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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1998
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from N/A to N/A
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Commission File No. 0-25161
MODTECH HOLDINGS, INC.
Successor Registrant to Modtech, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0825386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2830 BARRETT AVENUE, PERRIS, CALIFORNIA 92572
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 943-4014
------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 31, 1999 was $60,999,696. As of March 31, 1999, shares
entitled to cast an aggregate of 12,622,158 votes were outstanding, including
12,622,158 shares of registrant's Common Stock.
Certain portions of the registrant's definitive proxy statement to be filed not
later than 120 days after the end of the fiscal year covered hereby are
incorporated by reference in Part III of this Form 10-K report.
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PART I
Item 1. BUSINESS
GENERAL
The Company designs, manufactures, markets and installs modular relocatable
classrooms and other modular buildings for commercial use. Based upon 1997 net
sales, the Company believes that it is the largest manufacturer of modular
relocatable classrooms in California. The Company's classrooms are sold
primarily to California school districts and to third parties and the State of
California principally for lease to California's school districts. The Company's
products include standardized classrooms, as well as customized structures for
use as libraries, gymnasiums, computer rooms and bathroom facilities. The
Company believes that its modular structures can be substituted for virtually
any part of a school. The Company's products are engineered and constructed in
accordance with structural and seismic safety specifications adopted by the
California Department of State Architects which regulates all school
construction on public land, standards which are more rigorous than the
requirements for other portable units.
As a result of net enrollment increases in California schools and budgetary
constraints experienced by the State of California which limited the
availability of funds for the addition of new classrooms over the last few years
prior to 1996, California's schools are reported to be among the most crowded in
the nation. As the State budget deficit has ameliorated, the legislature has
increased funding for new classrooms in an effort to reduce the average number
of students per class. State funding initiatives include funds from both (i) the
State's operating budget, such as the $200 million allocated for construction or
addition of classrooms out of the total of $822 million spent under the Class
Size Reduction Program for the 1996-1997 school year and the $1.5 billion
allocated for the 1997-1998 school year for both general operations and school
facilities, and (ii) the sale of statewide bond issues, such as the $9.2 billion
bond issue for school construction, including the addition of classrooms which
was approved in November 1998. See "Business -- Legislation and Funding."
These factors have combined to increase the demand for modular relocatable
classrooms, which cost significantly less and take much less time to construct
and install than conventional school facilities, and which permit a school
district to relocate the units as student enrollments shift. In addition, the
Company's products provide added flexibility to school districts in financing
the costs of adding classroom space, since modular relocatable classrooms are
considered personal property which can be financed out of a district's operating
budget in addition to its capital budget. In recognition of these advantages,
California legislation currently requires, with certain exceptions, that 20% of
all classroom space in the district, not just new space added, consists of
relocatable classrooms. See "Business -- Legislation and Funding."
SPI MERGER. On February 16, 1999, Modtech, Inc. ("Modtech" or the "Company") and
SPI Holdings, Inc., a Colorado corporation ("SPI") merged pursuant to the
Agreement and Plan of Reorganization and Merger, dated as of September 28, 1998
(the "Merger Agreement"), between Modtech and SPI. SPI is a designer,
manufacturer and wholesaler of commercial and light industrial modular
buildings. Pursuant to the Merger Agreement, SPI merged with a subsidiary of
Modtech Holdings, Inc. ("Holdings"), a newly formed Delaware corporation (the
"SPI Merger"). Concurrently, Modtech merged with a separate subsidiary of
Holdings (the "Modtech Merger"). Pursuant to the mergers, both SPI and Modtech
became wholly owned subsidiaries of Holdings. The SPI Merger will be accounted
for by the purchase method of accounting.
In connection with the SPI Merger, SPI stockholders received approximately $8
million in cash and approximately 4.3 million shares of Holdings Common Stock.
Holdings refinanced approximately $32 million of SPI debt. In connection with
the Modtech Merger, Modtech stockholders received approximately $40 million in
cash, approximately 8.3 million shares of Holdings Common Stock and 388,939
shares of Holdings Series A Preferred Stock. In connection with both mergers,
Holdings incurred a total of approximately $51 million of debt. See "Selected
Financial Data -- Unaudited Pro Forma Combined Financial Statements."
COASTAL ACQUISITION. On March 22, 1999, Holdings purchased 100% of the stock of
Coastal Modular Buildings, Inc. ("Coastal"). Coastal designs and manufactures
modular relocatable classrooms and other modular buildings for commercial use.
Coastal is based in St. Petersburg, Florida. The acquisition will be accounted
for by the purchase method of accounting.
INDUSTRY OVERVIEW
In recent years, the growth in population in California, both from births and
from immigration, has led to increasing school enrollments. As a result,
classrooms in many California school districts currently are reported to be
among the most crowded in the nation, with an average of 29 students per class
compared to a national average class size of 17. The California Department of
Finance has estimated that student enrollment in grades kindergarten through 12
will increase by approximately 18% over the period from 1995 through 2005.
Additionally, changes in population demographics have left many existing
permanent school facilities in older residential areas with excess capacity due
to declining enrollments, while many new residential areas are faced with a
continuing shortage of available classrooms. Consequently, it has become
necessary to add additional classrooms at many existing facilities, and to build
a number of new schools.
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The construction of new schools and the addition of classrooms at existing
schools are tied to the sources and levels of funding available to California
school districts. The availability of funding for new school and classroom
additions, in turn, is determined in large measure by the amount of tax revenue
raised by the State, the level of annual allocations for education from the
State's budget which is determined by educational policies that are subject to
political concerns, and the willingness of the California electorate to approve
state and local bond issues to raise money for school facilities.
In 1978, California voters approved Proposition 13, which rolled back local
property taxes (a traditional source of funding for school districts) and
limited the ability of local school districts to raise taxes to finance the
construction of school facilities. The passage of Proposition 13, coupled with
growing student populations, has increased the need for local school districts
to find ways to reduce the cost of adding classrooms. The California legislature
has adopted several statutes designed to alleviate some of the problems
associated with the shortage of classrooms and lack of local funding
alternatives. For example, in 1976, California adopted legislation that through
November 1998 required, with certain exceptions, that at least 30% of all new
classroom space added using State funds must be relocatable structures. This
requirement was satisfied through the purchase or lease of the Company's
classrooms. See "Business -Legislation and Funding." Additionally, in 1979 the
California legislature adopted legislation that provides for State funding for
the purchase of relocatable classrooms that could be leased to local school
districts.
As the number of students enrolled in California schools continued to increase
throughout the 1990's, the State of California and California school districts
experienced increasing budget shortfalls. The resulting shortage of funding
available at both the State and local level led to declining sales of modular
relocatable classrooms, by the Company and on an industry-wide basis. However,
as the State budget deficit ameliorated, funding for modular relocatable
classrooms began to increase. This growth was accelerated when the California
Class Size Reduction Program was implemented in November 1996, the goal of which
is to reduce class sizes to 20 students in public elementary schools at the
kindergarten through third grade levels. For the 1996-1997 school year, the
State spent $822 million under this program, including $200 million specifically
for facilities, which may be relocatable classrooms. The total State funding
under the Class Size Reduction Program for the 1997-1998 school year was
approximately $1.5 billion for both general operations and school facilities.
See "Legislation and School Funding."
When compared to the construction of a conventionally built classroom, modular
classrooms offer a number of advantages, including, among others:
Lower Cost -- The cost of the Company's standard classroom
may be as low as $29,000 installed, as compared
to $80,000 to $100,000 for conventional
construction of a comparable classroom;
Shorter Construction -- A modular classroom can be built and ready for
occupancy in a shorter Time period of time than
that required for state approval and
construction of a conventional facility;
Flexibility of Use -- Modular relocatable classrooms enable a
school district to use the units for short or
long term needs and to move them if necessary
to meet shifts in student populations; and
Ease of Financing -- As personal rather than real property, modular
classrooms may be leased on a long or
short-term basis from manufacturers and leasing
companies. This allows school districts to
finance modular classrooms out of both their
operating and capital budgets.
MODULAR RELOCATABLE CLASSROOMS
The Company's modular relocatable classrooms are designed, engineered and
constructed in accordance with structural and seismic safety specifications
adopted by the California Department of State Architects, standards which are
more rigorous than the requirements for other portable units. The Department of
State Architects, which regulates all school construction on public land, has
prescribed extensive regulations regarding the design and construction of school
facilities, setting minimum qualifications for the preparation of plans and
specifications, and reviews all plans for the construction of material
modifications to any school building. Construction authorization is not given
unless the school district's architect certifies that a proposed project
satisfies construction cost and allowable area standards. The Company
subcontracts with structural engineering firms to interface with each school
district's architect or engineer to process project specifications through the
Department of State Architects. The Company believes that the regulated
environment in which the Company's classrooms are manufactured serves as a
significant barrier to market entry by prospective competitors. See "Business --
Competition."
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Conventional school facilities constructed by school districts using funds from
the State Office of Public School Construction typically require two to three
years for approval and funding. By contrast, factory-built school buildings like
the Company's standard classrooms may be pre-approved by the State for use in
school construction. Once plans and specifications for a given classroom have
been pre-approved, school districts can thereafter include in their application
to obtain State funds for new facilities a notification that they intend to use
pre-approved, standardized factory-built classrooms. This procedure reduces the
time required in the State's approval process to as little as 90 days, thereby
providing an additional incentive to use factory-built relocatable classrooms.
In all cases, continuous on-site inspection by a licensed architect or
structural engineer is required during actual manufacture of the classrooms,
with the school district obligated to reimburse the Department for the costs of
such inspection.
The Company's classrooms are manufactured and installed in accordance with the
applicable Department of State Architects building code, which supersedes all
local building codes for purposes of school construction. The classrooms must
comply with accessibility requirements for the handicapped, seismic and fire
code requirements.
The Company manufactures and installs standard, largely pre-fabricated modular
relocatable classrooms, as well as customized classrooms, which are modular in
design, but assembled on-site using components manufactured by the Company
together with components purchased from third party suppliers. The Company's
classrooms vary in size from two modular units containing a total of 960 square
feet to 20 units that can be joined together to produce a facility comprising
9,600 square feet. Larger configurations are also possible. Typical prices for
the Company's standard classrooms range from $29,000 to $34,000, while prices
for a custom classroom generally exceed $50,000, depending upon the extent of
customization required.
The two basic structural designs for standard and custom modular classrooms are
a rigid frame structure and a shear wall structure. The rigid frame structure
uses a steel floor and roof system, supported at each corner with square steel
tubing. These buildings have curtain walls to enclose the interior from the
outside, and have the advantage of unlimited width and length. Rigid frame
structures may be used for multipurpose rooms and physical education buildings
as well as standard classrooms. Shear wall classrooms have a maximum width of 48
feet (four 12 foot modules) and a maximum length of 60 feet. These classrooms
use the exterior and interior walls to produce the required structural strength
and can be built at lower costs than rigid frame structures. The Company's most
popular factory-built classroom is a rigid frame design, with two modules
connected side by side to complete a 24 by 40 foot classroom.
Custom built classrooms, libraries and gymnasiums contain design variations and
dimensions such as ceiling height, pitch, overall size and interior
configuration. These units typically are not assembled at the factory but
instead are shipped in pieces, including floors, walls and roofs, and assembled
on-site. Contracts for custom built units may include the design, engineering
and layout for an entire school or an addition to a school, and involve site
preparation, grading, concrete and asphalt work and landscaping. Customized
classrooms are generally more expensive and take longer to complete than the
Company's standard classrooms.
The interior and exterior of all of the Company's modular classrooms can be
customized by employing different materials, design features and floor plans.
Most classrooms are open, but the interior of the buildings can be divided into
individual rooms by permanent or relocatable partitions. The floor covering is
usually carpet but may be linoleum or wood depending upon the intended use of
the classroom. Interior wall material is usually vinyl covered firtex over
gypsum board, while other finishes such as porcelain enamel or painted hardboard
may be used in such places as restrooms and laboratories. Electrical wiring, air
conditioning, windows, doors, fire sprinklers and plumbing are installed during
the manufacturing process. The exterior of the units is typically plywood
siding, painted to the customer's specifications, but other common siding
material may also be applied.
CLASSROOM CUSTOMERS
The Company markets and sells its modular classrooms primarily to California
school districts. The Company also sells its classrooms to the State of
California and leasing companies, both of which lease the classrooms principally
to California school districts. Sales of classrooms accounted for 94.2%, 98.1%
and 97.7% of the Company's total net sales for the years ended December 31,
1996, 1997 and 1998. The Company's customers typically pay cash from general
operating funds or the proceeds of local bond issues, or lease classrooms
through banks, leasing companies and other private funding sources. See
"Legislation and Funding."
Sales of classrooms to individual California school districts accounted for
approximately 74.5%, 71.1% and 72.5%, respectively, of the Company's net sales
during the years ended December 31, 1996, 1997 and 1998, with sales of
classrooms to third party lessors to California school districts during these
periods accounting for approximately 7.2%, 19.1% and 13.9%, respectively, of the
Company's net sales. The mix of school districts to which the Company sells its
products varies somewhat from year to year. Sales of classrooms directly to the
State of California during 1998 represented approximately 11.3% of the Company's
net sales for the period, compared to approximately 7.9% of the Company's 1997
net sales and approximately 12.5% of the Company's 1996 net sales. Sales of
classrooms to private schools, day care providers and out-of-state customers
accounted for less than one percent of the Company's net sales during the years
ended December 31, 1996, 1997 and 1998. One of the lessors to which the Company
sells classrooms for lease
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to California school districts is affiliated with the Company through common
ownership by two of the Company's directors. During the years ended December 31,
1996, 1997 and 1998, sales of classrooms to this affiliated leasing company
comprised approximately 2.9%, 2.2% and 2.1%, respectively, of the Company's net
sales. See "Management -- Certain Transactions."
OTHER PRODUCTS
In addition to modular relocatable classrooms that are designed and manufactured
in accordance with the California Department of State Architects standards, the
Company also manufactures modular, portable buildings, which can be used as
office facilities and construction trailers and for other commercial purposes.
Currently, most of these non-classroom products are manufactured at the
Patterson, California plant, which the Company acquired in 1996. During the
years ended December 31, 1996, 1997 and 1998, sales of such modular, portable
buildings to commercial customers accounted, in the aggregate, for approximately
5.8%, 1.9% and 2.3%, respectively, of the Company's net sales. The Company also
manufactures a small number of modular structures that house and shelter
electronic equipment used in the wireless telecommunications industry. During
the years ended December 31, 1996, 1997 and 1998, sales of modular
telecommunications equipment shelters, which are included above in sales to
commercial customers, accounted for less than one percent of the Company's net
sales for each period.
SALES AND MARKETING
At December 31, 1998 the Company's classroom sales force was divided into three
marketing regions: Northern, Central and Southern California. At December 31,
1998 the Company employed three classroom salespersons, each of whom is
compensated on a commission basis. These salespersons maintain contact with the
individual school districts in their respective marketing regions on a quarterly
basis. They are also in contact with architects and building inspectors employed
by the school districts, as well as school officials who may be in a position to
influence purchasing decisions.
Most of the Company's contracts are awarded on an open bid basis. The marketing
process for many of the Company's contracts begins prior to the time the bid
process begins. After the Company selects bids or contracts that it desires to
pursue, the Company's marketing and engineering personnel interface directly
with various school boards, superintendents or architects during the process of
formulating bid or contract specifications. The Company prepares its bids or
proposals using various criteria, including current material prices, historical
overhead costs and a targeted profit margin. Substantially all of the Company's
contracts are turnkey, including engineering and design, manufacturing,
transportation, installation and necessary site work. Open bid contracts are
normally awarded to the lowest responsible bidder.
A fourth salesperson is charged with increasing the Company's sales of buildings
to the commercial and telecommunications markets. In addition, the Company has
two additional salespeople whose focus is on the sale of classrooms in Nevada
and Arizona, and to private schools and day care operators in California.
MANUFACTURING AND ON-SITE INSTALLATION
The Company uses an assembly-line approach in the manufacture of its
standardized classrooms. The process begins with the fabrication of the steel
floor joists. The floor joists are welded to steel frames to form the floor
sub-assembly, which is covered by plywood flooring. Metal roof trusses and
structural supports are fabricated separately and added as the unit progresses
down the assembly-line. Installation of walls, insulation, suspended grid
ceilings, electrical wiring, air conditioning, windows, doors, fire sprinklers,
plumbing and chalkboards follow, with painting and finishing crews completing
the process. Once construction of a standard classroom commences, the building
can be completed in as little as three days. The construction of custom units
on-site, from pre-manufactured components, is similar to factory-built units in
its progressively-staged assembly process but may involve more extensive
structural connections and finish work depending upon the size and type of
building, and typically takes 30 to 60 days to complete.
The Company is vertically-integrated in the manufacture of its standardized
modular classrooms, in that the Company fabricates substantially all of its own
metal components at its facility in Perris, California, including structural
floor and roof joists, exterior roof panels, gutters, down spouts, vents, ramps,
stairs and railings. The Company believes that the ability to fabricate its own
metal components helps it reduce the costs of its products and to control their
quality and delivery schedules. The Company maintains a quality control system
throughout the manufacturing process, under the supervision of its own quality
control personnel and inspectors engaged by its customers. In addition, the
Company tracks the status of all classrooms from sale through installation.
Completed standard classroom units, or components used in customized units, are
loaded onto specially designed flatbed trailers for towing by trucks to the
school building site. Upon arrival at the site, the units are structurally
connected, or components are assembled, and the classroom is installed on its
foundation. Connection with utilities is completed in the same manner as in
conventional on-site construction. Installation of the modular classrooms may be
on a separate foundation, or several units may be incorporated on a common
foundation under a unified roof, so that upon installation they appear to be an
integral part of an existing school facility or function as a larger building,
such as a gymnasium or cafeteria.
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The Company oversees installation of its modular classrooms on-site, using its
own employees for job supervision as a general contractor and, whenever
possible, for utility hook-ups and other tasks. In many custom projects, the
Company performs or supervises subcontracted electrical, plumbing, grading,
paving and foundation work, landscaping and other site preparation work and
services. Sub-contractors are typically used for larger utility, grading,
concrete and landscaping jobs. The Company has a general contractor's license in
the State of California.
In addition to approvals by the Department of State Architects, licensed
inspectors representing various school districts are on-site at each
manufacturing facility of the Company to continuously inspect the construction
of classrooms for structural integrity. On-site inspections after installation
are also made by local fire departments for purposes of determining adequate
accessibility.
At December 31, 1998 the Company had five manufacturing facilities. Two are
located in Southern California, in Perris, California, which is approximately 60
miles east of Los Angeles. The Company has another two facilities near Lathrop,
California. Lathrop is located approximately 75 miles east of San Francisco. The
fifth manufacturing facility is located in Glendale, Arizona, which is located
in the Phoenix Metropolitan area. At December 31, 1998, the Company had a total
of five production lines in operation.
The standard contractual warranty for the Company's modular relocatable
classrooms is one year, although it may be varied by contract specifications.
Purchased equipment installed by the Company, such as air conditioning units,
carry the manufacturers' standard warranty. Warranty costs have not been
material in the past.
The Company believes that there are multiple sources of supplies available for
all raw materials and equipment used in manufacturing its classrooms, most of
which are standard construction items such as steel, plywood and wallboard.
BACKLOG
The Company manufactures classrooms to fill existing orders only, and not for
inventory. As of December 31, 1998, the backlog of sales orders was
approximately $25.0 million, down from approximately $71.0 million at December
31, 1997 and $58.0 million at December 31, 1998. Only orders, which are
scheduled for completion during the following 12-month period, are included in
the Company's backlog. The rate of booking new contracts can vary from month to
month, and customer changes in delivery schedules can occur. For these reasons,
among others, the Company's backlog as of any particular date may not be
representative of actual sales for any succeeding period.
COMPETITION
The Company believes that, based upon 1997 net sales, it is the largest modular
relocatable classroom manufacturer in California. However, the modular
relocatable classroom industry is highly competitive, with the market divided
among a number of privately-owned companies whose share of the market is smaller
than that of the Company. The Company believes that the nature of the bidding
process, the level of performance bonding required, and the industry's regulated
environment serve as barriers to market entry, and that the expertise of its
management gives it an advantage over competitors. Nevertheless, the Company
believes that additional competitors may enter the market in the future, some of
whom may have significantly greater capital and other resources than are
available to the Company, and that competition may therefore increase.
The Company also believes that its expertise in site preparation and on-site
installation gives it a competitive advantage over many manufacturers of
higher-priced, customized modular units, while its vertically integrated,
assembly-line approach to manufacturing enables the Company to be one of the low
cost producers of standardized, modular relocatable classrooms in California.
Unlike many of its competitors, the Company manufactures most of its own metal
components which allows the Company to maintain quality control over these
components and to produce them at a lower average cost than that at which they
could be obtained from outside sources. The Company also believes that the
quality and appearance of its buildings, and its reputation for reliability in
completion of its contracts, enable it to maintain a favorable position among
its competition.
The Company categorizes its current competition based upon the geographic market
served (Northern California versus Southern California), as well as upon the
relative degree of customization of products sold. Beyond a radius of
approximately 300 miles, the Company believes that transportation costs
typically will either significantly increase the prices at which it bids for
given projects, or will substantially erode the Company's gross profit margins.
The primary competitors of the Company for standardized classrooms are believed
to be Aurora Modular Industries in Southern California and American Modular
Systems in Northern California. Profiles Structures, Inc. in Southern California
and Design Mobile Systems in Northern California are the Company's primary
competitors in the market for higher-priced, customized classrooms. Each of
these four competitors is a privately-owned company.
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PERFORMANCE BONDS
A substantial portion of the Company's sales require that the Company provide
bonds to ensure that the contracts will be performed and completed in accordance
with contract terms and conditions, and to assure that subcontractors and
materialmen will be paid. In determining whether to issue a performance bond on
behalf of the Company, bonding companies consider a variety of factors
concerning the specific project to be bonded, as well as the Company's levels of
working capital, shareholders' equity and outstanding indebtedness. From time to
time the Company has had, and in the future may again encounter, difficulty in
obtaining bonding for a given project. Although it has had no difficulty in
obtaining the necessary bonding in the last twelve months, the Company believes
that its difficulty in obtaining bonding for certain large projects from time to
time in the past has been attributable to the Company's levels of working
capital, shareholders' equity and indebtedness, and not to concerns about the
Company's ability to perform the work required under the contract. To assist the
Company in obtaining performance bonds in certain instances, the Company's
executive officers have been required to indemnify the bonding companies against
all losses they might suffer as a result of providing performance bonds for the
Company.
REGULATION OF CLASSROOM CONSTRUCTION
In 1933, the California Legislature adopted the Field Act, which generally
provides that school facilities must be constructed in accordance with more
rigorous structural and seismic safety specifications than are applicable to
general commercial buildings. Under the Field Act, the Department of General
Services, through the Department of State Architects, has prescribed extensive
regulations regarding the design and construction of school facilities, and
reviews all plans for the construction of material modifications to any school
building. Construction authorization is not given unless the school district's
architect certifies that a proposed project satisfies construction cost and
allowable area standards. In addition, the Field Act provides for the submittal
of complete plans, cost estimates, and filing fees by the school district to the
Department of General Services, for the adoption of regulations setting minimum
qualifications for the preparation of plans and specifications, and the
supervision of school construction by a licensed architect or structural
engineer.
Additionally, California legislation provides that certain factory-built school
buildings may be pre-approved by the State for use in school construction. Once
plans and specifications for a given classroom have been pre-approved by the
Department of General Services, school districts can thereafter include in their
application to obtain State funds for new facilities a notification that they
intend to use pre-approved, standardized factory-built classrooms. This
procedure reduces the time required in the State's approval process thereby
providing additional incentive to use factory-built relocatable classrooms. The
Department of General Services provides for the continuous on-site inspection
during actual manufacturing of the classrooms, with the school districts
obligated to reimburse the Department for the costs of such inspection.
LEGISLATION AND FUNDING
The demand for modular relocatable classrooms in California is affected by
various statutes. These statutes, among other things, prescribe the methods by
which the Company's customers, primarily individual school districts, obtain
funding for the construction of new school facilities, and the manner in which
available funding is to be spent by the school districts.
In 1978, Proposition 13 was approved, which rolled back property taxes and
limited the ability of local school districts to rely upon revenue from such
taxes to finance the construction of school facilities. As a result, financing
for new school construction and rehabilitation of existing schools by California
school districts is currently provided, at the state level, by funds derived
from general revenue sources or statewide bond issues, and, at the local level,
by local bond issues and fees imposed on the developers of residential,
commercial and industrial real property ("Developer Fees"). Historically, the
primary source of financing for the purchase or lease of relocatable classrooms
has been state funding.
STATE FUNDING. In November 1996, California implemented the Class Size Reduction
Program in response to overcrowding in classrooms in the state and its assumed
negative impact on learning. An additional impetus for the program was a study
conducted by Tennessee State University which indicated that students in small
classrooms outperformed their peers from larger classes at least through the
eighth grade on standardized tests in math and reading. The goal of the
California Class Size Reduction Program is to reduce public elementary school
class sizes in kindergarten through the third grade. Under this program, schools
that reduce class size to 20 students in those grades receive additional funds.
For the 1996-1997 school year, a school district was entitled to receive $25,000
for each new classroom added which reduced the average class size for a
specified grade level to 20 students or less. Among other ways new classrooms
can quickly and inexpensively be added, school districts may reconfigure
existing space to convert it to classrooms from other uses, or purchase or lease
a modular relocatable classroom.
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Until the adoption of the Class Size Reduction Program in 1996, the most
important source of funding at the State level for new school facilities was
through the issuance and sale of statewide general obligation bonds which are
repaid out of the State's General Funds. Proposals to issue such bonds are
placed on statewide ballots from time-to-time in connection with general or
special elections, and require approval by a majority of the votes cast in
connection with such proposals. As in the case of the Class Size Reduction
Program, the State also may annually allocate funds from the State's budget for
the support of school districts and community college districts.
AUTHORITY FOR BOND FINANCING. Under the School Building Lease -- Purchase Law of
1976, the State Allocation Board is empowered to purchase or lease school
facilities using funds from the periodic issuance of general obligation bonds of
the State of California. These purchased or leased school facilities may be made
available by the State Allocation Board to school districts. Certain matching
funds, usually derived from Developer Fees, are required to be supplied by the
school districts seeking state funded facilities. If the school districts
acquire relocatable structures using Developer Fees, the amount of the required
matching funds is reduced by the cost of such facilities. This reduction in
matching funds is intended to provide an incentive for school districts to lease
relocatable classrooms. Prior to November 1998, as a condition of funding any
project under this program, at least 30% of new classroom space to be added must
be comprised of relocatable structures, unless relocatable structures are not
available or special conditions of terrain, climate or unavailability of space
make the use of relocatable structures impractical. In addition, State funds
under this program are not available to school districts which are determined to
have an adequate amount of square footage available for their student
population.
Senate Bill 50, which was passed in November 1998 by the California Legislature,
revised the School Building Lease - Purchase Law of 1976 by eliminating the
requirement that at least 30% of all new classroom space being added using
California state funds must be relocatable classrooms. In general, it replaced
this provision with a requirement that, in order for school districts to
increase the amount of funds to be received from developers in excess of the
current statutory level, the school districts must show that 20% of all
classroom space in the district, not just new space added, consists of
relocatable classrooms. The bill also placed a $9.2 billion bond issue on the
November 1998 ballot, which was approved by the voters. The bill allocates from
the bond issue $2.9 billion for growth and new construction, and $2.2 billion
for modernization and reconstruction through the year 2001. In addition, it
allocates $700 million for class-size reductions to fully implement the program
from kindergarten through third grade. The costs to implement the foregoing will
include land acquisition costs, hiring of new teachers, remodeling of existing
structures and construction of new permanent and relocatable structures. The
bill does not designate the specific usage of funds, and the actual amount spent
on relocatable classrooms will vary among school districts. Implementation of
Senate Bill 50 began the third week of January 1999. The Company does not expect
any significant change in its future operating results due to implementation of
Senate Bill 50.
In response to the adoption of Proposition 13, the State of California adopted
the California Emergency Classroom Law of 1979, pursuant to which the State
Allocation Board may spend up to $35 million per year from available funds to
purchase relocatable classrooms to be leased to school districts. Relocatable
classrooms are not available to school districts under this program if the
school district has available local bond proceeds that could be used to purchase
classroom facilities, unless the district has approved projects pending under
the School Building Lease-Purchase Law of 1976. The State has, in the past,
funded this program primarily from the proceeds of statewide bond issues
approved by voters.
BUDGET ALLOCATIONS. Proposition 98, which was approved in 1988, requires the
State to allocate annually from the State's budget, for the support of school
districts and community college districts, a minimum amount equal to the same
percentage of funds as was appropriated for the support of those institutions in
fiscal year 1986-87. While this requirement may be suspended for a given year by
emergency legislation, it has the effect of limiting the ability of the
California legislature to reduce the level of school funding from that in
existence in 1986-87. The State raises the necessary funds through proceeds from
the sale of statewide bond issues, income tax revenues and other revenues. A
recent reduction in California's corporate tax rates, and a proposed reduction
in personal income tax rates, may affect future levels of the State's income tax
revenues.
LOCAL FUNDING. Local school districts in California have the ability to issue
local general obligation bonds for the acquisition and improvement of real
property for school construction. These bond issues require the approval of
two-thirds of the voters in the district and are repaid using the proceeds of
increases in local property taxes. A local school district may also levy
Developer Fees on new development projects in the district, subject to a maximum
rate set by state law. The Developer Fees can only be levied if the project can
be shown to contribute to the need for additional school facilities and the fee
levied is reasonably related to such need. In addition, California law provides
for the issuance of bonds by Community Facilities Districts which can be formed
by a variety of local government agencies, including school districts. These
districts, known as "Mello-Roos" districts, can have flexible boundaries and the
tax imposed to repay the bonds can be based on property use, acreage, population
density or other factors.
8
<PAGE> 9
OTHER LEGISLATION
California legislation adopted in 1989 provides that school districts which
currently lease any building which does not meet the prescribed structural
standards must have replaced nonconforming buildings with conforming ones by
September 1, 1990. However, any district has the right to request a one-time
waiver for a maximum of three years upon presentation of satisfactory evidence
to the State Allocation Board that the district is proceeding in a timely
fashion with a program that will eliminate the need for the nonconforming
facilities within that time period. The State has authorized districts to renew
these waivers through 2000 and may grant further waivers. The Company
understands that a number of school districts have requested and been granted
such waivers. Based upon information received by the State Allocation Board from
school districts and provided to the Company, it is believed that there are
approximately 4,500 trailers currently being used as classrooms by school
districts throughout California that eventually must be replaced with conforming
facilities by these school districts.
California has taken steps to encourage local school districts to adopt
year-round school programs to help increase the use of existing school
facilities and reduce the need for additional school facilities. School
districts requesting state funding under the School Building Lease-Purchase Law
of 1976 or the Emergency Classroom Law of 1979 discussed above must submit a
study examining the feasibility of implementing in the district a year-round
educational program that is designed to increase pupil capacity in the district
or in overcrowded high school attendance areas. The feasibility study
requirement is waived, however, if the district demonstrates that emergency or
urgent conditions exist in the district that necessitate the immediate need for
relocatable buildings. The demand for new school facilities, including
relocatable classrooms, would be adversely affected in the event that a
significant number of California school districts implemented year-round school
programs. In addition, a significant increase in the level of voluntary or
mandatory busing of students from overcrowded schools to schools with excess
capacity could adversely affect demand for new school facilities.
ENVIRONMENTAL MATTERS
The Company is subject to a variety of federal, state and local governmental
regulations related to the storage, use and disposal of any hazardous materials
used by the Company in connection with the manufacture of its products. Both the
governmental regulations and the costs associated with complying with such
regulations are subject to change in the future.
EMPLOYEES
At December 31, 1998, the Company had 481 employees, including 429 in
manufacturing, 6 in sales, 17 in operations and 29 in general management and
administration. The Company's employees are not represented by a labor union,
and it has experienced no work stoppages. The Company believes that its employee
relations are good.
ITEM 2. PROPERTIES
The Company's principal executive and administrative facilities are located in
approximately 12,000 square feet of modular buildings at its primary
manufacturing facility located in Perris, California. This manufacturing
facility occupies twenty-five acres, with approximately 226,000 square feet of
covered production space under roof, pursuant to a lease expiring in 2014. A
second facility in Perris occupies approximately thirty acres, with
approximately 120,000 square feet of covered production space under roof,
pursuant to a lease expiring in 2014. This second facility also includes
approximately 80,000 square feet under roof used as a metal working facility.
The Company's third plant consists of a 400,000 square foot manufacturing
facility on a 30-acre site in Lathrop, California that is leased through 2019.
The fourth plant, which was leased for up to five years in October 1996,
consists of approximately 50,000 square feet of manufacturing area on a 4-acre
site in Patterson, California. The fifth plant consists of approximately 30,000
square feet of manufacturing area on a 4-acre site in Glendale, Arizona. The
Company believes that its facilities are well maintained and in good operating
condition, and meet the requirements for its immediately foreseeable business
needs. Each of the Company's facilities at December 31, 1998, other than the
Patterson plant and Arizona plant, are leased from an affiliate. See "Management
- -- Certain Transactions."
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in various lawsuits related to its
ongoing business operations, primarily collection actions or vendor disputes. In
the opinion of management, no pending lawsuit will result in any material
adverse effect upon the Company or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was traded on the NASDAQ National Market System under
the symbol "MODT" at December 31, 1998. The range of high and low sales prices
for the common stock as reported by the National Association of Securities
Dealers, Inc. for the periods indicated below, are as follows:
Quarter Ended High Low
------------- ------ ------
3/31/98 29.125 19.125
6/30/98 23.688 18.500
9/30/98 20.500 16.000
12/31/98 20.250 13.000
On December 31, 1998, the closing sales price on The NASDAQ National Market for
a share of the Company's Common Stock was $15.25. The approximate number of
holders of record of the Company's Common Stock as of December 31, 1998, was 90.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since 1990. The
Board of Directors currently intends to follow a policy of retaining all
earnings, if any, to finance the continued growth and development of the
Company's business and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. Any future determination as to the payment of
cash dividends will be dependent upon the Company's financial condition and
results of operations and other factors deemed relevant by the Board of
Directors.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected income statement and balance sheet data set forth below for the
three years ended December 31, 1996, 1997 and 1998 have been derived from the
audited financial statements of the Company included elsewhere herein. The
selected income statement and balance sheet data set forth below for the years
ended December 31, 1994 and 1995 have been derived from audited financial
statements of the Company that are not included herein. The selected income
statement and balance sheet data set forth below should be read in conjunction
with those financial statements (including the notes thereto) and with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" also included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales .................................. $ 20,355 $ 19,386 $ 49,886 $ 134,050 $ 127,620
Cost of goods sold ......................... 17,766 16,401 42,629 107,367 97,765
--------- --------- --------- --------- ---------
Gross profit ............................... 2,589 2,985 7,257 26,683 29,855
Selling, general and administrative expenses 1,554 1,613 2,345 5,156 4,739
Income from operations ..................... 1,035 1,372 4,912 21,527 25,116
Interest income (expense), net ............. (471) (387) (422) (909) 1,097
Other income (expense) ..................... 42 (1) (13) 92 25
--------- --------- --------- --------- ---------
Income before income taxes ................. 606 984 4,477 20,711 26,238
Provision for income taxes ................. 4 19 208 (7,703) (9,708)
--------- --------- --------- --------- ---------
Net income ................................. 602 965 4,269 13,008 16,530
========= ========= ========= ========= =========
Net income available for common
stock(1) ................................. $ 602 $ 799 $ 4,221 $ 13,008 $ 16,530
========= ========= ========= ========= =========
Basic earnings per common share(2) ......... $ 0.19 $ 0.25 $ 0.77 $ 1.47 $ 1.68
Weighted average shares outstanding
(in thousands)(2) ........................ 3,209 3,170 5,461 8,854 9,857
Diluted earnings per common share(2) ....... $ 0.11 $ 0.14 $ 0.47 $ 1.31 $ 1.50
Weighted average shares outstanding
(in thousands)(2) ........................ 5,294 6,712 9,041 9,898 10,988
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................. $ 4,403 $ 4,383 $14,069 $36,417 $52,129
Total assets .................... 15,919 15,154 34,029 68,220 82,873
Total liabilities ............... 7,900 6,411 18,716 20,177 17,777
Long-term debt, excluding
current portion................ 4,400 3,590 7,844 -- --
Shareholders' equity ............ 8,019 8,743 8,743 48,043 65,097
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996 1997 1998
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Gross margin .............. 12.7% 15.4% 14.5% 19.9% 23.4%
Operating margin .......... 5.1% 7.1% 9.8% 16.1% 19.7%
Standard classrooms sold(3) 680 605 1,610 4,514 6,852
Backlog at period end(4) .. $7,000 $4,100 $58,000 $71,000 $25,000
</TABLE>
- -----------------
(1) After deduction of preferred stock dividends paid or accrued of $166,000
and $48,000 for the years ended December 31, 1995 and 1996, respectively.
All of the preferred stock was converted into common stock during 1996.
See Note 11 of Notes to Financial Statements.
(2) Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share". All prior periods have
been restated accordingly.
(3) Determined by dividing the total square footage of floors sold during the
year by 960 square feet, the floor area of a standard classroom. See
"Business--Relocatable Modular Classrooms."
(4) The Company manufactures classrooms to fill existing orders only, and not
for inventory. Backlog consists of sales orders scheduled for completion
during the next 12 months.
11
<PAGE> 12
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Following are the unaudited pro forma combined condensed balance sheet as of
December 31, 1998 and the unaudited pro forma combined condensed income
statements for the year ended December 31, 1998 and 1997 of Modtech, Inc. and
SPI Holdings, Inc. These statements are based on the historical consolidated
financial statements of Modtech, Inc. and SPI Manufacturing, Inc., combined, and
are adjusted to give effect to the mergers. In addition, pro forma adjustments
have been made for the acquisitions consummated by SPI prior to the merger.
Certain reclassifications have been made to the historical financial statements
to conform with this pro forma presentation.
The pro forma adjustments are based upon preliminary estimates, information
currently available and certain assumptions that management believes are
reasonable under the circumstances. Holding's actual consolidated financial
statements will reflect the effects of the mergers on and after February 16,
1999 rather than the dates indicated above. The unaudited pro forma combined
condensed financial statements neither purport to represent what the combined
results of operations or financial condition actually would have been had the
mergers, in fact, occurred on the assumed dates, nor to project the combined
results of operations and financial position for any future period.
These statements should be read in conjunction with (i) Modtech Inc.'s
historical financial statements and notes thereto included elsewhere herein,
and (ii) Holdings' Joint Proxy Statement/Prospectus dated January 11, 1999
which is included in Holding's Registration Statement on Form S-4 filed with
the Securities and Exchange Commission (Commission File No. 333-69033).
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
----------------- PRO FORMA PRO FORMA
MODTECH SPI NOTES ADJUSTMENTS COMBINED
------- ----- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $40,142 $ 259 (B) $(36,289) $ 4,112
Contracts receivable, net 12,923 2,433 15,356
Costs in excess of billings 3,823 -- 3,823
Inventories 4,442 3,852 8,294
Due from affiliates 2,389 -- 2,389
Income tax receivable 2,368 840 3,208
Deferred tax asset 3,440 135 (C) (135) 3,440
Other current assets 281 1,068 (T) (745) 604
------- ------- -------- --------
Total current assets 69,808 8,587 (37,169) 41,226
Property and equipment, net 12,314 2,175 14,489
Other assets:
Deferred tax asset -- 62 (C) (62) --
Other assets 751 3,521 (D,E) 1,494 5,766
Costs in excess of net
assets of business
acquired, net -- 33,560 (F,G) 95,391 128,951
------- ------- -------- --------
$82,873 $47,905 $ 59,654 $190,432
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $10,541 $ 2,811 (H) $ 750 $ 14,102
Billings in excess of costs 7,138 -- 7,138
Revolving credit facility -- 4,524 (I,J) 1,576 6,100
Current portion of
long-term debt -- 4,914 (J,K) 1,086 6,000
------- ------- -------- --------
Total current liabilities 17,679 12,249 3,412 33,340
Deferred tax liability 97 -- 97
Long-term debt -- 23,701 (J,K) 15,299 39,000
------- ------- -------- --------
Total liabilities 17,776 35,950 18,711 72,437
------- ------- -------- --------
Stockholders' equity:
Common stock 99 6 (L,M,N) 21 126
Preferred stock -- 10,106 (L,N) (10,102) 4
Additional paid-in capital 39,854 -- (A,M,N) 52,867 92,721
Retained earnings 25,144 1,843 (L) (1,843) 25,144
------- ------- -------- --------
Total stockholders'
equity 65,097 11,955 40,943 117,995
$82,873 $47,905 $59,654 $190,432
======= ======= ======= ========
</TABLE>
See the accompanying notes to the unaudited pro forma
combined condensed financial statements.
12
<PAGE> 13
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA PRO FORMA
MODTECH SPI NOTES ADJUSTMENTS COMBINED NOTES
---------- --------- ----- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $127,620 $72,643 $ $200,263
Cost of goods sold 97,765 61,161 158,926
-------- ------- --------- --------
Gross profit 29,855 11,482 -- 41,337
-------- ------- --------- --------
Selling, general and
administrative expenses 4,739 7,006 (F,G) 2,375 14,120
-------- ------- --------- --------
Income from
operations 25,116 4,476 (2,375) 27,217
Interest income (expense),
net 1,097 (3,795) (D,E,J,O,P) (306) (3,004)
Other income 25 38 63
-------- ------- --------- --------
Income before
income taxes 26,238 719 (2,681) 24,276
Income taxes 9,708 787 (Q) (122) 10,373
-------- ------- --------- --------
Net income (loss) $ 16,530 $ (68) $ (2,559) $ 13,903
======== ======= ========= ========
Basic earnings per share $1.68 $1.09 (R)
===== =====
Number of shares used in
computing basic earnings
per share 9,857 12,622 (R)
===== ======
Diluted earnings per share $1.50 $0.94 (S)
===== =====
Number of shares used in
computing diluted
earnings per share 10,988 14,845 (S)
====== ======
</TABLE>
See the accompanying notes to the unaudited pro forma
combined condensed financial statements.
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA PRO FORMA
MODTECH SPI NOTES ADJUSTMENTS COMBINED NOTES
---------- --------- ----- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $134,050 $80,497 $ $214,547
Cost of goods sold 107,367 65,321 172,688
-------- ------- --------- --------
Gross profit 26,683 15,176 -- 41,859
-------- ------- --------- --------
Selling, general and
administrative expenses 5,156 7,324 (F,G) 2,380 14,860
-------- ------- --------- --------
Income from
operations 21,527 7,852 (2,380) 26,999
Interest expense, net (908) (4,041) (D,E,J,O,P) (494) (5,443)
Other income 92 195 287
-------- ------- --------- --------
Income before
income taxes 20,711 4,006 (2,874) 21,843
Income taxes 7,703 1,950 (Q) (198) 9,455
-------- ------- --------- --------
Net income $ 13,008 $ 2,056 $ (2,676) $ 12,388
======== ======= ========= ========
Basic earnings per share $1.47 $0.97 (R)
===== =====
Number of shares used in
computing basic earnings
per share 8,854 12,622 (R)
===== ======
Diluted earnings per share $1.31 $0.83 (S)
===== =====
Number of shares used in
computing diluted
earnings per share 9,898 14,845 (S)
===== ======
</TABLE>
See the accompanying notes to the unaudited pro forma
combined condensed financial statements.
13
<PAGE> 14
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
A. The unaudited pro forma combined condensed balance sheet has been prepared
to reflect the acquisition of SPI for an estimated aggregate purchase price,
including estimated transaction costs, of $105,648,000 which is subject to
adjustment and is summarized as follows:
<TABLE>
<S> <C>
Modtech Holdings Common Stock offered hereby...... $ 87,627,000
Fair value of stock options offered hereby........ 5,195,000
Cash paid to SPI stockholders..................... 8,076,000
Estimated acquisition costs....................... 4,750,000
------------
Total............................... $105,648,000
============
</TABLE>
B. To record net cash distribution resulting from the following transactions:
<TABLE>
<S> <C>
Gross proceeds from New Term Loan................. $ 45,000,000
Gross proceeds from New Revolving Credit facility. 6,100,000
Cash paid to SPI Stockholders..................... (8,076,000)
Cash distribution to Modtech Stockholders......... (39,924,000)
Retirement of SPI Indebtedness.................... (33,139,000)
Payment of Estimated Debt Issuance Costs.......... (2,250,000)
Payment of Estimated Merger Costs................. (4,000,000)
------------
Net cash distribution....................... $(36,289,000)
============
</TABLE>
C. To eliminate current deferred tax assets of $135,000 and non-current
deferred tax assets of $62,000 not available to the Company.
D. To eliminate unamortized SPI debt issuance costs of $756,000 and the related
amortization expense of debt issuance costs of $178,000 and $170,000 for the
year ended December 31, 1998 and 1997, respectively.
E. To record (i) estimated debt issuance costs of $2,250,000 to be amortized
over the term of the New Term Loan and (ii) amortization of debt issuance
costs of $450,000 for the fiscal year ended December 31, 1998 and 1997.
F. To record (i) $128,951,000 for the excess of the consideration paid over the
preliminary estimate of the fair value of net liabilities assumed, to be
amortized over 40 years and (ii) to record goodwill amortization of
$3,224,000 for the year ended December 31, 1998 and 1997. The preliminary
purchase price allocation of the SPI acquisition is as follows:
<TABLE>
<S> <C>
Current assets................................... $ 7,707,000
Property, plant & equipment...................... 2,175,000
Other tangible assets............................ 189,000
Identifiable intangible assets................... 2,576,000
Current liabilities.............................. (2,811,000)
Current portion of long-term debt................ (9,438,000)
Long-term debt................................... (23,701,000)
-------------
Net liabilities assumed....................... (23,303,000)
Total Estimated Aggregate Purchase Price... (105,648,000)
-------------
Goodwill......................................... $ 128,951,000
=============
</TABLE>
G. To eliminate $33,560,000 of goodwill previously recorded by SPI and the
related amortization expense of $849,000 and $844,000 for the year ended
December 31, 1998 and 1997, respectively.
H. To record the recognition of liabilities related to certain merger costs.
I. To record the incurrence of $6,100,000 of indebtedness under a New Revolving
Credit Facility, with an assumed effective interest rate of 7.5%, utilized
to partially finance the cash portion of the Merger Consideration and pay
certain related transaction costs.
J. To eliminate the $33,139,000 of SPI indebtedness, including $4,914,000
classified as current and $4,524,000 under the revolving credit facility,
which will be retired by Modtech, and to eliminate the related interest
expense of $3,798,000 and $4,046,000 for the year ended December 31, 1998
and 1997, respectively.
K. To record the assumed of $45,000,000 of indebtedness, including $6,000,000
classified as current, under a New Term Loan, with an assumed effective
interest rate of 7.5%, utilized to partially finance the cash portion of the
Merger Consideration, retire SPI indebtedness and to pay certain related
transaction costs.
L. To eliminate the equity of SPI, which includes common stock of $6,000,
preferred stock of $10,106,000 and retained earnings of $1,843,000.
14
<PAGE> 15
M. To reflect the equity adjustments necessary to reflect the acquisition of
SPI under the purchase method of accounting. Such adjustment had the effect
of increasing common stock by $46,000 to record the common stock par value
and increasing additional paid-in capital by $92,776,000.
N. To record the repurchase of Modtech common stock for $39,924,000 cash in
connection with the Modtech Merger, resulting in a decrease of $39,909,000
to additional paid-in capital, a decrease of $19,000 to common stock and an
increase of $4,000 to preferred stock.
O. To record interest expense on borrowings under the New Term Loan of
$3,375,000 for the year ended December 31, 1998 and 1997, respectively.
using an assumed effective interest rate of 7.5%. A 0.125% increase/decrease
in the estimated interest rate incrementally increases/decreases income
before income taxes by $56,000 for the year ended December 31, 1998 and
1997.
P. To record interest expense on borrowings under the New Revolving Credit
Facility of $457,000 for the year ended December 31, 1998 and 1997 using an
assumed effective interest rate of 7.5%. A 0.125% increase/decrease in the
estimated interest rate incrementally increases/decreases income before
income taxes by $7,600 for the year ended December 31, 1998 and 1997.
Q. To record the income tax effects of the pro forma adjustments at a pro forma
effective tax rate of 40%.
R. Basic shares include 8,034,334 common shares assumed issued to former
Modtech stockholders and 4,587,824 common shares assumed issued to former
SPI stockholders. Net income is reduced by preferred dividends of $104,000
for the year ended December 31, 1998 and 1997.
S. Diluted shares include basic shares, preferred shares converted into common
shares on a one-to-one basis and exercise of stock options reduced by the
number of shares purchase with the proceeds.
T. To eliminate SPI merger costs as of December 31, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Since its inception in 1982, the Company's principal business has been the
design, manufacture, marketing and installation of modular relocatable
classrooms. The Company's primary customers consist of individual school
districts located in California and the State of California. The need for new
classrooms in California school districts is generally governed by the number of
students per class, which is a function of the net migration of families into
and out of school districts and the total number of new students entering the
school system in any given year.
Specific provisions of California legislation govern the amount of the State's
budget that must be directed toward the public school system. A portion of these
funds may be allocated for the addition of new classrooms. In addition, the
State can raise funds to build or add new classrooms through the issuance of
general obligation bonds. See "Business -- Legislation and Funding."
In the early to mid 1990's, California suffered through a recession that
resulted in statewide budgetary constraints. During this period, the amount of
State funds available for the addition of new classrooms was severely limited.
As a result, the Company experienced a decline in net sales in 1992 and 1993,
and net sales in 1994 and 1995 were essentially the same as those generated in
1993. In response, the Company initiated a cost control program that included
layoffs of approximately 80% of its staff as compared to the June 1991 work
force, and temporarily closed its plant in Lathrop, California. In addition, the
Chief Executive Officer of the Company agreed to a 50% salary reduction and each
of the Company's other top management personnel agreed to a 10% salary
reduction.
Due in large measure to the amelioration of the State budget crises and the
realization that the need for new classrooms in California far exceeded supply,
beginning in the second half of 1996 and continuing into 1997 and 1998, the
State has increased the amount of funds targeted specifically for the addition
of new classrooms. In November 1996, the State implemented the Class Size
Reduction Program, the goal of which is to reduce public school class sizes in
kindergarten through the third grade. For the 1996-1997 school year the State
spent $822 million under this program, including $200 million specifically for
facilities, which may be relocatable classrooms. Primarily as a result of the
implementation of the Class
15
<PAGE> 16
Size Reduction Program, the Company's net sales increased to $134.0 million in
1997 as compared to $49.9 million for the year ended December 31, 1996 and $19.4
million in 1995. In addition, a $9.2 billion school construction bond issue was
approved in November 1998. $2.9 billion of the bond issue is allocated for
growth and new construction and $2.2 billion for modernization and
reconstruction through the year 2001. It additionally allocated $700 million for
class-size reductions to fully implement the program from kindergarten through
third grade. See "Business -- Legislation and Funding." In response to the
increased demand for its modular relocatable classrooms, the Company re-opened
the Northern California Lathrop plant in 1997 and expanded its Southern
California production capacity in Perris in 1998.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages of
net sales represented by certain items in the Company's statements of
operations.
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1997 1998
------ ------ -----
<S> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0%
Cost of sales..................... 85.5 80.1 76.6
----- ----- -----
Gross profit...................... 14.5 19.9 23.4
Selling, general and
administrative expenses......... 4.7 3.8 3.7
----- ----- -----
Income from operations............ 9.8 16.1 19.7
Interest income (expense), net.... (0.8) (0.7) 0.9
Other income...................... -- -- --
Income before income taxes........ 9.0 15.4 20.6
Provision for income taxes........ 0.4 5.7 7.6
----- ----- -----
Net income........................ 8.6% 9.7% 13.0%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales for the year ended December 31, 1998 decreased to $127.6 million, a
decrease of $6.4 million, or approximately 4.8%, from $134.0 million in 1997.
The decrease in 1998 was due in part to the fact that the California Legislature
was more than two months late in passing the state budget. Additionally, there
was a delay in allocating the funds from the $9.2 billion school construction
bond issue which was passed in November 1998.
For the year ended December 31, 1998, gross profit was $29.9 million, an
increase of $3.2 million, or approximately 11.9%, over 1997 gross profit of
$26.7 million. Gross profit percentage of net sales increased to 23.4% in 1998
from 19.9% in 1997. The increase in gross profit as a percentage of net sales
was primarily attributable to the realization of manufacturing efficiencies.
In 1998, selling, general and administrative expenses decreased to $4.7 million
from $5.2 million, due to decreases in the number of employees and a decrease in
selling costs. As a percentage of net sales, selling, general and administrative
expenses decreased to 3.7% in 1998 from 3.8% in 1997.
Due to higher cash balance and reduced line of credit borrowing, the year ended
December 31, 1998 reflects net interest income of $1,097,000, compared to net
interest expense of $909,000 for the same period in 1997, a favorable increase
of $2,006,000 or 220.7%.
The provision for income taxes was $9.7 million for the year ended December 31,
1998, compared to $7.7 million for 1997. The Company's effective tax rate
decreased to 37.0% for the year ended December 31, 1998 from 37.2% for the year
ended December 31, 1997. The effective tax rate in 1998 was positively impacted
by a reduction in the federal valuation allowance. The effective tax rate in
1997 was positively impacted by the utilization for federal income tax purposes
of net operating loss carryforwards generated in prior years.
16
<PAGE> 17
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales for the year ended December 31, 1997 increased to $134.0 million, an
increase of $84.1 million, or approximately 169%, from $49.9 million in 1996.
The increase in 1997 was due principally to the amelioration of the State of
California budget deficit and the implementation during the year of the Class
Size Reduction Program for kindergarten through third grade classes in
California's public elementary schools.
For the year ended December 31, 1997, gross profit was $26.7 million, an
increase of $19.4 million, or approximately 266%, over 1996 gross profit of $7.3
million. Gross profit percentage of net sales increased to 19.9% in 1997 from
14.5% in 1996. The increase in gross profit as a percentage of net sales was
primarily attributable to the increased volume, utilization of a previously idle
facility, and the realization of manufacturing efficiencies.
In 1997, selling, general and administrative expenses increased to $5.2 million
from $2.3 million, due to increases in the number of employees and an increase
in selling costs. However, as a percentage of net sales, selling, general and
administrative expenses decreased to 3.8% in 1997 from 4.7% in 1996.
Due to increased volume and average borrowings outstanding, net interest expense
increase from $422,000 in 1996 to $909,000 for 1997.
The provision for income taxes was $7.7 million for the year ended December 31,
1997, compared to $208,000 for 1996. The Company's effective tax rate increased
to 37.2% for the year ended December 31, 1997 from 4.6% for the year ended
December 31, 1996. The effective tax rate in 1996 was positively impacted by the
utilization for federal income tax purposes of net operating loss carryforwards
generated in prior years.
LIQUIDITY AND CAPITAL RESOURCES
Since the 1994 Financing described below, the Company has funded its operations
and capital expenditures with cash generated internally by operations,
supplemented by borrowings under various credit facilities. During the years
ended December 31, 1996, 1997 and 1998, the Company's operations provided (used)
cash in the amounts of approximately ($4.9 million), $2.0 million and $32.8
million, respectively. At December 31, 1998, the Company had approximately $40.1
million in cash.
The Company's revolving loan facility, which was scheduled to expire in
September 2000, was paid off on December 4, 1998.
The Company had working capital of $14.1 million, $36.4 million and $52.1
million at December 31, 1996, 1997 and 1998, respectively. In 1998, current
assets increased by $13.2 million, with an increase of $28.5 million in cash, an
increase of $1.4 million in deferred tax assets and an increase of $1.3 million
in due from affiliates, offset by a decrease of $8.6 million in contracts
receivable and a decrease of $12.2 million in costs and estimated earnings in
excess of billings. Current liabilities decreased by $2.5 million, with various
accrued liabilities and current maturities of long-term debt decreasing by $1.9
million and $1.4 million, respectively, offset by a $0.7 million increase in
accounts payable. In 1997, contracts receivable, costs and estimated earnings in
excess of billings on contracts increased by $11.2 million and $6.9 million,
respectively, as the Company's net sales increased significantly due to the
implementation of the State's Class Size Reduction Program. Accrued liabilities
increased by $6.1 million in 1997, also as a result of the increase in net
sales.
17
<PAGE> 18
Capital expenditures amounted to $2.0 million, $4.1 million and $2.1 million
during the years ended December 31, 1996, 1997 and 1998, respectively. In 1996,
the majority of expenditures were as a result of the re-opening of the Company's
Lathrop, California Manufacturing facility. In 1997 and 1998, the majority of
expenditures were related to the construction of an additional production line
at one of its Perris, California facilities.
The Company had a $4.0 million Industrial Development Bond issued by the
Industrial Development Authority of the County of San Joaquin, California, the
net proceeds of which were used to partially finance the $6.0 million cost of
construction of the Company's Lathrop, California facility. The loan was paid in
full during 1998.
In May 1994, the Company raised net proceeds of approximately $2.7 million
through the sale of 2,850,000 shares of Series A Preferred Stock to several
private investors who are Selling Shareholders in this Offering (the "1994
Financing"). In April 1996, all of the Series A Preferred Stock was converted
into 2,850,000 shares of Common Stock. In December 1996, warrants issued to the
investors in connection with the 1994 Financing were exercised, resulting in
cash proceeds to the Company of approximately $1.6 million and the issuance of
2,204,000 additional shares of Common Stock.
Management believes that the Company's existing product lines and manufacturing
capacity will enable the Company to generate sufficient cash through operations,
supplemented by periodic use of Holding's bank line of credit, to finance the
Company's business over the next twelve months. However, additional cash
resources may be required if the Company's rate of growth exceeds currently
anticipated levels. Moreover, it may prove necessary for the Company to
construct or acquire additional manufacturing facilities in order for the
Company to compete effectively in new market areas or states which are beyond a
300 mile radius from one of its production facilities. The construction or
acquisition of new facilities could require significant additional capital. For
these reasons, among others, the Company may need additional debt or equity
financing in the future. There can be, however, no assurance that the Company
will be successful in obtaining such additional financing, or that any such
financing will be available on terms acceptable to it.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting
and reporting standards for derivative instruments embedded in other contracts,
and hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Application of SFAS 133 is not expected to
have a material impact on the Company's financial position, results of
operations or liquidity.
YEAR 2000
The "year 2000" issue concerns the potential exposures related to the automated
generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. When
the year 2000 begins, programs with such date-related logic will not be able to
distinguish between the years 1900 and 2000, potentially causing software and
hardware to fail, generating erroneous calculations or presenting information in
an unusable format.
The Company is dependent on multiple computer servers and the third-party
computer programs running on them to provide data in support of its accounting
and engineering functions. In recognition of the potential year 2000 problem, in
November 1997, the Company began a program to replace all of its existing
engineering and accounting software with new software that is warranted by its
vendors as being year 2000 compliant. The software replacement program was
completed in November 1998 at a total cost of approximately $250,000. SPI's
computer data is currently being transferred to the Company's computer system.
The Company estimates that this transfer will be completed by the end of the
second quarter of 1999 at a cost of approximately $100,000.
The Company has relationships with various third parties on whom it relies to
provide goods and services necessary for the manufacture and distribution of its
products. These include suppliers and vendors. As part of its determination of
year 2000 readiness, the Company had identified material relationships with
third-party vendors and is in the process of assessing the status of their
compliance through the use of questionnaires. The Company expects this process
will be completed by the second quarter of 1999 at a cost of approximately
$100,000.
The total cost of the Company's year 2000 efforts, including hardware, software,
related consulting costs, assessment of third-party compliance, and transfer of
SPI data is estimated to be about $500,000, and is not material to the Company's
financial statements.
The Company's construction materials are available through numerous independent
sources. Due to the broad diversification of these sources, the risk associated
with potential business interruptions as a result of year 2000 non-compliance by
one or more sources is not considered significant.
The Company's primary customers are California school districts, each of which
obtains its funds for paying the Company's invoices through the computer system
operated by the State of California. If this system does not properly function
after January 1, 2000, it could result in a temporary shutdown of portions of
the state government, in which case, payment of the Company's invoices would be
delayed, and new purchase orders may not be processed. If the shutdown lasted
for more than 60 days, the Company would experience a severe cash shortage and a
material decline in revenue during the period of the government shutdown. The
cash shortage can be alleviated to some degree by borrowings from Holding's line
of credit and by reductions in work force and possible temporary plant closures.
