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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 AND EXCHANGE COMMISSION ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-5083
KANEB SERVICES, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 75-1191271
------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2435 NORTH CENTRAL EXPRESSWAY
RICHARDSON, TEXAS 75080
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(Address of principal executive (zip code)
offices)
Registrant's telephone number, including area code: (214) 699-4000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
----------------------------- -------------------------------
Common Stock, Without Par Value New York Stock Exchange, Inc.
Adjustable Rate Cumulative
Class A Preferred Stock New York Stock Exchange, Inc.
8 3/4% Convertible Subordinated
Debentures due 2008 New York Stock Exchange, Inc.
11 1/2% Subordinated Debentures due 1998 Philadelphia Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Subsection 229.405 of this chapter) 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. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant: $59,159,388. This figure is estimated as of March 17, 1995, at
which date the closing price of the Registrant's Common Stock on the New York
Stock Exchange was $1.88 per share, and assumes that only the Registrant's
officers and directors were affiliates of the Registrant.
Number of shares of Common Stock, without par value, of the Registrant
outstanding at March 17, 1995: 33,286,634.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) of Form 10-K is
incorporated by reference from portions of the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission not later than
120 days after the close of the fiscal year covered by this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Kaneb Services, Inc. ("Company"), which was incorporated in the State
of Delaware on January 23, 1953, is principally engaged in the business of
industrial services (see "Industrial Services" below) and pipeline
transportation and storage of petroleum products (see "Pipeline and Terminaling
Services" below).
On March 19, 1991, the Company, through a wholly-owned subsidiary,
acquired all of the outstanding capital stock of Furmanite PLC ("Furmanite") for
a combination of cash, preferred stock and the assumption of existing debt
totaling approximately $100 million, including transaction costs. Financing for
the transaction consisted of approximately $50 million in cash from the
Company's own resources and the issuance of $10 million of the Company's 12%
preferred stock convertible at $6.00 per share, into shares of the Company's
common stock. The Company also arranged about $50 million of non-recourse bank
financing, which was used for the acquisition, refinancing of Furmanite's
existing debt and working capital requirements. Furmanite is a specialized
industrial services company based in Richardson, Texas, providing underpressure
leak sealing, on-site machining, valve testing and repair and other engineering
products and services, primarily to electric power generating plants, petroleum
refineries and other process industries in Western Europe, North America and the
Pacific Rim.
In February 1995, the Company completed the sale of certain unprofitable
Furmanite operations in eastern Germany. These general maintenance projects were
acquired in 1991, 1992 and 1993 as the former East Germany was privatized by the
German government. As economic conditions in eastern Germany worsened
considerably in 1994, the Company elected to close one project and sell the
remaining projects. Losses from the operations of these projects and the sale
aggregated approximately $3.5 million in 1994.
In September 1989, Kaneb Pipe Line Company ("KPL"), a wholly owned
subsidiary of the Company, formed a master limited partnership, Kaneb Pipe Line
Partners, L.P. ("KPP"), to own and operate its refined petroleum products
pipeline business. In a secondary public offering, the Company sold a total of
5,000,000 senior preference units ("SPUs") of KPP for $22 per unit, resulting in
net proceeds after transaction costs of approximately $98 million to the Company
and a gain on the sale of the SPUs of almost $60 million. In April 1993, an
additional 2,250,000 SPUs were issued by KPP for $25.25 per unit, resulting in
net proceeds of approximately $53.2 million to KPP and recognition in 1993 of a
non-cash gain of approximately $15.1 million to the Company. The SPUs, which
trade on the New York Stock Exchange under the ticker symbol "KPP", represent an
approximate 44% limited partner interest in the partnership operations. The
Company owns, indirectly through KPL, approximately 52% in interest as a limited
partner, in the form of preference and common units. On March 21, 1995, the
Board of Directors of the Company authorized management to pursue the sale of up
to 3.5 million of the preference units held by KPL. The proceeds from the sale
of the preference units, which will create a substantial gain that will be
reflected in the 1995 financial statements, will be used to pay certain long-
term debt obligations of the Company that mature in 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".
In March 1993, KPP acquired, through a series of mergers, all of the
capital stock of Support Terminal Services, Inc. ("ST"), from an affiliate of
W.R. Grace for approximately $65 million, including $2 million in acquisition
costs. As used herein, the term "ST" refers to such business, as continued by
KPP through its subsidiaries. ST has been in business for more than 30 years
and is one of the largest independent petroleum products and specialty liquids
terminaling companies in the United States. ST operates 23 facilities in
sixteen states, with a total storage capacity of approximately 7.7 million
barrels.
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In February 1995, KPP acquired certain refined petroleum pipeline assets from
Wyco Pipe Line Company ("Wyco"), which is owned by GATX Terminals Corporation
and Amoco Pipe Line Company, for $27.1 million. The assets consist of
approximately 550 miles of underground pipe in Wyoming, Colorado and South
Dakota, four truck loading terminals, numerous pump stations and other related
assets. KPP financed the acquisition of the assets by the issuance of 8.37%
first mortgage notes due in 2002.
In March 1994, the company finalized the terms of an option resulting
in the sale of a privatized East German engineering company that was originally
acquired by the Company in 1993. The acquisition of Kraftwerks-und Anlagenbau
AG ("Kraftwerks") from the Berlin Trusteeship Agency ("Treuhandanstalt"), the
German agency created to privatize former East German state-owned companies was
completed in January 1993. A subsidiary of the Company purchased Kraftwerks
share capital for DM 1 million ($700,000) and committed to maintain certain
employment and investment levels over a three year period, performance of which
obligations was to be secured by shares of a new class of the Company's
convertible preferred stock to be placed into escrow. Kraftwerks had been
engaged in recent years in providing engineering and construction services
primarily to the power industry in Germany and eastern Europe. Due to
substantial deterioration in the German economy, however, the Company believed
that Kraftwerks would have been unlikely to achieve profitability without a
corresponding reduction in its work force. Accordingly, in February, 1994, the
Company entered into an agreement granting it an option to sell the shares of
Kraftwerks to the Treuhandanstalt or its designee. The Company exercised its
option, and on March 17, 1994, the Treuhandanstalt repaid the Company's initial
acquisition price of DM 1 million, unconditionally discharged the Company from
all past and future performance obligations related to Kraftwerks, released the
Company's convertible preferred shares from escrow and the capital stock of
Kraftwerks was transferred to a designee of the Treuhandanstalt.
The Company is also engaged in the transaction information industry
through a wholly-owned subsidiary, Viata Corporation, a development-stage
company that supplies retail merchants with electronic payment systems and
information services. Viata furnishes customers with the means to process
alternate forms of payment at the point of sale and to capture information that
can be used in focused marketing programs. Through other subsidiaries, the
Company also offers products and services that enable financial institutions to
monitor the continual insurance coverage of their loan collateral.
INDUSTRY SEGMENTS
Financial information regarding the Company's industry segments and
foreign operations is presented under the caption "Business Segment Data" in
Note 10 to Company's consolidated financial statements. Such information is
hereby incorporated by reference into this Item 1.
INDUSTRIAL SERVICES
The Company provides specialized industrial services through its Furmanite
subsidiaries to an international client base that includes petroleum refineries,
chemical plants, pipelines, offshore drilling and production platforms, steel
mills, power generation and other process industries. Furmanite performs
underpressure leak sealing, machining, bolting, valve testing and repair and
other engineering services, frequently on an emergency response basis, and
operates in more than 20 countries world-wide. Furmanite is headquartered in
Richardson, Texas, and has offices throughout England and in Scotland, Norway,
Germany, Austria, France, Belgium, Holland, Singapore, Hong Kong; U.S. offices
in Virginia Beach, Philadelphia, Chicago, Los Angeles, San Francisco, Beaumont,
Houston, Salt Lake City, Baton Rouge and Charlotte; and, Canadian offices in
Sarnia, Ontario and Edmonton, Alberta. In addition, Furmanite licensees and
companies in which it owns a minority interest operate in Sweden, Finland,
Mexico, Italy, Portugal, Kuwait, United Arab Emirates, India, Japan, China,
Czechoslovakia, Argentina, Puerto Rico, and Trinidad.
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Furmanite was founded in Virginia Beach, Virginia in the early 1920's as a
manufacturer of kits that provided customers with the compounds and tools
necessary to seal steam leaks. In the mid 1960's, Furmanite began providing leak
sealing services in the United Kingdom, and during the 1970's introduced its
leak sealing technologies to new markets throughout the world. Furmanite's
expansion continued in the 1980's as a result of the development or acquisition
of additional engineering services that could be cross-sold to its existing
customer base. Over the past sixty years, Furmanite has built a solid reputation
for delivering quality service in situations that are often critical. Many of
Furmanite's techniques and materials are proprietary and enable it to perform
on-stream repair without equipment shutdowns, thereby avoiding costly energy and
production losses by the customer.
Sales and operating income of Furmanite were $118.2 million and $1.6
million, respectively, for the year ended December 31, 1994. On-line,
underpressure leak sealing represented 26% of revenues, while on-site machining
and valve repair accounted for 16% and 9% of revenues, respectively. In
addition to valve repair and testing, bolt tightening and other maintenance and
engineering services, Furmanite has recently developed a program for monitoring
fugitive emissions in U.S. petrochemical plants and refineries which are
required to reduce toxic air pollutants under the Clean Air Act of 1990.
Geographically, sales for 1994 were divided 29% for the U.S., 31% for the U.K.
and 37% for Europe. The information presented in the following tables reflect
Furmanite's sales by service and region on an historical basis for the fiscal
year ended September 30, 1990, its pro forma results for the calendar year ended
December 31, 1991 and its historical results for the three years ended December
31, 1994:
<TABLE>
<CAPTION>
(in thousands)
Services 1990 1991 1992 1993 1994
------------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Leak Sealing $35,231 $ 39,718 $ 37,421 $ 29,947 $ 30,764
On Site Machining 15,045 17,323 17,476 15,536 18,775
Valve Repair 13,065 13,503 17,715 11,924 10,348
Bolting 3,562 3,136 5,653 4,369 4,307
Product Sales 8,932 8,600 5,889 3,470 4,778
Other 20,965 25,010 41,516 51,122 49,224
------- -------- -------- -------- --------
Total Revenues $96,800 $107,290 $125,670 $116,368 $118,196
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
Regions 1990 1991 1992 1993 1994
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
North America $34,303 $ 33,750 $ 38,266 $ 32,808 $ 34,197
United Kingdom 42,573 37,265 37,655 30,508 36,291
Continental Europe 19,040 34,037 47,408 49,523 43,245
Rest of World 884 2,238 2,341 3,529 4,463
------- -------- -------- -------- --------
Total Revenues $96,800 $107,290 $125,670 $116,368 $118,196
======= ======== ======== ======== ========
</TABLE>
Underpressure leak sealing and other specialty services are marketed
primarily through direct sales calls on customers by salesmen based at
Furmanite's various operating locations, which are situated to facilitate timely
customer response, 24 hours a day, seven days a week. Customers are usually
billed on a time and materials basis for services usually performed either
pursuant to job quotation sheets or purchase orders issued under written
customer agreements. Customer agreements generally are short-term in
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duration and specify the range of and rates for services to be performed.
Furmanite typically provides various limited warranties, depending on the
services furnished, and, to date, has had no significant warranty claims.
Over 80% of Furmanite's revenues are derived from fossil and nuclear fuel
power generation companies, petroleum refiners and chemical producers. Other
markets include offshore oil producers and steel manufacturers. As the
industrial infrastructure continues to age, additional repair and maintenance
expenditures are expected to be incurred requiring specialized services such as
those provided by Furmanite. Other factors that may influence the markets served
by Furmanite include regulations governing construction of industrial plants,
safety and environmental compliance and increased outsourcing in place of full-
time staff for specialized services.
Furmanite competes on the basis of service, product performance and price,
generally on a localized basis with smaller companies and the in-house
maintenance departments of its customers. In addition to staff reductions and
the trend toward outsourcing, Furmanite believes it presently has an advantage
over in-house maintenance departments because of its technician's ability to use
special techniques to perform quality repairs on a timely basis while customer
equipment remains in service.
Many aspects of Furmanite's operations are subject to governmental
regulation. National, state and local authorities of the U.S. and various
foreign countries have adopted regulations relating to the use of certain
methods, practices and materials in connection with the performance of
Furmanite's services. Safety and environmental regulations also affect
Furmanite's operations. In addition, because of its international presence,
Furmanite is subject to a number of political and economic uncertainties,
including expropriation of equipment, taxation policies, labor practices, import
and export limitations, foreign exchange restrictions, currency exchange rate
fluctuations and local political conditions. Except in certain developing
countries, where its contracts usually provide for payment in specified
currencies, Furmanite's operations are typically funded in the currencies of the
particular country in which its business activities are conducted.
Underpressure leak sealing and other Furmanite services are often performed
in emergency situations under dangerous circumstances, involving exposure to
high temperatures and pressures, potential contact with caustic or toxic
materials, fire and explosion hazards and environmental contamination, any of
which can cause serious personal injury or property damage. Furmanite manages
its operating risks by providing its technicians with extensive classroom and
field training and supervision, maintaining a system of technical support
through its staff of professionally qualified specialists, establishing and
enforcing strict safety and competency requirements, standardizing procedures
and evaluating new materials and techniques in connection with its lines of
service. Furmanite also maintains insurance coverage for certain risks,
although there is no assurance that insurance coverage will continue to be
available at rates considered reasonable or that the insurance will be adequate
to protect it against liability and loss of revenues resulting from the
consequences of a significant accident.
PIPELINE AND TERMINALING SERVICES
In October 1989, the Company's refined petroleum products pipeline business
and properties (the "Pipeline") were conveyed from KPL to KPP (the
"Partnership") in connection with the initial public offering discussed above.
The pipeline business, which is headquartered in Wichita, Kansas, consists
primarily of the transportation, as a common carrier, of refined petroleum
products in Kansas, Nebraska, Iowa, South Dakota and North Dakota, as well as
related terminaling activities. The acquisition of the assets of Wyco Pipe Line
Company in February 1995 increased the Partnership's pipeline business in South
Dakota and expanded it into Wyoming and Colorado. None of the results for 1994
include Wyco which is described subsequently. The Pipeline is a 2,075 mile
integrated pipeline, ranging between six and sixteen inches in diameter,
transporting refined petroleum products, including propane, received from
refineries in southeast Kansas, or from other interconnecting pipelines, to
terminals in Kansas, Nebraska, Iowa, South Dakota and
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North Dakota and to receiving pipeline connections in Kansas. The Pipeline has
direct connections to three Kansas refineries. The Pipeline also has direct
access by third-party pipelines to four other refineries in Kansas, Oklahoma and
Texas and to Gulf Coast suppliers of products through a connecting pipeline
which receives products from a pipeline originating on the Gulf Coast. Five
connecting pipelines deliver propane from gas processing plants in Texas, New
Mexico, Oklahoma and Kansas to the Pipeline for shipment. The Pipeline's
operation also includes 16 public truck loading terminals located in five states
comprised of a total of 233 tanks with storage capacity of 3,202,795 barrels of
product and propane. In addition, the Pipeline has intermediate storage
facilities in McPherson and El Dorado, Kansas consisting of 23 tanks with
aggregate capacity of 922,176 barrels.
The mix of refined petroleum products delivered varies seasonally, with
gasoline demand peaking in early summer, diesel fuel demand peaking in late
summer and propane demand higher in the fall. In addition, weather conditions in
the geographic areas served by the Pipeline affect the demand for and the mix of
the refined petroleum products delivered through the Pipeline, although
historically any impact on the volumes shipped has been short-term. Most of the
refined petroleum products delivered through the Pipeline are ultimately used in
agricultural operations, including fuel for farm equipment, irrigation systems,
trucks transporting crops and crop drying facilities. The agricultural sector is
also affected by governmental policy and crop prices. The Pipeline is also
dependent on adequate levels of production of refined petroleum products by
refineries connected to the Pipeline. The refineries are, in turn, dependent on
adequate supplies of suitable grades of crude oil. If operations at any one
refinery were discontinued, the Partnership believes, assuming unchanged demand
in markets served by the Pipeline, that the effects thereof would be short-term
in nature, and the Partnership's business would not be materially adversely
affected over the long term. A substantial reduction of output by several
refineries as a group could, however, affect the Pipeline's operations to the
extent that a greater percentage of the supply would have to come from
refineries outside Kansas via connecting pipelines.
Substantially all of the Pipeline's operations constitute common carrier
operations that are subject to federal or state tariff regulation. Such common
carrier activities are those under which transportation in the Pipeline is
available at published tariffs filed with the Federal Energy Regulatory
Commission or the Kansas Corporation Commission to any shipper of refined
petroleum products who requests such services, provided that each refined
petroleum product for which transportation is requested satisfies the conditions
and specifications for transportation. Intrastate transportation of refined
petroleum products accounted for less than 8% of the Pipeline's revenues in each
of the three years ended December 31, 1994.
Because pipelines are generally the lowest cost method for intermediate and
long-haul overland movement of refined petroleum products, the Pipeline's more
significant competitors are common carrier pipelines, proprietary pipelines
owned and operated by major integrated and large independent oil companies and
other companies in the areas where the Pipeline delivers products. The
Pipeline's major competitor is an independent regulated common carrier pipeline
system that operates approximately 100 miles east of and parallel with the
Pipeline. Competition between common carrier pipelines is based primarily on
transportation charges, quality of customer service and proximity to end users.
The Partnership believes that high capital costs, tariff regulation,
environmental considerations and problems in acquiring rights-of-way make it
unlikely that other competing pipeline systems comparable in size and scope to
the Pipeline will be built in the near future, provided that the Pipeline has
available capacity to satisfy demand and its tariffs remain at reasonable
levels. Trucks may competitively deliver products in some of the areas served
by the Pipeline. Trucking costs, however, render that mode of transportation
uncompetitive for longer hauls or larger volumes. The Partnership does not
believe that over the long term, trucks are effective competition to its long-
haul volumes.
Effective February 24, 1995, the Partnership acquired the refined product
pipeline assets of Wyco Pipe Line Company for $27.1 million in cash financed by
8.37% first mortgage notes due in 2002 from three insurance companies. The
assets consist of approximately 550 miles of pipeline and four truck loading
terminals located in Wyoming, South Dakota and Colorado. Unlike the
Partnership's service area which is
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largely agricultural, Wyco serves the growing Denver and northeastern Colorado
markets. Wyco also supplies the jet fuel for Ellsworth AFB at Rapid City. Wyco
has a relatively small number of shippers, who, with only a few exceptions, are
also shippers on the Partnership's system. Wyco is an interstate pipeline and
thus subject to regulation by the FERC as well as by Wyoming and Colorado on its
intrastate rates. It is subject to the same regulations of other governmental
agencies such as the Department of Transportation and the Environmental
Protection Agency as the Partnership.
ST is one of the largest independent petroleum products and specialized
liquid terminaling companies in the United States. It operates five pipelines
and twenty-three terminaling facilities in sixteen states, with a total storage
capacity of approximately 7.7 million barrels. ST and its predecessors have been
in the terminaling business for over 30 years and handle a wide variety of
products from petroleum products to specialty chemicals to edible liquids. ST's
terminal facilities provide throughput and storage on a fee basis for petroleum
products, specialty chemicals and other liquids. ST's three largest terminal
facilities are located in Texas City, Texas, Westwego, Louisiana and Baltimore,
Maryland. These facilities accounted for approximately 68% of ST's revenues in
1994 and represent 48% of its current storage capacity. In addition to ST's
three major facilities, ST has 20 other terminal sites around the country. In
total, these 20 facilities represented approximately 52% of the Company's total
storage capacity and approximately 32% of the total revenue for 1994. These
inland facilities receive, store and deliver primarily petroleum products for a
variety of customers, providing ST with a geographically diverse base of
customers and revenue.
The terminaling and pipeline transportation of jet fuel for the U.S.
Department of Defense is an important part of ST's business. Ten of ST's twenty
inland terminal sites are involved in the terminaling or transport (via
pipeline) of jet fuel for the Defense Department. Seven of the ten locations
are utilized solely by the Defense Department. Five of these locations include
pipelines that deliver jet fuel directly to nearby military bases. Revenue is
derived from a combination of terminal contracts and tenders for the handling
and movement of jet fuel. The terminal contracts provide a fixed monthly
revenue for a period of one to four years per contract, with additional revenues
generated if specific throughput levels are exceeded. The tenders provide for
charges per barrel of throughput and have no minimum guarantees. The base
closing list released by the Department of Defense on March 12, 1993 included
the closure of the Naval Air Station in Glenview, Illinois which is served by
ST's terminal in Peru, Illinois. Additionally, the ST pipeline serving
Homestead Air Force Base in Florida has been inactive due to lack of fuel usage
at the base since Hurricane Andrew in 1992. It is anticipated that the
operation of that pipeline will begin again in 1995. ST does not believe that,
in the aggregate, the inland terminals serving the U.S. Department of Defense
will experience a significant decrease in cash flows for the foreseeable future
as a result of Department of Defense changes in activity. However, the third
party pipeline serving the Drumright, Oklahoma terminal reversed the direction
of product flow in 1994 causing jet fuel to become unavailable at this location.
Jet fuel is the only product handled at Drumright currently and it is possible
that it may close sometime in 1995. ST is exploring alternative uses for this
terminal. During 1994, revenues of ST from the Defense Department constituted
approximately 11% of ST's revenues. The Partnership does not believe that ST's
business is dependent on any one or a small group of customers.
The independent liquid terminaling industry is fragmented and includes both
large, well financed public companies that own many terminal locations and small
private companies that may own a single terminal location. In addition to the
terminals owned by independent terminal operators, many major energy and
chemical companies also own extensive terminal facilities. Although such
terminals often have the same capabilities as terminals owned by independent
operators, they generally do not provide terminaling services to third parties.
In many instances, major energy and chemical companies that own storage
facilities are also significant customers of independent terminal operators when
independent terminals have more cost effective locations near key transportation
links such as deep water ports. Major energy and chemical companies also need
independent terminal storage when their captive storage facilities are
inadequate, either because of size constraints, the nature of the stored
material or specialized handling requirements. Independent terminal owners
compete based on the location and versatility of terminals, service and price.
A favorably located terminal will have access to varied cost effective
transportation both to and from the
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terminal. Terminal versatility is a function of the operator's ability to offer
safe handling for a diverse group of products with complex handling
requirements. The service function typically provided by the terminal includes,
among other things, the safe storage of the product at specified temperature,
moisture and other conditions, as well as loading and unloading at the terminal.
An increasingly important aspect of versatility and the service function is an
operator's ability to offer product handling and storage in compliance with
environmental regulations, especially since customers may retain liability for
certain acts of non-compliance.
In addition to tariff regulation, the operations of the Partnership are
subject to federal, state and local laws and regulations relating to
construction, maintenance and management of its facilities, the safety of its
personnel and the protection of the environment. Although the Partnership
believes that the operations of the Pipeline are in general compliance with
applicable regulations, risks of substantial costs and liabilities are inherent
in pipeline operations, and there can be no assurance that significant costs and
liabilities will not be incurred by the Partnership. Contamination resulting
from spills or releases of refined petroleum products are not unusual within the
petroleum pipeline industry. The Partnership has experienced limited groundwater
contamination at three of its sixteen Pipeline terminal sites resulting from
spills of refined petroleum products. Regulatory authorities have been notified
of these findings and cleanup is underway. The Partnership is also evaluating
possible groundwater contamination at a pumping and storage site. The Company
will bear the costs associated with identified contamination arising prior to
October 3, 1989 and such costs are not believed to be material. During 1994, the
Pipeline experienced a seam rupture of its 8" northbound line in Nebraska in
January and another similar rupture on the same line in April. As a result of
these ruptures, KPOP reduced the maximum operating pressure on this line to 60%
of the Maximum Allowable Operating Pressure ("MAOP") and, on May 24, commenced a
hydrostatic test to determine the integrity of over 80 miles of that line. The
test was completed on the entire 80 miles on May 29, 1994, and the line was
authorized to return to approximately 80% of MAOP pending review by the
Department of Transportation ("DOT") of the hydrostatic test results. On July
29, 1994, the DOT authorized most of the line to return to the historical MAOP.
Approximately 30 miles of the line was authorized to return to slightly less
than historical MAOP. The amount of remediation expenses that will be required
as a result of the ruptures in January and April has not yet been determined but
these expenses are not expected to have a material effect upon the results of
the Partnership. ST has experienced groundwater contamination at two of its
terminal sites. Regulatory authorities have been notified of these findings and
cleanup is underway using extraction wells and air strippers. Groundwater
contamination also exists at another ST terminal site and in the areas
surrounding this site as a result of the past operations of five of the
facilities operating in this area. ST has entered into an agreement with three
of these other companies to allocate responsibility for the clean up of the
contaminated area. In addition, ST is responsible for up to two-thirds of the
costs associated with existing groundwater contamination at a formerly owned
terminal, which also is being remediated through extraction wells and air
strippers. Groundwater contamination that may be the responsibility of third
parties has been identified at two additional ST terminal sites, but no
remediation has taken place. Also, ST has been named a potentially responsible
party for a federally designated and EPA supervised "Superfund" site where a
small amount of material handled by the former operator was attributed to ST.
The Partnership believes that ST will be obligated under the remediation process
to pay an aggregate cost of $10,000; however, until a final settlement agreement
is signed with the EPA, there is a possibility that the EPA could bring
additional claims against ST. For information concerning other potential
Superfund liabilities, see "Legal Proceedings" below.
ENVIRONMENTAL CONTROLS
The Company believes it is in substantial compliance with applicable state,
federal and local legislation and regulations relating to environmental
controls, and the existence of such laws and regulations has not had, nor at
this time is expected to have, any materially restrictive effect on the Company.
To date, the Company has not accounted for costs or capital expenditures
incurred for environmental control facilities separately from other costs
incurred in the operation of its businesses. The Company does not, however,
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believe that any such costs or expenditures have been material, and the Company
does not expect that under present conditions such costs or expenditures will
become material in the foreseeable future.
EMPLOYEES
At December 31, 1994, the Company employed 2,134 persons, approximately 773
of whom were salaried and approximately 1,361 of whom were hourly rate
employees.
The Partnership has no employees. The Pipeline business of the Partnership
is conducted by its general partner, KPL, which at December 31, 1994, employed
144 persons, approximately 50 of whom were salaried and approximately 94 of whom
were hourly rate employees. Approximately 94 persons employed by KPL were
subject to representation by unions for collective bargaining purposes; however,
there were no collective bargaining contracts covering KPL employees in effect
at December 31, 1994.
The Partnership's liquids terminaling business is conducted through ST
subsidiaries, which at December 31, 1994, employed 176 persons, approximately
104 of whom were salaried and approximately 72 of whom were hourly rate
employees. Approximately 33 persons employed by ST were subject to
representation by the Oil, Chemical and Atomic Workers International Union AFL-
CIO (OCAW). ST has an agreement with OCAW regarding conditions of employment
for such persons which is in effect through June 28, 1996. This agreement is
subject to automatic renewal for successive one-year periods unless ST or OCAW
serves written notice to terminate or modify such agreement in a timely manner.
The Company's industrial services business is conducted worldwide through its
Furmanite subsidiaries, which at December 31, 1994, employed 1,624 persons,
approximately 501 of whom were salaried and approximately 1,123 of whom were
hourly rate employees. Approximately 894 persons employed by Furmanite were
subject to representation by unions or other similar associations for collective
bargaining or other similar purposes; however, there were no significant
collective bargaining or other similar contracts covering the Furmanite
employees in effect at December 31, 1994.
ITEM 2. PROPERTIES
The corporate headquarters of the Company are located in Richardson, Texas,
in a modern, sixteen story building pursuant to a five year lease agreement. In
addition to properties owned or leased by its industrial services and pipeline
transportation and liquids terminaling businesses, the Company also leases
office space in Bryan, Texas and San Antonio, Texas.
Descriptions of other properties owned or utilized by the Company are
contained in Item 1 of this report and such descriptions are hereby incorporated
by reference into this Item 2. Under the caption "Commitments and
Contingencies" in Note 9 to the Company's consolidated financial statements,
additional information is presented concerning obligations of the Company for
lease and rental commitments. Said additional information is hereby
incorporated by reference into this Item 2.
ITEM 3. LEGAL PROCEEDINGS
In October 1994, the Company settled two lawsuits filed in the 1980's by
Kanland Associates and Panance Property Corporation that related to the
Company's former office building in Sugar Land, Texas. One of these suits had
alleged damages at more than $38 million plus prejudgment interest, legal fees,
court costs and punitive damages. The settlement of these lawsuits was
adequately reserved.
In September 1987, Stephen R. Herbel and other named individuals doing
business as Pinnacle Petroleum Company ("Pinnacle") filed a lawsuit in Mobile
County, Alabama, against the Company and certain of its affiliates, Jim Walter
Resources, Inc. and others, seeking damages of $9 million. Pinnacle asserted
that
8
<PAGE>
its rights under a conventional oil and gas lease were violated by the
execution of a subsequent coal mining lease covering the same property. In
addition to monetary damages, Pinnacle also seeks a judgment from the Trial
Court that it is the owner of all the gas under the property described in the
conventional oil and gas lease, regardless of its origin, and that a unitization
order be declared invalid. On July 28, 1989, the Trial Court ruled in favor of
all defendants by granting summary judgment holding that Kaneb and the other
defendants, as owners of the coal also own and have the exclusive right to
produce the coalbed gas, to the exclusion of the conventional oil and gas
lessees. There remained factual disputes as to the characterization of all the
gas produced from the property which were to be addressed in future hearings.
On October 8, 1993, in a case involving Jim Walter Resources, but not Kaneb,
based on similar facts, the Supreme Court of Alabama held that under certain
circumstances coalbed methane is the property of the owner of the conventional
oil and gas estate. In response thereto, the Trial Court scheduled a further
evidentiary hearing to determine the impact of the Supreme Court on the Pinnacle
case. In March 1995, all parties in this lawsuit reached an agreement to settle
and release their claims against each other. Attorneys for the parties are
presently preparing the legal documents related to the settlement, the Company's
portion of which was adequately reserved.
Two of the Company's former operating subsidiaries have been identified as
potentially responsible parties in separate governmental investigations and
actions relating to waste disposal facilities which may be subject to remedial
action under Superfund. These proceedings are based on allegations that the
subsidiaries disposed of hazardous substances at the facilities in question, in
one instance prior to acquisition of the subsidiary by the Company. Such
proceedings arising under Superfund typically involve numerous waste generators
and other waste transportation and disposal companies and seek to allocate or
recover costs associated with site investigation and cleanup, which costs could
be substantial.
The Company or its subsidiaries have been notified that they are potentially
responsible parties in connection with 2 locations listed on the Superfund
National Priority List. The Company has reviewed its role, if any, with respect
to each location, giving consideration to the nature of the Company's alleged
connection to the location (e.g., owner, operator, transporter or generator),
the amount and nature of waste hauled to the location, the accuracy and strength
of evidence connecting the Company to the location, and the number, connection
and financial ability of other named and unnamed potentially responsible parties
at the location. At one location, the Company has been named in the "de minimis"
group of generators, who have been negotiating a settlement of their liabilities
with the Environmental Protection Agency. However, the Company has joined with
others within the group who have elected to contest their liability completely.
At the second location, the Company has only recently been notified of its
possible involvement and has, therefore, conducted only a limited investigation
of its potential exposure, if any. While the Company does not anticipate that
the amount of expenditures from its involvement in the above matters will have a
material adverse effect on the Company's operations or financial condition, the
possibility remains that technological, regulatory or enforcement developments,
the results of environmental studies, or other factors could materially alter
this expectation at any time.
In addition, the Company and certain of its subsidiaries are involved in
various litigation and other legal proceedings; however, such litigation or
proceedings are not considered to be significant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not hold a meeting of stockholders or otherwise submit any
matter to a vote of stockholders in the fourth quarter of 1994.
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Shares of the Company's Common Stock are listed and traded principally on the
New York Stock Exchange. At March 17, 1995, there were approximately 5,171
holders of Common Stock of record. The following table sets forth, for the
fiscal periods indicated, the quoted high and low sales prices of the shares on
the New York Stock Exchange.
<TABLE>
<CAPTION>
QUOTED STOCK PRICES
-------------------
HIGH LOW
--------- --------
<S> <C> <C>
FISCAL YEAR
1993:
First Quarter 3 1/2 2 7/8
Second Quarter 3 3/4 2 5/8
Third Quarter 3 5/8 2 3/4
Fourth Quarter 3 1/2 2 3/4
1994:
First Quarter 4 1/8 3
Second Quarter 3 1/2 2 3/4
Third Quarter 3 1/8 2 1/4
Fourth Quarter 2 1/2 1 7/8
1995:
First Quarter 2 1/4 1 1/2
(through March 17, 1995)
</TABLE>
Regular dividends on the Company's reclassified Adjustable Rate Cumulative
Class A Preferred Stock were resumed in the third quarter of 1990. In
connection with its 1991 acquisition of Furmanite, the Company issued a total of
1,098,373 shares of 12% Convertible Class A Preferred Stock, Series D, stated
value of 5.34 Pounds Sterling, of which 989,820 shares were outstanding as of
March 17, 1995. Commencing June 30, 1991, an annual dividend of 64 pence has
been paid semi-annually to the holders of Series D Preferred Stock. Also, in
connection with an executive compensation program, the Company has issued 600
restricted shares of its Adjustable Rate Cumulative Class A Preferred Stock,
Series C, to three senior officers, who in 1994 were paid an aggregate dividend
of $28,422 previously accrued in 1991. Dividends on the Series C Preferred
Stock that are otherwise payable for a year in which the Company has a net loss
are not paid until completion of a year in which the Company has a net profit.
Credit facilities used to acquire Furmanite and ST and KPL's working capital
arrangement each contain restrictions on the subsidiaries' ability to pay
dividends or distributions to the Company if an event of default exists.
10
<PAGE>
ITEM 6. SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The following selected financial data (in thousands, except per share amounts)
is derived from the consolidated financial statements of Kaneb Services, Inc.
and should be read in conjunction with the consolidated financial statements and
related notes included herein. The Company has not declared a dividend on it's
common stock for any of the periods presented.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Revenues............................. $208,722 $198,549 $176,703 $134,965 $ 40,920
Operating income..................... 31,964 29,530 14,611 13,247 8,704
Net income (loss):
Income (loss) from continuing
operations before gain on issuance
of partnership units................ 2,035 1,032 (5,532) (8,055) (3,436)
Gain on issuance of partnership
units............................... - 15,122 - - -
-------- -------- -------- -------- --------
Continuing operations................ 2,035 16,154 (5,532) (8,055) (3,436)
Discontinued operations.............. - - 996 (13,011) (9,100)
Extraordinary gain on debt
extinguishment...................... - - - 405 931
Cumulative effect of accounting
changes (a)......................... - - 742 - -
-------- -------- -------- -------- --------
Net income (loss)................. $ 2,035 $ 16,154 $ (3,794) $(20,661) $(11,605)
======== ======== ======== ======== ========
PER SHARE DATA
Earnings (loss) per common share:
Continuing operations............... $ .02 $ .46 $ (.22) $ (.30) $ (.16)
Discontinued operations............. $ - $ - $ .03 $ (.41) $ (.29)
Extraordinary gain on debt
extinguishment.................... $ - $ - $ - $ .01 $ .03
Cumulative effect of accounting
changes........................... $ - $ - $ .02 $ - $ -
-------- -------- -------- -------- --------
Total............................. $.02 $.46 $ (.17) $ (.70) $ (.42)
======== ======== ======== ======== ========
BALANCE SHEET DATA
Cash flow provided by operating
activitie........................... $ 25,890 $ 30,880 $ 19,183 $ 6,159 $ 9,074
Cash and cash equivalents............ 9,506 24,327 10,596 17,501 91,773
Working capital...................... (42,797) 15,842 12,555 22,339 75,113
Total assets......................... 284,213 287,472 215,848 237,173 179,573
Long-term debt....................... 103,376 152,678 141,430 144,222 94,344
Stockholders' equity................. 18,844 14,861 (1,519) 7,239 16,943
</TABLE>
Notes:
(a) Represents the cumulative effect of accounting changes from the adoption of
new financial accounting standards relating to taxes.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion should be read in conjunction with the consolidated financial
statements of Kaneb Services, Inc. (the "Company") and notes thereto included
elsewhere in this report.
RESULTS OF OPERATIONS
The Company's revenues increased $10.2 million or 5% over 1993 reflecting
growth in the pipeline and terminaling services segment resulting from the
inclusion of ST's results for the full year versus the ten month period in 1993
from the March 2, 1993 acquisition date. Net income from continuing operations
before the $15.1 million non-cash accounting basis gain resulting from the
issuance of additional units by KPP in 1993, increased 100% from $1.0 million in
1993 to $2.0 million in 1994.
The Company's revenues increased $21.8 million or 12% over 1992 due to the
acquisition by KPP in March 1993 of ST. Operating income increased $14.9
million or 102% over 1992 with substantial improvements in all areas of the
Company. Net income, which included a $15.1 million non-cash accounting basis
gain resulting from the issuance of additional units by KPP in April 1993,
increased $20 million over 1992.
INDUSTRIAL SERVICES
The industrial services segment represents the operations of Furmanite, which
was acquired in March 1991.
<TABLE>
<CAPTION>
(in millions)
1994 1993 1992
------- ------ -------
<S> <C> <C> <C>
Revenues:
United States................................. $ 34.2 $ 32.8 $ 38.3
United Kingdom................................ 36.3 30.5 37.7
Germany....................................... 33.0 40.0 35.2
Rest of World................................. 14.7 13.1 14.5
------ ------ ------
$118.2 $116.4 $125.7
====== ====== ======
Operating income before reorganization charge:
United States................................. $ 2.0 $ 1.1 $ 1.6
United Kingdom................................ 1.9 1.2 1.1
Germany....................................... (3.5) 1.4 0.9
Rest of World................................. 1.2 0.1 (1.4)
------ ------ ------
$ 1.6 $ 3.8 $ 2.2
====== ====== ======
Reorganization charge........................... $ - $ - $ 1.8
Capital expenditures............................ 2.8 2.6 6.8
</TABLE>
Revenues in Germany decreased 18% in 1994 from 1993 as a result of worsening
economic conditions in the eastern sector. Furmanite's revenues throughout the
rest of the world increased 12% in 1994 over 1993 as some of the downward
pressures experienced in the previous year began to relax. Operating losses in
Germany in 1994 amounted to $3.5 million, including costs associated with the
sale of unprofitable projects in eastern Germany in February 1995, compared to
operating profits of $1.4 million in 1993. Furmanite's operations throughout
the rest of the world reported operating income of $5.1 million in 1994, a 113%
improvement over 1993.
12
<PAGE>
Revenues declined 7% in 1993 over 1992 primarily as a result of continued
pressures from the worldwide recession. Revenues in the U.K. and Western Europe
declined 19% in 1993 and United States revenues were 14% lower than in 1992.
Operating income increased in 1993 primarily due to improvements throughout
Furmanite's operations as a result of the 1992 reorganization. In the third
quarter of 1992, the Company recorded a $1.8 million charge for the
reorganization of Furmanite. The reorganization was completed in the fourth
quarter of 1992 and substantially all of the funds were disbursed from working
capital in that period.
Capital expenditures are primarily related to expansion of manufacturing and
shop facilities and the development of new services. Capital expenditures for
1995 are currently estimated to be $2 to $4 million depending on the economic
environment and the needs of the business.
PIPELINE AND TERMINALING SERVICES
The pipeline and terminaling services segment includes the operations of Kaneb
Pipe Line Partners, L.P. ("KPP") which was formed in 1989 to own and operate the
refined petroleum products pipeline business started by the Company over 40
years ago. The Company controls the pipeline and terminaling operations through
its two percent general partner interest and also owns a 52% limited partner
interest in the partnership. Effective March 1, 1993, KPP acquired Support
Terminal Services, Inc. ("ST"), a petroleum products and specialty liquids
storage and terminaling company headquartered in Dallas, Texas for approximately
$65 million. KPP borrowed $65 million from a group of banks to fund the
acquisition and refinanced its $10 million credit line. In April 1993, KPP
completed a secondary public offering of 2.25 million Senior Preference Units at
$25.25 per unit and used $50.8 million of the proceeds from the offering to
repay a portion of the ST acquisition bank debt. The Company recognized a non-
cash accounting basis gain in the amount of $22.4 million resulting from the
change in its ownership interest of KPP as a result of this public offering.
Consistent with the treatment in 1989 on the initial offering of Senior
Preference Units, the Company deferred $7.3 million of this gain and recorded
$15.1 million in the statement of income as a gain on the issuance of units by
the partnership. Minority interest expense increased $1.6 million and $3.0
million in 1994 and 1993, respectively, as a result of the issuance of the 2.25
additional senior preference units in April 1993. The distributions to the
minority interest holders of KPP aggregated approximately $16.2 million, $13.7
million and $11.0 million in 1994, 1993 and 1992, respectively, and were funded
by KPP's operations.
<TABLE>
<CAPTION>
(in millions)
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Revenues.............. $78.7 $69.2 $42.2
Operating income...... 33.0 29.3 20.7
Capital expenditures.. 19.5 8.1 3.2
</TABLE>
Pipeline revenues increased 5% while operating income increased 3% in 1994.
The increase in revenues is attributable to an approximate 5.5% tariff increase
implemented in April 1994. The effects of the tariff increase were partially
offset by an increase in property taxes and unusually high repair and
maintenance expenditures. Terminaling revenues and operating income increased
$7.5 million and $2.9 million, respectively, over 1993 primarily as a result of
the inclusion of the operations of ST for the full year in 1994 versus the ten
month period in 1993 from the March 2 acquisition date.
Capital expenditures, which relate to the expansion of the pipeline and the
maintenance of existing operations, for 1994 were $19.5 million. Capital
expenditures in 1994 include $12.3 million related to the acquisition of three
additional terminaling facilities. Routine capital expenditures for 1995 are
currently estimated to be $8 million.
13
<PAGE>
In February 1995, KPP, through a wholly-owned subsidiary, acquired the
pipeline assets of Wyco Pipe Line Company for $27.1 million. The acquisition
was financed by the issuance of $27 million of first mortgage notes that bear
interest at 8.37% per annum and mature in 2002.
OTHER OPERATIONS
The Company recorded revenues of $11.8 million, $12.9 million and $8.9 million
in 1994, 1993 and 1992, respectively, and operating costs of $10.3 million,
$12.3 million and $10.5 million for the same periods related to subsidiaries
that provide payment, collection and information services to retail merchants
and financial institutions. During 1993, the Company wrote off $.3 million of
acquisition costs related to Kraftwerks-und Anlagenbau AG which is included in
other expenses. During 1992, the Company offset the release of an excess accrual
of $3.5 million in its discontinued operations reserve against the reduction in
the carrying value of assets that relate to services no longer actively marketed
to retail merchants. The Company recorded income and a gain from the sale of its
interests in oil and gas properties of approximately $1.0 million which was
included in other income in 1992. The 1992 income tax benefit is due primarily
to the favorable settlement of a foreign tax liability. During 1992, the Company
recorded a $1.0 million gain from discontinued operations resulting from a cash
settlement of a claim in a discontinued subsidiary.
In January 1993, the Company completed the acquisition of Kraftwerks-und
Anlagenbau AG ("Kraftwerks") from the Berlin Trusteeship Agency
("Treuhandanstalt"), the German agency created to privatize former East German
state-owned companies. A subsidiary of the Company purchased Kraftwerks share
capital for DM 1 million ($700,000) and committed to maintain certain employment
and investment levels over a three year period, performance of which obligations
was to be secured by shares of a new class of the Company's convertible
preferred stock to be placed into escrow. Kraftwerks has been engaged in recent
years in providing engineering and construction services primarily to the power
industry in Germany and eastern Europe. Due to substantial deterioration in the
German economy, however, the Company believed that Kraftwerks would have been
unlikely to achieve profitability without a corresponding reduction in its work
force. Accordingly, in February 1994, the Company entered into an agreement
granting it an option to sell the shares of Kraftwerks to the Treuhandanstalt or
its designee. The Company exercised its option, and on March 17, 1994, the
Treuhandanstalt repaid the Company's initial acquisition price of DM 1 million,
unconditionally discharged the Company from all past and future performance
obligations related to Kraftwerks, released the Company's convertible preferred
shares from escrow and the capital stock of Kraftwerks was transferred to a
designee of the Treuhandanstalt.
LIQUIDITY AND CAPITAL RESOURCES
The Company has $53.2 million of long-term debt that matures during 1995 which
has been included in current liabilities as of December 31, 1994. As a result,
the Company's balance sheet shows a working capital deficiency of $42.8 million
as of December 31, 1994. After an extensive review of various repayment and
refinancing alternatives, the Board of Directors, on March 21, 1995, authorized
management of the Company to pursue the sale of up to 3.5 million of the
Preference Units it holds in Kaneb Pipe Line Partners, L.P. ("KPP"). Management
is in discussions with underwriters regarding a public offering of these
securities and expects to raise the funds required to repay these obligations
prior to their maturity.
Cash provided by operating activities was $25.9 million, $30.9 million and
$19.2 million during the years 1994, 1993 and 1992, respectively.
In conjunction with the acquisition of Furmanite, a wholly-owned subsidiary
obtained a $50 million credit facility, which is without recourse to the Parent
Company, with an international banking syndicate. The
14
<PAGE>
proceeds from the credit facility were applied to the cost of the acquisition
and utilized to refinance Furmanite's existing debt. At December 31, 1994, $25.2
million was outstanding under this credit facility.
A subsidiary of the Company has a $5 million credit line ($3.1 million
outstanding at December 31, 1994) which expires in June 1995. In 1994, KPP
through a wholly-owned subsidiary, issued $33 million of first mortgage notes to
a group of insurance companies. The notes bear interest at the rate of 8.05% per
annum and are due on December 22, 2001. In 1994, a wholly-owned subsidiary of
KPP entered into a Restated Credit Agreement with a group of banks that provides
a $15 million revolving credit facility through November 30, 1997. The credit
facility bears interest at variable interest rates and has a commitment fee of
.2% per annum of the unused credit facility. No amounts were drawn under the
credit facility at December 31, 1994. The notes and credit facility are secured
by a mortgage on substantially all of the pipeline assets of KPP.
Consolidated capital expenditures for 1995 have been budgeted at $10 to $12
million. Debt maturities are $60.1 million, $3.8 million, $3.9 million, $19.2
million and $1.6 million for each of the five years ending December 31, 1998.
Debt maturities for 1995 are expected to be funded through the sale of
Preference Units in KPP as discussed above and anticipated cash flows from
operations. Capital expenditures in 1995 are expected to be funded from
existing cash and anticipated cash flows from operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the Company
begins on page F-1 of this report. Said information is hereby incorporated by
reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
The information required by Part III (Items 10, 11, 12 and 13) of Form 10-K is
incorporated by reference from portions of the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission not later than
120 days after the close of the fiscal year covered by this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS
Set forth below are financial statements appearing in this report.
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors F - 1
Financial Statements of Kaneb Services, Inc, and Subsidiaries:
Consolidated Statements of Income - Years Ended December 31,
1994, 1993 and 1992.......................................... F - 2
Consolidated Balance Sheets - December 31, 1994 and 1993....... F - 3
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1993 and 1992................. F - 4
Consolidated Statements of Changes in Stockholders'
Equity - Years Ended December 31, 1994, 1993 and 1992........ F - 5
Notes to Consolidated Financial Statements..................... F - 6
</TABLE>
(A) (2) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Set forth are the financial statement schedules appearing in this report.
<S> <C>
Schedule I - Kaneb Services, Inc. (Parent Company)
Condensed Financial Statements:
Statements of Income - Years Ended December 31, 1994,
1993 and 1992......................................................... F - 24
Balance Sheets - December 31, 1994 and 1993............................. F - 25
Statements of Cash Flows - Years Ended
December 31, 1994, 1993 and 1992...................................... F - 26
Schedule II - Kaneb Services, Inc. Valuation and Qualifying Accounts -
Years Ended December 31, 1994, 1993 and 1992........................... F - 27
</TABLE>
Schedules, other than those listed above, have been omitted because of the
absence of the conditions under which they are required or because the required
information is included in the consolidated financial statements or related
notes thereto presented in the Annual Report to Stockholders.
16
<PAGE>
(A) (3) LIST OF EXHIBITS
3.1 Restated Certificate of Incorporation of the Registrant as restated
September 26, 1979, filed as Exhibit 3.1 of the exhibits to the
Registrant's registration statement on Form S-16, which exhibit is hereby
incorporated by reference.
3.2 Certificate of Amendment of Certificate of Incorporation of the Registrant,
dated April 30, 1981, filed as Exhibit 3.2 of the exhibits to the
Registrant's Form 10-K for the year ended December 31, 1981 (1981 Form 10-
K), which exhibit is hereby incorporated by reference.
3.3 Certificate of Amendment of Certificate of Incorporation of the Registrant,
dated May 28, 1985, filed as Exhibit 4.1 of the exhibits to the
Registrant's quarterly report on Form 10-Q for the quarter ended June 30,
1985, which exhibit is hereby incorporated by reference.
3.4 Certificate, dated September 17, 1985, amending the Certificate of
Incorporation,filed as Exhibit 4.1 of the exhibits to the Registrant's
quarterly report on Form 10-Q for the quarter ended September 30, 1985,
which exhibit is hereby incorporated by reference.
3.5 Certificate of Amendment to the Restated Certificate of Incorporation of
Registrant dated July 10, 1990, filed as Exhibit 3.5 of the exhibits to
Registrant's report on Form 10-K for the year ended December 31, 1990 (1990
Form 10-K), which exhibit is hereby incorporated by reference.
3.6 Certificate of Amendment to the Restated Certificate of Incorporation of
Registrant dated September 21, 1990, filed as Exhibit 3.5 of the exhibits
to Registrant's quarterly report on Form 10-Q for the quarter ended
September 30, 1990, which exhibit is hereby incorporated by reference.
3.7 By-laws of the Registrant, filed as Exhibit 3.5 of the exhibits to the
Registrant's report on Form 10-K for year ended December 31, 1985, which
exhibit is hereby incorporated by reference.
4.1 Certificate of Designation related to Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, filed as Exhibit 4 of the exhibits to
the Registrant's quarterly report of Form 10-Q for the quarter ended
September 30, 1983, which exhibit is hereby incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights of Series B Junior
Participating Preferred Stock, filed as Exhibit 1 of the exhibits to the
Registrant's report on Form 8-K and registration statement on Form 8-A
dated April 5, 1988, which exhibit is hereby incorporated by reference.
4.3 Certificate of Designation to the Restated Certificate of Incorporation of
Registrant relating to the issuance of Series D Preferred Stock dated
February 11, 1991, filed as Exhibit 4.3 of Registrant's 1990 Form 10-K,
which exhibit is hereby incorporated by reference.
4.4 Certificate of Designation to the Restated Certificate of Incorporation of
Registrant relating to the issuance of Series C Preferred Stock dated April
23, 1991, filed as Exhibit 4.4 of the exhibits to Registrant's report on
From 10-K for the year ended December 31, 1991, which exhibit is hereby
incorporated herein.
4.5 Certificate of Designation dated November 2, 1992 relating to the issuance
of Series E Preferred Stock, filed as Exhibit 10.2 of the exhibits to
Registrant's report on Form 8-K dated January 23, 1993, which exhibit is
hereby incorporated by reference.
4.6 Indenture, dated as of January 1, 1978, between Moran Energy Inc. and First
City National Bank of Houston, under which Moran Energy Inc. issued the 11
1/2% Subordinated Debentures due 1998, filed as Exhibit 2(g) to Moran
Energy Inc.'s Registration Statement on Form S-7 (SEC File No. 2-61216),
which exhibit is hereby incorporated by reference.
17
<PAGE>
4.7 First Supplemental Indenture, dated as of March 20, 1984, between the
Registrant and First City National Bank of Houston, under which the
Registrant assumed obligations under the Indenture listed as Exhibit 4.6
above, filed as Exhibit 4.4 to the exhibits of Registrant's report on Form
10-K for the year ended December 31, 1983 (1983 Form 10-K) which exhibit is
hereby incorporated by reference.
4.8 Indenture, dated as of November 1, 1980, between Moran Energy International
N.V., Moran Energy Inc. and First City National Bank of Houston, under
which Moran Energy International N.V. issued the 8% Convertible
Subordinated Debentures due 1995 of Moran Energy International N.V.
guaranteed on a subordinated basis by Moran Energy Inc., filed as Exhibit
4(b) to Moran Energy Inc.'s Form 10-K for the year ended December 1, 1980,
which exhibit is hereby incorporated by reference.
4.9 First Supplemental Indenture, dated as of March 20, 1984, by and among
Moran Energy International N.V., the Registrant and First City National
Bank of Houston, under which the Registrant assumed Moran Energy Inc.'s
obligations under the Indenture listed as Exhibit 4.8 above, filed as
Exhibit 4.7 of the 1983 Form 10-K Exhibit 4.7 which exhibit is hereby
incorporated by reference.
4.10 Indenture, dated as of January 15, 1984, between Moran Energy Inc. and
First City National Bank of Houston, under which Moran Energy Inc. issued
the 8 3/4% Convertible Subordinated Debentures due 2008, filed as Exhibit
4.1 to Moran Energy Inc.'s registration statement on Form S-3 (SEC File No.
2-81227), which exhibit is hereby incorporated by reference.
4.11 First Supplemental Indenture, dated as of March 20, 1984, between the
Registrant and First City National Bank of Houston, under which the
Registrant assumed obligations under the Indenture listed as Exhibit 4.10
above, filed as Exhibit 4.8 of the 1983 Form 10-K Exhibit 4.8 which exhibit
is hereby incorporated by reference.
10.1 Kaneb Services, Inc. 1984 Nonqualified Stock Option Plan, filed as Exhibit
10.26 of the exhibits to Registrant's report on form 10-K for the year
ended December 31, 1984, which exhibit is hereby incorporated by reference.
10.2 Form of Termination Agreement, dated May 22, 1981, entered by the
Registrant with certain key employees of the Registrant, filed as Exhibit
10.19 of the 1981 Form 10-K Exhibit 10.19 which exhibit is hereby
incorporated by reference.
10.3 Kaneb Services, Inc. Savings Investment Plan filed as Exhibit 4.10 to the
exhibits of Registrant's Form S-8 Registration Statement (S.E.C. File No.
33-41295), which exhibit is hereby incorporated by reference.
10.4 Form of Indemnification Assurance Agreement entered into by the Registrant
with the directors, filed as Exhibit 10.33 of the exhibits to Registrant's
report on Form 10-K for the year ended December 31, 1986, which exhibit is
hereby incorporated by reference.
10.5 Purchase Contract dated November 20, 1992 for the sale of the share capital
of KAB between the Treuhandanstalt and Furmanite Holding GmbH together with
Kaneb Services, Inc. as a limited guarantor, filed as Exhibit 10.2 to the
exhibits of Registrant's report on Form 8-K dated January 29, 1993 which
exhibit is incorporated herein by reference.
10.6 Sale Contract dated February 27, 1994 for the disposition of the share
capital of KAB between KAB Holding GmbH (formerly Furmanite Holding GmbH),
the Treuhandanstalt and the Registrant, filed as Exhibit 10.6 of the
exhibits to Registrant's report on Form 10-K for the year ended December
31, 1993, which exhibit is hereby incorporated by reference.
18
<PAGE>
10.7 STS Agreement and Plan of Merger dated December 21, 1992 by and between
Grace Energy Corporation, Support Terminal Services, Inc., Standard
Transpipe Corp., and Kaneb Pipe Line Operating Partnership, NSTS, Inc. and
NSTI, Inc. as amended by Amendment of STS Merger Agreement dated March 2,
1993, filed as Exhibit 10.1 to the exhibits of Registrant's report on Form
8-K dated March 2, 1993, which exhibit is incorporated herein by
reference.
10.8 Amended and Restated Loan Agreement dated May 1, 1991 between Furmanite
PLC, Bank of Scotland and certain Banks, filed herewith.
10.9 Amended and Restated Senior Secured Increasing Rate Promissory Note
dated July 2, 1993 between the Registrant and the Bank of Scotland, filed
herewith.
10.10 Pledge and Proxy Agreement dated October 11, 1993, between the Registrant
and Texas Commerce Bank, National Association, filed as Exhibit 10.9 of
the exhibits to Registrant's report on Form 10-K for the year ended
December 31, 1993, which exhibit is hereby incorporated by reference.
10.11 Pledge and Security Agreement dated October 11, 1993 between Kaneb Pipe
Line Company and Texas Commerce Bank, National Association, filed as
Exhibit 10.10 of the exhibits to Registrant's report on Form 10-K for the
year ended December 31, 1993, which exhibit is hereby incorporated by
reference.
10.12 Note Purchase Agreement dated December 22, 1994. Said document is on file
as Exhibit 10.2 of the exhibits to Registrant's report on Form 8-K filed
on March 13, 1995, and said exhibit is hereby incorporated by reference.
10.13 Restated Credit Agreement dated December 22, 1994 between Kaneb Pipe Line
Operating Partnership, L.P., Texas Commerce Bank National Association, and
certain Lendors, filed herewith.
10.14 Agreement for Sale and Purchase of Assets dated February 19, 1995 by and
among Wyco Pipe Line Company and Kaneb Pipe Line Operating Partnership,
L.P.. Said document is on file as Exhibit 10.1 of the exhibits to
Registrant's report on Form 8-K filed with the securities and Exchange
Commission on March 13, 1995, and said exhibit is hereby incorporated by
reference.
10.15 Kaneb Services, Inc. 1994 Stock Incentive Plan filed as Exhibit 4.12 to
the exhibits of Registrant's Form S-8 Registration Statement (S.E.C. File
No. 33-54027), which exhibit is hereby incorporated by reference.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent auditors: Price Waterhouse, filed herewith.
24 Powers of Attorney, filed herewith.
27 Financial Data Schedule, filed herewith.
Certain instruments respecting long-term debt of the Registrant have been
omitted pursuant to instructions as to Exhibits. The Registrant agrees to
furnish copies of any of such instruments to the Commission upon request.
(B) REPORTS ON FORM 8-K - NONE.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Kaneb Services, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
KANEB SERVICES, INC.
By: JOHN R. BARNES
---------------------
(John R. Barnes)
President and Chief Executive Officer
Date: March 30, 1995
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Kaneb
Services, Inc. and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principlal Executive Officer
JOHN R. BARNES
--------------------
(John R. Barnes) President, Chief Executive March 30, 1995
Officer and Director
Principal Accounting Officer
TONY M. REGAN
-------------------
(Tony M. Regan) Controller March 30, 1995
Directors
SANGWOO AHN
---------------------
(Sangwoo Ahn) Director March 30, 1995
JOHN R. BARNES
--------------------
(John R. Barnes) Director March 30, 1995
C.E. BENTLEY
--------------------
(C.E. Bentley) Director March 30, 1995
PRESTON A. PEAK
--------------------
(Preston A. Peak) Director March 30, 1995
RALPH A. REHM
--------------------
(Ralph A. Rehm) Director March 30, 1995
JAMES R. WHATLEY
--------------------
(James R. Whatley) Director March 30, 1995
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Kaneb Services, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 16 present fairly, in all material
respects, the financial position of Kaneb Services, Inc. and its subsidiaries at
December 31, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes by adopting Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, effective
January 1, 1992.
PRICE WATERHOUSE LLP
Dallas, Texas
March 22, 1995
F - 1
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1994 1993 1992
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $ 208,722,000 $ 198,549,000 $ 176,703,000
----------------- ----------------- -----------------
Costs and expenses:
Operating costs 159,913,000 153,231,000 144,287,000
Depreciation and amortization 12,807,000 11,655,000 11,254,000
Furmanite reorganization charge - - 1,800,000
General and administrative 4,038,000 4,133,000 4,751,000
----------------- ----------------- -----------------
Total costs and expenses 176,758,000 169,019,000 162,092,000
----------------- ----------------- -----------------
Operating income 31,964,000 29,530,000 14,611,000
Interest income 446,000 307,000 384,000
Other income (expense) (251,000) (514,000) 1,236,000
Interest expense (13,752,000) (13,559,000) (13,768,000)
Amortization of excess of cost over
fair value of net assets of acquired
business (1,846,000) (1,845,000) (1,844,000)
----------------- ----------------- -----------------
Income from continuing operations
before minority interest, income
taxes, and gain on issuance of units
by partnership 16,561,000 13,919,000 619,000
Minority interest in net income (12,567,000) (10,989,000) (8,029,000)
Income tax benefit (expense) (1,959,000) (1,898,000) 1,878,000
Gain on issuance of units by partner-
ship - 15,122,000 -
----------------- ----------------- -----------------
Income (loss) from continuing
operations 2,035,000 16,154,000 (5,532,000)
Gain from discontinued operations - - 996,000
Cumulative effect of change in
accounting principle - - 742,000
----------------- ----------------- -----------------
Net income (loss) 2,035,000 16,154,000 (3,794,000)
Dividends applicable to preferred stock 1,489,000 1,451,000 1,678,000
----------------- ----------------- -----------------
Net income (loss) applicable to common
stock $ 546,000 $ 14,703,000 $ (5,472,000)
================= ================= =================
Earnings (loss) per common share - primary
and fully diluted:
Continuing operations $ .02 $ .46 $ (.22)
Discontinued operations - - .03
Cumulative effect of change in accounting
principle - - .02
----------------- ----------------- -----------------
$ .02 $ .46 $ (.17)
================= ================= =================
Weighted average number of common shares
outstanding 32,664,000 31,866,000 31,697,000
================= ================= =================
</TABLE>
See notes to consolidated financial statements.
F - 2
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------
ASSETS 1994 1993
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,506,000 $ 24,327,000
Short-term investments 1,020,000 -
Accounts receivable, trade (net of allowance for
doubtful accounts of $854,000 in 1994 and
$769,000 in 1993) 25,851,000 27,300,000
Inventories 6,110,000 6,189,000
Prepaid expenses and other current assets 5,497,000 3,209,000
-------------- --------------
Total current assets 47,984,000 61,025,000
-------------- --------------
Property and equipment 255,032,000 234,368,000
Less accumulated depreciation
and amortization 91,490,000 81,085,000
-------------- --------------
Net property and equipment 163,542,000 153,283,000
-------------- --------------
Excess of cost over fair value of net assets of
acquired business 66,876,000 68,722,000
-------------- --------------
Other assets 5,811,000 4,442,000
-------------- --------------
$ 284,213,000 $287,472,000
============== ==============
<CAPTION>
LIABILITIES AND EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 60,101,000 $ 12,461,000
Accounts payable 10,262,000 10,414,000
Accrued expenses 10,836,000 10,970,000
Accrued distribution payable 4,021,000 3,995,000
Accrued compensation and benefits 3,651,000 5,439,000
Accrued interest 1,910,000 1,904,000
-------------- --------------
Total current liabilities 90,781,000 45,183,000
-------------- --------------
Long-term debt, less current portion 103,376,000 152,678,000
-------------- --------------
Net liabilities of discontinued operations 3,914,000 4,606,000
-------------- --------------
Deferred income taxes and other liabilities 5,565,000 4,939,000
-------------- --------------
Minority interest 61,733,000 65,205,000
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, without par value $ 14,085,000 $ 13,707,000
Common stock, without par value. Authorized
60,000,000 shares; issued 36,428,823 shares
in 1994 and 36,410,264 in 1993 4,224,000 4,222,000
Additional paid-in capital 198,736,000 201,976,000
Accumulated deficit (175,772,000) (176,318,000)
Treasury stock, at cost (23,435,000) (28,755,000)
Cumulative foreign currency translation adjustment 1,006,000 29,000
-------------- --------------
Total stockholders' equity 18,844,000 14,861,000
-------------- --------------
$ 284,213,000 $ 287,472,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1994 1993 1992
------------- ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $ 2,035,000 $ 16,154,000 $ (3,794,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 12,807,000 11,655,000 11,254,000
Amortization of excess of cost over net assets
acquired 1,846,000 1,845,000 1,844,000
Minority interest in net income 12,567,000 10,989,000 8,029,000
Deferred income taxes 457,000 357,000 -
Settlement of foreign tax liability - - (1,859,000)
Gain on issuance of units by partnership - (15,122,000) -
Gain from discontinued operations - - (996,000)
Cumulative effect of change in accounting
principle - - (742,000)
Changes in current assets and liabilities:
Short-term investments (1,020,000) - -
Accounts receivable, net 1,449,000 3,931,000 5,948,000
Inventories 79,000 1,196,000 3,077,000
Prepaid expenses and other current assets (2,288,000) (1,127,000) (486,000)
Accounts payable and accrued expenses (2,042,000) 1,002,000 (3,092,000)
------------- ------------ ------------
Net cash provided by operating activities 25,890,000 30,880,000 19,183,000
------------- ------------ ------------
Investing Activities:
Capital expenditures (22,505,000) (11,028,000) (12,082,000)
Acquisition of Support Terminal Services, Inc. - (62,677,000) (2,500,000)
Proceeds from sale of assets - - 2,200,000
Decrease in other assets, net 1,975,000 3,185,000 407,000
------------- ------------ ------------
Net cash used in investing activities (20,530,000) (70,520,000) (11,975,000)
------------- ------------ ------------
Financing Activities:
Issuance of long-term debt 55,669,000 110,261,000 6,073,000
Payments on long-term debt and purchases (57,588,000) (93,894,000) (7,913,000)
Minority interest distributions (16,168,000) (13,682,000) (11,160,000)
Preferred stock dividends paid (1,402,000) (1,451,000) (1,504,000)
Net proceeds from issuance of units by partnership - 53,159,000 -
------------- ------------ ------------
Net cash provided by (used in) financing activities (19,489,000) 54,393,000 (14,504,000)
------------- ------------ ------------
Cash provided by (used in) discontinued operations (692,000) (1,022,000) 391,000
------------- ------------ ------------
Increase (decrease) in cash and cash equivalents (14,821,000) 13,731,000 (6,905,000)
Cash and cash equivalents at beginning of year 24,327,000 10,596,000 17,501,000
------------- ------------ ------------
Cash and cash equivalents at end of year $ 9,506,000 $ 24,327,000 $ 10,596,000
============= ============ ============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Foreign
Preferred Common Additional Accumulated Treasury Currency
Stock Stock Paid-In Capital Deficit Stock Translation
------------ ------------ --------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ 16,152,000 $ 4,203,000 $ 203,367,000 $ (185,549,000) $ (32,113,000) $ 1,179,000
Net loss for the year - - - (3,794,000) - -
Common stock issued - 5,000 (125,000) - 436,000 -
Preferred stock dividends declared - - - (1,678,000) - -
Amortization of deferred compensation - - 26,000 - - -
Conversion of Series D preferred stock (83,000) 2,000 81,000 - - -
Foreign currency translation adjustment (1,952,000) - - - - (1,676,000)
------------ ------------ --------------- -------------- ------------- -------------
BALANCE AT DECEMBER 31, 1992 $ 14,117,000 $ 4,210,000 $ 203,349,000 $(191,021,000) $(31,677,000) $ (497,000)
Net income for the year - - - 16,154,000 - -
Common stock issued - 7,000 (1,575,000) - 2,922,000 -
Preferred stock dividends declared - - - (1,451,000) - -
Conversion of Series D preferred stock (207,000) 5,000 202,000 - - -
Foreign currency translation adjustment (203,000) - - - - 526,000
------------ ------------ --------------- -------------- ------------- -------------
BALANCE AT DECEMBER 31, 1993 $ 13,707,000 $ 4,222,000 $ 201,976,000 $ (176,318,000) $ (28,755,000) $ 29,000
Net income for the year 2,035,000
Common stock issued - (3,325,000) - 5,320,000 -
Preferred stock dividends declared - - - (1,489,000) - -
Conversion of Series D preferred stock (87,000) 2,000 85,000 - - -
Foreign currency translation adjustment 465,000 - - - - 977,000
------------ ----------- --------------- ------------- ------------ ----------
BALANCE AT DECEMBER 31, 1994 $ 14,085,000 $ 4,224,000 $ 198,736,000 $(175,772,000) $(23,435,000) $1,006,000
============ =========== =============== ============= ============ ==========
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are followed by Kaneb
Services, Inc. (the "Company") and its subsidiaries in the preparation of
financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries and Kaneb Pipe Line Partners, L.P. ("KPP"). The Company
controls the pipeline operations of KPP through its two percent general
partner interest and also owns a 52% majority limited partner interest. All
significant intercompany transactions and balances are eliminated in
consolidation.
SEGMENT INFORMATION
The Company provides specialized industrial services through its industrial
services segment to an international client base that includes oil
refineries, chemical plants, pipelines, offshore drilling and production
platforms, steel mills, food and drink processing facilities, power
generation, and other process industries. The Company also provides pipeline
and terminaling services through its 2,075 mile integrated pipeline and
specialized terminaling and storage facilities.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company's policy is to invest cash in highly liquid investments with
maturities of three months or less, upon acquisition. Accordingly,
uninvested cash balances are kept at minimum levels. Such investments are
valued at cost, which approximates market, and are classified as cash
equivalents. Similar investments with original maturities beyond three
months are considered short-term investments and are carried at cost, which
approximates market value.
INVENTORIES
Inventories consist primarily of finished goods of the industrial services
segment and are valued at the lower of average cost or market. Cost is
determined using the weighted average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at original cost. Certain leases have
been capitalized and the leased assets have been included in property and
equipment. Additions of new equipment and major renewals and replacements of
existing equipment are capitalized. Repairs and minor replacements that do
not materially increase values or extend useful lives are expensed.
Depreciation of property and equipment is provided on the straight-line
basis at rates based upon expected useful lives of the various classes of
assets. The rates used for pipeline and storage facilities, which are
subject to regulation, are the same as those promulgated by the Federal
Energy Regulatory Commission.
F - 6
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
REVENUE RECOGNITION
Substantially all revenues are recognized when services to unaffiliated
customers have been rendered. Pipeline transportation revenues are
recognized upon receipt of the products into the pipeline system.
EARNINGS PER SHARE
Earnings per common share data have been computed by dividing income
applicable to common stock by the weighted average number of shares
outstanding during each period. The effect of common stock equivalents and
other potentially dilutive securities on such computation was anti-dilutive
for each period.
FOREIGN CURRENCY TRANSLATION
The Company translates the balance sheets of its foreign subsidiaries using
year-end exchange rates and translates income statement amounts using the
average exchange rates in effect during the year. The gains and losses
resulting from the change in exchange rates from year to year have been
reported separately as a component of stockholders' equity. Gains and losses
resulting from foreign currency transactions are included in the statements
of income.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF ACQUIRED BUSINESS
The excess of the purchase price of Furmanite, PLC over the fair value of
the net assets acquired is being amortized over a period of 40 years.
Accumulated amortization was $6.6 million and $4.8 million at December 31,
1994 and 1993, respectively.
2. MANAGEMENT PLANS
The Company has $53.2 million of long-term debt that matures during 1995
which has been included in current liabilities as of December 31, 1994. As a
result, the Company's balance sheet shows a working capital deficiency of
$42.8 million as of December 31, 1994. After an extensive review of various
repayment and refinancing alternatives, the Board of Directors, on March 21,
1995, authorized the management of the Company to pursue the sale of up to
3.5 million of the Preference Units it holds in Kaneb Pipe Line Partners,
L.P. ("KPP"). Management is in discussions with underwriters regarding a
public offering of these securities and expects to raise the funds required
to repay these obligations prior to their maturity.
The Company controls the pipeline and terminaling operations of KPP through
its two percent general partner interest and it currently owns a 52% limited
partner interest. The sale of 3.5 million Preference Units would reduce the
Company's limited partner interest to 31%, but it would not affect the
Company's control of the operations of KPP. The excess of the net proceeds
from the sale of these Preference Units over their nominal book basis of
$4.37 per Preference Unit will be recorded as a gain in the Company's 1995
statement of income.
F - 7
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
3. ACQUISITIONS, DISPOSITIONS AND SUBSEQUENT EVENTS
Effective February 24, 1995, the Company, through KPP, acquired the refined
petroleum product pipeline assets of Wyco Pipe Line Company ("Wyco") for
$27.1 million. The acquisition was financed by the issuance of first
mortgage notes to three insurance companies. The notes are due February 24,
2002 and bear interest at the rate of 8.37% per annum. The acquisition will
be accounted for as a purchase and, accordingly, the results of operations
of Wyco will be included in the Partnership's consolidated statement of
income subsequent to the date of acquisition.
In February 1995, the Company completed the sale of certain unprofitable
Furmanite operations in eastern Germany. These general maintenance projects
were acquired in 1991, 1992 and 1993 as the former East Germany was
privatized by the German government. As economic conditions in eastern
Germany worsened considerably in 1994, the Company elected to close one
project and sell the remaining projects. Losses from the operations of
these projects and the sale aggregated approximately $3.5 million in 1994.
Effective March 1, 1993, KPP acquired Support Terminal Services, Inc.
("ST"), a petroleum products and specialty liquids storage and terminaling
company headquartered in Dallas, Texas, for approximately $65 million. The
acquisition was accounted for as a purchase, and accordingly, the Company's
consolidated statements of income include the results of operations of ST
since March 1, 1993. In connection with the acquisition, KPP borrowed $65
million from a group of banks. In April, 1993 KPP sold 2.25 million Senior
Preference Units ("SPU") in a secondary public offering at $25.25 per unit
and used $50.8 million of the proceeds from this offering to repay a portion
of the ST acquisition debt. As a result of KPP issuing additional units to
unrelated parties, the Company's pro rata share of the net assets of KPP
increased by $22.4 million. The Company recognized a gain of $15.1 million
and consistent with the accounting treatment of the initial SPU offering in
1989, deferred $7.3 million of the gain. The unamortized portion of the
deferred gains which totaled $6.8 million, $10.4 million and $6.5 million at
December 31, 1994, 1993 and 1992, respectively, are included as minority
interest on the balance sheet and are being amortized using the straight-
line method through 1996.
4. INCOME TAXES AND ACCOUNTING CHANGE
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes. The Company adopted this new accounting standard in the first quarter
of 1992 and reported the cumulative effect of the change in method of
accounting for income taxes as a benefit of $742,000 or $.02 per share.
Under SFAS No. 109, the Company has recorded deferred tax assets of
approximately $108 million and $113 million as of December 31, 1994 and
1993, respectively, primarily relating to the Company's domestic net
operating loss carryforwards and investment tax credit carryforwards, offset
by a valuation reserve of the same amount. In 1994 and 1993, the Company
reduced its valuation allowance by $4.8 million and $2.7 million,
respectively, primarily due to the utilization of domestic net operating
loss carryforwards and the expiration of investment tax credit
carryforwards.
F - 8
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
Income (loss) from continuing operations before income tax expense is made
up of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Income from domestic operations $ 8,686,000 $ 21,324,000 $ 2,118,000
Loss from foreign operations (4,692,000) (3,272,000) (9,528,000)
------------ ------------ ------------
$ 3,994,000 $ 18,052,000 $ (7,410,000)
============ ============ ============
</TABLE>
Income tax expense (benefit) is made up of the following components:
<TABLE>
<CAPTION>
Year Ended
December 31, Federal Foreign State Total
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1994:
Current $ 326,000 $ 488,000 $ 688,000 $ 1,502,000
Deferred 313,000 (1,000) 145,000 457,000
------------- ------------- ------------- -------------
$ 639,000 $ 487,000 $ 833,000 $ 1,959,000
============= ============= ============= =============
1993:
Current $ 137,000 $ 354,000 $ 1,050,000 $ 1,541,000
Deferred 313,000 44,000 - 357,000
------------- ------------- ------------- -------------
$ 450,000 $ 398,000 $ 1,050,000 $ 1,898,000
============= ============= ============= =============
1992:
Current $ - $ (2,469,000) $ 723,000 $ (1,746,000)
Deferred - (132,000) - (132,000)
------------- ------------ ------------- -------------
$ - $ (2,601,000) $ 723,000 $ (1,878,000)
============= ============ ============= =============
</TABLE>
Deferred income tax provisions (benefits) result from temporary differences
between the tax basis of assets (principally fixed assets) and liabilities of
foreign subsidiaries and certain domestic subsidiaries not included in the
Company's consolidated federal tax return, and their reported amounts in the
financial statements that will result in differences between income for tax
purposes and income for financial statement purposes in future years.
F - 9
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The reasons for the differences between the amount of tax expense provided
and the amount of tax expense computed by applying the statutory Federal
income tax rate to income (loss) from continuing operations before income
taxes for the years 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1994 1993 1992
-------------------- -------------------- --------------------
Amount % Amount % Amount %
------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) at statutory
rates $ 1,398,000 35.0 $ 6,318,000 35.0 $ (2,519,000) (34.0)
Increases (decrease) in taxes
resulting from:
Domestic loss carryforward
adjustments (2,110,000) (52.8) (1,353,000) (7.5) 2,555,000 34.5
State income taxes, net 541,000 13.5 683,000 3.8 477,000 6.4
Foreign losses not benefited
and foreign income taxes 2,130,000 53.3 1,543,000 8.5 (532,000) (7.2)
Non-taxable gain from issuance of
units - - (5,293,000) (29.3) - -
Settlement of foreign tax liability - - - - (1,859,000) (25.0)
------------ ------ ------------ ------ ------------ ------
Tax expense (benefit) $ 1,959,000 49.0 $ 1,898,000 10.5 $ (1,878,000) (25.3)
============ ====== ============ ====== ============ ======
</TABLE>
At December 31, 1994, the Company had the following domestic tax attribute
carryforwards expiring in the years indicated:
<TABLE>
<CAPTION>
Year of Net Operating Investment
Expiration Losses Tax Credits
---------- -------------- -----------
<S> <C> <C>
1995 - $ 1,387,000
1996 - 1,813,000
1997 $ 35,662,000 2,483,000
1998 3,971,000 4,319,000
1999 7,820,000 2,171,000
2000 23,640,000 1,786,000
2001 74,841,000 -
2002 64,553,000 -
2003 22,049,000 -
2005 16,866,000 -
2006 17,508,000 -
2007 3,038,000 -
-------------- ------------
$ 269,948,000 $ 13,959,000
============== ============
</TABLE>
The amounts shown above that expire in the years 1995 through 1998 represent
the operating losses and investment tax credits acquired in the acquisition
of Moran Energy, Inc. and its subsidiaries and it is unlikely that the
Company will be able to utilize these tax carryforwards in the future. If
certain substantial changes in the Company's ownership should occur, there
would be an annual limitation on the amount of the tax carryforwards which
could be utilized.
F - 10
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
5. RETIREMENT PLANS
The Company has a defined contribution benefit plan which covers
substantially all domestic employees and provides for varying levels of
employer matching. Company contributions to this plan were $.9 million, $.6
million and $.5 million for 1994, 1993 and 1992, respectively.
One of the Company's foreign subsidiaries has a defined benefit pension plan
covering substantially all of its United Kingdom employees (the "U.K.
Plan"). The benefit is based on the average of the employee's salary for the
last three years of employment. Generally the employee contributes 5% and
the employer contributes up to 12% of pay. Plan assets are primarily
invested in unitized pension funds managed by United Kingdom registered
funds managers. The valuation of the U.K. Plan was performed as of November
1, 1994. Net pension cost for the U.K. Plan included the following
components:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Service cost for benefits earned during
during the period $ 1,290,000 $ 1,232,000 $ 1,568,000
Interest cost on projected benefit
obligations 1,267,000 1,253,000 1,289,000
Actual return on plan assets (180,000) (3,785,000) (585,000)
Net amortization and deferral (1,663,000) 2,530,000 (686,000)
----------- ----------- -----------
Net pension cost $ 714,000 $ 1,230,000 $ 1,586,000
=========== =========== ===========
</TABLE>
Actuarial assumptions used in the accounting for the U.K. Plan were a
weighted average discount rate of 9% for 1994, 7.5% for 1993 and 9% for
1992, an expected long-term rate of return on assets of 9% for 1994, 1993
and 1992 and a rate of increase in compensation levels of 6.0% for 1994,
5.5% for 1993 and 7% for 1992.
The funded status of the U.K. Plan is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations (all vested) $ 14,988,000 $ 15,575,000
============= =============
Actuarial present value of projected benefit obligations (15,550,000) (17,751,000)
Plan assets at fair value 18,869,000 17,266,000
Unrecognized net gain (6,212,000) (2,300,000)
Unrecognized prior service cost 382,000 -
------------- -------------
Net pension liability recorded in other liabilities $ (2,511,000) $ (2,785,000)
============= =============
</TABLE>
F - 11
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT
The cost of property and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Industrial services $ 30,758,000 $ 28,639,000
Pipeline and terminaling services 214,556,000 195,048,000
General corporate 3,762,000 3,699,000
Other 5,956,000 6,982,000
------------- -------------
$ 255,032,000 $ 234,368,000
============= =============
</TABLE>
Equipment acquired under capital leases and included in the cost of property
and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Pipeline and terminaling services equipment (a) $ 21,901,000 $ 21,632,000
Less accumulated depreciation 7,632,000 7,022,000
------------- -------------
Net equipment acquired under capital lease $ 14,269,000 $ 14,610,000
============= =============
Industrial services equipment $ 5,864,000 $ 5,078,000
Less accumulated depreciation 3,695,000 2,729,000
------------- -------------
Net equipment acquired under capital lease $ 2,169,000 $ 2,349,000
============= =============
</TABLE>
(a) The capital lease is secured by certain pipeline equipment and the
Company has recorded its option to purchase this equipment at the
termination of the lease.
F - 12
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
7. DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
Senior debt:
KPP 8.05% mortgage notes due 2001 $33,000,000 $ -
Credit facility of foreign subsidiaries due through 2001 25,159,000 25,776,000
Term loan due in 1995 10,000,000 10,000,000
8.85% convertible notes due in 1998 6,000,000 6,000,000
Line of credit of a domestic subsidiary expiring in 1995 3,060,000 2,000,000
Various notes of foreign subsidiaries ranging from
6.75% to 12% due through 1996 331,000 991,000
Bank note at prime paid in 1994 - 381,000
KPP term loan refinanced in 1994 - 32,500,000
Obligations under capital leases 14,064,000 15,628,000
Subordinated debt:
8% convertible subordinated debentures due 1995 43,186,000 43,186,000
8.75% convertible subordinated debentures due
through 2008 23,666,000 23,666,000
11.5% subordinated debentures due through 1998 5,011,000 5,011,000
--------------- -------------
Total debt 163,477,000 165,139,000
Less current portion 60,101,000 12,461,000
--------------- -------------
Long-term debt, less current portion $103,376,000 $152,678,000
=============== =============
</TABLE>
In 1994, KPP, through a wholly-owned subsidiary, issued $33 million of first
mortgage notes to a group of insurance companies. The notes bear interest at
the rate of 8.05% per annum and are due on December 22, 2001. In 1994, a
wholly-owned subsidiary of KPP entered into a Restated Credit Agreement with
a group of banks that provides a $15 million revolving credit facility
through November 30, 1997. The credit facility bears interest at variable
rates and has a commitment fee of .2% per annum of the unused credit
facility. No amounts were drawn under the credit facility at December 31,
1994. The notes and credit facility are secured by a mortgage on
substantially all of the pipeline assets of KPP and contain certain
financial and operational covenants.
During 1991, a wholly-owned subsidiary of the Company obtained a $50.5
million multicurrency credit facility from an international banking
syndicate. The proceeds of the loan were applied to the acquisition of
Furmanite and to refinance certain Furmanite obligations of approximately
$30 million. This credit facility is secured by all of the tangible assets
of the industrial services group (except those assets in Germany) without
recourse to the Parent Company and bears interest at the Company's option at
LIBOR or a "Base Rate" (as defined). The credit facility contains a number
of financial covenants and restricts the subsidiary from paying dividends to
the Parent Company. The credit facility bears a commitment fee equal to one-
half of one-percent per annum on unutilized amounts. In December 1994, the
subsidiary entered into an agreement with the banking syndicate which
extended the maturity date until 2001 and reduced the interest rates. In
1993, the Company entered into a $10 millon term loan with a bank which was
used to repay a portion of the multicurrency credit facility of
F - 13
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
foreign subsidiaries. The term loan is due in September 1995 and bears
interest at prime plus varying margins and is secured by the Company's
ownership interest in its industrial services company in Germany.
The 8.85% senior note is convertible into shares of the Company's common
stock at a conversion price of $6.00 per share. In 1993, a wholly-owned
subsidiary of the Company entered into a $5 million revolving credit
facility expiring in June 1995. The credit facility is collateralized by a
portion of the Company's ownership interest in KPP.
The 8% and the 8.75% subordinated debentures are convertible into shares of
the Company's Common Stock at a conversion price of $23.32 and $17.54 per
share, respectively. The Company has satisfied the sinking fund requirements
on its 11.5% and 8.75% subordinated debentures through 1995 and 2000,
respectively.
Annual sinking fund requirements and debt maturities, including capital
leases, are $60.1 million, $3.8 million, $3.9 million, $19.2 million and
$1.6 million for each of the five years ending December 31, 1999. The 8.75%
and 11.5% subordinated debentures and the 8.85% convertible notes are debts
of the Parent Company and the 8% subordinated debentures are guaranteed by
the Parent Company. See "Management Plans" in Note 2.
8. CAPITAL STOCK
The changes in the number of issued and outstanding shares of the Company's
preferred and common stock are summarized as follows:
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Preferred Held In
Stock Issued Issued Treasury Outstanding
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 1,604,311 36,248,868 4,597,237 31,651,631
Stock options exercised - 40,000 - 40,000
Conversion of Series D preferred (8,789) 14,862 - 14,862
Common shares issued - 193 (62,247) 62,440
---------- ---------- ------------ -----------
BALANCE AT DECEMBER 31, 1992 1,595,522 36,303,923 4,534,990 31,768,933
Stock options exercised - 61,000 - 61,000
Conversion of Series D preferred (26,268) 44,413 - 44,413
Common shares issued - 928 (417,433) 418,361
---------- ---------- ------------ -----------
BALANCE AT DECEMBER 31, 1993 1,569,254 36,410,264 4,117,557 32,292,707
Conversion of Series D preferred (10,880) 18,398 - 18,398
Common shares issued - 161 (759,942) 760,103
---------- ---------- ------------ -----------
BALANCE AT DECEMBER 31, 1994 1,558,374 36,428,823 3,357,615 33,071,208
========== ========== ============ ===========
</TABLE>
F -14
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
The Company has stock option plans for officers, directors and key
employees. The options granted under these plans generally expire ten years
from date of grant. The options were granted at prices greater than or equal
to the market price at the date of grant. At December 31, 1994, options on
1,496,436 shares at prices ranging from $1.50 to $8.50 were outstanding, of
which 1,170,189 were exercisable at prices ranging from $1.50 to $8.50.
SERIES A PREFERRED STOCK
The Company has 567,950 shares of its Cumulative Class A Adjustable Rate
Preferred Stock, Series A ("Series A Preferred") with a stated value of $10
per share outstanding at December 31, 1994. Dividends accrue quarterly at
the applicable U.S. Treasury rate plus 2.00 percentage points (200 basis
points) ("Applicable Rate"), but will in no event be less than 7.5% per
annum or greater than 14% per annum. If dividends are in arrears for two or
more quarters, additional dividends accrue on all dividends in arrears at a
rate equal to the Applicable Rate plus 25 basis points for each quarter
dividends are in arrears (but not more than the lesser of 14% per annum or
300 basis points more than the Applicable Rate). If unpaid accrued dividends
exist with respect to eight or more quarters, the holders of the Series A
Preferred may elect individually to require the Company to redeem their
shares at a price of $12 per share plus dividends in arrears. No such
arrearages existed as of December 31, 1994, 1993 and 1992. The Company, at
its option, may redeem shares at any time at a price of $12 per share
(reduced ratably to $10 over 15 years unless unpaid accrued dividends exist
with respect to eight or more quarters) plus accrued and unpaid dividends
thereon.
