<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 3, 1999
Commission File Number 000-23353
--------------------------------------------------------
Denali Incorporated
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(Exact Name of Registrant as Specified in its Charter)
Delaware 76-0454641
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1360 Post Oak Blvd., Suite 2250, Houston, Texas 77056
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(Address of Principal Executive Offices) (Zip Code)
713-627-0933
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 1, 1999, there were 5,423,215 shares of Common Stock of the
Registrant outstanding. The aggregate market value on such date of the voting
stock of the Registrant held by non-affiliates was an estimated $41.7 million
based upon the closing price of $7.69 on August 31, 1999.
Documents incorporated by reference. Certain portions of the Registrant's
definitive Proxy Statement for the 1999 Annual Meeting of Shareholders ("Proxy
Statement") are incorporated in Part III by reference.
<PAGE> 2
DENALI INCORPORATED
FORM 10-K FOR THE FISCAL YEAR ENDED JULY 3, 1999
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I
Item 1. Business....................................................................................1
Item 2. Properties..................................................................................8
Item 3. Legal Proceedings...........................................................................9
Item 4. Submission of Matters to a Vote of Security Holders.........................................9
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................10
Item 6. Selected Financial Data....................................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................................13
Item 7A. Quantitative and Qualitative Disclosures About Market Risks................................20
Item 8. Financial Statements and Supplementary Data................................................21
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................................21
PART III
Item 10. Directors and Executive Officers of the Registrant.........................................22
Item 11. Executive Compensation.....................................................................22
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................22
Item 13. Certain Relationships and Related Transactions.............................................22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................23
</TABLE>
Signatures
Index to Exhibits
i
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PART I
ITEM 1. BUSINESS
Denali Incorporated is a rapidly growing provider of products and services
for fluids handling. The Company believes that it is a leading manufacturer of
fiberglass composite underground storage tanks ("USTs") in the United States,
steel aboveground storage tanks ("ASTs") in the United States and engineered
fiberglass reinforced composites for handling corrosive fluids in the United
States and Europe. Fluids handling products and services are used in a wide
variety of applications, including in retail petroleum marketing and in
petroleum, chemical, pulp and paper, power generation and other industrial
process plants.
With the recent acquisition of Welna, N.V., a supplier of fiberglass
composite products in Europe, the Company believes it is the world's largest
manufacturer of specialty-engineered, corrosion-resistant fiberglass reinforced
plastic ("FRP") products. Denali has over 20 manufacturing locations around the
world and distributes a wide range of engineered products and systems in the
United States and Europe.
BACKGROUND
The Company was formed in 1994 to acquire the fiberglass composite UST
business of Owens Corning. Initially, the Company focused its efforts on
improving profitability, improving responsiveness to customers and developing
new products. The Company's management also realized that the fluids handling
industry was highly fragmented and that there would be significant opportunities
to consolidate the industry.
The Company's objective is to become a leading provider of a broad range of
products and services for fluids handling through strategic acquisitions and
internal growth. The Company believes that the fragmented nature of the fluids
handling industry, which is comprised of many companies with limited product
ranges or serving limited geographic areas, will provide continued acquisition
and internal growth opportunities. The Company also believes that these
opportunities provide the Company with the ability to offer a comprehensive
range of specialized solutions for meeting its customers' fluids handling needs.
PRODUCTS AND SERVICES
The Company's operations are divided into two groups in the United States:
Containment Products and Engineered Products. For a discussion of certain
industry segment data, see Note 17 of Notes to the Consolidated Financial
Statements included herein.
Containment Products. The Company's Containment Products Group ("Containment
Solutions") specializes in the manufacture of fiberglass composite USTs and
steel ASTs, primarily for petroleum storage. The Company's products are marketed
under the Containment Solutions tradename. In addition, the Company manufactures
FRP gates, metered manholes, shelters, flumes and systems under the Plasti-fab
tradename for use in the water/wastewater industries.
Engineered Products. The Company's Engineered Products Group ("Specialty
Solutions") provides engineered containment and material solutions to a variety
of industries, including chemical process, pulp and paper, power, and water and
wastewater. The Company markets its engineered FRP products under the Ershigs,
Fibercast and Belco tradenames and believes that it is a leading domestic
provider of engineered FRP products for corrosion resistant applications. In
addition, SEFCO, a Specialty Solutions company, is an integrated manufacturer of
engineered field-erected steel tanks and accessories for use in the water and
wastewater, agrochemical and petroleum industries. The Specialty Solutions group
focuses its operations on complex projects, where custom engineering and special
manufacturing expertise are critical.
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With the acquisition of Welna, which closed on July 1, 1999, the Company
will expand its products globally, primarily to Europe. Welna's operations are
divided into two groups: Welna Synthetics and Welna Trade.
Welna Synthetics. The Company's Welna Synthetics operation designs,
manufactures and installs FRP products including storage and transport tanks,
vessels and piping systems for corrosion-resistant applications. This operation
is similar in both markets and products to the Company's Engineered Products
Group.
Welna Trade. The Company's distribution operation, Welna Trade, supplies a
wide range of engineered products and systems including, but not limited to,
valves, expansion joints, tubes, suspension and support systems, filtration
systems and turbines for use in the power generation, water treatment, paper and
chemical processing industries.
ACQUISITION HISTORY
The Company has acquired ten businesses since its inception. A brief
description of these acquisitions is as follows:
<TABLE>
<CAPTION>
Acquired Company Date Acquired Products
<S> <C> <C>
Containment Solutions:
Fluid Containment, Inc. December 1994 Fiberglass USTs, oil/water separators,
manhole products
Hoover Containment, Inc. October 1995 Steel ASTs, lubricant storage tanks
Plasti-Fab, Inc. November 1998 Fiberglass-reinforced flumes and metering stations
Specialty Solutions:
Ershigs, Inc. February 1997 Engineered FRP products
SEFCO, Inc. October 1997 Field erected aboveground steel tanks
LaValley October 1997 Engineered FRP products
CC&E May 1998 Field constructed FRP products
Fibercast June 1998 FRP piping systems
Belco Manufacturing Company,
Inc. February 1999 Engineered FRP tanks, vessels,
and piping systems
Welna, N.V. July 1999 FRP pipe systems, vessels and other related
equipment, and distributor of high quality
products and engineered systems
</TABLE>
COMPETITION
The UST market is highly competitive and fragmented, with entrants from both
steel tank suppliers and another major fiberglass composite UST supplier. In
terms of revenues, steel tanks account for a majority of the United States UST
market. The remainder of this market is divided fairly evenly between the
Company and one other fiberglass composite UST supplier. Although steel USTs are
less expensive than fiberglass composite USTs, fiberglass composite USTs are not
subject to corrosion and do not expose the customer to corrosion leaks and
related environmental problems. When determining which product to acquire, one
of these two factors will generally control the purchase decision. Most of the
steel UST manufacturers are small, independent operations. The Company believes
that its quality of manufacturing, manufacturing control, product design,
testing procedures, history of performance and reliability, delivery capability,
customer responsiveness and experienced personnel are competitive advantages in
the UST market.
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The Company's steel ASTs are sold in highly fragmented and competitive
markets, with over 240 steel AST manufacturers operating in North America.
Several competitors of the Company are divisions or subsidiaries of larger
companies with financial and other resources greater than those of the Company.
However, the Company believes that the majority of its competitors in this
market are local, individually owned manufacturing facilities. The Company
believes that it is the only national manufacturing company in this market,
operating facilities in Maryland, Pennsylvania and California and having
subcontracting agreements with quality manufacturing companies in North
Carolina, Indiana, Kansas and Nebraska. The Company's national presence reduces
transportation costs for products relative to single plant competitors that
compete on a national basis. However, local manufacturers have a competitive
advantage in transportation costs. The Company believes that its broad product
lines, product design, delivery capability, customer responsiveness and
experienced personnel are competitive advantages in the steel AST market.
With respect to engineered FRP products in the United States, the Company
participates in a highly fragmented market where it believes that most of its
competitors are small regional fabrication businesses, except for the corrosion
resistant pipe and piping systems which also compete with two large public
companies. The Company believes that its field-erection capabilities and its
performance warranty, together with its engineering capabilities, quality
reputation, history of performance and effective customer service, provide the
Company with competitive advantages in the engineered FRP products market.
The market in which the Company competes for engineered metal products is
highly competitive and characterized by numerous small competitors in the
municipal market and several large, public companies with financial resources
greater than those of the Company in the industrial market. The Company believes
that it is able to achieve differentiation by taking advantage of the levels of
service, reliability and quality control afforded by vertical integration.
Generally, the Company's competitors in the engineered metal products industry
are reliant on outside suppliers and local contractors to fulfill the complete
scope of projects. The Company believes that this difference between the Company
and its competitors provides the Company major advantages in bidding, quality
control and scheduling.
With respect to engineered FRP products in Europe, the Company participates
in a highly fragmented market where it believes that most of its competitors are
small regional fabrication businesses, except for the corrosion resistant pipe
and piping systems, which also compete with two large public companies. The
Company believes that its quality reputation and engineering capabilities
provide competitive advantages. The Company's distribution operation also
competes in a highly competitive market characterized by numerous small
independent operations. The Company believes that a competitive advantage is
achieved through its operations' product quality and service responsiveness.
MARKETING AND CUSTOMERS
The Company takes a multifaceted approach to marketing its fiberglass
composite UST and steel AST products and services. The Company's sales staff
primarily supports an extensive network of Petroleum Equipment Industry ("PEI")
distributors and contractors. For significant national accounts, i.e. a major
oil company, the Company generally sells directly to the end user. The Company's
largest fiberglass composite UST customers are super-regional distribution
houses, hyper-markets and major oil companies; and typical customers for steel
ASTs include governments and quick-change lube centers. The Company has license
agreements with companies outside the United States to produce fiberglass
composite USTs using the Company's technology and continues to expand this
presence. The Company also has a joint venture in Venezuela to manufacture
fiberglass composite USTs.
The Company generally sells its engineered FRP products in both the United
States and Europe through a combination of direct field sales and a sales
representative network. The scope of the work performed by the Company is large
in nature and, unless characterized as a special situation, has long lead times
to order. The experienced sales force works closely with the customer in
designing the correct solution for the customer's need. The customer base of the
Company varies from year to year due to the project-oriented nature of the
Company's work in this area.
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The Company's engineered metal product customer focus has been the municipal
water industry. It has been the Company's experience that most municipal
projects are awarded on a price-based bid with attendant requirements for bid
bonding. The municipal customers are generally broad based with no known
customers representing over 20% of the Company's business activity in this area.
Alternatively, the Company believes that industrial client contracts are awarded
based upon a combination of bids and private negotiations. The Company believes
that it can differentiate itself in all engineered metal product markets in its
region as a result of the extensive services it offers through vertical
integration of its services.
The Company's distribution operation, through its inside sales staff,
markets its diverse products to an equally diverse customer base that ranges
from greenhouse agricultural producers to municipal incineration plants to pulp
and paper mills. This operation of the Company sells both into projects that
have long lead times and into the replacement market that has short lead times.
The customer base varies year to year due to the project-oriented nature of this
operation.
MATERIALS AND SUPPLIERS
Owens Corning and the Company are parties to a supply contract pursuant to
which the Company purchases from Owens Corning the fiberglass used in the
Company's composite products. The Company entered into a supply contract with
Owens Corning beginning January 1, 1998, to supply at least 90% of the
fiberglass requirements for two of the Company's subsidiaries, Fluid Containment
and Ershigs, through December 31, 1998. Effective January 1, 1999, the contract
was modified to obtain more favorable pricing levels based on certain minimum
volume purchases for the calendar years ended December 31, 1999 and 2000. In
addition, this contract contains certain stabilizing pricing parameters. In
addition to Owens Corning, the Company continues to negotiate with other vendors
to ensure a continued supply of fiberglass to the Company for its production
needs.
The Company is a significant purchaser of resin. Resin is available in
adequate supply from many sources. The Company does not depend upon any single
supplier or source. The Company has identified additional resin suppliers during
the last year, which will allow for competitive bidding should a future pricing
or supply imbalance occur. The Company's ability to operate and to grow is
partially dependent upon its ability to obtain an adequate supply of resin and
fiberglass. The Company believes current market conditions, the above actions
and contractual arrangements make significant raw material cost deviations
unlikely during the next 12 months.
For the Company's steel fabrication businesses, the principal materials used
are standard steel shapes, steel plates, fittings, welding gases and paint which
are all currently available in adequate supply from many sources. The Company
does not depend upon any single supplier or source with respect to these
materials.
The Company's distribution operation has products that are generally under
long-term exclusive contracts. The Company continues to expand and seek
alternatives for its product offerings.
PATENTS AND TRADEMARKS
The Company owns numerous United States patents and has a number of
trademarks registered in the United States. Although the Company regards its
patents and trademarks to be of value, it believes that in most instances its
manufacturing and technical knowledge and experience are more important to its
competitive position than are its patents and trademarks. The Company does not
consider its business to be dependent on any one or more of such patents or
trademarks.
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INSURANCE
The Company maintains a comprehensive insurance program providing various
types of coverage for its operations including, without limitation, commercial
general liability, commercial automobile liability, workers' compensation and
employment practices liability, directors and officers liability, business
interruption and property and casualty insurance. All policies are subject to
deductibles and other coverage limitations and are at limits and amounts of
insurance that, based on the Company's operating experience and consultations
with its independent insurance risk advisors, it believes are consistent with
customary practices and standards of companies engaged in similar businesses.
Although the Company's management believes that the Company's insurance is
adequate, there can be no assurance that the Company will be able to maintain
adequate insurance at rates which management considers commercially reasonable,
nor can there be any assurance such coverage will be adequate to cover all
claims that may arise.
GOVERNMENT REGULATION
The Company is subject to numerous foreign, federal, state and local laws
and regulations relating to the protection of health, safety and the
environment, including the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), the Clean Water Act, the Clean Air Act (including
the 1990 Amendments), the Resource Conservation and Recovery Act ("RCRA"), and
the Occupational Safety and Health Act ("OSHA"). Each of these statutes provides
for the imposition of substantial civil and criminal penalties, as well as the
possibility of permit revocation and corrective action orders, for violations of
its requirements. These laws may also provide for retroactive, strict liability,
rendering a party liable for environmental damage without regard to its
negligence or fault.
The Company believes that it is in substantial compliance with such laws.
Nevertheless, risks of substantial costs and liabilities are inherent in certain
of its operations, and in certain products produced by the Company, as they are
with other enterprises engaged in similar businesses. Since its formation,
however, the Company's cost of complying with environmental and health and
safety laws and regulations has not been material, but the fact that such laws
or regulations are changed frequently makes predicting the cost or impact of
such laws and regulations on its future operations uncertain. Modification of
existing laws or regulations or the adoption of new laws or regulations
affecting the Company's operations could adversely affect the Company.
EMPLOYEES
At July 3, 1999, the Company employed 1,789 employees. Four collective
bargaining agreements cover 226 employees in California, Pennsylvania, Texas and
Washington. All of these agreements expire between February 2000 and October
2001. The Company considers its employee relations to be good.
RISK FACTORS
Dependence on Industry Spending. The prospects for the Company depend upon
the level of capital and maintenance expenditures by its industrial customers.
These industries historically have been cyclical in nature and vulnerable to
general downturns in the economy. No assurance can be given that the Company
will be able to increase or maintain its level of revenues in periods of
economic stagnation or downturn. Decreases in industry spending could have a
significant adverse effect upon the demand for the Company's products and
services and the Company's results of operations.
Limited Operating History. The Company commenced operations in December 1994
and has only a limited operating history upon which investors may base an
evaluation of its performance. The likelihood of success of the Company must be
considered in light of the risks, expenses, difficulties and delays frequently
encountered in connection with the operation and development of new and
expanding businesses.
5
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Ability to Manage Growth and Achieve Business Strategy. Since 1994, the
Company has completed ten acquisitions of businesses in pursuit of its strategic
objectives. The Company plans to continue to pursue acquisitions that complement
its existing products and services. The Company expects to face competition for
acquisition candidates, which may limit the number of acquisition opportunities
and may lead to higher acquisition prices. There can be no assurance that the
Company will be able to identify, acquire or manage profitably additional
businesses or to integrate successfully any acquired businesses into the Company
without substantial costs, delays or other operational or financial
difficulties. Further, acquisitions involve a number of special risks, including
failure of the acquired business to achieve expected results, diversion of
management's attention, failure to retain key personnel of the acquired business
and risks associated with unanticipated events or liabilities, some or all of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
the businesses the Company has acquired or may acquire in the future will
achieve anticipated net revenues and earnings.
Need for Additional Capital, Leverage and Liquidity. The Company has
experienced and expects to continue to experience substantial working capital
needs to fund its operations. Although the Company believes that based on its
current operations it will be able to meet the interest and principal
obligations on its indebtedness and to fund its capital expenditures and other
operating expenses out of cash flow from operations and available borrowings
under its principal credit facility over the next 12 months, there can be no
assurance that the Company's business will continue to generate cash flow at
levels sufficient to meet these requirements. Further, the Company plans to
effect future acquisitions to pursue its business strategy which may require
additional financing. No assurance can be given as to the availability or terms
of any such additional financing that may be required.
Risks Related to Internal Growth Strategy. Key elements of the Company's
strategy are to improve the profitability of its businesses and any businesses
it may subsequently acquire and to continue to expand the net revenues of such
businesses. Although the Company intends to seek to improve the profitability of
such businesses by various means, including reducing administrative and other
costs, there can be no assurance that the Company will be able to do so. The
Company's ability to increase the net revenues of such businesses will be
affected by various factors, including demand for products, the Company's
ability to expand the range of products and services offered by each of such
businesses and the Company's ability to successfully enter new markets. Many of
these factors are beyond the control of the Company, and there can be no
assurance that the Company's strategies will be successful or that it will be
able to generate cash flow adequate for its operations and to support internal
growth.
Competition. The markets for the Company's products are fragmented and
highly competitive. Although none of the Company's competitors are considered
dominant, there are competitors that have significantly greater resources than
the Company, which, among other things, could be a competitive disadvantage to
the Company in securing certain projects.
International Expansion and Foreign Currency Transactions. The Company's
successful expansion into global markets has and will continue to depend on
numerous factors, many of which are beyond its control. In addition, global
expansion does increase the Company's exposure to certain risks inherent in
doing business outside the United States, including currency fluctuations,
restrictions on the repatriation of profits, compliance with foreign laws and
standards and political risks. Although the majority of the Company's contracts
with respect to international revenues historically have been denominated in
United States dollars, future contracts will be denominated in multiple
currencies because of our increased international presence; therefore, the
Company will be subject to foreign exchange risks in the future. The Company
does not presently hedge exchange rate fluctuations, but, in the future, may
hedge economic exposures.
Potential for Product Liability Claims. Certain of the Company's products
are used in handling potentially hazardous materials. Based on the Company's
operating experience and consultation with its independent insurance risk
advisors, the Company carries insurance in amounts that it considers adequate.
However, catastrophic occurrences at locations where the Company's products are
used could in the future result in significant product liability claims against
the Company. In addition, a number of the Company's products are used to store
regulated substances such as petroleum. The release or leakage of such
substances from these products could also result in liability claims against the
Company.
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Governmental Regulation. The Company is subject to various foreign, federal,
state and local laws and regulations relating to the protection of health,
safety and the environment. The Company's business involves environmental and
health and safety management issues typically associated with manufacturing
operations. Since formation of the Company, the Company's cost of complying with
such laws and regulations has not been material. However, future laws and
regulations may become more stringent and may require the Company to incur
significant additional costs.
Seasonality. The Company's operations are subject to seasonal variations in
weather conditions. Because most of the Company's customers' construction
activities take place outdoors, the number of projects in the United States
generally declines in the winter months due to an increase in rainy and cold
conditions. In addition, its customers in the United States often schedule the
completion of their projects during the summer months in order to take advantage
of the milder weather for the installation of their equipment and systems.
Conversely in Europe, the summer holiday season coincides with a decline in
business activity. As a result, a disproportionate amount of the Company's net
income, net revenues and gross profit has historically been earned during the
first and fourth quarters of the fiscal year. With the addition of Welna, some
of this seasonality will be modified. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Reliance on Principal Supplier. The principal raw materials used by the
Company in its manufacture of fiberglass composite USTs are fiberglass and
resin. Although resin is available in adequate supply from a variety of sources,
substantial manufacturers of fiberglass are more limited in number. Because of
this limited market supply, the Company entered into a supply contract with
Owens Corning. The Company entered into a new supply contract with Owens Corning
beginning January 1, 1998 to supply at least 90% of the fiberglass requirements
for two of the Company's subsidiaries, Fluid Containment and Ershigs, through
December 31, 1998. Effective January 1, 1999, the contract was modified to
obtain more favorable pricing levels based on certain minimum volume purchases
for the calendar years ended December 31, 1999 and 2000. In addition, this
contract contains certain pricing stabilization terms. As a result of this
arrangement, the Company remains significantly dependent upon Owens Corning to
deliver quality product in accordance with and, as required by, the Company's
needs.
Dependence on Key Personnel. The Company is dependent upon a limited
number of key management, technical and sales personnel. The Company's future
success will depend, in part, upon its ability to attract and retain highly
qualified personnel. The Company faces competition for such personnel from other
companies and organizations, and there can be no assurance that the Company will
be successful in hiring or retaining qualified personnel. The Company does not
have written employment agreements with its officers providing for specific
terms of employment, and officers and other key personnel could leave the
Company's employ with little or no prior notice. The Company's loss of key
personnel, especially if the loss is without advance notice, or the Company's
inability to hire or retain key personnel, could have a material adverse effect
on the Company's business, financial condition or results of operations. The
Company does not carry any key man life insurance.
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ITEM 2. PROPERTIES
The Company operates facilities throughout the United States and Europe and
considers them to be in good operating condition and adequate for their present
uses. The Company believes that it has sufficient capacity to meet its current
and anticipated manufacturing requirements for its operations. The following
table sets forth the Company's principal manufacturing plants and offices:
<TABLE>
<CAPTION>
Leased Lease
Approx. Area or Owned Expiry
(Sq. Ft.) Owned Acreage Date Uses
--------- ----- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Fiberglass Composite Underground
Storage Tanks
Conroe, TX 130,000 Owned 65 N/A Manufacturing plant and
Containment Solutions Group
headquarters
Mount Union, PA 110,000 Owned 24 N/A Manufacturing plant
Bakersfield, CA(1) 73,000 Owned 20 N/A Manufacturing plant
Tualatin, OR 48,000 Leased N/A 2008 Manufacturing plant and
Administrative offices
Steel Aboveground Storage Tanks
Baltimore, MD 63,000 Leased N/A 2004 Manufacturing plant and
administrative offices
Bakersfield, CA(1) 73,000 Owned 20 N/A Manufacturing plant
Lebanon, PA 97,850 Leased N/A 2003 Manufacturing plant
Engineered Fiberglass Reinforced
Composite Products
Bellingham, WA 63,000 Owned 6 N/A Manufacturing plant and
Administrative offices
Wilson, NC 47,000 Owned 4 N/A Manufacturing plant
Biloxi, MS 29,000 Owned 5 N/A Manufacturing plant
Belton, TX 87,400 Leased N/A 2008 Manufacturing plant and
administrative offices
Engineered Field-erected Steel Tanks
Tulsa, OK 33,000 Owned 12 N/A Manufacturing plant and
administrative offices
Fiberglass-reinforced Plastic Piping
Systems
Sand Springs, OK 244,058 Owned 16 N/A Manufacturing plant and
Specialty Solutions Group
headquarters
Welna N.V.
Welna Synthetics:
Dinslaken, Germany 96,870 Owned 4 N/A Manufacturing plant
Gelsdorf, Germany 3,230 Leased N/A N/A Sales office
Frankfurt, Germany 5,380 Leased N/A 2008 Sales office
Haren, Germany 2,150 Leased N/A N/A Sales office
Eschborn, Germany 2,150 Leased N/A N/A Sales office
Goteborg, Sweden 4,310 Leased N/A N/A Sales office
Krems, Germany 2,150 Leased N/A N/A Sales office
Oldenzaal, Netherlands 107,640 Owned 4 N/A Manufacturing plant
Hengelo, Netherlands 64,580 Owned 4 N/A Manufacturing plant
Oldenzaal, Netherlands 21,530 Owned 1 N/A Administrative offices
Heerenveen, Netherlands 59,200 Owned 2 N/A Manufacturing plant
Tilburg, Netherlands 37,670 Owned 2 N/A Manufacturing plant
</TABLE>
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<TABLE>
<CAPTION>
Leased Lease
Approx. Area or Owned Expiry
(Sq. Ft.) Owned Acreage Date Uses
--------- ----- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Torun, Poland 175,000 Owned 7 N/A Manufacturing plant and administrative
offices
La Roche-sur-Yon, France 96,870 Owned 9 N/A Manufacturing plant and administrative
offices
Beverly/Scunthorp, U.K. 32,290 Owned 1 N/A Manufacturing plant and administrative
offices
Bangpakong, Thailand 32,290 Leased N/A N/A Manufacturing plant and administrative
offices
Emmeloord, Netherlands 540 Leased N/A N/A Sales office
Welna Trade:
Temse, Belgium 2,150 Leased N/A N/A Sales office
Brussels, Belgium 2,150 Leased N/A 2001 Sales office
Brussels, Belgium 3,230 Owned .1 N/A Sales office
Temse, Belgium 8,070 Owned .2 N/A Sales office
Hengelo, Netherlands 32,290 Owned 1 N/A Administrative and sales offices
Waddinxveen, Netherlands 12,920 Leased N/A 2003 Sales office
Geldermalsen, Netherlands 4,310 Leased N/A 2004 Sales office
Torun, Poland 10,764 Owned .3 N/A Sales office
</TABLE>
(1) Shared Facility
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is a party to what it believes is routine
litigation and proceedings that may be considered as part of the ordinary course
of its business. The Company is not aware of any current or pending litigation
or proceedings that could have a material adverse effect on the Company's
operations, financial condition or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "DNLI". The Company's Common Stock commenced trading on November 21,
1997. The high and low sales prices per share for the periods indicated were as
follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Period from November 21, 1997 to December 27, 1997 $13.500 $12.250
Quarter Ended March 28, 1998 $17.000 $12.750
Quarter Ended June 27, 1998 $18.250 $14.875
Quarter Ended September 26, 1998 $16.500 $ 9.500
Quarter Ended December 26, 1998 $13.500 $ 9.000
Quarter Ended March 27, 1999 $14.000 $ 7.500
Quarter Ended July 3, 1999 $ 9.500 $ 6.625
</TABLE>
As of August 31, 1999, there were 47 holders of record of the outstanding
shares of Common Stock of the Company.
The Company does not currently intend to declare or pay dividends on its
Common Stock and expects to retain funds generated by operations for the
development and growth of the Company's business. The Company's future dividend
policy will be determined by the Company's Board of Directors on the basis of
various factors, including among other things, the Company's financial
condition, cash flows from operations, the level of its capital expenditures,
its future business prospects, the requirements of Delaware law and any
restrictions imposed by the Company's credit facilities. Under the Company's
credit facilities, distributions in the form of dividends and stock repurchases
are allowed only in connection with a permitted acquisition in accordance with
terms disclosed in the Company's loan agreement.
USE OF PROCEEDS FROM THE SALE OF REGISTERED SECURITIES
SALES OF UNREGISTERED SECURITIES
On November 23, 1998, the Company issued 60,866 shares of its common stock
to the former shareholders of Plasti-fab, Inc. as partial consideration for the
acquisition of all of the outstanding stock of Plasti-fab, Inc. This issuance
was exempt from the registration requirements of the Securities Act of 1933 as a
transaction not involving any public offering pursuant to Section 4(2) of that
act and Regulation D promulgated under that act.
On February 3, 1999, the Company issued 44,417 shares of its common stock
to the former shareholders of Belco Manufacturing Company, Inc. as partial
consideration for the acquisition of all of the outstanding stock of Belco
Manufacturing Company, Inc. This issuance was exempt from the registration
requirements of the Securities Act of 1933 as a transaction not involving any
public offering pursuant to Section 4(2) of that act and Regulation D
promulgated under that act.
On July 1, 1999, the Company issued 489,189 shares of its common stock to 9
investors, including 5 directors or affiliates of directors of the Company, for
cash consideration of $9.25 per share. The Company used the proceeds from this
issuance to fund a portion of the purchase price for the acquisition of Welna.
This issuance was exempt from the registration requirements of the Securities
Act of 1933 as a transaction not involving any public offering pursuant to
Section 4(2) of that act and Regulation D promulgated under that act.
10
<PAGE> 13
On July 1, 1999, the Company issued an aggregate of $15 million of its
senior subordinated notes and warrants to purchase 534,873 shares of its common
stock to 10 investors, including 5 directors or affiliates of directors of the
Company, for cash consideration of $1,000 per unit. Each unit consisted of
$1,000 principal amount of notes and warrants to purchase 35.66 shares. The
warrants have an exercise price of $7.54/share and expire on July 1, 2006. The
Company used the proceeds from this issuance to fund a portion of the purchase
price for the acquisition of Welna. This issuance was exempt from the
registration requirements of the Securities Act of 1933 as a transaction not
involving any public offering pursuant to Section 4(2) of that act and
Regulation D promulgated under that act.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this document.
<TABLE>
<CAPTION>
For the period
December 19,
1994 (date of Year Ended
inception) to ----------------------------------------------------------
July 1, June 29, June 28, June 27, July 3,
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenues ..................................... $ 17,799 $ 53,354 $ 71,101 $ 99,897 $ 148,760
Cost of revenues ................................. 13,473 43,518 57,268 77,273 110,957
---------- ---------- ---------- ---------- ----------
Gross profit ..................................... 4,326 9,836 13,833 22,624 37,803
Selling, general and administrative expenses ..... 3,771 9,604 11,874 17,843 27,244
Non-recurring compensation expense ............... -- -- -- 2,312 682
---------- ---------- ---------- ---------- ----------
Operating income ................................. 555 232 1,959 2,469 9,877
Interest expense ................................. 671 1,783 2,058 1,614 3,199
Interest income .................................. -- (65) (111) (118) (124)
Other income, net ................................ (72) (206) (598) (489) (453)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes ................ (44) (1,280) 610 1,462 7,255
Income tax provision (benefit) ................... (1) (446) 293 1,352 2,854
---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item ...... (43) (834) 317 110 4,401
Extraordinary income (loss) on early
extinguishment of debt, net of income tax ...... -- -- -- 219 (281)
---------- ---------- ---------- ---------- ----------
Net income (loss) ................................ (43) (834) 317 329 4,120
Dividends on Series A Preferred Stock ............ (60) (120) (120) (30) --
---------- ---------- ---------- ---------- ----------
Net income (loss) attributable to Common
Stock .......................................... $ (103) $ (954) $ 197 $ 299 $ 4,120
========== ========== ========== ========== ==========
Net income (loss) per common share - basic
and diluted .................................... $ (0.05) $ (0.44) $ 0.09 $ 0.08 $ 0.84
========== ========== ========== ========== ==========
Weighted average common shares outstanding
assuming dilution .............................. 2,078 2,185 2,198 3,875 4,888
========== ========== ========== ========== ==========
CASH FLOW DATA:
Net cash provided by (used in) operating
activities ..................................... $ 3,789 $ (109) $ 625 $ 3,854 $ 7,239
Net cash used in investing activities ............ (7,527) (5,430) (4,631) (31,126) (51,327)
Net cash provided by financing activities ........ 4,737 4,664 4,212 27,117 45,737
OTHER DATA:
Depreciation and amortization .................... $ 354 $ 913 $ 1,221 $ 1,692 $ 3,260
EBITDA(2) ........................................ 981 1,416 3,889 7,080 14,396
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
As of
------------------------------------------------------------------------
July 1, June 29, June 28, June 27, July 3,
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital .................................. $ 3,192 $ 5,649 $ 8,019 $ 14,141 $ 17,811
Total assets ..................................... 21,814 30,318 41,084 80,382 176,575
Total debt ....................................... 13,810 18,661 24,024 29,896 92,229
Series A Preferred Stock (redeemable) ............ 1,200 1,200 1,200 -- --
Stockholders' equity (deficit) ................... $ 216 $ (738) $ (541) $ 28,674 $ 38,569
</TABLE>
(1) The Company uses a 52- or 53-week year-end ending on the Saturday closest to
June 30. The fiscal year ended July 3, 1999 was a 53-week year.
(2) EBITDA represents consolidated net income before interest expense, income
tax, depreciation and amortization, non-recurring compensation expense and
extraordinary items. The Company believes that EBITDA is a meaningful
measure of its operating performance; however, EBITDA should not be
considered in isolation from or as a substitute for net income or cash flow
measures prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. In
addition, EBITDA may not be comparable to similarly titled measures reported
by other companies.
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this document.
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 ten 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.
Containment Products Group - "Containment Solutions"
The Company was formed in December 1994 to acquire certain assets and assume
certain liabilities of the fiberglass composite UST business of Owens Corning,
including five manufacturing facilities. The Company closed two of the
manufacturing facilities and significantly restructured the operations of this
business at the time of purchase.
In October 1995, the Company acquired certain assets and assumed certain
liabilities of Hoover Containment Inc. ("Hoover"), a manufacturer of steel
rectangular ASTs. The Company eliminated certain operating costs through the
sharing of certain general and administrative functions within the acquired
businesses. 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.
In November 1998, the Company acquired Plasti-Fab, Inc., a leader in
providing fiberglass-reinforced flumes and metering stations to the water and
wastewater industries. These three businesses form the Company's Containment
Products Group known as Containment Solutions.
Engineered Products Group - "Specialty Solutions"
In February 1997, the Company acquired Ershigs, Inc., ("Ershigs") a
manufacturer of engineered FRP products, as the first of the Company's
Engineered Products Group. 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"), a manufacturer
of engineered field-erected aboveground steel tanks, and also acquired
GL&V/LaValley Industries, Inc. ("LaValley") (subsequently named "Ershigs
Biloxi"), a manufacturer of engineered FRP products.
In May 1998, the Company acquired CC&E, a leading North American field
constructor of fiberglass-reinforced plastic products and integrated the
operations into Ershigs.
In June 1998, the Company acquired Fibercast Company, a leading manufacturer
of fiberglass-reinforced plastic piping systems specializing in highly corrosive
environments. Fibercast will remain an autonomous operation within the Specialty
Solutions Group.
13
<PAGE> 16
In February 1999, the Company acquired Belco Manufacturing Company, Inc. and
certain assets and assumed certain liabilities of S. Jones Limited Partnership
(collectively "Belco"). Belco manufactures engineered fiberglass-reinforced
plastic tanks, vessels and piping systems. Belco's products are sold primarily
into the water/wastewater and oil and gas industries where corrosion-resistant
products are needed. Belco, Fibercast, Ershigs and SEFCO form the Company's
Engineered Products Group known as Specialty Solutions.
On July 1, 1999, the Company acquired Welna, N.V., a company which operates
through two divisions. Welna Synthetics designs, manufactures, and installs all
forms of FRP pipe systems, vessels and other related equipment requiring high
levels of corrosion resistance. Welna Trade is a distribution operation that
specializes in high quality products and engineered systems for power
generation, water treatment, and paper and chemical processing industries.
Welna's operations had no effect on the Company's operating results for fiscal
year 1999. Welna's balance sheet has been consolidated as of July 3, 1999.
The following table indicates the Company's net revenues by segment for
fiscal 1997, 1998 and 1999 (in millions):
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
June 28, June 27, July 3,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net revenues by segment:
Containment Solutions ........ $ 64.8 $ 71.5 $ 93.8
Specialty Solutions .......... 6.3 28.4 55.0
-------- -------- --------
Total net revenues .... $ 71.1 $ 99.9 $ 148.8
======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth for fiscal 1997, 1998 and 1999, the
percentage relationship to net revenues of certain expenses and earnings:
<TABLE>
<CAPTION>
As a Percentage of Net Revenues
--------------------------------------
Year Year Year
Ended Ended Ended
June 28, June 27, July 3,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ................................... 100.0% 100.0% 100.0%
Cost of revenues ............................... 80.5 77.4 74.6
-------- -------- --------
Gross profit ................................... 19.5 22.6 25.4
-------- -------- --------
Selling, general and administrative expenses ... 16.7 17.8 18.3
Non-recurring compensation expense ............. -- 2.3 0.5
-------- -------- --------
Operating income ............................... 2.8 2.5 6.6
Interest expense ............................... 2.9 1.6 2.1
Interest income ................................ (0.2) (0.1) (0.1)
Other income, net .............................. (0.8) (0.5) (0.3)
-------- -------- --------
Income before income taxes ..................... 0.9 1.5 4.9
Income tax provision ........................... 0.4 1.4 1.9
-------- -------- --------
Net income before extraordinary item ........... 0.5% 0.1% 3.0%
======== ======== ========
</TABLE>
14
<PAGE> 17
FISCAL 1999 COMPARED WITH FISCAL 1998
The Company's results of operations for fiscal 1999 were significantly
affected by the inclusion of acquired companies. The results of SEFCO and
LaValley were included for a full year in fiscal 1999 versus 34 weeks in fiscal
1998. CC&E and Fibercast were included for a full year in fiscal year 1999
compared to seven and three weeks in fiscal year 1998, respectively. The results
of Plasti-fab and Belco were included for 31 and 21 weeks in fiscal 1999,
respectively, following their purchases in November 1998 and February 1999. The
acquisition of Welna on July 1, 1999 had no impact on the current year results.
In addition, the Company utilizes a 52- or 53-week year-end ending on the
Saturday closest to June 30. The fiscal year ended July 3, 1999 was a 53-week
year.
Net revenues for fiscal 1999 increased $48.9 million, or 49%, to $148.8
million in fiscal 1999 from $99.9 million in fiscal 1998. Revenues from the
Specialty Solutions Group increased $26.6 million due primarily to the inclusion
of prior year acquisitions for a full fiscal year. The Containment Solutions
Group had an increase in revenues of $22.3 million, primarily from an increase
in UST demand from new construction and replacement.
Gross profit increased $15.2 million, or 67%, to $37.8 million in fiscal
1999 from $22.6 million in 1998. Gross margins for the Containment Solutions
Group increased to 25.3% in fiscal 1999 as compared to 20.9% in fiscal 1998 due
primarily to operational improvements and volume efficiencies. The gross margin
at Specialty Solutions decreased slightly to 25.6% in fiscal 1999 from 27.1% in
fiscal 1998. This slight decrease is the result of changes in the product and
job mix from the prior year.
Selling, general and administrative expenses increased $9.4 million, or
53%, to $27.2 million in fiscal 1999 from $17.8 million in fiscal 1998,
excluding non-recurring compensation charges of $682,000 and $2.3 million in
1999 and 1998, respectively. The increase is primarily attributable to
additional expenses from the acquired companies and increased sales expense due
to volume increases at Containment Solutions. Selling, general and
administrative expenses, as a percentage of net revenues, remained consistent at
18.3% for fiscal 1999 compared to 17.8% in fiscal 1998.
In the current fiscal year, the Company recognized a $682,000 non-recurring
compensation charge in the second quarter relating to a salary continuation
agreement. In fiscal 1998, the Company recognized a $2.3 million non-recurring
compensation charge in the first quarter due to the exchange of subsidiary stock
options for Denali stock options.
Interest expense in fiscal 1999 was $3.2 million compared to $1.6 million
in fiscal 1998. The increase was due to borrowings required to finance the
Company's acquisitions in late fiscal 1998 and fiscal 1999.
The Company's provision for income taxes differs from the U.S. statutory
rate of 34% due to state taxes, non-deductible goodwill amortization and other
permanent differences. In fiscal 1998, the Company's provision for income taxes
differed from the U.S. statutory rate due to the non-recurring compensation
charge being non-deductible for income tax purposes.
The Company recognized an extraordinary loss on the early extinguishment of
debt, net of income tax, of $281,000 in the third quarter of fiscal 1999.
Due to the factors described above, net income attributable to common stock
for fiscal 1999 increased from $299,000 in fiscal 1998 to $4.1 million in fiscal
1999. Earnings per share, excluding the non-recurring compensation expense and
extraordinary items, increased 60% to $.99 in fiscal 1999 from $.62 in fiscal
1998 on a diluted basis. Including the non-recurring compensation expense,
fiscal 1999 earnings per diluted share were $.90 before extraordinary items and
$.84 after extraordinary items.
15
<PAGE> 18
FISCAL 1998 COMPARED WITH FISCAL 1997
The Company's results of operations for fiscal 1998 were significantly
affected by the inclusion of acquired companies. The results of Ershigs were
included for a full year in fiscal 1998 versus 17 weeks in fiscal 1997,
following the February 1997 acquisition by the Company. SEFCO and LaValley were
acquired in October 1997 and were included in the Company's results for 34 weeks
in fiscal 1998 and were not included in fiscal 1997 results. The results of CC&E
and Fibercast were included for seven and three weeks in fiscal 1998,
respectively, following the Company's purchases in May and June 1998.
Net revenues for fiscal 1998 increased $28.8 million, or 41%, to $99.9
million in fiscal 1998 from $71.1 million in fiscal 1997. Revenues at Specialty
Solutions increased $22.1 million due to the inclusion of acquired companies'
results in fiscal 1998. Revenues at Containment Solutions increased 10%, or $6.7
million, due to continued strong demand for petroleum storage tanks.
Gross profit increased $8.8 million, or 64%, to $22.6 million in fiscal
1998 from $13.8 million in fiscal 1997. Gross profit margins were 22.6% and
19.5% for fiscal 1998 and 1997, respectively. Gross profit margins at
Containment Solutions increased to 20.9% in fiscal 1998 as compared to 19.6% in
fiscal 1997 due to better throughput at the Company's manufacturing facilities.
The gross profit margin at Specialty Solutions improved to 27.1% in fiscal 1998
versus 18.2% in fiscal 1997 due to significant operating improvements at
Ershigs, purchased by the Company in fiscal 1997, and the additions of LaValley
and SEFCO to Specialty Solutions in fiscal 1998.
Selling, general and administrative expenses increased $5.9 million, or
50%, to $17.8 million in fiscal 1998 from $11.9 million in fiscal 1997,
excluding the $2.3 million compensation charge taken in fiscal 1998. The
increase is attributable to additional expenses associated with the acquired
companies at Specialty Solutions and increased sales and marketing expenses at
Containment Solutions. Selling, general and administrative expenses increased as
a percentage of net revenues from 16.7% in fiscal 1997 to 17.8% in fiscal 1998.
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 in fiscal 1998 was $1.6 million compared to $2.1 million
in fiscal 1997. The decrease in fiscal 1998 was due to the use of IPO proceeds
to pay down the Company's debt, partially offset by increased borrowings
required to finance the Company's acquisitions in fiscal 1998.
The Company's provision for income taxes primarily differs from the U.S.
statutory rate of 34% due to the non-recurring compensation charge being
non-deductible for income tax purposes. In addition, the Company's provision for
income taxes differs from the U.S. statutory rate due to state income taxes and
other permanent differences.
The Company recognized an extraordinary gain on the early extinguishment of
debt, net of income tax, of $219,000 in fiscal 1998.
Due to the factors described above, net income attributable to common stock
for fiscal 1998 increased from $197,000 in fiscal 1997 to $299,000 in fiscal
1998. Earnings per share, excluding the non-recurring compensation expense and
extraordinary items, increased from $.09 in fiscal 1997 to $.62 in fiscal 1998
on a diluted basis. Including the non-recurring compensation expense, earnings
per diluted share were $.02 in fiscal 1998 before extraordinary items and $.08
after extraordinary items.
16
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
Working capital at July 3, 1999 was $17.8 million, as compared to $14.1
million at June 27, 1998. Cash provided by operating activities was $7.2 million
for fiscal 1999 and $3.9 million in fiscal 1998. The improvement in cash
provided by operating activities resulted primarily from a $1.5 million increase
in net income, adjusted to exclude the non-cash, non-recurring compensation
expense of $2.3 million in fiscal 1998. In addition, the Company had an increase
of $1.6 million in depreciation and amortization due to acquisitions made in
late fiscal 1998 and in fiscal 1999. Capital expenditures totaled $2.9 million
and $3.1 million in fiscal 1999 and fiscal 1998, respectively.
As further described in Note 6 to the Denali Incorporated Consolidated
Financial Statements, the Company refinanced its credit facilities on January
12, 1999. In connection with the extinguishment of its old credit facility upon
funding of a new credit facility, the Company recorded an extraordinary loss of
$454,000 ($281,000 net of tax) related to unamortized debt origination costs for
the fiscal year ended July 3, 1999.
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 $75
million, including a $35 million acquisition term loan. As of July 3, 1999, the
Company had outstanding indebtedness of $36.2 million under the term loans and
$11 million 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 6 of Notes to the Consolidated Financial Statements for certain information
regarding the Credit Facility. The new revolving credit facility and term loan
provide for borrowings, at the Company's option, at either the bank's prime rate
plus a margin of 1.75% or varying rates of LIBOR plus 3.0%. The acquisition term
loan provides for borrowings, at the Company's option, at either the bank's
prime rate plus a margin of 2.25%, or at varying rates of LIBOR plus 3.5%. The
Credit Facility has a five-year term expiring in January 2004.
This new senior credit facility provides availability for letters of credit
up to $10.0 million subject to availability of borrowing capacity under the
revolving credit notes. As of July 3, 1999, the Company had $2.0 million of
letters of credit outstanding. The new senior credit facility requires the
Company to maintain certain financial covenants and requires an annual fee of
.50% on the unused portion of the revolving credit notes and .75% on the unused
portion of the acquisition term loan. As of July 3, 1999, the Company's unused
portion of the revolving credit line and acquisition term loan was $7.5 million
and $17.8 million, respectively. The Company was in compliance with all required
financial covenants at July 3, 1999. This new senior credit facility is secured
by substantially all of the assets of the Company's subsidiaries.
In June 1999, the Company entered into a new senior credit facility with
two Netherlands financial institutions ("Senior Dutch Facility") to finance the
acquisition of Welna. The new Senior Dutch Facility provides for two term loans
for a total facility of Dutch guilders (NLG) 25 million. Term Loan A provides
for borrowings of NLG 15 million with quarterly payments of NLG 625,000
beginning October 1, 1999. Term Loan B provides for borrowings of NLG 10 million
with principal due at date of maturity (August 1, 2001). As of July 3, 1999, the
Company had outstanding indebtedness of NLG 25 million, or approximately $11.7
million. The term loans bear interest at Euribor plus 1.75%. The Senior Dutch
Facility requires the Company to maintain certain financial covenants. The
facility is secured by substantially all of Welna's assets.
On July 1, 1999, the Company issued $15 million or $13.3 million net of
discount (of which $3,980,000 is to certain directors of the Company and is
classified separately as related party subordinated debt on the balance sheet)
in senior subordinated notes ("subordinated notes") bearing interest at 12% and
maturing in 2006. The subordinated notes were issued with detachable warrants
that enable the holder to purchase up to 534,873 common shares at $7.54 per
share. The warrants are exercisable immediately and expire in 2006. The warrants
or warrant shares also feature a put option that allows the holder to put up to
1/3 of the warrants or warrant shares each year at fair market value beginning
in year five and expiring in year ten. The Company has an option to terminate
the obligation to repurchase the warrants or warrant shares for a total fee not
to exceed $2.46 million. The warrants were recorded at fair value of $1,733,000
based on Black Scholes valuation model, which has been recorded as a liability,
and a related discount on the senior subordinated debt was recorded for the same
amount. This discount will be amortized over the seven year term of the note as
additional interest expense. The liability will be adjusted to the fair value of
the warrants in future periods not to exceed $2.46 million. The proceeds from
the subordinated debt issuance were used in the funding of the acquisition of
Welna.
The Company assumed $1.0 million in Industrial Revenue Bonds ("IRBs") in
connection with its acquisition of the Owens Corning fiberglass composite UST
business. The IRBs bear interest at 9.875% per annum, mature in February 2001
and are secured by the Company's Conroe, Texas manufacturing facility. These
bonds were repaid during fiscal year 1999.
17
<PAGE> 20
The Company assumed $3.5 million of term debt with a financial institution
in connection with its acquisition of Fibercast in June 1998. The term debt
bears interest at prime plus .50%. Monthly principal payments of $58,500 plus
interest are due monthly beginning August 1998 and the facility expires in
February 2001. This note was refinanced under the terms of the new senior credit
facility on January 12, 1999.
The Company also assumed approximately $15 million in debt, net of cash
acquired, with the acquisition of Welna on July 1, 1999. The debt bears interest
at an average of approximately 4.2% and is primarily line of credit facilities
with various financial institutions which are due on demand.
The Company's capital requirements primarily relate to acquisitions of
businesses in the critical fluids handling industry. The Company has made cash
payments net of cash acquired for acquisitions of approximately $94.4 million in
the aggregate since inception in December 1994. The source of this cash
primarily has been bank debt along with proceeds from the sale of idle assets
and use of net working capital. The Company's acquisition program will 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.
QUARTERLY RESULTS AND SEASONALITY
The Company has experienced significant fluctuations in its quarterly
results of operations. These fluctuations have been attributable to timing of
acquisitions and seasonality. The Company's quarterly operating results are
affected by the annual construction season slowdown resulting from winter
weather especially in the period December through March. The fiberglass
composite UST business is especially impacted during the winter months. The
following table represents the Company's selected unaudited quarterly
consolidated statements of operations for each quarter in fiscal 1998 and 1999:
<TABLE>
<CAPTION>
Fiscal Year ended June 27, 1998 Fiscal Year ended July 3, 1999
-------------------------------------------------- -------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 21,979 $ 24,914 $ 21,587 $ 31,417 $ 35,535 $ 38,353 $ 36,328 $ 38,544
Gross profit 4,830 5,731 4,295 7,768 8,766 10,140 8,661 10,236
Operating income (1,307)* 1,310 313 2,153 2,577 2,141* 1,596 3,563
(loss)
Income (loss) before
extraordinary item (1,965) 580 135 1,360 1,285 916 476 1,724
Extraordinary item -- (19) 238 -- -- -- (281) --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ (1,965) $ 561 $ 373 $ 1,360 $ 1,285 $ 916 $ 195 $ 1,724
</TABLE>
* Results for the first quarter of fiscal 1998 and the second quarter of fiscal
1999 include non-recurring compensation expenses of $2.3 million and $682,000,
respectively. In addition, the Company uses a 52- or 53-week year-end ending on
the Saturday closest to June 30. The fiscal year ended July 3, 1999 was a
53-week year.
<TABLE>
<CAPTION>
Fiscal Year ended June 27, 1998 Fiscal Year ended July 3, 1999
------------------------------------------------ -----------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic-net income
(loss) per share
before extra-
ordinary item $ (0.91) $ 0.18 $ 0.03 $ 0.28 $ 0.27 $ 0.19 $ 0.10 $ 0.35
Diluted-net income
(loss) per share
before extra-
ordinary item $ (0.91) $ 0.17 $ 0.03 $ 0.28 $ 0.27 $ 0.19 $ 0.10 $ 0.35
</TABLE>
18
<PAGE> 21
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 has completed the assessment of its computer software, hardware
and other systems, including embedded technology, relative to year 2000
compliance. The Company's domestic operations have completed the updating of
their software and hardware systems to improve the efficiency of their business
information systems. The Company's foreign subsidiaries are currently updating
their software and hardware in order to improve the timeliness and quality of
their business information systems. A byproduct of these improvements includes
year 2000 compliance software in certain operating subsidiaries that otherwise
are not year 2000 compliant today. Software selection at these subsidiaries has
been completed and implementation has begun with anticipated completion ranging
from October 1999 to December 1999. With this schedule, the year 2000 issue is
not expected to pose significant operational problems for the Company's computer
systems. Because conversions for business reasons are leading to year 2000
compliance, the Company does not expect incremental expense for year 2000
compliance.
The Company has completed its assessment of key vendors, customers and other
third parties and based on this assessment, the Company does not anticipate that
year 2000 issues will have a material impact on the Company's operations or
financial results. With respect to suppliers, the Company relies on several key
suppliers for resin and fiberglass used in its operations, and interruptions in
these suppliers' operations resulting from year 2000 problems could impact the
Company's operations and financial results. However, there are alternative
suppliers for these materials, and the Company anticipates that it would be able
to obtain sufficient raw materials to continue to conduct its business.
Because the Company anticipates that it will complete its year 2000
remediation efforts in advance of December 31, 1999, it has not made any
contingency plans with respect to its operations and systems. However, if the
software changes and modifications of existing software are not made, or are not
completed timely, the year 2000 issue could have a material impact on the
operations of the Company. With respect to key suppliers, the Company has begun
to identify potential alternative suppliers of raw materials in the event that
its key suppliers suffer business interruptions as a result of year 2000
problems.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
adopted the Euro as their common legal currency and established fixed conversion
rates between their existing sovereign currencies and the Euro. The Company is
currently evaluating issues raised by the introduction and initial
implementation of the Euro on January 1, 2002. The Company does not expect costs
of system modifications to be material, nor does it expect the introduction and
use of the Euro to materially and adversely affect its financial condition or
results of operations. The Company will continue to evaluate the impact of the
Euro introduction.
19
<PAGE> 22
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Form 10-K 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is subject to market risk exposure related to changes in
interest rates on its senior domestic and foreign credit facilities, which
includes revolving credit notes and term notes. These instruments carry interest
at a pre-agreed upon percentage point spread from either the prime interest
rate, LIBOR, or Euribor. Under its senior domestic credit facilities, the
Company may, at its option, fix the interest rate for certain borrowings based
on a spread over LIBOR for 30 days to 6 months. At June 27, 1998 and July 3,
1999, the Company had $28.7 million and $58.9 million, respectively, outstanding
under its senior credit facilities. Based on these balances, an immediate change
of one percent in the interest rate would cause a change in interest expense of
approximately $287,000 and $589,000, or $.05 and $.07, net of tax, per diluted
share, respectively, on an annual basis. The Company's objective in maintaining
these variable rate borrowings is the flexibility obtained regarding early
repayment without penalties and lower overall cost as compared with fixed-rate
borrowings.
The Company also has working capital lines of credit with various financial
institutions for several foreign subsidiaries. These lines of credit are
denominated in the subsidiary's local currency. The majority of these
instruments carry interest at a percentage point spread from certain European
interest rates, such as LIBOR, PIBOR and STIBOR. At July 3, 1999, the Company
had $16.2 million outstanding under these facilities. Based on this balance, an
immediate change of one percent in the interest rate would cause a change in
interest expense of approximately $162,000, or $0.02, net of tax, per diluted
share, on an annual basis.
Beginning in fiscal year 2000, the Company, through its subsidiary Welna,
will have manufacturing and sales activities in foreign jurisdictions. In 1999,
the Company manufactured its products in the United States. With the addition of
Welna, the Company will have manufacturing and sales facilities in The
Netherlands, Germany, Poland, France and the United Kingdom. In addition, the
Company will also have sales activities in Belgium and Thailand. As a result,
the Company's financial results could be significantly affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in the
foreign markets in which the Company distributes its products. The Company's
operating results are primarily exposed to changes in exchange rates between the
Dutch guilder and the Polish Zloty and Swedish Krona (non-Euro countries). When
the Dutch guilder strengthens against the Polish Zloty and Swedish Krona, the
value of non-functional currency sales decreases. When the Dutch guilder
weakens, the function currency amount of sales increases. The Company does not
currently hedge its net investment in foreign operations.
The Company has exposure to price fluctuations associated with its primary
raw materials, including fiberglass, resin and steel. The Company's supply
agreement with a major supplier of fiberglass holds pricing constant for the
period from January 1, 1998 through June 30, 1999 and subsequently contains
certain stabilizing pricing parameters through its expiration on December 31,
2000. In addition, the Company does not have any long-term purchase agreements
nor does it depend upon any single supplier or source for its resin or steel
requirements.
20
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
21
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding directors is set forth in
the Proxy Statement under the caption entitled "Election of Directors" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the Proxy Statement
under the caption "Executive Compensation" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is set forth in the Proxy Statement
under the captions "Election of Directors" and "Executive Compensation" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the Proxy Statement
under the caption "Certain Relationships and Related Transactions" and is
incorporated herein by reference.
22
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Annual Report or
incorporated by reference:
1. Financial Statements
As to financial statements, reference is made to the Index to
Financial Statements of this Annual Report.
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or notes thereto.
3. Exhibits
The following exhibits are filed as part of this Annual Report.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
3.1 Second Restated Certificate of Incorporation of the Company
(incorporated by reference to the Company's registration
statement on Form S-1, registration statement no. 333-36857
(the "Registration Statement")).
3.2 Bylaws of the Company (incorporated by reference to the
Registration Statement).
4.1 Specimen of Common Stock certificate (incorporated by
reference to the Registration Statement).
10.1 The Company's 1996 Incentive Stock Option Plan, as amended
(incorporated by reference to the Registration Statement).
10.2 The Company's 1997 Incentive Stock Option Plan (incorporated
by reference to the Registration Statement).
10.3 Stock Purchase and Sale Agreement dated as of February 14,
1997, by and between the Company and Praxair, Inc.
(incorporated by reference to the Registration Statement).
10.4 Asset Purchase Agreement dated October 12, 1995, by and
between the Company, Hoover Group, Inc., Hoover Containment
Systems, Inc. and Hoover Containment, Inc. (incorporated by
reference to the Registration Statement).
10.5 Stock Purchase Agreement dated September 19, 1997, by and
between the Company and SEFCO, Inc., Craig T. Sutton
Revocable Trust, Cedric I. Sutton and Charlotte A. Shnurman
(incorporated by reference to the Registration Statement).
10.6 Stock Purchase Agreement dated September 22, 1997, by and
between the Company and GL&V/LaValley Industries, Inc. and
GL&V LaValley Construction, Inc. (incorporated by reference
to the Registration Statement).
10.7 Stock Purchase Agreement dated April 8, 1998 between
Reinforced Plastic Systems Inc., CC&E/RPS, Inc., and
Specialty Solutions, Inc. (incorporated by reference to the
Company's current report on Form 8-K dated May 8, 1998).
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C>
10.8 Amendment to Stock Purchase Agreement dated May 8, 1998
between Reinforced Plastic Systems Inc., CC&E/RPS, Inc., and
Specialty Solutions, Inc. (incorporated by reference to the
Company's current report on Form 8-K dated May 8, 1998).
10.9 Stock Purchase Agreement dated May 11, 1998 by and between
William I. Koch, Joan Granlund, Richard P. Callahan, as
Custodian for Wyatt I. Koch, under the Florida Uniform
Transfer to Minors Act, Richard A. Bird, Fibercast Company
and Denali Incorporated (incorporated by reference to the
Company's current report on Form 8-K dated June 5, 1998).
10.10 Glass Fiber Reinforcement Products Purchase Agreement dated
December 23, 1994, by and between the Company and Owens
Corning (incorporated by reference to the Registration
Statement).
10.11 Agreement dated November 3, 1997, by and between the Company
and Owens Corning (incorporated by reference to the
Registration Statement).
10.12 Lease dated November 22, 1996, by and between the Company and
Baymeadow Limited Partnership (the "Baltimore Lease")
(incorporated by reference to the Registration Statement).
10.13 First Amendment of Lease dated August 19, 1997, by and
between the Company and Baymeadow Limited Partnership
regarding the Baltimore Lease (incorporated by reference to
the Registration Statement).
10.14 Salary Continuation Agreement dated September 5, 1997, by and
between the Company and Stephen T. Harcrow (incorporated by
reference to the Registration Statement).
10.15 Letter to Lee W. Orr dated March 31, 1997, confirming offer
of employment (incorporated by reference to the Registration
Statement).
10.16 Consulting Agreement dated effective as of April 1, 1997, by
and between the Company and Edward de Boer (incorporated by
reference to the Registration Statement).
10.17 Confidentiality and Non-Competition Agreement dated September
5, 1997, by and between the Company and R. Kevin Andrews
(incorporated by reference to the Registration Statement).
10.18 Confidentiality and Non-Competition Agreement dated September
5, 1997, by and between the Company and Melford S. Carter,
Jr. (incorporated by reference to the Registration
Statement).
10.19 Confidentiality and Non-Competition Agreement dated September
5, 1997, by and between the Company and Cathy L. Smith
(incorporated by reference to the Registration Statement).
10.20 Loan and Security Agreement dated December 21, 1994, by and
between the Company and Fleet Capital Corporation (successor
in interest to Barclay Business Credit, Inc.) regarding
$11,000,000 credit facility (incorporated by reference to the
Registration Statement).
10.21 Loan and Security Agreement dated October 27, 1995, by and
between the Company and Fleet Capital Corporation (successor
in interest to Shawmut Capital Corporation) regarding
$6,500,000 credit facility (incorporated by reference to the
Registration Statement).
10.22 Loan and Security Agreement dated February 28, 1997, by and
between the Company and Fleet Capital Corporation regarding
$6,500,000 credit facility (incorporated by reference to the
Registration Statement).
10.23 Junior Subordinated Note of the Company dated December 23,
1994, in the original principal amount of $7.5 million,
payable to Owens Corning (incorporated by reference to the
Registration Statement).
10.24 Loan and Security Agreement dated October 24, 1997, by and
between the Company and NationsBank of Texas, N.A.
(incorporated by reference to the Registration Statement).
10.25 First Amendment to Loan and Security Agreement dated as of
October 31, 1997, by and between the Company and NationsBank
of Texas, N.A. (incorporated by reference to the Registration
Statement).
10.26 Second Amendment to Loan and Security Agreement dated as of
October 31, 1997, by and between the Company and NationsBank
of Texas, N.A. (incorporated by reference to the Registration
Statement).
10.27 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 (incorporated by reference to the
Company's quarterly report on Form 10-Q for the quarterly
period ending March 28, 1998 (the "3rd Quarter 1998 10-Q")).
10.28 Form of Revolving Note of Denali Incorporated pursuant to
Amended and Restated Credit Agreement dated March 23, 1998
(incorporated by reference to the 3rd Quarter 1998 10-Q).
</TABLE>
24
<PAGE> 27
<TABLE>
<S> <C>
10.29 Guaranty dated March 23, 1998 of Denali Incorporated
(incorporated by reference to the 3rd Quarter 1998 10-Q).
10.30 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. (incorporated by reference to the 3rd Quarter 1998
10-Q).
10.31 Security Agreement dated March 23, 1998 between Denali
Incorporated and NationsBank of Texas, N.A., as agent
(incorporated by reference to the 3rd Quarter 1998 10-Q).
10.32 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 (incorporated
by reference to the 3rd Quarter 1998 10-Q).
10.33 Pledge Agreement dated March 23, 1998 between Denali
Incorporated and NationsBank of Texas, N.A., as agent
(incorporated by reference to the 3rd Quarter 1998 10-Q).
10.34 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.
(incorporated by reference to the 3rd Quarter 1998 10-Q).
10.35 Amendment No. 1 and Consent to the Credit Agreement dated as
of June 5, 1998 among Denali Incorporated, Fluid Containment,
Inc., Ershigs, Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the
Banks party to and defined in the Credit Agreement, and
NationsBank, N.A., as agent (incorporated by reference to the
Company's annual report on Form 10-K for the fiscal year
ending June 27, 1998 (the "1998 10-K"))
10.36 Assumption and Amendment to Loan Agreement dated as of June
5, 1998 among Bank of Oklahoma, N.A., Fibercast Company and
Denali Incorporated (incorporated by reference to the 1998
10-K)
10.37 Amendment No. 2 to the Credit Agreement dated as of October
29, 1998 among Denali Incorporated, Fluid Containment, Inc.,
Ershigs, Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the Banks
party to and defined in the Credit Agreement, and
NationsBank, N.A., as agent (incorporated by reference to the
Company's quarterly report on Form 10-Q for the quarterly
period ending September 26, 1998 (the "1st Quarter 1999
10-Q"))
10.38 Guaranty Reaffirmation dated October 29, 1998 of Containment
Solutions, Inc., Denali Management, Inc., Ershigs Biloxi,
Inc., Ershigs, Inc., Fibercast Company, Fluid Containment
Property, Inc., Instrumentation Solutions, Inc., Specialty
Solutions, Inc., Fluid Containment, Inc., SEFCO, Inc. and
Hoover Containment, Inc. (incorporated by reference to the
1st Quarter 1999 10-Q)
10.39 Revolving Note dated October 29, 1998 for $26,000,000 payable
to NationsBank, N.A. (incorporated by reference to the 1st
Quarter 1999 10-Q)
10.40 Credit Agreement (the "New Credit Agreement") among Denali
Incorporated, Canadian Imperial Bank of Commerce, as
administrative agent, and ING (U.S.) Capital LLC, as
documentation agent, dated as of January 12, 1999
(incorporated by reference to the Company's quarterly report
on Form 10-Q for the quarterly period ending March 27, 1999
(the "3rd Quarter 1999 10-Q))
10.41 Stock Purchase Agreement dated February 3, 1999 by and
between Steve Jones, Belco Manufacturing Company, Inc. and
Containment Solutions, Inc. (incorporated by reference to the
Company's Form 8-K dated February 18, 1999)
10.42 Asset Purchase Agreement dated February 3, 1999 by and
between Tiger Trucking LLC, S. Jones Limited Partnership and
Containment Solutions, Inc. (incorporated by reference to the
Company's Form 8-K dated February 18, 1999)
10.43 Term Note pursuant to the New Credit Agreement between Denali
Incorporated and Bank of Oklahoma N.A. dated January 12, 1999
(incorporated by reference to the 3rd Quarter 1999 10-Q)
10.44 Form of Term Note pursuant to the New Credit Agreement
between Denali Incorporated and each of Key Corporate Capital
Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated January 12,
1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)
10.45 Acquisition Loan Note pursuant to the New Credit Agreement
between Denali Incorporated and Bank of Oklahoma N.A. dated
January 12, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
</TABLE>
25
<PAGE> 28
<TABLE>
<S> <C>
10.46 Form of Acquisition Loan Note pursuant to the New Credit
Agreement between Denali Incorporated and each of Key
Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
dated January 12, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.47 Revolving Credit Note pursuant to the New Credit Agreement
between Denali Incorporated and Bank of Oklahoma N.A. dated
January 12, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.48 Form of Revolving Credit Note pursuant to the New Credit
Agreement between Denali Incorporated and each of Key
Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
dated January 12, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.49 Pledge Agreement dated January 12, 1999 between Denali
Incorporated, Containment Solutions Services, Inc.,
Instrumentation Solutions, Inc., Denali Management Inc.,
Denali Holdings Management, L.L.C., Denali Operating
Management, Ltd., Containment Solutions, Inc., Specialty
Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
Company, Plasti-fab Inc. and Canadian Imperial Bank of
Commerce, as administrative agent and issuing lender
(incorporated by reference to the 3rd Quarter 1999 10-Q)
10.50 Security Agreement dated January 12, 1999 between Denali
Incorporated, Containment Solutions Services, Inc.,
Instrumentation Solutions, Inc., Denali Management Inc.,
Denali Holdings Management, L.L.C., Denali Operating
Management, Ltd., Containment Solutions, Inc., Specialty
Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
Company, Plasti-fab Inc. and Canadian Imperial Bank of
Commerce, as administrative agent and issuing lender
(incorporated by reference to the 3rd Quarter 1999 10-Q)
10.51 Guarantee dated January 12, 1999 between Containment
Solutions Services, Inc., Instrumentation Solutions, Inc.,
Denali Management Inc., Denali Holdings Management, L.L.C.,
Denali Operating Management, Ltd., Containment Solutions,
Inc., Specialty Solutions, Inc., Ershigs, Inc., SEFCO, Inc.,
Fibercast Company, Plasti-fab Inc. and Canadian Imperial Bank
of Commerce, as administrative agent and issuing lender
(incorporated by reference to the 3rd Quarter 1999 10-Q)
10.52 Form of Assignment and Acceptance Agreement pursuant to the
New Credit Agreement between Denali Incorporated and Canadian
Imperial Bank of Commerce, as administrative agent and each
of Key Corporate Capital Inc., ING (U.S.) Capital LLC, and
CIBC Inc. dated March 15, 1999 (incorporated by reference to
the 3rd Quarter 1999 10-Q)
10.53 Term Note pursuant to the New Credit Agreement between Denali
Incorporated and Southwest Bank of Texas, N.A. dated March
15, 1999 (incorporated by reference to the 3rd Quarter 1999
10-Q)
10.54 Form of Term Note pursuant to the New Credit Agreement
between Denali Incorporated and each of Key Corporate Capital
Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated March 15,
1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)
10.55 Acquisition Note pursuant to the New Credit Agreement between
Denali Incorporated and Southwest Bank of Texas, N.A. dated
March 15, 1999 (incorporated by reference to the 3rd Quarter
1999 10-Q)
10.56 Form of Acquisition Note pursuant to the New Credit Agreement
between Denali Incorporated and each of Key Corporate Capital
Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated March 15,
1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)
10.57 Revolving Credit Note pursuant to the New Credit Agreement
between Denali Incorporated and Southwest Bank of Texas, N.A.
dated March 15, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.58 Form of Revolving Credit Note pursuant to the New Credit
Agreement between Denali Incorporated and each of Key
Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
dated March 15, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.59 Offer Document by Denali Incorporated to shareholders of
Welna, N.V. (incorporated by reference to the Company's Form
8-K dated July 14, 1999)
10.60* Roll-over Loans Facility Agreement between Denali Welna
Europe B.V. and ABN AMRO Bank N.V. and ING Bank N.V. dated
June 11, 1999 for NLG 25,000,000
10.61* Credit Agreement between Welna, N.V., Welna Kunststoffen
B.V., B.V. Twentse Kunststoffenindustrie Plasticon, Plasticon
Haven B.V., Woodcap B.V., Kialite-Plasticon B.V.,
Onroerend-Goed Maatschappij Plasticon B.V., Hanwel B.V.,
Plasticon Projects B.V., Welna Handel B.V., Plasticon
Heerenveen B.V., B.V. van Delden, Gimex B.V. and ABN AMRO
Bank N.V. dated June 11, 1999 for NLG 40,000,000
</TABLE>
26
<PAGE> 29
<TABLE>
<S> <C>
10.62* Working Capital Credit Facility between Welna, N.V., Welna
Kunststoffen B.V., B.V. Twentse Kunststoffenindustrie
Plasticon, Plasticon Haven B.V., Woodcap B.V.,
Kialite-Plasticon B.V., Onroerend-Goed Maatschappij Plasticon
B.V., Hanwel B.V., Plasticon Projects B.V., Welna Handel
B.V., Plasticon Heerenveen B.V., B.V. van Delden, Gimex B.V.
and ING Bank dated June 11, 1999 for NLG 5,000,000
10.63* Amendment and Waiver dated June 30, 1999 to the Credit
Agreement dated January 12, 1999 among Denali Incorporated
and Canadian Imperial Bank of Commerce, as administrative
agent for the Lenders and ING (U.S.) Capital LLC, as
documentation agent
10.64* Note and Warrant Purchase Agreement dated as of June 30, 1999
between Denali Incorporated and the Variable Annuity Life
Insurance Company, A.G. Investment Advisory Services, Inc.,
EMC Equity Fund, L.P., Cockrell Investment Partners, L.P.,
Simmons Family Trust, Thomas Dudley Simmons, Jr. Marital
Trust, Thomas Dudley Simmons, Jr., Joel V. Staff, Symonds
Trust Co., Ltd., Anne Allen Symonds Revocable Trust, William
A. Monteleone, Jr., C. Richard Everett, Fred H. Levine and
Jay H. Golding Profit Sharing Plan
10.65* Form of Common Stock Registration Rights Agreement between
Denali Incorporated and the Variable Annuity Life Insurance
Company, A.G. Investment Advisory Services, Inc., EMC Equity
Fund, L.P., Cockrell Investment Partners, L.P., Simmons
Family Trust, Thomas Dudley Simmons, Jr. Marital Trust,
Thomas Dudley Simmons, Jr., Joel V. Staff, Symonds Trust Co.,
Ltd., Anne Allen Symonds Revocable Trust, William A.
