United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1997 Commission file number 1-5558
Katy Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1277589
(State of Incorporation) (IRS Employer Identification Number)
6300 S. Syracuse #300, Englewood, Colorado 80111
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (303) 290-9300
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
Common Stock, $1.00 par value New York Stock Exchange
Common Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of March 25, 1998, was $82,752,046. On that date 8,280,169
shares of Common Stock, $1.00 par value, were outstanding, the only class of
the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the definitive Proxy Statement of Katy Industries, Inc. (The
"1998 Proxy Statement") with respect to the 1998 annual meeting of shareholders
are incorporated by reference into Part III of this Form 10-K.
Exhibit index appears on page 48. Report consists of 49 pages.
PART I
------
Item 1. Business
- -----------------
Katy Industries, Inc. ("Katy" or the "Company") was organized as a
Delaware corporation in 1967. In accordance with its recently announced plan
of divestiture and reorganization (the "Plan"), Katy carries on business
through two principal operating groups: Electrical/Electronic and Maintenance
Products. Under the Plan, Katy intends to dispose of its entire previously
reported Machinery Manufacturing Group and, accordingly that group has been
reported as "Discontinued operations" in the Statements of Consolidated
Operations. The other businesses to be disposed of under the Plan comprise
only a portion of Katy's previously reported Distribution and Service Group and
one of Katy's equity investments. The operations of these businesses have
been reported as "Equity in income of other operations to be disposed of" in
the 1997 Statement of Consolidated Operations. Katy also has an equity
investment in one other company. Each Katy subsidiary has its own management
and the head of each subsidiary is responsible for the business and affairs of
that company. Nevertheless, each enterprise operates within a framework of
broad policies and corporate goals established by Katy's corporate management,
which is responsible for overall planning, financial management, acquisitions,
dispositions, and other related administrative and corporate matters.
Management continuously reviews each of its businesses. As a result of
these ongoing reviews management may determine to sell certain companies and
intends to augment certain businesses with acquisitions. Any acquisitions
would be funded through current cash balances, available lines of credit and/or
new borrowings.
As a result of recent acquisitions and dispositions and a continuing
management focus on its Electrical/Electronic and Maintenance Products
businesses, Katy's operating groups were realigned and renamed and the business
units reclassified during 1997. Selected restated operating data for each
operating group is incorporated herein by reference to "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in
Part II, Item 7. Information regarding foreign and domestic operations and
export sales is incorporated herein by reference to Note 12 to Consolidated
Financial Statements of Katy included in Part II, Item 8. Set forth below is
information about Katy's operating groups and investments and about Katy's
business in general:
Electrical/Electronic Group
- ---------------------------
The group's principal business is the manufacture, distribution, packaging
and sale of consumer electric corded products, electrical/electronic
accessories, and the distribution of electronic components and nonpowered hand
tools. The group accounted for 75% of the Company's consolidated sales in
1997. The manufacturer of electric corded products is the only business in
this group that experiences seasonal sales trends. All of the businesses in
the group have a number of competitors, some of which are larger and have
greater financial resources. The four business units comprising this group are
described below:
GC Electronics. GC Electronics, acquired by Katy in April of 1995, is
headquartered in Rockford, Illinois, and has a sourcing office in Taiwan. GC
Electronics is a leading value-added distributor of electronic and electrical
parts and accessories. In addition the company produces a full line of home
entertainment component parts and service technician products.
GC Thorsen. GC Thorsen, acquired by Katy in April of 1995, is
headquartered in Rockford, Illinois, and has a sourcing office in Taiwan.
GC Thorsen is a leading value-added distributor of nonpowered hand tools.
Waldom Electronics, Inc. Waldom, located in Chicago, Illinois, is a
leading master distributor of high quality, brand name electronic and
electrical components, and loudspeakers and their components. Waldom
distributes primarily to the electronic, automotive and communication
industries.
Woods Industries, Inc. Woods, which was acquired by Katy in December of
1996, is headquartered in Carmel, Indiana and has additional warehousing,
distribution and manufacturing facilities in Jasonville, Loogootee, Mooresville
and Worthington, Indiana, Sparks, Nevada, and London, Ontario, Canada. Woods
manufactures and distributes consumer electric corded products and supplies
electrical/electronic accessories. These products are sold to retailers
principally located in the United States and Canada.
Maintenance Products Group
- --------------------------
The group's principal business is the manufacture, distribution, packaging
and sale of sanitary maintenance supplies, abrasives and stains. The group
accounted for 25% of the Company's consolidated sales in 1997. The
manufacturer of stain is the only business in this group that experiences
seasonal sales trends. All have a number of competitors, some of which are
larger and have greater financial resources. The four business units comprising
this group are described below:
Glit/Microtron Abrasives. Glit/Microtron, headquartered in Wrens,
Georgia, also has a manufacturing facility in Pineville, North Carolina, and a
sales office in Mississauga, Ontario, Canada. Glit/Microtron manufactures
nonwoven floor maintenance pads, scouring pads and sponges, and specialty
abrasive products for cleaning and finishing. Products are sold primarily to
the sanitary maintenance, restaurant supply and consumer markets. In addition,
Glit/Microtron manufactures a line of wood sanding products which are sold
through retail stores across the United States and Canada. Consumer products
are marketed under the brand names Hannah's Helper and Kleenfast through
supermarkets and drug and variety stores.
Gemtex Abrasives. Gemtex, which was acquired by Katy in August of 1995, is
headquartered in Etobicoke, Ontario, Canada and has an additional manufacturing
plant in Buffalo, New York. Gemtex is a manufacturer of fibre disk and
distributor of coated abrasives for the automotive, industrial and retail
markets.
Duckback Products, Inc. Located in Chico, California, Duckback is a
manufacturer of high-tech exterior transparent stains, coatings and water
repellents. These products are sold under the trade names Superdeck,
Supershade and Fightback.
Loren Products. Loren, which was acquired by Katy in August of 1997, is
headquartered in Lawrence, Massachusetts. Loren is a manufacturer and
distributor of cleaning and abrasive products for the industrial markets and
building products for the consumer markets. Loren markets its institutional
products under the brand names of Brillo and Boraxo, as well as some private
label products.
Discontinued Operations
- -----------------------
The group's business is the manufacture of machinery for the cookie
sandwich, food processing and wood working industries. Other businesses in the
group manufacture testing and recording devices for the transportation
industry, and another produces gauging and control systems for the metalworking
industry. Note that the group's sales are excluded from the Statements of
Consolidated Operations for all periods presented therein; see Note 3 to
Consolidated Financial Statements for further discussion. The companies in
this group do not experience seasonal sales trends. All the companies in this
group have a number of competitors, some of which are larger and have greater
financial resources. The five business units comprising this group are
described below:
Airtronics. Airtronics, which is located in Elgin, Illinois, supplies the
metalworking industry with engineered gauging and control systems. In
addition, Airtronics rebuilds and resells centerless grinding machines.
Beehive Machinery , Inc. Located in Sandy, Utah, Beehive is a leading
manufacturer in the specialized field of mechanical meat and food separation
equipment for the food processing industry. Approximately 50% of Beehive's
sales are made outside the United States. On July 14, 1997, the Company
completed its divestiture of Beehive. See Note 2 to Consolidated Financial
Statements for further discussion.
Bach-Simpson, Ltd. Bach Simpson is a manufacturer of transportation test
and monitoring system equipment, speed indicators, fuel gauges and specialized
diagnostic and testing products. Primary markets served are the railroad and
general industrial markets. Bach Simpson is located in London, Ontario,
Canada.
Diehl Machines, Inc. Diehl, located in Wabash, Indiana, is a pioneer in
the production of ripsaws, veneer splicers, automatic lathes and moulders.
Primary customers are in the millwork industry and manufacturers of doors,
windows, cabinets and furniture.
Peters Machinery Company. Peters, which designs and manufactures
proprietary machinery for producing cookie and cracker sandwiches, is located
in Chicago, Illinois. Approximately 70% of Peters' sales are made outside the
United States.
Other Operations to be Disposed Of
- ----------------------------------
These business lines operate cold storage facilities, operate a waste-to-
energy facility, provide specialty metal products to a wide range of high-tech
industries, and harvest shrimp. Note that the sales of these operations are
excluded from the 1997 Statement of Consolidated Operations, see Note 3 to
Consolidated Financial Statements for further discussion. The companies in
this group do not experience seasonal sales trends. All of these companies
have a number of competitors, with the exception of Savannah Energy Systems
Company, some of which are larger and have greater financial resources. The
four businesses comprising the other operations to be disposed of are described
below:
Bee Gee Holding Company, Inc. This company harvests shrimp off the coast
of South America. Katy's investment in this company is an equity investment.
See Note 5 to Consolidated Financial Statements.
C.E.G.F. (USA), Inc. This 95% owned company is headquartered in Plant
City, Florida, and operates refrigeration and cold storage facilities in Plant
City, Florida and in Houston, Texas. The facilities serve the needs of a
variety of firms in the frozen food, grocery and seafood industries.
Hamilton Precision Metals, Inc. Hamilton, located in Lancaster,
Pennsylvania, rerolls a wide range of precision metal strip and foil for the
medical, electronics, aerospace and computer industries. The company's products
are used in a wide range of high-tech applications.
Savannah Energy Systems Company. Savannah Energy owns and operates a
waste-to-energy facility in Savannah, Georgia.
Investments, at equity
- ----------------------
Katy has an investment, at equity, in one other company. Schon & Cie, AG
("Schon"), located in Germany, manufactures a wide range of mechanical and
programmable four post, web and flat bed die-cutting equipment and shoe
manufacturing machines. Schon has a number of competitors, some of which are
larger and have greater financial resources. For additional information
related to investments, reference is made to Notes 5 and 14 to Consolidated
Financial Statements in this report, which information is included in Part II,
Item 8.
Customers
- ---------
Katy is dependent upon one customer for approximately 15% of annual sales.
Katy is not dependent on any other single customer for a material portion of
its overall business.
Backlog
- -------
The Company's aggregate backlog position as of the end of 1997 was
$13,200,000. The orders are firm and are expected to be shipped during 1998.
Competition
- -----------
Electrical/Electronics
The Company is subject to strong competition in the industry and markets
they serve. There are numerous other organizations competing for market share
and the industry continues to experience intense price pressures. The Company
believes that it has established itself as a strong provider of quality
products and service in these markets and is able to compete with the price
pressures of larger manufacturers and distributors of similar products.
Maintenance Products
The Company competes for market share with several competitors in this
industry. The Company believes that it has established long standing
relationships with its major customers based on high quality products and
service, while continuing its position of being a low cost provider in this
industry.
Raw Materials
- -------------
Katy's operations have not experienced significant difficulty in obtaining
raw materials, fuels, parts or supplies for their activities during the most
recent fiscal year, but no prediction can be made as to possible future supply
problems or production disruptions resulting from possible shortages.
Employees
- ---------
As of December 31, 1997, Katy employed 1,907 people, of which 1,516
related to the Company's continuing businesses. Approximately 135 employees
of the Company were members of various unions. Katy's labor relations are
generally satisfactory and there have been no strikes in recent years that have
materially affected its operations.
Regulatory and Environmental Matters
- ------------------------------------
Katy does not anticipate that federal, state or local environmental laws
or regulations will have a material adverse effect on its consolidated
operations or financial position. Katy anticipates making additional
expenditures for environmental control facilities during 1998, in accordance
with terms agreed upon with the United States Environmental Protection Agency
and various state environmental agencies. (See Part II, Item 7 - Environmental
and Other Contingencies)
Licenses, Patents and Trademarks
- --------------------------------
The success of Katy's products has not depended on patent and license
protection, but rather on the quality of Katy's products, proprietary
technology, contract performance and the technical competence and creative
ability of Katy's personnel to develop and introduce saleable products.
Research and Development Costs
- ------------------------------
Research and development costs are expensed as incurred and are not
material to Katy's operations.
Item 2. PROPERTIES
- -------------------
As of December 31, 1997, Katy's total building floor area owned or leased
was 2,264,000 square feet, of which 1,109,000 square feet were owned and
1,155,000 square feet were leased. The following table shows by industry
segment a summary of the size (in square feet) and character of the various
facilities included in the above totals together with the location of the
principal facilities.
Industry Segment Owned Leased Total
- ---------------- ----- ------ -----
(in thousands of square feet)
Electrical/Electronic - primarily plant and
office facilities with principal facilities
located in Rockford, Illinois; Taipei, Taiwan;
Chicago, Illinois; and Carmel, Indianapolis,
Jasonville, Loogootee, Mooresville, and
Worthington, Indiana; Sparks, Nevada, and
London, Ontario, Canada 231 697 928
Maintenance Products - primarily
plant and office facilities with principal
facilities located in Chico, California; Wrens,
Georgia; Pineville, North Carolina; Buffalo,
New York; Lawrence, Massachusetts and
Etobicoke, Mississauga, Ontario, Canada 230 445 675
Discontinued Operations - primarily plant and
office facilities with principal facilities located
in Elgin and Chicago, Illinois; Wabash and
Elkhart, Indiana and London, Ontario, Canada 250 0 250
Other Operations to be Disposed Of - primarily plant
and office facilities with principal facilities
located in Plant City, Florida; Houston, Texas;
Lancaster, Pennsylvania and Savannah, Georgia 398 0 398
Corporate - office facilities in Englewood,
Colorado 0 13 13
All properties used in operations are owned or leased and are suitable and
adequate for Katy's operations. It is estimated that approximately 95% of
these properties are being utilized.
Item 3. LEGAL PROCEEDINGS
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Except as set forth below, no cases or legal proceedings are pending
against Katy, other than ordinary routine litigation incidental to Katy and its
businesses and other non-material cases and proceedings.
1. Environmental Claims
--------------------
(a) Administrative Order on Consent - W.J. Smith Wood Preserving Company
and Katy Industries, Inc., U.S. EPA Docket No. RCRA-VI-7003-93-02 and
Texas Water Commission Administrative Enforcement Action.
(b) Notice of Claim - Medford, Oregon.
(c) Demand for Indemnification - Londonderry, New Hampshire.
The "W.J. Smith" case, matter (a) above, originated in the 1980's when
the United States and the State of Texas, through the Texas Water Commission
("TWC"), initiated environmental enforcement actions against W.J. Smith
alleging that certain conditions on the W.J. Smith property (the "Property")
violated environmental laws. Following such enforcement actions, W.J. Smith
engaged in a series of cleanup activities on the W.J. Smith property and
implemented a groundwater monitoring program.
In 1993, TWC referred the entire matter to the United States Environmental
Protection Agency ("USEPA"), which initiated a Unilateral Administrative Order
Proceeding under Section 7003 of the Resource Conservation and Recovery Act
("RCRA") against W.J. Smith and Katy. The proceeding requires certain actions
at the site and certain off-site areas, as well as development and
implementation of additional cleanup activities to mitigate off-site releases.
In December 1995, W.J. Smith, Katy and USEPA agreed to resolve the proceeding
through an Administrative Order on Consent under Section 7003 of RCRA.
Pursuant to the Order, W.J. Smith is currently implementing a cleanup to
mitigate off-site releases.
Since 1990, the Company has spent in excess of $5,500,000 in undertaking
cleanup and compliance activities in connection with this matter and has
established a reserve, in excess of $2,000,000, for future such activities.
The Company believes that the amount reserved will be adequate; however, total
cleanup and compliance costs cannot be determined at this time.
Concerning matter (b) above, by letter dated August 20, 1993, a claim was
asserted by Balteau Standard, Inc. ("Balteau") against Katy concerning PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage. Balteau demanded that Katy accept
financial responsibility for investigation and cleanup costs incurred as a
result of the PCB contamination. Katy and Balteau agreed to share such costs.
Pursuant to such agreement, Katy paid 65% of the first $2,000,000 of such costs
and agreed to pay 50% of such costs to the extent that they exceed $2,450,000.
Since it executed the cost sharing agreement, Katy has paid approximately
$1,428,000 in cleanup costs. Katy believes the cleanup plan has been
successful and has requested that the Oregon Department of Environmental
Quality inspect and approve the remediation work. Katy has received such
approval with respect to a portion of the cleanup plan. Further monitoring of
groundwater and testing and cleanup of adjacent property may be required before
approval can be obtained with respect to the remainder of the plan. Pending
such approval, the liability of Katy and its subsidiary cannot be determined
at this time.
Concerning matter (c) above, pursuant to an agreement executed in
connection with the sale of assets of JEI Liquidating, Inc., a Katy subsidiary,
Katy has agreed to defend and indemnify the buyer of such assets, Allard
Industries, Inc. ("Allard"), in the case captioned "United States v. Exxon,
et al." in U.S. District Court, D.N.H., consolidated nos. C-92-486; C-93-95-L;
C-94-148-Lcas. The case concerns the disposal of hazardous substances at a
landfill site in Londonderry, New Hampshire, at which JEI Liquidating Inc.
allegedly disposed of hazardous substances from its Manchester, New Hampshire
facility. The case arises under the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"), under which generators and
transporters of hazardous substances are generally held to be jointly and
severally liable for the cleanup of those substances when released into the
environment.
The parties to the litigation have reached a settlement in principle, the
specific terms of which are being negotiated in a Consent Decree. Under the
expected Consent Decree, Allard/Katy will pay approximately $287,000 and
perform no future work at the site, subject to limited re-openers. In
exchange, Allard and Katy will receive a release and contribution protection.
Honeywell Inc., a former owner and operator of JEI Liquidating Inc.'s
Manchester, New Hampshire facility, has agreed in principle to pay $40,000 of
Allard/Katy's settlement under the Consent Decree. Pending entry of the
Consent Decree and receipt of a release, Katy's liability cannot be determined
at this time.
In addition to the claims specifically identified above, the Company and
certain of its current and former direct and indirect corporate predecessors,
subsidiaries and divisions have been identified by USEPA, state environmental
agencies and private parties as potentially responsible parties at a number of
waste disposal sites under CERCLA or equivalent state laws, and, as such, may
be liable for the costs of cleanup and other remedial activities at these
sites. The costs involved in these matters are, by nature, difficult to
estimate and subject to substantial change as litigation or negotiations with
the United States, states and other parties proceed. While ultimate liability
with respect to these matters is not easily determinable, the Company believes
that its ultimate liability with respect to such matters will not be material
and has recorded and accrued amounts that it deems reasonable for such
prospective liabilities.
2. "Banco del Atlantico, S.A. v. Woods Industries, Inc., et al.", Civil
Action No. L-96-139 (U.S. District Court, Southern District of Texas).
In December 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Woods Industries, Inc. ("Woods"), a subsidiary of the Company,
and against certain past and then present officers and directors and former
owners of Woods, alleging that the defendants participated in a violation of
the Racketeer Influenced and Corrupt Organizations Act involving allegedly
fraudulently obtained loans from Mexican banks, including the plaintiff, and
"money laundering" of the proceeds of the illegal enterprise. The plaintiff
also alleges that it made loans to an entity controlled by certain officers and
directors based upon fraudulent representations. The plaintiff seeks to hold
Woods liable for its alleged damage under principles of respondeat superior and
successor liability. The plaintiff is claiming damages in excess of $24,000,000
and is requesting treble damages under the statutes. The defendants have filed
a motion, which has not been ruled on, to dismiss this action on jurisdictional
grounds. Because the litigation is in preliminary stages, it is not possible
at this time for the Company to determine an outcome or reasonably estimate the
range of potential exposure. Katy may have recourse against the former owner
of Woods and others for, among other things, violations of covenants,
representations and warranties under the purchase agreement, and under state,
federal and common law. In addition, the purchase price under the purchase
agreement may be subject to adjustment as a result of the claims made by Banco
del Atlantico. The extent or limit of any such recourse cannot be predicted
at this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter of 1997.
PART II.
--------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Katy's common stock is traded on the New York Stock Exchange ("NYSE").
The following table sets forth high and low sales prices for the common stock
in composite transactions as reported on the NYSE composite tape for the prior
two years and dividends declared during such periods.
Cash
Dividends
Period High Low Declared
- ------ ---- --- --------
1997
First Quarter $ 16 $ 13 1/2 $.075
Second Quarter 17 1/4 14 1/2 .075
Third Quarter 18 14 15/16 .075
Fourth Quarter 20 3/8 17 3/8 .075
1996
First Quarter $ 13 3/4 $ 9 3/4 $.075
Second Quarter 15 1/8 12 1/2 .075
Third Quarter 14 5/8 10 7/8 .075
Fourth Quarter 14 7/8 10 3/4 .075
Dividends are paid at the discretion of the Board of Directors and are
reviewed on an annual basis.
As of March 25, 1998, there were 907 record holders of the Common Stock
and there were 8,280,169 shares of Common Stock outstanding.
