acts in connection with any sale hereunder, including the
sending of notices and the conduct of the sale.
4.3 Application of Proceeds. Unless otherwise specified herein, any
cash proceeds received by the Secured Party from the sale of, collection of, or
other realization upon any part of the Collateral or any other amounts received
by the Secured Party hereunder may be, at the discretion of the Secured Party
(a) held by the Secured Party in one or more Collateral Accounts as cash
collateral for the Secured Obligations or (b) applied to the Secured
Obligations. Amounts applied to the Secured Obligations shall be applied in
the following order:
First, to the payment of the costs and expenses of exercising the
Secured Party's rights hereunder, whether expressly provided for herein
or otherwise; and
Second, to the payment of the Secured Obligations in the order
set forth in Section 6.9 of the Credit Agreement.
Any surplus cash collateral or cash proceeds held by the Secured Party after
payment in full of the Secured Obligations and the termination of all
commitments of the Secured Party to all Debtors shall be paid over by the
Secured Party to Denali Incorporated for distribution to the Debtors entitled
to receive such surplus or to any other Persons that may be lawfully entitled
to receive such surplus.
4.4 Waiver of Certain Rights. To the full extent each Debtor may do
so, such Debtor shall not insist upon, plead, claim, or take advantage of any
law providing for any appraisement, valuation, stay, extension, or redemption,
and such Debtor hereby waives and releases the same, and all rights to a
marshaling of the assets of such Debtor, including the Collateral, or to a sale
in inverse order of alienation in the event of foreclosure of the liens
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<PAGE> 10
and security interests hereby created. Such Debtor shall not assert any right
under any law pertaining to the marshaling of assets, sale in inverse order of
alienation, the administration of estates of decedents or other matters
whatever to defeat, reduce, or affect the right of the Secured Party under the
terms of this Agreement.
Section 5. Equipment. Each Debtor represents and warrants to and agrees
with the Secured Party as follows:
5.1 Ownership.
(a) Such Debtor has good and indefeasible title to the
Vehicles of such Debtor that are reflected as part of such Debtor's
transportation equipment in such Debtor's financial statements and as reflected
in the Vehicle listings for such Debtor provided to the Secured Party free from
any liens, security interests, assignments, adverse claims, restrictions, or
other encumbrances whatsoever except the Permitted Liens.
(b) Such Debtor may sell or otherwise dispose of the Equipment
of such Debtor provided that such sales or other dispositions are made in
accordance with Section 5.9 of the Credit Agreement. To provide for such sales
or disposition of Equipment, upon receipt of proper notice from such Debtor and
provided that all applicable conditions for the release set forth in Section
5.9 of the Credit Agreement have been satisfied (including that no Default
exists), the Secured Party shall release the security interests of the Secured
Party in such Equipment, deliver the certificates of title for such Equipment,
and execute all documents and instruments reasonably requested to evidence the
release. In connection with any sale or other disposition of such Equipment,
such Debtor shall provide the Secured Party with reports regarding such sales
or other dispositions as may be reasonably requested by the Secured Party.
5.2 Perfection.
(a) Such Debtor shall provide the Secured Party with advance
written notice of any material purchases or acquisitions of any railroad
rolling stock, ships, or aircraft and the opportunity to perfect a first
priority security interest in any such Equipment of such Debtor. No material
amount of Equipment of such Debtor is in the form of fixtures except where the
owner of the real property to which the fixtures are attached has executed a
lien waiver in favor of the Secured Party.
(b) The Equipment of such Debtor is located only at the
Equipment Locations for such Debtor unless being used outside of the Equipment
Locations for such Debtor in the ordinary course of business, and such Debtor
shall not move the Equipment of
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<PAGE> 11
such Debtor outside of the Equipment Locations for such Debtor unless being
used outside of the Equipment Locations for such Debtor in the ordinary course
of business, but in no event shall any of the Equipment of such Debtor be kept
outside of the Equipment Locations for such Debtor for more than four
consecutive months.
(c) The filed financing statements in favor of the Secured
Party filed in the applicable jurisdictions against the name of such Debtor and
the notation of the security interests of the Secured Party on the certificates
of title for Vehicles that are subject to certificate of title laws are the
only filings or recordings necessary to perfect the security interests
purported to be granted hereunder on the Equipment in the form of equipment,
mobile equipment, and Vehicles, and no other filing, recording, authorization,
consent, or other action is necessary to allow such Debtor to perform such
Debtor's obligations hereunder with respect to such Collateral or to permit the
Secured Party to exercise the Secured Party's rights and remedies hereunder
with respect to such Collateral.
5.3 Value. The Equipment of such Debtor is in good working order,
and such Debtor shall maintain and preserve the Equipment in good working order
and shall make all repairs, replacements, and restorations that are necessary
or desirable to that end.
5.4 Default and Remedies. During the existence of an Event of
Default, the Secured Party may take control of the Equipment of such Debtor,
and such Debtor shall transfer to the Secured Party or execute in favor of the
Secured Party any documents necessary to take control of such Equipment. If
such Debtor fails to do so, the Secured Party may execute any documents
reasonably necessary to take such control of such Equipment. The Secured Party
shall have no obligation to take any action to assemble or otherwise take
control of the Collateral, whether for the purposes of sale or otherwise.
Section 6. Inventory. Each Debtor represents and warrants to and agrees
with the Secured Party as follows:
6.1 Ownership. Such Debtor may sell Inventory, other than
Inventory comprised of Equipment, in the ordinary course of business. Such
Debtor may sell Inventory comprised of Equipment, which is defined as part of
and treated as Equipment under this Agreement, in accordance with Section 5.
6.2 Perfection. Such Debtor does not and shall not distribute or
sell any Inventory on consignment. No document has been issued representing
title to the Inventory of such Debtor. If disposition of any of the Inventory
of such Debtor gives rise to any documents, such Debtor will promptly inform
the Secured Party thereof and deliver the documents to the
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<PAGE> 12
Secured Party with all necessary endorsements and assignment agreements
requested by the Secured Party, or at the request of the Secured Party
negotiate the same to the Secured Party.
6.3 Default and Remedies. During the existence of an Event of
Default, the Secured Party may take control of Inventory of such Debtor held by
bailees, warehousemen, or similar parties, and such Debtor shall transfer to
the Secured Party or execute in favor of the Secured Party any documents
necessary to take control of such Inventory. If such Debtor fails to do so,
the Secured Party may execute any documents reasonably necessary to take such
control of such Inventory. The Secured Party shall have no obligation to take
any action to assemble or otherwise take control of the Collateral, whether for
the purposes of sale or otherwise.