The Company does not believe it can design or implement any other contingency
plans that will mitigate the effects of such a government shutdown.
It is anticipated that the steps the Company has taken and is continuing to take
deal with the year 2000 problem will reduce the risk of significant business
interruption, but there is no assurance that this outcome will be achieved.
Failure to detect and correct all internal instances of non-compliance or the
inability of third parties to achieve timely compliance could result in the
interruption of normal business operations which could, depending on its
duration, have a material adverse effect on the Company's financial statements.
18
<PAGE> 19
SEASONALITY
Historically, the Company's quarterly revenues have been highest in the second
and third quarters of each calendar year because a large number of orders for
modular classrooms placed by school districts require that classrooms be
constructed, delivered and installed in time for the upcoming new school year
which generally commences in September. The Company has typically been able to
add employees as needed to respond to the corresponding increases in
manufacturing output required by such seasonality to meet currently foreseeable
increases in this seasonal demand. In addition, the Company's operating margins
may vary on a quarterly basis depending upon the mix of revenues between
standardized classrooms and higher margin customized classrooms and the timing
of the completion of large, higher margin customized contracts.
INFLATION
During the past three years, the Company has not been adversely affected by
inflation, because it has been generally able to pass along to its customers
increases in the costs of labor and materials. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company, along with the notes thereto and the
report of Independent Certified Public Accountants thereon, required to be filed
in response to this Item 8 are attached hereto as exhibits under Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item will be set forth in the Proxy Statement and
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item will be set forth in the Proxy Statement and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item will be set forth in the Proxy Statement and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be set forth in the Proxy Statement and
is incorporated herein by reference.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statement Schedules
1 & 2. Index to Financial Statements
The following financial statements and financial statement schedules of the
Company, along with the notes thereto and the Independent Auditors' Reports, are
filed herewith, as required by Part II, Item 8 hereof.
Financial Statements
Independent Auditors' Reports
Consolidated Balance Sheets - December 31, 1997 and 1998
Consolidated Statements of Income - For the Years Ended December 31,
1996, 1997 and 1998
Consolidated Statements of Shareholders' Equity - For the Years Ended
December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows - For the Years Ended December 31,
1996, 1997 and 1998
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
Schedule Included - For the Years Ended December 31, 1996, 1997 and 1998
Schedule II - Valuation and Qualifying Accounts
All other Financial Statement Schedules have been omitted because the required
information is shown in the financial statements or notes thereto, the amounts
involved are not significant, or the schedules are not applicable.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Name of Exhibit
- ------ ---------------
<C> <S>
3.1(1) Certificate of Incorporation of Modtech Holdings, Inc.
3.2(1) Bylaws of Modtech Holdings, Inc.
10.1(2) Modtech, Inc.'s 1996 Stock Option Plan.
10.2(3) Transaction Advisory Agreement.
10.3(4) Employment Agreement between the Company and Evan M. Gruber.
10.4(4) Employment Agreement between the Company and Patrick Van Den Bossche.
10.5(4) Employment Agreement between the Company and Michael G. Rhodes.
10.6(5) Amendment to Loan and Security Agreement.
10.7(6) Industrial Development Bond agreements.
10.8(6) Lease between the Company and Pacific Continental Modular Enterprises,
relating to the Barrett Street property in Perris, California.
10.9(6) Lease between the Company and Gerald Bashaw, relating to the Morgan Street
property in Perris, California.
10.10(6) Lease between the Company and BMG, relating to the property in Lathrop, California.
10.11(6) Form of Indemnity Agreement between the Company and its executive officers and directors.
10.12(3) Financial Advisory Services Agreement.
10.13 Credit Agreement.
27 Financial Data Schedule
</TABLE>
- -------------
(1) Incorporated by reference to Modtech Holdings, Inc.'s Registration
Statement on Form S-4 filed with the Commission on October 27, 1998
(Commission File No. 333-69033).
(2) Incorporated by reference to Modtech, Inc.'s Registration Statement on Form
S-8 filed with the Commission on December 11, 1996 (Commission File No.
333-17623).
(3) Incorporated by reference to Amendment No. 2 to Modtech Holdings, Inc.'s
Registration Statement on Form S-4, filed with the Commission on January
11, 1999 (Commission File No. 333-69033).
(4) Incorporated by reference to Amendment No. 1 to Modtech Holdings, Inc.'s
Registration Statement on Form S-4, filed with the Commission on December
15, 1998 (Commission File No. 333-69033).
(5) Incorporated by reference to Modtech, Inc.'s Registration Statement on Form
S-1 filed with the Commission on October 9, 1997 (Commission File No.
333-37473).
(6) Incorporated by reference to Modtech, Inc.'s Registration Statement on Form
S-1 filed with the Commission on June 6, 1990 (Commission File No.
033-035239).
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: APRIL 14, 1999 MODTECH HOLDINGS, INC.,
a Delaware corporation
By: /s/ MICHAEL G. RHODES
---------------------------
Michael G. Rhodes
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacities Date
- ---- ---------- ----
<S> <C> <C>
/s/ EVAN M. GRUBER Director, Chairman of the Board, APRIL 14, 1999
- ----------------------------- Chief Executive Officer
Evan M. Gruber
/s/ ROBERT W. CAMPBELL Director APRIL 14, 1999
- -----------------------------
Robert W. Campbell
/s/ DANIEL J. DONAHOE Director APRIL 14, 1999
- -----------------------------
Daniel J. Donahoe
/s/ CHARLES R. GWIRTSMAN Director APRIL 14, 1999
- -----------------------------
Charles R. Gwirtsman
/s/ CHARLES A. HAMILTON Director APRIL 14, 1999
- -----------------------------
Charles A. Hamilton
/s/ CHARLES C. McGETTIGAN Director APRIL 14, 1999
- -----------------------------
Charles C. McGettigan
/s/ PATRICK VAN DEN BOSSCHE Director, President APRIL 14, 1999
- -----------------------------
Patrick Van Den Bossche
/s/ MYRON A. WICK III Director APRIL 14, 1999
- -----------------------------
Myron A. Wick III
</TABLE>
21
<PAGE> 22
MODTECH, INC.
Annual Report - Form 10-K
Consolidated Financial Statements and Schedule
December 31, 1996, 1997 and 1998
(With Independent Auditors' Report Thereon)
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Modtech, Inc.:
We have audited the accompanying consolidated balance sheets of Modtech, Inc.
and subsidiary as of December 31, 1997 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1998. In connection with our audits
of the consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Modtech, Inc. and
subsidiary as of December 31, 1997 and 1998 and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Orange County, California
March 17, 1999
<PAGE> 24
MODTECH, INC.
Consolidated Balance Sheets
December 31, 1997 and 1998
<TABLE>
<CAPTION>
ASSETS 1997 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash $11,628,851 $40,142,355
Contracts receivable, less allowance for
contract adjustments of $410,119 in 1997 and
$429,107 in 1998 (note 2) 21,510,146 12,923,491
Costs and estimated earnings in excess
of billings on contracts (notes 3 and 8)
16,020,986 3,823,364
Inventories 3,931,505 4,441,537
Due from affiliates (note 8) 1,052,634 2,343,968
Note receivable from affiliates (note 8) 45,212 45,212
Prepaid assets 83,585 261,525
Income tax receivable 184,710 2,367,924
Deferred tax asset (note 7) 2,094,059 3,440,199
Other current assets 42,274 18,502
----------- -----------
Total current assets 56,593,962 69,808,077
----------- -----------
Property and equipment, net (note 4) 11,229,163 12,313,675
Other assets 298,258 751,517
Deferred tax asset (note 7) 98,874 --
----------- -----------
$68,220,257 $82,873,269
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 25
MODTECH, INC.
Consolidated Balance Sheets
December 31, 1997 and 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1998
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,421,346 $ 3,126,185
Accrued compensation 3,616,498 2,665,231
Accrued insurance expense 1,470,725 1,410,887
Other accrued liabilities 3,237,255 3,338,717
Income tax payable 1,017,027 --
Billings in excess of costs and estimated earnings on contracts (notes 3
and 8)
6,997,350 7,138,142
Current note payable (note 5) 42,185 --
Current maturities of long-term debt (note 6) 1,374,952 --
----------- -----------
Total current liabilities 20,177,338 17,679,162
----------- -----------
Deferred tax liability (note 7) -- 97,366
----------- -----------
Total liabilities 20,177,338 17,776,528
----------- -----------
Shareholders' equity:
Common stock, $.01 par. Authorized 20,000,000 shares; issued and
outstanding 9,819,959 and 9,871,409 in 1997 and 1998 (notes 10 and 11) 98,200 98,714
Additional paid-in capital 39,330,902 39,854,127
Retained earnings 8,613,817 25,143,900
----------- -----------
Total shareholders' equity 48,042,919 65,096,741
----------- -----------
Commitments and contingencies (notes 3, 8, 15 and 18)
----------- -----------
$68,220,257 $82,873,269
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 26
MODTECH, INC.
Consolidated Statements of Income
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net sales (notes 8 and 13) $ 49,885,858 $ 134,050,485 $ 127,620,102
Cost of goods sold (note 8) 42,628,970 107,367,035 97,765,554
------------- ------------- -------------
Gross profit 7,256,888 26,683,450 29,854,548
Selling, general, and administrative expenses 2,345,182 5,155,987 4,738,884
------------- ------------- -------------
Income from operations 4,911,706 21,527,463 25,115,664
------------- ------------- -------------
Other income (expense):
Interest expense (445,631) (1,004,198) (204,535)
Interest income 23,704 95,551 1,301,952
Other, net (13,116) 92,103 25,146
------------- ------------- -------------
(435,043) (816,544) 1,122,563
------------- ------------- -------------
Income before income taxes 4,476,663 20,710,919 26,238,227
Income taxes (note 7) (207,631) (7,702,634) (9,708,144)
------------- ------------- -------------
Net income $ 4,269,032 $ 13,008,285 $ 16,530,083
------------- ------------- -------------
5% Convertible preferred stock dividend (note 11) (47,500) -- --
Net income available to common stock $ 4,221,532 $ 13,008,285 $ 16,530,083
============= ============= =============
Basic earnings per common share (note 12) $ 0.77 $ 1.47 $ 1.68
============= ============= =============
Basic weighted-average shares outstanding (note 12) 5,461,007 8,853,786 9,857,422
============= ============= =============
Diluted earnings per common share (note 12) $ 0.47 $ 1.31 $ 1.50
============= ============= =============
Diluted weighted-average shares outstanding (note 12) 9,041,084 9,897,935 10,988,302
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 27
MODTECH, INC.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
(ACCUMULATED
5% CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL DEFICIT)
------------------------------ ---------------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 2,850,000 $ 2,685,000 3,053,350 $ 30,534 $ 14,643,627 $ (8,616,000)
Conversion of preferred stock (note 11) (2,850,000) (2,685,500) 2,850,000 28,500 2,656,500 --
Exercise of options and warrants -- -- 2,746,086 27,460 2,320,867 --
Dividend (note 11) -- -- -- -- -- (47,500)
Net income -- -- -- -- -- 4,269,032
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 -- -- 8,649,436 86,494 19,620,994 (4,394,468)
Exercise of options, including tax
benefit of $753,874
(notes 7 and 10) -- -- 170,523 1,706 1,119,890 --
Secondary offering - Net (note 16) -- -- 1,000,000 10,000 18,590,018 --
Net income -- -- -- -- -- 13,008,285
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 -- -- 9,819,959 98,200 39,330,902 8,613,817
Exercise of options,
including tax benefit of
$451,563 (notes 7 and 10) -- -- 51,450 514 523,225 --
Net income -- -- -- -- -- 16,530,083
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 -- $ -- 9,871,409 $ 98,714 $ 39,854,127 $ 25,143,900
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 28
MODTECH, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,269,032 $ 13,008,285 $ 16,530,083
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities:
Depreciation and amortization 540,421 1,344,098 1,247,557
Provision for contract adjustments (5,283) -- --
Loss (gain) on sale of equipment 17,265 (9,177) (1,500)
(Increase) decrease in assets, net of
effects from acquisition:
Contracts receivable (7,135,702) (11,200,285) 8,922,813
Costs and estimated earnings
in excess of billings (7,648,812) (6,918,253) 12,197,622
Inventories (3,520,404) 235,195 54,579
Amounts due from affiliates 686,774 (298,567) (1,291,334)
Prepaids and other assets (12,947) 83,673 (543,045)
Income tax receivable -- -- (2,183,214)
Deferred tax asset -- (2,192,933) (960,702)
Increase (decrease) in liabilities,
net of effects from acquisition:
Accounts payable 5,304,183 (3,988,076) 186,075
Accrued compensation 1,081,171 2,247,057 (974,453)
Accrued insurance expense 526,813 919,145 (59,838)
Other accrued liabilities 465,766 2,147,816 271,805
Income tax payable 184,919 813,010 (852,028)
Deferred tax liability -- -- 97,366
Billings in excess of costs and earnings 388,448 5,849,300 140,792
------------ ------------ ------------
Net cash provided by (used in) operating
activities (4,858,356) 2,040,288 32,782,578
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of equipment 5,550 60,604 1,500
Purchase of property and equipment (1,958,303) (4,071,968) (2,125,613)
Acquisition of subsidiary -- -- (800,000)
------------ ------------ ------------
Net cash used in investing activities (1,952,753) (4,011,364) (2,924,113)
------------ ------------ ------------
</TABLE>
(Continued)
<PAGE> 29
MODTECH, INC.
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net principal borrowings (payments)
under revolving credit lines $ 4,353,843 $ (5,901,668) $ (42,185)
Principal payments on long-term debt -- (625,000) (1,374,952)
Net proceeds from issuance of common stock 2,348,327 19,721,614 72,176
Declared dividends (note 11) (47,500) -- --
------------ ------------ ------------
Net cash provided by (used in) financing
activities 6,654,670 13,194,946 (1,344,961)
------------ ------------ ------------
Net increase (decrease) in cash (156,439) 11,223,870 28,513,504
Cash at beginning of year 561,420 404,981 11,628,851
------------ ------------ ------------
Cash at end of year $ 404,981 $ 11,628,851 $ 40,142,355
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 30
MODTECH, INC.
Notes to Consolidated Financial Statements
December 31, 1996, 1997 and 1998
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Modtech, Inc. and its majority owned subsidiary (the Company) design,
manufacture, market and install modular relocatable classrooms and
other modular buildings for commercial use.
The Company's classrooms are sold primarily to California school
districts. The Company also sells classrooms to the State of California
and to leasing companies, who lease the classrooms principally to
California school districts. The Company's modular classrooms include
standardized units prefabricated at its manufacturing facilities, as
well as customized units that are modular in design but constructed on
site using components manufactured by the Company.
In addition to modular relocatable classrooms, the Company also
manufactures modular, portable buildings which can be used as office
facilities and construction trailers and for other commercial purposes,
including modular structures that house and shelter electronic
equipment used in the wireless telecommunications industry.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements
of Modtech, Inc. and its majority owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, contracts receivable and note receivable,
costs and estimated earnings in excess of billings on contracts,
prepaid and other assets, accounts payable, accrued liabilities,
billings in excess of estimated earnings on contracts and notes payable
are measured at cost which approximates their fair value.
CONSTRUCTION CONTRACTS
Contracts are recognized using the percentage-of-completion method of
accounting and, therefore, take into account the costs, estimated
earnings and revenue to date on contracts not yet completed. Revenue
recognized is that percentage of the total contract price that cost
expended to date bears to anticipated final total cost, based on
current estimates of costs to complete.
<PAGE> 31
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation costs. Selling, general, and
administrative costs are charged to expense as incurred. At the time a
loss on a contract becomes known, the entire amount of the estimated
ultimate loss is recognized in the financial statements.
The current asset, "Costs and Estimated Earnings in Excess of Billings
on Contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in Excess of Costs and
Estimated Earnings on Contracts," represents billings in excess of
revenues recognized.
The current contra asset, "Allowance for Contract Adjustments," is
management's estimated adjustments to contract amounts due to disputes
and or litigation.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. Inventories,
generally include only raw materials, as any work-in-process or
finished goods are accounted for in percentage of completion
allocations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are calculated using the straight-line and accelerated
methods over the following estimated useful lives:
<TABLE>
<S> <C>
Leasehold improvements 15 to 31 years
Machinery and equipment 5 to 7 years
Trucks and automobiles 3 to 5 years
Office equipment 5 to 7 years
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS HELD FOR DISPOSAL
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount of fair value less costs to sell.
STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for stock option plans
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recognized on
the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the Company
adopted Statement of Financial Accounting Standard No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation," which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to
<PAGE> 32
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
continue to apply the provision of APB Opinion No. 25 and provide the
pro forma disclosure provisions of SFAS No. 123.
EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). This
statement replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effects of options. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All
earnings per share amounts have been restated to conform to the SFAS
No. 128 requirements.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
RECLASSIFICATION
Certain amounts in the 1996 and 1997 financial statements have been
reclassified to conform to the 1998 presentation.
(2) CONTRACTS RECEIVABLE
Contracts receivable consisted of customer billings for:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Completed contracts $ 9,226,114 $ 5,936,682
Contracts in progress 9,444,794 5,134,815
Retentions 3,249,357 2,281,101
------------ ------------
21,920,265 13,352,598
Less allowance for contract adjustments (410,119) (429,107)
------------ ------------
$ 21,510,146 $ 12,923,491
============ ============
</TABLE>
(3) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS Net
costs and estimated earnings in excess of billings on contracts
consisted of:
<PAGE> 33
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Net costs and estimated earnings on uncompleted contracts $ 105,465,154 $ 96,036,279
Billings to date (96,144,454) (99,722,520)
------------- -------------
9,320,700 (3,686,241)
Net under (over) billed receivables from completed contracts (297,064) 371,463
------------- -------------
$ 9,023,636 $ (3,314,778)
============= =============
</TABLE>
These amounts are shown in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 15,832,818 $ 3,372,864
Costs and estimated earnings in
excess of billings on completed contracts 188,168 450,500
------------ ------------
Costs and estimated earnings
in excess of billings 16,020,986 3,823,364
------------ ------------
Billings in excess of costs and estimated
earnings on uncompleted contracts (6,512,121) (7,059,106)
Billings in excess of costs and
estimated earnings on completed contracts (485,229) (79,036)
------------ ------------
Billings in excess of costs and estimated earnings (6,997,350) (7,138,142)
------------ ------------
$ 9,023,636 $ (3,314,778)
============ ============
</TABLE>
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Land $ -- $ 451,281
Leasehold improvements 10,764,783 11,528,459
Machinery and equipment 4,347,692 4,508,908
Trucks and automobiles 181,001 191,402
Office equipment 364,510 651,436
Construction in progress 354,826 293,860
------------ ------------
16,012,812 17,625,346
Less accumulated depreciation and amortization
(4,783,649) (5,311,671)
------------ ------------
$ 11,229,163 $ 12,313,675
============ ============
</TABLE>
<PAGE> 34
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
(5) NOTE PAYABLE - REVOLVING CREDIT AGREEMENT
The Company's revolving credit facility, which was scheduled to expire
in September 2000, was paid off on December 4, 1998 and the revolving
loan commitment was terminated. Actual outstanding borrowings were
$42,185 at December 31, 1997.
(6) LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Industrial development bonds $ 1,374,952 $ --
Less current portion of long-term debt (1,374,952) --
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
In June 1990, the Industrial Development Authority of the County of San
Joaquin, California issued $4,200,000 of Industrial Development Bonds.
The net proceeds of approximately $4,000,000 were used to fund the
construction of the Company's manufacturing facility on leased property
located in Lathrop, California. The Company fully utilized the bonds at
December 31, 1991. The bonds were paid in full during 1998.
(7) INCOME TAXES
The components of the 1996, 1997 and 1998 provision for Federal and
state income tax (expense) benefit computed in accordance with
Financial Accounting Standard No. 109 are summarized below:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ (90,483) $ (7,874,257) $ (8,585,201)
State (117,148) (2,021,309) (2,272,844)
------------ ------------ ------------
(207,631) (9,895,566) (10,858,045)
Deferred:
Federal -- 1,634,085 593,693
State -- 558,847 556,208
------------ ------------ ------------
$ (207,631) $ (7,702,634) $ (9,708,144)
============ ============ ============
</TABLE>
Income tax (expense) benefit attributable to income from operations
differed from the amounts computed by applying the U.S. Federal income
tax rate to pretax income from operations as a result of the following:
<PAGE> 35
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Taxes, U.S. statutory rates (34.0%) (35.0%) (35.0%)
State taxes, less Federal benefit -- (4.5) (4.0)
Reduction in Federal valuation allowance
-- -- 2.0
Utilization of income tax benefit relating to
loss carryover 34.0 3.8 --
Other (4.6) (1.5) --
------ ------ ------
Total taxes on income (4.6%) (37.2%) (37.0%)
====== ====== ======
</TABLE>
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 as of December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not recognized for
income tax purposes $ 2,490,821 $ 2,672,468
State taxes 474,653 578,535
Other 368,579 265,732
----------- -----------
Total gross deferred tax assets 3,334,053 3,516,735
Less valuation allowance (1,059,576) --
----------- -----------
Net deferred tax assets $ 2,274,477 $ 3,516,735
=========== ===========
Deferred tax liabilities:
Revenue recognition $ (73,589) $ (8,182)
Prepaids (7,955) (165,720)
----------- -----------
Total gross deferred tax liabilities (81,544) (173,902)
----------- -----------
Net deferred tax assets $ 2,192,933 $ 3,342,833
=========== ===========
</TABLE>
These amounts have been presented in the balance sheet as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Current deferred tax asset $ 2,094,059 $ 3,440,199
Noncurrent deferred tax asset 98,874 --
----------- -----------
Total gross deferred tax assets 2,192,933 3,440,199
Noncurrent deferred tax liability -- (97,366)
----------- -----------
Total deferred tax assets $ 2,192,933 $ 3,342,833
=========== ===========
</TABLE>
<PAGE> 36
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
The valuation allowance for deferred tax assets as of December 31, 1997
and 1998 was $1,059,576 and $0, respectively. The net change in the
total valuation allowance for the years ended December 31, 1997 and
1998 was a decrease of $99,138 and $1,059,576, respectively. Management
believes the existing net deductible temporary differences will reverse
during periods in which the Company will have the ability to utilize
the deductions to offset other reversing temporary differences which
give rise to taxable income.
(8) TRANSACTIONS WITH RELATED PARTIES
SALES
The Company sells modular classrooms to certain companies and
partnerships, the shareholders and partners of which are either
shareholders or an officer of the Company. The buildings are then
leased to various school districts by the related companies and
partnerships.
The table below summarizes the classroom sales to related parties:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Sales $1,452,868 $2,942,313 $2,675,457
Cost of goods sold 1,239,425 2,530,803 2,116,691
Gross profit percentage 14.69% 13.99% 20.90%
========== ========== ==========
</TABLE>
The related party purchases modular relocatable classrooms from the
Company, upon standard terms and at standard wholesale prices.
Due from affiliates includes a portion of unpaid invoices as a result
of the above transactions. As of December 31, 1997 and 1998 these
amounts totaled $825,963 and $2,171,896, respectively. Additional
amounts arising from these transactions are included in the following
captions:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,406,897 $ 492,418
Billings in excess of costs and
estimated earnings on uncompleted contracts (65,405) (90,838)
=========== ===========
</TABLE>
NOTE RECEIVABLE
At December 31, 1997 and 1998, the Company had a note receivable from a
related party partnership in the amount of $45,212. The partnership is
composed of an officer and shareholders of the Company. The note bears
interest at 10% and is payable upon demand. Unpaid interest related to
this note and two other related party notes with principal repayment in
1996 totaled $226,671 at December 31, 1997 and $160,590 at December 31,
1998 and is included in due from affiliates. The Company has negotiated
payment terms on the accrued interest and is receiving regular interest
payments.
<PAGE> 37
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
OPERATING LEASES
Certain manufacturing facilities are leased from the Company's Chairman
and partnerships composed of an officer and certain shareholders. These
related party leases require monthly payments which aggregate $41,000.
In connection with the lease at the Lathrop facility, the Company made
an $83,000 security deposit during 1990.
Future minimum lease payments under these leases are discussed in note
15. Included in cost of goods sold is $447,000, $444,000 and $478,000
in rent expense paid to related parties for the years ended December
31, 1996, 1997, and 1998, respectively.
(9) 401(K) PLAN
The Company has a tax deferred savings plan under Section 401(k) of the
Internal Revenue Code. Eligible employees can contribute up to 12% of
gross annual earnings. Company contributions, made on a 50% matching
basis, are determined annually. The Company's contributions were
$53,031, $77,016 and $100,452 in 1996, 1997, and 1998, respectively.
(10) STOCK OPTIONS
In 1989, the Company's shareholders approved a stock option plan (the
1989 Plan). The 1989 Plan provides for the grant of both incentive and
non-qualified options to purchase up to 400,000 shares of the Company's
common stock. The incentive stock options can be granted only to
employees, including officers of the Company, while non-qualified stock
options can be granted to employees, non-employee officers and
directors, consultants, vendors, customers and others expected to
provide significant services to the Company.
The exercise price of the stock options cannot be less than the fair
market at the date of the grant (110% if granted to an employee who
owns 10% or more of the common stock).
Stock options outstanding under the 1989 Plan are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
December 31, 1995 400,000 $1.82
Exercised (114,500) 1.87
-------- -----
December 31, 1996 285,500 1.82
Terminated (1,000) 1.50
Exercised (78,450) 2.12
-------- -----
December 31, 1997 206,050 1.70
Exercised (38,450) 0.81
-------- -----
December 31, 1998 167,600 $1.88
======== =====
</TABLE>
<PAGE> 38
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
As of December 31, 1998, 158,520 options are vested and exercisable at
prices ranging from $.625 to $10.00 per share under the 1989 Plan. With
respect to options issued pursuant to the Del-Tec acquisition, no
options were exercised during 1998 and 75,000 shares remained
outstanding as of December 31, 1998.
In March of 1994, pursuant to a vote of the Board of Directors, a
nonqualified option plan was approved (the March 1994 Plan). The March
1994 Plan provides for the grant of 200,000 options to purchase shares
of the Company's common stock. The exercise price of the stock options
cannot be less than the fair market at the date of the grant. All of
these options were granted during 1994.
Stock options outstanding under the March 1994 Plan are summarized
as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
December 31, 1995 200,000 $1.22
Exercised (15,000) 1.19
-------- -----
December 31, 1996 185,000 1.22
Exercised (15,900) 1.40
-------- -----
December 31, 1997 169,100 1.21
Exercised (6,600) 1.50
-------- -----
December 31, 1998 162,500 $1.19
======== =====
</TABLE>
As of December 31, 1998, 162,500 options are vested and exercisable at
prices ranging from $1.19 to $1.50 per share under the March 1994 Plan.
In May of 1994, in conjunction with the offering of preferred stock
(note 11) the Board of Directors voted and approved an additional stock
option plan (the May 1994 Plan). The May 1994 Plan provides for the
grant of both incentive and non-qualified options to purchase up to
500,000 shares of the Company's common stock. The incentive stock
options can be granted only to employees, including officers of the
Company, while non-qualified stock options can be granted to employees,
non-employee officers and directors, consultants, vendors, customers
and others expected to provide significant services to the Company. The
exercise price of the stock options cannot be less than the fair market
at the date of the grant (110% if granted to an employee who owns 10%
or more of the common stock).
Stock options outstanding under the May 1994 Plan, are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------ ----------------
<S> <C> <C>
December 31, 1995 285,000 $ 1.60
Granted 205,000 2.59
Terminated (37,500) 1.50
Exercised (12,500) 1.50
------------ ------------
</TABLE>
<PAGE> 39
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
<TABLE>
<S> <C> <C>
December 31, 1996 440,000 2.06
Granted 7,500 19.50
Exercised (9,375) 3.86
------------ ------------
December 31, 1997 438,125 2.32
Granted 40,000 20.05
Exercised (5,775) 3.99
------------ ------------
December 31, 1998 472,350 $ 3.80
============ ============
</TABLE>
As of December 31, 1998, 339,914 options are vested and exercisable at
prices ranging from $1.50 to $19.50 per share under the May 1994 Plan.
In July 1996, the Company's Board of Directors authorized the grant of
options to purchase up to 500,000 shares of the Company's common stock.
The non-statutory options may be granted to employees, non-employee
officers and directors, consultants, vendors, customers and others
expected to provide significant service to the Company. The exercise
price of the stock options cannot be less than the fair market value at
the date of the grant (110% if granted to an employee who owns 10% or
more of the common stock).
Stock options outstanding under the July 1996 Plan, are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------ ----------------
<S> <C> <C>
December 31, 1995 -- $ --
Granted 110,000 4.50
------------ ------------
December 31, 1996 110,000 4.50
Granted 263,333 8.75
Terminated (4,202) 12.62
Exercised (16,798) 4.89
------------ ------------
December 31, 1997 352,333 7.56
Granted 130,869 19.58
Exercised (625) 12.88
------------ ------------
December 31, 1998 482,577 $ 10.82
============ ============
</TABLE>
As of December 31, 1998, 149,833 options are vested and exercisable at
prices ranging from $4.50 to $12.88 per share under the July 1996 Plan.
All stock options have a maximum term of ten years and become fully
exercisable in accordance with a predetermined vesting schedule which
varies.
The per share weighted-average fair value of stock options granted
during 1996, 1997 and 1998 was $1.94, $9.05 and $11.27, respectively,
on the date of grant using the Black Scholes option-pricing model with
the following weighted-average assumptions:
<PAGE> 40
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Average risk-free interest rate 7.8% 7.8% 5.6%
Volatility factor 72.66% 73.06% 71.15%
Expected life 4 years 4 years 4 years
======= ======= =======
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Net Income
As Reported $ 4,269,032 $ 13,008,285 $ 16,530,083
Pro Forma 3,657,659 12,044,970 15,424,671
============== ============== ==============
Basic earnings per share
As Reported $ 0.77 $ 1.47 $ 1.68
Pro forma 0.67 1.36 1.57
============== ============== ==============
Diluted earnings per share
As Reported $ 0.47 $ 1.31 $ 1.50
Pro Forma 0.40 1.22 1.40
============== ============== ==============
</TABLE>
Pro forma net income reflects only options granted since January 1,
1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected
over the options' vesting period of four years and compensation cost
for options granted prior to January 1, 1995 is not considered.
(11) 5% CONVERTIBLE PREFERRED STOCK
In May of 1994, in a private transaction without registration under the
Securities Act, the Company sold 2,850,000 shares of Series A 5%
Convertible Preferred Stock. The Preferred Stock was sold at $1.00 per
share with proceeds before costs and expenses of $2,850,000. All of the
Series A 5% Convertible Preferred Stock was converted into Common Stock
during 1996. In connection with this private placement of the Series A
5% Preferred Stock, the shareholders were granted warrants to purchase
an aggregate of 1,385,000 shares of common stock at $1.50 (subject to
adjustment in certain events), as well as warrants to purchase an
aggregate of 1,375,000 additional shares at $2.00 per share (subject to
adjustments in certain events). All warrants were either exercised or
expired during 1996. Dividends in the amount of $47,500 were declared
for the year ended December 31, 1996.
(12) EARNINGS PER SHARE
<PAGE> 41
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
As discussed in Note 1, the Company adopted SFAS No. 128 effective
December 31, 1997. The following table illustrates the calculation of
basic and diluted earnings per common share under the provisions of
SFAS No. 128:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
BASIC
Net income $ 4,269,032 $13,008,285 $16,530,083
Dividends on preferred stock (note 11) (47,500) -- --
----------- ----------- -----------
Net income available to common stock $ 4,221,532 $13,008,285 $16,530,083
=========== =========== ===========
Weighted-average common shares outstanding 5,461,007 8,853,786 9,857,422
=========== =========== ===========
Basic earnings per common share $ 0.77 $ 1.47 $ 1.68
=========== =========== ===========
DILUTED
Net income available to common stock $ 4,221,532 $13,008,285 $16,530,083
=========== =========== ===========
Weighted-average common shares outstanding 5,461,007 8,853,786 9,857,422
Add:
Exercise of options 3,580,077 1,044,149 1,130,880
----------- ----------- -----------
Adjusted weighted-average common shares outstanding 9,041,084 9,897,935 10,988,302
=========== =========== ===========
Diluted earnings per common share $ 0.47 $ 1.31 $ 1.50
=========== =========== ===========
</TABLE>
(13) MAJOR CUSTOMER
Sales to two major customers represented the following percentage of
net sales:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Customer A 13% 4% 11%
Customer B 4% 11% 5%
========= ========= =========
</TABLE>
(14) SUPPLEMENTAL CASH FLOW DISCLOSURES
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 470,248 $ 1,058,256 $ 209,677
=========== =========== ===========
Income taxes $ 24,320 $ 8,400,000 $13,755,000
=========== =========== ===========
</TABLE>
<PAGE> 42
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
During 1996, 2,850,000 shares of Series A 5% convertible Preferred
Stock were converted into 2,850,000 shares of common stock, in
accordance with the private placement (note 11).
(15) COMMITMENTS AND CONTINGENCIES
LAND LEASES
The Company has entered into agreements to lease land at its
manufacturing facilities in Perris and Lathrop, California. Minimum
lease payments under these noncancelable operating leases for the next
five years and thereafter are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $ 487,000
2000 487,000
2001 487,000
2002 487,000
2003 487,000
Thereafter 6,244,000
----------
$ 8,679,000
==========
</TABLE>
Of the $8,679,000 in future rental payments, substantially all is
payable to related parties (note 8). Rent expense for the years ended
December 31, 1996, 1997 and 1998 was $447,000, $522,000 and $713,000,
respectively.
(16) SECONDARY STOCK OFFERING
In November 1997 the Company held a secondary offering of 1,000,000
shares of common stock, which were sold at $20 per share. The net
proceeds to the Company were $18,600,000, after the deduction of
underwriting discounts, commissions and offering expenses paid by the
Company.
The Company used a portion of the proceeds to repay amounts outstanding
under the Company's $20,000,000 revolving loan agreement with a bank
(note 5). The remaining net proceeds were used as additions to working
capital.
(17) WARRANTY
The Company provides a one year warranty relating to the workmanship on
their modular units. Purchased equipment installed by the Company, such
as air conditioning units, carry the manufacturers' standard warranty.
To date, warranty costs incurred on completed contracts have been
immaterial.
(18) PENDING CLAIMS AND LITIGATION
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
outcome of the claims will not have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity.
<PAGE> 43
MODTECH, INC.
Notes to Consolidated Financial Statements, Continued
(19) SUBSEQUENT EVENTS
SPI Merger. On February 16, 1999, Modtech, Inc. ("Modtech") and SPI
Holdings, Inc., a Colorado corporation ("SPI") merged pursuant to the
Agreement and Plan of Reorganization and Merger, dated as of September
28, 1998 (the "Merger Agreement"), between Modtech and SPI, and the
mergers contemplated therein. SPI is a designer, manufacturer and
wholesaler of commercial and light industrial modular buildings.
Pursuant to the Merger Agreement, SPI was merged with a subsidiary of
Modtech Holdings, Inc. ("Holdings"), a newly formed Delaware
corporation (the "SPI Merger"). Concurrently, Modtech was merged with a
separate subsidiary of Holdings (the "Modtech Merger"). Pursuant to the
mergers, both SPI and Modtech became wholly owned subsidiaries of
Holdings. The SPI Merger will be accounted for by the purchase method
of accounting.
In connection with the SPI Merger, SPI stockholders received
approximately $8 million in cash and approximately 4.3 million shares
of Holdings Common Stock. Holdings refinanced approximately $32 million
of SPI debt. In connection with the Modtech Merger, Modtech
stockholders received approximately $40 million in cash, approximately
8.3 million shares of Holdings Common Stock and 388,939 shares of
Holdings Series A Preferred Stock. In connection with both mergers,
Holdings incurred a total of approximately $51 million of debt.
Coastal Acquisition. In March 1999, Holdings purchased 100% of the
stock of Coastal Modular Buildings, Inc. ("Coastal"). Coastal designs
and manufactures modular relocatable classrooms and other modular
buildings for commercial use. Coastal is based in St. Petersburg,
Florida. The acquisition will be accounted for by the purchase method
of accounting.
<PAGE> 44
Schedule II
MODTECH, INC.
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1997, and 1998
<TABLE>
<CAPTION>
BALANCE AT ACQUIRED AMOUNTS
BEGINNING THROUGH CHARGED BALANCE AT
DESCRIPTION OF YEAR ACQUISITION TO EXPENSE DEDUCTIONS END OF YEAR
- ----------------------------------- ---------- -------------- -------------- ---------- ------------
Allowance for contract adjustments:
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996 $408,090 $ -- $ 5,866 $ (583) $413,373
======== ============== ============== ======== ========
Year ended December 31, 1997 $413,373 $ -- $ -- $ (3,254) $410,119
======== ============== ============== ======== ========
Year ended December 31, 1998 $410,119 $ 30,988 $ -- $(12,000) $429,107
======== ============== ============== ======== ========
</TABLE>
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Name of Exhibit
- ------ ---------------
<C> <S>
3.1(1) Certificate of Incorporation of Modtech Holdings, Inc.
3.2(1) Bylaws of Modtech Holdings, Inc.
10.1(2) Modtech, Inc.'s 1996 Stock Option Plan.
10.2(3) Transaction Advisory Agreement.
10.3(4) Employment Agreement between the Company and Evan M. Gruber.
10.4(4) Employment Agreement between the Company and Patrick Van Den Bossche.
10.5(4) Employment Agreement between the Company and Michael G. Rhodes.
10.6(5) Amendment to Loan and Security Agreement.
10.7(6) Industrial Development Bond agreements.
10.8(6) Lease between the Company and Pacific Continental Modular Enterprises,
relating to the Barrett Street property in Perris, California.
10.9(6) Lease between the Company and Gerald Bashaw, relating to the Morgan Street
property in Perris, California.
10.10(6) Lease between the Company and BMG, relating to the property in Lathrop, California.
10.11(6) Form of Indemnity Agreement between the Company and its executive officers and directors.
10.12(3) Financial Advisory Services Agreement.
10.13 Credit Agreement.
27 Financial Data Schedule
</TABLE>
- -------------
(1) Incorporated by reference to Modtech Holdings, Inc.'s Registration
Statement on Form S-4 filed with the Commission on October 27, 1998
(Commission File No. 333-69033).
(2) Incorporated by reference to Modtech, Inc.'s Registration Statement on Form
S-8 filed with the Commission on December 11, 1996 (Commission File No.
333-17623).
(3) Incorporated by reference to Amendment No. 2 to Modtech Holdings, Inc.'s
Registration Statement on Form S-4, filed with the Commission on January
11, 1999 (Commission File No. 333-69033).
(4) Incorporated by reference to Amendment No. 1 to Modtech Holdings, Inc.'s
Registration Statement on Form S-4, filed with the Commission on December
15, 1998 (Commission File No. 333-69033).
(5) Incorporated by reference to Modtech, Inc.'s Registration Statement on Form
S-1 filed with the Commission on October 9, 1997 (Commission File No.
333-37473).
(6) Incorporated by reference to Modtech, Inc.'s Registration Statement on Form
S-1 filed with the Commission on June 6, 1990 (Commission File No.
033-035239).
<PAGE> 1
EXHIBIT 10.13
CREDIT AGREEMENT
Dated as of February 16, 1999
among
MODTECH HOLDINGS, INC.
as Borrower,
CERTAIN SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTY HERETO,
NATIONSBANC MONTGOMERY SECURITIES LLC,
as Sole Lead Arranger and Sole Book Manager
and
NATIONSBANK, N. A.,
as Administrative Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITIONS............................................................................................1
1.1 Definitions..........................................................................................1
1.2 Computation of Time Periods.........................................................................26
1.3 Accounting Terms....................................................................................26
SECTION 2 CREDIT FACILITIES.....................................................................................27
2.1 Revolving Loans.....................................................................................27
2.2 Letter of Credit Subfacility of the Revolver........................................................29
2.3 Swingline Loan Subfacility of the Revolver..........................................................33
2.4 Tranche A Term Loan.................................................................................35
2.5 Delayed Draw Term Loan..............................................................................38
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES........................................................40
3.1 Default Rate........................................................................................40
3.2 Extension and Conversion............................................................................40
3.3 Prepayments.........................................................................................41
3.4 Termination and Reduction of Revolving Committed Amount.............................................43
3.5 Fees................................................................................................43
3.6 Capital Adequacy....................................................................................45
3.7 Limitation on Eurodollar Loans......................................................................45
3.8 Illegality..........................................................................................46
3.9 Requirements of Law.................................................................................46
3.10 Treatment of Affected Loans........................................................................47
3.11 Taxes..............................................................................................48
3.12 Compensation.......................................................................................49
3.13 Pro Rata Treatment.................................................................................50
3.14 Sharing of Payments................................................................................51
3.15 Payments, Computations, Etc........................................................................51
3.16 Evidence of Debt...................................................................................53
SECTION 4 GUARANTY..............................................................................................54
4.1 The Guaranty........................................................................................54
4.2 Obligations Unconditional...........................................................................54
4.3 Reinstatement.......................................................................................56
4.4 Certain Additional Waivers..........................................................................56
4.5 Remedies............................................................................................56
4.6 Rights of Contribution..............................................................................56
4.7 Guarantee of Payment; Continuing Guarantee..........................................................57
SECTION 5 CONDITIONS............................................................................................58
5.1 Closing Conditions..................................................................................58
5.2 Conditions to all Extensions of Credit..............................................................64
SECTION 6 REPRESENTATIONS AND WARRANTIES........................................................................66
6.1 Financial Condition.................................................................................66
6.2 No Material Change..................................................................................67
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
6.3 Organization and Good Standing......................................................................68
6.4 Power; Authorization; Enforceable Obligations.......................................................68
6.5 No Conflicts........................................................................................68
6.6 No Default..........................................................................................69
6.7 Ownership...........................................................................................69
6.8 Indebtedness........................................................................................69
6.9 Litigation..........................................................................................69
6.10 Taxes..............................................................................................69
6.11 Compliance with Law................................................................................69
6.12 ERISA..............................................................................................70
6.13 Subsidiaries.......................................................................................71
6.14 Governmental Regulations, Etc......................................................................71
6.15 Purpose of Loans and Letters of Credit.............................................................72
6.16 Environmental Matters..............................................................................73
6.17 Intellectual Property..............................................................................74
6.18 Solvency...........................................................................................74
6.19 Investments........................................................................................74
6.20 Location of Collateral.............................................................................74
6.21 Disclosure.........................................................................................74
6.22 No Burdensome Restrictions.........................................................................74
6.23 Brokers' Fees......................................................................................75
6.24 Labor Matters......................................................................................75
6.25 Nature of Business.................................................................................75
6.26 Merger Agreement...................................................................................75
6.27 Year 2000 Compliance...............................................................................75
6.28 Collateral Documents...............................................................................75
SECTION 7 AFFIRMATIVE COVENANTS.................................................................................76
7.1 Information Covenants...............................................................................76
7.2 Preservation of Existence and Franchises............................................................79
7.3 Books and Records...................................................................................79
7.4 Compliance with Law.................................................................................79
7.5 Payment of Taxes and Other Indebtedness.............................................................80
7.6 Insurance...........................................................................................80
7.7 Maintenance of Property.............................................................................82
7.8 Performance of Obligations..........................................................................82
7.9 Use of Proceeds.....................................................................................82
7.10 Audits/Inspections.................................................................................82
7.11 Financial Covenants................................................................................82
7.12 Additional Guarantors..............................................................................83
7.13 Pledged Assets.....................................................................................83
7.14 Year 2000 Compliance...............................................................................84
7.15 Fiscal Year; Reincorporation Mergers...............................................................84
7.16 Post-Closing Conditions............................................................................85
SECTION 8 NEGATIVE COVENANTS....................................................................................85
8.1 Indebtedness........................................................................................85
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
8.2 Liens...............................................................................................86
8.3 Nature of Business..................................................................................86
8.4 Consolidation, Merger, Dissolution, etc.............................................................87
8.5 Asset Dispositions..................................................................................87
8.6 Investments.........................................................................................88
8.7 Restricted Payments.................................................................................88
8.8 Other Indebtedness..................................................................................88
8.9 Transactions with Affiliates........................................................................89
8.10 Fiscal Year; Organizational Documents..............................................................89
8.11 Limitation on Restricted Actions...................................................................90
8.12 Ownership of Subsidiaries; Limitations on Borrower.................................................90
8.13 Sale Leasebacks....................................................................................91
8.14 Capital Expenditures...............................................................................91
8.15 No Further Negative Pledges........................................................................91
8.16 Operating Lease Obligations........................................................................91
8.17 No Foreign Subsidiaries............................................................................91
SECTION 9 EVENTS OF DEFAULT.....................................................................................92
9.1 Events of Default...................................................................................92
9.2 Acceleration; Remedies..............................................................................94
SECTION 10 AGENCY PROVISIONS....................................................................................95
10.1 Appointment, Powers and Immunities.................................................................95
10.2 Reliance by Administrative Agent...................................................................96
10.3 Defaults...........................................................................................96
10.4 Rights as a Lender.................................................................................96
10.5 Indemnification....................................................................................97
10.6 Non-Reliance on Administrative Agent and Other Lenders.............................................97
10.7 Successor Administrative Agent.....................................................................97
SECTION 11 MISCELLANEOUS........................................................................................98
11.1 Notices............................................................................................98
11.2 Right of Set-Off; Adjustments......................................................................99
11.3 Benefit of Agreement...............................................................................99
11.4 No Waiver; Remedies Cumulative....................................................................101
11.5 Expenses; Indemnification.........................................................................101
11.6 Amendments, Waivers and Consents.................................................................102
11.7 Counterparts......................................................................................104
11.8 Headings..........................................................................................104
11.9 Survival..........................................................................................104
11.10 Governing Law; Submission to Jurisdiction; Venue.................................................104
11.11 Severability.....................................................................................105
11.12 Entirety.........................................................................................105
11.13 Binding Effect; Termination......................................................................105
11.14 Confidentiality..................................................................................106
11.15 Source of Funds..................................................................................106
11.16 Conflict.........................................................................................107
</TABLE>
<PAGE> 5
SCHEDULES
Schedule 1.1A Investments
Schedule 1.1B Liens
Schedule 2.1(a) Lenders
Schedule 5.1(c)(i) Form of Legal Opinion (General External Counsel)
Schedule 5.1(c)(ii) Form of Legal Opinion (Local Corporate Counsel)
Schedule 5.1(c)(iii) Form of Legal Opinion (Local Collateral Counsel)
Schedule 5.1(e) Mortgaged Properties
Schedule 5.1(h) Corporate Structure
Schedule 6.4 Required Consents, Authorizations, Notices
and Filings
Schedule 6.9 Litigation
Schedule 6.12 ERISA
Schedule 6.13 Subsidiaries
Schedule 6.16 Environmental Disclosures
Schedule 6.17 Intellectual Property
Schedule 6.20(a) Mortgaged Properties
Schedule 6.20(b) Collateral Locations
Schedule 6.20(c) Chief Executive Offices/Principal Places
of Business
Schedule 6.23 Broker's Fees
Schedule 6.24 Labor Matters
Schedule 7.6 Insurance
Schedule 8.1 Indebtedness
Schedule 8.9 Transactions with Affiliates
EXHIBITS
Exhibit 1.1A Form of Pledge Agreement
Exhibit 1.1B Form of Security Agreement
Exhibit 1.1C Terms of Subordinated Indebtedness
Exhibit 2.1(b)(i) Form of Notice of Borrowing
Exhibit 2.1(e) Form of Revolving Note
Exhibit 2.3(d) Form of Swingline Note
Exhibit 2.4(f) Form of Tranche A Term Note
Exhibit 2.5(f) Form of Delayed Draw Term Note
Exhibit 3.2 Form of Notice of Extension/Conversion
Exhibit 7.1(c) Form of Officer's Compliance Certificate
Exhibit 7.12 Form of Joinder Agreement
Exhibit 11.3(b) Form of Assignment and Acceptance
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of February 16, 1999 (as amended,
modified, restated or supplemented from time to time, the "Credit Agreement"),
is by and among MODTECH HOLDINGS, INC., a Delaware corporation (the "Borrower"),
the Guarantors (as defined herein), the Lenders (as defined herein), NATIONSBANC
MONTGOMERY SECURITIES LLC, as Sole Lead Arranger and Sole Book Manager, and
NATIONSBANK, N. A., as Administrative Agent for the Lenders (in such capacity,
the "Administrative Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide credit
facilities in an aggregate amount of $100,000,000 (the "Credit Facilities") for
the purposes hereinafter set forth; and
WHEREAS, the Lenders have agreed to make the requested Credit
Facilities available to the Borrower on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 DEFINITIONS.
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires:
"Acquisition", by any Person, means the acquisition by such
Person of all of the Capital Stock or all or substantially all of the
Property of another Person, whether or not involving a merger or
consolidation with such other Person.
"Adjusted Base Rate" means the Base Rate plus the Applicable
Percentage.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
"Administrative Agent" shall have the meaning assigned to such
term in the heading hereof, together with any successors or assigns.
<PAGE> 7
"Administrative Agent's Fee Letter" means that certain letter
agreement, dated as of the date hereof, between the Borrower and the
Administrative Agent, as the same may be amended, modified, restated or
supplemented from time to time.
"Administrative Agent's Fees" shall have the meaning assigned
to such term in Section 3.5(d).
"Affiliate" means, with respect to any Person, any other
Person (i) directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person or (ii) directly or
indirectly owning or holding five percent (5%) or more of the Capital
Stock of such Person. For purposes of this definition, "control", when
used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative
to the foregoing.
"Agency Services Address" means NationsBank, N. A.,
NC1-001-15-04, 101 North Tryon Street, Charlotte, North Carolina 28255,
Attn: Agency Services, or such other address as may be identified by
written notice from the Administrative Agent to the Borrower.
"Applicable Lending Office" means, for each Lender, the office
of such Lender (or of an Affiliate of such Lender) as such Lender may
from time to time specify to the Administrative Agent and the Borrower
by written notice as the office by which its Eurodollar Loans are made
and maintained.
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Loan, the applicable rate
of the Unused Fee for any day for purposes of Section 3.5(b), and the
applicable rate of the Letter of Credit Fee for any day for purposes of
Section 3.5(c), the appropriate applicable percentage corresponding to
the Leverage Ratio in effect as of the most recent Calculation Date:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
APPLICABLE PERCENTAGES
---------------------------------------------------------------------------------
PRICING LEVERAGE RATIO FOR EURODOLLAR LOANS FOR BASE RATE LOANS FOR LETTER OF FOR UNUSED FEE
LEVEL CREDIT FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I > 2.0 to 1.0 2.25% 1.00% 2.25% 0.50%
- --------------------------------------------------------------------------------------------------------------
< 2.0 to 1.0
II but > 1.5 to 2.00% 0.75% 2.00% 0.50%
1.0
- --------------------------------------------------------------------------------------------------------------
< 1.5 to 1.0
III but > 1.0 to 1.75% 0.50% 1.75% 0.50%
1.0
- --------------------------------------------------------------------------------------------------------------
IV < 1.0 to 1.0 1.50% 0.25% 1.50% 0.375%
-
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Applicable Percentages shall be determined and adjusted
quarterly on the date (each a "Calculation Date") five Business Days
after the date by which the Credit Parties are
2
<PAGE> 8
required to provide the officer's certificate in accordance with the
provisions of Section 7.1(c) for the most recently ended fiscal quarter
of the Consolidated Parties; provided, however, that (i) the initial
Applicable Percentages shall be based on Pricing Level III and shall
remain at Pricing Level III until the Calculation Date for the fiscal
quarter of the Consolidated Parties ending on June 30, 1999, on and
after which time the Pricing Level shall be determined by the Leverage
Ratio as of the last day of the most recently ended fiscal quarter of
the Consolidated Parties preceding the applicable Calculation Date, and
(ii) if the Credit Parties fail to provide the officer's certificate to
the Agency Services Address as required by Section 7.1(c) for the last
day of the most recently ended fiscal quarter of the Consolidated
Parties preceding the applicable Calculation Date, the Applicable
Percentage from such Calculation Date shall be based on Pricing Level I
until such time as an appropriate officer's certificate is provided,
whereupon the Pricing Level shall be determined by the Leverage Ratio
as of the last day of the most recently ended fiscal quarter of the
Consolidated Parties preceding such Calculation Date. Each Applicable
Percentage shall be effective from one Calculation Date until the next
Calculation Date. Any adjustment in the Applicable Percentages shall be
applicable to all existing Loans and Letters of Credit as well as any
new Loans and Letters of Credit made or issued.
"Application Period", in respect of any Asset Disposition,
shall have the meaning assigned to such term in Section 8.5.
"Approved Shareholders" means Infrastructure and Environmental
Private Equity Fund III, L.P. and its Affiliates, Environmental &
Information Technology Private Equity Fund III, L.P. and its
Affiliates, Proactive Partners, L.P. and its Affiliates, KRG Capital
Partners, LLC and its members and NationsCredit Commercial Corporation
and its Affiliates.
"Asset Disposition" means any disposition, other than pursuant
to an Excluded Asset Disposition, of any or all of the Property
(including, without limitation, the Capital Stock of a Subsidiary) of
any Credit Party, whether by sale, lease, transfer or otherwise.
"Asset Disposition Prepayment Event" means, with respect to
any Asset Disposition, the failure of the Credit Parties to apply (or
cause to be applied) the Net Cash Proceeds of such Asset Disposition to
Eligible Reinvestments during the Application Period for such Asset
Disposition.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"Bankruptcy Event" means, with respect to any Person, the
occurrence of any of the following with respect to such Person: (i) a
court or governmental agency having jurisdiction in the premises shall
enter a decree or order for relief in respect of such Person in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
ordering the winding up or liquidation of its affairs; or (ii) there
shall be commenced against such Person an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or any case, proceeding or other action for the
3
<PAGE> 9
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such Person or for any
substantial part of its Property or for the winding up or liquidation
of its affairs, and such involuntary case or other case, proceeding or
other action shall remain undismissed, undischarged or unbonded for a
period of sixty (60) consecutive days; or (iii) such Person shall
commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consent to the
entry of an order for relief in an involuntary case under any such law,
or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
make any general assignment for the benefit of creditors; or (iv) such
Person shall be unable to, or shall admit in writing its inability to,
pay its debts generally as they become due.
"Base Rate" means, for any day, the rate per annum equal to
the higher of (a) the Federal Funds Rate for such day plus one-half of
one percent (0.5%) and (b) the Prime Rate for such day. Any change in
the Base Rate due to a change in the Prime Rate or the Federal Funds
Rate shall be effective on the effective date of such change in the
Prime Rate or Federal Funds Rate.
"Base Rate Loan" means any Loan bearing interest at a rate
determined by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading
hereof, together with any permitted successors and assigns.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in Charlotte, North Carolina, Los
Angeles, California or New York, New York are authorized or required by
law to close, except that, when used in connection with a Eurodollar
Loan, such day shall also be a day on which dealings between banks are
carried on in U.S. dollar deposits in London, England.
"Calculation Date" has the meaning set forth in the definition
of "Applicable Percentage" set forth in this Section 1.1.
"Capital Lease" means, as applied to any Person, any lease of
any Property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as a
capital lease on the balance sheet of that Person.
"Capital Stock" means (i) in the case of a corporation,
capital stock, (ii) in the case of an association or business entity,
any and all shares, interests, participations, rights or other
equivalents (however designated) of capital stock, (iii) in the case of
a partnership, partnership interests (whether general or limited), (iv)
in the case of a limited liability company, membership interests and
(v) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions
of assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly and
fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not
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<PAGE> 10
more than 12 months from the date of acquisition, (b) U.S. dollar
denominated time deposits and certificates of deposit of (i) any
Lender, (ii) any domestic commercial bank of recognized standing having
capital and surplus in excess of $500,000,000 or (iii) any bank whose
short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Bank"), in each case with
maturities of not more than 270 days from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any
Approved Bank (or by the parent company thereof) or any variable rate
notes issued by, or guaranteed by, any domestic corporation rated A-1
(or the equivalent thereof) or better by S&P or P-1 (or the equivalent
thereof) or better by Moody's and maturing within six months of the
date of acquisition, (d) repurchase agreements entered into by any
Person with a bank or trust company (including any of the Lenders) or
recognized securities dealer having capital and surplus in excess of
$500,000,000 for direct obligations issued by or fully guaranteed by
the United States in which such Person shall have a perfected first
priority security interest (subject to no other Liens) and having, on
the date of purchase thereof, a fair market value of at least 100% of
the amount of the repurchase obligations and (e) Investments,
classified in accordance with GAAP as current assets, in money market
investment programs registered under the Investment Company Act of
1940, as amended, which are administered by reputable financial
institutions having capital of at least $500,000,000 and the portfolios
of which are limited to Investments of the character described in the
foregoing subdivisions (a) through (d).
"Change of Control" means any of the following events: (a) the
sale, lease, transfer or other disposition (other than by way of merger
or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Borrower and its Subsidiaries
taken as a whole to any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act), (b) the
Borrower shall fail to own, directly or indirectly, 100% of the
outstanding Capital Stock of any Guarantor other than Trac Modular
Manufacturing, Inc. or at least 80% of the outstanding Capital Stock of
Trac Modular Manufacturing, Inc, (c) any Person or two or more Persons
acting in concert (in each case other than the Approved Shareholders)
shall have acquired beneficial ownership, directly or indirectly, of,
or shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation, will result in
its or their acquisition of, control over, 33-1/3% or more of the
Capital Stock of the Borrower or (d) during any period of up to 24
consecutive months, commencing after the Closing Date, individuals who
at the beginning of such 24 month period were directors of the Borrower
(together with any new director whose election by the Borrower's Board
of Directors or whose nomination for election by the Borrower's
shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the directors of the Borrower then in office. As used
herein, "beneficial ownership" shall have the meaning provided in Rule
13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute thereto, as interpreted by the rules and
regulations issued thereunder, in each case as
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<PAGE> 11
in effect from time to time. References to sections of the Code shall
be construed also to refer to any successor sections.
"Collateral" means a collective reference to the collateral
which is identified in, and at any time will be covered by, the
Collateral Documents.
"Collateral Documents" means a collective reference to the
Security Agreement, the Pledge Agreement, the Mortgage Instruments and
such other documents executed and delivered in connection with the
attachment and perfection of the Administrative Agent's security
interests and liens arising thereunder, including, without limitation,
UCC financing statements and patent and trademark filings.
"Commitment" means (i) with respect to each Lender, the
Revolving Commitment of such Lender, the Tranche A Term Loan Commitment
and the Delayed Draw Term Loan Commitment of such Lender and (ii) with
respect to the Issuing Lender, the LOC Commitment.
"Consolidated Capital Expenditures" means, as of any date for
the four fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, all capital expenditures,
as determined in accordance with GAAP.
"Consolidated Cash Taxes" means, as of any date for the four
fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, the aggregate of all
taxes, as determined in accordance with GAAP, to the extent the same
are paid in cash.
"Consolidated EBITDA" means, as of any date for the four
fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, the sum of (i)
Consolidated Net Income, plus (ii) an amount which, in the
determination of Consolidated Net Income, has been deducted for (A)
Consolidated Interest Expense, (B) total federal, state, local and
foreign income, value added and similar taxes and (C) depreciation and
amortization expense, all as determined in accordance with GAAP.
"Consolidated Interest Expense" means, as of any date for the
four fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, interest expense
(including the amortization of debt discount and premium, the interest
component under Capital Leases and the implied interest component under
Synthetic Leases), as determined in accordance with GAAP.
"Consolidated Net Income" means, as of any date for the four
fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, net income (excluding
extraordinary items) after interest expense, income taxes and
depreciation and amortization, all as determined in accordance with
GAAP.
"Consolidated Net Worth" means, as of any date with respect to
the Consolidated Parties on a consolidated basis, shareholders' equity
or net worth, as determined in accordance with GAAP.
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<PAGE> 12
"Consolidated Parties" means a collective reference to the
Borrower and its Subsidiaries, and "Consolidated Party" means any one
of them.