Item 6. SELECTED FINANCIAL DATA
- --------------------------------
Years Ended December 31,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Thousands of dollars, except per share data and ratios)
Net sales $274,033 $156,024 $136,093 $124,928 $138,300
Income (loss) from
continuing operations 9,643 12,763 26,427 (10,551) 3,022
Earnings (loss) per share from
continuing operations - Basic $1.16 $1.53 $2.94 $(1.17) $ .33
Earnings (loss) per share from
continuing operations - Diluted $1.15 $1.53 $2.94 $(1.17) $ .33
Net income (loss)
Continuing segments -
businesses to be retained $ 8,890 $ 4,725 $ 4,069 $ 405 $ 3,294
Unusual items 387 6,685 22,520 (12,864) (1,418)
Operations to be disposed of 366 1,353 (162) 1,908 1,146
Discontinued operations 1,959 953 2,144 1,708 (4,562)
------ ------ ------ ------ ------
Net income (loss) $11,602 $13,716 $28,571 $(8,843) $(1,540)
====== ====== ====== ====== ======
Earnings (loss) per share - Basic
Continuing segments $1.07 $ .57 $ .45 $ .04 $ .36
Unusual items .05 .80 2.51 (1.42) (.16)
Other operations to be
disposed of .04 .16 (.02) .21 .13
Discontinued operations .24 .11 .24 .19 (.50)
Earnings (loss) ---- ---- ---- ---- ----
per common share $1.40 $1.64 $3.18 $(0.98) $(0.17)
==== ==== ==== ==== ====
Earnings (loss) per share - Diluted
Continuing segments $1.06 $ .57 $ .45 $ .04 $ .36
Unusual items .05 .80 2.51 (1.42) (.16)
Other operations to be
disposed of .04 .16 (.02) .21 .13
Discontinued operations .23 .11 .24 .19 (.50)
Earnings (loss) ---- ---- ---- ---- ----
per common share $1.38 $1.64 $3.18 $(0.98) $(0.17)
==== ==== ==== ==== ====
Cash flows from
operating activities 14,422 22,524 7,620 8,418 (1,844)
Total assets [a] 235,573 235,377 225,412 203,142 330,225
Total liabilities and
minority interest 96,402 105,331 95,082 92,364 86,459
Shareholders' equity 139,171 130,046 130,330 110,778 243,766
Long-term debt,
excluding current portion [a] 9,948 8,582 9,346 10,572 4,289
Depreciation and
amortization [a] 4,568 5,505 5,949 6,049 5,716
Capital expenditures 10,699 5,319 9,163 4,105 4,278
Working capital [a] 103,252 107,571 96,425 50,041 175,075
Ratio of debt to
total debt and equity 7.1% 6.6% 15.8% 15.9% 6.7%
Shareholders' equity per share 16.81 15.78 14.94 12.21 27.03
Return on average
shareholders' equity 8.6% 10.5% 23.7% (5.0%) (.6%)
Weighted average common
shares outstanding - Basic 8,272,836 8,339,189 8,984,513 9,031,541 9,017,387
Shareholders of record 907 1,351 1,410 1,471 1,560
Number of employees 1,907 2,049 1,109 1,285 1,506
Cash dividends declared per share $.30 $.30 $.25 $14.1875 $.25
[a] Total assets includes $15,552 of net assets from discontinued operations
and $37,546 of net assets from operations to be disposed of for 1997 and
$18,395 of net assets from discontinued operations for 1996. Long-term debt
includes $9,948 from operations to be disposed of for 1997. Depreciation and
amortization includes $681 and $747 from discontinued operations for 1997 and
1996, respectively. Depreciation and amortization includes $2,392 from other
operations to be disposed of for 1997. Working capital includes $10,588 and
$12,569 of net current assets from discontinued operations for 1997 and 1996,
respectively. Working capital also includes $6,692 of net current assets of
other operations to be disposed of for 1997. See Notes 2 and 3 to Consolidated
Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
- ---------------------
For purposes of this discussion and analysis section, reference is made to
the table below and the Company's Statements of Consolidated Operations
(included in Part II, Item 8). Pursuant to the Company's recently announced
plan of divestiture and reorganization, Katy now operates two principal
operating groups: Electrical/Electronic and Maintenance Products. Under the
divestiture plan, Katy intends to dispose of its entire previously reported
Machinery Manufacturing Group and, accordingly that group has been reported as
"Discontinued operations" in the Statements of Consolidated Operations. The
other businesses to be disposed of comprise only a portion of Katy's previously
reported Distribution and Service Group and one of Katy's equity investments.
The operations of these businesses have been reported as "Equity in income of
other operations to be disposed of" in the 1997 Statement of Consolidated
Operations. The Electrical/Electronic Group is primarily involved in the
distribution of electrical and electronic components and nonpowered hand tools
and the manufacture, distribution, packaging and sale of consumer electric
corded products. The Maintenance Products Group produces sanitary maintenance
supplies, abrasives and stains for the consumer, maintenance, automotive and
industrial markets. For purposes of discussion and analysis, information for
the discontinued operations and the other operations to be disposed of is
presented below. Discontinued operations, which comprises all of the Company's
previously reported Machinery Manufacturing Group, manufactures machinery for
the cookie sandwich, food processing and wood working industries, manufactures
testing and measuring instruments for the railroad and general industrial
markets, manufactures recording devices for the transportation industry and
manufactures gauging and control systems for the metalworking industry. The
other operations to be disposed of, which comprise only a portion of the
Company's previously reported Distribution and Service Group and one of the
Company's equity investments, provide cold storage services, waste-to-energy
services, produce specialty metal products for a wide range of high-tech
industries, and harvest shrimp. Katy intends to seek additional acquisitions
to grow its Electrical/Electronic and Maintenance Products segments.
The table below and the narrative which follows summarize the key factors in
the year-to-year changes in operating results. The information provided below
has been retroactively restated to reflect Katy's realignment of its operating
units.
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(Thousands of dollars)
Electrical/Electronic Group
- ---------------------------
Net sales $206,247 $75,448 $47,760
Income from operations 12,347 5,209 1,724
Operating margin 6.0% 6.9% 3.6%
Identifiable assets 99,566 97,280 35,486
Depreciation and amortization (445) 845 803
Capital expenditures 3,905 413 849
Maintenance Products Group
- --------------------------
Net sales $67,786 $56,391 $44,434
Income from operations 6,328 4,794 4,712
Operating margin 9.3% 8.5% 10.6%
Identifiable assets 46,333 31,065 29,665
Depreciation and amortization 1,854 1,745 1,318
Capital expenditures 1,234 1,235 953
Discontinued Operations
- -----------------------
Net sales $31,537 $32,494 $35,176
Income from operations 3,046 1,566 3,828
Operating margin 9.7% 4.8% 10.9%
Identifiable assets 18,486 22,843 25,558
Depreciation and amortization 681 747 697
Capital expenditures 1,252 884 1,275
Other Operations to be Disposed Of
- ----------------------------------
Net sales $21,558 $24,185 $43,899
Income from operations 966 3,607 36
Operating margin 4.5% 14.9% 0.1%
Identifiable assets 44,189 43,510 46,250
Depreciation and amortization 2,392 2,014 2,957
Capital expenditures 4,267 2,605 5,920
Corporate
- ---------
Corporate expenses $ 6,496 $ 5,640 $ 5,761
Identifiable assets 43,818 44,811 88,453
Depreciation and amortization 86 154 174
Capital expenditures 41 182 166
Company
- -------
Net sales [a] $327,128 $188,518 $171,269
Income from operations [a] 16,191 9,536 4,539
Operating margin [a] 4.9% 5.1% 2.7%
Identifiable assets [a] 252,392 239,509 225,412
Depreciation and amortization [a] 4,568 5,505 5,949
Capital expenditures 10,699 5,319 9,163
[a] Company balances include amounts from both "Discontinued Operations" and
"Other Operations to be Disposed of", whereas the Consolidated Financial
Statements classify such amounts as "Discontinued Operations" and "Other
Operations to be Disposed of" for 1997 and "Discontinued Operations" for both
1996 and 1995. See Note 3 to Consolidated Financial Statements for further
discussion.
1997 Compared to 1996
- ---------------------
The Electrical/Electronic Group sales increased $130,799,000 or 173%. The
increased sales were primarily due to the acquisition of Woods effective
December 1996, offset partially by lower volumes in the distribution of
electronic and electrical parts and accessories.
Operating income for the group increased $7,138,000 or 137%. The increase was
primarily attributable to the increased sales volume associated with the
acquisition of Woods, offset partially by lower margins in the distribution of
electronic parts, accessories, components and nonpowered hand tool businesses.
Lower margins in the above areas were a result of competitive pressure on
selling prices and higher than expected material costs. Increased margins in
the electric corded products and supplies business as a result of lower copper
prices further contributed to the increased operating income.
Sales for the Maintenance Products Group increased $11,395,000 or 20%. The
increase in sales was primarily associated with the acquisition of Loren
Products, effective August 1997. Various sales promotions in the sanitary
maintenance and stain businesses further contributed to the improvement.
Operating income for the group increased $1,534,000 or 32%. The improvement
was primarily due to increased sales and increased margins in the sanitary
maintenance business, complemented by the Loren acquisition, effective August
1997. Lower selling, general and administrative costs as a percentage of sales
within the stain business further contributed to the increase.
Identifiable assets for the group increased during the year mainly as a result
of the acquisition of Loren, effective August 1997.
Sales for Discontinued Operations decreased $957,000 or 3%. The decrease in
sales was primarily a result of the disposition of Beehive effective July 1997,
partially offset by increased sales in both the cookie sandwich and gauging and
control system businesses.
Operating income for the group increased $1,480,000. Improved margins in wood
processing machinery, cookie sandwich machinery, gauging and control systems,
food separation equipment for the food processing industry, and testing and
recording devices for the transportation industry were the primary reasons for
the increase. Increased margins were a result of successful cost saving
measures and favorable product mix in the wood processing and gauging and
control system businesses. Lower selling, general and administrative costs as
a percentage of sales for the wood processing and cookie sandwich businesses
further contributed to the increase in operating income.
Identifiable assets decreased during the year mainly due to the disposition of
Beehive in July of 1997.
Sales for the other operations to be disposed of decreased $2,627,000 or 11%.
The decrease was primarily a result of decreased volume in the specialty metals
and waste energy businesses, balanced partially by increased volume in the cold
storage facility business.
Operating income for the group decreased $2,641,000 or 73%. The decrease was
a result of lower sales volume in the previously mentioned businesses coupled
with lower margins in the specialty metals, waste energy facility and cold
storage facility businesses. These lower margins were a result of unfavorable
product mix. Higher selling, general and administrative expenses as a
percentage of sales in each of the above mentioned areas also contributed to
the decrease in operating income.
Corporate expenses increased $856,000 or 15%. This increase was mainly a
result of greater insurance costs and salary and compensation increases for
1997 as compared to 1996.
Identifiable assets at Corporate decreased slightly during the year mainly due
to lower cash levels at year end.
Although the results of these operating groups can be significantly affected by
the strength of the general economy, the Company believes that it has
positioned itself well in segments that can be expanded both externally through
acquisitions particularly in the electrical/electronic and maintenance products
areas, and internally through new products, operational improvements and
increased market penetrations.
Following is a discussion concerning other factors that affected the Company's
net income.
Gross profit from continuing operations increased $28,834,000 as gross margins
decreased to 28% from 30% in 1996 while selling, general and administrative
expenses increased $24,625,000 in 1997 compared to the prior year. The
increase in gross profit and slight decrease in gross margin is attributable
to assuming a full year of operations from Woods, which essentially is a higher
volume lower margin business than the existing businesses of the Company.
The increase in selling, general and administrative expenses is primarily due
to the increase in sales volumes during 1997, offset partially by lower
selling, general and administrative costs as a percentage of sales in the
Maintenance Products Group.
Interest expense decreased $833,000 from 1996 primarily as a result of
reclassifying the operations of C.E.G.F. (USA), Inc., including interest
expense, into the line item "Equity in income of other operations to be
disposed of" in the 1997 Statement of Consolidated Operations. Interest income
decreased $1,196,000 during 1997 due to the Company maintaining less average
cash and cash equivalent balances during 1997 compared to 1996.
Other, net in 1997 was income of $900,000 versus income of $1,074,000 in 1996.
The decrease was a result of the Company receiving settlements from various
insurance companies associated with environmental issues in the prior year.
Income from continuing consolidated operations before income taxes decreased to
$14,565,000 in 1997 from $20,966,000 in 1996. This decrease relates primarily
to the gain on sale of Union Pacific stock recognized in 1996, offset partially
by increased operating income from both the Electrical/Electronic and the
Maintenance Products Groups.
Provision for income taxes was $4,922,000 or an effective tax rate of 33.8% in
1997, and $7,639,000 or an effective rate of 36.4% in 1996. The effective tax
rate in 1997 reflects the benefits obtained from the Woods acquisition
effective December 1996.
Equity in income of unconsolidated affiliates increased $636,000 in 1997
primarily due to Bee Gee Holding Company improving upon an unfavorable year in
1996. Note that the income from this equity investment has been included within
the line item "Equity in income of other operations to be disposed of" on the
Statement of Consolidated Operations for 1997. See Note 5 to Consolidated
Financial Statements.
1996 Compared to 1995
- ---------------------
The Electrical/Electronic Group sales increased $27,688,000 or 58%. The
increased sales were primarily due to the acquisition of GC Thorsen effective
March 31, 1995, which provided an additional increase due to having a full year
of operations and increased market penetration during 1996. The acquisition of
Woods, effective December 1996, also contributed to the group's increase.
Operating income for the group increased $3,485,000 or 202%. Improved margins,
a full year of operations at GC Thorsen and operating income generated at Woods
during December 1996 were the primary reasons for the improvement.
The increase in identifiable assets for the group was due mainly to the
acquisition of Woods in December 1996.
Sales for the Maintenance Products Group increased $11,957,000 or 27%. The
increased sales was a result of experiencing a full year of sales from Gemtex,
which was acquired in August 1995, and increased sales throughout product lines
from existing businesses.
Operating income for the group increased $82,000 or 2%. The minor improvement
was due to a full year of operations at Gemtex. Operating income remained
relatively comparable to the prior year for the remaining businesses in the
group.
Sales for Discontinued Operations decreased $2,682,000 or 8%. The decrease was
primarily due to lower volumes in wood processing machinery, gauging and
control systems, and testing and recording devices for the transportation
industry. The decrease was partially offset by increased sales in the cookie
sandwich business.
Operating income for the group decreased $2,262,000 or 59%. The decrease was
primarily due to both lower volumes in the above mentioned businesses and lower
margins in each of the groups' businesses.
Sales for the other operations to be disposed of decreased $19,714,000 or 45%.
The deconsolidation of the Schon Group and the disposition of B. M. Root
during 1995 were the primary reasons for the decrease.
Operating income for the group increased $3,571,000. Losses at the Schon
Group during 1995 were the primary factor in this improvement during the year.
Corporate expenses in 1996 decreased slightly from 1995 primarily due to lower
legal and audit fees.
Identifiable assets at Corporate decreased during the year mainly due to lower
cash levels at year end, as a result of the Woods acquisition in December of
1996.
Although the results of these operating groups can be significantly affected by
the strength of the general economy, the Company believes that it has
positioned itself well in segments that can be expanded both externally through
acquisitions particularly in the electrical/electronic and maintenance products
areas, and internally through new products, operational improvements and
increased market penetrations.
Following is a discussion concerning other factors that affected the Company's
net income.
Gross profit increased $9,479,000 as gross margins improved to 30% from 28% in
1995 while selling, general and administrative expenses increased $1,064,000 in
1996 compared to the prior year. The increase in gross profit and increase in
gross margin percentage was due to the acquisition of GC Thorsen effective
March 1995, which provided an additional increase due to having a full year of
operations and increased market penetration during 1996, the result of
experiencing a full year of operations from Gemtex, which was acquired in
August 1995 and the acquisition of Woods, effective December 1996. The
increase in selling, general and administrative expenses is mainly due to the
increase in sales volumes during 1996.
Interest expense decreased $1,324,000 from 1995 as the Company had no
outstanding short-term borrowings and lower long-term debt. Borrowings in 1995
were incurred in connection with the GC Thorsen acquisition. Interest income
increased $1,463,000 during 1996 due to the Company maintaining higher average
cash and cash equivalent balances during 1996 compared to 1995.
During 1996, the Company sold 250,000 shares of Union Pacific Corporation
common stock and 97,938 shares of Union Pacific Resources Corporation common
stock, resulting in a pre-tax gain of $10,612,000. During 1995, the Company
sold 248,566 shares of Union Pacific Corporation common stock, resulting in a
pre-tax gain of $7,675,000. Also in 1995, the Company sold one-half of its 75%
interest in Schon. In connection with the sale, the Company recorded a gain
of $4,920,000 reflecting the reversal of previously recorded losses of Schon.
Other, net in 1996 was income of $1,074,000 versus income of $4,890,000 in
1995. In 1995, the Company received settlements from various insurance
companies in the amount of $2,846,000 in settlement of claims associated with
environmental issues. During 1996 the Company recognized $304,000 of income
due to similar settlements. During 1996, the Company recognized approximately
$150,000 of dividend income as compared to $650,000 for 1995.
Income from continuing consolidated operations before income taxes increased to
$20,966,000 in 1996 from $14,729,000 in 1995. The $6,237,000 increase was
primarily the result of a larger gain on the sale of Union Pacific stock in
1996 than in 1995, complemented with increased operating income from both the
Electrical/Electronic Group and the Other Operations to be Disposed Of.
Provision for income taxes was $7,639,000 or an effective rate of 36.4% in
1996, and $2,511,000 or an effective rate of 17.0% in 1995. The 1995 effective
tax rate reflects the fact that the gains on the Schon sale were not tax
effected, since the losses had not previously provided a tax benefit.
Equity in income of unconsolidated affiliates decreased $14,773,000 in 1996 due
to the gain in 1995 recognized on the sale of Syroco, Inc. by Syratech, and the
tax benefit realized from the reversal of taxes previously provided on Katy's
share of Syratech's income, which is no longer required because of the sale of
WSC Liquidating and Katy's holdings of Syratech stock.
Liquidity and Capital Resources
- -------------------------------
Combined cash and cash equivalents decreased $4,012,000 to $22,327,000 on
December 31, 1997, from $26,339,000 on December 31, 1996, mostly due to the
Loren acquisition. Current ratios were 2.83 to 1.00 and 2.96 to 1.00 at
December 31, 1997 and 1996, respectively. Working capital decreased $4,319,000
to $103,252,000 on December 31, 1997, from $107,571,000 on December 31, 1996.
This decrease is primarily attributable to the previously mentioned cash and
cash equivalents decrease in 1997.
On January 2, 1996, Katy's board authorized the Company to repurchase an
additional 500,000 shares of Katy common stock, bringing the total
authorization to 900,000 shares. Katy repurchased 352,200 of its common shares
in 1995, 509,800 in 1996 and 38,000 in 1997, thereby completing the repurchase
program.
Katy has authorized and expects to commit approximately $18,681,000, of
which $9,276,000 will be expended by the Company's ongoing operations, for
capital projects in 1998, exclusive of acquisitions, if any, and expects to
meet these capital expenditure requirements through the use of available cash
and internally generated funds. The Company continues to search for appropriate
acquisition candidates, and may obtain all or a portion of the financing for
future acquisitions through its new unsecured $80 million credit agreement
agented by Bank of America.
At December 31, 1997, Katy had short and long-term indebtedness of
$10,628,000, secured by assets of its cold storage company. Total debt was 7.1%
of total debt and equity at December 31, 1997. This debt has been classified
within the line item "Net assets of other operations to be disposed of" on the
Consolidated Balance Sheet. See Note 6 to Consolidated Financial Statements
for further discussion.
Management continuously reviews each of its businesses. As a result of
these ongoing reviews, management may determine to sell certain companies and
may augment its remaining businesses with acquisitions. When sales do occur,
management anticipates that funds from these sales will be used for general
corporate purposes or to fund acquisitions. Acquisitions may also be funded
through cash balances, available lines of credit and future borrowings. See
Notes 2 and 3 to Consolidated Financial Statements for further discussion.
New Accounting Pronouncements
- -----------------------------
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". This statement revises
employers' disclosures about pension and other postretirement benefit plans and
standardizes the disclosure requirements to the extent practicable. This
statement is effective for the Company's financial statements for the year
ending December 31, 1998. The Company does not expect the adoption of SFAS 132
to materially impact the financial statement presentation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way public business enterprises report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. This statement is
effective for the Company's financial statements for the year ending December
31, 1998. The Company does not expect the adoption of SFAS 131 to materially
impact the financial statement presentation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income in financial statements. Under this statement, all components of
comprehensive income shall be reported in the financial statements for the
period in which they are recognized. This statement divides comprehensive
income into net income and other comprehensive income. Other comprehensive
income shall be classified separately into foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. The accumulated balance of other
comprehensive income shall be reported in the equity section of the balance
sheet separately from retained earnings and additional paid-in-capital. This
statement is effective for the Company's financial statements for the year
ending December 31, 1998 and the Company does not expect the adoption of SFAS
130 to materially impact the financial statement presentation.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
This statement establishes standards for computing and presenting earnings per
share ("EPS") and applies to all entities with publicly held common stock or
potential common stock. This statement replaces the presentation of primary
EPS and fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing earnings
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Similar to fully diluted EPS, diluted EPS
reflects the potential dilution of securities that could share in the earnings.
This statement is effective for the Company's financial statements for the year
ended December 31, 1997 and has been adopted, resulting in the restatement of
earnings per share for all prior periods. Details regarding Earnings Per Share
are disclosed at Note 4 to Consolidated Financial Statements.
Environmental and Other Contingencies
- -------------------------------------
In December 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Woods Industries, Inc. ("Woods"), a subsidiary of the Company,
and against certain past and then present officers and directors and former
owners of Woods, alleging that the defendants participated in a violation of
the Racketeer Influenced and Corrupt Organizations Act involving allegedly
fraudulently obtained loans from Mexican banks, including the plaintiff, and
"money laundering" of the proceeds of the illegal enterprise. The plaintiff
also alleges that it made loans to an entity controlled by certain officers and
directors based upon fraudulent representations. The plaintiff seeks to hold
Woods liable for its alleged damage under principles of respondeat superior and
successor liability. The plaintiff is claiming damages in excess of
$24,000,000 and is requesting treble damages under the statutes. The
defendants have filed a motion, which has not been ruled on, to dismiss this
action on jurisdictional grounds. Because the litigation is in preliminary
stages, it is not possible at this time for the Company to determine an outcome
or reasonably estimate the range of potential exposure. Katy may have recourse
against the former owner of Woods and others for, among other things,
violations of covenants, representations and warranties under the purchase
agreement, and under state, federal and common law. In addition, the purchase
price under the purchase agreement may be subject to adjustment as a result of
the claims made by Banco del Atlantico. The extent or limit of any such
recourse cannot be predicted at this time.
Katy also has a number of product liability and workers' compensation
claims pending against it and its subsidiaries. Many of these claims are
proceeding through the litigation process and the final outcome will not be
known until a settlement is reached with the claimant or the case is
adjudicated. It can take up to 10 years from the date of the injury to reach a
final outcome for such claims. With respect to the product liability and
workers' compensation claims, Katy has provided for its share of expected
losses beyond the applicable insurance coverage, including those incurred but
not reported, which are developed using actuarial techniques. Such accruals
are developed using currently available claim information, and represent
management's best estimates. The ultimate cost of any individual claim can
vary based upon, among other factors, the nature of the injury, the duration
of the disability period, the length of the claim period, the jurisdiction of
the claim and the nature of the final outcome.