Section 7. Receivables. Each Debtor represents and warrants to and agrees
with the Secured Party as follows:
7.1 Perfection.
(a) Such Debtor shall provide the Secured Party with advance
written notice of any material increase in the amount of Receivables in the
form of accounts or general intangibles for the payment of money from
governmental agencies that require consents or other actions to assign,
perfect, or realize upon (including Receivables from the federal government
that are subject to the Federal Assignment of Claims Act), instruments, and
chattel paper and the opportunity to perfect a first priority security interest
(subject only to Permitted Liens) in any such Receivables of such Debtor. Upon
written request of the Secured Party, such Debtor shall take such actions as
the Secured Party may reasonably request to permit the Secured Party to perfect
a first priority security interest in any such Receivables of such Debtor,
including obtaining necessary consents from governmental agencies, delivery of
instruments to the Secured Party with all necessary endorsements, and delivery
of assignment agreements requested by the Secured Party.
(b) With respect to Receivables of such Debtor in the form of
chattel paper, including writings evidencing such Debtor's rights to payment
under leases of taxicabs and other Vehicles, such Debtor shall mark
conspicuously all such Collateral with a legend, in form and substance
reasonably satisfactory to the Secured Party, indicating that such Collateral
is subject to the security interests granted hereunder. Such Debtor shall,
during the existence of an Event of Default and upon request by the Secured
Party, promptly deliver to the Secured Party possession of the Receivables of
such Debtor in the form of chattel paper.
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<PAGE> 13
(c) The filed financing statements in favor of the Secured
Party filed against the name of such Debtor in the applicable jurisdictions are
the only filings or recordings necessary to perfect the security interests
purported to be granted hereunder on the Receivables of such Debtor in the form
of accounts and general intangibles for the payment of money, and no other
filing, recording, authorization, consent, or other action is necessary to
allow such Debtor to perform such Debtor's obligations hereunder with respect
to such Collateral or to permit the Secured Party to exercise the Secured
Party's rights and remedies hereunder with respect to such Collateral.
7.2 Value. Such Debtor shall use such Debtor's commercially
reasonable efforts to collect payments on the Receivables of such Debtor when
due. Unless otherwise specified herein, such Debtor shall use commercially
reasonable efforts to perform such Debtor's obligations under each contract
giving rise to any Receivables of such Debtor.
7.3 Default and Remedies.
(a) During the existence of an Event of Default, the Secured
Party may establish Collateral Accounts for the purpose of collecting the
Receivables of such Debtor and holding the proceeds thereof, and may direct
such Debtor to instruct all account debtors and obligors on the Receivables of
such Debtor to make all payments on the Receivables of such Debtor directly to
the Secured Party for deposit into such Collateral Account. After such
direction to such Debtor and until such direction has been rescinded (i) all
collections and proceeds of the Receivables of such Debtor shall be directed to
such Collateral Accounts, (ii) all proceeds of the Receivables of such Debtor
which may from time to time come into the possession of such Debtor shall be
held in trust for the Secured Party, segregated from the other funds of such
Debtor, and delivered immediately to the Secured Party in the form received
with any necessary endorsement for deposit into such Collateral Account, such
delivery in no event to be later than one Business Day after receipt thereof by
such Debtor, and (iii) such Debtor shall not adjust, settle, or compromise the
amount or payment of any Receivable of such Debtor, release wholly or partly
any account debtor or obligor for any Receivable of such Debtor, or allow any
credit or discount on any Receivable of such Debtor, without the advanced
written consent of the Secured Party.
(b) In connection with the foregoing, the Secured Party shall
have the right at any time during the existence of an Event of Default to take
any of the following actions, in the Secured Party's own name or in the name of
such Debtor: change the accounts which shall be the Collateral Accounts for
the Receivables of such Debtor; compromise or extend the time for payment of
the Receivables of such Debtor upon such terms as the Secured Party may
determine; endorse the name of such Debtor on checks, instruments, or other
evidences of payment on the Receivables of such Debtor; make written
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or verbal requests for verification of amount owing on the Receivables of such
Debtor from any Persons which the Secured Party believes are account debtors or
obligors on the Receivables of such Debtor; open mail addressed to such Debtor
and, to the extent of checks or other proceeds of the Receivables of such
Debtor, dispose of same in accordance with this Agreement; take action in the
Secured Party's name or such Debtor's name to enforce collection; and take all
other action necessary to carry out this Agreement and give effect to the
Secured Party's rights hereunder. Costs and expenses incurred by the Secured
Party in collection and enforcement of the Receivables of such Debtor,
including attorneys' fees and out-of-pocket expenses, shall be reimbursed by
such Debtor to the Secured Party on demand.
Section 8. Miscellaneous.
8.1 Choice of Law. Except to the extent that the validity,
perfection, or effect of perfection or nonperfection of the security interests
created hereunder, or the remedies hereunder, in respect of any particular
Collateral are required to be governed by the laws of a jurisdiction other than
the State of Texas, this Agreement shall be subject to and construed and
enforced in accordance with the substantive laws of the State of Texas.
8.2 Notice. Unless otherwise specified, all notices and other
communications between each Debtor and the Secured Party provided for in this
Agreement and the Loan Documents to which such Debtor 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 Debtor or
the Secured Party in written notice to the other party. Notice sent by
telecopy shall be deemed to be given and received when receipt of such
transmission is acknowledged, and delivered notice shall be deemed to be given
and received when receipted for by, or actually received by, an authorized
officer of such Debtor or the Secured Party, as the case may be.
If to any Debtor:
[Debtor]
c/o Denali Incorporated
1360 Post Oak Boulevard, Suite 2470
Houston, Texas 77056
Attn: R. Kevin Andrews
Telephone: (713) 627-0933
Telecopier: (713) 627-0937
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<PAGE> 15
If to the Secured Party:
NationsBank of Texas, N.A.,
700 Louisiana, 7th Floor
Houston, Texas 77002
Attn: Mark W. Montgomery
Telephone: (713) 247-7155
Telecopier: (713) 247-7175
8.3 General. 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 Debtor 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 Secured Party demands payment therefor. The Secured Party's remedies
under this Agreement and the Loan Documents shall be cumulative, and no delay
in enforcing this Agreement and the Loan Documents shall act as a waiver of the
Secured Party'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 Debtor and the Secured Party and their respective successors and assigns.
Each Debtor may not assign its rights or delegate its duties under this
Agreement. The Secured Party 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.
8.4 Joinder. Any present or future Subsidiary of the Company may
become a Debtor under and a party to this Agreement by executing and delivering
to the Secured Party a Joinder Agreement in accordance with Section 5.19 of the
Credit Agreement or by otherwise assuming in writing in favor of the Secured
Party the liabilities of a Debtor under this Agreement. Upon execution and
delivery of a Joinder Agreement or otherwise assuming the liabilities of a
Debtor under this Agreement such Subsidiary shall be deemed to be a Debtor
under this Agreement and a party to this Agreement for all purposes hereunder.