SERIES B PREFERRED STOCK
On March 26, 1988, the Board of Directors of the Company declared a dividend
distribution of one stock purchase right ("Right") for each outstanding
share of Common Stock to stockholders of record on April 19, 1988. Each
Right entitles the holder, upon the occurrence of certain events, to
purchase from the Company one one-hundredth of a share of Series B Junior
Participating Preferred Stock, no par value, at a price of $10, subject to
adjustment. The Rights will not separate from the Common Stock or become
exercisable until a person or group either acquires beneficial ownership of
20% or more of the Company's Common Stock or commences a tender or exchange
offer that would result in ownership of 30% or more, whichever occurs
earlier. The Rights, which expire on April 19, 1998, are redeemable in
whole, but not in part, at the Company's option at any time for a price of
$0.05 per Right. At December 31, 1994, 1993 and 1992 there were no Series B
Preferred shares outstanding.
SERIES C PREFERRED STOCK
In April 1991, the Company authorized 1,000 shares of Adjustable Rate
Cumulative Class A Preferred Stock, Series C ("Series C Preferred") which
has a preference value of $1.00 per share and which is only entitled to a
dividend if the value of the Company's Common Stock increases. The Series C
Preferred, as an entire class, is entitled to an annual dividend commencing
January 1, 1992, equal to 1/2 of 1% (proportionately reduced for authorized
but unissued shares in the class) of the increase in the average per share
market value of the Company's Common Stock during the year preceding payment
of the dividend, over $4.79 (the average per share market value of the
Company's Common Stock during 1990) multiplied by the average number of
shares of Common Stock outstanding. The Series C Preferred has
F - 15
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
mandatory redemption requirements in the event of certain types of corporate
reorganizations and may be redeemed at the option of the Company during the
first 60 days of each year commencing 1994. The redemption price is the sum
of (i) one divided by the average annual yield of all issues of preferred
stock listed on the New York Stock Exchange during the calendar year
preceding the date of the redemption period times the average dividend for
the two most recent years plus (ii) a pro rata portion of the prior year's
dividend based upon the number of elapsed days in the year of redemption
plus (iii) any accrued and unpaid dividends. The Company may also repurchase
the shares of a holder at such redemption price during the first 60 days
following the year in which the holder first ceases to be an employee of the
Company. A holder of the Series C Preferred may, at his option, require the
Company to redeem his shares at 120% of such redemption price if the Company
elects, within 10 days after the most recent dividend payment date, not to
pay the accrued dividend. Upon liquidation, holders of the Series C
Preferred are entitled to receive $1.00 per share plus accrued and unpaid
dividends. The Company granted 600 shares of Series C Preferred to certain
officers in April 1991.
SERIES D PREFERRED STOCK
In conjunction with the acquisition of Furmanite, the Company issued
1,098,373 shares of its 12% Convertible Class A Preferred Stock, Series D
("Series D Preferred") with a stated value of 5.34 Pound Sterling ($8.36)
per share. The Series D Preferred is not redeemable by the holder; however,
each share is convertible at the option of the holder into 1.691 shares of
the Company's Common Stock. During 1994, 1993 and 1992 10,880 shares, 26,268
shares and 8,789 shares were converted into 18,398 shares, 44,413 shares and
14,862 shares respectively, of the Company's Common Stock. The Company may
redeem the Series D Preferred at its option at a price of 5.34 Pound
Sterling ($8.36).
9. COMMITMENTS AND CONTINGENCIES
The Company leases vehicles, office space, data processing equipment, office
equipment and other items of personal property under leases expiring at
various dates. Management expects that, in the normal course of business,
leases that expire will be renewed or replaced by other leases. Total rent
expense under operating leases was $3.5 million, $3.5 million and $3.4
million for the years 1994, 1993 and 1992, respectively.
F - 16
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
At December 31, 1994, minimum rental commitments under all capital leases
and operating leases for future years are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------ ------------
<S> <C> <C>
1995 $ 4,168,000 $ 2,543,000
1996 3,622,000 1,902,000
1997 3,515,000 1,212,000
1998 7,518,000 1,004,000
1999 167,000 864,000
2000 and thereafter - 2,622,000
------------ ------------
Total minimum lease payments 18,990,000 $ 10,147,000
Less amounts representing interest 4,926,000 ============
------------
Present value of net minimum lease payments $ 14,064,000
============
</TABLE>
In October 1994, the Company settled two lawsuits filed in the 1980's by
Kanland Associates and Panance Property Corporation that related to the
Company's former office building in Sugar Land, Texas. One of these suits
had alleged damages at more than $38 million plus prejudgment interest,
legal fees, court costs and punitive damages. The settlement of these
lawsuits was adequately reserved.
In September 1987, Stephen R. Herbel and other named individuals doing
business as Pinnacle Petroleum Company ("Pinnacle") filed a lawsuit in
Mobile County, Alabama, against the Company and certain of its affiliates,
Jim Walter Resources, Inc. and others, seeking damages of $9 million.
Pinnacle asserted that its rights under a conventional oil and gas lease
were violated by the execution of a subsequent coal mining lease covering
the same property. In addition to monetary damages, Pinnacle also seeks a
judgment from the Trial Court that it is the owner of all the gas under the
property described in the conventional oil and gas lease, regardless of its
origin, and that a unitization order be declared invalid. On July 28, 1989,
the Trial Court ruled in favor of all defendants by granting summary
judgment holding that Kaneb and the other defendants, as owners of the coal,
also own and have the exclusive right to produce the coalbed gas, to the
exclusion of the conventional oil and gas lessees. There remained factual
disputes as to the characterization of all the gas produced from the
property which were to be addressed in future hearings. On October 8, 1993,
in a case involving Jim Walter Resources, but not the Company, based on
similar facts, the Supreme Court of Alabama held that under certain
circumstances coalbed methane is the property of the owner of the
conventional oil and gas estate. In response thereto, the Trial Court
scheduled a further evidentionary hearing to determine the impact of the
Supreme Court on the Pinnacle case. In March 1995, all parties in this
lawsuit reached an agreement to settle and release their claims against each
other. Attorneys for the parties are presently preparing the legal documents
related to the settlement, the Company's portion of which was adequately
reserved.
KPP makes quarterly distributions of 100% of its Available Cash (as defined
in the Partnership Agreement) to holders of limited partnership units and
KPL. Available Cash consists generally of all the cash receipts of the
Partnership less all of its cash disbursements and reserves. KPP
F - 17
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
believes it will make distributions of Available Cash for each quarter of
not less than $.55 per Senior Preference Unit ("Minimum Quarterly
Distribution"), or $2.20 per Senior Preference Unit on an annualized basis
for the foreseeable future. The Minimum Quarterly Distribution on the Senior
Preference Units is cumulative and preferential to the partnership units
held by the Company. Based on the 1994 results of KPP, approximately 42% of
KPP's cash provided by operations was distributed to the Senior Preference
Unitholders. The assets, other than Available Cash, cannot be distributed
without a majority vote of the non-affiliated unitholders.
The operations of KPP are subject to federal, state and local laws and
regulations relating to protection of the environment. Although KPP believes
that its operations are in general compliance with applicable environmental
regulation, risks of additional costs and liabilities are inherent in its
operations, and there can be no assurance that significant costs and
liabilities will not be incurred by KPP. Moreover, it is possible that other
developments, such as increasingly stringent environmental laws,
regulations, enforcement policies thereunder, and claims for damages to
property or persons resulting from the operations of KPP, could result in
substantial costs and liabilities to KPP.
The Company has other contingent liabilities (some of which allege
substantial amounts of damages) resulting from litigation, claims and
commitments incident to the ordinary course of business. Management
believes, based on the advice of counsel, that the ultimate resolution of
such contingencies will not have a materially adverse effect on the
financial position or results of operations of the Company.
F - 18
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
10. BUSINESS SEGMENT DATA
Selected financial data pertaining to the operations of the Company's
business segments is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Industrial services $118,196,000 $116,368,000 $125,670,000
Pipeline and terminaling services 78,745,000 69,235,000 42,179,000
Other 11,781,000 12,946,000 8,854,000
------------ ------------ ------------
$208,722,000 $198,549,000 $176,703,000
============ ============ ============
Operating income (loss):
Industrial services before
reorganization charge $ 1,649,000 $ 3,847,000 $ 2,241,000
Industrial services reorganization
charge - - (1,800,000)
Pipeline and terminaling services 32,965,000 29,256,000 20,718,000
General corporate (4,118,000) (4,212,000) (4,857,000)
Other 1,468,000 639,000 (1,691,000)
------------ ------------ ------------
$ 31,964,000 $ 29,530,000 $ 14,611,000
============ ============ ============
Depreciation and amortization:
Industrial services $ 4,938,000 $ 4,836,000 $ 5,378,000
Pipeline and terminaling services 7,257,000 6,135,000 4,124,000
General corporate 80,000 79,000 106,000
Other 532,000 605,000 1,646,000
------------ ------------ ------------
$ 12,807,000 $ 11,655,000 $ 11,254,000
============ ============ ============
Capital expenditures (including
capitalized leases):
Industrial services $ 2,783,000 $ 2,637,000 $ 6,809,000
Pipeline and terminaling services 19,467,000 8,132,000 3,183,000
General corporate 63,000 70,000 15,000
Other 192,000 189,000 2,075,000
------------ ------------ ------------
$ 22,505,000 $ 11,028,000 $ 12,082,000
============ ============ ============
</TABLE>
F - 19
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Identifiable assets:
Industrial services $117,911,000 $123,334,000 $126,800,000
Pipeline and terminaling services 157,398,000 154,728,000 77,356,000
General corporate 3,937,000 4,520,000 6,569,000
Other 4,967,000 4,890,000 5,123,000
------------ ------------ ------------
$284,213,000 $287,472,000 $215,848,000
============ ============ ============
</TABLE>
Selected financial data pertaining to the operations in geographical
areas is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
United States $124,723,000 $114,989,000 $ 89,299,000
United Kingdom 36,291,000 30,508,000 37,655,000
Continental Europe 43,245,000 49,523,000 47,408,000
Other 4,463,000 3,529,000 2,341,000
------------ ------------ ------------
$208,722,000 $198,549,000 $176,703,000
============ ============ ============
Operating income:
United States $ 32,267,000 $ 26,787,000 $ 15,656,000
United Kingdom 1,916,000 1,108,000 329,000
Continental Europe (3,339,000) 849,000 (1,675,000)
Other 1,120,000 786,000 301,000
------------ ------------ ------------
$ 31,964,000 $ 29,530,000 $ 14,611,000
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
Identifiable assets:
United States $178,093,000 $177,393,000 $103,420,000
United Kingdom 91,676,000 91,575,000 92,808,000
Continental Europe 12,457,000 16,876,000 18,392,000
Other 1,987,000 1,628,000 1,228,000
------------ ------------ ------------
$284,213,000 $287,472,000 $215,848,000
============ ============ ============
</TABLE>
11. DISCONTINUED OPERATIONS
Since 1981, the Company has discontinued numerous business segments to
reduce debt, increase cash and concentrate its activities towards ongoing
operations. The operations of the offshore and onshore drilling, exploration
and production, coal, general contracting, underground storage tank (UST)
testing operations and engineering services segments are classified as
discontinued operations in the Company's consolidated financial statements
and
F - 20
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
related footnotes. The remaining net liabilities of the discontinued
operations have been reclassified in the balance sheet from their
traditional classifications to "Net liabilities of discontinued operations."
During 1992, a claim from the discontinued general contracting operation was
settled resulting in a $1.0 million gain. The Company also liquidated the
remaining assets of the exploration and production operation resulting in a
$.9 million gain which was included in other income. In 1992, as a result of
the Company's review of the remaining reserves for discontinued operations,
the Company determined there were excess reserves relating to the settlement
of self-insured workers compensation and general liability claims of the
discontinued drilling operations and accordingly, reduced these reserves by
approximately $3.5 million. The Company reduced the carrying value of
certain assets relating to electronic payment services for retail merchants
which are no longer being actively marketed by $3.5 million.
In January 1993, the Company completed the acquisition of Kraftwerks-und
Anlagenbau AG ("Kraftwerks") from the Berlin Trusteeship Agency
("Treuhandanstalt"), the German agency created to privatize former East
German state-owned companies. A subsidiary of the Company purchased
Kraftwerks share capital for DM 1 million ($700,000) and committed to
maintain certain employment and investment levels over a three year period,
performance of which obligations was to be secured by shares of a new class
of the Company's convertible preferred stock to be placed into escrow.
Kraftwerks was engaged in providing engineering and construction services
primarily to the power industry in Germany and eastern Europe. Due to
substantial deterioration in the German economy, however, the Company
believed that Kraftwerks would have been unlikely to achieve profitability
without a corresponding reduction in its work force. Accordingly, in
February 1994, the Company entered into an agreement granting it an option
to sell the shares of Kraftwerks to the Treuhandanstalt or its designee. The
Company exercised its option, and on March 17, 1994, the Treuhandanstalt
repaid the Company's initial acquisition price of DM 1 million,
unconditionally discharged the Company from all past and future performance
obligations related to Kraftwerks, released the Company's convertible
preferred shares from escrow and the capital stock of Kraftwerks was
transferred to a designee of the Treuhandanstalt. Kraftwerks reported
revenues of $70.7 million in 1993 and its operating losses of $28.6 million
were offset by the amortization of the excess of net assets over the
purchase price of Kraftwerks, accordingly there was no impact on the
Company's income statement in 1993. The Company wrote off $.3 million of
related acquisition costs, which is included in other expense on the income
statement in 1993.
F - 21
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------
1994: March 31, June 30, September 30, December 31,
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 50,687,000 $ 51,540,000 $ 54,233,000 $ 52,262,000
============= ============ ============= ============
Operating income $ 7,004,000 $ 8,392,000 $ 9,102,000 $ 7,466,000
============= ============ ============= ============
Net income (loss) $ (399,000) $ 1,091,000 $ 1,230,000 $ 113,000
============= ============ ============= ============
Earnings (loss) per
common share $(.02) $.02 $.03 $(.01)
===== ==== ==== =====
<CAPTION>
Quarters Ended
-----------------------------------------------------------
1993: March 31, June 30, September 30, December 31,
------------- ------------ ------------- -------------
Revenues $ 41,285,000 $ 52,375,000 $ 51,527,000 $ 53,362,000
============= ============ ============= =============
Operating income $ 4,066,000 $ 8,144,000 $ 8,702,000 $ 8,618,000
============= ============ ============= =============
Net income (loss) $ (2,067,000) $ 16,090,000 $ 1,184,000 $ 947,000
============= ============ ============= =============
Earnings (loss) per
common share $(.08) $.49 $.03 $.02
===== ==== ==== ====
</TABLE>
13. SUPPLEMENTAL CASH FLOW INFORMATION
The Company issued 18,398, 44,413 and 14,862 shares of its common stock upon
conversion of 10,880, 26,268 and 8,789 shares of its Series D Preferred
Stock in 1994, 1993 and 1992, respectively. The Company contributed 349,942,
197,433 and 62,247 shares of its common stock to its 401(k) Savings Plan in
1994, 1993 and 1992, respectively. The Company contributed 410,000 and
220,000 shares of its common stock to its subsidiary's defined benefit
pension plan in 1994 and 1993, respectively.
Supplemental information on cash paid during the period for:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Interest $13,311,000 $13,405,000 $14,038,000
=========== =========== ===========
Income taxes $ 2,105,000 $ 369,000 $ 759,000
=========== =========== ===========
</TABLE>
F - 22
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
--------------------------------------------------------------------------------
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of cash, cash equivalents, short-term investments
and accounts receivable approximate their carrying amount due to the
relatively short period to maturity of these instruments. The estimated fair
value of all long-term debt (excluding capital leases) as of December 31,
1994 and 1993 was approximately $143 million and $145 million, respectively,
as compared to the carrying value of $149 million and $150 million,
respectively. These fair values were estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements, when quoted market prices were not
available. The Company has not determined the fair value of its capital
leases as it is not practicable. The estimates presented above are not
necessarily indicative of the amounts that would be realized in a current
market exchange.
The Company does not believe that it has a significant concentration of
credit risk at December 31, 1994, as approximately 71% of the Company's
accounts receivable are from its industrial services segment located
throughout the United States, the United Kingdom and Continental Europe.
F - 23
<PAGE>
KANEB SERVICES, INC. (PARENT COMPANY) SCHEDULE I
CONDENSED STATMENTS OF INCOME
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
General and administrative expenses $(4,038,000) $(4,133,000) $(4,751,000)
Depreciation and amortization (80,000) (79,000) (106,000)
Interest expense (4,402,000) (4,030,000) (3,371,000)
Intercompany interest expense, net (13,000) (528,000) (2,982,000)
Interest income 42,000 119,000 283,000
Other income (expense) 55,000 (343,000) 736,000
Equity in income of subsidiaries and KPP:
Continuing operations 10,471,000 25,148,000 4,659,000
Discontinued operations - - 996,000
------------ ------------ ------------
Net income (loss) before cumulative
effect of change in accounting principle 2,035,000 16,154,000 (4,536,000)
Cumulative effect of change in accounting
principle - - 742,000
------------ ------------ ------------
Net income (loss) 2,035,000 16,154,000 (3,794,000)
Dividends applicable to preferred stock 1,489,000 1,451,000 1,678,000
------------ ------------ ------------
Net income (loss) applicable to common
stock $ 546,000 $ 14,703,000 $ (5,472,000)
============ ============ ============
Earnings (loss) per common share:
Continuing operations $.02 $.46 $(.22)
Discontinued operations - - .03
Cumulative effect of change in accounting
principle - - .02
---- ---- -----
$.02 $.46 $(.17)
==== ==== =====
</TABLE>
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
F - 24
<PAGE>
KANEB SERVICES, INC. (PARENT COMPANY) SCHEDULE I
CONDENSED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 630,000 $ 3,282,000
Short-term investments 1,020,000 -
Accounts receivable 94,000 92,000
------------ ------------
Total current assets 1,744,000 3,374,000
Property and equipment 3,762,000 3,699,000
Less accumulated depreciation 3,442,000 3,362,000
------------ ------------
Net property and equipment 320,000 337,000
------------ ------------
Investments in advances to and notes receivable
from subsidiaries and KPP 118,306,000 110,178,000
------------ ------------
Other assets 2,086,000 6,549,00
------------ ------------
$122,456,000 $120,438,000
============ ============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 10,000,000 $ 381,000
Accounts payable and accrued expenses 4,228,000 5,035,000
------------- ------------
Total current liabilities 14,228,000 5,416,000
------------- ------------
Long-term debt, payable to subsidiary due in 1995 50,000,000 50,000,000
------------- ------------
Long-term debt, less current portion 34,677,000 44,677,000
------------- ------------
Deferred credits and other liabilities 793,000 878,000
------------- ------------
Net liabilities of discontinued operations 3,914,000 4,606,000
------------- ------------
Stockholders' equity:
Preferred stock, without par value 14,085,000 13,707,000
Common stock, without par value 4,224,000 4,222,000
Additional paid-in capital 198,736,000 201,976,000
Accumulated deficit (175,772,000) (176,318,000)
Treasury stock, at cost (23,435,000) (28,755,000)
Cumulative foreign currency translation
adjustment 1,006,000 29,000
------------- ------------
Total stockholders' equity 18,844,000 14,861,000
------------- ------------
$122,456,000 $120,438,000
============= ============
</TABLE>
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
F - 25
<PAGE>
KANEB SERVICES, INC. (PARENT COMPANY) SCHEDULE I
(CONTINUED)
CONDENSED STATMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1994 1993 1992
------------- ------------- ------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $ 2,035,000 $ 16,154,000 $ (3,794,000)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization 80,000 79,000 106,000
Equity in net income of subsidiaries
and KPP (10,471,000) (25,148,000) (5,655,000)
Cumulative effect of change in
accounting principle - - (742,000)
Increase in short-term investments (1,020,000) - -
(Increase) decrease in accounts receivable (2,000) 1,166,000 (1,162,000)
Decrease in prepaid expense - - 751,000
Decrease in accrued expenses and
accounts payable (808,000) (816,000) (674,000)
------------- ------------- ------------
Net cash used in operating activities (10,186,000) (8,565,000) (11,170,000)
------------- ------------- ------------
Investing Activities:
Capital expenditures (63,000) (70,000) (15,000)
Proceeds from sale of assets - - 2,200,000
(Increase) decrease in other assets 7,729,000 1,219,000 (1,804,000)
------------- ------------- ------------
Net cash provided by investing activities 7,666,000 1,149,000 381,000
------------- ------------- ------------
Financing Activities:
Payments on long-term debt (381,000) (381,000) (381,000)
Preferred stock dividends paid (1,402,000) (1,451,000) (1,504,000)
Dividends received from subsidiary 11,548,000 17,739,000 13,339,000
Increase in investments in, advances to
and notes receivable from subsidiaries
and KPP (9,897,000) (8,897,000) (7,123,000)
------------- ------------- ------------
Net cash provided by (used in) financing
activities (132,000) 7,010,000 4,331,000
------------- ------------- ------------
Decrease in cash and cash equivalents (2,652,000) (406,000) (6,458,000)
Cash and cash equivalents at beginning of year 3,282,000 3,688,000 10,146,000
------------- ------------- ------------
Cash and cash equivalents at end of year $ 630,000 $ 3,282,000 $ 3,688,000
============= ============= ============
</TABLE>
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
F - 26
<PAGE>
KANEB SERVICES, INC. SCHEDULE II
VALUATIONS AND QUALIFYING ACCOUNTS (IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col. C
------------------------
Col. A Col. B Additions Col. D Col. E
------------------------------ ---------- ------------------------ ------------ -----------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Descriptions Period Expenses Accounts (A) Deductions Period
------------------------------ ------------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE DEDUCTED FROM
ASSETS TO WHICH THEY
APPLY
Year ended December 31, 1994:
For doubtful receivables
classified as current assets $ 769 $ 249 $ 60 $ (224)(B) $ 854
============ ========== ========== ============ ===========
For deferred tax asset
valuation allowance
classified as noncurrent
assets $ 113,261 $ - $ - $ (4,820) $ 108,441
============ ========== ========== ============ ===========
Year ended December 31, 1993:
For doubtful receivables
classified as current assets $ 1,389 $ 96 $ (39) $ (677)(B) $ 769
============ ========== ========== ============ ===========
For deferred tax asset
valuation allowance
classified as noncurrent
assets $ 115,994 $ - $ - $ (2,733) $ 113,261
============ ========== ========== ============ ===========
Year ended December 31, 1992:
For doubtful receivables
classified as current assets $ 1,181 $ 448 $ (197) $ (43)(B) $ 1,389
============ ========== ========== ============ ===========
For deferred tax asset
valuation allowance
classified as noncurrent
assets $ 114,961 $ 1,033 $ - $ - $ 115,994
============ ========== ========== ============ ===========
</TABLE>
Notes:
(A) Currency translation adjustment.
(B) Receivable write-offs and reclassifications, net of recoveries.
F - 27
<PAGE>
INDEX TO EXHIBITS
-----------------
3.1 Restated Certificate of Incorporation of the Registrant as restated
September 26, 1979, filed as Exhibit 3.1 of the exhibits to the
Registrant's registration statement on Form S-16, which exhibit is hereby
incorporated by reference.
3.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant, dated April 30, 1981, filed as Exhibit 3.2 of the exhibits to
the Registrant's Form 10-K for the year ended December 31, 1981 (1981
Form 10-K), which exhibit is hereby incorporated by reference.
3.3 Certificate of Amendment of Certificate of Incorporation of the
Registrant, dated May 28, 1985, filed as Exhibit 4.1 of the exhibits to
the Registrant's quarterly report on Form 10-Q for the quarter ended June
30, 1985, which exhibit is hereby incorporated by reference.
3.4 Certificate, dated September 17, 1985, amending the Certificate of
Incorporation,filed as Exhibit 4.1 of the exhibits to the Registrant's
quarterly report on Form 10-Q for the quarter ended September 30, 1985,
which exhibit is hereby incorporated by reference.
3.5 Certificate of Amendment to the Restated Certificate of Incorporation of
Registrant dated July 10, 1990, filed as Exhibit 3.5 of the exhibits to
Registrant's report on Form 10-K for the year ended December 31, 1990
(1990 Form 10-K), which exhibit is hereby incorporated by reference.
3.6 Certificate of Amendment to the Restated Certificate of Incorporation of
Registrant dated September 21, 1990, filed as Exhibit 3.5 of the exhibits
to Registrant's quarterly report on Form 10-Q for the quarter ended
September 30, 1990, which exhibit is hereby incorporated by reference.
3.7 By-laws of the Registrant, filed as Exhibit 3.5 of the exhibits to the
Registrant's report on Form 10-K for year ended December 31, 1985, which
exhibit is hereby incorporated by reference.
4.1 Certificate of Designation related to Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, filed as Exhibit 4 of the exhibits to
the Registrant's quarterly report of Form 10-Q for the quarter ended
September 30, 1983, which exhibit is hereby incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights of Series B Junior
Participating Preferred Stock, filed as Exhibit 1 of the exhibits to the
Registrant's report on Form 8-K and registration statement on Form 8-A
dated April 5, 1988, which exhibit is hereby incorporated by reference.
4.3 Certificate of Designation to the Restated Certificate of Incorporation
of Registrant relating to the issuance of Series D Preferred Stock dated
February 11, 1991, filed as Exhibit 4.3 of Registrant's 1990 Form 10-K,
which exhibit is hereby incorporated by reference.
4.4 Certificate of Designation to the Restated Certificate of Incorporation
of Registrant relating to the issuance of Series C Preferred Stock dated
April 23, 1991, filed as Exhibit 4.4 of the exhibits to Registrant's
report on From 10-K for the year ended December 31, 1991, which exhibit
is hereby Incorporated herein.
4.5 Certificate of Designation dated November 2, 1992 relating to the
issuance of Series E Preferred Stock, filed as Exhibit 10.2 of the
exhibits to Registrant's report on Form 8-K dated January 23, 1993, which
exhibit is hereby incorporated by reference.
<PAGE>
4.6 Indenture, dated as of January 1, 1978, between Moran Energy Inc. and
First City National Bank of Houston, under which Moran Energy Inc. issued
the 11 1/2% Subordinated Debentures due 1998, filed as Exhibit 2(g) to
Moran Energy Inc.'s Registration Statement on Form S-7 (SEC File No. 2-
61216), which exhibit is hereby incorporated by reference.
4.7 First Supplemental Indenture, dated as of March 20, 1984, between the
Registrant and First City National Bank of Houston, under which the
Registrant assumed obligations under the Indenture listed as Exhibit 4.6
above, filed as Exhibit 4.4 to the exhibits of Registrant's report on
Form 10-K for the year ended December 31, 1983 (1983 Form 10-K) which
exhibit is hereby incorporated by reference.
4.8 Indenture, dated as of November 1, 1980, between Moran Energy
International N.V., Moran Energy Inc. and First City National Bank of
Houston, under which Moran Energy International N.V. issued the 8%
Convertible Subordinated Debentures due 1995 of Moran Energy
International N.V. guaranteed on a subordinated basis by Moran Energy
Inc., filed as Exhibit 4(b) to Moran Energy Inc.'s Form 10-K for the year
ended December 1, 1980, which exhibit is hereby incorporated by
reference.
4.9 First Supplemental Indenture, dated as of March 20, 1984, by and among
Moran Energy International N.V., the Registrant and First City National
Bank of Houston, under which the Registrant assumed Moran Energy Inc.'s
obligations under the Indenture listed as Exhibit 4.8 above, filed as
Exhibit 4.7 of the 1983 Form 10-K Exhibit 4.7 which exhibit is hereby
incorporated by reference.
4.10 Indenture, dated as of January 15, 1984, between Moran Energy Inc. and
First City National Bank of Houston, under which Moran Energy Inc. issued
the 8 3/4% Convertible Subordinated Debentures due 2008, filed as Exhibit
4.1 to Moran Energy Inc.'s registration statement on Form S-3 (SEC File
No. 2-81227), which exhibit is hereby incorporated by reference.
4.11 First Supplemental Indenture, dated as of March 20, 1984, between the
Registrant and First City National Bank of Houston, under which the
Registrant assumed obligations under the Indenture listed as Exhibit 4.10
above, filed as Exhibit 4.8 of the 1983 Form 10-K Exhibit 4.8 which
exhibit is hereby incorporated by reference.
10.1 Kaneb Services, Inc. 1984 Nonqualified Stock Option Plan, filed as
Exhibit 10.26 of the exhibits to Registrant's report on form 10-K for the
year ended December 31, 1984, which exhibit is hereby incorporated by
reference.
10.2 Form of Termination Agreement, dated May 22, 1981, entered by the
Registrant with certain key employees of the Registrant, filed as Exhibit
10.19 of the 1981 Form 10-K Exhibit 10.19 which exhibit is hereby
incorporated by reference.
10.3 Kaneb Services, Inc. Savings Investment Plan filed as Exhibit 4.10 to the
exhibits of Registrant's Form S-8 Registration Statement (S.E.C. File No.
33-41295), which exhibit is hereby incorporated by reference.
10.4 Form of Indemnification Assurance Agreement entered into by the
Registrant with the directors, filed as Exhibit 10.33 of the exhibits to
Registrant's report on Form 10-K for the year ended December 31, 1986,
which exhibit is hereby incorporated by reference.
10.5 Purchase Contract dated November 20, 1992 for the sale of the share
capital of KAB between the Treuhandanstalt and Furmanite Holding GmbH
together with Kaneb Services, Inc. as a limited guarantor, filed as
Exhibit 10.2 to the exhibits of Registrant's report on Form 8-K dated
January 29, 1993 which exhibit is incorporated herein by reference.
<PAGE>
10.6 Sale Contract dated February 27, 1994 for the disposition of the share
capital of KAB between KAB Holding GmbH (formerly Furmanite Holding
GmbH), the Treuhandanstalt and the Registrant, filed as Exhibit 10.6 of
the exhibits to Registrant's report on Form 10-K for the year ended
December 31, 1993, which exhibit is hereby incorporated by reference.
10.7 STS Agreement and Plan of Merger dated December 21, 1992 by and between
Grace Energy Corporation, Support Terminal Services, Inc., Standard
Transpipe Corp., and Kaneb Pipe Line Operating Partnership, NSTS, Inc.
and NSTI, Inc. as amended by Amendment of STS Merger Agreement dated
March 2, 1993, filed as Exhibit 10.1 to the exhibits of Registrant's
report on Form 8-K dated March 2, 1993, which exhibit is incorporated
herein by reference.
10.8 Amended and Restated Loan Agreement dated May 1, 1991 between Furmanite
PLC, Bank of Scotland and certain Banks, filed herewith.
10.9 Amended and Restated Senior Secured Increasing Rate Promissory Note dated
July 2, 1993 between the Registrant and the Bank of Scotland, filed
herewith.
10.10 Pledge and Proxy Agreement dated October 11, 1993, between the Registrant
and Texas Commerce Bank, National Association, filed as Exhibit 10.9 of
the exhibits to Registrant's report on Form 10-K for the year ended
December 31, 1993, which exhibit is hereby incorporated by reference.
10.11 Pledge and Security Agreement dated October 11, 1993 between Kaneb Pipe
Line Company and Texas Commerce Bank, National Association, filed as
Exhibit 10.10 of the exhibits to Registrant's report on Form 10-K for the
year ended December 31, 1993, which exhibit is hereby incorporated by
reference.
10.12 Note Purchase Agreement dated December 22, 1994. Said document is on
file as Exhibit 10.2 of the exhibits to Registrant's report on Form 8-K
filed on March 13, 1995, and said exhibit is hereby incorporated by
reference.
10.13 Restated Credit Agreement dated December 22, 1994 between Kaneb Pipe Line
Operating Partnership, L.P., Texas Commerce Bank National Association,
and certain Lendors, filed herewith.
10.14 Agreement for Sale and Purchase of Assets dated February 19, 1995 by and
among Wyco Pipe Line Company and Kaneb Pipe Line Operating Partnership,
L.P.. Said document is on file as Exhibit 10.1 of the exhibits to
Registrant's report on Form 8-K filed with the securities and Exchange
Commission on March 13, 1995, and said exhibit is hereby incorporated by
reference.
10.15 Kaneb Services, Inc. 1994 Stock Incentive Plan filed as Exhibit 4.12 to
the exhibits of Registrant's Form S-8 Registration Statement (S.E.C. File
No. 33-54027), which exhibit is hereby incorporated by reference.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent auditors: Price Waterhouse, filed herewith.
24 Powers of Attorney, filed herewith.
27 Financial Data Schedule, filed herewith.
<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
AMENDED AND RESTATED LOAN AGREEMENT, dated as of May 3, 1991, among
FURMANITE PLC (the "Borrower," formerly named KANEB UK PLC), a company
--------
incorporated under the laws of England and Wales (registered number 2530049)
(the "Borrower"), KANEB INTERNATIONAL INC., a Delaware corporation ("Holding"),
-------- -------
the banking institutions listed on the signature pages hereof (each a "Bank" and
----
collectively, the "Banks") and BANK OF SCOTLAND, as agent for the Banks (in such
-----
capacity, the "Agent").
-----
W I T N E S S E T H :
-------------------
WHEREAS, the Borrower, Holding, the Original Banks and the Agent are
party to a Loan Agreement dated as of May 3, 1991 (as amended by amendments
thereto dated as of September 1, 1991, October 15, 1991, January 1, 1992, August
31, 1992 and March 25, 1993, the "Original Agreement");
------------------
WHEREAS, pursuant to the Original Agreement, the Original Banks made
available to the Borrower, at the request of Borrower and Holding, credit
facilities in an aggregate principal amount of (Pounds)27,000,000, comprising a
term loan of (Pounds)15,000,000 and a revolving credit working capital facility
(including a letter of credit facility) of (Pounds)12,000,000;
WHEREAS, various Defaults and Events of Default existing under the
Original Agreement were waived by the Banks by Waiver Number 20 dated as of
March 25, 1993 (as amended by amendments dated as of April 26, 1993 and May 12,
1993, "Waiver 20") to the Original Agreement, but such waivers expire at the
---------
close of business on June 29, 1993;
WHEREAS, the Borrower and Holding have requested that the Banks not
exercise remedies they would be entitled to exercise under the Loan Agreement by
virtue of the existence of the uncured Events of Default upon expiration of such
waivers, but instead amend the Original Agreement so that, upon the
effectiveness of such amendment, the Defaults and Events of Default specified in
Annex B to Waiver 20 would not exist;
WHEREAS, Holding and the Borrower want FIL (a Subsidiary of the
Borrower) to sell (directly or via another Loan Party) all or substantially all
of the capital stock of Furmanite GmbH, a German Subsidiary ("GmbH"), to a
----
subsidiary of KSI that is not a member of the Consolidated Group and have asked
that the
-1-
<PAGE>
Banks consent to such sale to the extent that Sections 7.13, 8.9, 8.11 and 8.12
of the Loan Agreement, and the applicable provisions of the Security Documents,
would prohibit such sale;
WHEREAS, the Borrower and Holding have (x) advised the Agent and the
Banks that such Loan Parties desire to revise the structure of the Consolidated
Group so that all Foreign Subsidiaries of the Borrower (other than GmbH and its
Subsidiaries) that are directly owned by FIL or another UK Subsidiary would be
Transferred to a newly-created, directly-owned Subsidiary of Holding and thereby
cease to be Subsidiaries of the Borrower, and (y) requested that the Banks waive
the provisions of Sections 8.9, 8.10, 8.11, 8.12 and 8.14 of the Original
Agreement to the extent that such sections would prohibit the establishment of
such newly-created Subsidiary or such Transfers;
WHEREAS, the Borrower has agreed, to induce the Banks to so amend the
Original Agreement and grant the foregoing consents and waivers, to repay
outstanding Term Loans and Revolving Credit Loans and reduce certain Revolving
Credit Loan Commitments so that, after giving effect thereto, (x) the aggregate
outstanding principal amount of the Terms Loans shall be not more than
$10,900,000 and (y) the Total Revolving Credit Loan Commitment shall be
permanently reduced to no more than $16,000,000;
WHEREAS, in connection with the foregoing the Borrower and Holding
have asked that the Original Agreement (A) be amended (i) to reflect the reduced
amount of the Loans and the Commitments, (ii) to denominate the amount of the
Loans and the Commitments in U.S. Dollars instead of in Pounds Sterling, and
(iii) to make various other amendments to the Original Agreement including,
without limitation, amendments to certain of the covenants contained in Section
8.17-8.23 of the Original Agreement and, (B) as so amended, be restated in its
entirety;
WHEREAS, subject to the terms and conditions set forth below, the
Agent and the Banks (including the Original Banks) are willing to (i) so amend
and restate the Original Agreement, (ii) consent to the proposed sale of GmbH,
and (iii) consent to the aforesaid changes to the structure of the Consolidated
Group;
NOW, THEREFORE, the parties hereto hereby agree that from and after
the Amendment Effective Date, the Original Agreement is hereby amended and
restated to read in its entirety as set forth herein:
-2-
<PAGE>
Section 1. DEFINITIONS.
-----------
Terms used in this Agreement which are defined in Annex I hereto shall
have the meanings specified in such Annex I (unless otherwise defined herein)
and shall include in the singular number the plural and in the plural number the
singular.
Section 2. THE LOAN FACILITIES.
-------------------
2.1 The Loans. (a) Subject to the terms and conditions set forth
---------
herein, each Bank has (prior to the Amendment Effective Date) made loans to the
Borrower (each a "Term Loan" and collectively, the "Term Loans") which are
--------- ----------
outstanding (after giving effect to the events occurring on or prior to the
Amendment Effective Date) in the amount set forth opposite its name on Schedule
2.1 hereto under the heading "Term Loan Commitment" (for each Bank, its "Term
----
Loan Commitment" and collectively for all Banks, the "Total Term Loan
--------------- ---------------
Commitment").
(b) Subject to the terms and conditions set forth herein, each Bank
severally agrees at any time and from time to time during the Commitment Period
to make loans to the Borrower (each a "Revolving Credit Loan" and collectively,
---------------------
the "Revolving Credit Loans") up to its Revolving Credit Loan Commitment;
----------------------
provided that, on the date of the making of any Revolving Credit Loan (and after
-------- ----
giving effect thereto), the aggregate principal amount of Revolving Credit Loans
outstanding on such date (plus the aggregate amount (or Dollar Equivalent
thereof) of all LC Obligations on such date) shall not exceed the Total
Revolving Credit Loan Commitment then in effect. During the Commitment Period,
the Borrower may utilize the Revolving Credit Loan Commitments by borrowing,
prepaying the Revolving Credit Loans in whole or in part without premium or
penalty (except as otherwise provided by Section 3.11), and reborrowing, all in
accordance with the terms and conditions hereof. Revolving Credit Loans shall
be made from each Bank pro rata on the basis of the Revolving Credit Loan
--- ----
Commitment of such Bank.
(c) Subject to the terms and conditions set forth herein, the
Issuer agrees to issue the Carlisle LC on the Closing Date.
(d) [intentionally deleted]
(e) The amounts payable by the Borrower at any time hereunder and
under the Notes to each Bank shall be a separate and independent debt and
(subject to the provisions of Section 9) each Bank shall be entitled to protect
and enforce its rights arising out of this Agreement and its Notes, and it shall
not be necessary for any other Bank or the Agent to consent to, or be joined as
an additional party in, any proceedings for such purposes, it being understood
(x) that no Bank (other than the
-3-
<PAGE>
Agent) may seek to realize upon any security or Collateral nor seek to enforce
any Guarantee Agreement or other Security Document or the obligations of any
Person under any of the other Loan Documents without the consent of the Required
Banks and (y) that such rights and remedies may be exercised by the Agent for
the benefit of the Banks upon the terms of such Loan Documents and this
Agreement.
2.2 Notice of Borrowing. (a) The Borrower shall give at least four
-------------------
Business Days' prior written notice (a "Notice of Borrowing") to the Agent of
-------------------
the date (which shall be a Business Day during the Commitment Period) of each
proposed borrowing hereunder (the "Borrowing Date"). Such notice shall specify
--------------
(subject to the provisions of this Agreement) (i) the Borrowing Date, (ii) the
total amount of the proposed borrowing, expressed in Dollars, which shall be in
a minimum amount of $500,000 if a Base Rate (US) Loan (whenever made) and
$1,000,000 if a Libor Loan made after the Amendment Effective Date (or, if
greater, in integral multiples of $100,000 in each case) provided that the
-------- ----
aggregate principal amount of such borrowing must (if the requested Loan or
Loans are Revolving Credit Loans) equal or be less than the Unutilized Revolving
Commitments (after giving effect to all other Notices of Borrowings for
Revolving Credit Loans and Issuance Requests pending at such time) at such time,
(iii) [intentionally deleted], (iv) the Type of Loan which such borrowing will
initially be, (v) whether such Loan will be a Libor Loan or a Base Rate (US)
Loan and, if a Libor Loan, the requested Interest Period therefor, (vi) if a
Term Loan borrowing, that it is a Term Loan borrowing, and (vii) [intentionally
deleted]. Notwithstanding the foregoing, however, Base Rate (US) Loans may be
made upon two Business Days' telephone notice, Closing Office Time, by the
Borrower to the Agent (confirmed as soon as possible thereafter in writing).
Unless otherwise agreed to by the Agent and the Borrower, the Notice of
Borrowing for all Loans after the Closing Date shall be substantially in the
form of Exhibit M-1 hereto.
(b) The Borrower may not designate more than one Interest Period for
Libor Loans or (unless otherwise consented to by the Agent) more than one Type
of Loan in the same Notice of Borrowing. Without the Agent's consent, no Libor
Loan shall be made or maintained if the principal amount thereof is less than
$1,000,000. Without the consent of the Agent, Borrower shall not be entitled to
make borrowings under the Revolving Credit Loan Commitments more than twice in
any calendar week.
(c) On receipt of any Notice of Borrowing, the Agent shall promptly
notify (in writing or by telephone, confirmed as soon as possible thereafter in
writing) each Bank of the proposed details of, and the amount of such Bank's
share of, the Loan requested by such Notice of Borrowing.
-4-
<PAGE>
(d) From and after the Amendment Effective Date, each Loan requested
in a Notice of Borrowing shall be made in Dollars. If, with respect to any
requested Libor Loan, the Agent receives notice (a "Supervening Event Notice")
------------------------
from any Bank not later than 2:00 p.m., Closing Office Time, on the third
Business Day before the proposed Borrowing Date for such Loan, to the effect
that (i) such Bank does not expect to be able to fund its share of such Loan for
the Interest Period applicable thereto by obtaining a matching deposit in the
London inter-bank market at the relevant time or (ii) it would be impossible,
unlawful or contrary to any regulation, interpretation, order, directive or
request (whether or not having the force of law) applicable to such Bank of any
court or governmental authority, or any fiscal, monetary, central bank or other
authority having jurisdiction over such Bank for such Bank to make the Libor
Loan available to the Borrower, the Agent shall promptly notify the Borrower and
the other Banks of receipt of any such Supervening Event Notice and the
requested Loan subject to such Supervening Event Notice shall instead be made as
a Base Rate (US) Rate Loan.
(e) Each Bank will make the amount of its Loan or Loans available to
the Agent, at the Closing Office or as the Agent may otherwise direct, before
10:00 a.m., Local Office Time, on the applicable Borrowing Date in immediately
available Dollars. Such proceeds shall be made available to the Borrower
(subject to Section 2.2(f)) by the Agent, in the same currency and type of funds
received by the Agent, at the Designated Office of the Borrower against delivery
to the Agent at the Closing Office for the account of each Bank of such
instruments, documents and papers as are provided for herein. The Agent shall
deliver the instruments, documents and papers received by it for the account of
each Bank to such Bank or upon its order.
(f) Unless the Agent shall have received notice from a Bank prior to
10:00 a.m., Closing Office Time, on the Business Day prior to the date of any
borrowing that such Bank will not make available to the Agent such Bank's
ratable portion of such borrowing as provided in Section 2.2(e), the Agent may
assume that such Bank has made such portion available to the Agent in the
required currency on the date of such borrowing in accordance with subsection
(e) of this Section 2.2 and the Agent may (but shall not be obligated to), in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent such Bank shall not have so made
such ratable portion available to the Agent, such Bank and the Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the
Agent, at the rate from time to time prevailing on the applicable Loan. If such
Bank shall pay to the Agent such corresponding amount, such amount so paid shall
constitute such
-5-
<PAGE>
Bank's Loan as part of such borrowing for purposes of this Agreement.
(g) Except for the Loans to be made on the Closing Date, the failure
of any Bank to make the Loan to be made by it as part of any borrowing shall not
relieve any other Bank of its obligation, if any, hereunder to make its Loan on
the date of such borrowing. No Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on the date of any
borrowing.
2.3 The Notes. (a) The Borrower's obligation to pay the principal
---------
of, and interest on, (x) the Term Loan of each Bank shall be further evidenced
by a Term Note payable to the order of such Bank and (y) the Revolving Credit
Loans of each Bank shall be evidenced by a Revolving Credit Note, payable to the
order of such Bank.
(b) The Term Note and Revolving Credit Note of each Bank issued prior
to the Amendment Effective Date shall be substantially in the form of Exhibit A-
1 and Exhibit A-2, respectively, to the Original Agreement. The Term Note and
Revolving Credit Note of each Bank issued on and after the Amendment Effective
Date shall be substantially in the form of Exhibit O-1 and Exhibit O-2,
respectively, to this Agreement. The Term Notes and the Revolving Credit Notes
are entitled to the benefits of this Agreement and shall be secured by the
Security Documents.
(c) The principal amount of all Revolving Credit Loans of each Bank
outstanding from time to time, and interest accrued thereon, shall be recorded
on the records of such Bank and, prior to any transfer of, or any action to
collect, its Revolving Credit Note, the unpaid principal amount of the Revolving
Credit Loans evidenced thereby shall be endorsed on the reverse side of such
Revolving Credit Note, together with the date of such endorsement and the date
to which interest has been paid; any failure to make such endorsement and
provide such other information, however, shall not affect Borrower's obligations
hereunder or under its Notes. The Borrower's obligation to pay principal and
interest in respect of each Revolving Credit Note shall be limited to the unpaid
principal amount of the Revolving Credit Loans evidenced thereby and unpaid
interest accrued for the periods during which such Loans are outstanding.
(d) The Borrower's obligation to pay principal and interest in
respect of each Term Note shall be limited to the unpaid principal amount of the
Term Loans evidenced thereby and unpaid interest accrued for the periods during
which such Loans are outstanding.
-6-
<PAGE>
2.4 Mandatory Repayments of Term Loans. (a) The Borrower shall repay
----------------------------------
the Term Loans on the last Business Day of each month indicated below (each such
date, a "Repayment Date") by the amount indicated alongside each such Repayment
--------------
Date below:
<TABLE>
<CAPTION>
Last Business Day of Amount
---------------------- -----------
<S> <C>
June 1994 $ 900,000
December 1994 $1,000,000
June 1995 $1,000,000
December 1995 $1,000,000
June 1996 $1,100,000
December 1996 $1,100,000
June 1997 $1,400,000
December 1997 $1,400,000
March 1998 $2,000,000
</TABLE>
On each Repayment Date, an aggregate principal amount of the Term Loans equal to
the amount required to be paid on such date shall mature and become due and
payable. If for any reason the aggregate principal amount of the Term Loans on
the Amendment Effective Date (after giving effect to payments required to be
made on or prior to that date) is less than $10,900,000, the amount of any
shortfall will be deducted from the above schedule in inverse order of the
stated due date.
(b) Promptly (and in any event within five days) after each sale,
lease or other transfer of any asset (other than in the ordinary course of
business) permitted to be sold, leased or otherwise transferred by virtue of
Section 8.9(c) or 8.9(e) or the first or second proviso to Section 8.9(a) or by
virtue of clause (iii) or clause (iv) of the proviso to Section 8.12(a) or
otherwise sold, leased or otherwise transferred by FAI or any Loan Party (other
than in the ordinary course of business), the Borrower shall apply an amount
equal to the Net Proceeds from such sale, lease or other transfer (less an
amount expected to be used by the seller thereof for the payment of taxes, if
any, reasonably attributable to any sale of said assets) toward the payment of
the principal on the Term Loans (and, to the extent indicated below, on the
Revolving Credit Loans) by paying an amount equal to said Net Proceeds or the
Dollar Equivalent thereof (less the amount, if any, indicated in the preceding
parenthetical and less any amounts not required to be paid in respect of the
Loans pursuant to clauses (i) and (ii) below) to the Agent, to be applied first
to repayment of the unpaid principal amount of the Term Loans until such Loans
have been paid in full. The balance of such Net Proceeds, if any, shall
permanently reduce the Total Revolving Credit Loan Commitment (to be applied
proportionately to the Revolving Loan Commitment of each Bank) in an amount
equal to the Dollar Equivalent of such unapplied balance, and said balance shall
be paid to the Agent on behalf of the Banks as a repayment of the Revolving
Credit Loans to the extent that, after such reduction of the Total Revolving
-7-
<PAGE>
Credit Loan Commitment, such repayment is required by Section 2.5(a). All
amounts applied to the Term Loans under this Section 2.4(b) shall be applied
ratably to the unpaid principal amount of the Term Loans then outstanding and to
the installments due thereon pursuant to Section 2.4(a) in inverse order of
maturity. The provisions of this Section 2.4(b) shall be subject to the
following:
(i) To the extent that any sale, lease or other transfer referred
to in this Section 2.4(b) complies with the provisions of Section
8.9(a), 8.9(c) or 8.12(a) but a portion of the proceeds therefor is
paid by a promissory note or the cash payment is otherwise payable in
installments, then the amounts payable to the Banks in respect of the
portion of Net Proceeds not then payable in cash shall be promptly
paid in cash when the cash therefor is paid to the seller;
(ii) No Net Proceeds payable pursuant to this Section 2.4(b) need
to be paid to the Banks if the assets sold are motor vehicles to the
extent that (x) such Net Proceeds are used, within 90 days after their
receipt, to purchase replacement motor vehicles or (y) the aggregate
amount of Net Proceeds received from the sale of motor vehicles not so
replaced within said 90-day period, when combined with the aggregate
amount of Net Proceeds from the sale of all other motor vehicles not
replaced within 90 days of their sale, does not exceed (Pounds)25,000
in the aggregate;
(iii) Prepayments pursuant to this Section 2.4(b) shall first be
applied (to the extent available) to Libor Loans the Interest Period
for which ends on the date of such prepayment or to Base Rate (US)
Loans, as directed by the Borrower by written (or telephonic, promptly
confirmed in writing) notice to the Agent or, in the absence of such
direction, by the Agent. However, if in accordance with the
requirements of this Section 2.4(b), any prepayment must be made in
respect of a Libor Loan on a date which is not the last day of an
Interest Period in respect of such Loan and Borrower does not wish to
pay any compensation in respect of such prepayment pursuant to Section
3.11(ii) hereof, then Borrower may (on the date such amount is
payable) instead deposit the Section 2.4 Proceeds in a single special
depository account of the Borrower (the "Prepayment Account")
------------------
maintained by the Borrower with, and under the control of, the Agent
(in New York or such other jurisdiction as the Agent and the Borrower
agree to) and titled appropriately so as to identify the nature of
such account, and the Borrower shall take all such action, if any, as
is necessary to assure that
-8-
<PAGE>
the Agent and the Banks have a perfected first priority security
interest in said account (to the extent that such a security interest
can be so granted and perfected in the jurisdiction in which such
account is held). All of Borrower's right, title and interest in and
to all monies at any time in the Prepayment Account, and all Earnings
thereon, are hereby irrevocably pledged by the Borrower to the Agent
and the Banks as security to secure the prompt payment to the Agent
and the Banks of all the Borrower's liabilities to the Agent and the
Banks and to secure the performance by the Borrower of its obligations
under this Agreement. The Borrower agrees that monies from the
Prepayment Account may be released to it only as provided in the
second succeeding sentence. The Agent shall invest the monies in the
Prepayment Account in such types of investments as are agreed to by
Borrower and the Agent. If no Default or Event of Default exists, the
Agent shall from time to time (as agreed to by the Borrower and the
Agent) pay to the Borrower the amounts earned by such investments (the
"Earnings"). The Borrower hereby authorizes and directs the Agent,
--------
and the Agent agrees, to apply the amounts in the Prepayment Account
(other than Earnings) to the payment of the applicable Libor Loans on
the last day of each of the next occurring Interest Periods applicable
thereto; provided that during the continuance of any Event of Default
-------- ----
the Agent may apply all amounts in the Prepayment Account (including
Earnings) to any liabilities of the Borrower hereunder as the Agent
may determine. The Borrower's obligation to pay interest on the Loans
pursuant to Section 3 hereof shall continue until such monies are
applied to prepay the principal of such Loans;
(iv) With respect to any sale or other transfer of any shares
in, or assets of, any Benelux Company that occurs prior to the
Designated Date as provided in Section 8.9(c) or Section 8.12(a)
hereof, only 50% of the Net Proceeds of each such sale or other
transfer must be applied to repayment of the Loans as provided in the
foregoing provisions of this Section 2.4(b); the selling Loan Party
may retain the other 50% if it so desires;
(v) The provisions of this Section 2.4(b) shall not apply to the
sale by FIL (directly or via another Loan Party) of the GmbH Stock to
the KSI Purchaser on the Amendment Effective Date.
(vi) The provisions of this Section 2.4(b) shall not apply to
the KOSI Transfers.
-9-
<PAGE>
(c) Amounts repaid or prepaid pursuant to this Section 2.4 and
pursuant to Section 2.6 may not be reborrowed. All repayments and prepayments
received by the Agent pursuant to this Section 2.4 or pursuant to Sections 2.5,
2.6 and 2.7 shall be distributed by the Agent in accordance with the provisions
of Section 5.3.
2.5 Mandatory Prepayments of Revolving Credit Loans. (a) The
-----------------------------------------------
Borrower shall prepay the Revolving Credit Loans on each Determination Date and
on the effective date of any reduction or termination in the Total Revolving
Credit Loan Commitment hereunder to the extent that the aggregate principal
amount of such Loans on such date shall exceed the amount equal to (x) the
amount of the Total Revolving Credit Loan Commitment in effect on such date less
----
(y) the Dollar Equivalent of the LC Obligations at such time; if the Total
Revolving Credit Loan Commitment is terminated in full, then the Borrower shall
immediately prepay in full the aggregate outstanding principal amount of all
Revolving Credit Loans. Repayments pursuant to this Section shall first be made
against (to the extent available) outstanding Revolving Credit Loans which are
Libor Loans having an Interest Period ending on the date of such repayment, or
to Base Rate (US) Loans, as directed by the Borrower by written (or telephonic,
promptly confirmed in writing) notice to the Agent or, in the absence of such
direction, by the Agent.
(b) The then-unpaid principal amount of the Revolving Credit Loans
shall be payable in full on the last Business Day of March 1998.
2.6 Voluntary Prepayments of Term Loans. The Borrower may, upon not
-----------------------------------
less than 10 days' prior written notice to the Agent (which notice the Agent
shall promptly transmit to the Banks in writing or by telephone, confirmed as
soon as possible thereafter in writing) prepay the Term Loans in whole at any
time, or from time to time in part, in integral multiples of $250,000, and
without premium, provided that at the time of any such prepayment of the Term
-------- ----
Loans in full, the Borrower shall pay all interest accrued on the principal
amount of such prepayment and all other amounts owing to the Agent and the Banks
in respect thereof including, without limitation, any compensation payable under
Section 3.11 hereof. Notices of prepayment pursuant to this Section 2.6 and
pursuant to Section 2.7 shall be irrevocable and shall (subject to the
provisions of this Agreement) specify the date of prepayment, the Loans being
paid and the aggregate principal amount of the prepayment. When notice of
prepayment is delivered as provided herein, the principal amount of the Loans
specified in the notice shall become due and payable on the prepayment date
specified therein. All prepayments of Term Loans under this Section 2.6 shall
be applied to the unpaid principal amount of the installments thereafter due on
the Term Loans pursuant to Section 2.4(a) in such proportion so that the then-
-10-
<PAGE>
principal amount of each such installment shall be reduced by an amount equal to
(A) the then-principal amount of such installment, multiplied (B) by a fraction,
the numerator of which shall be the amount of such prepayment and the
denominator of which shall be the aggregate outstanding principal amount of the
Term Loans.
2.7 Voluntary Repayment of Revolving Credit Loans. The Borrower
---------------------------------------------
shall have the right, at any time and from time to time, by four Business Days'
prior written notice to the Agent (which notice the Agent shall promptly
transmit to the Banks in writing or by telephone, confirmed as soon as possible
thereafter in writing) to prepay the Revolving Credit Loans, in whole, or in
part in integral multiples of $500,000 and without premium, provided that at the
-------- ----
time of any such prepayment of the Revolving Credit Loans in full, the Borrower
shall pay all interest accrued on the amount of such prepayment and all other
amounts owing to the Agent and the Banks in respect thereof including, without
limitation, any compensation payable under Section 3.11 hereof. Subject to the
terms and conditions of this Agreement, amounts prepaid under this Section 2.7
may be reborrowed.
2.8 Reduction of Commitments. (a) The Borrower shall have the right
------------------------
at any time and from time to time upon at least four Business Days' prior
written notice to the Agent (which notice the Agent shall promptly transmit to
the Banks in writing or by telephone, confirmed as soon as possible thereafter
in writing) to reduce permanently in amounts equal to $500,000 (and if greater,
in integral multiples thereof) or terminate the Total Revolving Credit Loan
Commitment (but not in an amount in excess of the Unutilized Revolving
Commitments at such time unless the provisions of Sections 2.5(a) and 2A.10 are
complied with simultaneous with such reduction or termination). Any reduction
of the Total Revolving Credit Loan Commitment shall apply proportionately to the
Revolving Credit Loan Commitment of each Bank. Any reduction or termination of
a Commitment pursuant to this Section 2.8 shall be accompanied by the payment in
full of any Revolving Credit Loan Commitment commission then accrued hereunder.
(b) Reference is hereby made to the provisions of Section 2.4(b) for
additional provisions requiring the permanent reduction of the Total Revolving
Credit Loan Commitment.
2.9 Cash Collateral Accounts. No representation of the Borrower or
------------------------
Holding under this Agreement with respect to any grant of a security interest in
any cash collateral account, or with respect to any perfection of any such
security interest, shall apply with respect to any cash collateral account
established in any jurisdiction where the laws of such jurisdiction do not
permit such an account to be established or such a security interest to be
granted or perfected. If any
-11-
<PAGE>
provision of this Agreement requires the Borrower to take action to assure that
the Agent and the Banks have a perfected first priority security interest in
said account, the Borrower shall take such steps as the Agent shall reasonably
request (including without limitation the deposit of the required funds in such
account and the execution of documents requested by the Agent related to such
account) but the Borrower shall not be deemed to have assured the Agent that it
has granted a perfected first priority security interest in said account to the
extent that such a security interest cannot be so granted or perfected in the
jurisdiction in which such account is held.
SECTION 2A. LETTERS OF CREDIT.
-----------------
2A.1. Requests. (a) By delivering to the Issuer (with a copy to the
--------
Agent if Bank of Scotland should at any time not be the Issuer hereunder) a
written request (an "Issuance Request") on or before 10:00 a.m. Closing Office
----------------
Time on a Business Day, the Borrower may request, from time to time during the
Commitment Period and on not less than five (unless the Agent and the Issuer
otherwise consent) nor more than ten Business Days' notice, that the Issuer
issue an irrevocable standby letter of credit in such form as shall be
acceptable to the Issuer and the Borrower (a "Letter of Credit"), in support of
----------------
such financial obligations of the Borrower or its Subsidiaries or a KOSI
Subsidiary (and, when consented to by the Issuer and the Agent, FAI) which are
described in such Issuance Request and are permitted by Section 2A.1(c). Each
Issuance Request shall specify (i) the proposed date of issuance (which shall be
a Business Day during the Commitment Period), (ii) the Stated Amount of the
Letter of Credit, (iii) the expiration date of the Letter of Credit, (iv) the
name and address of the beneficiary of the Letter of Credit, and (v) a precise
description of the documents and have attached the verbatim text of any
certificate to be presented by the beneficiary of such Letter of Credit which,
if presented by such beneficiary prior to the expiration date of the Letter of
Credit, would require the Issuer to make payment or accept drafts under the
Letter of Credit.
(b) Each Letter of Credit shall by its terms (unless otherwise
consented to by the Issuer):
(i) be issued for the account of the Borrower, and the Dollar
Equivalent of the Stated Amount of such Letter of Credit shall not exceed the
then effective Unutilized Revolving Commitments (after giving effect to all
Notice of Borrowings for Revolving Credit Loans and other Issuance Requests
pending at such time);
(ii) be stated to expire on a date (its "Stated Expiry Date") no later
------------------
than the earlier of (x) 1 year from its date of
-12-
<PAGE>
issuance or (y) the last day of the Commitment Period; and, if renewable by its
terms, shall not be renewed so as to expire on a date later than the earlier of
(x) 1 year from the date of renewal or (y) the last day of the Commitment
Period;
(iii) on or prior to its Stated Expiry Date
(A) terminate immediately upon notice to the Issuer thereof from
the beneficiary thereunder that all obligations covered thereby have
been terminated, paid, or otherwise satisfied in full, and
(B) reduce in part immediately to the extent the beneficiary
thereunder has notified the Issuer that the obligations covered
thereby have been paid or otherwise satisfied in part; and
(iv) be denominated only in Dollars (except for the Carlisle LC, which
shall be denominated in Sterling).
(c) Letters of Credit may be issued to support lease obligations,
statutory obligations, performance and return-of-money bonds, self-insurance and
other similar obligations of the Borrower, FAI (but only when consented to by
the Issuer and the Agent), KOSI's Subsidiaries and Borrower's Subsidiaries
(exclusive of obligations for the payment of borrowed money, except for the
obligations supported by the Carlisle LC) and to support the purchase by the
Borrower of inventory.
(d) The Carlisle LC is a Letter of Credit for all purposes of this
Agreement, notwithstanding that it may (with the consent of the Agent and the
Issuer) have been issued or renewed by the Issuer without an Issuance Request or
a timely delivered Issuance Request. The parties hereto further agree that the
Stated Expiry Date of Carlisle LCs may (if the Issuer and the Agent, at the
Borrower's request, agree) be more than one year from its date of issuance or
renewal so long as, by its terms, it does not expire on a date later than the
last day of the Commitment Period.
(e) [intentionally deleted]
2A.2. Issuances and Extensions. Subject to the terms and conditions
------------------------
of this Agreement (including without limitation Section 6A), the Issuer shall
issue Letters of Credit in accordance with the Issuance Requests made therefor.
The Issuer will make each Letter of Credit available to the beneficiary thereof
in accordance with the Issuance Request therefor. The Issuer shall not be
liable to any Bank with respect to any Letter of Credit if, at the time of such
issuance, it has not received from the Borrower, the Agent (if different from
the Issuer) or
-13-
<PAGE>
any Bank notice that any of the conditions for the issuance of such Letter of
Credit has not been satisfied. No Letter of Credit shall be issued unless the
terms and conditions thereof are satisfactory to the Issuer and the Borrower.
2A.3. Fees and Expenses. (a) The Borrower agrees to pay to the Agent
-----------------
on the date of the issuance of each Letter of Credit for distribution to the
Banks (based on the amounts that their respective Revolving Credit Loan
Commitments bear to the Total Revolving Credit Loan Commitment), including the
Issuer, a letter of credit fee with respect to such Letter of Credit equal to
the Specified Percentage per annum of the Dollar Equivalent of the Stated Amount
of such Letter of Credit. For the purpose of determining the foregoing amount,
the tenor of such Letter of Credit shall be deemed equal to the maximum period
that such Letter of Credit may be outstanding (other than by renewal or
subsequent renewal, as the case may be, thereof) in accordance with its terms.
Each such fee shall be payable by the Borrower immediately prior to the issuance
of the Letter of Credit to which it relates; and payment of each such fee shall
be made in Dollars, computed at the Dollar Equivalent of such fee on the date of
the relevant Letter of Credit's issuance, except with respect to the Carlisle
LC, which shall be paid in Sterling (unless the Borrower and the Required Banks
agree otherwise at the time of any such payment). In addition, the Borrower
shall at the same time pay to the Issuer (for its own account) an issuance fee
of $500 for each Letter of Credit issued. For purposes of this Section 2A.3,
any renewal of a Letter of Credit shall be treated as an issuance thereof.
Notwithstanding the foregoing, the letter of credit fee with respect to the
Carlisle LC (other than the aforesaid $500 fee) may be paid by the Borrower
quarterly in advance, on the Closing Date and every three months thereafter, and
(if so paid) shall be based on the Stated Amount of the Carlisle LC on the
quarterly date that such fee is required to be paid.
(b) The fees referred to in Section 2A.3(a) shall be in addition to,
and not in lieu of, fees required to be paid by the Borrower pursuant to Section
4 hereof.
(c) If any Regulatory Change shall at any time (i) impose, modify or
deem applicable any reserve, special deposit or similar requirement against
letters of credit issued by the Issuer or participated in by any Bank or Bank
Assignee, or (ii) subject letters of credit issued by the Issuer or
participations therein held by any Bank or Bank Assignee to any assessment or
other cost imposed by the Federal Deposit Insurance Corporation or any successor
thereto or (iii) impose on the Issuer or any Bank or Bank Assignee any other or
similar condition regarding any Letter of Credit, the commitment or obligation
of the Issuer to issue Letters of Credit hereunder or any Bank's or Bank
Assignee's participation therein and the
-14-
<PAGE>
result of any event referred to in clause (i), (ii) or (iii) above shall be to
increase the cost to the Issuer or any Bank or Bank Assignee of agreeing to
issue, issuing or maintaining any Letter of Credit or its participation therein
by an amount which the Issuer or such Bank or Bank Assignee shall deem to be
material (which increase in cost shall be the result of the reasonable
allocation by the Issuer or such Bank or Bank Assignee of the aggregate of such
cost increases resulting from such events), then and in each case upon demand
----
from time to time by the Issuer or such Bank or Bank Assignee (furnished to the
Borrower by the Agent), the Borrower shall promptly pay to the Agent (for the
account of such Issuer, Bank or Bank Assignee, as the case may be) additional
amounts in Dollars or Sterling as directed by the Agent which shall be
sufficient to compensate the Issuer (or such Bank or Bank Assignee) for such
increased cost from the date of such change, together with interest on each such
amount, commencing three Business Days from the date demanded by the Issuer (or
such Bank or Bank Assignee), until payment in full thereof (after as well as
before judgment) at a rate per annum equal to 1% plus (x) the Base Rate (UK)
from time to time in effect with respect to amounts payable in Sterling or (y)
the Base Rate (US) from time to time in effect with respect to amounts payable
in Dollars. A certificate of the Issuer (or such Bank or Bank Assignee)
submitted to the Borrower through the Agent as to any additional amount or
amounts (including calculations thereof, in reasonable detail) shall, in the
absence of manifest error, be conclusive and binding on the Borrower. In
determining such amount or amounts, the Issuer (or such Bank or Bank Assignee)
shall act in good faith and may use any reasonable method of averaging and
attribution as it shall deem applicable.
(d) The provisions of Section 2A.3(c) and Sections 2A.7 and 2A.8 shall
survive any termination of this Agreement and the payment in full of the Notes.
2A.4. Disbursements. (a) The Issuer will notify the Borrower and the
-------------
Agent promptly of the presentment of each demand for payment under any Letter of
Credit together with notice of the date (the "Disbursement Date") such payment
-----------------
shall be made.
(b) Prior to 10:00 a.m., Local Office Time, on the Disbursement Date,
the Borrower will reimburse the Issuer by making payment to the Agent at its
Designated Office for all amounts disbursed or to be disbursed by the Issuer on
that day (the "Disbursement") under such Letter of Credit (the "Reimbursement
------------ -------------
Obligation") in the same Eligible Currency in which the Issuer made or is to
----------
make disbursements under such Letter of Credit. At Borrower's option, but
subject to the provisions of Sections 2 and 6A hereof, prior to 10:00 a.m.
Closing Office Time on the Business Day before the Disbursement Date, Borrower
may request in accordance with Section 2.2 (but without regard to the last
sentence of Section 2.2(b) or the
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<PAGE>
requirement that the borrowing be in a minimum amount of $500,000 or in an
integral multiple of $100,000 in excess of such amount) that Revolving Credit
Loans in the Dollar Equivalent of the Reimbursement Obligation be made and that
the proceeds of such Loans be used to so reimburse the Issuer. The proceeds of
any such Loans shall be applied to so reimburse the Issuer. To the extent the
Issuer is not reimbursed in full in accordance with the foregoing provisions of
this Section 2A.4(b), (x) the Borrower's Reimbursement Obligation shall accrue
interest (after as well as before judgment) at a rate per annum equal to 4% plus
the Base Rate (US) from time to time in effect, payable on demand, and (y) the
Issuer shall convert any such unpaid Reimbursement Obligations denominated in
Sterling into a Reimbursement Obligation payable in Dollars computed at the
applicable Spot Rate in effect at the time of such conversion. The Issuer shall
promptly furnish notice (in writing or by telephone, promptly confirmed in
writing) to the Borrower and the Agent (which notice the Agent shall promptly
furnish to the Banks) of any such conversion.
2A.5. Reimbursement. The Borrower's Reimbursement Obligation with
-------------
respect to each Disbursement (including interest thereon), and each Bank's
obligations under Section 2A.8 with respect thereto, shall be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim, or defense to payment which the Borrower may have or have had
against the Issuer, any beneficiary, any Bank, the Agent or any Bank Assignee,
including any defense based upon the failure of any Disbursement to conform to
the terms of the applicable Letter of Credit or any application or
misapplication by the beneficiary of the proceeds of such Disbursement, or the
legality, validity, form, regularity, or enforceability of such Letter of
Credit; provided, however, that nothing herein shall adversely affect the right
-------- -------
of the Borrower to commence any proceeding against the Issuer for any wrongful
Disbursement made by the Issuer under a Letter of Credit as a result of acts or
omissions constituting gross negligence or willful misconduct on the part of the
Issuer.
2A.6. Deemed Disbursements. (a) Upon the occurrence of any Event of
--------------------
Default under Section 9.7 (with respect to the Borrower) and, at the option of
the Agent acting on instructions of the Required Banks, upon the occurrence and
during the continuance of any other Event of Default, an amount equal to the LC
Outstandings shall, without demand upon or notice to the Borrower, be deemed to
have been paid or disbursed by the Issuer (each, a "Deemed Disbursement") under
-------------------
all outstanding Letters of Credit (notwithstanding that such amount may not in
fact have been so paid or disbursed) in the respective Eligible Currencies in
which such Letters of Credit are denominated. Upon notification by the Agent to
the Borrower of its obligations under this Section 2A.6 (no such notification
being required in
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<PAGE>
the case of an Event of Default under Section 9.7 with respect to the Borrower),
the Borrower shall be immediately obligated to reimburse the aggregate amount of
the Deemed Disbursements (in the same Eligible Currencies as comprising the
Deemed Disbursements), other than those in respect of the Carlisle LC, by paying
the full amount thereof to the Agent for the account of the Issuer prior to
10:00 a.m. Closing Office Time on the date of such Deemed Disbursement and any
amount not so reimbursed shall accrue interest (after as well as before
judgment) at a rate per annum equal to 1% plus (x) the Base Rate (UK) from time
to time in effect with respect to Deemed Disbursements payable in Sterling, or
(y) the Base Rate (US) from time to time in effect with respect to Deemed
Disbursements payable in Dollars, in each case payable on demand. All Deemed
Disbursements reimbursed by the Borrower pursuant to this Section 2A.6(a) shall
be deposited into a single special depository account of the Borrower (the
"Deemed Disbursement Account") maintained by the Borrower with, and under the
----------------------------
control of, the Agent (in New York or such other jurisdiction as the Agent and
the Borrower agree to) and titled appropriately so as to identify the nature of
such account. The Borrower shall take all such action, if any, as is necessary
to assure that the Agent has a perfected first priority security interest in
said account to the extent that such a security interest can be so granted and
perfected in the jurisdiction in which such account is held. All of Borrower's
right, title and interest in and to all monies at any time in the Deemed
Disbursement Account (and all Disbursement Earnings, if any, thereon) are hereby
irrevocably pledged by the Borrower to the Agent for the benefit of itself, the
Issuer and the Banks as security to secure the prompt payment to the Agent, the
Issuer and the Banks of all the Borrower's liabilities to the Agent, the Issuer
and the Banks and to secure the performance by the Borrower of its obligations
under this Agreement; and such amounts may be applied to such liabilities in
such order as the Agent may direct without notice to, or the consent of the
Borrower. The Borrower shall be entitled to receive monies from the Deemed
Disbursement Account only as permitted by Section 2A.6(b). The Agent shall
invest the monies in the Deemed Disbursement Account in such types of
investments as are agreed to by Borrower and the Agent.
(b) If any such Letter of Credit shall thereafter terminate without
the Issuer being required to pay the full amount of the Deemed Disbursement with
respect to such Letter of Credit to the beneficiary thereunder, then (unless the
Loans have matured, by acceleration or otherwise, or the Borrower has failed to
pay any amount then due and payable by it under this Agreement) the Agent will
return to the Borrower an amount equal to that portion of the Deemed
Disbursement with respect to such terminated Letter of Credit not theretofore
applied by the Agent to any Reimbursement Obligation with respect to such Letter
of Credit or applied by the Agent in payment of the Notes or any
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<PAGE>
other obligation of the Borrower under this Agreement or any of the Loan
Documents. At such time when all Events of Default shall have been cured or
waived, the Agent shall return to the Borrower all amounts then on deposit in
the Deemed Disbursement Account. Any amounts required to be returned by the
Agent pursuant to this Section 2A.6 shall be made in the Eligible Currency in
which such deposit was made or as the Borrower and the Agent otherwise agree.
2A.7. Nature of Reimbursement Obligations. The Borrower shall assume
-----------------------------------
all risks of the acts, omissions, or misuse of any Letter of Credit by the
beneficiary thereof. Neither the Issuer (except to the extent of its own gross
negligence or willful misconduct), the Agent nor any Bank shall be responsible
for:
(a) the form, validity, sufficiency, accuracy, genuineness, or legal
effect of any Letter of Credit or of any draft, demand or other document,
instrument or other paper relating to, or presented under, any Letter of Credit,
or any document submitted by any party in connection with the application for
and issuance of a Letter of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent, or forged;
(b) the form, validity, sufficiency, accuracy, genuineness, or legal
effect of any instrument transferring or assigning or purporting to transfer or
assign a Letter of Credit or the rights or benefits thereunder or proceeds
thereof in whole or in part, which may prove to be invalid or ineffective for
any reason;
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions, or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex, telecopier or
otherwise; or
(e) any loss or delay in the transmission or otherwise of any document
or draft required in order to make a Disbursement under a Letter of Credit or of
the proceeds thereof.
None of the foregoing shall affect, impair, or prevent the vesting of any of the
rights or powers granted the Issuer, the Agent or the Banks hereunder. In
furtherance and extension and not in limitation or derogation of any of the
foregoing, any action taken or omitted to be taken by the Issuer in good faith
shall be binding upon the Borrower, the Agent, the Banks and each Bank Assignee
hereunder and shall not put the Issuer, the Agent or any Bank or Bank Assignee
under any resulting liability to the
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<PAGE>
Borrower nor put the Issuer under any resulting liability to the Agent or any
Bank or Bank Assignee. Nothing herein shall constitute a waiver by the Borrower
of any of its rights against any beneficiary of a Letter of Credit.
2A.8 Other Banks' Participation. Effective upon the issuance of each
--------------------------
Letter of Credit and without further action, each Letter of Credit shall be
deemed to be issued (and to have been issued, if already issued) on behalf of
all Banks (including the Issuer) pro rata based on their respective Revolving
--- ----
Credit Loan Commitments and each Bank shall be deemed to have irrevocably
purchased from the Issuer a participation in such Letter of Credit equal to such
Bank's pro rata share (based on their respective Revolving Credit Loan
--- ----
Commitments) of the Stated Amount. Each Bank shall, to the extent of such pro
---
rata share, promptly reimburse the Issuer (by payment to the Agent at its
----
Designated Office for the account of the Issuer) for any Reimbursement
Obligation which has not been promptly reimbursed by the Borrower in accordance
with Section 2A.4(b) (and, after such reimbursement, shall be entitled to
receive its pro rata share of any payments received by the Issuer or the Agent
--- ----
for the account of the Issuer with respect to the principal of, and interest on
such Reimbursement Obligation); such reimbursements by the Banks shall be made
in Dollars, except that reimbursements relating to the Carlisle LC shall be in
Sterling. Promptly after issuance of each Letter of Credit, the Issuer (or the
Agent upon the request of the Issuer) shall in writing notify the Agent and each
Bank with a Revolving Credit Loan Commitment of the initial Stated Amount of
such Letter of Credit, the date that it was issued and its Stated Expiry Date,
but the failure to give such a notice shall not affect the obligations of the
Banks with respect to such Letter of Credit.
2A.9 Indemnification. To the extent the Issuer is not reimbursed or
---------------
indemnified by the Borrower, the Banks will reimburse and/or indemnify the
Issuer, in Dollars, in proportion to their respective Revolving Credit Loan
Commitments (or if the Revolving Credit Loan Commitments are terminated,
Revolving Credit Loans outstanding or their participations in the Letters of
Credit) under this Agreement, for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred or sustained by or asserted against the Issuer, acting pursuant to
this Section 2A or pursuant to any Letter of Credit, in any way relating to or
arising out of any of the foregoing; provided, however, that no Bank shall be
-------- -------
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Issuer's gross negligence or wilful misconduct. The obligations of the
Banks under this Section 2A.9 shall survive the payment in full of the Loans,
the expiration and termination
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<PAGE>
of all Letters of Credit, the payment of all Reimbursement Obligations and any
termination of this Agreement.
2A.10 Collateralization. If, at any time (after giving effect to the
-----------------
provisions of Section 2.5(a), if applicable, at such time) when no Revolving
Credit Loans are outstanding, the aggregate Dollar Equivalent of the LC
Obligations exceeds the amount of the Total Revolving Credit Loan Commitment
then in effect, the Borrower shall (if the Agent so requests) deposit in a cash
collateral account with the Agent, on terms and conditions satisfactory to the
Agent and as security for the Obligations, an amount in Dollars (and, to the
extent requested by the Agent when the Carlisle LC is outstanding, in Sterling)
equal to the amount of such excess.
Section 3. INTEREST.
--------
3.1 Rate of Interest. The Borrower agrees to pay interest in respect
----------------
of the unpaid principal amount of each Loan from time to time outstanding from
the date the proceeds thereof are made available to the Borrower until maturity
(whether by acceleration or otherwise) at the following interest rates: (i)
each Libor Loan, at a rate per annum for each Interest Period applicable thereto
equal to (x) LIBOR for such Interest Period plus (y) the Eurocurrency
Differential, and (ii) each Base Rate (US) Loan, at a rate per annum equal to
(x) the Base Rate (US), such rate to change as and when such Base Rate (US)
changes, plus (y) the Base Rate (US) Differential.
3.2 Interest Payment Dates. Interest on and prior to maturity in
----------------------
respect of each Loan shall be payable in arrears (i) if such Loan is (x) a Libor
Loan, on the last day of each Interest Period applicable thereto and, if such
Interest Period is longer than three months, at the end of each three-month
interval within such Interest Period or (y) a Base Rate (US) Loan, on the last
Business Day of each calendar quarter after the making thereof and on the last
day of any Interest Period applicable thereto, (ii) upon any prepayment or
repayment of such Loan in full (to the extent accrued on the amount prepaid or
repaid) and (iii) at maturity (whether by acceleration or otherwise). The Agent
shall endeavor to notify the Borrower prior to each such interest payment date
of the amount to be paid by Borrower on such date, but no failure by the Agent
to do so shall in any way affect Borrower's obligations hereunder to timely pay
the full amount of interest due when due; however, no such amount paid in
reliance on such a notice, or paid in accordance with the Borrower's good faith
calculations in the absence of such a notice, shall constitute an Event of
Default under Section 9.1 unless the Borrower shall fail to timely pay the full
amount of any further adjustment as may be appropriate pursuant to notice to the
Borrower from the Agent.
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<PAGE>
3.3 Overdue Payment of Principal and Interest. Overdue principal of,
-----------------------------------------
and overdue interest in respect of, each Loan shall bear interest for each day,
payable on demand, at a rate per annum (the "Past-Due Rate") equal to 2% per
-------------
annum in excess of the interest rate otherwise applicable to such Loan (up to
the end of the then-current Interest Period therefor, or any subsequent interest
period therefor selected by the Agent, that is applicable to such Loan).
3.4 Interest Periods. For purposes of this Agreement the term
----------------
"Interest Period" shall mean (a) with respect to any Libor Loan:
----------------
(i) initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such Loan and ending one,
three or six months thereafter, as selected by the Borrower in its
Notice of Borrowing or Notice of Conversion, as the case may be, given
with respect thereto; and
(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Loan and ending one,
three or six months thereafter, as selected by the Borrower by
irrevocable notice (each an "Interest Period Notice") to the Agent not
----------------------
later than 10:00 a.m., Closing Office Time, four Business Days prior
to the last day of the then current Interest Period with respect
thereto;
provided that, all of the foregoing provisions relating to Interest Periods for
--------
Libor Loans are subject to the following:
(1) if any Interest Period pertaining to a Libor Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(2) any Interest Period that would otherwise extend beyond the
date final payment is due on the Libor Loan shall end on such date of
final payment;
(3) any Interest Period pertaining to a Libor Loan that begins on
the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of a
calendar month;
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<PAGE>
(4) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Libor Loan during an Interest
Period for such Loan;
(5) in the absence of timely selection by the Borrower of an
Interest Period for a Libor Loan, the Interest Period shall be one
month (subject to the other terms of this proviso); and
(6) the Borrower shall select Interest Periods in order to comply
with the provisions of Section 2.2(b); and
(b) With respect to any Base Rate (US) Loan, the period commencing on
the borrowing or conversion date, as the case may be, with respect to such Loan
and ending on the first to occur of the maturity date (whether by acceleration
or otherwise) of such Loan or the conversion date with respect to such Loan.
3.5 Conversion. (a) The Borrower shall have the option to convert
----------
(i) at any time, all or a portion of any Base Rate (US) Loan into a Libor Loan,
(ii) [intentionally deleted], (iii) on the last day of an Interest Period
applicable thereto, a Libor Loan into a Base Rate (US) Loan or (iv)
[intentionally deleted]; provided, however, (x) without the consent of the Agent
-------- -------
or the Required Banks, no portion of the outstanding principal amount of any
Base Rate (US) Loan may be converted into a Libor Loan during the continuance of
any Default or Event of Default and (y) no Loan may be converted under this
Section 3.5(a) unless the provisions of the next-to-last sentence of Section
2.2(b) are complied with after giving effect to such conversion.
(b) The Borrower shall exercise the option granted pursuant to Section
3.5(a) by giving, no later than 10:00 a.m., Closing Office Time, on the fourth
Business Day prior to the proposed conversion date, written or telephonic notice
(confirmed in writing) thereof (a "Notice of Conversion") to the Agent (the
--------------------
details of which notice the Agent shall promptly deliver in writing, or by
telephone, promptly confirmed in writing to each Bank). Each Notice of
Conversion shall state (i) the option to be exercised pursuant to Section
3.5(a), the requested conversion date which shall be a Business Day and which in
the case of the conversion of any Base Rate (US) Loan shall be deemed the last
day of the Interest Period applicable thereto and (ii) in the case of a
conversion into a Libor Loan, the requested Interest Period therefor. Unless
otherwise agreed to by the Agent and the Borrower, the Notice of Conversion
shall be substantially in the form of Exhibit M-2 hereto.
(c) Any Libor Loan may be continued as such upon the expiration of the
then current Interest Period with respect thereto by the Borrower giving an
Interest Period Notice to the
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<PAGE>
Agent, in accordance with Section 3.4, setting forth the length of the next
Interest Period to be applicable to such Loan, provided that no Libor Loan may
-------- ----
be continued as such (i) when any Default or Event of Default has occurred and
is continuing and the Agent or the Required Banks have determined that such a
continuation is not appropriate, (ii) if, after giving effect thereto, Section
2.2(b) would be contravened or (iii) after the date that is one month prior to
the end of the Commitment period (in the case of continuations of Revolving
Credit Loans) or the date scheduled for payment of the final unpaid installment
of principal of the Term Loans and provided, further, that if such continuation
-------- -------
is not permitted pursuant to the preceding proviso such Loans shall be
automatically converted to Base Rate (US) Loans on the last day of such then
expiring Interest Period.
3.6 Automatic Conversion. If, on or prior to a Eurocurrency Interest
--------------------
Determination Date for a Libor Loan (and no Notice of Conversion shall have been
received with respect to such Loan to be effective at the end of the current
Interest period therefor), the Agent shall have received a Supervening Event
Notice or shall itself have determined that one of the events described in
Section 2.2(d) has occurred which would make it impossible, unlawful or
impracticable to continue such Loan for another Interest Period, the Agent shall
promptly notify (in writing or by telephone, promptly confirmed in writing) the
Borrower and the Banks thereof and such Loan shall at the end of the current
Interest Period therefor be converted into a Base Rate (US) Loan (if permitted
by the other provisions of the Agreement).
3.7 Capital Adequacy. If any Bank (such term, for purposes of this
----------------
Section 3.7, to include the Issuer) shall have determined that the applicability
after the date hereof of any law, rule, regulation or guideline adopted pursuant
to or arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards", or the adoption after the date
hereof of any other law, rule, regulation or guideline regarding capital
adequacy, or any change in any of the foregoing or in the enforcement or
interpretation or administration of any of the foregoing by any court or any
governmental authority, central bank or comparable agency charged with the
enforcement or interpretation or administration thereof, or compliance by any
Bank (or any lending office of any Bank) or any holding company of any Bank 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 Bank's capital or
on the capital of such Bank's holding company, if any, as a consequence of its
obligations hereunder to a level below that which such Bank or such Bank's
holding company could have achieved but for such applicability, adoption, change
-23-
<PAGE>
or compliance (taking into consideration such Bank's policies and the policies
of such Bank's holding company with respect to capital adequacy) by an amount
deemed by such Bank to be material, then, upon demand by such Bank (or by the
----
Agent on such Bank's behalf), the Borrower shall pay to such Bank from time to
time such additional amount or amounts as will compensate such Bank or such
Bank's holding company (as determined by such Bank in good faith) for any such
reduction suffered as a consequence of such Bank's obligations hereunder,
together with interest on each such amount (commencing three Business Days from
the date demanded) until payment in full thereof at the Base Rate (US). A
certificate of such Bank submitted to the Borrower through the Agent as to any
such additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrower. In determining such amount or amounts, such Bank may use any
reasonable method of averaging and attribution as it shall deem applicable.
3.8 Determination of Rate of Borrowing. (a) As soon as practicable
----------------------------------
after 11:00 a.m., Closing Office time, on each Eurocurrency Interest
Determination Date for a Libor Loan, the Agent shall determine (which
determination shall, absent manifest error, be final, conclusive and binding
upon all parties) LIBOR to be applicable to such Libor Loan for the next
succeeding Interest Period therefor and shall promptly give notice thereof in
writing or by telephone (confirmed in writing) to the Borrower and the Banks.
(b) Notwithstanding the foregoing, in the event that prior to the
first day of any Interest Period for a Libor Loan:
(i) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the LIBOR for such Interest
Period, or
(ii) the Agent shall have received notice from the Required Banks
that LIBOR determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Banks (as
conclusively certified by such Banks) of making or maintaining their
affected Loans during such Interest Period,
the Agent shall give written or telephonic (promptly confirmed in writing)
notice thereof to the Borrower and the Banks as soon as practicable thereafter.