Monteleone, Jr., C. Richard Everett, Fred H. Levine and Jay
H. Golding Profit Sharing Plan
10.66* Form of Subscription Agreement between Denali Incorporated
and the Variable Annuity Life Insurance Company, A.G.
Investment Advisory Services, Inc., EMC Equity Fund, L.P.,
Cockrell Investment Partners, L.P., Simmons Family Trust,
Thomas Dudley Simmons, Jr. Marital Trust, Thomas Dudley
Simmons, Jr., Joel V. Staff, Symonds Trust Co., Ltd., Anne
Allen Symonds Revocable Trust, William A. Monteleone, Jr., C.
Richard Everett, Fred H. Levine and Jay H. Golding Profit
Sharing Plan
10.67* Roll-over Loans Facility Agreement, as amended, between
Denali International Holdings B.V. and ABN AMRO Bank N.V.
and ING Bank N.V. dated July 1999 for NLG 25,000,000
10.68* Lease agreement between Steven Jones and Belco Manufacturing
Company, Inc. dated January 1, 1998
10.69* Amendment to lease agreement between Steven Jones and Belco
Manufacturing Company, Inc. dated February 3, 1999
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP
23.2* Consent of Deloitte & Touche
27.1* Financial Data Schedule
</TABLE>
- -------------------------------------------------------------------------------
* Filed herewith
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the fourth
quarter of fiscal year 1999:
Form 8-K/A dated April 19, 1999 with respect to the acquisition of
Belco Manufacturing Company, Inc. on February 3, 1999
27
<PAGE> 30
DENALI INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Auditors........................................................................F-1
Consolidated Balance Sheets as of June 27, 1998 and July 3, 1999......................................F-3
Consolidated Statements of Operations for the Years Ended June 28, 1997, June 27, 1998
and July 3, 1999...................................................................................F-4
Consolidated Statements of Stockholders' Equity as of June 28, 1997, June 27, 1998
and July 3, 1999 ..................................................................................F-5
Consolidated Statements of Cash Flows for the Years Ended June 28, 1997, June 27, 1998
and July 3, 1999 ..................................................................................F-6
Notes to Consolidated Financial Statements.............................................................F-7
</TABLE>
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Denali Incorporated
We have audited the accompanying consolidated balance sheets of Denali
Incorporated and subsidiaries (the "Company") as of June 27, 1998 and July 3,
1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended June 28, 1997, June 27,
1998 and July 3, 1999. Our audits also included the consolidated financial
statement schedule listed in the index at Item 14(a). These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits. We did not audit the
consolidated balance sheet of Welna N.V., a majority owned subsidiary acquired
on July 1, 1999, which statement reflects total assets of $59,105,000 as of July
3, 1999. That consolidated balance sheet was audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
balance sheet data included for Welna N.V., is based solely on the report of
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and, as to the balance sheet at July 3,
1999, the report of other auditors, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Denali Incorporated and subsidiaries at June 27, 1998 and
July 3, 1999, and the consolidated results of its operations and its cash flows
for the years ended June 28, 1997, June 27, 1998 and July 3, 1999 in conformity
with generally accepted accounting principles. Also in our opinion, the related
consolidated financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
August 16, 1999
F-1
<PAGE> 32
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheet of Welna N.V.,
Enschede, the Netherlands, as of July 3, 1999. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating, the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Welna N.V.,
Enschede, the Netherlands, as of July 3, 1999, in conformity with US generally
accepted accounting principles.
DELOITTE & TOUCHE
Enschede, Netherlands
August 16, 1999
F-2
<PAGE> 33
DENALI INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 27, July 3,
1998 1999
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash .................................................................... $ 175 $ 1,824
Accounts receivable, net of allowances of $907,000 in
1998 and $1,419,000 in 1999 ......................................... 23,465 38,862
Inventories ............................................................. 10,489 26,175
Prepaid expenses ........................................................ 1,152 4,052
Other receivables ....................................................... -- 2,591
Deferred tax assets ..................................................... 1,242 1,135
---------- ----------
Total current assets ................................................ 36,523 74,639
Property, plant and equipment, net ........................................ 20,270 46,938
Goodwill, net ............................................................. 19,435 50,651
Other assets .............................................................. 1,758 3,898
Deferred tax assets ....................................................... 1,947 --
Assets held for sale ...................................................... 449 449
---------- ----------
Total assets .............................................................. $ 80,382 $ 176,575
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 13,140 $ 19,047
Accrued liabilities ..................................................... 7,180 15,777
Lines of credit ......................................................... -- 16,217
Income taxes payable .................................................... 620 1,757
Current maturities of long-term debt .................................... 1,442 4,030
---------- ----------
Total current liabilities ........................................... 22,382 56,828
Long-term debt, less current maturities ................................... 28,454 68,002
Related party subordinated debt ........................................... -- 3,980
Accrued pension costs ..................................................... -- 2,109
Minority interest ......................................................... -- 1,571
Deferred taxes ............................................................ -- 1,692
Other long-term liabilities ............................................... 872 3,824
Series A Preferred Stock, redeemable at $250 per share, $.01 par value:
Authorized shares -- 1,004,800
Issued and outstanding shares -- none at June 27, 1998
and none at July 3, 1999 ............................................. -- --
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value
Authorized shares -- 30,000,000
Issued and outstanding shares -- 4,828,743 at June 27,
1998 and 5,423,215 at July 3, 1999 ................................ 48 54
Additional paid-in capital .............................................. 29,187 34,956
Retained earnings (deficit) ............................................. (561) 3,559
---------- ----------
Total stockholders' equity ................................................ 28,674 38,569
---------- ----------
Total liabilities and stockholders' equity ................................ $ 80,382 $ 176,575
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 34
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
------------------------------------------
June 28, June 27, July 3,
1997 1998 1999
---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net revenues ........................................... $ 71,101 $ 99,897 $ 148,760
Cost of revenues ....................................... 57,268 77,273 110,957
---------- ---------- ----------
Gross profit ........................................... 13,833 22,624 37,803
Selling, general, and administrative expenses .......... 11,874 17,843 27,244
Non-recurring compensation charge ...................... -- 2,312 682
---------- ---------- ----------
Operating income ....................................... 1,959 2,469 9,877
Interest expense ....................................... 2,058 1,614 3,199
Interest income ........................................ (111) (118) (124)
Other income, net ...................................... (598) (489) (453)
---------- ---------- ----------
Income before income taxes ............................. 610 1,462 7,255
Income tax expense ..................................... 293 1,352 2,854
---------- ---------- ----------
Net income before extraordinary item ................... 317 110 4,401
Extraordinary income (loss) on early extinguishment
of debt, net of income tax ........................... -- 219 (281)
---------- ---------- ----------
Net income ............................................. 317 329 4,120
Dividends on Series A Preferred Stock .................. (120) (30) --
---------- ---------- ----------
Net income attributable to Common Stock ................ $ 197 $ 299 $ 4,120
========== ========== ==========
Net income per common share - basic and diluted:
Income before extraordinary item ..................... $ 0.09 $ 0.02 $ 0.90
Extraordinary item ................................... -- 0.06 (.06)
---------- ---------- ----------
Net income per common share .......................... $ 0.09 $ 0.08 $ 0.84
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 35
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Common Retained
Stock Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at June 29, 1996 ..................... 2,185 $ 22 $ 297 $ (1,057) $ (738)
Dividends declared ......................... -- -- -- (120) (120)
Net income ................................. -- -- -- 317 317
---------- ---------- ---------- ---------- ----------
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 25,969 -- 25,992
Exercise of employee stock options ......... 368 3 609 -- 612
Dividends declared ......................... -- -- -- (30) (30)
Net income ................................. -- -- -- 329 329
---------- ---------- ---------- ---------- ----------
Balance at June 27, 1998 ..................... 4,829 $ 48 $ 29,187 $ (561) $ 28,674
Issuance of common stock for
acquisitions ............................ 105 1 1,108 -- 1,109
Issuance of common stock in a private
placement ............................... 489 5 4,505 -- 4,510
Income tax benefit related to incentive
stock option plans ...................... -- -- 156 -- 156
Net income ................................. -- -- -- 4,120 4,120
---------- ---------- ---------- ---------- ----------
Balance at July 3, 1999 ...................... 5,423 $ 54 $ 34,956 $ 3,559 $ 38,569
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 36
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
------------------------------------
June 28, June 27, July 3,
1997 1998 1999
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .............................................. $ 317 $ 329 $ 4,120
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Non-recurring compensation expense .................... -- 2,312 --
Depreciation .......................................... 1,043 1,436 2,535
Amortization .......................................... 178 256 725
Provision for losses on accounts receivable ........... 176 93 397
Deferred tax expense .................................. 25 236 248
Gain on disposal of property, plant and
equipment and assets held for sale ................. (447) (89) (31)
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable ................................ (3,377) (85) 2,163
Inventories ........................................ 1,238 (1,612) (4,731)
Prepaid expenses ................................... (90) (92) (502)
Other assets and liabilities ....................... (57) (212) 1,720
Accounts payable ................................... 886 1,223 39
Accrued liabilities ................................ 264 (652) 159
Income tax payable ................................. 469 711 397
-------- -------- --------
Net cash provided by operating activities ............... 625 3,854 7,239
INVESTING ACTIVITIES
Acquisitions net of cash acquired ....................... (4,825) (29,770) (48,518)
Purchases of property, plant and equipment .............. (600) (3,071) (2,886)
Proceeds from sale of property, plant and equipment
and assets held for sale .............................. 208 899 77
Payments on notes receivable ............................ 81 816 --
Purchases of equity securities .......................... (593) -- --
Proceeds from sale of equity securities ................. 1,098 -- --
-------- -------- --------
Net cash used in investing activities ................... (4,631) (31,126) (51,327)
FINANCING ACTIVITIES
Proceeds from common stock issuance ..................... -- 25,992 4,525
Proceeds from exercise of stock options ................. -- 612 --
Redemption of preferred stock ........................... -- (1,200) --
Dividends paid .......................................... -- (210) --
Net borrowings (repayments) under revolving lines
of credit ............................................. 2,848 8,990 (8,455)
Proceeds from term notes and long-term debt ............. 2,200 10,398 48,949
Proceeds from subordinated debt ......................... -- -- 15,000
Principal payments on term notes and long-term
debt .................................................. (685) (17,016) (11,441)
Debt origination costs .................................. (151) (449) (2,841)
-------- -------- --------
Net cash provided by financing activities ............... 4,212 27,117 45,737
-------- -------- --------
Increase (decrease) in cash ............................. 206 (155) 1,649
Cash at beginning of period ............................. 124 330 175
-------- -------- --------
Cash at end of period ................................... $ 330 $ 175 $ 1,824
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 37
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 3, 1999
1. THE COMPANY
ORGANIZATION AND BASIS OF PRESENTATION
Denali Incorporated ("Denali" or the "Company"), a Delaware corporation, was
incorporated on December 19, 1994, and through its wholly and majority owned
subsidiaries is primarily engaged in the design, manufacture, installation and
sale of fiberglass composite underground storage tanks, steel aboveground
storage tanks, and engineered fiberglass reinforced plastic products for
corrosion resistant applications. During fiscal 1999, the Company's products
were primarily marketed in the United States. On July 1, 1999, the Company
acquired Welna, N.V. ("Welna"), which is headquartered in The Netherlands. Welna
is a provider of engineered fluid handling products to the chemical,
petrochemical, pulp and paper, water/wastewater, microelectronics and
environmental process industries. Beginning in fiscal 2000, the addition of
Welna will expand the Company's products and services globally, primarily to
Europe.
The Company uses a 52- or 53-week year ending on the Saturday closest to
June 30. The fiscal year ended July 3, 1999 was a 53-week year.
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The Consolidated Financial Statements include the accounts of Denali and its
wholly and majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates by management.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all cash accounts and money market accounts with an
original maturity less than 90 days to be cash and cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, prepaid expenses, accounts receivable, and
other current assets and accounts payable approximate fair values due to the
short-term maturities of these instruments. The carrying value of the Company's
revolving lines of credit and notes payable approximates fair value because the
rates on such lines are primarily variable, based on current market.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements using the
intrinsic value method under the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees.
F-7
<PAGE> 38
INVENTORIES
Inventories are determined using actual cost or a standard cost method based
on a first-in, first-out ("FIFO") basis. Inventory is stated at the lower of
cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
by the straight-line method using rates based on the estimated useful lives of
the related assets. Estimated useful lives used for depreciation purposes are as
follows:
<TABLE>
<S> <C>
Buildings and improvements 20 to 30 years
Machinery and equipment 3 to 10 years
</TABLE>
GOODWILL
Goodwill represents the excess cost of companies acquired over the fair
value of their tangible assets. Goodwill is being amortized on a straight-line
basis over 40 years. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill will be reduced by the estimated
shortfall of the discounted cash flows. The Company also has negative goodwill
of approximately $1.1 million resulting from the acquisition of Ershigs in
February 1997. The negative goodwill is being amortized primarily over the
estimated life of the related assets, which is estimated to be 15 years.
Accumulated amortization was $168,000 and $616,000 for the years ended June 27,
1998 and July 3, 1999, respectively. Amortization expense was $42,000, $99,000
and $448,000 for the years ended June 28, 1997, June 27, 1998 and July 3, 1999.
REVENUES FROM LICENSE ARRANGEMENTS
The Company has certain license agreements whereby it receives royalties
equal to the greater of a certain percentage of the licensee's sales for
products based on the Company's proprietary technology and processes or a
guaranteed amount as specified in the agreements. The agreements expire between
1999 and 2011. The Company recognizes the actual royalties due or the guaranteed
amount under these license agreements in the period of the licensee's sales.
REVENUE RECOGNITION
Revenues from sales of products fabricated at plant locations are recognized
using the units-of-delivery method of accounting.
Revenues from certain long-term construction contracts, usually performed on
job sites, are recognized on the percentage-of-completion method. Earned revenue
is based on the percentage that incurred costs to date are to total estimated
costs after giving effect to the most recent estimates of total cost. The
cumulative impact of revisions in total cost estimates during the progress of
work is reflected in the period in which these changes become known. Earned
revenue reflects the original contract price adjusted for agreed-upon claim and
change order revenue, if any.
Losses expected to be incurred on jobs in process, after consideration of
estimated minimum recoveries from claims and change orders, are charged to
income as soon as such losses are known. Selling and administrative expenses are
charged to income in the period incurred and are not allocated to contracts in
progress.
F-8
<PAGE> 39
ADVERTISING
The Company expenses all advertising costs as incurred. Advertising costs
incurred were $402,000, $582,000 and $748,000 for the years ended June 28, 1997,
June 27, 1998 and July 3, 1999, respectively.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
the liability method, deferred income taxes are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
reverse.
RESEARCH AND DEVELOPMENT COSTS
The costs of materials and equipment that are acquired for research and
development activities, and which have alternative future uses, are capitalized
and depreciated over the period of future benefit. All other research and
development costs are charged against earnings in the period incurred. Research
and development costs expensed were $319,000, $458,000 and $798,000 for the
years ended June 28, 1997, June 27, 1998 and July 3, 1999, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that could potentially subject the Company to
concentrations of credit risk are accounts receivable. The Company periodically
evaluates the creditworthiness of its customers and generally does not require
collateral. The Company's customer base consists of major commercial
organizations and independent sub-contractors. No customer accounted for 10% or
more of revenues for the years ended June 28, 1997, June 27, 1998 and July 3,
1999.
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>
Years Ended
----------------------------------
June 28, June 27, July 3,
1997 1998 1999
-------- -------- --------
(Share data in thousands)
<S> <C> <C> <C>
Weighted average common shares outstanding ......... 2,185 3,736 4,886
Dilutive securities - employee stock options and
warrants ......................................... 13 139 2
-------- -------- --------
Weighted average common shares outstanding
assuming full dilution ........................... 2,198 3,875 4,888
======== ======== ========
</TABLE>
CAPTIVE INSURANCE PROGRAM
In January 1996, the Company entered into a captive insurance program for
its workers' compensation and automobile coverages. The program provides for
certain reinsurance on claims over $250,000 and aggregate insurance for the
total claims exposure of the captive company. The Company uses actuarial
determined information provided by the captive insurance company to determine
its estimated liability.
F-9
<PAGE> 40
ACCOUNTING CHANGES
Effective June 28, 1998, the Company adopted SFAS No. 132, Employers'
Disclosures about Pension and Other Postretirement Benefits. This statement
standardizes the disclosure requirements for pension and other postretirement
benefits. The adoption of SFAS No. 132 did not have an effect on the Company's
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("FAS 133"). The Company is required to adopt FAS 133 effective the beginning of
fiscal year 2001. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. The Company does not anticipate
that the adoption of this Statement will have a significant effect on its
results of operations or financial position.
3. 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) with the remaining amount of $1.1 million allocated to negative goodwill.
The negative goodwill is being amortized primarily over the estimated life of
the related deferred tax assets, which is estimated to be 15 years.
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. 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. Effective May 1998, the Company purchased all of the issued and
outstanding stock of CC&E/RPS, Inc. ("CC&E"), a leading North American field
constructor of fiberglass-reinforced plastic products. Effective June 1998, the
Company acquired 100% of the issued and outstanding stock of Fibercast Company
("Fibercast"), a leading manufacturer of fiberglass-reinforced plastic piping
systems specializing in highly corrosive environments.
In connection with the fiscal 1998 acquisitions, the Company acquired net
assets of $9.8 million in exchange for $28.5 million in cash, which is net of
$700,000 cash acquired, and incurred approximately $450,000 in acquisition costs
resulting in the recording of goodwill of approximately $19 million. The Company
also paid down $1.1 million of bank and seller debt and assumed $3.5 million of
bank debt in connection with the Fibercast acquisition. During fiscal 1999, the
seller in the CC&E acquisition received contingent payments of $202,000 based on
an increase in the level of bookings, which was recorded as an increase to
goodwill. In addition, approximately $919,000 of purchase price adjustments were
recorded, resulting in an increase to goodwill.
Effective November 23, 1998, the Company acquired all of the issued and
outstanding stock of Plasti-fab, Inc. ("Plasti-fab"), a manufacturer of FRP
gates, metered manholes and flumes for use in the waste/wastewater industries.
Effective February 3, 1999, the Company acquired all of the outstanding stock of
Belco Manufacturing Company, Inc. and certain assets and assumed certain
liabilities of S. Jones Limited Partnership (collectively "Belco"). Belco
manufactures FRP tanks, ducting, piping, scrubbers and dampers primarily for the
industrial water/wastewater industries.
Effective July 1, 1999, the Company completed its tender offer for the
publicly held shares of Welna N.V. ("Welna"), a Dutch company listed on the
Official Market of the Amsterdam Stock Exchange. Denali purchased 99.8% of the
outstanding stock of Welna. The consolidated balance sheet includes the effect
of the acquisition of Welna, however, there was no effect on the income
statement in fiscal year 1999. The consolidated balance sheet includes minority
interest, which represents minority ownership in certain Welna subsidiaries.
F-10
<PAGE> 41
Welna currently operates through two major divisions. Welna Synthetics
designs, manufactures and installs all forms of FRP pipe systems, vessels and
other related equipment requiring high levels of corrosion resistance. Welna
Trade is a distribution operation that specializes in high quality products and
engineered systems for power generation, water treatment and paper and chemical
processing industries. Welna markets its products through its subsidiaries in
The Netherlands, Germany, United Kingdom, Belgium, Sweden, France, Poland and
Thailand.
In connection with the fiscal 1999 acquisitions, the company acquired net
assets of $37.6 million in exchange for $47.2 million in cash, which is net of
$2.6 million cash acquired, and incurred approximately $2.1 million in
acquisition costs resulting in the recording of goodwill of approximately $30.2
million. The allocation of the purchase price to assets and liabilities acquired
for the acquisitions are based on preliminary estimates of fair market value.
Upon determination of the fair market value of the purchased assets and
liabilities, the purchase price allocation may be adjusted. The Company issued
594,189 common shares for the fiscal 1999 acquisitions valued at $5.6 million.
The Company also assumed approximately $15 million of bank debt, net of cash
acquired, in connection with the Welna acquisition.
All of the acquisitions described above were accounted for under the
purchase method of accounting whereby the assets and liabilities were adjusted
to their estimated fair values at the acquisition date. The consolidated
financial statements reflect all operations for the acquired companies 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.
Those 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>
June 27, July 3,
1998 1999
---------- ----------
(In thousands except per share data)
<S> <C> <C>
Net revenues ............................................. $ 206,623 $ 222,422
Net income (loss) before extraordinary item .............. (1,319) 1,746
Net income (loss) ........................................ (1,100) 1,465
Net income (loss) per common share - basic and diluted ... (0.26) 0.26
</TABLE>
ASSETS HELD FOR SALE
Assets held for sale are recorded on the balance sheet at amounts equal to
estimated net realizable values adjusted for anticipated earnings or losses,
interest and other carrying costs until sale.
Assets held for sale of $3.6 million were identified in December 1994, the
date of acquisition of the tank group from Owens Corning, consisting primarily
of two manufacturing facilities and related manufacturing equipment. The two
manufacturing facilities were closed in early 1995 and had insignificant
operations after the date of acquisition. One manufacturing facility was sold in
December 1995 at its previously recorded net realizable value. The other
manufacturing facility was sold in June 1996, with the Company recognizing a
loss of $208,000 due to a decline in the market value of the property during
1996. Certain of the manufacturing equipment was sold during the year ended June
28, 1997 under licensing arrangements with the Company recognizing a gain on the
sale of the equipment of $312,000. During fiscal year 1998, manufacturing
equipment with a book value of $250,000 was sold through an international joint
venture with the Company recognizing a gain of $107,000. These transactions have
been recorded as other income, net on the consolidated statement of operations.
At July 3, 1999, the remaining assets held for sale of $449,000 consist of
certain manufacturing equipment which the Company primarily expects to sell
under similar license arrangements or through an international joint venture.
Assets held for sale of $820,000 were identified at the date of acquisition
of Ershigs consisting primarily of a manufacturing facility and related
manufacturing equipment. The manufacturing facility was closed in May 1997 with
operating losses of $68,000 eliminated from the Company's results of operations
for the year ended June 28, 1997. In January 1998, the assets were sold with the
Company recognizing no gain or loss.
F-11
<PAGE> 42
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 27, July 3,
1998 1999
-------- --------
(In thousands)
<S> <C> <C>
Finished goods.......................... $ 4,748 $ 10,546
Raw materials........................... 4,289 8,672
Work in process......................... 1,452 6,957
-------- --------
$ 10,489 $ 26,175
======== ========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
June 27, July 3,
1998 1999
-------- --------
(In thousands)
<S> <C> <C>
Land...................................... $ 2,110 $ 6,678
Buildings and improvements................ 6,966 22,198
Machinery and equipment................... 14,024 22,603
Construction in progress.................. 769 1,330
-------- --------
23,869 52,809
Less accumulated depreciation............. (3,599) (5,871)
-------- --------
Property, plant and equipment, net........ $ 20,270 $ 46,938
======== ========
</TABLE>
6. LONG-TERM DEBT
Long-term debt is summarized below:
<TABLE>
<CAPTION>
June July
27, 3,
1998 1999
-------- --------
(In thousands)
<S> <C> <C>
Revolving credit note with a financial institution, interest payable monthly
at 30-day LIBOR plus 2.5% (8.16% at June 27, 1998), due October 31,
2002, secured by substantially all assets of the Company's subsidiaries .. $ 19,400 $ --
Revolving credit note with a financial institution, interest payable
quarterly at prime (8.5% at June 27, 1998), due October 31, 2002,
secured by substantially all assets of the Company's subsidiaries ........ 55 --
Term note with a financial institution, due in monthly installments of
$51,816, plus interest at 30-day LIBOR plus 2.5% (8.16% at June 27,
1998) through October 24, 2002, with remaining balance of $3,079 due
October 24, 2002, secured by substantially all assets of the
Company's subsidiaries ................................................... 5,785 --
Term note with a financial institution, due in monthly installments of
$58,500, plus interest at prime plus 0.5% beginning August 1, 1998 (9.0%
at June 27, 1998) through February 7, 2001, secured by property,
plant and equipment of Fibercast ......................................... 3,500 --
</TABLE>
F-12
<PAGE> 43
<TABLE>
<S> <C> <C>
Term note with a seller, due in monthly installments of $5,591, including
interest at 8%, through January 16, 2001, secured by all assets of
purchased facility ....................................................... 156 --
Industrial Revenue Bonds with Montgomery County Industrial Development
Corporation, interest payable semiannually on February 1 and August 1 at
9.875%, principal due February 1, 2001, secured by FCI's Conroe, Texas,
manufacturing facility ................................................... 1,000 --
Term note with a financial institution, due in quarterly installments of
$500,000 the first year, $750,000 the second year, $1.0 million the
third year; $1.25 million the fourth year and $1.5 million the fifth
year, plus interest at LIBOR plus 3.0% (8.33% at July 3, 1999) through
2004, secured by substantially all assets of the Company's subsidiaries .. -- 19,000
Acquisition note with a financial institution, due in quarterly payments
starting September 30, 2000, with payments 1-6 equal to 5% of
outstanding principal amount; payments 7-10 equal to 7.5% and payments
11-14 equal to 10%, interest payable at LIBOR plus 3.5%
(8.49% at July 3, 1999), secured by substantially all assets of the
Company's subsidiaries ................................................... -- 17,200
Revolving credit note with a financial institution, interest payable
monthly at LIBOR plus 3.0% (8.0% at July 3, 1999), principal due
December 31, 2003, secured by substantially all assets of the
Company's subsidiaries ................................................... -- 9,500
Revolving credit note with a financial institution, interest payable
monthly at prime plus 1.75% (9.75% at July 3, 1999), principal due
December 31, 2003, secured by substantially all assets of the
Company subsidiaries...................................................... -- 1,500
Senior subordinated notes, interest paid quarterly at 12%, principal due
July 1, 2006 ............................................................. -- 15,000
Term loan with a financial institution, interest payable quarterly at
Euribor plus 1.75% (4.389% at July 3, 1999) through August 2005,
principal due in quarterly payments of NLG 625,000 beginning on October
1, 1999 secured by Welna's assets ........................................ -- 7,049
Term loan with a financial institution, interest payable quarterly at
Euribor plus 1.75% (4.389% at July 3, 1999), principal due August 1,
2001 secured by Welna's assets ........................................... -- 4,700
Various unsecured term notes with financial institutions, interest payable
quarterly ranging from 5.5% to 8.5% with principal due between 2001
and 2003 ................................................................. -- 3,796
-------- --------
Subtotal ................................................................... 29,896 77,745
Less current maturities .................................................... 1,442 4,030
Less discount on senior subordinated notes ................................. -- 1,733
-------- --------
Long-term debt due after one year .......................................... $ 28,454 $ 71,982
======== ========
</TABLE>
On January 12, 1999, the Company entered into a new senior credit
facility with a group of lenders to refinance its revolving and term credit
arrangements, as amended, to provide working capital and an acquisition line of
credit. This new senior credit facility provides for a maximum of $20.0 million
in revolving credit facility due in January 2004, and a term loan up to $20.0
million with equal quarterly payments plus interest of $500,000 the first year,
$750,000 the second year, $1.0 million the third year, $1.25 million the fourth
year, and $1.5 million the fifth year. The credit facility also provides for up
to a $35.0 million acquisition term loan with the first principal installment
due 21 months following the closing of the credit facility. As of July 3, 1999,
the Company had outstanding indebtedness of $19.0 million under the term loan,
$11.0 million under the revolving lines of credit and $17.2 million under the
acquisition term loan. The new revolving credit notes and term loans provide for
borrowings, at the Company's option, at either the lender's prime rate plus a
margin of 1.75% or varying rates of LIBOR plus 3.0%. The acquisition term loans
provide for borrowing, at the Company's option, at either the lender's prime
rate plus a margin of 2.25% or at varying rates of LIBOR plus 3.5%.
F-13
<PAGE> 44
This new senior credit facility provides availability for letters of credit
up to $10.0 million subject to availability of borrowing capacity under the
revolving credit notes. As of July 3, 1999, the Company had $2.0 million of
letters of credit outstanding. The new senior credit facility requires the
Company to maintain certain financial covenants and requires an annual fee of
.50% on the unused portion of the revolving credit notes and .75% on the unused
portion of the acquisition term loan. As of July 3, 1999, the Company's unused
portion of the revolving credit line and acquisition term loan was $7.5 million
and $17.8 million, respectively. The Company was in compliance with all required
financial covenants at July 3, 1999. This new senior credit facility is secured
by substantially all of the assets of the Company's subsidiaries.
In June 1999, the Company entered into a new senior credit facility
("Senior Dutch Facility") with two Netherland financial institutions to finance
the acquisition of Welna. The new Senior Dutch Facility provides for two term
loans for a total facility of Dutch guilders (NLG) 25 million. Term Loan A
provides for borrowings of NLG 15 million with quarterly payments of NLG 625,000
beginning October 1, 1999. Term Loan B provides for borrowings of NLG 10 million
with principal due at date of maturity (August 1, 2001). As of July 3, 1999, the
Company had outstanding indebtedness of NLG 25 million, or approximately $11.7
million. The term loans bear interest at Euribor plus 1.75%. The Senior Dutch
Facility requires the Company to maintain certain financial covenants. The
facility is secured by substantially all of Welna's assets.
The Company assumed $1.0 million in Industrial Revenue Bonds ("IRBs") in
connection with its acquisition of the Owens Corning fiberglass composite UST
business in December 1994. In addition, the Company assumed $3.5 million of term
debt with a financial institution in connection with its acquisition of
Fibercast in June 1998. During the current fiscal year, the Company repaid both
notes.
Also, in connection with the extinguishment of its old revolving and term
credit arrangements upon funding of the new senior credit facility in January
1999, the Company recorded an extraordinary charge of $454,000 ($281,000 net of
tax) related to unamortized debt origination costs.
On July 1, 1999, the Company issued $15 million or $13.3 million net of
discount (of which $3,980,000 is to certain directors of the Company and is
classified separately as related party subordinated debt on the balance sheet)
in senior subordinated notes ("subordinated notes") bearing interest at 12% and
maturing in 2006. The subordinated notes were issued with detachable warrants
that enable the holder to purchase up to 534,873 common shares at $7.54 per
share. The warrants are exercisable immediately and expire in 2006. The warrants
or warrant shares also feature a put option that allows the holder to put up to
1/3 of the warrants or warrant shares each year at fair market value beginning
in year five and expiring in year ten. The Company has an option to terminate
the obligation to repurchase the warrants or warrant shares for a total fee not
to exceed $2.46 million. The warrants were recorded at fair value of $1,733,000
based on Black Scholes valuation model, which has been recorded as a liability,
and a related discount on the senior subordinated debt was recorded for the same
amount. This discount will be amortized over the seven year term of the note as
additional interest expense. The liability will be adjusted to the fair value of
the warrants in future periods not to exceed $2.46 million. The proceeds from
the subordinated debt issuance were used in the funding of the acquisition of
Welna.
In the prior fiscal year, in connection with the extinguishment of a prior
revolving and term credit arrangement 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 seller note. As a result of these transactions, the Company
incurred a net extraordinary gain of $353,000 ($219,000 net of tax) for the
fiscal year ended June 27, 1998.
Scheduled maturities of long-term debt at July 3, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal year:
<S> <C>
2000................ $ 4,030
2001................ 9,030
2002................ 9,961
2003................ 12,681
2004................ 42,043
----------
Total $ 77,745
==========
</TABLE>
F-14
<PAGE> 45
The Company paid interest on its long-term debt of $1,181,000, $1,662,000
and $3,118,000 during the years ended June 28, 1997, June 27, 1998 and July 3,
1999, respectively.
7. LINES OF CREDIT
In June 1999, the Company entered into a credit facility that provides
short-term borrowings for certain subsidiaries of Welna. The credit facility
provides for a maximum working capital line of credit of NLG 25 million, a term
loan of NLG 2.5 million and an acquisition line of NLG 12.5 million, for a total
facility of NLG 40 million. The facility bears interest quarterly at Euribor
plus .75% (3.389% at July 3, 1999). The Company has approximately NLG 25.4
million, or $11.8 million, outstanding under this facility at July 3, 1999. The
amount available under these facilities is approximately $6.8 million.
The Company also has separate working capital facilities for their
subsidiaries in Germany, Poland and France. These facilities provide for
borrowings up to DM 14.75 million, SEK 3.5 million, and FFR 2.25 million. These
facilities bear interest at various fixed and variable interest rates, ranging
from approximately 4.5% to 10.75% at July 3, 1999. As of July 3, 1999, the
Company has approximately $4.4 million outstanding under these facilities. The
unused portion of these facilities is approximately $4.6 million. These
facilities are due on demand.
8. 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
two of the Company's subsidiaries, Fluid Containment and Ershigs, to purchase at
least 90% of their fiberglass requirements from the supplier. The contract
expires on December 31, 1998. Effective January 1, 1999, the contract was
modified to obtain more favorable pricing levels based on certain minimum volume
purchases for the calendar years ended December 31, 1999 and 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. Accrued environmental liabilities at July 3, 1999 were
$520,000 and, in management's opinion, such accruals 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.
Upon the disability and subsequent resignation of Stephen T. Harcrow, the
Company's former president, during the second quarter of fiscal year 1999, the
Company has begun to make payments pursuant to the Salary Continuation Agreement
between the Company and Mr. Harcrow. The Company recognized a charge of $682,000
in the second quarter of fiscal year 1999 as a result of Mr. Harcrow's
disability triggering the payments under the Salary Continuation Agreement.
F-15
<PAGE> 46
9. LEASES
The Company leases certain manufacturing facilities, machinery and
equipment, and office space under operating leases. Future minimum payments on
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal year:
<S> <C> <C>
2000.................... $1,721
2001.................... 1,621
2002.................... 1,534
2003.................... 1,219
2004 and thereafter..... 1,179
--------
Total......... $ 7,274
========
</TABLE>
Total rental expense was $1,028,000, $1,204,000 and $1,570,000 for the years
ended June 28, 1997, June 27, 1998 and July 3, 1999, respectively.
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
June 27, July 3,
1998 1999
---------- ----------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Tax over financial reporting basis of net book value
of property, plant and equipment .................... $ 564 $ 1,672
Expenses accrued for financial reporting not yet
deductible for tax .................................. 1,775 2,364
Net operating loss and other carryforwards ............. 1,718 2,143
Other .................................................. 219 206
---------- ----------
Total deferred tax assets ................................ 4,276 6,385
Deferred tax liabilities:
Book over tax basis of net book value of property,
plant and equipment .................................. -- 5,081
Expenses deducted for tax, but not accrued for
book ................................................. -- 552
Financial reporting over tax basis of goodwill ......... 310 94
Other .................................................. 93 237
---------- ----------
Total deferred tax liabilities ........................... 403 5,964
---------- ----------
Valuation allowance ...................................... (684) (978)
---------- ----------
Net deferred tax assets (liabilities) .................... $ 3,189 $ (557)
========== ==========
</TABLE>
F-16
<PAGE> 47
The Company has net operating loss carryforwards of approximately $7.9
million that expire through 2017 that are available to offset future taxable
income of certain acquired subsidiaries. These carryforwards are subject to
certain limitations that would limit the carryforwards to approximately $5.4
million. The July 3, 1999 valuation allowance primarily represents net operating
loss carryforwards acquired in May 1998 as a result of the CC&E acquisition, the
future realization of which is uncertain. Any benefits that are ultimately
realized will be recorded as a reduction of goodwill.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
June 28, June 27, July 3,
1997 1998 1999
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Current income tax expense:
Federal ................................ $ 231 $ 1,025 $ 2,378
State .................................. 38 91 228
---------- ---------- ----------
Total current income tax expense ......... 269 1,116 2,606
---------- ---------- ----------
Deferred income tax expense (benefit):
Federal ................................ (3) 338 222
State .................................. 27 (102) 26
---------- ---------- ----------
Total deferred income tax expense ........ 24 236 248
---------- ---------- ----------
Total income tax expense ................. $ 293 $ 1,352 $ 2,854
========== ========== ==========
</TABLE>
The reconciliation of income tax expense computed at U.S. federal statutory
tax rates to the reported tax expense is as follows:
<TABLE>
<CAPTION>
June 28, June 27, July 3,
1997 1998 1999
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Expected income tax expense at 34% .......... $ 207 $ 497 $ 2,467
State income taxes, net of federal benefit .. 48 116 254
Non-recurring compensation charge ........... -- 786 --
Other, net .................................. 38 (47) 133
---------- ---------- ----------
Reported total income tax expense ........... $ 293 $ 1,352 $ 2,854
========== ========== ==========
</TABLE>
The Company paid $236,000, $723,000 and $2,175,000 of income taxes during
the years ended June 28, 1997, June 27, 1998 and July 3, 1999, respectively.
F-17
<PAGE> 48
11. STOCKHOLDERS' EQUITY
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.
The Company completed an initial public offering in November 1997. The net
proceeds to the Company from the sale of the 2,276,000 shares of common stock
offered by the Company (after deducting underwriting discounts and commissions
of $2.1 million) were $27.5 million. In addition, during the registration
process, the Company incurred approximately $1.5 million in legal, accounting,
printing and other costs, which were offset against the proceeds of the offering
as a component of additional paid-in capital. Of the approximately $26.0 million
of net proceeds to the Company from the offering, 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 seller, 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 was
used for general working capital purposes.
During 1999, the Company received proceeds of $4.5 million from the issuance
of 489,189 common shares in a private placement. The proceeds were used to fund
the acquisition of Welna.
12. INCENTIVE STOCK OPTION PLAN
Effective February 14, 1996, the Company adopted an incentive stock option
plan (the "Plan") for certain key employees. Denali reserved 367,833 shares of
common stock for purposes of the Plan, all of which have been granted and
exercised as of June 27, 1998.
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 November 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. The remaining 184,143 shares were granted during fiscal year
1999. Options for 142,113 shares vest 40% immediately and the remainder over a
four-year period. The remaining options for 220,760 shares vest ratably over
four years. All of the options were granted at fair market value. At July 3,
1999, all options available under the 1997 plan have been granted.
Effective 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 Denali. 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 1,400 options outstanding at an exercise price of $259. In September
1997, the Company exchanged the CSI options for a total of 254,643 options to
purchase the Company's common stock at an exercise price of $1.42. In connection
with the exchange, the Company recognized a compensation charge in the quarter
ended September 27, 1997 of approximately $2.3 million.
F-18
<PAGE> 49
A summary of Denali's stock option activity and related information for the
years ended June 28, 1997, June 27, 1998 and July 3, 1999 follows:
<TABLE>
<CAPTION>
Fiscal Year Weighted Fiscal Year Weighted Fiscal Year Weighted
1997 Average 1998 Average 1999 Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 113,190 2.22 113,190 2.22 178,730 12.99
Granted -- -- 433,373 6.19 184,143 9.95
Exercised -- -- (367,833) 1.67 -- --
--------- ----- --------- ---- -------- -------
Outstanding-end of
year 113,190 2.22 178,730 12.99 362,873 11.45
Exercisable-end of
year 113,190 2.22 56,845 13.00 87,316 13.00
Weighted average
grant date fair
value per option $ -0- $ 6.94 $ 5.85
</TABLE>
All options have five year terms and are exercisable based on four year
vesting terms. Exercise price per share for options outstanding at July 3, 1999
ranges from $8.56 - $14.50 and the average remaining contractual life was 3.5
years.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, Accounting for Stock-Based Compensation
("FAS 123"), which also requires that the information be determined as if the
Company had accounted for its employee stock options granted subsequent to July
1, 1995 under the fair value method of FAS 123. The fair value for options
granted prior to June 28, 1997 was estimated at the date of grant using a
minimum value option pricing model. The fair value of options granted subsequent
to June 28, 1997 was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions for June 27, 1998 and July 3, 1999,
respectively: risk-free interest rate of 5.3% and 5.6%, a dividend yield of 0%,
volatility factors of the expected market price of the Company's common stock of
26% and 74% and a weighted average expected life of the option of four years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the
Company's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information, as if the Company had accounted for its employee stock
options granted subsequent to July 1, 1995 under the fair value method
prescribed by FAS No. 123, follows:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
1997 1998 1999
--------- -------- -------
<S> <C> <C> <C>
Pro forma net income (in thousands).............. $ 317 $ 43 $ 3,642
Pro forma earnings per share - basic and
diluted...................................... $ 0.090 $ 0.003 $ 0.750
</TABLE>
F-19
<PAGE> 50
13. GAIN SHARING PLAN
The Company has a gain sharing plan that covers all employees of the Company
who have satisfied minimum employment standards. For the years ended June 28,
1997, June 27, 1998 and July 3, 1999, the Company made a gain sharing
contribution equally to all eligible employees totaling $144,000, $347,000 and
$762,000, respectively. Distributions are currently based on 5% of quarterly
operating earnings.
14. RETIREMENT PLANS
During fiscal year 1995, the Company adopted a defined-contribution
retirement plan, Fluid Containment 401(k) Retirement Plan (the "Plan"), that
covers all eligible employees of the Company. Effective July 1, 1997, the Plan
was amended to include all eligible employees of Ershigs. Effective January 1,
1998, the Plan was amended to include all eligible employees of Ershigs Biloxi
and SEFCO. Effective January 1, 1999, the Plan was amended to include all
eligible employees of Fibercast and Plasti-fab. The Plan allows employees to
defer up to 15% of their compensation, with the Company matching 50% of the
first 6% of the participant's contribution. Participants are immediately and
fully vested in employer contributions. The Company's matching contribution was
$277,000, $444,000 and $640,000 for the years ended June 28, 1997, June 27, 1998
and July 3, 1999, respectively.
15. PENSION PLANS
The Company, through its Welna subsidiary, sponsors pension plans that
cover the majority of the employees of Welna. Generally, these plans provide
defined pension benefits based on years of service and final average pay.
Pension plan assets are invested primarily in government securities. Due to the
fact that all the pension plans relate to Welna, the plans had no effect on
current year results and thus, all disclosures relating to the income statement
have been omitted. The following aggregate pension plan items are included in
the July 3, 1999 consolidated balance sheet (in thousands):
<TABLE>
<S> <C>
Pension obligation $ 8,770
Fair value of plan assets (8,123)
-----------
Obligation greater than assets 647
Obligation for early retirement - unfunded 1,462
-----------
Net liability recorded in the consolidated
balance sheet $ 2,109
===========
Assumptions as of July 3, 1999:
Discount rate 5%
Expected return on plan assets 6%
Rate of compensation increase 3-5%
</TABLE>
16. SEASONALITY AND INFLATION
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.
The effect of inflation on the Company's operations were not significant
during the periods presented in the consolidated financial statements.
F-20
<PAGE> 51
17. SEGMENT DATA
The Company has adopted Statement of Financial Accounting Standards No. 131
- - "Disclosures About Segments of an Enterprise and Related Information" that
requires disclosure of financial and descriptive information about the Company's
reportable operating segments. The operating segments presented are the segments
of the Company for which separate financial information is available and
operating performance is evaluated regularly by senior management in deciding
how to allocate resources and in assessing performance. The Company evaluates
the performance of its operating segments based on revenues and operating
income.
The accounting policies of the segments are the same as those described in
Note 2 - 'Significant Accounting Policies'. All intersegment net revenues and
expenses are immaterial and have been eliminated in computing net revenues and
operating income.
The Company operates in two industry segments: Containment Solutions and
Specialty Solutions. The Containment Solutions segment specializes in the
manufacture of fiberglass underground storage tanks and steel reinforced
aboveground storage tanks for fluids handling. The Specialty Solutions segment
provides engineered solutions for the containment of fluids, specializes in
fiberglass reinforced plastic products for corrosion resistant applications and
engineered metal products for the municipal and industrial markets. For fiscal
1999, except for certain revenues with respect to license agreements with
manufacturers located outside of the United States, which revenues are not
material as considered in relation to the Company's total net revenues, the
Company operates in only one geographic segment, the United States. Beginning in
fiscal year 2000, the Company, through its Welna subsidiary, will have global
operations, with a primary concentration in Europe. Welna is reported as an
additional segment for segment reporting. In the current year, Welna is included
in the presentation of the required asset information as Welna's assets and
liabilities are included in the July 3, 1999 consolidated balance sheet. The
following is a summary of the industry segment data for the years ended June 28,
1997, June 27, 1998 and July 3, 1999:
<TABLE>
<CAPTION>
Depreciation
Net Operating Total Capital and
Revenues Income Assets Expenditures Amortization
---------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended June 28, 1997:
Containment Solutions ................ $ 64,817 $ 2,080 $ 29,934 $ 523 $ 1,199
Specialty Solutions .................. 6,284 81 9,791 33 13
Corporate ............................ -- (202) 1,359 44 9
---------- ---------- ---------- ---------- ----------
Consolidated ......................... $ 71,101 $ 1,959 $ 41,084 $ 600 $ 1,221
========== ========== ========== ========== ==========
Year ended June 27, 1998:
Containment Solutions ................ $ 71,487 $ 3,822 $ 33,564 $ 2,108 $ 1,257
Specialty Solutions .................. 28,410 2,596 45,838 785 412
Corporate ............................ -- (1,637) 980 178 23
Non-recurring compensation charge .... -- (2,312) -- -- --
========== ========== ========== ========== ==========
Consolidated ......................... $ 99,897 $ 2,469 $ 80,382 $ 3,071 $ 1,692
========== ========== ========== ========== ==========
Year ended July 3, 1999:
Containment Solutions ................ $ 93,791 $ 9,131 $ 37,420 $ 1,526 $ 1,486
Specialty Solutions .................. 54,969 3,527 57,069 1,282 1,621
Welna ................................ -- -- 80,586 -- --
Corporate ............................ -- (2,099) 1,500 78 153
Non-recurring compensation charge .... -- (682) -- -- --
---------- ---------- ---------- ---------- ----------
Consolidated ......................... $ 148,760 $ 9,877 $ 176,575 $ 2,886 $ 3,260
========== ========== ========== ========== ==========
</TABLE>
F-21
<PAGE> 52
Operating income reconciles to income before income taxes as shown on the
consolidated statements of operations as follows (in thousands):
<TABLE>
<CAPTION>
June 28, June 27, July 3,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Total segment operating income $ 1,959 $ 2,469 $ 9,877
Interest expense 2,058 1,614 3,199
Interest income (111) (118) (124)
Other income, net (598) (489) (453)
---------- ---------- ----------
Income before income taxes $ 610 $ 1,462 $ 7,255
========== ========== ==========
</TABLE>
As noted above, for fiscal 1999 and prior, revenues were generated primarily
in the United States and thus no geographic disclosures are necessary. Due to
the acquisition of Welna on July 1, 1999, geographic information for long-lived
assets is presented below (in thousands):
<TABLE>
<CAPTION>
Long-lived assets(1) at:
---------------------------------------
June 27, July 3,
1998 1999
------------- -------------
<S> <C> <C>
United States $ 20,270 $ 22,133
International - Total $ 24,805
Significant countries included above:
The Netherlands $ 13,500
Poland 2,826
Germany 3,419
United Kingdom 1,955
France 2,845
</TABLE>
(1) Long-lived assets include property, plant and equipment, net of
accumulated depreciation.
18. SUBSEQUENT EVENTS (Unaudited)
On September 3, 1999, the Company acquired 67.5% of the issued and
outstanding stock of Manantial Chile S.A., a company that designs, equips,
installs and commissions industrial and municipal water and wastewater treatment
plants and systems for approximately $1.1 million in cash and 27,139 shares of
common stock valued at $213,000.
In addition, on September 1, 1999, the Company signed a letter of intent to
acquire all of the issued and outstanding stock of HP Valves, a valve
manufacturer located in Oldenzaal, The Netherlands.
F-22
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 14th
day of September, 1999.
<TABLE>
<S> <C>
DENALI INCORPORATED
(Registrant)
By: /s/ R. KEVIN ANDREWS R. Kevin Andrews
--------------------------------------- Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated and on the 14th day of September, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RICHARD W. VOLK Chairman of the Board
-------------------------------------
(Richard W. Volk)
/s/ EDWARD DE BOER Director, President and Chief Executive Officer
------------------------------------- (Principal Executive Officer)
(Edward de Boer)
/s/ R. KEVIN ANDREWS Chief Financial Officer
------------------------------------- (Principal Financial Officer and
(R. Kevin Andrews) Principal Accounting Officer)
/s/ PHILIP J. BURGUIERES Director
-------------------------------------
(Philip J. Burguieres)
/s/ ERNEST H. COCKRELL Director
-------------------------------------
(Ernest H. Cockrell)
/s/ BOB ELFRING Director
-------------------------------------
(Bob Elfring)
/s/ THOMAS D. SIMMONS, JR. Director
-------------------------------------
(Thomas D. Simmons, Jr.)
/s/ JOEL V. STAFF Director
-------------------------------------
(Joel V. Staff)
/s/ J. TAFT SYMONDS Director
-------------------------------------
(J. Taft Symonds)
/s/ STEPHEN M. YOUTS Director
-------------------------------------
(Stephen M. Youts)
</TABLE>
F-23
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
3.1 Second Restated Certificate of Incorporation of the Company
(incorporated by reference to the Company's registration
statement on Form S-1, registration statement no. 333-36857
(the "Registration Statement")).
3.2 Bylaws of the Company (incorporated by reference to the
Registration Statement).
4.1 Specimen of Common Stock certificate (incorporated by
reference to the Registration Statement).
10.1 The Company's 1996 Incentive Stock Option Plan, as amended
(incorporated by reference to the Registration Statement).
10.2 The Company's 1997 Incentive Stock Option Plan (incorporated
by reference to the Registration Statement).
10.3 Stock Purchase and Sale Agreement dated as of February 14,
1997, by and between the Company and Praxair, Inc.
(incorporated by reference to the Registration Statement).
10.4 Asset Purchase Agreement dated October 12, 1995, by and
between the Company, Hoover Group, Inc., Hoover Containment
Systems, Inc. and Hoover Containment, Inc. (incorporated by
reference to the Registration Statement).
10.5 Stock Purchase Agreement dated September 19, 1997, by and
between the Company and SEFCO, Inc., Craig T. Sutton
Revocable Trust, Cedric I. Sutton and Charlotte A. Shnurman
(incorporated by reference to the Registration Statement).
10.6 Stock Purchase Agreement dated September 22, 1997, by and
between the Company and GL&V/LaValley Industries, Inc. and
GL&V LaValley Construction, Inc. (incorporated by reference
to the Registration Statement).
10.7 Stock Purchase Agreement dated April 8, 1998 between
Reinforced Plastic Systems Inc., CC&E/RPS, Inc., and
Specialty Solutions, Inc. (incorporated by reference to the
Company's current report on Form 8-K dated May 8, 1998).
10.8 Amendment to Stock Purchase Agreement dated May 8, 1998
between Reinforced Plastic Systems Inc., CC&E/RPS, Inc., and
Specialty Solutions, Inc. (incorporated by reference to the
Company's current report on Form 8-K dated May 8, 1998).
10.9 Stock Purchase Agreement dated May 11, 1998 by and between
William I. Koch, Joan Granlund, Richard P. Callahan, as
Custodian for Wyatt I. Koch, under the Florida Uniform
Transfer to Minors Act, Richard A. Bird, Fibercast Company
and Denali Incorporated (incorporated by reference to the
Company's current report on Form 8-K dated June 5, 1998).
10.10 Glass Fiber Reinforcement Products Purchase Agreement dated
December 23, 1994, by and between the Company and Owens
Corning (incorporated by reference to the Registration
Statement).
10.11 Agreement dated November 3, 1997, by and between the Company
and Owens Corning (incorporated by reference to the
Registration Statement).
10.12 Lease dated November 22, 1996, by and between the Company and
Baymeadow Limited Partnership (the "Baltimore Lease")
(incorporated by reference to the Registration Statement).
10.13 First Amendment of Lease dated August 19, 1997, by and
between the Company and Baymeadow Limited Partnership
regarding the Baltimore Lease (incorporated by reference to
the Registration Statement).
10.14 Salary Continuation Agreement dated September 5, 1997, by and
between the Company and Stephen T. Harcrow (incorporated by
reference to the Registration Statement).
10.15 Letter to Lee W. Orr dated March 31, 1997, confirming offer
of employment (incorporated by reference to the Registration
Statement).
10.16 Consulting Agreement dated effective as of April 1, 1997, by
and between the Company and Edward de Boer (incorporated by
reference to the Registration Statement).
</TABLE>
<PAGE> 55
<TABLE>
<S> <C>
10.17 Confidentiality and Non-Competition Agreement dated September
5, 1997, by and between the Company and R. Kevin Andrews
(incorporated by reference to the Registration Statement).
10.18 Confidentiality and Non-Competition Agreement dated September
5, 1997, by and between the Company and Melford S. Carter,
Jr. (incorporated by reference to the Registration
Statement).
10.19 Confidentiality and Non-Competition Agreement dated September
5, 1997, by and between the Company and Cathy L. Smith
(incorporated by reference to the Registration Statement).
10.20 Loan and Security Agreement dated December 21, 1994, by and
between the Company and Fleet Capital Corporation (successor
in interest to Barclay Business Credit, Inc.) regarding
$11,000,000 credit facility (incorporated by reference to the
Registration Statement).
10.21 Loan and Security Agreement dated October 27, 1995, by and
between the Company and Fleet Capital Corporation (successor
in interest to Shawmut Capital Corporation) regarding
$6,500,000 credit facility (incorporated by reference to the
Registration Statement).
10.22 Loan and Security Agreement dated February 28, 1997, by and
between the Company and Fleet Capital Corporation regarding
$6,500,000 credit facility (incorporated by reference to the
Registration Statement).
10.23 Junior Subordinated Note of the Company dated December 23,
1994, in the original principal amount of $7.5 million,
payable to Owens Corning (incorporated by reference to the
Registration Statement).
10.24 Loan and Security Agreement dated October 24, 1997, by and
between the Company and NationsBank of Texas, N.A.
(incorporated by reference to the Registration Statement).
10.25 First Amendment to Loan and Security Agreement dated as of
October 31, 1997, by and between the Company and NationsBank
of Texas, N.A. (incorporated by reference to the Registration
Statement).
10.26 Second Amendment to Loan and Security Agreement dated as of
October 31, 1997, by and between the Company and NationsBank
of Texas, N.A. (incorporated by reference to the Registration
Statement).
10.27 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 (incorporated by reference to the
Company's quarterly report on Form 10-Q for the quarterly
period ending March 28, 1998 (the "3rd Quarter 1998 10-Q")).
10.28 Form of Revolving Note of Denali Incorporated pursuant to
Amended and Restated Credit Agreement dated March 23, 1998
(incorporated by reference to the 3rd Quarter 1998 10-Q).
10.29 Guaranty dated March 23, 1998 of Denali Incorporated
(incorporated by reference to the 3rd Quarter 1998 10-Q).
10.30 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. (incorporated by reference to the 3rd Quarter 1998
10-Q).
10.31 Security Agreement dated March 23, 1998 between Denali
Incorporated and NationsBank of Texas, N.A., as agent
(incorporated by reference to the 3rd Quarter 1998 10-Q).
10.32 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 (incorporated
by reference to the 3rd Quarter 1998 10-Q).
10.33 Pledge Agreement dated March 23, 1998 between Denali
Incorporated and NationsBank of Texas, N.A., as agent
(incorporated by reference to the 3rd Quarter 1998 10-Q).
10.34 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.
(incorporated by reference to the 3rd Quarter 1998 10-Q).
10.35 Amendment No. 1 and Consent to the Credit Agreement dated as
of June 5, 1998 among Denali Incorporated, Fluid Containment,
Inc., Ershigs, Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the
Banks party to and defined in the Credit Agreement, and
NationsBank, N.A., as agent (incorporated by reference to the
Company's annual report on Form 10-K for the fiscal year
ending June 27, 1998 (the "1998 10-K"))
</TABLE>
<PAGE> 56
<TABLE>
<S> <C>
10.36 Assumption and Amendment to Loan Agreement dated as of June
5, 1998 among Bank of Oklahoma, N.A., Fibercast Company and
Denali Incorporated (incorporated by reference to the
1998 10-K)
10.37 Amendment No. 2 to the Credit Agreement dated as of October
29, 1998 among Denali Incorporated, Fluid Containment, Inc.,
Ershigs, Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the Banks
party to and defined in the Credit Agreement, and
NationsBank, N.A., as agent (incorporated by reference to the
Company's quarterly report on Form 10-Q for the quarterly
period ending September 26, 1998 (the "1st Quarter 1999
10-Q"))
10.38 Guaranty Reaffirmation dated October 29, 1998 of Containment
Solutions, Inc., Denali Management, Inc., Ershigs Biloxi,
Inc., Ershigs, Inc., Fibercast Company, Fluid Containment
Property, Inc., Instrumentation Solutions, Inc., Specialty
Solutions, Inc., Fluid Containment, Inc., SEFCO, Inc. and
Hoover Containment, Inc. (incorporated by reference to the
1st Quarter 1999 10-Q)
10.39 Revolving Note dated October 29, 1998 for $26,000,000 payable
to NationsBank, N.A. (incorporated by reference to the 1st
Quarter 1999 10-Q)
10.40 Credit Agreement (the "New Credit Agreement") among Denali
Incorporated, Canadian Imperial Bank of Commerce, as
administrative agent, and ING (U.S.) Capital LLC, as
documentation agent, dated as of January 12, 1999
(incorporated by reference to the Company's quarterly report
on Form 10-Q for the quarterly period ending March 27, 1999
(the "3rd Quarter 1999 10-Q))
10.41 Stock Purchase Agreement dated February 3, 1999 by and
between Steve Jones, Belco Manufacturing Company, Inc. and
Containment Solutions, Inc. (incorporated by reference to the
Company's Form 8-K dated February 18, 1999)
10.42 Asset Purchase Agreement dated February 3, 1999 by and
between Tiger Trucking LLC, S. Jones Limited Partnership and
Containment Solutions, Inc. (incorporated by reference to the
Company's Form 8-K dated February 18, 1999)
10.43 Term Note pursuant to the New Credit Agreement between Denali
Incorporated and Bank of Oklahoma N.A. dated January 12, 1999
(incorporated by reference to the 3rd Quarter 1999 10-Q)
10.44 Form of Term Note pursuant to the New Credit Agreement
between Denali Incorporated and each of Key Corporate Capital
Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated January 12,
1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)
10.45 Acquisition Loan Note pursuant to the New Credit Agreement
between Denali Incorporated and Bank of Oklahoma N.A. dated
January 12, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.46 Form of Acquisition Loan Note pursuant to the New Credit
Agreement between Denali Incorporated and each of Key
Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
dated January 12, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.47 Revolving Credit Note pursuant to the New Credit Agreement
between Denali Incorporated and Bank of Oklahoma N.A. dated
January 12, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.48 Form of Revolving Credit Note pursuant to the New Credit
Agreement between Denali Incorporated and each of Key
Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
dated January 12, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.49 Pledge Agreement dated January 12, 1999 between Denali
Incorporated, Containment Solutions Services, Inc.,
Instrumentation Solutions, Inc., Denali Management Inc.,
Denali Holdings Management, L.L.C., Denali Operating
Management, Ltd., Containment Solutions, Inc., Specialty
Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
Company, Plasti-fab Inc. and Canadian Imperial Bank of
Commerce, as administrative agent and issuing lender
(incorporated by reference to the 3rd Quarter 1999 10-Q)
10.50 Security Agreement dated January 12, 1999 between Denali
Incorporated, Containment Solutions Services, Inc.,
Instrumentation Solutions, Inc., Denali Management Inc.,
Denali Holdings Management, L.L.C., Denali Operating
Management, Ltd., Containment Solutions, Inc., Specialty
Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
Company, Plasti-fab Inc. and Canadian Imperial Bank of
Commerce, as administrative agent and issuing lender
(incorporated by reference to the 3rd Quarter 1999 10-Q)
</TABLE>
<PAGE> 57
<TABLE>
<S> <C>
10.51 Guarantee dated January 12, 1999 between Containment
Solutions Services, Inc., Instrumentation Solutions, Inc.,
Denali Management Inc., Denali Holdings Management, L.L.C.,
Denali Operating Management, Ltd., Containment Solutions,
Inc., Specialty Solutions, Inc., Ershigs, Inc., SEFCO, Inc.,
Fibercast Company, Plasti-fab Inc. and Canadian Imperial Bank
of Commerce, as administrative agent and issuing lender
(incorporated by reference to the 3rd Quarter 1999 10-Q)
10.52 Form of Assignment and Acceptance Agreement pursuant to the
New Credit Agreement between Denali Incorporated and Canadian
Imperial Bank of Commerce, as administrative agent and each
of Key Corporate Capital Inc., ING (U.S.) Capital LLC, and
CIBC Inc. dated March 15, 1999 (incorporated by reference to
the 3rd Quarter 1999 10-Q)
10.53 Term Note pursuant to the New Credit Agreement between Denali
Incorporated and Southwest Bank of Texas, N.A. dated March
15, 1999 (incorporated by reference to the 3rd Quarter 1999
10-Q)
10.54 Form of Term Note pursuant to the New Credit Agreement
between Denali Incorporated and each of Key Corporate Capital
Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated March 15,
1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)
10.55 Acquisition Note pursuant to the New Credit Agreement between
Denali Incorporated and Southwest Bank of Texas, N.A. dated
March 15, 1999 (incorporated by reference to the 3rd Quarter
1999 10-Q)
10.56 Form of Acquisition Note pursuant to the New Credit Agreement
between Denali Incorporated and each of Key Corporate Capital
Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated March 15,
1999 (incorporated by reference to the 3rd Quarter 1999 10-Q)
10.57 Revolving Credit Note pursuant to the New Credit Agreement
between Denali Incorporated and Southwest Bank of Texas, N.A.
dated March 15, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.58 Form of Revolving Credit Note pursuant to the New Credit
Agreement between Denali Incorporated and each of Key
Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
dated March 15, 1999 (incorporated by reference to the 3rd
Quarter 1999 10-Q)
10.59 Offer Document by Denali Incorporated to shareholders of
Welna, N.V. (incorporated by reference to the Company's Form
8-K dated July 14, 1999)
10.60* Roll-over Loans Facility Agreement between Denali Welna
Europe B.v. and ABN AMRO Bank N.V. and ING Bank N.V. dated
June 11, 1999 for NLG 25,000,000
10.61* Credit Agreement between Welna, N.V., Welna Kunststoffen
B.V., B.V. Twentse Kunststoffenindustrie Plasticon, Plasticon
Haven B.V., Woodcap B.V., Kialite-Plasticon B.V.,
Onroerend-Goed Maatschappij Plasticon B.V., Hanwel B.V.,
Plasticon Projects B.V., Welna Handel B.V., Plasticon
Heerenveen B.V., B.V. van Delden, Gimex B.V. and ABN AMRO
Bank N.V. dated June 11, 1999 for NLG 40,000,000
10.62* Working Capital Credit Facility between Welna, N.V., Welna
Kunststoffen B.V., B.V. Twentse Kunststoffenindustrie
Plasticon, Plasticon Haven B.V., Woodcap B.V.,
Kialite-Plasticon B.V., Onroerend-Goed Maatschappij Plasticon
B.V., Hanwel B.V., Plasticon Projects B.V., Welna Handel
B.V., Plasticon Heerenveen B.V., B.V. van Delden, Gimex B.V.
and ING Bank dated June 11, 1999 for NLG 5,000,000
10.63* Amendment and Waiver dated June 30, 1999 to the Credit
Agreement dated January 12, 1999 among Denali Incorporated
and Canadian Imperial Bank of Commerce, as administrative
agent for the Lenders and ING (U.S.) Capital LLC, as
documentation agent
10.64* Note and Warrant Purchase Agreement dated as of June 30, 1999
between Denali Incorporated and the Variable Annuity Life
Insurance Company, A.G. Investment Advisory Services, Inc.,
EMC Equity Fund, L.P., Cockrell Investment Partners, L.P.,
Simmons Family Trust, Thomas Dudley Simmons, Jr. Marital
Trust, Thomas Dudley Simmons, Jr., Joel V. Staff, Symonds
Trust Co., Ltd., Anne Allen Symonds Revocable Trust, William
A. Monteleone, Jr., C. Richard Everett, Fred H. Levine and
Jay H. Golding Profit Sharing Plan
10.65* Form of Common Stock Registration Rights Agreement between
Denali Incorporated and the Variable Annuity Life Insurance
Company, A.G. Investment Advisory Services, Inc., EMC Equity
Fund, L.P., Cockrell Investment Partners, L.P., Simmons
Family Trust, Thomas Dudley Simmons, Jr. Marital Trust,
Thomas Dudley Simmons, Jr., Joel V. Staff, Symonds Trust Co.,
Ltd., Anne Allen Symonds Revocable Trust, William A.
Monteleone, Jr., C. Richard Everett, Fred H. Levine and Jay
H. Golding Profit Sharing Plan
</TABLE>
<PAGE> 58
<TABLE>
<S> <C>
10.66* Form of Subscription Agreement between Denali Incorporated
and the Variable Annuity Life Insurance Company, A.G.
Investment Advisory Services, Inc., EMC Equity Fund, L.P.,
Cockrell Investment Partners, L.P., Simmons Family Trust,
Thomas Dudley Simmons, Jr. Marital Trust, Thomas Dudley
Simmons, Jr., Joel V. Staff, Symonds Trust Co., Ltd., Anne
Allen Symonds Revocable Trust, William A. Monteleone, Jr., C.
Richard Everett, Fred H. Levine and Jay H. Golding Profit
Sharing Plan
10.67* Roll-over Loans Facility Agreement between Denali
International Holdings B.V. and ABN AMRO Bank N.V. and ING
Bank N.V. dated July 1999 for NLG 25,000,000
10.68* Lease agreement between Steven Jones and Belco Manufacturing
Company, Inc. dated January 1, 1998
10.69* Amendment to lease agreement between Steven Jones and Belco
Manufacturing Company, Inc. dated February 3, 1999
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP
23.2* Consent of Deloitte & Touche
27.1* Financial Data Schedule
</TABLE>
- -------------------------------------------------------------------------------
* Filed herewith
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the fourth
quarter of fiscal year 1999:
Form 8-K/A dated April 19, 1999 with respect to the acquisition of
Belco Manufacturing Company, Inc. on February 3, 1999
<PAGE> 59
DENALI INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Other Balance at
Beginning Costs and Accounts - Deductions End
of Period Expenses Describe(B) Describe(A) of Period
--------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended July 3, 1999
Allowance for Doubtful Accounts........ $907 $337 $567 $392 $1,419
Fiscal Year Ended June 27, 1998
Allowance for Doubtful Accounts........ $605 $ 93 $276 $ 67 $ 907
Fiscal Year Ended June 28, 1997
Allowance for Doubtful Accounts........ $114 $176 $575 $260 $ 605
</TABLE>
- ------------
(A) Uncollectible accounts written off, net of recoveries.
(B) Allowance for doubtful accounts resulting from the acquisition of Ershigs
during FY 1997, acquisitions of LaValley and Fibercast during FY 1998, and
the acquisition of Belco and Welna during FY 1999.
<PAGE> 1
EXHIBIT 10.60
ROLL-OVER LOANS FACILITY AGREEMENT
(NLG 25,000,000)
between
DENALI WELNA EUROPE B.V.
and
ABN AMRO BANK N.V.
and
ING BANK N.V.