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<PAGE> 16
THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
CONTAINMENT SOLUTIONS, INC.
DENALI MANAGEMENT, INC.
ERSHIGS BILOXI, INC.
ERSHIGS, INC.
FLUID CONTAINMENT PROPERTY, INC.
INSTRUMENTATION SOLUTIONS, INC.
SPECIALTY SOLUTIONS, INC.
By: /s/ R. Kevin Andrews
----------------------------------
R. Kevin Andrews
Treasurer
FLUID CONTAINMENT, INC.
HOOVER CONTAINMENT, INC.
SEFCO, INC.
By: /s/ Cathy L. Smith
----------------------------------
Cathy L. Smith
Secretary
NATIONSBANK OF TEXAS, N.A., as Agent
By: /s/ Mark W. Montgomery
----------------------------------
Mark W. Montgomery
Vice President
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<PAGE> 1
EXHIBIT 10.7
PLEDGE AGREEMENT
This Pledge Agreement dated as of March 23, 1998 (this "Agreement") is
made by Denali Incorporated, a Delaware corporation (the "Debtor"), in favor of
NationsBank of Texas, N.A., in its capacity as agent (the "Secured Party") for
certain financial institutions which are or may become parties to the Credit
Agreement described below.
INTRODUCTION
Reference is made to the Amended and Restated Credit Agreement dated as
of March 23, 1998 (as amended, restated, modified or supplemented from time to
time, the "Credit Agreement"), among Debtor, Ershigs Biloxi, Inc., Ershigs,
Inc., Fluid Containment, Inc., SEFCO, Inc., certain financial institutions
which are or may become parties thereto (the "Banks"), and the Secured Party.
This Agreement is an amendment and restatement of the Pledge Agreement
executed by the Debtor in connection with the Existing Credit Agreement (as
defined in the Credit Agreement), not a new or substitute pledge agreement or a
novation of such Pledge Agreement.
For the consideration expressed in the Credit Agreement, and in order to
induce the Secured Party and the Banks to enter into the Credit Agreement, the
Debtor agrees with the Secured Party as follows:
Section 1. Definitions. Terms defined in Article 9 of the UCC shall have
the meanings specified in Article 9 of the UCC. Capitalized terms used but not
defined herein shall have the meanings set forth in the Credit Agreement. As
used herein, the following terms shall have the following meanings:
"Collateral" means the Pledged Securities, Records, and Proceeds.
"Guaranty" means the Guaranty dated March 23, 1998 made by the Debtor in
favor of the Secured Party, as Agent for the Banks, guaranteeing the
obligations of the Borrowers under the Credit Agreement and the other Loan
Documents, including any Interest Hedge Agreements.
"Pledged Securities" means all of the shares of stock listed on the
attached Schedule I and all of the shares of stock of each Subsidiary of the
Debtor, together with all dividends, cash, instruments, and other proceeds from
time to time received or otherwise distributed in respect of the foregoing,
including stock rights, options, rights to subscribe, dividends,
<PAGE> 2
liquidating dividends, stock dividends, new securities, or other properties or
benefits to which the Debtor may become entitled to receive on account of such
property.
"Proceeds" means all present and future proceeds of the Pledged
Securities, whether arising from the collection, sale, exchange, assignment, or
other disposition of any Pledged Securities, the realization upon any Pledged
Securities, or any other transaction or occurrence, including all claims of the
Debtor against third parties for impairment, loss, or damage to any Pledged
Securities, all proceeds payable under any put, call, hedge, or other
protection for the value of any Pledged Securities, and all rights under any
indemnity, warranty, or guaranty of or for any of the foregoing, whether such
proceeds are represented as money, deposit accounts, accounts, general
intangibles, securities, instruments, documents, chattel paper, inventory,
equipment, fixtures, or goods.
"Records" means all present and future contracts, accounting records,
files, computer files, computer programs, and other records relating to the
Pledged Securities and Proceeds.
"Secured Obligations" means (a) all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by
the Debtor to the Secured Party and the Banks (and with respect to any Interest
Hedge Agreements, any Affiliates of the Banks) under the Credit Agreement and
the other Loan Documents, including the Guaranty and any Interest Hedge
Agreements, and (b) any increases, extensions, and rearrangements of the
foregoing obligations under any amendments, supplements, and other
modifications of the agreements creating the foregoing obligations.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Texas, as amended from time to time, and any successor statute.
Section 2. Security Interest.
2.1 Grant of Security Interest. The Debtor hereby grants to the
Secured Party a security interest in all of the Debtor's right, title, and
interest in and to the Collateral to secure the payment and performance of the
Secured Obligations.
2.2 Debtor Remains Liable. Anything herein to the contrary
notwithstanding: (a) the Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform its obligations thereunder to the same extent as if this Agreement had
not been executed; (b) the exercise by Secured Party of any rights hereunder
shall not release the Debtor from any obligations under the contracts and
agreements included in the Collateral; and (c) Secured Party shall not have any
obligation under the contracts and agreements included in the Collateral by
reason of this Agreement,
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<PAGE> 3
nor shall Secured Party be obligated to perform or fulfill any of the
obligations of the Debtor thereunder, including any obligation to make any
inquiry as to the nature or sufficiency of any payment the Debtor may be
entitled to receive thereunder, to present or file any claim, or to take any
action to collect or enforce any claim for payment thereunder.
Section 3. General Provisions. The Debtor represents and warrants to and
agrees with the Secured Party as follows:
3.1 Ownership. The Debtor has good and indefeasible title to the
Collateral free from any liens, security interests, assignments, options,
adverse claims, restrictions, and other encumbrances whatsoever, except for
Permitted Liens. The shares of stock representing the Pledged Securities are
duly authorized and validly issued and are fully paid and nonassessable. The
Pledged Securities constitute 100% of the issued and outstanding shares of
capital stock of each Subsidiary of the Debtor. No effective pledge or other
transfer regarding the Pledged Securities is in effect. No recorded financing
statement or similar recording or filing covering any part of the Collateral is
in effect or on file in any recording office, except those filed in connection
with this Agreement. The Debtor shall not, without the prior written consent
of the Secured Party, grant any lien, security interest, assignment, option,
restriction, claim, or other encumbrance on or against the Collateral, or
lease, sell, or otherwise transfer any of its rights in the Collateral.