If such notice is given (x) any Libor Loans requested to be made on the first
day of such Interest
-24-
<PAGE>
Period shall be made as Base Rate (US) Loans, (y) any Loans that were to have
been converted on the first day of such Interest Period to Libor Loans shall be
converted to or continued as Base Rate (US) Loans, and (z) any outstanding Libor
Loans shall be converted, on the first day of such Interest Period, to Base Rate
(US) Loans. No further Libor Loans shall be made or continued as such, nor
shall the Borrower have the right to convert Base Rate (US) Loans to Libor Loans
until the circumstances causing such suspension no longer exists.
3.9 Requirements of Law. (a) If any Bank shall have reasonably
-------------------
determined (which determination shall be final and conclusive and binding upon
all parties) that by reason of (x) the requirements of Regulation D of the Board
of the Governors of the Federal Reserve System or (y) any Regulatory Change
after the date hereof or (z) other circumstances affecting such Bank (such as
for example but not limited to a change in official reserve requirements or
increased capital reserves required or imposed by any regulatory authority or
entity (domestic or foreign) having jurisdiction over or with respect to such
Bank or any change in the basis of taxation of payments to such Bank of
principal or interest on any Libor Loan (other than taxes covered by Section 5.2
or taxes on such Bank's overall income by the jurisdiction where such Bank's
principal or lending office or offices are located) to the extent not provided
for in clause (x) above), such Bank shall incur increased costs or reductions in
the amounts received or receivable hereunder in respect of any Libor Loan, then,
----
and in any such event, the Bank so affected shall promptly give notice in
writing or by telephone (confirmed in writing) to the Borrower (with a copy to
the Agent if given by a Bank other than the Agent) of such determination.
Thereafter, the Borrower shall pay to such Bank, upon written demand therefor,
such additional amounts (which may be in the form of an increased rate of, or a
different method of calculating, interest if the Borrower and the Bank so agree)
as shall be sufficient to compensate such Bank for such increased cost or
reduction in amounts received or receivable, provided that in the case of any
-------- ----
such determination pursuant to clause (x) with respect to any Libor Loan, the
written notice from the Bank to the Borrower shall specify the additional amount
required to be paid with respect to such Loan (with such amount so stated to be
final with respect to each Interest Period therefor until notice is received by
the Borrower and the Agent from such Bank that the condition giving rise to such
determination is no longer applicable) and such additional amount shall be paid
at the same time, and together with, the interest otherwise payable in respect
of such Libor Loans for such affected Interest Periods. Each such notice or
demand shall, absent manifest error, be final and conclusive and binding upon
all of the parties hereto; provided that before giving any such notice or making
-------- ----
any such demand, each Bank agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions and so long as such
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<PAGE>
efforts would not be disadvantageous to it, in its reasonable discretion, in any
legal, economic or regulatory manner) to designate a different lending office if
the making of such designation would avoid the need for, or materially reduce
the amount of, such increased cost.
(b) In the case of any Bank affected by subsection 3.9(a), other than
clause (x) thereof (any such Bank, together with any Bank affected by subsection
3.10, an "Affected Bank"), the Borrower may (subject to the other provisions of
-------------
this Agreement) exercise any one of the following options if the exercise of
such option shall eliminate the need to pay compensation to the Affected Bank
pursuant to Section 3.9(a):
(i) If such determination by the Affected Bank relates only to
Libor Loans then being requested by the Borrower pursuant to a Notice
of Borrowing or a Notice of Conversion, the Borrower may, prior to the
date on which such Libor Loans are to be made or converted, by giving
notice in writing or by telephone (confirmed in writing) to the Agent
and the Banks, withdraw such Notice of Borrowing or such Notice of
Conversion for all Banks.
(ii) Upon written notice to the Agent and the Banks, the Borrower
may terminate the obligation of the Banks to make or maintain Loans
as, or convert Loans into, Libor Loans and, in such event, the
Borrower shall on the first day of the next occurring Interest Period
applicable thereto convert all Libor Loans into Base Rate (US) Loans
in the manner contemplated by Section 3.5 but without satisfying the
notice requirements therein.
(iii) The Borrower may, by giving notice in writing or by
telephone (confirmed in writing) to the Affected Bank, the Agent and
the other Banks, require the Affected Bank to make the Libor Loan then
being requested as a Base Rate (US) Loan, or to continue to maintain
its outstanding Base Rate (US) Loan then the subject of a Notice of
Conversion as a Base Rate (US) Loan, as the case may be, or to convert
each Libor Loan then outstanding that is so affected into a Base Rate
(US) Loan on the first day of the next occurring Interest Period
applicable thereto, or within such earlier period, as is required by
law, such notice to pertain only to the Loans of the Affected Bank and
to have no effect on the obligations of the other Banks to make or
maintain such Libor Loans or to convert Loans into such Libor Loans.
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3.10 Required Termination and Prepayment. (a) In the event that at
-----------------------------------
any time any Affected Bank shall have reasonably determined (which determination
shall be final and conclusive and binding upon all parties) that the making or
continuation of any of its Libor Loans has become unlawful by compliance by the
Affected Bank in good faith with any law, governmental rule, regulation,
guideline or order (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful), the Affected Bank shall promptly
give notice in writing or by telephone (confirmed in writing) to the Agent and
the Borrower of such determination; provided that before giving any such notice,
-------- ----
each Bank agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, in its reasonable discretion, in any legal, economic or
regulatory manner) to designate a different lending office if the making of such
a designation would allow the Bank to continue to perform its obligations to
make Libor Loans affected by such determination. Upon receiving such
notification, the Borrower shall (subject to the other provisions of this
Agreement) forthwith take one of the actions specified in Section 3.9(b) (to the
extent required to cure such condition). If the Borrower has not exercised one
of the options specified in Section 3.9(b) within the time periods therein
prescribed, the Borrower shall be deemed to have exercised the option set forth
in clause (iii) of Section 3.9(b) (requiring the making, continuance or
conversion into Base Rate (US) Loans) and to have given the notice specified
therein. If any such conversion of a Libor Loan occurs on a day which is not
the last day of the then current Interest Period with respect thereto, the
Borrower shall pay to the Affected Bank such amounts, if any, as may be required
pursuant to Section 3.11. If circumstances subsequently change so that the
Affected Bank shall determine that it is no longer so affected, such Bank will
promptly notify the Borrower and the Agent, and upon receipt of such notice, the
obligations of such Bank to make or continue such Libor Loans or to convert
Loans into such Libor Loans shall be reinstated.
3.11 Compensation. The Borrower shall compensate each Bank, upon
------------
written request by such Bank made through the Agent (which request shall, absent
manifest error, be final and conclusive and binding upon all parties), for all
reasonable losses, expenses and liabilities (including, without limitation, any
interest paid by such Bank to lenders of funds borrowed by it to make or carry
its Libor Loans and any reasonable loss (including any loss of margin) sustained
by such Bank in connection with the liquidation or re-employment of such funds),
which such Bank may sustain: (i) if for any reason (other than a default by
such Bank) a borrowing or conversion of any Libor Loan does not occur on a date
specified therefor in a Notice of Borrowing or a Notice of Conversion (whether
or not withdrawn), (ii) if any prepayment, repayment or conversion of any of its
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<PAGE>
Libor Loans occurs on a date which is not the last day of the Interest Period
applicable thereto, (iii) if any prepayment of any of its Libor Loans is not
made on any date specified in a notice of prepayment given by the Borrower, or
(iv) as a consequence of any default by the Borrower hereunder.
Section 3A. CURRENCIES.
----------
3A.1 Amount of Currency to be Made Available. (a) Amounts to be
---------------------------------------
made available by each Bank in response to a Notice of Borrowing, Notice of
Conversion or conversion pursuant to Section 3.5, 3.9 or 3.10 shall be made in
Dollars and be based upon such Bank's pro rata portion (based upon its
applicable Commitment or its portion of the Loan to be converted, as the case
may be) of the principal amount of the relevant Loan.
(b) [intentionally deleted]
(c) [intentionally deleted]
(d) [intentionally deleted]
3A.2 Adjusting Payments. (a) [intentionally deleted]
------------------
(b) [intentionally deleted]
(c) If on any given date the Banks are making Loans to the Borrower
in the same currency that the Borrower is, on such date, repaying Loans to the
Banks, then, for administrative convenience, the Agent and the Borrower may by
mutual consent net out the two amounts so that only the difference (if any) need
be actually transferred. For all other purposes, the two transactions shall be
deemed separate borrowings and repayments except as specifically stated
otherwise in this Agreement.
3A.3 Locations of Payment. (a) [intentionally deleted]
--------------------
(b) On each date on which any amount is to be paid by the Borrower to
the Agent or any Bank hereunder, the Borrower shall make that amount available
to the Agent, in Dollars (except to the extent that Sterling is otherwise
specified therefor elsewhere in this Agreement, including without limitation in
Sections 2A.3(a) and 2A.4(b), but subject to the provisions of Section
5.1(a)(iv) hereof), as follows:
(i) to the account of such office of the Agent or such Bank in the US
or the UK or the Cayman Islands as the Agent may specify; provided that payments
--------
in Sterling shall (unless the Agent and Borrower otherwise agree) be made to the
Agent's account at a branch of the Agent in the UK; and
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<PAGE>
(ii) [intentionally deleted].
3A.4 Computations. The principal amount of each Loan shall be
------------
recorded on the books of the Agent, and, in the absence of manifest error, such
records shall be rebuttable presumptive evidence thereof.
3A.5 Necessary Actions. Without limiting the obligations of the
-----------------
Borrower hereunder (including its obligation to make payments in Sterling where
specified), the Agent is hereby authorized to convert funds received by it in a
particular currency in which payment is due in such manner and on such terms as
the Agent may, in good faith, deem appropriate.
3A.6 Excess Outstandings. The Agent may, from time to time on the
-------------------
last day of any Interest Period, but in any case not more than once a calendar
quarter under this Section 3A.6, calculate the aggregate amount of all Revolving
Credit Loans outstanding plus all LC Obligations (said aggregate amount, the
"Aggregate Outstanding Amount"). If the Agent determines that due to a
-----------------------------
fluctuation in exchange rates, the Dollar Equivalent of the Aggregate
Outstanding Amount exceeds the Total Revolving Credit Loan Commitment, then the
Agent may so notify the Borrower and the Borrower shall promptly pay to the
Agent on behalf of the Banks the amount which the Agent specifies is required to
eliminate or reduce any such excess; any such payments shall be treated as
repayments of Revolving Credit Loans to the extent Revolving Credit Loans are
then outstanding. In the event that there are no Revolving Credit Loans
outstanding to do so (or the amount thereof is insufficient), the Borrower shall
(if the Agent so requests) deposit in a cash collateral account with the Agent,
on terms and conditions satisfactory to the Agent and as security for the
Obligations, an amount in Dollars (and, to the extent requested by the Agent
when the Carlisle LC is outstanding, in Sterling) equal to the amount of such
deficiency.
Section 4. COMMITMENT COMMISSION, ETC.
---------------------------
4.1 Commitment Commission. The Borrower agrees to pay to the Agent
---------------------
for the account of each Bank a Commitment commission with respect to its
Revolving Credit Loan Commitment for the period commencing on the Closing Date,
to and including the date on which the Revolving Credit Loan Commitments of the
Banks have been permanently terminated in full, computed at a rate per annum
equal to 1/2 of 1% on the average daily Unutilized Revolving Commitment of such
Bank (computed in Dollars) during the period for which payment is made. For the
purposes of the preceding sentence, issuance of Letters of Credit shall be
deemed to be a utilization of the Banks' respective Revolving Credit Loan
Commitments in an amount equal to LC Outstandings, pro rata as to each Bank
--- ----
based on the amount that its Revolving Credit Loan
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<PAGE>
Commitment bears to the Total Revolving Credit Loan Commitment. Such Commitment
commission shall be payable quarterly in arrears on the last Business Day of
each calendar quarter and on the date upon which the Revolving Credit Loan
Commitments shall be permanently terminated. The Agent shall endeavor to notify
the Borrower prior to the end of each such calendar quarter of the amount to be
paid by Borrower at the end of such quarter, but no failure by the Agent to do
so shall in any way affect Borrower's obligations hereunder to timely pay the
full amount due when due; however, no such amount paid in reliance on such a
notice, or paid in accordance with the Borrower's good faith calculations in the
absence of such a notice, shall constitute an Event of Default under Section 9.1
unless the Borrower shall fail to timely pay the full amount of any further
adjustment as may be appropriate pursuant to notice to the Borrower from the
Agent.
4.2 Agent's Fees. The Borrower agrees to pay to the Agent for its
------------
own account the non-refundable fees (the "Agent's Fees") specified in the letter
------------
agreement dated May 8, 1991 between the Agent and the Borrower, on the dates
specified therein. The Borrower's obligations to pay these fees (and those set
forth in Section 4.3 below) are obligations of the Borrower under this Agreement
and are secured by the Security Documents and entitled to the benefits of the
Guarantee Agreements.
4.3 Amendment Fee. The Borrower agrees to pay to the Agent, for and
-------------
on behalf of the Banks that are party to this Agreement on the Amendment
Effective Date, a facility amendment fee of $100,000, payable as follows:
$25,000 shall be paid 60 days after the Amendment Effective Date and the balance
in three equal installments every 30 days thereafter.
4.4 Currency. Fees and commissions payable pursuant to this Section
--------
4 shall (unless specified otherwise elsewhere in this Agreement) be paid by the
Borrower in freely transferable Dollars.
4.5 Accrued Commitment Commission. Any Commitment commission accrued
-----------------------------
but unpaid immediately prior to the Amendment Effective Date (based on the
amount of the Total Revolving Credit Loan Commitment under the Original
Agreement) shall be paid on the first regularly-scheduled date for the payment
of Commitment commissions to occur after the Amendment Effective Date
notwithstanding that the amount of the Total Revolving Credit Loan Commitment
has been permanently reduced as of the Amendment Effective Date.
Section 5. PAYMENTS, ETC.
--------------
5.1 Currency, Payments on Non-Business Days; Calculations. (a)
-----------------------------------------------------
Dollars are the currency of account for each
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and every sum due from the Borrower hereunder and under the other Loan
Documents; provided that:
-------- ----
(i) [intentionally deleted];
(ii) [intentionally deleted];
(iii) each payment in respect of costs and expenses shall be paid
in the currency in which the same are invoiced; and
(iv) payments required to be made in Sterling pursuant to Sections
2A.3(a) and 2A.4(b) shall be made in Sterling unless the Agent and the Borrower
agree, as to any such payment, that it shall be made in Dollars.
(b) Except as otherwise set forth in Section 3.10(ii), whenever any
payment to be made hereunder or otherwise in connection with any Loan 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 and interest shall be
payable at the applicable rate during such extension. Interest hereunder
(including, without limitation, interest on the Loans) and under the Loan
Documents (other than any interest on the Prepayment Account, the Deemed
Disbursement Account and the Cash Collateral Account) and Commitment commissions
shall be calculated on the basis of a 360 day year and the actual number of days
elapsed; if for any reason a Loan is repaid on the same day on which it is made,
one day's interest (subject to the other provisions of this Agreement) shall be
paid on that Loan.
5.2 Net Payments; Application. (a) All payments hereunder and under
-------------------------
the other Loan Documents (including, without limitation, prepayments and
repayments pursuant to Section 2) shall be made by the Borrower to the Agent or
the Issuer, as the case may be, in immediately available, freely transferable,
freely convertible same day Dollars (except if and to the extent provided
otherwise by Sections 2A.3(a), 2A.4(b) and 5.1(a)(iv)) at the Closing Office (or
as otherwise provided in Section 3A.3) without setoff or counterclaim and in
such amounts as may be necessary in order that all such payments (after (i)
withholding for or on account of any present or future taxes, levies, imposts,
duties or other similar charges of whatsoever nature imposed on the amounts
described above by any government or any political subdivision or taxing
authority thereof, other than any tax (other than such taxes referred to in
clause (ii) below) imposed on a Bank pursuant to the income tax laws of the
jurisdiction where such Bank's principal or lending office or offices are
located (collectively, the "Taxes") and (ii) deduction of an amount equal to any
-----
taxes on or measured by the net income payable to such Bank with respect to the
amount by which the payments required to be made by this Section 5.2 exceed
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<PAGE>
the amount otherwise specified to be paid under this Agreement and the Notes)
shall not be less than the amounts otherwise specified to be paid under this
Agreement and the Notes. With respect to each such deduction or withholding,
the Borrower shall promptly (and in no event later than 30 days thereafter)
furnish to the Agent such certificates, receipts and other documents as may be
required to establish any tax credit, exemption or reduction in rate to which
any Bank or holder of a Note may be entitled. Each Bank, other than a Bank
organized and existing under the laws of the United States of America or any
political subdivision thereof, agrees to furnish the Borrower, as soon as
practicable after any written request of the Borrower to such effect, any
executed form reasonably requested by the Borrower such as Internal Revenue
Service Form 4224 or 1001, and any other applicable US or UK form as to such
Bank's entitlement, if any, to exemption from, or a reduced rate of, or its
subjection to US or UK withholding tax on amounts payable to it hereunder or
under the Notes and each such Bank undertakes to use its best efforts promptly
to notify the Borrower of any material change in any information, statement or
form so furnished to the Borrower; provided, however, that any failure on the
-------- -------
part of any Bank to furnish any such information, statements or forms shall in
no way affect the terms of this Agreement or of the Notes. Notwithstanding the
foregoing, in the event any Bank fails to furnish any such information,
statements or forms, the Borrower shall only pay to such Bank such amounts under
this Agreement and the Notes as are due without those additions described in
clauses (i) and (ii) above that would not have been required had such
information, statements or forms been provided in a timely fashion. As promptly
as practicable after any Bank becomes aware of the existence or occurrence of an
event giving rise to the imposition of US or UK withholding tax upon amounts
payable to it hereunder or under the Notes, such Bank shall use its best efforts
to transfer its Loans or Revolving Credit Loan Commitment to another office of
such Bank with a view to avoiding or mitigating the consequences of such tax.
If any Bank determines that it is unable to effect such transfer on or before
the thirtieth day after the date such Bank becomes aware of the existence or
occurrence of an event giving rise to the imposition of US or UK withholding
tax, such Bank shall promptly give notice of such determination to the Borrower.
If the Borrower receives notice of such determination from such Bank, the
Borrower may, by notice to such Bank, indicate its intention to prepay the
affected Loan in full (but with all premiums, if any, provided for in this
Agreement and with interest accrued to the date of prepayment on such Loan and
all other amounts then payable to such Bank hereunder) on the tenth Business Day
after the date of such notice of intention. On or before the tenth day after
receipt of any such notice of intention, such Bank may, by notice to the
Borrower, irrevocably elect to receive payments hereunder reduced by the amount
of such withholding. If such an election is so made, the Borrower (i) shall
cease to be under any further
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<PAGE>
obligation to pay any such additional amount in respect of such withholding and
(ii) shall cease to be entitled so to prepay the Loan by virtue of being
required to make such withholding. Any Bank which is or becomes subject to such
withholding tax agrees to use its best efforts to
provide the Borrower with an affidavit, within 30 days after such Bank files its
tax return, setting forth the amount of any tax credit it received with respect
thereto.
(b) Unless otherwise specifically provided herein, all payments under
or pursuant to, or in satisfaction of any of the Borrower's obligations under
this Agreement or under the Notes will be applied in the following order of
priority: (i) to any amounts not otherwise listed in this Section 5.2(b) then
due and payable under this Agreement, the Notes or the Security Documents, (ii)
to any Commitment commission or fees then due and payable pursuant to Section
4.1 of this Agreement, (iii) to any interest on the Loans (unless otherwise
specified by Borrower, pro rata according to the aggregate amount of interest
--- ----
then due and payable on the Loans) then due and payable, (iv) to any principal
amount then due on the Loans (unless otherwise specified by Borrower, first to
the Term Loans and then to the Revolving Credit Loans), (v) to reduce the unpaid
principal amount of the Revolving Credit Loans, and (vi) subject to the
provisions of Section 2.6 hereof, to any amounts not then due on the Term Loans
to be applied in inverse order of the mandatory repayments on the Term Loans
pursuant to Section 2.4(a).
(c) Bank of Scotland hereby represents that, at the date of this
Agreement, it
(i) is recognized by the UK Board of Inland Revenue, for the purposes
of the Income and Corporation Taxes Act 1988 (as in effect on the
date hereof), as carrying on a bona fide banking business in the
UK by which all amounts received or receivable by it as a Bank
under this Agreement will be taken into account as a trading
receipt of such banking business for the purposes of UK
Corporation Tax; or
(ii) is resident in a jurisdiction with which the UK has, at the date
of this Agreement, an appropriate "double taxation treaty"
reducing the amount of UK tax on amounts received or receivable
by it as a Bank under this Agreement to zero, or exempting such
amounts from such tax.
(d) If (i) the Borrower makes any payment to a Bank under Section
5.2(a), (ii) there are no amounts then payable, but unpaid, by the Borrower
under this Agreement or the other Loan Documents, and (iii) no Default or Event
of Default has occurred
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<PAGE>
which has not been remedied by the Borrower or waived by the Required Banks,
such Bank shall negotiate with the Agent and the Borrower with a view to
reimbursing the Borrower, following receipt by such Bank (and the passage of all
periods for the audit of the tax records of the Bank by the Inland Revenue or
other appropriate tax authority for the period in question), such proportion of
any available credit against, or remission for, tax as such Bank in good faith
certifies to be attributable to this Agreement or the other Loan Documents and
the proportion which will leave it (after reimbursement to the Borrower) in no
worse position than it would have been in had the relative withholding or
deduction never been required. This Section shall not impose any obligation on
any Bank:
(1) to manage its tax or other affairs in any particular manner; or
(2) to claim any credit against, or remission for, tax payable on
amounts received by it under this Agreement or the other Loan
Documents in priority to any other tax relief, or allowance for
tax borne by it, on such amounts; or
(3) to disclose any information concerning its tax affairs to the
Borrower or to any other Person.
Any reimbursement to the Borrower shall be made promptly after
certification by a Bank of any amount due to the Borrower.
5.3 Distribution by Agent. All payments received by the Agent from
---------------------
the Borrower on account of principal and interest under this Agreement or the
Notes or with respect to Commitment commission shall be promptly distributed by
the Agent to the Banks (in the same currency and type of funds received by the
Agent) as follows: (a) if in respect of principal and if Borrower has
designated that the payments are being made in respect of the Term Loans or in
respect of the Revolving Credit Loans, then on a pro rata basis to each of the
--------
Banks having Term Loans or Revolving Credit Loans, as the case may be,
outstanding; (b) if in respect of principal and Borrower has not designated
whether the payments are being made in respect of the Term Loans or the
Revolving Credit Loans, then on a pro rata basis to all Loans outstanding; (c)
--------
if in respect of interest paid on the Loans pursuant to Section 3 and the
Borrower has designated that the payments are being made in respect of the Term
Loans or in respect of the Revolving Credit Loans, then on a pro rata basis to
--- ----
each of the Banks having Term Loans or Revolving Credit Loans, as the case may
be, outstanding; (d) if in respect of interest due on the Loans and the Borrower
has not designated whether such payments are being made in respect of Term Loans
or the Revolving Credit Loans, then to each Bank in the proportion that the
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<PAGE>
aggregate amount of such unpaid interest due on the Loans of each such Bank
bears to the aggregate amount of such unpaid interest due on all such Loans; (e)
if in respect of Commitment commission pursuant to Section 4.1, to each Bank in
the proportion that the Revolving Credit Loan Commitment of such Bank bears to
the Total Revolving Credit Loan Commitment; (f) [intentionally deleted]; (g) if
in respect of fees pursuant to Section 4.3, to each Bank party to this Agreement
on the Amendment Effective Date in proportion that the Term Loan Commitment and
Revolving Credit Loan Commitments of such Banks on such date bears to the Total
Commitments on such date; (h) if in respect of a payment under Section 5.2(a)
hereof, to each Bank in accordance with its entitlement thereto; (i) if in
respect of payments made in Section 2A, as provided in Section 2A; and (j) if in
respect of Sections 3.7-3.11, as provided in such sections. Other than in
respect of amounts received directly from the Borrower for repayment to the
Banks (which shall be paid in the currency received, unless otherwise separately
agreed to in writing by the Agent and such Bank), the Agent is hereby
irrevocably authorized (but not required) by the Borrower and the Banks to
convert funds received in a particular currency to the currency in which payment
is due, in such manner and on such terms as the Agent may in good faith deem
appropriate.
Section 6. CONDITIONS PRECEDENT TO INITIAL LOANS.
-------------------------------------
The Banks party to this Agreement on the Closing Date (the "Closing
-------
Date Banks") were not obligated to make the Term Loan or the initial Revolving
----------
Credit Loan (or issue the Carlisle LC or any other Letter of Credit on the
Closing Date) hereunder unless on the date of such Loans or such issuance
(unless otherwise specifically indicated) the following conditions (and certain
others that were contained in the Original Agreement) were satisfied to the
satisfaction of the Agent (or waived by the Agent). The Agent and the Banks
hereby acknowledge that such conditions were so satisfied on the Closing Date or
waived, on satisfactory terms and conditions, for purposes of the transactions
occurring on the Closing Date.
6.1 Default, etc. On the date of such Loans or the issuance of a
------------
Letter of Credit (and after giving effect to the Loans made and Letters of
Credit issued on such date), there shall exist no Default or Event of Default
and all representations and warranties made by the Credit Parties herein or in
the other Loan Documents or otherwise by the Credit Parties in writing in
connection herewith or therewith shall be true and correct in all material
respects with the same effect as though such representations and warranties have
been made at and as of such time.
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<PAGE>
6.2 Notes. The Agent shall have received for each of the Closing
-----
Date Banks the Term Notes and the Revolving Credit Notes, each duly executed and
completed by the Borrower.
6.3 KSI Agreements. (a) KSI shall have executed and delivered to the
--------------
Agent an agreement substantially in the form of Exhibit G-1 to the Original
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Deficiency Undertaking") in connection with KSI's obligations related to United
----------------------
States income taxes payable by Holding and its US Subsidiaries; environmental
liabilities of the Consolidated Group; and payments required to be made by the
Borrower in connection with the 1993 Notes.
(b) [intentionally deleted]
(c) KSI shall have executed and delivered to the Borrower (with a copy
to the Agent) KSI's guaranty (in form and substance satisfactory to the Borrower
and the Agent) of the 1993 Notes (such guaranty, as the same may from time to
time be amended, supplemented or otherwise modified with the consent of the
Agent, the "KSI UK Guaranty").
---------------
6.4 Supporting Documents. There shall have been delivered to the
--------------------
Agent (with sufficient copies for each of the Closing Date Banks) such
information and copies of documents, approvals (if any) and records (certified
where appropriate) of corporate and legal proceedings as the Agent or any Bank
may have reasonably requested relating to the Credit Parties' entering into,
issuance and performance of the Loan Documents, the Offering Documents, the
Acquisition Agreement (FAI) and the other agreements and documents related
thereto to which each is a party. Such documents shall, in any event, include:
(a) certified copies of the Charter Documents of each of the Credit
Parties (other than Foreign Subsidiaries that are not Significant Subsidiaries
or Foreign Guarantors);
(b) certificates of authorized officers of each of the Credit Parties
designated by the Agent, certifying the corporate resolutions of each such
entity relating to the entering into and performance of the aforesaid documents
to which such entity is a party and the transactions contemplated thereby, and,
if applicable, the Acquisition; provided that the resolutions certified on the
-------------
Closing Date need not include ones authorizing the entering into and performance
of documents to be delivered pursuant to Section 7.18 that are not being
delivered on the Closing Date;
(c) certificates of authorized officers of each of the Credit Parties
designated by the Agent, with respect to the incumbency and specimen signatures
of their respective officers or representatives authorized to execute such
documents
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<PAGE>
and any other documents and papers, and to take any other action, in connection
therewith;
(d) a certificate of an authorized officer of Holding and an
authorized officer of the Borrower certifying, as of the date of the Loan,
compliance with the conditions of Section 6.1, 6.5(b)(ii), 6.5(f), 6.6(a)-(h)
(inclusive), 6.7, 6.9(a), 6.10(c), 6.10(d), 6.11, 6.16, 6.19 and 6.20(c) and
also the absence of any Material Adverse Changes of the type referred to in
Section 6.17; and
(e) a certificate of an authorized officer of Furmanite certifying (as
to FAI, Furmanite and the Subsidiaries of Furmanite) that the representations
and warranties with respect to FAI, Furmanite and such Subsidiaries contained in
Section 10 hereof are true and correct as of the Closing Date with the same
effect as though such representations and warranties had been made at and as of
such time and certifying (as to such entities) the absence of any Material
Adverse Changes of the type referred to in Section 6.17.
6.5 Security Documents. There shall have been delivered to the Agent
------------------
(with sufficient copies for each of the Closing Date Banks):
(a) (i) A fixed and floating charge, substantially in the form of
Exhibit B-1 to the Original Agreement, executed by the Borrower (as the same may
from time to time be amended, supplemented or otherwise modified, the "Borrower
--------
Security Agreement", which term shall also include the Mortgage of Securities
------------------
(substantially in the form of Exhibit D-2 to the Original Agreement) to be
executed by the Borrower on the Closing Date, as the same may from time to time
be amended, supplemented or otherwise modified) and said Mortgage of Securities.
(ii) A guaranty executed by FAI (as the same may from time to time be
amended, supplemented or otherwise modified, the "FAI Guaranty"), substantially
------------
in the form of Exhibit C-1 to the Original Agreement, covering all of Borrower's
obligations under this Agreement.
(iii) Security agreements executed by Holding and FAI (as the same
may from time to time be amended, supplemented or otherwise modified, the
"Holding Security Agreement" and the "FAI Security Agreement", respectively),
--------------------------- ----------------------
each substantially in the form of Exhibit B-2 to the Original Agreement,
securing (as to Holding) all the obligations of Holding under this Agreement and
of FAI under the FAI Guaranty and (as to FAI) all the obligations of FAI under
the FAI Guaranty. Except to the extent otherwise consented to by the Agent, all
Liens under all Security Documents
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<PAGE>
shall be first priority Liens in favor of the Agent on behalf of the Banks.
(iv) Guaranty agreements and security agreements substantially in the
form of Exhibits C-3 and B-2 to the Original Agreement respectively (or such
other forms approved by the Agent as are appropriate in the jurisdictions where
the respective Foreign Guarantors are organized), executed by each Foreign
Guarantor (each such agreement, as the same may from time to time be amended,
supplemented or otherwise modified, a "Foreign Guaranty" and a "Foreign Security
---------------- ----------------
Agreement", respectively), guaranteeing all of Borrower's obligations under this
---------
Agreement and securing such guarantees with security interests in all personal
and real property of the Foreign Guarantors. Notwithstanding the foregoing,
each Foreign Guarantor that is a non-Significant Subsidiary and is incorporated
in a jurisdiction other than Germany, Belgium, the Netherlands or Luxembourg may
agree in its Foreign Guaranty not to grant or permit to exist any Lien
whatsoever in any assets held by such Person in lieu of such Person executing
and delivering a Foreign Security Agreement.
(v) Agreements ("Negative Pledge Agreements") from each Foreign
--------------------------
Guarantor that (x) is not a Significant Subsidiary and (y) with the Agent's
consent, does not execute and deliver a Foreign Security Agreement pursuant to
Section 6.5(a)(iv) hereof, wherein each such Person agrees not to grant or
permit to exist any Lien in any of its assets. Said agreements may be
incorporated in the Foreign Guaranty signed by each Foreign Guarantor.
(b) (i) A Pledge Agreement executed by KSI and the US
Guarantors, substantially in the form of Exhibit D-1 to the Original Agreement
(as the same may be amended, supplemented or otherwise modified from time to
time, the "US Pledge Agreement"), covering all of the shares issued by the US
-------------------
Guarantors and the Borrower (and any intercompany notes payable to any of such
Persons), together with (x) certificates representing such pledged shares, (y)
undated stock powers for such certificates executed in blank and (z) as to any
such intercompany notes (including without limitation any issued pursuant to
Section 6.20(c) hereof), endorsed in blank by the payee thereof.
(ii) [intentionally deleted]
(iii) Pledge agreements in form and substance satisfactory to the
Agent, executed by each Foreign Subsidiary which itself owns stock or other
equity interests in another Subsidiary (each such agreement, as the same may be
amended, supplemented or otherwise modified from time to time, a "Foreign Pledge
--------------
Agreement"), covering all of the shares or other equity interests issued by the
---------
Subsidiaries of the Foreign Subsidiaries,
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<PAGE>
together with (x) certificates representing such pledged shares (to the extent
such ownership interest is represented by share certificates), (y) undated stock
powers for such certificates executed in blank and (z) evidence that such pledge
has been noted on the stock records of the companies whose shares have been
pledged.
(c) Intellectual property mortgages executed by each US Guarantor, and
by each Foreign Guarantor that is a Significant Subsidiary, substantially in the
form of Exhibit E to the Original Agreement or such other form agreed to by the
Agent (each, as the same may be amended, supplemented or otherwise modified from
time to time, an "IPM"), covering (as to each) all patents, trademarks,
---
copyrights, trade names, and licenses of such Persons together with a favorable
opinion of patent and trademark counsel satisfactory to the Agent with respect
thereto.
(d) Such consents of third parties as the Agent may reasonably
request.
(e) A first mortgage or deed of trust, in form and substance
satisfactory to the Agent and substantially in the form of Exhibit F to the
Original Agreement (as the same may from time to time be amended, supplemented
or otherwise modified, the "Mortgage (US)"), executed by FAI and covering all of
-------------
FAI's interest in Sites in the US; together with evidence that counterparts of
the Mortgage (US) have been recorded (or, with the Agent's consent, delivered to
the title company for recording) in all appropriate places; and mortgage title
policies (or irrevocable binders) issued by a title insurance company
satisfactory to the Agent (and in the amount of $2,000,000, which the Borrower
hereby represents is not less than twice the appraised value of the Site (US))
committing to insure the Banks that the Mortgage (US) creates a valid and
perfected first priority lien on the real property covered thereby, free and
clear of all defects and encumbrances except such Liens which neither represent
Liens securing monetary obligations nor any other Liens to which the Agent shall
object. Such Mortgage (US) shall secure all obligations of FAI under the FAI
Guaranty.
(f) (i) Evidence of all filings of financing statements under the
applicable Uniform Commercial Code, satisfactory Lien search requests on Form
UCC-11 and analogous forms, confirming the absence of any perfected Liens
(except Permitted Liens) prior to the Banks' Liens (except those consented to by
the Agent) and all other actions (except those with respect to UK documents
that, in the opinion of Freshfields, are typically made after the Closing Date
and are listed on Schedule 10.6 to the Original Agreement and those that relate
to documents referred to in Section 7.18 that have not yet been executed) with
respect to the Liens created by the Security Documents as are necessary or
appropriate to perfect such Liens
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<PAGE>
(except for Liens on property of the UK Guarantors which are required to be
perfected after the Closing Date pursuant to Section 7.18 and notifications
required to be placed on certificates of title for vehicles when the same is
required to perfect Liens therein).
(ii) A release, in form and substance satisfactory to the Agent, of
all Liens (except Permitted Liens and other Liens permitted by Section 8.2
hereof) in all assets of the Loan Parties and the US Guarantors, including
properly executed UCC-3 termination statements and similar documents under the
applicable laws of other relevant jurisdictions.
(iii) A Companies Form G395 completed in respect of the Borrower
Security Agreement shall have been duly executed by Borrower and delivered to
Freshfields for filing.
(iv) All security given by the Borrower shall have been given in
compliance with the requirements of sections 151-158 (inclusive) of the
Companies Act 1985. The Agent and its counsel shall have been satisfied that
all such requirements with respect to such security have been met.
6.6 Acquisitions. (a) [intentionally deleted]
------------
(b) (i) [intentionally deleted]
(ii) [intentionally deleted]
(c) [intentionally deleted]
(d) Prior to the Closing Date, KSI shall have:
(w) [intentionally deleted]
(x) [intentionally deleted]
(y) provided (Pounds)24,233,000 to the Borrower in manner and form
satisfactory to the Agent, which amount shall have been used by Borrower as
follows:
(A) [intentionally deleted]
(B) [intentionally deleted]
KSI may satisfy its obligation as to such (Pounds)24,233,000 pursuant to this
clause (y) by capital contributions, in cash, or by loans; any such loans shall
have been evidenced by a promissory note or notes (each such note, a "Temporary
---------
Note"), which notes shall have thereafter been contributed by KSI to Holding as
----
a capital contribution and be owned by Holding on the Closing Date (both before
and after giving effect to the transactions contemplated
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<PAGE>
hereby to occur on the Closing Date) except to the extent repaid by Borrower on
the Closing Date and except as permitted by Section 8.3(iv) of the Original
Agreement as in effect on the Closing Date.
(e) KSI shall have reserved, solely for issuance in exchange for the
Temporary Preference Shares, 1,098,373 shares of its 12% Convertible Class A
Preferred Stock Series D shares, par value (Pounds)5.34 per share (the "KSI
---
Shares").
------
(f) The Depositary Documents shall have been executed and delivered by
the parties thereto and the Depositor shall have deposited, in the Depositary
Bank pursuant to the Bank Charge, an amount equal to the amount of the Sterling
Guarantee (which amount is included in KSI's capital contribution referred to in
clause (d) above).
(g) [intentionally deleted]
(h) [intentionally deleted]
(i) All opinions of counsel, if any, delivered subsequent to March 1,
1991 and prior to or on the Closing Date to any Credit Party by counsel for any
of them in connection with either of the Acquisitions shall have been delivered
to the Agent, together with a letter from such counsel stating that the Agent
and the Banks may rely upon such opinions with the same effect as if said
opinions were addressed to them.
6.7 Approvals and Consents. All orders, permissions, consents,
----------------------
approvals, licenses, authorizations and validations of, and filings, recordings
and registrations with, and exemptions by, any Government Authority, or any
other Person, required to authorize or required in connection with the
execution, delivery and performance of this Agreement, the other Loan Documents,
the Offering Documents, the Acquisition Agreement (FAI) and the transactions
contemplated hereby and thereby by any Credit Party shall have been obtained
(and, if so requested, furnished to the Agent, with sufficient copies for the
Closing Date Banks), except as otherwise contemplated by Section 7.18 hereof.
6.8 Financial Statements. The Borrower shall have delivered, or
--------------------
caused to be delivered, to the Agent (with sufficient copies for the Closing
Date Banks):
(a) [intentionally deleted]
(b) [intentionally deleted]
(c) a letter from EY (US) dated the Closing Date, satisfactory in form
and substance to the Agent, relating to the availability of the full amount of
KSI's NOL to the US
-41-
<PAGE>
Subsidiaries and to substantially the same effect as EY's letter to the Agent on
the same subject dated January 23, 1991 (but updated to the Closing Date).
(d) a letter from EY (UK) dated the Closing Date, satisfactory in form
and substance to the Agent, relating to the full deductibility of interest paid
by the Borrower on the Loans from the consolidated income of the UK Subsidiaries
for purposes of UK income taxes and substantially in the form of Exhibit D to
the Commitment Letter (but updated to the Closing Date).
(e) a "solvency" letter as to each of Holding, FAI and the Borrower,
satisfactory in form and substance to the Agent, from the chief financial
officers of each such Credit Party, and after giving effect to the transactions
contemplated by this Agreement (including without limitation the Acquisitions),
substantially in the form of Exhibit A to the Commitment Letter.
6.9 Reports. The Closing Date Banks shall have received from Persons
-------
satisfactory to them:
(a) all environmental audits and reports (the "Audits") undertaken or
------
received by KSI or any member of the Consolidated Group with respect to their
respective Properties (other than property of KSI), in form and substance
satisfactory to the Agent; and
(b) an analysis satisfactory to the Agent, of all litigation (if any)
to which any Credit Party or any of their respective assets is party or subject,
or by which any Credit Party is otherwise affected.
6.10 Insurance. There shall have been delivered to the Agent (with
---------
sufficient copies for the Closing Date Banks):
(a) [intentionally deleted];
(b) evidence of the payment of all premiums for the insurance
policies referred to in Section 7.4, such policies to be in form and
substance, and issued by companies, satisfactory to the Agent;
(c) a certificate of an authorized officer of Holding, the
Borrower and Furmanite that all such insurance policies of the members
of the Consolidated Group are in full force and effect and that the
insurance maintained by each member of the Consolidated Group as of
the Closing Date (after giving effect to the Acquisitions) meets the
requirements of Section 7.4 as of the Closing Date (after giving
effect to the Acquisitions); and
-42-
<PAGE>
(d) certificates (or comparable documents typically provided to bank
lenders in the UK in transactions such as those contemplated by this Agreement)
from the aforesaid insurance companies or their brokers stating that the Agent
(on behalf of the Banks) has been named as an additional insured and/or loss
payee (as appropriate) on all such policies. This Section 6.10(d) shall not
apply to those UK Subsidiaries prohibited by UK law from delivering such
certificates (or comparable documents) on the Closing Date.
6.11 Tax Allocation Agreement. A tax allocation agreement
------------------------
satisfactory to the Agent shall have been entered into among the Credit Parties
and each other entity which will join in a consolidated tax return with the
Credit Parties, which agreement will provide, inter alia, that Holding and its
----- ----
Subsidiaries will be entitled to the benefit of the NOL's to the extent they are
capable of utilizing it and shall not be required to reimburse KSI or any
Affiliate of KSI for any such utilization.
6.12 Legal Opinions. The Agent shall have received legal opinions
--------------
(in sufficient counterparts for each of the Closing Date Banks), in form and
substance satisfactory to the Agent, addressed to the Agent and the Closing Date
Banks and dated the Closing Date, of
(a) US counsel to KSI and Holding, Fulbright and Jaworski, covering
(x) the matters set forth in Exhibit J-1 to the Original Agreement, (y) that the
Acquisition (FAI) has been consummated in accordance with the Acquisition
Agreement (FAI) and in compliance with all relevant laws and regulations of the
United States of America and of the States of Texas, Virginia and Delaware and
(z) such other matters as the Agent or any Bank may reasonably request;
(b) Freshfields or UK counsel to Holding and the Borrower, covering
(x) the matters set forth in Exhibit J-2 to the Original Agreement, (y) that the
Acquisition (UK) has been consummated in accordance with the Offering Documents
and in compliance with all relevant laws and regulations of the UK, and (z) such
other matters as the Agent or any Bank may reasonably request;
(c) [intentionally deleted]
(d) counsel for Borrower or Furmanite in Germany, Belgium and the
Netherlands (and such other local or foreign counsel to the Borrower or
Furmanite as requested by the Agent or any Bank), covering under the laws of
such jurisdictions (i.e., other than the US and the UK) (x) the matters set
forth in
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<PAGE>
Exhibit J-3 to the Original Agreement and (y) such other matters as the Agent or
such Bank may reasonably request; and
(e) special local or foreign counsel for the Agent, but solely if
requested by the Agent or any Bank, covering such matters incident to the
transactions contemplated hereby as the Agent or any Bank may request.
6.13 Source and Use of Funds. The Agent shall have been satisfied as
-----------------------
to the source and use of funds utilized by KSI, Holding and the Borrower in
connection with the Acquisitions. A statement of such sources and uses,
certified by the chief financial officers of KSI, Holding and the Borrower,
shall have been delivered to the Agent (with sufficient copies for the Closing
Date Banks).
6.14 Change in Law. On the date of such Loans or the issuance of any
-------------
Letter of Credit, no change shall have occurred in applicable law, or in
applicable regulations thereunder or in interpretations thereof by any
Government Authority or other Person which, in the opinion of any Bank, would
make it illegal for such Bank to make the Loan required to be made (or the
Letter of Credit required to be issued) on such date.
6.15 All Proceedings to be Satisfactory. All material corporate,
----------------------------------
partnership and legal proceedings and all material instruments in connection
with the transactions contemplated by this Agreement and the other documents
referred to herein and in connection with the Acquisitions shall be satisfactory
in form and substance to the Agent, and the Agent shall have received
information and copies of all documents which the Agent or such Bank may
reasonably have requested in connection herewith, such documents where
appropriate to be certified by proper corporate officials or Government
Authorities.
6.16 No Opposition. No suit, action or proceeding shall be pending
-------------
or threatened on the Closing Date before or by any Government Authority or other
Person seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, by the Offering Documents or by the Acquisition
Agreement (FAI).
6.17 Adverse Change. [intentionally deleted]
--------------
6.18 Fees and Expenses. The Agent's Fee referred to in Section 4.2
-----------------
of the Original Agreement, the Letter of Credit fees payable on issuance with
respect to the issuance of the Carlisle LC and other Letters of Credit to be
issued on such date, and the facility fees referred to in Section 4.3 of the
Original Agreement shall have been paid in full.
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<PAGE>
6.19 Amendments to Articles. The Articles of Association of the
----------------------
Borrower and (unless otherwise consented to by the Agent) of Furmanite shall
have been amended as set forth on Exhibit L to the Original Agreement.
6.20 FAI Documents. (a) Borrower and FAI shall have entered into a
-------------
letter agreement satisfactory to the Agent whereby the Borrower shall have
agreed, to the extent permitted by the terms of this Agreement and to the extent
the Borrower has funds available after meeting the needs of the Borrower and its
Subsidiaries, to make loans (in Dollars) to FAI from time to time upon FAI's
request from proceeds of Revolving Credit Loans, with the interest on such loans
by the Borrower to FAI to be the amount paid by the Borrower to the Banks for
the Loans from which such loans are made.
(b) The following (collectively, the "Intercompany Documents") shall
----------------------
have been delivered to the Agent (with sufficient copies for each Closing Date
Bank), together with a certificate from an officer of the Borrower that each is
in full force and effect and not amended, rescinded or otherwise modified:
(i) A copy of the letter agreement referred to in Section 6.20(a);
(ii) An Intercompany Note executed by FAI and payable to the Borrower
(the "FAI Intercompany Note") in a stated principal amount of $10,000,000, which
---------------------
note shall have been endorsed in blank by the Borrower;
(iii) A security agreement with respect to all personal property of
FAI, substantially in the form of Exhibit B-2 to the Original Agreement but
naming the Borrower as secured party and FAI as the debtor (the "Intercompany
------------
Security Agreement");
------------------
(iv) a mortgage on the Site (US), substantially in the form of the
Mortgage (US) but naming the Borrower as mortgagee and FAI as the mortgagor (the
"Intercompany Mortgage");
---------------------
(v) [intentionally deleted];
(vi) satisfactory evidence that the Intercompany Mortgage has been
properly recorded (or, with the Agent's consent, delivered to the title company
for recording) and all fees in connection therewith paid or otherwise provided
for;
(vii) satisfactory evidence that (x) satisfactory financing statements
on UCC-1 (or other appropriate forms) have been properly filed in Virginia and
in all jurisdictions where FAI has inventory or other property, which financing
statements shall list FAI as the debtor, the Borrower as secured party, and
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<PAGE>
the Agent as assignee of the secured party, and (y) all fees in connection
therewith have been paid or otherwise provided for; and
(viii) a pledge agreement with respect to all shares of its
Subsidiaries owned by FAI, substantially in the form of Exhibit D-1 to the
Original Agreement but naming the Borrower as pledgee and FAI as the pledgor
(the "Intercompany Pledge Agreement");
-----------------------------
(ix) a collateral pledge agreement executed by the Borrower
substantially in the form of Exhibit B-4 to the Original Agreement, in
recordable form, together with evidence that same has been properly recorded in
Virginia pursuant to the Recording Act of Virginia (or, with the Agent's
consent, delivered to the title company for recording).
(c) [intentionally deleted]
All documents and papers required by this Section 6 shall be in form and
substance satisfactory to the Banks and delivered to the Agent at its Closing
Office or as the Agent may otherwise direct.
Section 6A. CONDITIONS PRECEDENT TO SUBSEQUENT LOANS AND
LETTERS OF CREDIT.
--------------------------------------------
The Banks shall not be obligated to make any Loans or issue any
Letters of Credit after the Closing Date unless, at the time of the making of
such Loan or issuing such Letter of Credit (except as hereinafter indicated) the
following conditions (unless waived in writing by the Required Banks) have been
satisfied:
6A.1 Certain Conditions. At the time of the making of such Loan or
------------------
issuing such Letter of Credit, and immediately after giving effect thereto, (a)
all deficiencies, if any, with respect to conditions precedent to any prior Loan
or Letter of Credit shall have been corrected, (b) all of the conditions
specified in Sections 6.1, 6.5(f), 6.14, 6.15, 6.16, 6.18 and 6.20(b)(vii) (and
in Section 7.18, if, as and after the conditions specified therein have been
met) shall be satisfied in full (with any reference in any of such Sections to
the Loans made or Letters of Credit issued on the Closing Date to be deemed a
reference to the Loan or Letters of Credit (as the case may be) then requested
to be made), (c) each of the documents specified in Sections 6.3(a), 6.3(c),
6.4, 6.5, 6.6(d), 6.6(f), 6.7, 6.11, 6.20, 6.15, 7.18 (if, as and after
conditions specified therein have been met), 12.14.2 and 12.14.4(e) shall be in
full force and effect and no Credit Party thereto shall have failed to perform
in any material respect any of its obligations thereunder, and (d) no issuer
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<PAGE>
thereof shall have rescinded or qualified any of the statements, certificates,
letters, reports or opinions referred to in Section 6.4, 6.6(i), 6.8, 6.9, 6.10,
6.12, 6.13 or 12.14.7.
6A.2 Subsequent Opinions of Counsel. If reasonably requested by the
------------------------------
Agent, the Agent shall have received from any or all of the counsel referred to
in Section 6.12 or other counsel satisfactory to the Agent such favorable
supplemental legal opinions addressed to the Agent and the Banks and dated the
date of such Loan or Letter of Credit and covering such matters incidental to
the transactions contemplated by this Agreement as the Agent shall reasonably
request, each of which opinions shall be in form and substance satisfactory to
the Agent.
6A.3 Officer's Certificate. (a) If requested by the Agent, the Agent
---------------------
shall have received a certificate of authorized officers of Holding and the
Borrower certifying, as of the date of the Loan then being made or Letter of
Credit then being issued, compliance with the provisions of Section 6.1 (with
the reference therein to Loan or Letter of Credit being deemed a reference to
the Loan being made or Letter of Credit being issued on the date of said
certificate) and further to the effect that the conditions specified in Section
6A.1 are satisfied at such time. Any such certificate shall be given "to the
best of such officers' knowledge, based upon due and adequate investigation" or
as otherwise agreed by the Borrower and the Agent.
(b) The making of each Loan and the issuance of each Letter of Credit
subsequent to the Closing Date shall constitute a representation and warranty by
Holding and the Borrower to the Agent that, at the time of said subsequent Loan
or Letter of Credit (and after giving effect thereto), (i) all representations
and warranties contained herein or in the other Loan Documents or otherwise made
by the Borrower or any other Credit Party in connection herewith or therewith
are true and correct in all material respects with the same effect as though
such representations and warranties were being made at and as of such time, (ii)
no Default or Event of Default exists and (iii) the conditions specified in
Section 6A.1 are satisfied at such time.
6A.4. Fees and Expenses. To the extent demand therefor shall have
-----------------
been made, all legal fees and expenses (through the date of the immediately
preceding Loan and Letter of Credit) of the Agent's New York and UK counsel and
(if any) local or special counsel in connection with the transactions
contemplated by this Agreement shall have been paid in full.
All of the documents and papers referred to in this Section 6A shall be in form
and substance satisfactory to the Agent and shall be delivered to the Agent at
its Closing Office (or if to another Bank, at its address listed on the
signature pages
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<PAGE>
hereof), or at such other office as the Agent may from time to time specify to
the Borrower.
Section 7. AFFIRMATIVE COVENANTS.
---------------------
Holding and the Borrower severally covenant and agree hereby that, so
long as this Agreement is in effect and while any Letter of Credit is
outstanding and until the Commitments are terminated and all of the Loans,
together with interest, Commitment commission and all other obligations incurred
hereunder (including Deemed Disbursements and Reimbursement Obligations and fees
and disbursements in connection therewith), are paid in full, such Loan Parties
will perform, and will cause each of their respective Subsidiaries to perform,
the obligations set forth in this Section 7.
7.1 Financial Statements. Borrower will (or will cause Holding to)
--------------------
furnish to the Agent and each Bank:
(a) (i) As soon as practicable and in any event within 45 days after
the close of each month of each Fiscal Year of Holding and its
Subsidiaries, the monthly management reports prepared by Holding and its
Subsidiaries, which reports shall contain (among other things), as at the
end of and for the period commencing
(x) in the case of all such reports, at the end of the previous
Fiscal Year, and
(y) in the case only of reports beginning with the first report
delivered after the Amendment Effective Date and ending with the
report delivered for March 1994, on July 1, 1993,
and (in each case) ending with the end of such month, unaudited consolidated
statement(s) of income of (x) FAI and its Subsidiaries, (y) Borrower and its
Subsidiaries, and (z) the Combined Group and such other material as the Agent
shall request;
(ii) As soon as practicable and in any event within 60 days after
the close of each fiscal quarter of Holding and its Subsidiaries (within 90
days, with respect to the last fiscal quarter of each Fiscal Year), a
certificate of Holding's chief financial officer stating (x) that a review
of the activities of each member of the Consolidated Group during such
fiscal quarter has been made under his supervision with a view to
determining whether each such Person has observed, performed and fulfilled
all of its obligations under this Agreement and the other Loan Documents,
and (y) that, to the best of such officer's
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<PAGE>
knowledge, and after due and adequate investigation, there exists no Event
of Default or Default or, if any Event of Default or Default exists,
specifying the nature thereof, the period of existence thereof and what
action the Borrower (or if other than the Borrower, the affected Person)
proposes to take with respect thereto, and accompanied by a certificate, in
form and substance satisfactory to the Agent and the Required Banks,
setting forth the Loan Parties' calculations with respect to its compliance
with each of Sections 8.17-8.23;
(iii) As soon as practicable and in any event within 60 days
after the close of each fiscal quarter of each Fiscal Year of Holding and
its Subsidiaries (within 90 days, with respect to the last fiscal quarter
of each Fiscal Year), as at the end of and for the period commencing
(x) in the case of all material required to be delivered pursuant
to this clause (iii), at the end of the previous Fiscal Year, and
(y) in the case only of the material required to be delivered
pursuant to this clause (iii) beginning with the material first
required to be delivered with respect to the period ended June 30,
1993 and ending with the material required to be delivered with
respect to the period ended March 31, 1994, on July 1, 1993
and (in each case) ending with the end of such fiscal quarter, as the case
may be, an unaudited consolidated balance sheet of Holding and its
Subsidiaries and a consolidated statement of income and surplus account and
a statement of cash flow of Holding and its Subsidiaries, all in reasonable
detail and certified by the chief financial officer of Holding subject to
year-end audit and adjustments and setting forth in comparative form the
corresponding figures as of one year prior thereto or for the appropriate
periods of the preceding Fiscal Year, as the case may be;
(iv) As soon as practicable and in any event within 60 days
after the end of each fiscal half-year of FAI (within 90 days, with respect
to the second fiscal half-year of each Fiscal Year), an unaudited
consolidated statement of cash flow for FAI and its Subsidiaries for such
fiscal half-year, in reasonable detail (which report may be contained in
another of the reports being delivered pursuant to this Section 7.1 if such
other report is also delivered within the aforementioned 60 or 90-day
period, as the case may be);
(v) As soon as practicable and in any event within 60 days after
the close of each fiscal quarter of Holding
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<PAGE>
and its Subsidiaries (within 90 days, with respect to the last fiscal
quarter of each Fiscal Year),
(1) an historical report for such quarter (and all preceding
fiscal quarters, if any, of the same Fiscal Year) and financial
projections with respect to the remaining fiscal quarters of such
Fiscal Year, substantially in the form of Annex C to the Fourth
Amendment, together with
(2) a narrative description of the financial and operating
performance of the entities involved for such periods, with particular
emphasis on the variances between actual performance and budgeted
performance for such entities for such periods,
in each case satisfactory in form and substance to the Agent, commencing
with a report and accompanying narrative for the period ended June 30, 1993
to be delivered on or before August 29, 1993.
(b) As soon as practicable and in any event within the earlier of (x)
five days after Holding or the Borrower receives same or (y) 120 days after
the close of each Fiscal Year of Holding and its Subsidiaries, as at the
end of and for the Fiscal Year just closed, as the case may be, a
consolidated balance sheet of Holding and its Subsidiaries, and a
consolidated statement of income and surplus account and a statement of
cash flow of Holding and its Subsidiaries, for such Fiscal Year setting
forth the corresponding figures of the previous annual audit (to the extent
available) in comparative form, all in reasonable detail and certified by
the Auditors, and accompanied by:
(1) a certificate, in form and substance satisfactory to the
Agent and the Required Banks of said Auditors that, in conducting their
audit in connection with such Financial Statements, they obtained no
knowledge of the existence of any Event of Default or Default or, if in the
opinion of such Auditors, any Event of Default or Default exists,
specifying the nature thereof and the period of existence thereof;
(2) a certificate, in form and substance satisfactory to the
Agent and the Required Banks, setting forth the Auditors' calculations with
respect to the Loan Parties' compliance with each of Sections 8.17-8.23;
and
(3) commencing with Financial Statements related to the Fiscal
Year ending December 31, 1993, copies of the unaudited consolidated balance
sheets and unaudited consolidated statements of income, surplus account and
of
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cash flow of (x) Borrower and its Subsidiaries, (y) FAI and its
Subsidiaries, and (z) the Combined Group that were used by the Auditors in
preparing the audited consolidated balance sheet and audited consolidated
statements of income, surplus account and of cash flow of Holding and its
Subsidiaries referred to above, with a letter of said Auditors that those
were the balance sheets and statements so used;
(c) Promptly upon receipt thereof, copies of all detailed financial
reports and management letters, if any, submitted to Holding or any of its
Subsidiaries by their respective Auditors, in connection with each annual
or interim audit of their respective books by such Auditors;
(d) With reasonable promptness, such other information respecting the
business, properties, operations, prospects or condition (financial or
otherwise) of Holding or any of its Subsidiaries as the Agent or any Bank
may from time to time reasonably request;
(e) As soon as possible and in any event (A) within 30 days after
Holding or any of its ERISA Affiliates knows that any Termination Event
described in clause (i) of the definition of Termination Event with respect
to any Pension Plan has occurred and (B) within 10 days after Holding or
any of its ERISA Affiliates knows that any other Termination Event with
respect to any Pension Plan has occurred, a statement of the chief
financial officer of Holding or the Borrower describing such Termination
Event and the action, if any, which Holding or such ERISA Affiliate
proposes to take with respect thereto;
(f) Promptly and in any event within five Business Days after receipt
thereof by Holding or any of its ERISA Affiliates from the PBGC, copies of
each notice received by Holding or any such ERISA Affiliate of the PBGC's
intention to terminate any Pension Plan or to have a trustee appointed to
administer any Pension Plan;
(g) Promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each
Pension Plan;
(h) Promptly and in any event within five Business Days after receipt
thereof by Holding or any of its ERISA Affiliates from a Multiemployer Plan
sponsor, a copy of each notice received by Holding or any of its ERISA
Affiliates concerning (x) the imposition or amount of withdrawal liability
under Subtitle E of Title IV of ERISA or (y) any determination by a
Multiemployer Plan sponsor that such
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Multiemployer Plan is, or is expected to be, in "reorganization" (within
the meaning of Section 4241 of ERISA) or "insolvent" (within the meaning of
Section 4245 of ERISA), or has incurred or is expected to incur an
"accumulated funding deficiency" (within the meaning of Section 302 of
ERISA or Section 412 of the Code);
(i) No later than February 15th of each Fiscal Year, a year-by-year
budget (in form and detail satisfactory to the Agent) for the Consolidated
Group and its members, in each case commencing with the Fiscal Year in
which such January 31st occurs and ending with Fiscal Year 1998, setting
forth as to each such Fiscal Year, (x) the projected balance sheet as at
the end of such Fiscal Year, (y) the projected statement of earnings for
such Fiscal Year, and (z) the projected statement of cash flow for such
Fiscal Year.
7.2 Notice of Litigation. The Borrower will promptly give written
--------------------
notice to the Agent of (i) any action or proceeding, or to the extent any member
of the Consolidated Group may have any notice thereof, any claim which may
reasonably be expected to be commenced or asserted, against Holding or any of
its Subsidiaries in which the amount involved is (Pounds)250,000 (or its
equivalent in any currency) or more, and (ii) any dispute which may exist
between Holding or any of its Subsidiaries and any governmental regulatory body
(including any audit by the Internal Revenue Service or the Inland Revenue) or
any employees of Holding or any Subsidiary of Holding, which dispute may
substantially affect the normal business operations of Holding or any of such
Subsidiaries or any of their respective properties and assets.
7.3 Payment of Charges. Holding and the Borrower will duly pay and
------------------
discharge, and will cause each of their respective Subsidiaries to duly pay and
discharge (i) all taxes, assessments and governmental charges or levies imposed
upon or against it or its property or assets, or upon any property leased by it,
prior to the date on which penalties attach thereto, unless and to the extent
only that such taxes, assessments and governmental charges or levies are being
contested in good faith and by appropriate proceedings and such Loan Party or
Subsidiary has set aside on its books adequate reserves therefor, (ii) all
lawful claims, whether for labor, materials, supplies, services or anything
else, which might or could, if unpaid, become a lien or charge upon such
property or assets, unless and to the extent only that the validity thereof is
being contested in good faith and by appropriate proceedings, and (iii) all its
trade bills when due in accordance with their original terms, including any
applicable grace periods, unless and to the extent only that such trade bills
are being contested in good faith and by appropriate proceedings.
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7.4. Insurance. (a) Holding and the Borrower will keep, and will
---------
cause each of their respective Subsidiaries to keep, (i) all of its insurable
property insured at all times with financially sound and responsible insurance
carriers against loss or damage by fire and other risks, casualties and
contingencies as required by the Security Documents and in such manner and to
the extent that like properties are customarily so insured by other corporations
engaged in the same or similar business similarly situated, and (ii) adequate
insurance at all times with financially sound and responsible insurance carriers
against liability on account of damage to persons and properties and under all
applicable workmen's compensation laws, in such manner and to the extent that
like properties are customarily so insured by other corporations engaged in the
same or similar business similarly situated; and
(b) Holding and the Borrower will obtain, and will cause each of their
respective Subsidiaries to obtain, adequate insurance covering such other risks
as the Agent or the Required Banks may reasonably request within 30 days of such
request (to the extent such insurance is generally available in the industry and
not cost-prohibitive in industry terms); and keep, and cause each of their
respective Subsidiaries to keep, such insurance in effect to the extent
requested by the Agent or the Required Banks.
7.5 Maintenance of Records. Holding and the Borrower will keep, and
----------------------
will cause each of their respective Subsidiaries to keep, at all times books of
record and account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs, and Holding
and the Borrower will provide, and will cause each of their respective
Subsidiaries to provide, adequate protection against loss or damage to such
books of record and account.
7.6. Preservation of Corporate Existence. (a) Holding and the
-----------------------------------
Borrower will each maintain and preserve its corporate existence and right to
carry on its business and duly procure all necessary renewals and extensions
thereof, and maintain, preserve and renew all rights, powers, privileges and
franchises which in the opinion of the Board of Directors of such Loan Party
continue to be advantageous to it and cause each of their respective
Subsidiaries (other than Insignificant Subsidiaries) to do so. Holding and the
Borrower will each comply in all material respects with all applicable laws,
statutes and regulations of the US and the UK and of any relevant State or
municipality, and of any agency thereof (including, without limitation, all
Environmental Laws), in respect of the conduct of its business, and, in each
such case, cause each of their respective Subsidiaries so to do. Without
limiting the generality of the foregoing, Holding and the Borrower agree to (and
to cause each of their respective Subsidiaries, other than
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Insignificant Subsidiaries, to) qualify to do business as a foreign corporation
in each jurisdiction where the nature of its business and the operations
conducted by it therein require it to be so qualified. Neither Holding nor the
Borrower will take any action that will cause the dissolution of any of their
respective Subsidiaries, other than Insignificant Subsidiaries.
(b) Nothing in this Section 7.6 shall prohibit the liquidation or
dissolution, prior to the Designated Date, of Iberica or any Benelux Company if
and to the extent the board of directors or stockholder of such entity chooses
to effect such liquidation or dissolution so long as amounts received from any
such liquidation or dissolution are promptly applied as a prepayment of the
Loans pursuant to Section 2.4(b) hereof as fully if said amounts were Net
Proceeds from a sale of the assets of such Subsidiary permitted by Section
8.9(c) hereof.
7.7 Preservation of Assets. Holding and the Borrower will keep, and
----------------------
will cause each of their respective Subsidiaries so to keep, its property in
good repair, working order and condition and from time to time make all needful
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements thereto, so that the business carried on by it may be properly
and advantageously conducted at all times in accordance with prudent business
management.
7.8 Inspection of Books and Assets. Holding and the Borrower will
------------------------------
allow any representative, officer or accountant of any Bank or the Agent, upon
reasonable notice, to visit and inspect any of its property, to examine its
books of record and account and to discuss its affairs, finances and accounts
with its officers, and at such reasonable time and during usual business hours
and as often as any Bank or the Agent may request and, in each such case, cause
each of their respective Subsidiaries so to do.
7.9 Payment of Indebtedness. Holding and the Borrower will duly and
-----------------------
punctually pay, or cause to be paid, the principal of and the interest on all
Indebtedness for Borrowed Money heretofore or hereafter incurred or assumed by
Holding or the Borrower or their respective Subsidiaries, or in respect of which
any such Person shall otherwise be liable, when and as the same shall become due
and payable, unless such Indebtedness for Borrowed Money be renewed or extended,
and such Loan Party will not permit any act or omission to occur or exist which
is or may be declared to be a default under any indenture or other agreement
securing, relating to, or evidencing such Indebtedness for Borrowed Money or
pursuant to which such Indebtedness for Borrowed Money is incurred, provided
--------
that the failure of any Loan Party so to do shall not create an Event of Default
under Section 9.4 hereof to the extent such failure does not give rise to an
Event of Default under Section 9.5 hereof.
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<PAGE>
7.10 Further Assurances. Holding and the Borrower will (and will
------------------
cause each of their respective Subsidiaries to) make, execute or endorse, and
acknowledge and deliver or file, all such vouchers, invoices, notices, and
certifications and additional agreements, undertakings, conveyances, transfers,
assignments, or further assurances, and take any and all such other action, as
the Agent may, from time to time, reasonably deem necessary or proper in
connection with this Agreement, the obligations of such Loan Party hereunder or
under any of the other Loan Documents to which such Loan Party is a party, or
for the better assuring and confirming unto the Agent on behalf of the Banks all
or any part of the security for the Loans.
7.11 Notice of Default. Forthwith upon (and, in any event, within
-----------------
five Business Days of) any officer of Holding, FAI, KOSI, Borrower, Furmanite,
KSI or any Significant Subsidiary obtaining knowledge of the existence of an
Event of Default, the Borrower will deliver to the Agent a certificate signed by
an officer of the Borrower specifying the nature thereof, the period of
existence thereof, and what action the affected Loan Party proposes to take with
respect thereto.
7.12 Reserves. Holding and the Borrower will set up, and will cause
--------
each of their respective Subsidiaries to set up, on its books from its earnings,
reserves for bad debt in accordance with GAAP and in an aggregate amount deemed
adequate in the judgment of Holding and the Borrower.
7.13 Arms-length Transactions. Holding and the Borrower will
------------------------
conduct, and cause each of their respective Subsidiaries to conduct, all
transactions with any of their respective Affiliates on an arms-length basis.
7.14 Solvency. Holding and the Borrower will continue to be Solvent
--------
and ensure that each of their respective Significant Subsidiaries will continue
to be Solvent.
7.15 Cooperation. At the Agent's request and upon reasonable notice,
-----------
Holder and the Borrower will meet from time to time with (and provide financial
information to) other financial institutions to which any of the Banks may wish
to grant participations in the Loans and with other potential Bank Assignees.
7.16 Environmental Matters. (a) Borrower will promptly notify the
---------------------
Agent (with a description in reasonable detail) of:
(i) the receipt of any Environmental Claim;
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(ii) the discovery of any Contaminant or Release on, in, under or
emanating from any Properties or operations of any member of the
Consolidated Group;
(iii) (x) the violation of, or any condition which might result in
a violation of, any Environmental Law or (y) any change in any
Environmental Law or in the administration or interpretation thereof,
which in either case might subject any member of the Consolidated
Group to Environmental Costs;
(iv) the commencement of any judicial or administrative proceeding
or investigation alleging a violation of any Environmental Law; or
(v) any material change in the representations and warranties in
Section 10.12 or any material change with respect to any material
matter addressed in the Audits;
and Holding and the Borrower will, and will cause each of their respective
Subsidiaries to, commence within 90 days after any such request, and diligently
prosecute to completion, such Remedial Action as the Agent or the Required Banks
may request in respect of any of the matters addressed in such notice.
(b) Holding and the Borrower will, and will cause each of their
respective Subsidiaries to, adopt and maintain prudent practices with respect to
compliance with Environmental Laws, including prudent air and water pollution
control and solid and hazardous waste management practices and including at a
minimum such practices as (a) may be required or dictated by current and future
Environmental Laws, and (b) are necessary to maintain the value of the Agent's
and the Banks' Liens in the Collateral free from all actual or threatened
Environmental Claims.
(c) Borrower will promptly notify the Agent and KSI whenever the
aggregate amount of
(A) all Environmental Costs incurred on or after the Closing Date
by any member of the Consolidated Group, plus
----
(B) all Environmental Costs required or due to be paid by such
member of the Consolidated Group within the 18 months following the
date when such calculation is being made,
when combined with
(C) all Environmental Costs incurred by all other members of the
Consolidated Group prior to such date but subsequent to the Closing
Date, and
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<PAGE>
(D) all Environmental Costs required or due to be paid within such 18-
month period by the other members of the Consolidated Group,
would exceed the sum of
(x) $2,000,000 plus
----
(y) all capital contributions and Subordinated Loans previously
made by KSI to members of the Consolidated Group pursuant to Section
2.1 of the Deficiency Undertaking.
7.17 Notification of Account Debtors. Upon request of the Agent
-------------------------------
after and during the continuance of an Event of Default, each Loan Party will
promptly notify (in manner, form and substance satisfactory to the Agent) all
Persons who are at any time obligated under Receivables payable to such Loan
Party or any Subsidiary that the Banks possess a security interest in such
Receivables and that all payments in respect thereof are to be made to such
account as the Agent directs.
7.18 Security Documents. (a) Except as provided in Section 7.18(c)
------------------
hereof, no later than January 5, 1992 Borrower shall deliver or cause to be
delivered the following to the Agent (with sufficient copies for each Bank),
each of such documents, agreements and opinions to be in form and substance
satisfactory to the Agent and its US and UK counsel. The Agent and the Banks
hereby acknowledge that, for purposes of the preceding sentence, the conditions
in such previous sentence were satisfied as of January 5, 1992 (or waived, on
satisfactory terms and conditions) with respect to those Loan Parties required
to execute and deliver the documents referenced in this Section 7.18(a) as at
such date.
(i) (A) A guaranty and a charge (as the same may from time to time be
amended, supplemented or otherwise modified, a "UK Guaranty" and a "UK
----------- --
Debenture", respectively) executed by Furmanite and each other UK Guarantor and
---------
substantially in the forms of Exhibits C-2 and B-3 to the Original Agreement,
guaranteeing all of Borrower's obligations under this Agreement and securing
such guarantee with a charge (fixed and floating) on all of such Guarantor's
present real property and present and future personal property (including,
without limitation, leases, stock and other equity interests in its
Subsidiaries, and intellectual property).
(B) a Mortgage of Securities substantially in the form of Exhibit D-3
to the Original Agreement (as the same may from time to time be amended,
supplemented or otherwise modified, a "UK Pledge Agreement") executed by
-------------------
Furmanite and each other UK Guarantor. If said Exhibits B-3 and D-3 are not
annexed to the
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Original Agreement, the UK Pledge Agreement and the UK Debentures to be entered
into by the UK Guarantors will be satisfactory to the Agent in form and
substance and will be substantially in the same form as the mortgage of
securities and fixed and floating charge entered into by the Borrower on the
Closing Date, with such changes as are necessary to reflect the fact that such
Guarantors are not the Borrower under the Loan Agreement and, in the case of the
mortgage of securities, with the schedule amended as necessary to reflect the
Original Securities (as defined therein).
(ii) A Companies Form G395 completed in respect of each UK Debenture
shall have been duly executed by each UK Guarantor, delivered to Freshfields for
filing and filed.
(iii) To the extent not delivered on or prior to the Closing Date, the
duly authenticated and executed existing share certificates in respect of the
entire share capital of each Person that is or was a Subsidiary of Furmanite on
the Closing Date or January 5, 1992, together with share transfer forms duly
executed in blank by Furmanite or the Loan Party that is the record holder
thereof.
(iv) Evidence of the absence of any perfected Liens in the UK
Guarantors' property prior to the Banks' Liens (except those consented to by the
Agent and except for Permitted Liens and the other Liens referred to in Section
8.2(g)) and all other actions with respect to the Liens created by each UK
Debenture and UK IPM as necessary or appropriate in the Agent's opinion and that
of its UK or US counsel to perfect such Liens.
(v) All filings and governmental approvals with respect to the
Borrower's acquisition of all the issued and outstanding equity interests in
Furmanite not owned on the Closing Date shall have been completed.
(vi) Certificates of authorized officers of each UK Guarantor,
certifying the corporate resolutions of each such entity relating to the
entering into and performance of the documents and agreements referred to in
this Section 7.18 to which such entity is a party and the transactions
contemplated thereby, and also certifying that there have been no changes in
their Charter Documents since the Closing Date other than (x) those required by
Section 6.19 hereof to the extent not effectuated by the Closing Date and (y)
such non-material amendments as are specified in such certificate;
(vii) Certificates of authorized officers of each UK Guarantor, with
respect to the incumbency and specimen signatures of their respective officers
or representatives authorized to execute such documents and to take any other
action in connection therewith;
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<PAGE>
(viii) A legal opinion of Freshfields or of UK Counsel to Holding and
the Borrower covering the matters set forth in Exhibit J-4 to the Original
Agreement and such other matters as the Agent or any Bank may reasonably
request;
(ix) to the extent not delivered on the Closing Date because such UK
Subsidiary was prohibited by law from doing so, the certificates of insurance
(or comparable documents) referred to in Section 6.10(d) and otherwise required
to have been delivered by such UK Subsidiary on the Closing Date;
(x) an intellectual property mortgage substantially in the form of an
IPM, naming FIL as the mortgagor and the Agent as the mortgagee (the "UK IPM");
------
and
(xi) evidence satisfactory to the Agent of the discharge of all Liens
in favor of Sovran or Natwest relating to any property of any member of the
Consolidated Group that were not discharged on the Closing Date.
(b) All security given by the UK Guarantors shall be given in
compliance with the requirements of sections 151-158 (inclusive) of the
Companies Act 1985, and the Agent and its counsel shall have been satisfied that
all such requirements with respect to such security have been met. Without
limiting the generality of the foregoing, the directors of Furmanite and each
other UK Subsidiary shall have (x) issued statutory declarations, (y) procured
auditors reports to be attached thereto, in each case for the purposes of
complying with the aforesaid sections of the Companies Act 1985, such
declarations and reports to be in form and substance satisfactory to the Agent
and its UK counsel, and (z) declared and paid (in cash or specie) such dividends
as and to the extent necessary to enable such Persons to give such security. In
addition, the UK Guarantors shall (to the extent required to comply with the
aforesaid Act) have (x) re-registered as private companies, and (y) procured all
consents, approvals and resolutions necessary for it to effectuate the acts
required to be performed by them pursuant to this Section 7.18.
(c) No Dormant Subsidiary (for as long as it remains an Insignificant
Subsidiary) shall be required to execute a UK Guaranty, UK Debenture or UK
Pledge Agreement pursuant to the foregoing provisions of this Section 7.18 or to
comply with clause (a)(ii) or (a)(ix) of Section 7.18 or Section 7.18(b).
7.19. FAI Dividends; KOSI Dividends. (a) Holding shall cause FAI to
-----------------------------
pay dividends to Holding, semiannually within 20 days after the end of each
fiscal half-year of FAI, in an aggregate amount so that the aggregate amount of
cash and cash equivalents retained by FAI after payment of such dividend does
not exceed $500,000; provided, that nothing contained herein
--------
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<PAGE>
shall require FAI to pay dividends to Holding if and to the extent that FAI is
prohibited by statute from doing so.
(b) Holding shall cause KOSI to pay dividends to Holding,
semiannually within 20 days after the end of each fiscal half-year of KOSI, in
an aggregate amount so that the aggregate amount of cash and cash equivalents
retained by KOSI after payment of such dividend does not exceed $100,000;
provided, that nothing contained herein shall require KOSI to pay dividends to
--------
Holding if and to the extent that KOSI is prohibited by statute from doing so.
7.20 Subsidiary Guarantees. (a) Whenever a Subsidiary of Holding
---------------------
that is not a Significant Subsidiary or a Guarantor on the Closing Date becomes
a Significant Subsidiary, Holding and the Borrower shall (within 45 days after
Borrower or Holding first has knowledge that such Subsidiary has become a
Significant Subsidiary but in any event, no later than 75 days after the end of
the fiscal quarter in which such Subsidiary became a Significant Subsidiary)
cause such Subsidiary to execute and deliver to the Agent a Guarantee Agreement
and a security agreement or charge satisfactory in form and substance to the
Agent and to otherwise comply (within said 45-day period) with the provisions of
Section 7.18 as fully as if such provisions were set forth at length in this
paragraph (without regard to any reference in Section 7.18(a) thereof as to such
provisions (x) being required to be satisfied no later than January 5, 1992, or
(y) having been satisfied as of such date).
(b) Whenever (x) the aggregate amount of assets of all Subsidiaries of
the Borrower and of KOSI that are not Significant Subsidiaries or Guarantors is
equal to or greater than 15% of the assets of the Combined Group or (y) the
aggregate gross revenues for the most recent fiscal quarter for all Subsidiaries
of the Borrower and of KOSI that are not Significant Subsidiaries or Guarantors
constitutes 15% or more of the consolidated gross revenues of the Combined Group
for such fiscal quarter, Holding and the Borrower shall (within 45 days after
Borrower or Holding first has knowledge that they are required to cause
Subsidiaries to become Guarantors under this paragraph but in any event no later
than 75 days after the end of the fiscal quarter in which the standards of
either clause (x) or clause (y) of this paragraph (b) require same) cause
Subsidiaries that are not yet Guarantors to become Guarantors in the manner set
forth in Section 7.20(a) so that the standards set forth in clauses (x) and (y)
of this paragraph (b) are not breached.
7.21 Acquisition (UK). (a) [intentionally deleted]
----------------
(b) The Borrower shall obtain the consent of the Agent to any press
release or other publicity which makes reference to the Loans or to some or all
of the Agent or the Banks unless the
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publicity is required by law, in which case the Borrower shall notify the Agent
and the Banks thereof as soon as practicable upon becoming aware of the
requirement.
7.22 [intentionally deleted]
7.23 [intentionally deleted]
7.24. [intentionally deleted]
7.25 Tax Allocation Agreement. Promptly after any Person, not a
------------------------
party to the Tax Allocation Agreement on the Closing Date, becomes entitled to
file a consolidated United States federal income tax return with Holding or FAI,
the Borrower will cause such Person to execute the Tax Allocation Agreement.
7.26 [intentionally deleted]
7.27 [intentionally deleted]
7.28 Pledged Shares. Borrower shall (if, as and when it obtains any
--------------
Undelivered FEAL Certificate) deliver same to the Agent. As used herein,
"Undelivered FEAL Certificate" shall mean any certificate representing shares or
-----------------------------
other equity interests in FEAL (to the extent that the ownership interest of any
Loan Party in FEAL is represented by certificates) that has not been previously
delivered to the Agent (on behalf of the Banks) pursuant to a Pledge Agreement.
Borrower shall also cause to be noted on the stock records of FEAL an indication
that all shares issued by FEAL have been pledged to the Banks.
7.29 Satisfactory Subordination Agreements. No later than August 31,
-------------------------------------
1992:
(i) KSI shall enter into the KSI August 1992 Subordination Agreement
with respect to
(x) all management and similar fees accrued or otherwise payable,
as at August 17, 1992 or any time thereafter, to KSI by Holding, the
Borrower or any Subsidiary of either, together with any interest that
may be payable thereon;
(y) $7,011,758 (as at August 31, 1992) of indebtedness
outstanding from KSI to the Borrower under the Temporary Notes,
together with any interest that may be payable thereon; and
(z) the other obligations of the Borrower to KSI listed on
Schedule I to said subordination agreement.
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(ii) KSI shall enter into the KSI August 17 Subordination Agreement
with respect to (x) loans made by KSI to the Borrower in August 1992 and
evidenced by a $2,500,000 promissory note dated August 17, 1992 and (y) the
other obligations listed on Schedule I to said subordination agreement.
(iii) Satisfactory Subordination Agreements, in the form of Annex B-2
to the Fourth Amendment or otherwise, shall be entered into with respect to the
Intersubsidiary Loans (unless, with the Agent's consent, any notes evidencing
such loans shall have been endorsed in blank, pledged to the Banks and delivered
to the Agent).
7.30 FIL/GmbH Pledge. To the extent not executed and delivered on
---------------
the Amendment Effective Date but subsequently requested by the KSI Lender,
Holding and the Borrower shall cause FIL and KOSI to promptly execute and
deliver the guaranties and pledge agreements referred to in Section 12.14.6
hereof to the KSI Lender.
Section 8. NEGATIVE COVENANTS.
------------------
Holding and the Borrower severally covenant and agree that so long as
this Agreement is in effect and while any Letter of Credit is outstanding and
until the Commitments are terminated and all of the Loans, together with
interest, Commitment commission and all other obligations incurred hereunder
(including Deemed Disbursements and Reimbursement Obligations and fees and
disbursements in connection therewith), are paid in full, such Loan Parties will
perform, and will cause each of their respective Subsidiaries to perform, the
obligations set forth in this Section 8 (unless it shall first have procured the
written consent of the Agent or the Required Banks to do otherwise).
8.1 Engage in Same Type of Business. (a) Neither Holding (except as
-------------------------------
set forth in clause (b) below) nor the Borrower will enter into, or permit any
of their respective Subsidiaries to enter into, any business which is
substantially different from the business in which FAI, Furmanite or such
Subsidiary is presently engaged.
(b) Holding will not enter into any business or activity other than
its ownership of the capital stock of the Borrower, FAI, KOSI and, to the extent
Holding's board of directors directs, its participation in the management and
business of the Borrower, FAI and KOSI.
(c) KOSI will not enter into any business or activity other than its
ownership of the capital stock of Foreign Subsidiaries.
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8.2 Liens. Neither Holding nor the Borrower will contract, create,
-----
incur or assume (or, as to Liens arising after the Closing Date which are not
created or assumed by Holding or one of its Subsidiaries, suffer to exist for
more than 30 days) any Lien upon or with respect to, or by transfer or otherwise
subject to the prior payment of any indebtedness (other than the Loans), any of
its property or assets, whether now owned or hereafter acquired, or permit any
of their respective Subsidiaries so to do; except (i) liens for taxes,
assessments, levies or governmental charges not yet due or which are being
contested in good faith by appropriate proceedings diligently conducted and with
respect to which adequate reserves are being maintained in accordance with GAAP,
and (ii) other liens, charges, and encumbrances incidental to the conduct of its
business or the ownership of its property and assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or credit
and which do not materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its business; and (iii)
the following:
(a) Liens in connection with workmen's compensation, unemployment
insurance or other social security obligations;
(b) Deposits or pledges securing the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of
like nature made in the ordinary course of business;
(c) Mechanics', carriers', warehousemen's, workmen's, materialmen's,
or other like Liens arising in the ordinary course of business with respect
to obligations which are not due or which are being contested in good
faith;
(d) Liens securing Borrower's Obligations to the Agent and the Banks
in respect of the Loans, Letters of Credit, Deemed Disbursements and
Reimbursement Obligations;
(e) Encumbrances consisting of zoning regulations, easements, rights
of way, survey exceptions and other similar restrictions on the use of real
property or minor irregularities in titles thereto which do not materially
impair use of such property by Holding or its Subsidiaries in the operation
of the business of Holding or the Subsidiary owning the same;
(f) Liens to the Agent and the Banks securing guarantees by the
Guarantors of the Obligations of the Borrower under this Agreement;
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(g) Liens existing on the Closing Date and indicated on Schedule
8.2(g) to the Original Agreement, and Liens existing on the Closing Date
but not listed on said Schedule 8.2(g) because they are Liens solely on,
and solely securing the purchase price or lease obligations for, fax
machines, typewriters, photocopiers and similar office equipment none of
which obligations is more than $25,000 with respect to any one such machine
or piece of equipment and the aggregate of all such obligations is not more
than $400,000;
(h) Liens placed upon property of a Loan Party at the time of
acquisition thereof by such Loan Party to secure up to 75% of the purchase
price thereof; provided that such Lien shall not encumber any other
--------
property of any Loan Party and provided further that the aggregate amount
-------- -------
of indebtedness secured thereby pursuant to this clause (h) shall not
exceed (Pounds)250,000 (or the Dollar Equivalent thereof) at one time
outstanding; and
(i) Liens placed upon motor vehicles of a Loan Party at the time of
acquisition thereof by such Loan Party to secure the purchase price
thereof; provided that such Lien shall not encumber any other property of
--------
any Loan Party.