"Consolidated Scheduled Funded Debt Payments" means, as of any
date for the four fiscal quarter period ending on such date with
respect to the Consolidated Parties on a consolidated basis, the sum of
all scheduled payments of principal on Funded Indebtedness (including
the principal component of payments due on Capital Leases); it being
understood that Consolidated Scheduled Funded Debt Payments shall not
include voluntary prepayments or the mandatory prepayments required
pursuant to Section 3.3.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 3.2 hereof of a Eurodollar Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a
conversion pursuant to Section 3.2 or Sections 3.7 through 3.12,
inclusive, of a Base Rate Loan into a Eurodollar Loan.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, the LOC Documents, each Joinder Agreement, the
Administrative Agent's Fee Letter, the Collateral Documents and all
other related agreements and documents issued or delivered hereunder or
thereunder or pursuant hereto or thereto (in each case as the same may
be amended, modified, restated, supplemented, extended, renewed or
replaced from time to time), and "Credit Document" means any one of
them.
"Credit Facilities" shall have the meaning assigned to such
term in the recitals hereto.
"Credit Parties" means a collective reference to the Borrower
and the Guarantors, and "Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication, (i) all
of the obligations of the Credit Parties to the Lenders (including the
Issuing Lender) and the Administrative Agent, whenever arising, under
this Credit Agreement, the Notes, the Collateral Documents or any of
the other Credit Documents (including, but not limited to, any interest
accruing after the occurrence of a Bankruptcy Event with respect to any
Credit Party, regardless of whether such interest is an allowed claim
under the Bankruptcy Code) and (ii) all liabilities and obligations,
whenever arising, owing from any Credit Party to any Lender, or any
Affiliate of a Lender, arising under any Hedging Agreement.
"Debt Issuance" means the issuance of any Indebtedness for
borrowed money by any Consolidated Party other than an Excluded Debt
Issuance.
"Default" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that (a)
has failed to make a Loan or purchase a Participation Interest required
pursuant to the term of this Credit
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<PAGE> 13
Agreement within one Business Day of when due, (b) other than as set
forth in (a) above, has failed to pay to the Administrative Agent or
any Lender an amount owed by such Lender pursuant to the terms of this
Credit Agreement within one Business Day of when due, unless such
amount is subject to a good faith dispute or (c) has been deemed
insolvent or has become subject to a bankruptcy or insolvency
proceeding or with respect to which (or with respect to any of assets
of which) a receiver, trustee or similar official has been appointed.
"Delayed Draw Term Loan" shall have the meaning assigned to
such term in Section 2.5(a).
"Delayed Draw Term Loan Commitment" means, with respect to
each Lender, the commitment of such Lender to make its portion of the
Delayed Draw Term Loan in a principal amount equal to such Lender's
Delayed Draw Term Loan Commitment Percentage (if any) of the Delayed
Draw Term Loan Committed Amount.
"Delayed Draw Term Loan Commitment Percentage" means, for any
Lender, the percentage identified as its Delayed Draw Term Loan
Commitment Percentage on Schedule 2.1(a), as such percentage may be
modified in connection with any assignment made in accordance with the
provisions of Section 11.3.
"Delayed Draw Term Loan Committed Amount" shall have the
meaning assigned to such term in Section 2.5(a).
"Delayed Draw Term Note" or "Delayed Draw Term Notes" means
the promissory notes of the Borrower in favor of each of the Lenders
evidencing the Delayed Draw Term Loans provided pursuant to Section
2.5(f), individually or collectively, as appropriate, as such
promissory notes may be amended, modified, restated, supplemented,
extended, renewed or replaced from time to time.
"Delayed Draw Unused Fee" shall have the meaning assigned to
such term in Section 3.5(b)(ii).
"Delayed Draw Unused Fee Calculation Period" shall have the
meaning assigned to such term in Section 3.5(b)(ii).
"Dollars" and "$" means dollars in lawful currency of the
United States.
"EBITDA" means, for any Person or Property for any period, the
net income (excluding extraordinary items) of such Person or Property
for such period before (without duplication) interest expense, income
taxes and depreciation and amortization, all as determined in
accordance with GAAP.
"Eligible Assets" means any assets or any business (or any
substantial part thereof) used or useful in the same or a similar line
of business as the Borrower and its Subsidiaries were engaged in on the
Closing Date (or any reasonable extensions or expansions thereof).
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<PAGE> 14
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender or any fund that invests in bank loans and is managed by an
investment advisor to a Lender; and (iii) any other Person approved by
the Administrative Agent and, unless an Event of Default has occurred
and is continuing at the time any assignment is effected in accordance
with Section 11.3, the Borrower (such approval not to be unreasonably
withheld or delayed by the Borrower and such approval to be deemed
given by the Borrower if no objection is received by the assigning
Lender and the Administrative Agent from the Borrower within two
Business Days after notice of such proposed assignment has been
provided by the assigning Lender to the Borrower); provided, however,
that neither the Borrower nor an Affiliate of the Borrower shall
qualify as an Eligible Assignee.
"Eligible Reinvestment" means (i) any acquisition (whether or
not constituting a capital expenditure, but not constituting an
Acquisition) of Eligible Assets and (ii) any Permitted Acquisition.
"Environmental Laws" means any and all lawful and applicable
Federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes.
"Equity Issuance" means any issuance, other than pursuant to
an Excluded Equity Issuance, by any Consolidated Party to any Person of
(a) shares of its Capital Stock, (b) any shares of its Capital Stock
pursuant to the exercise of options or warrants or (c) any shares of
its Capital Stock pursuant to the conversion of any debt securities to
equity. The term "Equity Issuance" shall not include any Asset
Disposition.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
"ERISA Affiliate" means an entity which is under common
control with any Consolidated Party within the meaning of Section
4001(a)(14) of ERISA, or is a member of a group which includes any
Consolidated Party and which is treated as a single employer under
Sections 414(b) or (c) of the Code.
"ERISA Event" means (i) with respect to any Plan, the
occurrence of a Reportable Event or the substantial cessation of
operations (within the meaning of Section 4062(e) of ERISA); (ii) the
withdrawal by any Consolidated Party or any ERISA Affiliate from a
Multiple Employer Plan during a plan year in which it was a substantial
employer (as such term is defined in Section 4001(a)(2) of ERISA), or
the termination of a Multiple Employer Plan; (iii) the distribution of
a notice of intent to terminate or the actual termination of a Plan
pursuant to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution
of proceedings
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<PAGE> 15
to terminate or the actual termination of a Plan by the PBGC under
Section 4042 of ERISA; (v) any event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any Plan; (vi) the
complete or partial withdrawal of any Consolidated Party or any ERISA
Affiliate from a Multiemployer Plan; (vii) the conditions for
imposition of a lien under Section 302(f) of ERISA exist with respect
to any Plan; or (viii) the adoption of an amendment to any Plan
requiring the provision of security to such Plan pursuant to Section
307 of ERISA.
"Eurodollar Loan" means any Loan that bears interest at a rate
based upon the Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined by the Administrative
Agent to be equal to the quotient obtained by dividing (a) the
Interbank Offered Rate for such Eurodollar Loan for such Interest
Period by (b) 1 minus the Eurodollar Reserve Requirement for such
Eurodollar Loan for such Interest Period.
"Eurodollar Reserve Requirement" means, at any time, the
maximum rate at which reserves (including, without limitation, any
marginal, special, supplemental, or emergency reserves) are required to
be maintained under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency liabilities"
(as such term is used in Regulation D). Without limiting the effect of
the foregoing, the Eurodollar Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks with
respect to (i) any category of liabilities which includes deposits by
reference to which the Adjusted Eurodollar Rate is to be determined, or
(ii) any category of extensions of credit or other assets which include
Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Requirement.
"Event of Default" shall have the meaning as defined in
Section 9.1.
"Excess Proceeds" shall have the meaning as defined in Section
7.6(b).
"Excluded Asset Disposition" means, with respect to any
Consolidated Party, (i) the sale of inventory in the ordinary course of
such Consolidated Party's business, (ii) the sale or disposition of
machinery and equipment no longer used or useful in the conduct of such
Consolidated Party's business or (iii) any Equity Issuance by such
Consolidated Party and (iv) any Asset Disposition by such Consolidated
Party to any Credit Party, provided that the Credit Parties shall cause
to be executed and delivered such documents, instruments and
certificates as the Administrative Agent may request so as to cause the
Credit Parties to be in compliance with the terms of Section 7.13 after
giving effect to such Asset Disposition.
"Excluded Debt Issuance" means any issuance of Indebtedness
permitted by Section 8.1.
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"Excluded Equity Issuance" means (i) any Equity Issuance by
any Consolidated Party to any Credit Party, (ii) any Equity Issuance by
any Consolidated Party to any employee of a Consolidated Party pursuant
to an employee stock option plan, (iii) any Equity Issuance by the
Borrower to the seller of a business acquired in a Permitted
Acquisition, (iv) any Equity Issuance by the Borrower the proceeds of
which are used to finance a Permitted Acquisition, (v) any Equity
Issuance by the shareholders of the Merger Companies in connection with
the Transaction or (vi) any sale by any Approved Shareholder of Capital
Stock of the Borrower.
"Executive Officer" of any Person means any of the chief
executive officer, chief operating officer, president, vice president,
chief financial officer or treasurer of such Person.
"Existing Credit Facility" means the $34,817,767 credit
facility provided by NationsCredit Commercial Corporation to SPI and
the loan documents evidencing such credit facility.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day; provided
that (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and
(b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate
charged to the Administrative Agent (in its individual capacity) on
such day on such transactions as determined by the Administrative
Agent.
"Fees" means all fees payable pursuant to Section 3.5.
"Fixed Charge Coverage Ratio" means, as of the end of any
fiscal quarter of the Consolidated Parties for the four fiscal quarter
period ending on such date with respect to the Consolidated Parties on
a consolidated basis, the ratio of (a) the sum of (i) Consolidated
EBITDA for such period minus (iii) Consolidated Capital Expenditures
for such period minus (iv) Consolidated Cash Taxes for such period to
(b) the sum of (i) Consolidated Interest Expense for such period plus
(ii) Consolidated Scheduled Funded Debt Payments for such period.
"Foreign Subsidiary" means any direct or indirect Subsidiary
of the Borrower which is not incorporated or organized under the laws
of any State of the United States or the District of Columbia.
"Funded Indebtedness" means, with respect to any Person,
without duplication, (a) all Indebtedness of such Person other than
Indebtedness of the types referred to in clause (e), (g), (i) and (m)
of the definition of "Indebtedness" set forth in this Section 1.1, (b)
all Funded Indebtedness of others of the type referred to in clause (a)
above secured by (or for which the holder of such Funded Indebtedness
has an existing right, contingent or
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otherwise, to be secured by) any Lien on, or payable out of the
proceeds of production from, Property owned or acquired by such Person,
whether or not the obligations secured thereby have been assumed, (c)
all Guaranty Obligations of such Person with respect to Funded
Indebtedness of the type referred to in clause (a) above of another
Person and (d) Funded Indebtedness of the type referred to in clause
(a) above of any partnership or unincorporated joint venture in which
such Person is a general partner or a joint venturer.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to the terms of
Section 1.3.
"Glendale Property" shall have the meaning as defined in
Section 5.1(e)(vii).
"Governmental Authority" means any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantors" means a collective reference to each of the
Subsidiaries of the Borrower, together with their successors and
permitted assigns, and "Guarantor " means any one of them.
"Guaranty Obligations" means, with respect to any Person,
without duplication, any obligations of such Person (other than
endorsements in the ordinary course of business of negotiable
instruments for deposit or collection) guaranteeing or intended to
guarantee any Indebtedness of any other Person in any manner, whether
direct or indirect, and including, without limitation, any obligation,
whether or not contingent, (i) to purchase any such Indebtedness or any
Property constituting security therefor, (ii) to advance or provide
funds or other support for the payment or purchase of any such
Indebtedness or to maintain working capital, solvency or other balance
sheet condition of such other Person (including, without limitation,
keep well agreements, maintenance agreements, comfort letters or
similar agreements or arrangements) for the benefit of any holder of
Indebtedness of such other Person, (iii) to lease or purchase Property,
securities or services primarily for the purpose of assuring the holder
of such Indebtedness, (iv) to otherwise assure or hold harmless the
holder of such Indebtedness against loss in respect thereof, or (v) in
the form of a performance bond or other surety to assure the prompt and
complete performance by any Consolidated Party of obligations to
manufacture products in the ordinary course of business. The amount of
any Guaranty Obligation hereunder shall (subject to any limitations set
forth therein) be deemed to be an amount equal to the outstanding
principal amount (or maximum principal amount, if larger) of the
Indebtedness in respect of which such Guaranty Obligation is made.
"Hedging Agreements" means any interest rate protection
agreement or foreign currency exchange agreement.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money, (b)
all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, or upon which interest payments are customarily
made, (c) all obligations of such Person under conditional sale or
other title retention agreements relating to Property purchased by such
Person (other than customary reservations or retentions of title under
agreements with suppliers entered into in
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the ordinary course of business), (d) all obligations of such Person
issued or assumed as the deferred purchase price of Property or
services purchased by such Person (other than trade debt incurred in
the ordinary course of business and due within six months of the
incurrence thereof) which would appear as liabilities on a balance
sheet of such Person, (e) all obligations of such Person under
take-or-pay or similar arrangements or under commodities agreements,
(f) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on, or payable out of the proceeds of production
from, Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (g) all Guaranty
Obligations of such Person with respect to Indebtedness of another
Person, (h) the principal portion of all obligations of such Person
under Capital Leases, (i) all obligations of such Person under Hedging
Agreements, (j) the maximum amount of all standby letters of credit
issued or bankers' acceptance facilities created for the account of
such Person and, without duplication, all drafts drawn thereunder (to
the extent unreimbursed), (k) all preferred Capital Stock issued by
such Person and which by the terms thereof could be (at the request of
the holders thereof or otherwise) subject to mandatory sinking fund
payments, redemption or other acceleration (other than as a result of a
Change of Control or an Asset Disposition that does not in fact result
in a redemption of such preferred Equity Interests), (l) the principal
portion of all obligations of such Person under Synthetic Leases, and
(m) the Indebtedness of any partnership or unincorporated joint venture
in which such Person is a general partner or a joint venturer.
"Interbank Offered Rate" means, for any Eurodollar Loan for
any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750
(or any successor page) as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the term "Interbank Offered Rate" shall mean, for any
Eurodollar Loan for any Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing
on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more than one
rate is specified on Reuters Screen LIBO Page, the applicable rate
shall be the arithmetic mean of all such rates (rounded upwards, if
necessary, to the nearest 1/100 of 1%).
"Interest Payment Date" means (a) as to Base Rate Loans
(including Swingline Loans which are Base Rate Loans), each March 31,
June 30, September 30 and December 31, the date of repayment of
principal of such Loan and the Maturity Date, and (b) as to Eurodollar
Loans, the last day of each applicable Interest Period, the date of
repayment of principal of such Loan and the Maturity Date, and in
addition where the applicable Interest Period for a Eurodollar Loan is
greater than three months, then also the date three months from the
beginning of the Interest Period and each three months thereafter.
"Interest Period" means, as to Eurodollar Loans, a period of
one, two, three or six months' duration, as the Borrower may elect,
commencing, in each case, on the date of the borrowing (including
continuations and conversions thereof); provided, however, (a) if any
Interest Period would end on a day which is not a Business Day, such
Interest Period shall
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be extended to the next succeeding Business Day (except that where the
next succeeding Business Day falls in the next succeeding calendar
month, then on the next preceding Business Day), (b) no Interest Period
shall extend beyond the Maturity Date, (c) with regard to the Tranche A
Term Loans, (i) the initial Interest Period shall end on March 31, 1999
and (ii) no Interest Period shall extend beyond any Principal
Amortization Payment Date unless the portion of Tranche A Term Loans
comprised of Base Rate Loans together with the portion of Tranche A
Term Loans comprised of Eurodollar Loans with Interest Periods expiring
prior to the date such Principal Amortization Payment is due, is at
least equal to the amount of such Principal Amortization Payment due on
such date, (d) with regard to the Delayed Draw Term Loans, no Interest
Period shall extend beyond any Principal Amortization Payment Date
unless the portion of Delayed Draw Term Loans comprised of Base Rate
Loans together with the portion of Delayed Draw Term Loans comprised of
Eurodollar Loans with Interest Periods expiring prior to the date such
Principal Amortization Payment is due, is at least equal to the amount
of such Principal Amortization Payment due on such date and (e) where
an Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month in which the Interest Period is
to end, such Interest Period shall end on the last Business Day of such
calendar month.
"Investment" in any Person means (a) the acquisition (whether
for cash, property, services, assumption of Indebtedness, securities or
otherwise) of assets (other than equipment, inventory and supplies in
the ordinary course of business), Capital Stock, bonds, notes,
debentures, partnership, joint ventures or other ownership interests or
other securities of such other Person or (b) any deposit with, or
advance, loan or other extension of credit to, such Person (other than
deposits made in connection with the purchase of equipment or other
assets in the ordinary course of business) or (c) any other capital
contribution to or investment in such Person, including, without
limitation, any Guaranty Obligations (including any support for a
letter of credit issued on behalf of such Person) incurred for the
benefit of such Person, but excluding any Restricted Payment to such
Person.
"Issuing Lender" means NationsBank.
"Issuing Lender Fees" shall have the meaning assigned to such
term in Section 3.5(c)(ii).
"Joinder Agreement" means a Joinder Agreement substantially in
the form of Exhibit 7.12 hereto, executed and delivered by a new
Guarantor in accordance with the provisions of Section 7.12.
"Lender" means any of the Persons identified as a "Lender" on
the signature pages hereto, and any Person which may become a Lender by
way of assignment in accordance with the terms hereof, together with
their successors and permitted assigns.
"Letter of Credit" means any letter of credit issued by the
Issuing Lender for the account of the Borrower in accordance with the
terms of Section 2.2.
"Leverage Ratio" means, as of the end of any fiscal quarter of
the Consolidated Parties for the four fiscal quarter period ending on
such date with respect to the Consolidated Parties on a consolidated
basis, the ratio of (a) Funded Indebtedness of the
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<PAGE> 20
Consolidated Parties on a consolidated basis on the last day of such
period to (b) Consolidated EBITDA for such period.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other
title retention agreement, any financing or similar statement or notice
filed under the Uniform Commercial Code as adopted and in effect in the
relevant jurisdiction or other similar recording or notice statute, and
any lease in the nature thereof).
"Loan" or "Loans" means the Revolving Loans, the Tranche A
Term Loans, the Delayed Draw Term Loans (or a portion of any Revolving
Loan, any Tranche A Term Loan or Delayed Draw Term Loan bearing
interest at the Adjusted Base Rate or the Adjusted Eurodollar Rate)
and/or the Swingline Loans, individually or collectively, as
appropriate.
"LOC Commitment" means the commitment of the Issuing Lender to
issue Letters of Credit in an aggregate face amount at any time
outstanding (together with the amounts of any unreimbursed drawings
thereon) of up to the LOC Committed Amount.
"LOC Committed Amount" shall have the meaning assigned to such
term in Section 2.2.
"LOC Documents" means, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered
in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (i) the rights and obligations of the parties concerned
or at risk or (ii) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (i) the
maximum amount which is, or at any time thereafter may become,
available to be drawn under Letters of Credit then outstanding,
assuming compliance with all requirements for drawings referred to in
such Letters of Credit plus (ii) the aggregate amount of all drawings
under Letters of Credit honored by the Issuing Lender but not
theretofore reimbursed by the Borrower.
"Material Adverse Effect" means a material adverse effect on
(i) the condition (financial or otherwise), operations, business,
assets, liabilities or prospects of the Consolidated Parties taken as a
whole, (ii) the ability of any Credit Party to perform any material
obligation under the Credit Documents to which it is a party or (iii)
the material rights and remedies of the Administrative Agent and the
Lenders under the Credit Documents.
"Materials of Environmental Concern" means any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Laws,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
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"Maturity Date" means as to all Loans and Letters of Credit
(and the related LOC Obligations), February 16, 2004.
"Merger Agreement" means that certain Agreement and Plan of
Reorganization and Merger, dated as of September 28, 1998, between
Modtech and SPI, as amended prior to the Closing Date.
"Merger Documents" means, collectively, the Merger Agreement
and any other agreement, document or instrument executed in connection
therewith.
"Merger Parties" means Modtech and SPI.
"Modtech" means Modtech, Inc., a California corporation.
"Moody's" means Moody's Investors Service, Inc., or any
successor or assignee of the business of such company in the business
of rating securities.
"Mortgage Instruments" shall have the meaning assigned such
term in Section 5.1(e).
"Mortgage Policies" shall have the meaning assigned such term
in Section 5.1(e).
"Mortgaged Properties" shall have the meaning assigned such
term in Section 5.1(e).
"Multiemployer Plan" means a Plan which is a "multiemployer
plan" as defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan (other than a
Multiemployer Plan) which any Consolidated Party or any ERISA Affiliate
and at least one employer other than the Consolidated Parties or any
ERISA Affiliate are contributing sponsors.
"NationsBank" means NationsBank, N. A. and its successors.
"Net Cash Proceeds" means the aggregate cash proceeds received
by the Consolidated Parties in respect of any Asset Disposition, Equity
Issuance or Debt Issuance, net of (a) direct costs (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and (b) taxes paid or payable as a result thereof; it
being understood that "Net Cash Proceeds" shall include, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received by the Consolidated Parties in any
Asset Disposition, Equity Issuance or Debt Issuance.
"NMS" means NationsBanc Montgomery Securities LLC.
"Note" or "Notes" means the Revolving Notes, the Tranche A
Term Notes, the Delayed Draw Term Notes and/or the Swingline Note,
individually or collectively, as appropriate.
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<PAGE> 22
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Exhibit 2.1(b)(i), as required by Section
2.1(b)(i), Section 2.4(b) or Section 2.5(b).
"Notice of Extension/Conversion" means the written notice of
extension or conversion in substantially the form of Exhibit 3.2, as
required by Section 3.2.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed)
which is not a Capital Lease other than any such lease in which that
Person is the lessor.
"Other Taxes" shall have the meaning assigned to such term in
Section 3.11.
"Participation Interest" means a purchase by a Lender of a
participation in Letters of Credit or LOC Obligations as provided in
Section 2.2, in Swingline Loans as provided in Section 2.3(b)(iii) or
in any Loans as provided in Section 3.14.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereof.
"Permitted Acquisition" means an Acquisition by the Borrower
or any Subsidiary of the Borrower for consideration no greater than the
fair market value of the Capital Stock or Property acquired, provided
that (i) the Property acquired (or the Property of the Person acquired)
in such Acquisition is used or useful in the same or a substantially
similar line of business as the Borrower and its Subsidiaries were
engaged in on the Closing Date (or any reasonable extensions or
expansions thereof), (ii) the Administrative Agent shall have received
all items in respect of the Capital Stock or Property acquired in such
Acquisition (and/or the seller thereof) required to be delivered by the
terms of Section 7.12 and/or Section 7.13, (iii) in the case of an
Acquisition of the Capital Stock of another Person, the board of
directors (or other comparable governing body) of such other Person
shall have duly approved such Acquisition, (iv) the Borrower shall have
delivered to the Administrative Agent a Pro Forma Compliance
Certificate demonstrating that, upon giving effect to such Acquisition
on a Pro Forma Basis, (A) the Credit Parties shall be in compliance
with all of the covenants set forth in Section 7.11 and (B) the
Leverage Ratio shall be less than 2.00 to 1.00, (v) EBITDA of the
Person or Property to be acquired in such Acquisition for the most
recent four fiscal quarter period preceding the date of such
Acquisition shall be greater than zero, (vi) the representations and
warranties made by the Credit Parties in any Credit Document shall be
true and correct in all material respects at and as if made as of the
date of such Acquisition (after giving effect thereto) except to the
extent such representations and warranties expressly relate to an
earlier date, (vii) if such transaction involves the purchase of an
interest in a partnership between the Borrower (or a Subsidiary of the
Borrower) as a general partner and entities unaffiliated with the
Borrower or such Subsidiary as the other partners, such transaction
shall be effected by having such equity interest acquired by a
corporate holding company directly or indirectly wholly-owned by the
Borrower newly formed for the sole purpose of effecting such
transaction, (viii) after giving effect to such Acquisition, there
shall be at least $7,500,000 of availability existing under the
Revolving Committed Amount, (ix) the aggregate consideration (including
cash and any assumption of Funded Indebtedness, but excluding
consideration
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consisting of any Capital Stock of the Borrower) for any such
Acquisition shall not exceed $10,000,000 and (x) immediately prior to
and after giving effect to such Acquisition, no Default or Event of
Default shall exist.
"Permitted Investments" means Investments which are either (i)
cash and Cash Equivalents; (ii) accounts receivable created, acquired
or made by any Consolidated Party in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms;
(iii) Investments consisting of Capital Stock, obligations, securities
or other property received by any Consolidated Party in settlement of
accounts receivable (created in the ordinary course of business) from
bankrupt obligors; (iv) Investments existing as of the Closing Date and
set forth in Schedule 1.1A; (vi) advances or loans to directors,
officers, employees, agents, customers or suppliers that do not exceed
$250,000 in the aggregate at any one time outstanding for all of the
Consolidated Parties; (vii) Investments in any Credit Party; or (viii)
Permitted Acquisitions.
"Permitted Liens" means:
(i) Liens in favor of the Administrative Agent to secure
the Credit Party Obligations;
(ii) Liens (other than Liens created or imposed under
ERISA) for taxes, assessments or governmental charges or levies not yet
due or Liens for taxes being contested in good faith by appropriate
proceedings for which adequate reserves determined in accordance with
GAAP have been established (and as to which the Property subject to any
such Lien is not yet subject to foreclosure, sale or loss on account
thereof);
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and suppliers and other Liens
imposed by law or pursuant to customary reservations or retentions of
title arising in the ordinary course of business, provided that such
Liens secure only amounts not yet due and payable or, if due and
payable, are unfiled and no other action has been taken to enforce the
same or are being contested in good faith by appropriate proceedings
for which adequate reserves determined in accordance with GAAP have
been established (and as to which the Property subject to any such Lien
is not yet subject to foreclosure, sale or loss on account thereof);
(iv) Liens (other than Liens created or imposed under
ERISA) incurred or deposits made by any Consolidated Party in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure
the performance of tenders, statutory obligations, bids, leases,
government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money);
(v) Liens in connection with attachments or judgments
(including judgment or appeal bonds), provided that the judgments
secured shall, within 30 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall have
been discharged within 30 days after the expiration of any such stay;
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<PAGE> 24
(vi) easements, rights-of-way, restrictions (including
zoning restrictions), minor defects or irregularities in title and
other similar charges or encumbrances not, in any material respect,
impairing the use of the encumbered Property for its intended purposes;
(vii) Liens on Property of any Person securing purchase
money Indebtedness (including Capital Leases and Synthetic Leases) of
such Person to the extent permitted under Section 8.1(c), provided that
any such Lien attaches to such Property concurrently with or within 90
days after the acquisition thereof;
(viii) any interest of title of a lessor under, and Liens
arising from UCC financing statements (or equivalent filings,
registrations or agreements in foreign jurisdictions) relating to,
leases permitted by this Credit Agreement;
(ix) Liens deemed to exist in connection with Investments
in repurchase agreements permitted under Section 8.6;
(x) normal and customary rights of setoff upon deposits
of cash in favor of banks or other depository institutions;
(xi) Liens of a collection bank arising under Section
4-210 of the Uniform Commercial Code on items in the course of
collection;
(xii) Liens existing as of the Closing Date and set forth
on Schedule 1.1B; provided that (a) no such Lien shall at any time be
extended to or cover any Property other than the Property subject
thereto on the Closing Date and (b) the principal amount of the
Indebtedness secured by such Liens shall not be extended, renewed,
refunded or refinanced; and
(xiii) Liens on receivables arising from the sale by any
Consolidated Party of manufactured goods and securing the reimbursement
obligations of such Consolidated Party in respect of payment or
performance bonds or other surety to assure the prompt and complete
performance by such Consolidated Party of obligations to manufacture
such goods in the ordinary course of its business.
"Person" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or
other enterprise (whether or not incorporated) or any Governmental
Authority.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which any
Consolidated Party or any ERISA Affiliate is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" within the meaning of Section 3(5) of ERISA.
"Pledge Agreement" means the pledge agreement dated as of the
Closing Date in the form of Exhibit 1.1A to be executed in favor of the
Administrative Agent by each of the Credit Parties, as amended,
modified, restated or supplemented from time to time.
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"Prime Rate" means the per annum rate of interest established
from time to time by NationsBank as its prime rate, which rate may not
be the lowest rate of interest charged by NationsBank to its customers.
"Principal Amortization Payment" means a principal payment on
the Tranche A Term Loans as set forth in Section 2.4(d) or on the
Delayed Draw Term Loans as set forth in Section 2.5(d).
"Principal Amortization Payment Date" means the date a
Principal Amortization Payment is due.
"Principal Office" means the principal office of NationsBank,
presently located at Charlotte, North Carolina.
"Pro Forma Basis" means, for purposes of calculating
(utilizing the principles set forth in the second paragraph of Section
1.3) compliance with each of the financial covenants set forth in
Section 7.11 in respect of a proposed transaction, that such
transaction shall be deemed to have occurred as of the first day of the
four fiscal-quarter period ending as of the most recent fiscal quarter
end preceding the date of such transaction with respect to which the
Administrative Agent has received the Required Financial Information.
As used herein, "transaction" shall mean (i) any incurrence or
assumption of Indebtedness as referred to in Section 8.1(g)(i), (ii)
any merger or consolidation as referred to in Section 8.4, (iii) any
Asset Disposition as referred to in Section 8.5 or (iv) any Acquisition
as referred to in clause (iv) of the definition of "Permitted
Acquisition" set forth in this Section 1.1. In connection with any
calculation of the financial covenants set forth in Section 7.11 upon
giving effect to a transaction on a Pro Forma Basis:
(A) for purposes of any such calculation in
respect of any incurrence or assumption of Indebtedness as
referred to in Section 8.1(g)(i), any Indebtedness which is
retired in connection with such incurrence or assumption shall
be excluded and deemed to have been retired as of the first
day of the applicable period;
(B) for purposes of any such calculation in
respect of any Asset Disposition as referred to in Section
8.5, (1) income statement items (whether positive or negative)
attributable to the Property disposed of in such Asset
Disposition shall be excluded and (2) any Indebtedness which
is retired in connection with such Asset Disposition shall be
excluded and deemed to have been retired as of the first day
of the applicable period; and
(C) for purposes of any such calculation in
respect of any merger or consolidation as referred to in
Section 8.4 or any Acquisition as referred to in clause (iv)
of the definition of "Permitted Acquisition" set forth in this
Section 1.1, (1) any Indebtedness incurred by any Consolidated
Party in connection with such transaction (x) shall be deemed
to have been incurred as of the first day of the applicable
period and (y) if such Indebtedness has a floating or formula
rate, shall have an implied rate of interest for the
applicable period for purposes of this
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definition determined by utilizing the rate which is or would
be in effect with respect to such Indebtedness as at the
relevant date of determination and (2) income statement items
(whether positive or negative) attributable to the Property
acquired in such transaction or to the Acquisition comprising
such transaction, as applicable, shall be included to the
extent relating to the relevant period.
"Pro Forma Compliance Certificate" means a certificate of an
Executive Officer of the Borrower delivered to the Administrative Agent
in connection with (i) any incurrence, assumption or retirement of
Indebtedness as referred to in Section 8.1(f)(i), (ii) any merger or
consolidation as referred to in Section 8.4, (iii) any Asset
Disposition as referred to in Section 8.5 or (iv) any Acquisition as
referred to in clause (iv) of the definition of "Permitted Acquisition"
set forth in this Section 1.1, as applicable, and containing reasonably
detailed calculations, upon giving effect to the applicable transaction
on a Pro Forma Basis, of each of the financial covenants set forth in
Section 7.11 as of the most recent fiscal quarter end preceding the
date of the applicable transaction with respect to which the
Administrative Agent shall have received the Required Financial
Information.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Register" shall have the meaning given such term in Section
11.3(c).
"Regulation U, or X" means Regulation U or X, respectively, of
the Board of Governors of the Federal Reserve System as from time to
time in effect and any successor to all or a portion thereof.
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the
notice requirement has been waived by regulation.
"Required Financial Information" means, with respect to the
applicable Calculation Date, (i) the financial statements of the
Consolidated Parties required to be delivered pursuant to Section
7.1(a) or (b) for the fiscal period or quarter ending as of such
Calculation Date, and (ii) the certificate of the chief financial
officer of the Borrower required by Section 7.1(c) to be delivered with
the financial statements described in clause (i) above.
"Required Lenders" means, at any time, Lenders other than
Defaulting Lenders which are then in compliance with their obligations
hereunder (as determined by the Administrative Agent) and holding in
the aggregate at least a majority of (i) the Revolving Commitments (and
Participation Interests therein), the outstanding Tranche A Term Loans
(and Participation Interests therein) and the outstanding Delayed Draw
Term Loans (and Participation Interests therein) or (ii) if the
Commitments have been terminated, the outstanding Loans and
Participation Interests (including the Participation Interests of the
Issuing Lender in any Letters of Credit and the Participation Interests
of the Swingline Lender in any Swingline Loans).
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"Requirement of Law" means, as to any Person, the certificate
of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its material property is subject.
"Restricted Payment" means (i) any dividend or other payment
or distribution, direct or indirect, on account of any shares of any
class of Capital Stock of any Consolidated Party, now or hereafter
outstanding (including, without limitation, any payment in connection
with any merger or consolidation involving any Consolidated Party), or
to the holders, in their capacity as such, of any shares of any class
of Capital Stock of any Consolidated Party, now or hereafter
outstanding (other than dividends or distributions payable in the same
class of Capital Stock of the applicable Person or to any Credit Party
(directly or indirectly through Subsidiaries), (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class
of Capital Stock of any Consolidated Party, now or hereafter
outstanding and (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of Capital Stock of any Consolidated Party,
now or hereafter outstanding.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender in an aggregate principal amount at any time
outstanding of up to such Lender's Revolving Commitment Percentage (if
any) of the Revolving Committed Amount, (i) to make Revolving Loans in
accordance with the provisions of Section 2.1(a), (ii) to purchase
Participation Interests in Letters of Credit in accordance with the
provisions of Section 2.2(c) and (iii) to purchase Participation
Interests in the Swingline Loans in accordance with the provisions of
Section 2.3(b)(iii).
"Revolving Commitment Percentage" means, for any Lender, the
percentage identified as its Revolving Commitment Percentage on
Schedule 2.1(a), as such percentage may be modified in connection with
any assignment made in accordance with the provisions of Section 11.3.
"Revolving Committed Amount" shall have the meaning assigned
to such term in Section 2.1(a).
"Revolving Loans" shall have the meaning assigned to such term
in Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Revolving Loans provided pursuant to Section 2.1(e), individually or
collectively, as appropriate, as such promissory notes may be amended,
modified, restated, supplemented, extended, renewed or replaced from
time to time.
"Revolving Unused Fee" shall have the meaning assigned to such
term in Section 3.5(b)(i).
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<PAGE> 28
"Revolving Unused Fee Calculation Period" shall have the
meaning assigned to such term in Section 3.5(b)(i).
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw Hill Companies, Inc., or any successor or assignee of the
business of such division in the business of rating securities.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party,
providing for the leasing to any Consolidated Party of any Property,
whether owned by such Consolidated Party as of the Closing Date or
later acquired, which has been or is to be sold or transferred by such
Consolidated Party to such Person or to any other Person from whom
funds have been, or are to be, advanced by such Person on the security
of such Property.
"Securities Exchange Act" means the Securities Exchange Act of
1934.
"Security Agreement" means the security agreement dated as of
the Closing Date in the form of Exhibit 1.1B to be executed in favor of
the Administrative Agent by each of the Credit Parties, as amended,
modified, restated or supplemented from time to time.
"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple
Employer Plan.
"Solvent" or "Solvency" means, with respect to any Person as
of a particular date, that on such date (i) such Person is able to
realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the
normal course of business, (ii) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature in their
ordinary course, (iii) such Person is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction,
for which such Person's Property would constitute unreasonably small
capital after giving due consideration to the prevailing practice in
the industry in which such Person is engaged or is to engage, (iv) the
fair value of the Property of such Person is greater than the total
amount of liabilities, including, without limitation, contingent
liabilities, of such Person and (v) the present fair salable value of
the assets (on a going concern, rather than a liquidation, basis) of
such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become
absolute and matured. In computing the amount of contingent liabilities
at any time, it is intended that such liabilities will be computed at
the amount which, in light of all the facts and circumstances existing
at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"SPI" means SPI Holdings, Inc., a Colorado corporation.
"Standby Letter of Credit Fee" shall have the meaning assigned
to such term in Section 3.5(c)(i).
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"Subordinated Indebtedness" means any Indebtedness incurred by
the Borrower which by its terms is specifically subordinated in right
of payment to the prior payment of the Credit Party Obligations on
substantially the terms and conditions described in Exhibit 1.1C.
"Subsidiary" means, as to any Person at any time, (a) any
corporation more than 50% of whose Capital Stock of any class or
classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether
or not at such time, any class or classes of such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at such time owned by such Person directly or
indirectly through Subsidiaries, and (b) any partnership, association,
joint venture or other entity of which such Person directly or
indirectly through Subsidiaries owns at such time more than 50% of the
Capital Stock.
"Swingline Commitment" means the commitment of the Swingline
Lender to make Swingline Loans in an aggregate principal amount at any
time outstanding of up to the Swingline Committed Amount.
"Swingline Committed Amount" shall have the meaning assigned
to such term in Section 2.3(a).
"Swingline Lender" means NationsBank.
"Swingline Loan" shall have the meaning assigned to such term
in Section 2.3(a).
"Swingline Note" means the promissory note of the Borrower in
favor of the Swingline Lender evidencing the Swingline Loans provided
pursuant to Section 2.3(d), as such promissory notes may be amended,
modified, restated, supplemented, extended, renewed or replaced from
time to time.
"Synthetic Lease" means any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an Operating Lease.
"Taxes" shall have the meaning assigned to such term in
Section 3.11.
"Trade Letter of Credit Fee" shall have the meaning assigned
to such term in Section 3.5(c)(ii).
"Tranche A Term Loan" shall have the meaning assigned to such
term in Section 2.4(a).
"Tranche A Term Loan Commitment" means, with respect to each
Lender, the commitment of such Lender to make its portion of the
Tranche A Term Loan in a principal amount equal to such Lender's
Tranche A Term Loan Commitment Percentage (if any) of the Tranche A
Term Loan Committed Amount.
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"Tranche A Term Loan Commitment Percentage" means, for any
Lender, the percentage identified as its Tranche A Term Loan Commitment
Percentage on Schedule 2.1(a), as such percentage may be modified in
connection with any assignment made in accordance with the provisions
of Section 11.3.
"Tranche A Term Loan Committed Amount" shall have the meaning
assigned to such term in Section 2.4(a).
"Tranche A Term Note" or "Tranche A Term Notes" means the
promissory notes of the Borrower in favor of each of the Lenders
evidencing the Tranche A Term Loans provided pursuant to Section
2.4(f), individually or collectively, as appropriate, as such
promissory notes may be amended, modified, restated, supplemented,
extended, renewed or replaced from time to time.
"Transaction" means the collective reference to the merger of
Modtech with a Subsidiary of the Borrower, with Modtech being the
surviving corporation, and the merger of SPI with a Subsidiary of the
Borrower, with SPI being the surviving corporation, in each case as
provided for and pursuant to the Merger Agreement.
"Unused Delayed Draw Term Loan Committed Amount" means, for
any period, the amount by which (a) the then applicable Delayed Draw
Term Loan Committed Amount exceeds (b) the daily average sum for such
period of the outstanding aggregate principal amount of all Delayed
Draw Term Loans.
"Unused Fee" means the Revolving Unused Fee or the Delayed
Draw Unused Fee, as applicable.
"Unused Revolving Committed Amount" means, for any period, the
amount by which (a) the then applicable Revolving Committed Amount
exceeds (b) the daily average sum for such period of (i) the
outstanding aggregate principal amount of all Revolving Loans (but not
including any Swingline Loans) plus (ii) the outstanding aggregate
principal amount of all LOC Obligations.
"Upfront Fee" shall have the meaning assigned to such term in
Section 3.5(a).
"Voting Stock" means, with respect to any Person, Capital
Stock issued by such Person the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of
directors (or persons performing similar functions) of such Person,
even though the right so to vote has been suspended by the happening of
such a contingency.
"Wholly Owned Subsidiary" of any Person means any Subsidiary
100% of whose Voting Stock is at the time owned by such Person directly
or indirectly through other Wholly Owned Subsidiaries.
"Year 2000 Compliant" shall have the meaning assigned to such
term in Section 6.27.
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1.2 COMPUTATION OF TIME PERIODS.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding."
1.3 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1 (or,
prior to the delivery of the first financial statements pursuant to Section 7.1,
consistent with the financial statements of Modtech as at December 31, 1997);
provided, however, if (a) the Credit Parties shall object to determining such
compliance on such basis at the time of delivery of such financial statements
due to any change in GAAP or the rules promulgated with respect thereto or (b)
the Administrative Agent or the Required Lenders shall so object in writing
within 60 days after delivery of such financial statements, then such
calculations shall be made on a basis consistent with the most recent financial
statements delivered by the Credit Parties to the Lenders as to which no such
objection shall have been made.
Notwithstanding the above, the parties hereto acknowledge and agree that, for
purposes of all calculations made under the financial covenants set forth in
Section 7.11 (including, without limitation, for purposes of the definitions of
"Applicable Percentage" and "Pro Forma Basis" set forth in Section 1.1), (i) in
connection with any Property disposed of in any Asset Disposition as
contemplated by Section 8.5, (A) income statement items (whether positive or
negative) attributable to the Property disposed of in such transaction shall be
excluded to the extent relating to any period occurring prior to the date of
such transaction and (B) Indebtedness which is retired in connection with any
such transaction shall be excluded and deemed to have been retired as of the
first day of the applicable period, and (ii) in connection with any Acquisition
contemplated by the definition of "Permitted Acquisition" set forth in Section
1.1, (A) income statement items (whether positive or negative, but excluding
EBITDA to the extent not set forth in an income statement prepared in accordance
with GAAP by independent certified public accountants of recognized national
standing or regional or local repute reasonably acceptable to the Administrative
Agent (whose opinion shall not be limited as to the scope or qualified as to
going concern status)) attributable to the Person or Property acquired in such
transaction shall, to the extent not otherwise included in such income statement
items for the Consolidated Parties in accordance with GAAP or in accordance with
any defined terms set forth in Section 1.1, be included to the extent relating
to any period applicable in such calculations and (B) to the extent that EBITDA
attributable to the Person or Property acquired in such transaction is allowed
to be included in Consolidated EBITDA for the applicable period pursuant to
clause (ii)(A) above, such EBITDA may be adjusted to the extent approved by the
Administrative Agent, provided that, adjustments in any such EBITDA that would
result from owners' salaries or other cash compensation or fringe benefits (such
as life insurance or club memberships) provided to such owners that will either
be eliminated or replaced or reduced upon consummation of the related
Acquisition need not be approved by the Administrative Agent so long as the
Borrower provides supporting
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documentation for such adjustments in form and substance reasonably satisfactory
to the Administrative Agent.
SECTION 2
CREDIT FACILITIES
2.1 REVOLVING LOANS.
(a) Revolving Commitment. Subject to the terms and
conditions hereof and in reliance upon the representations and
warranties set forth herein, each Lender severally agrees to make
available to the Borrower such Lender's Revolving Commitment Percentage
of revolving credit loans requested by the Borrower in Dollars
("Revolving Loans") from time to time from the Closing Date until the
Maturity Date, or such earlier date as the Revolving Commitments shall
have been terminated as provided herein; provided, however, that the
sum of the aggregate principal amount of outstanding Revolving Loans
shall not exceed THIRTY MILLION DOLLARS ($30,000,000) (as such
aggregate maximum amount may be reduced from time to time as provided
in Section 3.4, the "Revolving Committed Amount"); provided, further,
(A) with regard to each Lender individually, the sum of the aggregate
outstanding principal amount of such Lender's Revolving Loans plus
Participation Interests shall not exceed such Lender's Revolving
Commitment Percentage of the Revolving Committed Amount, and (B) the
sum of the aggregate outstanding principal amount of Revolving Loans
plus LOC Obligations plus Swingline Loans shall not exceed the
Revolving Committed Amount. Revolving Loans may consist of Base Rate
Loans or Eurodollar Loans, or a combination thereof, as the Borrower
may request; provided, however, that no more than 10 Eurodollar Loans
shall be outstanding hereunder at any time (it being understood that,
for purposes hereof, Eurodollar Loans with different Interest Periods
shall be considered as separate Eurodollar Loans, even if they begin on
the same date, although borrowings, extensions and conversions may, in
accordance with the provisions hereof, be combined at the end of
existing Interest Periods to constitute a new Eurodollar Loan with a
single Interest Period). Revolving Loans hereunder may be repaid and
reborrowed in accordance with the provisions hereof.
(b) Revolving Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall
request a Revolving Loan borrowing by written notice (or
telephonic notice promptly confirmed in writing) to the
Administrative Agent not later than 1:00 P.M. (Charlotte,
North Carolina time) on the Business Day prior to the date of
the requested borrowing in the case of Base Rate Loans, and on
the third Business Day prior to the date of the requested
borrowing in the case of Eurodollar Loans. Each such request
for borrowing shall be irrevocable and shall specify (A) that
a Revolving Loan is requested, (B) the date of the requested
borrowing (which shall be a Business Day), (C) the aggregate
principal amount to be borrowed, and (D) whether the borrowing
shall be comprised of Base Rate Loans, Eurodollar Loans or a
combination thereof, and if Eurodollar Loans are requested,
the Interest Period(s) therefor. If the Borrower shall fail to
specify in any such Notice of Borrowing (I) an applicable
Interest Period in the case
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of a Eurodollar Loan, then such notice shall be deemed to be a
request for an Interest Period of one month, or (II) the type
of Revolving Loan requested, then such notice shall be deemed
to be a request for a Base Rate Loan hereunder. The
Administrative Agent shall give notice to each affected Lender
promptly upon receipt of each Notice of Borrowing pursuant to
this Section 2.1(b)(i), the contents thereof and each such
Lender's share of any borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Eurodollar Loan that
is a Revolving Loan shall be in a minimum aggregate principal
amount of $1,000,000 and integral multiples of $100,000 in
excess thereof (or the remaining amount of the Revolving
Committed Amount, if less). Each Base Rate Loan that is a
Revolving Loan shall be in a minimum aggregate principal
amount of $250,000 and integral multiples of $25,000 in excess
thereof (or the remaining amount of the Revolving Committed
Amount, if less).
(iii) Advances. Each Lender will make its
Revolving Commitment Percentage of each Revolving Loan
borrowing available to the Administrative Agent for the
account of the Borrower as specified in Section 3.15(a), or in
such other manner as the Administrative Agent may specify in
writing, by 1:00 P.M. (Charlotte, North Carolina time) on the
date specified in the applicable Notice of Borrowing in
Dollars and in funds immediately available to the
Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent by
crediting the account of the Borrower on the books of such
office with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.
(c) Repayment. The principal amount of all Revolving
Loans shall be due and payable in full on the Maturity Date, unless
accelerated sooner pursuant to Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as
Revolving Loans shall be comprised in whole or in part of Base
Rate Loans, such Base Rate Loans shall bear interest at a per
annum rate equal to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as
Revolving Loans shall be comprised in whole or in part of
Eurodollar Loans, such Eurodollar Loans shall bear interest at
a per annum rate equal to the Adjusted Eurodollar Rate.
Interest on Revolving Loans shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(e) Revolving Notes. The Revolving Loans made by each
Lender shall be evidenced by a duly executed promissory note of the
Borrower to such Lender in an original principal amount equal to such
Lender's Revolving Commitment Percentage of the Revolving Committed
Amount and in substantially the form of Exhibit 2.1(e).
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2.2 LETTER OF CREDIT SUBFACILITY OF THE REVOLVER.
(a) Issuance. Subject to the terms and conditions hereof
and of the LOC Documents, if any, and any other terms and conditions
which the Issuing Lender may reasonably require and in reliance upon
the representations and warranties set forth herein, the Issuing Lender
agrees to issue, and each Lender severally agrees to participate in the
issuance by the Issuing Lender of, standby and trade Letters of Credit
in Dollars from time to time from the Closing Date until the date five
(5) days prior to the Maturity Date as the Borrower may request, in a
form acceptable to the Issuing Lender; provided, however, that (i) the
LOC Obligations outstanding shall not at any time exceed TEN MILLION
DOLLARS ($10,000,000) (the "LOC Committed Amount") and (ii) the sum of
the aggregate outstanding principal amount of Revolving Loans plus LOC
Obligations plus Swingline Loans shall not at any time exceed the
Revolving Committed Amount. No Letter of Credit shall (x) have an
original expiry date more than one year from the date of issuance or
(y) as originally issued or as extended, have an expiry date extending
beyond the Maturity Date. Each Letter of Credit shall comply with the
related LOC Documents. The issuance and expiry dates of each Letter of
Credit shall be a Business Day.
(b) Notice and Reports. The request for the issuance of a
Letter of Credit shall be submitted by the Borrower to the Issuing
Lender at least three (3) Business Days prior to the requested date of
issuance. The Issuing Lender will, at least quarterly and more
frequently upon request, disseminate to each of the Lenders a detailed
report specifying the Letters of Credit which are then issued and
outstanding and any activity with respect thereto which may have
occurred since the date of the prior report, and including therein,
among other things, the beneficiary, the face amount and the expiry
date, as well as any payment or expirations which may have occurred.
(c) Participation. Each Lender, upon issuance of a Letter
of Credit, shall be deemed to have purchased without recourse a
Participation Interest from the Issuing Lender in such Letter of Credit
and the obligations arising thereunder and any collateral relating
thereto, in each case in an amount equal to its pro rata share of the
obligations under such Letter of Credit (based on the respective
Revolving Commitment Percentages of the Lenders) and shall absolutely,
unconditionally and irrevocably assume and be obligated to pay to the
Issuing Lender and discharge when due, its pro rata share of the
obligations arising under such Letter of Credit. Without limiting the
scope and nature of each Lender's Participation Interest in any Letter
of Credit, to the extent that the Issuing Lender has not been
reimbursed as required hereunder or under any such Letter of Credit,
each such Lender shall pay to the Issuing Lender its pro rata share of
such unreimbursed drawing in same day funds on the day of notification
by the Issuing Lender of an unreimbursed drawing pursuant to the
provisions of subsection (d) below. The obligation of each Lender to so
reimburse the Issuing Lender shall be absolute and unconditional and
shall not be affected by the occurrence of a Default, an Event of
Default or any other occurrence or event. Any such reimbursement shall
not relieve or otherwise impair the obligation of the Borrower to
reimburse the Issuing Lender under any Letter of Credit, together with
interest as hereinafter provided.
(d) Reimbursement. In the event of any drawing under any
Letter of Credit, the Issuing Lender will promptly notify the Borrower.
Unless the Borrower shall immediately
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notify the Issuing Lender that the Borrower intends to otherwise
reimburse the Issuing Lender for such drawing, the Borrower shall be
deemed to have requested that the Lenders make a Revolving Loan in the
amount of the drawing as provided in subsection (e) below on the
related Letter of Credit, the proceeds of which will be used to satisfy
the related reimbursement obligations. The Borrower promises to
reimburse the Issuing Lender on the day of drawing under any Letter of
Credit (either with the proceeds of a Revolving Loan obtained hereunder
or otherwise) in same day funds. If the Borrower shall fail to
reimburse the Issuing Lender as provided hereinabove, the unreimbursed
amount of such drawing shall bear interest at a per annum rate equal to
the Adjusted Base Rate plus 2%. The Borrower's reimbursement
obligations hereunder shall be absolute and unconditional under all
circumstances irrespective of any rights of setoff, counterclaim or
defense to payment the Borrower may claim or have against the Issuing
Lender, the Administrative Agent, the Lenders, the beneficiary of the
Letter of Credit drawn upon or any other Person, including, without
limitation, any defense based on any failure of the Borrower or any
other Credit Party to receive consideration or the legality, validity,
regularity or unenforceability of the Letter of Credit. The Issuing
Lender will promptly notify the other Lenders of the amount of any
unreimbursed drawing and each Lender shall promptly pay to the
Administrative Agent for the account of the Issuing Lender in Dollars
and in immediately available funds, the amount of such Lender's pro
rata share of such unreimbursed drawing. Such payment shall be made on
the day such notice is received by such Lender from the Issuing Lender
if such notice is received at or before 2:00 P.M. (Charlotte, North
Carolina time); otherwise such payment shall be made at or before 12:00
Noon (Charlotte, North Carolina time) on the Business Day next
succeeding the day such notice is received. If such Lender does not pay
such amount to the Issuing Lender in full upon such request, such
Lender shall, on demand, pay to the Administrative Agent for the
account of the Issuing Lender interest on the unpaid amount during the
period from the date of such drawing until such Lender pays such amount
to the Issuing Lender in full at a rate per annum equal to, if paid
within two (2) Business Days of the date that such Lender is required
to make payments of such amount pursuant to the preceding sentence, the
Federal Funds Rate and thereafter at a rate equal to the Base Rate.
Each Lender's obligation to make such payment to the Issuing Lender,
and the right of the Issuing Lender to receive the same, shall be
absolute and unconditional, shall not be affected by any circumstance
whatsoever and without regard to the termination of this Credit
Agreement or the Commitments hereunder, the existence of a Default or
Event of Default or the acceleration of the obligations of the Borrower
hereunder and shall be made without any offset, abatement, withholding
or reduction whatsoever. Simultaneously with the making of each such
payment by a Lender to the Issuing Lender, such Lender shall,
automatically and without any further action on the part of the Issuing
Lender or such Lender, acquire a Participation Interest in an amount
equal to such payment (excluding the portion of such payment
constituting interest owing to the Issuing Lender) in the related
unreimbursed drawing portion of the LOC Obligation and in the interest
thereon and in the related LOC Documents, and shall have a claim
against the Borrower with respect thereto.
(e) Repayment with Revolving Loans. On any day on which
the Borrower shall have requested, or been deemed to have requested, a
Revolving Loan advance to reimburse a drawing under a Letter of Credit,
the Administrative Agent shall give notice to the Lenders that a
Revolving Loan has been requested or deemed requested by the Borrower
to be made in connection with a drawing under a Letter of Credit, in
which case a Revolving
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Loan advance comprised of Base Rate Loans (or Eurodollar Loans to the
extent the Borrower has complied with the procedures of Section
2.1(b)(i) with respect thereto) shall be immediately made to the
Borrower by all Lenders (notwithstanding any termination of the
Commitments pursuant to Section 9.2) pro rata based on the respective
Revolving Commitment Percentages of the Lenders (determined before
giving effect to any termination of the Commitments pursuant to Section
9.2) and the proceeds thereof shall be paid directly to the Issuing
Lender for application to the respective LOC Obligations. Each such
Lender hereby irrevocably agrees to make its pro rata share of each
such Revolving Loan immediately upon any such request or deemed request
in the amount, in the manner and on the date specified in the preceding
sentence notwithstanding (i) the amount of such borrowing may not
comply with the minimum amount for advances of Revolving Loans
otherwise required hereunder, (ii) whether any conditions specified in
Section 5.2 are then satisfied, (iii) whether a Default or an Event of
Default then exists, (iv) failure for any such request or deemed
request for Revolving Loan to be made by the time otherwise required
hereunder, (v) whether the date of such borrowing is a date on which
Revolving Loans are otherwise permitted to be made hereunder or (vi)
any termination of the Commitments relating thereto immediately prior
to or contemporaneously with such borrowing. In the event that any
Revolving Loan cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code with respect to
the Borrower or any other Credit Party), then each such Lender hereby
agrees that it shall forthwith purchase (as of the date such borrowing
would otherwise have occurred, but adjusted for any payments received
from the Borrower on or after such date and prior to such purchase)
from the Issuing Lender such Participation Interests in the outstanding
LOC Obligations as shall be necessary to cause each such Lender to
share in such LOC Obligations ratably (based upon the respective
Revolving Commitment Percentages of the Lenders (determined before
giving effect to any termination of the Commitments pursuant to Section
9.2)), provided that at the time any purchase of Participation
Interests pursuant to this sentence is actually made, the purchasing
Lender shall be required to pay to the Issuing Lender, to the extent
not paid to the Issuer by the Borrower in accordance with the terms of
subsection (d) above, interest on the principal amount of Participation
Interests purchased for each day from and including the day upon which
such borrowing would otherwise have occurred to but excluding the date
of payment for such Participation Interests, at the rate equal to, if
paid within two (2) Business Days of the date of the Revolving Loan
advance, the Federal Funds Rate, and thereafter at a rate equal to the
Base Rate.
(f) Designation of Consolidated Parties as Account
Parties. Notwithstanding anything to the contrary set forth in this
Credit Agreement, including, without limitation, Section 2.2(a), a
Letter of Credit issued hereunder may contain a statement to the effect
that such Letter of Credit is issued for the account of a Consolidated
Party other than the Borrower, provided that, notwithstanding such
statement, the Borrower shall be the actual account party for all
purposes of this Credit Agreement for such Letter of Credit and such
statement shall not affect the Borrower's reimbursement obligations
hereunder with respect to such Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any
Letter of Credit shall, for purposes hereof, be treated in all respects
the same as the issuance of a new Letter of Credit hereunder.
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(h) Uniform Customs and Practices. The Issuing Lender may
have the Letters of Credit be subject to The Uniform Customs and
Practice for Documentary Credits, as published as of the date of issue
by the International Chamber of Commerce (the "UCP"), in which case the
UCP may be incorporated therein and deemed in all respects to be a part
thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under
this Section 2.2, the Borrower hereby agrees to pay, and
protect, indemnify and save each Lender harmless from and
against, any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable
attorneys' fees) that such Lender may incur or be subject to
as a consequence, direct or indirect, of (A) the issuance of
any Letter of Credit or (B) the failure of such Lender to
honor a drawing under a Letter of Credit as a result of any
act or omission, whether rightful or wrongful, of any present
or future de jure or de facto government or Governmental
Authority (all such acts or omissions, herein called
"Government Acts").
(ii) As between the Borrower and the Lenders
(including the Issuing Lender), the Borrower shall assume all
risks of the acts, omissions or misuse of any Letter of Credit
by the beneficiary thereof. No Lender (including the Issuing
Lender) shall be responsible: (A) for the form, validity,
sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if
it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) for the
validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, that may prove to be invalid or
ineffective for any reason; (C) for errors, omissions,
interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (D) for any loss or delay in
the transmission or otherwise of any document required in
order to make a drawing under a Letter of Credit or of the
proceeds thereof; and (E) for any consequences arising from
causes beyond the control of such Lender, including, without
limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of the Issuing Lender's
rights or powers hereunder.
(iii) In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth,
any action taken or omitted by any Lender (including the
Issuing Lender), under or in connection with any Letter of
Credit or the related certificates, if taken or omitted in
good faith, shall not put such Lender under any resulting
liability to the Borrower or any other Credit Party. It is the
intention of the parties that this Credit Agreement shall be
construed and applied to protect and indemnify each Lender
(including the Issuing Lender) against any and all risks
involved in the issuance of the Letters of Credit, all of
which risks are hereby assumed by the Borrower (on behalf of
itself and each of the other Credit Parties), including,
without limitation, any and all Government Acts. No Lender
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(including the Issuing Lender) shall, in any way, be liable
for any failure by such Lender or anyone else to pay any
drawing under any Letter of Credit as a result of any
Government Acts or any other cause beyond the control of such
Lender.
(iv) Nothing in this subsection (i) is intended
to limit the reimbursement obligations of the Borrower
contained in subsection (d) above. The obligations of the
Borrower under this subsection (i) shall survive the
termination of this Credit Agreement. No act or omission of
any current or prior beneficiary of a Letter of Credit shall
in any way affect or impair the rights of the Lenders
(including the Issuing Lender) to enforce any right, power or
benefit under this Credit Agreement.
(v) Notwithstanding anything to the contrary
contained in this subsection (i), the Borrower shall have no
obligation to indemnify any Lender (including the Issuing
Lender) in respect of any liability incurred by such Lender
(A) arising solely out of the gross negligence or willful
misconduct of such Lender, as determined by a court of
competent jurisdiction, or (B) caused by such Lender's failure
to pay under any Letter of Credit after presentation to it of
a request strictly complying with the terms and conditions of
such Letter of Credit, as determined by a court of competent
jurisdiction, unless such payment is prohibited by any law,
regulation, court order or decree.