3.2 Perfection. All certificates or instruments representing the
Pledged Securities have been delivered to the Secured Party in a form suitable
for transfer by delivery, or accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Secured Party, and the Debtor shall deliver to the Secured Party in such manner
all certificates and instruments representing the Pledged Securities acquired
by the Debtor after the date of this Agreement. No other authorization,
approval, or other action is necessary to perfect such security interests
purported to be granted hereunder, to allow the Debtor to perform its
obligations hereunder, or to permit the Secured Party to exercise its rights
and remedies hereunder (except as may be required in connection with such
disposition by laws affecting the offering and sale of securities generally).
3.3 Priority.
(a) The security interest created by this Agreement is first
priority, and the Debtor shall preserve and maintain the status of such
security interest to the end that this Agreement shall remain a first priority
security interest in the Collateral.
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(b) If the proceeds of the Secured Obligations are used to pay
any indebtedness secured by prior liens, the Secured Party is subrogated to all
of the rights and liens of the holders of such indebtedness.
3.4 Use and Condition.
(a) So long as no Default or Event of Default shall exist, the
Debtor shall be entitled to receive and retain any cash dividends distributed
in respect of the Pledged Securities, provided that any: (i) non-cash
dividends, instruments, and other property received or otherwise distributed in
respect of or in substitution for any Pledged Securities; (ii) cash dividends
and other distributions in connection with a partial or total liquidation or
dissolution of an issuer of any Pledged Securities or in connection with a
reduction of capital, capital surplus, or paid-in-surplus of an issuer of
Pledged Securities; and (iii) cash distributed in respect of a redemption of
principal of, or in exchange for, any Pledged Securities, shall be promptly
delivered to the Secured Party for disposition in accordance with Section 4.3
hereof and shall, if received by the Debtor, be received in trust for the
benefit of the Secured Party, be segregated from the other property or funds of
the Debtor, and be promptly delivered to the Secured Party as Collateral in the
same form as so received, with any necessary endorsement.
(b) With regard to the Pledged Securities, so long as no
Default or Event of Default shall exist, the Debtor shall be entitled to
exercise its respective voting and other consensual rights pertaining to the
Pledged Securities for any purpose not inconsistent with the terms of this
Agreement. The Secured Party shall execute and deliver (or cause to be
executed and delivered) to the Debtor all proxies and other instruments that
the Debtor may reasonably request to enable the Debtor to exercise the voting
and other rights which it is entitled to exercise hereunder and to receive the
dividends or interest payments which it is authorized to receive and retain
hereunder.
3.5 Further Assurances.
(a) The Debtor agrees that at any time it shall promptly
execute and deliver all further agreements, and take all further action, that
may be necessary or that the Secured Party may reasonably request, in order to
further evidence the security interests granted or purported to be granted
hereunder and perfect and protect the same or to enable the Secured Party to
exercise and enforce its rights and remedies hereunder. Without limiting the
foregoing, the Debtor shall at the Secured Party's reasonable request: (i) mark
conspicuously any tangible Collateral with a legend, in form and substance
satisfactory to the Secured Party, indicating that such Collateral is subject
to the security interest granted or purported to be granted hereunder and (ii)
execute stock powers, pledge registration
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<PAGE> 5
requests, financing statements, amendments and continuations of financing
statements, and such other documents and agreements as the Secured Party may
reasonably request in order to perfect and preserve the security interests
granted or purported to be granted hereunder. The Debtor shall furnish to the
Secured Party from time to time any statements and schedules further
identifying and describing any of the Collateral and such other reports in
connection with the Collateral as the Secured Party may reasonably request.
(b) During the existence of an Event of Default, the Debtor
agrees that, if the Debtor fails to perform under this Agreement, the Secured
Party may, but shall not be obligated to, perform the Debtor's obligations
under this Agreement and any expenses incurred by the Secured Party in
performing the Debtor's obligations shall be paid by the Debtor. Any such
performance by the Secured Party may be made by the Secured Party in reasonable
reliance on any statement, invoice, or claim, without inquiry into the validity
or accuracy thereof. The amount and nature of any expense of the Secured Party
hereunder shall be conclusively established by a certificate of any officer of
the Secured Party.
(c) The Debtor irrevocably appoints the Secured Party as the
Debtor's attorney in fact, with full authority to act during the existence of
an Event of Default for the Debtor and in the name of the Debtor, to take any
action and execute any agreement which the Secured Party deems necessary or
advisable to accomplish the purposes of this Agreement, including taking
actions the Secured Party is expressly authorized to take pursuant to this
Agreement (such as the matters described in paragraph (b) above), instituting
proceedings the Secured Party deems necessary or desirable to enforce the
rights of the Secured Party with respect to this Agreement, and taking actions
with respect to receiving, endorsing, and collecting instruments made payable
to the Debtor representing any dividend, interest payment, or other
distribution in respect of the Pledged Securities and giving full discharge for
the same.
(d) The powers conferred on the Secured Party under this
Agreement are solely to protect its rights under this Agreement and shall not
impose any duty upon it to exercise any such powers. Except as elsewhere
provided hereunder, the Secured Party shall have no duty as to any of the
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to the Collateral. The
Secured Party shall have no responsibility for (i) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders, or
other matters relative to any Pledged Securities, whether or not the Secured
Party has or is deemed to have knowledge of such matters, or (ii) taking any
necessary steps to preserve rights against any parties with respect to any
Pledged Securities.
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<PAGE> 6
Section 4. Remedies. During the continuation of any Event of Default:
4.1 Interim Remedies.
(a) The Secured Party may exercise all the rights and remedies
of a secured party under the UCC.
(b) The Secured Party may prosecute actions in equity or at
law for the specific performance of any covenant or agreement herein contained
or in aid of the execution of any power herein granted or for the enforcement
of any other appropriate legal or equitable remedy.
(c) Following written notice to the Debtor and to the extent
specified in such written notice, all rights of the Debtor to receive cash
dividends shall cease, and all such rights shall thereupon become vested in the
Secured Party who shall thereupon have the sole right to receive such cash
dividends. All cash dividends received by the Debtor in violation of the
foregoing shall be received in trust for the benefit of the Secured Party,
shall be segregated from other funds of the Debtor, and shall be promptly paid
over to the Secured Party to be held as Pledged Securities in the same form as
so received (with any necessary endorsement).
(d) Following written notice to the Debtor and to the extent
specified in such written notice, all rights of the Debtor to exercise the
voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to this Agreement shall cease, and all such rights shall
thereupon become vested in the Secured Party who shall thereupon have the sole
right to exercise such voting and other consensual rights.
(e) Following written notice to the Debtor and to the extent
specified in such written notice, the Secured Party shall have the right,
without further notice to the Debtor, to transfer or to register, in the name
of the Secured Party or any of its nominees, any of the Pledged Securities. In
addition, the Secured Party shall have the right at any time to exchange the
certificates or instruments representing the Pledged Securities for
certificates or instruments of smaller or larger denominations.