8.3 Other Indebtedness. Neither Holding nor the Borrower will
------------------
contract, create, incur or assume (or, as to Indebtedness for Borrowed Money
arising after the Closing Date which is not contracted, created, incurred or
assumed by Holding or one of its Subsidiaries, suffer to exist for more than 30
days) any Indebtedness for Borrowed Money or permit any of their respective
Subsidiaries so to do; except
(i) indebtedness of the Borrower represented by the Loans and the
obligations of the Borrower in respect of the LC Outstandings;
(ii) the Guarantee Agreements;
(iii) unsecured indebtedness of the Borrower or its Subsidiaries or
any KOSI Subsidiary to Carlisle in respect of the Carlisle Facility, not in
excess of (Pounds)1,500,000 aggregate principal amount at any one time
outstanding;
(iv) unsecured indebtedness of Holding to KSI, in the aggregate
principal amount evidenced by the $7,011,758 Temporary Note (on which
amount no cash interest shall be paid while any Obligations are outstanding
or any Commitment is in effect), and the unsecured indebtedness of the
Borrower to Holding in equal amount (on which amount no cash interest shall
be payable) evidenced by a promissory note of the same date as the
Temporary Note;
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(v) indebtedness of the Borrower evidenced by the 1991 Notes, and
after their issuance, the 1993 Notes;
(vi) indebtedness permitted by the provisos to Section 8.5 hereof;
(vii) trade payables incurred in the ordinary course of business,
provided that same are not more than 60 days past due (unless (a) they are
being contested in good faith, (b) appropriate reserves are provided
therefor to the extent required by GAAP, and (c) the failure to make such
payment does not give rise to any Lien in excess of $100,000 or its
equivalent in other currencies);
(viii) unsecured loans made to the Borrower, Furmanite, FAI, KOSI, a
KOSI Subsidiary or Holding by KSI or by any Affiliate of KSI that is not a
Credit Party, provided that such loans are on terms and conditions
-------- ----------
comparable to loans between unrelated parties and are subordinated (in
------------------------------------- ----------------
manner, form and scope satisfactory to the Agent) to the Obligations and to
any guarantee of the Obligations by Furmanite, FAI, KOSI, such KOSI
Subsidiary or Holding, as the case may be; and provided further, that loans
----------------
in an aggregate principal amount not in excess of $2,000,000 in the
aggregate at any one time outstanding may be made to the Borrower or
Furmanite by KSI and Affiliates of KSI that are not Credit Parties on a
non-subordinated, unsecured basis if by the terms thereof they may not be
---------------- ---------
repaid unless, at the time of their scheduled repayment (and after giving
effect thereto), no Default or Event of Default (x) exists or (y) existed
at any time during either of the two complete fiscal quarters of the
Borrower prior to date of such repayment or during any "stub" period
between the end of the last such fiscal quarter and the date of such
repayment;
(ix) non-recourse indebtedness incurred in accordance with, and
secured solely by the Liens permitted by, clauses (h) and (i) of Section
8.2(iii);
(x) unsecured subordinated loans provided by KSI pursuant to and in
accordance with the Deficiency Undertaking;
(xi) unsecured indebtedness in addition to that permitted by the other
clauses of this Section 8.5, but only if (A) the Dollar Equivalent of the
aggregate amount of such loans at any one time outstanding does not exceed
$2,500,000 and (B) no such loan is borrowed from the CMA Bank or from any
financial institution at which a sub-account has been established by the
CMA Bank with respect to the CMA Account;
(xii) the FAI Intercompany Notes;
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(xiii) the right to contribution between and among FAI and the various
subsidiaries of Furmanite in the event any of them is required to make
payment to the Agent or the Banks under their respective Guarantee
Agreements;
(xiv) [intentionally deleted];
(xv) until August 31, 1993 only, the Intersubsidiary Loans (and any
renewals thereof) but only so long as they are subject to Satisfactory
Subordination Agreements;
(xvi) [intentionally deleted];
(xvii) if required by the KSI Lender, guarantees by FIL and KOSI of
the KSI Loan but only (x) for so long as the KSI Loan is outstanding, and
(y) if recourse on said guarantee is limited solely to the shares of GmbH
capital stock that may be security therefor and such guarantee is otherwise
non-recourse to such guarantor;
(xviii) unsecured indebtedness of KOSI to FIL incurred on or about the
Amendment Effective Date in connection with KOSI's purchase of the Foreign
Subsidiaries on the Amendment Effective Date, provided that the aggregate
-------------
principal amount of such indebtedness outstanding after the Amendment
Effective Date shall not exceed approximately $700,000 (or an equivalent
amount in other currencies), and provided further that (if requested by the
----------------
Agent) such indebtedness is subordinated (in manner, form and scope
satisfactory to the Agent) to KOSI's guarantee of the Obligations; and
(xix) unsecured indebtedness of KOSI to KSI incurred on or about the
Amendment Effective Date, provided that (x) the aggregate principal amount
-------------
of such indebtedness does not exceed approximately $2,300,000 (or an
equivalent amount in other currencies) at any time, (y) such indebtedness
is subordinated (in manner, form and scope satisfactory to the Agent) to
KOSI's guarantee of the Obligations, and (z) such indebtedness may not be
repaid prior to July 1, 1995 (or thereafter if, before or after giving
effect to such repayment, a Default or Event of Default exists).
8.4 Advances from Customers. Neither Holding nor the Borrower will
-----------------------
contract for or accept, or permit any of their respective Subsidiaries so to do,
advances or deposits from customers other than in the ordinary course of
business; provided that the aggregate amount of advances or deposits by members
-------- ----
of the Consolidated Group from any one customer (including Persons directly or
indirectly controlling, controlled by, or under common control with such
customer) shall not exceed (Pounds)500,000 (or an equivalent amount in other
currencies, computed at the Spot Rate) in the aggregate at any one time.
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8.5 Advances and Loans. Neither Holding nor the Borrower will lend
------------------
money or credit, or make advances to any Person or permit any of their
respective Subsidiaries so to do, except the sale of services and products of
the Consolidated Group on credit in the ordinary course of business on terms not
more favorable than those used by other Persons similarly situated and engaged
in the same or similar business; provided however the Borrower may make loans to
-------- -------
Furmanite and other UK Guarantors and Foreign Guarantors incorporated in the
Netherlands (and, to the limited extent set forth, also to Foreign Guarantors
incorporated elsewhere and to Insignificant Subsidiaries that are not Foreign
Guarantors) if:
(a) such loan is subordinated (in manner, form and scope satisfactory
to the Agent) to the Obligations and such Subsidiary's guarantee thereof,
unless the Note evidencing such loans is endorsed in blank, pledged to the
Banks and delivered to and held by the Agent;
(b) such loan is made and accepted solely for ordinary business needs
of such Guarantors;
(c) the aggregate principal amount of all such loans outstanding at
any one time is not more (when combined with the net amount of any advances
to such Loan Party from the CMA Account) than $9,000,000 (or an equivalent
amount in other currencies, computed at the Spot Rate);
(d) such loans are made and accepted at normal commercial rates of
interest for such credits;
(e) such loans are evidenced by Intercompany Notes pledged to the
Agent on behalf of the Banks (and, if the borrower is incorporated in
Germany, secured by first priority Liens on the property of such borrower)
or the lender's right to receive repayment of such amount is otherwise the
subject of a perfected, first priority Lien in favor of the Agent (on
behalf of the Banks) pursuant to a Security Document and applicable local
law; and
(f) (to the extent that such loans are made to Foreign Guarantors not
incorporated in Germany or the Netherlands or to Insignificant Subsidiaries
that are not Guarantors) the aggregate principal amount of all such loans
outstanding at any one time (when combined with the net amount of any
advances to such Loan Party from the CMA Account) is not more than $250,000
(or its equivalent, computed at the Spot Rate, in another currency); the
foregoing amount is included in, and not additional to, that specified in
clause (c) above;
and provided further the Borrower may make loans to FAI if:
----------------
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<PAGE>
(a) such loan is subordinated (in manner, form and scope satisfactory to
the Agent) to the Obligations and FAI's guarantee thereof, unless the Note
evidencing such loans is endorsed in blank, pledged to the Banks and
delivered to and held by the Agent;
(b) such loan is made and accepted solely for ordinary business needs
of FAI;
(c) the aggregate principal amount of all such loans outstanding at
any one time is not more than:
(i) [intentionally deleted]; and
(ii) such amount as is agreed upon in writing by the Agent, the
Required Banks and the Borrower from time to time (and only for such
period(s) as are agreed upon by the Borrower and the Agent in writing)
but, in any case, not less than $5,000,000;
(d) such loans are made and accepted at normal commercial rates of
interest for such credits;
(e) such loans are evidenced by the FAI Intercompany Note or by notes
executed after the Closing Date that are substantially similar thereto,
which notes shall have been pledged to the Agent on behalf of the Banks
pursuant to documentation satisfactory to the Agent;
(f) such loans are secured by the Intercompany Security Documents
executed on the Closing Date (or by security agreements, pledge agreements,
mortgages and other security documents substantially in the form of such
Intercompany Security Documents) covering all real and personal property of
FAI;
(g) all of the Liens granted or purported to be granted by the
documentation referred to in the preceding clause (f) shall be fully
perfected and (i) constitute valid and enforceable Liens under the UCC (as
to personalty) and the applicable Recording Act (as to realty), (ii) be
entitled to all of the rights, benefits and priorities provided by the UCC
and the Recording Act, as applicable, and (iii) be superior and prior to
the rights of all third Persons then existing or thereafter arising under
the laws of the US, the UK and any subdivision of either (based on the laws
then in effect, and any laws already passed but not yet in effect) except
for Permitted Liens and the other Liens referred to in Section 8.2(g),
Liens to the Agent and the Banks in connection with the Loan Documents and
such other Liens as the Agent or the Required Banks consent to;
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and provided further, nothing in this Section 8.5 or in Sections 8.3 or 8.11
----------------
shall prohibit the Consolidated Group (or Holding on its behalf) from (x)
establishing a cash management account (the "CMA Account") at a financial
-----------
institution (the "CMA Bank") in the United States or the UK into which amounts
--------
from the various operating accounts of the Loan Parties at their respective
banks are "swept" on a daily or other periodic basis, and (y) making unsecured
advances from time to time from the CMA Account to the various Loan Parties, if:
(a) the CMA Account is pledged to the Agent (on behalf of the Banks)
in manner, form and substance (and with a priority therein) satisfactory to
the Agent;
(b) at any time when an Event of Default exists and the Agent has so
notified the CMA Bank, no amount may be transferred from the CMA Account
without the Agent's prior written consent or in excess of amounts specified
by the Agent to the CMA Bank;
(c) such advances are made and accepted solely for ordinary business
needs of such Loan Parties;
(d) the aggregate principal amount of advances thereunder to KOSI,
Subsidiaries of KOSI and Subsidiaries of the Borrower (when combined with
the outstanding principal amount of all loans to such Persons permitted by
the first proviso of this Section 8.5) does not exceed the amount specified
in clause (c) of this Section 8.5;
(e) to the extent the advances are to Loan Parties referred to in
clause (f) of such proviso, the aggregate principal amount of advances to
such Loan Parties (when combined with the outstanding principal amount of
all loans to such Persons permitted by such clause (f)) does not exceed the
amount specified in such clause;
(f) the Agent has not notified the Borrower or Holding that the CMA
Bank is not satisfactory to the Agent or the Banks as the CMA Bank; and
(g) the Agent receives monthly reports (satisfactory in form and
substance to the Agent) from the CMA Bank as to balances in the CMA Account
and the transactions occurring in such account since the period covered by
the previous such report.
Nothing in this last proviso shall prohibit the CMA Bank from establishing sub-
accounts in different currencies and different countries (and at other financial
institutions satisfactory to the CMA Bank and the Agent), provided that the
-------------
Banks shall have a
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<PAGE>
perfected security interest in such sub-accounts in manner and form (and with
priorities) satisfactory to the Banks.
A duly executed subordination agreement substantially in the form of Exhibit B-2
to the Fourth Amendment, and otherwise satisfactory to the Agent, shall (unless
the Agent notifies the Borrower otherwise) be the type of subordination
agreement required for purposes of clause (a) of the first proviso of this
Section 8.5.
8.6 Acquisition Notes. The Borrower will not amend the terms of any
-----------------
of the 1991 Notes or the 1993 Notes or (after the Closing Date) any Temporary
Notes held by KSI or FAI or any documents or agreements related to the
foregoing, or make (or permit any Subsidiary or Guarantor to make) any payment
on account of the principal of or interest on or retire (by acquisition,
purchase, payment, prepayment, redemption or otherwise) all or any part of such
notes except in accordance with their respective terms and except for payments
of principal on the Temporary Notes referred to in Section 8.3(iv). The
Borrower will not issue any of the 1993 Notes unless the terms thereof are as
described in the Offer (UK) or as otherwise consented to by the Agent.
8.7 Purchase or Sale Agreements. Neither Holding nor the Borrower
---------------------------
will enter into or be a party to, or permit any of their respective Subsidiaries
to enter into or be a party to (i) any contract for the purchase or use of
materials, supplies or other property or for the performance of services if such
contract requires that payment for such materials, supplies or other property,
or the use thereof, or for such services, shall be made by such member of the
Consolidated Group regardless of whether or not delivery is capable of being
made of such material, supplies or other property, or such services are
performed, or (ii) any contract for the sale or use of materials, supplies or
other property if such contract provides that payment to such member of the
Consolidated Group for such materials, supplies or other property or the use
thereof, shall be subordinated to or otherwise subjected to the prior payment of
any indebtedness (or any instrument evidencing such indebtedness) owed or to be
owed to any Person.
8.8 Consolidation and Merger. (a) Neither Holding nor the Borrower
------------------------
will wind up, liquidate or dissolve its affairs or enter into any transaction of
merger or consolidation or permit any of their respective Subsidiaries so to do
(or agree to do any of the foregoing at any future time) except that (i) any
wholly-owned Subsidiary of the Borrower may merge into the Borrower if the
Borrower shall at all times be the continuing corporation, (ii) any wholly-owned
Subsidiary of Furmanite may merge into Furmanite if Furmanite shall at all times
be the continuing corporation, (iii) any Subsidiary of a Loan Party that
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is not a Significant Subsidiary may merge into any other Subsidiary that is not
a Significant Subsidiary, (iv) any Insignificant Subsidiary may merge into a
Significant Subsidiary if (x) the Significant Subsidiary is the continuing
corporation and (y) the merging Insignificant Subsidiary has no liabilities
(contingent or otherwise) in excess of $100,000 (in the aggregate) at the end of
its most recent fiscal quarter, (v) any wholly-owned Subsidiary of KOSI may
merge into another wholly-owned Subsidiary of KOSI if the resulting entity (in
situations where the merging entity is not Iberica or a Benelux Company) is not
Iberica or a Benelux Company; provided that (in the case of clauses (iii) and
--------
(iv)) no Subsidiary that is incorporated under the laws of the UK or US may
merge into any Subsidiary that is not incorporated under the laws of the UK or
the US, and provided further that (in the case of clauses (iii) and (v)) if the
----------------
resulting Subsidiary is a Significant Subsidiary, it shall timely comply with
the provisions of Section 7.20.
(b) Nothing in this Section 8.8 shall prohibit the winding up,
liquidation or dissolution, prior to the Designated Date, of Iberica or any
Benelux Company if and to the extent the board of directors or stockholder of
such entity chooses to effect such winding up, liquidation or dissolution so
long as amounts received from any such winding up, liquidation or dissolution
are promptly applied as a prepayment of the Loans pursuant to Section 2.4(b)
hereof as fully if said amounts were Net Proceeds from a sale of the assets of
such Subsidiary permitted by Section 8.9(c) hereof.
8.9 Sale of Assets. (a) Neither Holding nor the Borrower will
--------------
convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing
at any future time), or permit any of their respective Subsidiaries so to do,
(i) all or a substantial part of its property or assets or any part of such
property or assets essential to the conduct of its business substantially as now
conducted, or (ii) any of its assets, except in the ordinary course of business,
(iii) the sale of obsolete equipment and obsolete inventory, and (iv) other
equipment that is no longer necessary for the ordinary business of the
Consolidated Group; provided however that Holding and its Subsidiaries may
----------------
convey, sell, lease or otherwise dispose of (any of the foregoing, for purposes
of this Section, a "Transfer") any of its assets if
--------
(i) the Agent or the Required Banks shall have consented thereto
in writing, such consent not to be unreasonably withheld,
(ii) such assets are Transferred for a price, in cash, at least
equal to their fair market value (as determined in good faith by the
board of directors of
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Holding or Borrower (as the case may be) and (if any) of the selling
Subsidiary), and
(iii) an amount equal to the Net Proceeds from such transaction
are promptly paid to the Banks by Borrower as a prepayment of the
Loans pursuant to Section 2.4(b) hereof; and
provided further neither the consent of the Agent or the Required Banks nor the
----------------
repayment of the Loans pursuant to this Section 8.9(a) shall be required
pursuant to the foregoing proviso for the Transfer of any asset if (i) such
asset (x) is obsolete and is no longer necessary for the ordinary business of
the Consolidated Group and the consideration received from such Transfer
(whether to the same Person or affiliated group of Persons, or in any one or
more of a series of related transactions) is not greater than $100,000, or (y)
is being (and has been) replaced within 90 days of such Transfer by equipment of
at least comparable value and utility and on which the Agent (on behalf of the
Banks) has a first priority perfected Lien and no other Person (except as
consented to by the Agent) has a Lien, and (ii) only as to situations where
clause (x) (and not clause (y)) is applicable, the book value of the asset or
assets then being Transferred, when combined with the aggregate book value at
time of Transfer of all assets Transferred by any member of the Consolidated
Group from the Closing Date to the date of such Transfer, is less than the
greater of (A) $250,000 (or its equivalent) or (B) 10% of the Tangible Net Worth
of the Consolidated Group at the date of the proposed Transfer; and
provided further that if the asset Transferred is non-obsolete equipment which
----------------
(x) is no longer necessary for the ordinary business of the Consolidated Group,
(y) is not replaced within 90 days of such Transfer as provided in the preceding
proviso and (z) is Transferred (to the same Person or affiliated group of
Persons, or in one or more of a series of related transactions) for a
consideration in excess of $100,000, then an amount equal to the Net Proceeds
from such Transfers shall be promptly paid to the Banks by the Borrower as a
prepayment of the Loans pursuant to Section 2.4(b) hereof; and
provided further that it shall not be a violation of this Section 8.9(a): (A)
----------------
for the Borrower and the UK Guarantors to convey, sell, lease or otherwise
transfer assets between and among themselves after January 5, 1992 and in the
ordinary course of business, so long as (x) the nature, perfection and priority
of the Banks' Liens on such assets are not (and will not be) in any way
diminished or otherwise adversely affected by such transfer and (y) notice of
such transfer is promptly given to the Agent together with a certificate of an
officer of the Borrower stating that said officer has been so advised (i.e., as
set forth in clause (x)) by counsel for the Borrower; or (B) for the Borrower
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and the UK Guarantors to convey, sell, lease or otherwise transfer assets to FAI
if (x) the aggregate fair market value of such assets, when combined with all
other assets previously transferred to FAI after the Closing Date by the
Borrower or UK Guarantors, is less than $250,000 and (y) the provisions of
clauses (x) and (y) of Clause (A) above are complied with respect to said
conveyance, sale, lease or other transfer; or (C) for FAI to convey, sell, lease
or otherwise transfer assets to the Borrower or any UK Guarantor in the ordinary
course of business so long as the provisions of clauses (x) and (y) of Clause
(A) above are complied with respect to said conveyance, sale, lease or other
transfer. Without limiting the generality of its use elsewhere in this
Agreement and the other Loan Documents, the parties acknowledge that the word
"assets", as used in this Section 8.9 and in Section 2.4(b), includes a Credit
Party's equity interests in its Insignificant Subsidiaries and that no sale of
any such equity interest may be considered to meet the criteria of clause (i)(x)
of the second proviso to Section 8.9(a).
(b) Neither Holding nor the Borrower will sell, discount, transfer,
assign or otherwise dispose of any of its accounts receivable, notes receivable,
installment or conditional sales agreements or any other of its rights to
receive income or monies howsoever evidenced or permit any Subsidiary or
Guarantor to do so except pursuant to the Security Documents; provided that
--------
nothing in this Section 8.9(b) shall prevent any Credit Party from dealing with
its "bad debt" in the manner it has customarily dealt with same.
(c) Nothing in the foregoing provisions of this Section 8.9 shall
prohibit (i) Iberica or any Benelux Company from Transferring all or
substantially all of the assets of such Subsidiary on or prior to the Designated
Date for the fair market value thereof as determined in good faith by the board
of directors of such Subsidiary, or (ii) any of the capital stock of such
Subsidiaries from being sold as permitted by Section 8.12 hereof, in each case
so long as the Net Proceeds therefrom are applied to prepayment of the Loans as
and to the extent provided in Section 2.4(b) hereof. No amount received from
the sale of any such assets in accordance with this Section 8.9(c) shall be
counted toward any computation of the 10%, $100,000 or $250,000 amounts referred
to in the provisos to Section 8.9(a) above.
(d) Nothing in this Section 8.9 or any other provision of this
Agreement shall prohibit the GmbH Sale, provided that the provisions of Section
-------------
12.14.5 have been satisfied.
(e) Nothing in this Section 8.9 shall prohibit the Derby Sale from
occurring in 1993 if the purchase price therefor is not less than
(Pounds)160,000 and the Net Proceeds therefrom
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(less the amount, if any, expected to be used by seller for the payment of
taxes, if any, reasonably attributable to such sale) are applied to repayment of
the Term Loans pursuant to Section 2.4(b). However, in no event shall the
amount paid to the Banks pursuant to this paragraph be less than approximately
(Pounds)150,000.
(f) Nothing in this Section 8.9, or in Section 7.13, 8.10, 8.11, 8.12
or 8.14, shall prohibit the KOSI Transfers or the establishment of KOSI,
provided that (x) none of the KOSI Transfers in any way releases any of the KOSI
-------------
Subsidiaries (other than GmbH and the GmbH Subsidiaries) from any of their
obligations under any Foreign Guaranty, Foreign Pledge Agreement or Foreign
Security Agreement to which it is a party, and (y) the shares of each KOSI
Subsidiary acquired by KOSI are acquired by KOSI subject to the Lien of the
Agent and the Banks in such shares pursuant to the security interests and
pledges therein granted to the Agent and the Banks by FIL and each prior owner
thereof. By its execution of the Confirming Consent attached hereto as Annex A,
KOSI hereby acknowledges and agrees that (in consideration for the Banks and the
Agent permitting the KOSI Transfers to occur) KOSI is acquiring all such shares
subject to the prior Lien of the Agent and the Banks therein.
8.10 Purchase of Assets. Except as permitted by Section 8.9 or
------------------
Section 8.13, neither Holding nor the Borrower will purchase, lease or otherwise
acquire all or any substantial part of the property or assets of any Person, or
permit any of their respective Subsidiaries so to do, or purchase, lease or
otherwise acquire property or net assets in excess of (Pounds)250,000 in the
aggregate (other than in the ordinary course of business) or an equivalent
amount in other currencies (computed at the Spot Rate), or permit any of their
respective Subsidiaries so to do.
8.11 Related Transactions. (a) Neither Holding nor the Borrower will
--------------------
enter into any transaction with any other member of the Consolidated Group or
with any Affiliate of any member of the Consolidated Group or an Associate of
any such Affiliate or with which any officer or director of any Credit Party or
a Subsidiary has a financial interest on more favorable terms than if such
Person was totally unrelated, or permit any of their respective Subsidiaries to
so do except such commissions, discounts and repayment terms in connection with
the furnishing of goods or services on a Consolidated Group basis as are
reasonable and customary in commercial practice.
(b) No Loan Party will make any payments, directly or indirectly, to
KSI or any officer or director of KSI or any principal stockholder of KSI,
except as permitted by Section 8.11(a), 8.11(d) or 8.15.
(c) Without the written consent of the Required Banks, the aggregate
monthly amount of fees, costs, expenses and
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other amounts payable by members of the Consolidated Group to KSI pursuant to
the Management Agreement or otherwise will not, in any month commencing with the
month in which the Amendment Effective Date occurs, exceed the average monthly
amount of such fees, costs, expenses and other amounts payable by members of the
Consolidated Group to KSI pursuant to the Management Agreement for the period
July 1, 1991-June 30, 1992, as represented in Section 10.23(b) hereof. Amounts
paid to KSI by FIL as permitted by clause (d)(ii) of this Section 8.11 shall not
be considered paid to KSI for purposes of the first sentence of this clause (c).
(d) Nothing in this Section 8.11, or in Section 7.13, 8.5 or
8.14, shall:
(i) prohibit KSI from making contributions of its capital stock to the
pension fund of FIL in satisfaction of payments that FIL is otherwise
required by applicable law to then make in cash to such pension fund
if the trustees of such pension fund accept such shares in lieu of
such cash payment by FIL; or
(ii) prohibit FIL from reimbursing KSI for making such contributions
of stock provided that, at the time of any such reimbursement (and
-------------
after giving effect thereto),(u) no Default or Event of Default
exists, (v) KSI is not reimbursed for contributions in excess of
(Pounds)65,000 for any one month or in excess of (Pounds)750,000 in
the aggregate, (w) KSI is not reimbursed for any contributions made
prior to the Amendment Effective Date, and (x) the Agent and the Banks
shall have been provided with all information with respect to such
pension plan as any of them shall have requested, and provided further
----------------
that no such amount may be reimbursed prior to January 1, 1994.
----
8.12 Subsidiaries. (a) Neither Holding nor the Borrower will sell,
------------
assign, transfer or otherwise dispose of, or in any way part with control of,
any shares of capital stock of any of their respective Subsidiaries (other than
Insignificant Subsidiaries) or any indebtedness or obligations of any character
of any of their respective Subsidiaries, or permit any of their respective
Subsidiaries so to do with respect to any shares of capital stock of any other
member of the Consolidated Group (other than those of Insignificant
Subsidiaries) or any indebtedness or obligations of any character of any member
of the Consolidated Group, or issue, or permit any member of the Consolidated
Group to issue, any additional shares of capital stock; provided, however, that
-----------------
neither the provisions of this Section 8.12(a) or those of Section 8.9 shall
prohibit:
(i) [intentionally deleted];
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(ii) the sale of the GmbH Stock (directly by FIL or via another Loan
Party) to the KSI Purchaser on the Amendment Effective Date pursuant
to and in accordance with the terms of Section 12.14 hereof;
(iii) KOSI from selling all or substantially all of the capital
stock of Iberica prior to the Designated Date for the fair market
value thereof as determined in good faith by the board of directors of
KOSI so long as the proceeds thereof are applied to prepayment of the
Loans as and to the extent provided in Section 2.4(b) hereof; or
(iv) those Loan Parties holding capital stock of any Benelux
Company from selling all or substantially all of the capital stock of
such Benelux Company on or prior to the Designated Date for the fair
market value thereof as determined in good faith by the board of
directors of the holder thereof so long as the proceeds thereof are
applied to payment of the Loans as and to the extent provided in
Section 2.4(b) hereof.
Upon any sale of the capital stock of Iberica or any of the Benelux Companies in
accordance with the terms of this Agreement, the Agent (on behalf of the Banks)
shall promptly release such company from the obligations of any Foreign Guaranty
and Foreign Pledge Agreement to which it is party.
(b) Neither Holding nor the Borrower will organize or create (or
permit the organization or creation of), by investment or purchase or otherwise,
any Subsidiary other than KOSI, and Subsidiaries existing on the Closing Date
without the prior written consent of the Agent, such consent not to be
unreasonably withheld; provided that if within 20 days after the Borrower has
-------------
given written notice to the Agent of the proposed organization or creation of a
Subsidiary (or, if later, within 20 days after the date on which the Agent shall
have received such additional information related thereto as it shall have
requested), the Agent shall not have disapproved of such request or asked for
additional information related thereto, such consent of the Agent shall be
deemed to have been given.
8.13 Capital Expenditures. Neither Holding nor the Borrower will
--------------------
make capital expenditures for acquisitions, construction or improvement of fixed
assets, or permit any of their respective Subsidiaries so to do, except that
members of the Consolidated Group may make such expenditures if, after giving
effect thereto, the Dollar Equivalent of the aggregate amount of all such
capital expenditures made by the Consolidated Group in any calendar year would
not exceed, in the aggregate, the amount specified for such year below:
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<TABLE>
<S> <C>
Calendar Year Amount
----------------- ---------
<S> <C>
1993 3,000,000
1994 3,500,000
1995 4,000,000
1996 4,000,000
1997 4,000,000
1998 4,000,000
</TABLE>
For purposes of this Section 8.13:
(i) an amount equal to the present value of any Capitalized Lease
Obligations entered into by a Loan Party or any member of the Consolidated Group
after February 1, 1991 shall be deemed to be a capital expenditure during the
year in which said Capitalized Lease Obligations were entered into; and
(ii) to the extent that capital expenditures are paid for by capital
contributed in cash by KSI to a member of the Consolidated Group to be used for
such purpose, the amount in cash so contributed by KSI and so used shall not be
included in the annual limitations set forth above.
8.14 Investments. Neither Holding nor the Borrower will invest in
-----------
(by capital contribution or otherwise), or acquire for investment or purchase or
make any commitment to purchase the obligations or stock of, any Person or
permit any of their respective Subsidiaries so to do, except (i) the purchase of
marketable direct or guaranteed obligations of the national governments of the
Federal Republic of Germany, France, the Netherlands, the UK and the US; (ii)
stock or obligations issued to a member of the Consolidated Group in settlement
of claims against others by reason of an event of bankruptcy or a composition or
readjustment of debt or a reorganization of any debtor of the Borrower or
Subsidiary; (iii) certificates of deposit and banker's acceptances of any of the
Banks or their branches; (iv) capital contributions to be made on the Closing
Date by Holding to the Borrower as contemplated by Section 6.6(d); (v)
Commercial Paper rated P-1 or A-1 by Standard & Poors ("S&P") or Moody's
---
Investors Service ("Moodys") or the equivalent rating by any other rating agency
------
nationally recognized in the US or UK; and (vi) certificates of deposit and
banker's acceptances of any bank with a AA or better rating from Moodys or the
equivalent rating by S&P or any other rating agency nationally recognized in the
US or UK. As used in this Agreement, "Commercial Paper" shall mean short-term
----------------
promissory notes due no later than 270 days from the date of issuance of each
such note.
8.15 Dividends, Distributions and Purchases of Capital Stock. (a)
-------------------------------------------------------
Except as set forth in Section 8.15(b), Holding will not declare or pay any
dividends (other than dividends payable in shares of its capital stock), or
return any capital to its stockholders as such or authorize or make any other
distribution,
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payment or delivery of property or cash to its stockholders as such, or redeem,
retire, purchase or otherwise acquire, directly or indirectly, for a
consideration (otherwise than in exchange for, or from the proceeds of the
substantially concurrent sale of, other shares of capital stock of Holding), any
shares of any class of its capital stock now or hereafter outstanding, or
redeem, return, purchase or otherwise acquire, directly or indirectly, for a
consideration, any subordinated debt or make any payments on account of the
principal thereof, or set aside any funds for any of the foregoing purposes.
(b) Commencing in 1994, Holding may pay dividends annually to holders
of its ordinary shares (as such) in an aggregate amount per Fiscal Year not in
excess of the sum of 50% of the Net Income (Adjusted) of the Consolidated Group,
but only if (x) no Default or Event of Default exists on the date of payment
(after giving effect thereto), (y) such distribution is made no earlier than the
date that the certified Financial Statements for such Fiscal Year, in form and
substance satisfactory to the Agent and the Required Banks, have been delivered
to the Banks pursuant to Section 7.1(b) and no later than 30 days after such
date, and (z) all required repayments of the Loans pursuant to Sections 2.4 have
been made with regard to such Fiscal Year.
8.16 Leasebacks. Neither Holding nor the Borrower will enter into,
----------
or permit any of their respective Subsidiaries to enter into, any arrangement
with any bank, insurance company or other lender or investor providing for the
leasing to any member of the Consolidated Group of real property (i) which at
the time has been or is to be sold or transferred by any member of the
Consolidated Group to such lender or investor, or (ii) which has been or is
being acquired from another person by such lender or investor or on which one or
more buildings or facilities have been or are to be constructed by such lender
or investor for the purpose of leasing such property to a member of the
Consolidated Group.
8.17 Interest Coverage Ratio. (a) (i) Neither Holding nor the
-----------------------
Borrower will permit the Interest Coverage Ratio of the Consolidated Group to be
less than:
(A) 1.45:1 for the 3-month period ending September 30, 1993;
(B) 1.45:1 for any 6-month period ending on December 31, 1993 or
on the last day of any fiscal quarter thereafter until and including
the 6-month period ending on September 30, 1995; or
(C) 1.70:1 for any 6-month period ending on December 31, 1995 or
on the last day of any fiscal quarter thereafter.
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<PAGE>
(ii) Neither Holding nor the Borrower will permit the Interest
Coverage Ratio of the Consolidated Group to be less than:
(A) 1.6:1 for the 9-month period ending March 31, 1994;
(B) 2.0:1 for any 12-month period ending on June 30, 1994 or on
the last day of any fiscal quarter thereafter until and including the
12-month period ending on September 30, 1995; or
(C) 2.25:1 for any 12-month period ending on December 31, 1995 or
on the last day of any fiscal quarter thereafter.
(b) In the event that Borrower does not deliver any Financial
Statement or certificate required to be delivered after the end of any fiscal 3-
month period pursuant to clause (i), (ii) or (iii) of Section 7.1(a) within 10
days after the date required therefor pursuant to said clause, the Borrower
shall be deemed to be in default of Sections 8.17-8.23 (inclusive) for purposes
of Section 9.3 hereof.
(c) For so long as the principal amount of the deposit (with the
Depositary Bank) that is the subject of the Bank Charge is equal to or greater
than the aggregate principal amount of the 1991 Notes,
(i) the principal amount of the 1991 Notes shall not be considered
indebtedness of the Borrower;
(ii) the interest payable on the 1991 Notes shall not be
considered interest payable by the Borrower;
(iii) amounts on deposit with the Depositary Bank that are the
subject of the Bank Charge shall not be considered assets of Holding
or the Borrower; and
(iv) interest paid or payable on such deposit shall not be
considered income to the Borrower or Holding;
in each case for all purposes of Sections 8.17-8.23 (inclusive).
8.18 Fixed Charge Coverage Ratio. Neither Holding nor the Borrower
---------------------------
will permit the Fixed Charge Coverage Ratio of the Consolidated Group to be less
than:
(A) 1.1:1 for the 3-month period ending September 30, 1993;
(B) 1.1:1 for the 6-month period ending December 31, 1993;
(C) 1.1:1 for the 9-month period ending March 31, 1994;
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(D) 1.1:1 for the 12-month period ending on June 30, 1994 or the
12-month period ending on September 30, 1994;
(E) 1.2:1 for any 12-month period ending on December 31, 1994,
March 31, 1995, June 30, 1995 or September 30, 1995; or
(F) 1.3:1 for any 12-month period ending on December 31, 1995 or
on the last day of any fiscal quarter thereafter.
8.19 Current Ratio. (a) Neither Holding nor the Borrower will permit
-------------
the ratio of (x) the Current Assets of the Consolidated Group to (y) the Current
Liabilities of the Consolidated Group to be less than 0.8:1 at the end of any
fiscal quarter ending on or after September 30, 1993.
(b) Neither Holding nor the Borrower will permit the ratio of (x) the
Current Assets of the Consolidated Group to (y) the Current Liabilities of the
Consolidated Group to be less than 1.3:1 at the end of any fiscal quarter ending
on or after September 30, 1993. For purposes of this clause (b) only, "Current
Liabilities" shall not include the principal amount of Revolving Credit Loans
then outstanding or the LC Obligations or (y) that portion of the principal
amount of Term Loans payable pursuant to Section 2.4(a) within 12 months of the
date of computation of "Current Liabilities".
8.20 Net Worth: Funded Debt. (a) Neither Holding nor the Borrower
-----------------------
will permit the ratio of (x) the Net Worth of the Consolidated Group to (y) the
Long-Term Debt of the Consolidated Group to be less than 1.0:1 at the end of any
fiscal quarter ending on or after September 30, 1993.
(b) In computing Net Worth for purposes of this Section 8.20, the
amounts and items set forth in clauses (ii)-(viii) of the definition of
"Tangible Net Worth (Adjusted)" in Annex I shall be treated (without
duplication) as assets of the Borrower or Holding (as the case may be) to the
extent that, at the time of such computation, the amounts of such items may at
the same time be included in the computation of "Tangible Net Worth (Adjusted)".
In addition, to the extent that any Indebtedness for Borrowed Money would
otherwise be included in "Long-Term Debt" in accordance with the definition of
said term in said Annex I, the amount of such Long-Term Debt shall not be
considered as "Long-Term Debt" for purposes of this Section 8.20 to the extent
that the amount thereof is considered an asset of the Consolidated Group
pursuant to the immediately preceding sentence.
8.21 Tangible Net Worth. Neither Holding nor the Borrower will
------------------
permit the Tangible Net Worth (Adjusted) of the Consolidated Group, at any time
on or after the date set forth in
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the first column below, to be less than the amount set forth alongside such date
in the second column below.
<TABLE>
<CAPTION>
Minimum Required
Tangible Net Worth
Date (Adjusted)
---------------------- ----------------
<S> <C>
June 30, 1993 $2,000,000
December 31, 1993 $2,000,000
December 31, 1994 $2,000,000
December 31, 1995 $2,500,000
December 31, 1996 $3,000,000
December 31, 1997 $4,000,000
</TABLE>
8.22 Funded Debt: Cash Flow. (a) [intentionally deleted]
-----------------------
(b) Neither Holding nor the Borrower will permit the ratio of (x) 25%
of the Long-Term Debt of the Consolidated Group at the end of the relevant
fiscal quarter to (y) EBITDA of the Consolidated Group for such fiscal quarter
to exceed:
(A) 4.0:1 at the end of any fiscal quarter ending on or after
September 30, 1994 until and including the last day of the fiscal
quarter ending on September 30, 1996; or
(B) 3.5:1 as at December 31, 1996 or at the end of any fiscal
quarter thereafter.
(c) In determining Long-Term Debt for purposes of this Section 8.22,
the amount of "cash and equivalents" on the Consolidated Group's balance sheet
at the end of the relevant fiscal quarter shall first be deducted.
8.23 Assets: Funded Debt. (a) Neither Holding nor the Borrower will
--------------------
permit the ratio of (x) the Tangible Assets of the Consolidated Group to (y) the
Long-Term Debt of the Consolidated Group to be less than 1.5:1 at the end of any
fiscal quarter ending on or after September 30, 1993.
(b) In computing Tangible Assets for purposes of this Section 8.23,
the amounts and items set forth in clauses (ii)-(viii) of the definition of
"Tangible Net Worth (Adjusted)" in Annex I shall be treated (without
duplication) as Tangible Assets of the Borrower or Holding (as the case may be)
to the extent that, at the time of such computation, the amounts of such items
may at the same time be included in the computation of "Tangible Net Worth
(Adjusted)". In addition, to the extent that any Indebtedness for Borrowed
Money would otherwise be included in "Long-Term Debt" in accordance with the
definition of said term in said Annex I, the amount of such Long-Term Debt shall
not be considered as "Long-Term Debt" for purposes of this Section 8.23 to the
extent that the amount thereof is considered a Tangible
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<PAGE>
Asset of the Consolidated Group pursuant to the immediately preceding sentence.
(c) For purposes of the computation under Section 8.23(a), the amount
of "cash and equivalents" on the Consolidated Group's balance sheet at the end
of the relevant fiscal quarter shall first be deducted from both (i) the
Tangible Assets of the Consolidated Group (for the computation in clause (x) of
said Section and (ii) Long-Term Debt (for the computation in clause (y)
thereof).
8.24 Accounting Changes. (a) Neither Holding nor the Borrower will
------------------
make, or permit or any of its Subsidiaries to make, any significant change in
accounting treatment and reporting practices except as permitted or required by
GAAP.
(b) After December 31, 1992, neither Holding nor the Borrower will
change its fiscal year or permit any of their respective Subsidiaries to change
its fiscal year.
8.25 Employee Benefit Plans. (i) Borrower will not adopt, or permit
----------------------
any of its Subsidiaries to adopt, any Pension Plan or any other Plan subject to
Section 302 of ERISA or Section 412 of the Code, without the Agent's consent,
(ii) become obligated, or permit any of its Subsidiaries to become obligated, to
contribute to any Multiemployer Plan subject to Subtitle E of Part IV of ERISA,
without the Agent's consent, or (iii) allow, or permit any of its Subsidiaries
to allow, any Plan to fail to comply with the applicable provisions of ERISA and
the Code in any respect which would have a Material Adverse Effect on the
Borrower, or on the Borrower and its Subsidiaries taken as a whole.
8.26 Compliance with ERISA. (i) Holding will not terminate, or
---------------------
permit any of its Subsidiaries to terminate, any Pension Plan so as to result in
any material (in the opinion of the Agent or the Required Banks) liability of
Holding or any of its Subsidiaries to the PBGC, (ii) permit to exist for more
than 30 days the occurrence of any Reportable Event (as defined in Section 4043
of ERISA), or any other event or condition, which presents a material (in the
opinion of the Agent or the Required Banks) risk of such a termination by the
PBGC of any Pension Plan, (iii) [intentionally deleted], (iv) allow, or permit
any of its Subsidiaries to allow, any Plan to incur an "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code) for more than 30 days, whether or not waived, (v) engage, or permit any of
its Subsidiaries or any Plan to engage, in any "prohibited transaction" (within
the meaning of Section 406 of ERISA or Section 4975 of the Code) resulting in
any material (in the opinion of the Agent or the Required Banks) and considered
by itself or together with all other such liabilities of Holding and all ERISA
Affiliates) liability to
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Holding or any ERISA Affiliate, (vi) allow, or permit any of its Subsidiaries to
allow, any Plan to fail to comply with the applicable provisions of ERISA and
the Code in any material respect for more than 30 days, (vii) fail, or permit
any of its Subsidiaries to fail, to make any required contribution to any
Multiemployer Plan, unless and to the extent only that the validity thereof is
being contested in good faith and by appropriate procedures and such Loan Party
or Subsidiary has set aside on its books adequate reserves therefor in
accordance with GAAP, or (viii) completely or partially withdraw, or permit any
of its Subsidiaries to completely or partially withdraw, from a Multiemployer
Plan, if such complete or partial withdrawal will result in any material (in the
opinion of the Agent or the Required Banks) withdrawal liability under Title IV
of ERISA.
8.27 Other Agreements. (a) Neither Holding nor the Borrower will (or
----------------
permit any of their respective Subsidiaries to) amend, modify or terminate the
Tax Allocation Agreement, the Deficiency Undertaking, the loan agreement
referred to in clause (B) of the next-to-last sentence of Section 10.7(b), or
the KSI UK Guaranty, or amend or modify the Redemption Documents, the Repurchase
Documents, the 1991 Notes, the 1993 Notes or the Acquisition Agreement (FAI), or
waive any right under any of the foregoing, or fail to duly enforce the Tax
Allocation Agreement, the Deficiency Undertaking and the KSI UK Guaranty.
(b) Neither Borrower nor Furmanite will amend their respective
Articles of Association in any way that will adversely affect the amendments
made or required to be made pursuant to Section 6.19 hereof.
8.28 Dormant Subsidiaries. (a) No Dormant Subsidiary will engage in
--------------------
any business or activity.
(b) No Dormant Subsidiary will contract, create, incur or suffer to
exist any Indebtedness for Borrowed Money.
(c) Neither Borrower nor any Subsidiary of Borrower will make any
loan to any Dormant Subsidiary.
(d) No Subsidiary will merge into any Dormant Subsidiary.
(e) No Credit Party shall convey, sell, lease or otherwise transfer
any asset to any Dormant Subsidiary.
Section 9. EVENTS OF DEFAULT.
-----------------
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
----------------
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9.1 Principal and Interest. The Borrower shall default in the due
----------------------
and punctual payment of (i) any principal due on any Loan; or (ii) any interest
on any Loan or Note or in the due and punctual payment of Commitment commission
or other amounts due hereunder; or (iii) any repayment of any Reimbursement
Obligation or Deemed Disbursement or any interest payable thereon; provided that
-------- ----
failure to duly and punctually make an interest payment shall not be an Event of
Default under this Section 9.1 if such interest payment is paid within five days
after the date it is due and Borrower has not been late in making an interest
payment on any of the Notes more than once in the preceding 12 months; or
9.2 Representations and Warranties. Any representation, warranty or
-------------------------------
statement made by any Credit Party in any Loan Document to which such Credit
Party is a party or in the Offering Documents or the Acquisition Agreement (FAI)
or otherwise in writing by such Person in connection with any of the foregoing
or in connection with any Acquisition, or in any certificate or statement
furnished pursuant to or in connection with any of the foregoing, shall be
breached in a manner that could reasonably be expected to have an adverse effect
on the validity, payment, performance or enforceability of the Loan Agreement on
any of the other Loan Documents or any obligation of a Credit Party hereunder or
thereunder or shall prove to be untrue in any material and adverse respect on
the date as of which made;
9.3 Negative Covenants. Any Loan Party or any of their respective
------------------
Subsidiaries shall default in the due performance or observance of any term,
covenant or agreement on its part to be performed or observed pursuant to
Section 7.20 or Section 8; or
9.4 Other Covenants. Any Credit Party or any of their respective
---------------
Subsidiaries 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 of
the provisions of this Agreement (other than those referred to in Sections 9.1,
9.2 or 9.3) and such default (which shall be capable of cure) shall continue
unremedied for a period of 30 days after the earlier of the date on which the
Agent gives the Borrower notice of such default or on the date an officer of any
Credit Party (other than a Subsidiary that is not a Significant Subsidiary)
becomes aware thereof; or
9.5 Other Obligations. Any indebtedness of any member of the
-----------------
Consolidated Group (i) shall be duly declared to be or shall become due and
payable prior to the stated maturity thereof, or (ii) in respect of indebtedness
in excess of $250,000 (or the equivalent amount in any other currency) in an
aggregate principal amount, shall not be paid as and when the same becomes
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due and payable including any applicable grace period, or there shall occur and
be continuing any event which constitutes an event of default under any
instrument, agreement or evidence of indebtedness relating to any indebtedness
of any member of the Consolidated Group in excess of $250,000 (or the equivalent
amount in any other currency) in aggregate principal amount, the effect of which
is to permit the holder or holders of such instrument, agreement or evidence of
indebtedness, or a trustee, agent or other representative on behalf of such
holder or holders, to cause the indebtedness evidenced thereby to become due
prior to its stated maturity; or
9.6 Ownership. (a) KSI shall at any time own less than 100% of the
---------
outstanding capital stock of Holding; or any stock issued by FAI or any Loan
Party shall be the subject of a Lien (other than Liens to the Agent and the
Banks hereunder); or
(b) A change has occurred in the stock ownership of KSI under Section
382 of the Code that, in the reasonable judgment of the Agent exercised in good
faith and after taking into consideration (in the Agent's reasonable good-faith
judgment) the likelihood of KSI being able to honor its obligations related
thereto under the Deficiency Undertaking, limits (or in the future could limit)
utilization of the NOL by the US Guarantors in a manner having a Material
Adverse Effect with respect to the US Guarantors; or
9.7 Insolvency. Any Credit Party (references to "Credit Party" in
----------
this Section 9.7, however, not to include any Insignificant Subsidiary) shall
dissolve or suspend or discontinue its business, or shall make an assignment for
the benefit of creditors or a composition with creditors, shall be unable or
admit in writing its inability to pay its debts as they mature, shall file a
petition in bankruptcy, shall be adjudicated insolvent or bankrupt, shall
petition or apply to any tribunal for the appointment of (or there shall be
appointed pursuant to any contract) any administrator, receiver, liquidator or
trustee of or for it or any substantial part of its property or assets, shall
commence any proceedings relating to it under any bankruptcy, reorganization,
arrangement, readjustment of debt, receivership, dissolution or liquidation law
or statute of any jurisdiction, whether now or hereafter in effect; or there
shall be commenced against any Credit Party any such proceeding which shall
remain undismissed for a period of 90 days or more, or any order, judgment or
decree approving the petition in any such proceeding shall be entered; or any
Credit Party shall by any act or failure to act indicate its consent to,
approval of or acquiescence in, any such proceeding or in the appointment of any
receiver, liquidator or trustee of or for it or any substantial part of its
property or assets, or shall suffer any such appointment to continue
undischarged or unstayed for a period of 90 days or more; or any Credit Party
shall take any action for
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the purpose of effecting any of the foregoing; or any court of competent
jurisdiction shall assume jurisdiction with respect to any such proceeding or a
receiver or trustee or other officer or representative of a court or of
creditors, or any court, governmental officer or agency, shall under color of
legal authority, take and hold possession of any substantial part of the
property or assets of any Credit Party or there shall happen or exist under the
laws of any applicable jurisdiction, with respect to any Credit Party, any event
analogous to and having a substantially similar effect to any of the foregoing
events; provided that no liquidation or dissolution of Iberica or any Benelux
-------------
Company prior to the Designated Date shall be an Event of Default is same is
effectuated pursuant to Section 8.12(a)(iii) or (a)(iv) hereof; or
9.8 Guaranty Agreements. The breach by any Guarantor of any term or
-------------------
provision of the Guarantee Agreement to which it is a party, which default in
the reasonable judgment of the Agent or the Required Banks (exercised in good
faith) is material; or any Guarantee Agreement is at any time not in full force
and effect; or any "Default" or "Event of Default" (as defined in a Guarantee
Agreement) shall exist under such Guarantee Agreement; or any Guarantor shall
assert that it is not liable as a guarantor under its Guarantee Agreement; or
9.9 Security Documents. The breach by any Credit Party of any term
------------------
or provision of any Security Document (other than a Guarantee Agreement) or
Subordination Agreement to which such Person is a party, which default in the
reasonable judgment of the Agent or the Required Banks (exercised in good faith)
is material; or any such Security Document is at any time not in full force and
effect; or any "Default" or "Event of Default" (as defined in any such Security
Document) shall exist under such Security Document; or any Security Document
shall fail to grant to the Agent on behalf of the Banks the Lien and security
interest purported to be created thereby (provided that if any Security Document
--------
fails to so grant such Lien or security interest solely as a result of a change
of law and such failure is capable of remedy, then such failure shall not be
considered an Event of Default under this Section 9.9 for a period of 10 days if
such failure is remedied within that period); or
9.10 Deficiency Undertaking. The breach by KSI of any term or
----------------------
provision of any KSI Agreement, which default in the reasonable judgment of the
Agent or the Required Banks (exercised in good faith) is material; or any KSI
Agreement is at any time when it is required to be in full force and effect by
its terms or the terms hereof not in full force and effect; or
9.11 Judgments. (a) Any final non-appealable judgment for the
---------
payment of money in excess of $1,250,000 (or the equivalent thereof in any
currency), excluding any amounts
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payable or reimbursable by financially sound insurance companies or by third
parties whose Commercial Paper is rated P-1 or A-1 by S&P or Moodys (or the
equivalent rating by any other rating agency nationally recognized in the US or
the UK), shall be rendered against any member of the Consolidated Group; or
(b) Final judgment for the payment of money in excess of $1,250,000
(or the equivalent thereof in any currency) shall be rendered against any member
of the Consolidated Group, and the same shall remain undischarged for a period
of 30 days during which execution shall not be effectively stayed or contested
in good faith; or
9.12 Cash Collateral Account. The amount of funds in the Cash
-----------------------
Collateral Account is at any time less than the amount that would be payable at
such time under the Sterling Guarantee if the UK Bank were then required to
honor such guarantee and such deficiency remains in effect for more than three
days; or the UK Bank is at any time called upon by a holder of any 1991 Note or
representative thereof to honor such guarantee; or the breach by any party
(other than the UK Bank or the Depositary Bank) of any term or provision of any
Depositary Document to which it is a party, which default in the judgment of the
Agent or the Required Banks is material;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing the Agent may (and shall, if instructed in writing by
the Required Banks) by written notice to the Borrower: (i) declare the
principal of and accrued interest on the Loans to be, whereupon the same shall
forthwith become, due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower and Holding;
and/or (ii) declare the commitments of the Banks to make the Loans hereunder
terminated, whereupon such commitments of the Banks shall forthwith terminate
immediately; provided that if any Event of Default described in Section 9.7
-------- ----
shall occur with respect to the Borrower, the result which would otherwise occur
only upon the giving of written notice by the Agent or the Required Banks to the
Borrower as herein described shall occur automatically, without the giving of
any such notice.
Section 9A. GUARANTY.
--------
In order to induce the Banks and the Agent to enter into this
Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by Holding from the proceeds of the Loans, Holding
agrees with the Banks and the Agent as follows.
9A.1. The Guaranty. Holding hereby unconditionally and irrevocably
------------
guarantees as primary obligor and not merely as
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surety the full and prompt payment when due (whether upon maturity, by
acceleration or otherwise) of any and all Obligations of the Borrower (including
without limitation all interest which may be payable thereon prior to or during
the pendency of any insolvency or similar proceeding with respect to the
Borrower). If any or all of such Obligations become due and payable hereunder,
Holding unconditionally promises to pay such indebtedness to the Agent on behalf
of the Banks, or order, on demand, together with any and all expenses which may
be incurred by the Banks or the Agent in collecting any of the indebtedness. If
the Agent or the Banks are prevented by law from accelerating any of the
indebtedness in accordance with the terms of any agreement or instrument
governing same, the Agent shall be entitled to receive hereunder from Holding,
upon demand therefor, the sum which would have otherwise been due had such
acceleration occurred. The word "indebtedness" is used in this Section 9A in
its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of the Borrower arising in connection with the
Obligations, in each case heretofore, now or hereafter made, incurred or
created, whether voluntarily or involuntarily, absolute or contingent,
liquidated or unliquidated, determined or undetermined, whether or not such
indebtedness is from time to time reduced, or extinguished and thereafter
increased or incurred, whether the Borrower may be liable individually or
jointly with others, whether or not recovery upon such indebtedness may be or
hereafter become barred by any statute of limitations, and whether or not such
indebtedness may be or hereafter become otherwise unenforceable. Without
limiting the generality of the foregoing, Holding acknowledges that this
guaranty is a guaranty of payment, not a guaranty of collection.
9A.2 Bankruptcy. Additionally, Holding unconditionally and
----------
irrevocably guarantees the payment of any and all Obligations, whether or not
due or payable by the Borrower, upon the occurrence in respect of the Borrower
of any of the events specified in Section 9 hereof and unconditionally promises
to pay such indebtedness to the Agent on behalf of the Banks, or order, on
demand without setoff or counterclaim.
9A.3 Nature of Liability. The liability of Holding hereunder is
-------------------
exclusive and independent of any security or other guaranty of the indebtedness
of the Borrower whether executed by Holding or by any other party, and the
liability of Holding hereunder shall not be affected or impaired by (a) any
direction as to application of payment by the Borrower or by any other party, or
(b) any other continuing or other guaranty, undertaking or maximum liability of
a guarantor or of any other party as to the indebtedness of the Borrower, or (c)
any payment on or in reduction of any such other guaranty or undertaking, or (d)
any dissolution or termination of the Borrower, or (e) any payment made to the
Agent or to any or all Banks on the indebtedness
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which such Agent, Bank or Banks are required to repay to the Borrower pursuant
to a court order in any bankruptcy, reorganization, arrangement, moratorium or
other debtor relief proceeding, and Holding waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding.
9A.4 Independent Obligation. (a) The obligations of Holding
----------------------
hereunder are independent of the obligations of any other guarantor or the
Borrower, and any security for or other guarantee of the indebtedness of the
Borrower, and a separate action or actions may be brought and prosecuted against
Holding whether or not action is brought against any other guarantor or the
Borrower or any security held by the Agent and without pursuing any other
remedy, and whether or not any other guarantor or the Borrower be joined in any
such action or actions. Holding waives, to the fullest extent permitted by law,
the benefit of any statute of limitations affecting its liability hereunder or
the enforcement thereof. Any payment by the Borrower or other circumstance
which operates to toll any statute of limitations as to the Borrower shall
operate to toll the statute of limitations as to Holding. The Agent's and
Banks' rights under this Section 9A will not be exhausted by any action or
inaction by the Agent or the Banks until all of the indebtedness has been
indefeasibly paid in full.
(b) The liability of Holding hereunder is not affected or impaired by
any direction or application of payment by the Borrower or by any other party,
or by any other guarantee or undertaking of Holding or any other party as to the
indebtedness of the Borrower, by any payment on, or in reduction of, any such
other guarantee or undertaking, by the termination, revocation or release of any
obligations hereunder or of any other guarantor, or by any payment made to the
Agent or the Banks on the indebtedness which the Agent or the Banks repay to the
Borrower or any other guarantor or other person or entity pursuant to court
order in any bankruptcy, reorganization, arrangement, moratorium or other debtor
relief proceeding, or any other fact or circumstance which would otherwise
excuse the obligation of a guarantor or surety, and Holding waives any right to
the deferral or modification of Holding's obligations hereunder by reason of any
such proceeding, fact or circumstance. This Section 9A shall continue to be
effective in accordance with its terms, or be reinstated, as the case may be, if
at any time payment, or any part thereof, of or with respect to any of the
indebtedness is rescinded or must otherwise be restored or returned by the Agent
or a Bank upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or any other payor thereof, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any other payor thereof or any
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substantial part of its property, or otherwise, all as though such payments had
not been made.
9A.5 Authorization. Holding authorizes the Agent and the Required
-------------
Banks without notice or demand, and without affecting or impairing its or their
liability hereunder, from time to time to (a) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms, of the Obligations of the Borrower or any part thereof in
accordance with this Agreement, including any increase or decrease of the rate
of interest thereon, (b) take and hold security from the Borrower, any guarantor
or any other party for the payment of this guaranty or the indebtedness and
exchange, enforce, waive and release any such security or accept additional or
substituted security, (c) apply such security and direct the order or manner of
sale thereof as the Agent in its discretion (subject to the other provisions of
this Agreement) may determine and (d) release, add or substitute any one or more
endorsers, guarantors or other obligors. Any modifications, renewals and
extensions of the indebtedness may be made at any time by the Agent on behalf of
the Banks, before or after any termination of this Agreement, and Holding shall
be fully liable for any such modifications, renewals or extensions. The Agent
on behalf of the Banks may take any of the foregoing actions upon any terms and
conditions as the Agent may elect, without giving notice to Holding or obtaining
the consent of Holding and without affecting the liability of Holding to the
Agent or the Banks.
9A.6 Reliance. It is not necessary for the Banks or the Agent to
--------
inquire into the capacity or powers of the Borrower or the officers, directors,
partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder. Holding assumes full responsibility for
keeping fully informed of the financial condition of the Borrower and all other
circumstances affecting the Borrower's ability to perform its obligations to the
Agent and the Banks, and agrees that neither the Agent nor any Bank will have
any duty to report to Holding any information which the Agent or any Bank
receives about the Borrower's financial condition or any circumstances bearing
on its ability to perform, and expressly waives any right to receive such
information and any defense based upon failure to receive such information.
9A.7 Subordination. (a) Any indebtedness of the Borrower now or
-------------
hereafter held by Holding, whether in connection with this Section 9A or other
provisions of this Agreement, or whether completely independent of this
Agreement and the indebtedness, is hereby subordinated to the indebtedness of
the Borrower to the Banks; provided that so long as no Default or Event of
-------------
Default exists (both before and after giving effect to any payment of principal
or interest proposed to be made on such
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subordinated indebtedness), the Borrower may pay to Holding regularly-scheduled
interest and principal payments required by its terms to be made on such
subordinated indebtedness. Holding hereby covenants with the Agent and the
Banks that, except as the Agent may otherwise agree, Holding shall not be
entitled to, and shall not, demand or receive any payment in respect of any
indebtedness of the Borrower to Holding (whether of principal, interest thereon
or otherwise) or demand the creation, or receive the benefit, of any encumbrance
or other Lien over or any guarantee or indemnity in respect of any indebtedness
of the Borrower to Holding or commence any proceeding against the Borrower or
take any action in respect of any indebtedness of the Borrower to Holding
(including, without limitation, the exercise of any right of set-off,
counterclaim or lien, or any right to declare any default or "event of default"
or any action or steps with a view to (or otherwise in connection with) the
winding-up, dissolution, receivership or administration of the Borrower). Prior
to the transfer by Holding of any note or negotiable instrument evidencing any
indebtedness of the Borrower to Holding, Holding shall mark such note or
negotiable instrument with a legend that the same is subject to this
subordination.
(b) Holding hereby covenants with the Agent and the Banks and
agrees and declares that:
(i) in the event of Holding receiving any payment or any other
benefit in breach of Section 9A.7(a), Holding shall forthwith notify
the Agent of the receipt and, pay to the Agent on behalf of the Banks,
all sums which shall have been received by it in consequence of such
breach and until such payment to the Agent, Holding shall hold the
payment or other benefit so received by it in trust for the Banks;
(ii) in the event of any indebtedness being discharged by set-off
in breach of Section 9A.7(a), it shall forthwith notify the Agent of
the discharge and pay to the Agent on behalf of the Banks an amount
equal to the amount of the discharge; and
(iii) it shall forthwith pay to the Agent on behalf of the Banks,
and it shall hold in trust for the Banks pending such payment, any
amount or other distribution of assets of any kind or character
received by it (whether in cash, property, securities or otherwise) on
a winding-up, dissolution, receivership or administration of the
Borrower.
(c) Holding hereby agrees with the Agent and the Banks that it will at
its own expense do all such things as the Agent may require as being necessary
or desirable to transfer to the Agent all payments or benefits to be made
pursuant to Section
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<PAGE>
9A.7(b) including endorsements and execution of formal transfers, and will pay
any costs and stamp duties in connection therewith.
(d) If, for any reason, a trust in favor of the Banks under this
Section 9A.7 is invalid or unenforceable, Holding shall from time to time
promptly pay and deliver to the Agent on behalf of the Banks an amount equal to
the amount of any payment or benefit which it would otherwise have been obliged
to hold in trust for the Banks.
9A.8 Waivers of Defenses. Holding waives: (a) all statutes of
-------------------
limitation as to the indebtedness, this Agreement or otherwise as a defense to
any action brought against Holding by the Agent or any Bank, to the fullest
extent permitted by law; (b) any defense based upon any legal disability of the
Borrower or any discharge or limitation of the liability of the Borrower to the
Agent or the Banks, whether consensual or arising by operation of law or any
bankruptcy, insolvency, or debtor-relief proceeding, or from any other cause;
(c) presentment, demand, protest and notice of any kind; (d) any defense based
upon or arising out of any defense which the Borrower may have to the payment or
performance of any part of the indebtedness; (e) any defense based upon any
disbursements by the Agent or the Banks to the Borrower pursuant to any
agreements or instruments governing the indebtedness whether same be deemed an
additional advance or be deemed to be paid out of any special interest or other
fund accounts, as constituting unauthorized payments hereunder or amounts not
guaranteed by this Section 9A; (f) all rights to participate in any security
held by the Agent or the Banks for the indebtedness; (g) irregularity or
unenforceability of any agreement or instrument representing or governing the
indebtedness; (h) any request that the Agent or a Bank be diligent or prompt in
making demands hereunder or under any agreement or instrument representing or
governing the indebtedness; and (i) any other defense (except the defense that
the indebtedness has been indefeasibly paid in full) which, under applicable
law, would release the obligation of a guarantor or surety, until the
indebtedness has been indefeasibly paid in full.
9A.9 Waiver of Subrogation. Holding hereby irrevocably waives any
---------------------
claim or other rights which it may now have or hereafter acquire against the
Borrower or any other guarantor that arise from the existence, payment,
performance or enforcement of Holding's obligations under this Agreement or any
other Loan Document, including (without limitation) any right of subrogation,
reimbursement, exoneration, contribution, indemnification, any right to
participate in any claim or remedy of the Banks and the Agent against the
Borrower or any other guarantor or any collateral which the Agent or any Bank
now has or hereafter acquires, whether or not such claim, remedy or right arises
in equity, or under contract, statute or common law
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<PAGE>
including (without limitation) the right to take or receive from the Borrower,
directly or indirectly, in cash or other property or by set-off or in any other
manner, payment or security on account of such claim or other rights. If any
amount shall be paid to Holding in violation of the preceding sentence and the
Obligations shall not have been paid in full, such amount shall be deemed to
have been paid to Holding for the benefit of, and held in trust for the benefit
of, the Banks and the Agent and shall forthwith be paid to the Agent on behalf
of the Banks to be credited and applied upon the Obligations, whether matured or
unmatured, in accordance with the terms of this Agreement. Holding acknowledges
that it will receive direct and indirect benefits from the financing
arrangements contemplated by this Agreement and that the waiver set forth in
this Section 9A.9 is knowingly made in contemplation of such benefits.
9A.10 [intentionally deleted]
9A.11 Costs and Expenses. In addition to the amounts guaranteed
------------------
hereunder, Holding agrees to pay the Agent's and the Banks' reasonable out-of-
pocket costs and expenses, including but not limited to legal fees and
disbursements, incurred in any effort to collect or enforce any of the
indebtedness or this Section 9A, whether or not any lawsuit is filed. Until
paid to the Agent or the Banks, such sums will bear interest at the highest rate
of interest borne by any of the Loans plus 2%; provided that if such interest
--------
exceeds the maximum amount permitted to be paid under applicable law, then such
interest shall be reduced to such maximum permitted amount. Interest accrued
hereunder pursuant to this paragraph shall be payable on demand and shall be
calculated on the basis of the actual number of days elapsed and a 360-day year.
Section 10. REPRESENTATIONS AND WARRANTIES.
-------------------------------
In order to induce the Agent and the Banks to enter into this
Agreement and to make the Loans and issue the Letters of Credit provided for
herein, each of Holding and the Borrower makes the following representations,
covenants and warranties, which representations, covenants and warranties shall
survive the execution and delivery of this Agreement and the other documents and
instruments referred to herein:
10.1 Status; Validity. (a) Each member of the Consolidated Group is
----------------
a duly organized and validly existing corporation in good standing under the
laws of the jurisdiction of its incorporation and has the corporate power and
authority to own or hold under lease its property and assets, to transact the
business in which it is engaged, following the Acquisitions, to enter into and
perform this Agreement and the other Loan Documents to which it is party, and,
as to the Borrower, to
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borrow hereunder. Each member of the Consolidated Group is duly qualified or
licensed as a foreign corporation in good standing in (or taken such comparable
action as is required under the laws of) each jurisdiction where failure to so
qualify would have a Material Adverse Effect on FAI, KOSI, Holding, Furmanite,
or any Significant Subsidiary or the Consolidated Group. A true and complete
list of all Subsidiaries of Holding, KOSI and the Borrower as at the Amendment
Effective Date (after giving effect to the GmbH Sale), showing the percentage
ownership interest of Holding, KOSI, the Borrower and Furmanite, is set forth in
Schedule 10.5 to this Agreement. All Subsidiaries of the Borrower that are not
Significant Subsidiaries on the Amendment Effective Date are denoted with an
asterisk on said schedule. All entities that were Subsidiaries of the Borrower
and listed on Schedule 10.5 to the Original Agreement are listed on Schedule
10.5 to this Agreement (and with no diminution of the relevant Loan Party's
percentage ownership therein) except for such entities that were sold,
liquidated, merged or otherwise disposed of (but only, in each case, to the
extent same occurred with the consent of the Banks or otherwise in accordance
with the provisions of the Original Agreement).
(b) The execution, delivery and performance by the Credit Parties of
this Agreement, the other Loan Documents to which each is party, and the other
documents, agreements or instruments provided for therein to which each is
party, the consummation of the transactions contemplated thereunder and the use
of the proceeds of the Loans (and of any loans represented by Intercompany
Notes) have been duly authorized by all necessary corporate and stockholder
action. This Agreement, the other Loan Documents, the Offering Documents and
the Acquisition Agreement (FAI) and the other documents, agreements or
instruments provided for therein to which each is party are the legal, valid and
binding obligations of the Credit Parties party thereto, enforceable in
accordance with their respective terms subject, as to enforceability, to
applicable bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
10.2 Compliance with Other Instruments. No member of the
---------------------------------
Consolidated Group is in material default under any Material Agreement to which
it is a party, and neither the execution, delivery or performance of this
Agreement and the other Loan Documents, nor the consummation of the transactions
herein or therein contemplated, nor compliance with the terms and provisions
hereof or thereof, will contravene any provision of law, statute, rule or
regulation to which KSI or any member of the Consolidated Group is subject or
any judgment, decree, franchise, order or permit applicable to KSI or any member
of the Consolidated Group or will conflict or will be inconsistent with
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or will result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or, except as provided by the
Security Documents, result in the creation or imposition of (or the obligation
to create or impose) any Lien upon any of the property or assets of any member
of the Consolidated Group pursuant to the terms of any indenture, mortgage, deed
of trust or Material Agreement to which KSI or any member of the Consolidated
Group is a signatory or by which KSI or any member of the Consolidated Group is
bound or to which KSI or any member of the Consolidated Group may be subject or
violate any provision of the certificate of any Charter Document of KSI or any
member of the Consolidated Group.
10.3 Litigation. There are no actions, suits or proceedings pending
----------
or, to the knowledge of FAI or the Loan Parties, threatened, against or
affecting any member of the Consolidated Group before any court or before any
governmental or administrative body or agency, which, if adversely determined,
would have a Material Adverse Effect on FAI, Furmanite, or on the Combined
Group. The litigation schedule delivered on the Closing Date pursuant to
Section 6.9(b) is a true and correct list and analysis of all actions, suits and
proceedings pending (and, to the knowledge of FAI and the Loan Parties,
threatened) on that date against any Credit Party or any of their respective
assets or by which any Credit Party is otherwise affected.
10.4 Compliance with Law. (a) Except for matters which will not
-------------------
cause or result in a Material Adverse Change in FAI, Furmanite, or in the
Combined Group: (a) all business and operations of each member of the
Consolidated Group have been and are being conducted in accordance with all
applicable laws, rules and regulations of all Federal, state, local and other
governmental authorities; (b) each member of the Consolidated Group has obtained
all permits, licenses and authorizations, or consents which are otherwise
necessary, for such Person to conduct its business; and (c) no member of the
Consolidated Group is a party to, has been threatened with, and there are no
facts existing as a basis for any governmental or other proceeding which might
result in a suspension, limitation or revocation of any such permit, license or
authorization.
(b) The Offers complied and comply with the City Code on Takeovers and
Mergers (subject to any waivers granted by the Panel), the Financial Services
Act 1986, the Companies Act 1985 and all other applicable statutes, laws and
regulations.
10.5 Capitalization of Borrower. (a) On and after the Closing Date,
--------------------------
KSI will own 100% of the issued and outstanding capital stock of Holding. On
and after the Closing Date, Holding will own 100% of the issued and outstanding
capital stock of FAI and the Borrower.
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<PAGE>
(b) Schedule 10.5 hereto is a true, correct and complete listing as of
the Amendment Effective Date (as to each member of the Consolidated Group) of
such Person's authorized capital stock, the par value of same, and the number of
such shares issued and outstanding. All of the shares listed on said schedule
as outstanding have been duly and validly issued, are fully paid and
nonassessable, are outstanding as of the Amendment Effective Date, are owned
beneficially and of record as indicated on said schedule, and are owned free and
clear of all Liens other than Liens in favor of the Agent and the Banks pursuant
to the Security Documents. Where a Subsidiary is not 100% owned by a member of
the Consolidated Group, the percentage of capital stock owned by each
shareholder of such Subsidiary is also shown on such schedules.
(c) [intentionally deleted]
(d) No member of the Consolidated Group has outstanding on the
Amendment Effective Date any option, warrant, bonds, debentures or other right,
put, call or commitment to issue, or any obligation or commitment to purchase
any of its authorized capital stock, or any securities convertible into or
exchangeable for any of its authorized capital stock, except for the obligation
of the Borrower to redeem the Redeemable Shares in accordance with the Offer
(UK).
(e) [intentionally deleted]
(f) As of April 1, 1993 and as of the Amendment Effectiveness Date,
GmbH has no Subsidiaries except the GmbH Subsidiaries.
10.6 Governmental Approvals. Except for those listed in Schedule
----------------------
10.6 to the Original Agreement, each of which has been duly obtained and is in
full force and effect, no order, permission, consent, approval, license,
authorization, registration or validation of, or filing with, or exemption by,
any Government Authority, or any stock exchange or other governmental or non-
governmental regulatory authority (US or UK or otherwise) or any other Person,
is required to authorize, or is required in connection with the execution,
delivery and performance of this Agreement, the other Loan Documents, the
Offering Documents or the Acquisition Agreement (FAI) by KSI or any member of
the Consolidated Group, or the taking of any action hereby or thereby
contemplated including, without limitation, the consummation of the
Acquisitions. Without limiting the generality of the foregoing, no approvals
are required from any Government Authority by virtue of KSI being the owner or
operator of pipelines.
10.7 Federal Reserve Margin Regulations; Proceeds. (a) No member of
--------------------------------------------
the Consolidated Group or KSI is engaged
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<PAGE>
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System). No part of the proceeds of the Loans or any obligations in connection
with which any Letter of Credit is issued will be used to purchase or carry any
such margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
(b) The proceeds of the Term Loans shall be used by the Borrower
(directly or via loans or capital contributions to Furmanite) solely (i) to pay
(Pounds)7,200,000 (or less) of the Temporary Notes (the proceeds of which were
used for the purchase of Preferred Shares and Ordinary Shares), (ii) to redeem
the Redeemable Shares, (iii) (as to approximately (Pounds)2,500,000 thereof), to
repay existing Furmanite loan stock, (iv) as set forth in the next-to-last
sentence of this paragraph, and (v) to pay fees and expenses in connection with
this Agreement, the Acquisitions and related matters. The proceeds of the
Revolving Credit Loans shall be used solely (i) for working capital purposes of
the Borrower, (ii) for loans by Borrower to Furmanite and other Subsidiaries for
their respective working capital needs, and (iii) to provide approximately
$4,100,000 to FAI to enable FAI to repay in full its outstanding indebtedness to
Sovran Bank (said $4,100,000 to be provided by Borrower to Holding as a loan or
dividend), and by Holding to FAI in exchange for the issuance to Holding of
preferred stock in FAI). In addition, proceeds of the Loans made on the Closing
Date will be used (directly by Borrower or via loans or capital contributions to
Furmanite and other Subsidiaries of the Borrower) to pay, on behalf of
Furmanite, all indebtedness and other obligations of Furmanite and its
Subsidiaries to lenders other than (x) the Banks and (y) holders of 1991 Notes.
All loans from time to time to be made by Borrower to Furmanite and other
Subsidiaries for working capital purposes as set forth in this Section 10.7(b)
and permitted by Section 8.3 shall (A) be represented by subordinated promissory
notes executed by the borrower thereof (each, as the same may from time to time
with the consent of the Agent be amended, supplemented or otherwise modified, an
"Intercompany Note"), substantially in the form of Exhibit I to the Original
-----------------
Agreement, and such Intercompany Notes shall immediately be endorsed in blank
and delivered to the Agent as additional collateral for the Obligations, or (B)
be otherwise documented in form and substance satisfactory to the Agent, be
subordinated (in manner and substance satisfactory to the Agent) to the
obligations of such borrower under its respective Guarantee Agreement, and all
of Borrower's rights to receive any payments in respect thereof shall be
assigned to the Agent and the Banks (as a first priority Lien) as collateral for
the Obligations. The aggregate principal amount outstanding under the Temporary
Notes as at August 31, 1992 is $7,011,758.
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10.8 Taxes.
-----
(a) All material tax returns of any nature whatsoever, including but
not limited to, all US and UK income, payroll, stock transfer, and excise tax
returns and all appropriate state and local income, sales, excise, payroll,
franchise and real and personal property tax returns, and corresponding returns
under the laws of any jurisdiction, which are required to be filed by any member
of the Consolidated Group have been or will be filed by the due date or extended
due date of such returns.
(b) Except for amounts which in the aggregate do not exceed
(Pounds)100,000 (or the equivalent thereof in other currencies), all tax amounts
and other related liabilities (including interest and penalties) due and payable
with respect to any member of the Consolidated Group have been paid.
10.9 Investment Company Act. No Credit Party nor the entering into
----------------------
of the Loan Documents is subject to any of the provisions of the Investment
Company Act of 1940, as amended.
10.10 Properties of the Borrower. (a) As of the date hereof and as
--------------------------
of the Closing Date, no member of the Consolidated Group owns any real property
other than the Sites and the realty owned by Furmanite Engineering Limited at
Middlesbrough, UK. Except as set forth in Schedule 10.10A to the Original
Agreement, no member of the Consolidated Group leases any real property as of
the date hereof and as of the Closing Date. There are no patents, trademarks or
copyrights, or any trade names (except the trade name "Furmanite"), of any
member of the Consolidated Group that are material to such Person's business or
operations; Schedule 10.10B to the Original Agreement sets forth all
jurisdictions (and the offices therein) where the trade name "Furmanite" has
been registered or application therefor made. All Material Agreements or
similar commitments of members of the Consolidated Group are in full force, none
of the parties thereunder are in material default thereunder and no written
notice of default has been given or received. Each member of the Consolidated
Group has full, valid and existing right, title and interest (in fee simple
where applicable) to all of its material real and personal property and all
tangible and intangible rights, and the ownership rights of such Person in and
to all of such tangible and intangible rights are subject to no material liens,
encumbrances, pledges or burdens other than those listed on Schedule 8.2(g) to
the Original Agreement, which security interests shall be terminated on and as
of the Closing Date.
(b) Neither Holding, FAI nor any US Subsidiary of either owns or has
any rights to any property located in the UK or otherwise outside the US.
Neither the Borrower nor any UK Subsidiary of the Borrower owns or has any
rights to any property
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located in the US or otherwise outside the UK (except for equipment of Furmanite
with an aggregate net book value of less than (Pounds)750,000 as to which,
whenever such property is outside a jurisdiction where the Banks have a first
priority security interest in same, the Borrower will take such actions and sign
and file such financing statements or other documents as shall be necessary to
create (or maintain) for the Banks such first priority perfected security
interest).
10.11 Financial Condition. (a) There are no material liabilities or
-------------------
any material unrealized or anticipated losses from unfavorable commitments which
are not disclosed in the Financial Statements referred to in Section 10.11(b).
(b) The audited consolidated Financial Statements of FAI, and of
Furmanite and its Subsidiaries (as then constituted), and of Holding and its
Subsidiaries, for the fiscal year ended December 31, 1992 have been delivered to
the Banks and have been prepared in accordance with GAAP and fairly present the
financial condition and the results of operations of FAI, and of Furmanite and
its Subsidiaries, of Holding and its Subsidiaries, respectively, for the periods
covered thereby.
(c) There has been no Material Adverse Change in FAI, Furmanite or any
Significant Subsidiary, or the Combined Group, since December 31, 1992. For
purposes of this Section 10.11(c), any event or condition which has been waived
or consented to by the Banks pursuant to a waiver or amendment executed on or
prior to the Amendment Effective Date pursuant to Section 12.2 hereof shall not
be considered to have been such a Material Adverse Change.
(d) At the time of, and after giving effect to, the making of each
Loan and the issuance of each Letter of Credit, each of (i) FAI, (ii) Holding,
(iii) the Borrower, (iv) Furmanite and its UK Subsidiaries taken as a whole, and
(v) KOSI (x) is Solvent, and (y) possesses, in the opinion of Holding and the
Borrower, sufficient capital to conduct the business in which it is engaged or
presently proposes to engage.
(e) [intentionally deleted]
10.12 Environmental Matters. (a) To the best of such Loan Party's
---------------------
knowledge, each member of the Consolidated Group (and any predecessor in
interest of any of them) has been and continues to be in compliance with all
applicable Environmental Laws;
(b) Each member of the Consolidated Group has obtained all material
permits and approvals required under Environmental Laws, including all material
environmental, health and safety permits, licenses, approvals, authorization,
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variances, agreements, and waivers of Government Authorities ("Permits")
-------
necessary for the conduct of its business and the operation of its facilities,
and all such Permits are in good standing and each member of the Consolidated
Group is in compliance with all material terms and conditions of such Permits;
(c) No member of the Consolidated Group nor any of their respective
Properties or operations is subject to any outstanding written order from or
agreement with any Government Authority or other Person or is subject to any
judicial or docketed administrative proceeding respecting any (x) Environmental
Law, (y) Remedial Action or (z) Environmental Claim or Environmental Costs;
(d) To the best of such Loan Party's knowledge, there are no
conditions or circumstances now or formerly associated with any Property or
operations by any member of the Consolidated Group (or any predecessor in
interest of any of them) which may prevent or interfere with compliance by such
member of the Consolidated Group with all applicable Environmental Laws or form
the basis of any Environmental Claim or give rise to Environmental Costs;
(e) No Environmental Claim (including, without limitation, in respect
of any alleged violation of any Environmental Laws) is pending or (to the best
of such Loan Party's knowledge) threatened against, or has been received by, any
member of the Consolidated Group;
(f) No Environmental Lien and no unrecorded Environmental Lien has
attached to any Property of any member of the Consolidated Group and, to the
best of such Loan Party's knowledge, no action has been taken by any Person
which could subject any such Property to any Environmental Lien;
(g) The Audits listed in Schedule 10.12 to the Original Agreement
constitute the only environmental audits or reports undertaken or received by
KSI or any member of the Consolidated Group on or prior to the Closing Date with
respect to Properties of members of the Consolidated Group;
(h) To the best of such Loan Party's knowledge, neither Holding nor
any US Subsidiary (nor any predecessor in interest of any of them) has
transported or arranged for the transportation of any Contaminant to any
location which is (i) listed on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (ii) listed for possible inclusion on the National Priorities List by
the United States Environmental Protection Agency, or (iii) listed on any
similar state list or (iv) to the best of such Loan Party's knowledge, the
subject of federal,
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state or local enforcement actions or other investigations which may lead to
Environmental Claims against any member of the Consolidated Group or the
imposition of Environmental Costs on any member of the Consolidated Group; and
(i) To the best of such Loan Party's knowledge, no member of the
Consolidated Group is required to place any notice of restriction relating to
the presence of any Contaminant on, in, under or emanating from any property, in
any deed to such Property.
10.13 Disclosure. Neither this Agreement, the Original Agreement,
----------
the Offering Documents, the Acquisition Agreement (FAI) nor any Loan Document
nor any statement, list, certificate or other document or information, nor any
Schedules to this Agreement or the Original Agreement, delivered or to be
delivered to the Agent or the Banks contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make statements contained herein or therein, in light of the
circumstances in which they are made, not misleading.
10.14 Compliance with ERISA. Holding and each ERISA Affiliate and
---------------------
each Plan and the trusts maintained pursuant to such plans are in compliance in
all material respects with the presently applicable provisions of Sections 401
through and including 417 of the Code, and of ERISA and (i) no event which
constitutes a Reportable Event as defined in Section 4043 of ERISA (other than a
Reportable Event described in paragraph (b)(2), (3), (7), (8) or (9) of Section
4043 of ERISA as to which the 30-day notice requirement of C.F.R.(S) 2615.3(a)
has been waived by the Department of Labor) has occurred and is continuing with
respect to any Plan which is or was covered by Title IV of ERISA, (ii) no Plan
which is subject to Part 3 of Subtitle B of Title 1 of ERISA has incurred any
"accumulated funding deficiency" (within the meaning of Section 302 of ERISA or
Section 412 of the Code) whether or not waived, and (iii) no written notice of
liability has been received with respect to any member of the Consolidated Group
for any "prohibited transaction" (within the meaning of Section 4975 of the Code
or Section 406 of ERISA), nor has any such prohibited transaction resulting in
liability to any member of the Consolidated Group occurred.
No member of the Consolidated Group or any ERISA Affiliate (i) has
incurred any liability to the PBGC (or any successor thereto under ERISA), or to
any trustee of a trust established under Section 4049 of ERISA, in connection
with any Plan (other than liability for premiums under Section 4007 or ERISA),
(ii) has incurred any withdrawal liability under Subtitle E of Title IV of ERISA
in connection with any Plan which is a Multiemployer Plan, nor (iii) has
contributed or has been obligated to contribute on or after September 26, 1980,
to any
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"multiemployer plan" (within the meaning of Section 3(37) of ERISA) which is
subject to Title IV of ERISA.
The consummation of the transactions contemplated by this Agreement
and the Acquisitions (i) will not give rise to any liability on behalf of
Holding or its ERISA Affiliates under Title IV of ERISA to the PBGC (other than
ordinary and usual PBGC premium liability), to the trustee of a trust
established pursuant to Section 4049 of ERISA, or to any Multiemployer Plan, and
(ii) will not constitute a "prohibited transaction" under Section 406 of ERISA
or Section 4975 of the Code.
10.15 The Security Documents. (a) Each Security Document when
----------------------
delivered will grant a security interest or lien in the properties or rights
intended to be covered thereby (the "Collateral") which (i) will constitute a
----------
valid and enforceable security interest under (A) the Uniform Commercial Code of
the State (x) in which the Collateral is located and (y) by which any Security
Document is governed (as applicable, the "UCC") and with respect to the Mortgage
---
(US), the real estate recording acts of Virginia (the "Recording Act"), or (B)
-------------
as to Security Documents governed by English law, the applicable provisions of
English law (the "UK Statutes"); (ii) will be entitled to all of the rights,
-----------
benefits and priorities provided by (A) the UCC and, with respect to the
Mortgage (US), the Recording Act, or (B) as to those Security Documents governed
by English law, the UK Statutes; and (iii) when such Security Documents or
financing statements with respect thereto are filed and recorded as required by
the UCC or the Recording Act (or, in the case of those Security Documents
governed by English law, duly registered pursuant to the Companies Act 1985, the
Land Registration Act 1925 and the Land Charges Act (1972), as appropriate),
will be superior and prior to the rights of all third Persons now existing or
hereafter arising under the laws of the US, the UK and any subdivision of either
(based on the laws in effect, and any laws already passed but not yet in effect,
on the date on which such representation is being made) whether by way of
mortgage, pledge, lien, security interest, encumbrance or otherwise except for
Permitted Liens and the other Liens referred to in Section 8.2(g). All such
action as is necessary in law has been taken, or prior to the Closing Date will
have been taken (except as otherwise contemplated by Section 7.18 or 7.20
hereof), to establish and perfect the security interest of the Agent and the
Banks in the Collateral and to entitle the Banks or the Agent on behalf of the
Banks to exercise the rights and remedies provided in each of the Security
Documents and the UCC or the Recording Act or the UK Statutes, as applicable,
and (except as specified in the first parenthetical of clause (iii) above) no
filing, recording, registration or giving of notice or other action is required
in connection therewith except such as has been made or given or will have been
made or given prior to such date (except as otherwise contemplated by Section
7.18 or 7.20 hereof). All filing and
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<PAGE>
other fees and all mortgage recording or other tax payable with respect to the
recording of any of the Security Documents and UCC financing statements (and any
analogous UK documents) have been paid or provided for or will have been so paid
or provided for on or prior to the Closing Date.
(b) The Security Documents secure or guarantee, as the case may be,
all Loans whether made before, on or after the Amendment Effective Date. No
amendments need to be made in any of the Security Documents, nor does any action
need to be taken, to effectuate the provisions of the preceding sentence other
than amendments being made (if any), and action being taken (if any), on the
Amendment Effective Date pursuant to Sections 12.14 hereof.
10.16 [intentionally deleted]
10.17 [intentionally deleted]
10.18 Qualification. Solely by reason of (and without regard to any
-------------
other activities of the Agent or any Bank in any State in which Collateral is
located) the entering into, performance and enforcement of this Agreement, the
Loans, the Security Documents and the other Loan Documents by the Agent or any
Bank will not constitute doing business by the Agent or any Bank in Virginia or
result in any liability of the Agent or such Bank for taxes or other
governmental charges; and qualification by the Agent or any Bank to do business
in such jurisdiction is not necessary in connection with, and the failure to so
qualify will not affect, the enforcement of, or exercise of any rights or
remedies under, any of such documents.
10.19 NOL's. (a) For purposes of Section 382 of the Code, the
-----
cumulative change in the stock ownership of KSI through January 31, 1991 was
less than 20%.
(b) No taxable income of FAI to be reported in any consolidated US
federal income tax return of KSI will represent the recognition of "built-in
gains" under Section 384 of the Code.
(c) Valid business purposes for each Acquisition exist under Section
269 of the Code and have been documented. Future income of FAI will qualify in
full for reduction by the current tax losses and NOL's of KSI and its
subsidiaries, without limitation.
10.20 Significant Subsidiaries. The aggregate amount of assets of
------------------------
all Subsidiaries of Furmanite that are not Significant Subsidiaries, when added
to the aggregate amount of assets of all Subsidiaries of KOSI that are not
Significant Subsidiaries, is less than 15% of the assets of the Combined
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<PAGE>
Group. The aggregate gross revenues for the most recent fiscal quarter for all
Subsidiaries of Furmanite that are not Significant Subsidiaries, when added to
the aggregate gross revenues for the most recent fiscal quarter for all
Subsidiaries of KOSI that are not Significant Subsidiaries, constitutes less
than 15% of the consolidated gross revenues of the Combined Group for such
fiscal quarter.
10.21 [intentionally deleted]
10.22 Dormant Subsidiaries. No Dormant Subsidiary (a) is engaged in
--------------------
any business or activity, (b) has any assets in excess of $25,000 (or its
equivalent in the applicable currency), (c) has any liabilities (contingent or
otherwise) in excess of $25,000 (or its equivalent in the applicable currency),
or (d) has any Subsidiary.