<PAGE> 2
<TABLE>
<CAPTION>
Contents ZKN - 06 99 BK
- --------
Article Page
<S> <C>
1. DEFINITIONS 4
2. AVAILABILITY 5
3. DRAWING 6
4. INTEREST PERIODS 6
5. INTEREST/FEES 6
6. ALTERNATIVE INTEREST 7
7. REPAYMENT 7
8. PAYMENTS 8
9. COSTS AND EXPENSES 8
10. SECURITY AND COVENANTS 8
11. CONSOLIDATED NEGATIVE PLEDGE 9
12. INSURANCE 9
13. RESTRUCTURING CLAUSE 9
14. ANNUAL ACCOUNTS AND INFORMATION 10
15. EVENTS OF DEFAULT 10
16. COMMUNICATIONS 12
17. OTHER PROVISIONS 12
18. REPRESENTATION AND WARRANTIES 13
19. CONVERSION INTO TERM LOAN 13
20. PARTICIPATIONS / AGENCY 14
21. GENERAL CONDITIONS 14
22. LAW AND JURISDICTION 14
</TABLE>
<PAGE> 3
This agreement is made between:
1. Denali Welna Europe B.V., established in Amsterdam, Hereinafter
referred to as 'the Borrower', and
2. ABN AMRO Bank N.V., having its registered office in Amsterdam, the
Netherlands, hereinafter referred to as 'ABN AMRO' and ING Bank N.V.,
having its registered office in Amsterdam, the Netherlands, hereinafter
referred to as 'ING', ABN AMRO and ING hereinafter collectively
referred to as 'Banks' and each individually also referred to as
'Bank'.
WHEREAS:
- the Borrower and ABN AMRO have discussed the (partial)
financing of the intended acquisition by the Borrower of Welna
N.V. ('Welna'), established at Enschede, the Netherlands;
- following these discussions the Borrower has requested ABN
AMRO to put before the Borrower an indicative term sheet with
regard to the main details of such acquisition facility;
- ABN AMRO has sent the aforementioned term sheet to the
Borrower by letter dated 20th April 1999 with regard to a
facility in which ING is prepared to participate;
- the Borrower has on the basis of this term sheet and on the
basis of the subsequent discussions with the Banks,
particularly the discussions held in the meeting of 7 June
1999 with regard to the maximum level of the financing,
indicated its preparedness to accept a final offer;
- the Banks hereby offer to the Borrower, for the partial
financing of the acquisition of Welna, a facility consisting
of:
- a 6-year roll-over loan for the maximum amount of NLG
15,000,000 ("Loan A")
- a 2-year roll-over loan for the maximum amount of NLG
10,000,000 ("Loan B") to be refinanced as of 1 August
2001 or within six weeks after 100% of the Welna
shares have been obtained by the Borrower, whichever
is earlier;
Loan A and Loan B hereinafter individually also referred to as
'Loan' and together referred to as 'Loans', to which the
following terms and conditions and other details shall be
applicable.
IT IS HEREBY AGREED AS FOLLOWS:
Article 1
DEFINITIONS
In this agreement the following expressions shall have the following
meanings:
Agent: shall mean ABN AMRO in its capacity as agent for the
Banks as set out in Article 20;
<PAGE> 4
Business Day: shall mean a day other than Saturday or a Sunday on
which banks generally are open for business in the
Netherlands;
Cash Available For
Debt Service: means in respect of any Relevant Period, EBITDA for such
period after the:
- addition (or deduction) of any non-cash items dealt
within the income statement before EBIT;
- deduction of cash taxes paid;
- addition (or deduction) of increases (or decreases) of
changes in net working capital requirements;
- deduction of all capital expenditures;
Consolidated Debt
Service Coverage
Ratio: means, in respect of any Relevant Period, the ratio of
the Cash Available for Debt Service to the Debt Service
Obligations;
Debt Service
Obligations: means, in respect of any Relevant Period, the aggregate
amount of interest (including the interest element of
leasing and hire purchase payments), commissions, fees,
discounts, and other finance payments paid by the
Borrower (on a consolidated basis), including any
commissions, fees, discounts and other finance payments
paid by the Borrower (on a consolidated basis) under any
interest hedging arrangements, but deducting any
commissions, fees, discounts and other finance payments
received by the Borrower (on a consolidated basis) under
any interest rate hedging arrangement permitted by this
agreement, plus current maturities of long term debt and
any short term debt which has to be repaid;
EBIT: shall mean, in respect of any Relevant Period, the
consolidated earnings before interest and taxes of the
Borrower for such period;
EBITDA: means, in respect of any Relevant Period, EBIT for such
period plus depreciation and the amount attributable to
amortisation of goodwill or any other intangible assets
(including capitalised transaction costs) during that
period;
Euribor: means, in relation to any amount denominated in
Netherlands guilders and owed by The Borrower hereunder
on which interest for a given period is to accrue;
(a) the percentage rate per annum which appears on the
page of the Telerate Screen which displays the
European Interbank Offered Rate for term deposits
in euro (being currently page "248") for such
period at or about 11:00 a.m. (Central European
Time) on the Quotation Date for such period, or
<PAGE> 5
(b) if such page or such service shall cease to be
available, such other page or such other service
for the purpose of displaying the European
Interbank Offered Rate for term deposits in euros
as ABN AMRO, after consultation with the Borrower,
shall select;
Consolidated
Interest Cover Ratio: means EBIT divided by the sum of gross interest paid and
capitalised interest, as shown in (i) the consolidated
annual accounts of the Borrower accompanied by an
unqualified auditor's report drawn up by a
register accountant, acceptable to the Agent and in
accordance with the calculation bases and accounting
principles applied in the consolidated annual accounts
and (ii) the quarterly accounts as referred to in
Article 14;
Interest Period: shall mean a period of one, three or six months as the
Borrower may select;
Loan Period: shall, with regard to Loan A, mean the period commencing
on the date the amount of Loan A has been made available
to the Borrower hereunder and ending on 1 August 2005,
during which period the Banks have agreed to lend the
amount of Loan A to the Borrower on the terms and
conditions set forth in this agreement; and shall with
regard to Loan B mean the period commencing on the date
the amount (or a tranche thereunder) of Loan B has been
made available to the Borrower hereunder and ending on 1
August 2001 or within six weeks after 100% of the Welna
shares have been obtained by the Borrower, whichever is
the earlier, during which period the Banks have agreed
to lend the amount of Loan B to the Borrower on the
terms and conditions set forth in this agreement.
Quotation Day: means in relation to any period for which an interest
rate is to be determined hereunder, the Business Day
which is two Business Days before the first day of such
period;
Relevant Period: means each period of twelve months ending on the
last day of the Borrower's financial year and each
period of twelve months ending on the last day of each
financial quarter of the Borrower's financial years
(other than the last financial quarter of any such
financial year);
Tangible Net Worth
Welna: issued and paid up share capital plus reserves, deferred
taxation liabilities (including WIR equalisation
account) and loans subordinated to Welna's debts to the
Banks, minus intangible assets, receivables from
shareholders and/or managing Directors, shares Welna
holds in its own company and any intercompany loans, as
shown in (i) the consolidated annual accounts of Welna
accompanied by an unqualified auditor's report drawn up
by a registered accountant acceptable to the Agent and
in accordance with the calculation bases and accounting
principles applied in the consolidated annual accounts
and (ii) the quarterly accounts as referred to Article
14;
<PAGE> 6
Article 2
AVAILABILITY
The amount of the Loan shall not be made available to the Borrower until each
and all of the following conditions precedent have been complied with in form
and substance satisfactory to the Agent:
- - legal confirmation by Denali Incorporated, acceptable to the Agent, of
the final fiscal and legal structure of the Borrower and Welna;
- - confirmation by Denali Incorporated, acceptable to the Agent, that no
defaults on current facilities of Denali Incorporated have occurred;
- - agreement between the Banks and Denali Incorporated under new
facilities Denali Incorporated;
- - receipt by the Agent of a declaration of approval of or a declaration
of no objection to all credit facilities granted by ABN AMRO and ING to
the Borrower and Welna, issued by the providers of the syndicated loan
to Denali Incorporated;
- - receipt of satisfactory due diligence;
- - receipt by the Agent of the annual investment budget 1999, 2000 and
2001;
- - the security and covenants stated in Article 10 have been provided
and/or complied with;
- - the terms and conditions contained in Article 17 have been complied
with in full;
and no events or circumstances referred to in Article 15 have occurred or are
continuing.
Article 3
DRAWING
a. The Borrower shall draw:
- the amount of Loan A in one amount not later than 1 August
1999 and
- the amount of Loan B in five tranches at most, each being a
multiple of NLG 500,000 and of NLG 1,000,000 minimum.
The Borrower shall notify the Agent at least three Business Days prior
to the date of the intended drawing.
b. Notification as referred to in section a. of this Article shall be
given by telefax, by telephone or in writing. In the case of
notification by telephone, the Agent shall have the right to request
written confirmation from the Borrower before making the amount of a
Loan available to the Borrower.
c. If the amount of the Loan A shall not have been drawn by the ultimate
drawing date referred to in section a of this Article, the Agent shall
in its discretion be entitled without any further instructions from the
Borrower to make the amount of the Loan A available to the Borrower as
of that date, unless the purchase price of the acquisition as referred
to in the preamble is less than communicated to ABN AMRO earlier, in
which case the amount of Loan A will be decreased on a pro rata
parte-basis with the mezzanine loan to be granted to the Borrower by
Denali Incorporated.
<PAGE> 7
d. Loan B shall be drawn only if more than 88% of the Welna shares have
been offered to the Borrower. The maximum amount then available will
reflect the funds needed for the additional percentage above the
mentioned 88% offered to the Borrower.
Article 4
INTEREST PERIODS
a. The Loan Period is divided into successive Interest Periods. The first
Interest Period shall commence on the day on which the amount of the
Loan (or in the case of Loan B a tranche thereunder) has been made
available to the Borrower hereunder and each subsequent Interest Period
shall commence on the day immediately following the last day of the
preceding Interest Period. With a view to Article 3, section a, several
Interest Periods may exist simultaneously.
b. The Borrower shall notify the Agent of the length of the subsequent
Interest Period not later than three Business Days prior to the first
day of such Interest Period, under the understanding that the last day
of the selected Interest Period may not be later than the last day of
the Loan Period. Failing such notification, the subsequent Interest
Period shall be of the same length as the Interest Period immediately
preceding it, except when such Interest Period is the first Interest
Period, in which case the length of the subsequent Interest Period
shall be three months.
c. The notification referred to in section b. of this Article can be given
by telefax, by telephone or in writing. In the case of notification by
telephone, the Agent shall be entitled to require a written
confirmation from the Borrower before setting the interest rate for the
Interest Period concerned or, should it concern the first Interest
Period, before making the amount of the Loan available to the Borrower.
d. If any Interest Period selected by the Borrower commences before the
due date of an instalment referred to in Section a. of Article 7 and
ends after that due date, the Borrower shall also select a separate
Interest Period ending on that due date for a part of the amount of
Loan A equal to such instalment. If the Borrower shall fail to do so,
the Borrower shall be deemed to have opted for a separate Interest
Period as referred to above.
Article 5
INTEREST/FEES
a. The Borrower shall pay;
(i) interest on the drawn and non-repaid portion of each Loan at a
rate per annum that is equal to Euribor (for the term
corresponding to the length of the relevant Interest Period)
plus a margin ('Margin') of 1.75%;
(ii) a front-end fee of NLG 50,000, which the Borrower shall be
liable to pay the Agent on the date this agreement is executed
by all parties hereto;
<PAGE> 8
(iii) a commitment fee of 0.75% p.a. on the daily undrawn part of
Loan B, which is payable monthly in arrears throughout the
Loan Period, for the first time on 1 September 1999 and for
the last time on the last day of the Loan Period.
b. Interest and commitment fee shall be calculated on the basis of the
actual number of days elapsed and a 360-day year.
c. Interest and commitment fee computed by the Banks shall, save for any
manifest error, be binding. The Agent shall notify the Borrower in
writing of the amount of interest computed. Interest in respect of any
Interest Period shall be paid on the last day of the Interest Period
concerned. In case the duration of an Interest Period is six months,
interest shall be calculated and shall be payable in three-monthly
instalments on the day falling three months after the first day of such
Interest Period as well as on the last day of such Interest Period.
Article 6
ALTERNATIVE INTEREST
a. If the Agent shall have determined at any time prior to the
commencement of an Interest Period that by reason of circumstances
affecting the interbank money market in the EMU-countries, the interest
rate for such Interest Period cannot reasonably be determined on the
basis of Euribor, the Agent shall forthwith notify the Borrower
thereof.
b. The Agent and the Borrower shall then negotiate in order to agree an
interest rate for such Interest Period. In the absence of such
agreement prior to the beginning of the Interest Period, the Agent
shall set an interest rate for such Interest Period on the basis of the
cost to the Agent of funding the Loan, increased by the margin
mentioned in paragraph (i), section a, of Article 5.
c. If the parties are unable to agree upon any interest rate, the Borrower
shall have the right to prepay the full relevant Loan (or the relevant
tranche thereunder should the Interest period relate thereto) together
with accrued interest, costs, expenses and all other sums due and owing
by the Borrower to the Banks under this agreement, provided the
Borrower has given the Agent written notice of the intended prepayment
within ten Business Days after the Agent has set the interest rate, and
the relevant Loan (or the relevant tranche thereunder) is repaid within
ten Business Days after such notice, which shall be irrevocable.
Article 7
REPAYMENT
a. The Borrower shall repay:
- Loan A in 24 successive three-monthly installments of NLG
625,000 beginning on 1 October 1999;
- Loan B in one amount on the last day of the Loan Period.
<PAGE> 9
b. The Borrower shall only be entitled to make early repayments on a Loan
provided all the following conditions are complied with:
(i) the Borrower has given the Agent at least one month's prior
notice by registered letter, indicating the amount and date of
the intended early repayment;
(ii) the early repayment shall coincide with the last day of an
Interest Period;
(iii) the prepaid amount shall be at least NLG 1,000,000 or a
multiple thereof:
c. Upon giving the notice referred to in paragraph (i), section b. of this
Article Borrower shall be obliged to make the early repayment.
d. The Borrower shall be obliged to make early repayments on a Loan in
amounts equal to:
(i) net cash proceeds of any sale of assets (except in the course
of an ordinary conduct of business), or
(ii) insurance proceeds (if these are not reapplied).
Immediately upon occurrence of any one of the events referred to in
this section d. the Borrower shall notify the Agent thereof in writing,
indicating the relevant amount. Section b. of this Article shall then
not apply, except paragraph (ii) thereof.
e. Early repayments shall firstly be applied in reduction of Loan B and
secondly (provided Loan B has been fully repaid) in reduction of the
repayments of Loan A mentioned in section a. of this Article in order
of their maturity dates or their reverse order, as the Borrower may
select.
f. Any early repayment shall not be available for redrawing.
Article 8
PAYMENTS
a. The Borrower shall make all payments without any costs to the Banks and
without any deduction or set-off. These payments shall be made on the
due dates into the account so designated by the Agent.
b. The Agent shall be entitled, but not obliged, to debit all amounts
payable by the Borrower to the Banks under this agreement to the
Borrower's current account at the branch of ABN AMRO at Enschede on the
agreed due dates. The Borrower shall be responsible for ensuring that
this debit will not exceed the amount available for payments and
withdrawals from such account.
c. Payments shall be applied as follows: firstly against costs and
expenses incurred, secondly against compensation for losses sustained
and income lost and default interest, thirdly against fees and
commissions and interest and fourthly against principal.
d. If any sum shall become payable on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day, unless
such Business Day is in a
<PAGE> 10
different calendar month in which case such payment shall be made on
the last preceding Business Day, interest then being adjusted
accordingly as well as the duration of the relevant Interest Period.
Article 9
COSTS AND EXPENSES
a. All costs and expenses incurred in connection with this agreement,
including any taxes payable by a Bank (other than on net profit), as
well as any reasonable costs and expenses incurred by the Agent or a
Bank in connection with the Borrower's failure to comply with or
fulfill any obligation under this agreement at the time and in the
manner required, including out-of-pocket expenses, costs related to
exercise the any security, costs in relation to break funding,
collection charges, fees of legal consultants and other experts and
costs of proceedings, irrespective against whom brought, shall be for
the account of the Borrower and be paid by the Borrower on the Agent's
first demand.
b. Upon the expiration of a period of not less than three months from the
date of this agreement, the Agent shall notwithstanding the provisions
contained in Article 5 and 6 be entitled at its discretion to refix the
agreed interest rate if:
(i) the cost to the Banks of funding or continuing to fund the
Loans is above the level at the time when this agreement was
entered into, and
(ii) such increase is the consequence of loan restrictions, changes
in capital adequacy requirements or other rules and
regulations (including guidelines the observance of which is
requested) of the Netherlands central bank or of Dutch,
foreign or international monetary authorities.
Article 10
SECURITY AND COVENANTS
a. The following security and covenants have been or will be provided to
secure all present and future indebtedness of the Borrower to the Banks
on account of the Loans or any other account whatsoever, whether as
part of ordinary banking business or otherwise:
- first ranking pledge (pandrecht) on the shares held by the
Borrower in Welna;
- subordination of the mezzanine loan granted to the Borrower by
Denali Incorporated (both interest and repayments). The
mezzanine loan agreement shall have to be to the Agent's
satisfaction;
b. The securities and covenants referred to in section a. of this Article
shall be documented using agreements to be determined by the Agent. Any
costs involved shall be for the Borrower's account.
c. The Borrower agrees that if third parties have provided security or
covenants, the Agent may provide such third parties with information
about its financial position and any facts relating to the Loans which
may be of importance to such third parties.
<PAGE> 11
Article 11
CONSOLIDATED NEGATIVE PLEDGE
As long as the Borrower owes the Banks any sum on any account whatsoever, or may
in any manner become indebted to the Banks as a result of present or future
obligations, the Borrower shall not transfer, or promise to transfer, title to
all or any of its assets -except where such transfer forms part of its ordinary
business-, or charge, or promise to charge, all or any of its assets in favour
of a third party unless it has obtained the prior express consent of the Agent.
The Borrower has not committed itself and shall not commit itself in this
respect to any third party.
The Borrower undertakes that none of its subsidiaries shall transfer, or promise
to transfer, title to all or any of its assets -except where such transfer forms
part of its ordinary business- or charge, or promise to charge, all or any of
its assets in favour of a third party unless it has obtained the prior express
consent of the Agent. The Borrower hereby commits itself to the Banks that none
of its subsidiaries has committed itself or shall commit itself in this respect
to any third party.
Article 12
INSURANCE
The Borrower shall at all times provide for sufficient and adequate insurance
against general business risks as well as specific risks pertaining to its line
of business.
Article 13
RESTRUCTURING CLAUSE
The Borrowers shall notify the Agent without delay of any changes in the
structure of its company and any subsidiaries and group companies, including
changes in the person or persons of any shareholders of the Borrower and any
subsidiaries and group companies.
Article 14
ANNUAL ACCOUNTS AND INFORMATION
a. Denali Incorporated shall send the Agent two copies of its consolidated
audited balance sheet, profit and loss account and notes thereto for
the past financial year and shall provide the Agent with the
consolidating financial statements for the Borrower and Welna reviewed
by a register accountant, immediately after completion but in any event
not later than six months after the end of the relevant financial year.
b. The Borrower shall send the Agent two copies of the balance sheet,
profit and loss account and notes thereto for the past quarter year of
itself and Welna, including a ratio compliance certificate (the first
time the financial ratio's as defined in Article 15, section a. under
(xi) up to and including (xiii), shall be tested will be 30 June 2000,
using the average over the four previous consecutive quarters; as long
as Welna has not changed its bookyear the ratio's as defined under
(xiv) and (xv) will be tested at the end of each
<PAGE> 12
calendar year, for the first time on 31 December 1999, otherwise for
the first time on 30 June 2000), both consolidated and
non-consolidated, immediately after completion but in any event not
later than one month after the end of the relevant quarter.
c. The Borrower shall provide the Agent, both on its first demand and
unsolicited, with any details of its financial position and business
developments which may have a material effect on its financial
position.
Article 15
EVENTS OF DEFAULT
a. The outstanding balance of the principal amount of the Loans together
with accrued interest and any other sum due from the Borrower under
this agreement shall be payable forthwith and in full without any
demand or default notice being required;
(i) if the Borrower and/or Welna fail(s) to comply with or fulfil,
at the time and in the manner required, any obligation towards
a Bank whether arising under this agreement (including but not
in any way limited to the obligations referred to in Article
17 thereof) or otherwise, or a Bank has revoked its credit in
current account granted to the Borrower and/or Welna;
(ii) if the Borrower and/or Welna fail(s) to comply with or fulfil,
at the time and in the manner required, any obligation under
any other loan or financing arrangement with or any guarantee
towards third parties;
(iii) if the Borrower decides to cease carrying on its business, to
discontinue, sell, let or transfer title to the whole or part
of its business; if a license, permit or registration which
the Borrower requires in order to carry on its business
expires or is refused or withdrawn; if the nature of the
Borrower's business in the opinion of the Agent is changed in
a material way; if the Borrower decides to transfer abroad the
running of its business; if the Borrower acts contrary to any
statutory regulations with respect to its business; if the
Borrower ceases to pursue the present corporate objects set
out in its memorandum and articles of association or loses its
legal status;
(iv) if there is a dissolution or winding up (liquidatie) or a
decision or an obvious intention to dissolve or wind up;
(v) if the Borrower applies for a moratorium or other judicial
postponement of payment of debts, files a bankruptcy or
winding-up petition, is adjudicated bankrupt or wound-up,
proposes an extrajudicial arrangement or composition with its
creditors or, when insolvent, transfers any of its assets to
its creditors (boedelafstand);
(vi) if the whole or, in the opinion of the Agent, a substantial
part of the Borrower's assets is taken in execution or
attached by way of security and such attachment is
<PAGE> 13
not lifted or discharged within thirty days after having been
effected; if the whole or, in the opinion of the Agent, a
substantial part of the Borrower's properties is sold,
encumbered, expropriated, confiscated, lost or damaged;
(vii) if the Borrower's legal structure is changed and/or the
Borrower merges or associates with one or more third parties,
or if, in the opinion of the Agent, a significant change -
whether or not as a consequence of the transfer of shares -
has taken place in the control of the Borrower's business or
if the memorandum and articles of association or the rules or
regulations of the Borrower are, in the opinion of the Agent,
amended to a significant extent;
(viii) if the Borrower, without the Agent's prior written consent,
releases its shareholders from liability to further calls on
partly paid-up shares, purchases its own shares, redeems its
shares or makes a distribution from its reserves, which shall
include a decision or an obvious intention to do so;
(ix) if any circumstances mentioned in (ii) to (viii) (inclusive)
occur in respect of a surety, a guarantor, jointly and
severally liable debtor or a person who has provided the Banks
with any other type of security for the Loans; if the surety
or guarantor cancels or withdraws a surety bond or guarantee
issued by him to the Banks on the Borrower's behalf; if a
third party which has provided or has promised to provide the
Banks with security for the Loans default in the performance
of any obligation in respect of the security provided or
promised;
(x) if any circumstances mentioned in (ii) to (viii) (inclusive)
occur in respect of one or more businesses or companies which
are included in the Borrower's consolidated balance sheet, or
in respect of one or more businesses or companies which have a
controlling interest in the Borrower, or if any such business
or company defaults in the performance of any obligation
towards a Bank in connection with credit and/or guarantee
facilities granted by a Bank;
(xi) if the Consolidated Interest Cover Ratio is at any time less
than or equal to 3;
(xii) if the Consolidated Debt Service Cover Ratio in the year
1999/2000 is less than or equal to 1.0, in the year 2000/2001
less than or equal to 1.1 and in the year 2001/2002 and
thereafter less than or equal to 1.2;
(xiii) if in the Relevant Period the consolidated total interest
bearing debt (excluding the shareholder's loan from Denali
Incorporated) divided by EBITDA in the year 1999/2000 is
higher than or equal to 4.0 and in the year 2000/2001 and
thereafter higher than or equal to 3.5;
(xiv) if the Tangible Net Worth Welna in the Relevant Period during
the years 1999 and 2000 is less than or equal to 25% of
Welna's consolidated balance sheet total (including off
balance obligations entered into after the date this agreement
is
<PAGE> 14
signed and minus the amounts brought in diminution in
calculating the Tangible Net Worth Welna);
(xv) if the Tangible Net Worth Welna in the Relevant Period during
the years 2001 and thereafter is less than or equal to 30% of
Welna's consolidated balance sheet total (including off
balance obligations entered into after the date this agreement
is signed and minus the amounts brought in diminution in
calculating the Tangible Net Worth Welna);
(xvi) if all or any of the goods, properties and other assets
(goederen) provided to the Banks as security for the Loans are
lost, destroyed or damaged or expire for any reason
whatsoever;
(xvii) if the Borrower has given the Agent or the Banks incorrect
information or has withheld information from the Agent or the
Banks which they or any one of them deems significant in
connection with the conclusion of this agreement;
(xviii) if the Loans are not used for the purpose for which it was
granted, or if in the opinion of the Agent, it is clear that
the purpose for which the Loans were granted has not been
achieved or will not be achieved either wholly or to a
significant extent;
(xix) if any legislation or its interpretation is changed or a
governmental action is taken, which affects or may affect this
agreement and/or the security provided and/or the value
thereof, and the Borrower and the Agent have not within a
reasonable period to be determined by the agent reached a
written agreement adjusting the relevant provisions and/or
security on such a basis that, in the opinion of the Agent,
the position of the Banks is not adversely affected.
b. The Borrower shall forthwith notify the Agent of the occurrence of any
events mentioned in section a (ii) to (xvi) (inclusive) of this
Article.
c. Immediately upon the occurrence of any events mentioned in section a.
of this Article, the obligations of the Banks under this agreement
shall terminate.
d. If the Agent demands repayment of the Loans pursuant to the provisions
in section a. of this Article, the Borrower shall forthwith pay the
Agent lump sum compensation for losses sustained and income lost. Such
compensation shall be 1.50% of the amount of which repayment is
demanded by the Agent, without prejudice to the Agent's and the Banks'
right to be fully compensated for any higher losses sustained and
income lost.
<PAGE> 15
e. Without prejudice to the provisions in the sections a. and c. of this
Article, the Borrower shall be liable, in the event of late payment of
any sum due hereunder, to pay the Agent default interest on the overdue
amount as from the due date thereof until the date of actual payment at
a rate per annum that is equal to Euribor for the relevant Interest
Period and a Margin of 3.25%. As regards late repayment of principal,
the default interest rate shall, as from the due date, replace the
interest rate referred to in Article 5 and 6.
Article 16
COMMUNICATIONS
a. All notices and communications regarding this agreement shall, unless
otherwise stated in this agreement, be given or made in writing or by
telefax, and shall be directed to the following addresses;
for the Borrower: Denali Welna Europe B.V.
C/O Parallelstraat 52
7575 AN Oldenzaal
P.O. Box 309
7570 AH Oldenzaal
telefax: #(0541) 858501
for the Banks: ABN AMRO Bank N.V.
Dept. Corporate Banking
Oldenzaalsestraat 4
7511 DR ENSCHEDE
P.O. Box 17
7500 AA ENSCHEDE
telefax: (053) 4834592
b. Changes of address shall not be effective until they have been notified
in writing to the other party.
Article 17
OTHER PROVISIONS
a. Equity stake and/or shareholders' loan of together totaling at least
NLG 60,000,000 by Denali Incorporated;
b. no repayment or reduction shall be made of the intercompany or
shareholders' loan or equity shall be made until the Loan has been
totally repaid;
c. the Borrower and/or Welna and/or any of its subsidiaries shall not
obtain additional credits, loans, guarantees etc. with third parties
without the prior written consent of the Agent, which consent shall not
be unreasonably withheld;
d. the Borrower and/or Welna shall not grant any intercompany loans,
without the prior written consent of the Agent, which consent shall not
be unreasonably withheld;
<PAGE> 16
e. the Borrower and/or Welna shall not make any further acquisitions
without the prior written consent of the Agent, which consent shall not
be unreasonably withheld;
f. the Borrower shall not make any dividend payment to Denali Incorporated
if the Tangible Net Worth Welna is or will be as a result of any
dividend payment less than 25% of the Borrower's consolidated balance
sheet total (minus the amounts brought in diminution in calculating the
Tangible Net Worth Welna) and the Consolidated Debt Service Cover Ratio
is less than 1 after pay-out (where in this case dividend is considered
part of the Debt Service Obligations), and maximized to NLG 2,000,000
to service interest on sub debt in the United States;
g. the Borrower shall see to it that Welna will not issue new shares
without the prior written consent of the Agent;
h. confirmation by means of co-signing this agreement of Denali
Incorporated that the terms and conditions of the Loans (including but
not limited to the securities and covenants referred to in Article 10)
do not in any way contradict with the financing arrangements of Denali
Incorporated in the United States of America.
Article 18
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Banks that:
(i) the entering into and the performance of this agreement will not
contravene any provision of any applicable law or regulation or any
order or decree of any governmental authority or court to the
jurisdiction of which it is subject or its constitution or its bye-laws
or any other statutes governing its activities or any mortgage, deed,
or contract to which it is party or which is binding upon the Borrower
or any of its assets;
(ii) it is not in default under any mortgage, deed or contract to which it
is a party or which is binding upon the Borrower or any of its assets
and there are no material litigation or administrative proceedings
before any court or governmental authority pending or (to its
knowledge) threatening which would have a materially adverse effect on
its business assets or conditions;
(iii) the entering into and the performance of this agreement have been duly
authorized by all necessary corporate and other action on its part and
it has obtained all the permits, consents and authorization necessary
in this connection;
(iv) this agreement constitutes direct, general, legally valid and binding
obligations of the Borrower and is enforceable in accordance with its
terms.
<PAGE> 17
Article 19
CONVERSION INTO A TERM LOAN
a. The Borrower may, subject to at least fifteen Business Days' notice,
request the Agent to wholly or partially convert the outstanding
balance of Loan A as from the first day of the subsequent Interest
Period into a loan with one or more Interest Periods ('Term Loan')
which terminates on the last day of the Loan Period or a date yet to be
agreed between the parties ('Final Repayment Date');
b. The request for conversion shall be made in writing and specify the
amount to be converted and the date of the intended conversion
('Conversion Date').
c. The Agent shall set the interest rate for the Term Loan on the basis of
its then prevailing rates and shall not later than ten Business Days
prior to the Conversion Date notify the Borrower of the interest rate.
Until seven Business Days after receipt of such notice from the Agent,
the Borrower shall have the right to revoke the request for conversion
into a Term Loan. Thereafter the request can no longer be revoked.
d. Failing agreement on the interest rate, the Borrower and the Agent
shall revert to the situation existing prior to the Borrower's request
referred to in section b. of this Article.
e. The Term Loan shall be repaid in equal three-monthly instalments due on
1st January, 1st April, 1st July and 1st October of each year. The
instalments shall be of such an amount that the Term Loan will have
been repaid in full on the Final Repayment Date.
f. The terms and conditions, also including any break funding arrangement,
governing the Term Loan shall be incorporated in a separate agreement.
Article 20
PARTICIPATIONS / AGENCY
ABN AMRO will participate in Loan A for an amount of maximum NLG 10,000,000. ING
will participate in Loan A for an amount of maximum NLG 5,000,000.
ABN AMRO will participate in Loan B for 65% of the amount made available to the
Borrower under Loan B. ING will participate in Loan B for 35% of the amount made
available to the Borrower under Loan B.
ABN AMRO will act as agent on behalf of the Banks, with regard to the collection
and payment of monies under this agreement, and with regard to all matters the
Agent is explicitly charged with in this agreement or in the intercreditor
agreement concluded between ABN AMRO and ING.
<PAGE> 18
Article 21
GENERAL CONDITIONS
Except where this agreement otherwise provides, it shall be subject to the
General Conditions (Algemene Voorwaarden) of ABN AMRO. By signing this agreement
the Borrower declares that it has received a copy of said General Conditions.
Article 22
LAW AND JURISDICTION
This agreement shall be governed by the laws of the Netherlands. All disputes
arising out of this agreement shall in the first instance be brought before the
competent court in Amsterdam.
Agreed and signed in five copies on June 11, 1999.
DENALI WELNA EUROPE B.V.
ABN AMRO BANK N.V.
ING BANK N.V.
Seen and approved (in particular with regard to section (a) of Article 14, and
Section h of Article 17, of this agreement).
DENALI INCORPORATED
Seen and approved (in particular with regard to Article 14, Article 15 and
sections c., d. and e. of Article 17 of this agreement).
WELNA N.V.
<PAGE> 1
EXHIBIT 10.61
ABN-AMRO
CREDIT AGREEMENT
UNDERSIGNED:
1. Welna N.V., established at Enschede,
Welna Kunststoffen B.V., established at Enschede,
B.V. Twentse Kunststoffenindustrie Plasticon, established at Oldenzaal,
Plasticon Haven B.V., established at Hengelo (Ov)
Woodcap B.V., established at Deurne,
Kialite-Plasticon B.V., established at Tilburg,
Onroerend-Goed Maatschappij Plasticon B.V., established at Oldenzaal,
Hanwel B.V., established at Enschede,
Plasticon Projects B.V., established at Oldenzaal,
Welna Handel B.V., established at Enschede,
Plasticon Heerenveen B.V., established at Heerenveen,
B.V. van Delden, established at Waddinxveen,
Gimex B.V., established at Geldermalsen,
Hereinafter (together and individually) referred to as 'the Borrower",
2. ABN AMRO Bank N.V., having its registered office in Amsterdam, the
Netherlands, hereinafter referred to as 'ABN AMRO',
HAVE AGREED AS FOLLOWS:
On the basis of the information supplied to ABN AMRO, the Borrower is granted a
facility on the terms and conditions and at the rates and charges stated in this
agreement and the appendix hereto. The facility is granted to finance the
Borrower's business activities and distribution of free reserves.
FACILITY AMOUNT NLG 40,000,000.00
BREAKDOWN OF FACILITY AMOUNT
Overdraft facility NLG 25,000,000.00
5-year roll-over loan NLG 2,500,000.00
(in principal NLG 5,000,000.00)
Contingent liability facility NLG 12,500,000.00
OVERDRAFT FACILITY
The credit may also be used for drawing short-term loans in Euro's, EMU-and
other currencies. The terms and conditions governing these short-term loans will
be incorporated in a separate short-term loan agreement.
<PAGE> 2
5-year roll-over loan
This loan will be continued unaltered and on the existing terms and conditions,
with the provision that it will now also be subject to the joint and several
liability of B.V. van Delden and Gimex B.V.
CONTINGENT LIABILITY FACILITY
The contingent liability facility is granted to, among others, issue credit
guarantees within the ABN AMRO network in order to finance subsidiaries of Welna
N.V. (ownership > 50%) outside of The Netherlands.
RATES AND CHARGES
OVERDRAFT FACILITY
Borrower will pay to ABN AMRO an interest-rate that equals the average 1-month
EURIBOR, with a minimum of 2,5%, plus a margin of 0,75% per annum.
During April 1999 the 1-month EURIBOR was 2,747%. Including the margin the
applicable interest rate is 3,497% p.a.
The average 1-month EURIBOR is calculated by dividing the sum of all EURIBOR's
by the number of days of the applicable month. If on any one day 1-month EURIBOR
is not determined, the 1-month EURIBOR of the previous day will apply.
SECURITY AND COVENANTS
- - Intercompany liability of all parties named under 1. above, to be laid
down in an intercompany liability agreement.
- - Furthermore, the Borrower undertakes not to provide third parties with
a statement as referred in I.5. of the ABN AMRO General Credit
Provisions.
- - The Borrower undertakes that if he considers providing security or
additional security in any form whatsoever for debts to third parties,
he will inform ABN AMRO in time and offer such security as ABN AMRO
will deem to be at least equal in nature and value to the security
offered or given for the debts to third parties, all this in proportion
to the total lending by ABN AMRO and third parties to the Borrower.
This undertaking will remain in force and effect as long as the
Borrower will owe any sum to ABN AMRO on any account or there are any
existing or future liabilities for which the Borrower may become
indebted to ABN AMRO.
OTHER PROVISIONS
- - With a view to the continuity of the Borrower's business, ABN AMRO
deems it necessary that the Borrower's tangible net worth must at all
times represent at least 25% during 1999 and 2000 and at least 30%
during 2001 and thereafter, of the (adjusted) balance sheet total. This
criterion must be satisfied throughout the facility period. For the
purpose of this credit arrangement tangible net worth shall be
understood to mean: issued and paid-up share capital plus reserves,
deferred taxation liabilities (including WIR equalisation account) and
loans subordinated to the
<PAGE> 3
Borrower's debts to ABN AMRO, minus intangible assets, receivables from
shareholders and/or managing directors and shares the Borrower holds in
his own company, as shown in the consolidated annual accounts
accompanied by an unqualified auditor's report drawn up by a auditor
acceptable to ABN AMRO and in accordance with the calculation bases and
accounting principles applied in the annual accounts as at 31-12-1998.
- - The Borrower will not enter into additional credit agreements with
third parties (including but not limited to agreements relating to
off-balance sheet instruments, lease and guarantees) without the prior
consent of ABN AMRO. ABN AMRO has been informed that ING Bank N.V. will
grant a credit facility for working-capital purposes with a maximum of
NLG 5,000,000.00.
- - Further acquisitions and investments in fixed assets are subject to ABN
AMRO's prior consent except in the case of acquisitions of minor
(financial) importance and as long as the total of acquisitions and
investments in fixed assets does not exceed NLG 7,500,000.00, on a
yearly basis.
- - Borrower will not grant an intercompany-loan to Denali Incorporated
and/or Denali Welna Europe B.V.
- - Borrower shall not pay dividend to Denali Welna Europe B.V. with
exception of dividend distribution for:
- interest-payments and/or repayment of Loan A (in principal NLG
15,000,000.00) granted by ABN AMRO Bank N.V. and ING Bank N.V.
to Denali Welna Europe B.V.;
- interest-payments and/or the repayment of the outstanding
amount of Loan B (in principal NLG 10,000,000.00) granted by
ABN AMRO Bank N.V. and ING Bank N.V. to Denali Welna Europe
B.V.;
- dividend payment from Denali Welna Europe B.V. to Denali
Incorporated, maximized to NLG 2,000,000.00, to service
interest on sub debt in the United States under the condition
that Borrower is continuously in compliance with the covenants
and provisions set out in this Credit Agreement.
- - Payment of dividend from Denali Welna Europe B.V. to Denali
Incorporated is also subject to the additional restrictions set out in
the Roll-Over Loans Facility Agreement between Denali Welna Europe
B.V., ABN AMRO Bank N.V. and ING Bank N.V.:
- - Consolidated Debt Service Cover Ratio is less than 1 after pay-out
(where dividend is considered part of the Debt Service Obligations).
- - Borrower will pay to ABN AMRO on its first demand all out of pocket
expenses regarding the cost of documentation, exercising rights and
break-funding costs.
- - The enclosed ABN AMRO General Credit Provisions dated January 1999 will
apply. By signing this Credit Agreement the Borrower declares that he
has received a copy of said General Credit Provisions and is fully
aware of the contents thereof.
- - The following will apply in addition or contrary to the ABN AMRO
General Credit Provisions:
ABN AMRO will also receive from the Borrower the quarterly figures
within one month of the end of every quarter.
- - The outstanding balances of the facility together with accrued interest
and any other sum due from the Borrower under the Credit Agreement
shall be payable to ABN AMRO forthwith and in
<PAGE> 4
full without any demand or default notice being required if the
Borrower fails to comply with or fulfil, at the time and in the manner
required, any obligation under any loan or financing arrangement with
or any guarantee towards ABN AMRO and/or third parties.
This does not affect the right to cancel the facilities as referred to
in II.4. of the ABN AMRO General Credit Provisions.
- - The providers of the syndicated loan to Denali Inc. shall issue a
declaration of approval of or a declaration of no objection to all
credit facilities granted by ABN AMRO Bank N.V. and ING Bank N.V. to
Denali Welna Europe B.V. and Welna N.V. c.s.
- - This Credit Agreement will be governed by Dutch law.
Signature:
Enschede, 11 June 1999
ABN AMRO Bank N.V.
On behalf of all the legal entities named under 1. above.
For approval:
Enschede, 11 June 1999
Welna N.V.
<PAGE> 1
EXHIBIT 10.62
ING BANK
DISTRICT OOST NEDERLAND
Postbus 83, 7500 AB Enschede Afdeling
Business Accounts
CONFIDENTIAL Telefoon
(053) 482 52 13
Welna N.V. cs Referentie
Attn. Mr. Ing H. A.Kroes E. ten Kate/fw
P.O. Box 309 Datum
NL-7570 AH Oldenzaal 11 June 1999
Dear Mr Kroes,
Referring to our pleasant discussions we hereby inform you that we are
willing to offer Welna N.V. and its Dutch subsidiaries a Multi Purpose/
Multi Currency facility.
This credit facility will be subject to the following conditions:
PURPOSE : Credit facility for working-capital purposes.
BORROWER : Welna N.V., established at Enschede,
Welna Kunststoffen B.V., established at Enschede,
B.V. Twentse Kunststoffenindustrie Plasticon,
established at Oldenzaal,
Plasticon Haven B.V., established at Hengelo (Ov),
Woodcap B.V., established at Deurne,
Kialite-Plasticon B.V., established at Tilburg,
Onroerend-Goed Maatschappij Plasticon B.V.,
established at Oldenzaal,
Hanwel B.V., established at Enschede
Plasticon Projects B.V., established at Oldenzaal,
Welna Handel B.V., established at Enschede,
Plasticon Heerenveen B.V., established at Heerenveen,
B.V. van Delden, established at Waddinxveen,
Gimex B.V., established at Geldermalsen,
hereinafter (together and individually) referred to as
'the Borrower'.
LENDER : ING Bank, located in Amsterdam, hereinafter referred
to as "ING".
<PAGE> 2
FACILITY AMOUNT : NLG 5,000,000.-
(in words: five million Dutch guilders), which can be
used as follows:
(i) in the form of overdrafts in current account;
and/or
(ii) in the form of short-term loans in Dutch
guilders.
Under the condition that (i) and (ii) together will
amount to a maximum of NLG 5,000,000.- (in words:
five million Dutch guilders) or the equivalent amount
in optional currency.
OPTIONAL CURRENCY : All currency, as far as freely transferable and
convertible into Dutch guilders.
LOAN : Short-term loan.
TERM OF THE
FACILITY : The facility will be reviewed annually by reference to
the consolidated annual figures of the Borrower. The
Borrower and the Lender may at any time cancel the
facility.
TERM OF THE
SHORT-TERM LOANS : 1, 2, 3, 6 or 12 months at choice of the Borrower.
AMOUNT OF THE LOANS: A minimum of NLG 1,000,000.- or a multiple of NLG
1,000,000.- , or the equivalent thereof in the chosen
optional currency (rounded down at thousand).
INTEREST RATE : Overdrafts in current account
1-month Euribor, with a minimum of 2.5%, plus a
margin of .75% per annum.
Short-term loans
EMU-currency: Euribor for the relevant term of loan
plus a margin of 0.40% per annum.
Other optional currency: Libor for the relevant term
of loan plus a margin of 0.40% per annum.
INTEREST PAYMENT : Overdrafts in current account
In arrears on January 1, April 1, July 1 and October 1
of each year.
Short-term loans
On the final day of the term of the loan.
The interest amounts on overdrafts in current account
and loans in Dutch guilders and other EMU-currency
shall be calculated on the actual number of days
elapsed and on the basis of a 360 day year.
<PAGE> 3
The interest on loans in optional currency shall be
calculated in accordance with the market practice of
the relevant optional currency.
REPAYMENT SHORT- : On the last day of the term of the loan, unless the
TERM LOANS loan is withdrawn again.
Repayment of the loan will be made in the same
currency as which the loan is withdrawn.
SECURITY AND COVENANTS : As security for the facility and for all which the
Borrower may now and in the future owe to the Lender
on whatever grounds the following securities shall be
given:
- Declaration of Joint and Several Liability
between Welna N.V. and its Dutch
subsidiaries.
- As long as the Borrower and/or any of its
foreign subsidiaries owes ING any sum on any
account whatsoever, or may in any manner
become indebted to ING as a result of
present of future obligations, the Borrower
shall not transfer, or promise to transfer,
title to all or any of his assets- except
where such transfer forms part of his
ordinary business- or charge, or promise to
charge, all or any of his assets in favour
of a third party unless he has obtained the
prior express consent of ING (negative
pledge).
- The Borrower undertakes that if he considers
providing security of additional security in
any form whatsoever for debts to third
parties, he will inform ING in time and
offer such security as ING deem to be at
least equal in nature and value to the
security offered or given for the debts to
third parties, all this in proportion to the
total lending by ING and third parties to
the Borrower. This undertaking will remain
in force and effect as long as the Borrower
will owe any sum to ING on any account or
there are any existing or future liabilities
for which the Borrower may become indebted
to ING (pari passu).
OTHER PROVISIONS : - With a view to the continuity of the
Borrower's business, ING deems it necessary
that the Borrower's tangible net worth must
at all times represent at least 25% during
1999 and 2000 and at least 30% during 2001
and thereafter, of the (adjusted) balance
sheet total.
For the purpose of this credit arrangement
tangible net worth shall be understood to
mean: issued and paid-up share capital plus
reserves, deferred taxation liabilities
(including WIR equalization account) and
loans
<PAGE> 4
subordinated to the Borrower's debts to ING,
minus intangible assets, receivables from
shareholders and/or managing directors and
shares the Borrower holds in his own
company, as shown in the consolidated annual
accounts accompanied by an unqualified
auditor's report drawn up by a auditor
acceptable to ING and in accordance with the
calculation bases and accounting principles
applied in the annual as at 31-12-1998.
- Consolidated Interest Coverage Ratio > 3%.
- The Borrower will not enter into credit
agreements with third parties (including but
not limited to agreements relating to
off-balance sheet instruments, lease and
guarantees) without the consent of ING. ING
has been informed that ABN AMRO Bank N.V.
will grant a credit facility with a maximum
of NLG 40,000,000.00.
- Further acquisitions and investments in
fixed assets are subject to ING's prior
consent except in the case of acquisitions
of minor (financial) importance and as long
as the total of acquisitions and investments
in fixed assets does not exceed NLG
7,500,000.00, on a yearly basis.
- Borrower will not grant an intercompany-loan
to Denali Incorporated and/or Denali Welna
Europe B.V.
- Borrower shall not pay dividend to Denali
Welna Europe B.V. With exception of dividend
distribution for:
- interest-payments and/or repayment
of Loan A (in principal NLG
15,000,000.00) granted by ABN AMRO
Bank N.V. and ING Bank N.V. to
Denali Welna Europe B.V.;
- interest-payments and/or the payment
of the outstanding amount of Loan B
(in principal NLG 10,000,000.00)
granted by ABN AMRO Bank N.V. and
ING Bank N.V. to Denali Welna Europe
B.V.;
- dividend payment from Denali Welna
Europe B.V. to Denali Incorporated,
maximized to NLG 2,000,000.00, to
service interest on sub debt in the
United States
Under the condition that Borrower is continuously in
compliance with the covenants and provisions set out
in this Credit Agreement.
- Payment of dividend from Denali Welna Europe
B.V. to Denali Incorporated is also subject
to the additional restrictions set out in
the Roll-Over Loans Facility Agreement
between Denali Europe B.V., ABN-AMRO Bank
N.V. and ING Bank N.V.:
- Consolidated Debt Service Cover
Ratio is less than 1 after pay-out
(where dividend is considered part
of the Debt Service Obligations).
<PAGE> 5
- Borrower will pay to ING on its first demand
all out of pocket expenses regarding the
costs of documentation, exercising rights
and break-funding costs.
- ING will also receive from the Borrower the
quarterly figures within one month of the
end of every quarter.
- The outstanding balances of the facility
together with accrued interest and any other
sum due from the Borrower under the Credit
Agreement shall be payable to ING forthwith
and in full without any demand or default
notice being required if the Borrower fails
to comply with of fulfil, at the time and in
the matter required, any obligation under
any loan or financing arrangement with or
any guarantee towards ING and/or third
parties (Cross-Default).
- The providers of the syndicated loan to
Denali Inc. shall issue a declaration of
approval of or a declaration of no objection
to all credit facilities granted by ABN AMRO
Bank N.V. and ING Bank N.V. to Denali Welna
Europe B.V. and Welna N.V. c.s.
- This offer cannot be accepted separately of
the offer to Denali Welna Europe B.V.
(roll-over loans of NLG 25,000,000.00);
- This Credit Agreement will be governed by
Dutch Law.
ANNUAL FIGURES : Each year, the Borrowers shall provide the bank with
the (consolidated) balance sheet and profit and loss
account, drawn up by a (chartered) accountant and
accompanied by an unqualified auditors' report within
six months after the ending of the financial year.
SHORT-TERM LOAN : The terms and conditions governing these short-term
AGREEMENT loans will be incorporated in a separate short-term
loan agreement.
GENERAL CONDITIONS : In so far as not stated otherwise in this offer and
the enclosed clause sheet, the general conditions
drafted by the Nederlandse Vereniging van Banken
(Netherlands Bankers' Association) shall apply.
AVAILABILITY OF THE: The facility will be made available as soon as the
FACILITY agreement is signed, the securities are given and the
other provisions, if any, are fulfilled.
VALIDITY : This offer is valid until 20 June, 1999.
We trust to have been of service. If you are in agreement with this offer,
please return the enclosed copy, duly signed where required, and having
initialed the other pages to indicate
<PAGE> 6
your approval, before the expiry date. Your signature also serves to
acknowledge receipt of a copy of the general conditions.
Yours faithfully,
Enschede, 11 June 1999
ING Bank N.V.
For approval :
The Borrower
Welna N.V.
(on behalf of all the legal entities
mentioned as Borrower)
Enschede, 11 June 1999
Enclosures:
- Acceptance copy
- Clause sheet/ Clausuleblad
- Algemene Voorwaarden (General conditions)
- Kasgeldovereenkomst (Short-Term Loan Agreement)
- Compte-Joint en Mede-aansprakelijkheidsovereenkomst
(Declaration of Joint and Several Liability)
<PAGE> 1
EXHIBIT 10.63
AMENDMENT AND WAIVER
AMENDMENT AND WAIVER, dated as of June 30, 1999 (this
"Amendment"), to the Credit Agreement, dated as of January 12, 1999 (as modified
hereby and as further amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among DENALI INCORPORATED., a Delaware
corporation (the "Borrower"), the several lenders from time to time parties
thereto (the "Lenders"), CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), as
administrative agent (in such capacity, the "Administrative Agent") for the
Lenders, and ING (U.S.) CAPITAL LLC, as documentation agent (the "Documentation
Agent").
RECITALS
On March 18, 1999 the Borrower signed a letter of intent to
acquire (the "Welna Acquisition") Welna N.V. ("Welna"). The Borrower has
requested the Administrative Agent and the Lenders to amend certain provisions
of the Credit Agreement as set forth in this Amendment to permit, among other
things, the acquisition of Welna, and to agree to waive certain provisions of
the Credit Agreement to provide for the consummation of the Acquisition.
Additionally, the Borrower has requested the Administrative Agent and the
Lenders to amend certain provisions of the Credit Agreement as set forth in this
Amendment to permit, among other things, swing line credit facilities from both
Bank of Oklahoma N.A. and Southwest Bank of Texas, N.A. The Administrative
Agent, the Documentation Agent and the Lenders parties hereto are willing to
agree to such waivers and amendments, but only on the terms and subject to the
conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Borrower, the Administrative Agent, the Documentation Agent
and the Lenders hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Credit Agreement are used herein as therein defined.
2. Amendments. The Credit Agreement is hereby amended as follows:
(a) Section 1.1 is hereby amended by adding the following new
definitions:
"'Adjusted Domestic EBITDA': for any period during
which the Borrower or any Domestic Subsidiary has consummated
(or proposes to consummate) a Permitted Acquisition, the
Consolidated Domestic EBITDA of the Borrower for such period
plus, for each such Permitted Acquisition, the Consolidated
EBITDA of the Acquired Business for such period in respect of
such Permitted Acquisition, calculated on a pro forma basis
without duplication,
<PAGE> 2
as if such Permitted Acquisition had occurred on the first day
of such period (and for purposes of this definition, Adjusted
Domestic EBITDA shall in any event exclude the amount of any
non-cash income recognized during any period for which
Adjusted Domestic EBITDA is determined) plus hard cash savings
in connection with the Permitted Acquisition identified by the
Borrower and acceptable to the Required Lenders.
'Amendment and Waiver': the Amendment and Waiver,
dated as of June 30, 1999, among the Borrower, the
Administrative Agent, the Documentation Agent and the Lenders
parties thereto.
'Amendment Effective Date': the date on which all
conditions precedent to the effectiveness of the Amendment and
Waiver have been satisfied.
'Bank of Oklahoma': Bank of Oklahoma N.A., a national
banking association.
'Bank of Oklahoma Swing Facility': that certain Loan
Agreement, dated as of June __, 1999, between Bank of Oklahoma
and Specialty Solutions, Inc., providing for unsecured swing
notes in the maximum aggregate principal amount of
$1,000,000.00.
'Consolidated Domestic EBITDA': for any period, the
sum for such period of (a) Consolidated Domestic Net Income
for such period, (b) the sum of provisions for such period for
income taxes, interest expense, and depreciation and
amortization expense used in determining such Consolidated
Domestic Net Income, (c) amounts deducted in such period in
respect of non-cash expenses in accordance with GAAP, (d) the
amount of any aggregate net loss (or minus the amount of any
gain) during such period arising from the sale, exchange or
other disposition of capital assets and (e) non-cash expenses
deducted in such period in connection with any earn-out
agreements, stock appreciation rights, "phantom" stock plans,
employment agreements, non-competition agreements,
subscription and stockholders agreements and other incentive
and bonus plans and similar arrangements made in connection
with acquisitions of Persons or businesses by the Borrower or
its Domestic Subsidiaries or the retention of executives,
officers or employees by the Borrower or its Domestic
Subsidiaries, including (but without duplication) any Person
that has become a Domestic Subsidiary during such period, on a
pro forma basis as if such acquisition had occurred on the
first day of such period; provided, that Consolidated Domestic
EBITDA shall in any event exclude, from and after the Closing
Date, (x) the effect of any write-up of any assets acquired in
any Permitted Acquisitions and (y) the amount of any non-cash
income recognized during any period for which Consolidated
Domestic EBITDA is determined.
'Consolidated Domestic Fixed Charges': for any
period, the sum of (i) the amounts deducted for the cash
portion of Consolidated Domestic Interest
<PAGE> 3
Expense in determining Consolidated Domestic Net Income for
such period, (ii) the amount of scheduled payments of
principal of Indebtedness during such period and (iii) the
amount of cash income taxes paid during such period.
'Consolidated Domestic Funded Debt': for any period
of twelve consecutive calendar months, the sum of (a)
Consolidated Senior Indebtedness for such period and (b) all
Indebtedness of the Borrower and its Domestic Subsidiaries of
the type set forth in clauses (a), (b), (c), (d) and (e) of
Indebtedness (excluding the Permanent Subordinated Debt) as of
the last day of such period, determined on a consolidated
basis in accordance with GAAP, including, in any event any
purchase money Indebtedness.
'Consolidated Domestic Interest Expense': for any
period, the amount which, in conformity with GAAP, would be
set forth opposite the caption "interest expense" or any like
caption (including without limitation, imputed interest
included in payments under Financing Leases) on a consolidated
income statement of the Borrower and the Domestic Subsidiaries
for such period excluding the amortization of any original
issue discount.
'Consolidated Domestic Net Income': for any period,
the consolidated net income (or deficit) of the Borrower and
the Domestic Subsidiaries for such period (taken as a
cumulative whole), determined in accordance with GAAP;
provided that there shall be excluded (a) the income (or
deficit) of any Person accrued prior to the date it becomes a
Domestic Subsidiary or is merged into or consolidated with the
Borrower or any Domestic Subsidiary, (b) the income (or
deficit) of any Person (other than a Domestic Subsidiary) in
which the Borrower or any Domestic Subsidiary has an ownership
interest, except to the extent that any such income has been
actually received by the Borrower or such Domestic Subsidiary
in the form of dividends or similar distributions, (c) the
undistributed earnings of any Domestic Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by such Domestic Subsidiary is not at the time
permitted by the terms of any Contractual Obligation,
Governing Document or Requirement of Law applicable to such
Domestic Subsidiary, (d) any restoration to income of any
contingency reserve, except to the extent that provision for
such reserve was made out of income accrued during such
period, (e) any aggregate net gain (but not any aggregate net
loss) during such period arising from the sale, exchange or
other disposition of capital assets (such term to include all
fixed assets, whether tangible or intangible, all inventory
sold in conjunction with the disposition of fixed assets and
all securities), (f) any write-up of any asset, (g) any net
gain from the collection of the proceeds of life insurance
policies, (h) any gain arising from the acquisition of any
securities, or the extinguishment, under GAAP, of any
Indebtedness, of the Borrower or any Domestic Subsidiary, (i)
in the case of a successor to the Borrower by consolidation or
merger or as a transferee of its assets, any earnings of the
successor corporation prior to such consolidation, merger or
transfer of assets,
<PAGE> 4
and (j) any deferred credit representing the excess of equity
in any Domestic Subsidiary at the date of acquisition over the
cost of the investment in such Domestic Subsidiary.
'Domestic Subsidiary': any Subsidiary of the Borrower
that is not a Foreign Subsidiary.
'Domestic Leverage Ratio': at any time, the ratio of
Consolidated Domestic Funded Debt to Consolidated Domestic
EBITDA for the immediately preceding period of four
consecutive fiscal quarters; provided that, in calculating the
Domestic Leverage Ratio for any period during which a
Permitted Acquisition was consummated, Adjusted Domestic
EBITDA shall be substituted for Consolidated Domestic EBITDA.
'Dutch Credit Facility': collectively, (a) the
Short-Term Loan Agreement among Welna, the Foreign
Subsidiaries and ABN AMRO Bank N.V., (b) the Credit Agreement
among Welna, the Foreign Subsidiaries and ABN AMRO Bank N.V.
providing for overdraft, rollover and contingent liability
facilities up to $40,000,000 Guilders in the aggregate, (c)
the Roll-Over Loan Agreement between Denali Welna Europe N.V.
or Denali International Holdings B.V., as the case may be, ABN
AMRO Bank N.V. and ING Bank N.V. providing for an acquisition
facility of up to 15,000,000 Guilders, and (d) the Roll-Over
Loan Agreement between Welna N.V. c.s., ABN AMRO Bank N.V. and
ING Bank N.V. providing for a working capital loan of up to
15,000,000 Guilders.
'Foreign Subsidiary': any Subsidiary of the Borrower
which is organized under the laws of a jurisdiction, or is
located, outside the United States of America.
'Permanent Equity Financing': $4,500,000 of common
equity securities issued by the Borrower, having terms and
otherwise in form and substance satisfactory to the
Administrative Agent, the proceeds of which will be used to
finance a portion of the purchase price of the Welna
Acquisition and fees and expenses incurred in connection
therewith.
'Permanent Subordinated Debt': $15,000,000 aggregate
principal amount of subordinated debt securities, issued by
the Borrower, subordinated to the Obligations on terms
satisfactory to, and otherwise in form and substance
satisfactory to, the Administrative Agent, the proceeds of
which will be used to finance a portion of the purchase price
of the Welna Acquisition and fees and expenses incurred in
connection therewith.
'Permanent Welna Acquisition Financing':
collectively, the Permanent Subordinated Debt and the
Permanent Equity Financing.
<PAGE> 5
'Senior Domestic Leverage Ratio': at any time, the
ratio of Consolidated Senior Indebtedness to Consolidated
Domestic EBITDA for the immediately preceding period of four
consecutive fiscal quarters (or such other period as provided
herein); provided, that in calculating the Domestic Leverage
Ratio for any period during which a Permitted Acquisition was
consummated, Adjusted Domestic EBITDA shall be substituted for
Consolidated Domestic EBITDA.
'Southwest Bank of Texas': Southwest Bank of Texas,
N.A., a national banking association.
'Southwest Bank of Texas Swing Facility': that
certain Loan Agreement, dated June 1, 1998, between Southwest
Bank of Texas and the Borrower, providing for unsecured swing
notes in the maximum aggregate principal amount of
$1,000,000.00, as amended.
'Welna': Welna, N.V., a Netherlands corporation.
'Welna Acquisition': the acquisition by the Borrower
or one of its Subsidiaries of 100% of the issued and
outstanding Capital Stock of Welna pursuant to the Welna
Acquisition Documents."
'Welna Acquisition Closing Date': in respect of the
Welna Acquisition, the date on which all of the conditions
described in Section 8.2 shall have been satisfied (or waived
by the Administrative Agent and the Required Lenders in
writing) for the Welna Acquisition to be financed thereby.
'Welna Acquisition Documents': collectively (a) the
Letter of Intent between the Borrower and Welna, (b) the Dutch
Offer Document to the Welna shareholders, and (c) any
documents related thereto."
(b) Section 1.1 is hereby amended by inserting the phrase "(except that
in calculating Consolidated EBITDA, any such restrictions on dividends contained
in the Dutch Credit Facility shall be disregarded)" immediately following the
word "Subsidiary" in the twelfth line of the definition of "Consolidated Net
Income".
(c) Section 1.1 is hereby amended by inserting the phrase "(excluding
any Foreign Subsidiary which is acquired using exclusively proceeds other than
financing under this Agreement and any Foreign Subsidiary which is prohibited
from becoming a Guarantor by applicable law)" immediately after the word
"Subsidiary" in the definition of "Guarantor".
(d) Section 1.1 is hereby amended by deleting the definition of
"Permitted Acquisition and substituting in lieu thereof the following new
definition:
"Permitted Acquisition:" an acquisition of (a) 100%
of the common stock or other ownership interests of a Person
(by means of stock purchase or merger) or (b) the assets of a
Person, or of a
<PAGE> 6
business unit, division or subdivision of a Person, in each
case primarily engaged in or relating to a line of business
substantially similar to the line of business engaged in by
the Borrower or any Subsidiary on the Closing Date or any
natural and logical extension thereof; provided, that, with
respect to acquisitions consummated after the Closing Date,
(i) the Domestic Leverage Ratio, as of the last day of the
calendar month in which the Acquisition Closing Date occurs,
for the twelve consecutive months immediately preceding such
date (calculated on a pro forma basis, taking into account the
acquisition of the Acquired Business, as if such Permitted
Acquisition had been consummated on the first day of such
twelve month period) is not greater than 4.00 to 1.00 for such
period, (ii) the Senior Domestic Leverage Ratio, as of the
last day of the calendar month preceding the calendar month in
which the Acquisition Closing Date occurs, for the twelve
consecutive months immediately preceding such date (calculated
on a pro-forma basis, taking into account the acquisition of
the Acquired Business, as if such Permitted Acquisition had
been consummated as of the first day of such twelve month
period) is not greater than 3.50 to 1.00 for such period,
(iii) the Senior Leverage Ratio, as of the last day of the
calendar month preceding the calendar month in which the
Acquisition Closing Date occurs, for the twelve consecutive
months immediately preceding such date (calculated on a
pro-forma basis, taking into account the acquisition of the
Acquired Business, as if such Permitted Acquisition had been
consummated as of the first day of such twelve month period)
is not greater than 3.50 to 1.00 for such period, (iv) the
Leverage Ratio, as of the last day of the calendar month
preceding the calendar month in which the Acquisition Closing
Date occurs, for the twelve consecutive months immediately
preceding such date (calculated on a pro-forma basis as if
such Permitted Acquisition had been consummated as of the
first day of such twelve month period) is not greater than
4.25 to 1.00 for such period, if such Acquisition Closing Date
occurs on or prior to December 31, 1999, and 4.00 to 1.00 for
such period, if such Acquisition Closing Date occurs
thereafter, (v) each applicable Loan Party shall have granted
a security interest in favor of the Administrative Agent to
assets acquired in accordance with Section 9.10, (vi) if the
Acquisition Consideration for such acquisition is $7,500,000
or greater, such acquisition shall require the consent and
approval of (A) Lenders having a Credit Exposure Percentage of
51% or more in the aggregate and (B) at least three Lenders
(if there are three or more Lenders holding Commitments at
such time) and (vi) if the Acquisition Consideration for such
acquisition is $12,500,000 or
<PAGE> 7
greater, such acquisition shall require the consent and
approval of (A) the Required Lenders and (B) at least three
Lenders (if there are three or more Lenders holding
Commitments at such time). For the purposes of this Agreement,
acquisitions described in clauses (a) and (b) above which have
been consummated prior to the Closing Date shall be deemed
Permitted Acquisitions (and therefore an Acquired Business for
purposes of calculation of Adjusted EBITDA and otherwise).
(e) Section 1.1 is hereby amended by deleting the word "and" at the end
of subsection (p) of the definition of "Permitted Encumbrances", changing the
lettering of the last subsection from "(f)" to "(q)", deleting the reference to
"Section 10.2(c)" and substituting in lieu thereof "Section (e) of the
definition of 'Permitted Indebtedness", replacing the period at the end of
subsection "(q)" with a semicolon and adding the following new subsections:
"(r) Lien on, and security interest in, all right,
title and interest of the assets acquired in the Welna
Acquisition and in the stock or other ownership interest of
the Subsidiaries of Welna, in favor of ING Bank N.V. or ABN
AMRO Bank N.V., as applicable, to secure the obligations under
Dutch Credit Facility;
(s) Lien on, and security interest in, all right,
title and interest of the assets acquired in any Foreign
Subsidiary in a Permitted Acquisition, and in the stock or
other ownership interest of the Subsidiaries of such Foreign
Subsidiary, in favor of ING Bank N.V. or ABN AMRO Bank N.V.,
as applicable, to secure the obligations under Dutch Credit
Facility; and
(t) Pledge in favor of the holders of the Permanent
Subordinated Debt of the Capital Stock of Denali Welna Europe
N.V. or Denali International Holdings B.V."
(f) Section 1.1 is hereby amended by deleting the word "and" at the end
of subsection (f) of the definition of "Permitted Indebtedness", replacing the
period at the end of subsection (g) with a semicolon and adding the following
subsections:
"(h) indebtedness under the Dutch Credit Facility;
(i) indebtedness under the Permanent Subordinated
Debt;
(j) indebtedness under the Bank of Oklahoma Swing
Facility; and
(k) indebtedness under the Southwest Bank of Texas
Swing Facility."
(g) Section 6.5(c) is hereby amended by inserting at the end of clause
(i) thereof the following phrase:
<PAGE> 8
", but excluding the securities issued pursuant to
the Permanent Welna Acquisition Financing so long as the
proceeds of any such securities under the Permanent Welna
Acquisition Financing are applied as contemplated by the terms
of this Agreement,"
(h) Section 7.16(c) is hereby amended by deleting such Subsection in
its entirety and substituting in lieu thereof the following new Subsection:
"(c) Neither the Borrower nor any Subsidiary owns any
property, or has any interest in any property, that is not
subject to a fully perfected first priority Lien on, or
security interest in, such property in favor of the
Administrative Agent, other than the assets purchased in
connection with the Welna Acquisition or any other acquisition
of a Foreign Subsidiary funded exclusively from sources other
than financing under this Agreement, or any property having an
aggregate fair market value at any one time not exceeding
$100,000."
(i) Section 9.2(c) of the Credit Agreement is hereby amended by
deleting the word "thirty" from the first line thereof and substituting in lieu
thereof the word "forty-five".
(j) Section 9.10(a) of the Credit Agreement is hereby amended by (i)
inserting in the second line thereof immediately following the phrase "or any
Subsidiary" the phrase "(other than Welna, any Subsidiary of Welna or any other
Foreign Subsidiary which is acquired using exclusively proceeds other than
financing under this Agreement)", and (ii) deleting the phrase "Section 10.3(g)"
and substituting in lieu thereof the phrase "Section 10.3".
(k) Section 9.10(b) of the Credit Agreement is hereby amended by
inserting in the second line thereof immediately following the phrase "such
Subsidiary" the phrase "(other than Welna, any Subsidiary of Welna, any other
Foreign Subsidiary which is acquired using exclusively proceeds other than
financing under this Agreement or any Foreign Subsidiary which is prohibited
from becoming a Guarantor by applicable law)".
(l) Section 10.1 of the Credit Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof the following new
Section:
<PAGE> 9
"10.1 Financial Condition Covenants.