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency, state environmental agencies and
private parties as potentially responsible parties ("PRPs") at a number of
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") or equivalent state laws and, as
such, may be liable for the cost of cleanup and other remedial activities at
these sites. Responsibility for cleanup and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
The means of determining allocation among PRPs is generally set forth in a
written agreement entered into by the PRPs at a particular site. An allocation
share assigned to a PRP is often based on the PRP's volumetric contribution of
waste to a site. Under the federal Superfund statute, parties are held to be
jointly and severally liable, thus subjecting them to potential individual
liability for the entire cost of cleanup at the site. The Company is also
involved in remedial response and voluntary environmental cleanup at a number
of other sites which are not currently the subject of any legal proceedings
under Superfund, including certain of its current and formerly owned
manufacturing facilities. Based on its estimate of allocation of liability
among PRPs, the probability that other PRPs, many of whom are large, solvent,
public companies, will fully pay the costs apportioned to them, currently
available information concerning the scope of contamination, estimated
remediation costs, estimated legal fees and other factors, the Company has
recorded and accrued for indicated environmental liabilities in the aggregate
amount of approximately $4,405,000 at December 31, 1997. The ultimate cost
will depend on a number of factors and the amount currently accrued represents
management's best current estimate of the total cost to be incurred. The
Company expects this amount to be substantially paid over the next one to four
years.
The most significant environmental matters in which the Company is
currently involved are as follows:
1. In 1993, the United States Environmental Protection Agency ("USEPA")
initiated a Unilateral Administrative Order Proceeding under Section
7003 of the Resource Conservation and Recovery Act ("RCRA") against
W.J. Smith and Katy. The proceeding requires certain actions at the
site and certain off-site areas, as well as development and
implementation of additional cleanup activities to mitigate off-site
releases. In December 1995, W.J. Smith, Katy and USEPA agreed to
resolve the proceeding through an Administrative Order on Consent under
Section 7003 of RCRA. Pursuant to the Order, W.J. Smith is currently
implementing a cleanup to mitigate off-site releases.
2. During 1995, the Company reached agreement with the Oregon Department
of Environmental Quality ("ODEQ") as to a cleanup plan for PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage. The plan called for the Company
to provide a trust fund of $1,300,000 to fund cleanup costs at the
site. These funds were expended in 1995. The plan also called for the
present occupants of the site, Balteau Standard, Inc. to provide the
next $450,000 of cost, with any additional costs to be shared equally
between the two parties. Balteau Standard has paid the next $450,000
and the parties are now sharing equally in cleanup costs. Katy
believes the cleanup plan has been successful and has requested that
the ODEQ inspect and approve the remediation work. Katy has received
such approval with respect to a portion of the cleanup plan. Further
monitoring of groundwater and testing and cleanup of adjacent property
may be required before approval can be obtained with respect to the
remainder of the plan. Pending such approval, the liability of Katy
and its subsidiary cannot be determined at this time.
3. Pursuant to an agreement executed in connection with the sale of assets
of JEI Liquidating, Inc., a Katy subsidiary, Katy has agreed to defend
and indemnify the buyer of such assets, Allard Industries, Inc.
("Allard"), in the case captioned "United States v. Exxon, et al." in
U.S. District Court, D.N.H., consolidated nos. C-92-486; C-93-95-L;
C-94-148-Lcas. The case concerns the disposal of hazardous substances
at a landfill site in Londonderry, New Hampshire, at which JEI
Liquidating Inc. allegedly disposed of hazardous substances from its
Manchester, New Hampshire facility. The case arises under the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), under which generators and transporters of hazardous
substances are generally held to be jointly and severally liable for
the cleanup of those substances when released into the environment.
The parties to the litigation have reached a settlement in principle,
the specific terms of which are being negotiated in a Consent Decree.
Under the expected Consent Decree, Allard/Katy will pay approximately
$287,000 and perform no future work at the site, subject to limited
re-openers. In exchange, Allard and Katy will receive a release and
contribution protection. Honeywell Inc., a former owner and operator
of JEI Liquidating Inc.'s Manchester, New Hampshire facility, has
agreed in principle to pay $40,000 of Allard/Katy's settlement under
the Consent Decree. Pending entry of the Consent Decree and receipt
of a release, Katy's liability cannot be determined at this time.
Although management believes that these actions individually and in the
aggregate are not likely to have a material adverse effect on the Company,
further costs could be significant and will be recorded as a charge to
operations when such costs become probable and reasonably estimable.
Other
- -----
Katy's 1998 operating plan of the continuing segments indicates a slight
improvement in results compared to those reported in 1997. However, the plan
reflects lower results in the first and second quarter of 1998 from continuing
segments compared to the year earlier periods. The plan for the third and
fourth quarter of 1998 exceed the year earlier periods and allows for an
improved year to year result. The plan allows for possible loss of business in
the early part of 1998 in the Electrical/Electronic segment due to numerous
product line reviews required by our customers.
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. This
could result in a system failure or cause disruption to operations.
In 1996, the Company initiated a process of reviewing its systems to
determine whether the year 2000 would have a significant impact on the Company.
The review process has indicated that all systems are either year 2000
compliant or will be within the next year. As a result of this review process,
management has determined that the year 2000 issue will not pose significant
operational problems for its computer systems and accordingly, all costs
associated with this conversion are being expensed as incurred.
Some of the statements in this Form 10-K, as well as statements by the
Company in periodic press releases, oral statements made by the Company's
officials to analysts and shareholders in the course of presentations about the
Company and conference calls following earning releases, constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by the
forward-looking statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
MANAGEMENT REPORT
Katy Industries, Inc. management is responsible for the fair presentation and
consistency of all financial data included in this Annual Report in accordance
with generally accepted accounting principles. Where necessary, the data
reflect management's best estimates and judgements.
Management also is responsible for maintaining an internal control structure
with the objective of providing reasonable assurance that Katy's assets are
safeguarded against material loss from unauthorized use or disposition and that
authorized transactions are properly recorded to permit the preparation of
accurate financial data. Cost-benefit judgements are an important
consideration in this regard. The effectiveness of internal controls is
maintained by: (1) personnel selection and training; (2) division of
responsibilities; (3) establishment and communication of policies; and
(4) ongoing internal review programs and audits. Management believes that
Katy's system of internal controls is effective and adequate to accomplish the
above described objectives.
/S/ John R. Prann, Jr.
- ----------------------
John R. Prann, Jr.
President and Chief Executive Officer
/S/ Stephen P. Nicholson
- ------------------------
Stephen P. Nicholson
Vice President, Finance and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
KATY INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of Katy
Industries, Inc. and subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related statements of consolidated operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Katy Industries, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 27, 1998
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
As of December 31, 1997 1996
---- ----
(Thousands of dollars)
CURRENT ASSETS:
Cash and cash equivalents - Note 1 $ 22,327 $ 26,339
Accounts receivable, trade, net of allowance
for doubtful accounts of $708 and $1,012 47,914 46,379
Notes and other receivables, net of allowance
for doubtful notes of $410 and $329 2,263 1,896
Inventories - Note 1 53,369 58,247
Deferred income taxes - Note 10 13,233 14,331
Other current assets 3,167 2,663
Net current assets of
discontinued operations - Note 3 10,588 12,569
Net current assets of
other operations to be disposed of - Note 3 6,692 -
------- -------
Total current assets 159,553 162,424
------- -------
OTHER ASSETS:
Investments, at equity,
in unconsolidated affiliates - Note 5 - 6,382
Investment in waste-to-energy facility - Note 9 - 11,058
Notes receivable, net of allowance for
doubtful notes of $2,500 and $2,500 1,106 1,219
Cost in excess of net assets of
businesses acquired - Note 2 8,544 6,365
Miscellaneous - Notes 2, 7 and 14 9,993 5,026
Net noncurrent assets of
discontinued operations - Note 3 4,964 5,826
Net noncurrent assets of
other operations to be disposed of - Note 3 30,854 -
------- -------
Total other assets 55,461 35,876
------- -------
PROPERTIES - Note 1:
Land and improvements 894 3,173
Buildings and improvements 12,433 26,236
Machinery and equipment 22,073 32,846
------- -------
35,400 62,255
Accumulated depreciation (14,841) (25,178)
------- -------
Net properties 20,559 37,077
------- -------
$235,573 $235,377
======= =======
See Notes to Consolidated Financial Statements.
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES
-----------
As of December 31, 1997 1996
---- ----
(Thousands of dollars)
CURRENT LIABILITIES:
Accounts payable $24,354 $18,745
Accrued compensation 2,289 2,932
Accrued expenses - Note 1 28,801 31,276
Accrued interest and taxes 236 623
Current maturities, long-term debt - Note 6 - 657
Dividends payable 621 620
------- -------
Total current liabilities 56,301 54,853
------- -------
LONG-TERM DEBT, less current maturities - Note 6 - 8,582
------- -------
OTHER LIABILITIES - Note 7 10,666 9,518
------- -------
EXCESS OF ACQUIRED NET
ASSETS OVER COST, Net - Note 2 6,902 8,517
------- -------
DEFERRED INCOME TAXES - Note 10 22,533 23,861
------- -------
COMMITMENTS AND CONTINGENCIES - Notes 6, 11 and 13
SHAREHOLDERS' EQUITY - Note 8:
Common stock, $1 par value; authorized
25,000,000 shares; issued 9,822,204 shares 9,822 9,822
Additional paid-in capital 51,127 51,117
Foreign currency translation and other adjustments (2,276) (1,778)
Retained earnings 102,194 93,099
Treasury stock, at cost, 1,542,197
and 1,582,942 shares (21,696) (22,214)
------- -------
Total shareholders' equity 139,171 130,046
------- -------
$235,573 $235,377
======= =======
See Notes to Consolidated Financial Statements.
KATY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
For the years ended December 31, 1997 1996 1995
---- ---- ----
(Thousands of dollars except per share amounts)
Net sales $274,033 $156,024 $136,093
Cost of goods sold 197,633 108,458 98,006
------- ------- -------
Gross profit 76,400 47,566 38,087
Selling, general and administrative expenses (64,221) (39,596) (38,532)
Equity in income of
other operations to be disposed of - Note 3 539 - -
Interest expense (236) (1,069) (2,393)
Interest income 1,183 2,379 916
Gain on sales of
marketable securities - Notes 1 and 14 - 10,612 6,841
Reversal of previously recorded
losses - Note 2 and 14 - - 4,920
Other, net 900 1,074 4,890
------- ------- -------
Income before provision for income taxes 14,565 20,966 14,729
Provision for income taxes - Note 10 (4,922) (7,639) (2,511)
------- ------- -------
Income from operations before equity in
income (loss) of unconsolidated affiliates 9,643 13,327 12,218
Equity in income (loss) of unconsolidated
affiliates (net of tax) - Note 5
Income (loss) from continuing operations - (564) 1,920
Income from discontinued operations - - 678
Gain on sale of Syroco, Inc. - Note 5 - - 4,904
Tax benefit from sale of investment in
Syratech - Note 5 - - 6,707
------- ------- -------
Total - (564) 14,209
------- ------- -------
Income from continuing operations 9,643 12,763 26,427
Discontinued operations - Note 3:
Income from operations of
discontinued businesses (net of tax) 1,959 953 2,144
------- ------- -------
Net income $ 11,602 $ 13,716 $ 28,571
======= ======= =======
Earnings per share of common stock
- Basic (Note 4):
Income from continuing operations $ 1.16 $ 1.53 $ 2.94
Discontinued operations .24 .11 .24
------- ------- -------
Net income $ 1.40 $ 1.64 $ 3.18
======= ======= =======
Earnings per share of common stock
- Diluted (Note 4):
Income from continuing operations $ 1.15 $ 1.53 $ 2.94
Discontinued operations .23 .11 .24
------- ------- -------
Net income $ 1.38 $ 1.64 $ 3.18
======= ======= =======
Dividends paid per share of common stock $ .30 $ .2875 $ .25
======= ======= =======
See Notes to Consolidated Financial Statements.
<TABLE>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock Foreign
------------ Additional Currency Unrealized
Number Par Paid-in and Other Holding Retained Treasury
of Shares Value Capital Adjustments Gains Earnings Stock
--------- ----- ---------- ----------- ---------- -------- --------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 9,821,329 $9,821 $51,111 $2,676 $4,426 $55,587 $(12,843)
Net income - - - - - 28,571 -
Common stock dividends - - - - - (2,233) -
Foreign currency translation adjustments - Note 8 - - - (4,316) - - -
Purchase of Treasury Shares - Note 8 - - - - - - (3,341)
Unrealized holding gains adjustment - Note 1 - - - - 871 - -
--------- ------ ------- ------ ------ ------- --------
Balance, December 31, 1995 9,821,329 9,821 51,111 (1,640) 5,297 81,925 (16,184)
Net income - - - - - 13,716 -
Common stock dividends - - - - - (2,499) -
Foreign currency translation adjustments - Note 8 - - - 3 - - -
Issuance of shares under
Stock Purchase Plan - Note 8 875 1 6 (141) - (43) 337
Purchase of Treasury Shares - Note 8 - - - - - - (6,367)
Unrealized holding gains adjustment - Note 1 - - - - (5,297) - -
--------- ------ ------- ------ ------ ------- --------
Balance, December 31, 1996 9,822,204 9,822 51,117 (1,778) - 93,099 (22,214)
Net income - - - - - 11,602 -
Common stock dividends - - - - - (2,481) -
Foreign currency translation adjustments - Note 8 - - - (174) - - -
Issuance of shares under
Stock Option Plan - Note 8 - - (31) - - (26) 295
Other issuance of shares - Note 8 - - 41 (324) - - 876
Purchase of Treasury Shares - Note 8 - - - - - - (653)
--------- ------ ------- ------ ------ ------- --------
Balance, December 31, 1997 9,822,204 $9,822 $51,127 $(2,276) $ - $102,194 $(21,696)
========= ====== ======= ====== ====== ======= ========
See Notes to Consolidated Financial Statements.
</TABLE>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the years ended December 31, 1997 1996 1995
---- ---- ----
(Thousands of dollars)
Cash flows from operating activities:
Net income $11,602 $13,716 $28,571
Depreciation and amortization 4,568 5,505 5,949
(Gain) loss on sale of assets (653) 160 (150)
Disposition of portion of investment in subsidiary - - (7,920)
Gain on marketable security transactions - (10,612) (6,841)
Equity in (income) loss of
unconsolidated affiliates - 564 (14,209)
Deferred income taxes 1,287 6,239 (819)
Changes in assets and liabilities,
net of acquisition/disposition of subsidiaries:
Receivables (5,528) 9,547 (13,919)
Inventories 2,996 (1,983) 1,191
Other current assets (553) (373) 10,819
Accounts payable and accrued liabilities 682 (44) 5,280
Other, net 21 (195) (332)
------- ------- -------
Net cash flows from operating activities 14,422 22,524 7,620
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of assets 1,487 1,205 43,032
Collections of notes receivable and
receivable from sale of business 451 13,211 1,168
Proceeds from sales of marketable securities - 18,681 15,550
Proceeds from sale of subsidiary 5,493 - -
Payments for purchase of subsidiaries,
net of cash acquired (12,788) (42,648) (30,416)
Capital expenditures - Note 1 (8,654) (5,319) (9,163)
------- ------- -------
Net cash flows from investing activities (14,011) (14,870) 20,171
------- ------- -------
Cash flows from financing activities:
Notes payable activity, net - (14,193) 12,529
Proceeds from issuance of long-term debt - Note 1 - - 2,852
Principal payments on long-term debt (657) (1,019) (2,403)
Payments of dividends (2,481) (2,452) (2,233)
Purchase of treasury shares (653) (6,367) (3,341)
Other 359 - -
------- ------- -------
Net cash flows from financing activities (3,432) (24,031) 7,404
------- ------- -------
Effect of exchange rate changes on cash - (3) 31
------- ------- -------
Net increase (decrease) in
cash and cash equivalents (3,021) (16,380) 35,226
Cash and cash equivalents at beginning of year 27,321 43,701 8,475
------- ------- -------
Cash and cash equivalents at end of year 24,300 27,321 $43,701
=======
Cash of discontinued operations and
other operations to be disposed of 1,973 982
------- -------
Cash and cash equivalents of continuing operations $22,327 $26,339
======= =======
See Notes to Consolidated Financial Statements.
Note 1. SIGNIFICANT ACCOUNTING POLICIES:
Consolidation Policy - The financial statements include, on a consolidated
basis, the accounts of Katy Industries, Inc. and subsidiaries in which it has a
greater than 50% interest, collectively "Katy" or the "Company". All
significant intercompany accounts, profits and transactions have been
eliminated in consolidation. Investments in affiliates which are not majority
owned and where the Company does not exercise significant control are reported
using the equity method.
As part of the continuous evaluation of its operations, Katy has acquired
and disposed of a number of its operating units in recent years. Those which
affected the Consolidated Financial Statements for each of the three year
periods ended December 31, 1997, 1996, and 1995 are described in Note 2.
There are no restrictions on the payment of dividends by consolidated
subsidiaries to Katy. Katy's consolidated retained earnings as of December 31,
1997 include $5,670,000 of undistributed earnings of 50% or less owned
investments accounted for by the equity method. No dividends have been paid by
any of these unconsolidated affiliates to Katy.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates used by management in the preparation of these financial
statements include the valuation of accounts receivable, the carrying value of
inventories, the useful lives and recoverability of property, plant and
equipment and cost in excess of net assets of businesses acquired, potential
product liability and workers compensation claims, and environmental claims as
discussed in Note 13.
Cash and Cash Equivalents - Cash equivalents consist of highly liquid
investments with original maturities of three months or less and total
$22,327,000 and $26,339,000, as of December 31, 1997 and 1996, respectively,
which approximates their fair value. The Company places its temporary cash
investments in quality financial institutions. As such, the Company believes
no significant concentration of credit risk exists with respect to these cash
investments.
Supplemental Cash Flow Information - Details regarding noncash investing
and financing activities are disclosed in Notes 1, 2, 5 and 8. Cash paid
during the year for interest and income taxes is as follows:
1997 1996 1995
---- ---- ----
(Thousands of dollars)
Interest $1,076 $1,143 $2,231
===== ===== =====
Income taxes $3,694 $3,445 $2,646
===== ===== =====
Marketable Securities - During 1996, the Company sold its remaining
investment in Union Pacific common stock and Union Pacific Resources common
stock for total proceeds of $18,681,000 resulting in a pre-tax gain of
$10,612,000. During 1996, unrealized holding gains, net of income taxes,
included in shareholders' equity decreased $5,297,000. During 1995, unrealized
holding gains, net of income taxes, included in shareholders' equity increased
$871,000.
Notes and Other Receivables - The carrying value of notes and other
receivables approximates their fair value.
Inventories - Inventories are stated at the lower of cost, determined by
the first-in, first-out method, or market. The components of inventories are:
December 31,
------------
1997 1996
---- ----
(Thousands of dollars)
Raw materials $ 6,654 $13,101
Work in process 1,496 3,050
Finished goods 45,219 42,096
------ ------
$53,369 $58,247
====== ======
Cost in Excess of Net Assets Acquired - In connection with certain
acquisitions, the Company recorded an intangible asset for the cost of the
acquisition in excess of the fair value of the net assets acquired. This
intangible asset is being amortized using the straight-line method over periods
ranging from 10 to 20 years.
Excess of Acquired Net Assets Over Cost - In connection with the
acquisition of Woods Industries, Inc., the Company recorded negative goodwill
for the excess of the fair value of the net assets acquired over the cost of
the acquisition. Negative goodwill is being amortized using the straight-line
method over a period of 5 years.
Properties - Properties are stated at cost and depreciated over their
estimated useful lives - buildings (10-40 years) generally using the straight-
line method; machinery and equipment (3-20 years) and leased machines (lease
period) using straight-line, accelerated or composite methods; and leasehold
improvements using the straight-line method over the remaining lease period.
Management periodically reviews the carrying value of its long-lived assets for
impairment and adjusts the carrying value and/or amortization period of such
assets whenever events or changes in circumstances warrant. During 1997, the
Company incurred additional debt of $2,045,000 relating to capital equipment,
which is classified as non-cash investing and financing for purposes of the
Statement of Consolidated Cash Flows.
Impairment of Assets - Long-lived assets are reviewed for impairment if
events or circumstances indicate the carrying amount of these assets may not be
recoverable. If this review indicates that the carrying value of these assets
will not be recoverable, based on future net cash flows from the use of the
asset, the carrying value is reduced to fair value.
Accrued Expenses - The components of accrued expenses are:
December 31,
------------
1997 1996
---- ----
(Thousands of dollars)
Accrued insurance $ 6,538 $ 7,553
Accrued EPA costs 4,355 5,266
Other accrued expenses 17,908 18,457
------ ------
$28,801 $31,276
====== ======
Fair Value of Financial Instruments - Where the fair values of Katy's
financial instrument assets and liabilities differ from their carrying value or
Katy is unable to establish the fair value without incurring excessive costs,
appropriate disclosures have been given in the Notes to Consolidated Financial
Statements. All other financial instrument assets and liabilities not
specifically addressed are believed to be carried at their fair value in the
accompanying Consolidated Balance Sheets.
New Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information". This
statement establishes standards for the way public business enterprises report
information about operating segments. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement is effective for the Company's financial statements
for the year ending December 31, 1998 and the Company does not expect the
adoption of SFAS 131 to materially impact the financial statement presentation.
In June 1997, the Financial Accounting Standards Board issued Statement
Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income in financial statements. Under this statement, all components of
comprehensive income shall be reported in the financial statements for the
period in which they are recognized. This statement divides comprehensive
income into net income and other comprehensive income. Other comprehensive
income shall be classified separately into foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. The accumulated balance of other
comprehensive income shall be reported in the equity section of the balance
sheet separately from retained earnings and additional paid-in-capital. This
statement is effective for the Company's financial statements for the year
ending December 31, 1998 and the Company does not expect the adoption of SFAS
130 to materially impact the financial statement presentation.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
This statement establishes standards for computing and presenting earnings per
share ("EPS") and applies to all entities with publicly held common stock or
potential common stock. This statement replaces the presentation of primary
EPS and fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing earnings
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Similar to fully diluted EPS, diluted EPS
reflects the potential dilution of securities that could share in the earnings.
This statement is effective for the Company's financial statements for the year
ended December 31, 1997 and has been adopted, resulting in the restatement of
earnings per share for all prior periods. Details regarding Earnings Per Share
are disclosed at Note 4.
Revenue Recognition - Sales are recognized upon shipment of products to
customers or when services are performed.