10.23 Management Fees. (a) For the period from July 1, 1992 through
---------------
the last day of the month in which the Amendment Effective Date occurs, the
aggregate monthly amount of fees, costs, expenses and other amounts payable by
members of the Consolidated Group to KSI pursuant to the Management Agreement or
otherwise has not exceeded the average monthly amount of such fees, costs,
expenses and other amounts payable by members of the Consolidated Group to KSI
pursuant to the Management Agreement for the period July 1, 1991-June 30, 1992.
(b) The average monthly amount of fees, costs, expenses and other
amounts paid or payable by members of the Consolidated Group to KSI pursuant to
the Management Agreement for the period July 1, 1991-June 30, 1992 did not
exceed $100,000 per month.
(c) The aggregate accrued amount of all fees, costs, expenses and
other amounts payable by members of the Consolidated Group to KSI pursuant to
the Management Agreement with respect to periods ending on or prior to June 30,
1992 does not exceed $1,628,000. No portion of this amount is an obligation of
any member of the Consolidated Group other than the Borrower.
(d) No aspect of the Management Agreement nor the performance thereof
(including without limitation, the activities, services, fees, costs, expenses
and other charges with respect thereto) violates in any way any of the
provisions of Section 8.11 hereof (determined, with respect to Section 8.11(a),
as if said paragraph ended with the words "to so do" in the eighth line thereof
and the balance of such paragraph was deleted) or Section 7.13 of the Agreement.
The Management Agreement is between KSI and the Borrower, notwithstanding that
the company designated as the "Recipient" therein is called "Kaneb UK, Ltd."
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<PAGE>
(e) The aggregate amount of accrued but unpaid expenses advanced by
KSI on behalf of the Borrower as of June 30, 1992 is $1,060,161. The components
of this aggregate amount are accurately set forth and described on Annex F to
the Fourth Amendment. None of such obligations of the Borrower to KSI is
evidenced by a promissory note or similar instrument. None of these amounts are
obligations of any member of the Consolidated Group other than the Borrower.
10.24 GmbH Sale. (a) No agreement for the GmbH Sale, nor any letter
---------
of intent with respect thereto, nor any other related document, contains or will
contain any agreement by FIL, FAI or any other Loan Party to indemnify or
otherwise pay any compensation to (or otherwise incur any liability to) the KSI
Purchaser or any Affiliate of the KSI Purchaser in connection with the GmbH Sale
other than with respect to fraud or intentional, material misrepresentations by
FIL in connection therewith.
(b) To the extent that the KSI Loans are made, the KSI Purchaser has
irrevocably agreed that (i) the KSI Purchaser's ownership of the GmbH Stock is
(and all shares of the GmbH Subsidiaries are) subject to the prior Liens of the
Banks and the KSI Lender in such shares, and (ii) such Liens are subject to
release only when the KSI Loans and all interest thereon have been paid in full.
Section 11. AGENT.
-----
11.1 Appointment. The Banks hereby irrevocably appoint Bank of
-----------
Scotland to act as Agent hereunder and as Agent or "Assignee" or "Secured Party"
or "Mortgagee" or "Security Trustee" (or in any similar capacity, regardless of
designation) under the Security Documents (in such capacity, the "Agent"). Each
-----
Bank hereby irrevocably authorizes, and each holder of any Note that is issued
in connection with any Loan by the acceptance of such Note shall be deemed
irrevocably to authorize, the Agent to take such action on its behalf under the
provisions of this Agreement, the Notes, the Security Documents, the other Loan
Documents and any other instruments and agreements referred to therein and to
exercise such powers thereunder as are specifically delegated to or required of
it by the terms thereof and such other powers as are reasonably incidental
thereto. The Agent may perform any of its duties under any of the Loan
Documents by or through its agents or employees. The Agent further acknowledges
that it is acting as agent for the Banks under the Security Documents executed
by it and by Foreign Subsidiaries incorporated in Germany and that any amounts
received by the Agent thereunder (other than with respect to the stock of any of
the GmbH Entities) with respect to the Loans shall be applied on behalf of the
Banks as provided in Section 5.2(b) and 5.3 hereof.
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<PAGE>
11.2 Nature of Duties. The Agent shall have no duties or
----------------
responsibilities except those expressly set forth in the Loan Documents.
Neither the Agent nor any of its officers, directors, employees or agents shall
be liable to any Bank for any action taken or omitted by it under any of the
Loan Documents, or in connection therewith, unless caused by its or their gross
negligence or willful misconduct. Nothing in the Loan Documents, expressed or
implied, is intended to or shall be so construed as to impose upon the Agent any
obligations in respect of the Loan Documents except as expressly set forth
therein. The duties of the Agent under the Loan Documents shall be mechanical
and administrative in nature and the Agent shall not have by reason of its
duties under the Loan Documents a fiduciary relationship in respect of any Bank.
The Agent agrees to deliver promptly to each Bank copies of notices received by
it pursuant to Sections 7.2, 7.11 and 7.16 of this Agreement.
11.3 Lack of Reliance. Independently and without reliance on the
----------------
Agent, each Bank to the extent it deems appropriate has made and shall continue
to make (i) its own independent investigation of the financial condition and
affairs of the Credit Parties in connection with the making and the continuance
of the Loans and its Commitment hereunder and the issuance and renewal of
Letters of Credit hereunder and the taking or not taking of any action in
connection herewith, (ii) its own appraisal of the credit worthiness of the
Credit Parties and (iii) its own independent investigation and appraisal of the
Collateral; and, except as expressly provided in the Loan Documents, the Agent
shall have no duty or responsibility, either initially or on a continuing basis,
to provide any Bank with any credit or other information with respect thereto,
whether coming into its possession before the date hereof or at any time or
times thereafter. The Agent shall not be responsible to any Bank for any
recitals, statements, representations or warranties herein or in any certificate
or other document delivered in connection herewith or for the authorization,
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, or sufficiency of any of the Loan Documents, the Offering
Documents, the Acquisition Agreement (FAI), the financial condition of the
Credit Parties or the condition of any of the Collateral, or be required to make
any inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of any of the Loan Documents, the Offering Documents,
the Acquisition Agreement (FAI), the financial condition of the Credit Parties
or the existence or possible existence of any Event of Default or Default.
11.4 Certain Rights. If the Agent requests instructions from the
--------------
Banks or the Required Banks with respect to any interpretation, act or action
(including failure to act in connection with this Agreement or any of the other
Loan Documents) the Agent shall be entitled to refrain from such act
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<PAGE>
or taking such actions unless and until it shall have received instructions from
the Banks or the Required Banks, as the case may be; and the Agent shall not
incur liability to any Person by so refraining. Without limiting the foregoing,
no Bank shall have any right of action whatsoever against the Agent as a result
of the Agent acting or refraining from acting hereunder or under any of the
other Loan Documents in accordance with the instructions of the Required Banks
(as to matters requiring the consent of the Required Banks) or all the Banks (as
to matters requiring the consent of all the Banks). The Agent shall be fully
justified in failing or refusing to take any action under any Loan Document
unless, if it requests, it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking, continuing to take or not taking any such action.
11.5 Reliance. The Agent shall be entitled to rely upon any written
--------
notice, or any telephone message believed by it to be genuine or correct and to
have been signed, sent or made by the proper Person, and, with respect to all
legal matters pertaining to the Loan Documents and its duties thereunder, upon
advice of counsel selected by it.
11.6 Indemnification. To the extent the Agent is not reimbursed or
---------------
indemnified by the Borrower, the Banks will reimburse and/or indemnify the Agent
in Dollars, in proportion to their respective Commitments (or if the Revolving
Credit Loan Commitments are terminated, the principal amount of Loans and
Letters of Credit outstanding) under this Agreement, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred or sustained by or asserted against the Agent, acting
pursuant hereto or any of the other Loan Documents in its capacity provided for
in this Section 11, in any way relating to or arising out of this Agreement, the
Original Agreement or any of the other Loan Documents, provided, however, that
-------- -------
no Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence or wilful misconduct.
For purposes of the first sentence of this Section 11.6 only, while Revolving
Credit Loan Commitments exist, the Term Loan Commitment of each Bank shall be
deemed equal to the then-outstanding principal amount of its Term Loan. The
obligations of the Banks under this Section 11.6 shall survive the repayment of
the Loans and the termination of this Agreement and the other Loan Documents.
11.7 Agent, Individually. With respect to its Commitments under this
-------------------
Agreement, the Loans made by it and any Note issued to or held by it, the Agent
shall have and may exercise the same rights and powers hereunder and is subject
to
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<PAGE>
the same obligations and liabilities as and to the extent set forth herein for
any other Bank or holder of a Note. The terms "Bank" or "holders of Notes" or
any similar terms shall, unless the context clearly otherwise indicates, not
exclude the Agent in its individual capacity as a Bank or holder of a Note. The
Agent may accept deposits from, lend money to, and generally engage in any kind
of banking, trust or other business with the Credit Parties and Subsidiaries as
if it were not acting pursuant hereto, and may accept fees and other
consideration from the Credit Parties and Subsidiaries for services as the Agent
in connection with this Agreement and the other Loan Documents and for services
otherwise than as the Agent without having to account for the same to the Banks.
Without limiting the generality of the foregoing, the Banks hereby acknowledge
that the Agent, in its individual capacity and not as the Agent or a Bank, may
be making a loan to KSI in connection with the transactions contemplated to
occur on the Amendment Effective Date.
11.8 Holders of Notes. The Agent may deem and treat the payee of any
----------------
Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment or transfer thereof shall have been received by the
Agent. Any request, authority or consent of any Person, who at the time of
making such request or of giving such authority or consent is the payee of any
Note, shall be conclusive and binding on any subsequent holder, transferee,
assignee or payee of such Note or of any Note or Notes issued in exchange
therefor.
11.9 Resignation. The Agent may resign at any time from the
-----------
performance of all its functions and duties hereunder and under the other Loan
Documents by giving 30 days prior written notice to the Borrower and each Bank.
Such resignation shall take effect upon the expiration of such 30 day period or
upon the earlier appointment of a successor. In case of the resignation of the
Agent, the Required Banks may appoint a successor by a written instrument signed
by the Required Banks. Any successor shall execute and deliver to the Agent an
instrument accepting such appointment, and thereupon such successor, without
further act, shall become vested with all the estates, properties, rights,
powers, duties and trusts of the Agent hereunder and with like effect as if
originally named as "Agent" herein and therein, and upon request, the
predecessor Agent shall take all actions and execute all documents necessary to
give effect to the foregoing. In the event the Agent's resignation becomes
effective at a time when no successor has been named, all notices, other
communications and payments hereunder required to be given by or to the Agent
shall be sufficiently given if given by the Required Banks (or all Banks, if the
consent of all Banks is required therefor hereunder) or to each Bank, as the
case may be. In such event, all powers specifically delegated to the Agent may
be exercised by the
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Required Banks and the Required Banks shall be entitled to all rights of the
Agent hereunder.
11.10 Reimbursement. Without limiting the provisions of Section
-------------
11.6, the Banks and the Agent hereby agree that the Agent shall not be obligated
to make available to any Person any sum which the Agent is expecting to receive
for the account of that Person until the Agent has determined that it has
received that sum. The Agent may, however, disburse funds prior to determining
that the sums which the Agent expects to receive have been finally and
unconditionally paid to the Agent, if the Agent wishes to do so. If and to the
extent that the Agent does disburse funds and it later becomes apparent that the
Agent did not then receive a payment in an amount equal to the sum paid out,
then any Bank (as to clauses (a) and (b) below) and any Person (as to clause (a)
below) to whom the Agent made the funds available shall, on demand from the
Agent:
(a) upon the Agent's request, refund to the Agent the sum paid to
that Person; and
(b) reimburse the Agent for the additional amount certified by the
Agent as being necessary to indemnify the Agent against any funding or other
cost, loss, expense or liability sustained or incurred by the Agent as a result
of paying out the sum before receiving it; provided, however, that if such funds
-----------------
were made available to any Bank, such additional amount shall be limited to
interest on the sum to be repaid, for each day from the date such amount was
disbursed until the date repaid to the Agent, at (for the first three days) the
customary rate set by the Agent for correction of errors among banks, and
thereafter at the Base Rate (US) (or, if greater and in respect of a Loan made
to the Borrower, the rate from time to time prevailing on such Loan). In the
event of any direct conflict between this Section 11.10 and the provisions of
Section 2.2(f) as to amounts payable by a Bank to the Agent in the circumstances
discussed, this Section 11.10 shall control.
Section 12. MISCELLANEOUS.
--------------
12.1 Calculations and Financial Data. (a) Calculations hereunder
-------------------------------
(including, without limitation, calculations used in determining, or in any
certificate of any Credit Party reflecting, compliance by any Credit Party with
the provisions of this Agreement) shall be made and financial data required
hereby shall be prepared both as to classification of items and as to amount in
accordance with GAAP consistent with the Financial Statements of such Credit
Party for its Fiscal Year ended December 31, 1992 that were delivered to the
Banks pursuant to Section 7.1(b); provided that for purposes of Sections 8.17
-------- ----
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<PAGE>
through 8.23 (inclusive) no effect shall be given to any change in GAAP from
those in effect on December 31, 1992.
(b) In making any computations required for purposes of Section 8.13
and Sections 8.17-8.23 (inclusive) hereunder to be in Dollars in respect of or
relating to any fiscal or calendar period, translations from other currencies
shall be computed in accordance with GAAP. In the case of any disputes between
any of the parties hereto as to the accuracy of any computation under this
Agreement relating to currency translations or the Spot Rate, the calculations
of the Agent (absent manifest error) shall be conclusive.
(c) For so long as this Agreement remains in effect, Holding and
Borrower hereby irrevocably authorize the Agent and the Banks to discuss the
Financial Statements and other financial information from time to time delivered
hereunder, and the financial condition of the Credit Parties, with the Auditors
and hereby irrevocably authorize the Auditors to discuss same with the Agent and
the Banks. The Agent and the Banks shall notify the Borrower prior to any such
conversation or series of conversations with the Auditors.
12.2 Amendment and Waiver. (a) Except as otherwise provided, no
--------------------
provision of any of the Loan Documents may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the Required
Banks (or the Agent on their behalf) and the Borrower, except that waivers of
provisions relating to a Credit Party's performance or non-performance of its
obligations hereunder or thereunder need not be signed by such Credit Party or
any other Credit Party; provided however that (i) the written consent of the
-------- -------
Issuer shall also be required to change, waive, discharge or terminate
provisions of Section 2A, (ii) the written consent of the Agent shall also be
required to change, waive, discharge or terminate provisions of Section 4.2 or
11, and (iii) the written consent of Holding shall also be required to change,
waive, discharge or terminate provisions of Section 9A; and provided further
-------- -------
that without the consent of all of the Banks (or the Agent on their behalf) no
change, waiver, discharge or termination may be made that would increase the
amount of any Bank's Commitment; decrease the principal of any Loan or
Reimbursement Obligation other than in accordance with the provisions of this
Agreement and the other Loan Documents; decrease the interest rate payable on
any Loan; decrease the rate of Commitment commission payable pursuant to Section
4.1; extend the final maturity date of any Loan; extend the termination date of
the Commitment Period; change the definition of "Required Banks" or modify this
Section 12.2. Any such change, waiver, discharge or termination shall be
effective only in the specific instance and for the specific purposes for which
made or given.
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(B) THIS WRITTEN AGREEMENT (AND THE OTHER LOAN DOCUMENTS) REPRESENTS
THE FINAL AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE MATTERS COVERED
HEREBY AND THEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
(C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
12.3 Expenses. (a) Whether or not the transactions hereby
--------
contemplated shall be consummated, the Borrower shall upon demand of the Agent
pay all reasonable out-of-pocket costs and expenses of (w) the Bank of Scotland
(but not any Bank Assignee or Purchasing Bank) in connection with AIB becoming a
Bank Assignee or Purchasing Bank, (x) the Agent incurred in connection with the
preparation, execution, delivery, administration, filing and recording of, and
(y) of the Agent and the Banks incurred in connection with the amendment
(including any waiver or consent), modification, and enforcement of or
preservation of any rights under, this Agreement, the Original Agreement, the
Loan Documents, the Depositary Documents, the making and repayment of the Loans,
the issuance of Letters of Credit and the maintenance and operation of the Cash
Collateral Account and the Other Accounts, and the payment of all interest and
fees, including, without limitation, (A) the reasonable fees and expenses of
Sullivan & Worcester, counsel for the Agent and the Bank of Scotland, and any
special or local counsel (including Freshfields) retained by the Agent or Bank
of Scotland or the Required Banks, and with respect to enforcement, the
reasonable fees and expenses of counsel for the Agent or any Bank, (B) the
reasonable fees and expenses of consultants and appraisers retained by the Agent
in connection with the transactions contemplated hereunder, and (C) printing,
travel, title insurance, recording, filing, communication and signing taxes and
costs.
(b) The Borrower agrees to pay, and to save the Agent and the Banks
harmless from (x) all present and future stamp, filing and other similar taxes,
fees or charges (including interest and penalties, if any), which may be payable
in connection with the Loan Documents or the issuance of any Notes or of Letters
of Credit or any modification of any of the foregoing, and (y) all finder's and
broker's fees in connection with the transactions contemplated by this Agreement
and the other Loan Documents.
(c) Without limiting any of the rights or obligations as set forth in
this Agreement on the part of the Agent or any of the Banks, the Borrower agrees
to indemnify, pay and hold harmless the Issuer, the Agent, each Bank, any Bank
Assignee and each holder of a Note and their respective present and future
officers, directors, employees and agents
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<PAGE>
(collectively, the "Indemnified Parties") from and against all liability,
-------------------
losses, damages and expenses (including, without limitation, legal fees and
expenses) arising out of, or in any way connected with, or as a result of (i)
the execution and delivery of this Agreement, the Original Agreement, the
Depositary Documents and the other Loan Documents or the documents or
transactions contemplated hereby and thereby or the performance by the parties
hereto or thereto of their respective obligations hereunder and thereunder or
relating thereto; or (ii) any claim, action, suit, investigation or proceeding
(in each case, regardless of whether or not the Indemnified Party is a party
thereto or target thereof) in any way relating to either Acquisition, any
Collateral, any Offering Document, the Borrower, KSI, any member of the
Consolidated Group or any Affiliate of any of the foregoing; or (iii) any
violation by any member of the Consolidated Group (or any predecessor in
interest of any of them) of any Environmental Law, any Environmental Claim or
Environmental Cost or the imposition of any Environmental Lien, or any breach of
any representation or warranty set forth in Section 10.12; provided that the
-------------
Borrower shall not be liable to any Indemnified Party for any portion of such
liabilities, liabilities, losses, damages and expenses sustained or incurred as
a direct result of the gross negligence or willful misconduct of the Issuer, the
Agent or any Bank if such gross negligence or willful misconduct is determined
to have occurred by a final and non-appealable decision of a court of competent
jurisdiction.
(d) All obligations provided for in this Section 12.3 and Sections
3.7, 3.9, 3.10, 3.11, 5.2, 11.6 and 11.10 shall survive any termination of this
Agreement, the expiration and termination of all Letters of Credit, the payment
of all Deemed Disbursements and Reimbursement Obligations and the payment in
full of the Loans.
12.4 Benefits of Agreement; Descriptive Headings. (a) This Agreement
-------------------------------------------
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns, and, in particular,
shall inure to the benefit of the holders from time to time of the Notes;
provided, however, that no Loan Party may assign or transfer any of its rights
-------- -------
or obligations hereunder without the prior written consent of the Agent and the
Banks and any such purported assignment or transfer shall be void. In
furtherance of the foregoing, each Bank shall be entitled at any time to grant
participations in or assign, sell or otherwise transfer the whole or any part of
its rights and obligations under this Agreement, the Loan Documents or any Loan
or Note or Letter of Credit to any Person subject to obtaining the prior written
consent of the Borrower (but no other Credit Party), such consent not to be
unreasonably withheld. No such participation, assignment, sale or other
transfer pursuant to this Section 12.4(a) shall relieve any Bank from its
obligations hereunder and the Borrower and the Guarantors need
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deal solely with the Agent with respect to waivers, modifications and consents
to this Agreement, the Loan Documents or the Notes. Any such participant,
assignee, purchaser or transferee is referred to in this Agreement as a "Bank
----
Assignee". The Borrower agrees that the provisions of Sections 2A.3, 3.7, 3.9,
--------
3.10, 3.11, 5.2 and 12.3 shall run to the benefit of each Bank Assignee and its
participations or interests herein, and any Bank may enforce such provisions on
behalf of any such Bank Assignee; provided, however, that if any Bank or any
-------- -------
Bank Assignee assigns, sells, or otherwise transfers or grants participations in
or otherwise disposes of all or any part of the Borrower's indebtedness under
this Agreement to any party pursuant to this Section 12.4(a), then the amounts
that the Borrower is required to pay pursuant to this Agreement (including,
without limitation, additional amounts made pursuant to Section 5.2) shall not
exceed the amounts that the Borrower would have been required to pay to such
Bank pursuant to this Agreement had such Bank not made such assignment, sale,
transfer, grant, participation or other disposition of the Borrower's
indebtedness under this Agreement. The Borrower hereby further agrees that any
such Bank Assignee may, to the fullest extent permitted by applicable law,
exercise the right of setoff with respect to such participation (and in an
amount up to the amount of such participation) as fully as if such Bank Assignee
were the direct creditor of the Borrower. Upon a participation, assignment,
sale or transfer in accordance with the foregoing, the Borrower shall execute
such documents and do such acts as any Bank may reasonably request to effect
such assignment, provided that such documents and acts are consistent with the
--------
terms and conditions of the Loan Documents. Any Bank may furnish any
information concerning any Credit Party or Subsidiary in its possession from
time to time to Bank Assignees (including prospective Bank Assignees). Each
Bank shall notify Borrower of any participation, assignment, sale or transfer
granted by it pursuant to this Section 12.4(a). Borrower shall not be
responsible for any due diligence costs or legal expenses of any party
(including the Agent or the Bank Assignee) in connection with their entering
into such participation, assignment, sale or transfer.
(b) The descriptive headings of the various provisions of this
Agreement are inserted for convenience of reference only and shall not be deemed
to affect the meaning or construction of any of the provisions hereof.
(c) Notwithstanding anything to the contrary contained herein or in
any of the Loan Documents, the exhibits to this Agreement shall not be required
to be attached to the execution or any other copy of this Agreement, and any
references in this Agreement or the other Loan Documents to such exhibits as
"Exhibits hereto" or "Exhibits to this Agreement" or "Exhibits to this Original
Agreement" or words of similar effect shall be deemed to refer to such document
as executed by the parties
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<PAGE>
thereto and delivered on the Closing Date (or such other date on which they were
executed and delivered).
(d) Subject to obtaining the prior written consent of the Borrower
(but no other Credit Party), such consent not to be unreasonably withheld, any
Bank may at any time assign to any other Bank or any affiliate of any Bank or to
one or more additional banks or financial institutions ("Purchasing Banks"), all
----------------
or any part of its Commitments (and corresponding Loan and Note) pursuant to a
Transfer Supplement ("Transfer Supplement"), substantially in the form of
-------------------
Exhibit K hereto, executed by such Purchasing Bank, such transferor Bank and the
Agent; provided, however, that (A) each such assignment shall be for an amount
-------- -------
at least equal to the lesser of (x) such Bank's Commitments (in respect of
Revolving Credit Loans or Revolving Credit Loan Commitments) then in effect or
(as to Term Loans) the then-outstanding principal amount of such Loans or (y) an
aggregate minimum principal amount of $3,000,000 and integral multiples of
$1,000,000 above such principal amount and (B) no assignment of Revolving Credit
Loans, Revolving Credit Loan Commitments, LC Obligations or Term Loans shall be
made by a transferor Bank to a Purchasing Bank unless such assignment is equally
applicable, on a pro rata basis, to all Revolving Credit Loans, Revolving Credit
Loan Commitments, LC Outstandings, Deemed Disbursements, Reimbursement
Obligations and Term Loans of such transferor Bank on a pro rata basis. Upon
(i) such execution of such Transfer Supplement, (ii) delivery of an executed
copy thereof to the Borrower and the Agent, (iii) payment by such Purchasing
Bank to such transferor Bank of an amount equal to the purchase price agreed
between such transferor Bank and such Purchasing Bank and (iv) any consent of
the Borrower required by the first sentence of this Section 12.4(d), such
Purchasing Bank shall for all purposes be a Bank party to this Agreement and
shall have all the rights and obligations of a Bank under this Agreement to the
same extent as if it were an original party hereto and thereto with the
percentage share of the applicable Commitment(s) set forth in Schedule I to such
Transfer Supplement, and no further consent or action by the Borrower, the
Banks, any Guarantor or the Agent shall be required. Such Transfer Supplement
shall be deemed to amend this Agreement to the extent, and only to the extent,
necessary to reflect the addition of such Purchasing Bank and the resulting
adjustment of the percentage of the Commitments, Notes, Loans and Letters of
Credit (and related rights and obligations) held by the transferor Bank and the
Purchasing Bank arising from the purchase by such Purchasing Bank of all or a
portion of the rights and obligations of such transferor Bank pursuant to the
Transfer Supplement. Upon the consummation of any transfer to a Purchasing Bank
pursuant to this Section 12.4(d), the transferor Bank, the Agent and the
Borrower shall make appropriate arrangements so that, if required, a replacement
Note (dated the same date as the Note being replaced) is issued to such
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transferor Bank and a new Note (dated the same date as the Note being replaced)
or, as appropriate, a replacement Note (dated the same date as the Note being
replaced) issued to such Purchasing Bank, in each case in principal amounts
reflecting their Commitments or, as appropriate, their outstanding Loans, as
adjusted pursuant to such Transfer Supplement. Notwithstanding the foregoing,
prior to a bank or financial institution becoming a Purchasing Bank, it shall
first represent (in the Transfer Supplement or otherwise) that, at the time it
becomes a Purchasing Bank, it
(i) is recognized by the UK Board of Inland Revenue, for the
purposes of the Income and Corporation Taxes Act 1988 (as in effect
when such Bank becomes a Purchasing Bank), as carrying on a bona fide
banking business in the UK by which all amounts received or receivable
by it as a Bank under this Agreement will be taken into account as a
trading receipt of such banking business for the purposes of UK
Corporation Tax; or
(ii) is resident in a jurisdiction with which the UK has, at the
date of this Agreement, an appropriate "double taxation treaty"
reducing the amount of UK tax on amounts received or receivable by it
as a Bank under this Agreement to zero, or exempting such amounts from
such tax.
(e) Notwithstanding the foregoing provisions of this Section 12.4, the
Bank of Scotland (without the prior written approval of the Borrower and KSI)
may not enter into a Transfer Supplement as a transferor Bank or grant
participations in or assign, sell or otherwise transfer any of its Loans and
Commitments if, after giving effect thereto, the percentage of Loans (or if no
Loans are then outstanding the percentage of Commitments) then held by the Bank
of Scotland and its Affiliates is less than 51%.
(f) [intentionally deleted]
12.5 Notices, Requests, Demands, etc. Except as otherwise expressly
--------------------------------
provided herein, all notices, requests, demands or other communications to or
upon the respective parties hereto shall be deemed to have been duly given or
made when delivered (if sent by Federal Express or other similar overnight
delivery service), or 3 days after mailing (when mailed, postage prepaid, by
registered or certified mail, return receipt requested), or (in the case of
telex, telegraphic, telecopier or cable notice) when delivered to the telex,
telegraph, telecopier or cable company, or (in the case of telex or telecopier
notice sent over a telex or telecopier owned or operated by a party hereto) when
sent; in each case, addressed as follows, except that notices and communications
to the Agent pursuant to Sections
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2 and 9 shall not be effective until received by the Agent: (i) if to the
Agent, at the Closing Office, (ii) if to a Bank, at the address specified with
its signature below, and (iii) if to any Loan Party party hereto, at its address
specified with its signature below (Attention: President), or to such other
addresses as any of the parties hereto may hereafter specify to the others in
writing, provided that communications with respect to a change of address shall
be deemed to be effective when actually received. Notices and communications
sent to the Borrower at the address listed for Holding on the signature page
hereof shall be deemed satisfactorily sent to Borrower for purposes of clause
(iii) above.
12.6 Governing Law. THIS AGREEMENT AND THE LOANS AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF ENGLAND APPLICABLE TO CONTRACTS
EXECUTED WHOLLY WITHIN ENGLAND (REGARDLESS OF THE PLACE WHERE THIS AGREEMENT IS
EXECUTED). IF FOR ANY REASON ANY COURT SHALL RULE THAT THIS AGREEMENT AND THE
LOANS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER ARE NOT GOVERNED
BY THE LAWS OF ENGLAND, THIS AGREEMENT AND THE LOANS 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 NEW YORK APPLICABLE TO
CONTRACTS EXECUTED WHOLLY WITHIN THE STATE OF NEW YORK (REGARDLESS OF THE PLACE
WHERE THIS AGREEMENT IS EXECUTED).
12.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and by the different parties hereto on the same or separate
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Complete sets of
counterparts of this Agreement shall be lodged with the Borrower and the Agent.
12.8 Waiver. No failure or delay on the part of the Agent or any
------
Bank in exercising any right, power or privilege under this Agreement or any
other Loan Document, and no course of dealing between any Credit Party and the
Agent or any Bank shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein expressly provided are cumulative and
not exclusive of any rights or remedies which the Agent or any Bank would
otherwise have pursuant to such documents or at law or equity. No notice to or
demand on any Credit Party in any case shall entitle such Credit Party or any
other Credit Party to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of the Agent or any Bank to
any other or further action in any circumstances without notice or demand.
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12.9 Pro Rata Sharing. (a) Any Recoveries (after deduction and
----------------
payment of all expenses and costs permitted by this Agreement, the Security
Documents or applicable law), shall be applied against the Loans or against
unpaid Reimbursement Obligations (and, if no Loans or Reimbursement Obligations
shall then be outstanding, shall be held in trust by the Agent on behalf of the
Borrower to the extent of the amount of the LC Outstandings from time to time in
existence until satisfaction in full of all amounts due thereunder).
(b) The Banks agree among themselves that, with respect to all sums
received by the Banks applicable to the payment of the principal of or interest
on the Loans or in respect of amounts paid by the Issuer pursuant to, or in
connection with, Letters of Credit (in each case, except as otherwise provided
in Section 5.2 or 5.3), equitable adjustment will be made between the Banks so
that, in effect, all such sums shall be shared ratably by each of the Banks (in
accordance with the outstanding principal amounts of their respective Loans or
participations in issued Letters of Credit, as the case may be) whether received
by voluntary payment, by realization upon security, by the exercise of the right
of set-off or banker's lien, by counterclaim or cross-action or by the
enforcement of any or all of the Notes or otherwise. If any Bank receives any
payment on its Loans or in respect of amounts paid by the Issuer pursuant to, or
in connection with, Letters of Credit of a sum or sums in excess of its pro rata
portion (except as otherwise provided in Section 5.2 or 5.3), then such Bank
receiving such excess payment shall purchase for cash from the other Banks an
interest in their Loans (or participations in Letters of Credit, if applicable)
in such amount as shall result in a ratable participation by all of the Banks in
the amount of the aggregate unpaid amount of Loans (Letters of Credit, to the
extent applicable) then outstanding; provided, however, that if all or any
-------- -------
portion of such excess payment is thereafter recovered by such Bank, the
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest. Each Loan Party party hereto hereby agrees
that any Bank so purchasing a participation from another Bank pursuant to this
Section 12.9(b) or purchasing a participation pursuant to Section 2A.8 may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of setoff) with respect to such participation as fully as
if such Bank were the direct creditor of such Loan Party in the amount of such
participation.
12.10 Jurisdiction. THE PARTIES HERETO AGREE THAT ANY LEGAL ACTION
------------
OR PROCEEDING AGAINST ANY OTHER PARTY HERETO WITH RESPECT TO THIS AGREEMENT, THE
LOANS OR ANY OF THE LOAN DOCUMENTS OR THE DOCUMENTS DELIVERED IN CONNECTION
THEREWITH MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW
YORK CITY OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF
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NEW YORK OR ANY COURT IN ENGLAND AS SUCH PARTY MAY ELECT, and, by execution and
delivery hereof, each of the parties hereto accepts and consents for itself and
in respect to its property, generally and unconditionally, the jurisdiction of
the aforesaid courts. Each of the parties hereto agree that such jurisdiction
shall be exclusive, unless waived by the Agent or the Banks (with respect to
actions or proceedings brought by a Loan Party party hereto) or by the Borrower
or Holding (with respect to actions or proceedings brought by the Agent or a
Bank) in writing, and with respect to any questions relating to usury except
that without such written consent the Agent and Banks may bring actions and
proceedings in any other jurisdiction where Borrower or Holding has property or
does business. Each of the parties hereto agrees that Sections 5-1401 and 5-
1402 of the General Obligations Law of the State of New York shall apply to the
Loan Documents and waives any right to stay or to dismiss any action or
proceeding brought before said New York or US or English courts on the basis of
forum non conveniens. In furtherance of the foregoing, each of Holding and
----- --- ----------
Borrower hereby irrevocably designates and appoints CT Corporation System at
1633 Broadway, New York, New York 10019, as its agent to receive service of all
process brought against such Loan Party with respect to any such proceeding in
any such court in New York, such service being hereby acknowledged by such Loan
Party to be effective and binding service in every respect. Copies of any such
process so served shall also be sent by registered mail to such Loan Party at
its address set forth next to its signature below, but the failure of such Loan
Party to receive such copies shall not affect in any way the service of such
process as aforesaid. Each such Loan Party shall furnish to the Agent a consent
of CT Corporation System agreeing to act hereunder prior to the Closing Date.
Nothing herein shall affect the right of the Agent or the Banks to serve process
in any other manner permitted by law. If for any reason CT Corporation System
shall resign or otherwise cease to act as agent, each such Loan Party hereby
irrevocably agrees to (i) immediately designate and appoint a new agent
acceptable to the Agent to serve in such capacity and, in such event, such new
agent shall be deemed to be substituted for CT Corporation System, Inc. for all
purposes hereof and (ii) promptly deliver to the Agent the written consent (in
form and substance satisfactory to the Agent) of such new agent agreeing to
serve in such capacity.
12.11 Severability. If any provision of this Agreement shall be held
------------
or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the
same shall not affect any other provision or provisions herein contained or
render the same invalid, inoperative or unenforceable to any extent whatever.
12.12 Right of Set-off. In addition to any rights now or hereafter
----------------
granted under applicable law or otherwise and not by
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way of limitation of any such rights, upon the occurrence of an Event of Default
each of the Banks is hereby authorized at any time or from time to time, without
notice to any Loan Party or to any other Person, any such notice being hereby
expressly waived, to set-off and to appropriate and apply any and all deposits
(general or special, time or demand, provisional or final) and any other
indebtedness at any time held or owing by such Bank to or for the credit or the
account of any Loan Party against and on account of the obligations and
liabilities of such Loan Party now or hereafter existing under any of the Loan
Documents irrespective of whether or not any demand shall have been made
thereunder and although said obligations, liabilities or claims, or any of them,
shall be contingent or unmatured. The Bank or Banks exercising any rights
granted under this Section 12.12 shall thereafter notify the affected Loan Party
and the Agent of such action; provided that the failure to give such notice
-------- ----
shall not affect the validity of such set-off and application.
12.13 No Third Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the Agent, the Banks, Holding, the Borrower, and their respective
successors and assigns (except as otherwise expressly provided herein) and
nothing contained herein shall be deemed to confer upon anyone other than the
Borrower and their respective successors and assigns any right to insist on or
to enforce the performance or observance of any of the obligations contained
herein. All conditions to the obligations of the Banks to make the Loans and
issue Letters of Credit hereunder are imposed solely and exclusively for the
benefit of the Banks and their respective successors and assigns and no other
Person shall have standing to require satisfaction of such conditions in
accordance with their terms and no other Person shall under any circumstances be
deemed to be beneficiary of such conditions.
12.14 Effectiveness. This Agreement shall become effective when and
-------------
as of the date (the "Amendment Effective Date") that each of the following
------------------------
conditions have been satisfied to the satisfaction of the Agent (or waived by
the Agent, except as to Section 12.14.5 which may be waived only by the Required
Banks). The first date on which all of the following conditions have been so
satisfied (or so waived) is herein referred to as the "Amendment Closing Date".
----------------------
If the Amendment Closing Date shall not have occurred by the close of business
(New York time) on July 2, 1993 (or such later date as is agreed to by the Agent
and the Borrower in writing), the amendment and restatement of the Original
Agreement to be effectuated by this Agreement (and the consents and waivers
contained herein) shall be deemed rescinded, null and void.
12.14.1 Signed Copies and Consents. (a) The Borrower, Holding, and
--------------------------
the Banks shall have executed a copy hereof (whether the same or different
counterparts) and delivered
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the same to the Agent at 380 Madison Avenue, New York, New York 10017
(Attention: James Halley) or, in the case of the Banks, shall have given to the
Agent written notice (actually received) that the same has been signed and is
being sent to the Agent. Complete sets of counterparts of this Agreement shall
be lodged with the Borrower and the Agent. Telecopied signatures hereto and to
the Confirming Consents shall be of the same force and effect as an original of
a manually signed copy.
(b) The Borrower, KSI, FAI, KOSI, each UK Guarantor and each Foreign
Guarantor shall have executed a confirming consent, substantially in the form of
Exhibit N hereto or otherwise satisfactory to the Agent (each, a "Confirming
----------
Consent") and delivered the same to the Agent.
-------
12.14.2 Notes. (a) [intentionally deleted]
-----
(b) Each of the Banks shall have returned to the Borrower the
promissory notes that were issued to them pursuant to the Original Agreement and
received in exchange therefor an appropriately completed, substitute Term Note
(substantially in the form of Exhibit O-1 hereto) and an appropriately completed
Revolving Credit Note (substantially in the form of Exhibit O-2 hereto), each
dated the Closing Date (or such other date agreed to by the Agent and the
Borrower) and duly executed by the Borrower.
(c) To the extent that the relative proportions of the respective
Loans of each Bank after giving effect to this Section 12.14 are different from
those determined based on the amounts of the Commitments set forth in Schedule
2.1 hereto, the Banks shall make such appropriate adjustment among themselves so
that, after giving effect thereto, the amounts of their respective Loans reflect
the relative proportions based on such schedule. To the extent necessary to
effectuate the foregoing, each Bank shall be deemed to have purchased or sold,
as the case may be, such portion of the principal amount of the relevant Loans
whose amounts are so adjusted.
12.14.3 Officer's Certificate; Additional Loans. (a) There shall
---------------------------------------
have been delivered to the Agent (with sufficient copies for each Bank) a
certificate of an authorized officer of the Borrower certifying, as of the
Amendment Effective Date, compliance with the conditions of Sections 12.14.3(b)
and 12.14.4(a)-(c), and to the effect that the representations contained in
Section 10.24 are true and correct on such date.
(b) If the Borrower shall have requested that any Revolving Credit
Loans be made on the Amendment Effective Date, the conditions of Section 6A
hereof shall have been satisfied with respect thereto on such date (after giving
effect to the amendments, waivers and consents contained herein and the other
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transactions occurring on or prior to such date as contemplated by this Section
12.14). Notwithstanding the foregoing, the Banks hereby waive any requirement
of this Agreement that the Borrower
give written notice of such Loan or as to the number of days notice required to
be given for such Loan provided that the Agent shall be satisfied with the
notice and amount of notice given by the Borrower therefor.
12.14.4 GmbH Sale. (a) The KSI Purchaser shall have acquired all of
---------
the issued and outstanding capital stock of GmbH (subject, however, to the Lien
of the Agent, the Banks and the KSI Lender on such shares). Holding and the
Borrower have advised the Banks, and hereby represent and warrant, that the
aggregate price for such purchase will be not less than approximately $3,000,000
cash (or an equivalent amount in other currencies).
(b) FIL shall have sold to KSI or the KSI Purchaser, for approximately
$7,000,000 (or an equivalent amount in other currencies), the note or other
receivable held by FIL representing all of the indebtedness owed by GmbH to FIL
(said note or other receivable, the "GmbH Receivable").
---------------
(c) If the KSI Lender shall have made the KSI Loans to KSI, the shares
of GmbH acquired by KOSI from FIL and by the KSI Purchaser from KOSI (as well
as, in each case, the shares of all GmbH Subsidiaries indirectly acquired by
KOSI and then by the KSI Purchaser as a result thereof) shall have been acquired
by each such acquirer subject to the prior Lien of the Agent, the Banks and the
KSI Lender in such shares, and KOSI and the KSI Purchaser shall have consented
thereto.
(d) The foregoing provisions of this Section 12.14.4 as to the
ultimate purchaser of the GmbH Stock and the price paid for such shares
supersede any provisions in any waivers granted, or amendments approved by, the
Agent and the Banks prior to the Amendment Effective Date which provided for a
different purchaser or different purchase price.
(e) KOSI shall have executed and delivered to the Agent (on behalf of
the Banks) a Foreign Guaranty and a Foreign Pledge Agreement, together with (to
the extent new share certificates with respect to the stock of any KOSI
Subsidiary are issued in the name of KOSI) (x) certificates representing such
pledged shares (to the extent such ownership interest is represented by share
certificates), (y) undated stock powers for such certificates executed in blank
and (z) evidence that such pledge has been noted on the stock records of the
companies whose shares have been pledged (to the extent same was done with
respect to the pledge of such shares by FIL to the Banks pursuant to Section
6.5). If the foregoing clause (z) is not complied with on or prior to the
Amendment Effective Date, the Borrower
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<PAGE>
shall do so on or prior to August 31, 1993 (or such later date as the Agent and
the Borrower agree to in writing). By its signature on the Confirming Consent,
each signatory thereto whose shares are so acquired subject to such Lien hereby
acknowledges that (x) such shares have been acquired subject to such pledge and
(y) they have made (or will, prior to August 31, 1993, make) appropriate
notations on their stock registers and other applicable books and records that
such shares have been transferred but remain subject to such Lien.
12.14.5 Repayment of Loans. Borrower shall have repaid the Loans
------------------
outstanding under the Original Agreement in such amounts and such currencies so
that, after giving effect thereto, (i) only Loans denominated in Dollars shall
be outstanding, (ii) the aggregate outstanding principal amount of the Term
Loans shall be no more than $10,900,000 (less, if the Derby Portion shall have
theretofore been sold, the principal amount of Term Loans prepaid from the Net
Proceeds of the sale of the Derby Portion), (iii) the aggregate outstanding
principal amount of the Revolving Credit Loans (when combined with the Dollar
Equivalent of all LC Obligations) shall be no more than $16,000,000, and (iv)
all accrued but unpaid interest on the Loans so repaid shall have been paid in
full. For purposes of determining the Dollar Equivalent of the Carlisle LC for
purposes of this paragraph, the Stated Amount of the Carlisle LC shall be
"marked to market" by the Agent on the Amendment Effective Date (or, at the
election of the Agent, as of the close of business on the immediately preceding
Business Day).
12.14.6 Guarantee of KSI Loan. If and to the extent so requested by
---------------------
the KSI Lender, FIL shall have executed and delivered to the KSI Lender:
(a) a guaranty of the obligations of KSI with respect to the KSI
Loans, in form and substance satisfactory to the KSI Lender, except that any
such guaranty shall be non-recourse to such guarantor and secured only by the
GmbH Stock;
(b) a pledge agreement, in form and substance satisfactory to the KSI
Lender with respect to the GmbH Stock being sold in the GmbH Sale, together with
undated stock powers, duly executed by FIL in blank and effective under
applicable law to transfer ownership of such shares to the KSI Lender if the KSI
Loans are not repaid. Unless otherwise directed by the KSI Lender, the Agent
shall continue to hold the certificates for the GmbH Stock (as well as all
shares (if evidenced by certificates) of the GmbH Subsidiaries previously
pledged to the Banks) as agent for the KSI Lender.
12.14.7 Legal Opinions. The Agent shall have received legal opinions
--------------
(in sufficient counterparts for each of the Banks), in form and substance
satisfactory to the Agent,
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addressed to the Banks and dated the Amendment Effective Date, from:
(a) Stephen Hoffner or other counsel satisfactory to the Agent, to the
effect that this Agreement (as to the Borrower and Holding) and all substitute
Notes (as to the Borrower) delivered on the Amendment Effective Date are the
legal, valid and binding obligations of such Loan Parties, enforceable in
accordance with their respective terms and as to such other matters as the Agent
or any Bank may reasonably request; and
(b) Sullivan & Worcester or special local counsel for the Agent,
covering such matters incident to the transactions contemplated hereby as the
Agent or any Bank may request.
12.14.8 All Proceedings to be Satisfactory. All corporate and legal
----------------------------------
proceedings and all instruments, documents and papers in connection with the
transactions contemplated by this Agreement to occur on or prior to the
Amendment Effective Date and the other documents referred to in this Section
12.14 shall be satisfactory in form and substance to the Agent, and the Agent
and any Bank shall have received all such information and copies of all
documents which the Agent or such Bank may reasonably have requested in
connection herewith, such documents where appropriate to be certified by proper
corporate officials or governmental authorities.
All documents and papers required by the foregoing provisions of this Section
12.14 shall be in form and substance satisfactory to the Agent and shall be
delivered to the Agent at its Closing Office or as the Agent may otherwise
direct.
12.14.9 Consents and Releases. (a) Subject to the terms and
---------------------
conditions stated herein, the Agent and the Banks (effective as of the
effectiveness of this Agreement on the Amendment Effective Date) hereby:
(i) consent to the sale by FIL to KOSI, for approximately $6,000,000
(or an equivalent amount in other currencies) payable by a promissory note (the
"KOSI Note") issued by KOSI to FIL, of all of the issued and outstanding capital
---------
stock of each Foreign Guarantor that was owned by FIL immediately prior to the
Amendment Effective Date.
(ii) consent to the sale of the GmbH Stock by KOSI to the KSI
Purchaser for approximately $3,000,000 cash (or an equivalent amount in other
currencies).
(iii) consent to the sale of the GmbH Receivable by FIL to KSI for
approximately $7,000,000 cash (or an equivalent amount in other currencies).
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<PAGE>
(iv) consent to (x) KOSI's repayment of $5,300,000 of the KOSI Note
to FIL, and (y) KOSI borrowing $2,300,000 from KSI (on an unsecured,
subordinated basis) to assist it in making the aforesaid repayment to FIL.
(v) release GmbH, and each Subsidiary (if any) of GmbH that after the
Amendment Effective Date and by virtue of the GmbH Sale will be a Subsidiary of
the KSI Purchaser, from all guarantees and security agreements executed by GmbH
(or by any such Subsidiary of GmbH) in favor of the Agent or the Banks (but not
to the extent that any such security agreement or guarantee grants to the Banks
or the Agent a pledge or similar security interest in any shares issued by GmbH
or any GmbH Subsidiary).
(b) The Agent and the Banks hereby agree that the Agent, on behalf of
the Banks, will execute such releases and other documents as the Agent and the
Borrower agree are appropriate or advisable to carry into effect the intent of
Section 12.14.9(a)(v). The Banks hereby authorize the Agent to deliver such
releases and other documents and hereby ratify (if, as and when the same are
executed and delivered) the execution and delivery by the Agent of all such
releases and other documents.
12.14.10 Pledged Shares. (a) For good and valuable consideration,
--------------
the receipt and adequacy of which is hereby acknowledged, the Banks hereby
assign all of their right, title and interest in and to the Liens they possess
on the pledged shares of GmbH and GmbH Subsidiaries (and in and to such shares
and the pledge or similar agreements executed by FIL (or any other Loan Party)
or GmbH with respect thereto, to the extent they relate to any such pledged
shares) to the KSI Lender; in consideration of the Agent and the Banks granting
permission (x) to FIL to sell its shares in GmbH to KOSI and (y) to KOSI to sell
its shares in GmbH to the KSI Purchaser, FIL and KOSI and the other Credit
Parties hereby (or by their execution of the Confirming Consent attached hereto
as Annex A) consent to such assignments. The Agent, the Banks and the KSI
Lender hereby agree that such Liens shall be released when the KSI Loan and all
obligations of KSI with respect thereto have been indefeasibly paid in full.
(b) The Banks hereby agree that all amounts (if any) they receive as
a result of any foreclosure action on any of the pledged GmbH shares or any of
the pledged shares of any GmbH Subsidiary will, so long as any monies remain
payable to the KSI Lender in connection with the KSI Loans, be paid by them to
the KSI Lender. The Agent shall hold all certificates representing any such
pledged shares as agent for, and on behalf of, the KSI Lender.
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<PAGE>
12.15 Survival. Each of the representations, warranties, terms,
--------
covenants, agreements and conditions contained in this Agreement shall
specifically survive the execution and delivery of this Agreement and the other
Loan Documents, the making of the Loans and issuance of Letters of Credit and
the Amendment Effective Date and shall, unless otherwise expressly provided,
continue in full force and effect until the Commitments have been terminated and
the Loans together with interest thereon, the Commitment commissions, the fees
and compensation of the Agent, and all other sums payable hereunder or
thereunder (including, without limitation, Reimbursement Obligations) have been
indefeasibly paid in full.
12.16 Domicile of Loans. Any Bank may make, maintain or transfer any
-----------------
of its Loans hereunder to, or for the account of, any branch office and (subject
to the prior consent of the Borrower, such consent not to be unreasonably
withheld) to any subsidiary or affiliate of such Bank.
12.17 Currency. (a) If, for the purpose of obtaining judgment in any
--------
court, it is necessary to convert a sum due hereunder (the "First Currency")
--------------
into any other currency (the "Other Currency"), the rate of exchange used shall
--------------
be that with which in accordance with normal banking procedures the Agent (or,
if received by a Bank other than the Agent, that Bank) could purchase the First
Currency with the Other Currency on the Business Day preceding that on which
final judgment is given. The obligation of a Credit Party in respect of any sum
due from it to the Agent or a Bank hereunder, notwithstanding judgment in such
Other Currency, shall be discharged only to the extent that on the Business Day
following receipt by the Agent or such Bank of any sum adjudged to be so due in
the Other Currency, the Agent or such Bank (as the case may be) may in
accordance with normal banking procedures purchase the First Currency with the
Other Currency; if the First Currency so purchased shall be less than the sum
originally due to the Agent or the Bank in the First Currency, the Borrower and
Holding jointly and severally agree, as a separate obligation and
notwithstanding any such judgment, to indemnify the Agent or such Bank (as the
case may be) against such loss.
(b) Each reference in this Agreement to Dollars or any other
applicable currency is of the essence. To the fullest extent permitted by
applicable law, the obligation of Holding and the Borrower in respect of any
amount due under this Agreement shall, notwithstanding any payment in any other
currency (whether pursuant to a judgment or otherwise), be discharged only to
the extent of the amount in Dollars or such other applicable currency that the
Person entitled to receive such payment may, in accordance with normal banking
procedures, purchase with the sum paid in such other currency (after any premium
and costs of exchange) on the Business Day following
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<PAGE>
receipt by such Person of such payment. If the amount in Dollars or such other
applicable currency that may be so purchased for any reason falls short of the
amount originally due, the Borrower shall pay such additional amounts, in
Dollars or such other applicable currency, as the case may be, as may be
necessary to compensate for such shortfall. Any obligation of the Borrower or
Holding not discharged by such payment shall be due as a separate and
independent obligation and, until discharged as provided herein, shall continue
in full force and effect.
12.18 Waiver of Jury Trial. EACH OF THE BORROWER, HOLDING, THE AGENT
--------------------
AND THE BANKS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON,
OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE ORIGINAL
AGREEMENT, THE OFFERING DOCUMENTS, THE DEPOSITARY DOCUMENTS OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN), OR ACTIONS OF ANY CREDIT PARTY, THE AGENT OR THE BANKS.
THIS
[rest of page intentionally left blank]
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<PAGE>
PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE BANKS ENTERING INTO THE
ORIGINAL AGREEMENT AND THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
12.19. Securities Act. Each Bank agrees that it will not transfer
--------------
any of its Notes in a manner that would subject such Note or transfer to the
registration requirements of the Securities Act of 1933.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officers as
of the date first above written.
FURMANITE PLC
Furman House (formerly KANEB UK PLC)
Shap Road /s/
Kendal By______________________________
Cumbria LA9 6RU Name:
England Title:
Telecopier No.:
011-44-539-729-359
KANEB INTERNATIONAL INC.
2400 Lakeside Boulevard
Richardson, Texas 75082 /s/
Telecopier No.: By______________________________
214/699-4025 Name:
Title:
380 Madison Avenue BANK OF SCOTLAND, individually and
New York, New York 10017 as Agent
Telecopier No. 212/557-9460
/s/ William Henry
By______________________________
William P. Hendry
Senior Vice President
GIROCREDIT BANK, New York branch
65 East 55th Street By_____________________
New York, New York 10022 Name: Lalit Malhotra
Telecopier: 212/644-0644 Title: Senior Vice President
By_______________________
Name: Dhuane G. Stephens
Title: Vice President
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<PAGE>
PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE BANKS ENTERING INTO THE
ORIGINAL AGREEMENT AND THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
12.19. Securities Act. Each Bank agrees that it will not transfer
--------------
any of its Notes in a manner that would subject such Note or transfer to the
registration requirements of the Securities Act of 1933.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officers as
of the date first above written.
FURMANITE PLC
Furman House (formerly KANEB UK PLC)
Shap Road
Kendal By______________________________
Cumbria LA9 6RU Name:
England Title:
Telecopier No.:
011-44-539-729-359
KANEB INTERNATIONAL INC.
2400 Lakeside Boulevard
Richardson, Texas 75082
Telecopier No.: By______________________________
214/699-4025 Name:
Title:
380 Madison Avenue BANK OF SCOTLAND, individually and
New York, New York 10017 as Agent
Telecopier No. 212/557-9460
By______________________________
William P. Hendry
Senior Vice President
GIROCREDIT BANK, New York branch
/s/ Lalit Malhotra
65 East 55th Street By_____________________
New York, New York 10022 Name: Lalit Malhotra
Telecopier: 212/644-0644 Title: Senior Vice President
/s/ Dhuane G. Stephens
By_______________________
Name: Dhuane G. Stephens
Title: Vice President
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<PAGE>
Schedule 2.1
Commitments (on Amendment Effective Date)+
-----------------------------------------
Term Loan Revolving Credit
--------- ----------------
Bank Commitment Loan Commitment*
---- ---------- ---------------
Bank of Scotland $ 8,679,629.63 $12,740,740.74
GiroCredit,
New York branch 2,220,370.37 $ 3,259,259.26
-------------- ---------------
Total $10,900,000./1/ $16,000,000.
_________
+After giving effect to repayment of Loans on such date.
*Subject to reduction pursuant to Sections 2.4(b) and 2.8.
---------------------
/1/ Assumes that the sale of the Derby Portion shall not have occurred. If it
has, this amount shall be reduced by the principal amount of Term Loans prepaid
from the Net Proceeds of such sale, and the components of this sum
correspondingly reduced pro rata.
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<PAGE>
ANNEX I
-------
DEFINITIONS
-----------
As used in the Loan Agreement to which this Annex I is annexed, the
following terms shall have the meanings herein specified or as specified in the
Section of such Loan Agreement or in such other document herein referenced:
"Acquisition Agreement (FAI)" shall mean the stock purchase agreement
---------------------------
dated January 23, 1991 between KSI and FIL, as amended by amendment dated March
15, 1991, relating to the Acquisition (FAI).
"Acquisition (FAI)" shall mean the acquisition by Holding of the FAI
-----------------
Shares pursuant to the Acquisition Agreement (FAI).
"Acquisition Notes" shall mean, individually and collectively, the
-----------------
1991 Notes and the 1993 Notes.
"Acquisition Offer" shall mean the recommended offer dated February
-----------------
19, 1991, made by Bear Stearns on behalf of the Borrower, for the acquisition by
the Borrower of all of the Preferred Shares and the Ordinary Shares.
"Acquisitions" shall mean the Acquisition (FAI) and the Acquisition
------------
(UK).
"Acquisition (UK)" shall mean the acquisition by the Borrower of the
----------------
Preferred Shares and the Ordinary Shares pursuant to the Offering Documents.
"Affected Bank" - Section 3.9(b).
-------------
"Affiliate", as to any Person, shall mean any other Person directly or
---------
indirectly controlling, controlled by or under common control with, such Person.
Unless otherwise indicated, references to "Affiliate" shall refer to Affiliates
of the Loan Parties. Without limiting the generality of the foregoing, each
Credit Party shall be considered an Affiliate of each other Credit Party.
"Agent" - introductory paragraph.
-----
"Agent's Fees" - Section 4.2.
------------
"Aggregate Outstanding Amount" -- Section 3A.6.
----------------------------
<PAGE>
"Agreement" or "Loan Agreement" shall mean this Loan Agreement as it
--------- --------------
may from time to time be amended, extended, restated, supplemented or otherwise
modified.
"AIB" shall mean Allied Irish Banks plc.
---
"Amendment Effective Date" - Section 12.14.
------------------------
"applicable currency" means, as to any particular payment, Loan,
-------------------
Letter of Credit or other Obligation, the currency in which it is payable or
denominated.
"Associate", when used to indicate a relationship with a Person, shall
---------
mean (i) another Person (other than a member of the Consolidated Group) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or at to which such Person or an immediate member of his family serves
as trustee or in a similar capacity, and (iii) any relative or spouse of such
Person or any relative of such spouse.
"Auditors" shall mean, as to each Credit Party, such independent
--------
certified public or chartered accountants of recognized standing selected by a
Credit Party (as to itself), and satisfactory to the Agent. (The certified
public accountants for KSI shall be deemed satisfactory to the Agent so long as
the securities of KSI are registered under the Securities Act of 1933 and such
accountants are selected or ratified by KSI's shareholders at a meeting duly
called and held).
"Audits" - Section 6.9
------
"Bank Assignee" - Section 12.4.
-------------
"Bank Charge" shall mean the Charge Over Bank Account executed by the
-----------
Depositor in connection with the Cash Collateral Account established by the
Depositor in connection with the Sterling Guarantee, as such charge may from
time to time be amended, supplemented, or otherwise modified.
"Banks" - introductory paragraph.
-----
"Base Rate Loan" shall mean a Base Rate (US) Loan.
--------------
"Base Rate (UK)" shall mean, for any day, the basic lending rate of
--------------
the Agent, in effect from time to time at the principal office of the Agent in
London, England, on which the Agent's lending and deposit rates at such office
are founded. Any change in the interest rate resulting from a change in such
Base Rate (UK) shall be effective as of the opening of business on the day on
which such change becomes effective; it is
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<PAGE>
understood and agreed that the foregoing rate and the Base Rate (UK) are
reference rates only and do not necessarily represent the lowest or best rate
actually charged to any customer.
"Base Rate (US)" shall mean, for any day, the higher of (x) the
--------------
fluctuating interest rate per annum, as in effect from time to time, established
by the Agent in New York from time to time as the Agent's base, prime or
reference rate for U.S. domestic commercial loans in Dollars, or (y) the Federal
Funds Effective Rate in effect on such day plus 1/2%. Any change in the
interest rate resulting from a change in such Base Rate (US) shall be effective
as of the opening of business on the day on which such change becomes effective;
it is understood and agreed that all the aforesaid rates and the Base Rate (US)
are reference rates only and do not necessarily represent the lowest or best
rate actually charged to any customer.
"Base Rate (US) Differential" shall mean 2.125%; provided however
--------------------------- ----------------
that:
(a) "Base Rate (US) Differential" shall mean 1.75% on and after July
1, 1995, if (x) all principal, interest and other payments required to be made
hereunder on June 30, 1995 have been made, and (y) no Default or Event of
Default exists on June 30, 1995 (both before and after giving effect to any such
payments); and
(b) "Base Rate (US) Differential" shall mean 1.75% on and after the
first day of any calendar month, whether before or after July 1, 1995, if on the
last day of the immediately preceding calendar month (x) all principal, interest
and other payments required to be made hereunder on such date have been made,
(y) the sum of (A) the aggregate outstanding principal amount of Term Loans plus
(B) the Total Revolving Credit Loan Commitment (or, if greater, the outstanding
principal amount of Revolving Credit Loans plus all LC Obligations) is less than
the Dollar Equivalent of $20,000,000, and (z) no Default or Event of Default
exists.
"Base Rate (US) Loans" or "Floating Rate Loans" shall mean a
-------------------- -------------------
Eurocurrency Loan made in Dollars during any period that it bears interest
determined by reference to the Base Rate (US).
"Bear Stearns" shall mean Bear, Stearns International Limited.
------------
-3-
<PAGE>
"Benelux Companies" shall mean each of the following Subsidiaries
-----------------
that, as of April 1, 1993, are incorporated in the country set forth opposite
their names below:
Company Country
------- -------
Furmeta Holding BV The Netherlands
Furmanite BV The Netherlands
Metaholding BV The Netherlands
Metalock BV The Netherlands
Metalock BV Belgium
Furmanite NV Luxembourg
"Borrower" - introductory paragraph.
--------
"Borrower Security Agreement" - Section 6.5(a).
---------------------------
"Borrowing Date" - Section 2.2(a).
--------------
"BOS" shall mean the Bank of Scotland in its capacity as a Bank, and
---
not as Agent or Issuer, hereunder.
"Business Day" means
------------
(a) any day which is neither a Saturday or Sunday nor a legal holiday
or any other day on which banks are authorized or required to be closed in New
York, New York and which is also a day on which banks and foreign exchange
markets are open for business in London; and
(b) relative to the date of
(i) making or continuing any Loans as, or converting any Loans
from or into, Libor Loans,
(ii) making any payment or prepayment of principal of, or
payment of interest on, any portion of the principal amount of any
Loan being maintained as a Libor Loan, or
(iii) the Borrower's giving any notice (or the number of
Business Days to elapse prior to the effectiveness thereof) in
connection with any matter referred to in clause (b)(i) or (b)(ii)
above,
which is a Business Day pursuant to clause (a) above and which also is a day on
which dealings in Dollars are carried on in the London interbank Eurocurrency
market.
"Capitalized Lease Obligations" shall mean all rental obligations
-----------------------------
which, under GAAP, are or would be required to be
-4-
<PAGE>
capitalized on the books of a Person, in each case taken at the amount thereof
accounted for as indebtedness (net of interest expense) in accordance with such
principles.
"Carlisle" shall mean the Carlisle branch of the UK Bank or such other
--------
branch or Bank as is satisfactory to the Agent.
"Carlisle Facility" shall mean loans, overdrafts or other financial
-----------------
accommodations (including letters of credit, guarantees and performance and
other bonds) made by Carlisle to (or for the account of) the Borrower or, at the
request of the Borrower, to (or for the account of) one or more Subsidiaries of
the Borrower, which in each case are supported by the Carlisle LC.
"Carlisle LC" shall mean the standby Confirmed Irrevocable Letter of
-----------
Credit No. SLC91/03 dated May 16, 1991 in an initial Stated Amount of
(Pounds)1,600,000 issued by the Issuer pursuant to the Agreement with the
Borrower as an account party, to support the Carlisle Facility, as amended by
the Amendment to Letter of Credit No. SLC91/03 dated as of January 1, 1991 by
the Issuer and accepted by Carlisle and as the same may be further amended,
supplemented or otherwise modified from time to time, and any renewals or
replacements of such Letter of Credit.
"Cash Collateral Account" shall mean the account established by
-----------------------
Holding at the Depositary Bank pursuant to the Bank Charge.
"Cash Interest Expense" shall mean, in respect of any Person for any
---------------------
period, as of any date of calculation, the total interest expense of such Person
and its Subsidiaries for such period determined in accordance with GAAP, less
----
the amount of such interest expense paid or payable other than in cash.
"Charter Document" shall mean, with respect to a corporation, its
----------------
certificate or articles of incorporation or association and its by-laws or
memoranda and articles of association or comparable documents under non-US or
non-UK laws.
"Closing Date" shall mean the date of the making of the Term Loan and
------------
the initial Revolving Credit Loan.
"Closing Date Banks" - Section 6 (introductory paragraph).
------------------
"Closing Office" shall mean the office of the Agent at 380 Madison
--------------
Avenue, New York, New York or such other office as may be designated in writing
to the Borrower by the Agent.
-5-
<PAGE>
"Closing Office Time" shall mean the local time in effect at the
-------------------
Closing Office.
"CMA Account" - Section 8.5.
-----------
"CMA Bank" - Section 8.5.
--------
"Code" shall mean the Internal Revenue Code of 1986, as the same may
----
be amended from time to time.
"Collateral" - Section 10.15.
----------
"Combined Group" shall mean, collectively, the Borrower, KOSI and
--------------
their respective Subsidiaries, on a consolidated basis.
"Commercial Paper" - Section 8.14.
----------------
"Commitment" shall mean each Term Loan Commitment and each Revolving
----------
Credit Loan Commitment.
"Commitment Letter" shall mean the letter of understanding dated
-----------------
January 14, 1991 between KSI and the Agent with respect to the Loans.
"Commitment Period" shall mean the period from the Closing Date to and
-----------------
including the last Business Day of March 1998, or such earlier date as the
Revolving Credit Loan Commitments shall terminate as provided in the Loan
Agreement or such later date as may hereafter be agreed to by the Banks with
Revolving Credit Loan Commitments (by 100% vote) in writing.
"Confirming Consent" - Section 12.14.1.
------------------
"Consolidated Group" shall mean, collectively, Holding, FAI, the
------------------
Borrower, Furmanite, KOSI and their respective Subsidiaries, on a consolidated
basis.
"Contaminant" means any waste, pollutant, chemical, hazardous
-----------
material, hazardous substance, toxic substance, hazardous waste, special waste,
petroleum or petroleum-derived substance or waste, or any constituent of any
such pollutant material, substance or waste, including, without limitation,
asbestos, radiation and any pollutant, material, substance or waste regulated
under any Environmental Law.
"Control" (including the terms "controlling," "controlled by" and
-------
"under common control with") shall mean the possession, direct or indirect, or
the power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract, or
otherwise.
-6-
<PAGE>
"conversion date" shall mean the Business Day on which a Loan is to be
---------------
converted pursuant to Section 3.3, 3.5, 3.9 or 3.10.
"Counter-Indemnity" shall mean the Counter-Indemnity executed by the
-----------------
Borrower and the UK Bank in connection with the 1991 Notes and the Sterling
Guarantee, as such document may from time to time be amended, supplemented or
otherwise modified.
"Credit Parties" shall mean, individually and collectively, KSI, FAI
--------------
and each Loan Party.
"Current Assets", as to any Person, shall mean the current assets of
--------------
such Person determined in accordance with GAAP; provided that any of such assets
-------- ----
which are subject to a Lien held by any Person other than the Agent or the Banks
to secure payment of any Indebtedness for Borrowed Money which is not included
in Current Liabilities shall be excluded from Current Assets to the extent of
such Indebtedness for Borrowed Money.
"Current Liabilities", as to any Person, shall mean the current
-------------------
liabilities of such Person determined in accordance with GAAP, and shall in any
event (except as otherwise specifically provided in Section 8.19(b) of the
Agreement) include (without duplication), as of the date of determination
thereof: (i) all Indebtedness for Borrowed Money payable on demand or maturing
within one year after such date without any option on the part of the obligor to
extend or renew beyond such year, (ii) final maturities, installments,
repayments and prepayments of Indebtedness for Borrowed Money required to be
made within one year after such date, (iii) the unpaid principal balance of the
Loans due within one year after such date, and (iv) all other items (including
taxes accrued as estimated and reserves for deferred income taxes) which, in
accordance with GAAP, would be included on a balance sheet as current
liabilities.
"Deemed Disbursement" - Section 2A.6.
-------------------
"Deemed Disbursement Account" -- Section 2A.6(a).
---------------------------
"Default" shall mean any event which with notice or lapse of time, or
-------
both, would become an Event of Default.
"Deferred Shares" shall mean all deferred shares, (Pounds)1 each,
---------------
issued by Furmanite and existing at the Closing Date.
"Deficiency Undertaking" - Section 6.3.
----------------------
"Depositary Bank" shall mean The British Linen Bank Limited, London,
---------------
England.
-7-
<PAGE>
"Depositary Documents" shall mean, individually and collectively, the
--------------------
Counter-Indemnity, the KSI Indemnity, the Bank Charge and all other agreements
and instruments executed by any Credit Party in connection with any of the
foregoing or in connection with the Sterling Guarantee.
"Depositor" shall mean Holding.
---------
"Derby Portion" means that portion of the real property owned by
-------------
Furmanite Engineering Ltd. in Derby, England, that is proposed to be sold by
such Credit Party in 1993 with the consent of the Banks.
"Designated Date" shall mean April 1, 1994 or such later date as the
---------------
Borrower and the Agent shall agree to in writing.
"Designated Office" shall mean the Closing Office or, at the Agent's
-----------------
option (with respect to Sterling) such office of the Agent in the US or the UK
or the Cayman Islands as the Agent shall from time to time specify.
"Determination Date" shall mean the last Business Day of each calendar
------------------
quarter.
"Disbursement" - Section 2A.4.
------------
"Disbursement Date" - Section 2A.4.
-----------------
"Disbursement Earnings" shall mean the amount (if any) earned by
---------------------
investments (if any) made by the Issuer with amounts in the Deemed Disbursement
Account.
"Dollar Equivalent" shall mean (x) in respect of any currency other
-----------------
than Dollars, the amount determined by converting the currency in question, at
the Spot Rate, to Dollars and (y) in respect of Dollars, the amount thereof.
"Dollars", "U.S. $", "$" and "U.S. dollars" shall mean the lawful
------- ------ - ------------
currency of the United States of America.
"Dormant Subsidiaries" shall mean:
--------------------
(i) each of the following Subsidiaries that are incorporated under
the laws of England and Wales, Silk Engineering (Derby) Ltd.; Ron
Philpot Ltd.; Furmanite Kendal Ltd.; Furmanite Shap Ltd.; and
Furmanite Dawson Ltd.; and
(ii) such other corporations (x) as meet the criteria of Section 10.22
of the Agreement and (y) as to which
-8-
<PAGE>
the Agent and the Borrower agree in writing shall be a Dormant
Subsidiary for purposes hereof.
but, in each case, only while the representations contained in Section 10.22 of
the Agreement are accurate with respect to such Subsidiary.
"Earnings" - Section 2.4(b)(iii).
--------
"EBIT" for any Person for any period shall mean the consolidated Net
----
Income of such Person and its consolidated Subsidiaries for such period, before
interest expense and provision for taxes and without giving effect to any
extraordinary gains and gains from sales of assets (other than sales of
inventory in the ordinary course of business), for such period (taken as one
accounting period).
"EBITDA" for any Person for any period shall mean the EBIT of such
------
Person and its consolidated Subsidiaries for such period plus (to the extent
----
deducted in computing EBIT for such period) depreciation, amortization and other
non-cash items.
"Eligible Currencies" shall mean Dollars and Sterling.
-------------------
"Environmental Claim" shall mean any notice, complaint, request for
-------------------
information, claim, demand or similar communication (whether written or oral) by
any Person (including, without limitation, the environmental protection
authorities of the jurisdiction in which any Property is located or any other
national or local regulatory or administrative body), whether based in contract,
tort, implied or express warranty, strict liability, criminal or civil statute
(including any Environmental Law, permit, order, approval, authorization,
license, variance or agreement with any Person), arising from or in respect of
(i) the presence of any Contaminant or any other environmental, health or safety
conditions or a Release or threatened Release on, in, under or emanating from
any Property or resulting from any past, present or future operation of any
member of the Consolidated Group (or any predecessor in interest of any of them)
of any other Person in connection with the business of any member of the
Consolidated Group (or any predecessor in interest of any of them), (ii) any
Release for which any member of the Consolidated Group is otherwise responsible
under the Environmental Laws, (iii) any other circumstance (including, without
limitation, any off-site transportation of a Contaminant) forming the basis of
any violation or alleged violation of, or liability or alleged liability under,
any Environmental Law by any member of the Consolidated Group (or any
predecessor in interest of any of them), (iv) any Remedial Action required to be
taken by any member of the Consolidated Group under the Environmental Laws, or
(v) any harm, injury or damage to real or personal property,
-9-
<PAGE>
natural resources, the environment or any Person alleged to have resulted from
any of the foregoing.
"Environmental Costs" shall mean all expenditures made by, all costs,
-------------------
fees, disbursements and expenses (including, without limitation, any expenses of
engineers, experts, consultants, attorneys, contractors, surveyors, laboratories
and like Persons and costs of investigation and feasibility studies) incurred
by, and all liabilities, obligations and responsibilities assumed or incurred
by, any member of the Consolidated Group for or in respect of (i) any judgments,
fines, penalties, obligations, interest, losses, claims, amounts, impositions,
damages, punitive damages, consequential damages, treble damages or remedial
action paid or taken or agreed to be paid or taken by, due from or assessed
against any member of the Consolidated Group in respect of any Environmental
Claim and (ii) all Remedial Action (including, without limitation, any off-site
transportation of a Contaminant) taken by any member of the Consolidated Group,
whether pursuant to any Environmental Claim or otherwise.
"Environmental Laws" means all laws, rules, regulations, by-laws,
------------------
directives, codes, orders, decrees, judgments or injunctions issued,
promulgated, approved or entered thereunder by any Government Authority relating
to pollution or protection of the environment or occupational health and safety,
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of any waste, pollutant, chemical, hazardous material,
hazardous substance, toxic substance, hazardous waste, special waste, petroleum
or petroleum-derived substance or waste, or any constituent of any such
pollutant material, substance or waste, into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any waste, pollutant,
chemical, hazardous material, hazardous substance, toxic substance, hazardous
waste, special waste, petroleum or petroleum-derived substance or waste.
"Environmental Lien" means any Lien in favor of any Governmental
------------------
Authority for Environmental Costs.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"ERISA Affiliate" shall mean any Person which is from time to time a
---------------
member of a controlled group or a group under common control with Holding within
the meaning of Sections 414(b), 414(c), 414(m) or 414(o) of the Code or Section
4001(a)(14) of ERISA.
-10-
<PAGE>
"Eurocurrency Differential" shall mean 2.125%; provided however that:
------------------------- ----------------
(a) "Eurocurrency Differential" shall mean 1.75% on and after July 1,
1995, if (x) all principal, interest and other payments required to be made
hereunder on June 30, 1995 have been made, and (y) no Default or Event of
Default exists on June 30, 1995 (both before and after giving effect to any such
payments); and
(b) "Eurocurrency Differential" shall mean 1.75% on and after the
first day of any calendar month, whether before or after July 1, 1995, if on the
last day of the immediately preceding calendar month (x) all principal, interest
and other payments required to be made hereunder on such date have been made,
(y) the sum of (A) the aggregate outstanding principal amount of Term Loans plus
(B) the Total Revolving Credit Loan Commitment (or, if greater, the outstanding
principal amount of Revolving Credit Loans plus all LC Obligations) is less than
the Dollar Equivalent of $20,000,000, and (z) no Default or Event of Default
exists.
"Eurocurrency Interest Determination Date" shall mean the date as of
----------------------------------------
which LIBOR is determined for a Libor Loan which shall be two Business Days
prior to the commencement of each Interest Period.
"Eurocurrency Loan" shall mean a Floating Rate Loan and a Libor Loan.
-----------------
"Event of Default" shall mean each of the Events of Default defined in
----------------
Section 9.
"EY" shall mean Ernst & Young.
--
"FAI" shall mean Furmanite America Inc., a Virginia corporation.
---
"FAI Guaranty" - Section 6.5(a).
------------
"FAI Intercompany Note" - Section 6.20.
---------------------
"FAI Security Agreement" - Section 6.5(a).
----------------------
"FAI Shares" shall mean all of the issued and outstanding shares of
----------
capital stock of FAI.
"FEAL" shall mean Furmanite East Asia Ltd., a Foreign Subsidiary
----
organized under the laws of Hong Kong.
"Federal Funds Effective Rate" shall mean the rate of interest charged
----------------------------
by banks with excess reserves at a Federal
-11-
<PAGE>
Reserve district bank to banks needing overnight loans to meet reserve
requirements.
"FIL" shall mean Furmanite International Limited, an English
---
registered company and a Subsidiary of Furmanite.
"Financial Statements" shall mean, with respect to any Person, the
--------------------
statement of financial position (balance sheet) and the statement of earnings,
cash flow and stockholders' (or partners') equity of such Person.
"First Currency" - Section 12.17(a).
--------------
"Fiscal Year" shall mean each January 1 - December 31 period.
----------
"Fixed Charge Coverage Ratio" shall mean, for the period in question,
---------------------------
in respect of any Person, the ratio for such Person and its Subsidiaries, of (A)
an amount equal to the sum (without duplication) of
(i) the consolidated Net Income of such Person and its Subsidiaries
for such period, exclusive of extraordinary gains and losses for such period,
plus
----
(ii) consolidated interest expense for such Person and its
Subsidiaries for such period, including the portion of any Capitalized Lease
Obligations allocable to such interest expense, plus
----
(iii) all taxes imposed by any Government Authority on the income of
such Person and its Subsidiaries that have accrued or are otherwise due or
payable in respect of such period, plus
----
(iv) all depreciation and amortization of such Person and its
Subsidiaries with respect to such period, plus
----
(v) to the extent deducted in computing the aforesaid Net Income for
such period, fees and expenses accrued by the Borrower for such period with
respect to the KSI Management Agreement, provided that the payment of such fees
-------------
and expenses are subject to the terms of the KSI August 1992 Subordination
Agreement,
to (B) their Fixed Charges for such period.
"Fixed Charges" shall mean, in respect of any Person for any period,
-------------
as of any date of calculation, an amount equal to the sum (without duplication)
of
-12-
<PAGE>
(i) all Cash Interest Expenses for such Person and its
Subsidiaries during such period, plus
----
(ii) the principal due on the Term Loans pursuant to Section 2.4(a)
during such period and on the Revolving Loans if and to the extent finally due
during such period, plus
----
(iii) the principal due on all other Indebtedness for Borrowed Money
of such Person and its Subsidiaries during such period, plus
----
(iv) all rents and other amounts allocable to principal that accrue or
have accrued during such period with respect to Capitalized Lease Obligations of
such Person and its Subsidiaries.
"Fixed Rate Loan" or "Libor Loan" shall mean a Eurocurrency Loan
--------------- ----------
during any period that it bears interest determined by reference to LIBOR.
"Floating Rate Loans" or "Base Rate (US) Loans" shall mean a
------------------- --------------------
Eurocurrency Loan made in Dollars during any period that it bears interest
determined by reference to the Base Rate (US).
"Foreign Guarantor" shall mean KOSI and each of the following
-----------------
Subsidiaries of KOSI or FAI:
Furmanite Canada Limited
Furmeta Holding BV
Furmanite BV
Metaholding BV
Metalock BV
Furmanite NV
Oy Suomen Metalock AB
Furmanite SA
Furmanite A/S
Furmanite Reparacoes Industriais Lda
Furmanite Iberica SA
Furmanite East Asia Limited
and each other Subsidiary of Furmanite or KOSI not incorporated in the US or UK.
"Foreign Guaranty" - Section 6.5(a).
----------------
"Foreign Loans" - Section 8.3(xi).
-------------
"Foreign Pledge Agreement" - Section 6.5(b).
------------------------
"Foreign Security Agreement" - Section 6.5(a)
--------------------------
-13-
<PAGE>
"Foreign Subsidiary" shall mean Subsidiaries of Holding incorporated
------------------
or otherwise organized other than in the US or the UK.
"Fourth Amendment" shall mean the amendment to the Original Agreement
----------------
(as then in effect) designated as Amendment No. 4 and dated as of August 31,
1992.
"Furmanite" shall mean Furmanite 1986 Ltd., a company incorporated
---------
under the laws of England and Wales (registered number 2004499) that was on the
Closing Date and all times subsequent thereto (until mid-October 1991) named
Furmanite PLC.
"GAAP" shall mean: (i) with respect to US Persons, generally accepted
----
accounting principles (as promulgated in the US by the Financial Accounting
Standards Board or any successor entity) ("US GAAP"), (ii) with respect to UK
-------
Persons, accounting principles and practices generally accepted in the UK ("UK
--
GAAP"), (iii) with respect to Persons whose accounting principles and practices
----
are governed by those of another country, the accounting principles and
practices generally accepted in such country and (iv) with respect to Financial
Statements or components thereof determined on an aggregate or consolidated
basis involving one or more US Persons and one or more UK Persons and (if any)
any such other Persons, in accordance with their respective GAAP's but utilizing
US GAAP in connection with any such consolidation or combination.
"GmbH" shall mean Furmanite GmbH, a company that prior to the
----
Amendment Effective Date (and before its sale to KOSI) was a Significant
Subsidiary directly owned by FIL.
"GmbH Receivable" - Section 12.14.4.
---------------
"GmbH Sale" shall mean the sale (directly by FIL or via another Loan
---------
Party), on or substantially contemporaneously with the Amendment Effective Date,
of all or substantially all of GmbH's capital stock to the KSI Purchaser.
"GmbH Stock" shall mean all of the issued and outstanding capital
----------
stock of GmbH.
"GmbH Subsidiaries" shall mean each of the following: Zweipack GmbH, a
-----------------
German entity; Dubbels & Ohrt GmbH, a German entity; and Furmanite GesmbH, an
Austrian entity.
"Government Authority" shall mean any nation or government (US, UK or
--------------------
otherwise), any state or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
-14-
<PAGE>
"Group" shall mean the Consolidated Group or the Combined Group or
-----
both, as the context may indicate.
"Guarantee" shall mean by any Person, any obligation, contingent or
---------
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
for Borrowed Money or other obligation of any other Person and, without limiting
the generality of the foregoing, any obligation, direct or indirect, contingent
or otherwise, of such Person (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness for Borrowed Money or other
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
for Borrowed Money or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part), provided that the
term "Guarantee" shall not include endorsements for collection or deposits in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantee Agreements" shall mean, individually and collectively, the
--------------------
FAI Guaranty, the obligations of Holding under Section 9A of the Agreement, each
Foreign Guaranty and each UK Guaranty (but, as to each, only after the execution
of same pursuant to Section 7.18).
"Guarantors" shall mean, individually and collectively, each of the US
----------
Guarantors, each of the UK Guarantors (but only after the execution of their
respective Guarantee Agreements pursuant to Section 7.18 of the Agreement), and
each of the Foreign Guarantors.
"Goodwill" shall mean, with respect to the balance sheet of any Person
--------
as at the date at which the amount thereof shall be determined, the aggregate of
all amounts appearing on the asset side of such balance sheet for goodwill,
patents, patent rights, trademarks, trade names, copyrights, franchises,
treasury stock, organizational expenses, and other similar items, if any, all
determined in accordance with GAAP.
"Holding" - Recitals.
-------
"Holding Security Agreement" - Section 6.5(a).
--------------------------
"Iberica" shall mean Furmanite Iberica SA, a Spanish corporation owned
-------
by FIL on April 1, 1993.
"Indebtedness for Borrowed Money" shall mean (i) all indebtedness of
-------------------------------
(including, without limitation, all indebtedness
-15-
<PAGE>
assumed by) a Person in respect of money borrowed (including, without
limitation, the unpaid amount of the purchase price of any property, incurred
for such purpose in lieu of borrowing money or using available funds to pay said
amount, and not constituting an account payable or expense accrual incurred or
assumed in the ordinary course of business), or evidenced by a promissory note,
bond, debenture or other like obligation to pay money, and including
indebtedness under banker's acceptances and with respect to letters of credit,
and (ii) all obligations of (including, without limitation, all obligations
assumed by) a Person (x) constituting a Capitalized Lease Obligation of such
Person, or (y) constituting a Guarantee by such Person.
"Indemnified Party" - Section 12.3.
-----------------
"Inland Revenue" shall mean the UK Inland Revenue.
--------------
"Insignificant Subsidiary" shall mean:
------------------------
(a) prior to the Amendment Effective Date: any Subsidiary of the
Borrower whose (i) assets constitute less than 5% of the assets of the Borrower
and the Subsidiaries taken as a whole and (ii) whose gross revenues for the most
recent fiscal quarter constitute less than 5% of the consolidated gross revenues
of the Borrower and the Subsidiaries; and
(b) on and after the Amendment Effective Date: any Subsidiary of the
Borrower whose (i) assets constitute less than 10% of the assets of the Combined
Group and (ii) whose gross revenues for the most recent fiscal quarter
constitute less than 10% of the consolidated gross revenues of the Combined
Group.
"Intercompany Documents" shall mean, individually and collectively,
----------------------
the documents executed by FAI that are listed in Section 6.20.
"Intercompany Mortgage" - Section 6.20.
---------------------
"Intercompany Note" - Section 10.7(b).
-----------------
"Intercompany Pledge Agreement" - Section 6.20.
-----------------------------
"Intercompany Security Agreement" - Section 6.20.
-------------------------------
"Intercompany Security Documents" shall mean, individually and
-------------------------------
collectively, the documents executed by FAI that are listed in Section 6.20
pursuant to which Liens in property of FAI are granted by FAI.
"Interest Coverage Ratio", as to any Person, shall mean, for any
-----------------------
period, (A) EBIT of such Person and its consolidated Subsidiaries for such
period plus (to the extent
----
-16-
<PAGE>
deducted in computing EBIT for such period) depreciation, amortization and other
non-cash items, divided by (B) interest on such Person's Indebtedness for Money
Borrowed accrued during such period (other than interest, payable to KSI by a
member of the Consolidated Group, that is capitalized instead of being paid in
cash).
"Interest Period" - Section 3.4.
---------------
"Interest Period Notice" - Section 3.4.
----------------------
"Intersubsidiary Loans" shall mean, individually and collectively, (i)
---------------------
a (Pounds)43,000 loan made by Furmanite to Iberica, (ii) a (Pounds)90,000 loan
made by Furmanite to Furmanite AS (a Subsidiary organized under the laws of
Norway), (iii) a (Pounds)200,000 loan made by FEAL to FIL (each of which loans
was made prior to August 17, 1992), (iv) a (Pounds)205,000 loan made by Holding
to FEAL on May 6, 1993, and (v) a (Pounds)50,000 loan made by FIL to FEAL on
June 3, 1993.
"IPM" - Section 6.5(c).
---
"Issuance Request" - Section 2A.1.
----------------
"Issuer" shall mean Bank of Scotland in its capacity as a Bank
------
hereunder and not in its capacity as Agent. References to the Bank in this
Agreement (when used to refer to Bank of Scotland) shall (without duplication)
include such Bank as Issuer.
"KOSI" shall mean Kaneb Offshore Services Inc., a wholly-owned
----
Subsidiary of Holding incorporated in the British Virgin Islands.
"KOSI Note" - Section 12.14.9.
---------
"KOSI Subsidiaries" shall mean:
-----------------
(i) prior to the Amendment Effective Date, all Subsidiaries of
KOSI that, on or prior to the Amendment Effectiveness Date, were
Subsidiaries of the Borrower; and
(ii) after the Amendment Effective Date, all of the foregoing
Subsidiaries except (i) GmbH and the GmbH Subsidiaries, and (ii) those
Subsidiaries that are Transferred or liquidated in accordance with the
terms of the Agreement.
"KOSI Transfers" shall mean the Transfers to KOSI, on the Amendment
--------------
Effectiveness Date or within three months thereafter (or such longer period that
the Agent shall agree to
-17-
<PAGE>
in writing), of all or substantially all of the capital stock of each Foreign
Subsidiary owned on April 1, 1993 by FIL or another UK Subsidiary.
"KSI" shall mean Kaneb Services, Inc., a Delaware corporation.
---
"KSI Agreements" shall mean, individually and collectively, the KSI UK
--------------
Guaranty, the Deficiency Undertaking and any Depositary Document executed by
KSI.
"KSI August 1992 Subordination Agreement" shall mean that certain
---------------------------------------
subordination agreement dated as of August 31, 1992, substantially in the form
of Annex B-1 to the Fourth Amendment and relating to (among other items) the
Temporary Notes, executed by KSI and the Borrower, as such agreement may from
time to time be amended, supplemented or otherwise modified.