(f) The Secured Party may require the Debtor to promptly
assemble any tangible Collateral and make it available to the Secured Party at
a place to be designated by the Secured Party. The Secured Party may occupy
any premises owned or leased by the Debtor where the Collateral is assembled
for a reasonable period in order to effectuate its rights and remedies
hereunder or under law, without obligation to the Debtor with respect to such
occupation. The Secured Party shall have no obligation to take any action to
assemble or otherwise take control of the Collateral, whether for the purposes
of sale or otherwise.
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(g) The Secured Party may take any action permitted under the
Credit Agreement, the other Loan Documents, including declaring the unpaid
portion of the Secured Obligations to be immediately due and payable under the
terms of the Credit Agreement.
4.2 Foreclosure.
(a) The Secured Party may foreclose on the Collateral in any
manner permitted by the courts of or in the State of Texas. If the Secured
Party should institute a suit for the collection of the Secured Obligations and
for the foreclosure of this Agreement, the Secured Party may at any time before
the entry of a final judgment dismiss the same, and take any other action
permitted by this Agreement.
(b) The Secured Party may exercise all the rights and remedies
of a secured party under the UCC, including foreclosure.
(i) If, in the opinion of the Secured Party, there is
any question that a public or semipublic sale or distribution of any Collateral
will violate any state or federal securities law, the Secured Party in its
discretion (A) may offer and sell securities privately to purchasers who will
agree to take them for investment purposes and not with a view to distribution
and who will agree to imposition of restrictive legends on the certificates
representing the security, or (B) may, if lawful, sell such securities in an
intrastate offering under Section 3(a)(11) of the Securities Act of 1933, as
amended, and no sale so made in good faith by the Secured Party shall be deemed
to be not "commercially reasonable" because so made. The Debtor shall
cooperate fully with Secured Party in all respects in selling or realizing upon
all or any part of the Collateral. In addition, the Debtor shall fully comply
with the securities laws of the United States, the State of Texas, and other
states and take such actions as may be necessary to permit the Secured Party to
sell or otherwise dispose of any securities pledged hereunder in compliance
with such laws.
(ii) The Secured Party may sell any Collateral at public
or private sale, at the office of the Secured Party or elsewhere, for cash or
credit and upon such other terms as the Secured Party deems commercially
reasonable. The Secured Party may sell any Collateral at one or more sales,
and the security interest granted hereunder shall remain in effect as to the
unsold portion of the Collateral. If notice is required by law, the Debtor
hereby deems ten days advance notice of the time and place of any public or
private sale reasonable notification, recognizing that if the Collateral is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, shorter notice may be reasonable. The
Secured Party shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. The Secured Party may adjourn any sale by
announcement at the time and place fixed therefor, and such sale may, without
further notice,
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<PAGE> 8
be made at the time and place to which it was adjourned. In the event that any
sale hereunder is not completed or is defective in the opinion of the Secured
Party, the Secured Party shall have the right to cause subsequent sales to be
made hereunder. Any statements of fact or other recitals made in any bill of
sale, assignment, or other document representing any sale hereunder, including
statements relating to the occurrence of an Event of Default, acceleration of
the Secured Obligations, notice of the sale, the time, place, and terms of the
sale, and other actions taken by the Secured Party in relation to the sale
shall be conclusive evidence of the truth of the matters so stated. The
Secured Party may delegate to any agent the performance of any acts in
connection with any sale hereunder, including the sending of notices and the
conduct of the sale.
4.3 Application of Proceeds. Unless otherwise specified herein, any
cash proceeds received by the Secured Party from the sale of, collection of, or
other realization upon any part of the Collateral or any other amounts received
by the Secured Party hereunder may be, at the discretion of the Secured Party
(a) held by the Secured Party in one or more collateral accounts as cash
collateral for the Secured Obligations or (b) applied to the Secured
Obligations. Amounts applied to the Secured Obligations shall be applied in
the following order: First, to the payment of the costs and expenses of
exercising the Secured Party's rights hereunder, whether expressly provided for
herein or otherwise; and Second, to the payment of the Secured Obligations in
the order set forth in Section 6.9 of the Credit Agreement. Any surplus cash
collateral or cash proceeds held by the Secured Party after payment in full of
the Secured Obligations and the termination of all commitments of the Banks to
the Debtor shall be paid over to the Debtor or to whoever may be lawfully
entitled to receive such surplus.
4.4 Waiver of Certain Rights. To the full extent the Debtor may do
so, the Debtor shall not insist upon, plead, claim, or take advantage of any
law providing for any appraisement, valuation, stay, extension, or redemption,
and the Debtor hereby waives and releases the same, and all rights to a
marshaling of the assets of the Debtor, including the Collateral, or to a sale
in inverse order of alienation in the event of foreclosure of the liens and
security interests hereby created. The Debtor shall not assert any right under
any law pertaining to the marshaling of assets, sale in inverse order of
alienation, the administration of estates of decedents or other matters
whatever to defeat, reduce, or affect the right of the Secured Party under the
terms of this Agreement.
Section 5. Miscellaneous.
5.1 Notices. Unless otherwise specified, all notices and other
communications between the Debtor and the Secured Party provided for in this
Agreement shall be in writing, including telecopy, and delivered or transmitted
to the addresses set forth below, or to such
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other address as shall be designated by the Debtor or the Secured Party in
written notice to the other parties. Notice sent by telecopy shall be deemed
to be given and received when receipt of such transmission is acknowledged, and
delivered notice shall be deemed to be given and received when receipted for
by, or actually received by, an authorized officer of the Debtor or the Secured
Party, as the case may be.
If to the Debtor:
Denali Incorporated
1360 Post Oak Blvd., Suite 2470
Houston, Texas 77056
Attn: R. Kevin Andrews
Telephone: (713) 627-0933
Telecopier: (713) 627-0937
If to the Secured Party:
NationsBank of Texas, N.A.,
700 Louisiana, 7th Floor
Houston, Texas 77002
Attn: Mark W. Montgomery
Telephone: (713) 247-7155
Telecopier: (713) 247-7175
5.2 General. This Agreement shall be construed in accordance with
and governed by the laws of the State of Texas, without reference to conflicts
of laws rules or principles 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 the Debtor in this Agreement
shall survive the execution of this Agreement and any Loan Documents 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
Secured Party demands payment therefor. The Secured Party's remedies under
this Agreement and the Loan Documents to which the Debtor is a party shall be
cumulative, and no delay in enforcing this Agreement and the Loan Documents to
which the Debtor is a party shall act as a waiver of the Secured Party's rights
hereunder. 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 the Debtor and its successors and assigns and shall inure to the
benefit of the Secured Party and its successors and assigns. The Debtor may
not assign its rights or delegate its duties under
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<PAGE> 10
this Agreement. The Secured Party may assign its rights and delegate its
duties under this Agreement. This Agreement may be executed in multiple
counterparts each of which shall constitute one and the same agreement.
THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed as of the date first above written.
DENALI INCORPORATED
By: /s/ R. Kevin Andrews
----------------------------------
R. Kevin Andrews
Treasurer
NATIONSBANK OF TEXAS, N.A.,
as Agent
By: /s/ Mark W. Montgomery
----------------------------------
Mark W. Montgomery
Vice President
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<PAGE> 1
EXHIBIT 10.8
PLEDGE AGREEMENT
This Pledge Agreement dated as of March 23, 1998 (this "Agreement") is
made by ________________________ (the "Debtor"), in favor of NationsBank of
Texas, N.A., in its capacity as agent (the "Secured Party") for certain
financial institutions which are or may become parties to the Credit Agreement
described below.
INTRODUCTION
Reference is made to the Amended and Restated Credit Agreement dated as
of March 23, 1998 (as amended, restated, modified or supplemented from time to
time, the "Credit Agreement"), among Denali Incorporated ("Denali"), Ershigs
Biloxi, Inc., Ershigs, Inc., Fluid Containment, Inc., SEFCO, Inc., certain
financial institutions which are or may become parties thereto (the "Banks"),
and the Secured Party.
This Agreement is an amendment and restatement of a certain Pledge
Agreement executed by the Debtor in connection with the Existing Credit
Agreement (as defined in the Credit Agreement), not a new or substitute pledge
agreement or a novation of such Pledge Agreement.
For the consideration expressed in the Credit Agreement, and in order to
induce the Secured Party and the Banks to enter into the Credit Agreement, the
Debtor agrees with the Secured Party as follows:
Section 1. Definitions. Terms defined in Article 9 of the UCC shall have
the meanings specified in Article 9 of the UCC. Capitalized terms used but not
defined herein shall have the meanings set forth in the Credit Agreement. As
used herein, the following terms shall have the following meanings:
"Collateral" means the Pledged Securities, Records, and Proceeds.
"Guaranty" means the Subsidiary Guaranty dated March 23, 1998 made by
the Guarantors in favor of the Secured Party, as Agent for the Banks,
guaranteeing the payment of the obligations of the Borrowers under the Credit
Agreement and the other Loan Documents, including any Interest Hedge
Agreements.
"Pledged Securities" means all of the shares of stock listed on the
attached Schedule I and all of the shares of stock of each Subsidiary of the
Debtor, together with all dividends, cash, instruments, and other proceeds from
time to time received or otherwise distributed in respect of the foregoing,
including stock rights, options, rights to subscribe, dividends, liquidating
dividends, stock dividends, new securities, or other properties or benefits to
which the Debtor may become entitled to receive on account of such property.
<PAGE> 2
"Proceeds" means all present and future proceeds of the Pledged
Securities, whether arising from the collection, sale, exchange, assignment, or
other disposition of any Pledged Securities, the realization upon any Pledged
Securities, or any other transaction or occurrence, including all claims of the
Debtor against third parties for impairment, loss, or damage to any Pledged
Securities, all proceeds payable under any put, call, hedge, or other
protection for the value of any Pledged Securities, and all rights under any
indemnity, warranty, or guaranty of or for any of the foregoing, whether such
proceeds are represented as money, deposit accounts, accounts, general
intangibles, securities, instruments, documents, chattel paper, inventory,
equipment, fixtures, or goods.
"Records" means all present and future contracts, accounting records,
files, computer files, computer programs, and other records relating to the
Pledged Securities and Proceeds.
"Secured Obligations" means (a) all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by
the Credit Parties to the Secured Party and the Banks (and with respect to any
Interest Hedge Agreements, any Affiliates of the Banks) under the Credit
Agreement and the other Loan Documents, including the Guaranty and any Interest
Hedge Agreements, and (b) any increases, extensions, and rearrangements of the
foregoing obligations under any amendments, supplements, and other
modifications of the agreements creating the foregoing obligations.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Texas, as amended from time to time, and any successor statute.
Section 2. Security Interest.
2.1 Grant of Security Interest. The Debtor hereby grants to the
Secured Party a security interest in all of the Debtor's right, title, and
interest in and to the Collateral to secure the payment and performance of the
Secured Obligations.
2.2 Debtor Remains Liable. Anything herein to the contrary
notwithstanding: (a) the Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform its obligations thereunder to the same extent as if this Agreement had
not been executed; (b) the exercise by Secured Party of any rights hereunder
shall not release the Debtor from any obligations under the contracts and
agreements included in the Collateral; and (c) Secured Party shall not have any
obligation under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall Secured Party be obligated to perform or
fulfill any of the obligations of the Debtor thereunder, including any
obligation to make any inquiry as to the nature or sufficiency of any payment
the Debtor may be entitled to receive thereunder, to present or file any claim,
or to take any action to collect or enforce any claim for payment thereunder.
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<PAGE> 3
Section 3. General Provisions. The Debtor represents and warrants to and
agrees with the Secured Party as follows:
3.1 Ownership. The Debtor has good and indefeasible title to the
Collateral free from any liens, security interests, assignments, options,
adverse claims, restrictions, and other encumbrances whatsoever except for
Permitted Liens. The shares of stock representing the Pledged Securities are
duly authorized and validly issued and are fully paid and nonassessable. The
Pledged Securities constitute 100% of the issued and outstanding shares of
capital stock of each Subsidiary of the Debtor. No effective pledge or other
transfer regarding the Pledged Securities is in effect. No recorded financing
statement or similar recording or filing covering any part of the Collateral is
in effect or on file in any recording office, except those filed in connection
with this Agreement. The Debtor shall not, without the prior written consent
of the Secured Party, grant any lien, security interest, assignment, option,
restriction, claim, or other encumbrance on or against the Collateral, or
lease, sell, or otherwise transfer any of its rights in the Collateral.
3.2 Perfection. All certificates or instruments representing the
Pledged Securities have been delivered to the Secured Party in a form suitable
for transfer by delivery, or accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Secured Party, and the Debtor shall deliver to the Secured Party in such manner
all certificates and instruments representing the Pledged Securities acquired
by the Debtor after the date of this Agreement. No other authorization,
approval, or other action is necessary to perfect such security interests
purported to be granted hereunder, to allow the Debtor to perform its
obligations hereunder, or to permit the Secured Party to exercise its rights
and remedies hereunder (except as may be required in connection with such
disposition by laws affecting the offering and sale of securities generally).
3.3 Priority.
(a) The security interest created by this Agreement is first
priority, and the Debtor shall preserve and maintain the status of such
security interest to the end that this Agreement shall remain a first priority
security interest in the Collateral.