Reclassifications - Certain amounts from prior years have been
reclassified to conform to the 1997 financial statement presentation.
Note 2. ACQUISITIONS AND DISPOSITIONS
Acquisitions
------------
On August 6, 1997, the Company purchased Loren Products ("Loren"). Loren
is a manufacturer and distributor of cleaning and abrasive products for the
industrial markets and building products for the consumer markets. The
estimated purchase price, including acquisition costs was $12,788,000. The
acquisition has been accounted for under the purchase method, and accordingly,
the estimated cost in excess of the net assets acquired of approximately
$2,650,000 has been recorded as cost in excess of net assets of business
acquired in the Consolidated Balance Sheet and is being amortized over twenty
years. In addition, Katy has recorded intangible assets of approximately
$4,790,000, consisting of customer lists, trademarks and tradenames, and
accumulated work force. These intangible assets are being amortized over
periods ranging from 7 1/2 to 20 years. The purchase price for Loren is
preliminary and adjustments may be recorded through August 1998. The accounts
of Loren have been included in the Company's Consolidated Financial Statements
from the acquisition date.
On December 2, 1996, the Company purchased all of the outstanding shares
of common stock of Woods Industries, Inc., ("Woods"). Woods is a manufacturer
and distributor of electrical corded products as well as electrical and
electronic passive components. The estimated purchase price, including
acquisition costs, was $45,100,000. The purchase price was paid in cash, of
which $3,250,000 was funded through a borrowing against the Company's unsecured
line of credit at The Northern Trust Company. The acquisition has been
accounted for under the purchase method, and accordingly, the estimated excess
of acquired net assets over cost of approximately $8,605,000 has been recorded
as excess of acquired net assets over cost in the Consolidated Balance Sheet
and is being amortized over five years. The accounts of Woods have been
included in the Company's Consolidated Financial Statements from the
acquisition date.
The following unaudited pro forma information has been prepared assuming
the acquisition of Woods had occurred at the beginning of the respective
periods. The pro forma information includes adjustments for (1) the
elimination of Woods' depreciation due to the write-down of plant and equipment
pursuant to purchase accounting, (2) the elimination of Woods' amortization due
to the write-down of cost in excess of businesses acquired pursuant to purchase
accounting, (3) the amortization of the estimated excess of acquired net assets
over cost recorded pursuant to purchase accounting, (4) elimination of Woods'
interest expense as all debt is repaid on date of purchase pursuant to the
purchase agreement, (5) the increase in interest expense for the year ended
December 31, 1995 due to assumed borrowings at applicable rates for the
purchase price (for the year ended December 31, 1996, Katy's cash position
would have made borrowing unnecessary), (6) decrease in interest income due to
use of cash for the purchase price, and (7) the estimated related income tax
effects. The pro forma financial information is presented for informational
purposes only and may not be indicative of the results of operations as they
would have been had the transaction been effected on the assumed dates nor is
it necessarily indicative of the results of operations which may occur in the
future.
Years ended December 31,
------------------------
1996 1995
---- ----
(Thousands of dollars)
Net sales $301,863 $283,510
Income from operations 17,736 7,010
Net income 18,538 32,788
Earnings per share - Basic and Diluted 2.22 3.65
On August 10, 1995, the Company purchased the assets of Gemtex Company
Limited and its United States affiliate, Gemtex Abrasives, Inc. (considered
together as "Gemtex"). Gemtex is a manufacturer and distributor of coated
abrasives for the automotive, industrial and retail markets. The purchase
price approximated net book value. The acquisition has been accounted for
under the purchase method. The accounts of Gemtex have been included in the
Company's Consolidated Financial Statements from the acquisition date.
This acquisition does not materially impact the Company's results of operations
or financial position.
Effective March 31, 1995, the Company purchased all of the outstanding
shares of common stock of GC Thorsen, Inc., ("GC Thorsen"), a value added
distributor of electronic and electrical parts and accessories, and nonpowered
hand tools. The purchase price, including acquisition costs, was $24,076,000
in cash, of which $19,500,000 was financed through the Company's bank line of
credit. The acquisition has been accounted for under the purchase method, and
accordingly, the excess of the purchase price over the fair value of the net
assets acquired of approximately $3,553,000 is being amortized over 20 years.
The accounts of GC Thorsen have been included in the Company's Consolidated
Financial Statements from the acquisition date.
As part of its 1991 purchase of substantially all of the net operating
assets of the stain business of Sinecure Financial Corp. (formerly Duckback
Industries, Inc.), the Company was obligated to pay to the seller additional
purchase price amounts which were contingent upon the attainment of certain
earnings levels during the period from the date of acquisition to September 30,
1994. During 1995, the Company paid $1,787,000 to Sinecure, to complete the
Company's obligation under the earnout provision of the purchase agreement.
Goodwill relating to this acquisition is being amortized over 10 years.
Dispositions
------------
On July 14, 1997, the Company completed its divestiture of the Beehive
division of Hamilton Precision Metals, Inc., for approximately $6,000,000 and
the assumption of certain liabilities of Beehive. Beehive is one of the
businesses that comprise the discontinued operations (see Note 3).
Accordingly, the gain on disposal has been deferred pending the disposal of all
of the discontinued operations, at which time the Company expects to recognize
a net gain.
On April 4, 1996, the Company sold substantially all of the assets of its
Walsh Press subsidiary for net proceeds of $1,125,000 which included net cash
of $721,000 and a note receivable of $404,000, resulting in a nominal loss.
The note receivable portion of the consideration is a noncash investing
transaction. The Consolidated Financial Statements include Walsh Press'
results of operations through that date. Sales of this subsidiary were
$151,000 and $680,000 and operating losses were $37,000 and $49,000 for 1996
and 1995, respectively.
In December 1995, the Company concluded the sale of its Moldan Filters
operation for net proceeds of $2,808,000, which included net cash of $1,350,000
and accounts and notes receivable of $1,458,000, resulting in a nominal gain.
The notes receivable portion of the consideration is a noncash investing
transaction. The effective date of sale was December 28, 1995; therefore, the
Consolidated Financial Statements include results of operations through that
date. Sales of this unit were $4,592,000 and the operating loss was $892,000
in 1995.
On August 25, 1995, the Company sold the assets and business of the
Laboratory Equipment Division of its Bach Simpson Limited operation for net
proceeds of $900,000 in cash, resulting in a nominal loss. This operation was
not material to Katy and, accordingly, its sale does not significantly affect
Katy's consolidated financial position or results of operations.
On June 30, 1995, the Company concluded the irrevocable sale of one-half
of its 75% interest (90,000 shares) in Schon. The sale was made on the basis
of a contingent price, whereby the Company will receive two thirds of the
amount ultimately realized by the purchasers in any future sale of such shares
or, under some circumstances, the Company will be entitled to find a buyer for
two-thirds of such shares and receive the proceeds of the sale thereof. With
the reduction in its ownership interest and influence, the Company began
reporting its continuing investment in Schon using the equity method of
accounting for this minority owned subsidiary effective June 30, 1995. With
the change to the equity method, the Company will not record future losses of
Schon, and will only record income when the Company's equity becomes positive.
In connection with the sale, in the second quarter of 1995, the Company
recorded a gain of $4,920,000 reflecting the reversal of previously recorded
losses of Schon and a deferred tax asset of $3,000,000. The Company's
investment in Schon is recorded at zero as of December 31, 1997 and 1996.
See Note 5.
On June 14, 1995, the Company sold its B.M. Root operation for net
proceeds of $700,000 in cash, resulting in a nominal gain. The Consolidated
Financial Statements include results of operations through that date. Sales
of this unit were $1,416,000 and operating income was $103,000 in 1995.
Note 3. DISCONTINUED OPERATIONS AND OTHER OPERATIONS TO BE DISPOSED OF
On December 31, 1997, the Board of Directors approved a plan to dispose of
the Company's previously reported Machinery Manufacturing segment. The
businesses included as "Discontinued operations" are Airtronics, Inc., Beehive,
Bach-Simpson, Ltd, Diehl Machines, Inc., and Peters Machinery Company.
Although the Company is in the initial stages of this plan, the Company
believes that the businesses will be fully divested at a net gain and the plan
completed during the year ending December 31, 1998. The expected manner of
disposition for these businesses is to sell the net assets of each of these
operations.
The historical operating results have been segregated as "Discontinued
operations" on the accompanying Consolidated Statements of Operations for all
periods presented. The related assets and liabilities have been separately
identified on the December 31, 1997 and 1996 Consolidated Balance Sheets as
"Net current assets or Net noncurrent assets of discontinued operations".
Discontinued operations have not been segregated on the Consolidated Statements
of Cash Flows.
Selected financial data for the discontinued operations, in thousands, is
summarized as follows:
For the Year Ended December 31,
1997 1996 1995
---- ---- ----
(In thousands, except per share amounts)
Net sales $31,537 $32,494 $35,176
Income before income taxes $ 3,110 $ 1,513 $ 3,403
Income taxes 1,151 560 1,259
------ ------ ------
Net income $ 1,959 $ 953 $ 2,144
====== ====== ======
Net income per share - Basic $ .24 $ .11 $ .24
====== ====== ======
Net income per share - Diluted $ .23 $ .11 $ .24
====== ====== ======
In connection with the previously mentioned divestiture plan, the Board of
Directors also approved the disposal of a portion of the Company's previously
reported Distribution and Service segment and one of the Company's equity
investments. These businesses are reported as "Other operations to be disposed
of" and include C.E.G.F. (USA), Inc., Hamilton Precision Metals, Inc., Savannah
Energy Systems Company and the Company's equity investment in Bee Gee Holding
Company, Inc. Although the Company is in the initial stages of this plan, the
Company believes that the businesses will be fully divested at a net gain and
the plan completed during the year ending December 31, 1998.
The historical operating results have been segregated as "Equity in income
of other operations to be disposed of" on the accompanying Consolidated
Statement of Operations for 1997. The related assets and liabilities have been
separately identified on the December 31, 1997 Consolidated Balance Sheet as
"Net current assets or Net noncurrent assets of other operations to be disposed
of".
Selected financial data for other operations to be disposed of, is
summarized as follows:
For the Year Ended December 31,
1997 1996 1995
---- ---- ----
(In thousands, except per share amounts)
Net sales $21,558 $24,185 $43,899
Income (loss) before income taxes $ 539 $ 2,479 $ (257)
Income taxes (benefit) 173 1,126 (95)
------ ------ ------
Net income (loss) $ 366 $ 1,353 $ (162)
====== ====== ======
Net income (loss) per share - Basic $ .04 $ .16 $ (.02)
====== ====== ======
Net income (loss) per share - Diluted $ .04 $ .16 $ (.02)
====== ====== ======
Net assets held for sale for "other operations to be disposed of" and
"discontinued operations" are carried at cost, which does not exceed estimated
net realizable value, as follows:
December 31, 1997
----
(In thousands)
Other Operations to be Disposed Of
- ----------------------------------
Current assets $9,038
Current liabilities (2,346)
------
Net current assets of other operations to be disposed of $6,692
======
Noncurrent assets $41,649
Noncurrent liabilities (10,795)
------
Net noncurrent assets of other operations to be disposed of $30,854
======
December 31, 1997 1996
---- ----
(In thousands)
Discontinued Operations
- -----------------------
Current assets $14,202 $16,661
Current liabilities (3,614) (4,092)
------ ------
Net current assets of discontinued operations $10,588 $12,569
====== ======
Noncurrent assets $ 5,027 $ 5,865
Noncurrent liabilities (63) (39)
------ ------
Net noncurrent assets of discontinued operations $ 4,964 $ 5,826
====== ======
Note 4. EARNINGS PER SHARE
The Company's basic and diluted earnings per share were calculated in
accordance with the Statement of Financial Accountings Standard No. 128 as
follows:
For the Year Ended December 31,
1997 1996 1995
---- ---- ----
(In thousands, except per share amounts)
Basic EPS
Income from continuing operations $ 9,643 $12,763 $26,427
Income from discontinued operations 1,959 953 2,144
------ ------ ------
Total income $11,602 $13,716 $28,571
====== ====== ======
Shares - Basic 8,273 8,339 8,985
Per-share amount
Continuing operations $ 1.16 $ 1.53 $ 2.94
Discontinued operations .24 .11 .24
------ ------ ------
Total $ 1.40 $ 1.64 $ 3.18
====== ====== ======
Effect of diluted securities
Options 132 46 7
Diluted EPS
Income from continuing operations $ 9,643 $12,763 $26,427
Income from discontinued operations 1,959 953 2,144
------ ------ ------
Total income $11,602 $13,716 $28,571
====== ====== ======
Shares - Diluted 8,405 8,385 8,992
Per-share amount
Continuing operations $ 1.15 $ 1.53 $ 2.94
Discontinued operations .23 .11 .24
------ ------ ------
Total $ 1.38 $ 1.64 $ 3.18
====== ====== ======
Rights to purchase one common share of stock for $35 for each common share
of stock held were not included in the computation of diluted EPS because the
rights' exercise price was greater than the average price of the common shares.
See Note 8.
Note 5. INVESTMENTS, AT EQUITY, IN UNCONSOLIDATED AFFILIATES:
The Company's investments in unconsolidated affiliates are comprised of
the following:
1997 1996
---- ----
(Thousands of dollars)
Schon & Cie, AG $ - $ -
Bee Gee Holding Company, Inc. 6,500 6,382
------ ------
6,500 6,382
Less amounts classified with net noncurrent
assets of other operations to be disposed of (6,500) -
------ ------
$ - $ 6,382
====== ======
Syratech Corporation ("Syratech")
- ---------------------------------
On December 29, 1995, the Company sold to Syratech its wholly owned
subsidiary, WSC Liquidating Co., whose sole asset consisted of 2,555,500 common
shares of Syratech. The Company also sold to Syratech the remaining 509,251
shares of Syratech stock held directly by Katy. None of these shares had been
previously registered and could not have been sold without Katy bearing the
costs of registration. In addition, because of the nature of the shares, the
Company was restricted as to the number of shares that could be sold at any one
time. The net proceeds from both transactions were approximately $50,800,000.
The transactions reflected a per share price of $17, which represented a
discount of 15% to the closing price of Syratech's shares on the New York Stock
Exchange on the day of the transaction. The transactions resulted in a total
after-tax gain of $7,500,000 which is comprised of a gain of $793,000 and the
reversal of $6,707,000 of deferred income taxes previously provided on Katy's
share of Syratech's income, which has been determined to not be required as a
result of these transactions. In connection with the sale, Katy recorded a
receivable in the amount of $12,444,000 from Syratech which was subsequently
paid on January 2, 1996.
On March 28, 1995, Syratech sold its subsidiary, Syroco, Inc. for
$140,000,000 resulting in a gain of $30,451,000. Katy's share of the gain
($4,904,000, net of tax) is reflected in Katy's Consolidated Statement of
Operations as gain on sale of Syroco. Syroco's results from operations are
shown below in the results of operations of unconsolidated affiliates and in
Katy's Consolidated Statements of Operations as income from discontinued
operations in the "Equity in Income of Unconsolidated Affiliates" section.
Schon & Cie, AG ("Schon")
- ---------------------------
At December 31, 1997, the Company has a 27.6% interest in Schon. Schon
consists of three operating companies engaged in the business of manufacturing
a wide range of mechanical and programmable four post, web and flat bed die-
cutting equipment and shoe manufacturing machinery. During the second quarter,
1996, Schon acquired J. Sandt AG, a major competitor in the same geographical
area. This transaction reduced Katy's interest in Schon from 37.5% to 27.6%.
The transaction had no effect on Katy's results for the period. Schon's
condensed financial information is included in the following table subsequent
to June 30, 1995, but, because the investment has been written down to zero
(see Note 2), there is no effect on the Company's investment or equity in
income of unconsolidated affiliates. In January 1998, the Company, in
agreement with Schon's other major shareholders, surrendered some of its stock
ownership in lieu of contributing additional funds. As a result of this
transaction, Katy's interest in Schon has been reduced to approximately 11%.
Bee Gee Holding Company, Inc. ("Bee Gee")
- -----------------------------------------
The Company owns 30,000 shares of common stock, a 39% interest, of
Bee Gee, which consists of several subsidiaries engaged in the business of
harvesting shrimp off the coast of South America and, during 1996, processed
shrimp and other sea foods for domestic and foreign markets. In January 1997,
Bee Gee sold its processing operations to a major competitor in the same
geographical area.
Goodwill related to the Bee Gee investment is being amortized over ten
years.
As discussed in Note 3, Bee Gee is one of the other operations to be
disposed of under the Company's divestiture plan. Accordingly, income from Bee
Gee for the year ended December 31, 1997 is included in "Equity in income of
other operations to be disposed of" rather than in "Equity in income of
unconsolidated affiliates" in the 1997 Consolidated Statements of Operations
and the investment in Bee Gee as of December 31, 1997 has been included in "Net
noncurrent assets of other operations to be disposed of" rather than in
"Investments at equity, in unconsolidated affiliates" in the 1997 Consolidated
Balance Sheet.
Financial Information
- ---------------------
The condensed financial information that follows reflects the Company's
proportionate share in the financial position and results of operations of its
unconsolidated affiliates:
1997 1996
---- ----
(Thousands of dollars)
Current assets $4,353 $8,175
Current liabilities (2,107) (6,285)
------ ------
Working capital 2,246 1,890
Properties, net 7,423 8,248
Other assets 411 487
Long-term debt (3,044) (3,360)
Other liabilities (536) (1,248)
------ ------
Shareholders' equity 6,500 5,981
Unamortized excess of cost over
net assets acquired - 401
------ ------
Investments, at equity, in
unconsolidated affiliates $6,500 $6,382
====== ======
1997 1996 1995
---- ---- ----
(Thousands of dollars)
Sales $11,648 $26,890 $81,892
Costs and expenses (11,129) (27,414) (79,451)
------ ------ ------
Net income (loss),
from continuing operations 519 (524) 2,441
Unrecorded losses of Schon - - 1,336
Amortization of excess of
cost over net assets acquired (401) (421) (384)
Provision for income taxes (46) 381 (1,473)
------ ------ ------
Equity in net income of continuing
unconsolidated affiliates 72 (564) 1,920
Discontinued operation:
Gain on sale of Syroco, Inc.
- net of tax - - 4,904
Income from discontinued operations
- net of tax - - 678
------ ------ ------
Equity in net income of
unconsolidated affiliates $ 72 $ (564) $ 7,502
====== ====== ======
Note 6. INDEBTEDNESS:
Credit Agreement
- ----------------
On December 15, 1997, the Company entered into an unsecured $80 million
credit agreement agented by Bank of America with LaSalle National Bank acting
as co-agent, replacing a previous $30 million credit facility. Other
participating banks are The Northern Trust Company, Societe Generale and Banque
Paribas. The Company had no amounts outstanding under this agreement at
December 31, 1997.
Under the credit agreement, the Company must meet certain net worth and
other financial covenants.
Letters of credit totaling $5,508,000 were outstanding at December 31,
1997.
Long-Term Debt
- --------------
Long-term debt at December 31 includes: 1997 1996
---- ----
(Thousands of dollars)
Real estate and chattel mortgages, with interest
at various rates, due through 2008 $10,628 $ 9,239
Less current maturities (680) (657)
------ ------
9,948 8,582
Less amount classified with net noncurrent
assets of other operations to be disposed of (9,948) -
------ ------
$ - $ 8,582
====== ======
Aggregate maturities of long-term debt during the five years ending
December 31, 2002 are as follows:
(Thousands of dollars)
1998 680
1999 674
2000 674
2001 674
2002 674
Later years 7,252
------
Total $10,628
======
The long-term debt is an obligation of one of the other operations to be
disposed of under the Company's divestiture plan. Accordingly, the debt
balances for December 31, 1997, shown above, are not identified separately on
the Consolidated Balance Sheet, but instead are included within the line items
"Net current assets of other operations to be disposed of " and "Net noncurrent
assets of other operations to be disposed of".
Other
- -----
As of December 31, 1997, the Company is contingently liable for $8,000,000
of 8-1/8% Subordinated Industrial Development Bonds issued by Bee Gee. As of
December 31, 1997, the outstanding balance on these bonds is $6,129,000.
The carrying amounts of the Company's long and short-term debt agreements
approximate their fair market values.
Note 7. RETIREMENT BENEFIT PLANS:
Pension Plans
- -------------
Several domestic and foreign subsidiaries have pension plans covering
substantially all of their employees. These plans are noncontributory, defined
benefit pension plans. The benefits to be paid under these plans are generally
based on employees' retirement age and years of service. The companies'
funding policies, subject to the minimum funding requirements of the applicable
U.S. or foreign employee benefit and tax laws, are to contribute such amounts
as are determined on an actuarial basis to provide the plans with assets
sufficient to meet the benefit obligations. Plan assets consist primarily of
fixed income investments, corporate equities and government securities.
Schon's pension plan, which is funded by a note receivable from Schon, is not
included in the following data subsequent to June 30, 1995, the date on which
the Company sold one-half of its 75% ownership interest.
Net pension expense includes the following components:
1997 1996 1995
---- ---- ----
(Thousands of dollars)
Service cost $ 226 $ 218 $ 117
Interest cost 253 234 331
Actual return on plan assets (567) (411) (359)
Net amortization and deferral 263 140 178
---- ---- ----
Net pension expense $ 175 $ 181 $ 267
==== ==== ====
Major assumptions used to determine pension obligations:
Discount rates for obligations 7-7.5% 7-8.5% 7-8.5%
Discount rates for expenses 7-7.5% 7-8.5% 7-8.5%
Expected long-term rates of return 7.5-8% 8-8.5% 7-8.5%
Assumed rates of compensation increases 0-5% 0-5% 5%
U.S. plans have been valued using discount rates ranging from 7.0% to
7.5%. Foreign plans have been valued using discount rates ranging from 7.0 to
7.5% which approximate rates for obligations of similar duration in those
countries to which the plans apply.