"KSI August 17 Subordination Agreement" shall mean that certain
-------------------------------------
amended and restated subordination agreement dated as of August 17, 1992
(relating to, among other items, a $2,500,000 promissory note dated August 17,
1992 made by the Borrower to the order of KSI and substantially in the form of
Annex B-3 to the Fourth Amendment), executed by KSI and the Borrower, as such
agreement may from time to time be amended, supplemented or otherwise modified.
"KSI Indemnity" shall mean the indemnity executed or to be executed by
-------------
KSI in connection with the Bank Charge and the Sterling Guarantee.
"KSI Lender" shall mean the Bank of Scotland in its capacity as a
----------
lender to KSI with respect to the KSI Loans.
"KSI Loans" shall mean the loans, if any, made by the KSI Lender to
---------
KSI on or prior to the Amendment Effective Date with respect to the transactions
contemplated to occur on such date by Section 12.14 of the Agreement.
"KSI Management Agreement" shall mean that certain agreement dated as
------------------------
of August 1, 1992 between KSI and Kaneb UK, Ltd. [sic], as amended by the
amendment thereto dated as of August 28, 1992, with respect to certain services
to be provided by KSI to the Borrower and KSI's compensation therefor.
"KSI Offer" shall mean the recommended offer dated February 19, 1991,
---------
made by Bear Stearns on behalf of KSI, for the issuance by KSI of shares of its
preferred stock in exchange for the Temporary Preference Shares, as such offer
may from time to time be amended, supplemented or otherwise modified by KSI with
the consent of the Agent in accordance with Sections 6.6 and 8.27 hereof.
-18-
<PAGE>
"KSI Purchaser" shall mean KWI.
-------------
"KSI Representation Letter" shall mean that certain letter from KSI to
-------------------------
the Agent dated August 31, 1992 delivered in connection with the Fourth
Amendment.
"KSI Shares" - Section 6.6(e).
----------
"KSI UK Guaranty" - Section 6.3(c).
---------------
"KWI" shall mean Kaneb Worldwide Inc., a British Virgin Islands
---
corporation.
"LC Obligations" shall mean the aggregate amount (without duplication)
--------------
of all LC Outstandings, Deemed Disbursements and Reimbursement Obligations.
"LC Outstandings" shall mean the aggregate Stated Amount (as it may be
---------------
reduced from time to time) of all Letters of Credit issued hereunder and
outstanding at any point in time.
"Letter of Credit" shall mean a letter of credit issued pursuant to
----------------
Section 2A.2.
"LIBOR" shall mean, for each Interest Period, the per annum rate of
-----
interest at which deposits (in the currency in which the Libor Loan is
denominated) in the amount of the outstanding principal balance of the Libor
Loan are or would be offered for such Interest Period in the London interbank
market at 11:00 A.M. London time two Business Days prior to the start of such
Interest Period by the Agent to prime banks and, in case of variations in rates,
the arithmetic average thereof rounded upward if necessary to the nearest 1/16th
of 1% calculated by the Agent.
"Libor Loan" or "Fixed Rate Loan" shall mean a Eurocurrency Loan
---------- ---------------
during any period that it bears interest determined by reference to LIBOR.
"Lien" shall mean any mortgage, deed of trust, security deed, pledge,
----
security interest, assignment, encumbrance, lien or other charge of any kind or
any other agreement or arrangement having the effect of conferring security
(including any agreement to give any of the foregoing, any lease in the nature
thereof, and any conditional sale or other title retention agreement), any lien
arising by operation of law, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction (or
any similar UK law).
"Loan(s)" shall mean, individually and collectively, each Term Loan
-------
and each Revolving Credit Loan.
-19-
<PAGE>
"Loan Agreement" shall mean this Agreement as it may from time to time
--------------
be amended, extended, restated, supplemented or otherwise modified.
"Loan Documents" shall mean, individually and collectively, this
--------------
Agreement, the Original Agreement, the Notes, the Intercompany Notes, any loan
agreements executed pursuant to Section 10.7(b), the Intercompany Documents, the
Security Documents, the Guarantee Agreements, the Letters of Credit, the KSI
Agreements, the Depositary Documents, and all other instruments and agreements
executed in connection herewith and therewith, in each case as amended,
supplemented or otherwise modified from time to time. Without limiting the
generality of the foregoing, each amendment to the Agreement or to the Original
Agreement (as in effect at any time prior to such amendment) or to any other
Loan Document, each waiver of any provision of the Agreement, the Original
Agreement (as in effect at any time, before or after any amendment thereof or
thereto) or any other Loan Document, and each instrument and agreement executed
in connection herewith or therewith (including without limitation the KSI
Representation Letter) shall be deemed to be a Loan Document for all purposes of
the Agreement and the other Loan Documents.
"Loan Parties" shall mean, individually and collectively, Holding, the
------------
Borrower, Furmanite, each Subsidiary of Furmanite, KOSI and each Subsidiary of
KOSI.
"Local Office Time", when referring to the time of day when funds are
-----------------
to be made available to the Agent or the Borrower, shall mean the applicable
time in the city where such funds are to be made available.
"Long-Term Debt" shall mean all Indebtedness for Borrowed Money
--------------
(regardless of the maturity date thereof) other than (i) indebtedness owed by
any member of the Consolidated Group to another member of the Consolidated Group
and (ii) indebtedness owed by a member of the Consolidated Group to KSI if (x)
such member is the Borrower or a Guarantor, (y) the obligation of such member to
repay such indebtedness has been subordinated to such member's obligations to
the Agent and the Banks in respect of the Loan Agreement or such member's
Guarantee Agreement and (z) no portion of the principal of such indebtedness,
nor any interest thereon, is payable to KSI prior to April 1, 1998 or such later
date as the Obligations shall be required by their terms to have been paid in
full. The existence of the Temporary Note referred to in Section 8.3(iv) shall
not, by itself, cause any other indebtedness owed by a member of the
Consolidated Group to KSI to be considered Long-Term Debt if it otherwise meets
the criteria of clauses (x), (y) and (z) of this paragraph.
-20-
<PAGE>
"Material Adverse Change" in respect of a Person shall mean a material
-----------------------
adverse change in (i) the business, properties, operations, prospects or
condition (financial or otherwise) of such Person or (ii) if such Person is a
Credit Party, the ability of such person to perform, or of the Agent or any Bank
to enforce, the Obligations.
"Material Adverse Effect" in respect of a Person shall mean an effect
-----------------------
that would result in a Material Adverse Change.
"Material Agreement" shall mean all outstanding contracts, agreements,
------------------
leases and other understandings to which any Loan Party is a party, or by or
under which a Loan Party or any Subsidiary has any rights or obligations, which
(i) involve the payment to or by any member of the Consolidated Group of an
aggregate of (Pounds)250,000 (or the equivalent thereof in any other currency)
or more or (ii) is otherwise material to a member of the Consolidated Group.
"Moodys" - Section 8.14.
------
"Mortgages" shall mean, individually and collectively, the Mortgage
---------
(US) and the Mortgage (UK).
"Mortgage (UK)" shall mean the Mortgage in respect of the Site (UK),
-------------
as the same may from time to time be amended, supplemented or otherwise
modified.
"Mortgage (US)" shall mean the Mortgage in respect of the Site (US),
-------------
as the same may from time to time be amended, supplemented or otherwise
modified.
"Multiemployer Plan" shall mean any employee benefit plan which is a
------------------
"multiemployer plan" within the meaning of Section 3(37) of ERISA and to which
the Borrower or any ERISA Affiliate contributes or has been obligated to
contribute.
"Negative Pledge Agreements" - Section 6.5(a).
--------------------------
"Net Income" as to any Person for any period shall mean the
----------
consolidated net income of such Person and its Subsidiaries (or, if a Group, of
the respective members of such Group and their respective Subsidiaries) for such
period, determined in accordance with GAAP.
"Net Income (Adjusted)" as to any Person for any period shall mean the
---------------------
Net Income of such Person for such period less all extraordinary gains included
in such Net Income.
"Net Proceeds", as applied to the sale, lease or other disposition of
------------
assets referred to in Section 2.4(b) or 8.9(a) of the Agreement, shall mean all
proceeds received by any member of
-21-
<PAGE>
the Consolidated Group in connection with such sale, lease or other disposition
after deduction of all fees and expenses paid or to be paid in connection with
the transaction.
"Net Worth" of a Person shall mean, as at any date at which the amount
---------
thereof shall be determined, the amount by which the total shareholders' or
partners' equity of such Person exceeds the amount of any write-up in the book
value of any assets resulting from the revaluation thereof, or any write-up in
excess of the cost of assets acquired, after the Closing Date.
"1991 Notes" shall mean the Unsecured Guaranteed Floating Rate Loan
----------
Notes 1991, due 1996, issuable by the Borrower in certain circumstances to
holders of Ordinary Shares in partial consideration for their tender of such
shares to the Borrower in connection with the Acquisition (UK).
"1993 Notes" shall mean the floating rate unsecured loan notes 1993,
----------
due 1998, issuable by the Borrower in certain circumstances to holders of
Ordinary Shares in partial consideration for their tender of such shares to the
Borrower in connection with the Acquisition (UK).
"NOL" shall mean the net operating loss carryforwards available to KSI
---
for U.S. federal income tax purposes.
"Note" shall mean either a Term Note or Revolving Credit Note and the
----
term "Notes" shall mean Term Notes and Revolving Credit Notes.
-----
"Notice" shall mean either a Notice of Borrowing or a Notice of
------
Conversion, as the context may indicate.
"Notice of Borrowing" - Section 2.2(a).
-------------------
"Notice of Conversion" - Section 3.5(b).
--------------------
"Obligations" shall mean all obligations of the Borrower with respect
-----------
to the repayment or performance of any obligations (monetary or otherwise)
arising under or in connection with this Agreement and each other Loan Document.
"Offer" shall mean, individually and collectively, the KSI Offer and
-----
the Acquisition Offer.
"Offer (UK)" shall mean the Acquisition Offer.
----------
"Offering Documents" shall mean the documents and agreements pursuant
------------------
to which either Offer is made (including without limitation, the Press Release),
as the same may be amended, supplemented or otherwise modified prior to the
Closing Date.
-22-
<PAGE>
"Operating Lease Obligations" shall mean and include all rental
---------------------------
obligations other than Capitalized Lease Obligations.
"Ordinary Shares" shall mean the ordinary shares, par value (Pounds)1
---------------
each, of Furmanite, which shares were purchased by the Borrower in 1991.
"Original Agreement" - Recitals.
------------------
"Original Banks" shall mean BOS and GiroCredit Bank.
--------------
"Other Currency" - Section 12.17(a).
--------------
"Other Accounts" shall mean the Deemed Disbursement Account and the
--------------
Prepayment Account.
"Past-Due Rate" - Section 3.3.
-------------
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
----
pursuant to Section 4002 of ERISA.
"Pension Plan" shall mean any employee pension benefit plan subject to
------------
Title IV of ERISA and maintained by the Borrower or any ERISA Affiliate or any
such plan to which the Borrower or any ERISA Affiliate is or has been required
to contribute on behalf of any of its employees, other than a Multiemployer
Plan.
"Permits" - Section 10.12.
-------
"Permitted Liens" shall mean (x) the specific Liens listed on Schedule
---------------
8.2(g) to the Original Agreement but not any that the Agent requires to be
terminated on or prior to the Closing Date and (y) Liens permitted by clauses
(h) and (i) of Section 8.2 that are incurred after the Closing Date.
"Person" shall mean and include an individual, a partnership, a
------
corporation (including a business trust), a joint stock company, a Group, a
trust, an unincorporated association, a joint venture or other entity or a
government or an agency or political subdivision thereof.
"Plan" shall mean any "employee benefit plan" (within the meaning of
----
Section 3(3) of ERISA) maintained by Holding or any ERISA Affiliate or any such
plan to which Holding or any ERISA Affiliate is or has been required to
contribute on behalf of any of its employees, other than a Multiemployer Plan.
"Pledge Agreements" shall mean, individually and collectively, the US
-----------------
Pledge Agreement, each UK Pledge Agreement and each Foreign Pledge Agreement.
-23-
<PAGE>
"Pounds", "Sterling" and "(Pounds)" shall mean the lawful currency of
------ -------- --------
the United Kingdom.
"Preferred Shares" shall mean the preferred ordinary shares, par
----------------
value (Pounds)1 each, of Furmanite, which shares were purchased by the Borrower
in 1991.
"Prepayment Account" - Section 2.4(b)(iii).
------------------
"Press Release" shall mean the press release issued by Bear Stearns on
-------------
January 23, 1991 with respect to the Offer.
"Property" shall mean any property owned, leased, controlled, used or
--------
operated in the past, present or future by any member of the Consolidated Group.
"Purchasing Bank" - Section 12.4(d).
---------------
"Rate of Borrowing" - Section 3.6.
-----------------
"Receivables" shall have the meaning assigned thereto in the Holding
-----------
Security Agreement.
"Recording Act" - Section 10.15.
-------------
"Recoveries" shall mean any funds, or substitution or receipts or
----------
collateral, received by the Banks or the Agent (a) from the sale, collection or
other disposition pursuant to the Security Documents of the Collateral, or (b)
from any distribution to any of the Banks or the Agent, or abandonment to any of
them, or substitute Lien or payment given to any of them pursuant to events or
proceedings of the nature referred to in Section 9.7 of the Agreement, or
otherwise, and which distribution or abandonment pertains to the Collateral.
"Redeemable Shares" shall mean the issued and fully paid 6% and 9%
-----------------
cumulative redeemable preference shares of (Pounds)1 each issued by Furmanite
and existing prior to April 8, 1991.
"Redemption Documents" shall mean each and every authority, notice,
--------------------
instrument, agreement or deed entered into by Furmanite or any other Person for
the purpose of authorizing and effecting the redemption of all of the Redeemable
Shares at par.
"Regulatory Change" means, relative to any Issuer, any Bank or Bank
-----------------
Assignee, any change after February 1, 1991 in any (or the adoption after
February 1, 1991 of any new):
(a) United States Federal, state or local law or foreign law
applicable to the Issuer, any Bank or Bank Assignee; or
-24-
<PAGE>
(b) regulation, interpretation, directive, or request (whether or
not having the force of law) applying to the Issuer or such Bank or
Bank Assignee of any court or governmental authority charged with the
interpretation or administration of any law referred to in clause (a)
or of any fiscal, monetary, central bank or other authority having
jurisdiction over the Issuer or such Bank or Bank Assignee.
"Reimbursement Obligation" - Section 2A.4.
------------------------
"Release" shall mean any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, pouring, emptying, escaping,
dumping, discarding, leaching or migration of a Contaminant into the indoor or
outdoor environment or into or out of any property, including without limitation
the movement of Contaminants through, on or in the air, soil, surface water or
groundwater or the abandonment or discarding of barrels, containers and other
closed receptacles containing any Contaminant.
"Remedial Action" shall mean all actions taken or required to be taken
---------------
to (i) clean up, remove, treat or in any other way address Contaminants in the
indoor or outdoor environment, (ii) prevent a Release or condition that is
reasonably likely to result in a Release or minimize further release of
Contaminants so they do not migrate or endanger or threaten to endanger present
or future public health or welfare or the indoor or outdoor environment, (iii)
perform pre-remedial studies and investigations and post-remedial monitoring and
care, or (iv) cure any other violation of any Environmental Laws.
"Repayment Date" - Section 2.4(a).
--------------
"Reportable Event" shall mean a Reportable Event described in Section
----------------
4043 of ERISA and the regulations issued thereunder.
"Repurchase Documents" shall mean each and every authority, notice,
--------------------
instrument, agreement or deed entered into by Furmanite or any other Person for
the purpose of authorizing and effecting the purchase by Furmanite of the
Deferred Shares.
"Required Banks" as of a particular date shall mean (a) while any of
--------------
the Commitments are in effect, one or more Banks (two or more, at any time when
there are more than two Banks party to the Agreement) whose Commitments
aggregate at least 60% of the Total Commitments or (b) if at the time none of
the Commitments are in effect, one (two, at any time when there are more than
two Banks party to the Agreement) or more Banks (or other holders of Notes)
holding at least 60% of the aggregate unpaid principal amount of all Loans, LC
Outstandings and
-25-
<PAGE>
Reimbursement Obligations at the particular time outstanding. For purposes of
the foregoing clause (a), the Term Loan Commitment of each Bank shall equal the
then-outstanding principal amount of its Term Loan.
"Revolving Credit Loan" - Section 2.1(b).
---------------------
"Revolving Credit Loan Commitment" shall mean, for each Bank, the
--------------------------------
amount set forth opposite its name on Schedule 2.1 to the Agreement under the
heading "Revolving Credit Loan Commitment", as the same from time to time may be
reduced or terminated pursuant to Section 2.4(b), Section 2.8, Section 9 or any
other section of the Agreement.
"Revolving Credit Note" shall mean, after the Amendment Effective
---------------------
Date, a promissory note of the Borrower substantially in the form of Exhibit O-2
to the Agreement, as such note may be from time to time amended, supplemented,
restated or otherwise modified.
"Satisfactory Subordination Agreement" shall mean a subordination
------------------------------------
agreement in form and substance satisfactory to the Agent which subordinates (in
manner, form and scope satisfactory to the Agent) the obligations specified
therein (i.e., to a Person other than the Agent or the Banks) to all obligations
of the member of the Consolidated Group executing same to the Agent and the
Banks.
"S&P" - Section 8.14.
---
"SEC" shall mean the US Securities and Exchange Commission or any
---
successor entity.
"Section 2.4(b) Proceeds" shall mean, with respect to each sale, lease
-----------------------
or other disposition referred to in Section 2.4(b) or 8.9(a), the amount payable
by the Borrower pursuant to Section 2.4(b) of the Agreement.
"Security Agreements" shall mean, individually and collectively, each
-------------------
UK Debenture, the Borrower Security Agreement, the FAI Security Agreement, the
Holding Security Agreement, each Negative Pledge Agreement, each Foreign
Security Agreement and each Pledge Agreement.
"Security Documents" shall be the collective reference to (i) the Bank
------------------
Charge and each of the agreements referred to in Section 6 and (if, as and when
executed) in Sections 7.18, 7.20 and 12.14 pursuant to which Collateral is
intended to be granted to the Agent on behalf of the Banks, (ii) the sections of
the Agreement pursuant to which the Other Accounts are established, (iii) the
Intercompany Security Documents, and (iv) all amendments, supplements or other
modifications to such agreements
-26-
<PAGE>
and sections or replacements thereof. The term "Security Documents" shall also
include the Guarantee Agreements. However, as to a Credit Party, the term
"Security Document" shall not include any such document as to which the Credit
Party party thereto is released from all its obligations thereunder by the Agent
or the Banks in accordance with the terms hereof or thereof shall not thereafter
be considered a "Security Document" as to such Credit Party.
"Significant Subsidiary" shall mean:
----------------------
(a) prior to the Amendment Effective Date: any Subsidiary of the
Borrower whose (i) assets constitute 5% or more of the assets of the Borrower
and the Subsidiaries taken as a whole or (ii) whose gross revenues for the most
recent fiscal quarter constitute 5% or more of the consolidated gross revenues
of the Borrower and the Subsidiaries; and
(b) on and after the Amendment Effective Date: any Subsidiary of the
Borrower or KOSI whose (i) assets constitute 10% or more of the assets of the
Combined Group taken as a whole or (ii) whose gross revenues for the most recent
fiscal quarter constitute 10% or more of the consolidated gross revenues of the
Combined Group.
"Site (UK)" shall mean the real property of Furmanite located in
---------
Kendal (England), Derby (England) and Aberdeen (Scotland).
"Site (US)" shall mean the real property of FAI located in Virginia
---------
Beach, Virginia.
"Sites" shall mean, individually and collectively, the Site (US) and
-----
the Site (UK).
"Solvent" shall mean, with respect to any Person, that the fair
-------
saleable value of the tangible and intangible property (including goodwill) of
such Person is, on the date of determination, greater than the total amount of
liabilities of such Person as of such date (including contingent liabilities of
such Person to the extent such Person considers it probable that it shall
actually be liable thereon) and that, as of such date, such Person is able to
pay all Indebtedness for Borrowed Money of such Person as such Indebtedness for
Borrowed Money matures. When used in respect of the Borrower and other Persons
incorporated in the UK, "Solvent" shall also mean that such Person is not unable
to pay its debts within the meaning of section 123 of the Insolvency Act 1986
and the comparable provisions of any successor statute.
-27-
<PAGE>
"Specified Percentage" shall mean (a) with respect to the Stated
--------------------
Amount of the Carlisle LC, 1%, and (b) with respect to all other Letters of
Credit, 1-3/4%.
"Spot Rate" shall mean, for any day, the rate of exchange for two
---------
(four, as used in Section 3A.1) Business Days' forward delivery quoted by the
Agent's New York office in New York City for the purchase of one currency with
another (or, if the Agent is not then quoting such a rate, such rate shown on
page WRLD of the Reuters screen) in New York City at 11:00 A.M. (New York time)
on such day or, if such day is not a Business Day, on either the next preceding
or the next succeeding Business Day, at the election of the Agent.
"Stated Amount" shall mean, as to each Letter of Credit, the maximum
-------------
amount payable thereunder to the beneficiary thereof upon compliance with the
terms and conditions stated therein, as such amount may be reduced from time to
time.
"Stated Expiry Date" - Section 2A.1(b).
------------------
"Sterling", "Pounds" and "(Pounds)" means the lawful currency of the
-------- ------ --------
United Kingdom.
"Sterling Guarantee" shall mean the guarantee of certain obligations
------------------
of the Borrower under the 1991 Notes that is to be executed on the Closing Date
by the UK Bank, as such guarantee is from time to time amended, supplemented or
otherwise modified.
"Subordination Agreements" shall mean, individually and collectively,
------------------------
the KSI August 1992 Subordination Agreement, the KSI August 17 Subordination
Agreement, each Satisfactory Subordination Agreement and each subordination
agreement executed in connection with loans permitted by clauses (viii), (x),
(xviii) and (xix) of Section 8.3.
"Subsidiary" of any Person shall mean any other firm, corporation,
----------
partnership, trust or other unincorporated organization or association or other
enterprise, 50% or more of the indicia of equity rights (whether capital stock
or otherwise) of which is at the time owned, directly or indirectly, by such
Person and/or by one or more of such Person's Subsidiaries. Unless otherwise
indicated, references to Subsidiaries shall refer to Subsidiaries of the
Borrower.
"Supervening Event Notice" - Section 2.2(d).
------------------------
"Tangible Assets" of a Person shall mean, as at any date at which the
---------------
amount thereof shall be determined, all the assets of such Person less the
----
amount of any write-up in the book value of any assets resulting from the
revaluation thereof other
-28-
<PAGE>
than the revaluation on the Closing Date (as disclosed in the pro forma balance
sheet delivered pursuant to Section 6.8 of the Agreement) of assets acquired by
virtue of the Acquisitions less any write-up in excess of cost of assets
----
acquired after December 31, 1992, less the aggregate of all amounts appearing on
----
the asset side of the balance sheet for goodwill, patents, patent rights,
trademarks, trade names, copyrights, franchises, treasury stock, organizational
expenses, and other similar items, if any, all determined in accordance with
GAAP.
"Tangible Net Worth" of a Person shall mean, as at any date at which
------------------
the amount thereof shall be determined, the amount by which the total
shareholders' or partners' equity of such Person exceeds the sum of (x) the
amount of any write-up in the book value of any assets resulting from the
revaluation thereof, or any write-up in excess of the cost of assets acquired,
after the Closing Date, and (y) Goodwill, if any, all determined in accordance
with GAAP.
"Tangible Net Worth (Adjusted)" of a Person shall mean, as at any date
-----------------------------
at which the amount thereof shall be determined, the sum (without duplication)
of the following:
(i) the sum of (x) the Tangible Net Worth of such Person, plus
(y) 15% of the Goodwill of such Person; plus
----
(ii) the aggregate principal amount (but not an amount greater
than $7,100,000) outstanding and payable to KSI under the Temporary
Notes, provided that such notes are at the time of computation subject
-------------
to the terms of the KSI August 1992 Subordination Agreement; plus
----
(iii) $1,628,000 or such lesser amount of fees and expenses
accrued by the Borrower on or prior to June 30, 1992 with respect to
the KSI Management Agreement but not paid to KSI, provided that (x)
-------------
all such amounts, and all other amounts payable to KSI on or after
June 30, 1992 with respect to such agreement, are at the time of
computation subject to the terms of the KSI August 1992 Subordination
Agreement, and (y) no interest is paid or payable by any member of the
Consolidated Group with respect thereto; plus
----
(iv) $1,000,000 or such lesser amount of unreimbursed expenses
advanced by KSI on behalf of the Borrower on or prior to June 30,
1992, provided that such expenses are treated by the Borrower as
-------------
unsecured non-interest bearing loans made by KSI to the Borrower
pursuant to Section 8.3(viii) of the Agreement, and provided further
----------------
that all such amounts are at the time
-29-
<PAGE>
of computation subject to the terms of the KSI August 1992
Subordination Agreement; plus
----
(v) $2,500,000 or such lesser amount of that certain promissory
note dated August 17, 1992 executed by the Borrower in favor of KSI
that is, at the time of computation, outstanding and subject to the
provisions of the KSI August 17 Subordination Agreement; plus
----
(vi) if and to the extent that KSI makes unsecured loans to the
Borrower between September 10, 1992 and December 31, 1992, the
aggregate principal amount of such loans outstanding at the date of
calculation (but not an amount greater than $700,000), provided that
-------------
such loans are subject to the terms of the KSI August 17 Subordination
Agreement at the time of computation; plus
----
(vii) fees and expenses accrued by the Borrower subsequent to
June 30, 1992 with respect to the KSI Management Agreement but not
paid to KSI, provided that (x) all such amounts with respect to such
-------------
agreement are at the time of computation subject to the terms of the
KSI August 1992 Subordination Agreement, (y) no interest is paid or
payable by any member of the Consolidated Group with respect thereto;
and (z) the aggregate amount of such fees and expenses accrued by the
Borrower and included in this computation of Tangible Net Worth
(Adjusted) (pursuant to this clause (vii) or clause (iii) above or
both) does not exceed $1,200,000 during any Fiscal Year or $100,000
during any month; plus
----
(viii) the aggregate amount of interest accrued from and after
June 30, 1992 on the amounts included in Tangible Net Worth (Adjusted)
by virtue of clauses (ii)-(vi) hereof; provided that (x) no such
-------------
amounts may be paid to the Borrower until the Obligations have been
paid in full, and (y) the aggregate amount of interest accrued shall
not exceed (A) $550,000 during Fiscal Year 1992, or (B) $1,100,000
during any Fiscal Year thereafter.
In the event that any amount included by virtue of the aforesaid
clause (v) or clause (vi) in the definition of Tangible Net Worth
(Adjusted) (or, for purposes of Section 8.23, in the definition of
Tangible Assets or, for purposes of Section 8.20, in the definition of
Net Worth) is repaid or proposed to be repaid by the Borrower to KSI,
the calculations required by Sections 8.20, 8.21 and 8.23 shall,
immediately prior to any such proposed repayment, be recalculated
(without
-30-
<PAGE>
including in any such defined terms the amount otherwise permitted to
be so included by virtue of said clause (vii) or clause (viii), as the
case may be) for purposes of determining whether any Default or Event
of Default existed at the end of the previous fiscal quarter (in the
case of Sections 8.20 and 8.23) or fiscal half-year (in the case of
Section 8.21) under any such section or so exists at the time of such
proposed repayment;
"Tax Allocation Agreement" shall mean the tax allocation agreement
------------------------
referred to in Section 6.11, as said agreement may from time to time be amended,
supplemented or otherwise modified with the consent of the Required Banks.
"Taxes" - Section 5.2.
-----
"Temporary Note" - Section 6.6(d). Unless the context specifically
--------------
requires otherwise, from and after April 1992, the term "Temporary Note" shall
refer to that certain promissory note dated April 8, 1992, in the principal
amount of $7,011,758, issued by Holding to KSI in replacement and substitution
for all Temporary Notes otherwise outstanding on that date.
"Temporary Preference Shares" shall mean the (Pounds)4 preference
---------------------------
shares issuable by the Borrower to holders of Ordinary Shares in partial
consideration for their tender of such Ordinary Shares in connection with the
Acquisition (UK).
"Term Loan" - Section 2.1(a).
---------
"Term Loan Commitment" - Section 2.1(a).
--------------------
"Term Note" shall mean, after the Amendment Effective Date, a
---------
promissory note of the Borrower substantially in the form of Exhibit O-1 to the
Agreement, as such note may from time to time be amended, supplemented, restated
or otherwise modified.
"Termination Event" shall mean (i) a Reportable Event described in
-----------------
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations), or (ii) the withdrawal of the Borrower or any of its
ERISA Affiliates from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the
filing of a notice of intent to terminate a Pension Plan or the treatment of a
Pension Plan amendment as a termination under Section 4041 of ERISA, or (iv)
receipt by the Borrower or any ERISA Affiliate of notice of the PBGC's intention
to terminate any Pension Plan or to have a trustee appointed to administer any
Pension Plan or (v) the PBGC, or (vi) any other event or condition which might
constitute grounds under Section
-31-
<PAGE>
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan.
"Total Commitments" shall mean the aggregate of the Total Term Loan
-----------------
Commitment and the Total Revolving Credit Loan Commitment.
"Total Revolving Credit Loan Commitment" shall mean the sum of the
--------------------------------------
Revolving Credit Loan Commitments of all the Banks, as in effect from time to
time.
"Total Term Loan Commitment" - Section 2.1(a).
--------------------------
"Transfer" - Section 8.9.
--------
"Transfer Supplement" - Section 12.4(d).
-------------------
"Type" shall mean either a Base Rate (US) Loan or a Libor Loan.
----
"UCC" - Section 10.15.
---
"UK" shall mean the United Kingdom.
--
"UK Bank" shall mean The Governor and Company of the Bank of Scotland.
-------
"UK Guarantors" shall mean Furmanite and each of its Subsidiaries
-------------
incorporated in the UK.
"UK IPM" - Section 7.18(a)(x).
------
"UK Pledge Agreement" - Section 7.18.
-------------------
"UK Statutes" - Section 10.15.
-----------
"UK Subsidiaries" shall mean Subsidiaries of Holding incorporated
---------------
under the laws of the UK.
"Undelivered FEAL Certificate" - Section 7.28.
----------------------------
"Unutilized Revolving Commitments" shall mean the amount by which the
--------------------------------
Total Revolving Credit Loan Commitment at any time exceeds the sum of (x) the
aggregate principal amount of Revolving Credit Loans then outstanding plus (y)
----
the Dollar Equivalent of LC Obligations.
"US" shall mean the United States.
--
"US Guarantors" shall mean Holding and FAI.
-------------
"US Pledge Agreement" - Section 6.5(b).
-------------------
-32-
<PAGE>
"US Subsidiaries" shall mean Subsidiaries of Holding incorporated
---------------
under the laws of the US.
"Waiver 20" - Recitals.
---------
"Written" or "in writing" shall mean any form of written communication
------- ----------
or a communication by means of telex, telecopier device, telegraph or cable.
To the extent that any term defined in Annex I to the Original Agreement has
been deleted from this Annex I but is used (and is otherwise undefined) in a
Loan Document, said term will continue to have the meaning provided for in said
Annex I prior to its amendment on the Amendment Effective Date (except that any
defined terms within said definition that remain defined in this Annex I shall
have the meanings provided therefor in this Annex I).
--------------------
-33-
<PAGE>
EXHIBIT 10.9
AMENDED AND RESTATED
SENIOR SECURED INCREASING RATE PROMISSORY NOTE
$10,000,000 New York, New York
July 2, 1993
KANEB SERVICES, INC., a Delaware corporation (the "KSI"), FOR VALUE
---
RECEIVED, hereby promises to pay to the order of BANK OF SCOTLAND (the "Bank"),
----
at its office located at 565 Fifth Avenue, New York, New York 10017 (or at such
other location as KSI is notified of in writing by the holder of this Note), the
principal sum of TEN MILLION DOLLARS or, if less, the aggregate unpaid principal
amount outstanding hereunder, on June 28, 1995. Capitalized terms used in this
Note shall have the meanings specified in Section X hereof (unless otherwise
defined herein).
Interest. KSI promises also to pay accrued interest on the unpaid
--------
principal amount hereof, from the date hereof until such principal amount shall
be due, at a rate per annum equal to the Base Rate plus the Applicable Margin.
The applicable rate per annum shall change on the effective date of each change
in the Base Rate.
Interest Payment Dates. Such interest shall be payable (i) on the
----------------------
last Business Day of each month, commencing on the last Business Day of July
1993, (ii) upon any prepayment hereof (on the amount so prepaid), (iii) upon
maturity (by acceleration or otherwise) and (iv) after maturity, on demand.
Interest shall be computed for the actual number of days elapsed on the basis of
a 360-day year.
Past-Due Interest. Overdue principal and overdue interest shall bear
-----------------
interest for each day, payable on demand, at a rate per annum (the "Past-Due
--------
Rate") equal to 2% in excess of the interest rate otherwise in effect for the
----
Loan on such day.
Voluntary Repayment. KSI may voluntarily repay all or any portion of
-------------------
the principal amount hereof, without premium or penalty, upon not less than one
(1) Business Day's prior written notice to the Bank of the date and amount of
such repayment. Partial repayments shall be in integral multiples of $500,000
(or such lesser amount consented to by the Bank).
Mandatory Prepayments. KSI shall, within five days of its receipt of
---------------------
any payment of principal under any Pledged Note, prepay this Note by an amount
equal to the amount of principal so received. KSI shall also, within five days
of its receipt of any dividend referred to in this sentence or (if later) within
five
<PAGE>
days after any computation under this sentence requires such amount to be paid,
prepay this Note by an amount equal to (x) the amount of each dividend paid by
KWI to KSI and (y) the amount of each dividend paid by FGI to KSI (but not to
the extent that the aggregate amount of any such dividends exceeds the lesser of
(A) the sum of (i) the cumulative amount of dividends paid by GmbH to KWI from
July 2, 1993 through the Restatement Date plus (ii) the cumulative amount of
dividends paid by MSFH to FGI from and after the date of MSFH's incorporation,
or (B) $7,000,000).
No Reborrowing. Amounts repaid hereunder may not be reborrowed.
--------------
Record-Keeping. The outstanding principal balance and accrued
--------------
interest under this Note at any time shall be determined as shown in records
made in accordance with manual, computerized, electronic or other record-keeping
systems used from time to time by the Bank or other holder of this Note.
Restatement. This Note amends and, as so amended, restates in its
-----------
entirety that certain $10,000,000 Senior Secured Increasing Rate Promissory Note
dated July 2, 1993, as previously amended by an amendment dated as of December
27, 1993.
I.
PAYMENTS
1.1 Currency. All payments hereunder and under the other Loan
--------
Documents shall be made in freely transferable U.S. dollars and in immediately
available funds without setoff or counterclaim.
1.2 Time and Place of Payments. All payments by KSI to the Bank
--------------------------
hereunder or under the other Loan Documents shall be made prior to 1 p.m. (New
York City time) on the date such payment is due, at the Bank's office at 565
Fifth Avenue, New York, New York 10017 or as the holder hereof may otherwise
direct. Payments received by the Bank after 1 p.m. (New York City time) shall
be deemed to have been received on the next succeeding Business Day.
1.3 Non-Business Days. Whenever any payment to be made hereunder or
-----------------
under the other Loan Documents 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 and interest shall be payable at the applicable rate during such
extension. KSI hereby authorizes and directs the Bank to charge any account of
KSI maintained at any office of the Bank with the amount of any principal,
interest or expense when the same becomes due and payable under the terms hereof
or under any of
-2-
<PAGE>
the other Loan Documents; provided, however, that the Bank shall not be under
-------- -------
any obligation to charge any such account.
1.4 Security. This Note is secured by the Pledged Securities.
--------
II.
REPRESENTATIONS AND WARRANTIES
KSI hereby represents and warrants the following, which
representations and warranties shall survive the execution and delivery of this
Note and the other Loan Documents:
2.1 (a) KSI is a corporation duly organized, validly existing and in
good standing under the laws of Delaware and has the full power and authority to
own its properties and assets and to carry on its business as now being
conducted. FGI is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and has the full power and authority to own
its properties and assets and to own the shares of MSFH. MSFH is a corporation
duly organized, validly existing and in good standing under the laws of Germany
and has the full power and authority to own its properties and assets and to own
the shares of the MSFH Subsidiaries. (All representations in this Note
pertaining to FGI and MSFH shall be effective from and after December 29, 1994.)
(b) KSI has full power, authority and legal right to execute, deliver
and perform this Note. Each Loan Party has full power, authority and legal
right to execute, deliver and perform the Pledge Agreement (Joint).
(c) The execution, delivery and performance by each Loan Party of the
Loan Documents executed by it has been duly authorized by all necessary action.
The Loan Documents executed by KSI constitute the legal, valid and binding
obligations of KSI, enforceable against KSI in accordance with their respective
terms. On and prior to the Restatement Date, the Loan Documents executed by KWI
and GmbH constituted the legal, valid and binding obligations of KWI and GmbH,
respectively, enforceable against such Persons in accordance with their
respective terms. From and after the Restatement Date, the Loan Documents
executed by FGI and MSFH constitute the legal, valid and binding obligations of
FGI and MSFH, respectively, enforceable against such Persons in accordance with
their respective terms.
(d) The most recent year-end financial statements of KSI furnished to
the Bank prior to the date hereof have been prepared in accordance with GAAP
consistently applied and fairly present the financial condition and results of
operations of KSI as at the end of and for the reporting period covered thereby.
-3-
<PAGE>
There are no material liabilities or any material unrealized or anticipated
losses which are not disclosed in such financial statements.
(e) There has been no Material Adverse Change with respect to KSI
from that set forth in the financial statements referred to in clause (d) above.
There are no legal proceedings pending or, to the knowledge of KSI threatened,
against or affecting KSI or its obligations hereunder. Other than for defaults
existing on the Closing Date under the Furmanite Loan Agreement, no default by
KSI exists with respect to any agreement or instrument to which it or any
Subsidiary is a party or to which it or its assets are subject which might (in
the aggregate) result in such a Material Adverse Change.
(f) The execution, delivery and performance of the Loan Documents
will not contravene any provision of law, rule or regulation to which any Loan
Party is subject or any judgment, decree or order applicable to a Loan Party nor
conflict or be inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under, or result
in the creation or imposition of (or the obligation to create or impose) any
lien or other encumbrance upon any of the property or assets of a Loan Party
pursuant to the terms of, any agreement or other instrument to which a Loan
Party is a party or by which it or its property is bound or to which it or its
property may be subject nor violate any provision of the charter documents or
by-laws of any Loan Party.
(g) No order, permission, consent, approval, license, authorization,
registration or validation of, or filing with, or exemption by, any Government
Authority or any other Person is required to authorize, or is required in
connection with the execution, delivery and performance of this Note or any of
the other Loan Documents, or the taking of any action hereby or thereby
contemplated. Without limiting the generality of the foregoing, no approvals are
required from any Government Authority by virtue of KSI being the owner or
operator of pipelines.
(h) Kaneb Worldwide Inc., a Delaware corporation, is the successor by
merger to Kaneb Worldwide Inc., a British Virgin Islands corporation. Such
merger became effective on February 14, 1994.
2.2 (a) Neither KSI nor FGI is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any margin stock (within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System). No part of the proceeds
of the Loan will be used to purchase or carry any such margin stock or to
-4-
<PAGE>
extend credit to others for the purpose of purchasing or carrying any such
margin stock.
(b) The proceeds of the Loan will be used by KSI, together with
approximately $2,300,000 of KSI's own funds, solely as follows: (w)
approximately $3,000,000 for a loan to KWI to enable KWI to purchase the GmbH
Stock from KOSI, (x) approximately $2,300,000 for a subordinated, unsecured loan
to KOSI, an indirectly-owned Subsidiary of KSI, (y) approximately $7,000,000 for
the purchase by KSI of the GmbH Receivable from FIL, and (z) the balance for
expenses relating to the Loan and the transactions described in the foregoing
clauses of this paragraph.
(c) Neither KSI nor FGI nor the entering into of this Note is subject
to any of the provisions of the Investment Company Act of 1940, as amended.
(d) Neither this Note nor any Loan Document nor any statement, list,
certificate or other document or information delivered or to be delivered to the
Bank nor the 10K contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.
(e) Between January 1, 1993 and the Closing Date, KSI did not file
any report on Form 8K with the SEC (except for the reports on Form 8K dated on
the cover sheet thereof January 29, 1993, as amended by amendment no. 1 thereto
dated April 16, 1993, and March 2, 1993, as amended by amendment no. 1 thereto
dated April 14, 1993, true and correct copies of which KSI has delivered to the
Bank) nor has any event occurred which requires it to do so (other than those
referred to in those two filed reports).
(f) To the best of KSI's knowledge, KSI has been and continues to be
in compliance with all applicable Environmental Laws.
(g) All Subordinated Indebtedness of KSI contain provisions
subordinating the rights of the holders thereof to the rights of the Bank under
this Note. This Note and the rights of the Bank hereunder are entitled to the
benefits of such subordination provisions.
(h) No property is subject to the TCB Restated Liens that was not
subject to the TCB Original Liens. The nature and extent of the TCB Restated
Liens is not different from or broader than the nature and extent of the TCB
Original Liens. The TCB Restated Agreement does not permit any Lien on any
asset of KPOP
-5-
<PAGE>
or any Subsidiary of KPOP that was not permitted on that asset by the terms of
the TCB Original Agreement.
III.
AFFIRMATIVE COVENANTS
3.1 For so long as any amounts are outstanding under this Note or KSI
has any obligations to the Bank hereunder, KSI agrees to comply with each of
the following covenants, unless the Bank should otherwise consent in writing:
3.1.1 Financial Statements. KSI will furnish to the Bank promptly
--------------------
upon becoming available, copies of its annual audited and quarterly unaudited
financial statements and such other information, reports, notices or statements
as the Bank may reasonably request from time to time, including all reports and
other information sent by KSI to its shareholders generally.
3.1.2 Inspections. KSI will allow any representative, officer or
-----------
accountant of the Bank, upon reasonable notice, to visit and inspect any of its
property, to examine its books of record and account and to discuss its affairs,
finances and accounts with its officers, and at such reasonable time and during
usual business hours and as often as the Bank may request.
3.1.3 Further Assurances. KSI will (and will cause FGI, MSFH and
------------------
each of the MSFH Subsidiaries to) make, execute or endorse, and acknowledge and
deliver or file, all such vouchers, invoices, notices, and certifications and
additional agreements, undertakings, conveyances, transfers, assignments, or
further assurances, and take any and all such other action, as the Bank may,
from time to time, reasonably deem necessary or proper for the better assuring
and confirming unto the Bank all or any part of the security for the Loan.
3.1.4 Notice of Default. Forthwith upon (and, in any event, within
-----------------
five Business Days of) any officer of KSI obtaining knowledge of the existence
of an Event of Default, KSI will deliver to the Bank a certificate signed by an
officer of KSI specifying the nature thereof, the period of existence thereof,
and what action KSI proposes to take with respect thereto.
IV.
NEGATIVE COVENANTS
4.1 Negative Covenants. For so long as any amounts are outstanding
------------------
under this Note or KSI has any obligations to the Bank hereunder, KSI hereby
agrees that it will observe (or, to the extent applicable, cause the relevant
Loan Party or other Person to observe) the obligations set forth in this Section
IV
-6-
<PAGE>
(unless it shall first have procured the written consent of the Bank to do
otherwise).
4.1.1 Same Type of Business. (a) KSI will not enter into any
---------------------
business or activity other than its ownership of the capital stock of its
Directly-Owned Subsidiaries and, to the extent KSI's board of directors directs,
its participation in the management and business of its Subsidiaries.
(b) FGI will not enter into any business or activity other than its
ownership of the capital stock of MSFH.
(c) MSFH will not enter into any business or activity other than its
ownership of the capital stock of F-aust, Zweipack and other MSFH Subsidiaries;
provided that MSFH will not own shares of any such Subsidiary unless the Bank
-------------
has a first priority, perfected security interest in all shares issued by such
Subsidiary as collateral for MSFH's obligations as a guarantor of KSI's
obligations under this Note.
4.1.2 Liens. Neither Loan Party nor any MSFH Entity will contract,
-----
create, incur or assume any Lien upon or with respect to, or by transfer or
otherwise subject to the prior payment of any indebtedness (other than the
Loan), any of its property or assets, whether now owned or hereafter acquired;
except (i) liens for taxes, assessments, levies or governmental charges not yet
due or which are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves are being
maintained in accordance with GAAP, and (ii) other liens, charges, and
encumbrances incidental to the conduct of its business or the ownership of its
property and assets which were not incurred in connection with the borrowing of
money or the obtaining of advances or credit and which do not materially detract
from the value of its property or assets or materially impair the use thereof in
the operation of its business; and (iii) the following:
(a) Liens in connection with workmen's compensation, unemployment
insurance or other social security obligations;
(b) Deposits or pledges securing the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of
like nature made in the ordinary course of business;
(c) Mechanics', carriers', warehousemen's, workmen's, materialmen's,
or other like Liens arising in the ordinary course of business with respect
to obligations which are not due or which are being contested in good
faith;
(d) Liens securing the Loan;
-7-
<PAGE>
(e) Encumbrances consisting of zoning regulations, easements, rights
of way, survey exceptions and other similar restrictions on the use of real
property or minor irregularities in titles thereto which do not materially
impair use of such property by KSI in the operation of its business;
(f) Liens existing on the Closing Date; and
(g) Liens placed upon property of KSI or a MSFH Entity at the time of
acquisition thereof by such Person to secure up to 90% of the purchase
price thereof; provided that such Lien shall not encumber any other
--------
property of such Person or any property of any other Person.
4.1.3 Other Indebtedness. No Loan Party (such term, for purposes of
------------------
this Section 4.1.3, to include each MSFH Entity) will contract, create, incur or
assume any Indebtedness for Borrowed Money; except
(i) indebtedness evidenced by this Note;
(ii) indebtedness outstanding at December 31, 1992 and referenced in
the financial statements of KSI contained in the 10K;
(iii) Subordinated Indebtedness, but only if (x) the proceeds thereof
are used to repay other Subordinated Indebtedness of KSI and (y) no portion
of the principal on the newly-incurred Subordinated Indebtedness is
required to be paid prior to the scheduled final maturity date of the
Subordinated Indebtedness being so repaid;
(iv) trade payables incurred in the ordinary course of business,
provided that same are not more than 60 days past due (unless (a) they are
being contested in good faith, (b) appropriate reserves are provided
therefor to the extent required by GAAP, and (c) the failure to make such
payment does not give rise to any Lien in excess of $100,000 (or its
equivalent in other currencies);
(v) non-recourse indebtedness incurred in accordance with, and
secured solely by the Liens permitted by, clause (g) of Section 4.1.2(iii);
(vi) the indebtedness evidenced by the Pledged Note (FGI); and
(vii) in addition to the foregoing, unsecured indebtedness incurred
by KSI not to exceed $5,000,000 at any time outstanding.
-8-
<PAGE>
4.1.4 Subordinated Indebtedness. (a) Except as permitted by Section
-------------------------
4.1.3 (iii), KSI will not (and will not permit FGI or any Subsidiary of FGI to)
redeem, retire, purchase or otherwise acquire, directly or indirectly, for a
consideration, any Subordinated Indebtedness (or any equity securities into
which any Subordinated Indebtedness is converted) or make any payments of (or on
account of) the principal thereof, or set aside any funds for any of the
foregoing purposes; provided, however, that KSI may make such purchases on the
-----------------
open market at less than the face value of such indebtedness purchased if the
maximum amount expended by KSI for such purchases does not exceed $1,000,000.
(b) KSI will not amend or modify the subordination provisions of any
agreement, instrument or document relating to Subordinated Indebtedness in any
way that will adversely affect the subordination provisions thereof.
(c) KSI will not (and will not permit any Subsidiary to) redeem,
retire, purchase or otherwise acquire, directly or indirectly, for a
consideration, any of its 8.85% Convertible Notes due 1998 (or any equity
securities into which any of such notes are converted) or make any payments of
(or on account of) the principal thereof, or set aside any funds for any of the
foregoing purposes.
4.1.5 EBITDA. KSI will not permit its consolidated EBITDA to be less
------
than $28,000,000 for its fiscal year ending December 31, 1993 or for its fiscal
year ending December 31, 1994.
4.1.6 Dissolution. KSI will not (x) wind up, liquidate or dissolve
------------
its affairs or (y) enter into any transaction of merger or consolidation if,
after giving effect thereto, a Default or Event of Default shall exist, or (z)
agree to do any of the foregoing at any future time.
4.1.7 Sale of Assets. KSI will not (and will not agree that it will
--------------
in the future or permit FGI or any MSFH Entity to) convey, sell, lease or
otherwise dispose of (any of the foregoing, a "Transfer") (i) all or a
--------
substantial part of its property or assets or any part of such property or
assets essential to the conduct of its business substantially as now conducted;
(ii) any of its assets (except in the ordinary course of business) unless (to
the extent such Transfer is not prohibited by clause (iii) or (iv) below) such
assets are Transferred for a price at least equal to their fair market value (as
determined in good faith by the board of directors of KSI); (iii) any capital
stock of FGI or of any MSFH Entity; or (iv) all or a substantial part of the
property or assets of any MSFH Entity.
-9-
<PAGE>
4.1.8 Purchase of Assets. KSI will not purchase, lease or otherwise
------------------
acquire (x) all or any substantial part of the property or assets of any Person,
or (y) other than in the ordinary course of business, property or net assets in
excess of $500,000 in the aggregate (or an equivalent amount in other
currencies).
4.1.9 Subsidiaries. KSI will not sell, assign, transfer or otherwise
------------
dispose of, or in any way part with control of, any shares of capital stock of
any Subsidiary except (x) as permitted by the Furmanite Loan Agreement, or (y)
with respect to any Subsidiary (other than FGI and the MSFH Entities) that is
not a member of the Consolidated Group, for an amount at least equal to the fair
market value thereof as determined in good faith by KSI's Board of Directors, or
(z) in the December 1994-February 15, 1995 period in connection with the KWI
Sale, KWI and GmbH and Dubbels.
4.1.10 Investments. KSI will not invest in (by capital contribution
-----------
or otherwise), or acquire for investment or purchase or make any commitment to
purchase the obligations or stock of, any Person, except (i) the purchase of
marketable direct or guaranteed obligations of the national governments of the
Federal Republic of Germany, the UK and the US; (ii) stock or obligations issued
in settlement of claims against others by reason of an event of bankruptcy or a
composition or readjustment of debt or a reorganization of any debtor of KSI or
a Subsidiary; (iii) certificates of deposit and banker's acceptances of any bank
that is a lender to KSI or any Furmanite Bank or any branch of any such bank;
(iv) Commercial Paper rated P-1 or A-1 by Standard & Poors ("S&P") or Moody's
---
Investors Service ("Moodys") or the equivalent rating by any other rating agency
------
nationally recognized in the US or UK; (v) certificates of deposit and banker's
acceptances of any bank with a AA or better rating from Moodys or the equivalent
rating by S&P or any other rating agency nationally recognized in the US or UK;
and (vi) loans, subordinated or otherwise, to any member of the Consolidated
Group (as defined in the Furmanite Loan Agreement). As used in this Note,
"Commercial Paper" shall mean short-term promissory notes due no later than 270
-----------------
days from the date of issuance of each such note.
4.1.11 Accounting Changes. KSI will not make or permit any
------------------
Subsidiary to make any significant change in accounting treatment and reporting
practices except as permitted or required by GAAP.
4.2 New MSFH Subsidiaries. Notwithstanding the provisions of
---------------------
Sections 4.1.7, 4.1.8, 4.1.9 and 4.1.10:
(a) MSFH may cause the formation of MSFH Subsidiaries other than
F-aust and Zweipack, and
-10-
<PAGE>
(b) Zweipack may sell certain (but not more than 50%) of its
assets to one or more of such newly-formed Subsidiaries,
if, contemporaneously with the formation of such entities, MSFH grants to the
Bank (and the Bank thereafter has) a first priority, perfected security interest
in all shares issued by such Subsidiary as collateral for MSFH's obligations as
a guarantor of KSI's obligations under this Note.
V.
EVENTS OF DEFAULT
Unless waived by the Bank, the occurrence of any of the following
shall constitute an Event of Default (each herein called an "Event of Default"):
----------------
5.1 Principal and Interest. KSI shall default in the due and
----------------------
punctual payment of any interest due hereunder; provided that failure to duly
-------- ----
and punctually make such an interest payment shall not be an Event of Default
under this Section 5.1 if such interest payment is paid within five days after
the date it is due and KSI has not been late in making an interest payment
hereunder more than once in the preceding 12 months; or
5.2 Representations and Warranties. Any representation, warranty or
-------------------------------
statement made by KSI herein or otherwise in writing by KSI in connection
herewith, or in any certificate or statement furnished pursuant to or in
connection herewith, shall be breached in a manner that could reasonably be
expected to have an adverse effect on the validity, payment, performance or
enforceability of this Note or any obligation of KSI hereunder or thereunder or
shall prove to be untrue in any material and adverse respect on the date as of
which made;
5.3 Negative Covenants. KSI shall default in the due performance or
------------------
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to Section IV hereof; or
5.4 Other Covenants. KSI 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 of the provisions of this Note (other than those
referred to in Sections 5.1, 5.2 or 5.3) and such default (which shall be
capable of cure) shall continue unremedied for a period of 30 days after the
earlier of the date on which the Bank gives KSI notice of such default or on the
date an officer of KSI becomes aware thereof; or
5.5 Other Obligations. Any indebtedness for borrowed money of KSI or
-----------------
any Subsidiary (other than Viata) (i) shall be
-11-
<PAGE>
duly declared to be or shall become due and payable prior to the stated maturity
thereof, or (ii) in respect of indebtedness for borrowed money in excess of
$250,000 (or the equivalent amount in any other currency) in an aggregate
principal amount, shall not be paid as and when the same becomes due and payable
including any applicable grace period; or
5.6 Furmanite Loan Agreement. An "Event of Default" (as defined in
------------------------
the Furmanite Loan Agreement) shall exist under Section 9.1, 9.6(a), 9.7 (with
respect to KUK, Furmanite or FIL), 9.9 (with, for purposes hereof, the term
"Credit Party" in said Section 9.9 to mean only KII and the UK Subsidiaries),
9.10 or 9.11(b) of the Furmanite Loan Agreement; or
5.7 Insolvency. Any Credit Party (such term, for purposes of this
----------
Section 5.7, to include each MSFH Entity) shall dissolve or suspend or
discontinue its business, or shall make an assignment for the benefit of
creditors or a composition with creditors, shall be unable or admit in writing
its inability to pay its debts as they mature, shall file a petition in
bankruptcy, shall be adjudicated insolvent or bankrupt, shall petition or apply
to any tribunal for the appointment of (or there shall be appointed pursuant to
any contract) any administrator, receiver, liquidator or trustee of or for it or
any substantial part of its property or assets, shall commence any proceedings
relating to it under any bankruptcy, reorganization, arrangement, readjustment
of debt, receivership, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or there shall be commenced
against any Credit Party any such proceeding which shall remain undismissed for
a period of 90 days or more, or any order, judgment or decree approving the
petition in any such proceeding shall be entered; or any Credit Party shall by
any act or failure to act indicate its consent to, approval of or acquiescence
in, any such proceeding or in the appointment of any receiver, liquidator or
trustee of or for it or any substantial part of its property or assets, or shall
suffer any such appointment to continue undischarged or unstayed for a period of
90 days or more; or any Credit Party shall take any action for the purpose of
effecting any of the foregoing; or any court of competent jurisdiction shall
assume jurisdiction with respect to any such proceeding or a receiver or trustee
or other officer or representative of a court or of creditors, or any court,
governmental officer or agency, shall under color of legal authority, take and
hold possession of any substantial part of the property or assets of any Credit
Party or there shall happen or exist under the laws of any applicable
jurisdiction, with respect to any Credit Party, any event analogous to and
having a substantially similar effect to any of the foregoing events; or
5.8 Pledged Securities. Any shares issued by FGI or any MSFH Entity
------------------
shall be the subject of a Lien in favor of any
-12-
<PAGE>
Person other than (as to the shares of the MSFH Subsidiaries) the Bank or the
Furmanite Banks; or FGI or any MSFH Entity shall issue any shares which are not
pledged to the Bank; or all or any significant portion of the assets of FGI or
any MSFH Entity are Transferred; or FGI or any MSFH Entity is dissolved or
otherwise liquidated; or FGI or any MSFH Entity enters into any transaction of
merger or consolidation and, after giving effect thereto, the shares of the
resulting or surviving entity shall not be the subject of a first priority,
perfected pledge in favor of the Bank under applicable law (provided, in each of
--------
the foregoing situations, if any such breach is solely as a result of a change
of law and such breach is capable of remedy, then such breach shall not be
considered an Event of Default under this Section 5.8 for a period of 10 days if
such breach is remedied within that period); or KSI or FGI or any holder of any
Pledged Securities shall assert that the Bank does not have a perfected, first
priority Lien in (x) 100% of the issued and outstanding shares of any MSFH
Entity or of FGI or (y) any Pledged Note; or
5.9 Judgments. (a) Any final non-appealable judgment for the payment
---------
of money in excess of $1,250,000 (or the equivalent thereof in any currency),
excluding any amounts payable or reimbursable by financially sound insurance
companies or by third parties whose Commercial Paper is rated P-1 or A-1 by S&P
or Moodys (or the equivalent rating by any other rating agency nationally
recognized in the US or the UK), shall be rendered against KSI or any
Subsidiary; or
(b) Final judgment for the payment of money in excess of
$1,250,000 (or the equivalent thereof in any currency) shall be rendered against
KSI or any Subsidiary, and the same shall remain undischarged for a period of 30
days during which execution shall not be effectively stayed or contested in good
faith; or
5.10 Pipeline. Pipeline or KPOP or KPL or any significant portion of
--------
the respective assets of any such Person are Transferred (such term to include
any granting of a Lien), directly or indirectly, or an agreement for the
foregoing is entered into, other than (x) Liens granted to the TCB Restated
Lenders in connection with the TCB Restated Agreement (as in effect in December
1994), (y) Liens on assets of KPOP or any Subsidiary of KPOP permitted by the
TCB Restated Agreement, and (z) Liens granted on up to 2,500,000 outstanding
Preference Units of Kaneb Pipe Line Partners L.P. ("KPL") as collateral for up
---
to $10,000,000 of indebtedness incurred by Pipeline.
VI.
ACCELERATION
6.1 Acceleration. Upon the occurrence of an Event of Default and
------------
while such Event of Default shall be continuing, the
-13-
<PAGE>
Bank may in its sole discretion, but shall not be obligated to, take any one or
more of the following actions:
(a) by notice to KSI declare all amounts payable by KSI
hereunder to be forthwith due and payable, and the same shall
thereupon become due and payable without demand, presentment, protest
or further notice of any kind, all of which are hereby expressly
waived, provided that no notice or declaration of any kind is required
-------- ----
upon the occurrence of an Event of Default as to KSI described in
Section 5.7 hereof;
(b) exercise all of its rights and remedies hereunder or under
any of the other Loan Documents; and
(c) take whatever other action at law or in equity which may
appear necessary or desirable to collect the amounts then due and
thereafter to become due hereunder or to enforce any other of its
rights hereunder.
VII.
INDEMNIFICATION
7.1 Delay. No failure or delay on the part of the Bank in exercising
-----
any right, power or privilege under this Note or any other Loan Document, and no
course of dealing between KSI and the Bank shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Bank would otherwise have pursuant to such documents or at law or equity. No
notice to or demand on KSI in any case shall entitle KSI to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
right of the Bank to any other or further action in any circumstances without
notice or demand.
7.2 Right of Set-off. In addition to any rights now or hereafter
----------------
granted under applicable law or otherwise and not by way of limitation of any
such rights, upon the occurrence of an Event of Default the Bank is hereby
authorized at any time or from time to time, without notice to KSI, any such
notice being hereby expressly waived, to set-off and to appropriate and apply
any and all deposits (general or special, time or demand, provisional or final)
and any other indebtedness at any time held or owing by the Bank to or for the
credit or the account of KSI against and on account of the obligations and
liabilities of KSI now or hereafter existing under this Note or any of the other
Loan Documents irrespective of whether or not any demand shall have been made
thereunder and although said obligations, liabilities or claims, or any of them,
shall be contingent or unmatured. The Bank, if it exercises any rights granted
under this Section shall thereafter notify KSI of such action; provided
--------
-14-
<PAGE>
that the failure to give such notice shall not affect the validity of such set-
----
off and application.
7.3 Indemnification. Without limiting any of the rights or
---------------
obligations as set forth in this Note on the part of the Bank, KSI agrees to
indemnify, pay and hold harmless the Bank and each holder of this Note and their
respective present and future officers, directors, employees and agents
(collectively, the "Indemnified Parties") from and against all liability,
-------------------
losses, damages and expenses (including, without limitation, legal fees and
expenses) arising out of, or in any way connected with, or as a result of (i)
the execution and delivery of this Note and the other Loan Documents or the
documents or transactions contemplated hereby and thereby or the performance by
the parties hereto or thereto of their respective obligations hereunder and
thereunder or relating thereto; or (ii) any claim, action, suit, investigation
or proceeding (in each case, regardless of whether or not the Indemnified Party
is a party thereto or target thereof) in any way relating to the GmbH Sale, the
KWI Sale, any Pledged Security, KWI, any GmbH Entity, FGI, any MSFH Entity or
any Affiliate of any of the foregoing; or (iii) any violation by KSI or any
Affiliate thereof of any Environmental Law, any Environmental Claim or
Environmental Cost or the imposition of any Environmental Lien (in each case, as
each of the foregoing terms is defined in the Furmanite Loan Agreement);
provided that KSI shall not be liable to any Indemnified Party for any portion
-------------
of such liabilities, liabilities, losses, damages and expenses sustained or
incurred as a direct result of the gross negligence or willful misconduct of the
Bank if such gross negligence or willful misconduct is determined to have
occurred by a final and non-appealable decision of a court of competent
jurisdiction.
7.4 Expenses. (a) KSI shall upon demand of the Bank pay all
--------
reasonable out-of-pocket costs and expenses of the Bank (x) incurred in
connection with the preparation, execution, delivery, administration, filing and
recording of, and (y) incurred in connection with the amendment (including any
waiver or consent), modification, and enforcement of or preservation of any
rights under, this Note or any Loan Document, the making and repayment of the
Loan, and the payment of all interest and fees, including, without limitation,
(A) the reasonable fees and expenses of Sullivan & Worcester, counsel for the
Bank of Scotland, and any special or local counsel retained by the Bank, (B)
printing, travel, recording, filing, communication and signing taxes and cost,
and (C) legal fees in bankruptcy and judicial and non-judicial foreclosure
proceedings. Until paid to the Bank, such sums will bear interest at the
highest rate of pre-maturity interest borne by the Loan plus 2%; provided that
--------
if such interest exceeds the maximum amount permitted to be paid under
applicable law, then such interest shall be reduced to such maximum permitted
amount. Interest accrued hereunder pursuant to this paragraph shall be payable
on demand and shall be calculated on the basis of the actual number of days
elapsed and a 360-day year.
-15-
<PAGE>
(b) KSI agrees to pay, and to save the Bank harmless from (x)
all present and future stamp, filing and other similar taxes, fees or charges
(including interest and penalties, if any), which may be payable in connection
with the Loan Documents or the issuance of the Note or any modification of any
of the foregoing, and (y) all finder's and broker's fees in connection with the
transactions contemplated by this Note and the other Loan Documents.
7.5 Judgment Currency. If, for the purpose of obtaining judgment in
-----------------
any court, it is necessary to convert a sum due hereunder or any Loan Document
into any other currency (the "Other Currency"), the rate of exchange used shall
--------------
be that with which in accordance with normal banking procedures the Bank could
purchase U.S. dollars with the Other Currency on the Business Day preceding that
on which final judgment is given. The obligation of KSI in respect of any sum
due from it hereunder, notwithstanding judgment in such Other Currency, shall be
discharged only to the extent that on the Business Day following receipt by the
Bank of any sum adjudged to be so due in the Other Currency, the Bank may in
accordance with normal banking procedures purchase U.S. dollars with the Other
Currency; if the U.S. dollars so purchased shall be less than the sum originally
due to the Bank in U.S. dollars, KSI agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Bank against such loss.
7.6 Capital Adequacy. If the Bank shall have determined that the
----------------
applicability after the date hereof of any law, rule, regulation or guideline
adopted pursuant to or arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or the
adoption after the date hereof of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
enforcement or interpretation or administration of any of the foregoing by any
court or any governmental authority, central bank or comparable agency charged
with the enforcement or interpretation or administration thereof, or compliance
by the Bank (or any lending office of the Bank) or any holding company of the
Bank 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 the
Bank's capital or on the capital of the Bank's holding company, if any, as a
consequence of its obligations hereunder to a level below that which the Bank or
the Bank's holding company could have achieved but for such applicability,
adoption, change or compliance (taking into consideration the Bank's policies
and the policies of the Bank's holding company with respect to capital adequacy)
by an amount deemed by the Bank to be material, then, upon demand by the Bank,
----
KSI shall pay to the Bank from time to time such additional amount or amounts as
will compensate the Bank or the Bank's holding company (as determined by the
Bank in good faith) for any such reduction suffered as a consequence of the
Bank's obligations hereunder, together with interest on
-16-
<PAGE>
each such amount (commencing three Business Days from the date demanded) until
payment in full thereof at the Base Rate. A certificate of the Bank submitted
to KSI as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on KSI. In determining such amount or amounts, the Bank
may use any reasonable method of averaging and attribution as it shall deem
applicable.
7.7 Survival; Headings. (a) The provisions of this Section 7.7 and
------------------
of Sections 7.3, 7.4, 7.5, 7.6, 9.2 and 11.1 of this Note shall survive the
termination of this Note and any payment in full of the principal of this Note.
(b) The descriptive headings of the various provisions of this
Note and the other Loan Documents are inserted for convenience of reference only
and shall not be deemed to affect the meaning or construction of any of the
provisions hereof or thereof.
VIII.
MISCELLANEOUS
8.1 Waiver of Presentment. Except to the extent required by law
---------------------
which cannot be waived, KSI waives presentment, demand, protest or notice of any
kind in connection with this Note.
8.2 Amendments. (a) Except as otherwise provided, no provision of
----------
this Note or any of the Loan Documents may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the Bank and
KSI, except that waivers of provisions relating to KSI or a Subsidiary's
performance or non-performance of its obligations hereunder or thereunder need
not be signed by KSI or such Subsidiary. Any such change, waiver, discharge or
termination shall be effective only in the specific instance and for the
specific purposes for which made or given.
(B) THIS NOTE (AND THE OTHER LOAN DOCUMENTS) REPRESENTS THE
FINAL AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE MATTERS COVERED
HEREBY AND THEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
(C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8.3 Notices. Except as otherwise expressly provided herein, all
-------
notices, requests, demands or other communications to or upon the respective
parties hereto shall be deemed to have been duly given or made when delivered
(if sent by Federal Express or other similar overnight delivery service), or
three days after mailing (when deposited in the mails, by registered or
certified mail, return receipt requested, postage prepaid), or
-17-
<PAGE>
(in the case of telex, telegraphic, telecopier or cable notice), when delivered
to the telex, telegraph, telecopier or cable company, or (in the case of telex
or telecopier notice sent over a telex or telecopier owned or operated by a
party hereto), when sent, in each case addressed to the party entitled to
receive same to the address stated alongside its name on the signature page
hereto (or to such other address as any party hereto may hereafter specify to
the other in writing); provided that communications with respect to a change of
-------------
address shall be deemed to be effective when actually received.
8.4 Assignees. The provisions of this Note will bind and benefit the
---------
successors and assigns of KSI and the successors and assigns of the Bank. The
term "KSI" will mean both the named KSI and any other person or entity at any
---
time assuming or otherwise becoming primarily liable on all or any part of the
Indebtedness. Notwithstanding the foregoing, KSI shall not entitled to assign
any of its obligations under this Note.
8.5 Severability. If any provision of this Note shall be held or
------------
deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the
same shall not affect any other provision or provisions herein contained or
render the same invalid, inoperative or unenforceable to any extent whatever.
8.6 Domicile of Loan. The Bank may maintain or transfer the Loan to,
----------------
or for the account of, any branch office and (subject to the prior consent of
KSI, such consent not to be unreasonably withheld) to any subsidiary or
affiliate of the Bank.
8.7 Calculations. (a) Calculations hereunder shall be made and
-------------
financial data required hereby shall be prepared both as to classification of
items and as to amount in accordance with GAAP consistent with the Financial
Statements of KSI included in the 10K; provided that for purposes of Section
-------- ----
4.1.5 hereof, no effect shall be given to any change in GAAP from those in
effect on December 31, 1992.
(b) In making any computations required for purposes of Section
4.1.5 hereof to be in Dollars in respect of or relating to any fiscal or
calendar period, translations from other currencies shall be computed in
accordance with GAAP. In the case of any disputes between any of the parties
hereto as to the accuracy of any computation under this Note relating to
currency translations, the calculations of the Bank (absent manifest error)
shall be conclusive.
8.8 Usury. Nothing contained in this Note shall require KSI to pay
-----
interest at a rate exceeding the maximum rate permitted by applicable law. If
the amount of interest payable hereunder on any date would otherwise result in
such maximum rate being exceeded, such amount shall be automatically reduced to
the maximum permissible amount, and the amount of interest payable for any
subsequent period, to the extent less than that permitted by applicable law,
shall, to that extent, be increased by the
-18-
<PAGE>
amount of such reduction. To the extent that any amount of interest is paid in
excess of the maximum permissible amount, such amount shall be applied as a
repayment of the principal amount hereof.
IX.
JURISDICTION
9.1 Jurisdiction. The parties hereto agree that ANY LEGAL ACTION OR
------------
PROCEEDING AGAINST THE OTHER PARTY HERETO WITH RESPECT TO THIS NOTE OR ANY OTHER
AGREEMENT OR DOCUMENT CONTEMPLATED HEREBY OR REFERRED TO HEREIN MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK CITY OR OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK OR ANY COURT IN ENGLAND
AS SUCH PARTY MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS NOTE EACH PARTY
HERETO ACCEPTS AND CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. Each of the
parties hereto agrees that such jurisdiction shall be exclusive, unless waived
by the Bank (with respect to actions or proceedings brought by KSI) or by KSI
(with respect to actions or proceedings brought by the Bank) in writing, except
that without such written consent the Bank may bring actions and proceedings in
any other jurisdiction where KSI has property or does business. Each of the
parties hereto consents (to the extent permitted by applicable law) to the
service of process in any such action or proceeding being made upon such party
by mail at the address stated alongside its name on the signature page hereof or
at such other address as a party is notified of in accordance with Section 8.3
hereof. KSI hereby covenants that it is and will remain subject to service of
process in the State of New York so long as any monies are payable hereunder. If
for any reason KSI should not be or remain so qualified, KSI hereby designates
and appoints, without power of revocation, CT Corporation System, 1633 Broadway,
New York, New York as its agent upon whom may be served all process, pleadings,
notices or other papers which may be served upon it as a result of any of its
obligations under this Note. Nothing herein shall affect the right of the Bank
or KSI to serve process in any other manner permitted by law.
9.2 Choice of Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
-------------
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
EXECUTED WHOLLY WITHIN THE STATE OF NEW YORK (REGARDLESS OF THE PLACE WHERE THIS
NOTE IS EXECUTED).
X.
DEFINITIONS
As used in this Note, the following terms (which terms shall include
in the singular, the plural and vice versa) shall have the meanings herein
specified:
"Applicable Margin" shall mean, during each Month (after the Closing
-----------------
Date) that is specified in the first column
-19-
<PAGE>
below, the rate per annum set forth opposite such Month in the second column
below.
<TABLE>
<CAPTION>
Month After Closing Date Rate Per Annum
------------------------ --------------
<S> <C>
1st 1.0%
2nd 1.5%
3rd-12th (inclusive) 2.0%
13th 2.5%
14th 3.0%
15th 3.5%
16th 4.0%
17th 4.5%
18th 5.0%
19th 5.5%
20th and thereafter 6.0%
</TABLE>
For purposes of this definition, "Month" shall mean (a) initially, the period
-----
which begins on (and includes) the Closing Date and ends on (but excludes) the
day which numerically corresponds to such date one month thereafter; and (b)
thereafter, each period which begins on the last day of the preceding Month and
ends on (but excludes) the day which numerically corresponds to such last day
one month thereafter.
"Affiliate", as to any Person, shall mean any other Person directly or
---------
indirectly controlling, controlled by or under common control with, such Person.
Unless otherwise indicated, references to "Affiliate" shall refer to Affiliates
of KSI.
"Base Rate" shall mean, for any day, the higher of (x) the fluctuating
---------
interest rate per annum, as in effect from time to time, established by the Bank
in New York from time to time as the Bank's base, prime or reference rate for
U.S. domestic commercial loans in Dollars, or (y) the Federal Funds Effective
Rate in effect on such day plus 1/2%. Any change in the interest rate resulting
from a change in such Base Rate shall be effective as of the opening of
business on the day on which such change becomes effective; it is understood and
agreed that all the aforesaid rates and the Base Rate are reference rates only
and do not necessarily represent the lowest or best rate actually charged to any
customer.
"Business Day" shall mean any day which is neither a Saturday or
------------
Sunday nor a legal holiday or any other day on which banks are authorized or
required to be closed in New York, New York.
"Capital Contribution Date" shall mean the date on which, after the
-------------------------
$7,000,000 Pledged Note (GmbH) has been divided into the $2,400,000 Other Note
(GmbH) and the $4,600,000 Pledged Note (GmbH), said Other Note (GmbH) was
contributed by KSI to the capital of KWI and by KWI to the capital of GmbH. If
these two dates are different, the "Capital Contribution Date" shall be deemed
-------------------------
to be the earlier date.
-20-
<PAGE>
"Capitalized Lease Obligations" shall mean all rental obligations
-----------------------------
which, under GAAP, are or would be required to be capitalized on the books of a
Person, in each case taken at the amount thereof accounted for as indebtedness
(net of interest expense) in accordance with such principles.
"Closing Date" shall mean July 2, 1993.
------------
"Consolidated Group" shall have the meaning provided therefor in the
------------------
Furmanite Loan Agreement.
"Credit Parties" shall mean, individually and collectively, KSI and
--------------
each Directly-Owned Subsidiary.
"Default" shall mean any event which with notice or lapse of time, or
-------
both, would become an Event of Default.
"Directly-Owned Subsidiary" shall mean KII, FGI and Pipeline.
-------------------------
"Dollars", "U.S.$", "$" and "U.S. dollar" shall mean the lawful
------- ------ - -----------
currency of the United States of America.
"Dubbels" shall have the meaning provided for such term in the Multi-
-------
Party Agreement.
"EBIT" for any Person for any period shall mean the consolidated Net
----
Income of such Person and its consolidated Subsidiaries for such period, before
interest expense and provision for taxes and without giving effect to any
extraordinary gains and gains from sales of assets (other than sales of
inventory in the ordinary course of business), for such period (taken as one
accounting period).
"EBITDA" for any Person for any period shall mean the EBIT of such
------
Person and its consolidated Subsidiaries for such period plus (to the extent
----
deducted in computing EBIT for such period) depreciation, amortization and other
non-cash items.
"Environmental Laws" shall have the meaning provided therefor in the
------------------
Furmanite Loan Agreement.
"Event of Default" is defined in Section V hereof.
----------------
"F-aust" shall have the meaning provided for such term in the Multi-
------
Party Agreement.
"Federal Funds Effective Rate" shall mean the rate of interest charged
----------------------------
by banks with excess reserves at a Federal Reserve district bank to banks
needing overnight loans to meet reserve requirements.
"FGI" shall mean Furmanite Germany, Inc., a Delaware corporation that,
---
from and after the Restatement Date, is a wholly-owned Subsidiary of KSI.
-21-
<PAGE>
"FIL" shall mean Furmanite International Limited, an English
---
registered company and a Subsidiary of KSI.
"Furmanite" shall have the meaning provided therefor in the Furmanite
---------
Loan Agreement.
"Furmanite Banks" shall mean the banks from time to time party to the
---------------
Furmanite Loan Agreement (and, unless otherwise indicated, shall also include
the agent for said banks thereunder)
"Furmanite Loan Agreement" shall mean the Amended and Restated Loan
------------------------
Agreement dated as of May 3, 1991 among KII, Furmanite PLC (formerly Kaneb UK
PLC), an English registered company, the Furmanite Banks and the agent for said
banks (as amended or otherwise modified to date and as the same may from time to
time hereafter be amended, extended, restated, supplemented or otherwise
modified).
"GAAP" shall mean generally accepted accounting principles (as
----
promulgated in the US by the Financial Accounting Standards Board or any
successor entity).
"German Pledge Agreement" shall have the meaning provided for such
-----------------------
term in the Multi-Party Agreement.
"GmbH" shall mean Furmanite GmbH, a German corporation that on April
----
1, 1993 was a Subsidiary wholly-owned by FIL.
"GmbH Entity" shall mean, individually and collectively, GmbH and each
-----------
GmbH Subsidiary.
"GmbH Receivable" shall mean the approximately $7,000,000 receivable,
---------------
representing monies then owed by GmbH to FIL, held by FIL prior to the Closing
Date.
"GmbH Sale" shall mean the sale, on the Closing Date, of all of GmbH's
---------
capital stock by KOSI to KWI.
"GmbH Stock" shall mean all of the issued and outstanding capital
----------
stock of GmbH.
"GmbH Subsidiaries" shall mean all Subsidiaries that were Subsidiaries
-----------------
of GmbH on April 1, 1993.
"Government Authority" shall mean any nation or government (US, UK or
--------------------
otherwise), any state or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee" shall mean by any Person, any obligation, contingent or
---------
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
for Borrowed Money or other obligation of any other Person and, without limiting
the generality of the foregoing, any obligation, direct or indirect,
-22-
<PAGE>
contingent or otherwise, of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness for Borrowed
Money or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in any other manner
the obligee of such Indebtedness for Borrowed Money or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part), provided that the term "Guarantee" shall not include
endorsements for collection or deposits in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Indebtedness for Borrowed Money" shall mean (i) all indebtedness of
-------------------------------
(including, without limitation, all indebtedness assumed by) a Person in respect
of money borrowed (including, without limitation, the unpaid amount of the
purchase price of any property, incurred for such purpose in lieu of borrowing
money or using available funds to pay said amount, and not constituting an
account payable or expense accrual incurred or assumed in the ordinary course of
business), or evidenced by a promissory note, bond, debenture or other like
obligation to pay money, and including indebtedness under banker's acceptances
and with respect to letters of credit, and (ii) all obligations of (including,
without limitation, all obligations assumed by) a Person (x) constituting a
Capitalized Lease Obligation of such Person, or (y) constituting a Guarantee by
such Person.
"KII" shall mean Kaneb International Inc., a Delaware corporation.
---
"KOSI" shall mean Kaneb Offshore Services Inc., a wholly-owned
----
Subsidiary of KII incorporated in the British Virgin Islands.
"KPOP" shall mean Kaneb Pipe Line Operating Partnership L.P., a
----
Delaware limited partnership.
"KUK" shall have the same meaning as the term "Borrower" in the
---
Furmanite Loan Agreement.
"KWI" shall mean Kaneb Worldwide Inc., a Delaware corporation which
---
(x) was a wholly-owned Subsidiary of KSI prior to the Restatement Date, and (y)
is the successor by merger to Kaneb Worldwide Inc., a British Virgin Islands
corporation. Unless the context otherwise indicates, references to KWI include
such predecessor corporation.
"KWI Sale" shall have the meaning provided for such term in the Multi-
--------
Party Agreement.
"Lien" shall mean any mortgage, deed of trust, security deed, pledge,
----
security interest, assignment, encumbrance, lien or other charge of any kind or
any other agreement or arrangement
-23-
<PAGE>
having the effect of conferring security (including any agreement to give any of
the foregoing, any lease in the nature thereof, and any conditional sale or
other title retention agreement), any lien arising by operation of law, and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction (or any similar law).
"Loan" shall mean the loan evidenced by this Note.
----
"Loan Parties" shall mean, individually and collectively, (i) KSI,
------------
(ii) on and prior to the Restatement Date, KWI, and (iii) from and after the
Restatement Date, FGI and MSFH.
"Loan Documents" shall mean, individually and collectively, this Note,
--------------
the Restatement Documents and the Security Documents, and all other instruments
and agreements executed in connection herewith and therewith, in each case as
amended, supplemented or otherwise modified from time to time. Without limiting
the generality of the foregoing, each amendment to this Note or to any other
Loan Document, each waiver of any provision of this Note or any other Loan
Document, and each instrument and agreement executed in connection herewith or
therewith shall be deemed to be a Loan Document for all purposes of this Note
and the other Loan Documents.
"Material Adverse Change" in respect of a Person shall mean a material
-----------------------
adverse change in (i) the business, properties, operations or financial
condition of such Person or (ii) with respect to KSI, the ability of KSI to
perform, or of the Bank to enforce, the obligations of KSI under this Note.
"MSFH" shall mean Management Services Furmanite Holding GmbH, a German
----
corporation wholly-owned by FGI.
"MSFH Entity" shall mean, individually and collectively, MSFH, each
-----------
MSFH Subsidiary and each Person into which or with which MSFH or any MSFH
Subsidiary or any other MSFH Entity merges or consolidates and any Person
resulting from any such merger or consolidation.
"MSFH Stock" shall mean all of the issued and outstanding capital
----------
stock of MSFH.
"MSFH Subsidiaries" shall mean F-aust, Zweipack and each other
-----------------
Subsidiary of MSFH.
"Multi-Party Agreement" shall mean that certain agreement dated as of
---------------------
December 29, 1994 between and among the Bank, KSI, KWI, GmbH, FGI and MSFH, as
such agreement may from time to time be amended, restated, supplemented or
otherwise modified.
"Net Income" as to any Person for any period shall mean the
----------
consolidated net income of such Person and its Subsidiaries for such period,
determined in accordance with GAAP.
-24-
<PAGE>
"Net Proceeds", as applied to the sale, lease or other disposition of
------------
assets of any Person, shall mean all proceeds received by KSI or its Subsidiary
in connection with such sale, lease or other disposition after deduction of all
fees and expenses paid or to be paid in connection with the transaction.
"Other Note (GmbH)" shall mean that certain $2,400,000 (initial
-----------------
principal amount) promissory note of even date herewith issued by GmbH to KSI on
or about the Capital Contribution Date in partial substitution for the
$7,000,000 Pledged Note (GmbH).
"Person" shall mean and include an individual, a partnership, a
------
corporation (including a business trust), a joint stock company, the
Consolidated Group, a trust, an unincorporated association, a joint venture or
other entity or a government or an agency or political subdivision thereof.
"Pipeline" shall mean Kaneb Pipe Line Company, a Delaware corporation.
--------
"Pledge Agreement (Joint)" shall mean the Pledge Agreement executed by
------------------------
KSI and KWI on the Closing Date, as amended and restated and executed by KSI and
FGI as of December 29, 1994, as the same may from time to time be amended,
extended, supplemented or otherwise modified with the consent of the Bank.
"Pledge Agreement" shall mean any agreement pursuant to which any of
----------------
the Pledged Securities have been, directly or indirectly, pledged to the Bank
(including all assignments by the Furmanite Banks of their respective rights
with respect to the Pledged Shares issued by the GmbH Entities), in each case as
the same may from time to time be amended, extended, supplemented or otherwise
modified with the consent of the Bank. Without limiting the generality of the
foregoing, "Pledge Agreement" includes the Pledge Agreement (Joint) and the
German Pledge Agreement.
"Pledged Note (FGI)" shall mean that certain promissory note dated
------------------
December 29, 1994 in the initial principal amount of approximately $3,000,000
executed by FGI in favor of KSI.
"Pledged Note (GmbH) " shall mean that certain promissory note of even
-------------------
date herewith evidencing the approximately $7,000,000 owed by GmbH to KSI on and
after the Closing Date, which note evidences the GmbH Receivable after the
purchase of such receivable by KSI from FIL on the Closing Date; provided that
-------------
from and after the Capital Contribution Date (unless the context shall indicate
otherwise), "Pledged Note (GmbH)" shall mean that certain $4,600,000 (initial
-------------------
principal amount) promissory note of even date herewith issued by GmbH to KSI on
or about the Capital Contribution Date in partial substitution for the
$7,000,000 Pledged Note (GmbH).
"Pledged Note (KOSI)" shall mean that certain promissory note of even
-------------------
date herewith evidencing the
-25-
<PAGE>
approximately $2,300,000 loan made by KSI to KOSI on the Closing Date.
"Pledged Note (KWI)" shall mean that certain promissory note of even
------------------
date herewith evidencing the approximately $3,000,000 loan made by KSI to KWI on
the Closing Date.
"Pledged Notes" shall mean, individually and collectively: (i) on
-------------
and prior to the Restatement Date, the Pledged Note (GmbH), the Pledged Note
(KOSI) and the Pledged Note (KWI); and (ii) from and after the Restatement Date,
the Pledged Note (KOSI) and the Pledged Note (FGI).
"Pledged Securities" shall mean, individually and collectively, the
------------------
Pledged Notes and the Pledged Shares.
"Pledged Shares" shall mean: (i) on and prior to the Restatement
--------------
Date, (x) the shares of KWI then pledged to the Bank as collateral for the
obligations of KSI hereunder, and (y) all shares issued by any GmbH Entity that
are at the time outstanding; and (ii) from and after the Restatement Date, (x)
the shares of FGI pledged to the Bank as collateral for the obligations of KSI
hereunder, and (y) all shares issued by any MSFH Entity that are at the time
outstanding.
"Restatement Date" shall have the meaning as the term "Deadline Date"
----------------
in the Multi-Party Agreement.
"Restatement Documents" shall have the meaning provided for such term
---------------------
in the Multi-Party Agreement.
"SEC" shall mean the Securities and Exchange Commission.
---
"Security Documents" shall mean the Pledge Agreements and any
------------------
guarantee or similar agreements related thereto, and all other agreements,
documents and instruments pursuant to which any Lien in any of the Pledged
Securities is intended to be granted to the Bank, in each case as the same may
from time to time be amended, supplemented or otherwise modified.
"Subordinated Indebtedness" shall mean the following indebtedness
-------------------------
listed in note 6 to the 10K:
8% Convertible Subordinated Debentures due 1995; 8.75% Convertible
Subordinated Debentures due through 2008; 11.5% Subordinated
Debentures due through 1998;
and any other subordinated indebtedness permitted to be incurred pursuant to
Section 4.1.3(iii) hereof.
"Subsidiary" of any Person shall mean any other firm, corporation,
----------
partnership, trust or other unincorporated organization or association or other
enterprise, 50% or more of the indicia of equity rights (whether capital stock
or otherwise) of which is at the time owned, directly or indirectly, by such
-26-
<PAGE>
Person and/or by one or more of such Person's Subsidiaries. Unless otherwise
indicated, references to Subsidiaries shall refer to Subsidiaries of KSI.
"Tangible Net Worth" of a Person shall mean, as at any date at which
------------------
the amount thereof shall be determined, the amount by which the total
shareholders' or partners' equity of such Person exceeds the sum of (x) the
amount of any write-up in the book value of any assets resulting from the
revaluation thereof, or any write-up in excess of the cost of assets acquired,
after December 31, 1992, and (y) the aggregate of all amounts appearing on the
asset side of the balance sheet for goodwill, patents, patent rights,
trademarks, trade names, copyrights, franchises, treasury stock, organizational
expenses, and other similar items, if any, all determined in accordance with
GAAP.