(b) If the proceeds of the Secured Obligations are used to pay
any indebtedness secured by prior liens, the Secured Party is subrogated to all
of the rights and liens of the holders of such indebtedness.
3.4 Use and Condition.
(a) So long as no Default or Event of Default shall exist, the
Debtor shall be entitled to receive and retain any cash dividends distributed
in respect of the Pledged Securities, provided that any: (i) non-cash
dividends, instruments, and other property received or otherwise distributed in
respect of or in substitution for any Pledged Securities; (ii) cash dividends
and other distributions in connection with a partial or total liquidation or
dissolution of an issuer of any Pledged Securities or in connection with a
reduction of capital,
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<PAGE> 4
capital surplus, or paid-in-surplus of an issuer of Pledged Securities; and
(iii) cash distributed in respect of a redemption of principal of, or in
exchange for, any Pledged Securities, shall be promptly delivered to the
Secured Party for disposition in accordance with Section 4.3 hereof and shall,
if received by the Debtor, be received in trust for the benefit of the Secured
Party, be segregated from the other property or funds of the Debtor, and be
promptly delivered to the Secured Party as Collateral in the same form as so
received, with any necessary endorsement.
(b) With regard to the Pledged Securities, so long as no
Default or Event of Default shall exist, the Debtor shall be entitled to
exercise its respective voting and other consensual rights pertaining to the
Pledged Securities for any purpose not inconsistent with the terms of this
Agreement. The Secured Party shall execute and deliver (or cause to be
executed and delivered) to the Debtor all proxies and other instruments that
the Debtor may reasonably request to enable the Debtor to exercise the voting
and other rights which it is entitled to exercise hereunder and to receive the
dividends or interest payments which they are authorized to receive and retain
hereunder.
3.5 Further Assurances.
(a) The Debtor agrees that at any time the Debtor shall
promptly execute and deliver all further agreements, and take all further
action, that may be necessary or that the Secured Party may reasonably request,
in order to further evidence the security interests granted or purported to be
granted hereunder and perfect and protect the same or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder. Without
limiting the foregoing, the Debtor shall at the Secured Party's reasonable
request: (i) mark conspicuously any tangible Collateral with a legend, in form
and substance satisfactory to the Secured Party, indicating that such
Collateral is subject to the security interest granted or purported to be
granted hereunder; and (ii) execute stock powers, pledge registration
requests, financing statements, amendments and continuations of financing
statements, and such other documents and agreements as the Secured Party may
reasonably request in order to perfect and preserve the security interests
granted or purported to be granted hereunder. The Debtor shall furnish to the
Secured Party from time to time any statements and schedules further
identifying and describing any of the Collateral and such other reports in
connection with the Collateral as the Secured Party may reasonably request.
(b) During the existence of an Event of Default, the Debtor
agrees that, if the Debtor fails to perform under this Agreement, the Secured
Party may, but shall not be obligated to, perform the Debtor's obligations
under this Agreement and any expenses incurred by the Secured Party in
performing the Debtor's obligations shall be paid by the Debtor. Any such
performance by the Secured Party may be made by the Secured Party in reasonable
reliance on any statement, invoice, or claim, without inquiry into the validity
or accuracy thereof. The amount and nature of any expense of the Secured Party
hereunder shall be conclusively established by a certificate of any officer of
the Secured Party.
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<PAGE> 5
(c) The Debtor irrevocably appoints the Secured Party as the
Debtor's attorney in fact, with full authority to act during the existence of
an Event of Default for the Debtor and in the name of the Debtor, to take any
action and execute any agreement which the Secured Party deems necessary or
advisable to accomplish the purposes of this Agreement, including taking
actions the Secured Party is expressly authorized to take pursuant to this
Agreement (such as the matters described in paragraph (b) above), instituting
proceedings the Secured Party deems necessary or desirable to enforce the
rights of the Secured Party with respect to this Agreement, and taking actions
with respect to receiving, endorsing, and collecting instruments made payable
to the Debtor representing any dividend, interest payment, or other
distribution in respect of the Pledged Securities and giving full discharge for
the same.
(d) The powers conferred on the Secured Party under this
Agreement are solely to protect its rights under this Agreement and shall not
impose any duty upon it to exercise any such powers. Except as elsewhere
provided hereunder, the Secured Party shall have no duty as to any of the
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to the Collateral. The
Secured Party shall have no responsibility for (i) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders, or
other matters relative to any Pledged Securities, whether or not the Secured
Party has or is deemed to have knowledge of such matters, or (ii) taking any
necessary steps to preserve rights against any parties with respect to any
Pledged Securities.
Section 4. Remedies. During the continuation of any Event of Default:
4.1 Interim Remedies.
(a) The Secured Party may exercise all the rights and remedies
of a secured party under the UCC.
(b) The Secured Party may prosecute actions in equity or at
law for the specific performance of any covenant or agreement herein contained
or in aid of the execution of any power herein granted or for the enforcement
of any other appropriate legal or equitable remedy.
(c) Following written notice to the Debtor and to the extent
specified in such written notice, all rights of the Debtor to receive cash
dividends shall cease, and all such rights shall thereupon become vested in the
Secured Party who shall thereupon have the sole right to receive such cash
dividends. All cash dividends received by the Debtor in violation of the
foregoing shall be received in trust for the benefit of the Secured Party,
shall be segregated from other funds of the Debtor, and shall be promptly paid
over to the Secured Party to be held as Pledged Securities in the same form as
so received (with any necessary endorsement).
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<PAGE> 6
(d) Following written notice to the Debtor and to the extent
specified in such written notice, all rights of the Debtor to exercise the
voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to this Agreement shall cease, and all such rights shall
thereupon become vested in the Secured Party who shall thereupon have the sole
right to exercise such voting and other consensual rights.
(e) Following written notice to the Debtor and to the extent
specified in such written notice, the Secured Party shall have the right,
without further notice to the Debtor, to transfer or to register, in the name
of the Secured Party or any of its nominees, any of the Pledged Securities. In
addition, the Secured Party shall have the right at any time to exchange the
certificates or instruments representing the Pledged Securities for
certificates or instruments of smaller or larger denominations.
(f) The Secured Party may require the Debtor to promptly
assemble any tangible Collateral and make it available to the Secured Party at
a place to be designated by the Secured Party. The Secured Party may occupy
any premises owned or leased by such Debtor where the Collateral is assembled
for a reasonable period in order to effectuate its rights and remedies
hereunder or under law, without obligation to the Debtor with respect to such
occupation. The Secured Party shall have no obligation to take any action to
assemble or otherwise take control of the Collateral, whether for the purposes
of sale or otherwise.