(a) Maximum Leverage Ratio. Permit the Leverage Ratio of the
Borrower and its Subsidiaries as of the last day of any fiscal quarter
of the Borrower ending on any test date set forth on the table below to
be greater than the ratio set forth opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
- --------- -----
<S> <C>
3/31/99 4.00
6/30/99 4.25
9/30/99 4.25
12/31/99 4.25
3/31/00 4.00
6/30/00 4.00
9/30/00 3.75
12/31/00 3.75
3/31/01 3.75
6/30/01 3.75
9/30/01 3.50
12/31/01 3.50
3/31/02 3.50
6/30/02 3.50
9/30/02 3.25
12/31/02 3.25
3/31/03 3.25
6/30/03 3.25
9/30/03 3.00
12/31/03 3.00
3/31/04 3.00
</TABLE>
<PAGE> 10
(b) Maximum Senior Leverage Ratio. Permit the Senior Leverage
Ratio of the Borrower and its Subsidiaries as of the last day of any
fiscal quarter of the Borrower ending on any test date set forth on the
table below to be greater than the ratio set forth opposite such test
date below:
<TABLE>
<CAPTION>
Test Date Ratio
- --------- -----
<S> <C>
3/31/99 3.50
6/30/99 3.50
9/30/99 3.50
12/31/99 3.50
3/31/00 3.50
6/30/00 3.50
9/30/00 3.25
12/31/00 3.25
3/31/01 3.00
6/30/01 3.00
9/30/01 2.75
12/31/01 2.75
3/31/02 2.50
6/30/02 2.50
9/30/02 2.25
12/31/02 2.25
3/31/03 2.25
6/30/03 2.25
9/30/03 2.25
12/31/03 2.25
3/31/04 2.25
</TABLE>
<PAGE> 11
(c) Minimum Interest Coverage. Permit the ratio of
Consolidated EBITDA (or Adjusted EBITDA, in the case of any period
during which the Borrower or any Subsidiary has consummated a Permitted
Acquisition) to Consolidated Interest Expense for any period of four
consecutive fiscal quarters (or if less than four fiscal quarters have
occurred after the Closing Date, such full fiscal quarters as have been
elapsed since the Closing Date) of the Borrower ending on any test date
set forth on the table below to be less than the ratio set forth
opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
- --------- -----
<S> <C>
3/31/99 3.00
6/30/99 3.00
9/30/99 3.00
12/31/99 3.00
3/31/00 3.00
6/30/00 3.00
9/30/00 3.25
12/31/00 3.25
3/31/01 3.25
6/30/01 3.25
9/30/01 3.50
12/31/01 3.50
3/31/02 3.50
6/30/02 3.50
9/30/02 3.50
12/31/02 3.50
3/31/03 3.50
6/30/03 3.50
9/30/03 3.50
12/31/03 3.50
3/31/04 3.50
</TABLE>
<PAGE> 12
(d) Minimum Fixed Charge Coverage. Permit the ratio of
Consolidated EBITDA (or Adjusted EBITDA, in the case of any period
during which the Borrower or any Subsidiary has consummated a Permitted
Acquisition) less consolidated capital expenditures of the Borrower and
its Subsidiaries to Consolidated Fixed Charges for any period of four
consecutive fiscal quarters (or if less than four fiscal quarters have
occurred after the Closing Date, such full fiscal quarters as have been
elapsed since the Closing Date) of the Borrower ending on any test date
set forth on the table below to be less than the ratio set forth
opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
- --------- -----
<S> <C>
3/31/99 1.15
6/30/99 1.15
9/30/99 1.15
12/31/99 1.15
3/31/00 1.15
6/30/00 1.15
9/30/00 1.15
12/31/00 1.15
3/31/01 1.15
6/30/01 1.15
9/30/01 1.25
12/31/01 1.25
3/31/02 1.25
6/30/02 1.25
9/30/02 1.25
12/31/02 1.25
3/31/03 1.25
6/30/03 1.25
9/30/03 1.25
12/31/03 1.25
3/31/04 1.25
</TABLE>
<PAGE> 13
(e) Maximum Domestic Leverage Ratio. Permit the Domestic
Leverage Ratio of the Borrower and its Domestic Subsidiaries as of the
last day of any fiscal quarter of the Borrower ending on any test date
set forth on the table below to be greater than the ratio set forth
opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
- --------- -----
<S> <C>
3/31/99 4.00
6/30/99 4.00
9/30/99 4.00
12/31/99 4.00
3/31/00 4.00
6/30/00 4.00
9/30/00 3.75
12/31/00 3.75
3/31/01 3.50
6/30/01 3.50
9/30/01 3.25
12/31/01 3.25
3/31/02 3.00
6/30/02 3.00
9/30/02 2.75
12/31/02 2.75
3/31/03 2.75
6/30/03 2.75
9/30/03 2.75
12/31/03 2.75
3/31/04 2.75
</TABLE>
<PAGE> 14
(f) Maximum Senior Domestic Leverage Ratio. Permit the Senior
Domestic Leverage Ratio of the Borrower and its Domestic Subsidiaries
as of the last day of any fiscal quarter of the Borrower ending on any
test date set forth on the table below to be greater than the ratio set
forth opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
- --------- -----
<S> <C>
3/31/99 3.50
6/30/99 3.50
9/30/99 3.50
12/31/99 3.50
3/31/00 3.50
6/30/00 3.50
9/30/00 3.25
12/31/00 3.25
3/31/01 3.00
6/30/01 3.00
9/30/01 2.75
12/31/01 2.75
3/31/02 2.50
6/30/02 2.50
9/30/02 2.25
12/31/02 2.25
3/31/03 2.25
6/30/03 2.25
9/30/03 2.25
12/31/03 2.25
3/31/04 2.25
</TABLE>
<PAGE> 15
(g) Minimum Domestic Interest Coverage. Permit the ratio of
Consolidated Domestic EBITDA (or Adjusted Domestic EBITDA, in the case
of any period during which the Borrower or any Domestic Subsidiary has
consummated a Permitted Acquisition) to Consolidated Domestic Interest
Expense for any period of four consecutive fiscal quarters (or if less
than four fiscal quarters have occurred after the Closing Date, such
full fiscal quarters as have been elapsed since the Closing Date) of
the Borrower ending on any test date set forth on the table below to be
less than the ratio set forth opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
- --------- -----
<S> <C>
3/31/99 3.00
6/30/99 3.00
9/30/99 3.00
12/31/99 3.00
3/31/00 3.00
6/30/00 3.00
9/30/00 3.25
12/31/00 3.25
3/31/01 3.25
6/30/01 3.25
9/30/01 3.50
12/31/01 3.50
3/31/02 3.50
6/30/02 3.50
9/30/02 3.50
12/31/02 3.50
3/31/03 3.50
6/30/03 3.50
9/30/03 3.50
12/31/03 3.50
3/31/04 3.50
</TABLE>
<PAGE> 16
(h) Minimum Domestic Fixed Charge Coverage. Permit the ratio
of Consolidated Domestic EBITDA (or Adjusted Domestic EBITDA, in the
case of any period during which the Borrower or any Domestic Subsidiary
has consummated a Permitted Acquisition) less consolidated capital
expenditures of the Borrower and its Domestic Subsidiaries to
Consolidated Domestic Fixed Charges for any period of four consecutive
fiscal quarters (or if less than four fiscal quarters have occurred
after the Closing Date, such full fiscal quarters as have been elapsed
since the Closing Date) of the Borrower ending on any test date set
forth on the table below to be less than the ratio set forth opposite
such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
- --------- -----
<S> <C>
3/31/99 1.15
6/30/99 1.15
9/30/99 1.15
12/31/99 1.15
3/31/00 1.15
6/30/00 1.15
9/30/00 1.15
12/31/00 1.15
3/31/01 1.15
6/30/01 1.15
9/30/01 1.25
12/31/01 1.25
3/31/02 1.25
6/30/02 1.25
9/30/02 1.25
12/31/02 1.25
3/31/03 1.25
6/30/03 1.25
9/30/03 1.25
12/31/03 1.25
3/31/04 1.25
</TABLE>
(m) Section 10.4 of the Credit Agreement is hereby amended by deleting
the word "and" at the end of subsection (a), replacing the period at the end of
subsection (b) with a semicolon and adding the following new subsections:
"(c) any guaranty executed in connection with the Bank of
Oklahoma Swing Facility;
<PAGE> 17
(d) any guaranty executed in connection with the Southwest
Bank of Texas Swing Facility; and
(e) any guaranty executed in connection with the Permanent
Subordinated Debt."
(n) Section 10.8 of the Credit Agreement is hereby amended by (i)
inserting the phrase "and excluding any expenditures made in respect of any
Foreign Subsidiary" immediately before the closed parenthetical in the fifth
line thereof; and (ii) inserting the word "Domestic" immediately before the word
"Subsidiaries" in the sixth line thereof.
(o) Section 10.10 of the Credit Agreement is hereby amended by deleting
subsection (a) in its entirety and substituting in lieu thereof a new subsection
(a) as follows:
"(a) Make any optional payment or prepayment on or redemption
or purchase of any Indebtedness (other than (i) the Loans and (ii) the
Dutch Credit Facility),"
(p) Section 10.10 of the Credit Agreement is hereby amended by
inserting the following phrase at the end of subsection (c) and before the
period, ", provided, however that nothing contained in this Agreement shall
prohibit payments made pursuant to the terms of the Bank of Oklahoma Swing
Facility and the Southwest Bank of Texas Swing Facility."
(q) Section 11 of the Credit Agreement is hereby amended by inserting
the phrase "or (iii) any `change of control' or similar event or contingency as
defined in the Permanent Welna Acquisition Facility, shall occur" immediately
before the colon in the tenth line of subsection (k) thereof.
(r) Schedule 1 of the Credit Agreement is hereby amended by deleting
such Schedule in its entirety and substituting in lieu thereof a new Schedule 1
attached hereto.
3. Waivers and Consent. Each of the Administrative Agent, the
Documentation Agent and each of the Lenders hereby waives any Default or Event
of Default based solely on the consummation of the Welna Acquisition and the
requirements of Sections 8.2(c) (iii) and (iv) and Section 8.3(f), of the Credit
Agreement in connection with the Welna Acquisition. Each of the Administrative
Agent, the Documentation Agent and each of the Lenders hereby consents to the
Welna Acquisition and the making of an Acquisition Loan in the aggregate amount
of $11,500,000 in connection therewith.
<PAGE> 18
4. Effectiveness. This Amendment shall become effective upon the
satisfaction of the following conditions precedent:
(a) the Administrative Agent shall have received evidence satisfactory
to the Administrative Agent that this Amendment has been duly executed and
delivered by the Borrower, the Required Lenders and each of the Guarantors;
(b) the Administrative Agent shall have received a legal opinion from
counsel to the Borrower in form and substance satisfactory to the Administrative
Agent;
(c) the Administrative Agent shall have been reimbursed for all fees
and expenses required to be paid pursuant to the Credit Agreement or this
Amendment;
(d) the Administrative Agent shall have received the Welna Acquisition
Documents;
(e) the Administrative Agent shall have received evidence satisfactory
to the Administrative Agent that definitive documentation for the Permanent
Subordinated Debt has been duly executed and delivered by the Borrower and the
purchasers of the notes relating to the Permanent Subordinated Debt and the
Administrative Agent shall have received confirmation that the Permanent
Subordinated Debt shall fund concurrently with the funding by the Lenders of the
Acquisition Loans referenced herein;
(f) the Administrative Agent shall have received evidence satisfactory
to the Administrative Agent that the Dutch Credit Facility documents have been
duly executed and delivered by the Borrower;
(g) the Administrative Agent shall have received evidence satisfactory
to the Administrative Agent that the definitive documents for the Permanent
Equity Financing have been duly executed and delivered by the Borrower and the
equity investors and the Administrative Agent shall have received confirmation
that the Permanent Equity Financing shall fund concurrently with the funding by
the Lenders of the Acquisition Loans referenced herein;
(h) the Administrative Agent shall have received evidence satisfactory
to the Administrative Agent that the conditions precedent contained in Section
8.2 of the Credit Agreement relating to the Welna Acquisition have been
satisfied or waived by the Administrative Agent and the Lenders; and
(i) the Administrative Agent shall have received any other documents
relating hereto that shall be reasonably requested by the Administrative Agent.
5. Effectiveness of Swing Facilities. Prior to the first draw under the
Bank of Oklahoma Swing Facility or the Southwest Bank of Texas Swing Facility,
the following conditions precedent shall be satisfied, the failure of which to
comply with shall result in this Amendment becoming immediately null and void.
<PAGE> 19
(a) the Administrative Agent shall have received evidence satisfactory
to the Administrative Agent that the definitive documents for the Bank of
Oklahoma Swing Facility have been duly executed and delivered by the Borrower
and Bank of Oklahoma;
(b) the Administrative Agent shall have received evidence satisfactory
to the Administrative Agent that the definitive documents for the Southwest Bank
of Texas Swing Facility have been duly executed and delivered by the Borrower
and the Southwest Bank of Texas;
6. Representations and Warranties. To induce the Administrative Agent, the
Documentation Agent and the Lenders to enter into this Amendment, the Borrower
hereby represents and warrants to the Administrative Agent, the Documentation
Agent and the Lenders that, after giving effect to the amendments and waivers
provided for herein, the representations and warranties contained in the Credit
Agreement and the other Loan Documents will be true and correct in all material
respects as if made on and as of the date hereof and that no Default or Event of
Default will have occurred and be continuing.
7. No Other Amendments or Waivers. Except as expressly amended or waived
hereby, the Credit Agreement, the Notes and the other Loan Documents shall
remain in full force and effect in accordance with their respective terms,
without any waiver, amendment or modification of any provision thereof.
8. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
9. Expenses. The Borrower agrees to pay and reimburse the Administrative
Agent for all of the out-of-pocket costs and expenses incurred by the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including, without limitation, the fees and disbursements of
Cadwalader, Wickersham & Taft, counsel to the Administrative Agent.
10. Applicable Law. this Amendment shall be governed by, and construed and
interpreted in accordance with, the law of the state of New York.
[SIGNATURE PAGES FOLLOW]
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of the day and year first above
written.
DENALI INCORPORATED.
By: /s/ R. KEVIN ANDREWS
--------------------------------------
Name: R. Kevin Andrews
Title: CFO/Treasurer
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent
By: /s/ MICHAEL P. DAVEN
--------------------------------------
Name: Michael P. Daven
Title: As Agent
ING (U.S.) CAPITAL LLC,
as Documentation Agent and as a Lender
By: /s/ ROBERT L. FELLOWS
--------------------------------------
Name: Robert L. Fellows
Title: Director
CIBC INC.,
as a Lender
By: /s/ MICHAEL P. DAVEN
--------------------------------------
Name: Michael P. Daven
Title: As Agent
<PAGE> 21
KEY CORPORATE CAPITAL INC.,
as a Lender
By: /s/ MICHAEL D. CARROLL
--------------------------------------
Name: Michael D. Carroll
Title: Vice President
BANK OF OKLAHOMA N.A.,
as a Lender
By: /S/ PAMELA J. BEEN
--------------------------------------
Name: Pamela J. Been
Title: Asst. Vice President
SOUTHWEST BANK OF TEXAS, N.A.,
as a Lender
By: /s/ BROOKS H. MCGEE
--------------------------------------
Name: Brooks H. McGee
Title: Sr. Vice President
<PAGE> 22
The undersigned guarantors hereby consent and agree to the foregoing
Amendment:
CONTAINMENT SOLUTIONS, INC.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
CONTAINMENT SOLUTIONS SERVICES, INC.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
INSTRUMENTATION SOLUTIONS, INC.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
DENALI MANAGEMENT, INC.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
SPECIALTY SOLUTIONS, INC.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
<PAGE> 23
BELCO MANUFACTURING COMPANY, INC.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
ERSHIGS, INC.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
SEFCO, INC.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
FIBERCAST COMPANY
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
PLASTI-FAB, INC.
By: /S/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
<PAGE> 24
DENALI HOLDINGS MANAGEMENT L.L.C.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
DENALI OPERATING MANAGEMENT, LTD.
By: /s/ JANICE C. MCCORMICK
--------------------------------------
Name: Janice C. McCormick
Title: Assistant Secretary
<PAGE> 1
EXHIBIT 10.64
================================================================================
DENALI INCORPORATED
12% Senior Subordinated Notes due 2006
and Warrants
-----------------------------------
NOTE AND WARRANT PURCHASE AGREEMENT
-----------------------------------
Dated as of June 30, 1999
================================================================================
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Authorization of Notes and Warrants; Guarantees; the Acquisition
1.1 The Notes
1.2 The Warrants
1.3 The Subsidiary Guarantees
1.4 The Acquisition
2. Sale and Purchase of Notes and Warrants
3. Closing
4. Conditions to Closing
4.1 Representations and Warranties
4.2 Performance; No Default
4.3 Compliance Certificates
4.4 Opinion of Counsel
4.5 Proceedings and Documents
4.6 Subsidiary Guarantees
4.7 Purchase Permitted by Applicable Law, Etc.
4.8 Payment of Special Counsel Fees
4.9 Private Placement Number
4.10 Contemporaneous Transactions
4.11 Changes in Corporate Structure
4.12 Closing Fee
4.13 Sale of Notes to Other Purchasers
4.14 Stock Pledge
5. Representations and Warranties of the Company
5.1 Financial Condition
5.2 No Change
5.3 Existence; Compliance with Law
5.4 Power; Authorization; Enforceable Obligations
5.5 No Legal Bar
5.6 No Material Litigation
5.7 No Default
5.8 Ownership of Property; Liens
5.9 Warrants and Equity of the Company
5.10 No Burdensome Restrictions
5.11 Taxes
5.12 Use of Proceeds; Margin Regulations
5.13 ERISA
5.14 Investment Company Act; Other Regulations
5.15 Subsidiaries
5.16 Environmental Matters
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.17 Licenses, Permits, Y2K, etc.
5.18 Disclosure
5.19 Foreign Assets Control Regulations, etc.
5.20 Private Offering by the Company
5.21 Pledge Agreement
6. Representations of the Purchaser
6.1 Purchase of Notes and Warrants
6.2 Source of Funds
7. Information as to Company
7.1 Financial and Business Information
7.2 Officer's Certificate
7.3 Inspection
8. Prepayment of the Notes
8.1 Optional Prepayments
8.2 Notice of Prepayment
8.3 Prepayment in Connection with Change of Control
8.4 Allocation of Partial Prepayments
8.5 Maturity; Surrender, etc.
8.6 Purchase of Notes
9. Affirmative Covenants
9.1 Compliance with Law
9.2 Insurance
9.3 Maintenance of Properties
9.4 Payment of Taxes and Claims
9.5 Corporate Existence, Etc.
9.6 Additional Subsidiary Guarantees
9.7 Board Observation Rights
9.8 Pledge of Shares
10. Negative Covenants
10.1 Financial Condition Covenants
10.2 Limitation on Indebtedness; Subordination of Indebtedness
10.3 Limitation on Liens
10.4 Limitation on Guarantee Obligations
10.5 Limitation on Fundamental Changes
10.6 Limitation on Sale of Assets
10.7 Limitation on Dividends
10.8 Limitation on Capital Expenditures
10.9 Limitation on Investments, Loans and Advances
10.10 Limitation on Optional Payments and Modifications of Debt Instruments
10.11 Limitation on Transactions with Affiliates
10.12 Limitation on Sales and Leasebacks
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
10.13 Limitation on Changes in Fiscal Year
10.14 Limitation on Negative Pledge Clauses
10.15 Limitation on Lines of Business
10.16 Governing Documents
10.17 Limitation on Subsidiary Formation
10.18 Limitation on Management Fees
10.19 Negative Pledge
11. Events of Default
12. Remedies on Default, Etc.
12.1 Acceleration
12.2 Other Remedies
12.3 Rescission
12.4 No Waivers or Election of Remedies, Expenses, Etc.
13. Subordination of Notes
13.1 Subordination to Superior Indebtedness
13.2 Effects of Defaults in Respect of Superior Indebtedness
13.3 Insolvency, etc.
13.4 Turnover of Certain Payments
13.5 No Impairment
13.6 Payment of Superior Indebtedness, Subrogation, Etc.
13.7 Rescission, Amendment, Etc.
14. Registration; Exchange; Substitution of Securities
14.1 Registration of Notes and Warrants
14.2 Transfer and Exchange of Notes or Warrants
14.3 Replacement of Notes and Warrants
15. Payments on Notes
15.1 Place of Payment
15.2 Home Office Payment
16. Expenses, Etc.
16.1 Transaction Expenses
16.2 Survival
17. Survival of Representations and Warranties; Entire Agreement
18. Amendment and Waiver
18.1 Requirements
18.2 Solicitation of Holders of Notes
18.3 Binding Effect, etc
18.4 Notes Held by Company, Etc.
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
19. Notices
20. Reproduction of Documents
21. Confidential Information
22. Miscellaneous
22.1 Successors and Assigns
22.2 Construction
22.3 Consent to Jurisdiction; Service of Process; Waiver of Jury Trial
22.4 Payments Due on Non-Business Days
22.5 Severability
22.6 Accounting Terms
22.7 Indemnification
22.8 Counterparts
22.9 Governing Law
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Exhibit 1.1 -- Form of 12% Senior Subordinated Note due 2006
Exhibit 1.2 -- Form of Warrant
Exhibit 1.3 -- Form of Subsidiary Guarantee
Exhibit 4.4(a) -- Form of Opinion of Special Counsel for the Company
Exhibit 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
Exhibit 4.14 -- Form of Pledge of Shares Agreement
Exhibit A -- Form of Acquisition Abstract
Schedule A -- Names and Addresses of Purchasers
Schedule B -- Defined Terms
Schedule 5.1 -- Financial Condition
Schedule 5.3 -- Corporate Existence
Schedule 5.15 -- Subsidiaries
Schedule 5.16 -- Environmental Matters
Schedule 5.17 -- Licenses, Permits
Schedule 9.6 -- Denali Welna Subsidiaries
Schedule 10.2 -- Permitted Indebtedness
Schedule 10.3 -- Permitted Encumbrances
Schedule 10.4 -- Guarantee Obligations
</TABLE>
<PAGE> 7
DENALI INCORPORATED
1360 Post Oak Boulevard
Suite 2250
Houston, Texas 77056-3023
12% Senior Subordinated Notes due 2006
and Warrants
As of June 30, 1999
TO EACH OF THE SEVERAL PURCHASERS WHOSE
NAMES APPEAR IN THE ACCEPTANCE FORMS AT THE
END HEREOF
Ladies and Gentlemen:
DENALI INCORPORATED, a Delaware corporation (sometimes
"DENALI" or the "COMPANY"), agrees with you as follows:
1. AUTHORIZATION OF NOTES AND WARRANTS; GUARANTEES; THE ACQUISITION.
1.1 THE NOTES.
The Company has duly authorized the issue and sale of its 12%
Senior Subordinated Notes due 2006 (the "NOTES") in an aggregate original
principal amount of $15,000,000, such notes to be substantially in the form set
out in Exhibit 1.1. As used herein, the term "NOTES" shall mean all notes
originally delivered pursuant to this Agreement and all notes delivered in
substitution or exchange for any such note and, where applicable, shall include
the singular number as well as the plural. The term "NOTE" means one of the
Notes. Certain capitalized and other terms used in this Agreement are defined in
Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
1.2 THE WARRANTS.
The Company has duly authorized the issue and sale of
detachable warrants to purchase an aggregate of initially 534,873 shares of the
Company's Common Stock (the "WARRANTS"), such Warrants to be substantially in
the form set out in Exhibit 1.2. As used herein, the term "WARRANTS" shall mean
all warrants originally delivered pursuant to this Agreement and all warrants
delivered in substitution or exchange for any such warrant and, where
applicable, shall include the singular number as well as the plural. The term
"WARRANT" means one of the Warrants.
1.3 THE SUBSIDIARY GUARANTEES.
The Notes will be unconditionally guaranteed by each of the
Company's existing Subsidiaries (except for Denali Welna and the Subsidiaries of
Denali Welna set forth in Schedule 9.6), pursuant to subordinated subsidiary
guarantees substantially in the form of Exhibit 1.3 (individually a "SUBSIDIARY
Guarantee" and collectively the "SUBSIDIARY GUARANTEES", which terms shall
include after the date of the Closing all additional Subsidiary Guarantees from
time to time executed and
<PAGE> 8
delivered pursuant to Section 9.6). The Notes will also have the benefit of a
Pledge Agreement substantially in the form of Exhibit 4.14.
1.4 THE ACQUISITION.
Within the time provided in Section 11(l), the acquisition
contemplated by the Welna Acquisition Documents (the "WELNA ACQUISITION") shall
have become fully unconditional, pursuant to which the Company (directly or
through a Wholly-Owned Subsidiary) shall have purchased from stockholders of
Welna over 95% of the outstanding stock of Welna, N.V., a Netherlands
corporation ("WELNA").
2. SALE AND PURCHASE OF NOTES AND WARRANTS.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and you will purchase from the Company, at
the Closing provided for in Section 3, (i) Notes in the original principal
amount set opposite your name in Schedule A and (ii) Warrants to purchase such
number of shares of Common Stock set opposite your name in Schedule A, at the
purchase price of 100% of the principal amount of the Notes.
3. CLOSING.
The sale and purchase of the Notes and the Warrants to be purchased by
you shall occur at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue,
New York, NY 10019-6099 at 10:00 a.m., New York time, at a closing (the
"Closing") on June 30, 1999 or on such other Business Day thereafter on or prior
to July 2, 1999 as may be agreed upon by the Company and you. At the Closing the
Company will deliver to you the Notes and the Warrants to be purchased by you in
the form of a single Note and a single Warrant (or, in the case of the Notes,
such greater number of Notes in denominations of at least $500,000 as you may
request prior to the Closing) dated the date of the Closing and registered in
your name (or in the name of your nominee), against delivery by you to the
Company or its order of immediately available funds in the amount of the
purchase price therefor by wire transfer of immediately available funds to
account number 890-0331-046 at Canadian Imperial Bank of Commerce, ABA number
021-000-018.
If at the Closing the Company shall fail to tender such Notes and
Warrants to you as provided above in this Section 3, or any of the conditions
specified in Section 4 shall not have been fulfilled to your satisfaction, you
shall, at your election, be relieved of all further obligations under this
Agreement, without thereby waiving any rights you may have by reason of such
failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes and Warrants
to be sold to you at the Closing is subject to the fulfillment to your
satisfaction, prior to or at the Closing, of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this
Agreement shall be correct when made and at the time of the Closing except to
the extent that such representations and warranties are expressly limited or
refer to an earlier date.
<PAGE> 9
4.2 PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or at the Closing and after giving effect to the
issue and sale of the Notes (and the application of the proceeds thereof as
contemplated by Section 5.12) no Default or Event of Default shall have occurred
and be continuing.
4.3 COMPLIANCE CERTIFICATES.
(a) Officer's Certificates. The Company shall have delivered to you an
Officer's Certificate, dated the date of the Closing, certifying that the
conditions specified in Sections 4.1, 4.2, 4.11, 4.12 and 4.13 have been
fulfilled.
(b) Secretary's Certificates. The Company shall have delivered to you a
certificate of the Secretary or an Assistant Secretary of the Company certifying
as to the resolutions attached thereto and other corporate proceedings relating
to the authorization, execution and delivery of the Notes, the Warrants and this
Agreement.
4.4 OPINIONS OF COUNSEL.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Gardere Wynne Sewell
& Riggs, LLP, special counsel for the Company, the Company's in-house counsel,
and the Company's Dutch counsel, substantially in the form set forth in Exhibit
4.4(a) and covering such other matters incident to the transactions contemplated
hereby as you or your counsel may reasonably request (and the Company hereby
instructs its counsel to deliver such opinion to you) and (b) if you are an
Institutional Investor, from Willkie Farr & Gallagher, your special counsel in
connection with such transactions, substantially in the form set forth in
Exhibit 4.4(b) and covering such other matters incident to such transactions as
you may reasonably request.
4.5 PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to the Purchasers and their
special counsel, and each Purchaser and its special counsel shall have received
all such counterpart originals or certified or other copies of such documents as
it or they may reasonably request.
4.6 SUBSIDIARY GUARANTEES.
A Subsidiary Guarantee, dated as of a date on or before the
date of the Closing, shall have been executed and delivered by each Subsidiary
(except for Denali Welna and the Subsidiaries of Denali Welna set forth in
Schedule 9.6) (sometimes individually called a "SUBSIDIARY GUARANTOR" and
collectively the "SUBSIDIARY GUARANTORS", such term to include any Subsidiary
that executes and delivers a Subsidiary Guarantee pursuant to Section 9.6) in
the form hereinabove recited and shall be in full force and effect.
4.7 PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes and Warrants
shall (a) be permitted by the laws and regulations of each jurisdiction to which
you are subject, without recourse to provisions (such as Section 1405(a)(8) of
the New York Insurance Law) permitting limited investments by insurance
companies without restriction as to the character of the particular investment,
(b) not violate any applicable law or regulation (including without limitation
Regulation T, U or X of the Board of
<PAGE> 10
Governors of the Federal Reserve System) and (c) not subject you to any tax,
penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
you, you shall have received an Officer's Certificate certifying as to such
matters of fact as you may reasonably specify to enable you to determine whether
such purchase is so permitted.
4.8 PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 16.1, the Company
shall have paid on or before the Closing the reasonable fees, charges and
disbursements of your special counsel referred to in Section 4.4 to the extent
reflected in a statement of such counsel rendered to the Company at least one
Business Day prior to the Closing.
4.9 PRIVATE PLACEMENT NUMBER.
A Private Placement Number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
the Notes.
4.10 CONTEMPORANEOUS TRANSACTIONS.
(a) The Acquisition shall have become fully unconditional in accordance
with the terms of the Acquisition Documents; and on the date of the Closing each
of the conditions of performance contained in the Acquisition Documents shall
have been satisfied in all material respects and not waived and the Acquisition
shall have been consummated (except only for the settlement of the consideration
payable by the Company to the shareholders of Welna) in accordance with all
applicable laws.
(b) The Permanent Equity Financing shall have been consummated.
(c) The Company (or a Wholly-Owned Subsidiary) shall have entered into
the Dutch Facility dated on or before the date of the Closing, which Dutch
Facility shall be in form and substance reasonably satisfactory to you; and the
Company (or such Wholly-Owned Subsidiary) shall have made the first borrowing
under the Dutch Facility upon satisfaction of the conditions precedent thereto.
(d) The Senior Credit Agreement shall have been amended and be in form
and substance reasonably satisfactory to you.
4.11 CHANGES IN CORPORATE STRUCTURE.
The Company shall not have changed its jurisdiction of
incorporation or, except in connection with the Acquisition, been a party to any
merger or consolidation or succeeded to all or any substantial part of the
liabilities of any other entity at any time following the date of the most
recent Financial Statements.
4.12 CLOSING FEE.
The Company shall have paid to you in full and in cash a
Closing fee equal to 1% of the aggregate original principal amount of Notes
purchased by you hereunder.
4.13 SALE OF NOTES TO OTHER PURCHASERS.
The Company shall sell to the Purchasers designated in
Schedule A who shall purchase the Notes to be purchased by them at the Closing
as specified in Schedule A.
14
<PAGE> 11
4.14 STOCK PLEDGE.
A pledge agreement, dated as of a date on or before the date of
Closing (the "Pledge Agreement"), shall have been executed and delivered by the
Company in substantially the form attached hereto as Exhibit 4.14, such pledge
to create a first priority perfected security interest in 65% of the capital
stock of Denali Welna to the Purchasers.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you (as of the date of
the Closing and, unless the context otherwise clearly requires, after giving
effect to the Acquisition) as follows:
5.1 FINANCIAL CONDITION.
(a) The consolidated balance sheet of the Company and its consolidated
Subsidiaries as at June 27, 1998 and the related consolidated statements of
income and of cash flows for the fiscal year ended on such date, reported on by
Ernst & Young LLP, copies of which have heretofore been furnished to you, are
complete and correct and present fairly the consolidated financial condition of
the Company and its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their consolidated cash flows for
the fiscal year then ended. The unaudited consolidated balance sheet of the
Company and its consolidated Subsidiaries as at March 27, 1999 and the related
unaudited consolidated statements of income and of cash flows for the nine-month
period ended on such date, certified by a Responsible Officer, copies of which
have heretofore been furnished to you, are in all material respects complete and
correct and present fairly the consolidated financial condition of the Company
and its consolidated Subsidiaries as at such date, and the consolidated results
of their operations and their consolidated cash flows for the nine-month period
then ended (subject to normal year-end audit adjustments). All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by such accountants or Responsible Officer, as the
case may be, and as disclosed therein). Neither the Company nor any of its
consolidated Subsidiaries had, at the date of the most recent balance sheet
referred to above, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction or other financial derivative, which is not
reflected in the foregoing statements or in the notes thereto. During the period
from March 27, 1999 to and including the date hereof, except as disclosed by the
Company on Schedule 5.1 hereto, there has been no sale, transfer or other
disposition by the Company or any of its consolidated Subsidiaries of any
material part of its business or property and no purchase or other acquisition
of any business or property (including any Capital Stock of any other Person)
material in relation to the consolidated financial condition of the Company and
its consolidated Subsidiaries at March 27, 1999.
(b) The operating forecast and cash flow projections of the Company and
its consolidated Subsidiaries, copies of which have heretofore been furnished to
the Lenders, have been prepared in good faith under the direction of a
Responsible Officer of the Company, and in accordance with GAAP. The Company has
no reason to believe that as of the date of delivery thereof such operating
forecast and cash flow projections are materially incorrect or misleading in any
material respect, or omit to state any material fact which would render them
misleading in any material respect.
<PAGE> 12
5.2 NO CHANGE.
Since June 27, 1998 there has been no development or event
which has had or could have a Material Adverse Effect; and during the period
from June 27, 1998 to and including the date hereof no dividends or other
distributions have been declared, paid or made upon the Capital Stock of the
Company nor has any of the Capital Stock of the Company been redeemed, retired,
purchased or otherwise acquired for value by the Company or any of its
Subsidiaries.
5.3 EXISTENCE; COMPLIANCE WITH LAW.
Each of the Company and its Subsidiaries (a) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate power and authority, and the legal right, to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (c) except as disclosed
on Schedule 5.3 hereto, is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, have a Material
Adverse Effect.
5.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
The Company has the corporate power and authority, and the
legal right, to make, deliver and perform the Note Documents to which it is a
party and to issue the Notes and Warrants hereunder and has taken all necessary
corporate action to authorize the issuance of the Notes and Warrants on the
terms and conditions of this Agreement and to authorize the execution, delivery
and performance of the Note Documents to which it is a party. No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of the Note Documents to which the Company is a party, except for
the consents required under the Senior Credit Agreement and the Dutch Facility
(which consents have been obtained by the Company). This Agreement has been, and
each other Note Document to which it is a party will be, duly executed and
delivered on behalf of the Company. This Agreement constitutes, and each other
Note Document to which it is a party when executed and delivered will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
<PAGE> 13
5.5 NO LEGAL BAR.
The execution, delivery and performance of the Note Documents
to which the Company is a party, the issuance and the sale of the Notes and the
Warrants hereunder and the use of the proceeds thereof will not violate any
Requirement of Law, the Governing Documents or Contractual Obligation of the
Company or of any of its Subsidiaries which has not been waived, and will not
result in, or require, the creation or imposition of any Lien on any of its or
their respective properties or revenues pursuant to any such Requirement of Law,
Governing Document or Contractual Obligation (other than Liens created under the
Senior Credit Agreement).
5.6 NO MATERIAL LITIGATION.
No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Company, threatened by or against the Company or any of its Subsidiaries or
against any of its or their respective properties or revenues (a) with respect
to any of the Note Documents or any of the transactions contemplated hereby or
thereby, or (b) which could have a Material Adverse Effect.
5.7 NO DEFAULT.
Neither the Company nor any of its Subsidiaries is in default
under or with respect to any of its Contractual Obligations in any respect which
could have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
5.8 OWNERSHIP OF PROPERTY; LIENS.
Each of the Company and its Subsidiaries has good record and
marketable or indefeasible title in fee simple to, or a valid leasehold interest
in, all its real property, and good title to, or a valid leasehold interest in,
all its other property, subject only to Permitted Encumbrances.
5.9 WARRANTS AND EQUITY OF THE COMPANY.
As of the Closing, the Warrants represent 8.5% of the Fully
Diluted Outstanding Shares of the Common Stock. There are authorized and
available for issuance such number of shares of the Company's authorized but
unissued Common Stock as will be sufficient to permit the exercise in full of
all outstanding Warrants.
5.10 NO BURDENSOME RESTRICTIONS.
No Requirement of Law, Governing Document or Contractual
Obligation of the Company or any of its Subsidiaries could reasonably be
expected to have a Material Adverse Effect.
5.11 TAXES.
Each of the Company and its Subsidiaries has filed or caused
to be filed all tax returns which, to the knowledge of the Company, are required
to be filed and has paid all taxes shown to be due and payable on said returns
or on any assessments made against it or any of its property and all other
taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Company or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of the Company, no claim is being asserted,
with respect to any such tax, fee or other charge.
<PAGE> 14
5.12 USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the net proceeds of the sale of the
Notes and Warrants to fund the Acquisition and related expenses. No part of the
proceeds from the sale of the Notes and Warrants hereunder will be used,
directly or indirectly, for the purpose of buying or carrying any margin stock
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading
in any securities under such circumstances as to involve the Company in a
violation of Regulation X of said Board (12 CFR 224) or to involve any broker or
dealer in a violation of Regulation T of said Board (12 CFR 220). As used in
this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall
have the meanings assigned to them in said Regulation U.
5.13 ERISA.
(a) Neither a Reportable Event nor an "accumulated funding deficiency"
(within the meaning of Section 412 of the Code or Section 302 of ERISA) has
occurred during the five-year period prior to the date hereof with respect to
any Plan, and each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code. No termination of a Single Employer
Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during
such five-year period. The present value of all accrued benefits under each
Single Employer Plan (based on those assumptions used to fund such Plans) did
not, as of the last annual valuation date prior to the date hereof, exceed the
value of the assets of such Plan allocable to such accrued benefits. Neither the
Company nor any ERISA Affiliate has had a complete or partial withdrawal from
any Multiemployer Plan, and neither the Company nor any ERISA Affiliate would
become subject to any liability under ERISA if the Company or any such ERISA
Affiliate were to withdraw completely from all Multiemployer Plans as of the
valuation date most closely preceding the date on which this representation is
made or deemed made. No such Multiemployer Plan is in Reorganization or
Insolvent.
(b) With respect to each employee benefit plan, if any, disclosed by
you in writing to the Company in accordance with Section 6.2(c), neither the
Company nor any "affiliate" of the Company (as defined in Section V(c) of the
QPAM Exemption) has at this time, nor has exercised at any time during the
immediately preceding year, the authority to appoint or terminate the "QPAM" (as
defined in Part V of the QPAM Exemption) disclosed by you to the Company
pursuant to Section 6.2(c) as manager of any of the assets of any such plan or
to negotiate the terms of any management agreement with such QPAM on behalf of
any such plan, and the Company is not an "affiliate" (as so defined) of such
QPAM. The Company is not a party in interest with respect to any employee
benefit plan disclosed by you in accordance with Section 6.2(b) or 6.2(e). The
execution and delivery of this Agreement and the issuance and sale of the Notes
and Warrants at the Closing hereunder will not involve any prohibited
transaction (as such term is defined in section 406(a) of ERISA and section
4975(c)(1)(A)-(D) of the Code), that could subject the Company or any holder of
a Note or a Warrant to any tax or penalty on prohibited transactions imposed
under said section 4975 of the Code or by section 502(i) of ERISA. The
representation by the Company in the preceding sentence of this Section 5.13(b)
is made in reliance upon and subject to the accuracy of your representation in
Section 6.2 as to the source of the funds used to pay the purchase price of the
Notes and the Warrants to be purchased by you.
<PAGE> 15
5.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS.
Neither the Company nor any Subsidiary is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended. Neither the Company
nor any Subsidiary 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," or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
5.15 SUBSIDIARIES.
Schedule 5.15 sets forth the name of each direct or indirect
Subsidiary of the Company, its form of organization, its jurisdiction of
organization, the total number of issued and outstanding shares or other
interests of Capital Stock thereof, the classes and number of issued and
outstanding shares or other interests of Capital Stock of each such class, the
name of each holder of Capital Stock thereof and the number of shares or other
interests of such Capital Stock held by each such holder and the percentage of
all outstanding shares or other interests of such class of Capital Stock held by
such holders.
5.16 ENVIRONMENTAL MATTERS.
(a) The facilities and properties owned, leased or operated by the
Company or any of its Subsidiaries (the "PROPERTIES") do not contain, and have
not previously contained, any Materials of Environmental Concern in amounts or
concentrations which (i) constitute or constituted a violation of, or (ii) could
give rise to liability under, any Environmental Law except in either case
insofar as such violation or liability, or any aggregation thereof, is not
reasonably likely to result in the payment of a Material Environmental Amount.
(b) (i) Except for violations set forth on Schedule 5.16 with respect
to the Belco, Belton, Texas facility, the Properties and all operations at the
Properties are in compliance, and have in the last five years been in
compliance, in all material respects with all applicable Environmental Laws; and
(ii) there is no contamination at, under or about the Properties or violation of
any Environmental Law with respect to the Properties or the business operated by
the Company or any of its Subsidiaries (the "BUSINESS") which could interfere
with the continued operation of the Properties or impair the fair saleable value
thereof.
(c) Except as set forth on Schedule 5.16, neither the Company nor any
of its Subsidiaries has received any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental matters
or compliance with Environmental Laws with regard to any of the Properties or
the Business, nor does the Company have knowledge or reason to believe that any
such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could give rise to liability under, any Environmental Law which could have
a Material Adverse Effect, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the Properties
in violation of, or in a manner that could give rise to liability under, any
applicable Environmental Law in any material respect and which could have a
Material Adverse Effect.
(e) Except as set forth on Schedule 5.16, no judicial proceeding or
governmental or administrative action is pending or, to the knowledge of the
Company, threatened, under any Environmental Law to which the Company or any
Subsidiary is or will be named as a party with respect to the Properties or the
Business, nor are there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to the
Properties or the Business which has not been disclosed in Schedule 5.16.
<PAGE> 16
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations of the Company or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or in
amounts or in a manner that could give rise to liability under Environmental
Laws in any material respect and which could have a Material Adverse Effect.
(g) Nothing set forth on Schedule 5.16 individually or in the aggregate
would be expected to result in the payment of a Material Environmental Amount or
result in a Material Adverse Effect.
5.17 LICENSES, PERMITS, Y2K, ETC.
Except as disclosed in Schedule 5.17,
(a) the Company and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, proprietary software,
service marks, trademarks and trade names, or rights thereto, that individually
or in the aggregate are Material, without known infringement on or with respect
to the rights of others, except for such infringement as would not reasonably be
expected to have a Material Adverse Effect;
(b) to the best knowledge of the Company, no product of the Company
infringes on any license, permit, franchise, authorization, patent, copyright,
proprietary software, service mark, trademark, trade name or other right owned
by any other Person, except for such infringement as would not reasonably be
expected to have a Material Adverse Effect; and
(c) to the best knowledge of the Company, there is no infringement by
any Person of any right of the Company or any of its Subsidiaries with respect
to any patent, copyright, proprietary software, service mark, trademark, trade
name or other right owned or used by the Company or any of its Subsidiaries,
except for such infringement as would not reasonably be expected to have a
Material Adverse Effect.
The Company and its Subsidiaries have (a) initiated a review
and assessment of all areas within their respective businesses and operations
(including those affected by information received from suppliers and vendors)
that would reasonably be expected to be adversely affected by the Year 2000
Problem, (b) developed a plan and timetable for addressing the Year 2000 Problem
on a timely basis, and (c) to date, implemented that plan substantially in
accordance with that timetable. The Company reasonably believes that all
computer applications (including those affected by information received from its
suppliers and vendors) that are material to the businesses and operations of the
Company and its Subsidiaries, taken as a whole, will be Year 2000 Compliant,
except to the extent that a failure to be so would not reasonably be expected to
have a Material Adverse Effect. The Company does not believe that the costs to
be incurred after the date of this Agreement for the purpose of implementing its
Year 2000 plan will be Material. As used in this Agreement, the term "YEAR 2000
COMPLIANT" means all computer applications (including those affected by
information received from suppliers and vendors) that are material to the
businesses and operations of the Company and its Subsidiaries will on a timely
basis be able to perform properly date-sensitive functions involving all dates
on and after January 1, 2000; and the term "YEAR 2000 PROBLEM" means the risk
that computer applications used by the Company or any of its Subsidiaries
(including those affected by information received from suppliers and vendors)
may be unable to recognize and perform properly date-sensitive functions
involving certain dates on and after January 1, 2000.
5.18 DISCLOSURE.
The Company, through its agent, CIBC World Markets Corp., has
delivered to you a copy of a Confidential Information Memorandum, dated May 1999
(the "MEMORANDUM"), relating to the transactions contemplated hereby. The
Memorandum fairly describes, in all material respects, the general nature of the
business and principal properties of the Company and its Subsidiaries. This
<PAGE> 17
Agreement, the Memorandum, the management presentation to investors document
dated May 1999 (together with the Memorandum, the "DISCLOSURE DOCUMENTS"), and
the Financial Statements, taken as a whole, do not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made.
5.19 FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes and the Warrants by the Company
hereunder nor its use of the proceeds thereof will violate the Trading with the
Enemy Act, as amended, or any of the foreign assets control regulations of the
United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or
any enabling legislation or executive order relating thereto.
5.20 PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has
offered the Notes, the Warrants or any similar securities for sale to, or
solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, any person other than you and not more than
70 other Institutional Investors, each of which has been offered the Notes and
the Warrants at a private sale for investment. Neither the Company nor anyone
acting on its behalf has taken, or will take, any action that would subject the
issuance or sale of the Notes or the Warrants to the registration requirements
of Section 5 of the Securities Act.
5.21 PLEDGE AGREEMENT.
The provisions of the Pledge Agreement are effective to create
in favor of the Purchasers and the holders a legal, valid and enforceable
security interest in all right, title and interest of the Company in the
"Shares" described therein and such Pledge Agreement constitutes a first
priority perfected security interest on, and security interest in, all right,
title and interest of the Company in the "Shares" described therein.
6.0 REPRESENTATIONS OF THE PURCHASER.
6.1 PURCHASE OF NOTES AND WARRANTS.
You represent that you are purchasing the Notes and the
Warrants for your own account or for one or more separate accounts maintained by
you or for the account of one or more pension or trust funds and not with a view
to the distribution thereof, provided that the disposition of your or their
property shall at all times be within your or their control. You understand that
neither the Notes, the Warrants nor the shares of Common Stock issuable upon
exercise of the Warrants have been registered under the Securities Act and may
be resold only if registered pursuant to the provisions of the Securities Act or
if an exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes or the Warrants but is required to
register the shares of Common Stock issuable upon exercise of the Warrants (as
set forth in the Warrants).
You represent that you are an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act of 1933. In addition, if you are
not an Institutional Investor, you represent that you have provided such
separate assurances to the Company and your counsel as may be required to
establish that your purchase of Notes and Warrants will not require registration
of the Notes or the Warrants under the Securities Act.
<PAGE> 18
6.2 SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes and the Warrants to be purchased by
you hereunder:
(a) the Source is an "insurance company general account", as such term
is defined in Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12,
1995), and there is no plan with respect to which the aggregate amount of such
general account's reserves and liabilities for the contracts held by or on
behalf of such plan and all other plans maintained by the same employer (and
affiliates thereof as defined in section V(a)(1) of PTE 95-60) or by the same
employee organization (in each case determined in accordance with PTE 95-60)
exceeds or will exceed 10% of the total of all reserves and liabilities of such
general account (determined in accordance with PTE 95-60, exclusive of separate
account liabilities, plus any applicable surplus) as of the date of the Closing;
or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a
bank collective investment fund, within the meaning of the PTE 91-38 (issued
July 12, 1991) and, except as you have disclosed to the Company in writing
pursuant to this paragraph (b), no employee benefit plan or group of plans
maintained by the same employer or employee organization beneficially owns more
than 10% of all assets allocated to such pooled separate account or collective
investment fund; or
(c) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified professional
asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption),
no employee benefit plan's assets that are included in such investment fund,
when combined with the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client assets
managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption
are satisfied, neither the QPAM nor a person controlling or controlled by the
QPAM (applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity of
such QPAM and (ii) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company in writing
pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each of
which has been identified to the Company in writing pursuant to this paragraph
(e); or
(f) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such
terms in section 3 of ERISA.
<PAGE> 19
7. INFORMATION AS TO COMPANY.
7.1 FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Notes and Warrants
that is an Institutional Investor:
(a) Quarterly Statements -- within 45 days after the end of each fiscal
quarter in each Fiscal Year of the Company (other than the last fiscal quarter
of each such Fiscal Year), duplicate copies of
(i) a consolidated balance sheet of the Company and its
consolidated Subsidiaries as at the end of such fiscal quarter,
(ii) consolidated statements of income, cash flows and changes
in shareholders' equity of the Company and its consolidated Subsidiaries, for
such fiscal quarter and (in the case of the second and third quarters) for the
portion of the Fiscal Year ending with such fiscal quarter, and
(iii) unaudited summary consolidating balance sheets and
income statements as at the end of such fiscal quarter and for the portion of
the Fiscal Year ending with such fiscal quarter,
all in reasonable detail, prepared in accordance with GAAP applicable
to quarterly financial statements generally, and certified by a Senior
Financial Officer as fairly presenting, in all material respects, the
financial position of the companies being reported on and their results
of operations and cash flows (subject to changes resulting from
year-end adjustments) and setting forth in each case in comparative
form the consolidated figures for the corresponding periods in the
previous Fiscal Year;
(b) Annual Statements -- within 90 days after the end of each Fiscal
Year of the Company, commencing with the Fiscal Year ending on July 3, 1999,
duplicate copies of
(i) a consolidated balance sheet of the Company and its
consolidated Subsidiaries as at the end of such Fiscal Year,
(ii) consolidated statements of income, cash flows and changes
in shareholders' equity of the Company and its consolidated Subsidiaries for
such Fiscal Year, and
(iii) unaudited summary consolidating balance sheets and
income statements as at the end of and for such Fiscal Year,
all in reasonable detail, prepared in accordance with GAAP and setting
forth in each case, commencing in July 3, 1999, in comparative form the
consolidated figures for the previous Fiscal Year, and accompanied by
(a) an opinion thereon of independent public accountants of
recognized national standing, which opinion shall state that such
consolidated financial statements present fairly, in all material
respects, the financial position of the companies being reported upon
and their results of operations and cash flows and have been prepared
in conformity with GAAP (except for such changes in such principles
with which such public accountants shall have concurred), and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis for such
opinion in the circumstances, and
(b) a certificate of such accountants stating that they have
reviewed this Agreement and stating further whether, in making their
audit, they have become aware of any condition or event that then
constitutes a Default or an Event of Default, and, if they are aware
that any such condition or event then exists, specifying the nature and
period of THE EXISTENCE THEREOF (IT BEING
<PAGE> 20
understood that such accountants shall not be liable, directly or
indirectly, for any failure to obtain knowledge of any Default or Event
of Default);
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary generally to its
shareholders or to its bank creditors, and (ii) each regular or
periodic report, each registration statement, and each prospectus and
all amendments thereto filed by the Company or any Subsidiary with the
Securities and Exchange Commission;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five Business Days after a Responsible Officer
becoming aware (i) of the existence of any Default or Event of Default,
or (ii) that any Person has given any notice or taken any action with
respect to a claimed default hereunder or (iii) that any Person has
given any notice or taken any action with respect to a claimed default
of the type referred to in Section 11(f), a written notice specifying
the nature and period of existence thereof and what action the Company
is taking or proposes to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five
Business Days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to take
with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations thereunder,
for which notice thereof has not been waived pursuant to such
regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that would
reasonably be expected to result in the incurrence of any liability by
the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA
or the penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on any of the
rights, properties or assets of the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any other
such liabilities or Liens then existing, would reasonably be expected
to have a Material Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Company or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that would reasonably be expected to have a Material Adverse
Effect; and
<PAGE> 21
(g) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes or Warrants as
from time to time may be reasonably requested by any such holder of
Notes or Warrants.
7.2 OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.1, 10.2, 10.6 and 10.8, during
the quarter or annual fiscal period covered by the statements then being
furnished (including with respect to each such Section, where applicable, the
calculations of the maximum or minimum amount, ratio or percentage, as the case
may be, permissible under the terms of such Sections, and the calculation of the
amount, ratio or percentage then in existence); and
(b) Default -- a statement that such Senior Financial Officer
has reviewed the relevant terms hereof and has made, or caused to be made, under
his or her supervision, a review of the transactions and conditions of the
Company and its Subsidiaries from the beginning of the quarterly or annual
period covered by the statements then being furnished to the date of the
certificate and that such review shall not have disclosed the existence during
such period of any condition or event that constitutes a Default or an Event of
Default or, if any such condition or event existed or exists (including without
limitation any such event or condition resulting from the failure of the Company
or any Subsidiary to comply with any Environmental Law), specifying the nature
and period of existence thereof and what action the Company shall have taken or
proposes to take with respect thereto.
7.3 INSPECTION.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice (not to
be given more than two times in any Fiscal Year) to the Company (and in event,
at least 48 hours), to visit the principal executive office of the Company
during regular business hours, to discuss the affairs, finances and accounts of
the Company and its Subsidiaries with the Company's officers, and (with the
consent of the Company, which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company, which
consent will not be unreasonably withheld) to visit the other offices and
properties of the Company and each Subsidiary during regular business hours; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company, to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their respective
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 (and by
this provision
<PAGE> 22
the Company authorizes said accountants to discuss the affairs, finances and
accounts of the Company and its Subsidiaries), all at such times and as often as
may be requested.
8.0 PREPAYMENT OF THE NOTES.
In addition to the payment of the entire unpaid principal
amount of the Notes at the final maturity thereof, the Company may make optional
prepayments in respect of the Notes, and under certain circumstances may be
required to prepay Notes, all as hereinafter provided.
8.1 OPTIONAL PREPAYMENTS.
Upon notice given as provided in Section 8.2, the Company may
at any time prepay the Notes as a whole, or from time to time in part (in a
minimum amount of $1,000,000 and otherwise in integral multiples of $100,000),
in each case at the principal amount to be prepaid, together with interest
accrued thereon to the date fixed for such prepayment, plus the applicable
prepayment premium (expressed as a percentage of the principal amount so to be
prepaid) indicated below:
<TABLE>
<CAPTION>
Prepayment Date Prepayment Premium
--------------- ------------------
<S> <C>
June 30, 1999 to June 29, 2000 8.0%
June 30, 2000 to June 29, 2001 6.0%
June 30, 2001 to June 29, 2002 4.8%
June 30, 2002 to June 29, 2003 3.6%
June 30, 2003 to June 29, 2004 2.4%
June 30, 2004 to June 29, 2005 1.2%
after June 29, 2005 None
</TABLE>
8.2 NOTICE OF PREPAYMENT.
The Company will give each holder of Notes written notice of
each prepayment under Section 8.1 not less than 30 days and not more than 60
days prior to the date fixed for such prepayment. Each such notice shall specify
the date fixed for such prepayment (which shall be a Business Day), the
aggregate principal amount of the Notes to be prepaid on such date, the
principal amount of Notes held by such holder to be prepaid (determined in
accordance with Section 8.4) and the interest and prepayment premium, if any, to
be paid on the prepayment date with respect to such principal amount being
prepaid.
8.3 PREPAYMENT IN CONNECTION WITH CHANGE OF CONTROL.
Promptly and in any event within 20 days after the occurrence
of a Change of Control, the Company will give written notice thereof to the
holders of all outstanding Notes, which notice shall (a) refer specifically to
this Section 8.3, (b) describe the Change of Control in reasonable detail and
specify the Change of Control Prepayment Date and the Response Date (as
respectively defined below) in respect thereof and (c) offer to prepay all Notes
at the price specified below on the date therein specified (the "CHANGE OF
CONTROL PREPAYMENT DATE"), which shall be a Business Day not less than 30 nor
more than 60 days after the date of such notice. Each holder of a Note will
notify the Company of such holder's acceptance or rejection of such offer by
giving written notice of such acceptance or rejection to the Company at least
five Business Days prior to the Change of Control Prepayment Date (the "RESPONSE
DATE"). The failure by any such holder to respond in writing to such offer on or
before the Response Date shall be deemed to be an acceptance of such offer by
such holder in respect of such Change of Control.
On the Change of Control Prepayment Date the Company will
prepay all of the Notes held by the holders as to which such offer has been
accepted, at the principal amount of each such Note, together with interest
accrued thereon to the Change of Control Prepayment Date, plus a prepayment
<PAGE> 23
premium determined in respect of such principal amount as if such Note were
being prepaid on such date pursuant to Section 8.1.
This Section 8.3 is acknowledged as being subject to the terms
of Section 13.
8.4 ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of a partial prepayment of the Notes pursuant to
Section 8.1, the principal amount of the Notes to be prepaid shall be allocated
among all the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof.
8.5 MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Prepayment premium, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Prepayment premium, if any, as aforesaid, interest on such
principal amount shall cease to accrue. Any Note paid or prepaid in full shall
be surrendered to the Company and canceled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid principal amount of any Note.
8.6 PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes.
9.0 AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1 COMPLIANCE WITH LAW.
The Company will and will cause each of its Subsidiaries to
comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, including without limitation Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective businesses, in
each case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations would not reasonably be expected to have a Material
Adverse Effect.
9.2 INSURANCE.
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
<PAGE> 24
9.3 MAINTENANCE OF PROPERTIES.
The Company will and will cause each of its Subsidiaries to
operate its Properties or cause such Properties to be operated in accordance
with practices of the industry and in material compliance with all applicable
contracts, agreements and Requirements of Law other than those being contested
in good faith by appropriate proceedings, except to the extent that such
compliance would not have a Material Adverse Effect.
9.4 PAYMENT OF TAXES AND CLAIMS.
The Company will and will cause each of its Subsidiaries to
file all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies imposed on them or any of
their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary in good faith and in appropriate proceedings, and
the Company or a Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of the Company or such Subsidiary or (ii) the
nonpayment of all such taxes and assessments in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
9.5 CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force
and effect its corporate existence. Subject to Section 10.6, the Company will at
all times preserve and keep in full force and effect the corporate existence of
each of its Subsidiaries (unless merged into the Company or a Subsidiary) and
all rights and franchises of the Company and its Subsidiaries unless, in the
good faith judgment of the Company, the termination of or failure to preserve
and keep in full force and effect such corporate existence, right or franchise
would not have a Material Adverse Effect.
9.6 ADDITIONAL SUBSIDIARY GUARANTEES.
Forthwith after any Person becomes a Subsidiary after the date
of the Closing (except for Denali Welna and the Subsidiaries of Denali Welna set
forth in Schedule 9.6 or any parent of Denali Welna formed after the date hereof
(so long as such parent complies with Section 10.5(c)), the Company will cause
such Person to execute and deliver a Subsidiary Guarantee and promptly and in
any event within ten Business Days thereafter the Company will furnish each
holder of the Notes with a counterpart of such executed Subsidiary Guarantee,
together with an opinion of Gardere Wynne Sewell & Riggs or other counsel
reasonably satisfactory to the Majority Holders (which opinion shall be
reasonably satisfactory to the Majority Holders and may be subject to customary
exceptions, qualifications and limitations under the circumstances) to the
effect that such Subsidiary Guarantee has been duly authorized, executed and
delivered by such Subsidiary and is legal, valid, binding and enforceable in
accordance with its terms. The Company will cause each Subsidiary Guarantee to
remain in full force and effect at all times after the execution and delivery
thereof.
9.7 BOARD OBSERVATION RIGHTS.
If a Default or an Event of Default then exists, the Majority
Holders shall have the right to designate one person (the "BOARD OBSERVER") who
will participate in all meetings of the board of directors of the Company and
any committees thereof. The Board Observer shall receive the same information as
any other member of the board of directors of the Company and shall participate
in the meetings to the same extent as any other member of the board of the
directors of the Company, but shall
<PAGE> 25
not have the right to vote. The Company shall pay the reasonable out-of-pocket
expenses incurred by the Board Observer in connection with attending the
meetings of the board of directors of the Company and any committees thereof.
9.8 PLEDGE OF SHARES.
The Company hereby expressly agrees to enter into the Pledge
Agreement and to keep such Pledge Agreement effective at all time, with such
Pledge Agreement creating a first priority perfected security interest in all
right, title and interest of the Company in the "Shares" described therein.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding the Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly:
10.1 FINANCIAL CONDITION COVENANTS.
(a) Maximum Leverage Ratio. Permit the Leverage Ratio of the
Company and its Subsidiaries as of the last day of any fiscal quarter of the
Company ending closest to any test date set forth on the table below to be
greater than the ratio set forth opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 4.75x
9/30/99 4.75x
12/31/99 4.75x
3/31/00 4.50x
6/30/00 4.50x
9/30/00 4.25x
12/31/00 4.25x
3/31/01 4.25x
6/30/01 4.25x
9/30/01 4.00x
12/31/01 4.00x
3/31/02 4.00x
6/30/02 4.00x
Thereafter 3.75x
</TABLE>
<PAGE> 26
(b) Maximum Senior Leverage Ratio. Permit the Senior Leverage
Ratio of the Company and its Subsidiaries as of the last day of any fiscal
quarter of the Company ending closest to any test date set forth on the table
below to be greater than the ratio set forth opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 4.00x
9/30/99 4.00x
12/31/99 4.00x
3/31/00 4.00x
6/30/00 4.00x
9/30/00 3.75x
12/31/00 3.75x
3/31/01 3.75x
6/30/01 3.75x
9/30/01 3.50x
12/31/01 3.50x
3/31/02 3.50x
6/30/02 3.50x
Thereafter 3.25x
</TABLE>
<PAGE> 27
(c) Minimum Interest Coverage. Permit the ratio of
Consolidated EBITDA (or Adjusted EBITDA, in the case of any period during which
the Company or any Subsidiary has consummated a Permitted Acquisition) to
Consolidated Interest Expense for any period of four consecutive fiscal quarters
(or if less than four fiscal quarters have occurred after the Reference Date,
such full fiscal quarters as have been elapsed since the Reference Date) of the
Company ending closest to any test date set forth on the table below to be less
than the ratio set forth opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 2.50x
9/30/99 2.50x
12/31/99 2.50x
3/31/00 2.50x
6/30/00 2.50x
9/30/00 2.75x
12/31/00 2.75x
3/31/01 2.75x
6/30/01 2.75x
9/30/01 2.75x
12/31/01 2.75x
3/31/02 2.75x
6/30/02 2.75x
Thereafter 3.00x
</TABLE>
<PAGE> 28
(d) Minimum Fixed Charge Coverage. Permit the ratio of
Consolidated EBITDA (or Adjusted EBITDA, in the case of any period during which
the Company or any Subsidiary has consummated a Permitted Acquisition) less
consolidated capital expenditures of the Company and its Subsidiaries to
Consolidated Fixed Charges for any period of four consecutive fiscal quarters
(or if less than four fiscal quarters have occurred after the Reference Date,
such full fiscal quarters as have been elapsed since the Reference Date) of the
Company ending closest to any test date set forth on the table below to be less
than the ratio set forth opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 1.00x
9/30/99 1.00x
12/31/99 1.00x
3/31/00 1.00x
6/30/00 1.00x
9/30/00 1.00x
12/31/00 1.00x
3/31/01 1.00x
6/30/01 1.00x
Thereafter 1.10x
</TABLE>
(e) Maximum Domestic Leverage Ratio. Permit the Domestic
Leverage Ratio of the Company and its Domestic Subsidiaries as of the last day
of any fiscal quarter of the Company ending closest to any test date set forth
on the table below to be greater than the ratio set forth opposite such test
date below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 4.75x
9/30/99 4.75x
12/31/99 4.75x
3/31/00 4.50x
6/30/00 4.50x
9/30/00 4.25x
12/31/00 4.25x
3/31/01 4.25x
6/30/01 4.25x
9/30/01 4.00x
12/31/01 4.00x
3/31/02 4.00x
6/30/02 4.00x
Thereafter 3.75x
</TABLE>
<PAGE> 29
(f) Maximum Senior Domestic Leverage Ratio. Permit the Senior
Domestic Leverage Ratio of the Company and its Domestic Subsidiaries as of the
last day of any fiscal quarter of the Company ending closest to any test date
set forth on the table below to be greater than the ratio set forth opposite
such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 4.00x
9/30/99 4.00x
12/31/99 4.00x
3/31/00 4.00x
6/30/00 4.00x
9/30/00 3.75x
12/31/00 3.75x
3/31/01 3.75x
6/30/01 3.75x
9/30/01 3.50x
12/31/01 3.50x
3/31/02 3.50x
6/30/02 3.50x
Thereafter 3.25x
</TABLE>
<PAGE> 30
(g) Minimum Domestic Interest Coverage. Permit the ratio of
Consolidated Domestic EBITDA (or Adjusted Domestic EBITDA, in the case of any
period during which the Company or any Domestic Subsidiary has consummated a
Permitted Acquisition) to Consolidated Domestic Interest Expense for any period
of four consecutive fiscal quarters (or if less than four fiscal quarters have
occurred after the Closing Date, such full fiscal quarters as have been elapsed
since the Closing Date) of the Company ending closest to any test date set forth
on the table below to be less than the ratio set forth opposite such test date
below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 2.50
9/30/99 2.50
12/31/99 2.50
3/31/00 2.50
6/30/00 2.50
9/30/00 2.75
12/31/00 2.75
3/31/01 2.75
6/30/01 2.75
9/30/01 2.75
12/31/01 2.75
3/31/02 2.75
6/30/02 2.75
Thereafter 3.00x
</TABLE>
<PAGE> 31
(h) Minimum Domestic Fixed Charge Coverage. Permit the ratio
of Consolidated Domestic EBITDA (or Adjusted Domestic EBITDA, in the case of any
period during which the Company or any Domestic Subsidiary has consummated a
Permitted Acquisition) less consolidated capital expenditures of the Company and
its Domestic Subsidiaries to Consolidated Domestic Fixed Charges for any period
of four consecutive fiscal quarters (or if less than four fiscal quarters have
occurred after the Closing Date, such full fiscal quarters as have been elapsed
since the Closing Date) of the Company ending closest to any test date set forth
on the table below to be less than the ratio set forth opposite such test date
below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 1.00x
9/30/99 1.00x
12/31/99 1.00x
3/31/00 1.00x
6/30/00 1.00x
9/30/00 1.00x
12/31/00 1.00x
3/31/01 1.00x
6/30/01 1.00x
Thereafter 1.10x
</TABLE>
(i) Maximum Foreign Leverage Ratio. Permit the Foreign
Leverage Ratio of the Foreign Subsidiaries as of the last day of any fiscal
quarter of the Company ending closest to any test date set forth on the table
below to be greater than the ratio set forth opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 4.75x
9/30/99 4.75x
12/31/99 4.75x
3/31/00 4.50x
6/30/00 4.50x
9/30/00 4.25x
12/31/00 4.25x
3/31/01 4.25x
6/30/01 4.25x
9/30/01 4.00x
12/31/01 4.00x
3/31/02 4.00x
6/30/02 4.00x
Thereafter 3.75x
</TABLE>
<PAGE> 32
(j) Minimum Foreign Interest Coverage. Permit the ratio of
Consolidated Foreign EBITDA (or Adjusted Foreign EBITDA, in the case of any
period during which the Foreign Subsidiary has consummated a Permitted
Acquisition) to Consolidated Foreign Interest Expense for any period of four
consecutive fiscal quarters (or if less than four fiscal quarters have occurred
after the Closing Date, such full fiscal quarters as have been elapsed since the
Closing Date) of the Company ending closest to any test date set forth on the
table below to be less than the ratio set forth opposite such test date below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 2.50
9/30/99 2.50
12/31/99 2.50
3/31/00 2.50
6/30/00 2.50
9/30/00 2.75
12/31/00 2.75
3/31/01 2.75
6/30/01 2.75
9/30/01 2.75
12/31/01 2.75
3/31/02 2.75
6/30/02 2.75
Thereafter 3.00x
</TABLE>
<PAGE> 33
(k) Minimum Foreign Fixed Charge Coverage. Permit the ratio of
Consolidated Foreign EBITDA (or Adjusted Foreign EBITDA, in the case of any
period during which the Company or any Foreign Subsidiary has consummated a
Permitted Acquisition) less consolidated capital expenditures of the Company and
its Foreign Subsidiaries to Consolidated Foreign Fixed Charges for any period of
four consecutive fiscal quarters (or if less than four fiscal quarters have
occurred after the Closing Date, such full fiscal quarters as have been elapsed
since the Closing Date) of the Company ending closest to any test date set forth
on the table below to be less than the ratio set forth opposite such test date
below:
<TABLE>
<CAPTION>
Test Date Ratio
--------- -----
<S> <C>
6/30/99 1.00x
9/30/99 1.00x
12/31/99 1.00x
3/31/00 1.00x
6/30/00 1.00x
9/30/00 1.00x
12/31/00 1.00x
3/31/01 1.00x
6/30/01 1.00x
Thereafter 1.10x
</TABLE>
10.2 LIMITATION ON INDEBTEDNESS; SUBORDINATION OF INDEBTEDNESS.
(a) Create, incur, assume or suffer to exist any Indebtedness, except
for Permitted Indebtedness.
(b) The Company will not create, assume, incur, guarantee or otherwise
become liable in respect of any Indebtedness which by its terms is or purports
to be subordinate or junior in right of payment to Superior Debt unless such
Indebtedness by its terms ranks pari passu with, or is subordinate and junior in
right of payment to, the Notes at least to the extent that the Notes are
subordinated to Superior Debt under Section 14.
(c) The Company will not permit any Subsidiary Guarantor to create,
assume, incur, guarantee or otherwise become liable in respect of any
Indebtedness which by its terms is or purports to be subordinate or junior in
right of payment to any other Indebtedness of such Subsidiary Guarantor unless
such Indebtedness by its terms ranks pari passu with, or is subordinate and
junior in right of payment to, such Subsidiary Guarantor's Subsidiary Guarantee
at least to the extent that such Subsidiary Guarantee is subordinated to
Superior Debt of such Subsidiary Guarantor.
For purposes of this Section 10.2, a Subsidiary shall be
deemed to have incurred Indebtedness in respect of any obligation previously
owed to the Company or to a Wholly-Owned Subsidiary on the date the obligee
ceases for any reason to be the Company or a Wholly-Owned Subsidiary and a
Person that hereafter becomes a Subsidiary or is consolidated or merged with or
into the Company or a Subsidiary shall be deemed at that time to have incurred
all of its outstanding Indebtedness.