The funded status of all plans at December 31 follows:
1997 1996
---- ----
Assets Accumulated Assets Accumulated
Exceed Benefit Exceed Benefit
Accumulated Obligations Accumulated Obligations
Benefit Exceed Benefit Exceed
Obligations Assets Obligations Assets
----------- ----------- ----------- -----------
(Thousands of dollars)
Vested benefits $(2,266) $(1,071) $(2,120) $ (989)
Nonvested benefits (175) (63) (133) (16)
------ ------ ------ ------
Accumulated benefit obligation (2,441) (1,134) (2,253) (1,005)
Effect of future
compensation increases - (39) 18 (36)
------ ------ ------ ------
Projected benefit obligation (2,441) (1,173) (2,235) (1,041)
Plan assets at fair value 3,070 1,041 2,816 814
------ ------ ------ ------
Projected benefit obligation less
than (in excess of) plan assets 629 (132) 581 (227)
Unrecognized net loss (74) 397 13 476
Unrecognized net transition
obligation (asset) (435) 68 (481) 76
Unrecognized prior service cost - - 82 -
Additional minimum liability 76 (452) - (544)
------ ------ ------ ------
Prepaid (accrued) pension cost $ 196 $ (119) $ 195 $ (219)
====== ====== ====== ======
In addition to the plans described above, in 1993 the Company's Board of
Directors approved a retirement compensation program for certain officers and
employees of the Company and a retirement compensation arrangement for the
Company's then Chairman and Chief Executive Officer. The Board approved a
total of $3,500,000 to fund such plans. This amount represents the best
estimate of the obligation that vested immediately upon Board approval and is
to be paid for services rendered to date.
Postretirement Benefits Other than Pensions
- -------------------------------------------
The Company provides certain health care and life insurance benefits for
some of its retired employees.
The accumulated postretirement benefit obligation at December 31, 1997 and
1996 is as follows:
1997 1996
---- ----
(Thousands of dollars)
Retirees $1,473 $1,571
Fully eligible active plan participants 244 228
Other active plan participants 388 344
Unrecognized net gain 538 596
Prior service cost (34) (38)
----- -----
$2,609 $2,701
===== =====
Net postretirement benefit costs for 1997, 1996 and 1995 include the
following:
1997 1996 1995
---- ---- ----
(Thousands of dollars)
Service cost-benefits
earned during the year $ 20 $ 20 $ 20
Interest cost on accumulated
postretirement benefit obligation 143 146 162
Amortization of unrecognized gain (52) (44) (56)
---- ---- ----
Total cost $ 111 $ 122 $ 126
==== ==== ====
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1997 was 8% for 1997
decreasing linearly each successive year until it reaches 4.5% in 2001, after
which it remains constant. A one-percentage-point increase in the assumed
health care cost trend rate for each year would increase the accumulated
postretirement benefit obligation as of December 31, 1997 and net
postretirement health care cost by approximately 14%. The assumed discount
rate used in determining the accumulated postretirement benefit obligation at
December 31, 1997 and 1996 was 7.0%, compounded annually.
401(k) Plans
- ------------
The Company offers its employees the opportunity to voluntarily
participate in one of six 401(k) plans administered by the Company or one of
its subsidiaries. The Company makes matching and other contributions in
accordance with the provisions of the plans and, under certain provisions, at
the discretion of the Company. The Company made annual matching and other
contributions of $623,000, $474,000 and $227,000 in 1997, 1996 and 1995,
respectively.
Note 8. SHAREHOLDERS' EQUITY:
Share Repurchase
- ----------------
In August 1995, Katy's Board of Directors authorized the Company to
repurchase up to 400,000 shares of its common stock over the subsequent twelve
months in open market transactions. On January 2, 1996, Katy's Board
authorized the Company to repurchase an additional 500,000 shares, bringing the
total authorization to 900,000 shares. In connection therewith, Katy
repurchased 38,000, 509,800 and 352,200 of its common shares during the years
ended December 31, 1997, 1996 and 1995, at a total cost of $566,000, $6,367,000
and $3,341,000, respectively. As of December 31, 1997, the full amount of
shares have been repurchased, thus, the repurchase program is complete.
During 1997, the Company initiated an "Odd Lot Buyback" program to
repurchase shares held by shareholders owning fewer than 100 shares. During
the year ended December 31, 1997, Katy repurchased 4,695 of its common shares
at a cost of $87,000 relating to this program.
Stockholder Rights Plan
- -----------------------
In January 1995, the Board of Directors adopted a Stockholder Rights Plan
and distributed one right for each outstanding share of the Company's common
stock. Each right entitles the shareholder to acquire one share of the
Company's common stock at an exercise price of $35, subject to adjustment. The
rights are not and will not become exercisable unless certain change of control
events occur. As of December 31, 1997, there are 8,280,007 rights outstanding
of which none are exercisable.
1994 Key Employee and Director Stock Purchase Plan
- --------------------------------------------------
In 1994, the Board of Directors approved the Stock Purchase Plan for Key
Employees and Directors. Under the Plan, shares of the Company's common stock,
held in the treasury, were reserved for issuance at a purchase price equal to
65% (50% in certain cases) of the market value of the shares as determined
based upon the offering period established by the Compensation Committee of the
Company's Board of Directors. During 1996, 24,000 shares were issued at prices
ranging from $6.17 to $8.02 per share. As of December 31, 1997, 83,000 shares
have been issued at prices ranging from $6.17 to $8.02 per share. The issuance
of these shares, in 1996, for total notes receivable of $141,000, was a noncash
financing transaction.
Proceeds from the sale of these shares consisted of cash or notes
receivable due on demand but no later than sixty months from date of purchase
with an interest rate equal to the Federal Short-Term Funds Rate. The Company
is holding the shares as collateral for all notes receivable. Further, these
shares cannot be sold until twenty-four months from the date of purchase
provided the notes have been repaid. Notes receivable from plan participants
are included in the Consolidated Balance Sheets under the caption "Foreign
currency translation and other adjustments". The excess of the cost of the
treasury shares over the market value of the shares at the date of purchase of
$43,000 was charged to retained earnings in 1996. The excess of the market
value of the shares over the purchase price of $113,000 was charged to
compensation expense in 1996.
Restricted Stock Grant
- ----------------------
During 1997, the Company issued restricted stock grants in the amount of
44,250 shares to certain key employees of the Company. These stock grants are
vesting over a four year period, of which 25% vested immediately upon
distribution. As a result of this transaction, the Company has recognized
compensation expense for 1997 in the amount of $324,000.
Director Stock Grant
- --------------------
During 1997, the Company granted all non-employed Directors 500 shares of
Company stock. The total grant to the Directors for the year ending December
31, 1997 was 4,500 shares.
Stock Option Plans
- ------------------
During 1995, the Company established stock option plans providing for the
grant of options to purchase common shares to outside directors, executives and
certain key employees. The Compensation Committee of the Board of Directors
administers the plans and approves stock option grants. Stock options granted
under the plans are exercisable at a price equal to the market value of the
stock at the date of grant. The options, in the case of nonemployee directors
are immediately exercisable, and in the case of executives and key employees,
become exercisable from one to four years from the date of grant and generally
expire 10 years from the date of grant. The following table summarizes option
activity under the plans:
Weighted
Average Weighted
Remaining Average
Contractual Exercise
Options Exercise Price Life Price
------- -------------- ----------- --------
Outstanding at
December 31, 1994 -
Granted 197,000 $8.50 - 9.25 $8.96
Canceled -
-------
Outstanding at
December 31, 1995 197,000 $8.50 - 9.25 9.8 years $8.96
Granted 304,750 $12.69 - 13.57 $13.21
Canceled (12,000) $8.50 - 9.25 $9.00
-------
Outstanding at
December 31, 1996 489,750 $8.50 - 13.57 9.5 years $11.60
Granted 33,000 $16.13 - 19.56 $17.87
Exercised (21,850) $8.50 - 13.19 $11.25
Canceled (17,500) $8.50 - 9.25 $12.69
-------
Outstanding at
December 31, 1997 483,400 $8.50 - 19.56 8.5 years $11.99
=======
Vested and exercisable
at December 31, 1997 189,539 $11.37
=======
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized. Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") was issued and, if fully adopted by the Company,
would change the method for recognition of cost. Under SFAS No. 123, cost is
based upon the fair value of each option at the date of grant using an
option-pricing model that takes into account as of the grant date the exercise
price and expected life of the option, the current price of the underlying
stock and its expected volatility, expected dividends on the stock and the
risk-free interest rate for the expected term of the option. Had compensation
cost been determined based on the fair value method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below. The weighted average fair values of options
granted in 1997 and 1996 were $7.02 and $4.80, respectively.
The fair value of each option grant is estimated on the date of grant
using the binomial option-pricing model with the following assumptions used for
grants on June 8, 1995, December 29, 1995, May 20, 1996, July 30, 1996,
December 9, 1996, May 19, 1997 and December 9, 1997, respectively: dividend
yield of 1.82%, 2.35% and 2.35% for the periods 1997, 1996 and 1995,
respectively; expected volatility ranging from 17.8% to 29.9% for all grants,
risk free interest rates ranging from of 5.18% to 6.44% for all grants; and
expected lives of 5 years for all grants.
1997 1996 1995
---- ---- ----
(In thousands, except per share amounts)
Net income as reported $11,602 $13,716 $28,571
====== ====== ======
Net income - pro forma $11,334 $13,628 $28,559
====== ====== ======
Earnings per share as reported - Basic $1.40 $1.64 $3.18
====== ====== ======
Earnings per share - pro forma - Basic $1.37 $1.63 $3.18
====== ====== ======
Earnings per share as reported - Diluted $1.38 $1.64 $3.18
====== ====== ======
Earnings per share - pro forma - Diluted $1.35 $1.63 $3.18
====== ====== ======
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts and additional awards are anticipated in future
years.
Foreign Currency Translation and Other Adjustments
- --------------------------------------------------
The components of the foreign currency translation and other adjustments
section of shareholders' equity are as follows:
December 31, 1997 1996
---- ----
(Thousands of dollars)
Foreign currency translation adjustments $(1,461) $(1,287)
Deferred compensation (324) -
Notes receivable from key employees and
directors under the Stock Purchase Plan (491) (491)
------ ------
$(2,276) $(1,778)
====== ======
Note 9. WASTE-TO-ENERGY FACILITY:
A limited partnership, all the partners of which are the Company's
subsidiaries, owns a waste-to-energy facility in Savannah, Georgia. The
limited partnership is under contract with the Resource Recovery Development
Authority ("Authority") of the City of Savannah (the "City") to receive and
dispose of the City's solid waste through 2007. The contract provides for
minimum levels of the limited partnership's disposal fee income to be used to
retire the $50,700,000 of industrial revenue bonds issued by an Authority of
the City to finance construction of the plant.
In substance, the City desired a solid waste disposal and resource
recovery facility, issued bonds to finance construction of the facility, and
contracted the Company (inclusive of its subsidiaries and their partnership
interests) to construct, operate and maintain the facility. In return for its
services, it was intended that the Company would receive a reasonable profit
and the facility upon the termination of the various agreements. The Company
is obligated to perform under the various agreements. The Company is therefore
merely the operator of the facility and has not recorded the cost of the
facility or the obligations related to its construction in its Consolidated
Financial Statements since a right of offset exists.
Under terms of the contract, the Company has made contributions to the
trust fund totaling $9,200,000. In consideration for these contributions, the
waste-to-energy facility will revert to the Company, subject to collateral
agreements under the bond indentures, when the service agreement expires. The
Company is not required to make any additional payments to the trust fund. The
Company's subsidiary has made capital expenditures to improve the operating
facility, and these expenditures have been accounted for as deferred expenses
and are being amortized through 2007, the period during which the Company
expects to realize the economic benefits associated with such expenditures. At
December 31, 1997 and 1996, expenditures of $1,557,000 and $1,858,000, net of
accumulated amortization of $6,142,000 and $5,841,000, respectively, are
reflected in the Consolidated Financial Statements. Balances for 1997 and 1996
are included in "Net noncurrent assets of other operations to be disposed of"
and "Investment in waste-to-energy facility," respectively, in the Consolidated
Balance Sheets. See Note 3 for further discussion.
Note 10. INCOME TAXES:
The domestic and foreign components of income (loss) before income taxes,
exclusive of equity in income of unconsolidated affiliates, are:
1997 1996 1995
---- ---- ----
(Thousands of dollars)
Domestic
Continuing $14,148 $21,469 $13,709
Discontinued 3,159 1,361 3,512
------ ------ ------
Total domestic $17,307 $22,830 $17,221
====== ====== ======
Foreign
Continuing $ 417 $ (503) $ 1,021
Discontinued (49) 152 (109)
------ ------ ------
Total foreign $ 368 $ (351) $ 912
====== ====== ======
Total worldwide $17,675 $22,479 $18,133
====== ====== ======
The components of the net provision (benefit) for income taxes are:
1997 1996 1995
---- ---- ----
(Thousands of dollars)
Continuing operations:
Current:
Federal $ 2,786 $ 1,385 $ 2,454
State 340 243 (472)
Foreign 47 0 0
------ ------ ------
Total 3,173 1,628 1,982
------ ------ ------
Deferred:
Federal 1,315 5,729 795
State 269 87 (1,929)
Foreign 165 (186) 0
------ ------ ------
Total 1,749 5,630 (1,134)
------ ------ ------
Total continuing operations $ 4,922 $ 7,258 $ 848
====== ====== ======
Discontinued operations:
Federal $ 1,065 $ 674 $ 1,143
State 104 52 (25)
Foreign (18) (166) 141
------ ------ ------
Total $ 1,151 $ 560 $ 1,259
------ ------ ------
Net provision for income taxes $ 6,073 $ 7,818 $ 2,107
====== ====== ======
The total income tax provision for continuing operations differed from the
amount computed by applying the statutory federal income tax rate to pretax
income from continuing operations. The computed amount and the differences for
the years ended December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
---- ---- ----
(Thousands of dollars)
Provision for income taxes at statutory rate $ 5,098 $ 7,338 $ 5,155
State income taxes, net of federal benefit 492 403 1,091
Foreign tax rate differential 20 - -
Amortization of negative goodwill (596) - -
Tax benefit from Schon sale - Note 2 - - (3,000)
Benefit of net operating loss carryforwards (49) (22) (49)
Other, net (43) (80) (686)
------ ------ ------
Provision for income taxes from
continuing consolidated operations 4,922 7,639 2,511
Undistributed earnings (loss) of equity investees - (381) (1,663)
------ ------ ------
Net provision for income taxes $ 4,922 $ 7,258 $ 848
====== ====== ======
The tax effects of significant items comprising the Company's net deferred
tax liability as of December 31, 1997 and 1996 are as follows:
1997 1996
---- ----
(Thousands of dollars)
Deferred tax liabilities:
Difference between book and tax basis of property $ 149 $ 95
Waste-to-energy facility 17,581 17,668
Undistributed earnings of equity investees 10,616 10,570
------ ------
28,346 28,333
------ ------
Deferred tax assets:
Allowance for doubtful receivables 1,837 1,824
Inventory costs 2,698 2,402
Accrued expenses and other items 11,806 11,962
Operating loss carryforwards - domestic 3,097 3,233
Operating loss carryforwards - foreign 361 160
Tax credit carryforwards 46 122
------ ------
19,845 19,703
Less valuation allowance (799) (900)
------ ------
19,046 18,803
------ ------
Net deferred tax liability $ 9,300 $ 9,530
====== ======
The valuation allowance primarily relates to domestic net operating loss
carryforwards and foreign tax credit carryforwards that may not be realized due
to uncertainties as to certain subsidiaries realization of future income and to
past losses from foreign operations. The valuation allowance decreased $101,000
during the year ended December 31, 1997, due to partial utilization of
available net operating losses. The domestic net operating loss carryforwards
primarily relate to the waste-to-energy facility and the business that operates
cold storage facilities and can only be used to offset income from those
operations. Domestic net operating loss carryforwards have expiration dates
ranging from 1998 to 2008.
At December 31, 1997, foreign tax credit carryforwards of $46,000 (with an
expiration date in 1998) are available.
Note 11. LEASE OBLIGATIONS:
The Company has entered into noncancelable leases for manufacturing and
data processing equipment and real property with lease terms of up to five
years. The Company is generally obligated for the cost of property taxes,
insurance and maintenance. Future minimum lease payments as of December 31,
1997 are as follows:
(Thousands of dollars)
1998.................................. $ 3,878
1999.................................. 3,307
2000.................................. 1,821
2001.................................. 1,309
2002.................................. 806
Later years........................... 3,102
------
Total minimum payments.............. $14,223
======
Rental expense for 1997, 1996 and 1995 for operating leases was
$3,928,000, $1,456,000 and $1,458,000, respectively.
Note 12. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION:
The Company is a manufacturer and distributor of a variety of industrial
and consumer products, including sanitary maintenance supplies, coated
abrasives, stains, electrical and electronic components, and nonpowered hand
tools. Principal markets are in the United States and Canada, and include the
sanitary maintenance, restaurant supply, retail, electronic, automotive, and
computer markets. The diversity of the Company's products and markets ensure
that there is not a material impact on the Company in total from one product or
one marketplace. These activities are grouped into two industry segments:
Electrical/Electronic and Maintenance Products. Katy is dependent upon one
customer for approximately 15% of annual sales. Katy is not dependent on any
other single customer for a material portion of its overall business. The
Company is not reliant upon any one significant vendor or material.
Segment information for the years ended December 31, 1997, 1996 and 1995
is presented under "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations" included in Part II, Item 7.
Export sales of products, primarily to Canada, Central and South America,
Europe, the Middle East and the Far East, were $13,428,000, $5,960,000, and
$8,938,000 in 1997, 1996 and 1995, respectively.
The Company operates businesses both in the United States and foreign
countries. The operations for 1997, 1996 and 1995 of businesses within major
geographic areas are summarized as follows:
United Canada/
States Mexico Europe Other Consolidated
------ ------ ------ ----- ------------
(Thousands of dollars)
1997:
Sales to unaffiliated customers $256,182 $13,496 $ 2,396 $1,959 $274,033
======= ====== ====== ===== =======
Operating income $ 10,831 $ 956 $ 218 $ 174 $ 12,179
======= ====== ====== ===== =======
Identifiable assets [a] $220,713 $14,860 $ - $ - $235,573
======= ====== ====== ===== =======
1996:
Sales to unaffiliated customers $145,184 $ 4,907 $ 3,747 $2,186 $156,024
======= ====== ====== ===== =======
Operating income $ 7,004 $ 342 $ 418 $ 206 $ 7,970
======= ====== ====== ===== =======
Identifiable assets [a] $220,796 $14,581 $ - $ - $235,377
======= ====== ====== ===== =======
1995:
Sales to unaffiliated customers $118,234 $ 1,473 $12,741 $3,645 $136,093
======= ====== ====== ===== =======
Operating income (loss) $ 1,213 $ 191 $(1,492) $ (357) $ (445)
======= ====== ====== ===== =======
Identifiable assets $207,499 $17,913 $ - $ - $225,412
======= ====== ====== ===== =======
Net sales for each geographic area include sales of products produced in
that area and sold to unaffiliated customers, as reported in the Statements of
Consolidated Operations.
[a] Amounts represent total identifiable assets, net of liabilities of
$16,818,000 and $4,131,000 for 1997 and 1996, respectively. The $16,818,000
represents the total liabilities of both Discontinued Operations and Other
Operations to be Disposed Of, whereas, the $4,131,000 represents the total
liabilities of Discontinued Operations.
Note 13. CONTINGENT LIABILITIES
In December 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Woods Industries, Inc. ("Woods"), a subsidiary of the Company,
and against certain past and then present officers and directors and former
owners of Woods, alleging that the defendants participated in a violation of
the Racketeer Influenced and Corrupt Organizations Act involving allegedly
fraudulently obtained loans from Mexican banks, including the plaintiff, and
"money laundering" of the proceeds of the illegal enterprise. The plaintiff
also alleges that it made loans to an entity controlled by certain officers and
directors based upon fraudulent representations. The plaintiff seeks to hold
Woods liable for its alleged damage under principles of respondeat superior and
successor liability. The plaintiff is claiming damages in excess of
$24,000,000 and is requesting treble damages under the statutes. The defendants
have filed a motion, which has not been ruled on, to dismiss this action on
jurisdictional grounds. Because the litigation is in preliminary stages, it
is not possible at this time for the Company to determine an outcome or
reasonably estimate the range of potential exposure. Katy may have recourse
against the former owner of Woods and others for, among other things,
violations of covenants, representations and warranties under the purchase
agreement, and under state, federal and common law. In addition, the purchase
price under the purchase agreement may be subject to adjustment as a result of
the claims made by Banco del Atlantico. The extent or limit of any such
recourse cannot be predicted at this time.
Katy also has a number of product liability and workers' compensation
claims pending against it and its subsidiaries. Many of these claims are
proceeding through the litigation process and the final outcome will not be
known until a settlement is reached with the claimant or the case is
adjudicated. It can take up to 10 years from the date of the injury to reach a
final outcome for such claims. With respect to the product liability and
workers' compensation claims, Katy has provided for its share of expected
losses beyond the applicable insurance coverage, including those incurred but
not reported, which are developed using actuarial techniques. Such accruals
are developed using currently available claim information, and represent
management's best estimates. The ultimate cost of any individual claim can
vary based upon, among other factors, the nature of the injury, the duration of
the disability period, the length of the claim period, the jurisdiction of the
claim and the nature of the final outcome.
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency, state environmental agencies and
private parties as potentially responsible parties ("PRPs") at a number of
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") or equivalent state laws and, as
such, may be liable for the cost of cleanup and other remedial activities at
these sites. Responsibility for cleanup and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
The means of determining allocation among PRPs is generally set forth in a
written agreement entered into by the PRPs at a particular site. An allocation
share assigned to a PRP is often based on the PRP's volumetric contribution of
waste to a site. Under the federal Superfund statute, parties are held to be
jointly and severally liable, thus subjecting them to potential individual
liability for the entire cost of cleanup at the site. The Company is also
involved in remedial response and voluntary environmental cleanup at a number
of other sites which are not currently the subject of any legal proceedings
under Superfund, including certain of its current and formerly owned
manufacturing facilities. Based on its estimate of allocation of liability
among PRPs, the probability that other PRPs, many of whom are large, solvent,
public companies, will fully pay the costs apportioned to them, currently
available information concerning the scope of contamination, estimated
remediation costs, estimated legal fees and other factors, the Company has
recorded and accrued for indicated environmental liabilities in the aggregate
amount of approximately $4,405,000 at December 31, 1997. The ultimate cost
will depend on a number of factors and the amount currently accrued represents
management's best current estimate of the total cost to be incurred. The
Company expects this amount to be substantially paid over the next one to four
years.