"TCB shall mean Texas Commerce Bank.
---
"TCB Original Agreement" shall mean the Credit Agreement between KPOP
----------------------
and the TCB Original Lenders dated as of March 1, 1993, as in effect on the date
when it first became effective.
"TCB Original Lenders" shall mean TCB and the other lenders originally
--------------------
party to the TCB Original Agreement.
"TCB Original Liens" shall mean the Liens granted to the TCB Original
------------------
Lenders in connection with the TCB Original Agreement on the date when such
agreement first became effective.
"TCB Restated Agreement" shall mean the amended and restated Credit
----------------------
Agreement between KPOP and the TCB Restated Lenders dated as of December 22,
1994, as (unless otherwise indicated in its context) amended, supplemented or
otherwise modified from time to time.
"TCB Restated Lenders" shall mean TCB and the other lenders party to
--------------------
the TCB Restated Agreement.
"TCB Restated Liens" shall mean the Liens granted to the TCB Original
------------------
Lenders in connection with the TCB Original Agreement on the date when such
agreement first became effective.
"10K" shall mean KSI's annual report on Form 10-K for its fiscal year
---
ended December 31, 1992, as filed with the SEC prior to March 31, 1993.
"Transfer" shall have the meaning provided in Section 4.1.7 hereof.
--------
"UK Subsidiaries" shall have the meaning provided in the Furmanite
---------------
Loan Agreement.
"Viata" shall mean Kaneb Information Services Inc., a Delaware
-----
corporation, and its Subsidiaries.
-27-
<PAGE>
"written" or "in writing" shall mean any form of written communication
------- ----------
or a communication by means of telex, telecopier device, telegraph or cable.
"Zweipack" shall have the meaning provided for such term in the Multi-
--------
Party Agreement.
XI.
WAIVERS
11.1 Waiver of Jury Trial. EACH OF KSI AND THE BANK HEREBY
--------------------
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER LOAN DOCUMENT OR ANY OF THE
PLEDGED SECURITIES, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF KSI, KWI, FGI, ANY GMBH ENTITY, ANY
MSFH ENTITY, ANY HOLDER OF GMBH STOCK, ANY HOLDER OF MSFH STOCK OR THE BANK OR
OTHER HOLDER OF THIS NOTE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK
MAKING THE LOAN EVIDENCED BY THIS NOTE.
IN WITNESS WHEREOF, KSI has executed this Note as of the date first
above written.
KANEB SERVICES, INC.
2435 N. Central Expwy
Richardson, Texas 75080 By /S/ Howard Wadsworth
Telecopier No.: 214/699-4025 ------------------------
Name: Howard Wadsworth
Title: Vice President
Agreed to:
BANK OF SCOTLAND 565 Fifth Avenue
New York, NY 10017
By /S/ Catherine Oniffrey
----------------------- Telecopier: 212/557-5460
Catherine M. Oniffrey
Vice President
-28-
<PAGE>
Exhibit 10.13
CONFORMED RESTATED CREDIT AGREEMENT*
between
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.,
as Borrower
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
Agent
and
CERTAIN LENDERS,
Lenders
$15,000,000 BORROWINGS
$4,118,000 LCS
DECEMBER 22, 1994
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<C> <S> <C>
SECTION 1 DEFINITIONS AND TERMS........................................................ 1
1.1 Definitions.................................................................. 1
1.2 Time References.............................................................. 12
1.3 Other References............................................................. 12
1.4 Accounting Principles........................................................ 12
SECTION 2 BORROWINGS AND LCs........................................................... 12
2.1 Commitments.................................................................. 12
2.2 Borrowings................................................................... 12
2.3 LCs.......................................................................... 13
2.4 Termination.................................................................. 15
SECTION 3 PAYMENT TERMS................................................................ 15
3.1 Notes and Payments........................................................... 15
3.2 Interest and Principal Payments.............................................. 16
3.3 Interest Options............................................................. 16
3.4 Quotation of Rates........................................................... 16
3.5 Default Rate................................................................. 16
3.6 Interest Recapture........................................................... 16
3.7 Interest Calculations........................................................ 16
3.8 Maximum Rate................................................................. 17
3.9 Interest Periods............................................................. 17
3.10 Conversions.................................................................. 17
3.11 Order of Application......................................................... 17
3.12 Sharing of Payments, Etc..................................................... 18
3.13 Offset....................................................................... 18
3.14 Booking Borrowings........................................................... 18
3.15 Basis Unavailable or Inadequate for LIBOR Rate............................... 18
3.16 Additional Costs............................................................. 19
3.17 Change in Laws............................................................... 19
3.18 Foreign Lenders.............................................................. 20
3.19 Funding Loss................................................................. 20
SECTION 4 FEES......................................................................... 20
4.1 Treatment of Fees............................................................ 20
4.2 Administration Fees.......................................................... 20
4.3 Commitment Fee............................................................... 20
4.4 LC Fees...................................................................... 20
SECTION 5 SECURITY..................................................................... 21
5.1 Guaranty..................................................................... 21
5.2 Collateral................................................................... 21
5.3 Additional Security and Guaranties........................................... 21
5.4 Collateral Documentation..................................................... 21
SECTION 6 CONDITIONS PRECEDENT......................................................... 21
6.1 Initial Borrowing or LC...................................................... 21
6.2 All Borrowings and LCs....................................................... 21
6.3 General...................................................................... 22
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 7 REPRESENTATIONS AND WARRANTIES............................................... 22
7.1 Purpose of Credit Facility................................................... 22
7.2 Existence, Good Standing, and Authority...................................... 22
7.3 Subsidiaries................................................................. 22
7.4 Separate Legal Entities...................................................... 22
7.5 Authorization and Contravention.............................................. 23
7.6 Binding Effect............................................................... 24
7.7 Financial Statements......................................................... 24
7.8 Litigation................................................................... 24
7.9 Taxes........................................................................ 24
7.10 Environmental Matters........................................................ 24
7.11 Employee Plans............................................................... 24
7.12 Properties; Lien............................................................. 25
7.13 Government Regulations....................................................... 25
7.14 Affiliate Transactions....................................................... 25
7.15 Debt Cross Defaults.......................................................... 25
7.16 Material Agreements.......................................................... 25
7.17 Insurance.................................................................... 25
7.18 Labor Matters................................................................ 25
7.19 Solvency..................................................................... 25
7.20 Trade Names.................................................................. 25
7.21 Intellectual Property........................................................ 26
7.22 Full Disclosure.............................................................. 26
SECTION 8 AFFIRMATIVE COVENANTS........................................................ 26
8.1 Items to be Furnished........................................................ 26
8.2 Use of Proceeds.............................................................. 27
8.3 Books and Records............................................................ 27
8.4 Inspections.................................................................. 28
8.5 Taxes........................................................................ 28
8.6 Payment of Obligations....................................................... 28
8.7 Expenses..................................................................... 28
8.8 Maintenance of Existence, Assets, and Business............................... 28
8.9 Insurance.................................................................... 28
8.10 Preservation and Protection of Rights; Separate Legal Entities............... 28
8.11 Environmental Laws........................................................... 29
8.12 Subsidiaries................................................................. 29
8.13 Indemnification.............................................................. 29
SECTION 9 NEGATIVE COVENANTS........................................................... 29
9.1 Taxes........................................................................ 29
9.2 [Intentionally Blank]........................................................ 29
9.3 Employee Plans............................................................... 29
9.4 Funded Debt.................................................................. 30
9.5 Liens........................................................................ 30
9.6 Affiliate Transactions....................................................... 31
9.7 Compliance with Laws and Documents........................................... 31
9.8 Loans, Advances, and Investments............................................. 31
9.9 Distributions................................................................ 32
9.10 Asset Transfers.............................................................. 34
Dissolutions, Mergers, and Consolidations.................................... 34
9.12 Assignment................................................................... 35
9.13 Fiscal Year and Accounting Methods........................................... 35
9.14 New Businesses............................................................... 35
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
9.15 Government Regulations....................................................... 35
9.16 Separate Legal Entities...................................................... 35
SECTION 10 FINANCIAL COVENANTS........................................................... 35
10.1 Current Ratio................................................................ 35
10.2 Tangible Net Worth........................................................... 35
10.3 Leverage Ratio............................................................... 35
10.4 Fixed Charges Coverage Ratio................................................. 36
SECTION 11 DEFAULT....................................................................... 36
11.1 Obligation................................................................... 36
11.2 Covenants.................................................................... 36
11.3 Debtor Relief................................................................ 36
11.4 Misrepresentation............................................................ 36
11.5 Judgments and Attachments.................................................... 36
11.6 Note Agreements or Intercreditor Agreement................................... 36
11.7 Default Under Other Agreements............................................... 36
11.8 Validity and Enforceability of Loan Papers................................... 37
11.9 Change of Control............................................................ 37
11.10 KPC Merger or Consolidation.................................................. 37
SECTION 12 RIGHTS AND REMEDIES........................................................... 37
12.1 Remedies Upon Default........................................................ 37
12.2 KPP Company Waivers.......................................................... 37
12.3 Performance by Agent......................................................... 37
12.4 Not in Control............................................................... 38
12.5 Course of Dealing............................................................ 38
12.6 Cumulative Rights............................................................ 38
12.7 Application of Proceeds...................................................... 38
12.8 Diminution in Value of Collateral............................................ 38
12.9 Certain Proceedings.......................................................... 38
SECTION 13 AGREEMENT AMONG LENDERS...................................................... 38
13.1 Agent........................................................................ 38
13.2 Expenses..................................................................... 40
13.3 Proportionate Absorption of Losses........................................... 40
13.4 Delegation of Duties; Reliance............................................... 40
13.5 Limitation of Agent's Liability.............................................. 40
13.6 Default; Collateral.......................................................... 41
13.7 Limitation of Liability...................................................... 41
13.8 Relationship of Lenders...................................................... 41
13.9 Collateral Matters........................................................... 42
13.10 Benefits of Agreement........................................................ 42
SECTION 14 MISCELLANEOUS................................................................. 42
14.1 Nonbusiness Days............................................................. 42
14.2 Communications............................................................... 42
14.3 Form and Number of Documents................................................. 43
14.4 Exceptions to Covenants...................................................... 43
14.5 Survival..................................................................... 43
14.6 Governing Law................................................................ 43
14.7 Invalid Provisions........................................................... 43
14.8 Venue; Service of Process; Jury Trial........................................ 43
14.9 Amendments, Consents, Conflicts, and Waivers................................. 44
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
14.10 Multiple Counterparts........................................................ 44
14.11 Successors and Assigns; Participations....................................... 45
14.12 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances.. 46
14.13 Entirety..................................................................... 46
</TABLE>
SCHEDULES AND EXHIBITS
<TABLE>
<C> <S>
Schedule 2.1 Lenders, Commitments, and Wiring Instructions
Schedule 2.3 Existing LCs
Schedule 6.1 Closing Documents
Schedule 7.2 Jurisdictions of Organization and Business
Schedule 7.3 Organizational Structure
Schedule 7.8 Litigation
Schedule 7.10 Environmental Matters
Schedule 7.16 Material Agreements
Schedule 7.20 Trade Names
Schedule 8.9 Insurance
Schedule 9.8 Permitted Investments
Exhibit A Promissory Note
Exhibit B Guaranty
Exhibit C-1 Collateral Trust and Intercreditor Agreement
Exhibit C-2 Stock Pledge Agreement
Exhibit C-3 First Amended and Restated Mortgage and Security Agreement
Exhibit D-1 Notice of Borrowing
Exhibit D-2 Notice of Conversion
Exhibit D-3 LC Request
Exhibit D-4 Compliance Certificate
Exhibit D-5 Financial Statements Certificate
Exhibit E Opinion of Counsel
Exhibit F Assignment
</TABLE>
<PAGE>
RESTATED CREDIT AGREEMENT
-------------------------
THIS AGREEMENT is entered into as of December 22, 1994, between KANEB PIPE
LINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership ("BORROWER"),
Lenders (defined below), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION (successor
by merger with Texas Commerce Bank, National Association) as agent for Lenders.
Terms used in this agreement are defined in SECTION 1.
Borrower, STI, and certain financial institutions are party to the Existing
Credit Agreement. Concurrently with the execution and delivery of this
agreement, (1) Borrower, STI, and the other KPP Companies are entering into the
Note Agreements with Noteholders, (2) the KPP Companies are (directly or
indirectly through intercompany loans or note assignments to Noteholders)
causing a portion of the financing proceeds under the Note Agreements to be used
to purchase from or pay to all of the lending institutions (other than Lenders)
all of the indebtedness owed to them (and are terminating their respective
commitments to lend) under the Existing Credit Agreement. Borrower has
requested Agent and Lenders to enter into this agreement -- as a renewal,
extension, and entire amendment and restatement of the Existing Credit Agreement
-- to provide for a revolving credit of Borrowings and LCs (that may never
exceed the total Commitments) for the purposes and upon the terms and conditions
provided in this agreement. The Obligation under this agreement and the
indebtedness under the Note Agreements are to be pari passu secured by the
Collateral.
ACCORDINGLY, for adequate and sufficient consideration, Borrower, Lenders,
and Agent agree that the Existing Credit Agreement is renewed, extended, and
entirely amended and restated as follows:
SECTION 1 DEFINITIONS AND TERMS.
--------- ---------------------
1.1 Definitions. As used in the Loan Papers:
-----------
AFFILIATE of a Person means any other individual or entity who (directly or
indirectly through ownership, voting securities, contract, or otherwise)
controls, is controlled by, or under common control with that Person. For
purposes of this definition (a) "control" or similar terms mean the power to
direct or cause the direction of management or policies of that Person, but (b)
none of the KPP Companies or Restricted Subsidiaries at any time are
"Affiliates" of each other.
AGENT means, at any time, Texas Commerce Bank National Association (or its
successor appointed under SECTION 13) acting as agent for Lenders under the Loan
Papers. References to Agent in respect of LCs are to that institution in its
individual capacity.
ALTERNATE BASE RATE means, for any day, the annual interest rate (rounded
upward, if necessary, to the nearest 0.0625%) equal to the highest of either (a)
the Prime Rate, (b) the Secondary CD Rate plus 1%, or (c) the Federal Funds Rate
plus 0.50%.
ALTERNATE BASE RATE BORROWING means a Borrowing bearing interest at the
Alternate Base Rate.
BORROWER is defined in the preamble to this agreement.
BORROWER COMPANIES means Borrower and its Subsidiaries (other than, for all
purposes except financial reporting and financial covenant calculations, its
Insignificant Subsidiaries).
BORROWER PARTNERSHIP AGREEMENT means the Amended and Restated Agreement of
Limited Partnership of Kaneb Pipe Line Operating Partnership, L.P., dated
September 27, 1989, a certified copy of which has been delivered to Agent under
SCHEDULE 6.1.
<PAGE>
BORROWING means any amount disbursed (a) by one or more Lenders to Borrower
under the Loan Papers, either as an original disbursement of funds or the
continuation of an outstanding amount, (b) as a payment of a draw under a LC, or
(c) by any Agent or Lender in accordance with, and to satisfy the obligations of
any KPP Company under, any Loan Paper.
BORROWING DATE is defined in SECTION 2.2(A).
BUSINESS DAY means (a) for all purposes, any day other than Saturday,
Sunday, and any other day that commercial banks are authorized by Law to be
closed in Texas or New York and (b) for purposes of any LIBOR Rate Borrowing, a
day when commercial banks are open for international business in London.
CODE means the Internal Revenue Code of 1986.
COLLATERAL means (a) all present and future issued and outstanding capital
stock of STS, (b) Borrower's material and integrally-related pipelines and
terminals (and the related assets integral to the operation of those pipelines
and terminals), and (c) all other types and items of property described as
collateral in the Security Documents.
COLLATERAL TRUSTEE means, at any time, Texas Commerce Bank National
Association (or its successor appointed under the Intercreditor Agreement)
acting as collateral trustee under the Intercreditor Agreement, Mortgage, and
Pledge Agreement.
COMMITMENT means, for each Lender, the amount stated beside its name on
SCHEDULE 2.1, which amount is subject to reduction and cancellation under this
agreement.
COMMITMENT PERCENTAGE means, for any Lender, the proportion (stated as a
percentage) that its Commitment bears to the total Commitments.
COMMITMENT USAGE means, at any time, the sum of the Principal Debt plus the
LC Exposure.
COMPLIANCE CERTIFICATE means, for any Person, a certificate substantially
in the form of EXHIBIT D-4 and signed by a Responsible Officer of that Person.
CURRENT FINANCIALS means, for KPP or Borrower, as the case may be (a)
either (i) their respective consolidated Financial Statements for the year
ending December 31, 1993, together with their Financial Statements for the
portion of the fiscal year ending on September 30, 1994, or (ii) at any time
after their respective annual Financial Statements are first delivered under
SECTION 8.1, their annual consolidated Financial Statements then most recently
delivered to Lenders under SECTION 8.1, together with their quarterly Financial
Statements then most recently delivered to Lenders under SECTION 8.1, but (b)
does not include the results of operation and cash flows for any Company for the
time period before it becomes a member of KPP's or Borrower's, as the case may
be, consolidated group except for any periods for which that Company's Financial
Statements were audited by an accounting firm reasonably acceptable to Agent.
DEBT -- for any Person, at any time, and without duplication -- means (a)
any obligation of that Person either for borrowed money or incurred for the
purchase price of assets or services, (b) any indebtedness or obligation secured
by or constituting a Lien on property of that Person, whether or not that Person
is directly liable for that indebtedness or obligation, (c) the face amount of
all LCs, other letters of credit, bankers' acceptances, or similar facilities,
whether drawn or undrawn, for which that Person is the account party, (d) every
lease obligation that should under GAAP be reflected on that Person's balance
sheet as a capitalized-lease obligation, (e) the net amount payable by that
Person for settlement of all interest-rate swaps or similar arrangements (based
on the assumption that each such swap or similar arrangement terminated) as of
the end of the most-recently-ended-fiscal
2
<PAGE>
quarter of that Person, and (f) all Guaranty Liabilities of that Person in
respect of Debt of any other person or entity.
DEBTOR LAWS means the Bankruptcy Code of the United States of America and
all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments,
fraudulent transfer or conveyance, or similar Laws generally affecting
creditors' Rights.
DEFAULT is defined in SECTION 11.
DEFAULT PERCENTAGE means, for any Lender, the proportion (stated as a
percentage) that the Principal Debt owed to it bears to the total Principal
Debt.
DEFAULT RATE means, for any day, an annual interest rate equal from day to
day to the lesser of either (a) the then-existing Alternate Base Rate plus 2.0%
or (b) the Maximum Rate.
DETERMINING LENDERS means, at any time, any combination of Lenders holding
at least 51% of either the total Commitments or, if the Commitments have been
cancelled or terminated, the Commitment Usage.
DISTRIBUTION, for any shares of any capital stock, partnership units or
interests, or other equity securities or interests (for purposes of this
definition, "SECURITIES") issued by a Person, means (a) the retirement,
redemption, purchase, or other acquisition for value of those securities, (b)
the declaration or payment of any dividend or other distribution with respect to
those securities, (c) any loan or advance by that Person to, or other investment
by that Person in, the holder of any of those securities, and (d) any other
payment by that Person with respect to those securities.
EBITDA -- for any Person, for any period, and without duplication -- means
the sum of net income plus (to the extent actually deducted in calculating net
income) deferred Taxes, depreciation, amortization, and cash interest payments
on Debt (including the interest portion of capitalized leases).
(a) Solely for the purposes of determining LIBOR Rate or whether
Funded Debt may be assumed or incurred in connection with the purchase of
assets of any Person or in connection with a merger or consolidation but
specifically not for the purposes of SECTIONS 10.3 and 10.4:
(i) the determination of consolidated EBITDA for any 12-
calendar-month period includes the consolidated EBITDA attributable
solely to the assets or Person that has been or is proposed to be
purchased or merged or consolidated with for that period, after
elimination of the portions of earnings included in that consolidated
EBITDA that are or may be attributable to (A) operations to be
discontinued, (B) sources of revenues that are unavailable to the KPP
Companies after the purchase, merger, or consolidation, (C) the gain
(net of any Tax effect) resulting from the sale of any capital assets
other than in the ordinary course of business, (D) the total amount of
unusual or nonrecurring gains (net of any Tax effect), and (E) other
adjustments (such as additional or increased expenses) appropriate to
reflect the earnings that would have been realized by the KPP
Companies had the purchase of property or Person or the merger or
consolidation occurred at the inception of that period; only if
(ii) KPP's chief financial officer provides to Agent a
certificate, in form and substance acceptable to Agent, reflecting the
determination of the earnings so attributable to that property or
Person, which certificate must specifically be based upon, reference
and attach either (A) audited Financial Statements that reflect the
earnings figures used in that determination and any other source of
information used in that certificate or (B) unaudited Financial
Statements that reflect the earnings figures used in that
determination, which must be prepared in accordance with
3
<PAGE>
GAAP (and be accompanied by a certificate of that chief financial
officer certifying that they were so prepared), be in form and detail
(and otherwise) acceptable to Determining Lenders in their reasonable
discretion.
(b) For purposes of this definition, the term net income in respect
of KPP and its Subsidiaries excludes (i) portions of earnings properly
attributable to minority interests (but without excluding the portion of
earnings attributable to KPC's 1% general partnership ownership in
Borrower), (ii) the loss or earnings of any Subsidiary that is not
consolidated with KPP for financial reporting purposes, (iii) except as
otherwise expressly provided, the loss or earnings of any Subsidiary for
the period before it became a Subsidiary, (iv) the loss or gain of any sale
of any capital assets other than in the ordinary course of business, and
(iv) all nonrecurring losses or gains (net of any Tax effect).
EMPLOYEE PLAN means an employee pension benefit plan covered by Title IV of
ERISA and established or maintained by any KPP Company.
ENVIRONMENTAL LAW means any Law that relates to the pollution or protection
of the environment or to Hazardous Substances.
ERISA means the Employee Retirement Income Security Act of 1974.
EXISTING CREDIT AGREEMENT means the Credit Agreement dated as of March 1,
1993, between Borrower, certain lenders (including one or more Lenders under
this agreement), and, acting as agent for those lenders, Texas Commerce Bank,
National Association, and Texas Commerce Bank National Association, providing
for extensions of credit to Borrower of up to $75,000,000.
EXISTING LCS means the one or more letters of credit issued by Agent or any
of Agent's Affiliates for the account of any KPP Company before the date of this
agreement and that are described on SCHEDULE 2.3.
EXISTING-LC EXPOSURE means the total undrawn and face amount of the
Existing LCs.
FEDERAL-FUNDS RATE means, for any day, the annual rate (rounded upwards, if
necessary, to the nearest 0.01%) determined (which determination is conclusive
and binding, absent manifest error) by Agent to be equal to (a) the weighted
average of the rates on overnight federal-funds transactions with member banks
of the Federal Reserve System arranged by federal-funds brokers on that day, as
published by the Federal Reserve Bank of New York on the next Business Day, or
(b) if those rates are not published for any day, the average of the quotations
at approximately 10:00 a.m. received by Agent from three federal-funds brokers
of recognized standing selected by Agent in its sole discretion.
FINANCIAL HEDGE means a swap, collar, floor, cap, or other contract between
Borrower and Agent or any Lender or another Person reasonably acceptable to
Determining Lenders, which is intended to reduce or eliminate the risk of
fluctuations in interest rates and which is legal and enforceable under
applicable Law.
FINANCIAL STATEMENTS, for a Person, means balance sheets, profit and loss
statements, reconciliations of capital and surplus or partners' capital
accounts, and statements of cash flow prepared (a) according to GAAP, (b) except
as stated in SECTION 1.4, in comparative form to prior year-end figures or
corresponding periods of the preceding fiscal year, as applicable, and (c) on a
consolidated basis if that Person had any consolidated Subsidiaries during the
applicable period.
FINANCIAL STATEMENTS CERTIFICATE means a certificate substantially in the
form of EXHIBIT D-5.
4
<PAGE>
FUNDED DEBT -- for any Person, at any time, and without duplication --
means (a) any obligation (including, without limitation, the scheduled current
portion of that obligation) of that Person (i) either for borrowed money or
incurred for the purchase price of assets or services and (ii) which has a final
maturity of (or is renewable or extendable at that Person's option to a final
maturity beyond) one year or more from the date that obligation was incurred,
(b) any indebtedness or obligation secured by or constituting a Lien on property
of that Person, whether or not that Person is directly liable for that
indebtedness or obligation, (c) the face amount of all LCs, other letters of
credit, bankers' acceptances, or similar facilities, whether drawn or undrawn,
for which that Person is the account party and which have a final maturity of
one year or more from the date of issuance or creation, as the case may be, (d)
every lease obligation that should under GAAP be reflected on that Person's
balance sheet as a capitalized-lease obligation, (e) the net amount payable by
that Person for settlement of all interest-rate swaps or similar arrangements
(based on the assumption that each such swap or similar arrangement terminated)
as of the end of the most-recently-ended-fiscal quarter of that Person, and (f)
all Guaranty Liabilities of that Person in respect of Funded Debt of any other
person or entity.
FUNDING LOSS means any loss or expense that any Lender reasonably incurs
because (a) Borrower fails or refuses (for any reason whatsoever other than a
default by Agent or the Lender claiming such loss or expense) to take any
Borrowing that it has requested under this agreement, or (b) Borrower prepays or
pays any LIBOR Rate Borrowing or converts any LIBOR Rate Borrowing to an
Alternate Base Rate Borrowing, in each case, before the last day of the
applicable Interest Period.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
GECC LEASES means the equipment leases, as amended, dated December 1, 1981,
and March 31, 1982, executed by First Security Bank of Utah, N.A., and Robert S.
Clark (each acting as a trustee under a trust indenture dated December 1, 1981),
General Electric Capital Corporation (as lessor), and KPC (as original lessee),
all of KPC's obligations under which have been assumed by Borrower under an
assumption agreement dated September 21, 1989.
GUARANTORS means KPP, STS, STOP, and STI.
GUARANTY means the Guaranty substantially in the form of EXHIBIT B.
GUARANTY LIABILITY -- of any Person, at any time, and without duplication -
- means (a) any guarantee or endorsement by that Person of obligations of any
other person or entity (other than endorsements for purposes of collection in
the ordinary course of business), (b) any obligation of that Person to purchase
goods, services, notes, or securities for the purpose of supplying funds for the
purchase, payment, or satisfaction of (or measured by) any obligations of any
other person or entity, (c) any other contingent obligation of that Person in
respect of, or to purchase or otherwise acquire or service, obligations of, any
other person or entity, (d) any obligation of that Person, whether or not
contingent, in respect of the obligations of a general or limited partnership of
which that Person is a general partner (unless the holder of that obligation has
agreed to waive all recourse to that Person for that obligation), and (e) every
obligation of that Person for obligations of any other person or entity if that
Person has in effect guaranteed by an agreement (contingent or otherwise) to (i)
make a loan, advance, or capital contribution to, or other investment in, that
other person or entity for the purpose of assuring or maintaining a minimum
equity, asset base, working capital, or other balance sheet condition for that
other person or entity on any date, (ii) provide funds for the payment of any
liability, dividend, or stock liquidation payment of or by that other person or
entity, or (iii) otherwise supply funds to or in any manner invest in that other
person or entity for that purpose.
5
<PAGE>
HAZARDOUS SUBSTANCE means any substance (a) the presence of which requires
removal, remediation, or investigation under any Environmental Law, or (b) that
is defined or classified as a hazardous waste, hazardous material, pollutant,
contaminant, or toxic or hazardous substance under any Environmental Law.
INSIGNIFICANT SUBSIDIARY means a Subsidiary that contributes less than 5%
of its parent's consolidated EBITDA, except that (a) if all of the Subsidiaries
that would have otherwise been "Insignificant Subsidiaries" of a common parent
collectively contribute 5% or more of the parent's consolidated EBITDA, then
none of those Subsidiaries are "Insignificant Subsidiaries," and (b) no KPP
Company or Restricted Subsidiary is ever an "Insignificant Subsidiary" under any
circumstances.
INTERCREDITOR AGREEMENT means the Collateral Trust and Intercreditor
Agreement dated as of December 22, 1994, between Agent, Lenders, Noteholders,
and Collateral Trustee, consented to by each KPP Company, and in substantially
the form of EXHIBIT C-1.
INTEREST PERIOD is determined in accordance with SECTION 3.9.
KPC means Kaneb Pipe Line Company, a Delaware corporation.
KPC COMPANIES means KPC and its Subsidiaries (other than its Insignificant
Subsidiaries).
KPC CREDIT AGREEMENT means the Revolving Credit Agreement dated as of
October 11, 1993, between KPC (as borrower) and Texas Commerce Bank National
Association (the successor by merger with Texas Commerce Bank, National
Association).
KPP means Kaneb Pipe Line Partners, L.P., a Delaware limited partnership.
KPP COMPANIES means KPP, Borrower, STS, STOP, and STI.
KPP PARTNERSHIP AGREEMENT means the Amended and Restated Agreement of
Limited Partnership of Kaneb Pipe Line Partners, L.P., dated April 26, 1993, a
certified copy of which has been delivered to Agent under SCHEDULE 6.1.
KSI means Kaneb Services, Inc., a Delaware corporation.
KSI COMPANIES means KSI and its Subsidiaries (other than its Insignificant
Subsidiaries).
LAWS means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
LENDER LIENS means Liens in favor of Agent for Lenders, in favor of any
Lender, or in favor of Collateral Trustee and securing any of the Obligation,
which Liens are, unless otherwise specified, subject to the Intercreditor
Agreement until it has been terminated.
LENDERS means the financial institutions -- including, without limitation,
Agent (possibly acting through one or more of its Affiliates for LCs) in respect
of its share of Borrowings and LCs -- named on SCHEDULE 2.1 or on the most
recently amended SCHEDULE 2.1, if any, delivered by Agent under this agreement,
and, subject to this agreement, their respective successors and assigns (but not
any Participant who is not otherwise a party to this agreement).
LC means a documentary or standby letter of credit issued by Agent or any
of its Affiliates under this agreement and under a LC Agreement.
6
<PAGE>
LC AGREEMENT means a letter of credit application and agreement or
reimbursement agreement (in form and substance satisfactory to Agent) submitted
and executed by Borrower to Agent or any of its Affiliates for an LC for the
account of any KPP Company.
LC EXPOSURE means, without duplication, the sum of the total face amount of
all undrawn and uncancelled LCs plus the total unpaid reimbursement obligations
of Borrower under drawings under any LC.
LC REQUEST means a request substantially in the form of EXHIBIT D-3.
LIBOR RATE means, for a LIBOR Rate Borrowing and for its Interest Period,
the annual interest rate (rounded upward, if necessary, to the nearest 0.01%)
equal to the sum of:
(a) The quotient obtained by dividing (i) the rate that deposits in
United States dollars are offered by major banks to other major banks in
the London interbank market at approximately 11:00 a.m. (London time) two
Business Days before the first day of that Interest Period in an amount
comparable to the amount of that LIBOR Rate Borrowing and having a maturity
approximately equal to the applicable Interest Period, by (b) one minus the
Reserve Requirement (expressed as a decimal) for that relevant Interest
Period; plus
(b) A margin of interest that, for any day, is determined on the basis
of the ratio of the KPP's consolidated Funded Debt to EBITDA as follows:
<TABLE>
<CAPTION>
===================================================================
RATIO OF FUNDED DEBT TO EBITDA MARGIN
===================================================================
<S> <C>
2.50 to 1.00 or more 1.125%
-------------------------------------------------------------------
Less than 2.50 to 1.00, but 2.00 to 1.00 or more 0.875%
-------------------------------------------------------------------
Less than 2.00 to 1.00, but 1.75 to 1.00 or more 0.750%
-------------------------------------------------------------------
Less than 1.75 to 1.00, but 1.50 to 1.00 or more 0.625%
-------------------------------------------------------------------
Less than 1.50 0.500%
===================================================================
</TABLE>
For purposes of calculating that ratio, EBITDA is calculated on for the KPP
Companies' most recently-completed-four-fiscal quarters, and Funded Debt is
determined as of the day the margin of interest is determined. EBITDA is
determined from the Current Financials and related Compliance Certificate
then most recently delivered to Agent, effective as of the date received by
Agent. If Borrower fails to timely furnish to Agent any Financial
Statements and related Compliance Certificates required by this agreement,
then the margin of 1.125% shall apply and remain in effect until Borrower
furnishes them to Agent.
LIBOR RATE BORROWING means a Borrowing bearing interest at the LIBOR Rate.
LIEN means, with respect to any asset, any Right or interest in that asset
of a creditor to secure obligations, indebtedness, or claims owed to that
creditor or any other arrangement with that creditor that provides for the
payment of that obligation, indebtedness, or claim out of that asset or which
allows that creditor to have that obligation, indebtedness, or claim satisfied
out of that asset in priority to the general creditors of any owner of it,
including, without limitation (a) any lien, mortgage, security interest, pledge,
deposit, production payment, Rights of a vendor under any title retention or
conditional sale agreement or lease substantially equivalent to it, Tax lien,
mechanic's or materialman's lien, any other charge or encumbrance for security
purposes, whether arising by Law or agreement, or otherwise, and (b) any filed
financing statement, any registration of a pledge (such as with an issuer of
unregistered securities), or any other arrangement or action which would serve
to perfect a Lien otherwise
7
<PAGE>
described above, regardless of whether that financing statement is filed,
registration is made, or arrangement or action is undertaken before or after the
Lien exists.
LITIGATION means any action by or before any Tribunal.
LOAN PAPERS means (a) this agreement, certificates and reports delivered
under this agreement, and exhibits and schedules attached to this agreement, (b)
the Notes, LCs, LC Agreements, the Security Documents, and all other agreements,
documents, and instruments in favor of Agent or Lenders (or Agent on behalf of
Lenders) ever delivered under this agreement, (c) any Financial Hedge between
Borrower and any Lender, and (d) all renewals, extensions, refinancings, and
restatements of, and amendments and supplements to, any of the foregoing.
MATERIAL ADVERSE EVENT means any circumstance or event that, individually
or collectively, reasonably is expected to result in any (a) impairment of the
ability of any party (other than Agent and Lenders) to any Loan Paper to perform
any of its payment or other material obligations under any Loan Paper or the
ability of Agent or any Lender to enforce any of those obligations or any of
their respective Rights under the Loan Papers, (b) material and adverse effect
on the financial condition of the KPC Companies as a whole as represented to
Lenders in the Current Financials, (c) material and adverse effect on any part
of the Collateral having a fair market value of at least $5,000,000 at such
time, or (d) Default or Potential Default.
MATERIAL AGREEMENT means, for any Person, any agreement (excluding purchase
orders for material or inventory in the ordinary course of business) to which
that Person is a party, by which that Person is bound, or to which any assets of
that Person may be subject, and that is not cancelable by that Person upon 30 or
fewer days notice without liability for further payment other than nominal
penalty, and that requires that Person to pay more than $5,000,000 during any
12-month period.
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for a Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest that,
under applicable Law, the Lender is permitted to contract for, charge, take,
reserve, or receive on the Obligation.
MORTGAGE means the First Amended and Restated Mortgage and Security
Agreement (And Financing Statement and Fixture Filing) executed and delivered
KPP, Borrower, and Collateral Trustee, and in substantially the form of EXHIBIT
C-3.
MULTIEMPLOYER PLAN means a multiemployer plan as defined in Sections 3(37)
or 4001(a)(3) of ERISA or Section 414(f) of the Code to which any Person (that
for purposes of Title IV of ERISA, is a member of Borrower's controlled group or
is under common control with Borrower within the meaning of Section 414 of the
Code) is making, or has made, or is accruing, or has accrued, an obligation to
make contributions.
NOTE means a promissory note substantially in the form of EXHIBIT A and
executed and delivered by Borrower under this agreement.
NOTE AGREEMENTS means the Note Purchase Agreements dated as of December 22,
1994, between KPP, Borrower, STS, STOP, and each Noteholder, collectively
providing for the issuance by Borrower of its First Mortgage Notes in the total
stated principal amount of $27,000,000 and the issuance by STI of its First
Mortgage Notes in the total stated principal amount of $33,000,000.
NOTEHOLDERS means American General Life Insurance Company, Merit Life
Insurance Company, MONY Life Insurance Company of America, The Mutual Life
Insurance Company of New York, Principal Mutual Life Insurance Company, and The
Variable Annuity Life Insurance Company, together with the successor holders of
notes issued under the Note Agreements.
8
<PAGE>
NOTICE OF BORROWING means a notice substantially in the form of
EXHIBIT D-1.
NOTICE OF CONVERSION means a notice substantially in the form of
EXHIBIT D-2.
OBLIGATION means all present and future indebtedness, liabilities, and
obligations, and all renewals, increases, and extensions thereof, or any part
thereof, now or hereafter owed to Agent or any Lender by any Person under any
Loan Paper, together with all interest accruing thereon, fees, costs, and
expenses (including, without limitation, all reasonable attorneys' fees and
expenses incurred in the enforcement or collection thereof) payable under the
Loan Papers or in connection with the protection of Rights under the Loan
Papers.
PARTICIPANT is defined in SECTION 14.11(B).
PBGC means the Pension Benefit Guaranty Corporation.
PERMITTED-FUNDED DEBT means, at any time, Funded Debt permitted under
SECTION 9.4.
PERMITTED INVESTMENTS means those items described on SCHEDULE 9.8.
PERMITTED LIENS means, at any time, the Lenders Liens and other Liens
permitted under SECTION 9.5.
PERMITTED TRANSFER means, at any time, the Transfers permitted under
SECTION 9.10.
PERSON means any individual, Tribunal, or other entity.
PLEDGE AGREEMENT means the Stock Pledge Agreement executed and delivered by
Borrower in favor of Collateral Trustee and substantially in the form of EXHIBIT
C-2.
POTENTIAL DEFAULT means the occurrence of any event or existence of any
circumstance that would, upon notice or lapse of time or both, become a Default.
PRIME RATE means, for any day, the prime rate per annum most recently
announced by Agent as its prime rate in effect at its principal office in Dallas
and thereafter entered into the minutes of Agent's Loan and Discount Committee,
automatically fluctuating upward and downward with and at the time specified in
each such announcement without special notice to Borrower or any other Person,
which prime rate may not necessarily represent the lowest or best rate actually
charged to a customer.
PRINCIPAL DEBT means, at any time, the unpaid principal balance of all
Borrowings.
PURCHASER is defined in SECTION 14.11(C).
QUALIFYING DEBT means, at any time, Funded Debt for money borrowed by
Borrower with respect to which all of the following are true:
(a) that Debt is permitted to be incurred under SECTION 9.4 at the
time it is incurred;
(b) that Debt is permitted to be incurred by the terms of, or a prior
written consent or waiver under, each agreement, document, or instrument
governing other Debt of any KPP Company or any of their Subsidiaries;
9
<PAGE>
(c) that Debt is permitted to be pari passu secured with all other
Debt that is secured by the Collateral by the terms of, or a prior written
consent or waiver under, each agreement, document, or instrument governing
all Debt that is secured by the Collateral;
(d) each of the one or more initial holders of that Debt (i) is either
a commercial bank chartered under (or duly authorized to operate a branch
in the United States under) the Laws of the United States of America or any
of its states or an insurance company or commercial finance company
organized under the Laws of any such state, and (ii) has capital and
surplus in excess of $100,000,000 at the time it becomes the holder of that
Debt;
(e) that Debt is not guarantied in any manner by any Person and is not
secured by any Lien unless any that guaranty or Lien concurrently pari
passu assures and secures the Obligation; and
(f) Borrower has delivered to Agent a certificate (in form and
substance acceptable to Agent) of a Responsible Officer of KPC at least 30
days before the incurrence of that Debt certifying that (i) Borrower
intends to secure that Debt with the Collateral and (ii) the Debt complies
with each of the provisions of this definition in order to constitute
"Qualifying Debt."
REPRESENTATIVES means representatives, officers, directors, employees,
attorneys, accountants, and agents.
RESERVE REQUIREMENT means, for any LIBOR Rate Borrowing for the relevant
Interest Period, the maximum aggregate reserve requirements (including all
basic, supplemental, emergency, special, marginal, and other reserves required
by applicable Law) applicable to a member bank of the Federal Reserve System for
eurocurrency fundings or liabilities.
RESPONSIBLE OFFICER of a Person means its chairman, president, chief
executive officer, chief financial officer, or treasurer.
RESTRICTED SUBSIDIARY means, at any time, each Subsidiary of KPP other than
those that KPP has designated -- by a certificate of its chief financial officer
executed and delivered to Agent in form and substance acceptable to Agent -- as
NOT being a Restricted Subsidiary, which KPP may do from time to time and at any
time so long as (a) Borrower, STS, STI, STOP, and any other Subsidiary ever
designated by KPP as a Restricted Subsidiary is always a Restricted Subsidiary
for purposes of this agreement and (b) immediately after that designation, no
Default or Potential Default exists and $1.00 of additional Funded Debt could be
incurred under SECTION 9.4.
RIGHTS means rights, remedies, powers, privileges, and benefits.
SECONDARY CD RATE means, for any day, an annual rate of interest equal to
the sum (rounded upward, if necessary, to the nearest 0.01%) of (a) the quotient
of (i) the secondary market rate for 90-day certificates of deposit (secondary
market) of major United States money market banks for the most recent weekly
period ending Friday either (A) as reported in the Federal Reserve Statistical
release entitled "Selected Interest Rates" (currently Publication H.15[519]) or
any successor publication released during the week for which the rate is being
determined, which rate shall be in effect for purposes of this determination for
each day of the week in which the release date of such publication occurs, or
(B) if not so reported, as determined by Agent on the basis of bids quoted to
Agent at approximately 9:00 a.m. on such day by three New York certificate of
deposit dealers selected by Agent and of recognized standing for secondary
market morning offerings of negotiable certificates of deposit, with maturities
of 90 days, of major United States money market banks, divided by (ii) a
percentage equal to 100% minus the then-stated maximum rate of all reserve
requirements under regulations issued by the Federal Reserve Board (including,
without limitation, any margin, emergency, supplemental, special, or other
reserves for a member of the Federal Reserve System having deposits in excess of
$1,000,000,000 required by Law) applicable to any Lender, plus (b) the actual
(or, if not known, the estimated) per annum assessment rate (rounded upward, if
necessary, to
10
<PAGE>
the nearest 0.01%) payable by Agent to The Federal Deposit Insurance Corporation
(or its successor) for insuring liability for time deposits, as in effect from
time to time.
SECURITY DOCUMENTS means, collectively, the Intercreditor Agreement, Pledge
Agreement, and Mortgage and any other document, financing statements, and stock
powers creating or perfecting Lender Liens.
SOLVENT means, as to a Person, that (a) the aggregate fair market value of
its assets exceeds its liabilities, (b) it has sufficient cash flow to enable it
to pay its Debts as they mature, and (c) it does not have unreasonably small
capital to conduct its businesses as currently, or proposed to be, conducted.
STATED TERMINATION DATE means November 30, 1997.
STI means StanTrans, Inc., a Delaware corporation that is a wholly owned
Subsidiary of Borrower.
STOP means Support Terminals Operating Partnership, L.P., a Delaware
limited partnership, of which Borrower is a 99% limited partner and STS is a 1%
general partner.
STS means Support Terminal Services, Inc., a Delaware corporation that is a
wholly owned Subsidiary of Borrower.
SUBSIDIARY of any Person means any entity of which at least 50% (in number
of votes) of the stock, partnership, or equivalent interests is owned of record
or beneficially, directly or indirectly, by that Person.
TANGIBLE NET WORTH, for any Person and at any time, means the sum of (a)
stockholders' equity or partner capital accounts, as the case may be, as shown
on a balance sheet, minus (b) treasury stock, if applicable, minus (c) any
surplus resulting from the write-up of assets, minus (d) goodwill, including,
without limitation, any amounts representing the excess of the purchase price
paid for acquired assets, stock, or partnership interests over the book value
assigned to them, minus (e) patents, trademarks, service marks, trade names, and
copyrights, minus (f) other intangible assets.
TAXES means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.
TERM GUARANTIES means the "Guaranties," as that term is defined in the Note
Agreements as in effect on the Closing Date.
TERMINATION DATE means the earlier of either (a) the Stated Termination
Date or (b) the effective date that the Commitments are otherwise cancelled or
terminated under this agreement.
TERM NOTES means the "Notes," as that term is defined in the Note
Agreements as in effect on the Closing Date.
TRANSFER means to sell, lease, transfer, or otherwise dispose or, as the
context requires, a sale, lease, transfer, or other disposition.
TRIBUNAL means any (a) local, state, or federal judicial, executive, or
legislative instrumentality, (b) private arbitration board or panel, or (c)
central bank.
TYPE means any type of Borrowing determined with respect to the applicable
interest option.
11
<PAGE>
1.2 Time References. Unless otherwise specified, in the Loan Papers (a)
---------------
time references (e.g., 10:00 a.m.) are to time in Dallas, Texas, and (b) in
calculating a period from one date to another, the word "from" means "from and
including" and the word "to" or "until" means "to but excluding."
1.3 Other References. Unless otherwise specified, in the Loan Papers (a)
----------------
where appropriate, the singular includes the plural and vice versa, and words of
any gender include each other gender, (b) heading and caption references may not
be construed in interpreting provisions, (c) monetary references are to currency
of the United States of America, (d) section, paragraph, annex, schedule,
exhibit, and similar references are to the particular Loan Paper in which they
are used, (e) references to "telecopy," "facsimile," "fax," or similar terms are
to facsimile or telecopy transmissions, (f) references to "including" mean
including without limiting the generality of any description preceding that
word, (g) the rule of construction that references to general items that follow
references to specific items are limited to the same type or character of those
specific items is not applicable in the Loan Papers, (h) references to any
Person include that Person's heirs, personal representatives, successors,
trustees, receivers, and permitted assigns, (i) references to any Law include
every amendment or supplement to it, rule and regulation adopted under it, and
successor or replacement for it, and (j) references to any Loan Paper or other
document include every renewal, extension, and refinancing of it, amendment and
supplement to it, and replacement or substitution for it.
1.4 Accounting Principles. Unless otherwise specified, in the Loan
---------------------
Papers (a) GAAP determines all accounting and financial terms and compliance
with financial covenants, (b) GAAP in effect on the date of this agreement
determines compliance with financial covenants, (c) otherwise, all accounting
principles applied in a current period must be comparable in all material
respects to those applied during the preceding comparable period, and (d) while
KPP has any consolidated Subsidiaries (i) all accounting and financial terms and
compliance with reporting covenants applicable to KPP must be on a consolidating
and consolidated basis, as applicable and (ii) compliance with financial
covenants applicable to KPP must be on a consolidated basis.
SECTION 2 BORROWINGS AND LCS.
--------- ------------------
2.1 Commitments. Subject to the provisions in the Loan Papers, each
-----------
Lender severally and not jointly agrees to lend to Borrower that Lender's
Commitment Percentage of Borrowings and Agent (itself or through its Affiliates)
agrees to issue LCs -- which Borrowings and LCs may be borrowed, issued, drawn
against, repaid, and reborrowed or reissued, as the case may be -- so long as
(a) each Borrowing must be made and each LC -- subject also to SECTION 2.3(A) -
- must be issued on a Business Day before the Termination Date, (b) the
Principal Debt (other than for payments under LCs) may never exceed $15,000,000,
(c) the LC Exposure may never exceed $4,118,000, (d) the Commitment Usage may
never exceed the total Commitments, (e) the Commitment Usage for any Lender
(whether owed directly or through a participation under this agreement) may
never exceed its Commitment, (f) the Existing LC Exposure is renewed under this
agreement, and (g) the total Principal Debt may never exceed the total
Commitments, (d) the Principal Debt owed any Lender may never exceed its
Commitment, and (e) the initial Borrowing shall be in an amount at least equal
to, and shall constitute a renewal and extension of, the outstanding principal
of the Revolving Facility under the Existing Credit Agreement.
2.2 Borrowings.
----------
(a) Borrower may request a Borrowing by submitting to Agent a Notice
of Borrowing --which, subject to CLAUSE (D), is irrevocable and binding on
Borrower. It must be received by Agent no later than 10:00 a.m. on the
third Business Day before the date on which funds are requested (the
"BORROWING DATE") for any LIBOR Rate Borrowing or on the Business Day
immediately before the Borrowing Date for any Alternate Base Rate
Borrowing. Each Borrowing must be at least $100,000 or a $50,000 greater
multiple.
12
<PAGE>
(b) Each Lender shall remit its Commitment Percentage of each
requested Borrowing to Agent's principal office in Dallas, Texas, by wire
transfer according to Agent's wiring instructions on SCHEDULE 2.1, in funds
that are available for immediate use by Agent by 12:00 Noon on the
Borrowing Date. Subject to receipt of those funds, Agent shall (unless to
its actual knowledge any of the applicable conditions precedent have not
been satisfied by Borrower or waived by Determining Lenders) make those
funds available to Borrower as directed in the Notice of Borrowing.
(c) Absent contrary written notice from a Lender, Agent may assume
that each Lender has made its Commitment Percentage of the requested
Borrowing available to Agent on the Borrowing Date, and Agent may, in
reliance upon that assumption (but shall not be required to), make
available to Borrower a corresponding amount. If a Lender fails to make
its Commitment Percentage of any requested Borrowing available to Agent on
the Borrowing Date, Agent may recover the applicable amount on demand (i)
from that Lender, together with interest at an annual rate equal to the
Federal Funds Rate during the period from the date the amount was made
available to Borrower by Agent and until the date Agent recovers the amount
from that Lender, or (ii) if that Lender fails to pay its amount upon
demand, then from Borrower -- who is not liable for any related Funding
Loss but is liable for interest at an annual interest rate equal to the
rate applicable to the requested Borrowing during the period from the
Borrowing Date and until the date Agent recovers the amount from Borrower.
No Lender is responsible for the failure of any other Lender to make its
Commitment Percentage of any Borrowing. However, failure of any Lender to
make its Commitment Percentage of any Borrowing does not excuse any other
Lender from making its Commitment Percentage of any Borrowing. As soon as
is reasonably practical, Agent shall notify Borrower if a Lender has failed
to make its Commitment Percentage of any Borrowing.
(d) Borrower may revoke a Notice of Borrowing that requests a LIBOR
Rate Borrowing --and not be liable for any resulting Funding Loss -- if,
before the LIBOR Rate for the requested Borrowing is established, SECTION
3.15 or 3.17 becomes applicable to it.
2.3 LCs.
---
(a) Subject to the terms and conditions of this agreement and
applicable Law, Agent (itself or through one of its Affiliates, and
references in this SECTION 2.3 to AGENT include those Affiliates) agrees to
issue LCs upon Borrower's making or delivering an LC Request and delivering
an LC Agreement, both of which must be received by Agent no later than on
the Business Day before the requested LC is to be issued, so long as each
LC must expire on or before the earlier of either three Business Days
before the Stated Termination Date or one year after its issuance.
(b) Immediately upon Agent's issuance of any LC, Agent is deemed to
have sold and transferred to each other Lender, and each other Lender is
deemed irrevocably and unconditionally to have purchased and received from
Agent, without recourse or warranty, an undivided interest and
participation to the extent of that Lender's Commitment Percentage in the
LC and all applicable Rights of Agent in the LC -- other than Rights to
receive certain fees provided in SECTION 4.4 to be for Agent's sole
account.
(c) To induce Agent to issue and maintain LCs, and to induce Lenders
to participate in issued LCs, Borrower agrees to pay or reimburse Agent (i)
on the date when any draw request is presented under any LC, the amount
paid or to be paid by Agent and (ii) promptly, upon demand, the amount of
any additional fees Agent customarily charges for the application and
issuance of an LC, for amending LC Agreements, for honoring draw requests,
and for taking similar action in connection with letters of credit. If
Borrower has not reimbursed Agent for any draws paid or to be paid on the
date of Agent's demand for reimbursement, Agent is irrevocably authorized
to fund Borrower's reimbursement obligations as an Alternate Base Rate
Borrowing if proceeds are available under this agreement for it and if the
conditions in this agreement for such a Borrowing (other than any notice
requirements or minimum funding amounts)
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have, to Agent's knowledge, been satisfied. The proceeds of that Borrowing
shall be advanced directly to Agent to pay Borrower's unpaid reimbursement
obligations. If funds cannot be so advanced under this agreement, then
Borrower's reimbursement obligation constitutes a demand obligation.
Borrower's obligations under this section are absolute and unconditional
under any and all circumstances and irrespective of any setoff,
counterclaim, or defense to payment that Borrower may have at any time
against Agent or any other Person. From Agent's demand for reimbursement
to the date paid (including any payment from proceeds of an Alternate Base
Rate Borrowing), unpaid reimbursement amounts accrue interest that is
payable on demand at the Default Rate thereafter.
(d) Agent shall promptly notify Borrower of the date and amount of any
draw request presented for honor under any LC (but failure to give notice
does not affect Borrower's obligations under this agreement). Agent shall
pay the requested amount upon presentment of a draw request unless
presentment on its face does not comply with the terms of the applicable
LC. When making payment, Agent may disregard (i) any default or potential
default that exists under any other agreement and (ii) obligations under
any other agreement that have or have not been performed by the beneficiary
or any other Person (and Agent is not liable for any of those obligations).
Borrower's reimbursement obligations to Agent and Lenders, and each
Lender's obligations to Agent, under this section are absolute and
unconditional irrespective of, and Agent is not responsible for, (i) the
validity, enforceability, sufficiency, accuracy, or genuineness of
documents or endorsements (even if they are in any respect invalid,
unenforceable, insufficient, inaccurate, fraudulent, or forged), (ii) any
dispute by any KPP Company with or any KPP Company's claims, setoffs,
defenses, counterclaims, or other Rights against Agent, any Lender, or any
other Person, or (iii) the occurrence of any Potential Default or Default.
However, nothing in this agreement constitutes a waiver of Borrower's
Rights to assert any claim or defense based upon the gross negligence or
willful misconduct of Agent or any Lender. Agent shall promptly distribute
reimbursement payments received from Borrower to all Lenders according to
their Commitment Percentage.
(e) If Borrower fails to reimburse Agent as provided in CLAUSE (D)
above within 24 hours after Agent's demand for reimbursement, and funds
cannot be advanced as a Borrowing under SECTION 2.2 to satisfy the
reimbursement obligations, Agent shall promptly notify each Lender of
Borrower's failure, of the date and amount paid, and of each Lender's
Commitment Percentage of the unreimbursed amount. Each Lender shall
promptly and unconditionally make available to Agent in immediately
available funds its Commitment Percentage of the unpaid reimbursement
obligation. Funds are due and payable to Agent before the close of
business on the Business Day when Agent gives notice to each Lender of
Borrower's reimbursement failure (if notice is given before 1:00 p.m.) or
on the next succeeding Business Day (if notice is given after 1:00 p.m.).
All amounts payable by any Lender accrue interest after the due date at the
Federal-Funds Rate from the day the applicable draw is paid by Agent to
(but not including) the date the amount is paid by the Lender to Agent.
(f) Agent agrees with each Lender that it will exercise and give the
same care and attention to each LC as it gives to its other letters of
credit. Each Lender and Borrower agree that, in paying any draw under any
LC, Agent has no responsibility to obtain any document (other than any
documents expressly required by the respective LC) or to ascertain or
inquire as to any document's validity, enforceability, sufficiency,
accuracy, or genuineness or the authority of any Person delivering it.
Neither Agent nor its Representatives will be liable to any Lender or any
KPP Company for any LC's use or for any beneficiary's acts or omissions.
Any action, inaction, error, delay, or omission taken or suffered by Agent
or any of its Representatives in connection with any LC, applicable draws
or documents, or the transmission, dispatch, or delivery of any related
message or advice, if in good faith and in conformity with applicable Laws
and in accordance with the standards of care specified in the Uniform
Customs and Practices for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500 (as amended or
modified), is binding upon the KPP Companies and Lenders and does not place
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Agent or any of its Representatives under any resulting liability to any
KPP Company or any Lender. Agent is not liable to any KPP Company or any
Lender for any action taken or omitted, in the absence of gross negligence
or willful misconduct, by Agent or its Representative in connection with
any LC.
(g) On the Termination Date and if requested by Determining Lenders
while a Default exists, Borrower shall provide Agent, for the benefit of
Lenders, cash collateral in an amount to equal the then-existing LC
Exposure.
(h) INDEMNIFICATION. BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND SAVE
---------------
AGENT, EACH LENDER, AND THEIR RESPECTIVE REPRESENTATIVES HARMLESS FROM AND
AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS,
CHARGES, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) WHICH ANY OF
THEM MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE OF THE ISSUANCE OF ANY LC,
ANY DISPUTE ABOUT IT, THE FAILURE OF AGENT TO HONOR A DRAFT OR DRAW REQUEST
UNDER ANY LC AS A RESULT OF ANY ACT OR OMISSION (WHETHER RIGHT OR WRONG) OF
ANY PRESENT OR FUTURE TRIBUNAL, OR ANY OF THEIR SOLE OR CONCURRENT ORDINARY
NEGLIGENCE. However, no Person is entitled to indemnity under the
foregoing for its own gross negligence or willful misconduct.
(i) LC Agreements. Although referenced in any LC, terms of any
-------------
particular agreement or other obligation to the beneficiary are not
incorporated into this agreement in any manner. The fees and other amounts
payable with respect to each LC are as provided in this agreement, draws
under each LC are part of the Obligation, only the events specified in this
agreement as a Default constitute a default under any LC, and the terms of
this agreement control any conflict between the terms of this agreement and
any LC Agreement.
2.4 Termination. Without premium or penalty, and upon giving at least
-----------
three Business Days prior written and irrevocable notice to Agent, Borrower may
terminate all or part of the unused portion of the total Commitments. Each
partial termination must be at least $1,000,000 or a $50,000 greater multiple
and must be ratable for Lenders based on their respective Commitment
Percentages. Once terminated, no part of any Commitment may be reinstated
without the prior written approval of all Lenders.
SECTION 3 PAYMENT TERMS.
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3.1 Notes and Payments.
------------------
(a) Principal Debt of Borrowings under SECTION 2.2 shall be evidenced
by the Notes, one payable to each Lender in the stated principal amount of
its Commitment. Principal Debt of drawings under LCs shall be evidenced by
this agreement and all related LC Agreements.
(b) Borrower must make each payment and prepayment on the Obligation
to Agent's principal office in Dallas, Texas, by wire transfer according to
Agent's wiring instructions on SCHEDULE 2.1, in funds that will be
available for immediate use by Agent by 12:00 Noon on the day due.
Otherwise, but subject to SECTION 3.8, those funds continue to accrue
interest as if they were received on the next Business Day. Agent shall
pay to each Lender, by wire transfer according to its wiring instructions
on SCHEDULE 2.1, any payment or prepayment to which that Lender is entitled
on the same day Agent receives the funds from Borrower if Agent receives
the payment or prepayment before 12:00 Noon, and otherwise before 12:00
Noon on the following Business Day. If and to the extent that Agent does
not make payments to Lenders when due, unpaid amounts shall accrue interest
at an annual rate equal to the Federal Funds Rate from the due date until
(but not including) the payment date.
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<PAGE>
3.2 Interest and Principal Payments.
-------------------------------
(a) Accrued interest on each LIBOR Rate Borrowing is due and payable
on the last day of its respective Interest Period. If any Interest Period
is a period greater than three months, then accrued interest is also due
and payable on the date ending each three month period after the
commencement of the Interest Period. Accrued interest on each Alternate
Base Rate Borrowing is due and payable on the last day of each February,
May, August, and November (commencing February 28, 1995), with a final
scheduled interest payment on Borrowings on the Termination Date.
(b) Borrower shall repay all Principal Debt (together with all
accrued and unpaid interest) by no later than the Termination Date.
(c) If any of the limitations in SECTION 2.1 are ever exceeded, then
Borrower shall prepay the Principal Debt, in at least the amount of that
excess, together with (i) all accrued and unpaid interest on the principal
amount so prepaid and (ii) any resulting Funding Loss.
3.3 Interest Options. Except where specifically otherwise provided,
----------------
Borrowings bear interest at an annual rate equal to the lesser of either (a) the
Alternate Base Rate or the LIBOR Rate (in each case as designated or deemed
designated by Borrower), as the case may be, or (b) the Maximum Rate. Each
change in the Alternate Base Rate, the Applicable Margin, and the Maximum Rate
is effective, without notice to Borrower or any other Person, upon the effective
date of change.
3.4 Quotation of Rates. A Responsible Officer of Borrower may call Agent
------------------
before delivering a Notice of Borrowing to receive an indication of the interest
rates then in effect, but the indicated rates do not bind Agent or Lenders or
affect the interest rate that is actually in effect when Borrower delivers its
Notice of Borrowing or on the Borrowing Date.
3.5 Default Rate. If permitted by Law, all past-due Principal Debt and
------------
accrued interest thereon bears interest from maturity (stated or by
acceleration) at the Default Rate until paid, regardless whether payment is made
before or after entry of a judgment.
3.6 Interest Recapture. If the designated interest rate applicable to
------------------
any Borrowing exceeds the Maximum Rate, the interest rate on that Borrowing is
limited to the Maximum Rate, but any subsequent reductions in the designated
rate shall not reduce the interest rate thereon below the Maximum Rate until the
total amount of accrued interest equals the amount of interest that would have
accrued if that designated rate had always been in effect. If at maturity
(stated or by acceleration), or at final payment of the Notes, the total
interest paid or accrued is less than the interest that would have accrued if
the designated rates had always been in effect, then, at that time and to the
extent permitted by Law, Borrower shall pay an amount equal to the difference
between (a) the lesser of the amount of interest that would have accrued if the
designated rates had always been in effect and the amount of interest that would
have accrued if the Maximum Rate had always been in effect, and (b) the amount
of interest actually paid or accrued on the Notes.
3.7 Interest Calculations.
---------------------
(a) Interest will be calculated on the basis of actual number of days
(including the first day but excluding the last day) elapsed but computed
as if each calendar year consisted of 360 days for LIBOR Rate Borrowings
and Alternate Base Rate Borrowings based on Secondary CD Rate or the
Federal Funds Rate (unless the calculation would result in an interest rate
greater than the Maximum Rate, in which event interest will be calculated
on the basis of a year of 365 or 366 days, as the case may be), and 365 or
366 days, as the case may be, for Alternate Base Rate Borrowings based on
the Prime Rate. All interest rate determinations and calculations by Agent
are conclusive and binding absent manifest error.
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<PAGE>
(b) The provisions of this agreement relating to calculation of the
Alternate Base Rate and the LIBOR Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid under this
agreement that are based upon those rates. Each Lender may fund and
maintain its funding of all or any part of each Borrowing as it selects.
3.8 Maximum Rate. Regardless of any provision contained in any Loan
------------
Paper, no Lender is entitled to contract for, charge, take, reserve, receive, or
apply, as interest on all or any part of the Obligation any amount in excess of
the Maximum Rate, and, if Lenders ever do so, then any excess shall be treated
as a partial prepayment of principal and any remaining excess shall be refunded
to Borrower. In determining if the interest paid or payable exceeds the Maximum
Rate, Borrower and Lenders shall, to the maximum extent permitted under
applicable Law, (a) treat all Borrowings as but a single extension of credit
(and Lenders and Borrower agree that that is the case and that provision in this
agreement for multiple Borrowings is for convenience only), (b) characterize any
nonprincipal payment as an expense, fee, or premium rather than as interest, (c)
exclude voluntary prepayments and their effects, and (d) amortize, prorate,
allocate, and spread the total amount of interest throughout the entire
contemplated term of the Obligation. However, if the Obligation is paid in full
before the end of its full contemplated term, and if the interest received for
its actual period of existence exceeds the Maximum Amount, Lenders shall refund
any excess (and Lenders may not, to the extent permitted by Law, be subject to
any penalties provided by any Laws for contracting for, charging, taking,
reserving, or receiving interest in excess of the Maximum Amount). If the Laws
of the State of Texas are applicable for purposes of determining the "Maximum
Rate" or the "Maximum Amount," then those terms mean the "indicated rate
ceiling" from time to time in effect under Article 1.04, Title 79, Revised Civil
Statutes of Texas, as amended. Borrower agrees that Chapter 15, Subtitle 79,
Revised Civil Statutes of Texas, 1925, as amended (which regulates certain
revolving credit loan accounts and revolving triparty accounts), does not apply
to the Obligation.
3.9 Interest Periods. When Borrower requests any LIBOR Rate Borrowing,
----------------
Borrower may elect the applicable interest period (each an "INTEREST PERIOD"),
which may be, at Borrower's option, one, two, three, or six months, subject to
the following conditions: (a) the initial Interest Period commences on the
applicable Borrowing Date or conversion date, and each subsequent applicable
Interest Period commences on the day when the next preceding applicable Interest
Period expires; (b) if any Interest Period begins on a day for which no
numerically corresponding Business Day in the calendar month at the end of the
Interest Period exists, then the Interest Period ends on the last Business Day
of that calendar month; (c) no Interest Period for any portion of Principal Debt
may extend beyond the scheduled repayment date for that portion of Principal
Debt; and (d) no more than five Interest Periods may be in effect at one time.
3.10 Conversions. Subject to the dollar limits and denominations of
-----------
SECTION 2.1, Borrower may (a) convert a LIBOR Rate Borrowing on the last day of
the applicable Interest Period to an Alternate Base Rate Borrowing, (b) convert
an Alternate Base Rate Borrowing at any time to a LIBOR Rate Borrowing, and (c)
elect a new Interest Period for a LIBOR Rate Borrowing, by giving a Notice of
Conversion to Agent no later than 10:00 a.m. on the third Business Day before
the conversion date or the last day of the Interest Period, as the case may be
(for conversion to a LIBOR Rate Borrowing or election of a new Interest Period),
and no later than 10:00 a.m. one Business Day before the last day of the
Interest Period (for conversion to an Alternate Base Rate Borrowing). Absent
Borrower's notice of conversion or election of a new Interest Period, a LIBOR
Rate Borrowing shall be deemed converted to an Alternate Base Rate Borrowing
effective when the applicable Interest Period expires.
3.11 Order of Application. The following provisions apply except when and
--------------------
to the extent superseded by SECTION 4.09 of the Intercreditor Agreement.
(a) If no Default or Potential Default exists, payments on the
Obligation must be applied as required by applicable Loan Paper provisions
other than CLAUSE (B) below.
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<PAGE>
(b) If a Default or Potential Default exists, any payment must be
applied in the following order: (i) all fees and expenses for which Agent
or Lenders have not been paid or reimbursed in accordance with the Loan
Papers (and if such payment is less than all unpaid or unreimbursed fees
and expenses, then the payment shall be paid against unpaid and
unreimbursed fees and expenses in the order of incurrence or due date);
(ii) accrued interest on the Principal Debt; (iii) the remaining Principal
Debt in the order as Determining Lenders may elect (but Determining Lenders
agree to apply payments in an order that will minimize any Funding Loss);
and (iv) the remaining Obligation in the order and manner Determining
Lenders deem appropriate.
(c) Agent and Lenders shall attempt to apply mandatory payments
against the Obligation in a manner that minimizes Funding Losses.
3.12 Sharing of Payments, Etc.. If any Lender obtains any payment
-------------------------
(whether voluntary, involuntary, or otherwise, including, without limitation, as
a result of exercising its Rights under SECTION 3.13) that exceeds its
Commitment Percentage (or, if a Default exists, its Default Percentage) of that
amount, then that Lender shall purchase from the other Lenders participations
that will cause the purchasing Lender to share the excess payment ratably with
each other Lender per their respective Commitment Percentages or Default
Percentages, as applicable. If all or any portion of any excess payment is
subsequently recovered from the purchasing Lender, then the purchase shall be
rescinded and the purchase price restored to the extent of the recovery.
Borrower agrees that any Lender purchasing a participation from another Lender
under this SECTION 3.12 may, to the fullest extent permitted by Law, exercise
all of its Rights of payment (including the Right of offset) with respect to
that participation as fully as if that Lender were the direct creditor of
Borrower in the amount of that participation.
3.13 Offset. If a Default exists, each Lender is entitled to exercise
------
(for the benefit of all Lenders in accordance with SECTION 3.12) the Rights of
offset and banker's Lien against each and every account and other property, or
any interest therein, that any party to a Loan Paper (other than Lenders and
Agent) may now or hereafter have with, or which is now or hereafter in the
possession of, that Lender to the extent of the full amount of the Obligation
owed to it. Each Lender shall promptly notify Borrower of its actions taken
under this SECTION 3.13.
3.14 Booking Borrowings. To the extent permitted by Law, any Lender may
------------------
make, carry, or transfer its Borrowings at, to, or for the account of any of its
branch offices or the office of any of its Affiliates. However, no Affiliate is
entitled to receive any greater payment under SECTION 3.16 than the transferor
Lender would have been entitled to receive with respect to those Borrowings.
Each Lender agrees that it will use its reasonable efforts (consistent with its
internal policies and applicable Law) to make, carry, maintain, or transfer its
part of any Borrowing with its Affiliates or branch offices in an effort to
eliminate or reduce to the extent possible the aggregate amounts due to it under
SECTIONS 3.16 and 3.17 if, in its reasonable judgment, such efforts will not be
disadvantageous to it.
3.15 Basis Unavailable or Inadequate for LIBOR Rate. If, on or before any
----------------------------------------------
date when a LIBOR Rate is to be determined for a Borrowing, Agent or any Lender
determines (and Determining Lenders agree with that determination) that the
basis for determining the applicable rate is not available or that the resulting
rate does not accurately reflect the cost to Lenders of making or converting
Borrowings at that rate for the applicable Interest Period, then Agent shall
promptly notify Borrower and Lenders of that determination (which is conclusive
and binding on Borrower absent manifest error). Unless Borrower has revoked the
applicable Notice of Borrowing under SECTION 2.2(D), the applicable Borrowing
shall bear interest at the sum of the Alternate Base Rate plus the Applicable
Margin. Until Agent notifies Borrower that those circumstances no longer exist,
Lenders' commitments under this agreement to make or convert to LIBOR Rate
Borrowings are suspended.
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3.16 Additional Costs.
----------------
(a) With respect to any LIBOR Rate Borrowing, (i) if any present or
future Law imposes, modifies, or deems applicable (or if compliance by any
Lender with any requirement of any Tribunal results in) any requirement
that any reserves (including, without limitation, any marginal, emergency,
supplemental, or special reserves) be maintained, and if (ii) those
reserves reduce any sums receivable by that Lender under this agreement or
increase the costs incurred by that Lender in advancing or maintaining any
portion of any LIBOR Rate Borrowing and (iii) that Lender determines that
the reduction or increase is material (and it may, in determining the
material nature of the reduction or increase, utilize reasonable
assumptions and allocations of costs and expenses and use any reasonable
averaging or attribution method), then (iv) that Lender (through Agent)
shall deliver to Borrower a certificate setting forth in reasonable detail
the calculation of the amount necessary to compensate it for its reduction
or increase (which certificate is conclusive and binding absent manifest
error), and (iv) Borrower shall pay that amount to that Lender within ten
days after demand. The provisions of and undertakings and indemnification
set forth in this CLAUSE (A) shall survive the satisfaction and payment of
the Obligation and termination of this agreement.
(b) With respect to any Borrowing, if any present or future Law
regarding capital adequacy or compliance by any Lender with any request,
directive, or requirement now existing or hereafter imposed by any Tribunal
regarding capital adequacy, or any change in its written policies or in the
risk category of this transaction, reduces the rate of return on its
capital as a consequence of its obligations under this agreement to a level
below that which it otherwise could have achieved (taking into
consideration its policies with respect to capital adequacy) by an amount
deemed by it to be material (and it may, in determining the amount, utilize
reasonable assumptions and allocations of costs and expenses and use any
reasonable averaging or attribution method), then (unless the effect is
already reflected in the rate of interest then applicable under this
agreement) that Lender (through Agent) shall notify Borrower and deliver to
Borrower a certificate setting forth in reasonable detail the calculation
of the amount necessary to compensate it (which certificate is conclusive
and binding absent manifest error), and Borrower shall pay that amount to
Lender within ten days after demand. The provisions of and undertakings
and indemnification set forth in this CLAUSE (B) shall survive the
satisfaction and payment of the Obligation and termination of this
agreement.
(c) Any Taxes payable by Agent or any Lender or ruled (by a Tribunal)
payable by Agent or any Lender in respect of this agreement or any other
Loan Paper shall -- if permitted by Law and if deemed material by that
Agent or Lender (who may, in determining the material nature of the amount
payable, utilize reasonable assumptions and allocations of costs and
expenses and use any reasonable averaging or attribution method) -- be paid
by Borrower, together with interest and penalties, if any (except for Taxes
payable on the overall net income of that Agent or that Lender and except
for interest and penalties incurred as a result of the gross negligence or
willful misconduct of Agent or any Lender). That Agent or Lender (through
Agent) shall notify Borrower and deliver to Borrower a certificate setting
forth in reasonable detail the calculation of the amount of payable Taxes,
which certificate is conclusive and binding (absent manifest error), and
Borrower shall pay that amount to Agent for the account of that Agent or
Lender, as the case may be, within ten days after demand. If that Agent or
that Lender subsequently receives a refund of the Taxes paid to it by
Borrower, then the recipient shall promptly pay the refund to Borrower.
3.17 Change in Laws. If any Law makes it unlawful for any Lender to make
--------------
or maintain LIBOR Rate Borrowings, then that Lender shall promptly notify
Borrower and Agent, and (a) as to undisbursed funds, that requested Borrowing
shall be made as an Alternate Base Rate Borrowing unless Borrower has revoked
the applicable Notice of Borrowing under SECTION 2.2(D), (b), as to any
outstanding Borrowing, (i) if maintaining the Borrowing until the last day of
the applicable Interest Period is unlawful, the Borrowing shall be converted to
an Alternate Base
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Rate Borrowing as of the date of notice, and Borrower shall pay any related
Funding Loss, or (ii) if not prohibited by Law, the Borrowing shall be converted
to an Alternate Base Rate Borrowing as of the last day of the applicable
Interest Period, or (iii) if any conversion will not resolve the unlawfulness,
Borrower shall promptly prepay the Borrowing, without penalty, together with any
related Funding Loss. No Notice of Conversion is required to be delivered in
connection with any conversion under this SECTION 3.17.
3.18 Foreign Lenders. Each Lender that is organized under the laws of any
---------------
jurisdiction other than the United States of America or any of its states (a)
represents to Agent and Borrower that (i) no Taxes are required to be withheld
by Agent or Borrower with respect to any payments to be made to it in respect of
the Obligation and (ii) it has furnished to Agent and Borrower two duly
completed copies of either U.S. Internal Revenue Service Form 4224, Form 1001,
or Form W-8 (wherein it claims entitlement to complete exemption from U.S.
federal withholding Tax on all interest payments under the Loan Papers), and (b)
covenants to (i) provide Agent and Borrower a new Form 4224, Form 1001, or Form
W-8 upon the expiration or obsolescence of any previously delivered form
according to Law, duly executed and completed by it, and (ii) comply from time
to time with all Laws with regard to the withholding tax exemption. If any of
the foregoing is not true or the applicable forms are not provided, then
Borrower and Agent (without duplication) may deduct and withhold from interest
payments under the Loan Papers United States federal income Tax at the full rate
applicable under the Code.
3.19 Funding Loss. Borrower agrees to indemnify each Lender against, and
------------
pay to it upon demand, any Funding Loss of that Lender. When any Lender demands
that Borrower pay any Funding Loss, that Lender shall deliver to Borrower and
Agent a certificate setting forth in reasonable detail the basis for imposing
Funding Loss and the calculation of the amount, which calculation is conclusive
and binding absent manifest error. The provisions of and undertakings and
indemnification set forth in this SECTION 3.19 survives the satisfaction and
payment of the Obligation and termination of this agreement.
SECTION 4 FEES.
--------- ----
4.1 Treatment of Fees. The fees described in this SECTION 4 (a) are not
-----------------
compensation for the use, detention, or forbearance of money, (b) are in
addition to, and not in lieu of, interest and expenses otherwise described in
this agreement, (c) are payable in accordance with SECTION 3.1, (d) are non-
refundable, (e) to the fullest extent permitted by Law, bear interest, if not
paid when due, at the Default Rate, and (f) are calculated on the basis of
actual number of days (including the first day but excluding the last day)
elapsed, but computed as if each calendar year consisted of 360 days, unless
computation would result in an interest rate in excess of the Maximum Rate in
which event the computation is made on the basis of a year of 365 or 366 days,
as the case may be.
4.2 Administration Fees. Borrower shall pay to Agent, solely for its own
-------------------
account, fees described in the letter agreement dated as of the date of this
agreement between Borrower and Agent.
4.3 Commitment Fee. Borrower shall pay to Agent for the account of
--------------
Lenders (based on their respective Commitment Percentages) a commitment fee,
payable as it accrues from the date of this agreement as of the last day of each
February, May, August, and November (commencing February 28, 1995), and on the
Termination Date, equal to 0.20% (per annum) of the amount by which (a) the
total Commitments exceeds (b) the average-daily Commitment Usage, determined for
the calendar quarter (or portion of a calendar quarter commencing on the date of
this agreement or ending on the Termination Date) preceding and including the
date it is due.
4.4 LC Fees. As a condition precedent to the issuance (including,
-------
without limitation, the extension) of each LC, Borrower shall pay to Agent:
(a) For the account of each Lender according to each Lender's
Commitment Percentage on the day the fee is payable, an issuance fee
payable on the date of issuance equal to a percentage per annum
20
<PAGE>
of the face amount of that LC -- equal to the applicable margin in effect
for determining the LIBOR Rate under CLAUSE (B) of the definition of that
term -- on the date of issuance; and
(b) For the account of Agent only (ii) on the day of each issuance of
any LC, a fronting fee of 0.125% per annum of the face amount of the LC,
and (ii) all normal and customary out of pocket expenses and miscellaneous
charges of Agent which are subject to change at any time without notice to
Borrower except any notice given generally to Agent's similarly-situated
customers.
All LC and other fees paid to Agent or any other parties before the date of this
agreement in respect of any Existing LCs are solely for the account of those
parties without any accounting for them or sharing of them with Agent or Lenders
notwithstanding any contrary provision in this agreement.
SECTION 5 SECURITY.
--------- --------
5.1 Guaranty. Full and complete payment of the Obligation is guaranteed
--------
in accordance with the Guaranty executed by Guarantors.
5.2 Collateral. Full and complete payment of the Obligation is secured
----------
by the Lender Liens on all of the Collateral except that none of the Collateral
located in Kansas and covered by the Mortgage secures the LC Exposure unless and
until the same become Borrowings under SECTION 2.2 evidenced by the Notes. No
Collateral may be subordinated, substituted, or released without the prior
written consent of all Lenders.
5.3 Additional Security and Guaranties. Lenders may (as contemplated in
----------------------------------
connection with Qualifying Debt or otherwise), without notice or demand and
without affecting any Person's obligations under the Loan Papers, from time to
time (a) receive and hold additional collateral from any Person for the payment
of all or any part of the Obligation and exchange, enforce, or release all or
any part of that collateral and (b) accept and hold any endorsement or guaranty
of payment of all or any part of the Obligation and release any endorser or
guarantor, or any Person who has given any other security for the payment of all
or any part of the Obligation, or any other Person in any way obligated to pay
all or any part of the Obligation.
5.4 Collateral Documentation. Borrower shall execute, or cause to be
------------------------
executed, financing statements, stock powers, assignments, consents of partners
and other Persons, and other agreements, documents, and instruments, each in the
form and content reasonably required by Agent, and Borrower shall pay all costs
of filing any financing, continuation, or termination statements, or other
action taken by Agent relating to the Collateral, including, without limitation,
costs and expenses of any Lien search reasonably required by Agent.
SECTION 6 CONDITIONS PRECEDENT.
--------- --------------------
6.1 Initial Borrowing or LC. Lenders are not obligated to fund the
-----------------------
initial Borrowing and Agent is not obligated to issue any LC unless Agent has
received all of the items described in SCHEDULE 6.1, each in form and substance
acceptable to Agent and its counsel.
6.2 All Borrowings and LCs. Lenders are not obligated to fund (as
----------------------
opposed to continue or convert) any Borrowing and Agent is not obligated to
issue any LC, unless on the applicable Borrowing Date or LC issue date (and
after giving effect to the requested Borrowing or LC, as the case may be): (a)
Agent has timely received a Notice of Borrowing or LC Request, as the case may
be; (b) all of the representations and warranties in the Loan Papers are true
and correct in all material respects (except to the extent that (i) the
representations and warranties speak to a specific date or (ii) the facts on
which such representations and warranties are based have been changed by
transactions contemplated or permitted by this agreement); (c) no Material
Adverse Event, Default, or Potential Default exists; and (d) the funding of the
Borrowing or issuance of the LC, as the case may be, is permitted by
21
<PAGE>
Law. Upon Agent's request, Borrower has delivered to Agent reasonable evidence
substantiating any of the matters in the Loan Papers that are necessary to
enable Borrower to qualify for the Borrowing or LC, as the case may be.
6.3 General. Each condition precedent in this agreement (including,
-------
without limitation, each in SCHEDULE 6.1) is material to the transactions
contemplated by this agreement, and time is of the essence with respect to each
condition precedent. If Determining Lenders have first approved, Lenders may
fund any Borrowing or Agent may issue any LC without all conditions being
satisfied. To the extent permitted by Law, that funding or issuance may not be
deemed to be a waiver of the requirement that each condition precedent be
satisfied as a prerequisite for any subsequent funding or issuance, unless
Determining Lenders specifically waive each item in writing.
SECTION 7 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
--------- ------------------------------
Agent and Lenders as follows:
7.1 Purpose of Credit Facility. Borrower will use proceeds of Borrowings
--------------------------
for working capital in the ordinary course of business and for acquisitions if
otherwise permitted under the Loan Papers. Borrower is not engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying any "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System. No part
of the proceeds of any Borrowing will be used, directly or indirectly, for a
purpose that violates any Law, including, without limitation, the provisions of
Regulation U.
7.2 Existence, Good Standing, and Authority. Each KPP Company is duly
---------------------------------------
organized, validly existing, and in good standing under the Laws of its
jurisdiction of organization as identified on SCHEDULE 7.2. Except where
failure is not a Material Adverse Event, each KPP Company (a) is duly qualified
to transact business and in good standing as a foreign entity in each
jurisdiction where (i) the Collateral is or may be located and (ii) the nature
and extent of its business and properties require due qualification and good
standing (those jurisdictions for CLAUSES (I) and (II) being identified on
SCHEDULE 7.2 and as otherwise disclosed in writing to Agent and Lenders from
time to time after the date of this agreement) and (b) possesses all requisite
authority and power to conduct its business as is now being, or is contemplated
by this agreement to be, conducted, except where failure is not a Material
Adverse Event. As used in this SECTION 7.2, the concept of "good standing" is
inapplicable to each KPP Company that is a partnership.
7.3 Subsidiaries. Excluding Insignificant Subsidiaries, KPC has no
------------
Subsidiaries except as disclosed on SCHEDULE 7.3 (and as otherwise disclosed in
writing to Agent and Lenders from time to time after the date of this agreement
to reflect any changes to the schedule as a result of transactions permitted by
this agreement). All of the outstanding shares of capital stock (or similar
voting interests) of those Subsidiaries are duly authorized, validly issued,
fully paid, and nonassessable, and are owned of record and beneficially as set
forth thereon, free and clear of any Liens, restrictions, claims, or Rights of
another Person, other than Permitted Liens, and are not subject to any warrant,
option, or other acquisition Right of any Person or subject to any transfer
restriction except for restrictions imposed by securities Laws and general
corporate or partnership Laws.
7.4 Separate Legal Entities.
-----------------------
(a) (i) Each KPC Company observes all material corporate or
partnership procedures required of it under Delaware Law and, as
applicable, its certificate of incorporation and bylaws or its partnership
agreement; (ii) each KSI Company observes in all material respects the
corporate or partnership, as the case may be, formalities necessary to
remain a legal entity separate and distinct from each other KSI Company;
(iii) when appropriate, KPC obtains proper authorization from its
shareholders, its board of directors, or both for its corporate action;
(iv) at least one director of KPC is an executive officer of KPC but not a
director, officer, or employee of KSI, and another director of KPC is an
executive officer of KPC but not a director of KSI; (v) each KSI Company
maintains corporate or partnership records, as the case
22
<PAGE>
may be, books of account, and minutes or unanimous consents of its
shareholders and directors, if applicable, separate from those of each
other KSI Company; (vi) each KPC Company properly withholds federal income
tax and FICA taxes on compensation to its employees; (vii) KSI properly
provides for the payment -- and federal income Tax, and FICA Tax
withholding -- for its own employees but not any of any KPC Company's
employees, and each KPC Company properly provides for the payment -- and
federal income Tax and FICA Tax withholding -- for its own employees but
not any of KSI's employees; (viii) the KSI Companies participate in a
common Employee Plan; (ix) the Borrower Companies are included in the
consolidated Financial Statements of KPP, the KPP Companies are included in
the consolidated Financial Statements of KPC, and the KPC Companies are
included in the consolidated Financial Statements of KSI; (x) consolidated
Financial Statements for the Borrower Companies (without KPP), audited
consolidated Financial Statements for the KPP Companies (without KPC), and
consolidated Financial Statements for the KPC Companies (without KSI) are
prepared at least annually; (xi) while KSI was restructuring its Debt in
1988 and 1989, KPC continued -- and currently continues -- to pay its
obligations in the ordinary course of business and as a separate financial
and legal entity; and (xii) except possibly for the KPC Credit Agreement
and the GECC Leases, a default by KSI on any of its Debt does not by itself
create a default by any KPC Company on any of its Debt.
(b) (i) Although received, deposited, withdrawn, and disbursed by a
common treasury department, each KSI Company's funds are kept separate
from, and are not commingled with, any other KSI Company's funds; (ii) each
KPC Company conducts its operational business from an office separate from
that of KSI; (iii) KSI conducts its business solely in its own name and not
in the name of any KPC Company so as not to mislead others as to its
separate identity, and the KPC Companies conduct their collective
businesses in one or more of the KPC Companies' names and not in KSI's
name; (iv) KSI's taxpayer identification number, telephone numbers, mailing
addresses, stationery, and other business forms are separate from those of
each KPC Company; (v) substantially all oral and written communications,
including, without limitation, letters, invoices, purchase orders,
contracts, statements, and applications, are made solely in one or more of
the KPC Companies' names if they relate to any KPC Company and solely in
KSI's name if they relate to it; (vi) KPC's capitalization is adequate for
its business and purpose; (vii) overhead expense is shared to some extent
between the KSI Companies, but the KPC Companies are billed for their
collective share of the overhead expense by KSI, and the KPC Companies
provide for payment of their collective operating expenses and liabilities
from their collective funds; (viii) any funds transferred by KPC to KSI are
evidenced by a promissory note or a proper inter-company account or reflect
Distributions properly declared by that KPC Company's board of directors,
and those transfers are properly reflected in the respective Financial
Statements of that KPC Company and KSI; (ix) any funds transferred by any
KPP Company to KPC are evidenced by a promissory note or reflect
Distributions properly made and declared by that KPP Company's board of
directors or in accordance with its partnership agreement, as the case may
be, and those transfers are properly reflected in the respective Financial
Statements of that KPP Company and KPC; (x) KSI is not held out as having -
- and KSI has not -- agreed to pay or become liable for any KPC Company's
Debt, except as may be provided by any Loan Paper executed by KSI; (xi) no
KPC Company is held out as a department or division of KSI or as having --
and no KPC Company has -- agreed to pay or become liable for KSI's Debt;
(xii) no KPP Company holds itself out or permits itself to be held out as a
department or division of KPC or as having agreed to pay or as being liable
for the Debt of KSI or KPC (and no KPP Company has agreed to pay or be
liable for the Debt of KSI or KPC); and (xiii) each KPC Company maintains
an arm's-length relationship with KSI.