<PAGE> 34
10.3 LIMITATION ON LIENS.
Create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired,
except for Permitted Encumbrances.
10.4 LIMITATION ON GUARANTEE OBLIGATIONS.
Create, incur, assume or suffer to exist any Guarantee
Obligation except:
(a) Guarantee Obligations listed on Schedule 10.4;
(b) the Subsidiary Guarantees;
(c) any guaranty executed in connection with the Bank of Oklahoma Swing
Facility; and
(d) any guaranty executed in connection with the Southwest Bank of
Texas Swing Facility.
10.5 LIMITATION ON FUNDAMENTAL CHANGES.
Enter into any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of,
all or substantially all of its property, business or assets, or make any
material change in its present method of conducting business, except:
(a) any Subsidiary of the Company may be merged or consolidated with or
into the Company (provided, that the Company shall be the continuing or
surviving corporation) or with or into any one or more Wholly-Owned Subsidiaries
of the Company (provided, that the Wholly-Owned Subsidiary or Subsidiaries shall
be the continuing or surviving corporation);
(b) any Wholly-Owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Company or any other Wholly-Owned Subsidiary of the Company; and
(c) the shares of Denali Welna may be sold to a Wholly-Owned
Subsidiary, provided that (i) the shares of Denali Welna pledged pursuant to the
Pledge Agreement shall continue to be subject to the Lien provided for therein
and (ii) the Company shall create and grant to the holders a first priority
security interest in 65% of the shares of capital stock of such Wholly-Owned
Subsidiary in the same manner as the shares of Denali Welna have been pledged
under the Pledge Agreement.
<PAGE> 35
10.6 LIMITATION ON SALE OF ASSETS.
Convey, sell, lease, assign, transfer or otherwise dispose of
any of its property, business or assets (including, without limitation,
receivables and leasehold interests), whether now owned or hereafter acquired,
or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's
Capital Stock to any Person other than the Company or any Wholly-Owned
Subsidiary, except:
(a) the sale or other disposition of (i) obsolete or worn out property
in the ordinary course of business or (ii) other property with a fair market
value not in excess of $2,500,000 in any year;
(b) the sale of inventory in the ordinary course of business;
(c) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the compromise or
collection thereof; and
(d) as permitted by Section 10.5(b).
10.7 LIMITATION ON DIVIDENDS.
Declare or pay any dividend (other than dividends payable
solely in common stock of the Company) on, or make any payment on account of, or
set apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any shares of any
class of Capital Stock of the Company or any warrants or options to purchase any
such Capital Stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of the Company or any Subsidiary; provided, that
the Company shall be permitted to make dividends in connection with a Permitted
Acquisition in accordance with the terms disclosed to the holders on the related
Acquisition Abstract so long as no Event of Default has occurred and is
continuing prior to such dividend and after giving effect thereto.
10.8 LIMITATION ON CAPITAL EXPENDITURES.
Make or commit to make (by way of the acquisition of
securities of a Person or otherwise) any expenditure in respect of the purchase
or other acquisition of fixed or capital assets (excluding any such asset
acquired in connection with normal replacement and maintenance programs properly
charged to current operations) and excluding any expenditures in respect of any
Foreign Subsidiaries except for expenditures in the ordinary course of business
not exceeding, in the aggregate for the Company and its Domestic Subsidiaries
during any particular fiscal years of the Company, $5,000,000.
10.9 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES.
Make any advance, loan, extension of credit or capital
contribution to, or purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting a business unit of, or make any other
investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Permitted Acquisitions; and
<PAGE> 36
(d) investments by the Company in Subsidiary Guarantors and investments
by such Subsidiary Guarantors in the Company and in other Subsidiary Guarantors.
10.10 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT INSTRUMENTS.
(a) Make any optional payment, voluntary prepayment on or optional
redemption or purchase of any Indebtedness (other than the Loans or the Notes),
or (b) amend, modify or change, or consent or agree to any amendment,
modification or change to any of the terms of any such Indebtedness (other than
the Senior Credit Agreement) or any Acquisition Documents (other than any such
amendment, modification or change which would extend the maturity or reduce the
amount of any payment of principal thereof or which would reduce the rate or
extend the date for payment of interest thereon); provided, however that nothing
contained in this Agreement shall prohibit payments made pursuant to the terms
of the Bank of Oklahoma Swing Facility and the Southwest Bank of Texas Swing
Facility.
10.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
Enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any service,
with any Affiliate unless such transaction is (a) otherwise permitted under this
Agreement, (b) in the ordinary course of the Company's or such Subsidiary's
business and (c) upon fair and reasonable terms no less favorable to the Company
or such Subsidiary, as the case may be, than it would obtain in a comparable
arm's length transaction with a Person which is not an Affiliate.
10.12 LIMITATION ON SALES AND LEASEBACKS.
Enter into any arrangement with any Person providing for the
leasing by the Company or any Subsidiary of real or personal property which has
been or is to be sold or transferred by the Company or such Subsidiary to such
Person or to any other Person to whom funds have been or are to be advanced by
such Person on the security of such property or rental obligations of the
Company or such Subsidiary.
10.13 LIMITATION ON CHANGES IN FISCAL YEAR.
Permit the fiscal year of the Company to end on a day other
than the Saturday closest to June 30 in any year (each such year, a "FISCAL
YEAR").
10.14 LIMITATION ON NEGATIVE PLEDGE CLAUSES.
Enter into with any Person any agreement, other than (a) the
Senior Credit Agreement, (b) the Dutch Facility, (c) the Bank of Oklahoma Swing
Facility, (d) the Southwest Bank of Texas Swing Facility, and (e) any industrial
revenue bonds, purchase money mortgages or Financing Leases from time to time
permitted under the Senior Credit Agreement and this Agreement (in which cases,
any prohibition or limitation shall only be effective against the assets
financed thereby), which prohibits or limits the ability of the Company or any
of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon
any of its property, assets or revenues, whether now owned or hereafter
acquired.
10.15 LIMITATION ON LINES OF BUSINESS.
Enter into any business, either directly or through any
Subsidiary, except for those businesses in which the Company and its
Subsidiaries are primarily engaged on the date of this Agreement or which are
directly related thereto or a natural and logical extension thereof.
<PAGE> 37
10.16 GOVERNING DOCUMENTS.
Amend its certificate of incorporation (except to increase the
number of authorized shares of common stock), partnership agreement or other
Governing Documents, without the prior written consent of the Majority Holders,
which shall not be unreasonably withheld or delayed.
10.17 LIMITATION ON SUBSIDIARY FORMATION.
Form any Subsidiary unless, immediately upon the formation of
such Subsidiary, all requirements of Section 9.6 shall have been satisfied.
10.18 LIMITATION ON MANAGEMENT FEES.
The Company shall not pay to any Affiliate any management fee
or similar fee.
10.19 NEGATIVE PLEDGE.
Create or suffer to exist, or permit any of its Subsidiaries
to create or suffer to exist, any Lien (other than the Lien created by the
Pledge Agreement or as otherwise permitted by Section 10.5(c)) on any share of
capital stock (or any other evidence of ownership) of Denali Welna or its parent
(if such parent is not the Company).
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or prepayment
premium, if any, on any Note when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any Note for
more than ten days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with any
term contained in Section 7.1(d) or 8.3; or
(d) the Company defaults in the performance of or compliance with any
term contained in Section 10.1 and such default is not remedied within ten days
after a Responsible Officer obtains knowledge of such default; or
(e) the Company defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b), (c)
and (d) of this Section 11) and such default is not remedied within 30 days
after a Responsible Officer obtains knowledge of such default; or
(f) any representation or warranty made in writing by or on behalf of
the Company or any Affiliate of the Company or by any officer of the Company or
any such Affiliate in this Agreement or in any writing furnished in connection
with the transactions contemplated hereby proves to have been false or incorrect
in any material respect on the date as of which made; or
<PAGE> 38
(g) (i) the Company or any Subsidiary is in default (as principal or as
guarantor or other surety) in the payment of any principal of or premium or
prepayment premium or interest on any Indebtedness (other than the Notes), and
as a consequence of such default such Indebtedness has become, or has been
declared, due and payable before its stated maturity or before its regularly
scheduled dates of payment, or (ii) the Company or any Subsidiary is in default
in the performance of or compliance with any term of any evidence of any
Indebtedness outstanding in an aggregate principal amount of at least $500,000
or of any mortgage, indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or condition such
Indebtedness has become, or has been declared, due and payable before its stated
maturity or before its regularly scheduled dates of payment, or (iii) as a
consequence of the occurrence or continuation of any event or condition (other
than the passage of time or the right of the holder of Indebtedness outstanding
in an aggregate principal amount of at least $500,000 to convert such
Indebtedness into equity interests or a sale of assets or other transaction that
is permitted if made in connection with a repayment of Indebtedness), the
Company or any Subsidiary has become obligated to purchase or repay such
Indebtedness before its regular maturity or before its regularly scheduled dates
of payment; or
(h) the Company or any Subsidiary (i) is generally not paying, or
admits in writing its inability to pay, its Indebtedness as it becomes due, (ii)
files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(i) a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by the Company or any Subsidiary, a
custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, or constituting
an order for relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any such Subsidiary, or any such
petition shall be filed against the Company or any such Subsidiary and such
petition shall not be dismissed within 60 days; or
(j) a final judgment or judgments not covered by insurance (as to which
the insurer has admitted liability in writing) for the payment of money
aggregating in excess of $500,000 are rendered against one or more of the
Company and its Subsidiaries which judgments are not, within 60 days after entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within 90 days after the expiration of such stay; or
(k) except in connection with a transaction permitted by Section 10.5,
any Subsidiary Guarantee shall cease to be in full force and effect as an
enforceable obligation of the respective Subsidiary Guarantor or any of the
Subsidiary Guarantors shall assert that its Subsidiary Guarantee is
unenforceable in any material respect; or
<PAGE> 39
(l) The Company or one of its Wholly-Owned Subsidiaries fails to
acquire 95% or more of the outstanding shares of Welna within five days of the
Closing; or
(m) the Pledge shall cease to be, or shall be asserted by the Company
or any Subsidiary not to be, a valid, perfected, first security interest in the
securities covered thereby.
12. REMEDIES ON DEFAULT, ETC.
12.1 ACCELERATION.
(a) If an Event of Default with respect to the Company described in
paragraph (h) or (i) of Section 11 has occurred, all the Notes then outstanding
shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing, the
Majority Holders may at any time at its or their option, by notice or notices to
the Company, declare all the Notes then outstanding to be immediately due and
payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by written notice or notices to the Company, declare all the Notes
held by it or them to be immediately due and payable.
Upon any Note becoming due and payable under this Section
12.1, whether automatically or by declaration, such Note will forthwith mature
and the entire unpaid principal amount of such Note, plus (x) all accrued and
unpaid interest thereon and (y) the prepayment premium (to the full extent
permitted by applicable law) determined in respect of such principal amount as
if such Note were being prepaid on such date pursuant to Section 8.1, shall all
be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived.
12.2 OTHER REMEDIES.
If any Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
12.3 RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to paragraph (b) or (c) of Section 12.1, subject to Section 13, the
Majority Holders, by written notice to the Company, may rescind and annul any
such declaration and its consequences if (a) the Company has paid all overdue
interest on the Notes, all principal of and prepayment premium, if any, on any
Notes that are due and payable and are unpaid other than by reason of such
declaration, and all interest on such overdue principal and prepayment premium,
if any, and (to the extent permitted by applicable law) any overdue interest in
respect of the Notes, at the Default Rate, (b) all Events of Default and
Defaults, other than the non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.
<PAGE> 40
12.4 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all reasonable costs and expenses of such holder
incurred in any enforcement or collection under this Section 12, including
without limitation reasonable attorneys' fees, expenses and disbursements.
13. SUBORDINATION OF NOTES.
13.1 SUBORDINATION TO SUPERIOR INDEBTEDNESS.
Notwithstanding any provision of this Agreement or the Notes
to the contrary, payments of the principal of and premium, if any, and interest
on the Notes shall be subordinate and junior in right of payment to the prior
payment in full of all Superior Indebtedness of the Company, whether now owed or
hereafter incurred, to the extent and in the manner provided in this Section.
"SUPERIOR INDEBTEDNESS" means any and all Indebtedness,
liabilities and obligations of the Company to Senior Creditors which are not
expressed to be junior or subordinate in right of payment to any other
Indebtedness of the Company, whether owed individually or jointly, absolute or
contingent, direct or indirect, joint, several or independent, including all
principal, interest, fees, reimbursement expenses, indemnification liabilities,
interest rate hedging obligations, or any other form of liability, and shall
include any such interest, fees, reimbursement expenses, indemnification
liabilities or other form of liability arising after the commencement of a
bankruptcy or insolvency proceeding involving the Company, whether or not
allowed as a claim in such proceeding, and shall also include any extensions,
renewals, refinancings or refundings thereof and any increases thereof, with
respect to each such Indebtedness, in an aggregate amount not to exceed
$3,500,000; provided, however, that to the extent that any such extension,
renewal, refinancing or refunding (other than the $3,500,000 aggregate increase
referred to in this definition) causes or constitutes any breach of Section
10.1, such amount of Indebtedness shall not be deemed to be Superior
Indebtedness.
13.2 EFFECTS OF DEFAULTS IN RESPECT OF SUPERIOR INDEBTEDNESS.
If (a) any principal, interest or other amounts owing under
the Superior Indebtedness is not paid when due or is not paid on or before the
maturity thereof, (b) a bankruptcy filing is made by or against the Company, or
(c) there occurs any actual acceleration of any Superior Indebtedness by any
Senior Creditor (any of (a), (b) or (c) being referred to as a "BLOCKAGE EVENT")
then, unless and until such Blockage Event shall have been cured or waived to
the satisfaction of the Senior Creditors holding the affected Superior
Indebtedness, in their sole discretion, or unless and until the affected
Superior Indebtedness shall be paid in full, no payments of any principal,
interest, premium or any other kind (other than payments in kind permitted by
the Notes in respect of a portion of accrued interest thereon), shall be made on
the Notes.
Following any event of default caused by the default in the
observance or performance of any agreement contained in Section 10 of the Senior
Credit Agreement (Negative Covenants) in respect of Superior Indebtedness (a
"SENIOR DEFAULT") other than a Blockage Event (a "TRIGGERING EVENT"), and notice
thereof by or on behalf of the Senior Creditors to the holders of the Notes, no
payments of any kind, principal, interest, premium or any other kind, may be
made on the Notes for a period of 180 days or, if earlier, the date on which
such Senior Default is cured to the satisfaction of the affected Senior
Creditors or waived by the affected Senior Creditors.
<PAGE> 41
In addition, following any Blockage Event or Triggering Event
and notice thereof by or on behalf the Senior Creditors to the holders of the
Notes, the holders of the Notes will not ask for, sue for, take, demand, set-off
or in any other manner, direct or indirect, attempt to enforce any right or
collect any payment or distribution on account of the Notes, nor present any
Note for payment for a 120 day period following such notice (the "STANDSTILL
PERIOD"). The Standstill Period shall end on the earlier of (i) 120 days after
the receipt of such notice and (ii) the cure of such Blockage Event to the
satisfaction of the affected Senior Creditors or the waiver thereof by such
Senior Creditors or the cure of such Triggering Event to the satisfaction of the
Senior Creditors or the waiver thereof by the Senior Creditors. Upon the ending
of the Standstill Period, the holders of the Notes may exercise the remedies
available to them under this Agreement and the Notes, provided that any money,
property, collateral or any proceeds thereof received by any holder of a Note,
directly or indirectly, during such Standstill Period or while any Blockage
Event remains uncured or unwaived (before or after the giving of notice thereof)
shall be paid over to the Senior Creditors.
After the expiration of a Triggering Event or the termination
of a Blockage Event, any regularly scheduled interest or principal payment on
account of the Notes not made when due as a result thereof may be made, together
with any accrued and unpaid interest with respect to such overdue payment,
provided that such payment shall not result in a separate Triggering Event or
Blockage Event.
Not more than one notice with regard to a Triggering Event may
be given by the Senior Creditors to the holders of the Notes in any one calendar
year, and no subsequent notice with regard to a Triggering Event may be sent on
the basis of the same Senior Default that is specified in any prior notice.
During any Standstill Period, no holder of a Note may commence
any action or proceeding against the Company to recover all or any part of the
Notes or join with any other creditor, unless the Senior Creditors shall also,
in their sole and absolute discretion, agree to join in bringing any proceedings
against the Company under any bankruptcy, reorganization, readjustment of debt,
arrangement of debt, receivership, liquidation or insolvency law or statute of
the federal or any state government unless and until all Superior Indebtedness
shall be finally paid in full in cash; provided, however, that, if the Senior
Creditors shall, during the Standstill Period, accelerate their Superior
Indebtedness or exercise or begin to exercise their rights with respect to any
collateral therefor, the Majority Holders shall immediately have the right to
accelerate the Notes and otherwise exercise their remedies under this Agreement
and the Notes, to the extent permitted hereunder, notwithstanding such
Standstill Period.
13.3 INSOLVENCY, ETC.
(a) In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to its creditors, as such, or
to the property of the Company, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company, whether
or not involving insolvency or bankruptcy, then the holders of the Superior
Indebtedness shall be entitled to receive payment in full of any obligations
with respect to the Superior Indebtedness. To that end any payment or
distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings in
respect of the obligations evidenced by the Notes (except (i) a distribution of
securities which are subordinate and junior (to at least the same extent as the
Notes) in right of payment to the payment of all obligations with respect to the
Superior Indebtedness then outstanding or (ii) any payment or distribution to
the holders of the Notes which is authorized by an order or decree (from which
no appeal may be taken), which order or decree gives effect to these
subordination provisions) shall be paid or delivered by the Company (or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution), or by any holder of a Note, if received by
it, first, to the holders of the Superior Indebtedness, pro rata, for
application in
<PAGE> 42
payment of the obligations with respect thereto, to the extent necessary to pay
all obligations with respect to the Superior Indebtedness in full, after giving
effect to any concurrent payment or distribution to the holders of the Superior
Indebtedness, before any such payment or distribution shall be made to or
retained by any holder of a Note.
(b) Following the occurrence and during the continuation of any event
or circumstance described in Section 13.3(a), if within ten (10) days of the
applicable bar date, one or more of the holder(s) of the Notes shall fail to
file a proof of claim, the Senior Creditors shall have the right, but not the
obligation (but without creating any duty or liability, except in the case of
gross negligence or willful misconduct by the Senior Creditors, to the holders
of Notes), to file a proof of claim for or collect the claim of such holder of
Notes (to be applied as set forth in Section 13.3(a)) directly from the
receiver, trustee, custodian, liquidator or representative of the Company's
estate in such proceedings. In the event that the Senior Creditors acquire the
right to file a proof of claim pursuant to this Section 13.3(b), the Company and
the applicable holders of Notes shall promptly furnish all assignments, powers
or other documents reasonably requested by the Senior Creditors to facilitate
the filing of such proof(s) of claim by the Senior Creditors.
13.4 TURNOVER OF CERTAIN PAYMENTS.
To the extent that the holder of any Note receives any payment in
violation of the subordination provisions contained in this Section 13, such
holder (by the acceptance of such Note) agrees to hold such payments in trust
and promptly to pay such amounts to the holders of the Superior Indebtedness. As
used herein, the term "payment" shall include any distribution of assets or any
lien, deposit, set-off, or recoupment of any kind for the benefit of the holder
of the Notes made from the assets of the Company.
13.5 NO IMPAIRMENT.
Nothing contained herein shall impair, as between the Company and the
holder of any Note, the obligation of the Company to pay to the holder thereof
the principal thereof and prepayment premium, if any, and interest thereon as
and when the same shall become due and payable in accordance with the terms of
such Note and this Agreement, or, except as provided herein, prevent the holder
of any Note from exercising all rights, powers and remedies otherwise permitted
by applicable law or thereunder upon the happening of an Event of Default, all
subject to the rights of the holders of Superior Indebtedness as provided in
this Section 13 to receive cash, securities or other property otherwise payable
or deliverable to the holders of the Notes directly or indirectly by the Company
from any source whatsoever.
13.6 PAYMENT OF SUPERIOR INDEBTEDNESS, SUBROGATION, ETC.
Upon the payment in full of all Superior Indebtedness of the Company,
the holders of the Notes shall be subrogated to all rights of the holders of
such Superior Indebtedness to receive any further payments or distributions
applicable to such Superior Indebtedness until the Notes shall have been paid in
full, and, for the purposes of such subrogation, no payment or distribution
received by the holders of such Superior Indebtedness of cash, securities, or
other property to which the holders of the Notes would have been entitled except
for this Section 13 shall, as between the Company and its creditors other than
the holders of Superior Indebtedness, on the one hand, and the holders of the
Notes, on the other hand, be deemed to be a payment or distribution by the
Company on account of Superior Indebtedness.
13.7 RESCISSION, AMENDMENT, ETC.
Each holder of a Note consents that, without the necessity of
any reservation of rights against any holder of a Note, and without notice to or
further assent by any holder of a Note:
<PAGE> 43
(a) any demand for payment of any Superior Indebtedness made by any
Senior Creditor may be rescinded in whole or in part by such Senior Creditor,
and any obligations under the Superior Indebtedness may be continued, and the
Superior Indebtedness, or the liability of the Company or any guarantor or any
other party upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, or any obligation or
liability of the Company or any other party under the Superior Indebtedness or
any other agreement, may, from time to time, in whole or in part, be renewed,
extended, modified, accelerated, compromised, waived, surrendered, or released
by any Senior Creditor; and
(b) any Superior Indebtedness may be amended, modified, supplemented or
terminated, in whole or in part, as any Senior Creditor may deem advisable from
time to time, and any collateral security at any time held by any of the Senior
Creditors for the payment of any of the Superior Indebtedness may be sold,
exchanged, waived, surrendered or released;
in each case all without notice to or further assent by any holder of a Note,
which will remain bound under this Agreement, and all without impairing,
abridging, releasing or affecting the subordination provided for herein, subject
always to the proviso contained in the definition of Superior Indebtedness.
14. REGISTRATION; EXCHANGE; SUBSTITUTION OF SECURITIES.
14.1 REGISTRATION OF NOTES AND WARRANTS.
The Company shall keep at its principal executive office a register for
the registration and registration of transfers of the Notes and the Warrants.
The name and address of each holder of one or more Notes or Warrants, each
transfer thereof and the name and address of each transferee of one or more
Notes or Warrants shall be registered in such register. Prior to due presentment
for registration of transfer, the Person in whose name any Note or Warrant, as
applicable, shall be registered shall be deemed and treated as the owner and
holder thereof for all purposes hereof, and the Company shall not be affected by
any notice or knowledge to the contrary. The Company shall give to any holder of
a Note or Warrant that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes and Warrants.
14.2 TRANSFER AND EXCHANGE OF NOTES OR WARRANTS.
Upon surrender of any Note or Warrant at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or Warrant or his attorney duly authorized in writing and accompanied by
the address for notices of each transferee of such Note, Warrant or part
thereof), within five Business Days thereafter the Company shall execute and
deliver, at the Company's expense (except as provided below), one or more new
Notes or Warrant, as applicable,(as requested by the holder thereof) in exchange
therefor, in an aggregate principal amount equal to the unpaid principal amount
of the surrendered Note or Warrant. Each such new Note or Warrant shall be
payable to such Person as such holder may request. Each such new Note shall be
dated and bear interest from the date to which interest shall have been paid on
the surrendered Note or dated the date of the surrendered Note if no interest
shall have been paid thereon. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge imposed in respect of
any such transfer of Notes or Warrants. Notes shall not be transferred in
denominations of less than $500,000, provided that if necessary to enable the
registration of transfer by a holder of its entire holding of Notes, one Note
may be in a denomination of less than $500,000. Any transferee, by its
acceptance of a Note registered in its name (or the name of its nominee), shall
be deemed to have made the representation set forth in Section 6.2.
<PAGE> 44
14.3 REPLACEMENT OF NOTES AND WARRANTS.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any Note
or Warrant (which evidence shall be, in the case of an Institutional Investor,
notice from such Institutional Investor of such ownership and such loss, theft,
destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Note or Warrant is, or
is a nominee for, an original Purchaser or another holder of a Note or Warrant
with a minimum net worth of at least $5,000,000, such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation thereof,
within five Business Days thereafter the Company at its own expense shall
execute and deliver, in lieu thereof, a new Note or Warrant, as applicable, in
the case of a new Note dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
15. PAYMENTS ON NOTES.
15.1 PLACE OF PAYMENT.
Subject to Section 15.2, payments of principal, premium, if any, and
interest becoming due and payable on the Notes shall be made at the principal
office of The Chase Manhattan Bank in New York City. The Company may at any
time, by notice to each holder of a Note, change the place of payment of the
Notes so long as such place of payment shall be either the principal office of
the Company in New York City or the principal office of a bank or trust company
in New York City.
15.2 HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 15.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
prepayment premium, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 15.1. Prior to any sale or other disposition
of any Note held by you or your nominee you will, at your election, either
endorse thereon the amount of interest added to the principal thereof, principal
paid thereon and the last date to which interest has been paid thereon or
surrender such Note to the Company in exchange for a new Note or Notes pursuant
to Section 14.2. The Company will afford the benefits of this Section 15.2 to
any Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 15.2.
16. EXPENSES, ETC.
16.1 TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated,
the Company will pay all reasonable costs and expenses (including reasonable
attorneys' fees of your special counsel and, if reasonably required, local or
other counsel) incurred by you and each holder of a Note or Warrant in
<PAGE> 45
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement or the Notes or the Warrants
(whether or not such amendment, waiver or consent becomes effective), including
without limitation: (a) the costs and expenses incurred in enforcing or
defending (or determining whether or how to enforce or defend) any rights under
this Agreement or the Notes or the Warrants or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the Notes or Warrants, or by reason of being a holder of any
Note or any Warrant, and (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy of the
Company or any Subsidiary or in connection with any work-out or restructuring of
the transactions contemplated hereby and by the Notes or the Warrants. The
Company will pay, and will save you and each other holder of a Note or a Warrant
harmless from, all claims in respect of any fees, costs or expenses if any, of
brokers and finders (other than those retained by you).
In furtherance of the foregoing, on the date of the Closing the Company
will pay or cause to be paid the reasonable fees and disbursements and other
charges (including estimated unposted disbursements and other charges as of the
date of the Closing) of your special counsel which are reflected in the
statement of such special counsel submitted to the Company on or prior to the
date of the Closing. The Company will also pay, promptly upon receipt of
supplemental statements therefor, reasonable additional fees, if any, and
disbursements and charges of such special counsel in connection with the
transactions hereby contemplated (including disbursements and other charges
unposted as of the date of the Closing to the extent such disbursements exceed
estimated amounts paid as aforesaid).
16.2 SURVIVAL.
The obligations of the Company under this Section 16 will survive the
payment or transfer of any Note or any Warrant, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes or the Warrants, and the
termination of this Agreement. Nothing in this Section 16 shall limit the
obligations of the Company in the Warrant with respect to expenses.
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes and the Warrants, the
purchase or transfer by you of any Note or any Warrant or portion thereof or
interest therein and the payment of any Note or exercise or expiry of any
Warrant, and may be relied upon by any subsequent holder of a Note or Warrant,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note or Warrant. All statements contained in any certificate
or other instrument delivered by or on behalf of the Company pursuant to this
Agreement shall be deemed representations and warranties of the Company under
this Agreement. Subject to the preceding sentence, this Agreement and the Notes
and the Warrants embody the entire agreement and understanding between you and
the Company and supersede all prior agreements and understandings relating to
the subject matter hereof.
18. AMENDMENT AND WAIVER.
18.1 REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Majority Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 22, or any defined term (as it is used
therein), will be effective as to you unless consented to by you in writing, and
(b) no such amendment or waiver may, without the written consent of the holder
of each Note at the time outstanding affected thereby, (i) subject to the
provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or change the rate
or the time of payment or method of computation of interest or
<PAGE> 46
of the prepayment premium on, the Notes, (ii) change the percentage of the
principal amount of the Notes the holders of which are required to consent to
any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12
or 18.
18.2 SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes of any waiver or amendment of any of the terms and provisions hereof
unless such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to each holder of Notes then outstanding
even if such holder did not consent to such waiver or amendment.
18.3 BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 18
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon the Company without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note nor
any delay in exercising any rights hereunder or under any Note shall operate as
a waiver of any rights of any holder of such Note. As used herein, the term
"THIS AGREEMENT" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
18.4 NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
19. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
<PAGE> 47
(i) if to you or your nominee, to you or it at the address specified
for such communications in Schedule A, or at such other address as you or it
shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such address
as such other holder shall have specified to the Company in writing, or
(iii) if to the Company, to the Company at its address set forth at the
beginning hereof to the attention of R. Kevin Andrews, Fax: 713-627-0937,
Telephone: 713-627-0933, or at such other address as the Company shall have
specified to the holder of each Note and each Warrant in writing.
Notices under this Section 19 will be deemed given only when actually received.
20. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes, the
Subsidiary Guarantees and Warrants themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to you, may
be reproduced by you by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and you may destroy any original
document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by you in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. This Section 19 shall not prohibit the
Company or any other holder of Notes, Subsidiary Guarantees or Warrants from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
21. CONFIDENTIAL INFORMATION.
For the purposes of this Section 21, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement, provided that such term does not include information that (a) was
publicly known or otherwise known to you prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by you or any
person acting on your behalf, (c) otherwise becomes known to you other than
through disclosure by the Company or any Subsidiary or (d) constitutes financial
statements delivered to you under Section 7.1 that are otherwise publicly
available. You will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by you in good faith to
protect confidential information of third parties delivered to you, provided
that you may deliver or disclose Confidential Information to (i) your directors,
officers, trustees, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes and Warrants), (ii) your financial advisors and other
professional advisors whose duties require them to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 21, (iii) any other holder of any Note or Warrant, (iv) any
Institutional Investor to which you sell or offer to sell such Note or Warrant
or any part thereof or any participation therein (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 21), (v) any Person from which you offer to purchase
any security of the Company (if such Person has agreed in writing prior to its
receipt of such Confidential Information to be bound by the provisions of this
Section 21), (vi) any federal or state regulatory authority having jurisdiction
over you, (vii) the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that requires
<PAGE> 48
access to information about your investment portfolio or (viii) any other Person
to which such delivery or disclosure may be necessary or appropriate (w) to
effect compliance with any law, rule, regulation or order applicable to you, (x)
in response to any subpoena or other legal process, (y) in connection with any
litigation to which you are a party or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes, Warrants and this
Agreement. Each holder of a Note or Warrant, by its acceptance of a Note or a
Warrant, will be deemed to have agreed to be bound by and to be entitled to the
benefits of this Section 21 as though it were a party to this Agreement. On
reasonable request by the Company in connection with the delivery to any holder
of a Note or Warrant of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 21.
22. MISCELLANEOUS.
22.1 SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including without limitation any subsequent
holder of a Note or Warrant) whether so expressed or not.
22.2 CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
22.3 CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.
(a) The Company irrevocably submits to the non-exclusive in personam
jurisdiction of any New York State or federal court sitting in the Borough of
Manhattan, The City of New York, over any suit, action or proceeding arising out
of or relating to this Agreement or the Notes or the Warrants. To the fullest
extent it may effectively do so under applicable law, the Company irrevocably
waives and agrees not to assert, by way of motion, as a defense or otherwise,
any claim that it is not subject to the in personam jurisdiction of any such
court, any objection that it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
(b) The Company consents to process being served in any suit, action or
proceeding of the nature referred to in paragraph (a) of this Section 22.3 by
mailing a copy thereof by registered or certified mail, postage prepaid, return
receipt requested, to the address of such party specified in Section 18 or at
such other address of which you shall then have been notified pursuant to said
Section. The Company agrees that such service upon receipt (i) shall be deemed
in every respect effective service of process upon it in any such suit, action
or proceeding and (ii) shall, to the full extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to such party.
Notices hereunder shall be conclusively presumed received as evidenced by a
delivery receipt furnished by the United States Postal Service or any reputable
commercial delivery service.
<PAGE> 49
(c) Nothing in this Section 22.3 shall affect the right of any holder
of Notes or Warrants to serve process in any manner permitted by law, or limit
any right that the holders of any of the Notes or Warrants may have to bring
proceedings against the Company in the courts of any appropriate jurisdiction or
to enforce in any lawful manner a judgment obtained in one jurisdiction in any
other jurisdiction.
(d) EACH OF THE PARTIES HERETO WAIVES TRIAL BY JURY IN ANY ACTION
BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT, THE NOTES, THE WARRANTS OR ANY
OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH OR THEREWITH.
22.4 PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes or the Warrants to the contrary
notwithstanding (but without limiting the requirement in Section 8.1 that notice
of any prepayment specify a Business Day as the date fixed for such prepayment),
any payment of principal of or Prepayment premium (if any) or interest on any
Note that is due on a date other than a Business Day shall be made on the next
succeeding Business Day without including the additional days elapsed in the
computation of the interest payable on such next succeeding Business Day.
22.5 SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the fullest extent permitted by applicable law) not
invalidate or render unenforceable such provision in any other jurisdiction.
22.6 ACCOUNTING TERMS.
All accounting terms used herein which are not expressly defined in this
Agreement have the meanings respectively given to them in accordance with GAAP.
Except as otherwise specifically provided herein, all computations made pursuant
to this Agreement shall be made in accordance with GAAP and all balance sheets
and other financial statements with respect thereto shall be prepared in
accordance with GAAP. Except as otherwise specifically provided herein, any
consolidated financial statement or financial computation shall be done in
accordance with GAAP, applied on a basis consistent with the audited Financial
Statements (except for changes concurred with by the Company's independent
public accountants).
22.7 INDEMNIFICATION.
The Company agrees to indemnify, exonerate and hold you and each of
your officers, directors, employees and agents (collectively the "INDEMNITIES"
and individually an "INDEMNITEE") free and harmless from and against any and all
actions, causes of action, suits, losses, liabilities and damages, and expenses
in connection therewith, including without limitation reasonable counsel fees
and disbursements (collectively the "INDEMNIFIED LIABILITIES"), incurred by the
Indemnitees or any of them as a result of, or arising out of, or relating to any
transaction financed or to be financed in whole or in part directly or
indirectly with proceeds from the sale of any of the Notes, or the execution,
delivery, performance or enforcement of this Agreement, the Warrant or any
instrument contemplated hereby by any of the Indemnitees, except as to any
Indemnitee for any such Indemnified Liabilities arising on account of such
Indemnitee's gross negligence or willful misconduct; and if and to the extent
the foregoing undertaking may be unenforceable for any reason, the Company
agrees to make the maximum contribution to the
<PAGE> 50
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The obligations of the Company under this
Section shall survive the payment of the Notes and the exercise or expiry of the
Warrants.
22.8 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.9 GOVERNING LAW.
This Agreement and the Notes and the Warrants shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by
the laws of the State of New York, excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.
If you are in agreement with the foregoing, please sign the form of
agreement in the space below provided on a counterpart of this Agreement and
return it to the Company, whereupon the foregoing shall become a binding
agreement between you and the Company.
Very truly yours,
DENALI INCORPORATED
By /s/ R. KEVIN ANDREWS
-------------------------------------
Title: Vice President/CFO
<PAGE> 51
The foregoing is hereby agreed to as of the date thereof.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By: /s/ PETER V. TUTERS
--------------------------------
Title: Vice President & Investment Officer
A.G. INVESTMENT ADVISORY SERVICES, INC.
By: /s/ PETER V. TUTERS
--------------------------------
Title: Vice President & Investment Officer
EMC EQUITY FUND, L.P.
By: /s/ BLAISE F. ST. RAYMOND
--------------------------------
Title: Managing Director/Treasurer
COCKRELL INVESTMENT PARTNERS, L.P.
By: /s/ MILTON T. GRAVES
--------------------------------
Title: President of Texas Production Company, General Partner
SIMMONS FAMILY TRUST
By: /s/ THOMAS D. SIMMONS, JR.
--------------------------------
Title: Co-Trustee
THOMAS DUDLEY SIMMONS, JR. MARITAL TRUST
By: /s/ THOMAS D. SIMMONS, JR.
--------------------------------
Title: Trustee
THOMAS DUDLEY SIMMONS, JR.
By: /s/ THOMAS D. SIMMONS, JR.
--------------------------------
Title: Self
JOEL V. STAFF
By: /s/ JOEL V. STAFF
--------------------------------
Title: Self
SYMONDS TRUST CO., LTD.
By: /s/ J. TAFT SYMONDS
--------------------------------
Title: President
<PAGE> 52
ANNE ALLEN SYMONDS REVOCABLE TRUST
By: /s/ ANNE ALLEN SYMONDS
--------------------------------
Title: Trustee
WILLIAM A. MONTELEONE, JR.
By: /s/ WILLIAM A. MONTELEONE, JR.
--------------------------------
Title: Self
C. RICHARD EVERETT
By: /s/ C. RICHARD EVERETT
--------------------------------
Title: Self
H. FRED LEVINE
By: /s/ H. FRED LEVINE
--------------------------------
Title: Self
LEGG MASON WOOD WALKER, CUSTODIAN
F/B/O JAY H. GOLDING PROFIT SHARING
PLAN DATED 12/11/89
By: /s/ DIANNE M. O'DONNEL
--------------------------------
Title: Assistant Vice President
<PAGE> 53
THE SENIOR SUBORDINATED NOTE REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE ACT AND SUCH LAWS OR IN A TRANSACTION WHICH QUALIFIES AS
AN EXEMPT TRANSACTION UNDER THE ACT AND SUCH LAWS AND THE RESPECTIVE RULES AND
REGULATIONS PROMULGATED THEREUNDER.
EXHIBIT 1.1
[FORM OF NOTE]
DENALI INCORPORATED
12% SENIOR SUBORDINATED NOTE DUE 2006
No. R-[_____] New York, New York
$[_______] [Date]
PPN: 248221A*4
FOR VALUE RECEIVED, the undersigned, DENALI INCORPORATED (the
"COMPANY"), a Delaware corporation, hereby promises to pay to [ ], or
registered assigns, the principal sum of [ ] DOLLARS on [ ], 2006,
with interest (computed on the basis of a 360-day year of twelve 30-day months)
(a) from the date hereof on the unpaid balance thereof at the rate of 12% per
annum, payable quarterly on [ ______________ ] in each year, until the principal
hereof shall have become due and payable and (b) on any overdue payment of
principal, any overdue payment of interest and any overdue payment of any
premium, payable quarterly as aforesaid (or, at the option of the holder hereof,
on demand) at a rate per annum from time to time equal to the greater of (i) 14%
and (ii) 2% above the rate of interest publicly announced by The Chase Manhattan
Bank from time to time at its principal office in New York City as its prime or
base rate.
Payments of principal of, interest on and any prepayment
premium with respect to this Note are to be made in lawful money of the United
States of America at said principal office of The Chase Manhattan Bank or at
such other place as the Company shall have designated by written notice to the
holder of this Note as provided in the Note Agreement referred to below.
This Note is one of a series of 12% Senior Subordinated Notes
due 2006 issued pursuant to the Note and Warrant Purchase Agreement dated as of
June 30, 1999 (as from time to time amended, the "NOTE Agreement") by the
Company and the respective Purchasers named on Schedule A therein and is
entitled to the benefits thereof. This Note is also entitled to the benefits of
Subsidiary Guarantees heretofore and from time to time hereafter executed and
delivered pursuant to the Note Agreement. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 21 of the Note Agreement and (ii) to have made
the representation set forth in Section 6.2 of the Note Agreement.
Payments of principal of, interest on and any premium with
respect to this Note are subordinated, to the extent specified in the Note
Agreement, to all Superior Indebtedness of the Company, as such term is defined
in the Note and Warrant Purchase Agreement.
This Note is a registered Note and, as provided in the Note
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
<PAGE> 54
- 2 -
The Company may make optional prepayments of principal, in
whole or from time to time in part, and under circumstances involving a change
of control may be required to prepay this Note in full, at the times and on the
terms specified in the Note Agreement, but not otherwise.
If an Event of Default, as defined in the Note Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable premium) and with the effect provided in the Note Agreement.
This Note shall be construed and enforced in accordance with,
and the rights of the Company and the holder hereof shall be governed by, the
laws of the State of New York, excluding choice-of-law principles of the law of
such State that would require the application of the laws of a jurisdiction
other than such State.
DENALI INCORPORATED
By
------------------------
Title:
<PAGE> 55
EXHIBIT 1.2
[FORM OF WARRANT]
NUMBER OF SHARES: _____ WARRANT No. _____
WARRANT TO PURCHASE
COMMON STOCK OF DENALI INCORPORATED
DENALI INCORPORATED, a Delaware corporation (the "COMPANY"),
HEREBY CERTIFIES THAT, for value received, [__________], or registered assigns,
is entitled to purchase fully paid and non-assessable shares of Common Stock,
par value $0.01 per share, of the Company (adjusted as below provided) at any
time from the Closing Date (as defined below) until 5:00 p.m., New York City
time, on the Warrant Expiration Date (as defined below) or the next succeeding
Business Day if such Warrant Expiration Date is not a Business Day (as defined
below). As used herein, the term "COMMON STOCK" means the Company's common
stock, par value $0.01 per share, as constituted on the date of original issue
of this Warrant, and (unless the context otherwise requires) irrespective of the
classes into which such common stock may be divided, and any shares of capital
stock into which such common stock may thereafter be changed or that may be
issued in respect of, in exchange for, or in substitution of such common stock
by reason of any transaction described in Section 8. As used herein, the term
"WARRANTS" means all warrants originally issued pursuant to the Agreements (as
defined below) and all warrants delivered in substitution or exchange for such
warrants. The term "WARRANT" means one of the Warrants.
This Warrant is one of an issue of Warrants to Purchase Common
Stock of the Company issued on June 30, 1999, the date of original issue of this
Warrant (the "CLOSING DATE"), pursuant to the several Note and Warrant Purchase
Agreements dated as of June 30, 1999 (the "AGREEMENTS"), entered into by the
Company with certain investors named in Schedule A to the Agreements (the
"PURCHASERS"). The holder of this Warrant is entitled to certain benefits of the
Agreements. In addition to payment of the Warrant Price (as defined herein) the
Company has granted this Warrant and agreed to issue the shares of Common Stock
issuable upon exercise hereof as consideration and in exchange for the agreement
of the Purchasers to enter into the Agreements and to purchase the Company's 12%
Senior Subordinated Notes due 2006 issued in an aggregate principal amount of
$15,000,000 pursuant to the Agreements. The term "NOTES" means all such notes
originally delivered pursuant to the Agreements and all notes delivered in
substitution or exchange for any such note.
Section 1. Term of Warrants; Exercise of Warrants. Subject to the terms
hereof, the holder of this Warrant shall have the right, at any time during the
period commencing on the Closing Date and ending at 5:00 p.m., New York time, on
the seventh anniversary of the Closing Date (the "Warrant Expiration Date"), to
purchase from the Company up to the number of shares of
<PAGE> 56
Common Stock which such holder may at the time be entitled to purchase pursuant
to this Warrant, upon at least three Business Days' prior written notice to the
Company of such holder's election to exercise this Warrant and upon surrender of
this Warrant to the Company, at its office maintained for such purpose pursuant
to Section 14 of the Agreements, together with the purchase form at the end
hereof duly completed and signed, accompanied by payment to the Company of the
Warrant Price (as defined in and determined in accordance with the provisions of
Sections 7 and 8) for the number of shares with respect to which this Warrant is
then exercisable. Payment of the aggregate Warrant Price shall be made by (i)
certified or official bank check or wire transfer, and/or (ii) the delivery and
surrender to the Company of Notes issued pursuant to the Agreements in an
aggregate amount equal to the Warrant Price and/or (iii) the delivery and
surrender to the Company of Warrants (valued at the product of (a) the
difference between the Trigger Price and the Warrant Price and (b) the number of
shares of Common Stock purchasable upon the exercise of the Warrants being
surrendered). In the event that the holder hereof chooses to exercise the
Warrant, in whole or in part, by delivery and surrender to the Company of any
other securities of the Company held by the holder hereof and redeemable at such
time, the holder shall be entitled to receive, upon such delivery and surrender,
cash in an aggregate amount equal to any and all interest accrued but unpaid on
such securities to the date of delivery and surrender. As used herein, the term
"Business Day" means any day other than a Saturday or Sunday or a day on which
commercial banks in New York City or the State of Texas are required or
authorized to be closed.
Upon such surrender of this Warrant and payment of such
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the holder of this
Warrant and in such name or names as such holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased,
together with cash, as provided in Section 9, with respect to any fractional
shares of Common Stock otherwise issuable upon such surrender. Such certificate
or certificates shall be deemed to have been issued and any person so designated
to be named therein shall be deemed to have become a holder of such shares of
Common Stock as of the close of business on the date of the surrender of this
Warrant and payment of the Warrant Price as aforesaid, notwithstanding that the
certificates representing such shares shall not actually have been delivered or
that the stock transfer books of the Company shall then be closed.
This Warrant shall be exercisable, at the election of the
holder of this Warrant, either in full or from time to time in part. In the
event that this Warrant is exercised with respect to less than the aggregate
number of shares of Common Stock this Warrant then entitles such holder to
purchase, the Company shall deliver to or upon the order of such holder hereof a
new Warrant evidencing the rights of such holder to purchase the unpurchased
shares of Common Stock then called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant. In the alternative, at the
request of the holder upon any partial exercise of this Warrant, appropriate
notation may be made
If the Warrant Expiration Date occurs prior to the exercise of
the Warrant in full at a time when the Trigger Price exceeds the Warrant Price,
the exercise of the Warrant in full shall be automatic and shall require no
notice to the Company. In such event, the Company shall give written notice to
the holder of this Warrant and require within 30 days of such notice the
surrender of the Warrant and payment of the Warrant Price thereon by the holder
in accordance
<PAGE> 57
with the terms set forth herein. If such payment and surrender are not made by
the holder within such time period, the right of the holder to exercise the
Warrant shall expire.
Section 2. Payment of Taxes. The Company shall pay all documentary
stamp taxes, if any, attributable to the initial issuance of the shares of
Common Stock upon exercise of this Warrant, provided that the Company shall not
be required to pay any tax or taxes which may be payable with respect to any
secondary transfer of a Warrant or the shares of Common Stock issued upon
exercise of any Warrant, and in such case the Company shall not be required to
issue or deliver any certificates for shares of Common Stock, until the person
requesting the same has paid to the Company the amount of such tax or has
established to the Company's reasonable satisfaction that such tax has been paid
or that no such tax is due.
Section 3. Transferability.
Section 3.1. Registration. The Warrants shall be numbered and shall be
registered on the books of the Company maintained for such purpose pursuant to
Section 14 of the Agreements (the "Security Register").
Section 3.2. Transfer. Subject to compliance with Section 3.3, this
Warrant, the Warrant Shares (as defined below) and all rights hereunder are
transferable upon delivery hereof together with the assignment form at the end
hereof duly completed and signed by the holder hereof or such holder's duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer, provided that any transferee of
this Warrant or such Warrant Shares shall expressly agree to be bound by the
terms and conditions hereof. Upon any registration of transfer of this Warrant,
the Company shall execute and deliver a new Warrant or Warrants as may be
requested by such holder for the same aggregate number of shares of Common Stock
as this Warrant. As used herein, the term "Warrant Shares" shall mean,
collectively, the shares of Common Stock acquired pursuant to the exercise of
this Warrant and any securities issued or issuable with respect to such Common
Stock by way of stock dividend or other distribution or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise.
Section 3.3. Limitations on Transfer of the Warrants and the Warrant
Shares. If, at the time of any transfer of this Warrant or any Warrant Shares,
this Warrant or such Warrant Shares, as the case may be, are not registered
under the Securities Act of 1933, as amended (the "Securities Act"), the Company
may require as a condition of allowing such transfer or exchange that the holder
or transferee of this Warrant or such Warrant Shares furnish to the Company such
information as, in the reasonable opinion of counsel to the Company, is
necessary in order to establish that such transfer or exchange may be made
without registration under the Securities Act, including a written statement
that such holder or transferee will not sell or otherwise dispose of this
Warrant or such Warrant Shares purchased or acquired by him in any transaction
which would violate the Securities Act or any other securities laws, provided
that the disposition thereof shall at all times be within the control of such
holder or transferee.
Section 3.4. Legend on Warrant Shares. Each certificate for shares of
Common Stock initially issued upon exercise of this Warrant shall bear the
following legend, unless at the time
<PAGE> 58
of exercise such shares are registered under the Securities Act or in the
opinion of Counsel to the Company such shares are no longer subject to the
restriction contemplated by the legend:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or the Blue
Sky laws of any State and may not be sold, exchanged, hypothecated or
transferred in any manner except in compliance with said Act and with
such Blue Sky laws."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution in the United States pursuant to a registration
statement under the Securities Act of the securities represented thereby) shall
also bear the above legend unless in the opinion of counsel to the Company the
securities represented thereby need no longer be subject to such restriction.
Section 4. Exchange of Warrant Certificate. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the holder
thereof to purchase a like aggregate number of shares of Common Stock as this
certificate then entitles such holder to purchase. Any holder of a Warrant
desiring to exchange such Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the Warrant to be so exchanged. Thereupon, the Company
shall execute and deliver one or more new Warrant certificates as so requested.
Section 5. Mutilated or Missing Warrant. In case any Warrant
certificate shall be mutilated, lost, stolen or destroyed, the Company shall, at
the request of the holder thereof, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated certificate or
certificates, or in lieu of and substitution for the certificate or certificates
lost, stolen or destroyed, a new Warrant certificate or certificates of like
tenor and representing an equivalent right or interest, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Warrant and indemnity, if requested, satisfactory to the Company. In the case of
any Purchaser or any other institutional investor holder of a Warrant, such
holder's unsecured agreement of indemnity shall be deemed satisfactory to the
Company.
Section 6. Requirement of Availability of Shares of Common Stock. There
are authorized and available for issuance, and so long as any Warrant remains
outstanding the Company shall at all times keep authorized and available for
issuance, such number of shares of the Company's authorized but unissued Common
Stock as will be sufficient to permit the exercise in full of all outstanding
Warrants. Every transfer agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Warrants shall be irrevocably
authorized and directed at all times to keep available such number of authorized
shares and other securities as will be sufficient for such purpose. The Company
shall keep a copy of the Warrants on file with every such transfer agent for the
Common Stock and other securities of the Company issuable upon the exercise of
the Warrants. The Company shall supply any such transfer agent with duly
executed stock and other certificates for such purpose and shall provide or
otherwise make available any cash which may be payable as provided in Section 9.
<PAGE> 59
Section 7. Warrant Price. The price per share of Common Stock (the
"Warrant Price") at which shares of Common Stock shall be purchasable upon the
exercise of the Warrants shall be $7.5375, subject to adjustment pursuant to
Section 8.
Section 8. Adjustment of Warrant Price and Number of Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
Section 8.1. Adjustments. The number of shares purchasable upon the
exercise of this Warrant and the Warrant Price shall be subject to adjustment as
follows:
(a) In case the Company shall (i) pay a dividend in Common Stock or
make a distribution in Common Stock, (ii) pay a liquidating cash dividend as so
denominated in accordance with generally accepted accounting principles, (iii)
subdivide its outstanding Common Stock, (iv) combine its outstanding Common
Stock into a smaller number of shares of Common Stock, or (v) issue by
reclassification of its Common Stock, spin-off, split-up, recapitalization,
merger, consolidation or any similar corporate event or arrangement of other
securities of the Company, the number of shares of Common Stock purchasable upon
exercise of this Warrant immediately prior thereto shall be adjusted so that the
holder of this Warrant shall be entitled to receive the kind and number of
shares or other securities of the Company which it would have owned or would
have been entitled to receive after the happening of any of the events described
above had this Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. Any adjustment made pursuant to
this subsection (a) shall become effective immediately after the effective date
of such event retroactive to the record date, if any, for such event.
(b) Except in respect of transactions described in subsection (a)
above, in case the Company shall sell or issue Common Stock or rights, options,
warrants, convertible securities or options or other rights to purchase
convertible securities or any similar instrument containing the right to
subscribe for, purchase or otherwise acquire shares of Common Stock
(collectively, "Derivative Securities") at a price per share which is lower at
the date of such sale or issuance of such Common Stock or lower at the record
date for determination of shareholders entitled to receive (or purchase) such
Derivative Securities than the Trigger Price (as defined below), then the number
of shares of Common Stock purchasable upon exercise of this Warrant shall be the
number determined by multiplying the number of shares of Common Stock issuable
upon exercise of this Warrant immediately prior to the first public announcement
(or consummation of such transaction if the Common Stock is not then publicly
traded) of such transaction (or the record date for determination of
shareholders entitled to receive (or purchase) such Derivative Securities in the
case of a distribution or issuance thereof in respect of the Common Stock) by a
fraction (not to be less than one) with (A) a numerator equal to the product of
(1) the number of shares of Common Stock outstanding after giving effect to such
sale or issuance (and assuming in the case of Derivative Securities that such
Derivative Securities had been fully exercised or converted, as the case may be)
and (2) the Trigger Price, and (B) a denominator equal to the sum of (i) the
product of (x) the number of shares of Common Stock outstanding immediately
before such public announcement date, consummation date or record date, as the
case may be, and (y)
<PAGE> 60
the Trigger Price, and (ii) the aggregate consideration received by the Company
for the shares of Common Stock to be so issued or sold or to be purchased or
subscribed for upon exercise of such Derivative Securities.
For the purposes of such adjustments, the Common Stock which
the holders of any such Derivative Securities shall be entitled to subscribe for
or purchase shall be deemed to be issued and outstanding as of the date of such
public announcement date, consummation date or record date, as the case may be,
and the consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such Derivative Securities, plus any
underwriting discounts or selling commissions paid by the Company, plus the
consideration or premiums stated in such Derivative Securities to be paid for
the Common Stock covered thereby. In case the Company shall sell or issue Common
Stock or Derivative Securities containing the right to subscribe for or purchase
Common Stock for a consideration consisting, in whole or in part, of property
other than cash or its equivalent, then in determining the "consideration
received by the Company" for purposes of this subsection (b), the fair market
value of said property shall be determined in the manner set forth below.
For purposes of this Section, the term "Trigger Price" means
in respect of any sale or issuance of Common Stock or Derivative Securities the
higher of (i) the then applicable Warrant Price and (ii) (x) so long as the
Common Stock is listed or admitted to trading on a national securities exchange
or, if not so listed, is quoted on the NASDAQ or any comparable system (a
"Listed Company"), the Current Market Price (as defined below), or (y) at any
time while the Company is not a Listed Company, the then current fair market
value per share of Common Stock immediately prior to such sale or issuance,
determined in the manner set forth below.
In the case of each such sale or issuance of Common Stock or
Derivative Securities by the Company, the Company will give written notice to
the holder of this Warrant not less than 20 nor more than 60 days prior to the
date upon which such sale or issue is proposed to be consummated. Such notice
shall (i) refer specifically to this Section 8.1(b), (ii) specify the date of
such sale or issue and the Response Date (as defined below) and (iii) contain
the terms of such sale or issue and the Company's estimates, determined in good
faith by the Board of Directors of the Company, of (A) the then current fair
market value per share of Common Stock or, if the Company is a Listed Company,
the Current Market Price and (B) if applicable, the fair market value of any
property, other than cash or its equivalent, taken into account in determining
the consideration to be received by the Company for purposes of this subsection
(b). The holder of this Warrant shall notify the Company of such holder's
acceptance or rejection of such estimates by giving written notice of such
acceptance or rejection to the Company at least five days prior to such sale or
issue (the "Response Date"). If either or both of such estimates is rejected by
any original holder of Warrants (or any Affiliate (as defined in the Agreements)
of such original holder) or by the holder or holders of then unexercised
Warrants to purchase at least 25% of shares of Common Stock covered by all
outstanding Warrants, the Company shall appoint an Independent Financial Expert
acceptable to the rejecting holder or holders of Warrants to make such
determinations. Such Independent Financial Expert shall be instructed to use its
best efforts to complete its appraisals within 30 days. In no event shall such
issue or sale be consummated prior to (x) five days after the completion of such
appraisals and delivery of the Value Report (hereafter referred to) by such
Independent Financial Expert or (y)
<PAGE> 61
the waiver by all such rejecting holders of such requirement so to complete the
appraisals and provide such Value Report.
The Independent Financial Expert shall deliver to the Company
and each holder of Warrants or Warrant Shares, a value report (the "Value
Report") stating the methods of valuation considered or used and the respective
values of the Common Stock and/or property, if applicable, as of the date of
such issue or sale of Common Stock or Derivative Securities, and containing a
statement as to the nature and scope of the examination or investigation upon
which the determination of value was made. The values set forth in such Value
Report shall be binding upon the Company and the holders of the Warrants. The
Company will pay all fees and expenses of such Independent Financial Expert.
For purposes of this Section, the term "Current Market Price"
means the Closing Price of shares of Common Stock immediately prior to the
public announcement date of the sale or issue (or, if no public announcement is
made, the date immediately prior to such sale or issue). "Closing Price" means
(1) the per share average of the last reported sale price on each of the five
(5) trading days prior to the date of determination or, if no such reported sale
occurs on any such day, the average of the closing bid and asked prices on any
such day, in each case on the principal national securities exchange in which
the Common Stock is listed or admitted to trading or (2) if the Common Stock is
not listed or admitted to trading on any national securities exchange, the per
share average of the closing bid and asked prices in the over-the-counter market
on each of the five (5) trading days prior to the date of determination as
reported by NASDAQ or any comparable system.
As used herein, the term "Independent Financial Expert" means
a qualified appraisal or investment banking firm that (i) has experience in the
valuation of companies similar to the Company, (ii) does not (and whose
directors, officers, employees and affiliates do not) have a direct or indirect
financial interest in the Company or any of its affiliates or the holder of this
Warrant or any of its affiliates, (iii) has not been, and, at the time it is
called upon to give independent financial advice, is not (and none of whose
directors, officers, employees or affiliates is) a promoter, director or officer
of the Company or any of its affiliates or such holder or any of its affiliates,
and (iv) does not provide any advice or opinions to, and is not otherwise
compensated by, the Company or any of its affiliates or such holder or any of
its affiliates, except as an Independent Financial Expert.
(c) In case the Company shall distribute in any calendar year to all or
substantially all holders of its Common Stock evidences of its indebtedness
(including Derivative Securities) or assets (including cash or other dividends
or distributions out of earnings), then, and in each case, the Company shall pay
to the holder of this Warrant an amount in cash equal to such holder's pro rata
share (assuming for such purpose the exercise of this Warrant in full) of such
distributions; and for such purpose any assets (other than cash) or evidences of
indebtedness so distributed shall be valued at the fair market value thereof
determined in good faith by the Board of Directors of the Company acting upon
the advice of any Independent Financial Expert acceptable to the Majority
Warrantholders.
As used herein, the term "Majority Warrantholders" means the holder or
holders of then unexercised Warrants to purchase at least a majority of the
shares of Common Stock covered by
<PAGE> 62
all outstanding Warrants. For purposes of determining whether the holders of
outstanding Warrants at any time have taken any action authorized by this
Section or otherwise by this Warrant, any Warrants owned by the Company, any
Subsidiary or any Affiliate (as such terms are defined in the Agreements) of the
Company shall not be deemed outstanding.
(d) Whenever the number of shares of Common Stock purchasable upon the
exercise of this Warrant is increased or decreased as provided in this Section
8, the Warrant Price payable upon exercise of this Warrant shall be adjusted by
multiplying the Warrant Price in effect immediately prior to such adjustment by
a fraction, the numerator of which shall be the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such adjustment,
and the denominator of which shall be the number of shares so purchasable
immediately after such adjustment.
(e) Whenever the number of shares of Common Stock purchasable upon the
exercise of this Warrant or the Warrant Price is adjusted as herein provided,
the Company shall cause to be promptly mailed to the holder by first-class mail,
postage prepaid, notice of such adjustment or adjustments and a certificate of
an executive officer of the Company setting forth the number of shares of Common
Stock purchasable upon the exercise of this Warrant and the Warrant Price after
such adjustment, a brief statement of the facts requiring such adjustment and
the computation by which such adjustment was made.
(f) If, as a result of an adjustment made pursuant to this Section 8,
the holder of this Warrant shall become entitled to purchase any shares of the
Company other than Common Stock, thereafter the number of such other shares so
purchasable upon exercise of this Warrant and the Warrant Price of such shares
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions of this Section 8 with
respect to the shares of Common Stock.
Section 8.2. No Adjustment in Certain Cases. No adjustments to the
number of shares of Common Stock issuable upon the exercise of this Warrant or
the Warrant Price shall be made pursuant to this Section 8 in connection with
the issuance of (a) Common Stock upon exercise of any of the Warrants, or (b)
Common Stock in any underwritten public offering registered under the Securities
Act, or (c) up to an additional 314,631 shares of Common Stock pursuant to any
stock option, stock purchase or similar plan or arrangement for the benefit of
employees, consultants or directors of the Company or its Subsidiaries (such
number and amount to be appropriately adjusted in the event the Common Stock is
subdivided into a greater or combined into a lesser number).
Section 8.3. Preservation of Purchase Rights Upon Reorganization,
Consolidation, Merger, etc. In case of any reorganization, consolidation or
merger of the Company with or into another entity as a result of which the
holders of the Company's Common Stock become holders of other shares or
securities of the Company or of another entity or person, or such holders
receive cash or other assets, or in case of any sale or conveyance to another
person of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing entity
or person, as the case may be, shall execute with the holder of this Warrant an
agreement that such holder shall have the right thereafter upon payment of the
aggregate Warrant Price in effect immediately prior to such action to purchase
upon exercise of this Warrant the kind and amount of shares and other securities
and property which such holder would have owned or have been entitled to receive
after the happening of such reorganization, consolidation, merger, sale or
conveyance had this Warrant been exercised immediately prior to such action.
<PAGE> 63
The agreements referred to in this Section 8.3 shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The provisions of this Section 8.3
shall similarly apply to successive reorganizations, consolidations, mergers,
sales or conveyances.
Section 8.4. Statement on Warrants. This Warrant shall entitle the holder
hereof to purchase such number of shares of Common Stock at such Warrant Price
as may be determined in accordance with the terms hereof after giving effect to
any adjustments in the number or kind of shares purchasable upon the exercise
hereof or the Warrant Price, as the case may be, notwithstanding that this
Warrant certificate may continue to express the same price and number and kind
of shares as are initially stated herein.
Section 8.5. Adjustment by Board of Directors. If any event occurs as to
which, in the reasonable good faith opinion of the Board of Directors of the
Company, the provisions of this Section 8 are not strictly applicable or if
strictly applicable would not fairly protect the rights of the holder of this
Warrant in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid, but in no event shall any
adjustment have the effect of increasing the Warrant Price as otherwise
determined pursuant to any of the provisions of this Section 8, except in the
case of a combination of shares of a type contemplated in Section 8.1(a) and
then in no event to an amount larger than the Warrant Price as adjusted pursuant
to Section 8.1(d).
Section 8.6. No Dilution or Impairment. The Company will not, by
amendment of its charter or through any reorganization, transfer or sale of
assets, consolidation, merger, dissolution or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in carrying out all of such
terms and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder hereof against dilution or other
impairment. Without limiting the generality of the foregoing, the Company will
not increase the par value of any shares of stock receivable upon the exercise
of this Warrant above the amount payable therefor upon such exercise, and at all
times will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable stock
upon the exercise of this Warrant.
Section 9. Fractional Interests. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of any Warrant. If any
fraction of a share would, except for the provisions of this Section 9, be
issuable on the exercise of this Warrant (or specified portions thereof), the
Company shall in lieu thereof pay to the person entitled thereto an amount in
cash equal to the current value of such fraction, calculated to the nearest
one-hundredth (1/100) of a share, to be computed (i) if the Common Stock is
listed on any national securities exchange on the basis of the last sales price
of the Common Stock on such exchange (or the quoted closing bid price if there
shall have been no sales) on the date of conversion, or (ii) if the Common Stock
shall not be listed, on the basis of the mean between the closing bid and asked
prices for the Common Stock on the date of conversion as reported by
<PAGE> 64
NASDAQ, or its successor, and if there are not such closing bid and asked
prices, on the basis of the fair market value per share as determined by the
Board of Directors of the Company.
Section 10. No Rights as Shareholder; Notices. Nothing contained in
this Warrant shall be construed as conferring upon the holder or its transferees
any rights as a shareholder of the Company, including the right to vote, consent
or receive notices as a shareholder with respect to any meeting of shareholders
for the election of directors of the Company or any other matter. If, however,
at any time prior to the Warrant Expiration Date and prior to the exercise of
this Warrant, any of the following events shall occur:
(a) any action which would require an adjustment pursuant to Section
8.1 or 8.5; or
(b) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation, merger or sale of its property, assets and
business as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice in writing
of such event to each holder of Warrants at least 20 days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
shareholders entitled to vote on such proposed dissolution, liquidation or
winding up but failure to mail or receive such notice or any defect therein or
in the mailing thereof shall not affect the validity of any such action taken.
Such notice shall specify such record date or the date of closing the transfer
books, as the case may be.
Section 11. Registration Rights.
Section 11.1. Requested Registration. (a) At any time after the earlier
of (1) 90 days after the effective date of a registration statement filed by the
Company for the registration of securities under the Securities Act of the same
class as any Registrable Securities (as defined below) and (2) fifteen months
from the Closing Date, the holder or holders of any of the Registrable
Securities then outstanding and entitled to registration rights under this
Section 11 (the "Initiating Holders") may, upon written request to the Company,
require that the Company effect a registration, qualification or compliance with
respect to all or a part of such Registrable Securities. The Company will,
within ten days of the receipt of such request, give written notice of such
request to all other holders of Registrable Securities and shall file a
registration statement with the Commission on a form deemed appropriate by the
Company's counsel as expeditiously as possible, but in no event later than 60
days after receipt of such written request. Such registration statement shall
cover all the Registrable Securities requested to be included therein by the
Initiating Holders and by such other holders as specified in writing given
within 20 days of receipt of the notice given by the Company pursuant to this
subsection (a). After the filing of such registration statement, the Company
shall use its best efforts to cause such registration statement to become
effective as expeditiously as possible. The Company shall pay the expenses (as
defined in Section 11.7) of such registration.
The Company shall also use its best efforts to effect promptly all such
other registration, qualification and compliance (including, without limitation,
the execution of an undertaking to
<PAGE> 65
file post-effective amendments, appropriate qualification under the applicable
Blue Sky, or other state securities laws, and appropriate compliance with
exemptive regulations issued under the Securities Act) as may be so requested by
a holder of Registrable Securities covered by a registration statement filed
pursuant to this Section 11.1 and as would permit or facilitate the sale and
distribution of all or any portion of such Registrable Securities.
The Company shall not be obligated to effect such registration,
qualification or compliance (1) after the Company has already effected two such
registrations pursuant to this subsection (a), (2) if the Initiating Holders
hold less than 25% of the Registrable Securities then outstanding, or (3) within
nine months after the effective date of the registration statement most recently
filed by the Company under the Securities Act with respect to any class of
Registrable Securities if the holders of the Registrable Securities shall have
had the opportunity pursuant to Section 11.2 to participate in the offering
effected pursuant to such registration statement without any reduction of the
number of Registrable Securities included in such offering pursuant to Section
11.3.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by such request by means of an underwriting, they shall so
advise the Company as a part of such request made pursuant to Section 11.1(a).
The Company shall enter into an agreement in customary form for a secondary
distribution with the underwriter or underwriters selected by the Company for
such underwriting, provided such underwriters are reasonably acceptable to the
Initiating Holders.
(c) As used herein, the term "Registrable Securities" means,
collectively, the Warrants, or any portion thereof, and all Warrant Shares
(including all such Warrant Shares issued upon exercise of any other Warrant),
or any portion thereof. Registrable Securities will cease to be such when (i) a
registration statement covering such Registrable Securities has become or been
declared or ordered effective and they have been disposed of pursuant to such
effective Registration Statement, (ii) they are sold, transferred or distributed
pursuant to and in compliance with Rule 144 (or any similar provision then in
force, but not including Rule 144A) under the Securities Act, or (iii) they have
been otherwise transferred and the Company has delivered new certificates or
other evidences of ownership for them not subject to any stop transfer order or
other restriction on transfer and not bearing a legend restricting transfer in
the absence of an effective registration or an exemption from the registration
requirements of the Securities Act.
Section 11.2 Incidental Registration. (a) If at any time or times after
the date hereof, the Company intends to file a registration statement for the
registration of securities under the Securities Act of the same class as any
Registrable Securities in connection with a public offering (other than any
offering pursuant to any stock option plan or stock purchase, savings or similar
plan, any offering in connection with any merger or acquisition of or by the
Company, any exchange of outstanding Common Stock or any registration of any
security convertible into Common Stock), the Company shall notify in writing
each of the holders of record of Registrable Securities at least 30 days prior
to each such filing of the Company's intention to file such a registration
statement. Such notice shall state the date on which the Company proposes to
file such registration statement and the number and class of securities proposed
to be registered thereby and shall advise the holders of such Registrable
Securities of their rights to have such
<PAGE> 66
securities included in such registration. If any holder of Registrable
Securities notifies the Company within 20 days after receipt of such notice from
the Company of its desire to have included in such registration statement any of
its Registrable Securities, then the Company shall include such shares in such
registration statement for sale in the same manner and upon the same terms and
conditions as for the securities originally to be subject to such registration
statement; provided that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason either not to register, to discontinue
registration or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to each holder of
Registrable Securities and, thereupon, (i) in the case of a determination not to
register or to discontinue registration, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the registration expenses in connection
therewith) and (ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Securities for the same period
as the delay in registering such other securities. The Company shall pay the
expenses (as defined in Section 11.7) of such registration.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the holders of Registrable Securities as a part of the written notice
given pursuant to subsection (a) above. In such event the right of such holders
to registration pursuant to this Section 11.2 shall be conditioned upon such
holders' participation in such underwriting and the inclusion of such holders'
Registrable Securities in the underwriting to the extent provided herein. The
holders of Registrable Securities shall (together with the Company and any other
shareholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company and shall use their best efforts to
arrange for all documents and opinions required to be delivered thereunder in
respect of their participation as selling shareholders to be delivered. If any
of the holders of Registrable Securities or any officer, director or other
shareholder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(c) The holders of Registrable Securities shall be entitled to have
their shares included in an unlimited number of registrations pursuant to this
Section 11.2.