The most significant environmental matters in which the Company is
currently involved are as follows:
1. In 1993, the United States Environmental Protection Agency ("USEPA")
initiated a Unilateral Administrative Order Proceeding under Section
7003 of the Resource Conservation and Recovery Act ("RCRA") against
W.J. Smith and Katy. The proceeding requires certain actions at the
site and certain off-site areas, as well as development and
implementation of additional cleanup activities to mitigate off-site
releases. In December 1995, W.J. Smith, Katy and USEPA agreed to
resolve the proceeding through an Administrative Order on Consent under
Section 7003 of RCRA. Pursuant to the Order, W.J. Smith is currently
implementing a cleanup to mitigate off-site releases.
2. During 1995, the Company reached agreement with the Oregon Department
of Environmental Quality ("ODEQ") as to a cleanup plan for PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage. The plan called for the Company
to provide a trust fund of $1,300,000 to fund cleanup costs at the
site. These funds were expended in 1995. The plan also called for the
present occupants of the site, Balteau Standard, Inc. to provide the
next $450,000 of cost, with any additional costs to be shared equally
between the two parties. Balteau Standard has paid the next $450,000
and the parties are now sharing equally in cleanup costs. Katy
believes the cleanup plan has been successful and has requested that
the ODEQ inspect and approve the remediation work. Katy has received
such approval with respect to a portion of the cleanup plan. Further
monitoring of groundwater and testing and cleanup of adjacent property
may be required before approval can be obtained with respect to the
remainder of the plan. Pending such approval, the liability of Katy
and its subsidiary cannot be determined at this time.
3. Pursuant to an agreement executed in connection with the sale of assets
of JEI Liquidating, Inc., a Katy subsidiary, Katy has agreed to defend
and indemnify the buyer of such assets, Allard Industries, Inc.
("Allard"), in the case captioned "United States v. Exxon, et al." in
U.S. District Court, D.N.H., consolidated nos. C-92-486; C-93-95-L;
C-94-148-Lcas. The case concerns the disposal of hazardous substances
at a landfill site in Londonderry, New Hampshire, at which JEI
Liquidating Inc. allegedly disposed of hazardous substances from its
Manchester, New Hampshire facility. The case arises under the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), under which generators and transporters of hazardous
substances are generally held to be jointly and severally liable for
the cleanup of those substances when released into the environment.
The parties to the litigation have reached a settlement in principle,
the specific terms of which are being negotiated in a Consent Decree.
Under the expected Consent Decree, Allard/Katy will pay approximately
$287,000 and perform no future work at the site, subject to limited
re-openers. In exchange, Allard and Katy will receive a release and
contribution protection. Honeywell Inc., a former owner and operator
of JEI Liquidating Inc.'s Manchester, New Hampshire facility, has
agreed in principle to pay $40,000 of Allard/Katy's settlement under
the Consent Decree. Pending entry of the Consent Decree and receipt
of a release, Katy's liability cannot be determined at this time.
Although management believes that these actions individually and in the
aggregate are not likely to have a material adverse effect on the Company,
further costs could be significant and will be recorded as a charge to
operations when such costs become probable and reasonably estimable.
Note 14. UNUSUAL ITEMS:
During 1997, 1996 and 1995, various charges and credits, as follows, were
recorded in the Company's Statements of Consolidated Operations:
1997
- ----
During 1997, the Company recorded a pre-tax gain of $585,000 on the sale
of property.
1996
- ----
During 1996, the Company sold its remaining investment in Union Pacific
common stock and Union Pacific Resources common stock for total proceeds of
$18,681,000 resulting in a pre-tax gain of $10,612,000.
1995
- ----
During the second quarter of 1995, the Company sold one-half of its 75%
interest in Schon & Cie, AG. With the reduction in its ownership interest,
the Company began reporting its continuing investment in Schon using the
equity method of accounting. In connection with the sale, the Company recorded
a gain of $4,920,000 reflecting the reversal of previously recorded losses of
Schon and a deferred tax asset of $3,000,000.
During the third quarter of 1995, the Company sold a portion of its
holdings of Union Pacific Corporation common stock for proceeds of $15,550,000,
resulting in a pre-tax gain of $7,675,000.
During 1995, the Company received settlements from various insurance
companies in the amount of $2,846,000 in settlement of claims associated with
environmental issues.
In the fourth quarter of 1995, the Company sold its wholly owned
subsidiary, WSC Liquidating Co., whose sole asset consisted of common shares of
Syratech Corporation. Katy also sold additional shares which were held
directly by Katy. The net proceeds from these transactions was approximately
$50,800,000 and resulted in an after tax gain of $7,500,000, comprised of a
gain of $793,000 and the reversal of $6,707,000 of deferred taxes previously
provided on Katy's share of Syratech's income, which has been determined to not
be required as a result of these transactions.
Note 15: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Quarterly results of operations have been affected by unusual or
infrequently occurring items as discussed in Notes 5 and 14.
1997 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---- ------- ------- ------- -------
(Thousands of dollars, except per share amounts)
Net sales $62,333 $60,818 $71,779 $79,103
====== ====== ====== ======
Gross profit $14,846 $21,969 $19,804 $19,781
====== ====== ====== ======
Income from continuing operations $ 1,987 $ 1,959 $ 2,321 $ 3,376
Discontinued operations 503 600 289 567
------ ------ ------ ------
Net income $ 2,490 $ 2,559 $ 2,610 $ 3,943
====== ====== ====== ======
Earnings per share - Basic
Continuing operations $ 0.24 $ 0.24 $ 0.28 $ 0.41
Discontinued operations 0.06 0.07 0.04 0.07
------ ------ ------ ------
Net income $ 0.30 $ 0.31 $ 0.32 $ 0.48
====== ====== ====== ======
Earnings per share - Diluted
Continuing operations $ 0.24 $ 0.23 $ 0.28 $ 0.40
Discontinued operations 0.06 0.07 0.03 0.07
------ ------ ------ ------
Net income $ 0.30 $ 0.30 $ 0.31 $ 0.47
====== ====== ====== ======
1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---- ------- ------- ------- -------
(Thousands of dollars, except per share amounts)
Net sales $34,881 $35,710 $38,910 $46,523
====== ====== ====== ======
Gross profit $11,064 $11,667 $11,735 $13,100
====== ====== ====== ======
Income from continuing operations $ 4,102 $ 2,044 $ 1,593 $ 5,024
Discontinued operations 327 255 42 329
------ ------ ------ ------
Net income $ 4,429 $ 2,299 $ 1,635 $ 5,353
====== ====== ====== ======
Earnings per share - Basic
Continuing operations $ 0.48 $ 0.25 $ 0.20 $ 0.61
Discontinued operations 0.04 0.03 0.00 0.04
------ ------ ------ ------
Net income $ 0.52 $ 0.28 $ 0.20 $ 0.65
====== ====== ====== ======
Earnings per share - Diluted
Continuing operations $ 0.48 $ 0.25 $ 0.20 $ 0.61
Discontinued operations 0.04 0.03 0.00 0.04
------ ------ ------ ------
Net income $ 0.52 $ 0.28 $ 0.20 $ 0.65
====== ====== ====== ======
Item 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
- -----------------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
- ------------------------
Not applicable.
Part III.
---------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information regarding the directors of Katy is incorporated herein by
reference to the information set forth under the section entitled "Election of
Directors" in the 1998 Proxy Statement.
Information regarding executive officers of the Company is incorporated
herein by reference to the information set forth under the section "Information
Concerning Directors and Executive Officers" in the 1998 Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
- --------------------------------
Information regarding compensation of executive officers is incorporated
by reference to the materials under the caption "Executive Compensation" in the
1998 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information regarding beneficial ownership of stock by certain beneficial
owners and by management of Katy is incorporated herein by reference to the
information set forth under the section "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the 1998 Proxy
Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information regarding certain relationships and related transactions with
management is incorporated herein by reference to the information set forth
under the section "Certain Relationships and Related Transactions" in the 1998
Proxy Statement.
Part IV.
--------
Item 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------------------
(a) 1. Financial Statement Schedules
---------------------------------
The Financial statement schedule filed with this report is listed on the
"Index to Financial Statement Schedules."
2. Exhibits
------------
The exhibits filed with this report are listed on the "Exhibit Index."
(b) Reports on Form 8-K
-------------------
On January 14, 1998, the Company filed a current report on Form 8-K providing
information in response to Item 5 to Form 8-K with respect to the plan to
divest certain companies and reorganize its remaining operations into two
business segments.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 25, 1998 KATY INDUSTRIES, INC.
Registrant
/S/ John R. Prann, Jr.
----------------------
John R. Prann, Jr.
President and Chief Executive Officer
POWER OF ATTORNEY
Each person signing below appoints John R. Prann, Jr. and Stephen P.
Nicholson, or either of them, his attorneys-in-fact for him in any and all
capacities, with power of substitution, to sign any amendments to this report,
and to file the same with any exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of this 25th day of March, 1998.
Signature Title
- --------- -----
/S/ Jacob Saliba Chairman of the Board and Director
- ----------------
Jacob Saliba
/S/ John R. Prann, Jr. President, Chief Executive Officer and Director
- ---------------------- (Principal Executive Officer)
John R. Prann, Jr.
/S/ Stephen P. Nicholson Vice President, Finance and Chief Financial Officer
- ------------------------ (Principal Financial and Accounting Officer)
Stephen P. Nicholson
/S/ Glenn W. Turcotte Executive Vice President, Chief Operating Officer
- --------------------- and Director
Glenn W. Turcotte
/S/ Arthur R. Miller Executive Vice President, Corporate Development,
- -------------------- General Counsel and Director
Arthur R. Miller
/S/ William F. Andrews Director
- ----------------------
William F. Andrews
/S/ Amelia M. Carroll Director
- ---------------------
Amelia M. Carroll
/S/ Daniel B. Carroll Director
- ---------------------
Daniel B. Carroll
/S/ Wallace E. Carroll, Jr. Director
- ---------------------------
Wallace E. Carroll, Jr.
/S/ William H. Murphy Director
- ---------------------
William H. Murphy
/S/ Lutz Raettig Director
- ----------------
Lutz Raettig
/S/ Charles W. Sahlman Director
- ----------------------
Charles W. Sahlman
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
----
Independent Auditors' Report 46
Schedule II - Valuation and Qualifying Accounts 47
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements of Katy or the Notes thereto.
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
KATY INDUSTRIES, INC.
We have audited the consolidated financial statements of Katy Industries, Inc.
and subsidiaries (the "Company") as of December 31, 1997 and 1996, and for each
of the three years in the period ended December 31, 1997, and have issued our
report thereon dated January 27, 1998; such report is included elsewhere in
this Form 10-K. Our audits also included the financial statement schedule of
Katy Industries, Inc., listed in Item 14. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 27, 1998
KATY INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Thousands of dollars)
Balance at Additions Write-offs Balance
Beginning Charged to to the Other at End
Description of Year Expense Reserve Adjustments of Year
- ----------- ---------- ---------- --------- ----------- -------
Reserves deducted from
assets to which they apply:
Year ended December 31, 1997: [a]
Reserve for doubtful accounts:
Trade receivables $1,012 $405 $(429) $(155) [b] $708
(94) [c]
(31) [d]
Current notes and other
accounts receivable 329 - - 94 [c] 410
(13) [b]
Long-term notes receivable 2,500 - - - 2,500
----- ----- ----- ----- -----
$3,841 $ 405 $(429) $(199) $3,618
===== ===== ===== ===== =====
Year ended December 31, 1996:
Reserve for doubtful accounts:
Trade receivables $886 $455 $(174) $42 [e] $1,181
(28) [b]
Current notes and other
accounts receivable 966 146 (667) - 445
Long-term notes receivable 2,500 - - - 2,500
----- ----- ----- ----- -----
$4,352 $601 $(841) $14 $4,126
===== ===== ===== ===== =====
Year ended December 31, 1995:
Reserve for doubtful accounts:
Trade receivables $3,183 $257 $(105) $12 [e] $886
(2,461) [f]
Current notes and other
accounts receivable 854 422 (54) (256) [b] 966
Long-term notes receivable 2,500 - - - 2,500
----- ----- ----- ----- -----
$6,537 $679 $(159)$(2,705) $4,352
===== ===== ===== ===== =====
[a] In accordance with the divestiture plan, beginning balances for 1997
reflect the exclusion of the reserves for discontinued operations.
[b] Doubtful accounts and credit memos written-off against the reserve.
[c] Amount reclassed from the 'Reserve for doubtful accounts: Trade
receivables" to "Current notes and other accounts receivable".
[d] Amount included in "Net current assets of other operations to be disposed
of" line item in the current year and in the "Accounts receivable, trade"
line item in the prior year.
[e] Adjustment due to acquisition of subsidiary.
[f] Adjustment due to deconsolidation of subsidiary.
KATY INDUSTRIES, INC.
INDEX OF EXHIBITS
DECEMBER 31, 1997
Exhibit
Number Exhibit Title Page
- ------ ------------- ----
3.1 Certificate of Incorporation (incorporated by reference to Katy's *
Form 10-K for year ended December 31, 1987, filed March 29, 1988).
3.2 By-Laws (incorporated by reference to Katy's Form 8-K filed *
February 15, 1996).
4.1 Rights Agreement dated as of January 13, 1995 between Katy and *
Harris Trust and Savings Bank as Rights Agent (incorporated by
reference to Katy's Form 8-K filed January 24, 1995).
4.1a Amendment dated as of October 31, 1996 to the Rights Agreement *
dated as of January 13, 1995 between Katy and Harris Trust and
Savings Bans as Rights Agent (incorporated by reference to Katy's
Form 8-K filed November 8, 1996).
10.1 Katy's Industries, Inc. 1994 Key Employee and Director Stock *
Purchase Plan (incorporated by reference to Katy's Registration
Statement on Form S-8 filed September 28, 1994, Reg. No. 33-55647).
10.2 Katy Industries, Inc. Long-Term Incentive Plan (incorporated by *
reference to Katy's Registration Statement on Form S-8 filed
June 21, 1995, Reg. No. 33-60443).
10.3 Katy Industries, Inc. Non-Employee Director Stock Option Plan *
(incorporated by reference to Katy's Registration Statement on
Form S-8 filed June 21, 1995, Reg. No. 33-60449).
10.4 Katy Industries, Inc. Supplemental Retirement and Deferral *
Plan effective as of June 1, 1995.
10.5 Katy Industries, Inc. Directors' Deferred Compensation Plan *
effective as of June 1, 1995.
10.6 Katy Industries, Inc. Form of Compensation and Benefits Assurance *
Agreement (covering Tier I employees: John R. Prann, Jr., Glenn W.
Turcotte and Robert Baratta).
10.7 Katy Industries, Inc. Form of Compensation and Benefits Assurance *
Agreement (covering Tier II employees: Michael G. Gordono).
4 Credit Agreement 50
21 Subsidiaries of registrant 49
23 Independent Auditors' Consent *
27 Financial Data Schedule
* Indicates incorporated by reference.
Exhibit 21
----------
SUBSIDIARIES OF REGISTRANT
The following list sets forth subsidiaries of Katy Industries, Inc. as of
March 25, 1998, with successive indentation indicating parent/subsidiary
relationships of such subsidiaries. The percentage (unless 100%) of
outstanding equity securities owned by the immediate parent and the state of
jurisdiction or incorporation of each such subsidiary is stated in parentheses.
Omitted subsidiaries do not, in the aggregate, constitute a "significant
subsidiary".
American Gage & Machine Company (Illinois)
Bach Simpson, Inc. (Delaware)
Bach-Simpson, Ltd. (Ontario, Canada)
Glit/Gemtex, Ltd. (Ontario, Canada) (June 1, 1997 and forward)
Glit Canada (June 1, 1997 and forward)
Bee Gee Holding Company, Inc. (Florida) (39%)
Bush Universal, Inc. (New York)
Hamilton Precision Metals, Inc. (Delaware)
Waldom Electronics, Inc. (Delaware)
Waldom Electronics, Inc. (Illinois)
C.E.G.F.(USA), Inc. (Delaware) (95%)
Duckback Products, Inc. (Delaware)
Hallmark Holdings, Inc. (Delaware) (Formerly Elgin Watch International, Inc.)
Diehl Machines, Inc.
GC Thorsen, Inc.
Glit/Gemtex, Inc.
Loren Products
JEI Liquidating, Inc. (Delaware)
Katy Oil Company of Indonesia (Delaware)
Katy-Teweh Petroleum Company (Delaware)
Katy-Seghers, Inc. (Delaware)
Savannah Energy Systems Company (Delaware)
Peters Machinery Company (Delaware)
Schon & Cie, AG (Germany) (11%)
American Shoe Machinery Corporation, Inc. (Delaware)
Societe de Fabrication Europeenne des Machines, S.A.R.L. (France)
Schon Machinery U.S.A., Inc. (Illinois)
Schon Engineering KFT (Hungary) (51%)
Schon-Kaev-Eger KFT (Hungary) (58%)
Sinecure Financial Corp. (Colorado) (11%)
The Original Italian Pasta Products Co., Inc. (Massachusetts) (21%)
W.J. Smith, Wood Preserving Company (Texas)
Woods Industries, Inc. (Delaware)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,327,000
<SECURITIES> 0
<RECEIVABLES> 51,295,000
<ALLOWANCES> 1,118,000
<INVENTORY> 53,369,000
<CURRENT-ASSETS> 159,553,000
<PP&E> 35,400,000
<DEPRECIATION> 14,841,000
<TOTAL-ASSETS> 235,573,000
<CURRENT-LIABILITIES> 56,301,000
<BONDS> 0
0
0
<COMMON> 9,822,000
<OTHER-SE> 129,349,000
<TOTAL-LIABILITY-AND-EQUITY> 235,573,000
<SALES> 274,033,000
<TOTAL-REVENUES> 274,033,000
<CGS> 197,633,000
<TOTAL-COSTS> 261,854,000
<OTHER-EXPENSES> (2,622,000)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,000
<INCOME-PRETAX> 14,565,000
<INCOME-TAX> 4,922,000
<INCOME-CONTINUING> 9,643,000
<DISCONTINUED> 1,959,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,602,000
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.38
<FN>
<F1>"Other-Expenses" includes Equity in income of other operations
to be disposed of, $539,000.
</FN>
</TABLE>
CREDIT AGREEMENT
Dated as of December 12, 1997
among
KATY INDUSTRIES, INC.,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent and Issuing Bank,
LA SALLE NATIONAL BANK,
as Co-agent
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
Arranged by
BANCAMERICA ROBERTSON STEPHENS
TABLE OF CONTENTS
-----------------
ARTICLE I. DEFINITIONS............................................1
1.1 Certain Defined Terms.Y......................................1
1.2 Other Interpretive Provisions...............................22
1.3 Accounting Principles.......................................23
ARTICLE II. THE CREDITS..........................................23
2.1 Amounts and Terms of Commitments............................23
2.2 Loan Accounts...............................................24
2.3 Procedure for Borrowing.....................................25
2.4 Conversion and Continuation Elections.......................26
2.5 Voluntary Termination or Reduction of Commitments...........27
2.6 Optional Prepayments........................................27
2.7 Mandatory Prepayments of Loans; Mandatory Commitment
Reductions..................................................28
2.8 Repayment...................................................28
2.9 Interest....................................................28
2.10 Fees........................................................29
2.11 Computation of Fees and Interest............................30
2.12 Payments by the Company.....................................30
2.13 Payments by the Banks to the Agent..........................30
2.14 Sharing of Payments, Etc....................................31
2.15 Quarterly Adjustments.......................................32
ARTICLE III. THE LETTERS OF CREDIT...............................32
3.1 The Letter of Credit Subfacilities..........................32
3.2 Issuance, Amendment and Renewal of Letters of Credit........33
3.3 Risk Participations, Drawings and Reimbursements............35
3.4 Repayment of Participations.................................37
3.5 Role of the Issuing Bank....................................37
3.6 Obligations Absolute........................................38
3.7 Cash Collateral Pledge......................................39
3.8 Letter of Credit Fees.......................................39
3.9 Uniform Customs and Practice................................40
3.10 Subsidiaries as Account Parties.............................40
ARTICLE IV. TAXES, YIELD PROTECTION AND ILLEGALITY...............43
4.1 Taxes.......................................................43
4.2 Illegality..................................................44
4.3 Increased Costs and Reduction of Return.....................44
4.4 Funding Losses..............................................45
4.5 Inability to Determine Rates................................46
4.6 Certificates of Banks.......................................46
4.7 Substitution of Banks.......................................46
4.8 Survival....................................................47
ARTICLE V. CONDITIONS PRECEDENT..................................47
5.1 Conditions of Initial Credit Extensions.....................47
5.2 Conditions to All Credit Extensions.........................48
ARTICLE VI. REPRESENTATIONS AND WARRANTIES.......................49
6.1 Corporate Existence and Power...............................49
6.2 Corporate Authorization; No Contravention...................50
6.3 Governmental Authorization..................................50
6.4 Binding Effect..............................................50
6.5 Litigation..................................................50
6.6 No Default..................................................51
6.7 ERISA Compliance............................................51
6.8 Use of Proceeds; Margin Regulations.........................52
6.9 Title to Properties.........................................52
6.10 Taxes.......................................................52
6.11 Financial Condition.........................................52
6.12 Environmental Matters.......................................53
6.13 Regulated Entities..........................................53
6.14 No Burdensome Restrictions..................................53
6.15 Copyrights, Patents, Trademarks and Licenses, etc...........53
6.16 Subsidiaries................................................54
6.17 Insurance...................................................54
6.18 Swap Obligations............................................54
6.19 Full Disclosure.............................................54
ARTICLE VII. AFFIRMATIVE COVENANTS...............................55
7.1 Financial Statements........................................55
7.2 Certificates; Other Information.............................56
7.3 Notices.....................................................56
7.4 Preservation of Corporate Existence, Etc....................57
7.5 Maintenance of Property.....................................58
7.6 Insurance...................................................58
7.7 Payment of Obligations......................................58
7.8 Compliance with Laws........................................58
7.9 Compliance with ERISA.......................................59
7.10 Inspection of Property and Books and Records................59
7.11 Environmental Laws..........................................59
7.12 Use of Proceeds.............................................59
7.13 New Subsidiaries............................................59
ARTICLE VIII. NEGATIVE COVENANTS.................................60
8.1 Limitation on Liens..........................................60
8.2 Disposition of Assets........................................62
8.3 Consolidations and Mergers...................................63
8.4 Loans and Investments........................................63
8.5 Limitation on Indebtedness...................................64
8.6 Transactions with Affiliates.................................65
8.7 Use of Proceeds..............................................65
8.8 Contingent Obligations.......................................66
8.9 Joint Ventures...............................................66
8.10 Lease Obligations...........................................66
8.11 Restricted Payments.........................................67
8.12 ERISA.......................................................67
8.13 Change in Business..........................................67
8.14 Accounting Changes..........................................67
8.15 Minimum Net Worth...........................................68
8.16 Maximum Leverage Ratio......................................68
8.17 Minimum Interest Coverage Ratio.............................68
8.18 Quarterly Losses............................................68
ARTICLE IX. EVENTS OF DEFAULT....................................68
9.1 Event of Default.............................................68
9.2 Remedies.....................................................71
9.3 Rights Not Exclusive.........................................71
9.4 Certain Financial Covenant Defaults..........................72
ARTICLE X. THE AGENT.............................................72
10.1 Appointment and Authorization; "Agent"......................72
10.2 Delegation of Duties........................................73
10.3 Liability of Agent..........................................73
10.4 Reliance by Agent...........................................73
10.5 Notice of Default...........................................74
10.6 Credit Decision.............................................74
10.7 Indemnification of Agent....................................75
10.8 Agent in Individual Capacity................................75
10.9 Successor Agent.............................................75
10.10 Withholding Tax............................................76
10.11 Co-Agents..................................................77
ARTICLE XI. MISCELLANEOUS........................................77
11.1 Amendments and Waivers......................................77
11.2 Notices.....................................................78
11.3 No Waiver; Cumulative Remedies..............................79
11.4 Costs and Expenses..........................................79
11.5 Company Indemnification.....................................80
11.6 Payments Set Aside..........................................80
11.7 Successors and Assigns......................................80
11.8 Assignments, Participations, etc............................81
11.9 Confidentiality.............................................82
11.10 Set-off....................................................83
11.11 Automatic Debits of Fees...................................83
11.12 Notification of Addresses, Lending Offices, Etc............83
11.13 Counterparts...............................................84
11.14 Severability...............................................84
11.15 No Third Parties Benefited.................................84
11.16 Governing Law and Jurisdiction.............................84
11.17 Waiver of Jury Trial.......................................84
11.18 Entire Agreement...........................................85
SCHEDULES
Schedule 1.1 Existing Letters of Credit
Schedule 2.1 Commitments
Schedule 6.5 Litigation
Schedule 6.7 ERISA
Schedule 6.11 Permitted Liabilities
Schedule 6.12 Environmental Matters
Schedule 6.16 Subsidiaries and Minority Interests
Schedule 6.17 Insurance Matters
Schedule 8.1 Permitted Liens
Schedule 8.5 Permitted Indebtedness
Schedule 8.8 Contingent Obligations
Schedule 11.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Notice of Borrowing
Exhibit B Notice of Conversion/Continuation
Exhibit C Compliance Certificate
Exhibit D Legal Opinion of Company's Counsel
Exhibit E Assignment and Acceptance Agreement
Exhibit F Promissory Note
Exhibit G Guaranty Agreement
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT is entered into as of December 12,
1997, among Katy Industries, Inc., a Delaware corporation (the
"Company"), the several financial institutions from time to
time party to this Agreement (collectively, the "Banks";
individually, a "Bank"), La Salle National Bank, as co-agent,
and Bank of America National Trust and Savings Association, as
letter of credit issuing bank and as agent for the Banks.