(j) Responsibility of Issuing Lender. It is expressly
understood and agreed that the obligations of the Issuing Lender
hereunder to the Lenders are only those expressly set forth in this
Credit Agreement and that the Issuing Lender shall be entitled to
assume that the conditions precedent set forth in Section 5.2 have been
satisfied unless it shall have acquired actual knowledge that any such
condition precedent has not been satisfied; provided, however, that
nothing set forth in this Section 2.2 shall be deemed to prejudice the
right of any Lender to recover from the Issuing Lender any amounts made
available by such Lender to the Issuing Lender pursuant to this Section
2.2 in the event that it is determined by a court of competent
jurisdiction that the payment with respect to a Letter of Credit
constituted gross negligence or willful misconduct on the part of the
Issuing Lender.
(k) Conflict with LOC Documents. In the event of any
conflict between this Credit Agreement and any LOC Document (including
any letter of credit application), this Credit Agreement shall control.
2.3 SWINGLINE LOAN SUBFACILITY OF THE REVOLVER.
(a) Swingline Commitment. Subject to the terms and
conditions hereof and in reliance upon the representations and
warranties set forth herein, the Swingline Lender, in its individual
capacity, agrees to make certain revolving credit loans requested by
the Borrower in Dollars to the Borrower (each a "Swingline Loan" and,
collectively, the "Swingline Loans") from time to time from the Closing
Date until the Maturity Date for the purposes hereinafter set forth;
provided, however, (i) the aggregate principal amount of Swingline
Loans outstanding at any time shall not exceed TWO MILLION DOLLARS
($2,000,000) (the "Swingline Committed Amount"), and (ii) the sum of
the aggregate outstanding principal amount of Revolving Loans plus LOC
Obligations plus Swingline Loans shall not exceed the Revolving
Committed Amount. Swingline Loans hereunder
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shall be made as Base Rate Loans and may be repaid and reborrowed in
accordance with the provisions hereof.
(b) Swingline Loan Advances.
(i) Notices; Disbursement. Whenever the Borrower
desires a Swingline Loan advance hereunder it shall give
written notice (or telephonic notice promptly confirmed in
writing) to the Swingline Lender not later than 3:00 P.M.
(Charlotte, North Carolina time) on the Business Day of the
requested Swingline Loan advance. Each such notice shall be
irrevocable and shall specify (A) that a Swingline Loan
advance is requested, (B) the date of the requested Swingline
Loan advance (which shall be a Business Day) and (C) the
principal amount of the Swingline Loan advance requested. Each
Swingline Loan shall be made as a Base Rate Loan and shall
have such maturity date as the Swingline Lender and the
Borrower shall agree upon receipt by the Swingline Lender of
any such notice from the Borrower. The Swingline Lender shall
initiate the transfer of funds representing the Swingline Loan
advance to the Borrower by 3:00 P.M. (Charlotte, North
Carolina time) on the Business Day of the requested borrowing.
(ii) Minimum Amounts. Each Swingline Loan advance
shall be in a minimum principal amount of $100,000 and
integral multiples of $50,000 (or the remaining amount of the
Swingline Committed Amount, if less).
(iii) Repayment of Swingline Loans. The principal
amount of all Swingline Loans shall be due and payable on the
earlier of (A) the maturity date agreed to by the Swingline
Lender and the Borrower with respect to such Loan (which
maturity date shall not be a date more than seven (7) Business
Days from the date of advance thereof) or (B) the Maturity
Date. The Swingline Lender may, at any time, in its sole
discretion, by written notice to the Borrower and the Lenders,
demand repayment of its Swingline Loans by way of a Revolving
Loan advance, in which case the Borrower shall be deemed to
have requested a Revolving Loan advance comprised solely of
Base Rate Loans in the amount of such Swingline Loans;
provided, however, that any such demand shall be deemed to
have been given one Business Day prior to the Maturity Date
and on the date of the occurrence of any Event of Default
described in Section 9.1 and upon acceleration of the
indebtedness hereunder and the exercise of remedies in
accordance with the provisions of Section 9.2. Each Lender
hereby irrevocably agrees to make its pro rata share of each
such Revolving Loan in the amount, in the manner and on the
date specified in the preceding sentence notwithstanding (I)
the amount of such borrowing may not comply with the minimum
amount for advances of Revolving Loans otherwise required
hereunder, (II) whether any conditions specified in Section
5.2 are then satisfied, (III) whether a Default or an Event of
Default then exists, (IV) failure of any such request or
deemed request for Revolving Loan to be made by the time
otherwise required hereunder, (V) whether the date of such
borrowing is a date on which Revolving Loans are otherwise
permitted to be made hereunder or (VI) any termination of the
Commitments relating thereto immediately prior to or
contemporaneously with such borrowing. In the event that any
Revolving Loan cannot for any reason be made on the date
otherwise required
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above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code with
respect to the Borrower or any other Credit Party), then each
Lender hereby agrees that it shall forthwith purchase (as of
the date such borrowing would otherwise have occurred, but
adjusted for any payments received from the Borrower on or
after such date and prior to such purchase) from the Swingline
Lender such Participation Interests in the outstanding
Swingline Loans as shall be necessary to cause each such
Lender to share in such Swingline Loans ratably based upon its
Revolving Commitment Percentage of the Revolving Committed
Amount (determined before giving effect to any termination of
the Commitments pursuant to Section 3.4), provided that (A)
all interest payable on the Swingline Loans shall be for the
account of the Swingline Lender until the date as of which the
respective Participation Interest is purchased and (B) at the
time any purchase of Participation Interests pursuant to this
sentence is actually made, the purchasing Lender shall be
required to pay to the Swingline Lender, to the extent not
paid to the Swingline Lender by the Borrower in accordance
with the terms of subsection (c)(ii) below, interest on the
principal amount of Participation Interests purchased for each
day from and including the day upon which such borrowing would
otherwise have occurred to but excluding the date of payment
for such Participation Interests, at the rate equal to the
Federal Funds Rate.
(c) Interest on Swingline Loans.
(i) Rate of Interest . Subject to the provisions
of Section 3.1, each Swingline Loan shall bear interest at a
per annum rate equal to the Adjusted Base Rate for Revolving
Loans.
(ii) Payment of Interest. Interest on Swingline
Loans shall be payable in arrears on each applicable Interest
Payment Date (or at such other times as may be specified
herein), unless accelerated sooner pursuant to Section 9.2.
(d) Swingline Note. The Swingline Loans shall be
evidenced by a duly executed promissory note of the Borrower to the
Swingline Lender in an original principal amount equal to the Swingline
Committed Amount substantially in the form of Exhibit 2.3(d).
2.4 TRANCHE A TERM LOAN.
(a) Tranche A Term Commitment. Subject to the terms and
conditions hereof and in reliance upon the representations and
warranties set forth herein, each Lender severally agrees to make
available to the Borrower on the Closing Date such Lender's Tranche A
Term Loan Commitment Percentage of a term loan in Dollars (the "Tranche
A Term Loan") in the aggregate principal amount of FORTY-FIVE MILLION
DOLLARS ($45,000,000) (the "Tranche A Term Loan Committed Amount"). The
Tranche A Term Loan may consist of Base Rate Loans or Eurodollar Loans,
or a combination thereof, as the Borrower may request; provided,
however, that no more than 5 Eurodollar Loans shall be outstanding
hereunder at any time (it being understood that, for purposes hereof,
Eurodollar Loans with different Interest Periods shall be considered as
separate Eurodollar Loans, even if they begin on the same date,
although borrowings, extensions and conversions may, in
35
<PAGE> 41
accordance with the provisions hereof, be combined at the end of
existing Interest Periods to constitute a new Eurodollar Loan with a
single Interest Period). Amounts repaid on the Tranche A Term Loan may
not be reborrowed.
(b) Borrowing Procedures. The Borrower shall submit an
appropriate Notice of Borrowing to the Administrative Agent not later
than 1:00 P.M. (Charlotte, North Carolina time) on the Closing Date,
with respect to the portion of the Tranche A Term Loan initially
consisting of a Base Rate Loan, or on the third Business Day prior to
the Closing Date, with respect to the portion of the Tranche A Term
Loan initially consisting of one or more Eurodollar Loans, which Notice
of Borrowing shall be irrevocable and shall specify (i) that the
funding of a Tranche A Term Loan is requested and (ii) whether the
funding of the Tranche A Term Loan shall be comprised of Base Rate
Loans, Eurodollar Loans or a combination thereof, and if Eurodollar
Loans are requested, the Interest Period(s) therefor. If the Borrower
shall fail to deliver such Notice of Borrowing to the Administrative
Agent by 1:00 P.M. (Charlotte, North Carolina time) on the third
Business Day prior to the Closing Date, then the full amount of the
Tranche A Term Loan shall be disbursed on the Closing Date as a
Eurodollar Loan with a period ending March 31, 1999. Each Lender shall
make its Tranche A Term Loan Commitment Percentage of the Tranche A
Term Loan available to the Administrative Agent for the account of the
Borrower at the office of the Administrative Agent specified in
Schedule 2.1(a), or at such other office as the Administrative Agent
may designate in writing, by 1:00 P.M. (Charlotte, North Carolina time)
on the Closing Date in Dollars and in funds immediately available to
the Administrative Agent.
(c) Minimum Amounts. Each Eurodollar Loan or Base Rate
Loan that is part of the Tranche A Term Loan shall be in an aggregate
principal amount that is not less than $1,000,000 and integral
multiples of $250,000 in excess thereof (or the then remaining
principal balance of the Tranche A Term Loan, if less).
(d) Repayment of Tranche A Term Loan. The principal
amount of the Tranche A Term Loan shall be repaid in twenty (20)
consecutive quarterly installments as follows, unless accelerated
sooner pursuant to Section 9.2:
36
<PAGE> 42
<TABLE>
<CAPTION>
===========================================================
PRINCIPAL AMORTIZATION TRANCHE A TERM LOAN
PAYMENT PRINCIPAL AMORTIZATION
DATES PAYMENT
- -----------------------------------------------------------
<S> <C>
March 31, 1999,
June 30, 1999,
September 30, 1999
and December 31, 1999 $1,500,000
- -----------------------------------------------------------
March 31, 2000,
June 30, 2000,
September 30, 2000
and December 31, 2000 $1,750,000
- -----------------------------------------------------------
March 31, 2001,
June 30, 2001,
September 30, 2001
and December 31, 2001 $2,000,000
- -----------------------------------------------------------
March 31, 2002,
June 30, 2002,
September 30, 2002
and December 31, 2002 $2,250,000
- -----------------------------------------------------------
March 31, 2003,
June 30, 2003,
September 30, 2003
and December 31, 2003 $3,750,000
===========================================================
</TABLE>
(e) Interest. Subject to the provisions of Section 3.1,
the Tranche A Term Loan shall bear interest at a per annum rate equal
to:
(i) Base Rate Loans. During such periods as the
Tranche A Term Loan shall be comprised in whole or in part of
Base Rate Loans, such Base Rate Loans shall bear interest at a
per annum rate equal to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as the
Tranche A Term Loan shall be comprised in whole or in part of
Eurodollar Loans, such Eurodollar Loans shall bear interest at
a per annum rate equal to the Adjusted Eurodollar Rate.
Interest on the Tranche A Term Loan shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(f) Tranche A Term Notes. The portion of the Tranche A
Term Loan made by each Lender shall be evidenced by a duly executed
promissory note of the Borrower to such Lender in an original principal
amount equal to such Lender's Tranche A Term Loan Commitment Percentage
of the Tranche A Term Loan and substantially in the form of Exhibit
2.4(f).
37
<PAGE> 43
2.5 DELAYED DRAW TERM LOAN.
(a) Delayed Draw Term Commitment. Subject to the terms
and conditions hereof and in reliance upon the representations and
warranties set forth herein, each Lender severally agrees to make
available to the Borrower from time to time from the Closing Date until
the second anniversary of the Closing Date, or such earlier date as the
Delayed Draw Term Loan Commitments shall have been terminated as
provided herein, such Lender's Delayed Draw Term Loan Commitment
Percentage of a term loan in Dollars (the "Delayed Draw Term Loan") in
the aggregate principal amount of up to TWENTY-FIVE MILLION DOLLARS
($25,000,000) (the "Delayed Draw Term Loan Committed Amount"). The
Delayed Draw Term Loan may consist of Base Rate Loans or Eurodollar
Loans, or a combination thereof, as the Borrower may request; provided,
however, that no more than 5 Eurodollar Loans shall be outstanding
hereunder at any time (it being understood that, for purposes hereof,
Eurodollar Loans with different Interest Periods shall be considered as
separate Eurodollar Loans, even if they begin on the same date,
although borrowings, extensions and conversions may, in accordance with
the provisions hereof, be combined at the end of existing Interest
Periods to constitute a new Eurodollar Loan with a single Interest
Period). Amounts repaid on the Delayed Draw Term Loan may not be
reborrowed. The proceeds of the Delayed Draw Term Loan may only be used
to finance Permitted Acquisitions.
(b) Borrowing Procedures. The Borrower shall request the
full amount of the Delayed Draw Term Loan or a portion thereof by
written notice (or telephonic notice promptly confirmed in writing) to
the Administrative Agent not later than 1:00 P.M. (Charlotte, North
Carolina time) on the Business Day prior to the date of the requested
borrowing in the case of Base Rate Loans, and on the third Business Day
prior to the date of the requested borrowing in the case of Eurodollar
Loans. Each such request for borrowing shall be irrevocable and shall
specify (i) that the funding of a Delayed Draw Term Loan is requested,
(ii) the date of the requested borrowing (which shall be a Business
Day), (iii) the aggregate principal amount to be borrowed, and (iv)
whether the funding of the Delayed Draw Term Loan shall be comprised of
Base Rate Loans, Eurodollar Loans or a combination thereof, and if
Eurodollar Loans are requested, the Interest Period(s) therefor. If the
Borrower shall fail to specify in any such Notice of Borrowing (I) an
applicable Interest Period in the case of a Eurodollar Loan, then such
notice shall be deemed to be a request for an Interest Period of one
month, or (II) the type of Delayed Draw Term Loan requested, then such
notice shall be deemed to be a request for a Base Rate Loan hereunder.
The Administrative Agent shall give notice to each affected Lender
promptly upon receipt of each Notice of Borrowing pursuant to this
Section 2.5(b), the contents thereof and each such Lender's share of
any borrowing to be made pursuant thereto. Each Lender shall make its
Delayed Draw Term Loan Commitment Percentage of the Delayed Draw Term
Loan available to the Administrative Agent for the account of the
Borrower at the office of the Administrative Agent specified in
Schedule 2.1(a), or at such other office as the Administrative Agent
may designate in writing, by 1:00 P.M. (Charlotte, North Carolina time)
on the date specified in the applicable Notice of Borrowing in Dollars
and in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to the Borrower by the
Administrative Agent by crediting the account of the Borrower on the
books of such office with the aggregate of the amounts made available
to
38
<PAGE> 44
the Administrative Agent by the Lenders and in like funds as received
by the Administrative Agent.
(c) Minimum Amounts. Each Eurodollar Loan or Base Rate
Loan that is part of the Delayed Draw Term Loan shall be in an
aggregate principal amount that is not less than $1,000,000 and
integral multiples of $250,000 (or the then remaining principal balance
of the Delayed Draw Term Loan, if less).
(d) Repayment of Delayed Draw Term Loan. The principal
amount of the Delayed Draw Term Loan shall be repaid in twelve (12)
consecutive quarterly installments equal to the product of the
percentages set forth below multiplied by the outstanding principal
amount of the Delayed Draw Term Loan on the second anniversary of the
Closing Date, unless accelerated sooner pursuant to Section 9.2:
<TABLE>
<CAPTION>
======================================================
PRINCIPAL AMORTIZATION DELAYED DRAW TERM LOAN
PAYMENT PRINCIPAL AMORTIZATION
DATES PAYMENT
- ------------------------------------------------------
<S> <C>
March 31, 2001,
June 30, 2001,
September 30, 2001
and December 31, 2001 5.0%
- ------------------------------------------------------
March 31, 2002,
June 30, 2002,
September 30, 2002
and December 31, 2002 7.5%
- ------------------------------------------------------
March 31, 2003,
June 30, 2003,
September 30, 2003
and December 31, 2003 12.5%
======================================================
</TABLE>
(e) Interest. Subject to the provisions of Section 3.1,
the Delayed Draw Term Loan shall bear interest at a per annum rate
equal to:
(i) Base Rate Loans. During such periods as the
Delayed Draw Term Loan shall be comprised in whole or in part
of Base Rate Loans, such Base Rate Loans shall bear interest
at a per annum rate equal to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as the
Delayed Draw Term Loan shall be comprised in whole or in part
of Eurodollar Loans, such Eurodollar Loans shall bear interest
at a per annum rate equal to the Adjusted Eurodollar Rate.
Interest on the Delayed Draw Term Loan shall be payable in arrears on
each applicable Interest Payment Date (or at such other times as may be
specified herein).
(f) Delayed Draw Term Notes. The portion of the Delayed
Draw Term Loan made by each Lender shall be evidenced by a duly
executed promissory note of the
39
<PAGE> 45
Borrower to such Lender in an original principal amount equal to such
Lender's Delayed Draw Term Loan Commitment Percentage of the Delayed
Draw Term Loan and substantially in the form of Exhibit 2.4(f).
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 DEFAULT RATE.
Upon the occurrence, and during the continuance, of an Event of
Default, (i) the principal of and, to the extent permitted by law, interest on
the Loans and any other amounts owing hereunder or under the other Credit
Documents shall bear interest, payable on demand, at a per annum rate 2% greater
than the rate which would otherwise be applicable (or if no rate is applicable,
whether in respect of interest, fees or other amounts, then the Adjusted Base
Rate plus 2%) and (ii) the Letter of Credit Fee and the Trade Letter of Credit
shall accrue at a per annum rate 2% greater than the rate which would otherwise
be applicable.
3.2 EXTENSION AND CONVERSION.
The Borrower shall have the option, on any Business Day, to extend
existing Loans into a subsequent permissible Interest Period or to convert Loans
into Loans of another interest rate type; provided, however, that (i) except as
provided in Section 3.8, Eurodollar Loans may be converted into Base Rate Loans
or extended as Eurodollar Loans for new Interest Periods only on the last day of
the Interest Period applicable thereto, (ii) without the consent of the Required
Lenders, Eurodollar Loans may be extended, and Base Rate Loans may be converted
into Eurodollar Loans, only if the conditions precedent set forth in Section 5.2
are satisfied on the date of extension or conversion, (iii) Loans extended as,
or converted into, Eurodollar Loans shall be subject to the terms of the
definition of "Interest Period" set forth in Section 1.1 and shall be in such
minimum amounts as provided in, with respect to Revolving Loans, Section
2.1(b)(ii), with respect to the Tranche A Term Loan, Section 2.4(c), or, with
respect to the Delayed Draw Term Loan, Section 2.5(c), (iv) no more than 10
Eurodollar Loans shall be outstanding hereunder at any time (it being understood
that, for purposes hereof, Eurodollar Loans with different Interest Periods
shall be considered as separate Eurodollar Loans, even if they begin on the same
date, although borrowings, extensions and conversions may, in accordance with
the provisions hereof, be combined at the end of existing Interest Periods to
constitute a new Eurodollar Loan with a single Interest Period), (v) any request
for extension or conversion of a Eurodollar Loan which shall fail to specify an
Interest Period shall be deemed to be a request for an Interest Period of one
month and (vi) Swingline Loans may not be extended or converted pursuant to this
Section 3.2. Each such extension or conversion shall be effected by the Borrower
by giving a Notice of Extension/Conversion (or telephonic notice promptly
confirmed in writing) to the office of the Administrative Agent specified in
Schedule 2.1(a), or at such other office as the Administrative Agent may
designate in writing, prior to 1:00 P.M. (Charlotte, North Carolina time) on the
Business Day of, in the case of the conversion of a Eurodollar Loan into a Base
Rate Loan, and on the third Business Day prior to, in the case of the extension
of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar
Loan, the date of the proposed extension or conversion, specifying the date of
the proposed extension or conversion, the Loans to be so extended or converted,
the types of Loans into which such Loans are
40
<PAGE> 46
to be converted and, if appropriate, the applicable Interest Periods with
respect thereto. Each request for extension or conversion shall be irrevocable
and shall constitute a representation and warranty by the Borrower of the
matters specified in subsections (b), (c), (d), (e) and (f) of Section 5.2. In
the event the Borrower fails to request an extension or conversion of any
Eurodollar Loan in accordance with this Section, then such Eurodollar Loan shall
be automatically converted into a Eurodollar Loan with a period of one month's
duration at the end of the Interest Period applicable thereto. If any such
conversion or extension is not permitted or required by this Section, then such
Eurodollar Loan shall be automatically converted into a Base Rate Loan at the
end of the Interest Period applicable thereto. The Administrative Agent shall
give each Lender notice as promptly as practicable of any such proposed
extension or conversion affecting any Loan.
3.3 PREPAYMENTS.
(a) Voluntary Prepayments. The Borrower shall have the
right to prepay Loans in whole or in part from time to time; provided,
however, that each partial prepayment of Loans (other than Swingline
Loans) shall be in a minimum principal amount of $1,000,000 and
integral multiples of $250,000 in excess thereof (or the then remaining
principal balance of the Revolving Loans, the Tranche A Term Loan or
the Delayed Draw Term Loan, as applicable, if less). Subject to the
foregoing terms, amounts prepaid under this Section 3.3(a) shall be
applied as the Borrower may elect; provided that if the Borrower fails
to specify a voluntary prepayment then such prepayment shall be applied
first to Revolving Loans and then ratably to the Tranche A Term Loan
and the Delayed Draw Term Loan (in each case ratably to the remaining
Principal Amortization Payments thereof), in each case first to Base
Rate Loans and then to Eurodollar Loans in direct order of Interest
Period maturities. All prepayments under this Section 3.3(a) shall be
subject to Section 3.12, but otherwise without premium or penalty, and
be accompanied by interest on the principal amount prepaid through the
date of prepayment.
(b) Mandatory Prepayments.
(i) (A) Revolving Committed Amount. If at
any time, the sum of the aggregate outstanding
principal amount of Revolving Loans plus LOC
Obligations plus Swingline Loans shall exceed the
Revolving Committed Amount, the Borrower immediately
shall prepay the Revolving Loans and (after all
Revolving Loans have been repaid) cash collateralize
the LOC Obligations, in an amount sufficient to
eliminate such excess (such prepayment to be applied
as set forth in clause (v) below).
(B) LOC Committed Amount. If at any
time, the sum of the aggregate principal amount of
LOC Obligations shall exceed the LOC Committed
Amount, the Borrower immediately shall cash
collateralize the LOC Obligations in an amount
sufficient to eliminate such excess (such prepayment
to be applied as set forth in clause (v) below).
(ii) (A) Asset Dispositions. Immediately
upon the occurrence of any Asset Disposition
Prepayment Event, the Borrower shall prepay the Loans
in an aggregate amount equal to 100% of the Net Cash
Proceeds of the related Asset Disposition not applied
(or caused to be applied) by the Credit
41
<PAGE> 47
Parties during the related Application Period to make
Eligible Reinvestments as contemplated by the terms
of Section 8.5(f) (such prepayment to be applied as
set forth in clause (v) below).
(B) Casualty and Condemnation Events.
Immediately upon the occurrence of any event
requiring application of any insurance proceeds to
the prepayment of Loans (and cash collateralization
of LOC Obligations) pursuant to Section 7.6(d), the
Borrower shall prepay the Loans in the amount
required by such Section 7.6(d) (such prepayment to
be applied as set forth in clause (v) below).
(iii) Debt Issuances. Immediately upon receipt by
any Consolidated Party of proceeds from any Debt Issuance
other than a Excluded Debt Issuance, the Borrower shall prepay
the Loans in an aggregate amount equal to 100% of the Net Cash
Proceeds of such Debt Issuance to the Lenders (such prepayment
to be applied as set forth in clause (v) below).
(iv) Issuances of Equity. Immediately upon
receipt by a Consolidated Party of proceeds from any Equity
Issuance (other than an Excluded Equity Issuance), the
Borrower shall prepay the Loans in an aggregate amount equal
to 50% of the Net Cash Proceeds of such Equity Issuance to the
Lenders (such prepayment to be applied as set forth in clause
(v) below).
(v) Application of Mandatory Prepayments. All
amounts required to be paid pursuant to this Section 3.3(b)
shall be applied as follows: (A) with respect to all amounts
prepaid pursuant to Section 3.3(b)(i)(A), to Revolving Loans
and (after all Revolving Loans have been repaid) to a cash
collateral account in respect of LOC Obligations, (B) with
respect to all amounts prepaid pursuant to Section
3.3(b)(i)(B), to a cash collateral account in respect of LOC
Obligations, (C) with respect to all amounts prepaid pursuant
to Section 3.3(b)(ii), pro rata to (1) the Tranche A Term Loan
(ratably to the remaining Principal Amortization Payments
thereof), (2) the Delayed Draw Term Loan (ratably to the
remaining Principal Amortization Payments thereof) and (3) the
Revolving Loans and (after all Revolving Loans have been
repaid) to a cash collateral account in respect of LOC
Obligations (with a corresponding reduction in the Revolving
Committed Amount in an amount equal to all amounts applied
pursuant to this clause (3)) and (D) with respect to all
amounts prepaid pursuant to Section 3.3(b)(iii) or (iv), pro
rata to the Tranche A Term Loan and the Delayed Draw Term Loan
(in each case ratably to the remaining Principal Amortization
Payments thereof). Within the parameters of the applications
set forth above, prepayments shall be applied first to Base
Rate Loans and then to Eurodollar Loans in direct order of
Interest Period maturities. All prepayments under this Section
3.3(b) shall be subject to Section 3.12 and be accompanied by
interest on the principal amount prepaid through the date of
prepayment.
42
<PAGE> 48
3.4 TERMINATION AND REDUCTION OF REVOLVING COMMITTED AMOUNT.
(a) Voluntary Reductions. The Borrower may from time to
time permanently reduce or terminate the Revolving Committed Amount in
whole or in part (in minimum aggregate amounts of $2,000,000 and
integral multiples of $1,000,000 in excess thereof (or, if less, the
full remaining amount of the then applicable Revolving Committed
Amount)) upon five Business Days' prior written notice to the
Administrative Agent; provided, however, no such termination or
reduction shall be made which would cause the sum of the aggregate
outstanding principal amount of Revolving Loans plus LOC Obligations
plus Swingline Loans to exceed the Revolving Committed Amount, unless,
concurrently with such termination or reduction, the Revolving Loans
are repaid to the extent necessary to eliminate such excess. The
Administrative Agent shall promptly notify each affected Lender of
receipt by the Administrative Agent of any notice from the Borrower
pursuant to this Section 3.4(a).
(b) Mandatory Reductions. On any date that the Revolving
Loans are required to be prepaid pursuant to the terms of Section
3.3(b)(v), the Revolving Committed Amount automatically shall be
permanently reduced by the amount of such required prepayment and/or
reduction.
(c) Maturity Date. The Revolving Commitments of the
Lenders, the LOC Commitment of the Issuing Lender and the Swingline
Commitment of the Swingline Lender shall automatically terminate on the
Maturity Date.
(d) General. The Borrower shall pay to the Administrative
Agent for the account of the Lenders in accordance with the terms of
Section 3.5(b)(i), on the date of each termination or reduction of the
Revolving Committed Amount, the Revolving Unused Fee accrued through
the date of such termination or reduction on the amount of the
Revolving Committed Amount so terminated or reduced.
3.5 FEES.
(a) Upfront Fees. The Borrower agrees to pay to
NationsBank in immediately available funds on or before the Closing
Date an upfront fee (the "Upfront Fee") in the amount provided in the
Administrative Agent's Fee Letter.
(b) Unused Fee.
(i) In consideration of the Revolving
Commitments of the Lenders hereunder, the Borrower agrees to
pay to the Administrative Agent for the account of each Lender
a fee (the "Revolving Unused Fee") on the Unused Revolving
Committed Amount computed at a per annum rate for each day
during the applicable Revolving Unused Fee Calculation Period
(hereinafter defined) at a rate equal to the Applicable
Percentage in effect from time to time. The Revolving Unused
Fee shall commence to accrue on the Closing Date and shall be
due and payable in arrears on the last Business Day of each
March, June, September and December (and any date that the
Revolving Committed Amount is reduced as provided in Section
3.4(a) and the Maturity Date) for the immediately preceding
43
<PAGE> 49
quarter (or portion thereof) (each such quarter or portion
thereof for which the Revolving Unused Fee is payable
hereunder being herein referred to as a "Revolving Unused Fee
Calculation Period"), beginning with the first of such dates
to occur after the Closing Date.
(ii) In consideration of the Delayed Draw Term
Loan Commitments of the Lenders hereunder, the Borrower agrees
to pay to the Administrative Agent for the account of each
Lender a fee (the "Delayed Draw Unused Fee") on the Unused
Delayed Draw Term Loan Committed Amount computed at a per
annum rate for each day during the applicable Delayed Draw
Unused Fee Calculation Period (hereinafter defined) at a rate
equal to the Applicable Percentage in effect from time to
time. The Delayed Draw Unused Fee shall commence to accrue on
the Closing Date and shall be due and payable in arrears on
the last Business Day of each March, June, September and
December for the immediately preceding quarter (or portion
thereof) (each such quarter or portion thereof for which the
Delayed Draw Unused Fee is payable hereunder being herein
referred to as a "Delayed Draw Unused Fee Calculation
Period"), beginning with the first of such dates to occur
after the Closing Date and ending with the first of such dates
to occur after the second anniversary of the Closing Date.
(c) Letter of Credit Fees.
(i) Standby Letter of Credit Issuance Fee. In
consideration of the issuance of standby Letters of Credit
hereunder, the Borrower promises to pay to the Administrative
Agent for the account of each Lender a fee (the "Standby
Letter of Credit Fee") on such Lender's Revolving Commitment
Percentage of the average daily maximum amount available to be
drawn under each such standby Letter of Credit computed at a
per annum rate for each day from the date of issuance to the
date of expiration equal to the Applicable Percentage. The
Standby Letter of Credit Fee will be payable quarterly in
arrears on the last Business Day of each March, June,
September and December for the immediately preceding quarter
(or a portion thereof).
(ii) Trade Letter of Credit Drawing Fee. In
consideration of the issuance of trade Letters of Credit
hereunder, the Borrower promises to pay to the Administrative
Agent for the account of each Lender a fee (the "Trade Letter
of Credit Fee") equal to one-half (1/2) of the Standby Letter
of Credit Fee. The Trade Letter of Credit Fee will be payable
quarterly in arrears on the last Business Day of each March,
June, September and December for the immediately preceding
quarter (or a portion thereof).
(iii) Issuing Lender Fees. In addition to the
Standby Letter of Credit Fee payable pursuant to clause (i)
above and the Trade Letter of Credit Fee payable pursuant to
clause (ii) above, the Borrower promises to pay to the
Administrative Agent for the account of each applicable
Issuing Lender without sharing by the other Lenders (i) a
letter of credit fronting fee of 0.25% on the average daily
maximum amount available to be drawn under each standby Letter
of Credit issued by such Issuing Lender computed at a per
annum rate for each day from the date of
44
<PAGE> 50
issuance to the date of expiration and (ii) the customary
charges from time to time of the Issuing Lender with respect
to the issuance, amendment, transfer, administration,
cancellation and conversion of, and drawings under, such
Letters of Credit (collectively, the "Issuing Lender Fees").
The Issuing Lender Fee will be payable quarterly in arrears on
the last Business Day of each March, June, September and
December for the immediately preceding quarter (or a portion
thereof).
(d) Administrative Fees. The Borrower agrees to pay to
the Administrative Agent, for its own account, for the account of the
Issuing Lender and for the account of NationsBanc Montgomery Securities
LLC, as applicable, the fees referred to in the Administrative Agent's
Fee Letter (collectively, the "Administrative Agent's Fees").
3.6 CAPITAL ADEQUACY.
If any Lender has determined, after the date hereof, that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy), then,
upon notice from such Lender to the Borrower, the Borrower shall be obligated to
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction. Each determination by any such Lender of amounts
owing under this Section shall, absent manifest error, be conclusive and binding
on the parties hereto.
3.7 LIMITATION ON EURODOLLAR LOANS.
If on or prior to the first day of any Interest Period for any
Eurodollar Loan:
(a) the Administrative Agent determines (which
determination shall be conclusive) that by reason of circumstances
affecting the relevant market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for such Interest Period; or
(b) the Required Lenders determine (which determination
shall be conclusive) and notify the Administrative Agent that the
Eurodollar Rate will not adequately and fairly reflect the cost to the
Lenders of funding Eurodollar Loans for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof, and
so long as such condition remains in effect, the Lenders shall be under no
obligation to make additional Eurodollar Loans, Continue Eurodollar Loans, or to
Convert Base Rate Loans into Eurodollar Loans and the Borrower shall, on the
last day(s) of the then current Interest Period(s) for the outstanding
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Eurodollar Loans, either repay such Eurodollar Loans or Convert such Eurodollar
Loans into Base Rate Loans in accordance with the terms of this Credit
Agreement.
3.8 ILLEGALITY.
Notwithstanding any other provision of this Credit Agreement, in the
event that it becomes unlawful for any Lender or its Applicable Lending Office
to make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall
promptly notify the Borrower thereof and such Lender's obligation to make or
Continue Eurodollar Loans and to Convert Base Rate Loans into Eurodollar Loans
shall be suspended until such time as such Lender may again make, maintain, and
fund Eurodollar Loans (in which case the provisions of Section 3.10 shall be
applicable).
3.9 REQUIREMENTS OF LAW.
If, after the date hereof, the adoption of any applicable law, rule, or
regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable
Lending Office) to any tax, duty, or other charge with respect
to any Eurodollar Loans, its Notes, or its obligation to make
Eurodollar Loans, or change the basis of taxation of any
amounts payable to such Lender (or its Applicable Lending
Office) under this Credit Agreement or its Notes in respect of
any Eurodollar Loans (other than taxes imposed on the overall
net income of such Lender by the jurisdiction in which such
Lender has its principal office or such Applicable Lending
Office);
(ii) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar requirement
(other than the Eurodollar Reserve Requirement utilized in the
determination of the Adjusted Eurodollar Rate) relating to any
extensions of credit or other assets of, or any deposits with
or other liabilities or commitments of, such Lender (or its
Applicable Lending Office), including the Commitment of such
Lender hereunder; or
(iii) shall impose on such Lender (or its
Applicable Lending Office) or the London interbank market any
other condition affecting this Credit Agreement or its Notes
or any of such extensions of credit or liabilities or
commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under this Credit Agreement or
its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to
such Lender on demand such amount or amounts as will compensate such Lender for
such increased cost or reduction. If any Lender requests compensation by the
Borrower under this Section 3.9, the Borrower may, by notice to such Lender
(with a copy to the Administrative Agent), suspend the obligation of such Lender
to make or Continue Eurodollar Loans, or to Convert Base
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Rate Loans into Eurodollar Loans, until the event or condition giving rise to
such request ceases to be in effect (in which case the provisions of Section
3.10 shall be applicable); provided that such suspension shall not affect the
right of such Lender to receive the compensation so requested. Each Lender shall
promptly notify the Borrower and the Administrative Agent of any event of which
it has knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this Section 3.9 and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Lender, be otherwise disadvantageous to it. Any Lender claiming compensation
under this Section 3.9 shall furnish to the Borrower and the Administrative
Agent a statement setting forth the additional amount or amounts to be paid to
it hereunder which shall be conclusive in the absence of manifest error. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.
3.10 TREATMENT OF AFFECTED LOANS.
If the obligation of any Lender to make any Eurodollar Loan or to
Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be
suspended pursuant to Section 3.7, 3.8 or 3.9 hereof, such Lender's Eurodollar
Loans shall be automatically Converted into Base Rate Loans (unless repaid by
the Borrower) on the last day(s) of the then current Interest Period(s) for such
Eurodollar Loans (or, in the case of a Conversion required by Section 3.8
hereof, on such earlier date as such Lender may specify to the Borrower with a
copy to the Administrative Agent) and, unless and until such Lender gives notice
as provided below that the circumstances specified in Section 3.7, 3.8 or 3.9
hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans
have been so Converted, all payments and prepayments of principal that
would otherwise be applied to such Lender's Eurodollar Loans shall be
applied instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued
by such Lender as Eurodollar Loans shall be made or Continued instead
as Base Rate Loans, and all Base Rate Loans of such Lender that would
otherwise be Converted into Eurodollar Loans shall remain as Base Rate
Loans.
If such Lender gives notice to the Borrower (with a copy to the Administrative
Agent) that the circumstances specified in Section 3.7, 3.8 or 3.9 hereof that
gave rise to the Conversion of such Lender's Eurodollar Loans pursuant to this
Section 3.10 no longer exist (which such Lender agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Loans (but in any event not earlier than three
Business Days after the date on which such circumstances cease to exist), to the
extent necessary so that, after giving effect thereto, all Loans held by the
Lenders holding Eurodollar Loans and by such Lender are held pro rata (as to
principal amounts, interest rate basis, and Interest Periods) in accordance with
their respective Commitments.
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3.11 TAXES.
(a) Any and all payments by any Credit Party to or for
the account of any Lender or the Administrative Agent hereunder or
under any other Credit Document shall be made free and clear of and
without deduction for any and all present or future taxes, duties,
levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender
and the Administrative Agent, taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction under the laws of
which such Lender (or its Applicable Lending Office) or the
Administrative Agent (as the case may be) is organized or any political
subdivision thereof (all such non-excluded taxes, duties, levies,
imposts, deductions, charges, withholdings, and liabilities being
hereinafter referred to as "Taxes"). If any Credit Party shall be
required by law to deduct any Taxes from or in respect of any sum
payable under this Credit Agreement or any other Credit Document to any
Lender or the Administrative Agent, (i) the sum payable shall be
increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 3.11) such Lender or the Administrative Agent receives an
amount equal to the sum it would have received had no such deductions
been made, (ii) such Credit Party shall make such deductions, (iii)
such Credit Party shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable
law, and (iv) such Credit Party shall furnish to the Administrative
Agent, at its address referred to in Section 11.1, the original or a
certified copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all
present or future stamp or documentary taxes and any other excise or
property taxes or charges or similar levies which arise from any
payment made under this Credit Agreement or any other Credit Document
or from the execution or delivery of, or otherwise with respect to,
this Credit Agreement or any other Credit Document (hereinafter
referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the
Administrative Agent for the full amount of Taxes and Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed or
asserted by any jurisdiction on amounts payable under this Section
3.11) paid by such Lender or the Administrative Agent (as the case may
be) and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto.
(d) Each Lender that is not a United States person under
Section 7701(a)(30) of the Code, on or prior to the date of its
execution and delivery of this Credit Agreement in the case of each
Lender listed on the signature pages hereof and on or prior to the date
on which it becomes a Lender in the case of each other Lender, and from
time to time thereafter if requested in writing by the Borrower or the
Administrative Agent (but only so long as such Lender remains lawfully
able to do so), shall provide the Borrower and the Administrative Agent
with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or
any successor form prescribed by the Internal Revenue Service,
certifying that such Lender is entitled to benefits under an income tax
treaty to which the United States is a party which reduces the rate of
withholding tax on payments of interest or certifying that the income
receivable pursuant to this Credit Agreement is effectively connected
with the conduct of a trade or business in the United States, (ii)
Internal Revenue Service Form W-8
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or W-9, as appropriate, or any successor form prescribed by the
Internal Revenue Service, and/or (iii) any other form or certificate
required by any taxing authority (including any certificate required by
Sections 871(h) and 881(c) of the Internal Revenue Code), certifying
that such Lender is entitled to an exemption from or a reduced rate of
tax on payments pursuant to this Credit Agreement or any of the other
Credit Documents.
(e) For any period with respect to which a Lender has
failed to provide the Borrower and the Administrative Agent with the
appropriate form pursuant to Section 3.11(d) (unless such failure is
due to a change in treaty, law, or regulation occurring subsequent to
the date on which a form originally was required to be provided), such
Lender shall not be entitled to indemnification under Section 3.11(a)
or 3.11(b) with respect to Taxes imposed by the United States;
provided, however, that should a Lender, which is otherwise exempt from
or subject to a reduced rate of withholding tax, become subject to
Taxes because of its failure to deliver a form required hereunder, the
Borrower shall take such steps as such Lender shall reasonably request
to assist such Lender to recover such Taxes.
(f) If any Credit Party is required to pay additional
amounts to or for the account of any Lender pursuant to this Section
3.11, then such Lender will agree to use reasonable efforts to change
the jurisdiction of its Applicable Lending Office so as to eliminate or
reduce any such additional payment which may thereafter accrue if such
change, in the judgment of such Lender, is not otherwise
disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment
of Taxes, the applicable Credit Party shall furnish to the
Administrative Agent the original or a certified copy of a receipt
evidencing such payment.
(h) Without prejudice to the survival of any other
agreement of the Credit Parties hereunder, the agreements and
obligations of the Credit Parties contained in this Section 3.11 shall
survive the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the
Commitments hereunder.
3.12 COMPENSATION.
Upon the request of any Lender, the Borrower shall pay to such Lender
such amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost, or expense (including loss of
anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a
Eurodollar Loan for any reason (including, without limitation, (i) in
connection with any assignment by NationsBank pursuant to Section
11.3(b) as part of the primary syndication of the Loans during the
180-day period immediately following the Closing Date and (ii) the
acceleration of the Loans pursuant to Section 9.2) on a date other than
the last day of the Interest Period for such Loan; or
(b) any failure by the Borrower for any reason
(including, without limitation, the failure of any condition precedent
specified in Section 5 to be satisfied) to borrow,
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Convert,Continue, or prepay a Eurodollar Loan on the date for such
borrowing, Conversion, Continuation, or prepayment specified in the
relevant notice of borrowing, prepayment, Continuation, or Conversion
under this Credit Agreement.
With respect to Eurodollar Loans, such indemnification may include an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, converted or continued,
for the period from the date of such prepayment or of such failure to borrow,
convert or continue to the last day of the applicable Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Eurodollar Loans provided for herein (excluding,
however, the Applicable Percentage included therein, if any) over (b) the amount
of interest (as reasonably determined by such Lender) which would have accrued
to such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. The covenants of
the Borrower set forth in this Section 3.12 shall survive the repayment of the
Loans, LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
3.13 PRO RATA TREATMENT.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or (subject to the
terms of Section 3.3) prepayment of principal of any Loan or
reimbursement obligations arising from drawings under Letters of
Credit, each payment of interest on the Loans or reimbursement
obligations arising from drawings under Letters of Credit, each payment
of Unused Fees, each payment of the Letter of Credit Fee, each
reduction of the Revolving Committed Amount and each conversion or
extension of any Loan, shall be allocated pro rata among the Lenders in
accordance with the respective principal amounts of their outstanding
Loans and Participation Interests.
(b) Advances. No Lender shall be responsible for the
failure or delay by any other Lender in its obligation to make its
ratable share of a borrowing hereunder; provided, however, that the
failure of any Lender to fulfill its obligations hereunder shall not
relieve any other Lender of its obligations hereunder. Unless the
Administrative Agent shall have been notified by any Lender prior to
the date of any requested borrowing that such Lender does not intend to
make available to the Administrative Agent its ratable share of such
borrowing to be made on such date, the Administrative Agent may assume
that such Lender has made such amount available to the Administrative
Agent on the date of such borrowing, and the Administrative Agent in
reliance upon such assumption, may (in its sole discretion but without
any obligation to do so) make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to
the Administrative Agent, the Administrative Agent shall be able to
recover such corresponding amount from such Lender. If such Lender does
not pay such corresponding amount forthwith upon the Administrative
Agent's demand therefor, the Administrative Agent shall attempt, in
good faith, to obtain the commitment of a third party to be an assignee
of such Lender, and if such commitment is not obtained within three
Business Days of the commencement of the Administrative Agent's
efforts, the Administrative Agent will promptly notify the Borrower,
and the Borrower shall immediately pay such corresponding amount to the
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Administrative Agent. The Administrative Agent shall also be entitled
to recover from the Lender or the Borrower, as the case may be,
interest on such corresponding amount in respect of each day from the
date such corresponding amount was made available by the Administrative
Agent to the Borrower to the date such corresponding amount is
recovered by the Administrative Agent at a per annum rate equal to (i)
from the Borrower at the applicable rate for the applicable borrowing
pursuant to the Notice of Borrowing and (ii) from a Lender at the
Federal Funds Rate.
3.14 SHARING OF PAYMENTS.
The Lenders agree among themselves that, in the event that any Lender
shall obtain payment in respect of any Loan, LOC Obligations or any other
obligation owing to such Lender under this Credit Agreement through the exercise
of a right of setoff, banker's lien or counterclaim, or pursuant to a secured
claim under Section 506 of Title 11 of the United States Code or other security
or interest arising from, or in lieu of, such secured claim, received by such
Lender under any applicable bankruptcy, insolvency or other similar law or
otherwise, or by any other means, in excess of its pro rata share of such
payment as provided for in this Credit Agreement, such Lender shall promptly
purchase from the other Lenders a Participation Interest in such Loans, LOC
Obligations and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that all Lenders
share such payment in accordance with their respective ratable shares as
provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by repurchase of a
Participation Interest theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrower agrees that any Lender so purchasing such a Participation Interest
may, to the fullest extent permitted by law, exercise all rights of payment,
including setoff, banker's lien or counterclaim, with respect to such
Participation Interest as fully as if such Lender were a holder of such Loan,
LOC Obligations or other obligation in the amount of such Participation
Interest. Except as otherwise expressly provided in this Credit Agreement, if
any Lender or the Administrative Agent shall fail to remit to the Administrative
Agent or any other Lender an amount payable by such Lender or the Administrative
Agent to the Administrative Agent or such other Lender pursuant to this Credit
Agreement on the date when such amount is due, such payments shall be made
together with interest thereon for each date from the date such amount is due
until the date such amount is paid to the Administrative Agent or such other
Lender at a rate per annum equal to the Federal Funds Rate. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section 3.14 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders under this
Section 3.14 to share in the benefits of any recovery on such secured claim.
3.15 PAYMENTS, COMPUTATIONS, ETC.
(a) Except as otherwise specifically provided herein, all
payments hereunder shall be made to the Administrative Agent in dollars
in immediately available funds, without setoff, deduction, counterclaim
or withholding of any kind, at the Administrative Agent's office
specified in Schedule 2.1(a) not later than 2:00 P.M. (Charlotte, North
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Carolina time) on the date when due. Payments received after such time
shall be deemed to have been received on the next succeeding Business
Day. The Administrative Agent may (but shall not be obligated to) debit
the amount of any such payment which is not made by such time to any
ordinary deposit account of the Borrower or any other Credit Party
maintained with the Administrative Agent (with notice to the Borrower
or such other Credit Party). The Borrower shall, at the time it makes
any payment under this Credit Agreement, specify to the Administrative
Agent the Loans, LOC Obligations, Fees, interest or other amounts
payable by the Borrower hereunder to which such payment is to be
applied (and in the event that it fails so to specify, or if such
application would be inconsistent with the terms hereof, the
Administrative Agent shall distribute such payment to the Lenders in
such manner as the Administrative Agent may determine to be appropriate
in respect of obligations owing by the Borrower hereunder, subject to
the terms of Section 3.13(a)). The Administrative Agent will distribute
such payments to such Lenders, if any such payment is received prior to
12:00 Noon (Charlotte, North Carolina time) on a Business Day in like
funds as received prior to the end of such Business Day and otherwise
the Administrative Agent will distribute such payment to such Lenders
on the next succeeding Business Day. Whenever any payment hereunder
shall be stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day
(subject to accrual of interest and Fees for the period of such
extension), except that in the case of Eurodollar Loans, if the
extension would cause the payment to be made in the next following
calendar month, then such payment shall instead be made on the next
preceding Business Day. Except as expressly provided otherwise herein,
all computations of interest and fees shall be made on the basis of
actual number of days elapsed over a year of 360 days, except with
respect to computation of interest on Base Rate Loans which shall be
calculated based on a year of 365 or 366 days, as appropriate. Interest
shall accrue from and include the date of borrowing, but exclude the
date of payment.
(b) Allocation of Payments After Event of Default.
Notwithstanding any other provisions of this Credit Agreement to the
contrary, after the occurrence and during the continuance of an Event
of Default, all amounts collected or received by the Administrative
Agent or any Lender on account of the Credit Party Obligations or any
other amounts outstanding under any of the Credit Documents or in
respect of the Collateral shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs
and expenses (including, without limitation, reasonable attorneys'
fees) of the Administrative Agent in connection with enforcing the
rights of the Lenders under the Credit Documents and any protective
advances made by the Administrative Agent with respect to the
Collateral under or pursuant to the terms of the Collateral Documents;
SECOND, to payment of any fees owed to the Administrative
Agent;
THIRD, to the payment of all reasonable out-of-pocket costs
and expenses (including, without limitation, reasonable attorneys'
fees) of each of the Lenders in connection with enforcing its rights
under the Credit Documents or otherwise with respect to the Credit
Party Obligations owing to such Lender;
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FOURTH, to the payment of all of the Credit Party Obligations
(other than obligations under Hedging Agreements) consisting of accrued
fees and interest;
FIFTH, to the payment of the outstanding principal amount of
the Credit Party Obligations (including obligations under Hedging
Agreements between a Credit Party and any Lender or any Affiliate of a
Lender and the payment or cash collateralization of the outstanding LOC
Obligations);
SIXTH, to all other Credit Party Obligations and other
obligations which shall have become due and payable under the Credit
Documents or otherwise and not repaid pursuant to clauses "FIRST"
through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may
be lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in
the numerical order provided until exhausted prior to application to
the next succeeding category; (ii) each of the Lenders shall receive an
amount equal to its pro rata share (based on the proportion that the
then outstanding Loans and LOC Obligations held by such Lender bears to
the aggregate then outstanding Loans and LOC Obligations) of amounts
available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH"
and "SIXTH" above; and (iii) to the extent that any amounts available
for distribution pursuant to clause "FIFTH" above are attributable to
the issued but undrawn amount of outstanding Letters of Credit, such
amounts shall be held by the Administrative Agent in a cash collateral
account and applied (A) first, to reimburse the Issuing Lender from
time to time for any drawings under such Letters of Credit and (B)
then, following the expiration of all Letters of Credit, to all other
obligations of the types described in clauses "FIFTH" and "SIXTH" above
in the manner provided in this Section 3.15(b).
3.16 EVIDENCE OF DEBT.
(a) Each Lender shall maintain an account or accounts
evidencing each Loan made by such Lender to the Borrower from time to
time, including the amounts of principal and interest payable and paid
to such Lender from time to time under this Credit Agreement. Each
Lender will make reasonable efforts to maintain the accuracy of its
account or accounts and to promptly update its account or accounts from
time to time, as necessary.
(b) The Administrative Agent shall maintain the Register
pursuant to Section 11.3(c), and a subaccount for each Lender, in which
Register and subaccounts (taken together) shall be recorded (i) the
amount, type and Interest Period of each such Loan hereunder, (ii) the
amount of any principal or interest due and payable or to become due
and payable to each Lender hereunder and (iii) the amount of any sum
received by the Administrative Agent hereunder from or for the account
of any Credit Party and each Lender's share thereof. The Administrative
Agent will make reasonable efforts to maintain the accuracy of the
subaccounts referred to in the preceding sentence and to promptly
update such subaccounts from time to time, as necessary.
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(c) The entries made in the accounts, Register and
subaccounts maintained pursuant to subsection (b) of this Section 3.16
(and, if consistent with the entries of the Administrative Agent,
subsection (a)) shall be prima facie evidence of the existence and
amounts of the obligations of the Credit Parties therein recorded;
provided, however, that the failure of any Lender or the Administrative
Agent to maintain any such account, such Register or such subaccount,
as applicable, or any error therein, shall not in any manner affect the
obligation of the Credit Parties to repay the Credit Party Obligations
owing to such Lender.
SECTION 4
GUARANTY
4.1 THE GUARANTY.
In consideration for the making of the Loans and the potential
providing of a portion of the proceeds thereof directly to the Guarantors, each
of the Guarantors hereby jointly and severally guarantees to each Lender, each
Affiliate of a Lender that enters into a Hedging Agreement with any Credit
Party, and the Administrative Agent as hereinafter provided, as primary obligor
and not as surety, the prompt payment of the Credit Party Obligations in full
when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as a mandatory cash collateralization or otherwise) strictly in
accordance with the terms thereof. The Guarantors hereby further agree that if
any of the Credit Party Obligations are not paid in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise), the Guarantors will, jointly and severally,
promptly pay the same, without any demand or notice whatsoever, and that in the
case of any extension of time of payment or renewal of any of the Credit Party
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, as a mandatory prepayment, by acceleration, as a mandatory
cash collateralization or otherwise) in accordance with the terms of such
extension or renewal.
Notwithstanding any provision to the contrary contained herein or in
any other of the Credit Documents or Hedging Agreements between any Credit Party
and any Lender (or any Affiliate of a Lender), the obligations of each Guarantor
under this Credit Agreement and the other Credit Documents shall be limited to
an aggregate amount equal to the largest amount that would not render such
obligations subject to avoidance under Section 548 of the Bankruptcy Code or any
comparable provisions of any applicable state law.
4.2 OBLIGATIONS UNCONDITIONAL.
The obligations of the Guarantors under Section 4.1 are joint and
several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Credit Documents or Hedging
Agreements between any Credit Party and any Lender (or any Affiliate of a
Lender), or any other agreement or instrument referred to therein, or any
substitution, release, impairment or exchange of any other guarantee of or
security for any of the Credit Party Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 4.2 that the
obligations of the Guarantors
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hereunder shall be absolute and unconditional under any and all circumstances.
Each Guarantor agrees that such Guarantor shall have no right of subrogation,
indemnity, reimbursement or contribution against the Borrower or any other
Guarantor for amounts paid under this Section 4 until such time as the Lenders
(and any Affiliates of Lenders entering into Hedging Agreements with any Credit
Party) have been paid in full in respect of all Credit Party Obligations, all
Commitments under this Credit Agreement have been terminated and no Person or
Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received under
the Credit Documents or Hedging Agreements between any Credit Party and any
Lender, or any Affiliate of a Lender. Without limiting the generality of the
foregoing, it is agreed that, to the fullest extent permitted by law, the
occurrence of any one or more of the following shall not alter or impair the
liability of any Guarantor hereunder which shall remain absolute and
unconditional as described above:
(a) at any time or from time to time, without notice to
any Guarantor, the time for any performance of or compliance with any
of the Credit Party Obligations shall be extended, or such performance
or compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of
any of the Credit Documents, any Hedging Agreement between any
Consolidated Party and any Lender, or any Affiliate of a Lender, or any
other agreement or instrument referred to in the Credit Documents or
such Hedging Agreements shall be done or omitted;
(c) the maturity of any of the Credit Party Obligations
shall be accelerated, or any of the Credit Party Obligations shall be
modified, supplemented or amended in any respect, or any right under
any of the Credit Documents, any Hedging Agreement between any
Consolidated Party and any Lender, or any Affiliate of a Lender, or any
other agreement or instrument referred to in the Credit Documents or
such Hedging Agreements shall be waived or any other guarantee of any
of the Credit Party Obligations or any security therefor shall be
released, impaired or exchanged in whole or in part or otherwise dealt
with;
(d) any Lien granted to, or in favor of, the
Administrative Agent or any Lender or Lenders as security for any of
the Credit Party Obligations shall fail to attach or be perfected; or
(e) any of the Credit Party Obligations shall be
determined to be void or voidable (including, without limitation, for
the benefit of any creditor of any Guarantor) or shall be subordinated
to the claims of any Person (including, without limitation, any
creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Administrative Agent or any Lender
exhaust any right, power or remedy or proceed against any Person under any of
the Credit Documents, any Hedging Agreement between any Consolidated Party and
any Lender, or any Affiliate of a Lender, or any other agreement or instrument
referred to in the Credit Documents or such Hedging Agreements, or against any
other Person under any other guarantee of, or security for, any of the Credit
Party Obligations.
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4.3 REINSTATEMENT.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Administrative Agent and each Lender on demand for all reasonable costs and
expenses (including, without limitation, fees and expenses of counsel) incurred
by the Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
4.4 CERTAIN ADDITIONAL WAIVERS.
Without limiting the generality of the provisions of this Section 4,
each Guarantor hereby specifically waives the benefits of N.C. Gen. Stat.
Sections 26-7 through 26-9, inclusive, to the extent applicable. Each Guarantor
further agrees that such Guarantor shall have no right of recourse to security
for the Credit Party Obligations, except through the exercise of rights of
subrogation pursuant to Section 4.2 and through the exercise of rights of
contribution pursuant to Section 4.6.
4.5 REMEDIES.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, the Credit Party Obligations may be declared to be
forthwith due and payable as provided in Section 9.2 (and shall be deemed to
have become automatically due and payable in the circumstances provided in said
Section 9.2) for purposes of Section 4.1 notwithstanding any stay, injunction or
other prohibition preventing such declaration (or preventing the Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or the Credit Party
Obligations being deemed to have become automatically due and payable), the
Credit Party Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of Section
4.1. The Guarantors acknowledge and agree that their obligations hereunder are
secured in accordance with the terms of the Security Agreements and the other
Collateral Documents and that the Lenders may exercise their remedies thereunder
in accordance with the terms thereof.
4.6 RIGHTS OF CONTRIBUTION.
The Guarantors hereby agree as among themselves that, if any Guarantor
shall make an Excess Payment (as defined below), such Guarantor shall have a
right of contribution from each other Guarantor in an amount equal to such other
Guarantor's Contribution Share (as defined below) of such Excess Payment. The
payment obligations of any Guarantor under this Section 4.6 shall be subordinate
and subject in right of payment to the prior payment in full to the
Administrative Agent and the Lenders of the Guaranteed Obligations, and none of
the Guarantors shall exercise any right or remedy under this Section 4.6 against
any other Guarantor until payment and satisfaction in full of all of such
Guaranteed Obligations. For purposes of this Section 4.6, (a) "Guaranteed
Obligations" shall mean any obligations arising under the other provisions of
this
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Section 4; (b) "Excess Payment" shall mean the amount paid by any Guarantor in
excess of its Pro Rata Share of any Guaranteed Obligations; (c) "Pro Rata Share"
shall mean, for any Guarantor in respect of any payment of Guaranteed
Obligations, the ratio (expressed as a percentage) as of the date of such
payment of Guaranteed Obligations of (i) the amount by which the aggregate
present fair salable value of all of its assets and properties exceeds the
amount of all debts and liabilities of such Guarantor (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of such Guarantor hereunder) to (ii) the amount by which the
aggregate present fair salable value of all assets and other properties of all
of the Credit Parties exceeds the amount of all of the debts and liabilities
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of the Credit Parties hereunder) of the Credit
Parties; provided, however, that, for purposes of calculating the Pro Rata
Shares of the Guarantors in respect of any payment of Guaranteed Obligations,
any Guarantor that became a Guarantor subsequent to the date of any such payment
shall be deemed to have been a Guarantor on the date of such payment and the
financial information for such Guarantor as of the date such Guarantor became a
Guarantor shall be utilized for such Guarantor in connection with such payment;
and (d) "Contribution Share" shall mean, for any Guarantor in respect of any
Excess Payment made by any other Guarantor, the ratio (expressed as a
percentage) as of the date of such Excess Payment of (i) the amount by which the
aggregate present fair salable value of all of its assets and properties exceeds
the amount of all debts and liabilities of such Guarantor (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of such Guarantor hereunder) to (ii) the amount by which the
aggregate present fair salable value of all assets and other properties of the
Credit Parties other than the maker of such Excess Payment exceeds the amount of
all of the debts and liabilities (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of the Credit
Parties) of the Credit Parties other than the maker of such Excess Payment;
provided, however, that, for purposes of calculating the Contribution Shares of
the Guarantors in respect of any Excess Payment, any Guarantor that became a
Guarantor subsequent to the date of any such Excess Payment shall be deemed to
have been a Guarantor on the date of such Excess Payment and the financial
information for such Guarantor as of the date such Guarantor became a Guarantor
shall be utilized for such Guarantor in connection with such Excess Payment.
This Section 4.6 shall not be deemed to affect any right of subrogation,
indemnity, reimbursement or contribution that any Guarantor may have under
applicable law against the Borrower in respect of any payment of Guaranteed
Obligations. Notwithstanding the foregoing, all rights of contribution against
any Guarantor shall terminate from and after such time, if ever, that such
Guarantor shall be relieved of its obligations pursuant to Section 8.4.
4.7 GUARANTEE OF PAYMENT; CONTINUING GUARANTEE.
The guarantee in this Section 4 is a guaranty of payment and not of
collection, is a continuing guarantee, and shall apply to all Credit Party
Obligations whenever arising.