<PAGE> 67
Section 11.3. Underwriter Cutbacks. Notwithstanding any other provision
of this Section 11, if any registration provided for in Section 11.1 or 11.2
involves an underwriting and if the managing underwriter determines that
marketing factors require a limitation on the number of shares to be
underwritten, then the Company shall include in the underwriting only that
number of such securities, including Registrable Securities, which the managing
underwriter believes will not jeopardize the success of the offering. The
securities to be so included will be apportioned pro rata among the
securityholders (including the selling holders of Registrable Securities)
seeking to include their respective securities in the offering according to the
total amount of securities entitled to be included therein owned by each such
selling securityholder or in such other apportions as shall be mutually agreed
to by such selling securityholders.
Section 11.4. Right to Review the Registration Statement. In connection
with the preparation and prior to the filing of each registration statement
under the Securities Act pursuant to Sections 11.1 and 11.2, the Company will
give the holders of Registrable Securities registered under such registration
statement the right to review and comment upon such registration statement and
to request the insertion therein of material furnished to the Company in writing
which in the reasonable judgment of such holder (a "Requesting Holder") of
Registrable Securities should be included; provided, however, that such
information shall not be required to be included if in the reasonable opinion of
counsel of the Company, the inclusion of such material furnished by such holder
would be misleading or otherwise in violation of the rules and regulations of
the Securities Act. Furthermore, a Requesting Holder has the right to require
the deletion of any reference to such Requesting Holder by name or otherwise if
such reference is not required by the Securities Act or the rules promulgated
thereunder.
The Company will not file any registration statement or amendment
thereto or any prospectus or any supplement thereto (including such documents
incorporated by reference and proposed to be filed after the initial filing of
the registration statement) to which the holders of at least a majority of the
securities (including Registrable Securities) covered by such registration
statement or the underwriter or underwriters, if any, shall reasonably object,
provided that the Company may file such document in a form required by law or
upon the advice of its counsel.
Section 11.5. Registration Procedures. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Section 11, the Company shall:
(a) notify each holder of Registrable Securities as to the filing of
the Registration Statement and of all amendments or supplements thereto filed
prior to the effective date of said Registration Statement;
(b) notify each holder of Registrable Securities, promptly after it
shall receive notice thereof, of the time when said Registration Statement
becomes effective or when any amendment or supplement to any prospectus forming
a part of said Registration Statement has been filed;
(c) notify each holder of Registrable Securities promptly of any
request by the Commission for the amending or supplementing of such Registration
Statement or prospectus or for additional information;
<PAGE> 68
(d) prepare and promptly file with the Commission and promptly notify
each holder of Registrable Securities of the filing of any amendments or
supplements to such Registration Statement or prospectus as may be necessary to
correct any statements or omissions if, at any time when a prospectus relating
to the Registrable Securities is required to be delivered under the Securities
Act, any event with respect to the Company shall have occurred as a result of
which any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading; and, in addition,
prepare and file with the Commission, promptly upon the written request of any
holder of Registrable Securities, any amendments or supplements to such
Registration Statement or prospectus which may be reasonably necessary or
advisable in connection with the distribution of the Registrable Securities;
(e) advise each holder of Registrable Securities promptly after the
Company shall receive notice or obtain knowledge of the issuance of any stop
order by the Commission suspending the effectiveness of any such Registration
Statement or amendment thereto or of the initiation or threatening of any
proceeding for that purpose, and promptly use its best efforts to prevent the
issuance of any stop order or obtain its withdrawal promptly if such stop order
should be issued;
(f) use its best efforts to qualify as soon as reasonably practicable
the Registrable Securities included in the Registration Statement for sale under
the securities or blue-sky laws of such states and jurisdictions within the
United States as shall be reasonably requested by any holder of Registrable
Securities; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business, to become subject
to taxation or to file a consent to service of process generally in any of the
aforesaid states or jurisdictions; and
(g) furnish each holder of Registrable Securities, as soon as
available, copies of any Registration Statement and each preliminary or final
prospectus, or supplement or amendment required to be prepared pursuant hereto,
all in such quantities as any holder of Registrable Securities may from time to
time reasonably request.
At its expense, the Company shall keep such registration statement
effective until 180 days after such registration statement becomes effective.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subsection (d) above, such
holder will forthwith discontinue such holder's disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subsection (d) above and, if so directed by
the Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice, the
period mentioned in the immediately preceding paragraph of this Section 11.5
shall be extended by the length of the period from and including the date when
each seller of any Registrable Securities covered by such registration statement
shall have received such notice to the date on
<PAGE> 69
which each such seller has received the copies of the supplemented or amended
prospectus contemplated by subsection (d) above.
Section 11.6. Indemnity. (a) In connection with a Registration Statement
filed with the Commission pursuant to this Section 11 or any other registration
statement filed by the Company, the Company will indemnify and hold harmless any
seller of Registrable Securities and each person, if any, who controls any
holder of Registrable Securities within the meaning of the Securities Act, any
underwriter who participates in the distribution of Registrable Securities and
any Requesting Holder and each person, if any, who controls any Requesting
Holder against any loss, claim, damage or liability, joint or several, to which
such holder or such controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage or liability (or action in
respect thereof) arises out of or is based upon (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any Registration
Statement (including any preliminary prospectus and the prospectus as a part
thereof (the "Prospectus") or any amendment or supplement thereof, or (B) in any
blue sky application or other document executed by the Company specifically for
that purpose or based upon written information furnished by the Company filed in
any state or other jurisdiction in order to qualify any or all of the
Registrable Securities under the securities laws thereof (any such application,
document or information being hereinafter called a "Blue Sky Application"), or
(ii) the omission or alleged omission to state in any Registration Statement
(including any preliminary prospectus and the Prospectus as a part thereof) or
any amendment or supplement thereof or in any Blue Sky Application a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
will reimburse each holder of Registrable Securities, Requesting Holder and each
such controlling person for any legal or other expenses reasonably incurred by
such holder of Registrable Securities, Requesting Holder or such controlling
person in connection with investigating or defending against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action; provided that the Company will not be liable to any holder of
Registrable Securities in any such case to the extent, but only to the extent,
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by such holder of Registrable Securities specifically stating that
it is for use in the preparation of any Registration Statement or any such
amendment or supplement thereof or any such Blue Sky Application or any such
preliminary prospectus or the Prospectus or any such amendment thereof or
supplement thereto. This indemnity agreement is in addition to any liability
which the Company may otherwise have.
(b) Each holder of Registrable Securities included in the securities
covered by the Registration Statement severally, but not jointly, will indemnify
and hold harmless the Company, each of the Company's directors, each of the
Company's officers, and each person, if any, who controls the Company within the
meaning of the Securities Act, as well as any underwriter who participates in
the distribution of securities covered by such Registration Statement against
any loss, claim, damage or liability to which the Company, or any such director
or officer or controlling person or any underwriter may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage or
liability (or action in respect thereof) arises out of or is based upon (i) any
untrue statement or alleged untrue statement of a material fact contained (A) in
any Registration Statement (including any preliminary prospectus and the
<PAGE> 70
Prospectus as a part thereof) or any amendment or supplement thereof, or (B) in
any Blue Sky Application, or (ii) the omission or alleged omission to state in
the Registration Statement (including any preliminary prospectus and the
Prospectus as a part thereof) or any amendment or supplement thereto or in any
Blue Sky Application a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of such holder of Registrable Securities specifically stating that it
is for use in the preparation of the Registration Statement or any such
amendment or supplement thereof or any such Blue Sky Application or any such
preliminary prospectus or the Prospectus or any such amendment thereof or
supplement thereto; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director or officer or controlling person in
connection with investigating or defending against any such loss, claim, damage,
liability or action. No holder of Registrable Securities shall be required by
this subsection (b) to pay an amount in excess of the amount of proceeds (net of
underwriting discounts or commissions) received by such holder upon the sale of
Registrable Securities included in such Registration Statement. This indemnity
agreement is in addition to any liability which such holder of Registrable
Securities may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
11.6 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against any indemnifying party under
this Section 11.6, notify in writing the indemnifying party of the commencement
thereof within a reasonable time thereafter, provided that the failure so to
notify the indemnifying party shall not relieve the indemnifying party from any
liability which it may have under this Section 11.6, except to the extent it has
been prejudiced by such failure, or from any liability which it may have to an
indemnified party otherwise than under this Section 11.6. In case any such
action, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel who shall be reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 11.6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, provided that if it is necessary to prevent a conflict
of interest for the holders of Registrable Securities, Requesting Holders or
their respective controlling persons to be represented by separate counsel, the
holders of Registrable Securities shall have the right to employ a single
counsel to represent the holders of Registrable Securities and such controlling
persons, in which event the reasonable fees and expenses of such separate
counsel shall be borne by the Company.
Section 11.7. Expenses. The Company shall bear all registration expenses
in connection with a registration of Registrable Securities pursuant to this
Section 11. As used in this Section 11, "registration expenses" of a
registration shall mean, without limitation, all registration, filing and
National Association of Securities Dealers' fees, all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger
<PAGE> 71
and delivery expenses, the fees and disbursements of counsel for the Company and
of its independent public accountants, including the expenses of any special
audits or "cold comfort" letters required by or incident to such performance and
compliance and the fees and disbursements of underwriters customarily paid by
issuers or sellers of securities (including fees paid to a qualified independent
underwriter) and the reasonable fees and expenses of one firm (which firm shall
be reasonably satisfactory to the selling holders of Registrable Securities) to
act as special counsel for all selling securityholders (including such selling
holders of Registrable Securities) and such other local counsel as to matters of
local laws as such special counsel and such selling securityholders may
reasonably request. All underwriting discounts and commissions relating to
securities registered on behalf of the holders of Registrable Securities and
transfer taxes shall be borne by such holders pro rata on the basis of the
number of Registrable Securities so registered.
Section 11.8. Lock-Ups. To the extent requested by the managing
underwriter in respect of an offering of securities of the Company described in
this Section 11, each holder of Registrable Securities and the Company shall
agree to refrain from selling or offering to sell, making any short sale of,
loaning, granting any option for the purchase of, effecting any public sale or
distribution of or otherwise disposing of (other than pursuant to such
Registration Statement) any securities of the Company during the seven days
prior to and the 90 days after the effective date of any Registration Statement
described herein, whether or not such holder participates in such registration.
Nothing in this Section 11.8 shall preclude the Company from issuing shares of
Registrable Securities upon exercise of outstanding options or conversion of
outstanding convertible securities. Each holder of Registrable Securities agrees
that the Company may instruct its transfer agent to place stop transfer
notations in its records to enforce this Section 11.8.
Section 11.9. Other Obligations of the Company. In connection with the
Company's obligations to the holders of Registrable Securities with respect to
the sale of Registrable Securities pursuant to a public offering thereof as
provided in this Section 11, the Company shall use its best efforts to register
Registrable Securities as required, or permitted if any holder of Registrable
Securities so requests, by Section 12 of the Securities Exchange Act of 1934, as
amended, and, if the Registrable Securities to be sold meet the criteria for
listing on any exchange on which the Common Stock is then listed, apply for
listing of such Registrable Securities on such exchange.
Section 11.10. Transferability. The registration rights granted in this
Section 11 shall not be assignable in any manner to any transferee of any of the
Warrants or Registrable Securities except in connection with the sale by the
holder of this Warrant or the Registrable Securities issued upon exercise hereof
of all of this Warrant or such securities, as the case may be, in a transaction
not involving a public offering for the purposes of the Securities Act.
Section 12. Put Right.
Section 12.1. Put at the Option of the Holder. At any time on or after
the fifth anniversary of the Closing Date, the holder of this Warrant or any
Warrant Shares may elect to cause the Company to repurchase all the Warrants and
all Warrant Shares (including all such Warrant Shares issued upon exercise of
any other Warrant) for cash at
(a) if the Company is a Listed Company, the Current Market Price, or
<PAGE> 72
(b) if the Company is not a Listed Company, the applicable price
determined in accordance with Section 12.2. The Company shall identify the
Independent Financial Expert selected by the Company to determine the Appraised
Market Value (as defined below) of the Company. The holder of this Warrant and
any Warrant Shares shall appoint a second Independent Financial Expert and both
such Independent Financial Experts shall be instructed to use their best efforts
to complete their appraisals pursuant to Section 12.2 within 30 days. If the
holders of Warrants and Warrant Shares are unable to agree on the identity of a
second Independent Financial Expert, such second Independent Financial Expert
shall be appointed by the holder or holders participating in such appointment
having Warrants representing the highest aggregate number of shares of Common
Stock (including Warrant Shares).
(c) The holder of this Warrant or any Warrant Shares may exercise its
right to cause the Company to repurchase up to one-third of the Warrants and all
Warrant Shares on the Repurchase Date (as defined below) pursuant to subsection
(b) above by written notice to the Company, which notice shall be given no later
than 15 days after the Appraised Market Value of the Company is determined
pursuant to Section 12.2.
Section 12.2. Repurchase Price. (a) The aggregate price of the portion
of this Warrant and any Warrant Shares to be repurchased pursuant to Section
12.1(b) shall be equal to the product of (1) the Appraised Market Value of the
Company as of the date on which the repurchase of the Warrant is to be
consummated (the "Repurchase Date") and (2) a fraction, the numerator of which
is equal to the sum of (x) the total number of shares of Common Stock subject to
purchase upon exercise of that portion of this Warrant being repurchased by the
Company (after giving effect to any adjustments resulting from the occurrence of
any event described in Section 8) and (y) the aggregate number of Warrant Shares
being repurchased, as the case may be, and the denominator of which is the total
number of shares of Common Stock then outstanding (assuming that all outstanding
Derivative Securities had been fully exercised or converted, as the case may
be), provided that the price per Warrant Share (assuming for such purpose the
exercise of any remaining portion of this Warrant) so repurchased shall not be
less than the Warrant Price paid for such Warrant Share at the time of exercise.
(b) The term "Appraised Market Value" of the Company means the cash
purchase price (determined as of the Repurchase Date) that a Person who is not
an affiliate of the Company would pay for the Company, on a going concern basis
in an all cash transaction in which such Person is under no compulsion to buy
and the Company is under no compulsion to sell. Such cash purchase price shall
be independently determined by the Independent Financial Experts using such
valuation methods as they may determine to be most appropriate for establishing
a value for the Company in light of relevant market and economic factors at the
time and in conformity with standard appraisal techniques in use at the time for
valuing businesses similar to the Company, but without either any discount for
any lack of liquidity of the Common Stock or any discount for the fact that the
Common Stock is not publicly traded or that the Company does not have any other
publicly traded class of equity securities.
(c) Each Independent Financial Expert shall deliver to the Company and
the holder of the Warrant, a value report (the "Value Report") stating the
methods of valuation considered or
<PAGE> 73
used and the value of the Common Stock as of the Repurchase Date, and containing
a statement as to the nature and scope of the examination or investigation upon
which the determination of value was made. The Appraised Market Value of the
Company will be the average of the two values arrived at by the Independent
Financial Experts as set forth in such Value Reports if the higher of such
values does not exceed 110% of the lower. If the higher of such values exceeds
110% of the lower, said Independent Financial Experts shall select a third
Independent Financial Expert who shall conduct a third appraisal in accordance
with this Section and the Appraised Market Value shall be the value of the
Company determined by the Independent Financial Expert whose valuation is
between the other two.
(d) The Company will, and will cause each of its Subsidiaries to, make
available to each of the Independent Financial Experts all of the books and
records of the Company and its Subsidiaries and such other information as any of
the Independent Financial Experts may request in order to ascertain the value of
the Company. The Company will pay all costs of the appraisals undertaken in
accordance with this Section 12, including the reasonable fees and expenses of
the Independent Financial Experts.
Section 12.3. Exercise and Expiration of the Put Right. (a) The right
of the holder of this Warrant or any Warrant Shares to cause the Company to
repurchase the Warrant and/or Warrant Shares pursuant to Section 12.1 may only
be exercised by such holder, in each 365-day period commencing on the fifth,
sixth, seventh, eighth and ninth anniversaries of the Closing Date, in respect
of such number of Warrant and Warrant Shares representing in the aggregate no
more than one-third of such holder's Initial Holding. For the purposes of this
Section 12.3, the holder's "Initial Holding" shall be the number of Warrant
Shares purchasable upon the exercise of the Warrant on the Closing Date, as
increased from time to time pursuant to Section 8.
(b) The right of the holders of the Warrant and Warrant Shares
described in this Section 12 shall automatically terminate on the tenth
anniversary of the Closing Date.
Section 13. Preemptive Rights. (a) Except in the case of Excluded
Securities (as defined below), the Company shall not issue, sell or exchange,
agree to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange, any (i) shares of Common Stock, (ii) any other equity security of the
Company, (iii) any debt security of the Company which by its terms is
convertible into or exchangeable for any equity security of the Company or has
an equity kicker or other participation rights, (iv) any security of the Company
that is a combination of debt and equity or (v) any option, warrant or other
right to subscribe for, purchase or otherwise acquire any equity security or any
such debt security of the Company, unless in each case the Company shall have
first offered to sell to the holder of the Warrant or any Warrant Shares such
holder's Common Stock percentage of such securities (the "Offered Securities")
(and to sell to the purchasing holders such Offered Securities not subscribed
for by the other holders as hereinafter provided), at a price and on such other
terms as shall have been specified by the Company in writing delivered to such
holder (the "Offer"), which Offer by its terms shall remain open and irrevocable
for a period of 30 days from the date it is delivered by the Company. The term
"Common Stock Percentage" means, with respect to a holder of Warrant or of any
Warrant Share the fraction, expressed as a percentage, the numerator of which is
the total number of shares of Common Stock (including Warrant Shares and
assuming in the case of Derivative Securities
<PAGE> 74
(including the Warrants) that such Derivative Securities have been fully
exercised or converted) held by such holder and the denominator of which is the
total number of shares of Common Stock outstanding.
(b) Notice of the intention of the holder of Warrants or Warrant Shares
to accept, in whole or in part, an Offer shall be evidenced by a writing signed
by such holder and delivered to the Company prior to the end of the 30-day
period of such Offer, setting forth such portion of the Offered Securities as
such holder elects to purchase (the "Notice of Acceptance"). If any holder of
Warrants or Warrant Shares shall subscribe for less than its Common Stock
Percentage of the Offered Securities to be sold, the other subscribing holders
shall be entitled to purchase the balance of that holder's Common Stock
Percentage in the same proportion in which they were entitled to purchase the
Offered Securities in the first place (excluding for such purposes such holder
of Warrants or Warrant Shares). The Company shall notify the holder of the
Warrant or Warrant Shares five days following the expiration of the 30-day
period described above of the amount of Offered Securities which each holder may
purchase pursuant to the foregoing sentence, and each holder shall then have
five days from the delivery of such notice to indicate such additional amount,
if any, that such holder wishes to purchase.
(c) In the event that Notices of Acceptance are not given by the
holders of Warrant or Warrant Shares in respect of all the Offered Securities,
the Company shall have 90 days from the expiration of the foregoing 30-day or
40-day period, whichever is applicable, to sell all or any part of such Offered
Securities as to which Notices of Acceptance have not been given by such holders
(the "Refused Securities") to any other Person(s), but only upon terms and
conditions in all respects, including, without limitation, unit price and
interest rates, which are no more favorable, in the aggregate, to such other
Person(s) or less favorable to the Company than those set forth in the Offer.
Upon the closing, which shall include full payment to the Company, of the sale
to such other Person(s) of all the Refused Securities, the holders of Warrants
or Warrant Shares shall purchase from the Company, and the Company shall sell to
such holders, the Offered Securities in respect of which Notices of Acceptance
were delivered to the Company by the holders, at the terms specified in the
Offer.
(d) In each case, any Offered Securities not purchased by the holders
of Warrants or Warrant Shares or any other Person(s) in accordance with Section
13(c) may not be sold or otherwise disposed of until they are again offered to
the holders of Warrants or Warrant Shares under the procedures specified in
Sections 13(a), (b) and (c).
(e) The rights of the holders of any Warrant or of any Warrant Shares
under this Section 13 shall not apply to the following securities (the "Excluded
Securities"):
(1) the Warrants; and
(2) shares of Common Stock issued as a stock dividend or upon
any stock split or other subdivision or combination of the Common Stock.
Section 14. Notices. Any notice by the Company, the holder of this
Warrant or the holders of Warrant Shares or Registrable Securities shall be in
writing and shall be deemed to have been duly given if delivered or mailed by
certified mail five days after mailing, return
<PAGE> 75
receipt requested (a) if to the Company, Denali Incorporated, 1360 Post Oak
Boulevard, Suite 2250, Houston, Texas 77056-3023, Attention: R. Kevin Andrews,
Fax: 713-627-0937, Tel: 713-627-0933, or at such other address as the Company
may designate by notice to each holder of Warrants, Warrant Shares or
Registrable Securities at the time outstanding, (b) if to any Purchaser that
holds Warrants, Warrant Shares or Registrable Securities, at such Purchaser's
address set forth in Schedule A to the Agreements, or at such other address as
such Purchaser may designate by notice to the Company and (c) if to any other
holder of Warrants, Warrant Shares or Registrable Securities, at the address of
such holder as it appears on the Security Register.
Section 15. Successors. Except as expressly provided in Section 11.10,
this Warrant shall bind and inure to the benefit of the Company and its
permitted successors and assigns hereunder, the Purchasers and their respective
successors and assigns hereunder and, in addition, shall inure to the benefit of
and be enforceable by all holders from time to time of the Warrants, the Warrant
Shares and the Registrable Securities. Without limiting the generality of the
foregoing, the rights of the Purchasers and their respective successors and
assigns as holders of Warrants and Registrable Securities (including without
limitation rights as to registrations and other matters covered by Section 11)
shall survive any reorganization, consolidation or merger of the Company with or
into another entity or the sale or conveyance to another person of the property,
assets or business of the Company as an entirety or substantially as an entirety
and such successor or purchasing entity or person, as the case may be, shall
execute such agreements or other instruments as may be reasonably requested by
the holder of this Warrant to give effect to the foregoing, provided that no
assignee of this Warrant may claim rights under Section 11 without at the time
of such claim agreeing to be bound by the provisions thereof.
Section 16. Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York.
Section 17. Remedies. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
Section 18. Benefits of this Agreement. Nothing in this Warrant shall
be construed to give to any person or corporation other than the Company, the
holder of this Warrant and the holders of the Warrant Shares or Registrable
Securities any legal or equitable right, remedy or claim under this Warrant and
this Warrant shall be for the sole and exclusive benefit of the Company, the
holder hereof and the holders of the Warrant Shares and the Registrable
Securities.
Section 19. Headings, Etc. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect the meaning
hereof.
Section 20. Change, Waiver, Etc. Neither this Warrant nor any term
hereof may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
<PAGE> 76
Section 21. Survival. All covenants and agreements of the Company that
relate to the Warrant Shares or the Registrable Securities and all rights and
duties of the holders from time to time of the Warrant Shares or the Registrable
Securities in this Warrant shall be deemed to survive any surrender hereof to
the Company upon exercise hereof as contemplated by Section 1. References herein
to the Agreements and terms defined therein shall be deemed to survive the
termination of the Agreements.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its duly authorized officer.
Dated June 30, 1999
DENALI INCORPORATED
By
--------------------------------------
Name:
Title:
<PAGE> 77
ELECTION TO PURCHASE
Att:
--------------------
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the Warrant to which this Election to Purchase is
attached for, and to purchase thereunder, _______________ shares of Common Stock
(or other securities) of the Company provided for therein, and requests that
certificates for said shares (or other securities) be issued in the name of:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please Print Name and Address)
and, if said number of shares shall not be all the shares of Common Stock
purchasable hereunder, that a new Warrant certificate for the balance of said
shares purchasable under the said Warrant be registered in the name of the
undersigned holder or its nominee as below indicated and delivered to the
address stated below:
Dated: ____________, ____
Name of holder or
Nominee (Please Print):
-------------------------------------
Address:
---------------------------------------------------------------
Signature:
--------------------------------------
Signature Guaranteed:
<PAGE> 78
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Name and Address of Assignee must be Printed or Typewritten)
the within warrant, hereby irrevocably constituting and appointing
_____________________ Attorney to transfer said warrant on the books of Denali
Incorporated with full power of substitution in the premises.
Dated: ____________, ____
-----------------------------------------------
Signature of Registered Holder
Signature Guaranteed:
<PAGE> 79
EXHIBIT 1.3
GUARANTEE AGREEMENT
(Subordinated)
GUARANTEE AGREEMENT dated as of _____________, ___ made by
________________________, a _________________ corporation (the "GUARANTOR"), in
favor of the holders from time to time of the Notes referred to below
(collectively the "OBLIGEES").
WHEREAS, Denali Incorporated ("DENALI" or "COMPANY" ), a
Delaware corporation, has entered into a Note and Warrant Purchase Agreement
dated as of June 30, 1999 (as amended or otherwise modified from time to time,
the "NOTE AND WARRANT PURCHASE AGREEMENT" and terms defined therein and not
otherwise defined herein are being used herein as so defined) with the
purchasers named therein, pursuant to which the Company proposes to issue and
sell to such purchasers its 12% Senior Subordinated Notes due 2006 (collectively
the "NOTES")in an aggregate original principal amount of $15,000,000;
WHEREAS, it is a [condition precedent to the purchase of the
Notes by such purchasers under/requirement of] the Note and Warrant Purchase
Agreement that the Guarantor shall execute and deliver this Guarantee Agreement;
NOW, THEREFORE, in consideration of the premises the Guarantor
hereby agrees as follows:
SECTION 1. Guarantee. The Guarantor unconditionally and
irrevocably guarantees, as primary obligor and not merely as surety,
A. the punctual payment when due, whether at stated maturity,
by acceleration or otherwise, of all obligations of the Company arising
under the Notes and the Note Agreement, including all extensions,
modifications, substitutions, amendments and renewals thereof, whether
for principal, interest (including without limitation interest on any
overdue principal, premium and interest at the rate specified in the
Notes and interest accruing or becoming owing both prior to and
subsequent to the commencement of any proceeding against or with
respect to the Company under any chapter of the Bankruptcy Code of
1978, 11 U.S.C. Section 101 et seq.), prepayment premium, fees,
expenses, indemnification or otherwise, and
B. the due and punctual performance and observance by the
Company of all covenants, agreements and conditions on its part to be
performed and observed under the Notes and the Note and Warrant
Purchase Agreement;
C. (all such obligations are called the "GUARANTEED
OBLIGATIONS"); provided that the aggregate liability of the Guarantor
hereunder in respect of the Guaranteed Obligations shall not exceed at
any time the lesser of (1) the amount of the Guaranteed Obligations and
(2) the maximum amount for which the Guarantor is liable under this
Guarantee Agreement without such liability being deemed a fraudulent
transfer under applicable Debtor Relief Laws (as hereinafter defined),
as determined by a court of competent jurisdiction. As used herein, the
term "DEBTOR RELIEF LAWS" means any applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization or similar debtor relief laws affecting the rights of
creditors generally from time to time in effect.
<PAGE> 80
The Guarantor also agrees to pay, in addition to the amount
stated above, any and all reasonable expenses (including reasonable counsel fees
and expenses) incurred by any Obligee in enforcing any rights under this
Guarantee Agreement or in connection with any amendment of this Guarantee
Agreement.
Without limiting the generality of the foregoing, this
Guarantee Agreement guarantees, to the extent provided herein, the payment of
all amounts which constitute part of the Guaranteed Obligations and would be
owed by any other Person to any Obligee but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Person.
SECTION 2. Guarantee Absolute. The obligations of the
Guarantor under Section 1 of this Guarantee Agreement constitute a present and
continuing guaranty of payment and not of collectability and the Guarantor
guarantees that the Guaranteed Obligations will be paid strictly in accordance
with the terms of the Notes and the Note and Warrant Purchase Agreement,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of any Obligee with
respect thereto. The obligations of the Guarantor under this Guarantee Agreement
are independent of the Guaranteed Obligations, and a separate action or actions
may be brought and prosecuted against the Guarantor to enforce this Guarantee
Agreement, irrespective of whether any action is brought against the Company or
any other Person liable for the Guaranteed Obligations or whether the Company or
any other such Person is joined in any such action or actions. The liability of
the Guarantor under this Guarantee Agreement shall be primary, absolute,
irrevocable, and unconditional irrespective of:
A. any lack of validity or enforceability of any Guaranteed
Obligation, any Note, the Note and Warrant Purchase Agreement or any
agreement or instrument relating thereto;
B. any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations, or any
other amendment or waiver of or any consent to departure from any Note,
the Note and Warrant Purchase Agreement or this Guarantee Agreement;
C. any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent
to departure by the Guarantor or other Person liable, or any other
guarantee, for all or any of the Guaranteed Obligations;
D. any manner of application of collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any manner of
sale or other disposition of any collateral or any other assets of the
Company or any other Subsidiary;
E. any change, restructuring or termination of the corporate,
limited liability company or partnership structure or existence of the
Company or any other Subsidiary; or
F. any other circumstance (including without limitation any
statute of limitations) that might otherwise constitute a defense,
offset or counterclaim available to, or a discharge of, the Company or
the Guarantor.
This Guarantee Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Guaranteed Obligations is rescinded or must otherwise be returned by any
Obligee, or any other Person upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, all as though such payment had not been made.
<PAGE> 81
SECTION 3. Waivers. The Guarantor hereby irrevocably waives,
to the extent permitted by applicable law:
A. promptness, diligence, presentment, notice of acceptance
and any other notice with respect to any of the Guaranteed Obligations
and this Guarantee Agreement;
B. any requirement that any Obligee or any other Person
protect, secure, perfect or insure any Lien or any property subject
thereto or exhaust any right or take any action against the Company or
any other Person or any collateral;
C. any defense, offset or counterclaim arising by reason of
any claim or defense based upon any action by any Obligee;
D. any duty on the part of any Obligee to disclose to the
Guarantor any matter, fact or thing relating to the business, operation
or condition of any Person and its assets now known or hereafter known
by such Obligee; and
E. any rights by which it might be entitled to require suit on
an accrued right of action in respect of any of the Guaranteed
Obligations or require suit against the Company or the Guarantor or any
other Person.
SECTION 4. Waiver of Subrogation and Contribution. The
Guarantor shall not assert, enforce, or otherwise exercise (A) any right of
subrogation to any of the rights, remedies, powers, privileges or liens of any
Obligee or any other beneficiary against the Company or any other obligor on the
Guaranteed Obligations or any collateral or other security, or (B) any right of
recourse, reimbursement, contribution, indemnification, or similar right against
the Company, and the Guarantor hereby waives any and all of the foregoing
rights, remedies, powers, privileges and the benefit of, and any right to
participate in, any collateral or other security given to any Obligee or any
other beneficiary to secure payment of the Guaranteed Obligations, until such
time as the Guaranteed Obligations have been paid in full.
SECTION 5. Representations and Warranties. The Guarantor
hereby represents and warrants as follows:
A. The Guarantor is a corporation, limited liability company
or partnership, as the case may be, duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation or organization, as the case may be. The execution,
delivery and performance of this Guarantee Agreement have been duly
authorized by all necessary action on the part of the Guarantor.
B. Except as has been specifically waived, the execution,
delivery and performance by the Guarantor of this Guarantee Agreement
will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any
property of the Guarantor or any Subsidiary of the Guarantor under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease, corporate charter or by-laws or other governing documents, or
any other material agreement or instrument to which the Guarantor or
any Subsidiary of the Guarantor is bound or by which the Guarantor or
any Subsidiary of the Guarantor or any of their respective properties
may be bound or affected, (ii) conflict with or result in a breach of
any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority
applicable to the Guarantor or any Subsidiary of the
<PAGE> 82
Guarantor or (iii) violate any provision of any statute or other rule
or regulation of any Governmental Authority applicable to the Guarantor
or any Subsidiary of the Guarantor.
C. The Guarantor and the Company are members of the same
consolidated group of companies and are engaged in related businesses
and the Guarantor will derive substantial direct and indirect benefit
from the execution and delivery of this Guarantee Agreement.
SECTION 6. Amendments, Etc. No amendment or waiver of any
provision of this Guarantee Agreement and no consent to any departure by the
Guarantor therefrom shall in any event be effective unless the same shall be in
writing and signed by the Majority Holders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided that no amendment, waiver or consent shall, unless in
writing and signed by all Obligees, (i) limit the liability of or release the
Guarantor hereunder, (ii) postpone any date fixed for, or change the amount of,
any payment hereunder or (iii) change the percentage of Notes the holders of
which are, or the number of Obligees, required to take any action hereunder.
SECTION 7. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing and (A) by telecopy if
the sender on the same day sends a confirming copy of such notice by a
recognized overnight delivery service (charges prepaid), or (B) by registered or
certified mail with return receipt requested (postage prepaid), or (C) by a
recognized overnight delivery service (with charges prepaid). Such notice if
sent to the Guarantor shall be addressed to it at the address of the Guarantor
provided below its name on the signature page of this Guarantee Agreement or at
such other address as the Guarantor may hereafter designate by notice to each
holder of Notes, or if sent to any holder of Notes, shall be addressed to it as
set forth in the Note and Warrant Purchase Agreement. Any notice or other
communication herein provided to be given to the holders of all outstanding
Notes shall be deemed to have been duly given if sent as aforesaid to each of
the registered holders of the Notes at the time outstanding at the address for
such purpose of such holder as it appears on the Note register maintained by the
Company in accordance with the provisions of Section 13.1 of the Note and
Warrant Purchase Agreement. Notices under this Section 7 will be deemed given
only when actually received.
SECTION 8. No Waiver; Remedies. No failure on the part of any
Obligee to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 9. Subordination.
9.1. Subordination to Superior Indebtedness. Notwithstanding
any provision of this Guarantee Agreement or the Guaranteed Obligations to the
contrary, payments of the principal of and premium, if any, and interest on the
Guaranteed Obligations shall be subordinate and junior in right of payment to
the prior payment in full of all Superior Indebtedness of the Guarantor, whether
now owed or hereafter incurred, to the extent and in the manner provided in this
Section.
"SUPERIOR INDEBTEDNESS" means any and all Indebtedness,
liabilities and obligations of the Guarantor which are not expressed to be
junior or subordinate in right of payment to any other Indebtedness of the
Guarantor, whether owed individually or jointly, absolute or contingent, direct
or indirect, joint, several or independent, to the Senior Creditors, including
all principal, interest, fees, reimbursement expenses, indemnification
liabilities, interest rate hedging obligations, or any other form of liability,
and shall include any such interest, fees, reimbursement expenses,
indemnification liabilities or other form of liability arising after the
commencement of a bankruptcy or insolvency proceeding involving the Guarantor,
<PAGE> 83
whether or not allowed as a claim in such proceeding, and shall also include any
extensions, renewals, refinancings or refundings thereof and any increases
thereof, with respect to each such Indebtedness, in an aggregate amount not to
exceed $3,500,000; provided, however, that to the extent that any such
extension, renewal, refinancing, or refunding (other than the $3,500,000
aggregate increase referred to in the definition) causes or constitutes any
breach of Section 10.1, such amount of Indebtedness shall not be deemed to be
Superior Indebtedness.
9.2. Effects of Defaults in Respect of Superior Indebtedness.
If (a) any principal, interest or other amount owing under the Superior
Indebtedness is not paid when due or is not paid on or before the maturity
thereof, (b) a bankruptcy filing is made by or against the Guarantor, or (c)
there occurs any actual acceleration of any Superior Indebtedness by any Senior
Creditor (any of (a), (b) or (c) being referred to as a "BLOCKAGE EVENT") then,
unless and until such Blockage Event shall have been cured or waived to the
satisfaction of the Senior Creditors holding the affected Superior Indebtedness,
in their sole discretion, or unless and until the affected Superior Indebtedness
shall be paid in full, no payments of any principal, interest, premium or any
other kind (other than payments in kind permitted by the Notes in respect of a
portion of accrued interest thereon), shall be made on the Guaranteed
Obligations.
Following any event of default caused by the default in the
observance or performance of any agreement contained in Section 10 of the Senior
Credit Agreement (Negative Covenants) in respect of Superior Indebtedness (a
"SENIOR DEFAULT") other than a Blockage Event (a "TRIGGERING EVENT"), and notice
thereof by or on behalf of the Senior Creditors to the holders of the Guaranteed
Obligations, no payments of any kind, principal, interest, premium or any other
kind, may be made on the Guaranteed Obligations for a period of 180 days or, if
earlier, the date on which such Senior Default is cured to the satisfaction of
the affected Senior Creditors or waived by the affected Senior Creditors.
In addition, following any Blockage Event or Triggering Event
and notice thereof by or on behalf the Senior Creditors to the holders of the
Guaranteed Obligations, the holders of the Guaranteed Obligations will not ask
for, sue for, take, demand, set-off or in any other manner, direct or indirect,
attempt to enforce any right or collect any payment or distribution on account
of the Guaranteed Obligations, nor present any Note for payment for a 120 day
period following such notice (the "STANDSTILL PERIOD"). The Standstill Period
shall end on the earlier of (i) 120 days after the receipt of such notice and
(ii) the cure of such Blockage Event to the satisfaction of the affected Senior
Creditors or the waiver thereof by such Senior Creditors or the cure of such
Triggering Event to the satisfaction of the Senior Creditors or the waiver
thereof by the Senior Creditors. Upon the ending of the Standstill Period, the
holders of the Guaranteed Obligations may exercise the remedies available to
them under this Guarantee Agreement and the Guaranteed Obligations, provided
that any money, property, collateral or any proceeds thereof received by any
holder of a Note, directly or indirectly, during such Standstill Period or while
any Blockage Event remains uncured or unwaived (before or after the giving of
notice thereof) shall be paid over to the Senior Creditors.
After the expiration of a Triggering Event or the termination
of a Blockage Event, any regularly scheduled interest or principal payment on
account of the Guaranteed Obligations not made when due as a result thereof may
be made, together with any accrued and unpaid interest with respect to such
overdue payment, provided that such payment shall not result in a separate
Triggering Event or Blockage Event.
Not more than one notice with regard to a Triggering Event may
be given by the Senior Creditors to the holders of the Guaranteed Obligations in
any one calendar year, and no subsequent notice with regard to a Triggering
Event may be sent on the basis of the same Senior Default that is specified in
any prior notice.
<PAGE> 84
During any Standstill Period, no holder of a Note may commence
any action or proceeding against the Guarantor to recover all or any part of the
Guaranteed Obligations or join with any other creditor, unless the Senior
Creditors shall also, in their sole and absolute discretion, agree to join in
bringing any proceedings against the Guarantor under any bankruptcy,
reorganization, readjustment of debt, arrangement of debt, receivership,
liquidation or insolvency law or statute of the federal or any state government
unless and until all Superior Debt shall be finally paid in full in cash;
provided, however, that, if the Senior Creditors shall, during the Standstill
Period, accelerate their Superior Indebtedness or exercise or begin to exercise
their rights with respect to any collateral therefor, the Majority Holders shall
immediately have the right to accelerate the Guaranteed Obligations and
otherwise exercise their remedies under this Guarantee Agreement and the
Guaranteed Obligations, to the extent permitted hereunder, notwithstanding such
Standstill Period.
9.3. Insolvency, etc. (a) In the event of any insolvency or
bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, relative to the Guarantor or
to its creditors, as such, or to the property of the Guarantor, and in the event
of any proceedings for voluntary liquidation, dissolution or other winding up of
the Guarantor, whether or not involving insolvency or bankruptcy, then the
holders of the Superior Indebtedness shall be entitled to receive payment in
full of any obligations with respect to the Superior Indebtedness. To that end
any payment or distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in any such
proceedings in respect of the obligations evidenced by the Guaranteed
Obligations (except (i) a distribution of securities which are subordinate and
junior (to at least the same extent as the Guaranteed Obligations) in right of
payment to the payment of all obligations with respect to the Superior
Indebtedness then outstanding or (ii) any payment or distribution to the holders
of the Guaranteed Obligations which is authorized by an order or decree (from
which no appeal may be taken), which order or decree gives effect to these
subordination provisions) shall be paid or delivered by the Guarantor (or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution), or by any holder of a Note, if received by
it, first, to the holders of the Superior Indebtedness, pro rata, for
application in payment of the obligations with respect thereto, to the extent
necessary to pay all obligations with respect to the Superior Indebtedness in
full, after giving effect to any concurrent payment or distribution to the
holders of the Superior Indebtedness, before any such payment or distribution
shall be made to or retained by any holder of a Note.
(b) Following the occurrence and during the continuation of any event
or circumstance described in Section 9.3(a), if within ten (10) days of the
applicable bar date, one or more of the holder(s) of Notes shall fail to file a
proof of claim, the Senior Creditors shall have the right, but not the
obligation (but without creating any duty or liability, except in the case of
gross negligence or willful misconduct by the Senior Creditors, to the holders
of Notes), to file a proof of claim for or collect the claim of such holder of
Notes (to be applied as set forth in Section 9.3(a)) directly from the receiver,
trustee, custodian, liquidator or representative of the Company's estate in such
proceedings. In the event that the Senior Creditors acquire the right to file a
proof of claim pursuant to this Section 9.3(b), the Company and the holders of
the Note shall promptly furnish all assignments, powers or other documents
reasonably requested by the Senior Creditors to facilitate the filing of such
proof(s) of claim by the Senior Creditors.
9.4. Turnover of Certain Payments. To the extent that the
holder of any Note receives any payment in violation of the subordination
provisions contained in this Section 9, such holder (by the acceptance of such
Note) agrees to hold such payments in trust and promptly to pay such amounts to
the holders of the Superior Indebtedness. As used herein, the term "payment"
shall include any distribution of assets or any lien, deposit, set-off, or
recoupment of any kind for the benefit of the holder of the Guaranteed
Obligations made from the assets of the Guarantor.
<PAGE> 85
9.5. No Impairment. Nothing contained herein shall impair, as
between the Guarantor and the holder of any Note, the obligation of the
Guarantor to pay to the holder thereof the principal thereof and prepayment
premium, if any, and interest thereon as and when the same shall become due and
payable in accordance with the terms of such Note and this Guarantee Agreement,
or, except as provided herein, prevent the holder of any Note from exercising
all rights, powers and remedies otherwise permitted by applicable law or
thereunder upon the happening of a Senior Default under the Note And Warrant
Purchase Agreement, all subject to the rights of the holders of Superior
Indebtedness as provided in this Section 9 to receive cash, securities or other
property otherwise payable or deliverable to the holders of the Guaranteed
Obligations directly or indirectly by the Guarantor from any source whatsoever.
9.6. Payment of Superior Indebtedness, Subrogation, etc. Upon
the payment in full of all Superior Indebtedness of the Guarantor, the holders
of the Guaranteed Obligations shall be subrogated to all rights of the holders
of such Superior Indebtedness to receive any further payments or distributions
applicable to such Superior Indebtedness until the Guaranteed Obligations shall
have been paid in full, and, for the purposes of such subrogation, no payment or
distribution received by the holders of such Superior Indebtedness of cash,
securities, or other property to which the holders of the Guaranteed Obligations
would have been entitled except for this Section 9 shall, as between the
Guarantor and its creditors other than the holders of Superior Indebtedness, on
the one hand, and the holders of the Guaranteed Obligations, on the other hand,
be deemed to be a payment or distribution by the Guarantor on account of
Superior Indebtedness.
9.7 Rescission, Amendment, etc. Each holder of a Note consents
that, without the necessity of any reservation of rights against any holder of a
Note, and without notice to or further assent by any holder of a Note:
(i) any demand for payment of any Superior Indebtedness made
by any Senior Creditor may be rescinded in whole or in part by such
Senior Creditor, and any obligations under the Superior Indebtedness
may be continued, and the Superior Indebtedness, or the liability of
the Company or any guarantor or any other party upon or for any part
thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, or any obligation or liability of the
Company or any other party under the Superior Indebtedness or any other
agreement, may, from time to time, in whole or in part, be renewed,
extended, modified, accelerated, compromised, waived, surrendered, or
released by any Senior Creditor; and
(ii) any Superior Indebtedness may be amended, modified,
supplemented or terminated, in whole or in part, as any Senior Creditor
may deem advisable from time to time, and any collateral security at
any time held by any of the Senior Creditors for the payment of any of
the Superior Indebtedness may be sold, exchanged, waived, surrendered
or released;
in each case all without notice to or further assent by any holder of a Note,
which will remain bound under this Agreement, and all without impairing,
abridging, releasing or affecting the subordination provided for herein, subject
always to the proviso contained in the definition of Superior Indebtedness.
SECTION 10. Continuing Guarantee. This Guarantee Agreement is
a continuing guarantee of payment and performance and shall (A) remain in full
force and effect until payment in full of the Guaranteed Obligations and all
other amounts payable under this Guarantee Agreement, (B) be binding upon the
Guarantor, its successors and assigns and (C) inure to the benefit of and be
enforceable by the Obligees and their successors, transferees and assigns.
<PAGE> 86
SECTION 11. Jurisdiction and Process; Waiver of Jury Trial.
The Guarantor irrevocably submits to the non-exclusive in personam jurisdiction
of any New York State or federal court sitting in the Borough of Manhattan, The
City of New York, over any suit, action or proceeding arising out of or relating
to this Guarantee Agreement. To the fullest extent permitted by applicable law,
the Guarantor irrevocably waives and agrees not to assert, by way of motion, as
a defense or otherwise, any claim that it is not subject to the in personam
jurisdiction of any such court, any objection that it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.
The Guarantor consents to process being served in any suit,
action or proceeding of the nature referred to in this Section by mailing a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to the Guarantor at its address specified in Section 7 or at such
other address of which you shall then have been notified pursuant to said
Section. The Guarantor agrees that such service upon receipt (i) shall be deemed
in every respect effective service of process upon it in any such suit, action
or proceeding and (ii) shall, to the fullest extent permitted by applicable law,
be taken and held to be valid personal service upon and personal delivery to the
Guarantor. Notices hereunder shall be conclusively presumed received as
evidenced by a delivery receipt furnished by the United States Postal Service or
any recognized courier or overnight delivery service.
Nothing in this Section 11 shall affect the right of any
holder of a Note to serve process in any manner permitted by law, or limit any
right that the holders of any of the Notes may have to bring proceedings against
the Guarantor in the courts of any appropriate jurisdiction or to enforce in any
lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.
THE GUARANTOR WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR
WITH RESPECT TO THIS GUARANTEE AGREEMENT OR ANY OTHER DOCUMENT EXECUTED IN
CONNECTION HEREWITH.
SECTION 12. Governing Law. This Guarantee Agreement shall be
construed and enforced in accordance with, and the rights of the Guarantor and
the Obligees shall be governed by, the laws of the State of New York excluding
choice-of-law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee
Agreement to be duly executed and delivered as of the date first above written.
[GUARANTOR]
By
-------------------------
Title:
Address:
Attention:
Telephone:
Telecopy:
<PAGE> 87
EXHIBIT 4.4A
GARDERE WYNNE SEWELL & RIGGS L.L.P.
June 30, 1999
To each of the Purchasers whose name appears
in the Acceptance Forms to the within-mentioned
Note and Warrant Purchase Agreement
Re: Denali Incorporated 12% Senior Subordinated Notes and Warrants
Ladies and Gentlemen:
We have acted as special counsel to Denali Incorporated, a Delaware
corporation ("Denali"), Ershigs, Inc., a Washington corporation ("Ershigs"),
SEFCO, Inc., an Oklahoma corporation ("SEFCO"), Specialty Solutions, Inc., a
Delaware corporation ("SSI"), Containment Solutions, Inc., a Delaware
corporation ("CSI"), Containment Solutions Services, Inc., a Delaware
corporation ("CSSI"), Denali Holdings Management, L.L.C., a Nevada limited
liability company ("DHM"), Fibercast Company, an Oklahoma corporation ("FC"),
Denali Management, Inc., a Delaware corporation ("DMI"), Denali Operating
Management, Ltd., a Texas limited partnership ("DOM"), Plasti-Fab, Inc., a
Delaware corporation ("Plasti-Fab"), Belco Manufacturing Company, Inc.
("Belco"), and Instrumentation Solutions, Inc., a Delaware corporation ("ISI")
(Ershigs, SEFCO, SSI, CSI, CSSI, DHM, FC, DMI, DOM, Plasti-Fab, Belco, and ISI
are sometimes collectively referred to herein as the "Domestic Subsidiaries",
and Denali and Domestic Subsidiaries are sometimes collectively referred to
herein as the "Denali Parties"). We are furnishing the opinion set forth below
to you at the request of the Denali Parties in compliance with Section 4.4 of
the Note and Warrant Purchase Agreement (the "Purchase Agreement") dated as of
June 30, 1999, between Denali and the several Purchasers named therein. Terms
not otherwise defined herein shall have the respective meanings assigned to such
terms in the Purchase Agreement.
In rendering the opinions set forth below, we have examined copies of
the documents listed in Schedule I attached hereto (the "Transaction
Documents"). We have also examined the originals or copies, certified or
otherwise identified to our satisfaction, of such documents and records of the
Denali Parties as we have deemed necessary in order to deliver this opinion. We
have also reviewed such other documents as we have deemed relevant to this
opinion and have discussed such matters as we have deemed relevant to this
opinion with the officers of the Denali Parties and, with respect to certain
factual matters involving the Denali Parties, we have relied on (a) the
<PAGE> 88
truthfulness, accuracy and completeness of all representations and warranties
of the Denali Parties contained in the Transaction Documents to which each is a
party, (b) the statements made in the opinion of Cathy L. Smith, General
Counsel of Denali, addressed to each of you, dated of even date herewith, and
(c) an Officer's Certificate from R. Kevin Andrews ("Andrews"), Chief Financial
Officer of Denali (the "Officer's Certificate"), of even date herewith which is
attached hereto as Exhibit A as to the matters addressed therein. We have not
conducted independent investigations or inquiries to determine the existence of
matters, actions, proceedings, items, documents, facts, judgments, decrees,
franchises, certificates, permits or the like, and we have made no independent
search of the records of any court, arbitrator or governmental authority
affecting any of the Denali Parties and no inference as to our knowledge
thereof shall be drawn from the fact of our representation of any party or
otherwise. Further, with respect to the legal opinion described in clause (b)
above, we have relied upon and assumed the accuracy of the opinions stated
therein.
In rendering this opinion, we have assumed:
(i) the legal capacity of all individuals to execute all
documents in their individual capacities;
(ii) the genuineness of the signatures appearing on all
documents other than the Denali Parties;
(iii) the authenticity of all documents submitted to us as
originals;
(iv) the conformity to authentic original documents of all
documents submitted to us as certified, conformed or
photostatic copies;
(v) the correctness and accuracy of all facts set forth
in all certificates, reports and discussions
identified in this opinion;
(vi) the due authorization, execution, and delivery of all
of the Transaction Documents by the parties thereto
other than the Denali Parties;
(vii) the Transaction Documents are legal, valid, and
binding obligations of all parties thereto other than
the Denali Parties;
(viii) no party to the transactions contemplated by the
Transaction Documents has fraudulently induced any
other party to become a party to such transactions
and no facts exist which would make available
defenses of mutual mistake, concealment, undue
influence, duress, or criminal activity; and
(ix) there are no other documents or instruments or oral
or written agreements between the parties to the
transactions contemplated by the Transaction
Documents, or any two or more of such parties, that
pertain to the subject matter of this opinion that
are not in the Transaction Documents and the various
other closing documents and certificates executed
and/or delivered in connection with the Transaction
Documents.
In basing the opinions set forth herein on matters "to our knowledge" or words
of similar import, such words signify that, in the course of our employment by
Denali and Domestic Subsidiaries, no information has come to our attention that
would give us actual knowledge that any such opinions are not accurate.
<PAGE> 89
Except as otherwise stated herein, no attorney in our firm which has worked on
the transaction described in the Purchase Agreement has undertaken any
independent investigation or verification of such matters.
Based on the foregoing and subject to the other limitations, assumptions, and
qualifications set forth below, and having due regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. Each of Denali and Domestic Subsidiaries has duly executed and
delivered the Transaction Documents to which it is a party.
2. The Transaction Documents to which Denali or any Domestic Subsidiary
is a party, constitute legal, valid and binding obligations of Denali and each
Domestic Subsidiary, enforceable in accordance with their respective terms.
3. No consent, approval or authorization of, or declaration,
registration or filing with, any Governmental Authority is required to be
obtained or made for validity of the execution, delivery or performance by
Denali or any Domestic Subsidiary of any of the Transaction Documents to which
they are a party.
4. There is no material agreement to which Denali or any Domestic
Subsidiary is a party, which would be contravened by the execution, delivery, or
performance of the Transaction Documents, except as has been waived or consented
to.
5. It is not necessary in connection with the offering, sale and
delivery of any of the Transaction Documents, under the circumstances
contemplated under the Purchase Agreement, to register any Transaction Document
under the Securities Act or to qualify an indenture in respect of the Notes
under the Trust Indenture Act of 1939, as amended.
6. None of the Denali Parties is (a) an "investment company," or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, or (b) a "holding company" as
defined in, or otherwise subject to regulation under, the Public Utility Holding
Company Act of 1935. None of the Denali Parties is subject to regulation under
any Federal or state statute or regulation which limits its ability to incur
Indebtedness.
7. None of the transactions contemplated by the Purchase Agreement
(including without limitation the use of the proceeds from the sale of the
Notes) will violate or result in a violation of Section 7 of the Exchange Act,
or any regulations issued pursuant thereto, including without limitation
Regulations T, U and X of the Board of Governors of the Federal Reserve System
(12 C.F.R., Part 220, Part 221 and Part 224, respectively).
All opinions expressed herein are qualified in their entirety by the following:
a. The opinions expressed herein are qualified to the extent the
validity, binding nature, and enforceability of the Transaction Documents are
limited or otherwise affected by:
(i) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at
law), including, without limitation, the availability of
specific performance, the appointment of
<PAGE> 90
a receiver, concepts of materiality, reasonableness, good
faith and fair dealing or any other equitable remedy;
(ii) bankruptcy, insolvency, reorganization, rearrangement,
moratorium, fraudulent or other conveyance laws, and similar
laws generally affecting creditors' and secured parties'
rights at the time in effect;
(iii) the rights of the United States under the Federal Tax Lien Act
of 1966, as amended;
(iv) other applicable statutory or case law which may impair the
enforceability of certain of the remedial, waiver, and other
provisions of the Transaction Documents, including without
limitation, the waiver of certain subrogation rights, but
which do not make the remedies and procedures set forth in the
Transaction Documents, as a whole, inadequate for the
realization of the substantive benefits intended to be
available to each of you under the Transaction Documents,
except to the extent of any economic consequences of any delay
which may result therefrom or as otherwise provided in this
letter; and
(v) to the extent to which the enforceability of any indemnity
provisions contained in the Transaction Documents may be
limited or rendered unenforceable by applicable public policy
as it relates to the attempt therein to exculpate a party for
any losses attributable to that party's own negligence or
intentional misconduct.
b. We express no opinion as to the due execution and enforceability of
any of the Transaction Documents delivered from time to time by any Subsidiary
of Denali, other than the Domestic Subsidiaries (all such other Subsidiaries of
Denali shall be referred to herein as "Foreign Subsidiaries") or of the
enforceability of any provisions in any Transaction Documents against or in
connection with any Foreign Subsidiary. We express no opinion whatsoever,
regarding any Foreign Subsidiary, including whether any such Foreign Subsidiary
may be a Domestic Subsidiary under the Transaction Documents. We express no
opinion as to the priority or perfection of the liens and security interests
granted in the Pledge Agreement, and we express no opinion concerning the
enforceability of any provision in the Pledge Agreement not governed by the laws
of Texas or the corporate laws of Delaware.
c. We have assumed that the holders of the Notes (whether the
Purchasers or any subsequent holder thereof) will act in good faith and will
seek to enforce their rights and remedies under the Transaction Documents in a
lawful and reasonable manner.
d. We express no opinion concerning the enforceability of any
provisions contained in any of the Transaction Documents which (i) purport to
restrict access to legal or equitable remedies; (ii) purport to establish
evidentiary standards for suit or proceedings to enforce the Transaction
Documents or evidentiary standards relating to the powers granted to the holders
of the Notes thereunder; and (iii) relate to subrogation rights, delay or
omissions of enforcement of remedies, election of remedies, waiver of defenses,
waiver of notices, indemnity, severance, marshaling of assets or sales in the
inverse order of alienation.
<PAGE> 91
e. We express no opinion concerning the applicability or effect of, or
compliance with, usury laws or the enforceability of usury savings clauses.
f. We express no opinion concerning the enforceability of any
provisions relating to the waiver of a right to jury trial or forum selection
and consent to jurisdiction.
g. We are of the opinion that the transaction evidenced by the
Transaction Documents constitutes a "qualified transaction" under Section 35.51
of the Texas Business and Commerce Code and that such transaction "bear(s) a
reasonable relation" to Texas. Although we are unaware of any reported decisions
interpreting Section 35.51, we are of the opinion that Section 35.51(b) reflects
the intent of the legislature to permit the parties to a qualified transaction
to choose which law governs the interpretation and construction of their
agreement, regardless of whether to do so would otherwise violate or be contrary
to a fundamental or public policy of Texas.
We express no opinion as to any matters other than as expressly set forth above,
and no opinion is to be implied or inferred herefrom, and specifically, we
express no opinion as to (i) the financial ability of any of the Denali Parties
to meet its respective obligations under the Transaction Documents; (ii) the
truthfulness or accuracy of any applications, reports, plans, documents,
financial statements or other facts furnished to you by any of the Denali
Parties or any other Person in conjunction with the Transaction Documents; or
(iii) the truthfulness or accuracy of any statements of fact made by any of the
Denali Parties in the Transaction Documents or any other documents described
herein, except to the extent that such matters are expressly addressed herein.
Our engagement by the Denali Parties is limited to the specific matters set
forth herein, and the Denali Parties in some instances use other legal counsel
for other matters. Accordingly, there may exist matters of a legal and/or
factual nature which are not addressed by this opinion and with respect to which
we have not been consulted.
Inasmuch as you had independent counsel in connection with the transactions
relating to the Transaction Documents, the opinions expressed herein are subject
to the correctness of our understanding that neither you nor any of the
individual lawyers who have worked on these transactions as counsel on your
behalf have any actual knowledge of any facts or circumstances upon which you or
any such individual lawyers have formed a conclusion which is contrary to any
opinions expressed herein.
While certain members of this firm are admitted to practice in other states, we
have not examined the laws of any state other than Texas and the corporate laws
of the State of Delaware or consulted with members of this firm who are admitted
in other jurisdictions for the purposes of the foregoing opinions except for
examining the applicable federal laws of the United States of America. No
opinion is expressed concerning the enforceability of the Transaction Documents
under the laws of any other State and this opinion is so limited.
[remainder of page intentionally left blank]
<PAGE> 92
This opinion is being furnished solely for your benefit, and for the benefit of
other institutional investor holders from time to time of the Notes purchased by
you today, in connection with the Closing held today of the transactions
contemplated by the Transaction Documents, and may not be relied upon by any
other person for any purpose without my prior written consent. Further, this
opinion is rendered as of the date hereof, and we undertake no, and hereby
disclaim any, obligation to advise you of any changes in, or any new
developments which might affect, any matters or opinions set forth herein.
Very truly yours,
GARDERE WYNNE SEWELL & RIGGS, L.L.P.
By: /s/ WAYNE A. YAFFEE
-------------------
Wayne A. Yaffee
Attachments: Schedule 1: Transaction Documents
Exhibit A: Officer's Certificate
<PAGE> 93
EXHIBIT A
OFFICER'S CERTIFICATE
The undersigned, R. Kevin Andrews, Chief Financial Officer of Denali
Incorporated ("Denali"), hereby certifies to Gardere Wynne Sewell & Riggs,
L.L.P. after due inquiry that the following information is accurate and
complete, and Gardere Wynne Sewell & Riggs L.L.P. may rely on this certification
in rendering its opinion to be delivered on behalf of Denali in connection with
the Note and Warrant Purchase Agreement (the "Purchase Agreement") dated as of
June 30, 1999, among Denali Incorporated, a Delaware corporation ("Denali"), and
the several Purchasers identified therein ("Purchasers"), (all documents to be
executed in connection with the Purchase Agreement are collectively referred to
herein as the "Transaction Documents"). Capitalized terms used herein without
definition have the meanings ascribed thereto in the Purchase Agreement.
A. There is no (i) action, suit, investigation or proceeding pending or
threatened in writing against Denali or any Domestic Subsidiary (as
defined in the Opinion Letter delivered in conjunction with this
Officer's Certificate) or the assets of any of them before any court,
administrative agency, governmental authority or arbitrator, and (ii)
there is no outstanding judgment, order, writ, injunction or decree
against or affecting Denali or any Domestic Subsidiary or their assets.
B. There is no material agreement to which Denali or any of the Domestic
Subsidiaries is a party, which would be contravened by the execution,
delivery, or performance of the Transaction Documents.
C. Each of Denali and the Domestic Subsidiary is primarily engaged,
directly or through wholly owned subsidiaries, in a business other than
that of investing, reinvesting, owning, holding or trading in
securities, and none of Denali, nor any Domestic Subsidiary nor any
Person controlling Denali or any Domestic Subsidiary is or is required
to be registered as an investment company under the Investment Company
Act of 1940, as amended. Neither Denali nor any of the Domestic
Subsidiaries is a "holding company" as defined in, or otherwise subject
to regulation under, the Public Utility Holding Company Act of 1935.
Neither Denali nor any of the Domestic Subsidiaries is subject to
regulation under any Federal or state statute or regulation which
limits its ability to incur indebtedness.
Executed as of the 30th day of June, 1999.
/s/ R. KEVIN ANDREWS
--------------------------
R. Kevin Andrews
Chief Financial Officer of
Denali Incorporated
<PAGE> 94
DENALI INCORPORATED
OFFICER'S CERTIFICATE
The undersigned, being the duly elected, qualified and acting Chief
Financial Officer of Denali Incorporated, a Delaware corporation (the
"Company"), hereby certifies the following facts in connection with a rendering
of a legal opinion by Gardere Wynne Sewell & Riggs, L.L.P. in connection with
the purchase and sale of up to $15 million in aggregate principal amount of the
12% Senior Subordinated Notes due 2006 of Denali (the "Senior Subordinated
Notes") and warrants to purchase 534,873 shares of the common stock, $0.01 par
value per share of Denali (the "Warrants") pursuant to that certain Note and
Warrant Purchase Agreement dated June 30, 1999 (the "Agreement").
1. In connection with the sale of the Senior Subordinated Notes and the
Warrants by the Company pursuant to the Agreement, the Company has made
available to each purchaser thereof at a reasonable time prior to such
sale the opportunity to ask questions and receive answers concerning
the terms and conditions of the offering of the Senior Subordinated
Notes and the Warrants.
2. Neither the Company nor any person acting on its behalf has made any
offer to sell or sold any of the Senior Subordinated Notes or the
Warrants by any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio.
IN WITNESS WHEREOF, this Certificate has been executed to be effective
as of June 30, 1999 by R. Kevin Andrews, Chief Financial Officer of the Company.
/s/ R. KEVIN ANDREWS
-----------------------
R. Kevin Andrews
<PAGE> 95
EXHIBIT 4.4(a)
DENALI INCORPORATED
June 30, 1999
To each of the Purchasers whose name appears
in the Acceptance Forms to the within-mentioned
Note and Warrant Purchase Agreement
Re: Denali Incorporated 12% Senior Subordinated Notes and Warrants
Ladies and Gentlemen:
I am the General Counsel of Denali Incorporated, a Delaware corporation
("Denali"), Specialty Solutions, Inc., a Delaware corporation ("SSI"),
Containment Solutions, Inc., a Delaware corporation ("CSI"), Ershigs, Inc., a
Washington corporation ("Ershigs"), SEFCO, Inc., an Oklahoma corporation
("Sefco"), Containment Solutions Services, Inc., a Delaware corporation
("CSSI"), Denali Holdings Management, L.L.C., a Nevada limited liability company
("DHM"), Fibercast Company, an Oklahoma corporation ("FC"), Denali Management,
Inc., a Delaware corporation ("DMI"), Denali Operating Management, Ltd., a Texas
limited partnership ("DOM"), Plasti-Fab, Inc., a Delaware corporation
("Plasti-Fab"), Belco Manufacturing Company, Inc. ("Belco"), and Instrumentation
Solutions, Inc., a Delaware corporation ("ISI") (SSI, Ershigs, Sefco, CSI, CSSI,
DHM, FC, DMI, DOM, Plasti-Fab, Belco, and ISI, are sometimes collectively
referred to herein as the "Domestic Subsidiaries"; and Denali and Domestic
Subsidiaries are sometimes collectively referred to herein as the "Denali
Parties"). I am furnishing the opinion set forth below to you in compliance with
Section 4.4 of the Note and Warrant Purchase Agreement (the "Purchase
Agreement") dated of even date herewith, between Denali and the several
Purchasers named therein. Terms not otherwise defined herein shall have the
respective meanings assigned to such terms in the Purchase Agreement.
In rendering the opinions set forth below, I have examined copies of
the documents listed in Schedule I attached hereto (the "Transaction
Documents"). I have also examined originals, or copies certified or otherwise
identified, of the certificates or articles of incorporation and bylaws or other
applicable organizational documents, each as amended to date, of Denali and each
Subsidiary Guarantor, corporate records of Denali and the Domestic Subsidiaries,
including minute books of Denali and the Domestic Subsidiaries, certificates of
public officials and of representatives of Denali and the Domestic Subsidiaries,
statutes and other instruments and documents as a basis for the opinions
hereinafter expressed.
On the basis of the assumptions, and subject to the limitations and
qualifications hereinafter set forth, I am of the opinion that:
<PAGE> 96
1. Denali is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is duly qualified and in
good standing as a foreign corporation in every other jurisdiction in which the
ownership of its property or the conduct of its business requires such licensing
and qualification (except to the extent that the failure to be so qualified
could not have a Material Adverse Effect).
2. Each Subsidiary Guarantor is duly organized, validly existing and in
good standing under the laws of the state of its organization and is duly
qualified and in good standing as a foreign entity in every other jurisdiction
in which the ownership of its property or the conduct of its business requires
such licensing and qualification (except to the extent that the failure to be so
qualified could not, in the aggregate, have a Material Adverse Effect).
3. Denali and each of the Domestic Subsidiaries have the corporate
power and authority to carry on their respective businesses as now being
conducted, to execute and deliver the Transaction Documents and to perform their
respective obligations thereunder. The transactions contemplated by the
Transaction Documents and the execution, delivery of and performance by Denali
and by each of the Domestic Subsidiaries of their respective obligations under
the Transaction Documents to which they are a party have been duly authorized,
executed and delivered and constitute a legal, valid and binding agreement of
Denali and each Domestic Subsidiary enforceable against each, in accordance with
their respective terms. The officers executing the Transaction Documents on
behalf of Denali and on behalf of Domestic Subsidiaries have been duly
authorized to execute and deliver such documents.
4. The execution and delivery of the Transaction Documents, the
consummation of the transactions therein contemplated, and the fulfillment of
and compliance with the terms, conditions and provisions thereof or of any
instruments required thereby, will not conflict with, violate or result in a
breach of (a) the Certificate of Incorporation or bylaws of Denali or (b) the
Articles or Certificate of Incorporation or bylaws, or other organizational
documents of any Subsidiary Guarantor.
5. Denali has duly authorized and reserved for issuance 534,873 shares
of Denali's Common Stock, par value $0.01 per share, for issuance upon exercise
of Warrants and when so issued, such shares will be fully paid and
non-assessable and not subject to any preemptive rights.
6. Except for matters disclosed in the Disclosure Documents, there is
no action, suit, investigation or proceeding pending or threatened in writing
against Denali or any Domestic Subsidiary or the assets of any of them in any
court or before any arbitrator of any kind or before any Governmental Authority.
7. There is no state or federal statute, rule or regulation, or any
writ, order or decision of any court, arbitrator or Governmental Authority
binding on any of the Denali Parties, or material agreement to which Denali or
any Domestic Subsidiary is a party, which would be contravened by the execution,
delivery, or performance of the Transaction Documents.
In making the foregoing opinions, I have relied upon such
representations from public officials as I have deemed necessary. I am a member
of the Texas and Utah State Bars and the matters herein are limited in all
respects to matters of the laws of the States of Texas and Utah, the corporate
law of the State of Delaware, and applicable federal law.
This opinion is being furnished solely for your benefit, and for the
benefit of other institutional investor holders from time to time of the Notes
purchased by you today, in connection with the Closing
<PAGE> 97
held today of the transactions contemplated by the Transaction Documents, and
may not be relied upon by any other person for any purpose without my prior
written consent. Further, this opinion is rendered as of the date hereof, and I
undertake no, and hereby disclaim any, obligation to advise you of any changes
in, or any new developments which might affect, any matters or opinions set
forth herein.