WHEREAS, the Banks have agreed to make available to the
Company revolving credit facilities with letter of credit
subfacilities upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained herein, the parties agree as
follows:
ARTICLE I.
DEFINITIONS
1.1 Certain Defined Terms.
- --------------------------
The following terms have the following meanings:
"Account" means any "account," as such term is defined
in the UCC, now or hereafter owned by the Company or any of its
Restricted Subsidiaries and any proceeds arising therefrom, and,
in any event, shall include, but shall not be limited to,
Eligible Receivables and all of the Company's or any of its
Subsidiaries' rights to payment for goods sold or leased or for
services performed, whether due or to become due, whether now in
existence or arising from time to time hereafter, including
rights evidenced by an account, note, contract, security
agreement, indebtedness or security, together with all
guaranties, endorsements and indemnifications on, or of, any of
the foregoing.
"Account Debtor" means any Person who is or may become
obligated to the Company or any of its Restricted Subsidiaries
under, with respect to, or on account of, an Account.
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or
indirectly, in (a) the acquisition of all or substantially all of
the assets of a Person, or of any business or division of a
Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of
any Person, or otherwise causing any Person to become a
Subsidiary, or (c) a merger or consolidation or any other
combination with another Person (other than a Person that is a
Restricted Subsidiary) provided that the Company or the
Restricted Subsidiary is the surviving entity.
"Affiliate" means, as to any Person, any other Person
which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. A Person shall
be deemed to control another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause
the direction of the management and policies of the other Person,
whether through the ownership of voting securities, membership
interests, by contract, or otherwise.
"Agent" means BofA in its capacity as agent for the Banks
hereunder, and any successor agent arising under Section 10.9.
"Agent-Related Persons" means BofA and any successor agent
arising under Section 10.9 and any successor letter of credit
issuing bank hereunder, together with their respective Affiliates
(including, in the case of BofA, the Arranger), and the officers,
directors, employees, agents and attorneys-in-fact of such
Persons and Affiliates.
"Agent's Payment Office" means the address for payments
set forth on Schedule 11.2 or such other address as the Agent may
from time to time specify.
"Agreement" means this Credit Agreement.
"Applicable Margin" means with respect to any Base Rate
Loan or Offshore Rate Loan under the Facility A Commitment or the
Facility B Commitment the per annum rates set forth below
opposite the Pricing Level calculated for the periods described
below.
Pricing Ratio
Pricing at End of Facility A Facility B
Level Fiscal Quarter Applicable Margin Applicable Margin
- ----- -------------- ----------------- -----------------
Offshore Base Rate Offshore Base Rate
Rate Loans Loans Rate Loans Loans
---------- ----- ---------- -----
I Less Than
1.00 to 1.00 0.825% 0.000% 0.800% 0.000%
II Greater than
or equal to
1.00 to 1.00
but less than
2.00 to 1.00 1.075% 0.000% 1.000% 0.000%
III Greater than
or equal to
2.00 to 1.00
but less than
2.50 to 1.00 1.325% 0.000% 1.125% 0.000%
Where,
"Pricing Level" means, for each Pricing Period, the
pricing level set forth opposite the Pricing Ratio set forth in
the Compliance Certificate most recently delivered to the Agent
pursuant to Section 7.2.
"Pricing Level Change Date" means the date three
Business Days after the delivery to the Agent of the financial
reports and Compliance Certificate delivered pursuant to
Sections 7.1 and 7.2 for the fiscal quarter ending September 30,
1997, and three days after delivery to the Agent of such
financial reports and Certificate for each fiscal quarter
thereafter
"Pricing Period" means each period commencing on each
Pricing Level Change Date and ending the day prior to the next
Pricing Level Change Date.
From the Closing Date until the first Pricing Level
Change Date, the Applicable Margin for any Offshore Rate Loan or
Base Rate Loan shall correspond to the rates per annum set forth
above opposite Pricing Level I. The Applicable Margin shall be
adjusted automatically as to all Loans then outstanding (without
regard to the timing of Interest Periods) on each Pricing Level
Change Date to correspond with the applicable Pricing Level. If
the Company fails to deliver such financial reports and
certificates to the Agent for any fiscal quarter by the date
required hereunder, then the Applicable Margin for all Loans
beginning three Business Days after such date shall, until three
Business Days after delivery of such financial reports and
certificates, be the next higher Applicable Margin as set forth
in the chart above immediately below the previously effective
Applicable Margin; thus, if the Applicable Margin had previously
been 0.825% for Offshore Rate Loans, a failure to deliver
quarterly financials on a timely basis would cause the Applicable
Margin to be 1.075% until three Business Days after such
delivery.
"Arranger" means BancAmerica Robertson Stephens,
Inc., a Delaware corporation.
"Assignee" has the meaning specified in
subsection 11.8(a).
"Attorney Costs" means and includes all fees and
disbursements of any law firm or other external counsel, the
allocated cost of nonduplicative internal legal services and all
disbursements of internal counsel.
"Bank" has the meaning specified in the introductory
clause hereto. References to the "Banks" shall include BofA,
including in its capacity as Issuing Bank; for purposes of
clarification only, to the extent that BofA may have any rights
or obligations in addition to those of the Banks due to its
status as Issuing Bank, its status as such will be specifically
referenced.
"Bankruptcy Code" means the Federal Bankruptcy Reform
Act of 1978 (11 U.S.C. Sec. 101, et seq.)
"Base Rate" means, for any day, the higher of: (a)
0.50% per annum above the latest Federal Funds Rate, and (b) the
rate of interest in effect for such day as publicly announced
from time to time by BofA in San Francisco, California, as its
"reference rate." (The "reference rate" is a rate set by
BofA based upon various factors including BofA's costs and
desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans, which
may be priced at, above, or below such announced rate.)
Any change in the reference rate announced by BofA
shall take effect at the opening of business on the day specified
in the public announcement of such change.
"Base Rate Loan" means a Revolving Loan, or an L/C
Advance, that bears interest based on the Base Rate.
"BofA" means Bank of America National Trust and
Savings Association, a national banking association.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans of the same Type made to the Company on the same
day by the Banks under Article II, and, other than in the case of
Base Rate Loans, having the same Interest Period.
"Borrowing Base" means, as at any date the amount
thereof is being determined, the sum of the following amounts as
determined from the Compliance Certificate most recently
delivered pursuant to subsection 7.2(a): the sum of (i) 70% of
Eligible Receivables and (ii) 40% of Eligible Inventory.
"Borrowing Date" means any date on which a Borrowing
occurs under Section 2.3.
"Business Day" means any day other than a Saturday,
Sunday or other day on which commercial banks in New York City or
San Francisco are authorized or required by law to close and, if
the applicable Business Day relates to any Offshore Rate Loan,
means such a day on which dealings are carried on in the
applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline,
request or directive of any central bank or other Governmental
Authority, or any other law, rule or regulation, whether or not
having the force of law, in each case, regarding capital adequacy
of any bank or of any corporation controlling a bank.
"Capital Lease" means any leasing or similar
arrangement which, in accordance with GAAP, is classified as a
capital lease.
"Cash Collateralize" means to pledge and deposit
with or deliver to the Agent, for the benefit of the Agent, the
Issuing Bank and the Banks, as collateral for the L/C
Obligations, cash or deposit account balances pursuant to
documentation in form and substance satisfactory to the Agent and
the Issuing Bank (which documents are hereby consented to by the
Banks). Derivatives of such term shall have corresponding
meaning. The Company hereby grants the Agent, for the benefit of
the Agent, the Issuing Bank and the Banks, a security interest in
all such cash and deposit account balances. Cash collateral
shall be maintained in blocked, interest bearing deposit accounts
at BofA.
"Change of Control" means, with respect to the
Company, an event or circumstance that results in any Person or
group of related Persons other than the Permitted Owners (as
defined below) having beneficial ownership of, or the right to
control, by proxy or otherwise, (i) more than 50% of the shares
of common stock of the Company, or (ii) capital stock of the
Company having voting power to vote for and elect a majority of
the members of the board of directors of the Company.
"Permitted Owners" shall mean any of the following: Wallace E.
Carroll, Jr., his wife, Amelia M. Carroll, their immediate family
members, descendants and beneficiaries under the following trusts
and subtrusts: (i) The Wallace E. Carroll Trust U/A Date 7/1/57
F/B/O Wallace E. Carroll, Jr. and his descendants, (ii) The
Wallace E. and Lelia H. Carroll Trust U/A Dated 5/1/58 F/B/O
Wallace E. Carroll, Jr., and his descendants, (iii) the Wallace
E. Carroll Trust U/A Dated 1/20/61 F/B/O Wallace E. Carroll,
Jr., (iv) the Lelia H. Carroll Trust U/A Dated 7/12/62 F/B/O
Wallace E. Carroll, Jr., (v) the subtrusts under the Wallace E.
Carroll Trust U/A Dated 12/15/78 F/B/O the descendants of Wallace
E. Carroll, Jr., (vi) the subtrusts under the Wallace E. Carroll,
Jr., Trust #1 U/A Dated 12/30/76 F/B/O the descendants of Wallace
E. Carroll, Jr. and (vii) the subtrusts under the Wallace E.
Carroll, Jr. Trust #2 U/A Dated 12/30/76 F/B/O the descendants of
Wallace E. Carroll, Jr. In addition, CRL, Inc. and its wholly
owned subsidiaries shall be Permitted Owners as long as all
capital stock of CRL, Inc. is wholly-owned by other Permitted
Owners.
"Closing Date" means the date on which all conditions
precedent set forth in Section 5.1 are satisfied or waived by all
Banks (or, in the case of subsection 5.1(e), waived by the Person
entitled to receive such payment).
"Code" means the Internal Revenue Code of 1986, and
regulations promulgated thereunder.
"Commercial L/C Commitment" means the commitment of
the Issuing Bank to Issue, and the commitment of the Banks
severally to participate in, Commercial Letters of Credit from
time to time Issued or outstanding under Article III, in an
aggregate amount not to exceed on any date the amount of
$30,000,000, as the same shall be reduced as a result of a
reduction in the Commercial L/C Commitment pursuant to
Section 2.5; provided that the Commercial L/C Commitment is a
part of the combined Facility A Commitments, rather than a
separate, independent commitment.
"Commercial Letter of Credit" means a Letter of
Credit supporting the obligation to pay the purchase price of
goods sold to the Company or a Restricted Subsidiary.
"Commitment", as to each Bank, means either the
Facility A Commitment or the Facility B Commitment, as
applicable.
"Commitments" , as to each Bank, means the sum of the
Facility A Commitment and the Facility B Commitment.
"Company" means Katy Industries, Inc., a Delaware
corporation.
"Compliance Certificate" means a certificate
substantially in the form of Exhibit C.
"Consolidated Interest Expense" means, for any
period, for the Company and its Restricted Subsidiaries on a
consolidated basis and determined in accordance with GAAP,
(a) gross interest expense for the period (including that portion
of Capital Leases attributable to interest), plus (b) any
payments made under interest rate Swap Contracts to the extent
not included in gross interest expense, less (c) the sum of any
payments received under interest rate Swap Contracts.
"Contingent Obligation" means, as to any Person, any
direct or indirect liability of that Person, whether or not
contingent, with or without recourse, (a) with respect to any
Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the
"primary obligor"), including any obligation of that Person (i)
to purchase, repurchase or otherwise acquire such primary
obligations or any security therefor, (ii) to advance or provide
funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or
(iv) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof (each, a
"Guaranty Obligation"); (b) with respect to any Surety
Instrument (other than (i) any Letter of Credit, (ii) any
Existing Letter of Credit that is a commercial letter of credit,
or (iii) any Existing Letter of Credit that is a standby letter
of credit, until the date 90 days after the Closing Date) issued
for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c)
to purchase any materials, supplies or other property from, or to
obtain the services of, another Person if the relevant contract
or other related document or obligation requires that payment for
such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials,
supplies or other property is ever made or tendered, or such
services are ever performed or tendered, or (d) in respect of any
Swap Contract. The amount of any Contingent Obligation shall, in
the case of Guaranty Obligations, be deemed equal to the stated
or determinable amount of the primary obligation in respect of
which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in
respect thereof, and in the case of other Contingent Obligations
other than in respect of Swap Contracts, shall be equal to the
maximum reasonably anticipated liability in respect thereof and,
in the case of Contingent Obligations in respect of Swap
Contracts, shall be equal to the Swap Termination Value.
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any
agreement, undertaking, contract, indenture, mortgage, deed of
trust or other instrument, document or agreement to which such
Person is a party or by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on
which, under Section 2.4, the Company (a) converts Loans of one
Type to another Type, or (b) continues as Loans of the same Type,
but with a new Interest Period, Loans having Interest Periods
expiring on such date.
"Credit Extension" means and includes (a) the making
of any Revolving Loans hereunder, and (b) the Issuance of any
Letters of Credit hereunder.
"Default" means any event or circumstance which, with
the giving of notice, the lapse of time, or both, would (if not
cured or otherwise remedied during such time) constitute an Event
of Default.
"Distribution and Services Group" means lines of
business operated at the Closing Date by the following
Subsidiaries and assets associated therewith: (i) GC Thorsen,
Inc. and its subsidiaries GC Thorsen/HMO, Inc. and GC Thorsen
International Ltd., (ii) Hamilton Precision Metals, Inc., (iii)
Savannah Energy Construction Company, Inc., (iv) Savannah Energy
Systems Company, and (v) Waldom Electronics, Inc.
"Dollars", "dollars" and "$" each mean lawful
money of the United States.
"EBIT" means, as measured quarterly on the last day
of each fiscal quarter for the four trailing quarters then
ending, and determined on a consolidated basis for the Company
and its Restricted Subsidiaries in accordance with GAAP, an
amount equal to, without duplication, the sum of (a) consolidated
net income (or net loss) for such period, plus (b) all amounts
treated as Consolidated Interest Expense, plus (c) all accrued
taxes on or measured by income to the extent included in the
determination of such consolidated net income (or loss);
provided, however, that consolidated net income (or loss) shall
be computed for these purposes without giving effect to
extraordinary losses or extraordinary gains or to any gains or
losses associated with the sale or write-down of assets outside
the ordinary course of business.
"EBITDA" means, as measured quarterly on the last
day of each fiscal quarter for the four trailing quarters then
ending, and determined on a consolidated basis for the Company
and its Restricted Subsidiaries in accordance with GAAP, an
amount equal to, without duplication, the sum of (a) consolidated
net income (or net loss) for such period, plus (b) all amounts
treated as expenses for depreciation, Consolidated Interest
Expense, and the amortization of intangibles and other assets
(including non-cash finance fees and warrants and write-off of
goodwill and organizational costs and expenses) of any kind to
the extent included in the determination of such consolidated net
income (or loss), plus (c) all accrued taxes on or measured by
income to the extent included in the determination of such
consolidated net income (or loss); provided, however, that
consolidated net income (or loss) shall be computed for these
purposes without giving effect to extraordinary losses or
extraordinary gains or to any gains or losses associated with the
sale or write-down of assets outside the ordinary course of
business. For any Permitted Acquisition after the Closing Date
for which unqualified financial statements audited by a Big 5
accounting firm are available, EBITDA shall include the EBITDA of
such Person for such prior periods as reflected in the audited
financial statements for such Person as long as such audited
financial statements are accompanied by a Compliance Certificate
signed by a Responsible Officer of the Company certifying that
the EBITDA reflected in such audited financial statements
represents no more than the minimum prospective EBITDA that such
Person would contribute to the consolidated EBITDA of the Company
and its Restricted Subsidiaries after giving pro forma effect to
the acquisition of such Person. For periods preceding a
Permitted Acquisition for which unqualified financial statements
are available but such financial statements were not audited by a
Big 5 accounting firm, EBITDA shall include 50% of the EBITDA of
the Person or assets so acquired for such prior periods as
reflected in such audited financial statements as long as such
audited financial statements are accompanied by a Compliance
Certificate signed by a Responsible Officer certifying that the
EBITDA reflected in such audited financial statements represents
no more than the minimum prospective EBITDA that such Person
would contribute to the consolidated EBITDA of the Company and
its Restricted Subsidiaries after giving effect to the
acquisition of such Person.
"Effective Amount" means (a) with respect to any Loan
on any date, the aggregate outstanding principal amount thereof
after giving effect to any Borrowings and prepayments or
repayments of Loans occurring on such date, and (b) with respect
to any outstanding L/C Obligations on any date, the amount of
such L/C Obligations on such date after giving effect to any
Issuances of Letters of Credit occurring on such date and any
other changes in the aggregate amount of the L/C Obligations as
of such date, including as a result of any reimbursements of
outstanding unpaid drawings under any Letters of Credit or any
reductions in the maximum amount available for drawing under
Letters of Credit taking effect on such date.
"Eligible Assignee" means (a) a commercial bank
organized under the laws of the United States, or any state
thereof, and having a combined capital and surplus of at least
$100,000,000, (b) a commercial bank organized under the laws of
any other country which is a member of the Organization for
Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined
capital and surplus of at least $100,000,000, provided that such
bank is acting through a branch or agency located in the United
States, and (c) a Person that is primarily engaged in the
business of commercial banking and that is (i) a Subsidiary of a
Bank, (ii) a Subsidiary of a Person of which a Bank is a
Subsidiary, or (iii) a Person of which a Bank is a Subsidiary.
"Eligible Inventory" means the book value of
inventory owned by the Company or any of its Restricted
Subsidiaries. Eligible Inventory shall be valued in accordance
with GAAP plus any LIFO inventory reserves (but excluding the
write-up for purchase accounting) and less reasonable reserves
for shrinkage, obsolescence, damage, and purchase discounts;
provided, however, that the Required Banks shall have the right,
in the exercise of their reasonable judgment, to establish
additional reserves in such amount or percentages, and in
connection with any other matters, events, conditions, or
contingencies, as the Required Banks deem appropriate.
"Eligible Receivables" means the book value of the
trade accounts receivable of the Company and its Restricted
Subsidiaries. Eligible Receivables shall be valued in accordance
with GAAP, provided, however, that the Required Banks shall have
the right, in the exercise of their reasonable judgment, to
establish additional reserves in such amount or percentages, and
in connection with any other matters, events, conditions, or
contingencies, as the Required Banks deem appropriate.
"Environmental Claims" means all claims, however
asserted, by any Governmental Authority or other Person alleging
potential liability or responsibility for violation of any
Environmental Law, or for release or injury to the environment.
"Environmental Laws" means all federal, state or
local laws, statutes, common law duties, rules, regulations,
ordinances and codes, together with all administrative orders,
directed duties, requests, licenses, authorizations and permits
of, and agreements with, any Governmental Authorities, in each
case relating to environmental, health, safety and land use
matters.