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SECTION 5
CONDITIONS
5.1 CLOSING CONDITIONS.
The obligation of the Lenders to enter into this Credit Agreement shall
be subject to the receipt by the Administrative Agent (in form and substance
acceptable to the Lenders) of duly executed copies of: (i) this Credit
Agreement, (ii) the Notes, (iii) the Collateral Documents, (iv) the
Administrative Agent's Fee Letter and (v) all other Credit Documents, each in
form and substance acceptable to the Administrative Agent in its sole
discretion.
The obligation of the Lenders to make the initial Loans or the Issuing
Lender to issue the initial Letter of Credit, whichever shall occur first, shall
be subject to satisfaction of the following conditions (in form and substance
acceptable to the Lenders):
(a) [Intentionally Left Blank].
(b) Corporate Documents. Receipt by the Administrative
Agent of the following:
(i) Charter Documents. Copies of the articles or
certificates of incorporation or other charter documents of
each Credit Party certified to be true and complete as of a
recent date by the appropriate Governmental Authority of the
state or other jurisdiction of its incorporation and certified
by a secretary or assistant secretary of such Credit Party to
be true and correct as of the Closing Date.
(ii) Bylaws. A copy of the bylaws of each Credit
Party certified by a secretary or assistant secretary of such
Credit Party to be true and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the
Board of Directors of each Credit Party approving and adopting
the Credit Documents to which it is a party, the transactions
contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary of
such Credit Party to be true and correct and in force and
effect as of the Closing Date.
(iv) Good Standing. Copies of (A) certificates of
good standing, existence or its equivalent with respect to
each Credit Party certified as of a recent date by the
appropriate Governmental Authorities of the state or other
jurisdiction of incorporation and each other jurisdiction in
which the failure to so qualify and be in good standing could
have a Material Adverse Effect and (B) to the extent
available, a certificate indicating payment of all corporate
franchise taxes certified as of a recent date by the
appropriate governmental taxing authorities.
(v) Incumbency. An incumbency certificate of
each Credit Party certified by a secretary or assistant
secretary to be true and correct as of the Closing Date.
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(c) Opinions of Counsel. The Administrative Agent shall
have received, in each case dated as of the Closing Date:
(i) a legal opinion of Dorsey & Whitney LLP
substantially in the form of Schedule 5.1(c)(i);
(ii) a legal opinion of special local counsel for
each Credit Party not incorporated in the States of Delaware
and Colorado, substantially in the form of Schedule
5.1(c)(ii); and
(iii) a legal opinion of special local counsel for
the Credit Parties for each State in which any Collateral is
located, substantially in the form of Schedule 5.1(c)(iii).
(d) Personal Property Collateral. The Administrative
Agent shall have received:
(i) searches of Uniform Commercial Code filings
in the jurisdiction of the chief executive office of each
Credit Party and each jurisdiction where any Collateral is
located or where a filing would need to be made in order to
perfect the Administrative Agent's security interest in the
Collateral, copies of the financing statements on file in such
jurisdictions and evidence that no Liens exist other than
Permitted Liens;
(ii) duly executed UCC financing statements for
each appropriate jurisdiction as is necessary, in the
Administrative Agent's sole discretion, to perfect the
Administrative Agent's security interest in the Collateral;
(iii) searches of ownership of, and Liens on,
intellectual property of each Credit Party in the appropriate
governmental offices and such patent/trademark/copyright
filings as requested by the Administrative Agent in order to
perfect the Administrative Agent's security interest in the
Collateral;
(iv) all certificates evidencing any certificated
Capital Stock pledged to the Administrative Agent pursuant to
the Pledge Agreement (other than the certificates evidencing
the Capital Stock of Modtech and SPI which will be delivered
pursuant to Section 7.16(c)), together with duly executed in
blank, undated stock powers attached thereto;
(v) such patent/trademark/copyright filings as
requested by the Administrative Agent in order to perfect the
Administrative Agent's security interest in the Collateral;
(vi) all instruments and chattel paper in the
possession of any of the Credit Parties, together with
allonges or assignments as may be necessary or appropriate to
perfect the Administrative Agent's security interest in the
Collateral;
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(vii) duly executed consents as are necessary, in
the Administrative Agent's sole discretion, to perfect the
Administrative Agent's security interest in the Collateral;
and
(viii) in the case of any personal property
Collateral located at a premises leased by a Credit Party,
such estoppel letters, consents and waivers from the landlords
on such real property as may be required by the Administrative
Agent.
(e) Real Property Collateral. The Administrative Agent
shall have received, in form and substance reasonably satisfactory to
the Administrative Agent:
(i) fully executed and notarized mortgages,
deeds of trust or deeds to secure debt (each, as the same may
be amended, modified, restated or supplemented from time to
time, a "Mortgage Instrument" and collectively the "Mortgage
Instruments") encumbering the fee interest and/or leasehold
interest of any Credit Party in each real property asset
designated in Schedule 5.1(e) (each a "Mortgaged Property" and
collectively the "Mortgaged Properties");
(ii) except in respect of the Mortgaged
Properties described in items (7) through (10) on Schedule
5.1(e), a title report obtained by the Credit Parties in
respect of each of the Mortgaged Properties;
(iii) in the case of each real property leasehold
interest of any Credit Party constituting Mortgaged Property
(except in respect of the Mortgaged Properties described in
items (7) through (10) on Schedule 5.1(e)), (a) such estoppel
letters, consents and waivers from the landlords on such real
property as may be required by the Administrative Agent, which
estoppel letters shall be in the form and substance reasonably
satisfactory to the Administrative Agent and (b) evidence that
the applicable lease, a memorandum of lease with respect
thereto, or other evidence of such lease in form and substance
reasonably satisfactory to the Administrative Agent, has been
or will be recorded in all places to the extent necessary or
desirable, in the reasonable judgment of the Administrative
Agent, so as to enable the Mortgage Instrument encumbering
such leasehold interest to effectively create a valid and
enforceable first priority lien (subject to Permitted Liens)
on such leasehold interest in favor of the Administrative
Agent (or such other Person as may be required or desired
under local law) for the benefit of Lenders;
(iv) except in respect of the Mortgaged
Properties described in items (7) through (10) on Schedule
5.1(e), maps or plats of an as-built survey of the sites of
the real property covered by the Mortgage Instruments
certified to the Administrative Agent and the title insurance
company issuing the policy referred to in Section 5.1(e)(v)
(the "Title Insurance Company") in a manner reasonably
satisfactory to each of the Administrative Agent and the Title
Insurance Company, dated a date reasonably satisfactory to
each of the Administrative Agent and the Title Insurance
Company by an independent professional licensed land surveyor,
which maps or plats and the surveys on which they are based
shall be sufficient to
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delete any standard printed survey exception contained in the
applicable title policy and be made in accordance with the
Minimum Standard Detail Requirements for Land Title Surveys
jointly established and adopted by the American Land Title
Association and the American Congress on Surveying and Mapping
in 1992, and, without limiting the generality of the
foregoing, there shall be surveyed and shown on such maps,
plats or surveys the following: (A) the locations on such
sites of all the buildings, structures and other improvements
and the established building setback lines; (B) the lines of
streets abutting the sites and width thereof; (C) all access
and other easements appurtenant to the sites necessary to use
the sites; (D) all roadways, paths, driveways, easements,
encroachments and overhanging projections and similar
encumbrances affecting the site, whether recorded, apparent
from a physical inspection of the sites or otherwise known to
the surveyor; (E) any encroachments on any adjoining property
by the building structures and improvements on the sites; and
(F) if the site is described as being on a filed map, a legend
relating the survey to said map;
(v) except in respect of the Mortgaged
Properties described in items (7) through (10) on Schedule
5.1(e), ALTA mortgagee title insurance policies issued by a
title company reasonably acceptable to the Administrative
Agent (the "Mortgage Policies"), in amounts reasonably
acceptable to the Administrative Agent, assuring the
Administrative Agent that each of the Mortgage Instruments
creates a valid and enforceable first priority mortgage lien
on the applicable Mortgaged Property, free and clear of all
defects and encumbrances except Permitted Liens, which
Mortgage Policies shall be in form and substance reasonably
satisfactory to the Administrative Agent and shall provide for
affirmative insurance and such reinsurance as the
Administrative Agent may reasonably request, all of the
foregoing in form and substance reasonably satisfactory to the
Administrative Agent;
(vi) evidence as to (A) whether any Mortgaged
Property is in an area designated by the Federal Emergency
Management Agency as having special flood or mud slide hazards
(a "Flood Hazard Property") and (B) if any Mortgaged Property
is a Flood Hazard Property, (1) whether the community in which
such Mortgaged Property is located is participating in the
National Flood Insurance Program, (2) the applicable Credit
Party's written acknowledgment of receipt of written
notification from the Administrative Agent (a) as to the fact
that such Mortgaged Property is a Flood Hazard Property and
(b) as to whether the community in which each such Flood
Hazard Property is located is participating in the National
Flood Insurance Program and (3) copies of insurance policies
or certificates of insurance of the Consolidated Parties
evidencing flood insurance satisfactory to the Administrative
Agent and naming the Administrative Agent as sole loss payee
on behalf of the Lenders.
(vii) except in respect of the Mortgaged
Properties described in items (7) and (10) on Schedule 5.1(e),
evidence satisfactory to the Administrative Agent that each of
the Mortgaged Properties, and the uses of the Mortgaged
Properties, are in compliance in all material respects with
all applicable laws, regulations and ordinances including,
without limitation, health and environmental protection
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laws, erosion control ordinances, storm drainage control laws,
doing business and/or licensing laws, zoning laws (the
evidence submitted as to zoning should include the zoning
designation made for each of the Mortgaged Properties, the
permitted uses of each such Mortgaged Properties under such
zoning designation and zoning requirements as to parking, lot
size, ingress, egress and building setbacks) and laws
regarding access and facilities for disabled persons,
including, but not limited to, the federal Architectural
Barriers Act, the Fair Housing Amendments Act of 1988, the
Rehabilitation Act of 1973 and the Americans with Disabilities
Act of 1990; provided, however, the delivery by the Credit
Parties to the Administrative Agent of an environmental
assessment with respect to the leasehold property of Trac
Modular Manufacturing, Inc. located in Glendale, Arizona (the
"Glendale Property") shall not constitute a closing or funding
condition under this Section 5.1.
(f) Availability. After giving effect to the Transaction,
including the initial Loans made and Letters of Credit issued hereunder
on the Closing Date, there shall be at least $20,000,000 of
availability existing under the Revolving Committed Amount.
(g) Evidence of Insurance. Receipt by the Administrative
Agent of copies of insurance policies or certificates of insurance of
the Consolidated Parties evidencing liability and casualty insurance
meeting the requirements set forth in the Credit Documents, including,
but not limited to, naming the Administrative Agent as additional
insured (in the case of liability insurance) or sole loss payee (in the
case of hazard insurance) on behalf of the Lenders.
(h) Corporate Structure.. The corporate capital and
ownership structure of the Consolidated Parties (after giving effect to
the Transaction) shall be as described in Schedule 5.1(h).
(i) Equity Investment. Receipt by the Administrative
Agent of evidence that a cash equity investment, in the form of a
dividend or otherwise, of at least $34,000,000 shall have been made in
the Borrower by Modtech or SPI on terms that are reasonably
satisfactory to the Administrative Agent.
(j) Government Consent. Receipt by the Administrative
Agent of evidence that all governmental, shareholder and material third
party consents (including Hart-Scott-Rodino clearance) and approvals
necessary or desirable in connection with the Transaction and
expiration of all applicable waiting periods without any action being
taken by any authority that could restrain, prevent or impose any
material adverse conditions on the Transaction or that could seek or
threaten any of the foregoing, and no law or regulation shall be
applicable which in the judgment of the Administrative Agent could have
such effect.
(k) Material Adverse Effect. No material adverse change
shall have occurred in the condition (financial or otherwise),
business, management or prospects of (A) Modtech and its Subsidiaries
taken as a whole since December 31, 1997 and (B) SPI and its
Subsidiaries taken as a whole since March 31, 1998.
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(l) Litigation. There shall not exist (i) any order,
decree, judgment, ruling or injunction which restrains the consummation
of the Transaction in the manner contemplated by the Merger Documents
or (ii) any pending or threatened action, suit, investigation or
proceeding against a Consolidated Party that could have a Material
Adverse Effect.
(m) Other Indebtedness. Receipt by the Administrative
Agent of (i) evidence that, after giving effect to the Transaction, the
Consolidated Parties shall have no Funded Indebtedness other than the
Indebtedness under the Credit Documents or otherwise permitted by the
Credit Documents, and (ii) a payoff letter with respect to the Existing
Credit Facility, in form and substance satisfactory to the
Administrative Agent, and such other documents, agreements and
instruments (including, without limitation, UCC-3 termination
statements) with respect to the Existing Credit Facility and the liens
and security interests granted in connection therewith as the
Administrative Agent may reasonably request.
(n) Solvency Certificate. The Administrative Agent shall
have received a certificate, dated as of the Closing Date, from an
Executive Officer of the Borrower as to the financial condition,
solvency and related matters of the Credit Parties on a consolidated
basis after giving effect to the Transaction.
(o) Merger Agreement. The Transaction (i) shall have been
consummated in accordance with the terms of the Merger Agreement and in
compliance with applicable law and regulatory approvals, and all
conditions precedent to the obligations of the parties thereunder shall
have been satisfied and (ii) the Merger Agreement shall not have been
altered, amended or otherwise changed or supplemented in any material
respect or any material condition therein waived, without the prior
written consent of the Administrative Agent. The Administrative Agent
shall have received a copy, certified by an officer of the Borrower as
true and complete, of the Merger Agreement as originally executed and
delivered, together with all exhibits and schedules.
(p) Officer's Certificates. The Administrative Agent
shall have received a certificate or certificates executed by an
Executive Officer of the Borrower as of the Closing Date stating that
(A) each Credit Party is in compliance with all existing financial
obligations, (B) all governmental, shareholder and third party consents
and approvals, if any, with respect to the Credit Documents and the
transactions contemplated thereby have been obtained, (C) no action,
suit, investigation or proceeding is pending or threatened in any court
or before any arbitrator or governmental instrumentality that purports
to affect any Credit Party or any transaction contemplated by the
Credit Documents, if such action, suit, investigation or proceeding
could have a Material Adverse Effect, (D) the transactions contemplated
by the Merger Agreement have been consummated, simultaneously with the
consummation of this Credit Agreement, in accordance with the terms
thereof and (E) immediately after giving effect to the Transaction, (1)
no Default or Event of Default exists, (2) all representations and
warranties contained herein and in the other Credit Documents are true
and correct in all material respects, and (3) the Credit Parties are in
compliance with each of the financial covenants set forth in Section
7.11.
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(q) Fees and Expenses. Payment by the Credit Parties of
all fees and expenses owed by them to NMS and the Administrative Agent,
including, without limitation, payment to the Administrative Agent of
the fees set forth in the Fee Letter.
(r) Year 2000 Problem. The Administrative Agent shall be
reasonably satisfied that (i) the Credit Parties and their Subsidiaries
are taking all necessary and appropriate steps to ascertain the extent
of, and to quantify and successfully address, business and financial
risks facing the Credit Parties and Subsidiaries as a result of what is
commonly referred to as the "Year 2000 Problem" (i.e., the inability of
certain computer applications to recognize correctly and perform
date-sensitive functions involving certain dates prior to and after
December 31, 1999), to successfully address the Year 2000 Problem, and
(ii) the Credit Parties' and their Subsidiaries' material computer
applications will, on a timely basis, adequately address the Year 2000
Problem in all material respects.
(s) Subordination Agreement. The Administrative Agent
shall have received a subordination agreement, dated as of the date
hereof, executed by Modtech, Inc. in favor of the Lenders with respect
to the intercompany loan from Modtech, Inc. to Trac Modular
Manufacturing, Inc., which subordination agreement shall be in form and
substance satisfactory to the Administrative Agent.
(t) Merger of SPIM Acquisition, Inc. The Administrative
Agent shall have received evidence of the merger of SPIM Acquisition,
Inc. with and into SPI Manufacturing, Inc., in form and substance
satisfactory to the Administrative Agent.
(u) Evidence of NationsCredit Waiver. The Administrative
Agent shall have received evidence of the waiver by NationsCredit
Commercial Corporation of any default under the Existing Credit
Facility caused by the consummation of the Transaction.
(v) SPI Option Plan Waivers. The Administrative Agent
shall have received copies of waivers from the holders of options under
the SPI Second Amended and Restated 1997 Long Term Incentive Stock
Option Plan (the "SPI Option Plan") of any provision thereunder that
accelerates the vesting of all outstanding options issued under the SPI
Option Plan upon the consummation of the Transaction.
(w) Other. Receipt by the Lenders of such other
documents, instruments, agreements or information as reasonably
requested by any Lender, including, but not limited to, information
regarding litigation, tax, accounting, labor, insurance, pension
liabilities (actual or contingent), real estate leases, material
contracts, debt agreements, property ownership and contingent
liabilities of the Consolidated Parties.
This Credit Agreement and the other Credit Documents shall terminate if the
initial Loans are not made on or prior to March 5, 1999.
5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
The obligations of each Lender to make, convert or extend any Loan and
of the Issuing Lender to issue or extend any Letter of Credit (including the
initial Loans and the initial Letter of
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Credit) are subject to satisfaction of the following conditions in addition to
satisfaction of the conditions set forth in Section 5.1:
(a) The Borrower shall have delivered (i) in the case of
any Revolving Loan, any portion of the Tranche A Term Loan or any
portion of the Delayed Draw Term Loan, an appropriate Notice of
Borrowing or Notice of Extension/Conversion or (ii) in the case of any
Letter of Credit, the Issuing Lender shall have received an appropriate
request for issuance in accordance with the provisions of Section
2.2(b);
(b) The representations and warranties set forth in
Section 6 shall, subject to the limitations set forth therein, be true
and correct in all material respects as of such date (except for those
which expressly relate to an earlier date);
(c) There shall not have been commenced against any
Consolidated Party an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or any
case, proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
for the winding up or liquidation of its affairs, and such involuntary
case or other case, proceeding or other action shall remain
undismissed, undischarged or unbonded;
(d) No Default or Event of Default shall exist and be
continuing either prior to or after giving effect thereto;
(e) No development or event which has had or could have a
Material Adverse Effect shall have occurred since December 31, 1997;
and
(f) Immediately after giving effect to the making of such
Loan (and the application of the proceeds thereof) or to the issuance
of such Letter of Credit, as the case may be, (i) the sum of the
aggregate outstanding principal amount of Revolving Loans plus LOC
Obligations plus Swingline Loans shall not exceed the Revolving
Committed Amount, and (ii) the LOC Obligations shall not exceed the LOC
Committed Amount.
The delivery of each Notice of Borrowing, each Notice of Extension/Conversion
and each request for a Letter of Credit pursuant to Section 2.2(b) shall
constitute a representation and warranty by the Credit Parties of the
correctness of the matters specified in subsections (b), (c), (d), (e) and (f)
above.
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SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Administrative Agent and
each Lender that:
6.1 FINANCIAL CONDITION.
(a) The audited consolidated and consolidating balance
sheets and income statements of Modtech and its Subsidiaries for the
fiscal years ended December 31, 1995, December 31, 1996, December 31,
1997 and for the 9-month period ended September 30, 1998 have
heretofore been furnished to each Lender. Such financial statements
(including the notes thereto) (i) with respect to each such fiscal
year, have been audited by KPMG Peat Marwick LLP, and with respect to
such 9-month period, have been reviewed by KPMG Peat Marwick LLP, (ii)
have been prepared in accordance with GAAP consistently, applied
throughout the periods covered thereby and (iii) present fairly (on the
basis disclosed in the footnotes to such financial statements) the
consolidated financial condition, results of operations and cash flows
of the Modtech and its Subsidiaries as of such date and for such
periods. The unaudited interim balance sheets of Modtech and its
Subsidiaries as at the end of, and the related unaudited interim
statements of earnings and of cash flows for, each fiscal month and
quarterly period ended after December 31, 1997 and prior to the Closing
Date have heretofore been furnished to each Lender. Such interim
financial statements for each such quarterly period, (i) have been
prepared in accordance with GAAP consistently applied throughout the
periods covered thereby and (ii) present fairly (on the basis disclosed
in the footnotes to such financial statements) the consolidated and
consolidating financial condition, results of operations and cash flows
of Modtech and its Subsidiaries as of such date and for such periods.
During the period from December 31, 1997 to and including the Closing
Date, there has been no sale, transfer or other disposition by Modtech
or any Subsidiary of Modtech of any material part of the business or
property of Modtech and its Subsidiaries, taken as a whole, and no
purchase or other acquisition by any of them of any business or
property (including any Capital Stock of any other person) material in
relation to the consolidated financial condition of Modtech and its
Subsidiaries, taken as a whole, in each case, which is not reflected in
the foregoing financial statements or in the notes thereto and has not
otherwise been disclosed in writing to the Lenders on or prior to the
Closing Date.
(b) The consolidated and consolidating balance sheets and
income statements of SPI and its Subsidiaries for the fiscal years
ended January 31, 1996 and January 31, 1997, the two months ended March
27, 1997, the fiscal year ended March 31, 1998 and the 6-month period
ended September 30, 1998 have heretofore been furnished to each Lender.
Such financial statements (including the notes thereto) (i) with
respect to each such fiscal year, have been audited by Arthur Anderson
LLP, and with respect to such 6-month period ended September 30, 1998,
have been reviewed by Arthur Anderson LLP, (ii) have been prepared in
accordance with GAAP consistently applied throughout the periods
covered thereby and (iii) present fairly (on the basis disclosed in the
footnotes to such financial statements) the consolidated financial
condition, results of operations and cash flows of the SPI and its
Subsidiaries as of such date and for such periods. The unaudited
interim balance sheets of SPI and its Subsidiaries as at the end of,
and the related unaudited interim
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statements of earnings and of cash flows for, each fiscal month and
quarterly period ended after March 31, 1998 and prior to the Closing
Date have heretofore been furnished to each Lender. Such interim
financial statements for each such quarterly period, (i) have been
prepared in accordance with GAAP consistently applied throughout the
periods covered thereby and (ii) present fairly (on the basis disclosed
in the footnotes to such financial statements) the consolidated and
consolidating financial condition, results of operations and cash flows
of SPI and its Subsidiaries as of such date and for such periods.
During the period from March 31, 1998 to and including the Closing
Date, there has been no sale, transfer or other disposition by SPI or
any Subsidiary of SPI of any material part of the business or property
of SPI and its Subsidiaries, taken as a whole, and no purchase or other
acquisition (other than the acquisition of Rosewood Enterprises, Inc.
by SPI) by any of them of any business or property (including any
Capital Stock of any other person) material in relation to the
consolidated financial condition of SPI and its Subsidiaries, taken as
a whole, in each case, which is not reflected in the foregoing
financial statements or in the notes thereto and has not otherwise been
disclosed in writing to the Lenders on or prior to the Closing Date.
(c) The pro forma consolidated balance sheet of the
Consolidated Parties as of the Closing Date giving effect to the
Transaction in accordance with the terms of the Merger Agreement and
reflecting estimated purchase price accounting adjustments will be
furnished to each Lender within 45 days subsequent to the Closing Date.
Such pro forma balance sheet (i) will be prepared in accordance with
the requirements of Regulation S-X under the Securities Act of 1933, as
amended, applicable to a Registration Statement under such Act on Form
S-4, and (ii) will be based upon reasonable assumptions made known to
the Lenders and upon information not known to be incorrect or
misleading in any material respect.
(d) The financial statements delivered to the Lenders
pursuant to Section 7.1(a) and (b), (i) have been prepared in
accordance with GAAP (except as may otherwise be permitted under
Section 7.1(a) and (b)) and (ii) present fairly (on the basis disclosed
in the footnotes to such financial statements) the consolidated and
consolidating financial condition, results of operations and cash flows
of the Consolidated Parties as of such date and for such periods.
6.2 NO MATERIAL CHANGE.
(a) Since December 31, 1997, (i) there has been no
development or event relating to or affecting Modtech or any of its
Subsidiaries which has had or could have a Material Adverse Effect and
(b) except for those dividends contemplated by the Merger Agreement and
except as otherwise permitted under this Credit Agreement, no dividends
or other distributions have been declared, paid or made upon the
Capital Stock of Modtech or any of its Subsidiaries nor has any of the
Capital Stock of Modtech or any of its Subsidiaries been redeemed,
retired, purchased or otherwise acquired for value.
(b) Since March 31, 1998, (i) there has been no
development or event relating to or affecting SPI or any of its
Subsidiaries which has had or could have a Material Adverse Effect and
(b) except as otherwise permitted under this Credit Agreement, no
dividends or other distributions have been declared, paid or made upon
the Capital Stock of SPI or any of
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its Subsidiaries nor has any of the Capital Stock of SPI or any of its
Subsidiaries been redeemed, retired, purchased or otherwise acquired
for value.
6.3 ORGANIZATION AND GOOD STANDING.
Each of the Consolidated Parties (a) is duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation or organization, (b) has the corporate or other necessary 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 and (c) is duly qualified as a foreign entity 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, other than in such jurisdictions where the failure to be so
qualified and in good standing would not have a Material Adverse Effect.
6.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each of the Credit Parties has the corporate or other necessary power
and authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party, and in the case of the Borrower, to obtain
extensions of credit hereunder, and has taken all necessary corporate action to
authorize the borrowings and other extensions of credit on the terms and
conditions of this Credit Agreement and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. No consent or
authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of any Credit Party in connection with (i) the borrowings
or other extensions of credit hereunder, (ii) the execution, delivery,
performance, validity or enforceability of the Credit Documents to which such
Credit Party is a party or (iii) the consummation of the Transaction, except for
(A) consents, authorizations, notices and filings described in Schedule 6.4, all
of which have been obtained or made or have the status described in such
Schedule 6.4 and (B) filings to perfect the Liens created by the Collateral
Documents. This Credit Agreement has been, and each other Credit Document to
which any Credit Party is a party will be, duly executed and delivered on behalf
of the Credit Parties. This Credit Agreement constitutes, and each other Credit
Document to which any Credit Party is a party, when executed and delivered, will
constitute, a legal, valid and binding obligation of such Credit Party
enforceable against such party in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
6.5 NO CONFLICTS.
Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of its articles or certificate of
incorporation or bylaws or other organizational or governing documents of such
Person, (b) violate, contravene or materially conflict with any Requirement of
Law or any other law, regulation (including, without limitation, Regulation U or
Regulation X), order, writ, judgment, injunction, decree or permit applicable to
it, (c) violate, contravene or conflict with contractual provisions of, or cause
an event of default under, any indenture, loan agreement,
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mortgage, deed of trust, contract or other agreement or instrument to which it
is a party or by which it may be bound, the violation of which could have a
Material Adverse Effect, or (d) result in or require the creation of any Lien
(other than those contemplated in or created in connection with the Credit
Documents) upon or with respect to its properties.
6.6 NO DEFAULT.
No Consolidated Party is in default in any respect under any contract,
lease, loan agreement, indenture, mortgage, security agreement or other
agreement or obligation to which it is a party or by which any of its properties
is bound which default could have a Material Adverse Effect. No Default or Event
of Default has occurred or exists except as previously disclosed in writing to
the Lenders.
6.7 OWNERSHIP.
Each Consolidated Party is the owner of, and has good and marketable
title to, all of its respective assets and none of such assets is subject to any
Lien other than Permitted Liens.
6.8 INDEBTEDNESS.
Except as otherwise permitted under Section 8.1, the Consolidated
Parties have no Indebtedness.
6.9 LITIGATION.
Except as disclosed in Schedule 6.9, there are no actions, suits or
legal, equitable, arbitration or administrative proceedings, pending or, to the
knowledge of any Credit Party, threatened against any Consolidated Party which
might reasonably be expected to have a Material Adverse Effect.
6.10 TAXES.
Each Consolidated Party has filed, or caused to be filed, all tax
returns (federal, state, local and foreign) required to be filed and paid (a)
all amounts of taxes shown thereon to be due (including interest and penalties)
and (b) all other taxes, fees, assessments and other governmental charges
(including mortgage recording taxes, documentary stamp taxes and intangibles
taxes) owing by it, except for such taxes (i) which are not yet delinquent or
(ii) that are being contested in good faith and by proper proceedings, and
against which adequate reserves are being maintained in accordance with GAAP. No
Credit Party is aware as of the Closing Date of any proposed tax assessments
against it or any other Consolidated Party.
6.11 COMPLIANCE WITH LAW.
Each Consolidated Party is in compliance with all Requirements of Law
and all other laws, rules, regulations, orders and decrees (including, without
limitation, Environmental Laws) applicable to it, or to its properties, unless
such failure to comply could not have a Material Adverse Effect. No Requirement
of Law could cause a Material Adverse Effect.
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6.12 ERISA.
Except as disclosed and described in Schedule 6.12 attached hereto:
(a) During the five-year period prior to the date on
which this representation is made or deemed made: (i) no ERISA Event
has occurred, and, to the best knowledge of the Credit Parties, no
event or condition has occurred or exists as a result of which any
ERISA Event could reasonably be expected to occur, with respect to any
Plan; (ii) no "accumulated funding deficiency," as such term is defined
in Section 302 of ERISA and Section 412 of the Code, whether or not
waived, has occurred with respect to any Plan; (iii) each Plan has been
maintained, operated, and funded in compliance with its own terms and
in material compliance with the provisions of ERISA, the Code, and any
other applicable federal or state laws; and (iv) no lien in favor of
the PBGC or a Plan has arisen or is reasonably likely to arise on
account of any Plan.
(b) The actuarial present value of all "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA), whether or
not vested, under each Single Employer Plan, as of the last annual
valuation date prior to the date on which this representation is made
or deemed made (determined, in each case, in accordance with Financial
Accounting Standards Board Statement 87, utilizing the actuarial
assumptions used in such Plan's most recent actuarial valuation
report), did not exceed as of such valuation date the fair market value
of the assets of such Plan.
(c) Neither any Consolidated Party nor any ERISA
Affiliate has incurred, or, to the best knowledge of the Credit
Parties, could be reasonably expected to incur, any withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer
Plan. Neither any Consolidated Party nor any ERISA Affiliate would
become subject to any withdrawal liability under ERISA if any
Consolidated Party or any ERISA Affiliate were to withdraw completely
from all Multiemployer Plans and Multiple Employer Plans as of the
valuation date most closely preceding the date on which this
representation is made or deemed made. Neither any Consolidated Party
nor any ERISA Affiliate has received any notification that any
Multiemployer Plan is in reorganization (within the meaning of Section
4241 of ERISA), is insolvent (within the meaning of Section 4245 of
ERISA), or has been terminated (within the meaning of Title IV of
ERISA), and no Multiemployer Plan is, to the best knowledge of the
Credit Parties, reasonably expected to be in reorganization, insolvent,
or terminated.
(d) No prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) or breach of
fiduciary responsibility has occurred with respect to a Plan which has
subjected or may subject any Consolidated Party or any ERISA Affiliate
to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or
Section 4975 of the Code, or under any agreement or other instrument
pursuant to which any Consolidated Party or any ERISA Affiliate has
agreed or is required to indemnify any Person against any such
liability.
(e) Neither any Consolidated Party nor any ERISA
Affiliates has any material liability with respect to "expected
post-retirement benefit obligations" within the meaning of the
Financial Accounting Standards Board Statement 106. Each Plan which is
a welfare
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plan (as defined in Section 3(1) of ERISA) to which Sections 601-609
of ERISA and Section 4980B of the Code apply has been administered in
compliance in all material respects of such sections.
(f) Neither the execution and delivery of this Credit
Agreement nor the consummation of the financing transactions
contemplated thereunder will involve any transaction which is subject
to the prohibitions of Sections 404, 406 or 407 of ERISA or in
connection with which a tax could be imposed pursuant to Section 4975
of the Code. The representation by the Credit Parties in the preceding
sentence is made in reliance upon and subject to the accuracy of the
Lenders' representation in Section 11.15 with respect to their source
of funds and is subject, in the event that the source of the funds used
by the Lenders in connection with this transaction is an insurance
company's general asset account, to the application of Prohibited
Transaction Class Exemption 95-60, 60 Fed. Reg. 35,925 (1995),
compliance with the regulations issued under Section 401(c)(1)(A) of
ERISA, or the issuance of any other prohibited transaction exemption or
similar relief, to the effect that assets in an insurance company's
general asset account do not constitute assets of an "employee benefit
plan" within the meaning of Section 3(3) of ERISA of a "plan" within
the meaning of Section 4975(e)(1) of the Code.
6.13 SUBSIDIARIES.
Set forth on Schedule 6.13 is a complete and accurate list of all
Subsidiaries of each Consolidated Party. Information on Schedule 6.13 includes
jurisdiction of incorporation, the number of shares of each class of Capital
Stock outstanding, the number and percentage of outstanding shares of each class
owned (directly or indirectly) by such Consolidated Party; and the number and
effect, if exercised, of all outstanding options, warrants, rights of conversion
or purchase and all other similar rights with respect thereto. The outstanding
Capital Stock of all such Subsidiaries is validly issued, fully paid and
non-assessable and is owned by each such Consolidated Party, directly or
indirectly, free and clear of all Liens (other than those arising under or
contemplated in connection with the Credit Documents). Other than as set forth
in Schedule 6.13, no Consolidated Party has outstanding any securities
convertible into or exchangeable for its Capital Stock nor does any such Person
have outstanding any rights to subscribe for or to purchase or any options for
the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to
its Capital Stock.
6.14 GOVERNMENTAL REGULATIONS, ETC.
(a) No part of the Letters of Credit or proceeds of the
Loans will be used, directly or indirectly, for the purpose of
purchasing or carrying any "margin stock" within the meaning of
Regulation U, or for the purpose of purchasing or carrying or trading
in any securities. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each
Lender a statement to the foregoing effect in conformity with the
requirements of FR Form U-1 referred to in Regulation U. No
indebtedness being reduced or retired out of the proceeds of the Loans
was or will be incurred for the purpose of purchasing or carrying any
margin stock within the meaning of Regulation U or any "margin
security" within the meaning of Regulation T. "Margin stock" within the
meaning of Regulation U does not constitute more than 25% of the value
of the consolidated assets of the Consolidated Parties. None of the
transactions contemplated by
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this Credit Agreement (including, without limitation, the direct or
indirect use of the proceeds of the Loans) will violate or result in a
violation of the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, or regulations issued pursuant
thereto, or Regulation T, U or X.
(b) No Consolidated Party is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act
or the Investment Company Act of 1940, each as amended. In addition, no
Consolidated Party is (i) an "investment company" registered or
required to be registered under the Investment Company Act of 1940, as
amended, and is not controlled by such a company, or (ii) a "holding
company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary" of a "holding
company", within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
(c) No director, executive officer or principal
shareholder of any Consolidated Party is a director, executive officer
or principal shareholder of any Lender. For the purposes hereof the
terms "director", "executive officer" and "principal shareholder" (when
used with reference to any Lender) have the respective meanings
assigned thereto in Regulation O issued by the Board of Governors of
the Federal Reserve System.
(d) Each Consolidated Party has obtained and holds in
full force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of
way and other rights, consents and approvals which are necessary for
the ownership of its respective Property and to the conduct of its
respective businesses as presently conducted.
(e) No Consolidated Party is in violation of any
applicable statute, regulation or ordinance of the United States, or of
any state, city, town, municipality, county or any other jurisdiction,
or of any agency thereof (including, without limitation, environmental
laws and regulations), which violation could have a Material Adverse
Effect.
(f) Each Consolidated Party is current with all material
reports and documents, if any, required to be filed with any state or
federal securities commission or similar agency and is in full
compliance in all material respects with all applicable rules and
regulations of such commissions.
6.15 PURPOSE OF LOANS AND LETTERS OF CREDIT.
The proceeds of the Loans hereunder shall be used solely by the
Borrower to (a) finance a portion of a $48,000,000 cash distribution to the
shareholders of Modtech and SPI of record on November 30, 1998, (b) pay closing
fees and expenses in connection with the Transaction, (c) refinance the Existing
Credit Facility, (d) finance Acquisitions and (e) finance working capital needs
and other general corporate purposes of the Credit Parties. The Letters of
Credit shall be used only for or in connection with appeal bonds, reimbursement
obligations arising in connection with surety and reclamation bonds,
reinsurance, domestic or international trade transactions and obligations not
otherwise aforementioned relating to transactions entered into by the applicable
account party in the ordinary course of business. The proceeds of the Delayed
Draw Term Loan shall be used only to finance Permitted Acquisitions and
reasonable expenses related thereto.
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6.16 ENVIRONMENTAL MATTERS.
Except as disclosed and described in Schedule 6.16 attached hereto:
(a) Each of the facilities and properties owned, leased
or operated by the Consolidated Parties (the "Real Properties") and all
operations at the Properties are in compliance with all applicable
Environmental Laws, and there is no violation of any Environmental Law
with respect to the Real Properties or the businesses operated by the
Consolidated Parties (the "Businesses"), and there are no conditions
relating to the Businesses or Real Properties that could reasonably
give rise to a material liability under any applicable Environmental
Laws.
(b) None of the Real Properties contains, or has
previously contained, any Materials of Environmental Concern at, on or
under the Real Properties in amounts or concentrations that constitute
or constituted a violation of, or could give rise to liability under,
Environmental Laws.
(c) No Consolidated Party has received any written or
verbal notice of, or inquiry from any Governmental Authority regarding,
any violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Real Properties or the
Businesses, nor does any Consolidated Party 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 Real Properties, or generated,
treated, stored or disposed of at, on or under any of the Real
Properties or any other location, in each case by or on behalf of any
Consolidated Party in violation of, or in a manner that could give rise
to liability under, any applicable Environmental Law, which violation
or liability could reasonably have a Material Adverse Effect.
(e) No judicial proceeding or governmental or
administrative action is pending or, to the best knowledge of any
Credit Party, threatened, under any Environmental Law to which any
Consolidated Party is or will be named as a party, 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
Consolidated Parties, the Real Properties or the Businesses, in each
case which could reasonably have a Material Adverse Effect.
(f) There has been no release, or threat of release, of
Materials of Environmental Concern at or from the Real Properties, or
arising from or related to the operations (including, without
limitation, disposal) of any Consolidated Party in connection with the
Real Properties or otherwise in connection with the Businesses, in
violation of or in amounts or in a manner that could give rise to
liability under Environmental Laws, which violation or liability could
reasonably have a Material Adverse Effect.
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6.17 INTELLECTUAL PROPERTY.
Each Consolidated Party owns, or has the legal right to use, all
trademarks, tradenames, copyrights, technology, know-how and processes (the
"Intellectual Property") necessary for each of them to conduct its business as
currently conducted except for those the failure to own or have such legal right
to use could not have a Material Adverse Effect. Set forth on Schedule 6.17 is a
list of all Intellectual Property owned by each Consolidated Party or that any
Consolidated Party has the right to use. Except as provided on Schedule 6.17, no
claim has been asserted and is pending by any Person challenging or questioning
the use of any such Intellectual Property or the validity or effectiveness of
any such Intellectual Property, nor does any Credit Party know of any such
claim, and to the Credit Parties' knowledge the use of such Intellectual
Property by any Consolidated Party does not infringe on the rights of any
Person, except for such claims and infringements that, in the aggregate, could
not reasonably have a Material Adverse Effect.
6.18 SOLVENCY.
Each Credit Party is and, after consummation of the transactions
contemplated by this Credit Agreement (including, without limitation, the
Transaction), will be Solvent.
6.19 INVESTMENTS.
All Investments of each Consolidated Party are Permitted Investments.
6.20 LOCATION OF COLLATERAL.
Set forth on Schedule 6.20(a) is a list as of the Closing Date of all
real property located in the United States and owned or leased by any
Consolidated Party with street address, county and state where located. Set
forth on Schedule 6.20(b) is a list of all locations where any tangible personal
property of a Consolidated Party is located, including county and state where
located. Set forth on Schedule 6.20(c) is the chief executive office and
principal place of business of each Consolidated Party.
6.21 DISCLOSURE.
Neither this Credit Agreement nor any financial statements delivered to
the Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of any Consolidated Party in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein or herein not misleading.
6.22 NO BURDENSOME RESTRICTIONS.
No Consolidated Party is a party to any agreement or instrument or
subject to any other obligation or any charter or corporate restriction or any
provision of any applicable law, rule or regulation which, individually or in
the aggregate, could have a Material Adverse Effect.
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6.23 BROKERS' FEES.
Except as set forth in Schedule 6.23, no Consolidated Party has any
obligation to any Person in respect of any finder's, broker's, investment
banking or other similar fee in connection with any of the transactions
contemplated under the Credit Documents.
6.24 LABOR MATTERS.
Except as set forth in Schedule 6.24, there are no collective
bargaining agreements or Multiemployer Plans covering the employees of a
Consolidated Party as of the Closing Date and none of the Consolidated Parties
has suffered any strikes, walkouts, work stoppages or other material labor
difficulty within the last five years.
6.25 NATURE OF BUSINESS.
As of the Closing Date, the Consolidated Parties are engaged in the
business of design and manufacture of modular buildings.
6.26 MERGER AGREEMENT.
As of the Closing Date, each of the representations and warranties made
in the Merger Agreement by each of the parties thereto is true and correct in
all material respects. The Merger Agreement and the other Merger Documents have
been consummated in accordance with their terms simultaneously with the
consummation of this Credit Agreement.
6.27 YEAR 2000 COMPLIANCE.
Each of the Credit Parties has (i) initiated a review and assessment of
all areas within its and each of its Subsidiaries' businesses and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications may not be able to recognize and properly perform date-sensitive
functions after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. Based on the foregoing,
each Credit Party believes that all computer applications that are material to
its or any of its Subsidiaries' business and operations are reasonably expected
on a timely basis to be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000 (that is, be "Year 2000 Compliant"),
except to the extent that a failure to do so could not reasonably be expected to
have a Material Adverse Effect.
6.28 COLLATERAL DOCUMENTS.
The Collateral Documents create valid security interests in, and Liens
on, the Collateral purported to be covered thereby, which security interests and
Liens are perfected security interests and Liens, prior to all other Liens other
than Permitted Liens.
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SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
7.1 INFORMATION COVENANTS.
The Credit Parties will furnish, or cause to be furnished, to the
Administrative Agent and each of the Lenders:
(a) Annual Financial Statements. As soon as available,
and in any event within 90 days after the close of each fiscal year of
the Consolidated Parties (other than SPI and its Subsidiaries with
respect to the fiscal year of such Credit Parties ending March 31,
1999), a consolidated and consolidating balance sheet and income
statement of the Consolidated Parties as of the end of such fiscal
year, together with related consolidated and consolidating statements
of operations and retained earnings and of cash flows for such fiscal
year, in each case setting forth in comparative form consolidated and
consolidating figures for the preceding fiscal year, all such financial
information described above to be in reasonable form and detail and
audited by independent certified public accountants of recognized
national standing reasonably acceptable to the Administrative Agent and
whose opinion shall be to the effect that such financial statements
have been prepared in accordance with GAAP (except for changes with
which such accountants concur) and shall not be limited as to the scope
of the audit or qualified as to the status of the Consolidated Parties
as a going concern.
(b) Quarterly Financial Statements. As soon as available,
and in any event within 45 days after the close of each fiscal quarter
of the Consolidated Parties (other than the fourth fiscal quarter, in
which case 90 days after the end thereof) a consolidated and
consolidating balance sheet and income statement of the Consolidated
Parties as of the end of such fiscal quarter, together with related
consolidated and consolidating statements of operations and retained
earnings and of cash flows for such fiscal quarter, in each case
setting forth in comparative form (i) consolidated and consolidating
figures for the corresponding period of the preceding fiscal year and
(ii) consolidated and consolidating figures for the corresponding
period set forth in the annual budget provided pursuant to Section
7.1(e), all such financial information described above to be in
reasonable form and detail and reasonably acceptable to the
Administrative Agent, and accompanied by a certificate of the chief
financial officer of the Borrower to the effect that such quarterly
financial statements fairly present in all material respects the
financial condition of the Consolidated Parties and have been prepared
in accordance with GAAP, subject to changes resulting from audit and
normal year-end audit adjustments.
(c) Officer's Certificate. At the time of delivery of the
financial statements provided for in Sections 7.1(a) and 7.1(b) above,
a certificate of the chief financial officer of the Borrower
substantially in the form of Exhibit 7.1(c), (i) demonstrating
compliance with the financial covenants contained in Section 7.11 by
calculation thereof as of the end of
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each such fiscal period and (ii) stating that no Default or Event of
Default exists, or if any Default or Event of Default does exist,
specifying the nature and extent thereof and what action the Credit
Parties propose to take with respect thereto.
(d) Post-Closing Pro Forma Balance Sheet. Within 30 days
subsequent to the Closing Date, the Borrower shall deliver to the
Administrative Agent and the Lenders a pro forma balance sheet of the
Borrower and its Subsidiaries as of the Closing Date which shall (i)
give effect to the Transaction and the transactions contemplated by the
Credit Documents, (ii) reflect estimated purchase price accounting
adjustments and (iii) be prepared by independent certified public
accountants of recognized national standing reasonably acceptable to
the Administrative Agent.
(e) Annual Business Plan and Budgets. (i) Within 90 days
subsequent to the end of the Borrower's fiscal year ending December 31,
1998 and (ii) at least 30 days prior to the end of each fiscal year
thereafter, beginning with the fiscal year ending December 31, 1999, a
budget of the Consolidated Parties containing, among other things, pro
forma financial statements for the next fiscal year and detailed
assumptions relating thereto, together with a proposed schedule of
Capital Expenditures.
(f) Compliance With Certain Provisions of the Credit
Agreement. Within 90 days after the end of each fiscal year of the
Credit Parties, a certificate containing information regarding the
amount of all Asset Dispositions, Debt Issuances and Equity Issuances
that were made during the prior fiscal year.
(g) Accountant's Certificate. Within the period for
delivery of the annual financial statements provided in Section 7.1(a),
a certificate of the accountants conducting the annual audit stating
that they have reviewed this Credit Agreement and stating further
whether, in the course of their audit, they have become aware of any
Default or Event of Default and, if any such Default or Event of
Default exists, specifying the nature and extent thereof.
(h) Auditor's Reports. Promptly upon receipt thereof, a
copy of any other report or "management letter" submitted by
independent accountants to any Consolidated Party in connection with
any annual, interim or special audit of the books of such Person.
(i) Reports. Promptly upon transmission or receipt
thereof, (i) copies of any filings and registrations with, and reports
to or from, the Securities and Exchange Commission, or any successor
agency, and copies of all financial statements, proxy statements,
notices and reports as any Consolidated Party shall send to its
shareholders or to a holder of any Indebtedness owed by any
Consolidated Party in its capacity as such a holder and (ii) upon the
request of the Administrative Agent, all reports and written
information to and from the United States Environmental Protection
Agency, or any state or local agency responsible for environmental
matters, the United States Occupational Health and Safety
Administration, or any state or local agency responsible for health and
safety matters, or any successor agencies or authorities concerning
environmental, health or safety matters.
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(j) Notices. Upon obtaining knowledge thereof, the Credit
Parties will give written notice to the Administrative Agent
immediately of (i) the occurrence of an event or condition consisting
of a Default or Event of Default, specifying the nature and existence
thereof and what action the Credit Parties propose to take with respect
thereto, and (ii) the occurrence of any of the following with respect
to any Consolidated Party (A) the pendency or commencement of any
litigation, arbitral or governmental proceeding against such Person
which if adversely determined is likely to have a Material Adverse
Effect or (B) the institution of any proceedings against such Person
with respect to, or the receipt of notice by such Person of potential
liability or responsibility for violation, or alleged violation of any
federal, state or local law, rule or regulation, including but not
limited to, Environmental Laws, the violation of which could have a
Material Adverse Effect.
(k) ERISA. Upon obtaining knowledge thereof, the Credit
Parties will give written notice to the Administrative Agent promptly
(and in any event within five Business Days) of: (i) any event or
condition, including, but not limited to, any Reportable Event, that
constitutes, or might reasonably lead to, an ERISA Event; (ii) with
respect to any Multiemployer Plan, the receipt of notice as prescribed
in ERISA or otherwise of any withdrawal liability assessed against the
Credit Parties or any ERISA Affiliates, or of a determination that any
Multiemployer Plan is in reorganization or insolvent (both within the
meaning of Title IV of ERISA); (iii) the failure to make full payment
on or before the due date (including extensions) thereof of all amounts
which any Consolidated Party or any ERISA Affiliate is required to
contribute to each Plan pursuant to its terms and as required to meet
the minimum funding standard set forth in ERISA and the Code with
respect thereto; or (iv) any change in the funding status of any Plan
that could have a Material Adverse Effect, together with a description
of any such event or condition or a copy of any such notice and a
statement by the chief financial officer of the Borrower briefly
setting forth the details regarding such event, condition, or notice,
and the action, if any, which has been or is being taken or is proposed
to be taken by the Credit Parties with respect thereto. Promptly upon
request, the Credit Parties shall furnish the Administrative Agent and
the Lenders with such additional information concerning any Plan as may
be reasonably requested, including, but not limited to, copies of each
annual report/return (Form 5500 series), as well as all schedules and
attachments thereto required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA and the Code,
respectively, for each "plan year" (within the meaning of Section 3(39)
of ERISA).
(l) Environmental.
(i) Upon the reasonable written request of the
Administrative Agent, the Credit Parties will furnish or cause
to be furnished to the Administrative Agent, at the Credit
Parties' expense, a report of an environmental assessment of
reasonable scope, form and depth, (including, where
appropriate, invasive soil or groundwater sampling) by a
consultant reasonably acceptable to the Administrative Agent
as to the nature and extent of the presence of any Materials
of Environmental Concern on any Real Properties (as defined in
Section 6.16) and as to the compliance by any Consolidated
Party with Environmental Laws at such Real Properties;
provided, however, the Credit Parties shall not be required to
furnish to the Administrative Agent an environmental
assessment with respect to the Glendale Property unless such
environmental assessment is required pursuant to Section
7.16(b). If the Credit
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Parties fail to deliver such an environmental report within
seventy-five (75) days after receipt of such written request
then the Administrative Agent may arrange for same, and the
Consolidated Parties hereby grant to the Administrative Agent
and their representatives access to the Real Properties to
reasonably undertake such an assessment (including, where
appropriate, invasive soil or groundwater sampling). The
reasonable cost of any assessment arranged for by the
Administrative Agent pursuant to this provision will be
payable by the Credit Parties on demand and added to the
obligations secured by the Collateral Documents.
(ii) The Consolidated Parties will conduct and
complete all investigations, studies, sampling, and testing
and all remedial, removal, and other actions necessary to
address all Materials of Environmental Concern on, from or
affecting any of the Real Properties to the extent necessary
to be in compliance with all Environmental Laws and with the
validly issued orders and directives of all Governmental
Authorities with jurisdiction over such Real Properties to the
extent any failure could have a Material Adverse Effect.
(m) Additional Patents and Trademarks. At the time of
delivery of the financial statements and reports provided for in
Section 7.1(a), a report signed by the chief financial officer or
treasurer of the Borrower setting forth (i) a list of registration
numbers for all patents, trademarks, service marks, tradenames and
copyrights awarded to any Consolidated Party since the last day of the
immediately preceding fiscal year and (ii) a list of all patent
applications, trademark applications, service mark applications, trade
name applications and copyright applications submitted by any
Consolidated Party since the last day of the immediately preceding
fiscal year and the status of each such application, all in such form
as shall be reasonably satisfactory to the Administrative Agent.
(n) Other Information. With reasonable promptness upon
any such request, such other information regarding the business,
properties or financial condition of any Consolidated Party as the
Administrative Agent or the Required Lenders may reasonably request.
7.2 PRESERVATION OF EXISTENCE AND FRANCHISES.
Except as a result of or in connection with a dissolution, merger or
disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, each
Credit Party will, and will cause each of its Subsidiaries to, do all things
necessary to preserve and keep in full force and effect its existence, rights,
franchises and authority.
7.3 BOOKS AND RECORDS.
Each Credit Party will, and will cause each of its Subsidiaries to,
keep complete and accurate books and records of its transactions in accordance
with good accounting practices on the basis of GAAP (including the establishment
and maintenance of appropriate reserves).
7.4 COMPLIANCE WITH LAW.
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Each Credit Party will, and will cause each of its Subsidiaries to,
comply with all laws, rules, regulations and orders, and all applicable
restrictions imposed by all Governmental Authorities, applicable to it and its
Property if noncompliance with any such law, rule, regulation, order or
restriction could have a Material Adverse Effect.
7.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Each Credit Party will, and will cause each of its Subsidiaries to, pay
and discharge (a) all taxes, assessments and governmental charges or levies
imposed upon it, or upon its income or profits, or upon any of its properties,
before they shall become delinquent, (b) all lawful claims (including claims for
labor, materials and supplies) which, if unpaid, might give rise to a Lien upon
any of its properties, and (c) except as prohibited hereunder, all of its other
Indebtedness as it shall become due; provided, however, that no Consolidated
Party shall be required to pay any such tax, assessment, charge, levy, claim or
Indebtedness which is being contested in good faith by appropriate proceedings
and as to which adequate reserves therefor have been established in accordance
with GAAP, unless the failure to make any such payment (i) could give rise to an
immediate right to foreclose on a Lien securing such amounts or (ii) could have
a Material Adverse Effect.
7.6 INSURANCE.
(a) Each Credit Party will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect
insurance (including worker's compensation insurance, liability
insurance, casualty insurance and business interruption insurance) in
such amounts, covering such risks and liabilities and with such
deductibles or self-insurance retentions as are in accordance with
normal industry practice (or as otherwise required by the Collateral
Documents). The Administrative Agent shall be named as loss payee or
mortgagee, as its interest may appear, and/or additional insured with
respect to any such insurance providing coverage in respect of any
Collateral, and each provider of any such insurance shall agree, by
endorsement upon the policy or policies issued by it or by independent
instruments furnished to the Administrative Agent, that it will give
the Administrative Agent thirty (30) days' prior written notice before
any such policy or policies shall be altered or canceled, and that no
act or default of any Consolidated Party or any other Person shall
affect the rights of the Administrative Agent or the Lenders under such
policy or policies. The present insurance coverage of the Consolidated
Parties is outlined as to carrier, policy number, expiration date, type
and amount on Schedule 7.6.
(b) In case of any material loss of, damage to or
destruction of any Collateral, such Credit Party (i) shall promptly
give written notice thereof to the Administrative Agent generally
describing the nature and extent of such damage or destruction, (ii) in
the event that such Credit Party receives insurance proceeds on account
of any loss of, damage to or destruction of Collateral in a net amount
in excess of $500,000 (in respect of any insurance event, the "Excess
Proceeds"), such Credit Party will immediately pay over such Excess
Proceeds to the Administrative Agent as cash collateral for the Credit
Party Obligations and (iii) whether or not the insurance proceeds, if
any, received on account of such damage or destruction shall be
sufficient for that purpose, at such Credit Party's cost and expense,
will promptly repair or replace the Collateral of such Credit Party so
lost, damaged or destroyed; provided, however, that (A) such Credit
Party need not repair or replace the Collateral of
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such Credit Party so lost, damaged or destroyed to the extent the
failure to make such repair or replacement (1) is desirable to the
proper conduct of the business of such Credit Party in the ordinary
course and otherwise in the best interest of such Credit Party and (2)
would not materially impair the rights and benefits of the
Administrative Agent or the Lenders under the Collateral Documents, any
other Credit Document or any Hedging Agreement between any Consolidated
Party and any Lender, or any Affiliate of a Lender, and (B) in the
event that such Credit Party receives insurance proceeds on account of
any loss of, damage to or destruction of Collateral in a net amount in
excess of $500,000, such Credit Party shall not undertake replacement
or restoration of any lost, damaged or destroyed Collateral of such
Credit Party with insurance proceeds in respect thereof unless (1) the
Administrative Agent has received evidence reasonably satisfactory to
it that the Collateral lost, damaged or destroyed has been or will be
replaced or restored to its condition immediately prior to the loss,
destruction or other event giving rise to the payment of such insurance
proceeds and (2) no violation of Section 7.11 would have occurred as of
the most recent fiscal quarter end preceding the date of determination
with respect to which the Administrative Agent has received the
Required Financial Information upon giving pro forma effect to any
Indebtedness to be incurred in connection with such replacement or
restoration (assuming, for purposes hereof, that such Indebtedness was
incurred as of the first day of the four fiscal-quarter period ending
as of such fiscal quarter end).
(c) With respect to any Excess Proceeds deposited with
the Administrative Agent by any Credit Party as provided in the
subsection (b) above, the Administrative Agent agrees to release such
Excess Proceeds to such Credit Party for replacement or restoration of
the portion of the Collateral of such Credit Party lost, damaged or
destroyed, provided that, within 30 days from the date that the
Administrative Agent receives such Excess Proceeds, the Administrative
Agent shall have received a written application for release of such
Excess Proceeds from such Credit Party establishing satisfaction of the
conditions set forth in clause (B) of subsection (b) above.
(d) Any insurance proceeds received by any Credit Party
on account of any loss of, damage to or destruction of Collateral that
(i) are not applied pursuant to clause (A) of subsection (b) above to
repair or replace the Collateral within the period of 180 days
following the date the applicable Credit Party receives such proceeds,
(ii) are not permitted to be applied pursuant to clause (B) of the
preceding paragraph to repair or replace the Collateral or (iii)
constitute Excess Proceeds which have been deposited with the
Administrative Agent and with respect to which the conditions for
application to replacement or restoration set forth in subsection (c)
above shall not have been met on or before the first Business Day
following the date 30 days from the date the Administrative Agent
receives such Excess Proceeds, shall be applied (by the Credit Parties
or, in the case of Excess Proceeds held by the Administrative Agent, by
the Administrative Agent) to prepay the Loans (and cash collateralize
of LOC Obligations) in accordance with the terms of Section
3.3(b)(iii)(B).
(e) All insurance proceeds shall be subject to the
security interest of the Administrative Agent (for the ratable of the
Lenders) under the Collateral Documents.
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7.7 MAINTENANCE OF PROPERTY.
Each Credit Party will, and will cause each of its Subsidiaries to,
maintain and preserve its properties and equipment material to the conduct of
its business in good repair, working order and condition, normal wear and tear
and casualty and condemnation excepted, and will make, or cause to be made, in
such properties and equipment from time to time all repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto as may
be needed or proper, to the extent and in the manner customary for companies in
similar businesses.
7.8 PERFORMANCE OF OBLIGATIONS.
Each Credit Party will, and will cause each of its Subsidiaries to,
perform in all material respects all of its obligations under the terms of all
material agreements, indentures, mortgages, security agreements or other debt
instruments to which it is a party or by which it is bound.
7.9 USE OF PROCEEDS.
The Borrower will use the proceeds of the Loans and will use the
Letters of Credit solely for the purposes set forth in Section 6.15.
7.10 AUDITS/INSPECTIONS.
Upon reasonable notice and during normal business hours, each Credit
Party will, and will cause each of its Subsidiaries to, permit representatives
appointed by the Administrative Agent, including, without limitation,
independent accountants, agents, attorneys, and appraisers to visit and inspect
its property, including its books and records, its accounts receivable and
inventory, its facilities and its other business assets, and to make photocopies
or photographs thereof and to write down and record any information such
representative obtains and shall permit the Administrative Agent or its
representatives to investigate and verify the accuracy of information provided
to the Lenders and to discuss all such matters with the officers, employees and
representatives of such Person. The Credit Parties agree that the Administrative
Agent and its representatives may conduct an annual audit of the Collateral at
the expense of the Credit Parties; provided, however, upon the occurrence and
during the continuance of an Event of Default, the Administrative Agent and its
representatives may conduct an audit of the Collateral at any time and from time
to time at the expense of the Credit Parties.
7.11 FINANCIAL COVENANTS.
(a) Fixed Charge Coverage Ratio. The Fixed Charge
Coverage Ratio, as of the last day of each fiscal quarter of the
Consolidated Parties, shall be greater than or equal to:
(i) for the period from the Closing Date to and
including March 30, 2003, 2.00 to 1.00; and
(ii) for the period from March 31, 2003 and at
all times thereafter, 1.75 to 1.00.
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(b) Leverage Ratio. The Leverage Ratio, as of the last
day of each fiscal quarter of the Consolidated Parties, shall be less
than or equal to 2.50 to 1.00.
(c) Consolidated Net Worth. At all times the Consolidated
Net Worth of the Borrower shall be greater than or equal to the sum of
an amount equal to 85% of the Net Worth set forth in the pro forma
balance sheet referenced in Section 6.1(b), increased on a cumulative
basis as of the end of each fiscal quarter of the Consolidated Parties,
commencing with the fiscal quarter ending March 31, 1999, by an amount
equal to the sum of (A) 50% of Consolidated Net Income (to the extent
positive) for the fiscal quarter then ended and (B) 50% of the Net Cash
Proceeds of any Equity Issuance made during the fiscal quarter then
ended.