Sincerely,
Cathy L. Smith,
General Counsel
Attachment: Schedule 1: Transaction Documents
<PAGE> 98
EXHIBIT 4.4(A)
VAN GIJZEN ADVOCATEN EN NOTARISSEN
To: Each of the Purchasers whose name appears in the
Acceptance Forms to the Note and Warrant Purchase
Agreement among the Shareholder and the Pledgees,
as Purchaser, dated at June 30, 1999 (the "Note and
warrant Purchase Agreement")
CONFIDENTIAL
Amsterdam, July 1, 1999
RE: DENALI - THE DEED OF PLEDGE,
Ladies and Gentlemen:
We have acted as special Netherlands counsel to Denali Incorporated (the
"Shareholder") in connection with the execution and delivery of the Deed of
Pledge by the Shareholder concerning the pledge by the Shareholder to the
Purchasers of shares in Denali Welna Europe B.V., a limited liability company
organised under Netherlands law (the "Company").
In connection with this opinion we have examined the following documents and
such other documents as we have considered relevant for the purpose of giving
this opinion, including:
a A copy of the executed Deed of Incorporation of the Company, dated May
12, 1999, including the Articles of Association of the Company;
b An extract dated June 30, 1999 with respect to the Company (the
"Company Extract") from the Trade Register of the Chamber of Commerce
and Industry in Amsterdam (the "Amsterdam Trade Register"), which
Company Extract proves to be unchanged in all respects, material for
rendering this opinion, as confirmed to us by telephone by the
Amsterdam Trade Register on the date hereof;
c A copy of the shareholders register of the Company (the "Shareholders
Register")
d A faxed copy of a certificate of an officer of the Shareholder, dated
as of June 30, 1999 (the "Shareholder Officer's Certificate")
certifying as to the matters set forth herein;
e A copy of the notarial deed of pledge, dated as of July 1, 1999 (the
"Deed of Pledge");
<PAGE> 99
Our examination referred to above has been limited to the review of the
documents.
In giving this opinion, we have made the following assumptions:
a all documents submitted to us as originals and the signatures and
initials thereon are genuine, and all documents submitted to us as
photocopies or facsimile copies are in conformity with the originals;
b The Deed of Pledge has been duly executed on behalf of any party other
than the Company and the Shareholder, and constitutes the legal, valid
and binding obligations of each of the parties thereto (other than the
Company and the Shareholder) enforceable against it (other than the
Company and the Shareholder) in accordance with its terms, under the
laws of the Netherlands;
c The Deed of Pledge, accurately describes and contains the mutual
understanding of the parties thereto;
d the Shareholders Register is accurate and complete, all required
registrations by the management board of the Company have been
registered therein and there are no unregistered pledges on the Shares;
e all terms and conditions set forth in the Deed of Pledge are at arm's
length;
f the Company has not been dissolved ("ontbonden"), granted suspension of
payments ("surseance van betaling verleend") or declared bankrupt
("failliet verklaard"); it being hereby confirmed that our inquiries
with the said Trade Registry and the District Court of Amsterdam have
not revealed any information that any such event has occurred with
respect to the Company, but it should be noted that his is not
conclusive evidence that no such event has occurred, and;
g The Note and Warrant Purchase Agreement is enforceable against the
Shareholder in accordance with its terms.
We are an independent partnership consisting of lawyers qualified under the laws
of the Netherlands. We have not investigated the laws of any jurisdiction other
than the Netherlands - meaning the part of the Kingdom of the Netherlands in
Europe - and do not express an opinion on the laws of any jurisdiction other
than the Netherlands as it stands and has been interpreted in published case law
of the courts of the Netherlands as at the date of this opinion.
We expressly do not represent ourselves to be familiar with the laws of (or any
part of) the United States or any other country and have made no independent
investigation of the laws of any other jurisdiction as a basis for the opinions
hereinafter expressed.
<PAGE> 100
Terms and expressions of law and of legal concepts as used in this opinion have
the meaning in this opinion attributed to them under the laws of the Netherlands
and this opinion should be read and understood accordingly.
Based solely upon the foregoing and subject to the qualifications, assumptions
and limitations set forth herein, as well as to any fact, circumstance, event or
document not disclosed to us in the course of our examination referred to above,
we are, at the date hereof, of the following opinion:
1. Neither the execution or the delivery of , nor the performance by the
Shareholder under the Deed of Pledge with respect to the pledge of the
shares of the Company (the "Shares") will (i) contravene any provisions
of any law, statute, rule or regulation of the Netherlands or (ii) to
the best or our knowledge and based upon the Shareholder Officer's
Certificate, contravene any order, judgement, injunction or decree of
any court or public authority or governmental agency of the Netherlands
binding on the Shareholder.
2. Under Netherlands law of general applicability, no order, consent,
approval, license, authorisation or validation of or filings, recording
or registration with or exemption by any public authority or
governmental agency of the Netherlands or any subdivision thereof will
be required to authorise or will be required in connection with the
execution, delivery and performance by the Shareholder of the Deed of
Pledge.
3. The security interest with respect to the pledge of the Shares
contemplated by the Deed of Pledge constitutes a first priority
perfected security interest in the Shares, and Purchasers will be
entitled to all the priorities and benefits provided for similar
perfected security interests under Netherlands law. No filings or
recordings, other than the notation of the pledge of the Shares in the
Shareholders Register are required in order to perfect the security
interest in the Shares.
4. The provisions of the Deed of Pledge concerning the pledge of the
Shares comply with Netherlands law, in so far as applicable, and the
description in the Deed of Pledge of the Shares pledged thereby is
adequate to create the security interest contemplated thereby.
5. Upon the occurrence of an Event of Default (as defined in the Deed of
Pledge) the Purchasers will have, subject to the limitations as set
forth in the Deed of Pledge and insofar not contravening with the
public policy ("ordre public") of the Netherlands, all rights and
remedies relating to the Shares a purchaser has under Netherlands law.
6. The Deed of Pledge constitutes the legal, valid and binding obligations
of the Shareholder as are evident in this Deed, enforceable against the
Shareholder in accordance with the Deed's terms and Dutch law.
Our opinions above are subject to the following qualifications, assumptions,
limitations and exceptions:
<PAGE> 101
a This opinion is limited by any applicable bankruptcy, insolvency and
other similar law affecting the rights of creditors in general.
b The enforcement of the Deed of Pledge and foreign judgements in the
Netherlands will be subject to the rules of civil procedure as applied
by the Netherlands courts.
c With respect to the opinion expressed in paragraph 5 above it should be
noted that in connection with the enforcement of legal proceedings
against the Shareholder in the Netherlands, the Netherlands courts may
(i) apply rules of Netherlands law in a situation where those rules are
mandatory irrespective of the law otherwise applicable to any contract
concerned, (ii) give effect to the mandatory rules of the laws of any
other country with which the situation adjudicated has a close
connection, if and insofar as, under the laws of such country, those
rules must be applied whatever the law applicable to the contract
concerned, (iii) refuse the application of the law of the State of New
Your or any other law as the case may be if such application is
manifestly incompatible with the public policy ("ordre public") of the
Netherlands and (iv) require that the relevant content of the laws of
the State of New York or any other law are duly proved in such
proceedings.
This opinion and the matters addressed herein are as of the date hereof, and we
undertake no, and hereby disclaim any, obligation to advise you of any change in
any matter set forth herein occurring after the date hereof. This opinion is
strictly limited to the matters stated herein and may not be read as extending
by implication to any matters not specifically referred to herein. Nothing in
this opinion should be taken as expressing an opinion in respect of any
representations or warranties, or other information contained in the Deed of
Pledge or any other document in connection therewith or with this opinion except
as expressly confirmed herein.
This opinion is addressed to an may be relied upon only by the Addressees, other
institutional investors holders from time to time of the Notes purchased by you
today under the Note and Warrant Purchase Agreement and the Pledgees. Without
our prior written consent this opinion letter may not be transmitted to, filed
with or relied upon by any other person, firm, company or institution.
This opinion is subject to Netherlands law and a Dutch judge will be solely
competent vis a vis Van Gijzen Advocaten en Notarissen to decide any dispute
regarding this opinion.
Sincerely yours,
Van Gijzen Advocaten en Notarissen
B.M.M. Weiffenbach A.M. Wiedijk
<PAGE> 102
EXHIBIT 4.4(B)
WILLKIE FARR & GALLAGHER
June 30, 1999
Re: Denali Incorporated
12% Senior Subordinated Notes due 2006 and Warrants
The Variable Annuity Life Insurance Company
A.G. Investment Advisory Services, Inc.
c/o American General Corporation
2929 Allen Parkway
Houston, TX 77019-2155
Ladies and Gentlemen:
We have acted as your special counsel in connection with the issuance
by Denali Incorporated (the "Company") of its 12% Senior Subordinated Notes due
2006 in an aggregate principal amount of $15,000,000 (the "Notes") and warrants
(the "Warrants") evidencing the right to purchase an aggregate of 534,873 shares
of the Company's Common Stock, par value $0.01 per share (the "Common Stock"),
and the several purchases by you and other purchasers pursuant to the Note and
Warrant Purchase Agreement made by you and such other purchasers with the
Company under date of June 30, 1999 (the "Purchase Agreement") of Notes in the
respective principal amounts and Warrants for the purchase of the respective
numbers of shares of Common Stock set forth opposite your names in Schedule A to
the Purchase Agreement. All capitalized terms used herein without definition
shall have the meanings ascribed thereto in the Purchase Agreement.
We have examined such corporate records of the Company, agreements and
other instruments, certificates of officers and representatives of the Company,
certificates of public officials, and such other documents, as we have deemed
necessary in connection with the opinions hereinafter expressed. In such
examination we have assumed the genuineness of all signatures, the authenticity
of documents submitted to us as originals and the conformity with the authentic
originals of all documents submitted to us as copies. As to questions of fact
material to such opinions we have, when relevant facts were not independently
established, relied upon the representations set forth in the Purchase Agreement
and upon certifications by officers or other representatives of the Company. In
this connection we note specifically that we have relied, without independent
investigation, upon the representations of such other purchasers in Section 6.1
of the Purchase Agreement.
In addition, we attended the closing held today at our offices at which
you and such other purchasers purchased and made payment for Notes in the
respective principal amounts and
<PAGE> 103
Warrants to purchase the respective numbers of shares of Common Stock to be
purchased by you and them, all in accordance with the Purchase Agreement.
Based upon the foregoing and having regard for legal considerations
that we deem relevant, we render our opinion to you pursuant to Section 4.4(b)
of the Purchase Agreement as follows:
1. The Company is a validly existing corporation in good standing under
the laws of the State of Delaware and has the corporate power to execute and
deliver the Purchase Agreement, the Notes and the Warrants and to perform its
obligations thereunder.
2. The Purchase Agreement has been duly authorized, executed and
delivered by the Company and constitutes a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms.
3. The Notes and Warrants being purchased by you today have been duly
authorized, executed and delivered by the Company and constitute legal, valid
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
4. No consent, approval or authorization of, or declaration,
registration or filing with, any New York or Federal Governmental Authority is
required to be obtained or made as a condition to the validity of the execution
and delivery by the Company of the Purchase Agreement or said Notes or Warrants
or for the performance by the Company of its respective obligations under the
Purchase Agreement and said Notes and Warrants, except as may be necessary to
comply with the registration requirements of Section 11 of the Warrants.
5. It was not necessary in connection with the offering, sale and
delivery of said Notes and Warrants, under the circumstances contemplated by the
Purchase Agreement, to register said Notes or Warrants under the Securities Act
of 1933, as amended, or to qualify an indenture in respect of the Notes under
the Trust Indenture Act of 1939, as amended.
6. The opinions of even date herewith of Gardere Wynne Sewell & Riggs,
LLP, special counsel for the Company, and Cathy L. Smith, Esq., General Counsel
of the Company, delivered to you pursuant to Section 4.4(a) of the Purchase
Agreement, are satisfactory to us in form and scope with respect to the matters
specified therein and we believe that you are justified in relying thereon.
The opinions expressed above as to the enforceability of any
agreement or instrument in accordance with its terms are subject to the
exception that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and (ii) general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
We express no opinion as to Section 22.3 of the Purchase Agreement
insofar as said Section relates to (i) the subject matter jurisdiction of a
United States Federal District Court sitting in New York to adjudicate any
controversy relating to the Purchase Agreement, the Notes or any other document
related thereto, (ii) the waiver of inconvenient forum with respect to
proceedings in any such United States District Court or (iii) the waiver of the
right to jury trial. We also express no opinion as to the indemnities provided
for in Section 22.7 of the Purchase Agreement and Section 11.6 of the Warrants,
the enforceability of which may be subject to limitations based upon public
policy.
<PAGE> 104
We are members of the bar of the State of New York and do not herein
intend to express any opinion as to any matters governed by any laws other than
Federal laws, the laws of the State of New York and the General Corporation Law
of the State of Delaware.
This opinion is given solely for your benefit and for the benefit
of Institutional Investor holders from time to time of the Notes and Warrants
purchased by you today, in connection with the closing held today of the
transactions contemplated by the Purchase Agreement, and may not be relied upon
by any other person for any purpose without our prior written consent.
Very truly yours,
WILKIE FARR & GALLAGHER
<PAGE> 105
EXHIBIT 4.14
VAN GIJZEN ADVOCATEN EN NOTARISSEN
DEED OF PLEDGE
in: DENALI WELNA EUROPE B.V.
Deed dated 1 July 1999
Today, the first day of July nineteen hundred and ninety-nine, appeared before
me, Jelle Dingeman van der Beek, Candidate Civil Law Notary, of Amsterdam, The
Netherlands, hereinafter to be referred to as: "Notary", as deputy of Michel
Dick van Waateringe, Civil Law Notary (Notaris) in Amsterdam, The Netherlands:
Irene Catharina Geertruida Steltenpool, Candidate Civil Law Notary, born in
Saarbrucken, Germany, on the fourth day of July nineteen hundred and
sixty-seven, holder of a valid passport of the Kingdom of The Netherlands,
number N11469756, living at Anjeliersstraat 4c, 1015 NH Amsterdam, The
Netherlands, unmarried, and not registered nor ever having been registered at
the (Dutch) Civil Registry as a partner within the meaning of "registered
personal partnerships" as defined in Sections 1:80a through 80e of the Dutch
Civil Code, in this matter acting in her capacity as attorney in fact authorized
in writing of:
1. DENALI INCORPORATED, a corporation established under the laws of the
State of Delaware, United States of America, having its principal place
of business at 1360 Post Oak Boulevard, Suite 2250, Houston, Texas
77056-3023, United States of America; hereinafter referred to as the
"PLEDGOR";
2.a. THE VARIABLE ANNUITY LIFE INSURANCE COMPANY, a corporation organized
under the laws of the state of Texas, United States of America, having
its place of business at 2929 Allen Parkway, Houston, TX 77019-2155,
United States of America;
b. A.G. INVESTMENT ADVISORY SERVICES, INC., a corporation organized under
the laws of the state of Delaware, United States of America, having its
place of business at 2929 Allen Parkway, Houston, Texas, TX 77019-2155,
United States of America;
c. EMC EQUITY FUND, L.P., a limited partnership organized under the laws
of the state of Texas, United States of America, having its place of
business at 711 Louisiana, 33rd floor, Houston, TX 77002-2316, United
States of America;
d. COCKRELL INVESTMENT PARTNERS, L.P., a limited partnership organized
under the laws of the state of Texas, United States of America, having
its place of
<PAGE> 106
business at 1600 Smith, Suite 3900, Houston, TX 77002-7348, United
States of America;
e. Mr Thomas Dudley Simmons Jr., director, born in Winston-Salem, North
Carolina on the tenth day of September nineteen hundred and forty-four,
residing at 1800 W. Loop South, Houston, TX 77027, married, acting in
his capacity of trustee of the SIMMONS FAMILY TRUST, a Texas trust;
f. Mr Thomas Dudley Simmons Jr. aforementioned, acting in his capacity of
trustee of the THOMAS DUDLEY SIMMONS, JR. MARITAL TRUST, a Texas trust;
g. Mr Thomas Dudley Simmons Jr. aforementioned, acting in his capacity of
private person;
h. Mr JOEL VINCENT STAFF, director, born in San Antonio, Texas, on the
eighteenth day of January nineteen hundred and forty-four, residing at
10000 Richmond, Suite 400, Houston, TX 77042, United States of America,
i. SYMONDS TRUST CO., LTD., a company organized under the laws of the
state of Texas, United States of America, and its place of business at
2040 N. Loop West, Suite 200, Houston, TX 77018, United States of
America,
j. Mrs Anne Allen Symonds, trustee, born in Houston, Texas on the eleventh
day of November nineteen hundred and forty, residing at 2040 N. Loop
West, Houston, TX 77018, United States of America, married, hereby
acting in her capacity of trustee of the ANNE ALLEN SYMONDS REVOCABLE
TRUST, a Texas trust;
k. Mr WILLIAM ATTAWAY MONTELEONE, JR., retired Chief Executive Officer,
born in New Orleans, Louisiana, on the twentieth day of December
nineteen hundred and fifty-one, residing at 3453 Meadow Lake, Houston,
TX 77027, United States of America, married;
l. Mr CARL RICHARD EVERETT, company president, born in Jackson City,
Missouri, on the twenty-fifth day of February nineteen hundred and
forty-five, residing at 1980 Post Oak Boulevard, Suite 1200, Houston,
TX 77056, United States of America, married;
m. Mr HAROLD FRED LEVINE, retired Financial Officer, born in Kansas City,
Missouri, on the twenty-seventh day of September nineteen hundred and
thirty-one, residing at 2925 Briarpark, Suite 1160, Houston, TX 77042,
United States of America, married;
n. Mrs Dianne Marie O'Donnel, custodian, born in Baltimore, Maryland, on
the twenty-fourth day of July nineteen hundred and fifty-seven,
residing at 2713 Burridge Road, Baltimore, MD 21234, United States of
America, unmarried, and not registered nor ever having been registered
at the (Dutch) Civil Registry as a partner within the meaning of
"registered personal partnerships" as defined in Sections 1:80a through
80e of the Dutch Civil Code, of Legg Mason Wood Walker Inc., a company
with place of business at 100 Light Street, Baltimore, MD 21202, United
States of America, as custodian for and on behalf of the JAY H. GOLDING
PROFIT-SHARING PLAN DATED 12/11/89, a Texas profit sharing plan;
hereinafter referred to, individually, as a "PLEDGEE" and collectively,
as the "PLEDGEES";
<PAGE> 107
3. DENALI WELNA EUROPE B.V., a private company with limited liability
established under the laws of the Netherlands, with registered seat in
Amsterdam, the Netherlands, and having its principal place of business
at Drentestraat 20, 1083 HK Amsterdam, filed with the Trade Register in
Amsterdam under number 34115077; hereinafter referred to as the
"SUBSIDIARY".
The powers of attorney granted to the appearing person, appear from sixteen
private instruments, which are attached hereto. The existence of these powers of
attorney has been satisfactorily proved to me, Notary. The appearing person,
acting as stated, declared:
WHEREAS:
A. by a Note and Warrant Purchase Agreement dated as of the thirtieth day
of June nineteen hundred and ninety-nine, as amended, modified or
supplemented from time to time (the "AGREEMENT") made by and among:
(i) Denali Incorporated as seller; and
(ii) each Pledgee as a party to the Agreement;
Denali Incorporated has agreed to issue and sell its "12% Senior
Subordinated Notes due 2006" (the "NOTES") in an aggregate original
principal amount of fifteen million US Dollars (USD 15,000,000) and
warrants (the "WARRANTS") to the Pledgees on such terms and conditions
set out in the Agreement;
B. it is agreed, as a condition to the subscription and purchase of Notes
and Warrants by the Pledgees pursuant to the Agreement, that Denali
Incorporated shall provide and continue to provide security to the
Pledgees in the form of a pledge over a number of shares, representing
sixty-five per cent (65%) of the outstanding capital, on a fully
diluted basis, of the Subsidiary; and
C. the Pledgor is the holder of all issued and outstanding shares in the
capital of the Subsidiary (forty (40) shares), each share having a
nominal value of five hundred Euro (EUR 500);
NOW IT IS HEREBY AGREED AS FOLLOWS:
1. INTERPRETATION
1.1 Words and expressions defined in the Agreement shall, unless otherwise
defined herein or unless the context otherwise requires, have the same
meaning when used herein. In this Deed of Pledge (the "DEED OF PLEDGE")
the following words and expressions shall have the following meanings:
"ARTICLES OF ASSOCIATION" means the articles of association (statuten)
of the Subsidiary dated as of the twelfth day of May nineteen hundred
and ninety nine;
"EVENT OF DEFAULT" means (1) an Event of Default, as defined in the
Agreement, (2) the Pledgor or the Subsidiary shall register or permit
any registration to be made for the transfer of any Shares without the
prior written
<PAGE> 108
consent of the Majority Holders, or (3) the Pledgor or the Subsidiary
shall fail otherwise to comply with the terms hereof;
"COLLATERAL AGENT" means the collateral agent for the holders of the
Notes designated by the Majority Holders in accordance with Section 3.2
hereof;
"FUTURE SHARES" means any and all shares in the capital of the
Subsidiary which will be issued after the date of this Deed of Pledge
and provide for a continuing pledge over sixty-five per cent (65%) of
the voting stock of the Subsidiary;
"OBLIGATIONS" means (1) the due and punctual payment of (i) all amounts
at any time owing by the Pledgor under the Notes and any extensions,
renewals or modifications thereof, (ii) all fees and all other amounts
owing to the Collateral Agent or the Pledgees by the Pledgor hereunder,
under the Agreement, the Notes or any of the Note Documents, and under
any extensions, renewals, replacements or modifications of any of the
foregoing, and (iii) all other indebtedness, obligations and
liabilities of any kind of the Pledgor to the Collateral Agent or the
Pledgees, whether absolute or contingent, secured or unsecured, due or
to become due, now existing or hereafter incurred, arising out of or in
connection with the transactions contemplated by the Agreement, the
Notes or any of the Note Documents (including, without limitation,
under any other existing or future agreements or instruments executed
in connection with any such transactions) and (2) the due and punctual
performance of all terms, covenants, conditions, agreements,
obligations and liabilities of the Pledgor under the agreements and
instruments referred to in clause (1) hereof;
"SECURITY PERIOD" means the period beginning on the date hereof and
ending on the date upon which all the Obligations have been irrevocably
paid and discharged in full and in cash;
"PRESENT SHARES" means twenty-six (26) issued and outstanding ordinary
shares, numbered 1 through 26, with a nominal value of five hundred
Euro (EUR 500) each, in the capital of the Subsidiary, which shares are
all registered in the name of the Pledgor;
"SHARES" means the Present Shares and the Future Shares.
1.2 INTERPRETATION
Headings are for convenience of reference only. Whenever the context
may require, the singular includes the plural and vice versa.
References to the Pledgor, a Pledgee, the Pledgees, the Collateral
Agent or any other person shall, where applicable, be deemed to be
references to or include their respective successors and assigns.
References to "Section" shall mean the respective Section of this Deed
of Pledge.
1.3 UNDERTAKING TO PLEDGE
The Pledgor and the Pledgees hereby agree that the Pledgor shall grant
to the Pledgees the right of pledge purported to be granted pursuant to
the Agreement, this Deed of Pledge, and any other Note Documents.
<PAGE> 109
2. PLEDGE OF THE SHARES
2.1 In order to secure the Obligations now or hereafter owed or to be
performed by the Pledgor and in order to comply with Dutch legislation,
the Pledgor HEREBY pledges (verpandt) to the Pledgees, by way of a
first priority perfected security interest and right of pledge (eerste
pandrecht), free of all encumbrances (beperkte rechten) and
attachments, all of the Present Shares as well as all cash dividends
paid or payable at any time hereafter on all or any of the Present
Shares, and the Pledgees, hereby accept such pledge (proportionally
based on the Notes held by each such Pledgee as of any date of
determination.)
2.2 The Pledgor hereby unconditionally and irrevocably undertakes to pledge
by way of a possessory or disclosed pledge (vuistpandrecht of openbaar
pandrecht), which shall always create and constitute a first priority
perfected security interest, Future Shares, all cash dividends payable
on such Future Shares, free and clear of all encumbrances, by way of
supplemental deeds or other instruments in writing on terms the same or
similar to this Deed of Pledge.
2.3 If, with the Majority Holders' written consent, any of the Shares are
changed, classified or reclassified, subdivided, consolidated or
converted through (statutory) merger, or otherwise, or the rights
attaching to the Shares are altered in any way, the shares or other
securities resulting from such event shall automatically become subject
to the pledge (pandrecht) hereby created. Where this is not possible,
the Pledgor shall execute one or more pledge agreements in such form
and substance satisfactory to the Majority Holders in respect of such
shares or other securities.
2.4 Unless and until there shall have occurred and be continuing an Event
of Default, all cash dividends, cash distributions, cash proceeds and
other cash amounts payable in respect of the Shares shall be paid to
the Pledgor. The Pledgees shall be entitled to receive directly, and to
retain as part of the collateral, all other stock, notes, interests,
instruments or other securities or property related to the pledged
Shares.
2.5 Unless and until there shall have occurred and be continuing an Event
of Default, the Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Shares, and to
give consents, waivers or ratifications in respect thereof, provided,
that, in each case, no vote shall be cast or any consent, waiver or
ratification given or any action taken or omitted to be taken which
would violate or be inconsistent with any of the terms of the
Agreement, any other Note Documents or any other related document, or
which would have the effect of impairing the value of the Shares or any
part thereof in any material respect or the priority, position or
interests of the Pledgees. All such rights of the Pledgor to vote and
to give consents, waivers and ratifications shall cease in case an
Event of Default has occurred and is continuing, and Sections 11 and 12
of the Agreement shall become applicable. The parties hereby agree, and
the Pledgor, in its capacity as sole shareholder of the Subsidiary, has
approved as evidenced by a
<PAGE> 110
document attached hereto, and in so far as necessary hereby approves,
that the voting rights pertaining to the Shares will, at the Majority
Holders' written request to the Pledgor and the Subsidiary, pass to the
Pledgees upon the occurrence of an Event of Default.
2.6 By signing this Deed of Pledge, the Subsidiary confirms (and the other
parties agree) that a written notice from any Pledgee to the Subsidiary
stating that an Event of Default has occurred and is continuing, shall
be sufficient for the Subsidiary to accept the Pledgees as being
exclusively entitled to such rights and other powers which they are
entitled to exercise pursuant to this Section 2 upon the occurrence and
during the continuance of such an Event of Default.
3. FURTHER ASSURANCES/DELIVERY OF DOCUMENTS AND COLLATERAL AGENT
3.1 Each of the Pledgor and the Subsidiary shall at its own expense execute
such agreements, deeds, confirmations and notices and do all such
assurances, acts and things as the Pledgees may require for giving full
effect to this Deed of Pledge, for creating, perfecting or protecting
the Pledgees' security interest and rights in respect of the Shares,
for assuring, confirming or facilitating the exercise of all rights,
powers, authorities, discretions and remedies vested in the Pledgees
under this Deed of Pledge in respect of the Shares.
3.2 In furtherance of the foregoing and upon the request of the Majority
Holders delivered at anytime (either before or after the occurrence of
an Event of Default), each of the Pledgor and the Subsidiary agrees (a)
to the appointment of a Collateral Agent (designated by the Majority
Holders) who will act for the benefit of the Pledgees, (b) to cooperate
with such Collateral Agent, (c) to pay all fees and expenses relating
to such Collateral Agent or to the performance of its duties by the
Collateral Agent (including reasonable fees and expense of counsel) and
(d) to enter into one or more amendments to this Deed of Pledge deemed
necessary or desirable by any Pledgee to evidence the appointment of
the Collateral Agent. The rights and powers of the Collateral Agent
appointed by the Majority Holders shall be determined by the Majority
Holders and all the Pledgees hereby expressly agree to such appointment
and to such determination. After the appointment of the Collateral
Agent, and notwithstanding anything to the contrary contained herein,
the Collateral Agent shall have the sole authority (and no Pledgee
shall have the right to take any direct action under this Deed of
Pledge) to take any and all action under this Deed of Pledge after
consultation with the Majority Holders or as determined by the Majority
Holders. The Collateral Agent shall act or refrain from acting in
accordance with written instructions from the Majority Holders, as
applicable under the Agreement or, in the absence of such instructions,
in accordance with its discretion.
4. PERFECTION OF THE PLEDGE
By signing this Agreement, the Subsidiary:
(i) acknowledges the first priority perfected security interest
and right of pledge of the Present Shares and undertakes to
register such first
<PAGE> 111
priority perfected security interest and right of pledge in
its shareholders' register;
(ii) undertakes to provide each Pledgee forthwith after the
execution of this Deed of Pledge with a copy of the relevant
entry in its shareholders' register;
(iii) undertakes to acknowledge and register the first priority
perfected security interest and right of pledge of Future
Shares (if any); and
(iv) with the knowledge of the Pledgor, waives any preemptive right
or right of first refusal granted under the Articles of
Association or otherwise (where applicable) of the Subsidiary
that may impede the exercise by the Pledgees of the security
interest rights of pledge and the other rights conferred
hereunder.
5. DEFAULT AND REMEDIES
5.1 Without prejudice to any other right or remedy available to any
Pledgee, upon the occurrence of any Event of Default or at any time
thereafter, the Pledgees may, by giving written notice to the Pledgor,
declare the security hereby constituted immediately enforceable and the
Pledgees may immediately exercise in respect of any or all of the
Shares any or all of its rights and powers set out in this Deed of
Pledge irrespective of whether any Pledgee shall have proceeded against
or claimed payment from any party liable for any of the Obligations.
The Pledgor hereby waives any right it may have requiring the Pledgees
first so to proceed or so to claim or to enforce any security granted
by any other person before enforcing this Deed of Pledge. In
particular, the Pledgor irrevocably waives the defense of eviction
conferred by Section 3:234 Netherlands Civil Code.
5.2 Upon the occurrence of an Event of Default, the Pledgees shall be
entitled to the fullest extent permitted by applicable law, without
further notice, advertisement, hearing or process of law of any kind,
to sell and transfer all or part of the Shares in accordance with the
laws of The Netherlands, and, where applicable, the Articles of
Association including, but not limited to:
(a) selling the Shares at a public auction in accordance with
local custom and conditions in accordance with Section 3:250
Netherlands Civil Code; or
(b) applying for a court order (which right of application the
Pledgor is hereby excluded from pursuing and which the Pledgor
hereby waives and agrees not to exercise) authorizing the sale
of the Shares in the manner determined by the court, or
authorizing that the Shares remain with the Pledgees or any of
them (and be transferred accordingly) in payment of such
amount as will be determined by the Court in accordance with
Section 3:251 Netherlands Civil Code.
To the extent permissible under the laws of The Netherlands and the
Articles of Association, the Pledgor hereby irrevocably waives,
renounces and agrees not to exercise any preemptive rights or rights of
first refusal upon a sale by any Pledgee or the Collateral Agent (after
its appointment).
<PAGE> 112
The Pledgor further covenants to approve a transfer of the Shares to
any Pledgee pursuant to a court order as referred to in paragraph (b)
above. The Pledgees shall also be irrevocably authorized (without
obligation) by the Pledgor in the event of such a sale:
(i) to offer the Shares for sale in the manner prescribed by the
Articles of Association or to seek the approval of the
corporate body designated under the Articles of Association as
empowered to approve all proposed transfers of shares, as the
case may be, and to exercise the Pledgor's rights in
connection with the sale and transfer of the Shares as
provided in Section 2:198 Netherlands Civil Code;
(ii) to cause notice of such sale of the Shares, to be served, also
on behalf of the Pledgor, upon the Subsidiary in accordance
with the laws of The Netherlands and the Articles of
Association; and
(iii) to cause any of the Shares to be registered in the name of the
new owner(s) following the sale to the extent required on
behalf of the Pledgor, to do all such acts and to sign all
such documents as are necessary for that purpose pursuant to
the laws of The Netherlands or the provisions of the Articles
of Association.
5.3 The Pledgees shall have the right to impose such limitations and
restrictions on the sale of the Shares as the Pledgees may deem
necessary or appropriate to comply with any law, rule or regulation
applicable to the sale. The Pledgor shall cooperate with the Pledgees
in obtaining any necessary permits, exemptions or consents of competent
authorities and in ensuring that the sale of the Shares does not
violate any applicable securities laws.
5.4 The rights, powers and remedies given to the Pledgees and the
Collateral Agent by this Deed of Pledge shall be in addition to all
rights, powers and remedies by virtue of any statute or rule of law
(including, without limitation, pursuant to the Uniform Commercial Code
as in effect from time to time in the State of New York). Any
forbearance or failure or delay by the Pledgees or the Collateral Agent
in exercising any right, power or remedy hereunder shall not be deemed
to be a waiver of such right, power or remedy, and any single or
partial exercise of any right, power or remedy hereunder shall not
preclude the further exercise thereof; and every right, power and
remedy of the Pledgees or the Collateral Agent shall continue in full
force and effect until such right, power or remedy is specifically
waived by the Pledgees or the Collateral Agent by an instrument in
writing.
6. COVENANTS
6.1 The Pledgor shall obtain, comply with the terms of and do all that is
necessary to maintain in full force and effect all authorizations,
approvals, licences and consents required in or by the laws and
regulations of The Netherlands or any other jurisdiction to enable it
lawfully to execute, deliver and perform its obligations under this
Deed of Pledge or to ensure the legality, validity, priority,
enforceability or admissibility in evidence in The Netherlands of this
Deed of Pledge.
<PAGE> 113
6.2 Without the prior written consent of the Pledgees, the Pledgor shall
not:
(a) create or permit to subsist any security interest, liens or
encumbrances (beperkte rechten) over all or any of the Shares;
or
(b) cause the Subsidiary to issue any shares in addition to or in
substitution for the Present Shares, except to the Pledgor; or
(c) part with, sell, assign, transfer, pledge or otherwise dispose
of or encumber or agree to part with, sell, assign, transfer,
pledge or otherwise dispose of or encumber all or any of the
Shares or any rights or interests therein or thereto; or
(d) cooperate in the issue of depositary receipts (certificaten
van aandelen) in respect of the Shares; or
(e) do any act or deed or omit to do any act or deed which would
result in:
(i) any representation or statement made by it or by the
Subsidiary in the Agreement, any other Note Documents
(including this Deed of Pledge) and/or in related
documents to which it or the Subsidiary is a party or
in any notice or other document, certificate or
statement delivered by it or by the Subsidiary
pursuant thereto or in connection therewith being or
becoming incorrect or misleading in any respect; or
(ii) it or the Subsidiary breaching any of its or the
Subsidiary's respective covenants under the
Agreement, any other Note Documents (including this
Deed of Pledge) and/or related documents.
6.3 The Pledgor shall, at its own cost and expense take all such steps as
may be necessary or desirable to defend its right, title and interest
in and to the Shares against the claims and demands of any person,
where necessary in cooperation with the Pledgees.
7. CONTINUING AND INDEPENDENT SECURITY
7.1 This Deed of Pledge and the security hereby created shall be a
continuing security and in particular, but without limitation, shall
not be, nor be considered as, satisfied by any intermediate payment or
satisfaction on account of any of the monies and liabilities hereby
secured or any settlement of accounts between the Pledgor or any other
party that has assumed liability for, and/or provided security in
respect of, the Obligations and the Pledgees.
7.2 Where any discharge (whether in respect of this Deed of Pledge, any
other security for the Obligations or otherwise) is made in whole or in
part or any arrangement is made on the faith of any payment, security
or other disposition which is subsequently avoided or must be restored
in bankruptcy, liquidation or otherwise without limitation, the
liability of the Pledgor under the Agreement, this Deed of Pledge, any
other Note Document and the pledge hereby created shall continue as if
there had been no discharge or arrangement. The Pledgees shall be
entitled to concede or compromise any claim that any such payment,
security or other disposition is liable to avoidance or repayment.
7.3 To the extent possible under the laws of The Netherlands, the security
created hereby shall not be prejudiced, affected or diminished by any
act, omission or
<PAGE> 114
circumstance which, but for this provision, might operate to release,
discharge or otherwise exonerate the Pledgor from its liability to the
Pledgees or otherwise in respect of any of the Obligations or affect
such obligations, including without limitation:
(i) any extension or postponement of the time of payment or other
indulgence granted to or any acceptance of partial payment by
or any settlement, composition or adjustment with the Pledgor
or any other person;
(ii) any novation, amendment or variation of, or extension of the
due date for performance of any term of the Agreement, this
Deed of Pledge, any other Note Document or any other agreement
in connection with the Obligations or any increase, reduction,
exchange, acceleration, renewal, surrender, release or loss of
or failure to perfect any of the Obligations or any security
therefor or any non-presentment or non observance of any
formality in respect of any instruments;
(iii) the transfer by any Pledgee of all or any of its rights,
benefits and/or obligations under the Agreement, this Deed of
Pledge, any other Note Document or any other agreement to
which it is a party to another person or entity;
(iv) any irregularity, unenforceability or invalidity of any (but
not all) of the Obligations or of the obligations of any other
person or any present or future law or order of any government
or authority (whether of right or in fact) purporting to
reduce or otherwise affect any of such obligations to the
extent that the Pledgor's obligations under this Deed of
Pledge shall remain in full force and this Deed of Pledge and
the term "OBLIGATIONS" shall be construed accordingly as if
there were no such irregularity, unenforceability, invalidity,
law or order;
(v) the bankruptcy or liquidation or any change in the name or
constitution of the Pledgor, the Subsidiary or any other
person; or
(vi) the taking, variation, compromise, renewal or release of, or
refusal or neglect to perfect or enforce, any rights, remedies
or securities against or granted by the Pledgor, the
Subsidiary or any other person.
To the extent possible under the laws of The Netherlands, the term
"OBLIGATIONS" shall include all items which would be Obligations but
for the liquidation, absence of legal personality or incapacity of the
Pledgor or any statute of limitation.
7.4 The Pledgees need not before exercising any of the rights, powers or
remedies conferred upon it by this Deed of Pledge or by law
(i) take proceedings or obtain judgment against the Pledgor or any
other person in any court,
(ii) make or file any claim or proof in a winding-up or dissolution
of the Pledgor or of any other person or
<PAGE> 115
(iii) enforce or seek to enforce any other security which the
Pledgee may now or at any time hereafter hold for or in
connection with obligations.
8. APPLICATION OF PROCEEDS
Any monies received by any Pledgee (or the Collateral Agent) pursuant
to this Deed of Pledge and/or under the powers hereby conferred, shall
after the security interest hereby constituted has been enforced be
applied by such Pledgee (or the Collateral Agent) as follows:
FIRST, to the payment of all fees, costs and expenses (including but
not limited to fees and expenses of any Pledgee's or the Collateral
Agent's counsel and other experts employed by any Pledgee or the
Collateral Agent to assist it in performing its duties hereunder) then
owed to the Collateral Agent, or the Pledgees pursuant to this Deed of
Pledge or any of the other Note Documents; and
SECOND, to the payment in full of all amounts then owed with respect to
the Notes as interest, such payments to be made ratably to the Persons
entitled thereto without any preference or priority; and
THIRD, to the payment in full of all amounts then owed with respect to
the Notes as principal or premium, such payments to be made ratably to
the Persons entitled thereto without preference or priority; and
FOURTH, to the payment in full of all other amounts then owed with
respect to the Obligations; and
FIFTH, the balance, if any, to or at the direction of the Pledgor. Any
Pledgee or the Collateral Agent may make distributions hereunder in
cash or in kind or in a combination of cash and property.
9. REPRESENTATIONS AND WARRANTIES
9.1 The Pledgor further represents and warrants to the Pledgees that:
(i) the Present Shares have been duly authorized and validly
issued, fully paid, and as of the date hereof constitute
sixty-five per cent (65%) of the issued and outstanding share
capital of the Subsidiary; it is not aware of any adverse
claim against the Present Shares and the Present Shares are
not subject to any encumbrance (beperkt recht);
(ii) The Pledgor acquired the legal title to the Present Shares
through subscription upon incorporation of the Subsidiary by
deed executed before a deputy of Michel Dick van Waateringe,
Civil Law Notary in Amsterdam, on the twelfth day of May
nineteen hundred and ninety nine;
(iii) The Pledgor has thus been the sole shareholder of the
Subsidiary since the twelfth day of May nineteen hundred and
ninety-nine and is presently and will at all times during the
Security Period be the sole, legal and beneficial owner of the
Present Shares free and clear of any encumbrances (beperkte
rechten), except for this Deed of Pledge; the Pledgor has not
transferred in advance any Future Shares , nor created in
advance any encumbrances (beperkte rechten) on such future
<PAGE> 116
assets; no depositary receipts (certificaten van aandelen)
have been issued with respect to the Present Shares and no
person or entity has any right or option to purchase or
acquire the Shares or any of them; and
(iv) the Pledgor has not:
(a) sold or agreed to sell or otherwise transferred or
agreed to transfer the benefit of any part or all of
its right, title and interest in and to the Shares;
or
(b) taken any action or omitted to take any action or
allowed the Subsidiary or any of its directors to
take or omit any action that impedes or may in future
impede the Pledgees' rights hereunder; or
(c) granted or agreed to grant any encumbrance (beperkt
recht) over the Shares.
9.2 The SUBSIDIARY represents and warrants to the Pledgees that:
(i) the Present Shares have been duly authorized and validly
issued, fully paid, and do now and will - together with the
Future Shares - at all times during the Secured Period
constitute sixty-five per cent (65%) of its issued share
capital;
(ii) no deed of transfer (akte van overdracht) or pledge (pandakte)
or other document granting or purporting to grant a security
interest or a security right or other encumbrance (beperkt
recht) in relation to any of the Present Shares has been
served upon or otherwise notified or submitted to it or
acknowledged by it and it has never been a party to any such
deed or other document and the Pledgor is, therefore, the
sole, legal and beneficial owner of the Present Shares, free
and clear of any encumbrances whatsoever, except for this Deed
of Pledge; and
(iii) no depositary receipts (certificaten van aandelen) have been
issued with respect to the Present Shares and no depositary
receipts will be issued with the respect to Future Shares with
its cooperation.
10. MISCELLANEOUS PROVISIONS
10.1 The Pledgor will indemnify out of its own funds or reimburse the
Pledgees and the Collateral Agent for any and all costs, fees,
expenses, duties, taxes and payments (including, without limitation,
all notarial and legal fees and expenses) payable or incurred by the
Pledgees (and keep the Pledgees and the Collateral Agent indemnified
against any failure or delay in paying the same) in connection with the
negotiation, preparation, execution, perfection and enforcement of this
Deed of Pledge, the realization of the security granted hereunder, as
well as in connection with:
(i) any variation of, or amendment or supplement to, any of the
terms of this Deed of Pledge; and/or
(ii) any consent or waiver required from the Pledgees in relation
to this Deed of Pledge; and in each case, regardless of
whether the same is actually implemented, completed or
granted, as the case may be.
<PAGE> 117
10.2 The Pledgor shall pay promptly all duties and taxes to which this Deed
of Pledge may be subject or give rise and shall indemnify the Pledgees
and the Collateral Agent on demand against any and all liabilities with
respect to or resulting from any delay or emission on the part of the
Pledgor to pay any such duties or taxes.
10.3 The amount of all such costs, fees, expenses, duties, taxes and
payments and all interest thereon shall be payable on first demand of
the Pledgees or the Collateral Agent (whether or not occasioned by any
act, neglect or default of the Pledgor), shall be included in the
Obligations for the purpose hereof and shall carry interest from the
date of the same being incurred or becoming payable as referred to in
the Agreement, this Deed of Pledge or any other Note Document.
10.4 All amounts received, recovered or realized by any Pledgee under the
Agreement (including the proceeds of any conversion of currency) may,
in the sole discretion of the Pledgees and to the extent possible under
applicable law, be credited to any bank account and may be held in such
account for so long as the Pledgees shall think fit (with interest
accruing thereon at such rate, if any, as the Pledgees may deem fit)
pending their application from time to time (as the Pledgees shall be
entitled to do in their sole discretion) in or towards the discharge of
any of the Obligations.
10.5 For the purpose of or pending the discharge of any of the Obligations,
the Pledgee may convert any monies received, recovered or realized or
subject to application by the Pledgee under the Agreement, this Deed of
Pledge or any other Note Document (including the proceeds of any
previous conversion under this Section 10.5) from their existing
currency of denomination into such other currency of denomination as
the Pledgees may deem advisable, and any such conversion shall be
effected at the Pledgees' then prevailing spot selling rate of exchange
for such other currency against the existing currency.
References herein to any currency extend to any funds of that currency
and for the avoidance of doubt funds of one currency may be converted
into different funds of the same currency.
11. POWER TO ASSIGN
Any Pledgee shall, subject to the terms of the Agreement, be entitled
to assign and/or transfer all or part of its rights and obligations
under this Deed of Pledge to any assignee and/or transferee of all or
part of its rights and obligations under the Agreement of the Notes and
the Pledgor hereby gives its irrevocable consent and continuing
agreement to any such assignment and/or transfer hereunder.
12. REDEMPTION OF SECURITY
At the end of the Security Period, the Pledgees shall as soon as
reasonably practicable at the request and cost of the Pledgor release
or otherwise discharge the Shares or cause the Shares to be released or
otherwise discharged.
<PAGE> 118
13. RESCISSION
Each party hereby waives its right to rescind (ontbinden) or annul
vernietigen) the legal acts (rechtshandelingen) represented by this
Deed of Pledge.
14. NOTICES
Each communication to be made hereunder shall be made and shall be
deemed to be made in the manner set out in Section 19 of the Agreement.
15. GOVERNING LAW
This pledge shall be governed by and construed in accordance with the
laws of The Netherlands.
16. JURISDICTION
16.1 The Subsidiary and the Pledgor agree for the benefit of the Pledgees
that the District Court (arrondissementsrechtbank) of Amsterdam, The
Netherlands, shall have exclusive jurisdiction to hear and determine
any suit, action or proceeding and to settle any disputes which may
arise out of or in connection with this Deed of Pledge subject to
appeal (hoger beroep) and appeal in second instance (cassatie), except
that the Pledgees may elect to start any such suit, action or
proceeding against the Pledgor or the Subsidiary in any other court of
competent jurisdiction.
16.2 The taking of proceedings in one or more jurisdictions shall not
preclude the taking of proceedings in any other jurisdiction, whether
concurrently or not.
16.3 The Pledgor and the Subsidiary irrevocably waive any objection which
they may now or in the future have to any court referred to in this
Section 16 as a venue for any proceedings and any claim which they may
now or in the future be able to make that any proceedings in any such
court have been instituted in an inconvenient or inappropriate forum.
16.4 Each party further waives trial by jury in any action brought on or
with respect to this deed of pledge or any document executed in
connection herewith.
The appearing person is known to me, Notary.
This deed, drawn up in one original copy, was executed in Amsterdam, The
Netherlands, on the date first before written.
After the substance of this deed had been stated to the appearing person, she
declared that she had noted the contents of this deed and did not require it to
be read out in full.
Subsequently, following a partial reading in accordance with the law, this deed
was signed by the appearing person, and by me, Notary.
<PAGE> 119
EXHIBIT A
FORM OF A ACQUISITION ABSTRACT
[date]
Canadian Imperial Bank of Commerce, as Administrative Agent
for the financial institutions party to the
credit Agreement referred to below
425 Lexington Avenue
New York, New York 10017
Attention: Mr. Michael Daven
Ladies and Gentlemen:
The undersigned refers to the Credit Agreement dated as of January 12,
1999 (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 (the "Borrower"), the financial
institutions party thereto (the "Lenders"), Canadian Imperial Bank of Commerce,
as administrative agent for the Lenders ("Administrative Agent") and ING (U.S.)
Capital LLC, as documentation agent.
The Borrower intends to make a Permitted Acquisition (the "Proposed
Acquisition"), and in connection therewith hereby certifies the following to the
Administrative Agent and the Lenders:
1. Attached hereto as Exhibit A is a summary of the proposed Permitted
Acquisition, including a description of the business operations and assets to be
acquired, the rationale for the acquisition, strategic reasons for the
acquisition and the consideration to be paid (including assumed indebtedness,
stock, earn-outs, liabilities and subordinated debt proposed to be issued in
connection therewith), and such summary fairly presents the contemplated
transaction.
<PAGE> 120
2. Attached hereto as Exhibit B are historical financial statements
regarding the Acquired Business covering the period of the most recently
completed twelve calendar months of the Borrower, the Borrower's proposed
adjustments to the historical financial statements reflecting nonrecurring
expenses and income, and historical proforma financial statements for the
operations to be acquired in the proposed Permitted Acquisition giving effect to
such adjustments.
3. Attached hereto as Exhibit C are consolidated historical proforma
financial statements for the Borrower for the most recently completed four
fiscal quarters of the Borrower giving effect to the proposed Permitted
Acquisition as set forth in the historical proforma financial statements
described in paragraph 2 above.
4. Attached hereto as Exhibit D is a completed Borrowers Base
Certificate and certificate of a Responsible Officer of the Borrower,
demonstrating the Borrower's compliance with the covenants contained in Section
10.1 and the requirements of the definition of "Permitted Acquisition" of the
Credit Agreement on a proforma basis after giving effect to the proposed
Permitted Acquisition in accordance with the consolidated historical proforma
financial statements described in paragraph 3 above.
5. The following sets forth the information to demonstrate compliance
with the requirements of the definition of "Permitted Acquisition" in connection
with the proposed Permitted Acquisition:
(a) the Senior Leverage Ratio, as of the last day of the
calendar month preceding the calendar month in which the Acquisition Closing
Date occurs, for the twelve consecutive months immediately preceding such date
(calculated on a pro-forma basis, taking into account the acquisition of the
Acquired Business, as if such Permitted Acquisition had been consummated as of
the first day of such twelve month period) is_______ to 1.00 for such period
[not to be greater than 3.50 to 1.00]; and
(b) the Leverage Ratio, as of the last day of the calendar
month preceding the calendar month in which the Acquisition Closing Date occurs,
for the twelve consecutive months immediately preceding such date (calculated on
a pro-forma basis as if such Permitted Acquisition had been consummated as of
the first day of such twelve month period) is________ to 1.00 for such period
{not to be greater than 4.00 to 1.00].
The Borrower represents and warrants that it has conducted appropriate
customary environmental, legal, accounting and other diligence in connection
with the proposed acquisition and there are no contingent liabilities, including
environmental liabilities, litigation liabilities, and assumed contractual
liabilities, associated with the Proposed Acquisition that could reasonably be
expected to have a Material Adverse Effect.
<PAGE> 121
[the Borrower hereby requests the Majority Banks' approval as required
by the definition of "Permitted Acquisitions" of the Credit Agreement.]
[the Borrower hereby further requests the following waivers and
consents in connection with the Proposed Acquisition.]
Very truly yours,
DENALI INCORPORATED
By:
------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.65
FORM OF
COMMON STOCK
REGISTRATION RIGHTS AGREEMENT
This Common Stock Registration Rights Agreement ("Agreement"), dated as
of June ___, 1999, is made by and among Denali Incorporated, a Delaware
corporation ("Company"), and those certain holders listed on the signature
page(s) hereto (individually a "Holder" and collectively the "Holders"), who
hereby agree as follows:
1. INTRODUCTION.
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them below:
(i) "Common Stock" means the Company's common stock, par value
$0.01 per share.
(ii) "Effective Date" means the date of the closing of the
private placement transaction by the Company and the Holders pursuant
to a Subscription Agreement effective June _____, 1999.
(iii) "Holder's Shares" means the number of shares of Common
Stock specified opposite the Holder's respective name on the signature
page(s) of this Agreement and any Common Stock issued or issuable to
any such Holder upon any stock split, stock dividend, recapitalization
or similar event.
2. PIGGYBACK REGISTRATION.
(a) Right to Piggyback. Whenever the Company proposes to register any
of its Common Stock for its own account under the Securities Act of 1933, as
amended (the "Securities Act") (other than pursuant to a registration statement
relating to warrants, options or shares of capital stock granted, to be granted,
sold or to be sold exclusively to employees or directors of the Company, a
registration statement filed pursuant to Rule 145 under the Securities Act or a
shelf registration statement pursuant to Rule 415 under the Securities Act), the
Company will give prompt written notice to the Holders of its intention to
effect a registration and will, subject to Section 2(b) below, include in such
registration Holder's Shares with respect to which the Company has received
written requests for inclusion therein within 15 days after the giving of notice
by the Company. All registrations requested pursuant to this Section 2(a) are
referred to herein as "Piggyback Registrations."
(b) Priority on Piggyback Registrations. If a Piggyback Registration
involves the registration of shares of Common Stock offered in a firm commitment
underwritten offering and
<PAGE> 2
the managing underwriter(s) for the offering advises the Company that in its
opinion the number of shares of Common Stock requested to be included in such
registration exceeds the number of shares of Common Stock which can be sold in
such offering without adversely affecting the offering of the shares of Common
Stock to be included therein, the Company will so advise the Holders in writing
and will include in such registration that number of shares of Common Stock
which the managing underwriter(s) has advised the Company, in its opinion, will
not adversely affect the shares of Common Stock to be offered by the Company,
such number of shares to be included in such registration in accordance with the
following priorities: (i) first, the Common Stock and other securities, if any,
that the Company proposes to sell; and (ii), second, on a pro-rata basis, (A)
the Holder's Shares requested to be included in such registration pursuant to
Section 2(a) above and (B) any other Common Stock owned by persons other than
the Holders having rights to participate in an underwritten registered offering
of Common Stock and who have notified the Company of their intention to
participate in such registration.
(c) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the Company will select a managing underwriter(s) of
nationally recognized standing.
3. REGISTRATION PROCEDURES.
Whenever a Holder has requested that any Holder's Shares be registered
pursuant to this Agreement, and subject to Section 2(b) above, the Company will
use its reasonable efforts to effect the registration of such Holder's Shares
and pursuant thereto the Company will:
(a) prepare and file with the Securities and Exchange Commission (the
"Commission") under the Securities Act a registration statement with respect to
such Holder's Shares, which registration statement will state that the Holders
of Holder's Shares covered thereby and the holders of any other shares of Common
Stock to be included therein may sell such Shares under such registration
statement, and use its reasonable efforts to cause such registration statement
to become effective and to remain effective as provided herein;
(b) prepare and file with the Commission such amendments and
supplements, if any, to such registration statement and the prospectus used in
connection therewith as may be necessary to (i) keep such registration statement
effective for a period which is the earlier of (A) 90 days or (B) until the
completion of the distribution under such registration statement and (ii) comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
(c) furnish to each seller of Holder's Shares such number of copies of
such registration statement (including exhibits), each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) as such seller may reasonably request in order to
facilitate the disposition of such shares;
(d) use its reasonable efforts to register or qualify such Holder's
Shares under such securities or blue sky laws of such jurisdictions as any
seller reasonably requests and do any and
<PAGE> 3
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Holder's Shares owned by such seller; provided, however, that the Company will
not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subsection,
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction;
(e) notify each seller of Holder's Shares at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, when it
becomes aware of the happening of any event as a result of which the prospectus
included in such registration statement (as then in effect) contains any untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading in light of the circumstances then existing, and, as
promptly as practicable thereafter, prepare in sufficient quantities a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Holder's Shares, such prospectus will not contain an
untrue statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading in light of the circumstances then
existing;
(f) enter into customary agreements relating to the registration
(including an underwriting agreement in customary form);
(g) subject to the execution of confidentiality agreements in a form
satisfactory to the Company, make reasonably available for inspection by any
seller of Holder's Shares, any underwriter participating in any disposition
pursuant to such registration statement, the Representative Counsel (as
hereinafter defined) and any attorney, accountant or other agent retained by any
such Representative Counsel or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, Representative Counsel, attorney,
accountant or agent in connection with such registration statement to the extent
such information is reasonably necessary to satisfy any of its obligations under
applicable law;
(h) use reasonable efforts to obtain an appropriate opinion from
counsel for the Company and a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by opinions of counsel and cold comfort letters in similar
registrations as the Holders of a majority of the Holder's Shares covered by
such registration statement reasonably request; provided, however, that failure
to provide such opinion or letter, or the provision of any such opinion or
letter in a form not satisfactory to any Holder whose Holder's Shares are
covered by such registration statement shall not give rise to any action, at law
or in equity, for damages or injunctive or other relief , but rather, shall only
entitle such Holder to withdraw his Holder's Shares from such registration
statement pursuant to Section 3(k) below;
(i) upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e), such Holder will forthwith
discontinue such Holder's disposition
<PAGE> 4
of Holder's Shares pursuant to the registration statement covering such Holder's
Shares until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(e) and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such holder's possession of the prospectus
covering such Holder's Shares current at the time of receipt of such notice. In
the event the Company shall give any such notice, the period mentioned in
Section 3(b) shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
each seller of any Holder's Shares and other shares of Common Stock covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 3(e);
(j) in connection with the preparation and review pursuant to this
Agreement of any registration statement or prospectus or any amendments or
supplements thereto, the Holders of a majority of the Holder's Shares included
in such registration will choose one counsel ("Representative Counsel") who
shall participate in the registration process on their behalf, coordinate
requests by sellers of Holder's Shares for information from the Company and act
as liaison between such selling stockholders or their individual counsel,
accountants and agents and the Company; and
(k) if any Holder disapproves of the terms of any offering, such
Holder's sole remedy shall be to withdraw therefrom by written notice to the
Company and the underwriter (if any) and all other participants in such
offering, and the Holder's Shares so withdrawn will also be withdrawn from
registration.
4. REGISTRATION EXPENSES.
Whether or not any registration pursuant to this Agreement shall become
effective, all expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, National Association of Securities Dealers' fees, fees and expenses of
compliance with state securities or blue sky laws, printing and engraving
expenses and fees and disbursements of counsel for the Company, the
Representative Counsel, the independent certified public accountants for the
Company, underwriters (excluding discounts and commissions) and other persons
retained by the Company (all such expenses being herein called "Registration
Expenses"), will be borne by the Company; provided, however, that (i) if other
holders of Common Stock who have included shares in the registration statement
are required to pro-rate any Registration Expenses which are to be paid by the
Holders hereunder, then each Holder will also pro-rate such Registration
Expenses with such other holders and (ii) each seller of Holder's Shares shall
pay (A) any underwriting discounts and selling commissions applicable to
Holder's Shares sold by such Holder and (B) all fees and disbursements of
counsel for such Holder (other than the Representative Counsel); provided,
however, that the Company's obligation to pay the fees, expenses and
disbursements of Representative Counsel on the Piggyback Registrations shall be
limited to reasonable fees, expenses and disbursements.
<PAGE> 5
5. INDEMNIFICATION.
(a) Indemnification by the Company. The Company agrees to indemnify,
with respect to any registration statement filed by it, to the full extent
permitted by law, each Holder, its officers, directors and agents and each
person who controls such Holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus or
preliminary prospectus, in the light of the circumstances under which they were
made) not misleading, except insofar as the same are caused by or contained in
any information with respect to such Holder furnished in writing to the Company
by such Holder expressly for use therein.
(b) Indemnification by Holders. In connection with any registration
statement in which a Holder is participating, each such Holder will furnish to
the Company in writing such information with respect to such Holder as the
Company reasonably requests for use in connection with any such registration
statement or prospectus and agrees to indemnify, to the fullest extent permitted
by law, the Company, its directors and officers and each person who controls the
Company (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a material
fact required to be stated in the registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein (in the case of a prospectus or
preliminary prospectus, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is caused by or contained in any information with respect
to such Holder so furnished in writing by such Holder expressly for use therein.
(c) Conduct of Indemnification Proceedings. Promptly after receipt by
an indemnified party under subsection (a) or (b) above of notice of the
commencement of any action, suit, proceeding, investigation or threat thereof
made in writing for which such person will claim indemnification pursuant to
this Agreement, such indemnified party shall notify the indemnifying party in
writing of the commencement thereof or of such involvement, as the case may be,
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party, except to the extent
that such failure prejudices the rights and defenses of the indemnifying party.
In case any such action referred to under subsection (a) or (b) shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of counsel or any other expenses, in each case subsequently incurred by
such indemnified party, in connection with the defense
<PAGE> 6
thereof other than reasonable costs of investigation. The indemnifying party
shall not be required to indemnify the indemnified party with respect to any
amounts paid in settlement of any action, proceeding or investigation entered
into without the written consent of the indemnifying party.
(d) Contribution. If the indemnification provided for in this Section 5
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect or as a result of any losses, claims,
damages, liabilities or expenses (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other hand, the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense and any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 5, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Sections 5(a) and (b) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 5(d).
(e) Indemnification and Contribution of Underwriters. In connection
with any underwritten offering contemplated by this Section 5, the Company, with
respect to any registration statement filed by it, will agree to customary
provisions for indemnification and contribution in respect of losses, claims,
damages, liabilities and expenses of the underwriters by the Company.
<PAGE> 7
6. PARTICIPATION IN UNDERWRITTEN REGISTERED OFFERINGS.
No person may participate in any underwritten offering hereunder unless
such person (a) agrees to sell such person's securities on the basis provided in
any underwriting arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
7. ELIGIBILITY UNDER RULE 144.
With a view to making available to the Holders the benefits of Rule 144
under the Securities Act and the rules and regulations of the Commission which
may permit the sale of the Common Stock to the public without registration, the
Company will so long as the Common Stock is a part of a class of securities
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (i) make and keep public information available
as contemplated by Rule 144(c) at all times until the Holder's Shares have been
sold or otherwise distributed to the public and (ii) file with the Commission in
a timely manner all reports and other documents required of the Company under
the Exchange Act.
8. MISCELLANEOUS.
(a) Termination. This Agreement and all rights and obligations
hereunder with respect to any Holder's Shares (except for the indemnification
rights provided in Section 5 hereof which shall survive forever) will terminate
upon the earlier to occur of (i) three years from the date of this Agreement,
(ii) the date on which such shares of Common Stock covered by this Agreement
have been disposed of pursuant to the Securities Act or (iii) the date on which
such shares of Common Stock covered by this Agreement may be distributed to the
public pursuant to Rule 144(k) under the Securities Act.
(b) Waivers. Except as otherwise provided herein, the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
Holders of a majority of all of the Holder's Shares.
(c) Amendments. Except as otherwise provided herein, this Agreement may
be amended only with the written consent of the Company and the Holders of a
majority of all of the Holder's Shares.
(d) Subsequent Holders of Holders' Shares. The right of the Holders
pursuant to this Agreement may be assigned and transferred to any transferee
purchasing Holders' Shares, other than in a public offering pursuant to a
registration statement, in an amount equal to at least 1% of the outstanding
Common Stock of the Company; provided, however, that the Company is given
written notice by the Holder at the time of such transfer stating the name and
address of the
<PAGE> 8
transferee and identifying the Holder's Shares with respect to which the rights
are being assigned.
(e) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all counterparts taken together will constitute one and the
same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement and the exhibits and schedules hereto will
be governed by the internal law, and not the law of conflicts, of the State of
Texas.
(i) Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or
mailed by certified or registered mail, return receipt requested and postage
prepaid, to the recipient. Such notices, demands and other communications will
be sent to each of the Holders or subsequent holders of the Holders' Shares as
the case may be, at their respective addresses on the books of the Company, and
to the Company at the address indicated below:
If to Company: Denali Incorporated
1360 Post Oak Boulevard
Suite 2250
Houston, Texas 77056
Telecopy: (713) 627-8561
Attention: Cathy L. Smith
with a copy (which
shall not constitute
notice) to: Vinson & Elkins, L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5531
Attention: T. Mark Kelly
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
<PAGE> 9
(j) Benefit of Agreement. No person not a party to this Agreement shall
have rights under this Agreement as a third party beneficiary or otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the Effective Date.
DENALI INCORPORATED
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
----------------------------------------
Name:
----------------------------------
----------------------------------------
Name:
----------------------------------
----------------------------------------
Name:
----------------------------------
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Name:
----------------------------------
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Name:
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<PAGE> 1
EXHIBIT 10.66
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH NOR APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
REGULATORY AUTHORITY, NOR HAS ANY SUCH AUTHORITY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS SUBSCRIPTION AGREEMENT OR THE MERITS OF THIS OFFERING. NO
TRANSFER OF ANY SECURITIES OFFERED HEREBY SHALL BE PERMITTED UNTIL THE
TRANSFEROR SHALL HAVE COMPLIED WITH ALL RESTRICTIONS ON TRANSFER SET FORTH
HEREIN AND SUCH SECURITIES HAVE BEEN REGISTERED UNDER SUCH ACTS OR UNTIL THE
COMPANY SHALL HAVE RECEIVED A FAVORABLE OPINION FROM LEGAL COUNSEL ACCEPTABLE TO
THE COMPANY TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER
SUCH ACTS. ANY REPRESENTATION CONTRARY TO THE ABOVE IS UNLAWFUL.
FORM OF SUBSCRIPTION AGREEMENT
Denali Incorporated
1360 Post Oak Blvd., Suite 2250
Houston, Texas 77056-3023
Ladies and Gentlemen:
The undersigned (the "Undersigned") understands that Denali Incorporated, a
Delaware corporation (the "Company"), is offering for sale (the "Offering") an
aggregate of 489,190 shares of its Common Stock, $.01 par value (the "Common
Stock"). The Undersigned further understands that the Offering is being made
without registration of the Common Stock under the Securities Act of 1933, as
amended (the "Securities Act"), and is being made only to Accredited Investors
(as defined in Rule 501 of Regulation D under the Securities Act). The number of
shares of Common Stock offered to the Undersigned is set forth underneath the
Undersigned's name on the signature page hereof.
1) Subscription. Subject to the terms and conditions hereof, the Undersigned
hereby irrevocably subscribes for and agrees to purchase from the Company
the number of shares of Common Stock set forth underneath the Undersigned's
name on the signature page attached hereto, for a cash purchase price of
$9.25 per share (the "Purchase Price"). The Undersigned agrees to deliver
the Purchase Price to the Company in cash or check within five days after
being so requested by the Chairman of the Board or the President of the
Company. The Undersigned understands that separate Subscription Agreements
will be executed with other purchasers for the remainder of the shares of
Common Stock to be sold in this Offering.
2) Acceptance of Subscription.
a) The Undersigned understands and acknowledges that (i) subject to
paragraph 2(b) below, the Company has the unconditional right,
exercisable in its sole and absolute discretion,
<PAGE> 2
to accept or reject this Subscription Agreement, in whole or in part,
(ii) subscriptions need not be accepted in the order received, (iii)
all subscriptions are subject to prior sale and to withdrawal,
modification or cancellation of the Offering by the Company, (iv) no
subscription shall be valid unless and until accepted by the Company,
(v) this Subscription Agreement shall be deemed to be accepted by the
Company only when it is signed by an authorized officer of the Company
on behalf of the Company, and (vi) notwithstanding anything in this
Subscription Agreement to the contrary, the Company shall have no
obligation to issue shares of Common Stock to any person to whom the
issuance of the shares of Common Stock would constitute a violation of
the Securities Act or any state securities laws. The Company will
deliver certificates representing the shares of Common Stock purchased
by the Undersigned to the Undersigned promptly after the later of the
acceptance of this Subscription Agreement by the Company (the "Time of
Acceptance") or the tendering by the Undersigned of the Purchase
Price.
b) If the acquisition of Welna N.V. is not consummated (the "Welna
Acquisition"), the undersigned will not be required to purchase any
shares of Common Stock subject to the Subscription Agreement.
3) Use of Proceeds. The Company will use the proceeds of this Subscription
Agreement for general working capital needs of the Company, including to
fund a portion of the Welna Acquisition.
4) Representations, Warranties and Covenants of the Company. As of the Time of
Acceptance, the Company represents and warrants to and covenants with the
Undersigned as follows:
a) The Company is duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with full power and
authority to conduct its business as it is currently being conducted
and to own its assets.
b) The Company has duly authorized the issuance and sale of up to an
aggregate of $5 million in shares of Common Stock at a purchase price
of $9.25 per share.
c) The Common Stock, when issued and paid for, will represent validly
authorized, duly issued and fully paid and non-assessable shares of
Common Stock of the Company.
d) Since June 30, 1998, the Company has filed all forms, reports or other
documents required to be filed with the Securities and Exchange
Commission (the "Commission"), including (i) all Annual Reports on
Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all proxy
statements relating to meetings of shareholders and (iv) all Current
Reports on Form 8-K (collectively, the "Company SEC Reports"). The
Company SEC Reports were prepared in all material respects in
accordance with the Securities Exchange Act of 1934, as amended, and
the Company SEC Reports did not at the time they were filed contain
any untrue statement of a material fact or omit to state a material
fact required to
<PAGE> 3
make the statement therein, in light of the circumstances under which
they were made, not misleading.