(g) The Secured Party may take any action permitted under the
Credit Agreement, the other Loan Documents, including declaring the unpaid
portion of the Secured Obligations to be immediately due and payable under the
terms of the Credit Agreement.
4.2 Foreclosure.
(a) The Secured Party may foreclose on the Collateral in any
manner permitted by the courts of or in the State of Texas. If the Secured
Party should institute a suit for the collection of the Secured Obligations and
for the foreclosure of this Agreement, the Secured Party may at any time before
the entry of a final judgment dismiss the same, and take any other action
permitted by this Agreement.
(b) The Secured Party may exercise all the rights and remedies
of a secured party under the UCC, including foreclosure.
(i) If, in the opinion of the Secured Party, there is
any question that a public or semipublic sale or distribution of any Collateral
will violate any state or federal securities law, the Secured Party in its
discretion (A) may offer and sell securities privately to purchasers who will
agree to take them for investment purposes and not with a view to distribution
and who will agree to imposition of restrictive legends on the certificates
representing the security, or (B) may, if lawful, sell such securities in an
intrastate offering under Section 3(a)(11) of the Securities Act of 1933, as
amended, and no sale so made in good faith by the Secured Party shall be deemed
to be not "commercially reasonable"
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<PAGE> 7
because so made. The Debtor shall cooperate fully with Secured Party in all
respects in selling or realizing upon all or any part of the Collateral. In
addition, the Debtor shall fully comply with the securities laws of the United
States, the State of Texas, and other states and take such actions as may be
necessary to permit the Secured Party to sell or otherwise dispose of any
securities pledged hereunder in compliance with such laws.
(ii) The Secured Party may sell any Collateral at public
or private sale, at the office of the Secured Party or elsewhere, for cash or
credit and upon such other terms as the Secured Party deems commercially
reasonable. The Secured Party may sell any Collateral at one or more sales,
and the security interest granted hereunder shall remain in effect as to the
unsold portion of the Collateral. If notice is required by law, the Debtor
hereby deems ten days advance notice of the time and place of any public or
private sale reasonable notification, recognizing that if the Collateral is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, shorter notice may be reasonable. The
Secured Party shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. The Secured Party may adjourn any sale by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was adjourned. In
the event that any sale hereunder is not completed or is defective in the
opinion of the Secured Party, the Secured Party shall have the right to cause
subsequent sales to be made hereunder. Any statements of fact or other
recitals made in any bill of sale, assignment, or other document representing
any sale hereunder, including statements relating to the occurrence of an Event
of Default, acceleration of the Secured Obligations, notice of the sale, the
time, place, and terms of the sale, and other actions taken by the Secured
Party in relation to the sale shall be conclusive evidence of the truth of the
matters so stated. The Secured Party may delegate to any agent the performance
of any acts in connection with any sale hereunder, including the sending of
notices and the conduct of the sale.
4.3 Application of Proceeds. Unless otherwise specified herein, any
cash proceeds received by the Secured Party from the sale of, collection of, or
other realization upon any part of the Collateral or any other amounts received
by the Secured Party hereunder may be, at the discretion of the Secured Party
(a) held by the Secured Party in one or more collateral accounts as cash
collateral for the Secured Obligations or (b) applied to the Secured
Obligations. Amounts applied to the Secured Obligations shall be applied in
the following order: First, to the payment of the costs and expenses of
exercising the Secured Party's rights hereunder, whether expressly provided for
herein or otherwise; and Second, to the payment of the Secured Obligations in
the order set forth in Section 6.9 of the Credit Agreement. Any surplus cash
collateral or cash proceeds held by the Secured Party after payment in full of
the Secured Obligations and the termination of all commitments of the Banks to
the Borrowers shall be paid over to the Debtor or to whoever may be lawfully
entitled to receive such surplus.
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4.4 Waiver of Certain Rights. To the full extent the Debtor may do
so, the Debtor shall not insist upon, plead, claim, or take advantage of any
law providing for any appraisement, valuation, stay, extension, or redemption,
and the Debtor hereby waives and releases the same, and all rights to a
marshaling of the assets of the Debtor, including the Collateral, or to a sale
in inverse order of alienation in the event of foreclosure of the liens and
security interests hereby created. Debtor shall not assert any right under any
law pertaining to the marshaling of assets, sale in inverse order of
alienation, the administration of estates of decedents or other matters
whatever to defeat, reduce, or affect the right of the Secured Party under the
terms of this Agreement.
Section 5. Miscellaneous.
5.1 Notices. Unless otherwise specified, all notices and other
communications between the Debtor and the Secured Party provided for in this
Agreement 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 the Debtor or the Secured Party in written notice to the other
parties. Notice sent by telecopy shall be deemed to be given and received when
receipt of such transmission is acknowledged, and delivered notice shall be
deemed to be given and received when receipted for by, or actually received by,
an authorized officer of the Debtor or the Secured Party, as the case may be.
If to the Debtor:
[Specialty Solutions, Inc.]
[Ershigs, Inc.]
c/o Denali Incorporated
1360 Post Oak Boulevard, Suite 2470
Houston, Texas 77056
Attn: R. Kevin Andrews
Telephone: (713) 627-0933
Telecopier: (713) 627-0937
If to the Secured Party:
NationsBank of Texas, N.A.,
700 Louisiana, 7th Floor
Houston, Texas 77002
Attn: Mark W. Montgomery
Telephone: (713) 247-7155
Telecopier: (713) 247-7175
5.2 General. This Agreement shall be construed in accordance with
and governed by the laws of the State of Texas, without reference to conflicts
of laws rules or principles of the State of Texas. If any provision in this
Agreement is held to be unenforceable, such
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provision shall be severed and the remaining provisions shall remain in full
force and effect. All representations, warranties, and covenants of the Debtor
in this Agreement shall survive the execution of this Agreement and any Loan
Documents 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 Secured Party demands payment therefor. The Secured Party's remedies
under this Agreement and the Loan Documents to which the Borrower or any the
Debtor is a party shall be cumulative, and no delay in enforcing this Agreement
and the Loan Documents to which the Borrower or any the Debtor is a party shall
act as a waiver of the Secured Party's rights hereunder. 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 the Debtor and
its successors and assigns and shall inure to the benefit of the Secured Party
and its successors and assigns. The Debtor may not assign its rights or
delegate its duties under this Agreement. The Secured Party may assign its
rights and delegate its duties under this Agreement. This Agreement may be
executed in multiple counterparts each of which shall constitute one and the
same agreement.
THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed as of the date first above written.
NATIONSBANK OF TEXAS, N.A., as Agent
By:
---------------------------------
[Name, Title]
-----------------------------------
By:
---------------------------------
[Name, Title]
9
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0
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