7.12 ADDITIONAL GUARANTORS.
As soon as practicable and in any event within 30 days after any Person
becomes a direct or indirect Subsidiary of the Borrower shall provide the
Administrative Agent with written notice thereof setting forth information in
reasonable detail describing all of the assets of such Person and shall (a)
cause such Person to execute a Joinder Agreement in substantially the same form
as Exhibit 7.12, (b) cause 100% of the issued and outstanding Capital Stock of
such Person to be delivered to the Administrative Agent (together with undated
stock powers signed in blank) and pledged to the Administrative Agent pursuant
to an appropriate pledge agreement(s) in substantially the form of the Pledge
Agreement and otherwise in form acceptable to the Administrative Agent and (c)
cause such Person to (i) if such Person owns or (to the extent deemed to be
material by the Administrative Agent or the Required Lenders in its or their
sole reasonable discretion) leases any real property located in the United
States or located outside of the United States but deemed to be material by the
Administrative Agent or the Required Lenders in its or their sole reasonable
discretion, deliver to the Administrative Agent with respect to such real
property documents, instruments and other items of the types required to be
delivered pursuant to Section 5.1(e) all in form, content and scope reasonably
satisfactory to the Administrative Agent and (ii) deliver such other
documentation as the Administrative Agent may reasonably request in connection
with the foregoing, including, without limitation, appropriate UCC-1 financing
statements, real estate title insurance policies, environmental reports,
landlord's waivers, certified resolutions and other organizational and
authorizing documents of such Person, favorable opinions of counsel to such
Person (which shall cover, among other things, the legality, validity, binding
effect and enforceability of the documentation referred to above and the
perfection of the Administrative Agent's liens thereunder) and other items of
the types required to be delivered pursuant to Section 5.1(b), (c), (d) and (e),
all in form, content and scope reasonably satisfactory to the Administrative
Agent.
7.13 PLEDGED ASSETS.
Subject to the terms of Section 5.1(e) and Section 7.16, each Credit
Party will cause (i) all of its owned real and personal property located in the
United States, (ii) all of its other owned real and personal property located in
the United States and (iii) to the extent deemed to be material by the
Administrative Agent or the Required Lenders, all of its leased real property
located in the United States, to be subject at all times to first priority,
perfected and, in the case of real property (whether owned or, to the extent
deemed to be material by the Administrative Agent, leased), title insured Liens
in favor of the Administrative Agent to secure the Credit Party
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Obligations pursuant to the terms and conditions of the Collateral Documents
or, with respect to any such property acquired subsequent to the Closing Date,
such other additional security documents as the Administrative Agent shall
reasonably request, subject in any case to Permitted Liens. With respect to any
real property acquired by any Credit Party subsequent to the Closing Date and
required by this Section 7.13 to be pledged to the Administrative Agent, such
Person will cause to be delivered to the Administrative Agent, with respect to
such real property, documents, instruments and other items of the types required
to be delivered pursuant to Section 5.1(e) in a form acceptable to the
Administrative Agent. Without limiting the generality of the above, the Credit
Parties will cause 100% of the issued and outstanding Capital Stock of each
Subsidiary to be subject at all times to a first priority, perfected Lien in
favor of the Administrative Agent pursuant to the terms and conditions of the
Collateral Documents or such other security documents as the Administrative
Agent shall reasonably request.
If, subsequent to the Closing Date, a Credit Party shall (a) acquire
any intellectual property, securities, instruments, chattel paper or other
personal property required to be pledged to the Administrative Agent as
Collateral hereunder or under any of the Collateral Documents or (b) acquire or
lease any real property, the Credit Parties shall promptly notify the
Administrative Agent of same. Each Credit Party shall, and shall cause each of
its Subsidiaries to, take such action (including but not limited to the actions
set forth in Sections 5.1(d) and (e)) at its own expense as requested by the
Administrative Agent to ensure that the Administrative Agent has a first
priority perfected Lien to secure the Credit Party Obligations in (i) all owned
real property and personal property of the Credit Parties located in the United
States, (ii) to the extent deemed to be material by the Administrative Agent or
the Required Lenders in its or their sole reasonable discretion, all other owned
real and personal property of the Credit Parties and (iii) all leased real
property located in the United States, subject in each case only to Permitted
Liens. Each Credit Party shall, and shall cause each of its Subsidiaries to,
adhere to the covenants regarding the location of personal property as set forth
in the Security Agreement.
7.14 YEAR 2000 COMPLIANCE.
The Credit Parties will promptly notify the Administrative Agent in the
event any Credit Party discovers or determines that any computer application
(including those of its suppliers, vendors and customers) that is material to
its or any of its Subsidiaries' business and operations will not be Year 2000
Compliant, except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect.
7.15 FISCAL YEAR; REINCORPORATION MERGERS.
(a) Fiscal Year. On or prior to March 31, 1999, the
Credit Parties will cause SPI to change its fiscal year to a calendar
fiscal year.
(b) Reincorporation Mergers. On or prior to the first
anniversary of this Credit Agreement, the Credit Parties will cause SPI
and Modtech to reincorporate in the State of Delaware by merging with
or into Subsidiaries of the Borrower formed to accomplish such
reincorporation.
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7.16 POST-CLOSING CONDITIONS.
(a) Within 30 days after the Closing Date (or such later
date as is reasonably acceptable to the Administrative Agent), the
Credit Parties shall use its reasonable best efforts to deliver to the
Administrative Agent, with respect to each Mortgaged Property, the
items set forth in Section 5.1(e)(ii)-(vii) which have not previously
been delivered to the Administrative Agent for such Mortgaged Property
in a form acceptable to the Administrative Agent; provided, however,
that the Credit Parties shall not be required to deliver to the
Administrative Agent the items set forth in Section 5.1(e)(vii) with
respect to the Mortgaged Properties described in items (7) and (10) on
Schedule 5.1(e).
(b) Within 120 days after the Closing Date (or such later
date as is reasonably acceptable to the Administrative Agent), the
Credit Parties shall either (i) terminate the lease with respect to the
Glendale Property or provide the Administrative Agent with evidence
that Trac Modular Manufacturing, Inc. has been released from its
obligations thereunder, or (ii) furnish or cause to be furnished to the
Administrative Agent at the Credit Parties' expense, if required by the
Administrative Agent in its reasonable discretion, an environmental
assessment of the Glendale Property in accordance with the terms set
forth in Section 7.1(l)(i).
(c) Within 30 days after the Closing Date (or such later
date as is reasonably acceptable to the Administrative Agent), the
Credit Parties shall deliver to the Administrative Agent all
certificates evidencing any certificated Capital Stock of Modtech and
SPI pledged to the Administrative Agent pursuant to the Pledge
Agreement, together with duly executed in blank, undated stock powers
attached thereto.
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
8.1 INDEBTEDNESS.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and
the other Credit Documents;
(b) Indebtedness of the Borrower set forth in Schedule
8.1 (but not including any renewals, refinancings or extensions
thereof);
(c) purchase money Indebtedness (including obligations in
respect of Capital Leases or Synthetic Leases) hereafter incurred by
the Borrower to finance the purchase of fixed assets provided that (i)
the total of all such Indebtedness (including any such
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Indebtedness referred to in subsection (b) above) shall not exceed an
aggregate principal amount of $5,000,000 at any one time outstanding;
(ii) such Indebtedness when incurred shall not exceed the purchase
price of the asset(s) financed; and (iii) no such Indebtedness shall be
refinanced for a principal amount in excess of the principal balance
outstanding thereon at the time of such refinancing;
(d) obligations of the Borrower in respect of Hedging
Agreements entered into with any Lender, or any Affiliate of a Lender,
in order to manage existing or anticipated interest rate or exchange
rate risks and not for speculative purposes;
(e) intercompany Indebtedness arising out of loans,
advances and Guaranty Obligations permitted under Section 8.6;
(f) unsecured Subordinated Indebtedness hereafter
incurred by a Borrower in favor of the seller of a business acquired in
a Permitted Acquisition; provided that the total of all such
Indebtedness shall not exceed an aggregate principal amount of
$10,000,000 at any one time outstanding; and
(g) in addition to the Indebtedness otherwise permitted
by this Section 8.1,
(i) other Indebtedness hereafter incurred by the
Borrower provided that (A) the loan documentation with respect
to such Indebtedness shall not contain covenants or default
provisions relating to any Consolidated Party that are more
restrictive than the covenants and default provisions
contained in the Credit Documents, (B) the Borrower shall have
delivered to the Administrative Agent a Pro Forma Compliance
Certificate demonstrating that, upon giving effect on a Pro
Forma Basis to the incurrence of such Indebtedness and to the
concurrent retirement of any other Indebtedness of any
Consolidated Party, no Default or Event of Default would exist
hereunder and (C) the aggregate principal amount of such
Indebtedness plus the aggregate outstanding principal amount
of Indebtedness permitted pursuant to clauses (b) and (c)
above shall not exceed $10,000,000 at any time; and
(ii) Guaranty Obligations of any Guarantor with
respect to any Indebtedness of the Borrower permitted under
this Section 8.1.
8.2 LIENS.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Lien with respect to any of its
Property, whether now owned or after acquired, except for Permitted Liens.
8.3 NATURE OF BUSINESS.
The Credit Parties will not permit any Consolidated Party to
substantively alter the character or conduct of the business conducted by such
Person as of the Closing Date.
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8.4 CONSOLIDATION, MERGER, DISSOLUTION, ETC.
Except in connection with an Asset Disposition permitted by the terms
of Section 8.5, the Credit Parties will not permit any Consolidated Party to
enter into any transaction of merger or consolidation or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution); provided that,
notwithstanding the foregoing provisions of this Section 8.4, (a) the Borrower
may merge or consolidate with any of its Subsidiaries, provided that (i) the
Borrower shall be the continuing or surviving corporation, (ii) the Credit
Parties shall cause to be executed and delivered such documents, instruments and
certificates as the Administrative Agent may request so as to cause the Credit
Parties to be in compliance with the terms of Section 7.13 after giving effect
to such transaction and (iii) the Borrower shall have delivered to the
Administrative Agent a Pro Forma Compliance Certificate demonstrating that, upon
giving effect on a Pro Forma Basis to such transaction, no Default or Event of
Default would exist, (b) any Credit Party other than the Borrower may merge or
consolidate with any other Credit Party other than the Borrower provided that
(i) the Credit Parties shall cause to be executed and delivered such documents,
instruments and certificates as the Administrative Agent may request so as to
cause the Credit Parties to be in compliance with the terms of Section 7.13
after giving effect to such transaction and (ii) the Borrower shall have
delivered to the Administrative Agent a Pro Forma Compliance Certificate
demonstrating that, upon giving effect on a Pro Forma Basis to such transaction,
no Default or Event of Default would exist, (c) any Consolidated Party which is
not a Credit Party may be merged or consolidated with or into any Credit Party
provided that (i) such Credit Party shall be the continuing or surviving
corporation, (ii) the Credit Parties shall cause to be executed and delivered
such documents, instruments and certificates as the Administrative Agent may
request so as to cause the Credit Parties to be in compliance with the terms of
Section 7.13 after giving effect to such transaction and (iii) the Borrower
shall have delivered to the Administrative Agent a Pro Forma Compliance
Certificate demonstrating that, upon giving effect on a Pro Forma Basis to such
transaction, no Default or Event of Default would exist, (d) any Consolidated
Party which is not a Credit Party may be merged or consolidated with or into any
other Consolidated Party which is not a Credit Party, provided the Borrower
shall have delivered to the Administrative Agent a Pro Forma Compliance
Certificate demonstrating that, upon giving effect on a Pro Forma Basis to such
transaction, no Default or Event of Default would exist, (e) the Borrower or any
Subsidiary of the Borrower may merge with any Person other than a Consolidated
Party in connection with a Permitted Acquisition if (i) the Borrower or such
Subsidiary shall be the continuing or surviving corporation, (ii) the Credit
Parties shall cause to be executed and delivered such documents, instruments and
certificates as the Administrative Agent may request so as to cause the Credit
Parties to be in compliance with the terms of Section 7.13 after giving effect
to such transaction and (iii) the Borrower shall have delivered to the
Administrative Agent a Pro Forma Compliance Certificate demonstrating that, upon
giving effect on a Pro Forma Basis to such transaction, no Default or Event of
Default would exist and (f) any Wholly-Owned Subsidiary of the Borrower may
dissolve, liquidate or wind up its affairs at any time.
8.5 ASSET DISPOSITIONS.
The Credit Parties will not permit any Consolidated Party to make any
Asset Disposition (including, without limitation, any Sale and Leaseback
Transaction) unless (a) the consideration paid in connection therewith shall be
cash or Cash Equivalents, (b) if such transaction is a Sale and Leaseback
Transaction, such transaction is permitted by the terms of Section 8.13, (c)
such transaction does not involve the sale or other disposition of a minority
equity interest in any
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Consolidated Party, (d) the aggregate net book value of all of the assets sold
or otherwise disposed of by the Consolidated Parties in all such transactions
after the Closing Date shall not exceed 5% of the aggregate assets of the
Consolidated Parties, less intangible assets, (e) the Borrower shall have
delivered to the Administrative Agent a Pro Forma Compliance Certificate
demonstrating that, upon giving effect on a Pro Forma Basis to such transaction,
no Default or Event of Default would exist hereunder, and (f) no later than 10
days prior to such Asset Disposition, the Administrative Agent and the Lenders
shall have received a certificate of an officer of the Borrower specifying the
anticipated or actual date of such Asset Disposition, briefly describing the
assets to be sold or otherwise disposed of and setting forth the net book value
of such assets, the aggregate consideration and the Net Cash Proceeds to be
received for such assets in connection with such Asset Disposition, and
thereafter the Credit Parties shall, within the period of 180 days following the
consummation of such Asset Disposition (with respect to any such Asset
Disposition, the "Application Period"), apply (or cause to be applied) an amount
equal to the Net Cash Proceeds of such Asset Disposition to (i) make Eligible
Reinvestments or (ii) prepay the Loans (and cash collateralize of LOC
Obligations) in accordance with the terms of Section 3.3(b)(ii). Pending final
application of the Net Cash Proceeds of any Asset Disposition, the Consolidated
Parties may apply such Net Cash Proceeds to temporarily reduce the Revolving
Loans or to make Investments in Cash Equivalents.
Upon a sale of assets or the sale of Capital Stock of a Consolidated
Party permitted by this Section 8.5, the Administrative Agent shall (to the
extent applicable) deliver to the Credit Parties, upon the Credit Parties'
request and at the Credit Parties' expense, such documentation as is reasonably
necessary to evidence the release of the Administrative Agent's security
interest, if any, in such assets or Capital Stock, including, without
limitation, amendments or terminations of UCC financing statements, if any, the
return of stock certificates, if any, and the release of such Consolidated Party
from all of its obligations, if any, under the Credit Documents.
8.6 INVESTMENTS.
The Credit Parties will not permit any Consolidated Party to make
Investments in or to any Person, except for Permitted Investments.
8.7 RESTRICTED PAYMENTS.
The Credit Parties will not permit any Consolidated Party to, directly
or indirectly, declare, order, make or set apart any sum for or pay any
Restricted Payment, except (a) to make dividends payable solely in the same
class of Capital Stock of such Person, (b) to make dividends or other
distributions payable to any Credit Party (directly or indirectly through
Subsidiaries) and (c) as permitted by Section 8.8 or Section 8.9.
8.8 OTHER INDEBTEDNESS.
The Credit Parties will not permit any Consolidated Party to (a) if any
Default or Event of Default has occurred and is continuing or would be directly
or indirectly caused as a result thereof, (i) after the issuance thereof, amend
or modify (or permit the amendment or modification of) any of the terms of any
Indebtedness of such Consolidated Party if such amendment or modification would
add or change any terms in a manner adverse to the issuer of such Indebtedness,
or shorten the final maturity or average life to maturity or require any payment
to be made sooner than
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originally scheduled or increase the interest rate applicable thereto or change
any subordination provision thereof, or (ii) make (or give any notice with
respect thereto) any voluntary or optional payment or prepayment or redemption
or acquisition for value of (including, without limitation, by way of depositing
money or securities with the trustee with respect thereto before due for the
purpose of paying when due), refund, refinance or exchange of any other
Indebtedness of such Consolidated Party, (b) amend or modify (or permit the
amendment or modification of) any of the subordination provisions contained in
the documents governing any Subordinated Indebtedness of such Consolidated
Party, (c) make interest payments in respect of any Subordinated Indebtedness of
such Consolidated Party in violation of the subordination provisions contained
in the documents governing such Subordinated Indebtedness or (d) make any
voluntary or optional payment or prepayment, redemption, acquisition for value
or defeasance of, refund, refinance or exchange of, any Subordinated
Indebtedness of such Consolidated Party.
8.9 TRANSACTIONS WITH AFFILIATES.
Except as set forth on Schedule 8.9, the Credit Parties will not permit
any Consolidated Party to enter into or permit to exist any transaction or
series of transactions with any officer, director, shareholder, Subsidiary or
Affiliate of such Person other than (a) advances of working capital to any
Credit Party, (b) transfers of cash and assets to any Credit Party, (c)
transactions permitted by Section 8.1, Section 8.4, Section 8.5, Section 8.6, or
Section 8.7, (d) normal compensation and reimbursement of expenses of officers
and directors, (e) so long as no Default or Event of Default has occurred and is
continuing, (i) payments of transaction fees by any Credit Party to KRG Capital
Partners, LLC ("KRG"), Infrastructure and Environmental Private Equity
Management III, LLC, The Argentum Group and NationsCredit Commercial Corporation
on the Closing Date of up to $750,000 and on or prior to the second anniversary
of the Closing Date of up to $500,000, (ii) payments of investment banking fees
by the Borrower to KRG of up to, or for Acquisitions in excess of $15 million,
at least equal to, $100,000 per Acquisition (or such higher amount as is
approved by the Borrower's Board of Directors pursuant to the terms of the
agreement evidencing such fee arrangement (the "KRG Fee Agreement"), a copy of
which has been provided to the Administrative Agent) made by the Borrower during
the first two years subsequent to the Closing Date and for each year thereafter,
an annual base advisory fee of $250,000 plus such additional fees as are set
forth in the KRG Fee Agreement and (iii) payments of investment banking fees by
any Credit Party to McGettigan, Wick & Co., Inc. on the Closing Date and on or
prior to the second anniversary of the Closing Date of up to $1,250,000 plus
such additional fees as are set forth in the agreement evidencing such fee
arrangement, a copy of which has been provided to the Administrative Agent and
(f) except as otherwise specifically limited in this Credit Agreement, other
transactions which are entered into in the ordinary course of such Person's
business on terms and conditions substantially as favorable to such Person as
would be obtainable by it in a comparable arms-length transaction with a Person
other than an officer, director, shareholder, Subsidiary or Affiliate.
8.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS.
Other than changing the fiscal year end of SPI or any of its
Subsidiaries to December 31, the Credit Parties will not permit any Consolidated
Party to change its fiscal year or amend, modify or change its articles of
incorporation (or corporate charter or other similar organizational document) or
bylaws (or other similar document) without the prior written consent of the
Required Lenders.
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8.11 LIMITATION ON RESTRICTED ACTIONS.
The Credit Parties will not permit any Consolidated Party to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any such Person to (a) pay
dividends or make any other distributions to any Credit Party on its Capital
Stock or with respect to any other interest or participation in, or measured by,
its profits, (b) pay any Indebtedness or other obligation owed to any Credit
Party, (c) make loans or advances to any Credit Party, (d) sell, lease or
transfer any of its properties or assets to any Credit Party, or (e) act as a
Credit Party and pledge its assets pursuant to the Credit Documents or any
renewals, refinancings, exchanges, refundings or extension thereof, except (in
respect of any of the matters referred to in clauses (a)-(d) above) for such
encumbrances or restrictions existing under or by reason of (i) this Credit
Agreement and the other Credit Documents, (ii) applicable law or (iii) any
Permitted Lien or any document or instrument governing any Permitted Lien,
provided that any such restriction contained therein relates only to the asset
or assets subject to such Permitted Lien.
8.12 OWNERSHIP OF SUBSIDIARIES; LIMITATIONS ON BORROWER.
Notwithstanding any other provisions of this Credit Agreement to the
contrary:
(a) The Credit Parties will not permit any Consolidated
Party to (i) (A) permit any Person (other than the Borrower or any
Wholly-Owned Subsidiary of the Borrower) to own any Capital Stock of
any Subsidiary of the Borrower (other than Trac Modular Manufacturing,
Inc.) or (B) permit any Person (other than the Borrower or any
Wholly-Owned Subsidiary of the Borrower) to own more than 20% of the
outstanding Capital Stock of Trac Modular Manufacturing, Inc., (ii)
permit any Subsidiary of the Borrower to issue Capital Stock (except to
the Borrower or to a Wholly-Owned Subsidiary of the Borrower), (iii)
permit, create, incur, assume or suffer to exist any Lien thereon, in
each case except (A) as a result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted under
Section 8.4 or Section 8.5 or (B) for Permitted Liens and (iv)
notwithstanding anything to the contrary contained in clause (ii)
above, permit any Subsidiary of the Borrower to issue any shares of
preferred Capital Stock.
(b) Other than cash to pay expenses and to distribute to
pay expenses of its Subsidiaries, the Borrower shall not (i) hold any
assets other than the Capital Stock of its direct Subsidiaries, (ii)
have any liabilities other than (A) the liabilities under the Credit
Documents, (B) tax liabilities in the ordinary course of business, (C)
loans and advances permitted under Section 8.9, (D) corporate,
administrative and operating expenses in the ordinary course of
business (including, without limitation, any expenses in connection
with any management agreement between or among any combination of the
Borrower, KRG Capital Partners, L.L.C. and/or McGettigan, Wick & Co.,
Inc.) and (E) Subordinated Indebtedness permitted under Section 8.1(f)
and (iii) engage in any business other than (A) owning the Capital
Stock of its direct Subsidiaries and activities incidental or related
thereto and (B) acting as the borrower hereunder and pledging its
assets to the Administrative Agent, for the benefit of the Lenders,
pursuant to the Collateral Documents to which it is a party.
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8.13 SALE LEASEBACKS.
The Credit Parties will not permit any Consolidated Party to, directly
or indirectly, become or remain liable as lessee or as guarantor or other surety
with respect to any lease, whether an Operating Lease or a Capital Lease, of any
Property (whether real, personal or mixed), whether now owned or hereafter
acquired, (a) which such Consolidated Party has sold or transferred or is to
sell or transfer to a Person which is not a Consolidated Party or (b) which such
Consolidated Party intends to use for substantially the same purpose as any
other Property which has been sold or is to be sold or transferred by such
Consolidated Party to another Person which is not a Consolidated Party in
connection with such lease.
8.14 CAPITAL EXPENDITURES.
The Credit Party will not permit Consolidated Capital Expenditures for
any fiscal year to exceed $4,500,000.
8.15 NO FURTHER NEGATIVE PLEDGES.
The Credit Parties will not permit any Consolidated Party to enter
into, assume or become subject to any agreement prohibiting or otherwise
restricting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired, or requiring the grant of any
security for any obligation if security is given for any other obligation,
except (a) pursuant to this Credit Agreement and the other Credit Documents, (b)
pursuant to any document or instrument governing Indebtedness incurred pursuant
to Section 8.1(c), provided that any such restriction contained therein relates
only to the asset or assets constructed or acquired in connection therewith and
(c) in connection with any Permitted Lien or any document or instrument
governing any Permitted Lien, provided that any such restriction contained
therein relates only to the asset or assets subject to such Permitted Lien.
8.16 OPERATING LEASE OBLIGATIONS.
The Credit Parties will not permit any Consolidated Party to enter
into, assume or permit to exist any obligations for the payment of rental under
Operating Leases which in the aggregate for all such Persons would exceed
$2,500,000 in any fiscal year.
8.17 NO FOREIGN SUBSIDIARIES.
The Credit Parties will not create, acquire or permit to exist any
Foreign Subsidiary.
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SECTION 9
EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any
principal of any of the Loans or of any reimbursement
obligations arising from drawings under Letters of Credit, or
(ii) default, and such default shall continue for
three (3) or more Business Days, in the payment when due of
any interest on the Loans or on any reimbursement obligations
arising from drawings under Letters of Credit, or of any Fees
or other amounts owing hereunder, under any of the other
Credit Documents or in connection herewith or therewith; or
(b) Representations. Any representation, warranty or
statement made or deemed to be made by any Credit Party herein, in any
of the other Credit Documents, or in any statement or certificate
delivered or required to be delivered pursuant hereto or thereto shall
prove untrue in any material respect on the date as of which it was
deemed to have been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance
of any term, covenant or agreement contained in Sections 7.2,
7.9, 7.11, 7.12, 7.13 or 8.1 through 8.17, inclusive;
(ii) default in the due performance or observance
of any term, covenant or agreement contained in Sections
7.1(a), (b), (c) or (d) and such default shall continue
unremedied for a period of at least 5 days after the earlier
of a responsible officer of a Credit Party becoming aware of
such default or notice thereof by the Administrative Agent; or
(iii) default in the due performance or observance
by it of any term, covenant or agreement (other than those
referred to in subsections (a), (b), (c)(i) or (c)(ii) of this
Section 9.1) contained in this Credit Agreement or any other
Credit Document and such default shall continue unremedied for
a period of at least 30 days after the earlier of a
responsible officer of a Credit Party becoming aware of such
default or notice thereof by the Administrative Agent; or
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(d) Other Credit Documents. Except as a result of or in
connection with a dissolution, merger or disposition of a Subsidiary
permitted under Section 8.4 or Section 8.5, any Credit Document shall
fail to be in full force and effect or to give the Administrative Agent
and/or the Lenders the Liens, rights, powers and privileges purported
to be created thereby, or any Credit Party shall so state in writing;
or
(e) Guaranties. Except as the result of or in connection
with a dissolution, merger or disposition of a Subsidiary permitted
under Section 8.4 or Section 8.5, the guaranty given by any Guarantor
hereunder (including any Person after the Closing Date in accordance
with Section 7.12) or any provision thereof shall cease to be in full
force and effect, or any Guarantor (including any Person after the
Closing Date in accordance with Section 7.12) hereunder or any Person
acting by or on behalf of such Guarantor shall deny or disaffirm such
Guarantor's obligations under such guaranty, or any Guarantor shall
default in the due performance or observance of any term, covenant or
agreement on its part to be performed or observed pursuant to any
guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur
with respect to any Consolidated Party; or
(g) Defaults under Other Agreements.
(i) Any Consolidated Party shall default in the
performance or observance (beyond the applicable grace period
with respect thereto, if any) of any obligation or condition
of any contract or lease material to the Consolidated Parties
taken as a whole, which default could reasonably have a
Material Adverse Effect; or
(ii) With respect to any Indebtedness (other than
Indebtedness outstanding under this Credit Agreement) in
excess of $500,000 in the aggregate for the Consolidated
Parties taken as a whole, (A) any Consolidated Party shall (1)
default in any payment (beyond the applicable grace period
with respect thereto, if any) with respect to any such
Indebtedness, or (2) the occurrence and continuance of a
default in the observance or performance relating to such
Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event
or condition shall occur or condition exist, the effect of
which default or other event or condition is to cause, or
permit, the holder or holders of such Indebtedness (or trustee
or agent on behalf of such holders) to cause (determined
without regard to whether any notice or lapse of time is
required), any such Indebtedness to become due prior to its
stated maturity; or (B) any such Indebtedness shall be
declared due and payable, or required to be prepaid other than
by a regularly scheduled required prepayment, prior to the
stated maturity thereof; or
(h) Judgments. One or more judgments or decrees shall be
entered against one or more of the Consolidated Parties involving a
liability of $500,000 or more in the aggregate (to the extent not paid
or fully covered by insurance provided by a carrier who has
acknowledged coverage and has the ability to perform) and any such
judgments or decrees shall not have been vacated, discharged or stayed
or bonded pending appeal within 30 days from the entry thereof; or
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(i) ERISA. Any of the following events or conditions, if
such event or condition could have a Material Adverse Effect: (i) any
"accumulated funding deficiency," as such term is defined in Section
302 of ERISA and Section 412 of the Code, whether or not waived, shall
exist with respect to any Plan, or any lien shall arise on the assets
of any Consolidated Party or any ERISA Affiliate in favor of the PBGC
or a Plan; (ii) an ERISA Event shall occur with respect to a Single
Employer Plan, which is, in the reasonable opinion of the
Administrative Agent, likely to result in the termination of such Plan
for purposes of Title IV of ERISA; (iii) an ERISA Event shall occur
with respect to a Multiemployer Plan or Multiple Employer Plan, which
is, in the reasonable opinion of the Administrative Agent, likely to
result in (A) the termination of such Plan for purposes of Title IV of
ERISA, or (B) any Consolidated Party or any ERISA Affiliate incurring
any liability in connection with a withdrawal from, reorganization of
(within the meaning of Section 4241 of ERISA), or insolvency or (within
the meaning of Section 4245 of ERISA) such Plan; or (iv) any prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975
of the Code) or breach of fiduciary responsibility shall occur which
may subject any Consolidated Party or any ERISA Affiliate to any
liability under Sections 406, 409, 502(i), or 502(l) of ERISA or
Section 4975 of the Code, or under any agreement or other instrument
pursuant to which any Consolidated Party or any ERISA Affiliate has
agreed or is required to indemnify any person against any such
liability; or
(j) Ownership. There shall occur a Change of Control.
9.2 ACCELERATION; REMEDIES.
Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived by the requisite Lenders
(pursuant to the voting requirements of Section 11.6) or cured to the
satisfaction of the requisite Lenders (pursuant to the voting procedures in
Section 11.6), the Administrative Agent shall, upon the request and direction of
the Required Lenders, by written notice to the Credit Parties take any of the
following actions:
(a) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
(b) Acceleration. Declare the unpaid principal of and any
accrued interest in respect of all Loans, any reimbursement obligations
arising from drawings under Letters of Credit and any and all other
indebtedness or obligations of any and every kind owing by the Credit
Parties to the Administrative Agent and/or any of the Lenders hereunder
to be due whereupon the same shall be immediately due and payable
without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Credit Parties.
(c) Cash Collateral. Direct the Credit Parties to pay
(and the Credit Parties agree that upon receipt of such notice, or upon
the occurrence of an Event of Default under Section 9.1(f), they will
immediately pay) to the Administrative Agent additional cash, to be
held by the Administrative Agent, for the benefit of the Lenders, in a
cash collateral account as additional security for the LOC Obligations
in respect of subsequent drawings under all then outstanding Letters of
Credit in an amount equal to the maximum aggregate amount which may be
drawn under all Letters of Credits then outstanding.
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(d) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents including,
without limitation, all rights and remedies existing under the
Collateral Documents, all rights and remedies against a Guarantor and
all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in
Section 9.1(f) shall occur with respect to the Borrower, then the Commitments
shall automatically terminate and all Loans, all reimbursement obligations
arising from drawings under Letters of Credit, all accrued interest in respect
thereof, all accrued and unpaid Fees and other indebtedness or obligations owing
to the Administrative Agent and/or any of the Lenders hereunder automatically
shall immediately become due and payable without the giving of any notice or
other action by the Administrative Agent or the Lenders.
SECTION 10
AGENCY PROVISIONS
10.1 APPOINTMENT, POWERS AND IMMUNITIES.
Each Lender hereby irrevocably appoints and authorizes the
Administrative Agent to act as its agent under this Credit Agreement and the
other Credit Documents with such powers and discretion as are specifically
delegated to the Administrative Agent by the terms of this Credit Agreement and
the other Credit Documents, together with such other powers as are reasonably
incidental thereto. The Administrative Agent (which term as used in this
sentence and in Section 10.5 and the first sentence of Section 10.6 hereof shall
include its Affiliates and its own and its Affiliates' officers, directors,
employees, and agents): (a) shall not have any duties or responsibilities except
those expressly set forth in this Credit Agreement and shall not be a trustee or
fiduciary for any Lender; (b) shall not be responsible to the Lenders for any
recital, statement, representation, or warranty (whether written or oral) made
in or in connection with any Credit Document or any certificate or other
document referred to or provided for in, or received by any of them under, any
Credit Document, or for the value, validity, effectiveness, genuineness,
enforceability, or sufficiency of any Credit Document, or any other document
referred to or provided for therein or for any failure by any Credit Party or
any other Person to perform any of its obligations thereunder; (c) shall not be
responsible for or have any duty to ascertain, inquire into, or verify the
performance or observance of any covenants or agreements by any Credit Party or
the satisfaction of any condition or to inspect the property (including the
books and records) of any Credit Party or any of its Subsidiaries or Affiliates;
(d) shall not be required to initiate or conduct any litigation or collection
proceedings under any Credit Document; and (e) shall not be responsible for any
action taken or omitted to be taken by it under or in connection with any Credit
Document, except for its own gross negligence or willful misconduct. The
Administrative Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
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10.2 RELIANCE BY ADMINISTRATIVE AGENT.
The Administrative Agent shall be entitled to rely upon any
certification, notice, instrument, writing, or other communication (including,
without limitation, any thereof by telephone or telecopy) believed by it to be
genuine and correct and to have been signed, sent or made by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel
(including counsel for any Credit Party), independent accountants, and other
experts selected by the Administrative Agent. The Administrative Agent may deem
and treat the payee of any Note as the holder thereof for all purposes hereof
unless and until the Administrative Agent receives and accepts an Assignment and
Acceptance executed in accordance with Section 11.3(b) hereof. As to any matters
not expressly provided for by this Credit Agreement, the Administrative Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding on all of the Lenders; provided, however,
that the Administrative Agent shall not be required to take any action that
exposes the Administrative Agent to personal liability or that is contrary to
any Credit Document or applicable law or unless it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking any such action.
10.3 DEFAULTS.
The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default or Event of Default unless the
Administrative Agent has received written notice from a Lender or the a Credit
Party specifying such Default or Event of Default and stating that such notice
is a "Notice of Default". In the event that the Administrative Agent receives
such a notice of the occurrence of a Default or Event of Default, the
Administrative Agent shall give prompt notice thereof to the Lenders. The
Administrative Agent shall (subject to Section 10.2 hereof) take such action
with respect to such Default or Event of Default as shall reasonably be directed
by the Required Lenders, provided that, unless and until the Administrative
Agent shall have received such directions, the Administrative Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable in
the best interest of the Lenders.
10.4 RIGHTS AS A LENDER.
With respect to its Commitment and the Loans made by it, NationsBank
(and any successor acting as Administrative Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Administrative
Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include the Administrative Agent in its individual capacity.
NationsBank (and any successor acting as Administrative Agent) and its
Affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in, provide services to, and
generally engage in any kind of lending, trust, or other business with any
Credit Party or any of its Subsidiaries or Affiliates as if it were not acting
as Administrative Agent, and NationsBank (and any successor acting as
Administrative Agent) and its Affiliates may accept fees and other consideration
from any Credit Party or any of its
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Subsidiaries or Affiliates for services in connection with this Credit Agreement
or otherwise without having to account for the same to the Lenders.
10.5 INDEMNIFICATION.
The Lenders agree to indemnify the Administrative Agent (to the extent
not reimbursed under Section 11.5 hereof, but without limiting the obligations
of the Credit Parties under such Section) ratably in accordance with their
respective Commitments, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including
attorneys' fees), or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Administrative Agent (including
by any Lender) in any way relating to or arising out of any Credit Document or
the transactions contemplated thereby or any action taken or omitted by the
Administrative Agent under any Credit Document; provided that no Lender shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Person to be indemnified. Without
limitation of the foregoing, each Lender agrees to reimburse the Administrative
Agent promptly upon demand for its ratable share of any costs or expenses
payable by the Credit Parties under Section 11.5, to the extent that the
Administrative Agent is not promptly reimbursed for such costs and expenses by
the Credit Parties. The agreements in this Section 10.5 shall survive the
repayment of the Loans, LOC Obligations and other obligations under the Credit
Documents and the termination of the Commitments hereunder.
10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS.
Each Lender agrees that it has, independently and without reliance on
the Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Credit Parties and their Subsidiaries and decision to enter into this Credit
Agreement and that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under the Credit
Documents. Except for notices, reports, and other documents and information
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition, or business of any Credit Party or any of its Subsidiaries
or Affiliates that may come into the possession of the Administrative Agent or
any of its Affiliates.
10.7 SUCCESSOR ADMINISTRATIVE AGENT.
The Administrative Agent may resign at any time by giving notice
thereof to the Lenders and the Credit Parties and the Administrative Agent may
be removed at any time by the Required Lenders for gross negligence or willful
misconduct in the performance of its duties hereunder. Upon any such resignation
or removal, the Required Lenders shall have the right to appoint a successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Administrative Agent's giving of
notice of resignation, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent which shall be a
commercial bank organized under the laws of the United States having
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combined capital and surplus of at least $100,000,000. Upon the acceptance of
any appointment as Administrative Agent hereunder by a successor, such successor
shall thereupon succeed to and become vested with all the rights, powers,
discretion, privileges, and duties of the retiring Administrative Agent, and the
retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Section 10 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Administrative Agent.
SECTION 11
MISCELLANEOUS
11.1 NOTICES.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address, in the case of the Credit Parties and the
Administrative Agent, set forth below, and, in the case of the Lenders, set
forth on Schedule 2.1(a), or at such other address as such party may specify by
written notice to the other parties hereto:
if to any Credit Party:
Modtech Holdings, Inc.
2830 Barrett Avenue
P.O. Box 1240
Perris, CA 92572
Attn: Evan M. Gruber
Telephone: (909) 943-4014
Telecopy: (909) 943-9655
if to the Administrative Agent:
NationsBank, N. A.
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 386-9068
Telecopy: (704) 386-8694
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with a copy to:
NationsBank, N. A.
NationsBank Corporate Center
100 N. Tryon Street
Charlotte, NC 28255
Attn: Curtis D. Lueker
Telephone: (704) 388-7353
Telecopy: (704) 386-9607
11.2 RIGHT OF SET-OFF; ADJUSTMENTS.
Upon the occurrence and during the continuance of any Event of Default,
each Lender (and each of its Affiliates) is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or any
of its Affiliates) to or for the credit or the account of any Credit Party
against any and all of the obligations of such Person now or hereafter existing
under this Credit Agreement, under the Notes, under any other Credit Document or
otherwise, irrespective of whether such Lender shall have made any demand
hereunder or thereunder and although such obligations may be unmatured. Each
Lender agrees promptly to notify any affected Credit Party after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section 11.2 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) that such Lender may have.
11.3 BENEFIT OF AGREEMENT.
(a) This Credit Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that none of the Credit Parties
may assign or transfer any of its interests and obligations without
prior written consent of the Lenders; provided further that the rights
of each Lender to transfer, assign or grant participations in its
rights and/or obligations hereunder shall be limited as set forth in
this Section 11.3.
(b) Each Lender may assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this
Credit Agreement (including, without limitation, all or a portion of
its Loans, its Notes, and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible
Assignee;
(ii) except in the case of an assignment to
another Lender, an Affiliate of an existing Lender or any fund
that invests in bank loans and is advised or managed by an
investment advisor to an existing Lender or an assignment of
all of a Lender's rights and obligations under this Credit
Agreement, any such partial assignment shall be in an amount
at least equal to $5,000,000 (or, if less, the remaining
amount of the Commitment being assigned by such Lender) or an
integral multiple of $1,000,000 in excess thereof;
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(iii) each such assignment shall be of a single,
and not a varying, percentage of all of the assigning Lender's
rights and obligations under this Credit Agreement; and
(iv) the parties to such assignment shall execute
and deliver to the Administrative Agent for its acceptance an
Assignment and Acceptance in the form of Exhibit 11.3(b)
hereto, together with any Note subject to such assignment and
a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the
extent of such assignment, have the obligations, rights, and benefits
of a Lender hereunder and the assigning Lender shall, to the extent of
such assignment, relinquish its rights and be released from its
obligations under this Credit Agreement. Upon the consummation of any
assignment pursuant to this Section 11.3(b), the assignor, the
Administrative Agent and the Credit Parties shall make appropriate
arrangements so that, if required, new Notes are issued to the assignor
and the assignee. If the assignee is not a United States person under
Section 7701(a)(30) of the Code, it shall deliver to the Credit Parties
and the Administrative Agent certification as to exemption from
deduction or withholding of Taxes in accordance with Section 3.11.
(c) The Administrative Agent shall maintain at its
address referred to in Section 11.1 a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the
recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Loans owing to, each Lender
from time to time (the "Register"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and
the Credit Parties, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Credit Agreement. The Register shall
be available for inspection by the Credit Parties or any Lender at any
reasonable time and from time to time upon reasonable prior notice. Any
assignment of any Loan or other Credit Party Obligations shall be
effective only upon an entry with respect thereto being made in the
Register.
(d) Upon its receipt of an Assignment and Acceptance
executed by the parties thereto, together with any Note subject to such
assignment and payment of the processing fee, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit 11.3(b) hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the
parties thereto.
(e) Each Lender may sell participations to one or more
Persons in all or a portion of its rights, obligations or rights and
obligations under this Credit Agreement (including all or a portion of
its Commitment or its Loans); provided, however, that (i) such Lender's
obligations under this Credit Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations, (iii) the participant shall be
entitled to the benefit of the yield protection provisions contained in
Sections 3.7 through 3.12, inclusive, and the right of set-off
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contained in Section 11.2, and (iv) the Credit Parties shall continue
to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Credit Agreement, and such
Lender shall retain the sole right to enforce the obligations of the
Credit Parties relating to the Credit Party Obligations owing to such
Lender and to approve any amendment, modification, or waiver of any
provision of this Credit Agreement (other than amendments,
modifications, or waivers decreasing the amount of principal of or the
rate at which interest is payable on such Loans or Notes, extending any
scheduled principal payment date or date fixed for the payment of
interest on such Loans or Notes, or extending its Commitment).
(f) Notwithstanding any other provision set forth in this
Credit Agreement, any Lender may at any time assign and pledge all or
any portion of its Loans and its Notes (i) to any Federal Reserve Bank
as collateral security pursuant to Regulation A and any Operating
Circular issued by such Federal Reserve Bank or (ii) in the case of any
Lender which has made Delayed Draw Term Loans hereunder and is an
investment fund, to the trustee under the indenture to which such fund
is a party in support of its obligations to such trustee for the
benefit of the applicable trust beneficiaries. No such assignment shall
release the assigning Lender from its obligations hereunder.
(g) Any Lender may furnish any information concerning the
Consolidated Parties in the possession of such Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 11.14
hereof.
11.4 NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Administrative Agent or any
Lender in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between the Administrative Agent or any
Lender and any of the Credit Parties shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
or under any other Credit Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and remedies provided herein are cumulative and not
exclusive of any rights or remedies which the Administrative Agent or any Lender
would otherwise have. No notice to or demand on any Credit Party in any case
shall entitle the Credit Parties to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
11.5 EXPENSES; INDEMNIFICATION.
(a) The Credit Parties jointly and severally agree to pay
on demand all costs and expenses of the Administrative Agent and NMS in
connection with the negotiation, syndication, preparation, execution,
delivery, administration, modification, and amendment of this Credit
Agreement, the other Credit Documents, and the other documents to be
delivered hereunder, including, without limitation, the reasonable fees
and expenses of counsel for the Administrative Agent (including the
cost of internal counsel) with respect thereto and with respect to
advising the Administrative Agent as to its rights and responsibilities
under the Credit Documents. The Credit Parties further
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jointly and severally agree to pay on demand all costs and expenses of
the Administrative Agent, NMS and the Lenders, if any (including,
without limitation, reasonable attorneys' fees and expenses and the
cost of internal counsel), in connection with (i) the enforcement
(whether through negotiations, legal proceedings, or otherwise) of the
Credit Documents and the other documents to be delivered hereunder,
(ii) any bankruptcy or insolvency proceeding of a Credit Party or any
of its Subsidiaries and (iii) upon the occurrence and during the
continuance of an Event of Default, any work-out, renegotiation or
restructuring of the Credit Facilities relating to the performance of
the Credit Parties under the Credit Documents.
(b) The Credit Parties jointly and severally agree to
indemnify and hold harmless the Administrative Agent, NMS and each
Lender and each of their Affiliates and their respective officers,
directors, employees, agents, and advisors (each, an "Indemnified
Party") from and against any and all claims, damages, losses,
liabilities, costs, and expenses (including, without limitation,
reasonable attorneys' fees) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or
in connection with or by reason of (including, without limitation, in
connection with any investigation, litigation, or proceeding or
preparation of defense in connection therewith) the Credit Documents,
any of the transactions contemplated herein or the actual or proposed
use of the proceeds of the Loans, except to the extent such claim,
damage, loss, liability, cost, or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful
misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section 11.5 applies, such
indemnity shall be effective whether or not such investigation,
litigation or proceeding is brought by any of the Credit Parties, their
respective directors, shareholders or creditors or an Indemnified Party
or any other Person or any Indemnified Party is otherwise a party
thereto and whether or not the transactions contemplated hereby are
consummated. The Credit Parties agree not to assert any claim against
the Administrative Agent, NMS, any Lender, any of their Affiliates, or
any of their respective directors, officers, employees, attorneys,
agents, and advisers, on any theory of liability, for special,
indirect, consequential, or punitive damages arising out of or
otherwise relating to the Credit Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of
the Loans.
(c) Without prejudice to the survival of any other
agreement of the Credit Parties hereunder, the agreements and
obligations of the Credit Parties contained in this Section 11.5 shall
survive the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the
Commitments hereunder.
11.6 AMENDMENTS, WAIVERS AND CONSENTS.
Neither this Credit Agreement nor any other Credit Document nor any of
the terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower, provided, however, that:
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(a) without the consent of each Lender affected thereby,
neither this Credit Agreement nor any other Credit Document may be
amended to
(i) extend the final maturity of any Loan or of
any reimbursement obligation, or any portion thereof, arising
from drawings under Letters of Credit, or extend or waive any
Principal Amortization Payment of any Loan, or any portion
thereof,
(ii) reduce the rate or extend the time of
payment of interest (other than as a result of waiving the
applicability of any post-default increase in interest rates)
thereon or Fees hereunder,
(iii) reduce or waive the principal amount of any
Loan or of any reimbursement obligation, or any portion
thereof, arising from drawings under Letters of Credit,
(iv) increase the Commitment of a Lender over the
amount thereof in effect (it being understood and agreed that
a waiver of any Default or Event of Default or mandatory
reduction in the Commitments shall not constitute a change in
the terms of any Commitment of any Lender),
(v) except as the result of or in connection
with an Asset Disposition permitted by Section 8.5, release
all or substantially all of the Collateral,
(vi) except as the result of or in connection
with a dissolution, merger or disposition of a Consolidated
Party permitted under Section 8.4, release the Borrower or
substantially all of the other Credit Parties from its or
their obligations under the Credit Documents,
(vii) amend, modify or waive any provision of this
Section 11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12,
3.13, 3.14, 3.15, 9.1(a), 11.2, 11.3, 11.5 or 11.9,
(viii) reduce any percentage specified in, or
otherwise modify, the definition of Required Lenders, or
(ix) consent to the assignment or transfer by the
Borrower or all or substantially all of the other Credit
Parties of any of its or their rights and obligations under
(or in respect of) the Credit Documents except as permitted
thereby;
(b) without the consent of the Administrative Agent, no
provision of Section 10 may be amended;
(c) without the consent of the Issuing Lender, no
provision of Section 2.2 may be amended; and
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(d) without the consent of the Swingline Lender, no
provision of Section 2.3 may be amended.
Notwithstanding the fact that the consent of all the Lenders is
required in certain circumstances as set forth above, (x) each Lender
is entitled to vote as such Lender sees fit on any bankruptcy
reorganization plan that affects the Loans, and each Lender
acknowledges that the provisions of Section 1126(c) of the Bankruptcy
Code supersedes the unanimous consent provisions set forth herein and
(y) the Required Lenders may consent to allow a Credit Party to use
cash collateral in the context of a bankruptcy or insolvency
proceeding.
11.7 COUNTERPARTS.
This Credit Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart for each of the parties hereto. Delivery by facsimile by any of
the parties hereto of an executed counterpart of this Credit Agreement shall be
as effective as an original executed counterpart hereof and shall be deemed a
representation that an original executed counterpart hereof will be delivered.
11.8 HEADINGS.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 SURVIVAL.
All indemnities set forth herein, including, without limitation, in
Section 2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and
delivery of this Credit Agreement, the making of the Loans, the issuance of the
Letters of Credit, the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the Commitments
hereunder, and all representations and warranties made by the Credit Parties
herein shall survive delivery of the Notes and the making of the Loans
hereunder.
11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE.
(a) THIS CREDIT AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED
BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to
this Credit Agreement or any other Credit Document may be brought in
the courts of the State of North Carolina in Mecklenburg County, or of
the United States for the Western District of North Carolina, and, by
execution and delivery of this Credit Agreement, each of the Credit
Parties hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction
of such courts. Each of the Credit Parties further irrevocably
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consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to it at the
address set out for notices pursuant to Section 11.1, such service to
become effective three (3) days after such mailing. Nothing herein
shall affect the right of the Administrative Agent or any Lender to
serve process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against any Credit Party in any
other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives
any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in
connection with this Credit Agreement or any other Credit Document
brought in the courts referred to in subsection (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT,
THE LENDERS, EACH OF THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER
CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.11 SEVERABILITY.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 ENTIRETY.
This Credit Agreement together with the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
11.13 BINDING EFFECT; TERMINATION.
(a) This Credit Agreement shall become effective at such
time on or after the Closing Date when it shall have been executed by
each Credit Party and the Administrative Agent, and the Administrative
Agent shall have received copies hereof (telefaxed or otherwise) which,
when taken together, bear the signatures of each Lender, and thereafter
this Credit Agreement shall be binding upon and inure to the benefit of
each Credit Party, the Administrative Agent and each Lender and their
respective successors and assigns.
(b) The term of this Credit Agreement shall be until no
Loans, LOC Obligations or any other amounts payable hereunder or under
any of the other Credit Documents shall remain outstanding, no Letters
of Credit shall be outstanding, all of the Credit Party
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Obligations have been irrevocably satisfied in full and all of the
Commitments hereunder shall have expired or been terminated.
11.14 CONFIDENTIALITY.
The Administrative Agent and each Lender (each, a "Lending Party")
agrees to keep confidential any information furnished or made available to it by
the Credit Parties pursuant to this Credit Agreement to the same extent that it
affords such protection to its own proprietary information; provided that
nothing herein shall prevent any Lending Party from disclosing such information
(a) to any other Lending Party or any Affiliate of any Lending Party, or any
officer, director, employee, agent, or advisor of any Lending Party or Affiliate
of any Lending Party, (b) to any other Person if reasonably incidental to the
administration of the Credit Facilities, (c) as required by any law, rule, or
regulation, (d) upon the order of any court or administrative agency, (e) upon
the request or demand of any regulatory agency or authority, (f) that is or
becomes available to the public or that is or becomes available to any Lending
Party other than as a result of a disclosure by any Lending Party prohibited by
this Credit Agreement, (g) in connection with any litigation to which such
Lending Party or any of its Affiliates may be a party, (h) to the extent
necessary in connection with the exercise of any remedy under this Credit
Agreement or any other Credit Document, (i) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Lender's investment
portfolio in connection with ratings issued with respect to such Lender, (j) to
any direct or indirect contractual counterparty in swap agreements or such
contractual counterparty's professional advisor (so long as such contractual
counterparty or professional advisor to such contractual counterparty (i) has
been approved in writing by the Borrower and (ii) agrees in a writing
enforceable by the Borrower to be bound by the provisions of this Section 11.14)
and (k) subject to provisions substantially similar to those contained in this
Section 11.14, to any actual or proposed participant or assignee.
11.15 SOURCE OF FUNDS.
Each of the Lenders hereby represents and warrants to the Borrower that
at least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:
(a) no part of such funds constitutes assets allocated to
any separate account maintained by such Lender in which any employee
benefit plan (or its related trust) has any interest;
(b) to the extent that any part of such funds constitutes
assets allocated to any separate account maintained by such Lender,
such Lender has disclosed to the Borrower the name of each employee
benefit plan whose assets in such account exceed 10% of the total
assets of such account as of the date of such purchase (and, for
purposes of this subsection (b), all employee benefit plans maintained
by the same employer or employee organization are deemed to be a single
plan);
(c) to the extent that any part of such funds constitutes
assets of an insurance company's general account, such insurance
company has complied with all of the requirements of the regulations
issued under Section 401(c)(1)(A) of ERISA; or
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(d) such funds constitute assets of one or more specific
benefit plans which such Lender has identified in writing to the
Borrower.
As used in this Section 11.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
11.16 CONFLICT.
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
GUARANTORS: MODTECH, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
SPI HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
SPI MANUFACTURING, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
OFFICE MASTER OF TEXAS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
ROSEWOOD ENTERPRISES, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 114
TRAC MODULAR MANUFACTURING, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
A SPACE, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 115
LENDERS: NATIONSBANK, N. A.,
individually in its capacity as a
Lender and in its capacity as Administrative
Agent
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 116
UNION BANK OF CALIFORNIA, N.A.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 117
LASALLE NATIONAL BANK
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 118
NATIONAL CITY BANK
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 119
SANWA BANK CALIFORNIA
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 120
MELLON BANK, N.A.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 121
FLEET CAPITAL CORPORATION
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 122
IMPERIAL BANK
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 123
HARRIS TRUST AND SAVINGS BANK
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 124
SCHEDULE 1.1A
INVESTMENTS
<PAGE> 125
SCHEDULE 1.1B
LIENS
<PAGE> 126
SCHEDULE 2.1(a)
LENDER ADDRESSES AND COMMITMENTS
NATIONSBANK, N.A. MELLON BANK, N.A.
Lynn Cole William R. Murray
Agency Services 400 South Hope Street
Independence Center, 15th Floor Fifth Floor
Charlotte, NC 28255 Los Angeles, CA 90071
Phone: (704) 386-9068 Phone: (213) 553-9563
Fax: (704) 388-9436 Fax: (213) 629-0484
FLEET CAPITAL CORPORATION NATIONAL CITY BANK
Jim Karnowski Joshua Sosland
15260 Ventura Blvd., Suite 400 1900 East 9th Street
Sherman Oaks, CA 91403 Mail Locator 2077
Phone: (818) 382-4230 Cleveland, OH 44114
Fax: (818) 382-4291 Phone: (216) 575-9995
Fax: (216) 222-0003
HARRIS TRUST AND SAVINGS BANK SANWA BANK CALIFORNIA
Bonnie Ogden Stephen J. Popovich
111 W. Monroe Street 9000 E. Valley Blvd.
Chicago, IL 60603 Rosemead, CA 91770
Phone: (312) 461-7817 Phone: (626) 312-5741
Fax: (312) 293-5041 Fax: (626) 312-5751
IMPERIAL BANK UNION BANK OF CALIFORNIA, N.A.
Jamie Harney Jon Strayer
9920 S. La Cienega Blvd., 14th Floor 445 South Figueroa St.
Inglewood, CA 90301 Los Angeles, CA 90071
Phone: (310) 417-5656 Phone: (213) 236-7760
Fax: (310) 417-5997 Fax: (213) 236-7635
LASALLE NATIONAL BANK
Michael Kriz
135 S. LaSalle, Suite 307
Chicago, IL 60603
Phone: (312) 904-2148
Fax: (312) 904-4605
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Revolving Tranche A Term
Revolving Commitment Tranche A Term Loan Commitment Delayed Draw Term
Lenders Commitment Percentage Loan Commitment Percentage Loan Commitment
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NationsBank, N.A. $ 3,900,000 13.0% $ 5,850,000 13.0% $ 3,250,000
- -------------------------------------------------------------------------------------------------------------------------
Fleet Capital Corporation $ 3,300,000 11.0% $ 4,950,000 11.0% $ 2,750,000
- -------------------------------------------------------------------------------------------------------------------------
Harris Trust and Savings $ 3,300,000 11.0% $ 4,950,000 11.0% $ 2,750,000
Bank
- -------------------------------------------------------------------------------------------------------------------------
Imperial Bank $ 3,300,000 11.0% $ 4,950,000 11.0% $ 2,750,000
- -------------------------------------------------------------------------------------------------------------------------
LaSalle National Bank $ 3,300,000 11.0% $ 4,950,000 11.0% $ 2,750,000
- -------------------------------------------------------------------------------------------------------------------------
Mellon Bank, N.A. $ 3,300,000 11.0% $ 4,950,000 11.0% $ 2,750,000
- -------------------------------------------------------------------------------------------------------------------------
Sanwa Bank California $ 3,300,000 11.0% $ 4,950,000 11.0% $ 2,750,000
- -------------------------------------------------------------------------------------------------------------------------
Union Bank of $ 3,300,000 11.0% $ 4,950,000 11.0% $ 2,750,000
California, N.A.
- -------------------------------------------------------------------------------------------------------------------------
National City Bank $ 3,000,000 10.0% $ 4,500,000 10.0% $ 2,500,000
- -------------------------------------------------------------------------------------------------------------------------
Total: $30,000,000 100% $45,000,000 100% $25,000,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Delayed Draw
Term Loan
Commitment Total Commitment
Lenders Percentage Total Commitment Percentage
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
NationsBank, N.A. 13.0% $ 13,000,000 13.0%
- ----------------------------------------------------------------------------------
Fleet Capital Corporation 11.0% $ 11,000,000 11.0%
- ----------------------------------------------------------------------------------
Harris Trust and Savings 11.0% $ 11,000,000 11.0%
Bank
- ----------------------------------------------------------------------------------
Imperial Bank 11.0% $ 11,000,000 11.0%
- ----------------------------------------------------------------------------------
LaSalle National Bank 11.0% $ 11,000,000 11.0%
- ----------------------------------------------------------------------------------
Mellon Bank, N.A. 11.0% $ 11,000,000 11.0%
- ----------------------------------------------------------------------------------
Sanwa Bank California 11.0% $ 11,000,000 11.0%
- ----------------------------------------------------------------------------------
Union Bank of 11.0% $ 11,000,000 11.0%
California, N.A.
- ----------------------------------------------------------------------------------
National City Bank 10.0% $ 10,000,000 10.0%
- ----------------------------------------------------------------------------------
Total: 100% $100,000,000 100%
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE> 128
SCHEDULE 5.1(c)(i)
FORM OF LEGAL OPINION (GENERAL EXTERNAL COUNSEL)
[Letterhead of General External Counsel]
February 16, 1999
To the Lenders party to the Credit
Agreement referred to below and
NationsBank, N.A., as Administrative
Agent thereunder
Ladies and Gentlemen:
We have acted as counsel to Modtech Holdings, Inc., a Delaware
corporation (the "Borrower"), Modtech, Inc., a California corporation
("Modtech"), SPI Holdings, Inc., a Colorado corporation ("SPI"), the
Subsidiaries of Modtech and SPI (together with Modtech and SPI, the
"Guarantors"; the Guarantors, together with the Borrower, individually a "Credit
Party" and collectively the "Credit Parties") in connection with the Credit
Agreement dated as of the date hereof among the Borrower, the Guarantors, the
Lenders party thereto and NationsBank, N.A., as Administrative Agent for such
Lenders (the "Credit Agreement"). We are rendering the opinions set forth herein
at the request of the Lenders in accordance with Section 5.1(c)(i) of the Credit
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meanings assigned thereto in the Credit Agreement.
In rendering this opinion, we have reviewed the following documents:
(1) The Credit Agreement;
(2) Each of the Notes;
(3) The Security Agreement;
(4) The Pledge Agreement;
(5) The Mortgage Instruments;
(6) The UCC-1 Financing Statement(s) executed by the Credit
Parties in connection with the Colorado Mortgage Instruments (the "Fixture
Financing Statements");
<PAGE> 129
(7) The UCC-1 Financing Statements executed by the Credit Parties
(the "Code Collateral Financing Statements" and together with the Fixture
Financing Statements, the "UCC Financing Statements") in connection with the
Security Agreement;
The documents referenced in numbers (1) through (7) above are
collectively referred to as the "Credit Documents."
In rendering the opinions expressed below, we have examined the
Documents and originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, agreements, documents and other
instruments, and such certificates or comparable documents of public officials
and of officers and representatives of the Credit Parties, and have made such
inquiries of such officers and representatives, as we have deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures
(other than signatures on behalf of the Credit Parties to the Documents), the
authenticity of all documents (other than the Documents) submitted to us as
originals, the conformity to original documents of documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents.