7.5 Authorization and Contravention. The execution and delivery by each
-------------------------------
KPP Company of each Loan Paper to which it is a party and the performance by it
of its obligations thereunder (a) are within its corporate or partnership power,
(b) have been duly authorized by all necessary corporate or partnership action,
(c) require no action by or filing with any Tribunal (other than any action or
filing that has been taken or made on or before the date of this agreement), (d)
do not violate any provision of its certificate or agreement of limited
partnership, certificate or articles of incorporation, or bylaws (as
applicable), (e) do not violate any provision of Law applicable
23
<PAGE>
to it, other than violations that individually or collectively are not a
Material Adverse Event, (f) do not violate any Material Agreements to which it
is a party, other than violations that are not a Material Adverse Event, or (g)
do not result in the creation or imposition of any Lien (other than the Lender
Liens) on any asset of any KPP Company.
7.6 Binding Effect. Upon execution and delivery by all parties thereto,
--------------
each Loan Paper will constitute a legal and binding obligation of each KPP
Company party thereto, enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable Debtor Laws and general
principles of equity.
7.7 Financial Statements. The Current Financials of KPP were prepared in
--------------------
accordance with GAAP and present fairly the consolidated financial condition,
results of operations, and cash flows of the KPP Companies as of, and for the
portion of the fiscal year ending on the date or dates thereof (subject only to
normal year-end adjustments). All material liabilities of the KPP Companies as
of the date or dates of the Current Financials are reflected therein or in the
notes thereto. Except for transactions directly related to, or specifically
contemplated by, the Loan Papers, no subsequent material adverse changes have
occurred in the consolidated financial condition of the KPP Companies from that
shown in the Current Financials of KPP, nor has any KPP Company incurred any
subsequent material liability.
7.8 Litigation. Except as disclosed on SCHEDULE 7.8 and as otherwise
----------
disclosed in writing to Agent and Lenders from time to time after the date of
this agreement (if the disclosures are approved by Determining Lenders), no KPP
Company or Restricted Subsidiary is subject to, or aware of the threat of, any
Litigation that is reasonably likely to be determined adversely to any KPP
Company, any Collateral, or any Restricted Subsidiary, or, if so adversely
determined, is a Material Adverse Event. No outstanding or unpaid judgments
exist against any KPP Company, any Collateral, or any Restricted Subsidiary.
7.9 Taxes. All Tax returns of each KPP Company or Restricted Subsidiary
-----
required to be filed have been filed (or extensions have been granted) before
delinquency, except for returns for which the failure to file is not a Material
Adverse Event, and all Taxes imposed upon each KPP Company and Restricted
Subsidiary or any Collateral that are due and payable have been paid before
delinquency, other than Taxes for which the relevant criteria for Permitted
Liens have been satisfied or for which nonpayment is not a Material Adverse
Event.
7.10 Environmental Matters. Except as disclosed on SCHEDULE 7.10 and as
---------------------
otherwise disclosed in writing to Agent and Lenders from time to time after the
date of this agreement (if the disclosures are approved by Determining Lenders),
and other than conditions, circumstances, or violations that are not,
individually or in the aggregate, a Material Adverse Event, Borrower (a) knows
of no environmental condition or circumstance materially and adversely affecting
any KPP Company's or Restricted Subsidiary's properties (including, without
limitation, the Collateral) or operations, (b) has received no report of any KPP
Company's or Restricted Subsidiary's violation of any Environmental Law, and (c)
is not aware that any KPP Company or Restricted Subsidiary is under any
obligation to remedy any violation of any Environmental Law. Each KPP Company
and Restricted Subsidiary has taken prudent steps to determine that its
properties (including, without limitation, the Collateral) and operations do not
violate any Environmental Law, other than violations that are not, individually
or in the aggregate, a Material Adverse Event.
7.11 Employee Plans. Except where occurrence or existence is not a
--------------
Material Adverse Event, (a) no Employee Plan has incurred an "accumulated
funding deficiency" (as defined in (S)302 of ERISA or (S)412 of the Code), (b)
no KPP Company or Restricted Subsidiary has incurred liability under ERISA to
the PBGC in connection with any Employee Plan, (c) no KPP Company or Restricted
Subsidiary has withdrawn in whole or in part from participation in a
Multiemployer Plan, (d) no KPP Company or Restricted Subsidiary has engaged in
any "prohibited transaction" (as defined in (S)406 of ERISA or (S)4975 of the
Code), and (e) no "reportable event" (as defined in (S)4043 of ERISA) has
occurred, excluding events for which the notice requirement is waived under
applicable PBGC regulations.
24
<PAGE>
7.12 Properties; Liens. Each KPP Company and Restricted Subsidiary has
-----------------
good and marketable title to all its property (including, without limitation,
the Collateral) reflected on the Current Financials -- except for title
impairments described in SECTION 9.5((B)(II)(C), property that is obsolete, or
(c) property that has been disposed in the ordinary course of business or, after
the date of this agreement, as otherwise permitted by SECTION 9.10 or SECTION
9.11. Except for Permitted Liens, no Lien exists on any property of any KPP
Company (including, without limitation, the Collateral), and the execution,
delivery, performance, or observance of the Loan Papers will not require or
result in the creation of any Lien (other than Lender Liens) on any property of
any KPP Company or Restricted Subsidiary (including, without limitation, the
Collateral).
7.13 Government Regulations. No KPP Company or Restricted Subsidiary is
----------------------
subject to regulation under the Investment Company Act of 1940, as amended, the
Public Utility Holding Company Act of 1935, as amended, or any other Law (other
than Regulations G, T, U, and X of the Board of Governors of the Federal Reserve
System) that regulates the incurrence of Debt.
7.14 Affiliate Transactions. No KPP Company or Restricted Subsidiary is a
----------------------
party to a material (i.e., requiring it to pay more than $100,000 during the
term of the governing agreement) transaction with any of its Affiliates other
than transactions in the ordinary course of business and upon fair and
reasonable terms not materially less favorable than it could obtain or could
become entitled to in an arm's-length transaction with a Person that was not its
Affiliate.
7.15 Debt Cross Defaults. Other than the GECC Leases and the KPC Credit
-------------------
Agreement, no agreement evidencing Debt of (a) any KPP Company contains a cross-
default provision concerning any Debt of KSI or KPC or (b) KSI or KPC contains a
cross-default provision concerning any Debt of any KPP Company.
7.16 Material Agreements. No KPP Company or Restricted Subsidiary is a
-------------------
party to any Material Agreement, other than the Loan Papers, the Note
Agreements, and the Material Agreements described on SCHEDULE 7.16. All
described Material Agreements are in full force and effect, and no default or
potential default exists on the part of any KPP Company or Restricted Subsidiary
thereunder that is a Material Adverse Event.
7.17 Insurance. Each KPP Company and Restricted Subsidiary maintains with
---------
financially sound, responsible, and reputable insurance companies or
associations (or, as to workers' compensation or similar insurance, with an
insurance fund or by self-insurance authorized by the jurisdictions in which it
operates) insurance concerning its properties (including, without limitation,
the Collateral) and businesses against casualties and contingencies and of types
and in amounts (and with co-insurance and deductibles) as is customary in the
case of similar businesses.
7.18 Labor Matters. No actual or -- to Borrower's knowledge -- threatened
-------------
strikes, labor disputes, slow downs, walkouts, or other concerted interruptions
of operations by the employees of any KPP Company or Restricted Subsidiary exist
that are a Material Adverse Event. Hours worked by and payment made to
employees of each KPP Company and Restricted Subsidiary have not been in
violation of the Fair Labor Standards Act or any other applicable Law dealing
with labor matters, other than any violations, individually or collectively,
that are not a Material Adverse Event. All payments due from any KPP Company or
Restricted Subsidiary for employee health and welfare insurance have been paid
or accrued as a liability on its books, other than any nonpayments that are not,
individually or collectively, a Material Adverse Event.
7.19 Solvency. On each Borrowing Date, each KPP Company is, and after
--------
giving effect to the requested Borrowing will be, Solvent.
7.20 Trade Names. No KPP Company has used or transacted business under
-----------
any other corporate, partnership, or trade name in the five-year period
preceding the initial Borrowing Date, except as disclosed on SCHEDULE 7.20.
25
<PAGE>
7.21 Intellectual Property. Each KPP Company and Restricted Subsidiary
---------------------
owns all material licenses, patents, patent applications, copyrights, service
marks, trademarks, trademark applications, and trade names necessary to continue
to conduct its businesses as presently conducted by it and proposed to be
conducted by it immediately after the date of this agreement. Each KPP Company
and Restricted Subsidiary is conducting its business without infringement or
claim of infringement of any license, patent, copyright, service mark,
trademark, trade name, trade secret, or other intellectual property right of
others, other than any infringements or claims that, if successfully asserted
against or determined adversely to any KPP Company, would not, individually or
collectively, constitute a Material Adverse Event. To the knowledge of
Borrower, no infringement or claim of infringement by others of any material
license, patent, copyright, service mark, trademark, trade name, trade secret,
or Restricted Subsidiary or other intellectual property of any KPP Company
exists.
7.22 Full Disclosure. Each material fact or condition relating to the
---------------
Loan Papers or the financial condition, business, or property of any KPP Company
and Restricted Subsidiary that is a Material Adverse Event has been disclosed in
writing to Agent. All information previously furnished by any KPP Company and
Restricted Subsidiary to Agent in connection with the Loan Papers was, and all
information hereafter furnished by any KPP Company and Restricted Subsidiary to
Agent will be, true and accurate in all material respects or based on reasonable
estimates on the date the information is stated or certified.
SECTION 8 AFFIRMATIVE COVENANTS. Until neither Agent, nor any Affiliate of
--------- ---------------------
Agent, nor any Lender has any commitment to extend any credit under any Loan
Paper and the LC Exposure, and all other Obligation, is fully paid and performed
-- unless Borrower receives a prior written consent to the contrary by Agent on
behalf of Determining Lenders -- Borrower covenants and agrees as follows:
8.1 Items to be Furnished. Borrower shall cause the following to be
---------------------
furnished to Agent and each Lender:
(a) Promptly after preparation, and no later than 95 days after the
last day of each fiscal year of KPP, Financial Statements showing the
consolidated financial condition and results of operations of the KPP
Companies and its Subsidiaries as of, and for the year ended on, that last
day, accompanied by:
(i) the unqualified opinion of a firm of nationally-recognized
independent certified public accountants, based on an audit using
generally accepted auditing standards, that the Financial Statements
were prepared in accordance with GAAP and present fairly, in all
material respects, the consolidated financial condition and results of
operations of KPP and its Subsidiaries;
(ii) any management letter prepared by the accounting firm
delivered in connection with its audit;
(iii) a certificate from the accounting firm to Agent indicating
that during its audit it obtained no knowledge of any Default or
Potential Default or, if it obtained knowledge, the nature and period
of existence thereof; and
(iv) a Compliance Certificate.
(b) Promptly after preparation, and no later than 95 days after the
last day of each fiscal year of Borrower, Financial Statements showing the
consolidated financial condition and results of operations of the Borrower
Companies as of, and for the year ended on, that last day, accompanied by
(i) a Financial Statements Certificate executed by the chief financial
officer of Borrower and (ii) any audit opinion delivered in connection with
the Financial Statements.
26
<PAGE>
(c) Promptly after preparation, and no later than 50 days after the
last day of each of the first three fiscal quarters of KPP, Financial
Statements showing the consolidated financial condition and results of
operations of KPP and its Subsidiaries for the applicable fiscal quarter
and for the period from the beginning of the current fiscal year to the
last day of that fiscal quarter, accompanied by a Compliance Certificate.
(d) Promptly after preparation, and no later than 50 days after the
last day of each of the first three fiscal quarters of Borrower, Financial
Statements showing the consolidated financial condition and results of
operations of the Borrower Companies for the applicable fiscal quarter and
for the period from the beginning of the current fiscal year to the last
day of that fiscal quarter, accompanied by a Financial Statements
Certificate executed by the chief financial officer of Borrower.
(e) Promptly after receipt, a copy of each interim or special audit
report and management letter issued by independent accountants with respect
to any KPP Company or Restricted Subsidiary or its financial records.
(f) Notice, promptly after Borrower knows, of (i) the commencement of
any Litigation that, if determined adversely to any KPP Company or
Restricted Subsidiary or the Collateral, would be a Material Adverse Event,
(ii) any change in any material fact or circumstance represented or
warranted by any KPP Company in any Loan Paper, (iii) the receipt by any
KPP Company or Restricted Subsidiary of notice of any violation or alleged
violation of any Environmental Law (which individually or collectively with
other violations or allegations could constitute a Material Adverse Event),
(iv) a Default or Potential Default, specifying the nature thereof and what
action Borrower or any other KPP Company or Restricted Subsidiary has
taken, is taking, or proposes to take, or (v) the incurrence of any Funded
Debt other than under this agreement.
(g) Promptly after filing, true, correct, and complete copies of all
material reports or filings filed by or on behalf of any KPP Company with
any Tribunal.
(h) Upon request by Agent at the request of Determining Lenders, full
information as to the insurance carried by the KPP Companies and Restricted
Subsidiaries, and promptly after receipt by any KPP Company or Restricted
Subsidiary, notice from any insurer of any notice of cancellation or
nonrenewal of a material insurance policy or material change in insurance
coverage from that existing on the date of this agreement.
(i) Promptly after publication, copies of all press releases and
other statements made available generally by any KPP Company or Restricted
Subsidiary to the public concerning material developments in its business.
(j) As soon as is reasonably practical, upon reasonable request by
Agent or Determining Lenders (through Agent), information (not otherwise
required to be furnished under the Loan Papers) respecting the business
affairs, assets (including, without limitation, the Collateral), and
liabilities of the KPP Companies and Restricted Subsidiaries, and opinions,
certifications, and documents in addition to those mentioned in this
agreement.
8.2 Use of Proceeds. Borrower shall use the proceeds of Borrowings only
---------------
for the purposes represented in this agreement.
8.3 Books and Records. Each KPP Company and Restricted Subsidiary shall
-----------------
maintain books, records, and accounts necessary to prepare financial statements
in accordance with GAAP (except for any departure with respect to the accounting
treatment of the pipeline, terminals, and related assets acquired by Borrower).
27
<PAGE>
8.4 Inspections. Upon reasonable request, each KPP Company and
-----------
Restricted Subsidiary shall allow Agent or its Representatives (who shall comply
with the safety rules disclosed to it or them at the time of inspection) to
inspect any of its properties (including, without limitation, the Collateral),
to review reports, files, and other records and to make and take away copies, to
conduct tests or investigations, and to discuss any of its affairs, conditions,
and finances with its other creditors, directors, officers, employees, or
representatives from time to time, during reasonable business hours. Fees and
expenses incurred under this SECTION 8.4 shall be borne by Agent unless Agent
acted under this SECTION 8.4 in order to perform its duties under the Loan
Papers or preserve or protect the Rights of Agent and Lenders under the Loan
Papers. Agent and its Representatives agree to treat confidential those matters
disclosed by Borrower as being confidential; however, Agent and its
Representatives may disclose confidential matters (a) to Agent, each Lender, and
each actual or prospective Participant or Purchaser, (b) to any Tribunal having
jurisdiction over it, and (c) that are public knowledge.
8.5 Taxes. Each KPP Company and Restricted Subsidiary shall promptly pay
-----
when due any and all Taxes other than Taxes which are being contested in good
faith by lawful proceedings diligently conducted, against which reserve or other
provision required by GAAP has been made, and in respect of which levy and
execution of any Lien have been and continue to be stayed.
8.6 Payment of Obligations. Each KPP Company and Restricted Subsidiary
----------------------
shall promptly pay (or renew and extend) all of its material obligations as they
become due (unless the obligations are being contested in good faith by
appropriate proceedings).
8.7 Expenses. Borrower shall promptly pay upon demand (a) all costs,
--------
fees, and expenses paid or incurred by Agent incident to any Loan Paper
(including, but not limited to, the reasonable fees and expenses of Agent's
counsel in connection with the negotiation, preparation, delivery, and execution
of the Loan Papers and any related amendment, waiver, or consent, and (b) all
reasonable costs and expenses of Lenders and Agent incurred by Agent or any
Lender in connection with the enforcement of the obligations of any Person
arising under the Loan Papers or the exercise of any Rights arising under the
Loan Papers (including, but not limited to, reasonable attorneys' fees and court
costs), all of which shall be a part of the Obligation and shall bear interest,
if not paid upon demand, at the Default Rate until repaid.
8.8 Maintenance of Existence, Assets, and Business. Except as otherwise
----------------------------------------------
permitted by SECTION 9.11, each KPP Company and Restricted Subsidiary shall (a)
maintain its corporate or partnership existence and good standing in its state
of organization and its authority to transact business in all other states where
the Collateral is or may be located and, additionally, where failure to maintain
its authority to transact business is a Material Adverse Event; (b) maintain all
licenses, permits, and franchises necessary for its business where failure is a
Material Adverse Event; (iii) keep all of its assets that are useful in and
necessary to its business in good working order and condition (ordinary wear and
tear excepted) and make all necessary repairs and replacements.
8.9 Insurance. Each KPP Company and Restricted Subsidiary, at its cost
---------
and expense, shall maintain insurance with financially sound and reputable
insurers, in such amounts, and covering such risks, as is ordinary and customary
for similar Persons in the industry. However, the insurance coverage, at a
minimum, must be in the amounts and cover the risks described on SCHEDULE 8.9.
At Agent's request, each KPP Company and Restricted Subsidiary shall deliver to
Agent certificates of insurance for each policy of insurance. If any insurance
policy covered by an insurance certificate previously delivered to Agent is
altered or canceled, then Borrower shall cause to be promptly delivered to Agent
a replacement certificate (in form and substance satisfactory to Agent).
8.10 Preservation and Protection of Rights; Separate Legal Entities. Each
--------------------------------------------------------------
KPP Company and Restricted Subsidiary shall perform the acts and duly authorize,
execute, acknowledge, deliver, file, and record any additional writings as Agent
or Determining Lenders may reasonably deem necessary or appropriate to perfect
and maintain the Lender Liens and preserve and protect the Rights of Agent and
Lenders under any Loan Paper. Additionally, each KPC Company and Restricted
Subsidiary shall take (or cause KSI to take) any action that Determining Lenders
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may reasonably deem necessary or appropriate to maintain and preserve the legal
separateness of KSI, KPC, KPP, and each Borrower Company.
8.11 Environmental Laws. Each KPP Company and Restricted Subsidiary shall
------------------
(a) conduct its business and operate the Collateral so as to comply with all
applicable Environmental Laws and shall promptly take corrective action to
remedy any non-compliance with any Environmental Law, and (b) establish and
maintain a management system designed to ensure compliance with applicable
Environmental Laws and minimize financial and other risks to each KPP Company
and Restricted Subsidiary arising under applicable Environmental Laws or as the
result of environmentally related injuries to Persons or property (including,
without limitation, the Collateral). Borrower shall deliver reasonable evidence
of compliance with the foregoing covenant to Agent within 30 days after any
request from Determining Lenders.
8.12 Subsidiaries. Each Person that becomes a Restricted Subsidiary after
------------
the date of this agreement (whether as a result of acquisition, creation, or
otherwise) shall execute and deliver a Guaranty within ten days after becoming a
Restricted Subsidiary.
8.13 Indemnification. EACH KPP COMPANY, JOINTLY AND SEVERALLY,
---------------
INDEMNIFIES, PROTECTS, AND HOLDS AGENT, LENDERS, AND THEIR RESPECTIVE PARENTS,
SUBSIDIARIES, REPRESENTATIVE, SUCCESSORS, AND ASSIGNS (COLLECTIVELY, THE
"INDEMNIFIED PARTIES") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES,
--------------------
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, AND
PROCEEDINGS AND ALL COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL
ATTORNEYS' FEES AND LEGAL EXPENSES WHETHER OR NOT SUIT IS BROUGHT), AND
DISBURSEMENTS OF ANY KIND OR NATURE (THE "INDEMNIFIED LIABILITIES") THAT MAY AT
-----------------------
ANY TIME BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY INDEMNIFIED PARTY,
IN ANY WAY RELATING TO OR ARISING OUT OF (A) THE DIRECT OR INDIRECT RESULT OF
THE VIOLATION BY ANY KPP COMPANY OF ANY ENVIRONMENTAL LAW, (B) ANY KPP COMPANY'S
GENERATION, MANUFACTURE, PRODUCTION, STORAGE, RELEASE, THREATENED RELEASE,
DISCHARGE, DISPOSAL, OR PRESENCE IN CONNECTION WITH ITS PROPERTIES (INCLUDING,
WITHOUT LIMITATION, THE COLLATERAL) OF A HAZARDOUS SUBSTANCE (INCLUDING, WITHOUT
LIMITATION, (I) ALL DAMAGES FROM ANY USE, GENERATION, MANUFACTURE, PRODUCTION,
STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, OR PRESENCE, OR (II)
THE COSTS OF ANY ENVIRONMENTAL INVESTIGATION, MONITORING, REPAIR, CLEANUP, OR
DETOXIFICATION AND THE PREPARATION AND IMPLEMENTATION OF ANY CLOSURE, REMEDIAL,
OR OTHER PLANS), (C) THE LOAN PAPERS OR ANY OF THE TRANSACTIONS CONTEMPLATED IN
THEM, AND (D) ANY INDEMNIFIED PARTY'S SOLE OR CONCURRENT ORDINARY NEGLIGENCE.
HOWEVER, NO INDEMNIFIED PARTY IS ENTITLED TO BE INDEMNIFIED UNDER THE LOAN
PAPERS FOR ITS OWN FRAUD, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT. The
provisions of and undertakings and indemnification in this SECTION 8.13 survive
the satisfaction and payment of the Obligation and termination of this
agreement.
SECTION 9 NEGATIVE COVENANTS. Until neither Agent, nor any Affiliate of Agent,
--------- ------------------
nor any Lender has any commitment to extend any credit under any Loan Paper and
the LC Exposure, and all other Obligation, is fully paid and performed -- unless
Borrower receives a prior written consent to the contrary by Agent on behalf of
Determining Lenders -- Borrower covenants and agrees as follows:
9.1 Taxes. No KPP Company or Restricted Subsidiary may use any portion
-----
of the proceeds of any Borrowing or LCs to pay the wages of employees unless a
timely payment to or deposit with the United States of America of all amounts of
Tax required to be deducted and withheld with respect to such wages is also
made.
9.2 [Intentionally Blank.]
9.3 Employee Plans. Except where a Material Adverse Event would not
--------------
result, no event or circumstance described in SECTION 7.11 may exist or occur.
29
<PAGE>
9.4 Funded Debt. No KPP Company or Restricted Subsidiary may create,
-----------
incur, of suffer to exist any Funded Debt except the following:
(a) Funded Debt evidenced by the Notes, Term Notes, and Term
Guaranties;
(b) other Funded Debt of the KPP Companies outstanding on the "Series
B Closing Date" described in SCHEDULE 5 to the Note Agreements as in effect
on the date of this agreement (including any amendments and modifications
of that Funded Debt, but excluding any amendment, modification, renewal,
extension, or refunding of that Funded Debt that has the effect of
extending its final maturity or increasing its principal amount); and
(c) other Funded Debt of any KPP Company or any Restricted Subsidiary
so long as -- at the time of, and immediately after giving effect to, the
incurrence of (including any amendments and modifications of, but excluding
any amendment, modification, renewal, extension, or refunding that has the
effect of extending the final maturity or increasing the principal amount
of) it and immediately after giving effect to the concurrent application of
any proceeds of it to retire other Funded Debt -- (i) no Default or
Potential Default exists and (ii) the ratio of KPP's consolidated Funded
Debt to its consolidated EBITDA does not equal or exceed 3.15 to 1.00, with
(A) EBITDA being determined for a 12-calendar-month period ending no more
than three months before the date on which that KPP Company or Restricted
Subsidiary incurs that other Funded Debt and (B) Funded Debt being
determined as of the date of the incurrence of the Funded Debt for which
the calculation in this CLAUSE (C) is being made.
9.5 Liens.
-----
(a) No KPP Company or Restricted Subsidiary may (i) create, assume,
or otherwise incur or suffer to exist any Lien upon -- or, whether by
Transfer to any other KPP Company or Restricted Subsidiary or otherwise,
subject to the priority payment of any obligations, indebtedness, or claim
other than the Obligation -- any present, future, real, personal, tangible,
or intangible assets (including, without limitation, stock or other
securities) of any KPP Company or Restricted Subsidiary, whether now owned
or acquired in the future, or any income or profits from any of those
assets, (ii) own or acquire or agree to acquire any of those assets subject
to or encumbered by any Lien, or (iii) suffer to exist any obligations,
indebtedness, or claim of any KPP Company or Restricted Subsidiary or
claims or demands against any KPP Company or Restricted Subsidiary, which
obligations, indebtedness, claims, or demands, if unpaid, would (in the
hands of the holder of any of them, any guarantor of any of them, or any
Person who has any Right or obligation to purchase any of them), by law or
upon bankruptcy or insolvency or otherwise, be given any priority
whatsoever over that KPP Company's or Restricted Subsidiary's general
creditors.
(b) The restrictions in CLAUSE (A) above neither (i) apply to Lender
Liens or other Liens under the Security Documents which are subject to the
Intercreditor Agreement, nor (ii) prevent:
(A) any Lien existing on the "Series B Closing Date" described
on SCHEDULE 5 to the Note Agreements as in effect on the date of this
agreement that secure Funded Debt permitted under SECTION 9.4(B) and
renewals, extensions, and refundings of that Funded Debt permitted
under SECTION 9.4(C) but not extensions of those Liens to cover any
additional assets; or
(B) any Lien that is incidental to the normal conduct of
business or ownership of assets by any KPP Company or Restricted
Subsidiary so long as that Lien does not secure Debt and does not
materially impair the use of those assets in the operation of that KPP
Company's or Restricted Subsidiary's businesses; or
30
<PAGE>
(C) any (i) Lien for Taxes not yet due and payable or the
nonpayment of which is permitted by SECTION 8.5, (ii) survey
exceptions, encumbrances, easements, or reservations of, or Rights of
others for, Rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real property, and Rights of eminent
domain so long as all of the foregoing do not collectively have a
material-adverse effect on any assets of any KPP Company or Restricted
Subsidiary or materially impair their use in the operation of its
businesses, or (iii) mechanic's Liens and materialman's Liens for
services or materials for which payment is not yet due and payable and
which do not materially impair the use by any KPP Company or
Restricted Subsidiary in the operation of its businesses; or
(D) any Lien in respect of assets acquired by a KPP Company or
Restricted Subsidiary after the date of this agreement to secure Debt
assumed or incurred to finance all or any part of the purchase price
so long as that Lien (1) must at all times apply solely to the assets
so acquired and any improvements on them that become fixtures or
accessions to them, (2) secures only a principal amount of Debt that
never exceeds the lesser of either the fair market value of the
acquired assets at the time of their acquisition or the cost of those
assets, (3) must be either existing at the time of the acquisition or
created within 120 days after the time of the acquisition, and (4)
secures only Debt permitted by SECTION 9.4 at the time the Debt is
incurred; or
(E) any of the following Liens if (1) the validity,
applicability or amount of it is being contested in good faith and by
appropriate and lawful proceedings diligently conducted, (2) the KPP
Company or Restricted Subsidiary in question has set aside on its
books, reserves for it that are deemed adequate in its reasonable
opinion, (3) levy and execution of that Lien continue to be stayed,
(4) it covers any Collateral and is subordinate to the Lender Liens,
and (5) all such Liens do not collectively materially detract from the
value of the property of the KPP Company or Restricted Subsidiary in
question or materially impair the use of that property in the
operation of its business: (a) All claims and Liens of mechanics,
materialmen, warehousemen -- other than those described in SECTION
9.5(B)(II)(C)(III), and (b) adverse judgments or orders on appeal for
the payment of money not in excess of the total amount of $25,000,000;
or
(F) any Lien securing Qualifying Debt; or
(G) any Lien on assets that are not Collateral and securing Debt
permitted by SECTION 9.4 so long as the total amount of Debt so
secured never exceeds 10% of KPP's consolidated partners' capital.
9.6 Affiliate Transactions. No KPP Company or Restricted Subsidiary may
----------------------
engage in any transaction with an Affiliate on terms less favorable to it than
would have been obtainable in arm's length dealing in the ordinary course of
business with a Person not an Affiliate.
9.7 Compliance with Laws and Documents. No KPP Company or Restricted
----------------------------------
Subsidiary may (a) violate the provisions of any Laws applicable to it or of any
Material Agreement to which it is a party if that violation alone, or when
aggregated with all other violations, would be a Material Adverse Event, or (b)
violate, repeal, replace, or amend any provision of its certificate or agreement
of limited partnership, certificate or articles of incorporation, or bylaws (as
applicable).
9.8 Loans, Advances, and Investments. No KPP Company or Restricted
--------------------------------
Subsidiary may make any loan, advance, extension of credit, or capital
contribution to, make any investment in, or purchase or commit to purchase any
stock or other securities or evidences of Debt of, or interests in, any other
Person, except (a) as permitted by SECTIONS 9.9 or 9.11 or (b) Permitted
Investments.
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<PAGE>
9.9 Distributions. No KPP Company or Restricted Subsidiary may enter
-------------
into or permit to exist any arrangement or agreement that prohibits it from
paying Distributions to its equity holders -- other than this agreement and its
charter documents in effect as of the date of this agreement -- and neither KPP
nor Borrower may declare, make, or pay any Distribution:
(a) if it would violate the KPP Partnership Agreement or Borrower
Partnership Agreement or a Default or Potential Default is continuing; or
(b) for (i) Borrower, the total Distributions paid by it in any
calendar quarter would exceed 100% of the "Borrower Available Cash" for the
calendar quarter immediately preceding the quarter in which those
Distributions are paid, or (ii) KPP, the total Distributions paid by it in
any calendar quarter would exceed the "KPP Available Cash" that constitutes
"Cash from Operations" or "Cash from Interim Capital Transactions" for the
calendar quarter immediately preceding the quarter in which those
Distributions are paid.
For purposes of this SECTION 9.9 only:
BORROWER AVAILABLE CASH means, with respect to any calendar quarter
(i) the sum of (a) all cash receipts of Borrower during that quarter from
all sources, plus (b) any reduction in reserves established in prior
quarters, minus (ii) the sum of (aa) all cash disbursements of Borrower
during that quarter, including, without limitation, disbursements for
operating expenses, debt service (including the payment of principal,
premium, and interest), capital expenditures, and contributions, if any, to
any Subsidiary (but excluding all cash Distributions by Borrower), plus
(bb) any reserves established in that quarter in such amounts as KPC
determines in its reasonable discretion to be necessary or appropriate to
provide for the proper conduct of Borrower's business (including reserves
for future capital expenditures), plus (cc) any other reserves established
in that quarter in such amounts as KPC determines in its reasonable
discretion to be necessary because the Distribution of those amounts would
be prohibited by applicable Law or by any loan agreement, security
agreement, mortgage, debt instrument, or other agreement or obligation to
which Borrower is a party or by which it is bound or its assets are
subject. For purposes of this definition, notwithstanding the foregoing,
"Borrower Available Cash" may not include any cash receipts or reductions
in reserves or take into account any disbursements made or reserves
established after commencement of the dissolution and liquidation of
Borrower.
CASH FROM INTERIM CAPITAL TRANSACTIONS means, on any day, the amount
of KPP Available Cash that KPC determines to be Cash from Interim Capital
Transactions in accordance with Section 5.3 of the KPP Partnership
Agreement.
CASH FROM OPERATIONS means, on any day before commencement of the
dissolution and liquidation of KPP -- on a cumulative basis -- the sum of
(a) the sum of all cash receipts of KPP plus $3,526,000 --including
Distributions of cash received from Borrower and excluding any cash
proceeds from any Interim Capital Transactions or Terminating Capital
Transactions during the period since the commencement of operations by KPP
through that day -- minus (b) the sum of (i) all cash operating
expenditures of KPP during that period, including, without limitation,
Taxes on KPP as an entity or Taxes paid by KPP on behalf of, or amounts
withheld with respect to, all (but not less than all) of its unitholders,
if any, plus (ii) all cash debt service payments of KPP during that period
-- other than payments or prepayments of principal and premium required by
reason of loan agreements (including covenants and default provisions
therein) or by lenders, in each case in connection with sales or other
dispositions of assets or made in connection with refinancings or
refundings of indebtedness (provided that any payment or prepayment of
principal, whether or not then due, must be determined at the election and
in the discretion of KPC, to be refunded or refinanced by any indebtedness
incurred or to be incurred by KPP simultaneously with or within 180 days
before or after that payment or prepayment to the extent of the principal
amount of that
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<PAGE>
indebtedness so incurred), plus (iii) all cash capital expenditures of KPP
during that period -- other than (A) Expansive Capital Expenditures and (B)
cash expenditures made in payment of transaction expenses relating to
Interim Capital Transactions -- plus (iv) an amount equal to revenues
collected pursuant to a rate increase that are subject to possible refund,
plus (v) any additional reserves outstanding as of that day which KPP
determines in its reasonable discretion to be necessary or appropriate to
provide for the future cash payment of items of the type referred to in
CLAUSES (I) through (III) above, plus (vi) any reserves that KPC determines
in its reasonable discretion to be necessary or appropriate to provide
funds for Distributions with respect to any one or more of the next four
calendar quarters, all as determined on a consolidated basis and after
elimination of intercompany items and of the interest attributable to the
general partner interest in Borrower. For purposes of this definition,
Taxes paid by KPP on behalf of less than all of its unitholders may not be
considered cash operating expenditures of KPP which reduce "Cash from
Operations."
EXPANSIVE CAPITAL EXPENDITURES means cash capital expenditures made to
increase the throughput or deliverable capacity or terminaling capacity
(assuming normal operating conditions, including down-time and maintenance)
of the assets of KPP or Borrower, taken as a whole, from the throughput or
deliverable capacity or terminaling capacity (assuming normal operating
conditions, including down-time maintenance) existing immediately before
those capital expenditures. For purposes of this definition, when cash
capital expenditures are made in part to increase the throughput or
deliverable capacity or terminaling capacity of the assets of KPP, taken as
a whole, and in part for other purposes, KPP's good-faith allocation
thereof between the portion increasing capacity and the portion for other
purposes is conclusive.
INTERIM CAPITAL TRANSACTION means (a) borrowing and sales of debt
securities (other than for working capital purposes and items purchased on
open account in the ordinary course of business) by KPP or Borrower, (b)
sales of interest in KPP by KPP or Borrower, and (c) sales or other
voluntary or involuntary dispositions of any assets of KPP or Borrower,
other than (i) sales or other disposition of inventory in the ordinary
course of business, (ii) sales or other dispositions of other current
assets including receivables and accounts, or (iii) sales or other
dispositions of assets as a part of normal retirements or replacements --
in each case before the commencement of the dissolution and liquidation of
KPP.
KPP AVAILABLE CASH means, with respect to any calendar quarter (a) the
sum of (i) all cash receipts of KPP during that quarter from all sources
(including Distributions of cash received from Borrower) plus (ii) any
reduction in reserves established in prior quarters, minus (b) the sum of
(i) all cash disbursements of KPP during that quarter, including, without
limitation, disbursements for operating expenses, Taxes on KPP as an entity
or paid by KPP on behalf of, or amounts withheld with respect to, all (but
not less than all) of its unitholders, if any, debt service (including the
payment of principal, premium, and interest), capital expenditures, and
contributions, if any, to a subsidiary corporation or partnership (but
excluding all cash Distributions to its partners), plus (ii) any reserves
established in that quarter in such amounts as KPC determines in its
reasonable discretion to be necessary or appropriate (A) to provide for the
proper conduct of KPP's business (including reserves for future capital
expenditures) or (B) to provide funds for Distributions with respect to any
one or more of the next four calendar quarters, plus (iii) any other
reserves established in that quarter in such amounts as KPC determines in
its reasonable discretion to be necessary because the Distribution of such
amounts would be prohibited by applicable Law or by any loan agreement,
security agreement, mortgage, debt instrument, or other agreement or
obligation to which KPP is a party or by which it is bound or its assets
are subject. For purposes of this definition, Taxes paid by KPP on behalf
of, or amounts withheld with respect to, less than all of KPP's unitholders
may not be considered cash disbursements of KPP which reduce "KPP Available
Cash," and, notwithstanding the foregoing, "KPP Available Cash" may not
include any cash receipts or reductions in reserves or take into account
any disbursements made or reserves established after commencement of the
dissolution and liquidation of KPP.
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<PAGE>
TERMINATING CAPITAL TRANSACTION means any sale or other disposition of
assets of KPP or Borrower following commencement of the dissolution and
liquidation of KPP or Borrower.
9.10 Asset Transfers. No KPP Company or Restricted Subsidiary may
---------------
Transfer any of its assets, issue or sell shares of its capital stock or its
partnership units, or Transfer any capital stock or partnership units of a
Restricted Subsidiary other than the following:
(a) a Transfer in the ordinary course of business (including any
Transfer of obsolete or worn-out assets);
(b) a Transfer pursuant to a transaction permitted under SECTION
9.11;
(c) a Transfer and lease-back of any property within 180 days
following the acquisition of the property so long as no Default or
Potential Default exists at the time of and after giving effect to that
transaction;
(d) a Transfer at the time of which and immediately after giving
effect to which (i) the Transfer is for fair market value and in the best
interests of the Person making it, (ii) no Default or Potential Default
exists or would exist after giving effect to it, or (iii) all such
Transfers which are to be treated as "Permitted Transfers" under this
CLAUSE (D) in any fiscal year consist of assets or of capital stock of a
KPP Subsidiary that do not have a total book value (or total fair market
value, whichever is higher) --determined with regard to each such asset or
such capital stock at the time the same is Transferred -- of more than 10%
of KPP's consolidated partners' capital as of the end of the immediately
preceding fiscal year;
(e) a Transfer for cash so long as, within one year from the date of
the Transfer, the KPP Companies or their Subsidiaries use the full amount
of the proceeds received from the Transfer, net of all expenses of the KPP
Companies or their Subsidiaries incurred in connection with it, either (1)
to acquire assets used in the storage, terminaling, pipeline, and
transportation business, (2) to pay Funded Debt of the KPP Companies, or
(3) any combination of the two;
(f) a Transfer to any other KPP Company or wholly owned Restricted
Subsidiary;
(g) issuance or sale of its capital stock to another KPP Company or
wholly owned Restricted Subsidiary;
(h) new issuances of limited partnership units of KPP in exchange for
cash or property representing fair consideration in the determination of
the Board of Directors of KPC;
(i) a merger or consolidation that complies with the provisions of
SECTION 9.11; or
(j) a contribution of capital stock of a Restricted Subsidiary to a
joint venture so long as, following that contribution, an additional $1 of
Funded Debt could be incurred under SECTION 9.4.
9.11 Dissolutions, Mergers, and Consolidations. No KPP Company or
-----------------------------------------
Restricted Subsidiary may liquidate, wind up, or dissolve or merge or
consolidate with any other Person other than (a) a Subsidiary of KPP may be
merged into or consolidated with another KPP Company or wholly owned Subsidiary
of KPP so long as a KPP Company or a wholly owned Subsidiary of KPP (which must
be a Restricted Subsidiary if one is involved in the merger or consolidation) is
the surviving Person, and (b) a KPP Company or Restricted Subsidiary may merge
or consolidate with another corporation, partnership, or limited liability
company (other than KSI or KPC) so long as (i) both before and immediately after
the merger or consolidation, no Default or Potential Default exists,
34
<PAGE>
(ii) following the merger or consolidation. the successor company is a
corporation, partnership, or limited liability company that is duly organized
and existing under the Laws of the United States of America or any of its
states, is Solvent, and maintains substantially all of its assets in the United
States of America, (iii) that successor (if not the KPP Company involved)
expressly assumes the due and punctual performance and observance of all the
obligations, terms, covenants, agreements, and conditions of the Loan Papers to
be performed or observed by that KPP Company confirms that the Obligation
constitutes a senior-secured obligation of that successor, all by a written
instrument in form and substance satisfactory to Agent and Determining Lenders
and furnished to Agent and Lenders, (iv) following the merger or consolidation,
an additional $1 of Funded Debt could be incurred under SECTION 9.4(C), and (v)
immediately before the merger or consolidation, Agent receives (A) a certificate
of Responsible Officer of KPP certifying that the merger or consolidation
complies with all requirements of this SECTION 9.11 and (B) an opinion of
outside counsel in form and substance satisfactory to Agent stating that the
merger or consolidation complies with the requirements of CLAUSES (II) (except
as to solvency) and (III) preceding.
9.12 Assignment. No KPP Company may assign or transfer any of its Rights,
----------
duties, or obligations under any of the Loan Papers except as a result of a
merger or consolidation permitted under SECTION 9.11, in which case the
assignment or transfer of the Rights, duties, and obligations of the non-
surviving KPP Company is permitted if the survivor assumes in writing all
Rights, duties, and obligations of the non-surviving KPP Company under the Loan
Papers.
9.13 Fiscal Year and Accounting Methods. No KPP Company or Restricted
----------------------------------
Subsidiary may change its fiscal year or its method of accounting (other than
immaterial changes in methods or as required by GAAP).
9.14 New Businesses. No KPP Company or Restricted Subsidiary may engage
--------------
in any business except the businesses in which they are presently engaged and
any other reasonably related business.
9.15 Government Regulations. No KPP Company or Restricted Subsidiary may
----------------------
conduct its business in a way that it becomes regulated under the Investment
Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935,
as amended, or any other Law (other than Regulations G, T, U, and X of the Board
of Governors of the Federal Reserve System) that regulates the incurrence of
Debt.
9.16 Separate Legal Entities. No event or circumstance materially
-----------------------
contrary to SECTION 7.4 may exist or occur.
SECTION 10 FINANCIAL COVENANTS. Until neither Agent, nor any Affiliate of
---------- -------------------
Agent, nor any Lender has any commitment to extend any credit under any Loan
Paper and the LC Exposure, and all other Obligation, is fully paid and performed
-- unless Borrower receives a prior written consent to the contrary by Agent on
behalf of Determining Lenders -- Borrower covenants and agrees as follows:
10.1 Current Ratio. The ratio of the current liabilities (excluding
-------------
current maturities of Funded Debt and Distributions permitted by this agreement
that have been declared but not yet paid) of the KPP Companies and their
Subsidiaries to their current assets may never exceed 1.00 to 1.00.
10.2 Tangible Net Worth. The Tangible Net Worth of the KPP Companies and
------------------
their Subsidiaries may never be less than the sum of (a) $70,000,000 plus (b) if
contributed to Borrower by KPP, 100% of the net cash proceeds (i.e., the gross
cash proceeds less usual and customary costs and expenses related to the
offering) received by KPP upon its issuance of partner interests of any kind.
10.3 Leverage Ratio. The ratio of the total Debt of the KPP Companies and
--------------
their Subsidiaries on the last day of any fiscal quarter to their EBITDA for the
four-consecutive quarters ending on that last day may never exceed 3.15 to 1.00.
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10.4 Fixed Charges Coverage Ratio. For any four-consecutive-quarterly
----------------------------
period, the ratio of the amount in CLAUSE (A) below to the amount in CLAUSE (B)
below may never be less than 1.25 to 1.00:
(a) The sum (without duplication) of EBITDA of the KPP Companies and
their Subsidiaries plus (to the extent actually deducted in calculating net
income feature of EBITDA) cash operating lease payments.
(b) The sum (without duplication) of the KPP Companies' and their
Subsidiaries' (i) cash interest payments on Debt (including the interest
portion of capitalized leases), plus (ii) cash operating lease payments,
plus (iii) scheduled cash payments of Funded Debt, plus (iv) cash payments
of capital expenditures.
SECTION 11 DEFAULT. The term "DEFAULT" means the occurrence of any one or more
---------- -------
of the following events:
11.1 Obligation. The failure or refusal of (a) Borrower to make any
----------
interest payment within five Business Days after it becomes due and payable
under the Loan Papers or (b) any KPP Company to pay any other part of the
Obligation after it becomes due and payable under the Loan Papers.
11.2 Covenants. The failure or refusal of Borrower (and, if applicable,
---------
any other KPP Company) to punctually and properly perform, observe, and comply
with any other covenant, agreement, or condition contained in any Loan Paper --
other than the covenants to pay the Obligation -- and that failure or refusal is
in respect of a covenant, agreement, or condition (a) in either SECTION 9 or
SECTION 10 and it continues for 30 days, or (b) elsewhere in any Loan Paper and
it continues for 30 days after the earlier of either (i) any KPP Company
receives notice of it or (ii) any Responsible Officer of any KPP Company
otherwise obtains knowledge of it.
11.3 Debtor Relief. Any KPC Company (a) is not Solvent, (b) fails to pay
-------------
its Debts generally as they become due, (c) voluntarily seeks, consents to, or
acquiesces in the benefit of any Debtor Relief Law, or (d) becomes a party to or
is made the subject of any proceeding provided for by any Debtor Relief Law,
other than as a creditor or claimant, that could suspend or otherwise adversely
affect the Rights of Agent or any Lender granted in the Loan Papers (unless, if
the proceeding is involuntary, the applicable petition is dismissed within 60
days after its filing).
11.4 Misrepresentation. Any material representation or warranty made by
-----------------
any party (other than Agent and Lenders) contained in any Loan Paper at any time
proves to have been materially incorrect when made.
11.5 Judgments and Attachments. Any KPP Company or Restricted Subsidiary
-------------------------
fails, within 60 days after entry, to pay, bond, or otherwise discharge any
judgment or order for the payment of money in excess of $5,000,000 (individually
or collectively) or any warrant of attachment, sequestration, or similar
proceeding against any KPP Company's or Restricted Subsidiary's assets having a
value (individually or collectively) of $5,000,000, which is neither (a) stayed
on appeal nor (b) diligently contested in good faith by appropriate proceedings
and adequate reserves have been set aside on its books in accordance with GAAP.
11.6 Note Agreements or Intercreditor Agreement. (a) A payment Event of
------------------------------------------
Default occurs under any Note Agreement, and the applicable grace period under
that Note Agreement has expired; (b) any other Event of Default occurs under any
Note Agreement that has not been cured or permanently waived before expiration
of the applicable grace period under that Note Agreement; or (c) the occurrence
and continuance of any Event of Default as defined in the Intercreditor
Agreement.
11.7 Default Under Other Agreements. (a) Any KPP Company or Restricted
------------------------------
Subsidiary fails to pay when due (after lapse of any applicable grace period)
any Debt in excess (individually or collectively) of $5,000,000; (b) any default
exists under any agreement to which a KPP Company or Restricted Subsidiary is a
36
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party, the effect of which is to cause, or to permit any Person (other than a
KPP Company or Restricted Subsidiary) to cause, an amount in excess
(individually or collectively) of $5,000,000 to become due and payable by any
KPP Company or Restricted Subsidiary before its stated maturity, and such
default is not cured or amount is not paid, as the case may be, within the
required time period under the applicable agreement; or (c) any Debt in excess
(individually or collectively) of $5,000,000 is declared to be due and payable
or required to be prepaid by any KPP Company or Restricted Subsidiary before its
stated maturity.
11.8 Validity and Enforceability of Loan Papers. Except in accordance
------------------------------------------
with its terms or as otherwise expressly permitted by this agreement, any Loan
Paper, at any time after its execution and delivery ceases to be in full force
and effect in any material respect or is declared to be null and void or its
validity or enforceability is contested by any party (other than Agent and
Lenders) to any Loan Paper, if party thereto, or any party (other than Agent and
Lenders) denies that it has any further liability or obligations under any Loan
Paper to which it is a party.
11.9 Change of Control. KPC fails to be the sole general partner of KPP
-----------------
and Borrower or KPP fails to be the sole limited partner of Borrower.
11.10 KPC Merger or Consolidation. Whether it is the survivor or not, KPC
---------------------------
is merged into or consolidated with KSI.
SECTION 12 RIGHTS AND REMEDIES.
---------- -------------------
12.1 Remedies Upon Default.
---------------------
(a) If a Default exists under SECTION 11.3, the commitment to extend
credit under this agreement automatically terminates and the entire unpaid
balance of the Obligation automatically becomes due and payable without any
action of any kind whatsoever.
(b) If any Default exists, subject to the terms of SECTION 13.5(B),
Agent may (with the consent of, and must, upon the request of, Determining
Lenders), do any one or more of the following: (i) if the maturity of the
Obligation has not already been accelerated under SECTION 12.1(A), declare
the entire unpaid balance of all or any part of the Obligation immediately
due and payable, whereupon it is due and payable; (ii) terminate the
commitments of Lenders to extend credit under this agreement; (iii) reduce
any claim to judgment; (iv) to the extent permitted by Law, exercise (or
request each Lender to, and each Lender is entitled to, exercise) the
Rights of offset or banker's Lien against the interest of any KPP Company
in and to every account and other property of any KPP Company that are in
the possession of Agent or any Lender to the extent of the full amount of
the Obligation (and to the extent permitted by Law, each KPP Company is
deemed directly obligated to each Lender in the full amount of the
Obligation for this purpose); and (v) exercise any and all other legal or
equitable Rights afforded by the Loan Papers, the Laws of the State of
Texas, or any other applicable jurisdiction.
(c) If, in reliance on SECTION 13.5(B), Agent refuses to take any
action under SECTION 12.1(B) at the request of Determining Lenders, then
Determining Lenders may take that action.
12.2 KPP Company Waivers. To the extent permitted by Law, each KPP
-------------------
Company waives presentment and demand for payment, protest, notice of intention
to accelerate, notice of acceleration, and notice of protest and nonpayment, and
agrees that its liability with respect to all or any part of the Obligation is
not affected by any renewal or extension in the time of payment of all or any
part of the Obligation, by any indulgence, or by any release or change in any
security for the payment of all or any part of the Obligation.
12.3 Performance by Agent. If any covenant, duty, or agreement of any KPP
--------------------
Company is not performed in accordance with the terms of the Loan Papers, Agent
may, while a Default exists, at its option (but
37
<PAGE>
subject to the approval of Determining Lenders), perform or attempt to perform
that covenant, duty, or agreement on behalf of that KPP Company (and any amount
expended by Agent in its performance or attempted performance is payable by the
KPP Companies, jointly and severally, to Agent on demand, becomes part of the
Obligation, and bears interest at the Default Rate from the date of Agent's
expenditure until paid). However, Agent does not assume and shall never have,
except by its express written consent, any liability or responsibility for the
performance of any covenant, duty, or agreement of any KPP Company. Agent shall
promptly notify Borrower of any action taken under this SECTION 12.3.
12.4 Not in Control. None of the covenants or other provisions contained
--------------
in any Loan Paper shall, or shall be deemed to, give Agent or Lenders the Right
to exercise control over the assets (including, without limitation, real
property), affairs, or management of any KPP Company; the power of Agent and
Lenders is limited to the Right to exercise the remedies provided in this
SECTION 12.
12.5 Course of Dealing. The acceptance by Agent or Lenders of any partial
-----------------
payment on the Obligation shall not be deemed to be a waiver of any Default then
existing. No waiver by Agent, Determining Lenders, or Lenders of any Default
shall be deemed to be a waiver of any other then-existing or subsequent Default.
No delay or omission by Agent, Determining Lenders, or Lenders in exercising any
Right under the Loan Papers will impair that Right or be construed as a waiver
thereof or any acquiescence therein, nor will any single or partial exercise of
any Right preclude other or further exercise thereof or the exercise of any
other Right under the Loan Papers or otherwise.
12.6 Cumulative Rights. All Rights available to Agent, Determining
-----------------
Lenders, and Lenders under the Loan Papers are cumulative of and in addition to
all other Rights granted to Agent, Determining Lenders, and Lenders at law or in
equity, whether or not the Obligation is due and payable and whether or not
Agent, Determining Lenders, or Lenders have instituted any suit for collection,
foreclosure, or other action in connection with the Loan Papers.
12.7 Application of Proceeds. Any and all proceeds ever received by Agent
-----------------------
or Lenders from the exercise of any Rights pertaining to the Obligation shall be
applied to the Obligation according to SECTION 3.
12.8 Diminution in Value of Collateral. Neither Agent nor any Lender has
---------------------------------
any liability or responsibility whatsoever for any diminution in or loss of
value of any collateral now or hereafter securing payment or performance of all
or any part of the Obligation (other than diminution in or loss of value caused
by its gross negligence or willful misconduct).
12.9 Certain Proceedings. Borrower will promptly execute and deliver, or
-------------------
cause the execution and delivery of, all applications, certificates,
instruments, registration statements, and all other documents and papers Agent
or Determining Lenders reasonably request in connection with the obtaining of
any consent, approval, registration, qualification, permit, license, or
authorization of any Tribunal or other Person necessary or appropriate for the
effective exercise of any Rights under the Loan Papers. Because Borrower agrees
that Agent's and Determining Lenders' remedies at Law for failure of Borrower to
comply with the provisions of this paragraph would be inadequate and that that
failure would not be adequately compensable in damages, Borrower agrees that the
covenants of this paragraph may be specifically enforced.
SECTION 13 AGREEMENT AMONG LENDERS.
---------- -----------------------
13.1 Agent.
-----
(a) Each Lender appoints Agent (and Agent accepts appointment) as its
nominee and agent, in its name and on its behalf to: (i) act as its
nominee and on its behalf in and under all Loan Papers; (ii) take any
action that it properly requests under the Loan Papers (subject to the
concurrence of other
38
<PAGE>
Lenders as may be required under the Loan Papers); (iii) receive all
documents and items to be furnished to it under the Loan Papers; (iv) be
the secured party, mortgagee, beneficiary, recipient, and similar party in
respect of any collateral for the benefit of Lenders; (v) distribute to it
all material information, requests, documents, and items required to be
delivered to it under the Loan Papers after any KPP Company delivers the
same to Agent; and (vi) deliver to the appropriate Persons requests,
demands, approvals, and consents received from it. However, Agent may not
be required to take any action that exposes it to personal liability or
that is contrary to any Loan Paper or applicable Law.
(b) Each Lender appoints Agent (and Agent accepts appointment) as its
nominee and agent, in its name and on its behalf to: (i) arrange the means
whereby its funds are to be made available to Borrower under the Loan
Papers; and (ii) promptly distribute to it its ratable part of each payment
or prepayment (whether voluntary, as proceeds of collateral upon or after
foreclosure, as proceeds of insurance thereon, or otherwise) in accordance
with the terms of the Loan Papers. However, Agent may not be required to
take any action that exposes it to personal liability or that is contrary
to any Loan Paper or applicable Law.
(c) If the initial or any successor Agent ever ceases to be a party
to this agreement or if the initial or any successor Agent ever resigns
(whether voluntarily or at the request of Determining Lenders), then
Determining Lenders shall appoint the successor Agent from among the
Lenders (other than the resigning Agent). If Determining Lenders fail to
appoint a successor Agent within 30 days after the resigning Agent has
given notice of resignation or Determining Lenders have removed the
resigning Agent, then the resigning Agent may, on behalf of Lenders,
appoint a successor Agent, which must be a commercial bank having a
combined capital and surplus of at least $1,000,000,000 (as shown on its
most recently published statement of condition). Upon its acceptance of
appointment as successor Agent, the successor Agent succeeds to and becomes
vested with all of the Rights of the prior Agent, and the prior Agent is
discharged from its duties and obligations of Agent under the Loan Papers,
and each Lender shall execute the documents as any Lender, the resigning or
removed Agent, or the successor Agent reasonably request to reflect the
change. After Agent's resignation or removal as Agent under the Loan
Papers, the provisions of this SECTION 13 inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under the
Loan Papers.
(d) Agent, in its capacity as a Lender, has the same Rights under the
Loan Papers as any other Lender and may exercise those Rights as if it were
not acting as Agent; the term "Lender" shall, unless the context otherwise
indicates, include Agent; and Agent's resignation or removal shall not
impair or otherwise affect any Rights that it has or may have in its
capacity as an individual Lender. Each Lender and Borrower agree that
Agent is not a fiduciary for Lenders or for Borrower or any other party to
a Loan Paper but simply is acting in the capacity described in this
agreement to alleviate administrative burdens for Borrower, Lenders, and
other parties to the Loan Papers, that Agent has no duties or
responsibilities to Lenders or Borrower or other parties to the Loan Papers
except those expressly set forth in the Loan Papers, and that Agent in its
capacity as a Lender has all Rights of any other Lender.
(e) Each KPP Company and Lender acknowledges and agrees that (i)
Agent is acting as agent for Lenders under the Loan Papers, is (directly or
through its Affiliates) the issuer of LCs under this agreement, is a Lender
under the Loan Papers, acted as the private-placement adviser to Borrower
and STI in respect of the transactions contemplated in the Note Agreements,
is acting as the Collateral Trustee, and is the lender to KPC under the KPC
Credit Agreement, and (ii) none of those roles constitutes a conflict of
interest for Agent. Furthermore, Agent may now or hereafter be engaged in
one or more loan, letter of credit, leasing, or other financing
transactions with a KPC Company, act as trustee or depositary for any KPC
Company, or otherwise be engaged in other transactions with any KPC Company
(collectively, the "OTHER ACTIVITIES") not the subject of the Loan Papers.
Without limiting the Rights of Lenders specifically set forth in the Loan
Papers, Agent is not responsible to account to Lenders for those other
39
<PAGE>
activities, and no Lender shall have any interest in any other activities,
any present or future guaranties by or for the account of any KPC Company
that are not contemplated or included in the Loan Papers, any present or
future offset exercised by Agent in respect of those other activities, any
present or future property taken as security for any of those other
activities, or any property now or hereafter in Agent's possession or
control that may be or become security for the obligations of any KPC
Company arising under the Loan Papers by reason of the general description
of indebtedness secured or of property contained in any other agreements,
documents, or instruments related to any of those other activities (but, if
any payments in respect of those guaranties or that property or the
proceeds thereof is applied by Agent to reduce the Obligation, then each
Lender is entitled to share ratably in the application as provided in the
Loan Papers).
13.2 Expenses. Each Lender shall pay its Default Percentage of any
--------
reasonable expenses (including, without limitation, court costs, reasonable
attorneys' fees and other costs of collection) incurred by Agent (while acting
in such capacity) in connection with any of the Loan Papers if Agent is not
reimbursed from other sources within 30 days after incurrence. Each Lender is
entitled to receive its Default Percentage of any reimbursement that it makes to
Agent if Agent is subsequently reimbursed from other sources.
13.3 Proportionate Absorption of Losses. Except as otherwise provided in
----------------------------------
the Loan Papers, nothing in the Loan Papers gives any Lender any advantage over
any other Lender insofar as the Obligation is concerned or to relieve any Lender
from ratably absorbing any losses sustained with respect to the Obligation
(except to the extent unilateral actions or inactions by any Lender result in
any KPP Company or any other obligor on the Obligation having any credit,
allowance, setoff, defense, or counterclaim solely with respect to all or any
part of that Lender's Default Percentage of the Obligation).
13.4 Delegation of Duties; Reliance. Subject to the Rights (including,
------------------------------
without limitation, any required consent) of Agent or any or all Lenders
described elsewhere in this agreement, a Lender may perform its duties and
exercise its Rights under the Loan Papers by or through Agent, and Lenders and
Agent may perform their duties and exercise their Rights under the Loan Papers
by or through their respective Representatives (but a Lender's Representatives
must work by or through Agent or their respective Representatives). Agent,
Lenders, and their respective Representatives (a) are entitled to rely upon (and
shall be protected in relying upon) any written or oral statement believed by it
or them to be genuine and correct and to have been signed or made by the proper
Person and, with respect to legal matters, upon opinion of counsel selected by
Agent or that Lender (but nothing in this CLAUSE (A) permits Agent to rely on
(i) oral statements if a writing is required by this agreement or (ii) any other
writing if a specific writing is required by this agreement), (b) are entitled
to deem and treat each Lender as the owner and holder of its Default Percentage
of the Principal Debt for all purposes until, subject to SECTION 14.11, written
notice of the assignment or transfer is given to and received by Agent (and any
request, authorization, consent, or approval of any Lender is conclusive and
binding on each subsequent holder, assignee, or transferee of or Participant in
that Lender's Default Percentage of the Principal Debt until that notice is
given and received), (c) are not deemed to have notice of the occurrence of a
Default unless a responsible officer of Agent, who handles matters associated
with the Loan Papers and transactions thereunder, has actual knowledge or Agent
has been notified by a Lender or Borrower, and (d) are entitled to consult with
legal counsel (including counsel for any KPP Company), independent accountants,
and other experts selected by Agent and are not liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of
counsel, accountants, or experts.
13.5 Limitation of Agent's Liability.
-------------------------------
(a) Neither Agent nor any of its respective Representatives will be
liable for any action taken or omitted to be taken by it under the Loan
Papers in good faith and believed by it to be within the discretion or
power conferred upon it or them by the Loan Papers or be responsible for
the consequences of any error of judgment (except for fraud, gross
negligence, or willful misconduct), and neither Agent nor any of its
respective Representatives has a fiduciary relationship with any Lender by
virtue of the Loan Papers (but
40
<PAGE>
nothing in this agreement negates the obligation of Agent to account for
funds received by it for the account of any Lender).
(b) Unless indemnified to its satisfaction against loss, cost,
liability, and expense, Agent may not be compelled to do any act under the
Loan Papers or to take any action toward the execution or enforcement of
the powers thereby created or to prosecute or defend any suit in respect of
the Loan Papers. If Agent requests instructions from Lenders, or
Determining Lenders, as the case may be, with respect to any act or action
in connection with any Loan Paper, Agent is entitled to refrain (without
incurring any liability to any Person by so refraining) from that act or
action unless and until it has received instructions. In no event,
however, may Agent or any of its Representatives be required to take any
action that it or they determine could incur for it or them criminal or
onerous civil liability. Without limiting the generality of the foregoing,
no Lender has any right of action against Agent as a result of Agent's
acting or refraining from acting under this agreement in accordance with
instructions of Determining Lenders.
(c) Agent is not responsible to any Lender or any Participant for,
and each Lender represents and warrants that it has not relied upon Agent
in respect of, (i) the creditworthiness of any party to any Loan Paper and
the risks involved to that Lender, (ii) the effectiveness, enforceability,
genuineness, validity, or the due execution of any Loan Paper (other than
by Agent), (iii) any representation, warranty, document, certificate,
report, or statement made therein (other than by Agent) or furnished
thereunder or in connection therewith, (iv) the adequacy of any collateral
now or hereafter securing the Obligation or the existence, priority, or
perfection of any Lien now or hereafter granted or purported to be granted
on the collateral under any Loan Paper, or (v) observation of or compliance
with any of the terms, covenants, or conditions of any Loan Paper on the
part of any KPP Company. Each Lender agrees to indemnify Agent and its
respective Representatives and hold them harmless from and against (but
limited to such Lender's Default Percentage of) any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
reasonable expenses, and reasonable disbursements of any kind or nature
whatsoever that may be imposed on, asserted against, or incurred by them in
any way relating to or arising out of the Loan Papers or any action taken
or omitted by them under the Loan Papers if the applicable Person is not
reimbursed for such amounts by any KPP Company. Although Agent and its
respective Representatives have the right to be indemnified under this
agreement for its or their own ordinary negligence, none of those Persons
have the right to be indemnified under this agreement for its or their own
fraud, gross negligence, or willful misconduct.
13.6 Default; Collateral. If a Default exists, Lenders agree to promptly
-------------------
confer in order that Determining Lenders or Lenders, as the case may be, may
agree upon a course of action for the enforcement of the Rights of Lenders; and
Agent is entitled to refrain from taking any action (without incurring any
liability to any Person for so refraining) unless and until it has received
instructions from Determining Lenders. In actions with respect to any property
of any KPP Company, Agent is acting for the ratable benefit of each Lender.
Agent shall hold, for the ratable benefit of all Lenders, any security it
receives for the Obligation or any guaranty of the Obligation it receives upon
or in lieu of foreclosure.
13.7 Limitation of Liability. No Lender or any Participant will incur any
-----------------------
liability to any other Lender or Participant except for acts or omissions in bad
faith, and neither Agent, Lender nor any Participant will incur any liability to
any other Person for any act or omission of Agent, any Lender, or any
Participant.
13.8 Relationship of Lenders. The Loan Papers do not create a partnership
-----------------------
or joint venture among Agent and Lenders or among Lenders.
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13.9 Collateral Matters.
------------------
(a) Each Lender authorizes and directs Agent to enter into the
Security Documents for the ratable benefit of Lenders. Each Lender agrees
that any action taken by Agent concerning any Collateral with the consent
of, or at the request of, all Lenders in accordance with the provisions of
this agreement, the Security Documents, or the other Loan Papers, and the
exercise by Agent (with the consent of, or at the request of, all Lenders)
of powers concerning any Collateral set forth in any Loan Paper, together
with other reasonably incidental powers, shall be authorized and binding
upon all Lenders.
(b) Agent is authorized on behalf of all Lenders, without the
necessity of any notice to or further consent from any Lender, from time to
time before a Default or Potential Default, to take any action with respect
to any Collateral or Security Documents that may be necessary to perfect
and maintain perfected the Lender Liens upon the Collateral granted by the
Security Documents.
(c) Agent has no obligation whatsoever to any Lender or to any other
Person to assure that the Collateral exists or is owned by any KPP Company
or is cared for, protected, or insured or has been encumbered or that the
Liens granted to Agent for the benefit of Lenders under the Security
Documents have been properly or sufficiently or lawfully created,
perfected, protected, or enforced, or are entitled to any particular
priority.
(d) Agent shall exercise the same care and prudent judgment with
respect to the Collateral and the Security Documents as it normally and
customarily exercises in respect of similar collateral and security
documents.
(e) Lenders irrevocably authorize Agent, at its option and in its
discretion, to release any Lender Lien upon any Collateral (i) upon full
payment of the Obligation; (ii) constituting property being sold or
disposed of as permitted under SECTION 9.10, if Agent determines that the
property being sold or disposed is being sold or disposed in accordance
with the requirements and limitations of SECTION 9.10; (iii) constituting
property in which no KPP Company owned any interest at the time the Lender
Lien was granted or at any time thereafter; (iv) constituting property
leased to any KPP Company under a lease that has expired or been terminated
in a transaction permitted under this agreement or is about to expire and
that has not been, and is not intended by that KPP Company to be, renewed;
or (v) consisting of an instrument evidencing Debt pledged to Agent (for
the benefit of Lenders), if the Debt evidenced thereby has been paid in
full. Upon request by Agent at any time, Lenders will confirm in writing
Agent's authority to release particular types or items of Collateral under
this SECTION 13.9(E).
13.10 Benefits of Agreement. None of the provisions of this SECTION 13
---------------------
inure to the benefit of any KPP Company or any other Person other than Agent and
Lenders; consequently, no KPP Company or any other Person is entitled to rely
upon, or to raise as a defense, in any manner whatsoever, the failure of Agent
or any Lender to comply with these provisions.
SECTION 14 MISCELLANEOUS.
---------- -------------
14.1 Nonbusiness Days. Any payment or action that is due under any Loan
----------------
Paper on a non-Business Day may be delayed until the next-succeeding Business
Day (but interest shall continue to accrue on any applicable payment until
payment is in fact made) unless the payment concerns a LIBOR Rate Borrowing, in
which case if the next-succeeding Business Day is in the next calendar month,
then such payment shall be made on the next-preceding Business Day.
14.2 Communications. Unless otherwise stated, when a Loan Paper requires
--------------
or permits any consent, approval, notice, request, or demand from one party to
another, it must be written and is deemed given:
42
<PAGE>
. if by telecopy, when transmitted to the appropriate telecopy number
(but, without affecting the date deemed given, a telecopy communication
must be promptly confirmed by telephone);
. if by mail, on the third Business Day after enclosed in a properly
addressed, stamped, and sealed envelope deposited in the appropriate
official postal service; and
. if by other means, when actually delivered.
Until changed by notice, the address and telecopy number are stated for (a)
Borrower and Agent, beside their names on the signature pages below, and (b)
each Lender, beside its name on SCHEDULE 2.1.
14.3 Form and Number of Documents. The form, substance, and number of
----------------------------
counterparts of each writing to be furnished under this agreement must be
satisfactory to Agent and its counsel.
14.4 Exceptions to Covenants. No party to a Loan Paper may take or fail
-----------------------
to take any action that is permitted as an exception to any of the covenants
contained in any Loan Paper if that action or omission would result in the
breach of any other covenant contained in any Loan Paper.
14.5 Survival. All covenants, agreements, undertakings, representations,
--------
and warranties made in any of the Loan Papers survive all closings under the
Loan Papers and, except as otherwise indicated, are not affected by any
investigation made by any party.
14.6 Governing Law. The Laws (other than conflict-of-laws provisions) of
-------------
the State of Texas and of the United States of America govern the Rights and
duties of the parties to the Loan Papers and the validity, construction,
enforcement, and interpretation of the Loan Papers.
14.7 Invalid Provisions. Any provision in any Loan Paper held to be
------------------
illegal, invalid, or unenforceable is fully severable; the appropriate Loan
Paper shall be construed and enforced as if that provision had never been
included; and the remaining provisions shall remain in full force and effect and
shall not be affected by the severed provision. Agent, Lenders, Borrower, and
each other party to the affected Loan Paper shall negotiate, in good faith, the
terms of a replacement provision as similar to the severed provision as may be
possible and be legal, valid, and enforceable.
14.8 Venue; Service of Process; Jury Trial. EACH PARTY TO ANY LOAN PAPER,
-------------------------------------
IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND PERMITTED ASSIGNS, (A) IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE
STATE OF TEXAS, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
LITIGATION ARISING OUT OF OR IN CONNECTION WITH THE LOAN PAPERS AND THE
OBLIGATION BROUGHT IN DISTRICT COURTS OF DALLAS COUNTY, TEXAS, OR IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, (C)
IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY OF THE
AFOREMENTIONED COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THOSE COURTS IN ANY LITIGATION
BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
POSTAGE PREPAID, BY HAND-DELIVERY, OR BY DELIVERY BY A NATIONALLY RECOGNIZED
COURIER SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL
PROCESS AT ITS ADDRESS SET FORTH IN THIS AGREEMENT, (E) IRREVOCABLY AGREES THAT
ANY LEGAL PROCEEDING AGAINST ANY PARTY TO ANY LOAN PAPER ARISING OUT OF OR IN
CONNECTION WITH THE LOAN PAPERS OR THE OBLIGATION MAY BE BROUGHT IN ONE OF THE
AFOREMENTIONED COURTS, AND (F) IRREVOCABLY WAIVES TO THE FULLEST EXTENT
PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY LOAN PAPER. The scope of each of the
foregoing waivers is intended to be all-encompassing of any and all disputes
that may be filed in any court and that relate to the subject matter of
43
<PAGE>
this transaction, including, without limitation, contract claims, tort claims,
breach of duty claims, and all other common law and statutory claims. Borrower
acknowledges that these waivers are a material inducement to Agent's and each
Lender's agreement to enter into a business relationship, that Agent and each
Lender has already relied on these waivers in entering into this agreement, and
that Agent and each Lender will continue to rely on each of these waivers in
related future dealings. Borrower further warrants and represents that it has
reviewed these waivers with its legal counsel, and that it knowingly and
voluntarily agrees to each waiver following consultation with legal counsel.
THE WAIVERS IN THIS SECTION 14.8 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THESE WAIVERS SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND REPLACEMENTS TO OR OF THIS OR ANY OTHER
LOAN PAPER. In the event of Litigation, this agreement may be filed as a
written consent to a trial by the court.
14.9 Amendments, Consents, Conflicts, and Waivers.
--------------------------------------------
(a) Unless otherwise specifically provided, (i) this agreement may be
amended only by an instrument in writing executed by Borrower, Agent, and
Determining Lenders and supplemented only by documents delivered or to be
delivered in accordance with the express terms of this agreement, and (ii)
the other Loan Papers may only be the subject of an amendment,
modification, or waiver that has been approved by Determining Lenders and
the Person(s) party to those other Loan Papers.
(b) Any amendment to or consent or waiver under this agreement or any
Loan Paper that purports to accomplish any of the following must be by an
instrument in writing executed by each party thereto (and, if not a party
thereto, Agent) and executed (or approved, as the case may be) by each
Lender: (i) extends the due date or decreases the amount of any scheduled
payment of the Obligation beyond the date specified in the Loan Papers;
(ii) decreases any rate or amount of interest, fees, or other sums payable
to Agent or Lenders under this agreement (except such reductions as are
contemplated by this agreement); (iii) changes the definition of
"COMMITMENT," "COMMITMENT PERCENTAGE," "DETERMINING LENDERS" or "STATED
TERMINATION DATE"; (iv) increases any one or more Lenders' Commitments; (v)
waives compliance with, amends, or releases (in whole or in part) any
Guaranty or any Collateral; or (vi) changes this CLAUSE (B) or any other
matter specifically requiring the consent of all Lenders under this
agreement.
(c) Any conflict or ambiguity between the terms and provisions of
this agreement and terms and provisions in any other Loan Paper is
controlled by the terms and provisions of this agreement.
(d) No course of dealing or any failure or delay by Agent, any
Lender, or any of their respective Representatives with respect to
exercising any Right of Agent or any Lender under this agreement operates
as a waiver thereof. A waiver must be in writing and signed by Agent and
Lenders (or Determining Lenders, if permitted under this agreement) to be
effective, and a waiver will be effective only in the specific instance and
for the specific purpose for which it is given.
14.10 Multiple Counterparts. Any Loan Paper may be executed in a number
---------------------
of identical counterparts, each of which shall be deemed an original for all
purposes and all of which constitute, collectively, one agreement; but, in
making proof of this agreement, it shall not be necessary to produce or account
for more than one counterpart. Each Lender need not execute the same
counterpart of this agreement so long as identical counterparts are executed by
Borrower, each Lender, and Agent. This agreement shall become effective when
counterparts of this agreement have been executed and delivered to Agent by each
Lender, Agent, and Borrower, or, in the case only of Lenders, when Agent has
received telecopied, telexed, or other evidence satisfactory to it that each
Lender has executed and is delivering to Agent a counterpart of this agreement.
44
<PAGE>
14.11 Successors and Assigns; Participations.
--------------------------------------
(a) Each Loan Paper binds and inures to the benefit of the parties
thereto, any intended beneficiary thereof, and each of their respective
successors and permitted assigns. No Lender may transfer, pledge, assign,
sell any participation in, or otherwise encumber its portion of the
Obligation except as permitted by this SECTION 14.11.
(b) Subject to the provisions of this section and in accordance with
applicable Law, any Lender may, in the ordinary course of its commercial
banking business, at any time sell to one or more Persons (each a
"PARTICIPANT") participating interests in its portion of the Obligation.
The selling Lender shall remain a "Lender" under this agreement (and the
Participant shall not constitute a "Lender" under this agreement) and its
obligations under this agreement shall remain unchanged. The selling
Lender shall remain solely responsible for the performance of its
obligations under the Loan Papers and shall remain the holder of its share
of the Commitment Usage for all purposes under this agreement. Each party
to any Loan Paper and Agent shall continue to deal solely and directly with
the selling Lender in connection with that Lender's Rights and obligations
under the Loan Papers. Participants have no Rights under the Loan Papers,
other than those of a Lender under SECTIONS 3, 8.1, 8.4, and 8.13, and
certain voting Rights as provided below. Subject to the following, each
Lender may obtain (on behalf of its Participants) the benefits of SECTION 3
with respect to all participations in its part of the Obligation
outstanding from time to time so long as Borrower is not obligated to pay
any amount in excess of the amount that would be due to that Lender under
SECTION 3 calculated as though no participations have been made. No Lender
may sell any participating interest under which the Participant has any
Rights to approve any amendment, modification, or waiver of any Loan Paper,
except to the extent the amendment, modification, or waiver extends the due
date for payment of any principal, interest, or fees due under the Loan
Papers, reduces the interest rate or the amount of principal or fees
applicable to the Obligation (except reductions contemplated by this
agreement), or releases any Guaranty or any collateral, if any, for the
Obligation (other than releases of collateral permitted by SECTION
13.9(E)). Except in the case of the sale of a participating interest to
another Lender, the relevant participation agreement shall prohibit the
Participant from transferring, pledging, assigning, selling participations
in, or otherwise encumbering its portion of the Obligation.
(c) Subject to the provisions of this section, any Lender may at any
time, in the ordinary course of its commercial banking business, assign a
proportionate part (not less than $5,000,000) of all or any part of its
Rights and obligations under the Loan Papers (i) without the consent of any
Person (including, without limitation, any KPP Company or Agent) to any of
its Affiliates, and (ii) if no Default exists and if Borrower and Agent
first consent (which consent may not be unreasonably withheld), to any of
the following, if the potential assignee does not own any equity interests
or Rights (excluding Rights under the Security Documents) to acquire any
equity interests in any KSI Company: (A) a commercial bank that is
organized under Laws of the United States of America or any of its states
and has total assets in excess of $1,000,000,000; (B) a commercial bank
that is organized under the Laws of another country that is a member of the
Organization for Economic Cooperation and Development (the "OECD") -- or a
political subdivision of any such country, has total assets in excess of
$1,000,000,000, and is acting either through its main office or a branch or
an agency that has total assets in excess of $1,000,000,000 and is located
in the country of its organization or another country that is also a member
of the OECD; (C) the central bank of any country that is a member of the
OECD; or (D) a finance company, insurance company, or other financial
institution or fund that has total assets in excess of $1,000,000,000.
Each such permitted assignee is called a "PURCHASER."
(d) In each case, the Purchaser shall assume those Rights and
obligations under an assignment agreement substantially in the form of the
attached EXHIBIT F. Each assignment under this SECTION 14.11(C) shall
include a ratable interest in the assigning Lender's Rights and obligations
under the Loan Papers.
45
<PAGE>
Upon (i) delivery of an executed copy of the assignment agreement to
Borrower and Agent and (ii) payment of a fee of $1,500 from the transferor
to Agent, from and after the assignment's effective date (which shall be
after the date of delivery), the Purchaser shall for all purposes be a
Lender party to this agreement and shall have all the Rights and
obligations of a Lender under this agreement to the same extent as if it
were an original party to this agreement with Commitments as set forth in
the assignment agreement, and the transferor Lender shall be released from
its obligations under this agreement to a corresponding extent, and, except
as provided in the following sentence, no further consent or action by
Borrower, Lenders, or Agent shall be required. Upon the consummation of
any transfer to a Purchaser under this CLAUSE (C), then (x) the then-
existing SCHEDULE 2.1 shall automatically be deemed to reflect the name,
address, and Commitment of such Purchaser, (y) Borrower shall execute and
deliver to each of the transferor Lender and the Purchaser a Note in the
face amount of its respective Commitment following transfer, and (z) upon
receipt of its new Note, the transferor Lender shall return to Borrower the
Note previously delivered to it under this agreement. A Purchaser is
subject to all the provisions in this section as if it were a Lender
signatory to this agreement as of the date of this agreement.
(e) Any Lender may at any time, without the consent of any Person
(including, without limitation, any KPP Company or Agent), assign all or
any part of its Rights under the Loan Papers to a Federal Reserve Bank
without releasing the transferor Lender from its obligations thereunder.
(f) Notwithstanding any contrary provision in this agreement, a
Lender may not sell or participate any of its interests for a purchase
price that, directly or indirectly, reflects a discount from face value,
without first offering the sale or participation to the other Lenders on a
Default Percentage basis (which must be accepted or rejected within five
Business Days after the offer).
14.12 Discharge Only Upon Payment in Full; Reinstatement in Certain
-------------------------------------------------------------
Circumstances. Each Person's obligations under the Loan Papers remain in full
-------------
force and effect until the total Commitments are terminated and the Obligation
is paid in full (except for provisions under the Loan Papers expressly intended
to survive payment of the Obligation and termination of the Loan Papers). If at
any time any payment of the principal of or interest on any Note or any other
amount payable by any KPP Company or any other obligor on the Obligation under
any Loan Paper is rescinded or must be restored or returned upon the insolvency,
bankruptcy, or reorganization of any Person or otherwise, the obligations of
each Person under the Loan Papers with respect to that payment shall be
reinstated as though the payment had been due but not made at that time.
14.13 Entirety. THE LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN
--------
BORROWER, LENDERS, AND AGENT AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
46
<PAGE>
EXECUTED as of the day and year first mentioned.
2400 Lakeside Boulevard, Suite 600 KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.,
Richardson, Texas 75082 as Borrower
Attn: Edward D. Doherty,
Chairman By: KANEB PIPE LINE COMPANY,
Telecopy: 214/699-4025 General Partner
By /s/ Edward D. Doherty
------------------------------
Edward D. Doherty, Chairman
2200 Ross Avenue TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
Dallas, Texas 75266-0197 as Agent and a Lender
Attn: John A. Fields, Jr.,
Assistant Vice President
Telecopy: 214/922-2807 By /s/ W. Paschall Tosch
----------------------------------------
W. Paschall Tosch, Senior Vice President
BANK OF MONTREAL, as a Lender
By /s/ Michael D. Pincus
----------------------------------------
Michael D. Pincus, Director,
U.S. Corporate Banking
47
<PAGE>
KANEB SERVICES, INC.
LIST OF SUBSIDIARIES
--------------------
EXHIBIT 21
CORPORATE INSURERS LIMITED
DM DRILLING, INC.
Diamond K Limited
Diamond M Exploration Company
EAGLE CREEK RESOURCES, INC.
FURMANITE GERMANY, INC.
Management Services Furmanite Holding GmbH
Furmanite GmbH (formerly Zweipack GmbH)
KANEB ENERGY COMPANY
KANEB EXPLORATION, INC.
KANEB INFORMATION SERVICES, INC.
Fields Financial Services, Inc.
Viata Corporation
Validata Corporation
KANEB INTERNATIONAL INC.
Furmanite America Inc.
Kaneb Energy Canada Ltd.
Furmanite Canada
Kaneb Offshore Services Inc.
Metalock NV
Furmanite SA
Furmanite NV
Furmeta Holding BV
Furmanite BV
Metaholding BV
Metalock BV
Furmanite East Asia Ltd
Furmanite AS
Furmanite plc (formerly Kaneb UK plc)
Furmanite 1986 LTD (formerly Furmanite plc)
Furmanite International LTD
ASSOCIATED COMPANIES
Furmanite Mexico SA (with Furmanite America)
Fuji Furmanite Company Limited
Barrier Offshore Maintenance Services, LTD
Furmanite Gulf
Furmanite UAE LTD
KANEB INVESTMENT CORP.
KANEB PIPE LINE COMPANY
Kaneb Pipe Line Partners, L.P. (Partial)
Kaneb Pipe Line Operating Partnership, L.P.
Support Terminals Operating Partnership, L.P.
Support Terminal Services, Inc.
StansTrans, Inc.
Exhibit 21
<PAGE>
KANEB TECHNOLOGIES, INC.
Kaneb Metering Corporation
NDE Environmental Corporation (Partial)
MORAN BROS., INC.
MORAN ENERGY INTERNATIONAL N.V.
PETROLEUM OPERATIONS AND SUPPORT SERVICES, INCORPORATED
SUSSEX INTERNATIONAL LIMITED
TEXAS ENERGY SERVICES, INC.
Exhibit 21
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-35624) and
Registration Statements of Forms S-8 (No. 2-90929), (No. 33-41181), (No. 33-
41295) and (No. 33-54027) of Kaneb Services, Inc. of our report dated March 22,
1995 appearing on page F-1 of this Form 10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
March 31, 1995
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
his true and lawful attorney and agent to execute and sign for and on behalf of
the undersigned the name of the undersigned as a director of Kaneb to the Form
10-K Annual Report of Kaneb for the fiscal year ended December 31, 1994 or to
any amendment thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or amendment; and the undersigned does hereby ratify and confirm as his own
act and deed all that said attorney and agent shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 21st
day of March, 1995.
JOHN R. BARNES
--------------------
(John R. Barnes)
In Presence of:
Mary K. Mitchum
--------------------
(Mary K. Mitchum)
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
his true and lawful attorney and agent to execute and sign for and on behalf of
the undersigned the name of the undersigned as a director of Kaneb to the Form
10-K Annual Report of Kaneb for the fiscal year ended December 31, 1994 or to
any amendment thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or amendment; and the undersigned does hereby ratify and confirm as his own
act and deed all that said attorney and agent shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 21st
day of March, 1995.
SANGWOO AHN
-----------------
(Sangwoo Ahn)
In Presence of:
Mary K. Mitchum
--------------------
(Mary K. Mitchum)
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
his true and lawful attorney and agent to execute and sign for and on behalf of
the undersigned the name of the undersigned as a director of Kaneb to the Form
10-K Annual Report of Kaneb for the fiscal year ended December 31, 1994 or to
any amendment thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or amendment; and the undersigned does hereby ratify and confirm as his own
act and deed all that said attorney and agent shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 21st
day of March, 1995.
C.E. BENTLEY
------------------
(C.E. Bentley)
In Presence of:
Mary K. Mitchum
--------------------
(Mary K. Mitchum)
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
his true and lawful attorney and agent to execute and sign for and on behalf of
the undersigned the name of the undersigned as a director of Kaneb to the Form
10-K Annual Report of Kaneb for the fiscal year ended December 31, 1994 or to
any amendment thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or amendment; and the undersigned does hereby ratify and confirm as his own
act and deed all that said attorney and agent shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 21st
day of March, 1995.
PRESTON A. PEAK
---------------------
(Preston A. Peak)
In Presence of:
Mary K. Mitchum
--------------------
(Mary K. Mitchum)
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
his true and lawful attorney and agent to execute and sign for and on behalf of
the undersigned the name of the undersigned as a director of Kaneb to the Form
10-K Annual Report of Kaneb for the fiscal year ended December 31, 1994 or to
any amendment thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or amendment; and the undersigned does hereby ratify and confirm as his own
act and deed all that said attorney and agent shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 21st
day of March, 1995.
RALPH A. REHM
-------------------
(Ralph A. Rehm)
In Presence of:
Mary K. Mitchum
--------------------
(Mary K. Mitchum)
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer of Kaneb
Services, Inc., a Delaware corporation ("Kaneb"), does hereby constitute and
appoint Howard C. Wadsworth or Tony M. Regan with full power of substitution,
his true and lawful attorney and agent to execute and sign for and on behalf of
the undersigned the name of the undersigned as a director of Kaneb to the Form
10-K Annual Report of Kaneb for the fiscal year ended December 31, 1994 or to
any amendment thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 and to any instrument or
document filed as a part of, as an exhibit to or in connection with said Form
10-K or amendment; and the undersigned does hereby ratify and confirm as his own
act and deed all that said attorney and agent shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 22nd
day of March, 1995.
JAMES R. WHATLEY
----------------------
(James R. Whatley)
In Presence of:
Nathlye H. Chastain
------------------------
(Nathlye H. Chastain)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 9,506
<SECURITIES> 0
<RECEIVABLES> 26,705
<ALLOWANCES> 854
<INVENTORY> 6,110
<CURRENT-ASSETS> 47,984
<PP&E> 255,032
<DEPRECIATION> 91,490
<TOTAL-ASSETS> 284,213
<CURRENT-LIABILITIES> 90,781
<BONDS> 103,376
<COMMON> 4,224
0
14,085
<OTHER-SE> 22,964
<TOTAL-LIABILITY-AND-EQUITY> 284,213
<SALES> 0
<TOTAL-REVENUES> 208,722
<CGS> 0
<TOTAL-COSTS> 176,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 249
<INTEREST-EXPENSE> 13,752
<INCOME-PRETAX> 16,561
<INCOME-TAX> 1,959
<INCOME-CONTINUING> 2,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2035
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