5) Representations, Warranties and Covenants of the Undersigned. The
Undersigned hereby represents and warrants to and covenants with the
Company and to each officer, director and agent of the Company as follows:
a) General:
i) The Undersigned has all requisite authority to enter into this
Subscription Agreement and to perform all the obligations
required to be performed by the Undersigned hereunder.
ii) The Undersigned is the sole party in interest and is not
acquiring the Common Stock as an agent or otherwise for any other
person. The Undersigned is a resident of the state set forth
below his, her or its name on the signature page hereto and (A)
if a corporation, partnership, trust or other form of business
organization, it has its principal office within such state; (B)
if an individual, he or she has his or her principal residence in
such state; and (C) if a corporation, partnership, trust or other
form of business organization which was organized for the
specific purpose of acquiring the Common Stock, all of the
beneficial owners are residents of such state.
b) Information Concerning the Company:
i) The Undersigned is familiar with the business and financial
condition, properties, operations and prospects of the Company,
and has been afforded the opportunity to ask questions of, and
has received satisfactory answers from, the Company's officers
and directors, or other persons acting on the Company's behalf,
concerning the business and financial condition, properties,
operations and prospects of the Company and concerning the terms
and conditions of the Offering.
ii) The Undersigned understands that, unless the Undersigned notifies
the Company in writing to the contrary before the Time of
Acceptance, all the representations and warranties contained in
this Subscription Agreement will be deemed to have been
reaffirmed and confirmed as of the Time of Acceptance, taking
into account all information received by the Undersigned.
iii) The Undersigned understands that the purchase of the Common Stock
involves various risks and that no assurance can be given as to
the future value of any investment in the Common Stock or the
future financial condition or results of operations of the
Company.
iv) The Undersigned is relying solely on the representations and
warranties and other information contained herein and the answers
to questions with respect thereto furnished to the Undersigned by
the Company. No representations or warranties have
<PAGE> 4
been made to the Undersigned by the Company as to the tax
consequences of this investment or as to profits, losses or cash
flow which may be received or sustained as a result of this
investment.
v) All documents, records and books pertaining to a proposed
investment in the Common Stock which the Undersigned has
requested have been made available to the Undersigned.
c) Status of the Undersigned:
i) The Undersigned has had the opportunity to consult with the
Undersigned's own attorney and/or accountant regarding the
Undersigned's investment in the Common Stock and their
suitability for purchase by the Undersigned, and to the extent
necessary, the Undersigned has retained, at the Undersigned's own
expense, and relied upon, appropriate professional advice
regarding the investment, tax and legal merits, risks and
consequences of this Subscription Agreement and of purchasing and
owning the Common Stock.
ii) The Undersigned represents that the Undersigned is (PLEASE
INITIAL EACH CATEGORY BELOW WHICH IS APPLICABLE TO THE
UNDERSIGNED):
( ) (A) a natural person whose individual net worth, or joint
net worth with his or her spouse, exceeds $1,000,000
(including the value of homes, home furnishings and personal
automobiles);
( ) (B) a natural person who had an individual income in excess
of $200,000 in each of the last two years or joint income
with his or her spouse in excess of $300,000 in each of the
last two years and who reasonably expects to reach the same
level of individual or joint income this year. For purposes
of the Offering, individual income shall equal adjusted
gross income, as reported in the Undersigned's federal
income tax return, less any income attributable to a spouse
or to property owned by the spouse, and as may be further
adjusted in accordance with the rules, regulations and
releases of the Commission;
( ) (C) any entity in which all of the equity owners are
accredited investors.
iii) The Undersigned agrees to furnish any additional information
requested to assure compliance with applicable federal and state
securities laws in connection with the purchase and sale of the
Common Stock.
d) Restrictions on Transfer or Sale of the Common Stock:
i) The Undersigned is acquiring the Common Stock subscribed for
solely for the Undersigned's own beneficial account, for
investment purposes, and not with a view to, or for resale in
connection with, any distribution of the Common Stock. The
Undersigned understands that the offer and sale of the Common
Stock has not been
<PAGE> 5
registered under the Securities Act or any state securities laws
by reason of specific exemptions under the provisions thereof
which depend in part upon the investment intent of the
Undersigned and the other representations made by the Undersigned
in this Subscription Agreement. The Undersigned understands that
the Company is relying upon the representations, covenants and
agreements contained in this Subscription Agreement (and any
supplemental information) for the purpose of determining whether
this transaction meets the requirements for such exemptions.
ii) The Undersigned understands that the shares of Common Stock are
"restricted securities" under applicable federal securities laws
and that the Securities Act and the rules of the Commission
provide in substance that the Undersigned may dispose of the
Common Stock only pursuant to an effective registration statement
under the Securities Act or an exemption therefrom, and the
Undersigned understands that the Company has no obligation or
intention to register any of the Common Stock purchased by the
Undersigned hereunder, or to take action so as to permit sales
pursuant to the Securities Act (including Rule 144 thereunder).
Accordingly, the Undersigned understands that under the
Commission's rules, the Undersigned may dispose of the Common
Stock only in "private placements" which are exempt from
registration under the Securities Act, in which event the
transferee will acquire "restricted securities" subject to the
same limitations as in the hands of the Undersigned or pursuant
to Rule 144 under the Securities Act. As a consequence, the
Undersigned must bear the economic risks of the investment in the
Common Stock for an indefinite period of time.
iii) The Undersigned agrees: (A) that the Undersigned will not sell,
assign, pledge, give, transfer or otherwise dispose of the Common
Stock, or make any offer or attempt to do any of the foregoing,
except pursuant to a registration of the Common Stock under the
Securities Act and all applicable state securities laws or in a
transaction which is exempt from the registration provisions of
the Securities Act and all applicable state securities laws; (B)
that the Company and any transfer agent for the Common Stock
shall not be required to give effect to any purported transfer of
any of the Common Stock except upon compliance with the foregoing
restrictions and the receipt of a favorable opinion of counsel
satisfactory to the Company and/or evidence satisfactory to the
Company that such restrictions have been complied with; and (C)
that a legend in substantially the following form will be placed
on the certificates representing the Common Stock:
iv) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
IN ACCORDANCE WITH SUCH ACT AND THE RULES AND REGULATIONS
THEREUNDER AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS. THE COMPANY WILL NOT TRANSFER SUCH SECURITIES EXCEPT UPON
RECEIPT OF A FAVORABLE OPINION OF COUNSEL AND/OR EVIDENCE
SATISFACTORY TO THE COMPANY THAT
<PAGE> 6
THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH
OR THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH TRANSFER
WILL NOT VIOLATE ANY APPLICABLE STATE SECURITIES LAWS.
v) The Undersigned has not offered or sold any portion of the
subscribed for Common Stock and has no present intention of
dividing such Common Stock either currently or after the passage
of a fixed or determinable period of time or upon the occurrence
or nonoccurrence of any predetermined event or circumstance.
6) Survival; Indemnification. All representations, warranties and covenants
contained in this Subscription Agreement and the indemnification contained
in this Section 6 shall survive (i) the acceptance of this Subscription
Agreement by the Company, (ii) changes in the transactions, documents and
instruments described herein which are not material or which are to the
benefit of the Undersigned, and (iii) the death or disability of the
Undersigned. The Undersigned acknowledges the meaning and legal
consequences of the representations, warranties and covenants in Section 6
hereof and that the Company has relied upon such representations,
warranties and covenants in determining the Undersigned's qualification and
suitability to purchase the Common Stock. The Undersigned hereby agrees to
indemnify, defend and hold harmless the Company, its officers, directors,
employees, agents and controlling persons, from and against any and all
losses, claims, damages, liabilities, expenses (including attorneys' fees
and disbursements), judgments or amounts paid in settlement of actions
arising out of or resulting from the untruth of any representation of the
Undersigned herein or the breach of any warranty or covenant herein by the
Undersigned. Notwithstanding the foregoing, however, no representation,
warranty, covenant or acknowledgment made herein by the Undersigned shall
in any manner be deemed to constitute a waiver of any rights granted to it
under the Securities Act or state securities laws.
7) Conditions to Obligations of the Undersigned and the Company. The
obligations of the Undersigned to purchase and pay for the Common Stock
specified herein and of the Company to sell such Common Stock are subject
to the condition that the representations and warranties of the Company
contained in Section 4 hereof and of the Undersigned contained in Section 5
hereof shall be true and correct on and as of the Time of Acceptance in all
respects with the same effect as though such representations and warranties
had been made on and as of the Time of Acceptance.
8) Notices. All notices and other communications provided for herein shall be
in writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail, return receipt
requested, postage prepaid:
<PAGE> 7
a) if to the Company, to the following address:
Denali Incorporated
1360 Post Oak Boulevard, Suite 2250
Houston, Texas 77056-3023
Attention: Mel Carter
b) if to the Undersigned, to the address set forth on the signature page
hereto;
c) or at such other address as either party shall have specified by
notice in writing to the other.
9) Notification of Changes. The Undersigned agrees and covenants to notify the
Company immediately upon the occurrence of any event prior to the Time of
Acceptance which would cause any representation, warranty, covenant or
other statement contained in this Subscription Agreement to be false or
incorrect or of any change in any statement made herein occurring prior to
the Time of Acceptance.
10) Assignability. This Subscription Agreement is not assignable by the
Undersigned, and may not be modified, waived or terminated except by an
instrument in writing signed by the party against whom enforcement of such
modification, waiver or termination is sought.
11) Binding Effect. Except as otherwise provided herein, this Subscription
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives
and assigns, and the agreements, representations, warranties and
acknowledgments contained herein shall be deemed to be made by and be
binding upon such heirs, executors, administrators, successors, legal
representatives and assigns.
12) Obligations Irrevocable. The obligations of the Undersigned shall be
irrevocable, except with the consent of the Company, until the Time of
Acceptance or earlier termination of the Offering.
13) Entire Agreement. This Subscription Agreement constitutes the entire
agreement of the Undersigned and the Company relating to the matters
contained herein, superseding all prior contracts or agreements, whether
oral or written.
14) Governing Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, as such law
applies to agreements between Texas residents entered into and to be
performed entirely within Texas, exclusive of any conflicts of law
principles; and the parties hereto agree that the state and federal courts
situated in Harris County, Texas shall have personal jurisdiction over the
parties hereto to hear all disputes arising under this Subscription
Agreement. This Subscription Agreement is to be at least partially
performed in Harris County, Texas and, as such, the parties agree that
venue shall be proper with the state or federal courts in Harris County,
Texas to hear such disputes. If any party is not able to effect service of
process upon any other party with
<PAGE> 8
respect to such disputes, such other party expressly agrees that the
Secretary of State for the State of Texas shall be an agent for such other
party to receive service of process on behalf of such other party with
respect to such disputes.
15) Severability. If any provision of this Subscription Agreement or the
application thereof to the Undersigned or any circumstance shall be held
invalid or unenforceable to any extent, the remainder of this Subscription
Agreement and the application of such provision to other subscriptions or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
16) Headings. The headings in this Subscription Agreement are inserted for
convenience and identification only and are not intended to describe,
interpret, define, or limit the scope, extent or intent of this
Subscription Agreement or any provision hereof.
17) Counterparts. This Subscription Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed
to be an original and all of which together shall be deemed to be one and
the same agreement.
18) Documents Being Tendered. The Undersigned hereby tenders (or has previously
tendered) two completed and executed copies of this Subscription Agreement
(one of which will be executed by a representative of the Company and
returned to the Undersigned upon acceptance) and will tender, within five
days of being so requested by the Chairman of the Board or President of the
Company, cash or a check payable to "Denali Incorporated" for the Purchase
Price as defined in Section 1 hereof (if payment is to be made other than
by wire transfer).
NOTE: PLEASE BE CERTAIN YOU HAVE INITIALED THE APPROPRIATE CATEGORY OF
ACCREDITED INVESTOR IN SECTION 6(c).
<PAGE> 9
IN WITNESS WHEREOF, the Undersigned has executed this Subscription
Agreement this _____ day of __________, 1999.
TYPE OF OWNERSHIP (Check One):
( ) INDIVIDUAL OWNERSHIP (one signature required)
( ) TRUST, AGENT OR OTHER PERSON ACTING IN A REPRESENTATIVE CAPACITY (List
the name of the person or entity who will be the record holder and provide
(i) copy of trust agreement, power of attorney or other instrument granting
the power and authority to subscribe, or (ii) an opinion of counsel as to
such power and authority)
( ) JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (both or all parties must sign)
( ) COMMUNITY PROPERTY (one signature required if shares are held in one
name, i.e., managing spouse; two signatures required if shares are held in
both names)
( ) TENANTS IN COMMON (both or all parties must sign) (Can only be used if
parties are related and living in same household)
( ) CORPORATION (please include copies of the corporation's Articles of
Incorporation and bylaws)
( ) PARTNERSHIP (include copy of Partnership Agreement authorizing signature)
<PAGE> 10
(1) If a Partnership, Corporation or other qualified association, the
signature should be in the name of such entity followed by the authorized
signature and title of the person signing.
(2) Second signature required for any joint investment.
Name of Investor:
Signature:
----------------------------------
Title:
Address:
Social Security or Tax I.D. No.:
-----------------------------------
If joint investment:
----------------------------------------------
Name of additional investor:
----------------------------------
Signature:
--------------------------------------------
Title (if applicable):
------------------------------------
Address:
--------------------------------------------------
Social Security or Tax I.D. No.:
--------------------------
No. of shares of Common Stock subscribed for:
-------------------
Accepted by Denali Incorporated
By:
----------------------------------------------------------------
Name:
Title:
<PAGE> 11
EXHIBIT A
FORM OF ACQUISITION ABSTRACT
[date]
Canadian Imperial Bank of Commerce, as Administrative Agent
for the financial institutions party to the
Credit Agreement referred to below
425 Lexington Avenue
New York, New York 10017
Attention: Mr. Michael Daven
Ladies and Gentlemen:
The undersigned refers to the Credit Agreement dated as of January 12,
1999 (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 (the "Borrower"), the financial
institutions party thereto (the "Lenders"), Canadian Imperial Bank of Commerce,
as a administrative agent for the Lenders ("Administrative Agent") and ING
(U.S.) Capital LLC, as a documentation agent.
The Borrower intends to make a Permitted Acquisition (the "Proposed
Acquisition"), and in connection therewith hereby certifies the following to the
Administrative Agent and the Lenders:
1. Attached hereto as Exhibit A is a summary of the proposed Permitted
Acquisition, including a description of the business operations and assets to be
acquired, the rationale for the acquisition, strategic reasons for the
acquisition and the consideration to be paid (including assumed indebtedness,
stock, earn-outs, liabilities and subordinated debt proposed to be issued in
connection therewith), and such summary fairly presents the contemplated
transaction.
<PAGE> 12
2. Attached hereto as Exhibit B are historical financial statements
regarding the Acquired Business covering the period of the most recently
completed twelve calendar months of the Borrower, the Borrower's proposed
adjustments to the historical financial statements reflecting nonrecurring
expenses and income, and historical proforma financial statements for the
operations to be acquired in the proposed Permitted Acquisition giving effect to
such adjustments.
3. Attached hereto as Exhibit C are consolidated historical proforma
financial statements for the Borrower for the most recently completed four
fiscal quarters of the Borrower giving effect to the proposed Permitted
Acquisition as set forth in the historical proforma financial statements
described in paragraph 2 above.
4. Attached hereto as Exhibit D is a completed Borrowers Base
Certificate and certificate of a Responsible Officer of the Borrower,
demonstrating the Borrower's compliance with the covenants contained in Section
10.1 and the requirements of the definition of "Permitted Acquisition" of the
Credit Agreement on a proforma basis after giving effect to the proposed
Permitted Acquisition in accordance with the consolidated historical proforma
financial statements described in paragraph 3 above.
5. The following sets forth the information to demonstrate compliance
with the requirements of the definition of "Permitted Acquisition" in connection
with the proposed Permitted Acquisition:
(a) the Senior Leverage Ratio, as of the last day of the
calendar month preceding the calendar month in which the Acquisition Closing
Date occurs, for the twelve consecutive months immediately preceding such date
(calculated on a pro-forma basis, taking into account the acquisition of the
Acquired Business, as if such Permitted Acquisition had been consummated as of
the first day of such twelve month period) is_______ to 1.00 for such period
[not to be greater than 3.50 to 1.00]; and
(b) the Leverage Ratio, as of the last day of the calendar
month preceding the calendar month in which the Acquisition Closing Date occurs,
for the twelve consecutive months immediately preceding such date (calculated on
a pro-forma basis as if such Permitted Acquisition had been consummated as of
the first day of such twelve month period) is________ to 1.00 for such period
{not to be greater than 4.00 to 1.00].
<PAGE> 13
Borrower represents and warrants that it has conducted appropriate customary
environmental, legal, accounting and other diligence in connection with the
proposed acquisition and there are no contingent liabilities, including
environmental liabilities, litigation liabilities, and assumed contractual
liabilities, associated with the Proposed Acquisition that could reasonably be
expected to have a Material Adverse Effect.
[the Borrower hereby requests the Majority Banks' approval as required by
the definition of "Permitted Acquisitions" of the Credit Agreement.]
[the Borrower hereby further requests the following waivers and consents in
connection with the Proposed Acquisition.]
Very truly yours,
DENALI INCORPORATED
By:
------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.67
ROLL-OVER LOANS FACILITY AGREEMENT
(NLG 25,000,000)
between
DENALI INTERNATIONAL HOLDINGS B.V.
and
ABN AMRO BANK N.V.
and
ING BANK N.V.
<PAGE> 2
<TABLE>
<CAPTION>
Contents ZKN - 06 99 BK
- --------
Article Page
<S> <C>
1. DEFINITIONS 4
2. AVAILABILITY 5
3. DRAWING 6
4. INTEREST PERIODS 6
5. INTEREST/FEES 6
6. ALTERNATIVE INTEREST 7
7. REPAYMENT 7
8. PAYMENTS 8
9. COSTS AND EXPENSES 8
10. SECURITY AND COVENANTS 8
11. CONSOLIDATED NEGATIVE PLEDGE 9
12. INSURANCE 9
13. RESTRUCTURING CLAUSE 9
14. ANNUAL ACCOUNTS AND INFORMATION 10
15. EVENTS OF DEFAULT 10
16. COMMUNICATIONS 12
17. OTHER PROVISIONS 12
18. REPRESENTATION AND WARRANTIES 13
19. CONVERSION INTO TERM LOAN 13
20. PARTICIPATIONS / AGENCY 14
21. GENERAL CONDITIONS 14
22. LAW AND JURISDICTION 14
</TABLE>
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This agreement is made between:
1. Denali International Holdings B.V., established in Amsterdam,
Hereinafter referred to as 'the Borrower', and
2. ABN AMRO Bank N.V., having its registered office in Amsterdam, the
Netherlands, hereinafter referred to as 'ABN AMRO' and ING Bank N.V.,
having its registered office in Amsterdam, the Netherlands, hereinafter
referred to as 'ING', ABN AMRO and ING hereinafter collectively
referred to as 'Banks" and each individually also referred to as
'Bank'.
WHEREAS:
- Denali Welna Europe B.V. ("DWE") and ABN AMRO have discussed
the (partial) financing of the acquisition by DWE of the
shares in the capital of Welna N.V. ('Welna'), established at
Enschede, the Netherlands;
- following these discussions DWE has requested ABN AMRO to put
before DWE an indicative term sheet with regard to the main
details of such acquisition facility;
- ABN AMRO has sent the aforementioned term sheet to DWE by
letter dated 20th April 1999 with regard to a facility in
which ING is prepared to participate;
- DWE has on the basis of this term sheet and on the basis of
the subsequent discussions with the Banks, particularly the
discussions held in the meeting of 7 June 1999 with regard to
the maximum level of the financing, indicated its preparedness
to accept a final offer;
- this resulted in ABN AMRO and ING providing a loan to DWE in
the principal amount of NLG 25,000,000 (the "Loan") based on
an agreement among DWE and ABN AMRO and ING dated 6/11 June
1999 (the "Loan Agreement I"), the amount of which Loan has
been made available to DWE as per 1 July 1999 by means of
advance financing in current account with ABN AMRO;
- DWE has at the date this agreement is signed obtained more
than 88% of the shares in the capital of Welna;
- the group of companies to which DWE and the Borrower belong
has decided to reorganize its group structure, inter alia by
means of assigning the Loan by DWE to the Borrower and
releasing DWE of the rights and obligations of Loan Agreement
I and, in consideration thereof; by transferring part of the
shares in the capital of Welna by DWE to the Borrower;
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- therefore parties wish to lay down all of their respective
rights and obligations relating to the Loan in this Agreement;
- the Banks hereby offer to the Borrower, for the partial
refinancing of the acquisition of Welna, a facility consisting
of:
- a 6-year roll-over loan for the maximum amount of NLG
15,000,000 ("Loan A")
- a 2-year roll-over loan for the maximum amount of NLG
10,000,000 ("Loan B") to be refinanced as of 1 August 2001 or
within six weeks after 100% of the Welna shares have been
obtained by the Borrower, whichever is earlier;
Loan A and Loan B hereinafter individually also referred to as 'Loan'
and together referred to as 'Loans', to which the following terms and
conditions and other details shall be applicable.
IT IS HEREBY AGREED AS FOLLOWS:
Article 1
DEFINITIONS
In this agreement the following expressions shall have the following meanings:
Agent: shall mean ABN AMRO in its capacity as agent for the
Banks as set out in Article 20;
Business Day: shall mean a day other than Saturday or a Sunday on
which banks generally are open for business in the
Netherlands;
Cash Available For
Debt Service: means in respect of any Relevant Period, EBITDA for
such period after the:
- addition (or deduction) of any non-cash items dealt
within the income statement before EBIT;
- deduction of cash taxes paid;
- addition (or deduction) of increases (or decreases)
of changes in net working capital requirements;
- deduction of all capital expenditures;
Consolidated Debt
Service Coverage
Ratio: means, in respect of any Relevant Period, the ratio
of the Cash Available for Debt Service to the Debt
Service Obligations;
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Debt Service
Obligations: means, in respect of any Relevant Period, the
aggregate amount of interest (including the interest
element of leasing and hire purchase payments),
commissions, fees, discounts, and other finance
payments paid by the Borrower (on a consolidated
basis), including any commissions, fees, discounts
and other finance payments paid by the Borrower (on a
consolidated basis) under any interest hedging
arrangements, but deducting any commissions, fees,
discounts and other finance payments received by the
Borrower (on a consolidated basis) under any interest
rate hedging arrangement permitted by this agreement,
plus current maturities of long term debt and any
short term debt which has to be repaid;
EBIT: shall mean, in respect of any Relevant Period, the
consolidated earnings before interest and taxes of
the Borrower for such period;
EBITDA: means, in respect of any Relevant Period, EBIT for
such period plus depreciation and the amount
attributable to amortisation of goodwill or any other
intangible assets (including capitalised transaction
costs) during that period;
Euribor: means, in relation to any amount denominated in
Netherlands guilders and owed by The Borrower
hereunder on which interest for a given period is to
accrue;
(a) the percentage rate per annum which appears on
the page of the Telerate Screen which displays the
European Interbank Offered Rate for term deposits in
euro (being currently page "248") for such period at
or about 11:00 a.m. (Central European Time) on the
Quotation Date for such period, or
(b) if such page or such service shall cease to be
available, such other page or such other service for
the purpose of displaying the European Interbank
Offered Rate for term deposits in euros as ABN AMRO,
after consultation with the Borrower, shall select;
Consolidated
Interest Cover Ratio: means EBIT divided by the sum of gross interest paid
and capitalised interest, as shown in (i) the
consolidated annual accounts of the Borrower
accompanied by an unqualified auditor's report drawn
up by a register accountant, acceptable to the Agent
and in accordance with the calculation bases and
accounting principles applied in the consolidated
annual accounts and (ii) the quarterly accounts as
referred to in Article 14;
Interest Period: shall mean a period of one, three or six months as
the Borrower may select;
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Loan Period: shall, with regard to Loan A, mean the period
commencing on the date the amount of Loan A has been
made available to the Borrower hereunder and ending
on 1 August 2005, during which period the Banks have
agreed to lend the amount of Loan A to the Borrower
on the terms and conditions set forth in this
agreement; and shall with regard to Loan B mean the
period commencing on the date the amount (or a
tranche thereunder) of Loan B has been made available
to the Borrower hereunder and ending on 1 August 2001
or within six weeks after 100% of the Welna shares
have been obtained by the Borrower, whichever is the
earlier, during which period the Banks have agreed to
lend the amount of Loan B to the Borrower on the
terms and conditions set forth in this agreement.
Quotation Day: means in relation to any period for which an interest
rate is to be determined hereunder, the Business Day
which is two Business Days before the first day of
such period;
Relevant Period: means each period of twelve months ending on the last
day of the Borrower's financial year and each period
of twelve months ending on the last day of each
financial quarter of the Borrower's financial years
(other than the last financial quarter of any such
financial year);
Tangible Net Worth Welna: issued and paid up share capital plus reserves,
deferred taxation liabilities (including WIR
equalisation account) and loans subordinated to
Welna's debts to the Banks, minus intangible assets,
receivables from shareholders and/or managing
Directors, shares Welna holds in its own company and
any intercompany loans, as shown in (i) the
consolidated annual accounts of Welna accompanied by
an unqualified auditor's report drawn up by a
registered accountant acceptable to the Agent and in
accordance with the calculation bases and accounting
principles applied in the consolidated annual
accounts and (ii) the quarterly accounts as referred
to Article 14;
Article 2
AVAILABILITY
The amount of the Loan shall not be made available to the Borrower until each
and all of the following conditions precedent have been complied with in form
and substance satisfactory to the Agent:
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- - legal confirmation by Denali Incorporated, acceptable to the Agent, of
the final fiscal and legal structure of the Borrower and Welna;
- - confirmation by Denali Incorporated, acceptable to the Agent, that no
defaults on current facilities of Denali Incorporated have occurred;
- - agreement between the Banks and Denali Incorporated under new
facilities Denali Incorporated;
- - receipt by the Agent of a declaration of approval of or a declaration
of no objection to all credit facilities granted by ABN AMRO and ING to
the Borrower and Welna, issued by the providers of the syndicated loan
to Denali Incorporated;
- - receipt of satisfactory due diligence;
- - receipt by the Agent of the annual investment budget 1999, 2000 and
2001;
- - the security and covenants stated in Article 10 have been provided
and/or complied with;
- - the terms and conditions contained in Article 17 have been complied
with in full;
and no events or circumstances referred to in Article 15 have occurred or are
continuing.
The loans shall be made available to the Borrower by crediting the current
account of DWE in order to repay the advance financing referred to in the
preamble of this agreement. Upon repayment of this advance financing by
crediting the current account of DWE, DWE shall be discharged from its
liabilities under Loan Agreement I.
Article 3
DRAWING
a. The Borrower shall draw the amount of the Loans in one amount not later
than 6 August 1999. The Borrower shall notify the Agent at least one
Business Day prior to the date of the intended drawing.
b. Notification as referred to in section a. of this Article shall be
given by telefax, by telephone or in writing. In the case of
notification by telephone, the Agent shall have the right to request
written confirmation from the Borrower before making the amount of a
Loan available to the Borrower.
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c. If the amount of the Loans shall not have been drawn by the ultimate
drawing date referred to in section a of this Article, the Agent shall
in its discretion be entitled without any further instructions from the
Borrower to make the amount of the Loans available to the Borrower as
of that date.
Article 4
INTEREST PERIODS
a. The Loan Period is divided into successive Interest Periods. The first
Interest Period shall commence on the day on which the amounts of the
Loans (or in the case of Loan B a tranche thereunder) has been made
available to the Borrower hereunder and each subsequent Interest Period
shall commence on the day immediately following the last day of the
preceding Interest Period.
With a view to Article 3, section a, several Interest Periods may exist
simultaneously.
b. The Borrower shall notify the Agent of the length of the subsequent
Interest Period not later than three Business Days prior to the first
day of such Interest Period, under the understanding that the last day
of the selected Interest Period may not be later than the last day of
the Loan Period. Failing such notification, the subsequent Interest
Period shall be of the same length as the Interest Period immediately
preceding it, except when such Interest Period is the first Interest
Period, in which case the length of the subsequent Interest Period
shall be three months.
c. The notification referred to in section b. of this Article can be given
by telefax, by telephone or in writing. In the case of notification by
telephone, the Agent shall be entitled to require a written
confirmation from the Borrower before setting the interest rate for the
Interest Period concerned or, should it concern the first Interest
Period, before making the amount of the Loan available to the Borrower.
d. If any Interest Period selected by the Borrower commences before the
due date of an instalment referred to in Section a. of Article 7 and
ends after that due date, the Borrower shall also select a separate
Interest Period ending on that due date for a part of the amount of
Loan A equal to such instalment. If the Borrower shall fail to do so,
the Borrower shall be deemed to have opted for a separate Interest
Period as referred to above.
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Article 5
INTEREST/FEES
a. The Borrower shall pay;
(i) interest on the drawn and non-repaid portion of each Loan at a
rate per annum that is equal to Euribor (for the term
corresponding to the length of the relevant Interest Period)
plus a margin ('Margin') of 1.75%;
(ii) a front-end fee of NLG 50,000, which the Borrower shall be
liable to pay the Agent on the date this agreement is executed
by all parties hereto;
(iii) a commitment fee of 0.75% p.a. on the daily undrawn part of
Loan B, which is payable monthly in arrears throughout the
Loan Period, for the first time on 1 September 1999 and for
the last time on the last day of the Loan Period.
b. Interest and commitment fee shall be calculated on the basis of the
actual number of days elapsed and a 360-day year.
c. Interest and commitment fee computed by the Banks shall, save for any
manifest error, be binding. The Agent shall notify the Borrower in
writing of the amount of interest computed. Interest in respect of any
Interest Period shall be paid on the last day of the Interest Period
concerned. In case the duration of an Interest Period is six months,
interest shall be calculated and shall be payable in three-monthly
instalments on the day falling three months after the first day of such
Interest Period as well as on the last day of such Interest Period.
Article 6
ALTERNATIVE INTEREST
a. If the Agent shall have determined at any time prior to the
commencement of an Interest Period that by reason of circumstances
affecting the interbank money market in the EMU-countries, the interest
rate for such Interest Period cannot reasonably be determined on the
basis of Euribor, the Agent shall forthwith notify the Borrower
thereof.
b. The Agent and the Borrower shall then negotiate in order to agree an
interest rate for such Interest Period. In the absence of such
agreement prior to the beginning of the Interest Period, the Agent
shall set an interest rate for such Interest Period on the basis of the
cost to the Agent of funding the Loan, increased by the margin
mentioned in paragraph (i), section a, of Article 5.
c. If the parties are unable to agree upon any interest rate, the Borrower
shall have the right to prepay the full relevant Loan (or the relevant
tranche thereunder should the Interest period relate thereto) together
with accrued interest, costs, expenses and all other sums due and owing
by the Borrower to the Banks under this agreement, provided the
Borrower has given
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the Agent written notice of the intended prepayment within ten Business
Days after the Agent has set the interest rate, and the relevant Loan
(or the relevant tranche thereunder) is repaid within ten Business Days
after such notice, which shall be irrevocable.
Article 7
REPAYMENT
a. The Borrower shall repay:
- Loan A in 24 successive three-monthly installments of NLG
625,000 beginning on 1 October 1999;
- Loan B in one amount on the last day of the Loan Period.
b. The Borrower shall only be entitled to make early repayments on a Loan
provided all the following conditions are complied with:
(i) the Borrower has given the Agent at least one month's prior
notice by registered letter, indicating the amount and date of
the intended early repayment;
(ii) the early repayment shall coincide with the last day of an
Interest Period;
(iii) the prepaid amount shall be at least NLG 1,000,000 or a
multiple thereof.
c. Upon giving the notice referred to in paragraph (i), section b. of this
Article the Borrower shall be obliged to make the early repayment.
d. The Borrower shall be obliged to make early repayments on a Loan in
amounts equal to:
(i) net cash proceeds of any sale of assets (except in the course
of an ordinary conduct of business), or
(ii) insurance proceeds (if these are not reapplied).
Immediately upon occurrence of any one of the events referred to in
this section d. the Borrower shall notify the Agent thereof in writing,
indicating the relevant amount. Section b. of this Article shall then
not apply, except paragraph (ii) thereof.
e. Early repayments shall firstly be applied in reduction of Loan B and
secondly (provided Loan B has been fully repaid) in reduction of the
repayments of Loan A mentioned in section a. of this Article in order
of their maturity dates or their reverse order, as the Borrower may
select.
f. Any early repayment shall not be available for redrawing.
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Article 8
PAYMENTS
a. The Borrower shall make all payments without any costs to the Banks and
without any deduction or set-off. These payments shall be made on the
due dates into the account so designated by the Agent.
b. The Agent shall be entitled, but not obliged, to debit all amounts
payable by the Borrower to the Banks under this agreement to the
Borrower's current account at the branch of ABN AMRO at Enschede on the
agreed due dates. The Borrower shall be responsible for ensuring that
this debit will not exceed the amount available for payments and
withdrawals from such account.
c. Payments shall be applied as follows: firstly against costs and
expenses incurred, secondly against compensation for losses sustained
and income lost and default interest, thirdly against fees and
commissions and interest and fourthly against principal.
d. If any sum shall become payable on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day, unless
such Business Day is in a different calendar month in which case such
payment shall be made on the last preceding Business Day, interest then
being adjusted accordingly as well as the duration of the relevant
Interest Period.
Article 9
COSTS AND EXPENSES
a. All costs and expenses incurred in connection with this agreement,
including any taxes payable by a Bank (other than on net profit), as
well as any reasonable costs and expenses incurred by the Agent or a
Bank in connection with the Borrower's failure to comply with or
fulfill any obligation under this agreement at the time and in the
manner required, including out-of-pocket expenses, costs related to
exercise the any security, costs in relation to break funding,
collection charges, fees of legal consultants and other experts and
costs of proceedings, irrespective against whom brought, shall be for
the account of the Borrower and be paid by the Borrower on the Agent's
first demand.
b. Upon the expiration of a period of not less than three months from the
date of this agreement, the Agent shall notwithstanding the provisions
contained in Article 5 and 6 be entitled at its discretion to refix the
agreed interest rate if:
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(i) the cost to the Banks of funding or continuing to fund the
Loans is above the level at the time when this agreement was
entered into, and
(ii) such increase is the consequence of loan restrictions, changes
in capital adequacy requirements or other rules and
regulations (including guidelines the observance of which is
requested) of the Netherlands central bank or of Dutch,
foreign or international monetary authorities.
Article 10
SECURITY AND COVENANTS
a. The following security and covenants have been or will be provided to
secure all present and future indebtedness of the Borrower to the Banks
on account of the Loans or any other account whatsoever, whether as
part of ordinary banking business or otherwise:
- first ranking pledge (pandrecht) on the shares held by DWE and
the Borrower in the capital of Welna;
- first ranking pledge (pandrecht) on the shares held by DWE in
the Borrower;
- an independent corporate guarantee for a principal amount of
NLG 25,000,000 by DWE
- subordination of the mezzanine loan granted to the Borrower by
Denali Incorporated (both interest and repayments). The
mezzanine loan agreement shall have to be to the Agent's
satisfaction;
b. The securities and covenants referred to in section a. of this Article
shall be documented using agreements to be determined by the Agent. Any
costs involved shall be for the Borrower's account.
c. The Borrower agrees that if third parties have provided security or
covenants, the Agent may provide such third parties with information
about its financial position and any facts relating to the Loans which
may be of importance to such third parties.
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Article 11
CONSOLIDATED NEGATIVE PLEDGE
As long as the Borrower owes the Banks any sum on any account whatsoever, or may
in any manner become indebted to the Banks as a result of present or future
obligations, the Borrower shall not transfer, or promise to transfer, title to
all or any of its assets -except where such transfer forms part of its ordinary
business-, or charge, or promise to charge, all or any of its assets in favour
of a third party unless it has obtained the prior express consent of the Agent.
The Borrower has not committed itself and shall not commit itself in this
respect to any third party.
The Borrower undertakes that none of its subsidiaries shall transfer, or promise
to transfer, title to all or any of its assets -except where such transfer forms
part of its ordinary business- or charge, or promise to charge, all or any of
its assets in favour of a third party unless it has obtained the prior express
consent of the Agent. The Borrower hereby commits itself to the Banks that none
of its subsidiaries has committed itself or shall commit itself in this respect
to any third party.
Article 12
INSURANCE
The Borrower shall at all times provide for sufficient and adequate insurance
against general business risks as well as specific risks pertaining to its line
of business.
Article 13
RESTRUCTURING CLAUSE
The Borrowers shall notify the Agent without delay of any changes in the
structure of its company and any subsidiaries and group companies, including
changes in the person or persons of any shareholders of the Borrower and any
subsidiaries and group companies.
Article 14
ANNUAL ACCOUNTS AND INFORMATION
a. Denali Incorporated shall send to the Agent two copies of its
consolidated audited balance sheet, profit and loss account and notes
thereto for the past financial year and shall provide the Agent with
the consolidating financial statements for the Borrower and Welna
reviewed by a register accountant, immediately after completion but in
any event not later than six months after the end of the relevant
financial year.
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b. The Borrower shall send the Agent two copies of the balance sheet,
profit and loss account and notes thereto for the past quarter of
itself, DWE and Welna, including a ratio compliance certificate (the
first time the financial ratio's as defined in Article 15, section a.
under (xi) up to and including (xiii), shall be tested will be 30 June
2000, using the average over the four previous consecutive quarters; as
long as Welna has not changed its bookyear the ratio's as defined under
(xiv) and (xv) will be tested at the end of each calendar year, for the
first time on 31 December 1999, otherwise for the first time on 30 June
2000), both consolidated and non-consolidated, immediately after
completion but in any event not later than one month after the end of
the relevant quarter.
c. The Borrower shall provide the Agent, both on its first demand and
unsolicited, with any details of its financial position and business
developments which may have a material effect on its financial
position.
Article 15
EVENTS OF DEFAULT
a. The outstanding balance of the principal amount of the Loans together
with accrued interest and any other sum due from the Borrower under
this agreement shall be payable forthwith and in full without any
demand or default notice being required;
(i) if the Borrower and/or Welna fail(s) to comply with or fulfil,
at the time and in the manner required, any obligation towards
a Bank whether arising under this agreement (including but not
in any way limited to the obligations referred to in Article
17 thereof) or otherwise, or a Bank has revoked its credit in
current account granted to the Borrower and/or Welna;
(ii) if the Borrower and/or Welna fail(s) to comply with or fulfil,
at the time and in the manner required, any obligation under
any other loan or financing arrangement with or any guarantee
towards third parties;
(iii) if the Borrower decides to cease carrying on its business, to
discontinue, sell, let or transfer title to the whole or part
of its business; if a license, permit or registration which
the Borrower requires in order to carry on its business
expires or is refused or withdrawn; if the nature of the
Borrower's business in the opinion of the Agent is changed in
a material way; if the Borrower decides to transfer abroad the
running of its business; if the Borrower acts contrary to any
statutory regulations with respect to its business; if the
Borrower ceases to pursue the present corporate objects set
out in its memorandum and articles of association or loses its
legal status;
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(iv) if there is a dissolution or winding up (liquidatie) or a
decision or an obvious intention to dissolve or wind up;
(v) if the Borrower applies for a moratorium or other judicial
postponement of payment of debts, files a bankruptcy or
winding-up petition, is adjudicated bankrupt or wound-up,
proposes an extrajudicial arrangement or composition with its
creditors or, when insolvent, transfers any of its assets to
its creditors (boedelafstand);
(vi) if the whole or, in the opinion of the Agent, a substantial
part of the Borrower's assets is taken in execution or
attached by way of security and such attachment is not lifted
or discharged within thirty days after having been effected;
if the whole or, in the opinion of the Agent, a substantial
part of the Borrower's properties is sold, encumbered,
expropriated, confiscated, lost or damaged;
(vii) if the Borrower's legal structure is changed and/or the
Borrower merges or associates with one or more third parties,
or if, in the opinion of the Agent, a significant change -
whether or not as a consequence of the transfer of shares -
has taken place in the control of the Borrower's business or
if the memorandum and articles of association or the rules or
regulations of the Borrower are, in the opinion of the Agent,
amended to a significant extent;
(viii) if the Borrower, without the Agent's prior written consent,
releases its shareholders from liability to further calls on
partly paid-up shares, purchases its own shares, redeems its
shares or makes a distribution from its reserves, which shall
include a decision or an obvious intention to do so;
(ix) if any circumstances mentioned in (ii) to (viii) (inclusive)
occur in respect of a surety, a guarantor, jointly and
severally liable debtor or a person who has provided the Banks
with any other type of security for the Loans; if the surety
or guarantor cancels or withdraws a surety bond or guarantee
issued by him to the Banks on the Borrower's behalf; if a
third party which has provided or has promised to provide the
Banks with security for the Loans default in the performance
of any obligation in respect of the security provided or
promised;
(x) if any circumstances mentioned in (ii) to (viii) (inclusive)
occur in respect of one or more businesses or companies which
are included in the Borrower's consolidated balance sheet, or
in respect of one or more businesses or companies which have a
controlling interest in the Borrower, or if any such business
or company defaults in
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the performance of any obligation towards a Bank in connection
with credit and/or guarantee facilities granted by a Bank;
(xi) if the Consolidated Interest Cover Ratio is at any time less
than or equal to 3;
(xii) if the Consolidated Debt Service Cover Ratio in the year
1999/2000 is less than or equal to 1.0, in the year 2000/2001
less than or equal to 1.1 and in the year 2001/2002 and
thereafter less than or equal to 1.2;
(xiii) if in the Relevant Period the consolidated total interest
bearing debt (excluding the shareholder's loan from Denali
Incorporated) divided by EBITDA in the year 1999/2000 is
higher than or equal to 4.0 and in the year 2000/2001 and
thereafter higher than or equal to 3.5;
(xiv) if the Tangible Net Worth Welna in the Relevant Period during
the years 1999 and 2000 is less than or equal to 25% of
Welna's consolidated balance sheet total (including off
balance obligations entered into after the date this agreement
is signed and minus the amounts brought in diminution in
calculating the Tangible Net Worth Welna);
(xv) if the Tangible Net Worth Welna in the Relevant Period during
the years 2001 and thereafter is less than or equal to 30% of
Welna's consolidated balance sheet total (including off
balance obligations entered into after the date this agreement
is signed and minus the amounts brought in diminution in
calculating the Tangible Net Worth Welna);
(xvi) if all or any of the goods, properties and other assets
(goederen) provided to the Banks as security for the Loans are
lost, destroyed or damaged or expire for any reason
whatsoever;
(xvii) if the Borrower has given the Agent or the Banks incorrect
information or has withheld information from the Agent or the
Banks which they or any one of them deems significant in
connection with the conclusion of this agreement;
(xviii) if the Loans are not used for the purpose for which they were
granted, or if in the opinion of the Agent, it is clear that
the purpose for which the Loans were granted has not been
achieved or will not be achieved either wholly or to a
significant extent;
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(xix) if any legislation or its interpretation is changed or a
governmental action is taken, which affects or may affect this
agreement and/or the security provided and/or the value
thereof, and the Borrower and the Agent have not within a
reasonable period to be determined by the agent reached a
written agreement adjusting the relevant provisions and/or
security on such a basis that, in the opinion of the Agent,
the position of the Banks is not adversely affected.
b. The Borrower shall forthwith notify the Agent of the occurrence of any
events mentioned in section a (ii) to (xvi) (inclusive) of this
Article.
c. Immediately upon the occurrence of any events mentioned in section a.
of this Article, the obligations of the Banks under this agreement
shall terminate.
d. If the Agent demands repayment of the Loans pursuant to the provisions
in section a. of this Article, the Borrower shall forthwith pay the
Agent lump sum compensation for losses sustained and income lost. Such
compensation shall be 1.50% of the amount of which repayment is
demanded by the Agent, without prejudice to the Agent's and the Banks'
right to be fully compensated for any higher losses sustained and
income lost.
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e. Without prejudice to the provisions in the sections a. and c. of this
Article, the Borrower shall be liable, in the event of late payment of
any sum due hereunder, to pay the Agent default interest on the overdue
amount as from the due date thereof until the date of actual payment at
a rate per annum that is equal to Euribor for the relevant Interest
Period and a Margin of 3.25%. As regards late repayment of principal,
the default interest rate shall, as from the due date, replace the
interest rate referred to in Article 5 and 6.
Article 16
COMMUNICATIONS
a. All notices and communications regarding this agreement shall, unless
otherwise stated in this agreement, be given or made in writing or by
telefax, and shall be directed to the following addresses;
for the Borrower: Denali International Holdings B.V.
C/O Parallelstraat 52
7575 AN Oldenzaal
P.O. Box 309
7570 AH Oldenzaal
telefax: #(0541) 858501
for the Banks: ABN AMRO Bank N.V.
Dept. Corporate Banking
Oldenzaalsestraat 4
7511 DR ENSCHEDE
P.O. Box 17
7500 AA ENSCHEDE
telefax: #(053) 4834592
b. Changes of address shall not be effective until they have been notified
in writing to the other party.
Article 17
OTHER PROVISIONS
a. Equity stake and/or shareholders' loan of together totaling at least
NLG 60,000,000 by Denali Incorporated;
<PAGE> 19
b. no repayment or reduction shall be made of the intercompany or
shareholders' loan or equity shall be made until the Loan has been
totally repaid;
c. the Borrower and/or Welna and/or any of its subsidiaries shall not
obtain additional credits, loans, guarantees etc. with third parties
without the prior written consent of the Agent, which consent shall not
be unreasonably withheld;
d. the Borrower and/or Welna shall not grant any intercompany loans,
without the prior written consent of the Agent, which consent shall not
be unreasonably withheld;
e. the Borrower and/or Welna shall not make any further acquisitions
without the prior written consent of the Agent, which consent shall not
be unreasonably withheld;
f. the Borrower shall not make any dividend payment to Denali Incorporated
if the Tangible Net Worth Welna is or will be as a result of any
dividend payment less than 25% of the Borrower's consolidated balance
sheet total (minus the amounts brought in diminution in calculating the
Tangible Net Worth Welna) and the Consolidated Debt Service Cover Ratio
is less than 1 after pay-out (where in this case dividend is considered
part of the Debt Service Obligations), and maximized to NLG 2,000,000
to service interest on sub debt in the United States;
g. the Borrower shall see to it that Welna will not issue new shares
without the prior written consent of the Agent;
h. confirmation by means of co-signing this agreement of Denali
Incorporated that the terms and conditions of the Loans (including but
not limited to the securities and covenants referred to in Article 10)
do not in any way contradict with the financing arrangements of Denali
Incorporated in the United States of America.
Article 18
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Banks that:
(i) the entering into the performance of this agreement will not contravene
any provision of any applicable law or regulation or any order or
decree of any governmental authority or court to the jurisdiction of
which it is subject or its constitution or its bye-laws or any other
statutes governing its activities or any mortgage, deed, or contract to
which it is party or which is binding upon the Borrower or any of its
assets;
(ii) it is not in default under any mortgage, deed or contract to which it
is a party or which is binding upon the Borrower or any of its assets
and there are no material litigation or administrative proceedings
before any court or government authority pending or (to its knowledge)
threatening which would have a materially adverse effect on its
business assets or conditions;
<PAGE> 20
(iii) the entering into and the performance of this agreement have been duly
authorized by all necessary corporate and other action on its part and
it has obtained all the permits, consents and authorization necessary
in this connection;
(iv) this agreement constitutes direct, general, legally valid and binding
obligations of the Borrower and is enforceable in accordance with its
terms.
Article 19
CONVERSION INTO A TERM LOAN
a. The Borrower may, subject to at least fifteen Business Days' notice,
request the Agent to wholly or partially convert the outstanding
balance of Loan A as from the first day of the subsequent Interest
Period into a loan with one or more Interest Periods ('Term Loan')
which terminates on the last day of the Loan Period or a date yet to be
agreed between the parties ('Final Repayment Date');
b. The request for conversion shall be made in writing and specify the
amount to be converted and the date of the intended conversion
('Conversion Date').
c. The Agent shall set the interest rate for the Term Loan on the basis of
its then prevailing rates and shall not later than ten Business Days
prior to the Conversion Date notify the Borrower of the interest rate.
Until seven Business Days after receipt of such notice from the Agent,
the Borrower shall have the right to revoke the request for conversion
into a Term Loan. Thereafter the request can no longer be revoked.
d. Failing agreement on the interest rate, the Borrower and the Agent
shall revert to the situation existing prior to the Borrower's request
referred to in section b. of this Article.
e. The Term Loan shall be repaid in equal three-monthly instalments due on
1st January, 1st April, 1st July and 1st October of each year. The
instalments shall be of such an amount that the Term Loan will have
been repaid in full on the Final Repayment Date.
f. The terms and conditions, also including any break funding arrangement,
governing the Term Loan shall be incorporated in a separate agreement.
<PAGE> 21
Article 20
PARTICIPATIONS / AGENCY
ABN AMRO will participate in Loan A for an amount of maximum NLG 10,000,000. ING
will participate in Loan A for an amount of maximum NLG 5,000,000.
ABN AMRO will participate in Loan B for 65% of the amount made available to the
Borrower under Loan B. ING will participate in Loan B for 35% of the amount made
available to the Borrower under Loan B.
ABN AMRO will act as agent on behalf of the Banks, with regard to the collection
and payment of monies under this agreement, and with regard to all matters the
Agent is explicitly charged with in this agreement or in the intercreditor
agreement concluded between ABN AMRO and ING.
Article 21
GENERAL CONDITIONS
Except where this agreement otherwise provides, it shall be subject to the
General Conditions (Algemene Voorwaarden) of ABN AMRO. By signing this agreement
the Borrower declares that it has received a copy of said General Conditions.
Article 22
LAW AND JURISDICTION
This agreement shall be governed by the laws of the Netherlands. All disputes
arising out of this agreement shall in the first instance be brought before the
competent court in Amsterdam.
Agreed and signed in six copies at _________ on ______________, 1999.
DENALI INTERNATIONAL HOLDINGS B.V.
ABN AMRO BANK N.V.
ING BANK N.V.
Seen and approved (in particular with regard to section a. of Article 14, and
section h. of Article 17 of this agreement).
DENALI INCORPORATED
Seen and approved
DENALI WELNA EUROPE B.V.
Seen and approved (in particular with regard to Article 14, Article 15 and
Sections c., d. and e. of Article 17 of this agreement)
Welna N.V.
<PAGE> 1
EXHIBIT 10.68
LEASE
TERMS AND DEFINITIONS
EFFECTIVE DATE: January 1, 1998
LANDLORD: Steven Jones
LANDLORD'S MAILING ADDRESS:
Steven Jones
2303 E. Taylor's Valley Road
Belton, TX 76513
Bell County
TENANT: Belco Manufacturing Company, Inc.
TENANT'S MAILING ADDRESS:
Belco Manufacturing Company, Inc.
P.O. Box 210
Belton, TX 76513
Bell County
PREMISES: 8.71 acres in the O.T. Tyler Survey in Bell County, Texas,
described on the certificate of Duncan Watwood, Jr., Registered Professional
Engineer dated July 6, 1978, which certificate is attached hereto as Exhibit "A"
and made a part hereof for all purposes
BASE RENT (MONTHLY): $17,400.00
TERM (MONTHS): One Hundred twenty (120) months
COMMENCEMENT DATE: January 1, 1998
TERMINATION DATE: December 31, 2008
USE: Manufacturing facility
AMOUNT OF LIABILITY INSURANCE:
Death/Bodily Injury: $1,000,000.00
Property: $250,000.00
GUARANTORS: NONE
<PAGE> 2
"RENT" means base rent plus any other sums of money due Landlord by Tenant.
"LANDLORD" means Landlord and its agents, employees, invitees, licensees, or
visitors.
"TENANT" means Tenant and its agents, employees, invitees, licensees, or
visitors.
"ESSENTIAL SERVICES" means heating, ventilating, air conditioning, water, and
utility connections reasonably necessary for occupancy of the premises for the
use stated above.
LEASE CLAUSES AND COVENANTS
A. TENANT AGREES TO--
1. Lease the premises for the entire term beginning on the
commencement date and ending on the termination date.
2. Accept the premises in their present condition "as IS," the
premises being currently suitable for Tenant's intended use.
3. Obey all laws, ordinances, orders, and rules and regulations
applicable to the use, condition, and occupancy of the premises,
including the rules and regulations of the building adopted by
Landlord.
4. Pay monthly, in advance, on the first day of the month, the base
rent to Landlord at Landlord's address.
5. Pay, as additional rent, all other sums due under this lease.
6. Pay a late charge of five (5%) percent of any rent not received by
Landlord by the tenth day of the month in which the rent is due.
7. Pay for all utility services used by Tenant and not provided by
Landlord.
8. Allow Landlord to enter the premises to perform Landlord's
obligations, inspect the premises, and show the premises to prospective
purchasers or tenants.
9. Repair, replace, and maintain any and all parts (including the
roof, foundation, parking and common areas, exterior walls, doors,
corridors, windows and other structures or equipment serving the
premises) of the premises.
10. Repair any damage to the premises.
<PAGE> 3
11. Submit in writing to Landlord any request for repairs, replacement,
and maintenance that are the obligations of Landlord.
12. Maintain public liability insurance for the premises and the
conduct of Tenant's business, naming Landlord as an additional insured,
in the amounts stated in the basic lease terms and definitions.
13. Maintain insurance on Tenant's personal property.
14. Deliver certificates of insurance to Landlord before the
commencement date and thereafter when requested.
15. Indemnify, defend, and hold Landlord harmless from any loss,
attorney's fees, expenses, or claims arising out of use of the
premises.
16. Deliver to Landlord a financing statement perfecting the security
interest.
17. Vacate the premises on termination of this lease.
B. TENANT AGREES NOT TO--
1. Use the premises for any purpose other than that stated in the
basic lease terms and definitions.
2. (a) Create a nuisance, (b) permit any waste, or (c) use the
premises in any way that is extra hazardous, would increase insurance
premiums, or would void insurance on the building.
3. Change Landlord's lock system.
4. Alter the premises.
5. Allow a lien to be placed on the premises.
6. Assign this lease or sublease any portion of the premises without
Landlord's written consent.
C. LANDLORD AGREES TO--
1. Lease to Tenant the premises for the entire term beginning on the
commencement date and ending on the termination date.
2. Obey all laws, ordinances, orders, and rules and regulations
applicable to
<PAGE> 4
the use, condition, and occupancy of the building.
3. Insure the building against all risks of direct physical loss in an
amount equal to at least 90 percent of the full replacement cost of the
building as of the date of the loss and liability; Tenant will have no
claim to any proceeds of Landlord's insurance policy.
D. LANDLORD AGREES NOT TO--
1. Interfere with Tenant's possession of the premises as long as Tenant
is not in default.
2. Unreasonably withhold consent to proposed assignment or sublease.
E. LANDLORD AND TENANT AGREE TO THE FOLLOWING:
1. ALTERATIONS. Any physical additions or improvements to the premises
made by Tenant will become the property of Landlord. Landlord may
require that Tenant, at termination of this lease and at Tenant's
expense, remove any physical additions and improvements, repair any
alterations, and restore the premises to the condition existing at the
commencement date, normal wear excepted.
2. ABATEMENT. Tenant's covenant to pay rent and Landlord's covenants
are independent of each other. Except as otherwise provided, Tenant
shall not be entitled to abate rent for any reason.
3. RELEASE OF CLAIMS/SUBROGATION. Landlord and Tenant release each
other from any claim, by subrogation or otherwise, for any damage to
the premises, the building, or personal property within the building,
by reason of fire or the elements, regardless of cause, including
negligence of Landlord or Tenant. This release applies only to the
extent that it is permitted by law, the damage is covered by insurance
proceeds, and the release does not adversely affect any insurance
coverage.
4. NOTICE TO INSURANCE COMPANIES. Landlord and Tenant will notify the
issuing insurance companies of the release set forth in the preceding
paragraph and will have the insurance policies endorsed, if necessary,
to prevent invalidation of the insurance coverage.
5. CASUALTY/TOTAL OR PARTIAL DESTRUCTION. (a) If the premises are
damaged by casualty and can be restored within ninety days, Landlord
will, at its expense, restore the premises to substantially the same
condition as they existed before the casualty. If Landlord fails to
complete restoration within ninety days from the date of written
notification by Tenant to Landlord of the casualty, Tenant
<PAGE> 5
may terminate his lease by written notice to Landlord. (b) If the
premises cannot be restored within ninety days, Landlord has an option
to restore or not to restore the premises. If Landlord chooses not to
restore, this lease will terminate. If Landlord chooses to restore, it
will notify Tenant of the estimated time to restore and give Tenant an
option to terminate this lease by notifying Landlord within ten days.
If Tenant does not terminate this lease, it shall continue and Landlord
shall restore the premises as provided in (a) above. (c) To the extent
the premises are untenantable after the casualty and the damage was not
caused by Tenant, the rent will be adjusted as may be fair and
reasonable.
6. CONDEMNATION/SUBSTANTIAL OR PARTIAL TAKING. (a) If the premises
cannot be used for the purposes contemplated by this lease because of
condemnation or purchase in lieu of condemnation, this lease will
terminate. (b) If there is a condemnation or purchase in lieu of
condemnation and this lease is not terminated, Landlord will, at
Landlord's expense, restore the premises, and the rent payable during
the unexpired portion of the term will be adjusted as may be fair and
reasonable. (c) Tenant will have no claim to the condemnation award or
proceeds in lieu of condemnation.
7. UNIFORM COMMERCIAL CODE. Tenant grants Landlord a security interest
in Tenant's personal property now or subsequently located on the
premises. This lease is a security agreement under the Uniform
Commercial Code. Landlord may file a copy of this lease as a financing
statement.
8. DEFAULT BY LANDLORD/EVENTS. Defaults by Landlord are (a) failing to
comply with any provision of this lease within thirty days after
written notice or (b) failing to provide essential services to Tenant
within ten days after written notice.
9. DEFAULT BY LANDLORD/TENANT'S REMEDIES. Tenant's remedies for
Landlord's default are to (a) sue for damages, and (b) if Landlord does
not provide an essential service for thirty days after default,
terminate this lease.
10. DEFAULT BY TENANT/EVENTS. Defaults by Tenant are (a) failing to pay
timely rent, (b) abandoning or vacating a substantial portion of the
premises, or (c) failing to comply within then days after written
notice with any provision of this lease other than the defaults set
forth in (a) and (b) above.
11. DEFAULT BY TENANT/LANDLORD'S REMEDIES. Landlord's remedies for
Tenant's default are to (a) enter and take possession of the premises,
after which Landlord may relet the premises on behalf of Tenant and
receive the rent directly by reason of the reletting, and Tenant agrees
to reimburse Landlord for any expenditures made in order to relet; (b)
enter the premises and perform Tenant's obligations; or (c) terminate
this lease by written notice and sue for damages. Landlord may enter
and take possession of the premises by self-help, by picking or
changing locks if necessary, and may lock out Tenant or any other
person who may be occupying the premises, until the default is cured,
without being liable for damages.
<PAGE> 6
12. DEFAULT/WAIVER/MITIGATION. It is not a waiver of default if the
nondefaulting party fails to declare immediately a default or delays in
taking any action. Pursuit of any remedies set forth in this lease does
not preclude pursuit of other remedies in this lease or provided by
law. Landlord and Tenant have a duty to mitigate damages.
13. HOLDOVER. If Tenant does not vacate the premises following
termination of this lease, Tenant shall be a tenant at will and shall
vacate the premises on receipt of notice from Landlord. No holding over
by Tenant, whether with or without the consent of Landlord, will extend
the term.
14. ALTERNATIVE DISPUTE RESOLUTION. Landlord and Tenant shall submit in
good faith to mediation before filing a suit for damages.
15. ATTORNEY'S FEES. If either party retains an attorney to enforce
this lease, the prevailing party is entitled to recover reasonable
attorney's fees.
16. VENUE. Venue is in the county in which the premises are located.
17. ENTIRE AGREEMENT. This lease, together with the attached exhibits
and riders, is the entire agreement of the parties, and there are no
oral representations, warranties, agreements, or promises pertaining to
this lease or to the expressly mentioned exhibits and riders not
incorporated in writing in this lease.
18. AMENDMENT OF LEASE. This lease may be amended only by an instrument
in writing signed by Landlord and Tenant.
19. LIMITATION OF WARRANTIES. There are no implied warranties of
merchantability, of fitness for a particular purpose, or of any other
kind arising out of this lease, and there are no warranties that extend
beyond those expressly stated in this lease.
20. NOTICES. Any notice required by this lease shall be deemed to be
delivered (whether or not actually received) when deposited with the
United States Postal Service, postage prepaid, certified mail, return
receipt requested, and addressed to Landlord or Tenant at their
addresses.
21. ABANDONED PROPERTY. Landlord may retain, destroy, or dispose of any
property left on the premises at the end of the term.
LANDLORD
Steven Jones
TENANT
Belco Manufacturing, Inc.
Steven Jones, President
<PAGE> 7
EXHIBIT A
FIELD NOTES for a tract of land out of and a part of the O.T. Tyler Survey,
Abstract #20, Bell County, Texas, and the land herein described being a part of
that certain 193 acre tract conveyed to George T. Hubbard, et al, by deed
recorded in Volume 1339, Page 1, Bell County Deed Records.
BEGINNING at the intersection of the south right-of-way of P.M. Road #93 with
the east line of a Texas Rockwool Corporation tract described in a deed recorded
in Volume 723, Page 188, Bell County Deed Records, a fence post for the
northwest corner of this.
THENCE S. 68(Degree) 43' 53" E., 195.55 feet and S. 68(Degree) O2' 24" E.,
999.44 fest with the said right-of-way to an iron rod at a corner post for the
northeast corner of this.
THENCE S. 36(Degree) 03' 59" W., 185.0 feet and S. 41(Degree) 26' 10" W.,
300.22 feet with a fence to an iron rod at a corner post for the southeast
corner of this.
THENCE with a fence, N. 53(Degree) 16' 29" W., 366.74 feet, N. 54(Degree) 03'
51" W., 466.50 feet, and N. 57(Degree) 12' 25" W., 230.14 feet to a corner post
in the east line of the said Rockwool tract for the southwest corner of this.
THENCE with the said east line, N. 17(Degree) 30' 00" E., 211.36 feet to the
place of beginning, containing 8.717 acres of land.
********
STATE OF TEXAS
COUNTY OF BELL
KNOW ALL MEN BY THESE PRESENTS, that I Duncan Watwood, Jr., Registered
Professional Engineer, do hereby certify that I did cause to be surveyed on the
ground the above described tract of land and to the best of my knowledge and
belief the said description is true and correct.
IN WITNESS THEREOF, my hand and seal, this the 6th day of July A.D. 1978
DUNCAN WATWOOD, JR.
(SEAL)
<PAGE> 1
EXHIBIT 10.69
LEASE AMENDMENT
FOR CONSIDERATION MUTUALLY EXCHANGED between the parties, Steve Jones
("Landlord") and Belco Manufacturing Company, Inc., ("Tenant"), this Lease
Amendment is made this 3rd day of February, 1999.
WHEREAS, Landlord and Tenant have previously entered into a Lease
Agreement ("Lease") dated January 1, 1998; and
WHEREAS, both parties desire to amend the Lease;
NOW, therefore intending to be legally bound, both parties agree as
follows:
Add a new Section 22 to the Lease:
22. OPTION TO PURCHASE: Landlord hereby grants to Tenant the right and option
to purchase the Premises and all improvements thereon at any time during
the term of the lease, subject to the following:
1. Exercise of Option. This option shall be exercised, if at all, by
written notice ("the exercise notice") given by Tenant to Landlord,
which notice shall state that Tenant has elected to exercise this
option during the lease term.
2. Condition of Exercise. Tenant may exercise this option only if at the
time and date of the exercise notice Tenant is not in default under
the lease. If the lease is terminated prior to the end of the lease
term because of Tenant's default, then this option shall terminate
upon termination of the lease. If this lease terminates prior to the
end of the lease term for any reason other than the Tenant's default,
then the Tenant shall have the right to exercise this option for a
period of thirty (30) days after termination.
3. Title Report and Survey. Within thirty (30) days after the exercise
notice, Landlord shall furnish Tenant with a preliminary title report
and an ALTA survey or its equivalent. Tenant may rescind its exercise
notice if any part of the survey or preliminary title report is not
acceptable to Tenant.
4. Inspections and Representations. Tenant shall have the right to
conduct environmental and feasibility tests and studies of the
property and improvements at its own expense. Tenant shall have sixty
(60) days after the exercise notice to notify Landlord that it does
not approve of the inspection and intends to revoke its exercise
notice.
5. Purchase Price. The purchase price for the property shall be the fair
market value of the premises as of the date of the exercise notice,
as determined by an agreement, or, if the parties cannot agree, by an
independent appraisal.
6. Payment of Purchase Price. Unless the parties otherwise agree, at the
Closing, the Tenant shall pay cash.
7. Title Insurance Policies. As soon as practicable after closing, and
in any event no later than thirty (30) days after the closing date,
Landlord shall cause a title company to issue its standard form ALTA
title insurance policy, with extended coverage, in the amount of the
purchase price, insuring fee simple title to the property vested in
Tenant, free of all liens and encumbrances except those acceptable to
Tenant.
8. Closing: Time and Place. Closing of the sale and purchase of the
property shall occur on a date selected by Tenant, but in all events
the closing shall occur within ninety (90) days after the date
<PAGE> 2
that the exercise notice is given. The escrow for the closing shall
be established at a title company acceptable to the parties.
9. Costs. The parties shall each pay one-half of the escrow fee of the
title company with respect to the closing and one-half of any
transfer tax. Landlord shall pay the premium for the title insurance
policy. Tenant shall pay the fee for recording the conveyance
documents.
10. Conveyance. At closing, Landlord shall execute, acknowledge, and
deliver to Tenant a statutory warranty deed conveying the property to
Tenant, free of all liens and encumbrances except those acceptable to
Tenant.
11. Recording. Landlord shall execute, at Tenant's request, any documents
necessary to record evidence of this option.
LANDLORD
Steve Jones
TENANT
Steve Jones
Its: President
<PAGE> 1
EXHIBIT 21.1
DENALI INCORPORATED SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction
Subsidiary Name of Incorporation
--------------- ----------------
<S> <C>
B.V. Twentse Kunststoffenindustrie Plasticon The Netherlands
B.V. van Delden The Netherlands
Belco Manufacturing Company, Inc. Texas
Containment Solutions Services, Inc. Delaware
Containment Solutions, Inc. Delaware
Denali International Holdings, B.V. The Netherlands
Denali Management, Inc. Delaware
Denali Operating Management Ltd. Texas
Denali Welna Europe, B.V. The Netherlands
Dewel B.V. The Netherlands (50% Ownership)
Ershigs, Inc. Washington
Fibercast Company Delaware
Garlway Ltd. U.K. (62% Ownership)
Gimex Technische Keramiek b.v. The Netherlands (65% Ownership)
Hanwel B.V. The Netherlands
Hanwel Belgium N.V. Belgium
Hurner Umwelt Technik Germany
Instrumentation Solutions, Inc. Delaware
K.T.D. Plasticon GmbH Germany
K.T.D. Vert. GmbH Germany (40% Ownership)
Kialite Plasticon B.V. The Netherlands
Maprema S.A. Belgium (60% Ownership)
Metalchem Plasticon S.A. Poland
O.C.T. S.A. Belgium
Onroerend-Goed Maatschappij Plasticon, B.V. The Netherlands
Plasticon B.V. The Netherlands
Plasticon Haven B.V. The Netherlands
Plasticon Heerenveen B.V. The Netherlands
Plasticon Kialite Thailand Ltd. Thailand (33% Ownership)
Plasticon Projects B.V. The Netherlands
Plasticon Vert. GmbH Germany (60% Ownership)
Plasti-fab, Inc. Oregon
Plastotec GmbH Austria (40% Ownership)
Rheinland Kunststoff GmbH Germany (25% Ownership)
SEFCO, Inc. Oklahoma
Sovap S.A. France
Specialty Solutions, Inc. Delaware
W.A.P. Spoo Poland (60% Ownership)
Welna Andren Plastteknik AB Sweden (50% Ownership)
Welna France S.A. France
Welna Handel B.V. The Netherlands
Welna Handel Belgium N.V. Belgium
Welna Kunststoffen B.V. The Netherlands
Welna U.K. Ltd. U.K.
Welna, N.V. The Netherlands
Woodcap B.V. The Netherlands
</TABLE>
- ----------------------
* All subsidiaries are, directly or indirectly, owned 100% by Denali
Incorporated unless otherwise noted.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-51783) pertaining to the Denali Incorporated 1997 Incentive Stock
Option Plan of our report dated August 16, 1999, with respect to the
consolidated financial statements and schedule of Denali Incorporated included
in the Annual Report (Form 10-K) for the year ended July 3, 1999.
ERNST & YOUNG LLP
Houston, Texas
September 14, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-51783) pertaining to the Denali Incorporated 1997 Incentive Stock
Option Plan of our report dated August 16, 1999, with respect to the
consolidated balance sheet of Welna N.V. as of July 3, 1999 included in the
Annual Report (Form 10-K) of Denali Incorporated.
DELOITTE & TOUCHE
Enschede, Netherlands
September 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-3-1999
<PERIOD-END> JUL-3-1999
<CASH> 1,824
<SECURITIES> 0
<RECEIVABLES> 40,281
<ALLOWANCES> 1,419
<INVENTORY> 26,175
<CURRENT-ASSETS> 74,639
<PP&E> 52,809
<DEPRECIATION> 5,871
<TOTAL-ASSETS> 176,575
<CURRENT-LIABILITIES> 56,828
<BONDS> 71,982
0
0
<COMMON> 54
<OTHER-SE> 38,515
<TOTAL-LIABILITY-AND-EQUITY> 176,575
<SALES> 148,760
<TOTAL-REVENUES> 148,760
<CGS> 110,957
<TOTAL-COSTS> 138,883
<OTHER-EXPENSES> (453)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,199
<INCOME-PRETAX> 7,255
<INCOME-TAX> 2,854
<INCOME-CONTINUING> 4,401
<DISCONTINUED> 0
<EXTRAORDINARY> (281)
<CHANGES> 0
<NET-INCOME> 4,120
<EPS-BASIC> .84
<EPS-DILUTED> .84
</TABLE>