In rendering the opinion set forth in paragraph 5 below, we have
assumed, to the extent that matters covered by such opinion would be governed by
the laws of any jurisdiction other than the State of Colorado or the United
States of America or the General Corporation Law of the State of Delaware, that
the laws of such other jurisdiction are identical to the laws of the State of
Colorado.
The opinions set forth in paragraphs 1, 2, 3 and 4 below do not cover
the following Credit Parties: Office Master of Texas, Inc., Rosewood
Enterprises, Inc. and Trac Modular Manufacturing, Inc.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. Each of the Credit Parties is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation.
2. Each of the Credit Parties has the corporate power and
authority, and legal right, to own its properties and assets, to lease the
property and assets it operates as lessee and to carry on its business as now
being conducted, and is qualified to do business and in good standing in its
state of incorporation and each other jurisdiction where it is required to be
qualified and in good standing by the nature of its business.
3. Each of the Credit Parties has the corporate power and
authority to execute, deliver and perform each of the Documents to which it is a
party and has taken all proper and
<PAGE> 130
necessary corporate action to authorize the execution, delivery and performance
of the Documents to which it is a party.
4. Each of the Documents has been duly executed and delivered by
each of the Credit Parties which is a party thereto.
5. Each of the Documents constitutes the legal, valid and binding
obligation of each of the Credit Parties which is a party thereto, enforceable
against each such Person in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors rights and remedies generally, including (without limitation)
applicable fraudulent transfer laws, and subject, as to enforceability, to
general principles of equity including (without limitation) concepts of
materiality, reasonableness, good faith and fair dealing, and other similar
doctrines affecting the enforceability of agreements generally (regardless of
whether considered in a proceeding in equity or law).
6. The authorized capital stock and the issued and outstanding
shares of stock of each of the direct and indirect Subsidiaries of the Borrower
as set forth in Schedule 1 attached hereto constitute, after giving effect to
the Merger, all of the authorized, issued and outstanding shares of stock of all
of the direct and indirect Subsidiaries of the Borrower, and all of such issued
and outstanding shares of stock are owned by such Persons as set forth in such
schedule. All of the Pledged Shares (as defined in the Pledge Agreement) have
been duly authorized and validly issued and are fully paid and non-assessable.
7. The Pledge Agreement creates a legal, valid and enforceable
security interest in favor of the Administrative Agent in the Pledged Collateral
(as defined in the Pledge Agreement).
8. Assuming continued possession by the Administrative Agent of
the stock certificates representing the Pledged Shares, the Administrative
Agent's security interests in the Pledged Shares constitute first priority,
perfected security interests.
9. The execution, delivery and performance by each of the Credit
Parties of the Documents to which it is a party, the borrowings under the Credit
Documents, the use of the proceeds of the Loans and the consummation of the
Merger, (i) will not conflict with or violate any Colorado, Delaware corporate
or federal law or regulation, or the organic documents or bylaws or similar
documents of any Credit Party, (ii) will not be in conflict with, result in a
breach of or constitute an event of default, nor an event which, with the giving
of notice or lapse of time or both, would constitute such an event of default,
under any indenture, agreement or instrument known to us to which any Credit
Party is a party and (iii) will not result in the creation or imposition of any
Lien of any nature whatsoever upon any of the properties or assets of any Credit
Party other than Permitted Liens.
10. No consent, approval, waiver, license, authorization or
application or other action by or filing with any Colorado, Delaware or federal
Governmental Authority is required in
<PAGE> 131
connection with the execution, delivery or performance by any Credit Party of
the Documents to which it is a party, except for those already obtained or made.
11. To our knowledge, there are no judicial, administrative or
arbitration orders, awards or proceedings pending or threatened against or
affecting any Credit Party in any court or before any Governmental Authority or
arbitration board or tribunal that, if adversely determined, could reasonably
have a Material Adverse Effect.
12. None of the Credit Parties is an "investment company," or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, or controlled by such a company, or
a "holding company," or a "Subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "Subsidiary company," within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
13. The execution and delivery of the Security Agreement by each
Credit Party which is a party thereto creates a valid lien on and a security
interest in the "Collateral" (as such term is defined in the Security Agreement)
of each such Person covered thereby, to the extent the validity of a lien or
security interest in the Collateral of each such Person is covered by Article 9
of the Uniform Commercial Code (the "UCC") in effect in the State of Colorado
(the "Collateral State"), as security for the Secured Obligations referred to
therein. With respect to each Credit Party which has its chief executive offices
and/or principal place of business in the Collateral State and/or which owns
(now or hereafter) any Collateral covered by Article 9 of the UCC of the
Collateral State, the lien and security interest arising under the Security
Agreement shall be duly perfected (to the extent a lien or security interest in
Collateral owned (now or hereafter) by each such Person may be perfected by the
filing of a financing statement under the UCC of the Collateral State) by the
filing of the financing statements on Form UCC-1 in the offices in the
jurisdictions indicated on Schedule 2 for each such Person.
No opinion is expressed herein with respect to conflicts of law, choice
of law, forum selection, severability, title to any property, the enforceability
of any indemnification or liquidated damages provision.
The opinions herein are limited to the laws of the State of Colorado,
the General Corporation Law of the State of Delaware and the federal laws of the
United States, except to the extent that, with respect to the opinion set forth
in paragraph 5 above, we have assumed as provided above that such laws are
identical to those of the State of Colorado.
This opinion has been rendered solely for your benefit in connection
with the transactions described above and may not be used, circulated, quoted,
relied upon or otherwise referred to for any other purpose without our prior
written consent; provided, however, that this opinion may be delivered to your
regulators, accountants, attorneys and other professional advisers and may be
used in connection with any legal or regulatory proceeding relating to the
subject matter of this opinion; provided further, that any person that becomes a
Lender pursuant to the transfer provisions of the Credit Agreement may rely upon
this opinion as if it were addressed to such person and delivered on the date
hereof.
<PAGE> 132
This opinion speaks solely as of its date. We assume no obligation to
inform the addressee, or any other person who is entitled to rely on this
opinion, of any change in fact or law subsequent to the date hereof.
Very truly yours,
<PAGE> 133
Schedule 1
[Ownership of the Borrower's Subsidiaries]
Schedule 2
[Locations for UCC-1 Filings]
<PAGE> 134
SCHEDULE 5.1(c)(ii)
FORM OF LEGAL OPINION (LOCAL CORPORATE COUNSEL)
[Letterhead of Local Corporate Counsel]
February 16, 1999
To the Lenders party to the Credit
Agreement referred to below and
NationsBank, N.A., as Administrative
Agent thereunder
Re: Modtech Holdings, Inc.
Ladies and Gentlemen:
We have acted as special [State of Incorporation] counsel to
____________, a [State of Incorporation] corporation (the "Company"), in
connection with the Credit Agreement dated as of the date hereof (the "Credit
Agreement") among Modtech Holdings, Inc., a Delaware corporation (the
"Borrower"), certain guarantors party thereto (each a "Guarantor", and together,
with the Borrower, individually a "Credit Party" and collectively the "Credit
Parties"), the several lenders from time to time party thereto (the "Lenders"),
and NationsBank, N.A., as administrative agent for the Lenders (in such
capacity, the "Administrative Agent").
This opinion is being delivered at the request of the Credit Parties
pursuant to Section 5.1(c)(ii) of the Credit Agreement. Capitalized terms used
herein but not otherwise defined herein shall have the respective meanings
accorded such terms in the Credit Agreement.
In rendering the opinions expressed below, we have examined executed
copies of the Credit Agreement, the other Credit Documents [and the Merger
Documents] (collectively, the "Documents") and originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and/or representatives of the Company, and
have made such inquiries of such officers and/or representatives as we have
deemed relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of documents
<PAGE> 135
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of [State of Incorporation], has the
corporate power and authority, and 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, and is qualified to do business and in good standing in
the State of [State of Incorporation].
2. The Company has the corporate power and authority to execute,
deliver and perform each of the Documents to which it is a party, and the
Company has taken all proper and necessary corporate action to authorize the
execution, delivery and performance of each of the Documents to which it is a
party.
3. The Company has duly executed and delivered each of the
Documents to which it is a party.
4. Neither the execution and delivery of the Documents by the
Company, nor the consummation by it of the transactions contemplated therein,
will (a) violate or conflict with any provision of the articles of
incorporation, bylaws or other organization documents of the Company, or (b)
violate, contravene or materially conflict with any [State of Incorporation] or
federal law, regulation (including, without limitation, Regulation U or
Regulation X), order, writ, judgment, injunction, decree or permit applicable to
the Company.
5. No consent, approval, authorization or order of, or filing,
registration or qualification with, any [State of Incorporation] Governmental
Authority in respect of the Company is required in connection with the
execution, delivery or performance of the Documents by the Company.
[6. The merger of the Company into [Merger Sub], a Delaware
corporation (the "Merger"), has been consummated in accordance with all
requirements of the California General Corporate Code (including, without
limitation, the filing of a certificate of merger and other required items with
the Secretary of State of the State of California) and the Merger has become
effective under the California General Corporate Code.]
The opinions herein are limited to the laws of [State of Incorporation]
and federal laws, and we express no opinion as to the effect on the matters
covered by this opinion of the laws of any other jurisdiction.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by any
other person, and may not be disclosed, quoted, filed with a governmental agency
or otherwise referred to without our prior
<PAGE> 136
written consent except to your bank examiners, auditors and counsel and to
prospective transferees of your interests under the Credit Agreement and their
professional advisers, or as required by law or pursuant to legal process.
Very truly yours,
<PAGE> 137
SCHEDULE 5.1(c)(iii)
FORM OF LEGAL OPINION (LOCAL COLLATERAL COUNSEL)
[Letterhead of Local Collateral Counsel]
February 16, 1999
To the Lenders party to the Credit
Agreement referred to below and
NationsBank, N.A., as Administrative
Agent thereunder
Re: Modtech Holdings, Inc.
Ladies and Gentlemen:
We have acted as special <<STATE>> counsel to ______________, a
________ corporation (the "Company"), in connection with the Credit Agreement
dated as of February 16, 1999 (the "Credit Agreement"), among Modtech Holdings,
Inc., a Delaware corporation ("Borrower"), certain subsidiaries of the Borrower
(each a "Guarantor", and together, with the Borrower, individually a "Credit
Party and collectively the "Credit Parties"), the several Lenders from time to
time party thereto and NationsBank, N.A., as Administrative Agent
("NationsBank"), the other Credit Documents referred to and defined therein and
the transactions contemplated by the Credit Agreement and the other Credit
Documents.
This opinion is being delivered at the request of the Credit Parties
pursuant to Section 5.1(c)(iii) of the Credit Agreement. Capitalized terms used
herein but not otherwise defined herein shall have the respective meanings
accorded such terms in the Credit Agreement.
In rendering the opinions expressed below, we have examined executed
copies of the Credit Agreement, the Security Agreement referred to and defined
therein (the "Security Agreement") and the Mortgage Instruments referred to and
defined therein for the locations identified on Schedule 2 attached hereto (the
"<<STATE>> Mortgage Instruments") and originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and/or representatives of the Company, and
have made such inquiries of such officers and/or representatives as we have
deemed relevant and necessary as a basis for the opinions hereinafter set forth.
<PAGE> 138
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents (other than the Credit Agreement, the Security
Agreement and the <<STATE>> Mortgage Instruments) submitted to us as originals,
the conformity to original documents of documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The execution and delivery of the Security Agreement by the
Company creates in favor of the Administrative Agent a valid lien on and a
security interest in the "Collateral" (as such term is defined in the Security
Agreement), to the extent the validity of a lien or security interest in the
Collateral is covered by Article 9 of the Uniform Commercial Code in effect in
<<STATE>> (the "<<STATE>> UCC"), as security for the Secured Obligations
referred to therein. Assuming the filing of the financing statements on Form
UCC-1 in the offices in the jurisdictions indicated on Schedule 1, such lien and
security interest is duly perfected to the extent a lien or security interest in
the Collateral owned (now or hereafter) by the Company may be perfected by the
filing of a financing statement under the <<STATE>> UCC.
2. Each <<STATE>> Mortgage is in proper form for recording in the
State of <<STATE>> and upon recordation of each Mortgage Instrument, as
appropriate, such Mortgage Instrument will provide the Administrative Agent, for
the benefit of the Lenders, with a valid lien on the property described therein.
3. Assuming that the matter would be governed by the laws of the
State of <<STATE>>, each of the Security Agreement and the <<STATE>> Mortgage
Instruments constitutes a legal, valid and binding obligation of each Credit
Party which is a party thereto, enforceable against such Person in accordance
with its terms.
The opinions herein are limited to the laws of <<STATE>>, and we
express no opinion as to the effect on the matters covered by this opinion of
the laws of any other jurisdiction.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by any
other person, and may not be disclosed, quoted, filed with a governmental agency
or otherwise referred to without our prior written consent except to your bank
examiners, auditors and counsel and to prospective transferees of your interests
under the Credit Agreement and their professional advisers, or as required by
law or pursuant to legal process.
Very truly yours,
<PAGE> 139
SCHEDULE 1
Name of Corporation Filing Office
- ------------------- -------------
<PAGE> 140
SCHEDULE 2
Mortgage Instruments
<PAGE> 141
SCHEDULE 5.1(e)
MORTGAGED PROPERTIES
<PAGE> 142
SCHEDULE 5.1(h)
CORPORATE STRUCTURE
<PAGE> 143
SCHEDULE 6.4
REQUIRED CONSENTS, AUTHORIZATIONS, NOTICES AND FILINGS
<PAGE> 144
SCHEDULE 6.9
LITIGATION
<PAGE> 145
SCHEDULE 6.12
ERISA
<PAGE> 146
SCHEDULE 6.13
SUBSIDIARIES
<PAGE> 147
SCHEDULE 6.16
ENVIRONMENTAL DISCLOSURES
<PAGE> 148
SCHEDULE 6.17
INTELLECTUAL PROPERTY
<PAGE> 149
SCHEDULE 6.20(a)
MORTGAGED PROPERTIES
<PAGE> 150
SCHEDULE 6.20(b)
COLLATERAL LOCATIONS
<PAGE> 151
SCHEDULE 6.20(c)
CHIEF EXECUTIVE OFFICES/
PRINCIPAL PLACES OF BUSINESS
<PAGE> 152
SCHEDULE 6.23
BROKER'S FEES
<PAGE> 153
SCHEDULE 6.24
LABOR MATTERS
<PAGE> 154
SCHEDULE 7.6
INSURANCE
<PAGE> 155
SCHEDULE 8.1
INDEBTEDNESS
<PAGE> 156
EXHIBIT 1.1A
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is entered into as of
February 16, 1999 among MODTECH HOLDINGS, INC., a Delaware corporation (the
"Borrower"), certain Subsidiaries of the Borrower (individually a "Guarantor",
and collectively the "Guarantors"; together with the Borrower, individually a
"Pledgor", and collectively the "Pledgors") and NATIONSBANK, N.A., in its
capacity as administrative agent (in such capacity, the "Administrative Agent")
for the lenders from time to time party to the Credit Agreement described below
(the "Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement dated as of the date
hereof (as amended, modified, extended, renewed or replaced from time to time,
the "Credit Agreement") among the Borrower, the Guarantors, the Lenders and the
Administrative Agent, the Lenders have agreed to make Loans and issue Letters of
Credit upon the terms and subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Pledgors shall
have executed and delivered this Pledge Agreement to the Administrative Agent
for the ratable benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the Credit
Agreement. For purposes of this Pledge Agreement, the term "Lender" shall
include any Affiliate of any Lender which has entered into a Hedging Agreement
with any Credit Party.
2. Pledge and Grant of Security Interest. To secure the prompt
payment and performance in full when due, whether by lapse of time or otherwise,
of the Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby
pledges and assigns to the Administrative Agent, for the benefit of the Lenders,
and grants to the Administrative Agent, for the benefit of the Lenders, a
continuing security interest in any and all right, title and interest of such
Pledgor in and to the following, whether now owned or existing or owned,
acquired, or arising hereafter (collectively, the "Pledged Collateral"):
(a) Pledged Shares. (i) 100% (or, if less, the full
amount owned by such Pledgor) of the issued and outstanding shares of
capital stock owned by such Pledgor of each domestic Subsidiary set
forth on Schedule 2(a) attached hereto and (ii) 65% (or, if
<PAGE> 157
less, the full amount owned by such Pledgor) of the issued and
outstanding shares of each class of capital stock or other ownership
interests entitled to vote (within the meaning of Treas. Reg. Section
1.956-2(c)(2)) ("Voting Equity") and 100% (or, if less, the full amount
owned by such Pledgor) of the issued and outstanding shares of each
class of capital stock or other ownership interests not entitled to
vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2))
("Non-Voting Equity") owned by such Pledgor of each Foreign Subsidiary
set forth on Schedule 2(a) attached hereto, in each case together with
the certificates (or other agreements or instruments), if any,
representing such shares, and all options and other rights, contractual
or otherwise, with respect thereto (collectively, together with the
shares of capital stock described in Section 2(b) and 2(c) below, the
"Pledged Shares"), including, but not limited to, the following:
(y) all shares or securities representing a
dividend on any of the Pledged Shares, or representing a
distribution or return of capital upon or in respect of the
Pledged Shares, or resulting from a stock split, revision,
reclassification or other exchange therefor, and any
subscriptions, warrants, rights or options issued to the
holder of, or otherwise in respect of, the Pledged Shares; and
(z) without affecting the obligations of the
Pledgors under any provision prohibiting such action hereunder
or under the Credit Agreement, in the event of any
consolidation or merger involving the issuer of any Pledged
Shares and in which such issuer is not the surviving
corporation, all shares of each class of the capital stock of
the successor corporation formed by or resulting from such
consolidation or merger.
(b) Additional Shares. 100% (or, if less, the full amount
owned by such Pledgor) of the issued and outstanding shares of capital
stock owned by such Pledgor of any Person which hereafter becomes a
domestic Subsidiary and 65% (or, if less, the full amount owned by such
Pledgor) of the Voting Equity and 100% (or, if less, the full amount
owned by such Pledgor) of the Non-Voting Equity owned by such Pledgor
of any Person which hereafter becomes a Foreign Subsidiary, including,
without limitation, the certificates representing such shares.
(c) Proceeds. All proceeds and products of the foregoing,
however and whenever acquired and in whatever form.
Without limiting the generality of the foregoing, it is hereby
specifically understood and agreed that a Pledgor may from time to time
hereafter deliver additional shares of stock to the Administrative Agent as
collateral security for the Pledgor Obligations. Upon delivery to the
Administrative Agent, such additional shares of stock shall be deemed to be part
of the Pledged Collateral of such Pledgor and shall be subject to the terms of
this Pledge Agreement whether or not Schedule 2(a) is amended to refer to such
additional shares.
3. Security for Pledgor Obligations. The security interest
created hereby in the Pledged Collateral of each Pledgor constitutes continuing
collateral security for all of the Credit
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Party Obligations, now existing or hereafter arising pursuant to the Credit
Documents, owing from the Borrower or any other Credit Party to any Lender, any
Affiliate of a Lender or the Administrative Agent, howsoever evidenced, created,
incurred or acquired, whether primary, secondary, direct, contingent, or joint
and several, including, without limitation, all liabilities arising under
Hedging Agreements between any Pledgor and any Lender, or any Affiliate of a
Lender, and all obligations and liabilities incurred in connection with
collecting and enforcing the foregoing (collectively, the "Pledgor
Obligations").
4. Delivery of the Pledged Collateral. Each Pledgor hereby agrees
that:
(a) Each Pledgor shall deliver to the Administrative
Agent (i) simultaneously with or prior to the execution and delivery of
this Pledge Agreement, all certificates representing the Pledged Shares
of such Pledgor and (ii) promptly upon the receipt thereof by or on
behalf of a Pledgor, all other certificates and instruments
constituting Pledged Collateral of a Pledgor. Prior to delivery to the
Administrative Agent, all such certificates and instruments
constituting Pledged Collateral of a Pledgor shall be held in trust by
such Pledgor for the benefit of the Administrative Agent pursuant
hereto. All such certificates shall be delivered in suitable form for
transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment in blank, substantially in the
form provided in Exhibit 4(a) attached hereto.
(b) Additional Securities. If such Pledgor shall receive
by virtue of its being or having been the owner of any Pledged
Collateral, any (i) stock certificate, including without limitation,
any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification,
merger, consolidation, sale of assets, combination of shares, stock
splits, spin-off or split-off, promissory notes or other instrument;
(ii) option or right, whether as an addition to, substitution for, or
an exchange for, any Pledged Collateral or otherwise; (iii) dividends
payable in securities; or (iv) distributions of securities in
connection with a partial or total liquidation, dissolution or
reduction of capital, capital surplus or paid-in surplus, then such
Pledgor shall receive such stock certificate, instrument, option, right
or distribution in trust for the benefit of the Administrative Agent,
shall segregate it from such Pledgor's other property and shall deliver
it forthwith to the Administrative Agent in the exact form received
together with any necessary endorsement and/or appropriate stock power
duly executed in blank, substantially in the form provided in Exhibit
4(a), to be held by the Administrative Agent as Pledged Collateral and
as further collateral security for the Pledgor Obligations.
(c) Financing Statements. Each Pledgor shall execute and
deliver to the Administrative Agent such UCC or other applicable
financing statements as may be reasonably requested by the
Administrative Agent in order to perfect and protect the security
interest created hereby in the Pledged Collateral of such Pledgor.
5. Representations and Warranties. Each Pledgor hereby represents
and warrants to the Administrative Agent, for the benefit of the Lenders, that
so long as any of the Pledgor Obligations remain outstanding or any Credit
Document or any Hedging Agreement between any
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Pledgor and any Lender, or any Affiliate of a Lender, is in effect or any Letter
of Credit shall remain outstanding, and until all of the Commitments shall have
been terminated:
(a) Authorization of Pledged Shares. The Pledged Shares
are duly authorized and validly issued, are fully paid and
nonassessable and are not subject to the preemptive rights of any
Person. All other shares of stock constituting Pledged Collateral will
be duly authorized and validly issued, fully paid and nonassessable and
not subject to the preemptive rights of any Person.
(b) Title. Each Pledgor has good and indefeasible title
to the Pledged Collateral of such Pledgor and will at all times be the
legal and beneficial owner of such Pledged Collateral free and clear of
any Lien, other than Permitted Liens. There exists no "adverse claim"
within the meaning of Section 8-302 of the Uniform Commercial Code as
in effect in the State of North Carolina as of the date hereof (the
"UCC") with respect to the Pledged Shares of such Pledgor.
(c) Exercising of Rights. The exercise by the
Administrative Agent of its rights and remedies hereunder will not
violate any law or governmental regulation or any material contractual
restriction binding on or affecting a Pledgor or any of its property.
(d) Pledgor's Authority. No authorization, approval or
action by, and no notice or filing with any Governmental Authority or
with the issuer of any Pledged Stock is required either (i) for the
pledge made by a Pledgor or for the granting of the security interest
by a Pledgor pursuant to this Pledge Agreement or (ii) for the exercise
by the Administrative Agent or the Lenders of their rights and remedies
hereunder (except as may be required by laws affecting the offering and
sale of securities).
(e) Security Interest/Priority. This Pledge Agreement
creates a valid security interest in favor of the Administrative Agent
for the benefit of the Lenders, in the Pledged Collateral. The taking
possession by the Administrative Agent of the certificates representing
the Pledged Shares and all other certificates and instruments
constituting Pledged Collateral will perfect and establish the first
priority of the Administrative Agent's security interest in the Pledged
Shares and, when properly perfected by filing or registration, in all
other Pledged Collateral represented by such Pledged Shares and
instruments securing the Pledgor Obligations. Except as set forth in
this Section 5(e), no action is necessary to perfect or otherwise
protect such security interest.
(f) No Other Shares. No Pledgor owns any shares of stock
other than as set forth on Schedule 2(a) attached hereto.
6. Covenants. Each Pledgor hereby covenants, that so long as any
of the Pledgor Obligations remain outstanding or any Credit Document or Hedging
Agreement between any Pledgor and any Lender, or any Affiliate of a Lender, is
in effect or any Letter of Credit shall remain outstanding, and until all of the
Commitments shall have been terminated, such Pledgor shall:
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(a) Books and Records. Mark its books and records (and
shall cause the issuer of the Pledged Shares of such Pledgor to mark
its books and records) to reflect the security interest granted to the
Administrative Agent, for the benefit of the Lenders, pursuant to this
Pledge Agreement.
(b) Defense of Title. Warrant and defend title to and
ownership of the Pledged Collateral of such Pledgor at its own expense
against the claims and demands of all other parties claiming an
interest therein, keep the Pledged Collateral free from all Liens,
except for Permitted Liens, and not sell, exchange, transfer, assign,
lease or otherwise dispose of Pledged Collateral of such Pledgor or any
interest therein, except as permitted under the Credit Agreement and
the other Credit Documents.
(c) Further Assurances. Promptly execute and deliver at
its expense all further instruments and documents and take all further
action that may be necessary and desirable or that the Administrative
Agent may reasonably request in order to (i) perfect and protect the
security interest created hereby in the Pledged Collateral of such
Pledgor (including without limitation any and all action necessary to
satisfy the Administrative Agent that the Administrative Agent has
obtained a first priority perfected security interest in any capital
stock); (ii) enable the Administrative Agent to exercise and enforce
its rights and remedies hereunder in respect of the Pledged Collateral
of such Pledgor; and (iii) otherwise effect the purposes of this Pledge
Agreement, including, without limitation and if requested by the
Administrative Agent, delivering to the Administrative Agent
irrevocable proxies in respect of the Pledged Collateral of such
Pledgor.
(d) Amendments. Not make or consent to any amendment or
other modification or waiver with respect to any of the Pledged
Collateral of such Pledgor or enter into any agreement or allow to
exist any restriction with respect to any of the Pledged Collateral of
such Pledgor other than pursuant hereto or as may be permitted under
the Credit Agreement.
(e) Compliance with Securities Laws. File all reports and
other information now or hereafter required to be filed by such Pledgor
with the United States Securities and Exchange Commission and any other
state, federal or foreign agency in connection with the ownership of
the Pledged Collateral of such Pledgor.
7. Advances by Lenders. On failure of any Pledgor to perform any
of the covenants and agreements contained herein, the Administrative Agent may,
at its sole option and in its sole discretion, perform the same and in so doing
may expend such sums as the Administrative Agent may reasonably deem advisable
in the performance thereof, including, without limitation, the payment of any
insurance premiums, the payment of any taxes, a payment to obtain a release of a
Lien or potential Lien, expenditures made in defending against any adverse claim
and all other expenditures which the Administrative Agent or the Lenders may
make for the protection of the security hereof or which may be compelled to make
by operation of law. All such sums and amounts so expended shall be repayable by
the Pledgors on a joint and several basis promptly upon timely notice thereof
and demand therefor, shall constitute additional Pledgor Obligations and shall
bear interest from the date said amounts are expended at the default rate
specified in Section 3.1 of
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the Credit Agreement for Revolving Loans that are Base Rate Loans. No such
performance of any covenant or agreement by the Administrative Agent or the
Lenders on behalf of any Pledgor, and no such advance or expenditure therefor,
shall relieve the Pledgors of any default under the terms of this Pledge
Agreement, the other Credit Documents or any Hedging Agreement between any
Pledgor and any Lender, or any Affiliate of a Lender. The Lenders may make any
payment hereby authorized in accordance with any bill, statement or estimate
procured from the appropriate public office or holder of the claim to be
discharged without inquiry into the accuracy of such bill, statement or estimate
or into the validity of any tax assessment, sale, forfeiture, tax lien, title or
claim except to the extent such payment is being contested in good faith by a
Pledgor in appropriate proceedings and against which adequate reserves are being
maintained in accordance with GAAP.
8. Events of Default. The occurrence of an event which under the
Credit Agreement would constitute an Event of Default shall be an Event of
Default hereunder (an "Event of Default").
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event of
Default and during the continuation thereof, the Administrative Agent
and the Lenders shall have, in respect of the Pledged Collateral of any
Pledgor, in addition to the rights and remedies provided herein, in the
Credit Documents, in the Hedging Agreements between any Pledgor and any
Lender, or any Affiliate of a Lender, or by law, the rights and
remedies of a secured party under the UCC or any other applicable law.
(b) Sale of Pledged Collateral. Upon the occurrence of an
Event of Default and during the continuation thereof, without limiting
the generality of this Section and without notice, the Administrative
Agent may, in its sole discretion, sell or otherwise dispose of or
realize upon the Pledged Collateral, or any part thereof, in one or
more parcels, at public or private sale, at any exchange or broker's
board or elsewhere, at such price or prices and on such other terms as
the Administrative Agent may deem commercially reasonable, for cash,
credit or for future delivery or otherwise in accordance with
applicable law. To the extent permitted by law, any Lender may in such
event, bid for the purchase of such securities. Each Pledgor agrees
that, to the extent notice of sale shall be required by law and has not
been waived by such Pledgor, any requirement of reasonable notice shall
be met if notice, specifying the place of any public sale or the time
after which any private sale is to be made, is personally served on or
mailed, postage prepaid, to such Pledgor, in accordance with the notice
provisions of Section 11.1 of the Credit Agreement at least 10 days
before the time of such sale. The Administrative Agent shall not be
obligated to make any sale of Pledged Collateral of such Pledgor
regardless of notice of sale having been given. The Administrative
Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned.
(c) Private Sale. Upon the occurrence of an Event of
Default and during the continuation thereof, the Pledgors recognize
that the Administrative Agent may deem it
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impracticable to effect a public sale of all or any part of the Pledged
Shares or any of the securities constituting Pledged Collateral and
that the Administrative Agent may, therefore, determine to make one or
more private sales of any such securities to a restricted group of
purchasers who will be obligated to agree, among other things, to
acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. Each Pledgor
acknowledges that any such private sale may be at prices and on terms
less favorable to the seller than the prices and other terms which
might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Administrative
Agent shall have no obligation to delay sale of any such securities for
the period of time necessary to permit the issuer of such securities to
register such securities for public sale under the Securities Act of
1933. Each Pledgor further acknowledges and agrees that any offer to
sell such securities which has been (i) publicly advertised on a bona
fide basis in a newspaper or other publication of general circulation
in the financial community of New York, New York (to the extent that
such offer may be advertised without prior registration under the
Securities Act of 1933), or (ii) made privately in the manner described
above shall be deemed to involve a "public sale" under the UCC,
notwithstanding that such sale may not constitute a "public offering"
under the Securities Act of 1933, and the Administrative Agent may, in
such event, bid for the purchase of such securities.
(d) Retention of Pledged Collateral. In addition to the
rights and remedies hereunder, upon the occurrence of an Event of
Default, the Administrative Agent may, after providing the notices
required by Section 9-505(2) of the UCC or otherwise complying with the
requirements of applicable law of the relevant jurisdiction, retain all
or any portion of the Pledged Collateral in satisfaction of the Pledgor
Obligations. Unless and until the Administrative Agent shall have
provided such notices, however, the Administrative Agent shall not be
deemed to have retained any Pledged Collateral in satisfaction of any
Pledgor Obligations for any reason.
(e) Deficiency. In the event that the proceeds of any
sale, collection or realization are insufficient to pay all amounts to
which the Administrative Agent or the Lenders are legally entitled, the
Pledgors shall be jointly and severally liable for the deficiency,
together with interest thereon at the default rate specified in Section
3.1 of the Credit Agreement for Revolving Loans that are Base Rate
Loans, together with the costs of collection and the reasonable fees of
any attorneys employed by the Administrative Agent to collect such
deficiency. Any surplus remaining after the full payment and
satisfaction of the Pledgor Obligations shall be returned to the
Pledgors or to whomsoever a court of competent jurisdiction shall
determine to be entitled thereto.
10. Rights of the Administrative Agent.
(a) Power of Attorney. In addition to other powers of
attorney contained herein, each Pledgor hereby designates and appoints
the Administrative Agent, on behalf of the Lenders, and each of its
designees or agents as attorney-in-fact of such Pledgor,
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irrevocably and with power of substitution, with authority to take any
or all of the following actions upon the occurrence and during the
continuance of an Event of Default:
(i) to demand, collect, settle, compromise,
adjust and give discharges and releases concerning the Pledged
Collateral of such Pledgor, all as the Administrative Agent
may reasonably determine;
(ii) to commence and prosecute any actions at any
court for the purposes of collecting any of the Pledged
Collateral of such Pledgor and enforcing any other right in
respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Administrative Agent may deem reasonably
appropriate;
(iv) to pay or discharge taxes, liens, security
interests, or other encumbrances levied or placed on or
threatened against the Pledged Collateral of such Pledgor;
(v) to direct any parties liable for any payment
under any of the Pledged Collateral to make payment of any and
all monies due and to become due thereunder directly to the
Administrative Agent or as the Administrative Agent shall
direct;
(vi) to receive payment of and receipt for any
and all monies, claims, and other amounts due and to become
due at any time in respect of or arising out of any Pledged
Collateral of such Pledgor;
(vii) to sign and endorse any drafts, assignments,
proxies, stock powers, verifications, notices and other
documents relating to the Pledged Collateral of such Pledgor;
(viii) to settle, compromise or adjust any suit,
action or proceeding described above and, in connection
therewith, to give such discharges or releases as the
Administrative Agent may deem reasonably appropriate;
(ix) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, pledge agreements, affidavits, notices
and other agreements, instruments and documents that the
Administrative Agent may determine necessary in order to
perfect and maintain the security interests and liens granted
in this Pledge Agreement and in order to fully consummate all
of the transactions contemplated therein;
(x) to exchange any of the Pledged Collateral of
such Pledgor or other property upon any merger, consolidation,
reorganization, recapitalization or other readjustment of the
issuer thereof and, in connection therewith, deposit any of
the
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Pledged Collateral of such Pledgor with any committee,
depository, transfer agent, registrar or other designated
agency upon such terms as the Administrative Agent may
determine;
(xi) to vote for a shareholder resolution, or to
sign an instrument in writing, sanctioning the transfer of any
or all of the Pledged Shares of such Pledgor into the name of
the Administrative Agent or one or more of the Lenders or into
the name of any transferee to whom the Pledged Shares of such
Pledgor or any part thereof may be sold pursuant to Section 10
hereof; and
(xii) to do and perform all such other acts and
things as the Administrative Agent may reasonably deem to be
necessary, proper or convenient in connection with the Pledged
Collateral of such Pledgor.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Pledgor Obligations remain
outstanding, any Credit Document or any Hedging Agreement between any
Pledgor and any Lender, or any Affiliate of a Lender, is in effect or
any Letter of Credit shall remain outstanding and (ii) until all of the
Commitments shall have been terminated. The Administrative Agent shall
be under no duty to exercise or withhold the exercise of any of the
rights, powers, privileges and options expressly or implicitly granted
to the Administrative Agent in this Pledge Agreement, and shall not be
liable for any failure to do so or any delay in doing so. The
Administrative Agent shall not be liable for any act or omission or for
any error of judgment or any mistake of fact or law in its individual
capacity or its capacity as attorney-in-fact except acts or omissions
resulting from its gross negligence or willful misconduct. This power
of attorney is conferred on the Administrative Agent solely to protect,
preserve and realize upon its security interest in Pledged Collateral.
(b) Performance by the Administrative Agent of Pledgor's
Obligations. If any Pledgor fails to perform any agreement or
obligation contained herein, the Administrative Agent itself may
perform, or cause performance of, such agreement or obligation, and the
expenses of the Administrative Agent incurred in connection therewith
shall be payable by the Pledgors on a joint and several basis pursuant
to Section 13 hereof.
(c) Assignment by the Administrative Agent. The Administrative
Agent may from time to time assign the Pledgor Obligations and any
portion thereof and/or the Pledged Collateral and any portion thereof,
and the assignee shall be entitled to all of the rights and remedies of
the Administrative Agent under this Pledge Agreement in relation
thereto.
(d) The Administrative Agent's Duty of Care. Other than the
exercise of reasonable care to assure the safe custody of the Pledged
Collateral while being held by the Administrative Agent hereunder, the
Administrative Agent shall have no duty or liability to preserve rights
pertaining thereto, it being understood and agreed that Pledgors shall
be responsible for preservation of all rights in the Pledged Collateral
of such Pledgor, and the Administrative Agent shall be relieved of all
responsibility for
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Pledged Collateral upon surrendering it or tendering the surrender of
it to the Pledgors. The Administrative Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the
Pledged Collateral in its possession if such Pledged Collateral is
accorded treatment substantially equal to that which the Administrative
Agent accords its own property, which shall be no less than the
treatment employed by a reasonable and prudent agent in the industry,
it being understood that the Administrative Agent shall not have
responsibility for (i) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not the Administrative
Agent has or is deemed to have knowledge of such matters; or (ii)
taking any necessary steps to preserve rights against any parties with
respect to any Pledged Collateral.
(e) Voting Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have
occurred and be continuing, to the extent permitted by law,
each Pledgor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral of such
Pledgor or any part thereof for any purpose not inconsistent
with the terms of this Pledge Agreement or the Credit
Agreement; and
(ii) Upon the occurrence and during the
continuance of an Event of Default, all rights of a Pledgor to
exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to paragraph (i) of
this Section shall cease and all such rights shall thereupon
become vested in the Administrative Agent which shall then
have the sole right to exercise such voting and other
consensual rights.
(f) Dividend Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have
occurred and be continuing and subject to Section 4(b) hereof,
each Pledgor may receive and retain any and all dividends
(other than stock dividends and other dividends constituting
Pledged Collateral which are addressed hereinabove) or
interest paid in respect of the Pledged Collateral to the
extent they are allowed under the Credit Agreement.
(ii) Upon the occurrence and during the
continuance of an Event of Default:
(A) all rights of a Pledgor to receive
the dividends and interest payments which it would
otherwise be authorized to receive and retain
pursuant to paragraph (i) of this Section shall cease
and all such rights shall thereupon be vested in the
Administrative Agent which shall then have the sole
right to receive and hold as Pledged Collateral such
dividends and interest payments; and
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(B) all dividends and interest payments
which are received by a Pledgor contrary to the
provisions of paragraph (A) of this Section shall be
received in trust for the benefit of the
Administrative Agent, shall be segregated from other
property or funds of such Pledgor, and shall be
forthwith paid over to the Administrative Agent as
Pledged Collateral in the exact form received, to be
held by the Administrative Agent as Pledged
Collateral and as further collateral security for the
Pledgor Obligations.
(g) Release of Pledged Collateral. The Administrative
Agent may release any of the Pledged Collateral from this Pledge
Agreement or may substitute any of the Pledged Collateral for other
Pledged Collateral without altering, varying or diminishing in any way
the force, effect, lien, pledge or security interest of this Pledge
Agreement as to any Pledged Collateral not expressly released or
substituted, and this Pledge Agreement shall continue as a first
priority lien on all Pledged Collateral not expressly released or
substituted.
11. Rights of Required Lenders. All rights of the Administrative
Agent hereunder, if not exercised by the Administrative Agent, may be exercised
by the Required Lenders.
12. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Pledgor
Obligations and any proceeds of any Pledged Collateral, when received by the
Administrative Agent or any of the Lenders in cash or its equivalent, will be
applied in reduction of the Pledgor Obligations in the order set forth in
Section 3.15(b) of the Credit Agreement, and each Pledgor irrevocably waives the
right to direct the application of such payments and proceeds and acknowledges
and agrees that the Administrative Agent shall have the continuing and exclusive
right to apply and reapply any and all such payments and proceeds in the
Administrative Agent's sole discretion, notwithstanding any entry to the
contrary upon any of its books and records.
13. Costs of Counsel. At all times hereafter, the Pledgors agree
to promptly pay upon demand any and all reasonable costs and expenses of the
Administrative Agent or the Lenders, (a) as required under Section 11.5 of the
Credit Agreement and (b) as necessary to protect the Pledged Collateral or to
exercise any rights or remedies under this Pledge Agreement or with respect to
any Pledged Collateral. All of the foregoing costs and expenses shall constitute
Pledgor Obligations hereunder.
14. Continuing Agreement.
(a) This Pledge Agreement shall be a continuing agreement
in every respect and shall remain in full force and effect so long as
any of the Pledgor Obligations remain outstanding or any Credit
Document or Hedging Agreement between any Pledgor and any Lender, or
any Affiliate of a Lender, is in effect or any Letter of Credit shall
remain outstanding, and until all of the Commitments thereunder shall
have terminated (other than any obligations with respect to the
indemnities and the representations and warranties set forth in the
Credit Documents). Upon such payment and termination, this Pledge
Agreement shall be automatically terminated and the Administrative
Agent and the
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Lenders shall, upon the request and at the expense of the Pledgors,
forthwith release all of its liens and security interests hereunder and
shall executed and deliver all UCC termination statements and/or other
documents reasonably requested by the Pledgors evidencing such
termination. Notwithstanding the foregoing all releases and indemnities
provided hereunder shall survive termination of this Pledge Agreement.
(b) This Pledge Agreement shall continue to be effective
or be automatically reinstated, as the case may be, if at any time
payment, in whole or in part, of any of the Pledgor Obligations is
rescinded or must otherwise be restored or returned by the
Administrative Agent or any Lender as a preference, fraudulent
conveyance or otherwise under any bankruptcy, insolvency or similar
law, all as though such payment had not been made; provided that in the
event payment of all or any part of the Pledgor Obligations is
rescinded or must be restored or returned, all reasonable costs and
expenses (including without limitation any reasonable legal fees and
disbursements) incurred by the Administrative Agent or any Lender in
defending and enforcing such reinstatement shall be deemed to be
included as a part of the Pledgor Obligations.
15. Amendments; Waivers; Modifications. This Pledge Agreement and
the provisions hereof may not be amended, waived, modified, changed, discharged
or terminated except as set forth in Section 11.6 of the Credit Agreement.
16. Successors in Interest. This Pledge Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Pledgor, its successors and assigns and shall inure, together with the rights
and remedies of the Administrative Agent and the Lenders hereunder, to the
benefit of the Administrative Agent and the Lenders and their successors and
permitted assigns; provided, however, that none of the Pledgors may assign its
rights or delegate its duties hereunder without the prior written consent of
each Lender or the Required Lenders, as required by the Credit Agreement. To the
fullest extent permitted by law, each Pledgor hereby releases the Administrative
Agent and each Lender, and its successors and assigns, from any liability for
any act or omission relating to this Pledge Agreement or the Collateral, except
for any liability arising from the gross negligence or willful misconduct of the
Administrative Agent, or such Lender, or its officers, employees or agents.
17. Notices. All notices required or permitted to be given under
this Pledge Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
18. Counterparts. This Pledge Agreement may be executed in any
number of counterparts, each of which where so executed and delivered shall be
an original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Pledge Agreement to produce or
account for more than one such counterpart.
19. Headings. The headings of the sections and subsections hereof
are provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.
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20. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
Any legal action or proceeding with respect to this Security Agreement
may be brought in the courts of the State of North Carolina, or of the
United States for the Western District of North Carolina, and, by
execution and delivery of this Security Agreement, each Pledgor hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of such courts. Each
Pledgor further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address for notices pursuant to Section 11.1 of
the Credit Agreement, such service to become effective 30 days after
such mailing. Nothing herein shall affect the right of the
Administrative Agent to serve process in any other manner permitted by
law or to commence legal proceedings or to otherwise proceed against
any Pledgor in any other jurisdiction.
(b) Each Pledgor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Pledge Agreement brought in the courts referred to in subsection
(a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
22. Severability. If any provision of this Pledge Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
23. Entirety. This Pledge Agreement, the other Credit Documents
and the Hedging Agreements between any Pledgor and any Lender, or any Affiliate
of a Lender, represent the entire agreement of the parties hereto and thereto,
and supersede all prior agreements and understandings, oral or written, if any,
including any commitment letters or correspondence relating to the Credit
Documents, the Hedging Agreements between any Pledgor and any Lender, or any
Affiliate of a Lender, or the transactions contemplated herein and therein.
24. Survival. All representations and warranties of the Pledgors
hereunder shall survive the execution and delivery of this Pledge Agreement, the
other Credit Documents and the Hedging Agreements between any Pledgor and any
Lender, or any Affiliate of a Lender, the
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<PAGE> 169
delivery of the Notes and the making of the Loans and the issuance of the
Letters of Credit under the Credit Agreement.
25. Other Security. To the extent that any of the Pledgor
Obligations are now or hereafter secured by property other than the Pledged
Collateral (including, without limitation, real and other personal property
owned by a Pledgor), or by a guarantee, endorsement or property of any other
Person, then the Administrative Agent and the Lenders shall have the right to
proceed against such other property, guarantee or endorsement upon the
occurrence of any Event of Default, and the Administrative Agent and the Lenders
have the right, in their sole discretion, to determine which rights, security,
liens, security interests or remedies the Administrative Agent and the Lenders
shall at any time pursue, relinquish, subordinate, modify or take with respect
thereto, without in any way modifying or affecting any of them or any of the
Administrative Agent's and the Lenders' rights or the Pledgor Obligations under
this Pledge Agreement, under any other of the Credit Documents or under any
Hedging Agreement between any Pledgor and any Lender, or any Affiliate of a
Lender.
26. Joint and Several Obligations of Pledgors.
(a) Each of the Pledgors is accepting joint and several
liability hereunder in consideration of the financial accommodation to
be provided by the Lenders under the Credit Agreement, for the mutual
benefit, directly and indirectly, of each of the Pledgors and in
consideration of the undertakings of each of the Pledgors to accept
joint and several liability for the obligations of each of them.
(b) Each of the Pledgors jointly and severally hereby
irrevocably and unconditionally accepts, not merely as a surety but
also as a co-debtor, joint and several liability with the other
Pledgors with respect to the payment and performance of all of the
Pledgor Obligations arising under this Pledge Agreement, the other
Credit Documents and the Hedging Agreements between any Pledgor and any
Lender, or any Affiliate of a Lender, it being the intention of the
parties hereto that all the Pledgor Obligations shall be the joint and
several obligations of each of the Pledgors without preferences or
distinction among them.
(c) Notwithstanding any provision to the contrary
contained herein, in any other of the Credit Documents or in any
Hedging Agreement between any Pledgor and any Lender, or any Affiliate
of a Lender, the obligations of each Guarantor under the Credit
Agreement and the other Credit Documents shall be limited to an
aggregate amount equal to the largest amount that would not render such
obligations subject to avoidance under Section 548 of the Bankruptcy
Code or any comparable provisions of any applicable state law.
[remainder of page intentionally left blank]
14
<PAGE> 170
Each of the parties hereto has caused a counterpart of this Pledge
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
GUARANTORS: MODTECH, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
SPI HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
SPI MANUFACTURING, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
OFFICE MASTER OF TEXAS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
ROSEWOOD ENTERPRISES, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
15
<PAGE> 171
TRAC MODULAR MANUFACTURING, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
A SPACE, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Accepted and agreed to as of the date first above written.
NATIONSBANK, N.A., as Administrative Agent
By:_________________________________________
Name:_______________________
Title:______________________
16
<PAGE> 172
Schedule 2(a)
to
Pledge Agreement
dated as of February 16, 1999
in favor of NationsBank, N.A.
as Administrative Agent
PLEDGED STOCK
<TABLE>
<CAPTION>
PLEDGOR: Modtech Holdings, Inc.
Name of Subsidiary Number of Shares Certificate Number Percentage Ownership
- ------------------ ---------------- ------------------ --------------------
<S> <C> <C> <C>
Modtech, Inc. 100%
SPI Holdings, Inc. 100%
PLEDGOR: Modtech, Inc.
Name of Subsidiary Number of Shares Certificate Number Percentage Ownership
- ------------------ ---------------- ------------------ --------------------
A Space, Inc. 100%
Trac Modular Manufacturing, Inc. 80%
PLEDGOR: SPI Holdings, Inc.
Name of Subsidiary Number of Shares Certificate Number Percentage Ownership
- ------------------ ---------------- ------------------ --------------------
SPI Manufacturing, Inc. 100%
</TABLE>
17
<PAGE> 173
<TABLE>
<CAPTION>
PLEDGOR: SPI Manufacturing, Inc.
Name of Subsidiary Number of Shares Certificate Number Percentage Ownership
- ------------------ ---------------- ------------------ --------------------
<S> <C> <C> <C>
Office Master of Texas, Inc. 100%
Rosewood Enterprises, Inc. 100%
</TABLE>
18
<PAGE> 174
Exhibit 4(a)
to
Pledge Agreement
dated as of February 16, 1999
in favor of NationsBank, N.A.
as Administrative Agent
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
the following shares of capital stock of _____________________, a ____________
corporation:
No. of Shares Certificate No.
------------- ---------------
and irrevocably appoints __________________________________ its agent and
attorney-in-fact to transfer all or any part of such capital stock and to take
all necessary and appropriate action to effect any such transfer. The agent and
attorney-in-fact may substitute and appoint one or more persons to act for him.
____________________________________________
By:_________________________________________
Name:_______________________________________
Title:______________________________________
19
<PAGE> 175
EXHIBIT 1.1B
FORM OF SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is entered into as
of February 16, 1999 among MODTECH HOLDINGS, INC., a Delaware corporation (the
"Borrower"), certain Subsidiaries of the Borrower (individually a "Guarantor"
and collectively the "Guarantors"; together with the Borrower, individually an
"Obligor", and collectively the "Obligors") and NATIONSBANK, N.A., in its
capacity as administrative agent (in such capacity, the "Administrative Agent")
for the lenders from time to time party to the Credit Agreement described below
(the "Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement, dated as of the
date hereof (as amended, modified, extended, renewed or replaced from time to
time, the "Credit Agreement"), among the Borrower, the Guarantors, the Lenders
and the Administrative Agent, the Lenders have agreed to make Loans and issue
Letters of Credit upon the terms and subject to the conditions set forth
therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Obligors shall
have executed and delivered this Security Agreement to the Administrative Agent
for the ratable benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
(a) Unless otherwise defined herein, capitalized terms
used herein shall have the meanings ascribed to such terms in the
Credit Agreement, and the following terms which are defined in the
Uniform Commercial Code in effect in the State of North Carolina on the
date hereof are used herein as so defined: Accounts, Chattel Paper,
Deposit Accounts, Documents, Equipment, Farm Products, Fixtures,
General Intangibles, Instruments, Inventory, Investment Property and
Proceeds. For purposes of this Security Agreement, the term "Lender"
shall include any Affiliate of any Lender which has entered into a
Hedging Agreement with any Credit Party.
(b) In addition, the following terms shall have the
following meanings:
"Copyright Licenses": any written agreement, naming any
Obligor as licensor, granting any right under any Copyright, including,
without limitation, any thereof referred to in Schedule 1(b) hereto.
<PAGE> 176
"Copyrights": (a) all registered United States copyrights in
all Works, now existing or hereafter created or acquired, all
registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations,
recordings and applications in the United States Copyright Office,
including, without limitation, any thereof referred to in Schedule 1(b)
hereto, and (b) all renewals thereof, including, without limitation,
any thereof referred to in Schedule 1(b) hereto.
"Patent License": all agreements, whether written or oral,
providing for the grant by or to an Obligor of any right to
manufacture, use or sell any invention covered by a Patent, including,
without limitation, any thereof referred to in Schedule 1(b) hereto.
"Patents": (a) all letters patent of the United States or any
other country and all reissues and extensions thereof, including,
without limitation, any thereof referred to in Schedule 1(b) hereto,
and (b) all applications for letters patent of the United States or any
other country and all divisions, continuations and
continuations-in-part thereof, including, without limitation, any
thereof referred to in Schedule 1(b) hereto.
"Secured Obligations": the collective reference to all of the
Credit Party Obligations, now existing or hereafter arising pursuant to
the Credit Documents, owing from the Borrower or any other Credit Party
to any Lender or the Administrative Agent, howsoever evidenced,
created, incurred or acquired, whether primary, secondary, direct,
contingent, or joint and several, including, without limitation, all
liabilities arising under Hedging Agreements between any Obligor and
any Lender, or any Affiliate of a Lender, and all obligations and
liabilities incurred in connection with collecting and enforcing the
foregoing.
"Trademark License": means any agreement, written or oral,
providing for the grant by or to an Obligor of any right to use any
Trademark, including, without limitation, any thereof referred to in
Schedule 1(b) hereto.
"Trademarks": (a) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos and other source or business identifiers,
and the goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any
thereof referred to in Schedule 1(b) hereto, and (b) all renewals
thereof, including, without limitation, any thereof referred to in
Schedule 1(b) hereto.
"Work": any work which is subject to copyright protection
pursuant to Title 17 of the United States Code.
2. Grant of Security Interest in the Collateral. To secure the
prompt payment and performance in full when due, whether by lapse of time,
acceleration or otherwise, of the Secured
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<PAGE> 177
Obligations, each Obligor hereby grants to the Administrative Agent, for the
benefit of the Lenders, a continuing security interest in, and a right to set
off against, any and all right, title and interest of such Obligor in and to the
following, whether now owned or existing or owned, acquired, or arising
hereafter (collectively, the "Collateral"):
(a) all Accounts;
(b) all cash and Cash Equivalents maintained on deposit
with the Administrative Agent;
(c) all Chattel Paper;
(d) all Copyrights;
(e) all Copyright Licenses;
(f) all Deposit Accounts;
(g) all Documents;
(h) all Equipment;
(i) all Fixtures;
(j) all General Intangibles;
(k) all Instruments;
(l) all Inventory;
(m) all Investment Property;
(n) all Patents;
(o) all Patent Licenses;
(p) all Trademarks;
(q) all Trademark Licenses;
(r) all books, records, ledger cards, files,
correspondence, computer programs, tapes, disks, and related
data processing software (owned by such Obligor or in which it
has an interest) that at any time evidence or contain
information relating to any Collateral or are otherwise
necessary or helpful in the collection thereof or realization
thereupon;
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<PAGE> 178
(s) to the extent not otherwise included, all Proceeds
and products of any and all of the foregoing; and
(t) all other assets of such Obligor, whether tangible or
intangible.
The Obligors and the Administrative Agent, on behalf of the Lenders,
hereby acknowledge and agree that the security interest created hereby in the
Collateral (i) constitutes continuing collateral security for all of the Secured
Obligations, whether now existing or hereafter arising and (ii) is not to be
construed as an assignment of any Copyrights, Copyright Licenses, Patents,
Patent Licenses, Trademarks or Trademark Licenses.
3. Provisions Relating to Accounts.
(a) Anything herein to the contrary notwithstanding, each
of the Obligors shall remain liable under each of the Accounts to
observe and perform all the conditions and obligations to be observed
and performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account. Neither the Administrative
Agent nor any Lender shall have any obligation or liability under any
Account (or any agreement giving rise thereto) by reason of or arising
out of this Security Agreement or the receipt by the Administrative
Agent or any Lender of any payment relating to such Account pursuant
hereto, nor shall the Administrative Agent or any Lender be obligated
in any manner to perform any of the obligations of an Obligor under or
pursuant to any Account (or any agreement giving rise thereto), to make
any payment, to make any inquiry as to the nature or the sufficiency of
any payment received by it or as to the sufficiency of any performance
by any party under any Account (or any agreement giving rise thereto),
to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or
times.
(b) Once during each calendar year or at any time after
the occurrence and during the continuation of an Event of Default, the
Administrative Agent shall have the right, but not the obligation, to
make test verifications of the Accounts in any manner and through any
medium that it reasonably considers advisable, and the Obligors shall
furnish all such assistance and information as the Administrative Agent
may require in connection with such test verifications. At any time and
from time to time, upon the Administrative Agent's request and at the
expense of the Obligors, the Obligors shall cause independent public
accountants or others satisfactory to the Administrative Agent to
furnish to the Administrative Agent reports showing reconciliations,
aging and test verifications of, and trial balances for, the Accounts.
The Administrative Agent in its own name or in the name of others may
communicate with account debtors on the Accounts to verify with them to
the Administrative Agent's satisfaction the existence, amount and terms
of any Accounts.
4. Representations and Warranties. Each Obligor hereby represents
and warrants to the Administrative Agent, for the benefit of the Lenders, that
so long as any of the Secured Obligations remain outstanding or any Credit
Document or Hedging Agreement between any
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<PAGE> 179
Obligor and any Lender, or any Affiliate of a Lender, is in effect or any
Letter of Credit shall remain outstanding, and until all of the Commitments
shall have been terminated:
(a) Chief Executive Office; Books & Records. Each
Obligor's chief executive office and chief place of business is (and
for the prior four months have been) located at the locations set forth
on Schedule 4(a) hereto, and each Obligor keeps its books and records
at such locations.
(b) Location of Collateral. The location of all
Collateral owned by each Obligor is as shown on Schedule 4(b) hereto.
(c) Ownership. Each Obligor is the legal and beneficial
owner of its Collateral and has the right to pledge, sell, assign or
transfer the same. Each Obligor's legal name is as shown in this
Security Agreement and no Obligor has in the past four months changed
its name, been party to a merger, consolidation or other change in
structure or used any tradename except as set forth in Schedule 4(c)
attached hereto.
(d) Security Interest/Priority. This Security Agreement
creates a valid security interest in favor of the Administrative Agent,
for the benefit of the Lenders, in the Collateral of such Obligor and,
when properly perfected by filing, shall constitute a valid perfected
security interest in such Collateral, to the extent such security can
be perfected by filing under the UCC, free and clear of all Liens
except for Permitted Liens.
(e) Farm Products. None of the Collateral constitutes, or
is the Proceeds of, Farm Products.
(f) Accounts. (i) Each Account of the Obligors and the
papers and documents relating thereto are genuine and in all material
respects what they purport to be, (ii) each Account arises out of (A) a
bona fide sale of goods sold and delivered by such Obligor (or is in
the process of being delivered) or (B) services theretofore actually
rendered by such Obligor to, the account debtor named therein, (iii) no
Account of an Obligor is evidenced by any Instrument or Chattel Paper
unless such Instrument or Chattel Paper has been theretofore endorsed
over and delivered to the Administrative Agent and (iv) no surety bond
was required or given in connection with any Account of an Obligor or
the contracts or purchase orders out of which they arose.
(g) Inventory. No Inventory is held by an Obligor
pursuant to consignment, sale or return, sale on approval or similar
arrangement.
(h) Copyrights, Patents and Trademarks.
(i) Schedule 1(b) hereto includes all
Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks and Trademark Licenses owned by the Obligors in
their own names as of the date hereof.
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<PAGE> 180
(ii) To the best of each Obligor's knowledge,
each Copyright, Patent and Trademark of such Obligor is valid,
subsisting, unexpired, enforceable and has not been abandoned.
(iii) Except as set forth in Schedule 1(b) hereto,
none of such Copyrights, Patents and Trademarks is the subject
of any licensing or franchise agreement.
(iv) No holding, decision or judgment has been
rendered by any Governmental Authority which would limit,
cancel or question the validity of any Copyright, Patent or
Trademark.
(v) No action or proceeding is pending seeking
to limit, cancel or question the validity of any Copyright,
Patent or Trademark, or which, if adversely determined, would
have a material adverse effect on the value of any Copyright,
Patent or Trademark.
(vi) All applications pertaining to the
Copyrights, Patents and Trademarks of each Obligor have been
duly and properly filed, and all registrations or letters
pertaining to such Copyrights, Patents and Trademarks have
been duly and properly filed and issued, and all of such
Copyrights, Patents and Trademarks are valid and enforceable.
(vii) No Obligor has made any assignment or
agreement in conflict with the security interest in the
Copyrights, Patents or Trademarks of each Obligor hereunder.
5. Covenants. Each Obligor covenants that, so long as any of the
Secured Obligations remain outstanding or any Credit Document or Hedging
Agreement between any Obligor and any Lender, or any Affiliate of a Lender, is
in effect or any Letter of Credit shall remain outstanding, and until all of the
Commitments shall have been terminated, such Obligor shall:
(a) Other Liens. Defend the Collateral against the claims
and demands of all other parties claiming an interest therein, keep the
Collateral free from all Liens, except for Permitted Liens, and not
sell, exchange, transfer, assign, lease or otherwise dispose of the
Collateral or any interest therein, except as permitted under the
Credit Agreement.
(b) Preservation of Collateral. Keep the Collateral in
good order, condition and repair and not use the Collateral in
violation of the provisions of this Security Agreement or any other
agreement relating to the Collateral or any policy insuring the
Collateral or any applicable statute, law, bylaw, rule, regulation or
ordinance.
(c) Instruments/Chattel Paper. If any amount payable
under or in connection with any of the Collateral shall be or become
evidenced by any Instrument or Chattel Paper, immediately deliver such
Instrument or Chattel Paper to the Administrative Agent, duly endorsed
in a manner satisfactory to the Administrative Agent, to be held as
Collateral pursuant to this Security Agreement.
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<PAGE> 181
(d) Change in Location. Not, without providing 30 days
prior written notice to the Administrative Agent and without filing
such amendments to any previously filed financing statements as the
Administrative Agent may require, (a) change the location of its chief
executive office and chief place of business (as well as its books and
records) from the locations set forth on Schedule 4(a) hereto, (b)
change the location of its Collateral from the locations set forth for
such Obligor on Schedule 4(b) hereto, or (c) change its name, be party
to a merger, consolidation or other change in structure or use any
tradename other than as set forth on Schedule 4(c) attached hereto.
(e) Inspection. Upon reasonable notice, and during
reasonable hours, at all times allow the Administrative Agent or its
representatives to visit and inspect the Collateral as set forth in
Section 7.10 of the Credit Agreement.
(f) Perfection of Security Interest. Execute and deliver
to the Administrative Agent such agreements, assignments or instruments
(including affidavits, notices, reaffirmations and amendments and
restatements of existing documents, as the Administrative Agent may
reasonably request) and do all such other things as the Administrative
Agent may reasonably deem necessary or appropriate (i) to assure to the
Administrative Agent its security interests hereunder, including (A)
such financing statements (including renewal statements) or amendments
thereof or supplements thereto or other instruments as the
Administrative Agent may from time to time reasonably request in order
to perfect and maintain the security interests granted hereunder in
accordance with the UCC, (B) with regard to Copyrights, a Notice of
Grant of Security Interest in Copyrights in the form of Schedule
5(f)(i), (C) with regard to Patents, a Notice of Grant of Security
Interest in Patents for filing with the United States Patent and
Trademark Office in the form of Schedule 5(f)(ii) attached hereto and
(D) with regard to Trademarks, a Notice of Grant of Security Interest
in Trademarks for filing with the United States Patent and Trademark
Office in the form of Schedule 5(f)(iii) attached hereto, (ii) to
consummate the transactions contemplated hereby and (iii) to otherwise
protect and assure the Administrative Agent of its rights and interests
hereunder. To that end, each Obligor agrees that the Administrative
Agent may file one or more financing statements disclosing the
Administrative Agent's security interest in any or all of the
Collateral of such Obligor without, to the extent permitted by law,
such Obligor's signature thereon, and further each Obligor also hereby
irrevocably makes, constitutes and appoints the Administrative Agent,
its nominee or any other person whom the Administrative Agent may
designate, as such Obligor's attorney in fact with full power and for
the limited purpose to sign in the name of such Obligor any such
financing statements, or amendments and supplements to financing
statements, renewal financing statements, notices or any similar
documents which in the Administrative Agent's reasonable discretion
would be necessary, appropriate or convenient in order to perfect and
maintain perfection of the security interests granted hereunder, such
power, being coupled with an interest, being and remaining irrevocable
so long as the Credit Agreement is in effect or any amounts payable
thereunder or under any other Credit Document or any Letter of Credit
or any Hedging Agreement between any Obligor and any Lender, or any
Affiliate of a Lender, shall remain outstanding, and until all of the
Commitments thereunder shall have terminated. Each Obligor hereby
agrees that a carbon,
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<PAGE> 182
photographic or other reproduction of this Security Agreement or any
such financing statement is sufficient for filing as a financing
statement by the Administrative Agent without notice thereof to such
Obligor wherever the Administrative Agent may in its sole discretion
desire to file the same. In the event for any reason the law of any
jurisdiction other than North Carolina becomes or is applicable to the
Collateral of any Obligor or any part thereof, or to any of the Secured
Obligations, such Obligor agrees to execute and deliver all such
instruments and to do all such other things as the Administrative Agent
in its sole discretion reasonably deems necessary or appropriate to
preserve, protect and enforce the security interests of the
Administrative Agent under the law of such other jurisdiction (and, if
an Obligor shall fail to do so promptly upon the request of the
Administrative Agent, then the Administrative Agent may execute any and
all such requested documents on behalf of such Obligor pursuant to the
power of attorney granted hereinabove). If any Collateral is in the
possession or control of an Obligor's agents and the Administrative
Agent so requests, such Obligor agrees to notify such agents in writing
of the Administrative Agent's security interest therein and, upon the
Administrative Agent's request, instruct them to hold all such
Collateral for the Lenders' account and subject to the Administrative
Agent's instructions. Each Obligor agrees to mark its books and records
to reflect the security interest of the Administrative Agent in the
Collateral.
(g) Treatment of Accounts. Not grant or extend the time
for payment of any Account, or compromise or settle any Account for
less than the full amount thereof, or release any person or property,
in whole or in part, from payment thereof, or allow any credit or
discount thereon, other than as normal and customary in the ordinary
course of an Obligor's business.
(h) Covenants Relating to Copyrights.
(i) Employ the Copyright for each Work with such
notice of copyright as may be required by law to secure
copyright protection.
(ii) Not do any act or knowingly omit to do any
act whereby any material Copyright may become invalidated and
(A) not do any act, or knowingly omit to do any act, whereby
any material Copyright may become injected into the public
domain; (B) notify the Administrative Agent immediately if it
knows, or has reason to know, that any material Copyright may
become injected into the public domain or of any adverse
determination or development (including, without limitation,
the institution of, or any such determination or development
in, any court or tribunal in the United States or any other
country) regarding an Obligor's ownership of any such
Copyright or its validity; (C) take all necessary steps as it
shall deem appropriate under the circumstances, to maintain
and pursue each application (and to obtain the relevant
registration) and to maintain each registration of each
material Copyright owned by an Obligor including, without
limitation, filing of applications for renewal where
necessary; and (D) promptly notify the Administrative Agent of
any material infringement of any material Copyright of an
Obligor of which it becomes aware and take such actions as it
shall reasonably deem appropriate under the circumstances to
protect such Copyright, including, where
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<PAGE> 183
appropriate, the bringing of suit for infringement, seeking
injunctive relief and seeking to recover any and all damages
for such infringement.
(iii) Not make any assignment or agreement in
conflict with the security interest in the Copyrights of each
Obligor hereunder.
(i) Covenants Relating to Patents and Trademarks.
(i) (A) Continue to use each Trademark on each
and every trademark class of goods applicable to its current
line as reflected in its current catalogs, brochures and price
lists in order to maintain such Trademark in full force free
from any claim of abandonment for non-use, (B) maintain as in
the past the quality of products and services offered under
such Trademark, (C) employ such Trademark with the appropriate
notice of registration, (D) not adopt or use any mark which is
confusingly similar or a colorable imitation of such Trademark
unless the Administrative Agent, for the ratable benefit of
the Lenders, shall obtain a perfected security interest in
such mark pursuant to this Security Agreement, and (E) not
(and not permit any licensee or sublicensee thereof to) do any
act or knowingly omit to do any act whereby any Trademark may
become invalidated.
(ii) Not do any act, or omit to do any act,
whereby any Patent may become abandoned or dedicated.
(iii) Notify the Administrative Agent and the
Lenders immediately if it knows, or has reason to know, that
any application or registration relating to any Patent or
Trademark may become abandoned or dedicated, or of any adverse
determination or development (including, without limitation,
the institution of, or any such determination or development
in, any proceeding in the United States Patent and Trademark
Office or any court or tribunal in any country) regarding an
Obligor's ownership of any Patent or Trademark or its right to
register the same or to keep and maintain the same.
(iv) Whenever an Obligor, either by itself or
through an agent, employee, licensee or designee, shall file
an application for the registration of any Patent or Trademark
with the United States Patent and Trademark Office or any
similar office or agency in any other country or any political
subdivision thereof, an Obligor shall report such filing to
the Administrative Agent and the Lenders within five Business
Days after the last day of the fiscal quarter in which such
filing occurs. Upon request of the Administrative Agent, an
Obligor shall execute and deliver any and all agreements,
instruments, documents and papers as the Administrative Agent
may request to evidence the Administrative Agent's and the
Lenders' security interest in any Patent or Trademark and the
goodwill and general intangibles of an Obligor relating
thereto or represented thereby.
(v) Take all reasonable and necessary steps,
including, without limitation, in any proceeding before the
United States Patent and Trademark Office,
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or any similar office or agency in any other country or any
political subdivision thereof, to maintain and pursue each
application (and to obtain the relevant registration) and to
maintain each registration of the Patents and Trademarks,
including, without limitation, filing of applications for
renewal, affidavits of use and affidavits of incontestability.
(vi) Promptly notify the Administrative Agent and
the Lenders after it learns that any Patent or Trademark
included in the Collateral is infringed, misappropriated or
diluted by a third party and promptly sue for infringement,
misappropriation or dilution, to seek injunctive relief where
appropriate and to recover any and all damages for such
infringement, misappropriation or dilution, or take such other
actions as it shall reasonably deem appropriate under the
circumstances to protect such Patent or Trademark.
(vii) Not make any assignment or agreement in
conflict with the security interest in the Patents or
Trademarks of each Obligor hereunder.
(j) New Patents, Copyrights and Trademarks. Promptly
provide the Administrative Agent with (i) a listing of all
applications, if any, for new Copyrights, Patents or Trademarks
(together with a listing of the issuance of registrations or letters on
present applications), which new applications and issued registrations
or letters shall be subject to the terms and conditions hereunder, and
(ii) (A) with respect to Copyrights, a duly executed Notice of Security
Interest in Copyrights, (B) with respect to Patents, a duly executed
Notice of Security Interest in Patents, (C) with respect to Trademarks,
a duly executed Notice of Security Interest in Trademarks or (D) such
other duly executed documents as the Administrative Agent may request
in a form acceptable to counsel for the Administrative Agent and
suitable for recording to evidence the security interest in the
Copyright, Patent or Trademark which is the subject of such new
application.
(k) Insurance. Insure, repair and replace the Collateral
of such Obligor as set forth in the Credit Agreement. All insurance
proceeds shall be subject to the security interest of the
Administrative Agent hereunder.
6. Advances by Lenders. On failure of any Obligor to perform any
of the covenants and agreements contained herein, the Administrative Agent may,
at its sole option and in its sole discretion, perform the same and in so doing
may expend such sums as the Administrative Agent may reasonably deem advisable
in the performance thereof, including, without limitation, the payment of any
insurance premiums, the payment of any taxes, a payment to obtain a release of a
Lien or potential Lien, expenditures made in defending against any adverse claim
and all other expenditures which the Administrative Agent or the Lenders may
make for the protection of the security hereof or which may be compelled to make
by operation of law. All such sums and amounts so expended shall be repayable by
the Obligors on a joint and several basis promptly upon timely notice thereof
and demand therefor, shall constitute additional Secured Obligations and shall
bear interest from the date said amounts are expended at the default rate
specified in Section 3.1 of the Credit Agreement for Revolving Loans that are
Base Rate Loans. No such performance of any covenant or agreement by the
Administrative Agent or the Lenders on behalf of any Obligor, and
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<PAGE> 185
no such advance or expenditure therefor, shall relieve the Obligors of any
default under the terms of this Security Agreement, the other Credit Documents
or any Hedging Agreement between any Obligor and any Lender, or any Affiliate of
a Lender. The Lenders may make any payment hereby authorized in accordance with
any bill, statement or estimate procured from the appropriate public office or
holder of the claim to be discharged without inquiry into the accuracy of such
bill, statement or estimate or into the validity of any tax assessment, sale,
forfeiture, tax lien, title or claim except to the extent such payment is being
contested in good faith by an Obligor in appropriate proceedings and against
which adequate reserves are being maintained in accordance with GAAP.
7. Events of Default.
The occurrence of an event which under the Credit Agreement would
constitute an Event of Default shall be an Event of Default hereunder (an "Event
of Default").
8. Remedies.
(a) General Remedies. Upon the occurrence of an Event of
Default and during continuation thereof, the Lenders shall have, in
addition to the rights and remedies provided herein, in the Credit
Documents, in the Hedging Agreements between any Obligor and any
Lender, or any Affiliate of a Lender, or by law (including, but not
limited to, the rights and remedies set forth in the Uniform Commercial
Code of the jurisdiction applicable to the affected Collateral), the
rights and remedies of a secured party under the UCC (regardless of
whether the UCC is the law of the jurisdiction where the rights and
remedies are asserted and regardless of whether the UCC applies to the
affected Collateral), and further, the Administrative Agent may, with
or without judicial process or the aid and assistance of others, (i)
enter on any premises on which any of the Collateral may be located
and, without resistance or interference by the Obligors, take
possession of the Collateral, (ii) dispose of any Collateral on any
such premises, (iii) require the Obligors to assemble and make
available to the Administrative Agent at the expense of the Obligors
any Collateral at any place and time designated by the Administrative
Agent which is reasonably convenient to both parties, (iv) remove any
Collateral from any such premises for the purpose of effecting sale or
other disposition thereof, and/or (v) without demand and without
advertisement, notice, hearing or process of law, all of which each of
the Obligors hereby waives to the fullest extent permitted by law, at
any place and time or times, sell and deliver any or all Collateral
held by or for it at public or private sale, by one or more contracts,
in one or more parcels, for cash, upon credit or otherwise, at such
prices and upon such terms as the Administrative Agent deems advisable,
in its sole discretion (subject to any and all mandatory legal
requirements). In addition to all other sums due the Administrative
Agent and the Lenders with respect to the Secured Obligations, the
Obligors shall pay the Administrative Agent and each of the Lenders all
reasonable documented costs and expenses incurred by the Administrative
Agent or any such Lender, including, but not limited to, reasonable
attorneys' fees and court costs, in obtaining or liquidating the
Collateral, in enforcing payment of the Secured Obligations, or in the
prosecution or defense of any action or proceeding by or against the
Administrative Agent or the Lenders or the Obligors concerning any
matter arising out of or connected with this Security
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<PAGE> 186
Agreement, any Collateral or the Secured Obligations, including,
without limitation, any of the foregoing arising in, arising under or
related to a case under the Bankruptcy Code. To the extent the rights
of notice cannot be legally waived hereunder, each Obligor agrees that
any requirement of reasonable notice shall be met if such notice is
personally served on or mailed, postage prepaid, to the Borrower in
accordance with the notice provisions of Section 11.1 of the Credit
Agreement at least 10 days before the time of sale or other event
giving rise to the requirement of such notice. The Administrative Agent
and the Lenders shall not be obligated to make any sale or other
disposition of the Collateral regardless of notice having been given.
To the extent permitted by law, any Lender may be a purchaser at any
such sale. To the extent permitted by applicable law, each of the
Obligors hereby waives all of its rights of redemption with respect to
any such sale. Subject to the provisions of applicable law, the
Administrative Agent and the Lenders may postpone or cause the
postponement of the sale of all or any portion of the Collateral by
announcement at the time and place of such sale, and such sale may,
without further notice, to the extent permitted by law, be made at the
time and place to which the sale was postponed, or the Administrative
Agent and the Lenders may further postpone such sale by announcement
made at such time and place.
(b) Remedies relating to Accounts. Upon the occurrence of
an Event of Default and during the continuation thereof, whether or not
the Administrative Agent has exercised any or all of its rights and
remedies hereunder, each Obligor will promptly upon request of the
Administrative Agent instruct all account debtors to remit all payments
in respect of Accounts to a mailing location selected by the
Administrative Agent. In addition, the Administrative Agent or its
designee may notify any Obligor's customers and account debtors that
the Accounts of such Obligor have been assigned to the Administrative
Agent or of the Administrative Agent's security interest therein, and
may (either in its own name or in the name of an Obligor or both)
demand, collect (including without limitation by way of a lockbox
arrangement), receive, take receipt for, sell, sue for, compound,
settle, compromise and give acquittance for any and all amounts due or
to become due on any Account, and, in the Administrative Agent's
discretion, file any claim or take any other action or proceeding to
protect and realize upon the security interest of the Lenders in the
Accounts. Each Obligor acknowledges and agrees that the Proceeds of its
Accounts remitted to or on behalf of the Administrative Agent in
accordance with the provisions hereof shall be solely for the
Administrative Agent's own convenience and that such Obligor shall not
have any right, title or interest in such Accounts or in any such other
amounts except as expressly provided herein. The Administrative Agent
and the Lenders shall have no liability or responsibility to any
Obligor for acceptance of a check, draft or other order for payment of
money bearing the legend "payment in full" or words of similar import
or any other restrictive legend or endorsement or be responsible for
determining the correctness of any remittance. Each Obligor hereby
agrees to indemnify the Administrative Agent and the Lenders from and
against all liabilities, damages, losses, actions, claims, judgments,
costs, expenses, charges and reasonable attorneys' fees suffered or
incurred by the Administrative Agent or the Lenders (each, an
"Indemnified Party") because of the maintenance of the foregoing
arrangements except as relating to or arising out of the gross
negligence or willful misconduct of an Indemnified Party or its
officers, employees or agents. In the case of any investigation,
litigation or other proceeding, the foregoing
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<PAGE> 187
indemnity shall be effective whether or not such investigation,
litigation or proceeding is brought by an Obligor, its directors,
shareholders or creditors or an Indemnified Party or any other Person
or any other Indemnified Party is otherwise a party thereto.
(c) Access. In addition to the rights and remedies
hereunder, upon the occurrence of an Event of Default and during the
continuance thereof, the Administrative Agent shall have the right to
enter and remain upon the various premises of the Obligors without cost
or charge to the Administrative Agent, and use the same, together with
materials, supplies, books and records of the Obligors for the purpose
of collecting and liquidating the Collateral, or for preparing for sale
and conducting the sale of the Collateral, whether by foreclosure,
auction or otherwise. In addition, the Administrative Agent may remove
Collateral, or any part thereof, from such premises and/or any records
with respect thereto, in order to effectively collect or liquidate such
Collateral.
(d) Nonexclusive Nature of Remedies. Failure by the
Administrative Agent or the Lenders to exercise any right, remedy or
option under this Security Agreement, any other Credit Document, any
Hedging Agreement between any Obligor and any Lender, or any Affiliate
of a Lender, or as provided by law, or any delay by the Administrative
Agent or the Lenders in exercising the same, shall not operate as a
waiver of any such right, remedy or option. No waiver hereunder shall
be effective unless it is in writing, signed by the party against whom
such waiver is sought to be enforced and then only to the extent
specifically stated, which in the case of the Administrative Agent or
the Lenders shall only be granted as provided herein. To the extent
permitted by law, neither the Administrative Agent, the Lenders, nor
any party acting as attorney for the Administrative Agent or the
Lenders, shall be liable hereunder for any acts or omissions or for any
error of judgment or mistake of fact or law other than their gross
negligence or willful misconduct hereunder. The rights and remedies of
the Administrative Agents and the Lenders under this Security Agreement
shall be cumulative and not exclusive of any other right or remedy
which the Administrative Agent or the Lenders may have.
(e) Retention of Collateral. The Administrative Agent
may, after providing the notices required by Section 9-505(2) of the
UCC or otherwise complying with the requirements of applicable law of
the relevant jurisdiction, to the extent the Administrative Agent is in
possession of any of the Collateral, retain the Collateral in
satisfaction of the Secured Obligations. Unless and until the
Administrative Agent shall have provided such notices, however, the
Administrative Agent shall not be deemed to have retained any
Collateral in satisfaction of any Secured Obligations for any reason.
(f) Deficiency. In the event that the proceeds of any
sale, collection or realization are insufficient to pay all amounts to
which the Administrative Agent or the Lenders are legally entitled, the
Obligors shall be jointly and severally liable for the deficiency,
together with interest thereon at the default rate specified in Section
3.1 of the Credit Agreement for Revolving Loans that are Base Rate
Loans, together with the costs of collection and the reasonable fees of
any attorneys employed by the Administrative Agent to collect such
deficiency. Any surplus remaining after the full payment and
satisfaction of
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<PAGE> 188
the Secured Obligations shall be returned to the Obligors or to
whomsoever a court of competent jurisdiction shall determine to be
entitled thereto.
9. Rights of the Administrative Agent.
(a) Power of Attorney. In addition to other powers of
attorney contained herein, each Obligor hereby designates and appoints
the Administrative Agent, on behalf of the Lenders, and each of its
designees or agents, as attorney-in-fact of such Obligor, irrevocably
and with power of substitution, with authority to take any or all of
the following actions upon the occurrence and during the continuance of
an Event of Default:
(i) to demand, collect, settle, compromise,
adjust, give discharges and releases, all as the
Administrative Agent may reasonably determine;
(ii) to commence and prosecute any actions at any
court for the purposes of collecting any Collateral and
enforcing any other right in respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Administrative Agent may deem reasonably
appropriate;
(iv) receive, open and dispose of mail addressed
to an Obligor and endorse checks, notes, drafts, acceptances,
money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment, shipment or
storage of the goods giving rise to the Collateral of such
Obligor on behalf of and in the name of such Obligor, or
securing, or relating to such Collateral;
(v) sell, assign, transfer, make any agreement
in respect of, or otherwise deal with or exercise rights in
respect of, any Collateral or the goods or services which have
given rise thereto, as fully and completely as though the
Administrative Agent were the absolute owner thereof for all
purposes;
(vi) adjust and settle claims under any insurance
policy relating thereto;
(vii) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, security agreements, affidavits, notices
and other agreements, instruments and documents that the
Administrative Agent may determine necessary in order to
perfect and maintain the security interests and liens granted
in this Security Agreement and in order to fully consummate
all of the transactions contemplated therein;
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<PAGE> 189
(viii) institute any foreclosure proceedings that
the Administrative Agent may deem appropriate; and
(ix) do and perform all such other acts and
things as the Administrative Agent may reasonably deem to be
necessary, proper or convenient in connection with the
Collateral.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Secured Obligations remain
outstanding, any Credit Document or any Hedging Agreement between any
Obligor and any Lender, or any Affiliate of a Lender, is in effect or
any Letter of Credit shall remain outstanding and (ii) until all of the
Commitments shall have been terminated. The Administrative Agent shall
be under no duty to exercise or withhold the exercise of any of the
rights, powers, privileges and options expressly or implicitly granted
to the Administrative Agent in this Security Agreement, and shall not
be liable for any failure to do so or any delay in doing so. The
Administrative Agent shall not be liable for any act or omission or for
any error of judgment or any mistake of fact or law in its individual
capacity or its capacity as attorney-in-fact except acts or omissions
resulting from its gross negligence or willful misconduct. This power
of attorney is conferred on the Administrative Agent solely to protect,
preserve and realize upon its security interest in the Collateral.
(b) Performance by the Administrative Agent of
Obligations. If any Obligor fails to perform any agreement or
obligation contained herein, the Administrative Agent itself may
perform, or cause performance of, such agreement or obligation, and the
expenses of the Administrative Agent incurred in connection therewith
shall be payable by the Obligors on a joint and several basis pursuant
to Section 11 hereof.
(c) Assignment by the Administrative Agent. The
Administrative Agent may from time to time assign the Secured
Obligations and any portion thereof and/or the Collateral and any
portion thereof, and the assignee shall be entitled to all of the
rights and remedies of the Administrative Agent under this Security
Agreement in relation thereto.
(d) The Administrative Agent's Duty of Care. Other than
the exercise of reasonable care to assure the safe custody of the
Collateral while being held by the Administrative Agent hereunder, the
Administrative Agent shall have no duty or liability to preserve rights
pertaining thereto, it being understood and agreed that the Obligors
shall be responsible for preservation of all rights in the Collateral,
and the Administrative Agent shall be relieved of all responsibility
for the Collateral upon surrendering it or tendering the surrender of
it to the Obligors. The Administrative Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Administrative Agent accords its
own property, which shall be no less than the treatment employed by a
reasonable and prudent agent in the industry, it being understood that
the Administrative Agent shall not have responsibility for taking any
necessary steps to preserve rights against any parties with respect to
any of the Collateral.
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<PAGE> 190
10. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Secured
Obligations and any proceeds of the Collateral, when received by the
Administrative Agent or any of the Lenders in cash or its equivalent, will be
applied in reduction of the Secured Obligations in the order set forth in
Section 3.15(b) of the Credit Agreement, and each Obligor irrevocably waives the
right to direct the application of such payments and proceeds and acknowledges
and agrees that the Administrative Agent shall have the continuing and exclusive
right to apply and reapply any and all such payments and proceeds in the
Administrative Agent's sole discretion, notwithstanding any entry to the
contrary upon any of its books and records.
11. Costs of Counsel. If at any time hereafter, whether upon the
occurrence of an Event of Default or not, the Administrative Agent employs
counsel to prepare or consider amendments, waivers or consents with respect to
this Security Agreement, or to take action or make a response in or with respect
to any legal or arbitral proceeding relating to this Security Agreement or
relating to the Collateral, or to protect the Collateral or exercise any rights
or remedies under this Security Agreement or with respect to the Collateral,
then the Obligors agree to promptly pay upon demand any and all such reasonable
documented costs and expenses of the Administrative Agent or the Lenders, all of
which costs and expenses shall constitute Secured Obligations hereunder.
12. Continuing Agreement.
(a) This Security Agreement shall be a continuing
agreement in every respect and shall remain in full force and effect so
long as any of the Secured Obligations remain outstanding or any Credit
Document or any Hedging Agreement between any Obligor and any Lender,
or any Affiliate of a Lender, is in effect or any Letter of Credit
shall remain outstanding, and until all of the Commitments thereunder
shall have terminated (other than any obligations with respect to the
indemnities and the representations and warranties set forth in the
Credit Documents). Upon such payment and termination, this Security
Agreement shall be automatically terminated and the Administrative
Agent and the Lenders shall, upon the request and at the expense of the
Obligors, forthwith release all of its liens and security interests
hereunder and shall execute and deliver all UCC termination statements
and/or other documents reasonably requested by the Obligors evidencing
such termination. Notwithstanding the foregoing all releases and
indemnities provided hereunder shall survive termination of this
Security Agreement.
(b) This Security Agreement shall continue to be
effective or be automatically reinstated, as the case may be, if at any
time payment, in whole or in part, of any of the Secured Obligations is
rescinded or must otherwise be restored or returned by the
Administrative Agent or any Lender as a preference, fraudulent
conveyance or otherwise under any bankruptcy, insolvency or similar
law, all as though such payment had not been made; provided that in the
event payment of all or any part of the Secured Obligations is
rescinded or must be restored or returned, all reasonable costs and
expenses (including without limitation any reasonable legal fees and
disbursements) incurred by the Administrative Agent or any Lender in
defending and enforcing such reinstatement shall be deemed to be
included as a part of the Secured Obligations.
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13. Amendments; Waivers; Modifications. This Security Agreement
and the provisions hereof may not be amended, waived, modified, changed,
discharged or terminated except as set forth in Section 11.6 of the Credit
Agreement.
14. Successors in Interest. This Security Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Obligor, its successors and assigns and shall inure, together with the rights
and remedies of the Administrative Agent and the Lenders hereunder, to the
benefit of the Administrative Agent and the Lenders and their successors and
permitted assigns; provided, however, that none of the Obligors may assign its
rights or delegate its duties hereunder without the prior written consent of
each Lender or the Required Lenders, as required by the Credit Agreement. To the
fullest extent permitted by law, each Obligor hereby releases the Administrative
Agent and each Lender, and its successors and assigns, from any liability for
any act or omission relating to this Security Agreement or the Collateral,
except for any liability arising from the gross negligence or willful misconduct
of the Administrative Agent, or such Lender, or its officers, employees or
agents.
15. Notices. All notices required or permitted to be given under
this Security Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
16. Counterparts. This Security Agreement may be executed in any
number of counterparts, each of which where so executed and delivered shall be
an original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Security Agreement to produce or
account for more than one such counterpart.
17. Headings. The headings of the sections and subsections hereof
are provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Security Agreement.
18. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA. Any legal action or proceeding with respect to this Security
Agreement may be brought in the courts of the State of North Carolina,
or of the United States for [the Western District of North Carolina],
and, by execution and delivery of this Security Agreement, each Obligor
hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of such courts. Each
Obligor further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address for notices pursuant to Section 11.1 of
the Credit Agreement, such service to become effective 30 days after
such mailing. Nothing herein shall affect the right of the
Administrative Agent to serve process in
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<PAGE> 192
any other manner permitted by law or to commence legal proceedings or
to otherwise proceed against any Obligor in any other jurisdiction.
(b) Each Obligor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Security Agreement brought in the courts referred to in subsection
(a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
19. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
20. Severability. If any provision of any of the Security
Agreement is determined to be illegal, invalid or unenforceable, such provision
shall be fully severable and the remaining provisions shall remain in full force
and effect and shall be construed without giving effect to the illegal, invalid
or unenforceable provisions.
21. Entirety. This Security Agreement, the other Credit Documents
and the Hedging Agreements between any Obligor and any Lender, or any Affiliate
of a Lender, represent the entire agreement of the parties hereto and thereto,
and supersede all prior agreements and understandings, oral or written, if any,
including any commitment letters or correspondence relating to the Credit
Documents, the Hedging Agreements between any Obligor and any Lender, or any
Affiliate of a Lender, or the transactions contemplated herein and therein.
22. Survival. All representations and warranties of the Obligors
hereunder shall survive the execution and delivery of this Security Agreement,
the other Credit Documents and the Hedging Agreements between any Obligor and
any Lender, or any Affiliate of a Lender, the delivery of the Notes and the
making of the Loans and the issuance of the Letters of Credit under the Credit
Agreement.
23. Other Security. To the extent that any of the Secured
Obligations are now or hereafter secured by property other than the Collateral
(including, without limitation, real property and securities owned by an
Obligor), or by a guarantee, endorsement or property of any other Person, then
the Administrative Agent and the Lenders shall have the right to proceed against
such other property, guarantee or endorsement upon the occurrence of any Event
of Default, and the Administrative Agent and the Lenders have the right, in
their sole discretion, to determine which rights, security, liens, security
interests or remedies the Administrative Agent and the Lenders shall at any time
pursue, relinquish, subordinate, modify or take with respect thereto, without in
any way modifying or affecting any of them or any of the Administrative Agent's
and the Lenders' rights or the Secured Obligations under this Security Agreement
or under any other of the Credit Documents or under any Hedging Agreement
between any Obligor and any Lender, or any Affiliate of a Lender.
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<PAGE> 193
24. Joint and Several Obligations of Obligors.
(a) Each of the Obligors is accepting joint and several
liability hereunder in consideration of the financial accommodation to
be provided by the Lenders under the Credit Agreement, for the mutual
benefit, directly and indirectly, of each of the Obligors and in
consideration of the undertakings of each of the Obligors to accept
joint and several liability for the obligations of each of them.
(b) Each of the Obligors jointly and severally hereby
irrevocably and unconditionally accepts, not merely as a surety but
also as a co-debtor, joint and several liability with the other
Obligors with respect to the payment and performance of all of the
Secured Obligations arising under this Security Agreement, the other
Credit Documents and the Hedging Agreements between any Obligor and any
Lender, or any Affiliate of a Lender, it being the intention of the
parties hereto that all the Obligations shall be the joint and several
obligations of each of the Obligors without preferences or distinction
among them.
(c) Notwithstanding any provision to the contrary
contained herein, in any other of the Credit Documents or in any
Hedging Agreement between any Obligor and any Lender, or any Affiliate
of a Lender, the obligations of each Guarantor under the Credit
Agreement and the other Credit Documents shall be limited to an
aggregate amount equal to the largest amount that would not render such
obligations subject to avoidance under Section 548 of the Bankruptcy
Code or any comparable provisions of any applicable state law.
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25. Rights of Required Lenders. All rights of the Administrative
Agent hereunder, if not exercised by the Administrative Agent, may be exercised
by the Required Lenders.
[remainder of page intentionally left blank]
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Each of the parties hereto has caused a counterpart of this Security
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
GUARANTORS: MODTECH, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
SPI HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
SPI MANUFACTURING, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
OFFICE MASTER OF TEXAS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
ROSEWOOD ENTERPRISES, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
TRAC MODULAR MANUFACTURING, INC.
21
<PAGE> 196
By:_________________________________________
Name:_______________________________________
Title:______________________________________
A SPACE, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Accepted and agreed to as of the date first above written.
NATIONSBANK, N.A., as Administrative Agent
By:____________________________
Name:__________________________
Title:_________________________
22
<PAGE> 197
SCHEDULE 1(b)
INTELLECTUAL PROPERTY
<PAGE> 198
SCHEDULE 4(a)
CHIEF EXECUTIVE OFFICE
<PAGE> 199
SCHEDULE 4(b)
LOCATIONS OF COLLATERAL
<PAGE> 200
SCHEDULE 4(c)
MERGERS, CONSOLIDATIONS, CHANGE IN STRUCTURE OR USE OF TRADENAMES
<PAGE> 201
SCHEDULE 5(f)(i)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
COPYRIGHTS
United States Copyright Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
February 16, 1999 (as the same may be amended, modified, extended or restated
from time to time, the "Security Agreement") by and among the Obligors party
thereto (each an "Obligor" and collectively, the "Obligors") and NationsBank,
N.A., as Administrative Agent (the "Administrative Agent") for the Lenders
referenced therein (the "Lenders"), the undersigned Obligor has granted a
continuing security interest in and continuing lien upon, the copyrights and
copyright applications shown below to the Administrative Agent for the ratable
benefit of the Lenders:
COPYRIGHTS
<TABLE>
<CAPTION>
Date of
Copyright No. Description of Copyright Copyright
- ------------- ------------------------ ---------
<S> <C> <C>
</TABLE>
Copyright Applications
<TABLE>
<CAPTION>
Copyright Description of Copyright Date of Copyright
Applications No. Applied For Applications
- ---------------- ------------------------ -----------------
<S> <C> <C>
</TABLE>
<PAGE> 202
The Obligors and the Administrative Agent, on behalf of the Lenders,
hereby acknowledge and agree that the security interest in the foregoing
copyrights and copyright applications (i) may only be terminated in accordance
with the terms of the Security Agreement and (ii) is not to be construed as an
assignment of any copyright or copyright application.
Very truly yours,
____________________________________________
[Obligor]
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Acknowledged and Accepted:
NATIONSBANK, N.A., as Administrative Agent
By:____________________________
Name:__________________________
Title:_________________________
<PAGE> 203
SCHEDULE 5(f)(ii)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
PATENTS
United States Patent and Trademark Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
February 16, 1999 (the "Security Agreement") by and among the Obligors party
thereto (each an "Obligor" and collectively, the "Obligors") and NationsBank,
N.A., as Administrative Agent (the "Administrative Agent") for the Lenders
referenced therein (the "Lenders"), the undersigned Obligor has granted a
continuing security interest in and continuing lien upon, the patents and patent
applications shown below to the Administrative Agent for the ratable benefit of
the Lenders:
PATENTS
<TABLE>
<CAPTION>
Description of Patent Date of
Patent No. Item Patent
- ---------- --------------------- -------
<S> <C> <C>
</TABLE>
Patent Applications
<TABLE>
<CAPTION>
Patent Description of Patent Date of Patent
Applications No. Applied For Applications
- ---------------- --------------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 204
The Obligors and the Administrative Agent, on behalf of the Lenders,
hereby acknowledge and agree that the security interest in the foregoing patents
and patent applications (i) may only be terminated in accordance with the terms
of the Security Agreement and (ii) is not to be construed as an assignment of
any patent or patent application.
Very truly yours,
____________________________________________
[Obligor]
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Acknowledged and Accepted:
NATIONSBANK, N.A., as Administrative Agent
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE> 205
SCHEDULE 5(f)(iii)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
TRADEMARKS
United States Patent and Trademark Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
February 16, 1999 (the "Security Agreement") by and among the Obligors party
thereto (each an "Obligor" and collectively, the "Obligors") and NationsBank,
N.A., as Administrative Agent (the "Administrative Agent") for the Lenders
referenced therein (the "Lenders"), the undersigned Obligor has granted a
continuing security interest in and continuing lien upon, the trademarks and
trademark applications shown below to the Administrative Agent for the ratable
benefit of the Lenders:
TRADEMARKS
<TABLE>
<CAPTION>
Description of Trademark Date of
Trademark No. Item Trademark
- ---------------- ------------------------ ---------
<S> <C> <C>
</TABLE>
Trademark Applications
<TABLE>
<CAPTION>
Trademark Description of Trademark Date of Trademark
Applications No. Applied For Applications
- ---------------- ------------------------ -----------------
<S> <C> <C>
</TABLE>
<PAGE> 206
The Obligors and the Administrative Agent, on behalf of the Lenders,
hereby acknowledge and agree that the security interest in the foregoing
trademarks and trademark applications (i) may only be terminated in accordance
with the terms of the Security Agreement and (ii) is not to be construed as an
assignment of any trademark or trademark application.
Very truly yours,
____________________________________________
[Obligor]
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Acknowledged and Accepted:
NATIONSBANK, N.A., as Administrative Agent
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE> 207
EXHIBIT 1.1C
TERMS OF SUBORDINATION
o The documents evidencing or governing Subordinated Indebtedness shall not
contain any affirmative or negative covenants the breach of which would
allow the holders to exercise remedies while Credit Party Obligations are
outstanding.
o Subordinated Indebtedness shall not be secured by any collateral or
guaranteed by any entity.
o Subordinated Indebtedness shall not be cross-defaulted to the Credit
Agreement or any of the other Credit Documents.
o No payments or prepayments of principal or interest on Subordinated
Indebtedness may be made or received at any time that such payments are
prohibited to be made under the Credit Agreement.
o As long as any of the Credit Party Obligations are outstanding, holders of
Subordinated Indebtedness shall have no right to exercise remedies (other
than acceleration and demand for payment).
o Until the date 91 days after Credit Party Obligations have been paid in
full in cash and the Credit Agreement and the other Credit Document shall
have terminated, holders of Subordinated Indebtedness shall not take any
action to initiate an involuntary bankruptcy proceeding in respect of the
Borrower.
o The Agent (on behalf of the Lenders) shall have the right, if not exercised
by any holder of Subordinated Indebtedness, to file proofs of claim (and
any notice of assignment of the right to receive payments) in respect of
the Subordinated Indebtedness of such holder to the extent not filed by
such holder in any bankruptcy proceeding in respect of the Borrower.
o In any bankruptcy proceeding in respect of the Borrower, the Lenders shall
be entitled to payment in full in cash before holders of the Subordinated
Indebtedness shall be entitled to receive any payments, property or assets
(other than (i) debt securities that are subordinated at least to the
extent of such Subordinated Indebtedness and (ii) equity securities that
are not redeemable for cash, and in respect of which no cash dividends are
payable, until the Credit Party Obligations have been paid in full in cash
and the Credit Agreement and the other Credit Document shall have
terminated).
o Any payments received by a holder of the Subordinated Indebtedness in
contravention of the foregoing subordination provisions shall be held in
trust for the benefit of, and immediately turned over to, the Agent (on
behalf of the Lenders).
<PAGE> 208
o In any reorganization proceeding in respect of the Borrower, the Agent (on
behalf of the Lenders) shall be entitled to approve (on behalf of holders
of Subordinated Indebtedness) the use of cash collateral by Borrower.
o Holders of Subordinated Indebtedness shall agree that, in the event that
such holder for any reason shall be entitled shall vote consistently with
the Lenders on any plan of reorganization or liquidation.
o In any bankruptcy proceeding in respect of the Borrower, holders of the
Subordinated Indebtedness shall not (i) file any motion, application or
other pleading seeking affirmative relief, including without limitation for
the appointment of a trustee or examiner, for the conversion of the case to
a liquidation proceeding, for the substantive consolidation of the
Borrower's bankruptcy case with the case of any other entity, for the
creation of a separate official committee representing only holders of
Subordinated Indebtedness or any other form of affirmative relief of any
other kind or nature nor (ii) file any objection or other responsive
pleading opposing any relief requested by the Lenders.
o Holders of Subordinated Indebtedness shall not exercise any right of
subrogation in respect of any of the Credit Party Obligations until the
Credit Party Obligations have been paid in full in cash and the Credit
Agreement and the other Credit Document shall have terminated.
o Until the Credit Party Obligations have been paid in full in cash and the
Credit Agreement and the other Credit Document shall have terminated, no
material amendment or modification of the documents evidencing or governing
Subordinated Indebtedness (including without limitation any amendment or
modification to the subordination provisions thereof) shall be effective
unless such amendment or modification has been approved by a requisite
number of the Lenders.
o Holders of Subordinated Indebtedness shall not assign any interests in
respect of the Subordinated Indebtedness.
<PAGE> 209
EXHIBIT 2.1(b)(i)
FORM OF NOTICE OF BORROWING
NationsBank, N. A.,
as Administrative Agent for the Lenders
101 North Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, MODTECH HOLDINGS, INC. (the "Borrower"), refers to the
Credit Agreement dated as of February 16, 1999 (as amended, modified, restated
or supplemented from time to time, the "Credit Agreement"), among the Borrower,
the Guarantors, the Lenders and NationsBank, N. A., as Administrative Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. [The Borrower hereby
gives notice pursuant to Section 2.1 of the Credit Agreement that it requests a
Revolving Loan advance under the Credit Agreement, and in connection therewith
sets forth below the terms on which such Loan advance is requested to be made:]*
[The Borrower hereby gives notice pursuant to Section 2.4 of the Credit
Agreement that it requests the Tranche A Term Loan under the Credit Agreement on
the Closing Date, and in connection therewith sets forth below the terms on
which such Loan advance is requested to be made:]** [The Borrower hereby gives
notice pursuant to Section 2.5 of the Credit Agreement that it requests a
Delayed Draw Term Loan under the Credit Agreement, and in connection therewith
sets forth below the terms on which such Loan advance is requested to be made:]*
[(A) Date of Borrowing (which is a Business Day) ____________________]*
[(B) Principal Amount of Borrowing ____________________]*
(C) Interest rate basis ____________________
(D) Interest Period and the last day thereof ____________________
<PAGE> 210
In accordance with the requirements of Section 5.2, the Borrower hereby
reaffirms the representations and warranties set forth in the Credit Agreement
as provided in subsection (b) of such Section, and confirms that the matters
referenced in subsections (c), (d), (e) and (f) of such Section, are true and
correct.
MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
*For all Revolving Loans and for Delayed Draw Term Loans prior to the second
anniversary of the Closing Date
**For the initial advance of the Tranche A Term Loan on the Closing Date
<PAGE> 211
EXHIBIT 2.1(e)
FORM OF REVOLVING NOTE
$_________________ February 16, 1999
FOR VALUE RECEIVED, MODTECH HOLDINGS, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of __________________________,
its successors and assigns (the "Lender"), at the office of NationsBank, N. A.,
as Administrative Agent (the "Administrative Agent"), at 101 North Tryon Street,
Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the holder hereof may designate), at the times set
forth in the Credit Agreement dated as of the date hereof among the Borrower,
the Guarantors, the Lenders and the Administrative Agent (as it may be as
amended, modified, restated or supplemented from time to time, the "Credit
Agreement"; all capitalized terms not otherwise defined herein shall have the
meanings set forth in the Credit Agreement), but in no event later than the
Maturity Date, in Dollars and in immediately available funds, the principal
amount of ________________________DOLLARS ($____________) or, if less than such
principal amount, the aggregate unpaid principal amount of all Revolving Loans
made by the Lender to the Borrower pursuant to the Credit Agreement, and to pay
interest from the date hereof on the unpaid principal amount hereof, in like
money, at said office, on the dates and at the rates selected in accordance with
Section 2.1(d) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender shall become immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
<PAGE> 212
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 213
EXHIBIT 2.3(d)
FORM OF SWINGLINE NOTE
$2,000,000 February 16, 1999
FOR VALUE RECEIVED, MODTECH HOLDINGS, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of NationsBank, N. A. (the
"Swingline Lender"), at 101 North Tryon Street, Independence Center,
NC1-001-15-04, Charlotte, North Carolina 28255 (or at such other place or places
as the holder hereof may designate), at the times set forth in the Credit
Agreement dated as of the date hereof among the Borrower, the Guarantors, the
Swingline Lender and other Lenders and the Administrative Agent (as it may be
amended, modified, extended or restated from time to time, the "Credit
Agreement"; all capitalized terms not otherwise defined herein shall have the
meanings set forth in the Credit Agreement), but in no event later than the
Maturity Date, in Dollars and in immediately available funds, the principal
amount of TWO MILLION DOLLARS ($2,000,000) or, if less than such principal
amount, the aggregate unpaid principal amount of all Swingline Loans made by the
Swingline Lender to the Borrower pursuant to the Credit Agreement, and to pay
interest from the date hereof on the unpaid principal amount hereof, in like
money, at said office, on the dates and at the rate specified in Section 2.3(c)
of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Swingline Lender shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
<PAGE> 214
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 215
EXHIBIT 2.4(f)
FORM OF TRANCHE A TERM NOTE
$_________________ February 16, 1999
FOR VALUE RECEIVED, MODTECH HOLDINGS, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of __________________________,
its successors and assigns (the "Lender"), at the office of NationsBank, N. A.,
as Administrative Agent (the "Administrative Agent"), at 101 North Tryon Street,
Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the holder hereof may designate), at the times set
forth in the Credit Agreement dated as of the date hereof among the Borrower,
the Guarantors, the Lenders and the Administrative Agent (as it may be as
amended, modified, restated or supplemented from time to time, the "Credit
Agreement"; all capitalized terms not otherwise defined herein shall have the
meanings set forth in the Credit Agreement), but in no event later than the
Maturity Date, in Dollars and in immediately available funds, the principal
amount of ________________________DOLLARS ($____________), and to pay interest
from the date hereof on the unpaid principal amount hereof, in like money, at
said office, on the dates and at the rates selected in accordance with Section
2.4(e) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender shall become immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
<PAGE> 216
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 217
EXHIBIT 2.5(f)
FORM OF DELAYED DRAW TERM NOTE
$_________________ February 16, 1999
FOR VALUE RECEIVED, MODTECH HOLDINGS, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of __________________________,
its successors and assigns (the "Lender"), at the office of NationsBank, N. A.,
as Administrative Agent (the "Administrative Agent"), at 101 North Tryon Street,
Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the holder hereof may designate), at the times set
forth in the Credit Agreement dated as of the date hereof among the Borrower,
the Guarantors, the Lenders and the Administrative Agent (as it may be as
amended, modified, restated or supplemented from time to time, the "Credit
Agreement"; all capitalized terms not otherwise defined herein shall have the
meanings set forth in the Credit Agreement), but in no event later than the
Maturity Date, in Dollars and in immediately available funds, the principal
amount of ________________________DOLLARS ($____________), and to pay interest
from the date hereof on the unpaid principal amount hereof, in like money, at
said office, on the dates and at the rates selected in accordance with Section
2.5(e) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender shall become immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
<PAGE> 218
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 219
EXHIBIT 3.2
FORM OF NOTICE OF EXTENSION/CONVERSION
NationsBank, N. A.,
as Administrative Agent for the Lenders
101 North Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, MODTECH HOLDINGS, INC. (the "Borrower"), refers to the
Credit Agreement dated as of February 16, 1999 (as amended, modified, restated
or supplemented from time to time, the "Credit Agreement"), among the Borrower,
the Guarantors, the Lenders and NationsBank, N. A., as Administrative Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The Borrower hereby
gives notice pursuant to Section 3.2 of the Credit Agreement that it requests an
extension or conversion of a [Revolving Loan] [Tranche A Term Loan] [Delayed
Draw Term Loan] outstanding under the Credit Agreement, and in connection
therewith sets forth below the terms on which such extension or conversion is
requested to be made:
(A) Loan Type (Revolving, Tranche A or
Delayed Draw/Eurodollar or Base Rate) ____________________
(B) Date of Extension or Conversion
(which is the last day of the
the applicable Interest Period) ____________________
(C) Principal Amount of Extension or Conversion ____________________
(D) Interest rate basis ____________________
(E) Interest Period and the last day thereof ____________________
<PAGE> 220
In accordance with the requirements of Section 5.2, the Borrower hereby
reaffirms the representations and warranties set forth in the Credit Agreement
as provided in subsection (b) of such Section, and confirms that the matters
referenced in subsections (c), (d), (e) and (f) of such Section, are true and
correct.
MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 221
EXHIBIT 7.1(c)
FORM OF OFFICER'S COMPLIANCE CERTIFICATE
For the fiscal quarter ended _________________, 19___.
I, ______________________, [Title] of MODTECH HOLDINGS, INC. (the
"Borrower") hereby certify that, to the best of my knowledge and belief, with
respect to that certain Credit Agreement dated as of February 16, 1999 (as
amended, modified, restated or supplemented from time to time, the "Credit
Agreement"; all of the defined terms in the Credit Agreement are incorporated
herein by reference) among the Borrower, the Guarantors, the Lenders and
NationsBank, N. A., as Administrative Agent:
a. The company-prepared financial statements which accompany this
certificate are true and correct in all material respects and
have been prepared in accordance with GAAP applied on a
consistent basis, subject to changes resulting from normal
year-end audit adjustments.
b. Since ___________ (the date of the last similar certification,
or, if none, the Closing Date) no Default or Event of Default
has occurred under the Credit Agreement.
Delivered herewith are detailed calculations demonstrating compliance
by the Credit Parties with the financial covenants contained in Section 7.11 of
the Credit Agreement as of the end of the fiscal period referred to above.
This ______ day of ___________, 19__.
MODTECH HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 222
Attachment to Officer's Certificate
COMPUTATION OF FINANCIAL COVENANTS
<PAGE> 223
EXHIBIT 7.12
FORM OF JOINDER AGREEMENT
THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________,
19__, is by and between _____________________, a ___________________ (the
"Subsidiary"), and NATIONSBANK, N. A., in its capacity as Administrative Agent
under that certain Credit Agreement (as it may be amended, modified, restated or
supplemented from time to time, the "Credit Agreement"), dated as of February
16, 1999, by and among MODTECH HOLDINGS, INC. a Delaware corporation (the
"Borrower"), the Guarantors, the Lenders and NationsBank, N. A., as
Administrative Agent. All of the defined terms in the Credit Agreement are
incorporated herein by reference.
The Credit Parties are required by Section 7.12 of the Credit Agreement
to cause the Subsidiary to become a "Guarantor".
Accordingly, the Subsidiary hereby agrees as follows with the
Administrative Agent, for the benefit of the Lenders:
1. The Subsidiary hereby acknowledges, agrees and confirms that,
by its execution of this Agreement, the Subsidiary will be deemed to be a party
to the Credit Agreement and a "Guarantor" for all purposes of the Credit
Agreement, and shall have all of the obligations of a Guarantor thereunder as if
it had executed the Credit Agreement. The Subsidiary hereby ratifies, as of the
date hereof, and agrees to be bound by, all of the terms, provisions and
conditions applicable to the Guarantors contained in the Credit Agreement.
Without limiting the generality of the foregoing terms of this paragraph 1, the
Subsidiary hereby (i) jointly and severally together with the other Guarantors,
guarantees to each Lender and the Administrative Agent, as provided in Section 4
of the Credit Agreement, the prompt payment and performance of the Credit Party
Obligations in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration or otherwise) strictly in accordance with the terms
thereof.
2. The Subsidiary hereby acknowledges, agrees and confirms that,
by its execution of this Agreement, the Subsidiary will be deemed to be a party
to the Security Agreement, and shall have all the obligations of an "Obligor"
(as such term is defined in the Security Agreement) thereunder as if it had
executed the Security Agreement. The Subsidiary hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions and conditions
contained in the Security Agreement. Without limiting generality of the
foregoing terms of this paragraph 2, the Subsidiary hereby grants to the
Administrative Agent, for the benefit of the Lenders, a continuing security
interest in, and a right of set off against any and all right, title and
interest of the Subsidiary in and to the Collateral (as such term is defined in
Section 2 of the Security Agreement) of the Subsidiary. The Subsidiary hereby
represents and warrants to the Administrative Agent that:
<PAGE> 224
(i) The Subsidiary's chief executive office and chief
place of business are (and for the prior four months have been) located
at the locations set forth on Schedule 1 attached hereto and the
Subsidiary keeps its books and records at such locations.
(ii) The type of Collateral owned by the Subsidiary and
the location of all Collateral owned by the Subsidiary is as shown on
Schedule 2 attached hereto.
(iii) The Subsidiary's legal name is as shown in this
Agreement and the Subsidiary has not in the past four months changed
its name, been party to a merger, consolidation or other change in
structure or used any tradename except as set forth in Schedule 3
attached hereto.
(iv) The patents and trademarks listed on Schedule 4
attached hereto constitute all of the registrations and applications
for the patents and trademarks owned by the Subsidiary.
3. The Subsidiary hereby acknowledges, agrees and confirms that,
by its execution of this Agreement, the Subsidiary will be deemed to be a party
to the Pledge Agreement, and shall have all the obligations of a "Pledgor"
thereunder as if it had executed the Pledge Agreement. The Subsidiary hereby
ratifies, as of the date hereof, and agrees to be bound by, all the terms,
provisions and conditions contained in the Pledge Agreement. Without limiting
the generality of the foregoing terms of this paragraph 3, the Subsidiary hereby
pledges and assigns to the Administrative Agent, for the benefit of the Lenders,
and grants to the Administrative Agent, for the benefit of the Lenders, a
continuing security interest in any and all right, title and interest of the
Subsidiary in and to Pledged Shares (as such term is defined in Section 2 of the
Pledge Agreement) listed on Schedule 5 attached hereto and the other Pledged
Collateral (as such term is defined in Section 2 of the Pledge Agreement).
4. The address of the Subsidiary for purposes of all notices and
other communications is ____________________, ____________________________,
Attention of ______________ (Facsimile No. ____________).
5. The Subsidiary hereby waives acceptance by the Administrative
Agent and the Lenders of the guaranty by the Subsidiary under Section 4 of the
Credit Agreement upon the execution of this Agreement by the Subsidiary.
6. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original but all of which when taken together
shall constitute one contract.
7. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of North Carolina.
<PAGE> 225
IN WITNESS WHEREOF, the Subsidiary has caused this Joinder Agreement to
be duly executed by its authorized officers, and the Administrative Agent, for
the benefit of the Lenders, has caused the same to be accepted by its authorized
officer, as of the day and year first above written.
[SUBSIDIARY]
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Acknowledged and accepted:
NATIONSBANK, N. A., as Administrative Agent
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE> 226
SCHEDULE 1
TO FORM OF JOINDER AGREEMENT
[Chief Executive Office and
Chief Place of Business of Subsidiary]
<PAGE> 227
SCHEDULE 2
TO FORM OF JOINDER AGREEMENT
[Types and Locations of Collateral]
<PAGE> 228
SCHEDULE 3
TO FORM OF JOINDER AGREEMENT
[Tradenames]
<PAGE> 229
SCHEDULE 4
TO FORM OF JOINDER AGREEMENT
[Patents and Trademarks]
<PAGE> 230
SCHEDULE 5
TO FORM OF JOINDER AGREEMENT
[Pledged Shares]
<PAGE> 231
EXHIBIT 11.3(b)
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of February 16,
1999, as amended and modified from time to time thereafter (the "Credit
Agreement") among MODTECH HOLDINGS, INC. the other Credit Parties party thereto,
the Lenders party thereto and NationsBank, N.A., as Administrative Agent. Terms
defined in the Credit Agreement are used herein with the same meanings.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, without
recourse and without representation or warranty except as expressly set forth
herein, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement and the other Credit Documents as of the date hereof equal to the
percentage interest specified on Schedule 1 of all outstanding rights and
obligations under the Credit Agreement and the other Credit Documents. After
giving effect to such sale and assignment, the Assignee's Commitment and the
amount of the Loans owing to the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Documents or any other
instrument or document furnished pursuant thereto; (iii) makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of any Credit Party or the performance or observance by any Credit
Party of any of its obligations under the Credit Documents or any other
instrument or document furnished pursuant thereto; and (iv) attaches the Notes
held by the Assignor and requests that the Administrative Agent exchange such
Notes for new Notes payable to the order of the Assignee in an amount equal to
the Commitment assumed by the Assignee pursuant hereto and to the Assignor in an
amount equal to the Commitment retained by the Assignor, if any, as specified on
Schedule 1.
<PAGE> 232
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 7.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Assignor or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers and discretion under the Credit Agreement
as are delegated to the Administrative Agent by the terms thereof, together with
such powers and discretion as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the obligations that by
the terms of the Credit Agreement are required to be performed by it as a
Lender; and (vi) attaches any U.S. Internal Revenue Service or other forms
required under Section 3.11.
4. Following the execution of this Assignment and Acceptance, it
will be delivered to the Administrative Agent for acceptance and recording by
the Administrative Agent. The effective date for this Assignment and Acceptance
(the "Effective Date") shall be the date of acceptance hereof by the
Administrative Agent, unless otherwise specified on Schedule 1.
5. Upon such acceptance and recording by the Administrative
Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder and (ii) the Assignor shall,
to the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative
Agent, from and after the Effective Date, the Administrative Agent shall make
all payments under the Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of North Carolina.
8. This Assignment and Acceptance may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of Schedule 1 to this Assignment and Acceptance by
telecopier shall be effective as delivery of a manually executed counterpart of
this Assignment and Acceptance.
<PAGE> 233
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date hereof.
_______________________________, as Assignor
By:_________________________________________
Name:_______________________________________
Title:______________________________________
_______________________________, as Assignee
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Notice address of Assignee:
<<Assignee>>
____________________________________________
____________________________________________
Attn: _________________________
Telephone: (___) _____________
Telecopy: (___) ____________
CONSENTED TO:
NATIONSBANK, N.A., *
as Administrative Agent
By:_____________________________
Name:___________________________
Title:__________________________
MODTECH HOLDINGS, INC.*
By:_____________________________
Name:___________________________
Title:__________________________
- --------
* Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee."
* Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee."
<PAGE> 234
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
<TABLE>
<S> <C>
(a) Date of Assignment:
(b) Legal Name of Assignor:
(c) Legal Name of Assignee:
(d) Effective Date of Assignment* :
(e) Revolving Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(f) Revolving Commitment Percentage of Assignee after giving
effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(g) Revolving Commitment Percentage of Assignor after giving
effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(h) Revolving Committed Amount as of Effective Date $_____________
(i) Dollar Amount of Assignor's Revolving Commitment
Percentage as of the Effective Date (the amount set
forth in (h) multiplied by the percentage set forth in (g)) $_____________
(j) Dollar Amount of Assignee's Revolving Commitment
Percentage as of the Effective Date (the amount set
forth in (h) multiplied by the percentage set forth in (f)) $_____________
(k) Tranche A Term Loan Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(l) Tranche A Term Loan Commitment Percentage of Assignee after
giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(m) Tranche A Term Loan Commitment Percentage of Assignor after
giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(n) Outstanding Balance of Tranche A Term Loan as of
</TABLE>
- ----------
* This date should be no earlier than five Business Days
after delivery of this Assignment and Acceptance to the Administrative Agent.
<PAGE> 235
<TABLE>
<S> <C>
Effective Date $_____________
(o) Principal Amount of Assignor's portion of the Tranche A Term
Loan after giving effect to this Assignment and Acceptance on
Effective Date (the amount set forth
in (n) multiplied by the percentage set forth in (m)) $_____________
(p) Principal Amount of Assignee's portion of the Tranche A Term
Loan after giving effect to this Assignment and Acceptance on
Effective Date (the amount set forth in (n)
multiplied by the percentage set forth in (l)) $_____________
(q) Delayed Draw Term Loan Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(r) Delayed Draw Term Loan Commitment Percentage of Assignee
after giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(s) Delayed Draw Term Loan Commitment Percentage of Assignor
after giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(t) Outstanding Balance of Delayed Draw Term Loan as of Effective
Date $_____________
(u) Principal Amount of Assignor's portion of the Tranche B Term
Loan after giving effect to this Assignment and Acceptance on
Effective Date (the amount set forth
in (t) multiplied by the percentage set forth in (s)) $_____________
(v) Principal Amount of Assignee's portion of the Tranche B Term
Loan after giving effect to this Assignment and Acceptance on
Effective Date (the amount set forth in (t)
multiplied by the percentage set forth in (q)) $_____________
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 40,142,355
<SECURITIES> 0
<RECEIVABLES> 16,746,855
<ALLOWANCES> 0
<INVENTORY> 4,441,537
<CURRENT-ASSETS> 69,808,077
<PP&E> 17,625,346
<DEPRECIATION> 5,311,671
<TOTAL-ASSETS> 82,873,269
<CURRENT-LIABILITIES> 17,679,162
<BONDS> 0
0
0
<COMMON> 65,096,741
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 82,873,269
<SALES> 127,620,102
<TOTAL-REVENUES> 127,620,102
<CGS> 97,765,554
<TOTAL-COSTS> 97,765,554
<OTHER-EXPENSES> 4,738,884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204,535
<INCOME-PRETAX> 26,238,227
<INCOME-TAX> 9,708,144
<INCOME-CONTINUING> 16,530,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,530,083
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.50
</TABLE>