"ERISA" means the Employee Retirement Income Security
Act of 1974, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business
(whether or not incorporated) under common control with the
Company within the meaning of Section 414(b) or (c) of the Code
(and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with
respect to a Pension Plan; (b) a withdrawal by the Company or any
ERISA Affiliate from a Pension Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or a cessation of
operations which is treated as such a withdrawal under
Section 4062(e) of ERISA; (c) a complete or partial withdrawal by
the Company or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d)
the filing of a notice of intent to terminate, the treatment of a
Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to
terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon the Company or any
ERISA Affiliate.
"Eurodollar Reserve Percentage" has the meaning
specified in the definition of "Offshore Rate".
"Event of Default" means any of the events or
circumstances specified in Section 9.1.
"Exchange Act" means the Securities Exchange Act of
1934, and regulations promulgated thereunder.
"Existing Letter of Credit" means any of the letters
of credit issued to the Company or a Restricted Subsidiary by the
Northern Trust Company listed on Schedule 1.1.
"Facility" means either Facility A or Facility B.
"Facility A Commitment" has the meaning specified in
Subsection 2.1(a).
"Facility A Revolving Termination Date" " means the
earlier to occur of:
(a) December 11, 1998; and
(b) the date on which the Facility A Commitment
terminates in accordance with the provisions of this Agreement
"Facility A Revolving Loan" has the meaning specified
in Subsection 2.1(a).
"Facility B Commitment" has the meaning specified in
Subsection 2.1(b).
"Facility B Revolving Termination Date" means the
earlier to occur of:
(a) December 12, 2000; and
(b) the date on which the Facility B Commitment
terminates in accordance with the provisions of this Agreement.
"Facility B Revolving Loan" has the meaning specified
in Subsection 2.1(b).
"Facility Fee" has the meaning specified in Section
2.10(b).
"Facility Fee Percentage" means with respect to the
Facility A Commitment or the Facility B Commitment the per annum
rates set forth below opposite the Pricing Level calculated for
periods described below.
Pricing Pricing Ratio Facility A Facility B
Level at End of Fiscal Quarter Facility Fee Facility Fee
- ----- ------------------------ ------------ ------------
I Less Than 1.00 to 1.00 0.175% 0.200%
II Greater than or equal to
1.00 to 1.00 but less than
2.00 to 1.00 0.175% 0.250%
III Greater than or equal to
2.00 to 1.00 but less than
2.50 to 1.00 0.175% 0.375%
From the Closing Date until the first Pricing Level Change Date,
the Facility Fee Percentage shall correspond to the rates per
annum set forth above opposite Pricing Level I. The Facility Fee
Percentage shall be adjusted automatically on each Pricing Level
Change Date to correspond with the applicable Pricing Level. If
the Company fails to deliver such financial reports and
certificates to the Agent for any fiscal quarter by the date
required hereunder, then the Facility Fee Percentage beginning
three Business Days after such date shall, until three Business
Days after delivery of such financial reports and certificates,
be the next higher Facility Fee Percentage as set forth in the
chart above immediately below the previously effective Facility
Fee Percentage; thus, if the Facility Fee Percentage with respect
to Facility B had previously been 0.200%, a failure to deliver
quarterly financials on a timely basis would cause the Facility
Fee Percentage with respect to Facility B to be 0.250% until
three Business Days after such delivery.
"FDIC" means the Federal Deposit Insurance
Corporation, and any Governmental Authority succeeding to any of
its principal functions.
"Federal Funds Rate" means, for any day, the rate set
forth in the weekly statistical release designated as H.15(519),
or any successor publication, published by the Federal Reserve
Bank of New York (including any such successor, "H.15(519)") on
the preceding Business Day opposite the caption "Federal Funds
(Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Agent of the
rates for the last transaction in overnight Federal funds
arranged prior to 9:00 a.m. (New York City time) on that day by
each of three leading brokers of Federal funds transactions in
New York City selected by the Agent.
"Fee Letter" has the meaning specified in
subsection 2.10(a).
"FRB" means the Board of Governors of the Federal
Reserve System, and any Governmental Authority succeeding to any
of its principal functions.
"Funded Debt" means, at any time, the sum of the
following, computed on a consolidated basis for the Company and
its Restricted Subsidiaries in accordance with GAAP (a) all
Indebtedness for borrowed money, plus (b) Indebtedness on account
of drawn but unreimbursed letters of credit, plus (c) the undrawn
face amount of issued and outstanding standby letters of credit,
plus (d) the principal portion of Indebtedness under Capital
Leases, plus (e) Guaranty Obligations with respect to
Indebtedness described in clauses (a) through (d) above.
"Further Taxes" means any and all present or future
taxes, levies, assessments, imposts, duties, deductions, fees,
withholdings or similar charges (including, without limitation,
net income taxes and franchise taxes), and all liabilities with
respect thereto, imposed by any jurisdiction on account of
amounts payable or paid pursuant to Section 4.1.
"GAAP" means generally accepted accounting
principles set forth from time to time in the opinions and
pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board
(or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are
applicable to the circumstances as of the date of determination.
"Governmental Authority" means any nation or
government, any state or other political subdivision thereof, any
central bank (or similar monetary or regulatory authority)
thereof, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by
any of the foregoing.
"Guarantor" means each Material Subsidiary other than
Bach-Simpson Ltd. and Glit/Gemtex, Ltd., each Ontario chartered
corporations.
"Guaranty Obligation" has the meaning specified in
the definition of "Contingent Obligation."
"Guaranty" means a Guaranty substantially in the form
of Exhibit G .
"Honor Date" has the meaning specified in
subsection 3.3(b).
"Indebtedness" of any Person means, without
duplication, (a) all indebtedness for borrowed money; (b) all
obligations issued, undertaken or assumed as the deferred
purchase price of property or services (other than trade payables
entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment
obligations with respect to Surety Instruments; (d) all
obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or
businesses; (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred
as financing, in either case with respect to property acquired by
the Person (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to
repossession or sale of such property); (f) all obligations with
respect to capital leases; (g) all indebtedness referred to in
clauses (a) through (f) above secured by (or for which the holder
of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property
(including accounts and contracts rights) owned by such Person,
even though such Person has not assumed or become liable for the
payment of such indebtedness; and (h) all Guaranty Obligations in
respect of indebtedness or obligations of others of the kinds
referred to in clauses (a) through (g) above. For all purposes
of this Agreement, the Indebtedness of any Person shall include
all recourse Indebtedness of any partnership or joint venture or
limited liability company in which such Person is a general
partner or a joint venturer or a member.
"Indemnified Liabilities" has the meaning specified
in Section 11.5.
"Indemnified Person" has the meaning specified in
Section 11.5.
"Independent Auditor" has the meaning specified in
subsection 7.1(a).
"Industrial and Consumer Manufacturing Group" means
lines of business operated at the Closing Date by the following
Subsidiaries or divisions and assets associated therewith: (i)
Duckback Products, Inc. (ii) Glit/Gemtex Limited, (iii)
Glit/Gemtex, Inc. (iv) Glit/Microtron Canada, (v) the Glit,
Microtron and Loren divisions of Hallmark Holdings, Inc., and
(vi) Woods Industries, Inc.
"Intercompany Advance" means loans made by the
Company to any Restricted Subsidiaries, which loans shall (a) be
maintained in book entry form and not, unless requested by the
Agent, evidenced by a promissory note or other negotiable
instrument, and (b) be subordinated to repayment of the
Obligations as provided in the Guaranties.
"Interest Coverage Ratio" means, as measured
quarterly on the last day of each fiscal quarter for the four
trailing quarters then ending, and determined on a consolidated
basis for the Company and its Restricted Subsidiaries, the ratio
of EBIT to Consolidated Interest Expense.
"Insolvency Proceeding" means, with respect to any
Person, (a) any case, action or proceeding with respect to such
Person before any court or other Governmental Authority relating
to bankruptcy, reorganization, insolvency, liquidation,
receivership, dissolution, winding-up or relief of debtors, or
(b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other,
similar arrangement in respect of its creditors generally or any
substantial portion of its creditors undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other
than a Base Rate Loan, the last day of each Interest Period
applicable to such Loan and, as to any Base Rate Loan, the last
Business Day of each calendar quarter and each date such Loan is
converted into another Type of Loan, provided, however, that if
any Interest Period for a Offshore Rate Loan exceeds three
months, the date that falls three months after the beginning of
such Interest Period and after each Interest Payment Date
thereafter is also an Interest Payment Date.
"Interest Period" means, as to any Offshore Rate
Loan, the period commencing on the Borrowing Date of such Loan or
on the Conversion/Continuation Date on which the Loan is
converted into or continued as an Offshore Rate Loan, and ending
on the date one, two, three or six months thereafter (and any
other period that is 12 months or less and is consented to by all
Banks in the given instance) as selected by the Company in its
Notice of Borrowing or Notice of Conversion/Continuation provided
that:
(a) if any Interest Period would otherwise end on
a day that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless, in the case of an
Offshore Rate Loan, 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 preceding Business
Day;
(b) any Interest Period pertaining to an Offshore
Rate 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 the
calendar month at the end of such Interest Period;
(c) no Interest Period for any Facility A Revolving
Loan shall extend beyond the Facility A Maturity Date; and
(d) no Interest Period for any Facility B Revolving
Loan shall extend beyond the Facility B Maturity Date.
"Investment" has the meaning specified in
Section 8.4.
"IRS" means the Internal Revenue Service, and any
Governmental Authority succeeding to any of its principal
functions under the Code.
"Issuance Date" has the meaning specified in
subsection 3.1(a).
"Issue" means, with respect to any Letter of Credit
to issue or to extend the expiry of, or to renew or increase the
amount of, such Letter of Credit; and the terms "Issued,"
"Issuing" and "Issuance" have corresponding meanings.
"Issuing Bank" means (a) BofA in its capacity as
issuer of one or more Letters of Credit hereunder, together with
any replacement letter of credit issuer arising under
subsection 10.1(b) or Section 10.9, and (b) for all purposes of
the Loan Documents except Article II, Sections 3.1, 3.2, 3.8, and
5.2, the Northern Trust Company as issuer of the Existing Letters
of Credit.
"Joint Venture" means a partnership, limited
liability company, joint venture or other similar legal
arrangement (whether created by contract or conducted through a
separate legal entity) now or hereafter formed by the Company or
any of its Subsidiaries with another Person in order to conduct a
common venture or enterprise with such Person.
"L/C Advance" means each Bank's participation in any
L/C Borrowing in accordance with its Pro Rata Share.
"L/C Adjusted Borrowing Base" means, at any date of
determination, the sum of (a) the Borrowing Base plus (b) the
lesser of the Effective Amount of Standby Letters of Credit and
$5,000,000.
"L/C Amendment Application" means an application form
for amendment of outstanding standby or commercial documentary
letters of credit as shall at any time be in use at the Issuing
Bank, as the Issuing Bank shall request.
"L/C Application" means an application form for
issuances of standby or commercial documentary letters of credit
as shall at any time be in use at the Issuing Bank, as the
Issuing Bank shall request.
"L/C Borrowing" means an extension of credit
resulting from a drawing under any Letter of Credit which shall
not have been reimbursed on the date when made nor converted into
a Borrowing of Revolving Loans under subsection 3.3(c).
"L/C Fee Percentage" means at any time, the
Applicable Margin then applicable to Facility A Offshore Rate
Loans.
"L/C Obligations" means at any time the sum of (a)
the aggregate undrawn amount of all Letters of Credit then
outstanding, plus (b) the amount of all unreimbursed drawings
under all Letters of Credit, including all outstanding L/C
Borrowings.
"L/C-Related Documents" means the Letters of Credit,
the Existing Letters of Credit, the L/C Applications, the L/C
Amendment Applications and any other document relating to any
Letter of Credit or Existing Letter of Credit, including any of
the Issuing Bank's standard form documents for letter of credit
issuances.
"L/C Subsidiary" shall have the meaning specified in
subsection 3.10(a).
"Lending Office" means, as to any Bank, the office or
offices of such Bank specified as its "Lending Office" or
"Domestic Lending Office" or "Offshore Lending Office", as
the case may be, on Schedule 11.2, or such other office or
offices as such Bank may from time to time notify the Company and
the Agent.
"Letters of Credit" means (a) any letters of credit
(whether Standby Letters of Credit or Commercial Letters of
Credit) Issued by the Issuing Bank pursuant to Article III, and
(b) for all purposes of the Loan Documents except Article II,
Sections 3.1, 3.2, 3.8, and 5.2, the Existing Letters of Credit.
"Leverage Ratio" means, as measured quarterly on the
last day of each fiscal quarter for the four trailing quarters
then ending, and determined on a consolidated basis for the
Company and its Restricted Subsidiaries, the ratio of Funded Debt
to EBITDA.
"Lien" means any security interest, mortgage, deed of
trust, pledge, hypothecation, assignment, charge or deposit
arrangement, encumbrance, lien (statutory or other) or
preferential arrangement of any kind or nature whatsoever in
respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title
retention agreement, the interest of a lessor under a capital
lease, any financing lease having substantially the same economic
effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien
relates as debtor, under the Uniform Commercial Code or any
comparable law) and any contingent or other agreement to provide
any of the foregoing, but not including the interest of a lessor
under an Operating Lease.
"Loan" means an extension of credit by a Bank to the
Company under Article II or Article III in the form of a
Revolving Loan or L/C Advance.
"Loan Documents" means this Agreement, any Notes, the
Fee Letters, the L/C-Related Documents, and all other documents
delivered to the Agent or any Bank in connection herewith.
"Machinery Manufacturing Group" means lines of
business operated at the Closing Date by the following
Subsidiaries and divisions and assets associated therewith: (i)
the Airtronics division of American Gage & Machine, (ii) Bach-
Simpson, Inc., (iii) Bach-Simpson Limited UK, (iv) Diehl
Machines, Inc., and (v) Peters Machinery Company.
"Margin Stock" means "margin stock" as such term is
defined in Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material
adverse change in, or a material adverse effect upon, the
operations, business, properties, condition (financial or
otherwise) or prospects of the Company or the Company and its
Restricted Subsidiaries taken as a whole; (b) a material
impairment of the ability of the Company to perform under any
Loan Document and to avoid any Event of Default or of the ability
of the Company and its Restricted Subsidiaries taken as a whole
to perform under the Loan Documents and to avoid any Event of
Default; or (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against the Company or
any Restricted Subsidiary of any Loan Document.
"Material Subsidiary" means each Restricted
Subsidiary other than any Restricted Subsidiary that does not
have material operations and in any event for the most recent
four fiscal quarters has generated revenue from operations of
less than $100,000, and that has a net worth, determined in
accordance with GAAP on a consolidated basis for such Subsidiary
and its Subsidiaries, of less than $100,000; provided, however,
that if all Restricted Subsidiaries that are not Material
Subsidiaries at any time have such a net worth on an aggregate
basis in excess of $1,000,000 (subject to such exlclusion of
subordinated Indebtedness), all Restricted Subsidiaries shall
constitute Material Subsidiaries.
"Multiemployer Plan" means a "multiemployer plan",
within the meaning of Section 4001(a)(3) of ERISA, to which the
Company or any ERISA Affiliate makes, is making, or is obligated
to make contributions or, during the preceding three calendar
years, has made, or been obligated to make, contributions.
"Net Worth" means, as of the date of the
determination thereof, net worth determined in accordance with
GAAP consolidating the Company and its Restricted Subsidiaries.
"Note" means a promissory note executed by the
Company in favor of a Bank pursuant to subsection 2.2(b), in
substantially the form of Exhibit F.
"Notice of Borrowing" means a notice in substantially
the form of Exhibit A.
"Notice of Conversion/Continuation" means a notice in
substantially the form of Exhibit B.
"Obligations" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document
owing by the Company to any Bank, the Agent, or any Indemnified
Person, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now
existing or hereafter arising.
"Offshore Rate" means, for any Interest Period, with
respect to Offshore Rate Loans comprising part of the same
Borrowing, the rate of interest per annum (rounded upward to the
next 1/16th of 1%) determined by the Agent as follows:
Offshore Rate = IBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where
"Eurodollar Reserve Percentage" means for any day
for any Interest Period the maximum reserve percentage
(expressed as a decimal, rounded upward to the next
1/100th of 1%) in effect on such day (whether or not
applicable to any Bank) under regulations issued from
time to time by the FRB for determining the maximum
reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with
respect to Eurocurrency funding (currently referred to
as "Eurocurrency liabilities"); and
"IBOR" means the rate of interest per annum
determined by the Agent as the rate at which dollar
deposits in the approximate amount of the Reference
Bank's Offshore Rate Loan for such Interest Period
would be offered by the Reference Bank's Grand Cayman
Branch, Grand Cayman B.W.I. (or such other office as
may be designated for such purpose by the Reference
Bank), to major banks in the offshore dollar interbank
market at their request at approximately 11:00 a.m.
(New York City time) two Business Days prior to the
commencement of such Interest Period.
"Offshore Rate Loan" means a Loan that bears interest
based on the Offshore Rate.
"Operating Lease" means, as applied to any Person, a
lease of property which is not a Capital Lease.
"Organization Documents" means, for any corporation,
the certificate or articles of incorporation, the bylaws, any
certificate of determination or instrument relating to the rights
of preferred shareholders of such corporation, any shareholder
rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation and for
any partnership, its partnership agreement and certificate of
partnership.
"Other Taxes" means any present or future stamp,
court or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made
hereunder or from the execution, delivery, performance,
enforcement or registration of, or otherwise with respect to,
this Agreement or any other Loan Documents.
"Participant" has the meaning specified in
subsection 11.8(d).
"Participation Fee" has the meaning specified in
subsection 2.10(a).
"PBGC" means the Pension Benefit Guaranty
Corporation, or any Governmental Authority succeeding to any of
its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in
Section 3(2) of ERISA) subject to Title IV of ERISA which the
Company sponsors, maintains, or to which it makes, is making, or
is obligated to make contributions, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five
(5) plan years.
"Permitted Acquisition" means an Acquisition
complying with subsection 8.4(d).
"Permitted Liens" has the meaning specified in
Section 8 .1.
"Permitted Stock Repurchase" is defined in
subsection 8.11(c).
"Permitted Swap Obligations" means all obligations
(contingent or otherwise) of the Company or any Restricted
Subsidiary existing or arising under Swap Contracts, provided
that each of the following criteria is satisfied: (a) such
obligations are (or were) entered into by such Person in the
ordinary course of business for the purpose of directly
mitigating risks associated with liabilities, commitments or
assets held or reasonably anticipated by such Person, or changes
in the value of securities issued by such Person in conjunction
with a securities repurchase program not otherwise prohibited
hereunder, and not for purposes of speculation or taking a
"market view;" (b) such Swap Contracts do not contain (i) any
provision ("walk-away" provision) exonerating the non-
defaulting party from its obligation to make payments on
outstanding transactions to the defaulting party, or (ii) any
provision creating or permitting the declaration of an event of
default, termination event or similar event upon the occurrence
of an Event of Default hereunder (other than an Event of Default
under subsection 9.1(a)).
"Person" means an individual, partnership,
corporation, limited liability company, business trust, joint
stock company, trust, unincorporated association, joint venture
or Governmental Authority.
"Plan" means an employee benefit plan (as defined in
Section 3(3) of ERISA) which the Company sponsors or maintains or
to which the Company makes, is making, or is obligated to make
contributions and includes any Pension Plan.
"Preferential Payment" shall have the meaning
specified in subsection 3.10(c).
"Pricing Ratio" means, as measured quarterly on the
last day of each fiscal quarter for the four trailing quarters
then ending, and determined on a consolidated basis for the
Company and its Restricted Subsidiaries, the ratio of (a) Funded
Debt minus the undrawn face amount of issued and outstanding
standby letters of credit, to (b) EBITDA.
"Pro Rata Share" means, as to any Bank at any time,
the percentage equivalent (expressed as a decimal, rounded to the
ninth decimal place) at such time of such Bank's Commitment
divided by the aggregate Commitments.
"Reference Bank" means BofA.
"Replacement Bank" has the meaning specified in
Section 4.7.
"Reportable Event" means, any of the events set forth
in Section 4043(c) of ERISA or the regulations thereunder, other
than any such event for which the 30-day notice requirement under
ERISA has been waived in regulations issued by the PBGC.
"Required Banks" means at any time Banks then holding
at least 66-2/3% of the then aggregate unpaid principal amount of
the Loans, or, if no such principal amount is then outstanding,
Banks then having at least 66-2/3% of the Commitments.
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or
determination of an arbitrator or of a Governmental Authority, in
each case applicable to or binding upon the Person or any of its
property or to which the Person or any of its property is
subject.
"Responsible Officer" means the chief executive
officer or the president of the Company, or any other officer
having substantially the same authority and responsibility; or,
with respect to compliance with financial covenants, the chief
financial officer or the treasurer of the Company, or any other
officer having substantially the same authority and
responsibility.
"Restricted Subsidiary" means any Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"Revolving Loan" means any of the Facility A
Revolving Loans or the Facility B Revolving Loans, which may be a
Base Rate Loan or an Offshore Rate Loan (each, a "Type" of
Revolving Loan), and any reference to Revolving Loans also
applies to both the Facility A Revolving Loans and the Facility B
Revolving Loans.
"SEC" means the Securities and Exchange Commission,
or any Governmental Authority succeeding to any of its principal
functions.
"SESCO" means Savannah Energy Systems Company, a
Georgia limited partnership.
"SESCO Service Agreement" means the Service Agreement
dated as of December 1, 1994, by and between Resource Recovery
Development Authority for the City of Savannah and SESCO.
"Standby Letter of Credit" means a Letter of Credit
other than a Commercial Letter of Credit.
"Standby L/C Commitment" means the commitment of the
Issuing Bank to Issue, and the commitment of the Banks severally
to participate in, Standby Letters of Credit from time to time
Issued or outstanding under Article III, in an aggregate amount
not to exceed on any date the amount of $10,000,000, as the same
shall be reduced as a result of a reduction in the Standby L/C
Commitment pursuant to Section 2.6; provided that the Standby L/C
Commitment is a part of the combined Facility A Commitments,
rather than a separate, independent commitment.
"Subsidiary" of a Person means any corporation ,
association, partnership, limited liability company, joint
venture or other business entity of which more than 50% of the
voting stock, membership interests or other equity interests (in
the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more
of the Subsidiaries of the Person, or a combination thereof.
Unless the context otherwise clearly requires, references herein
to a "Subsidiary" refer to a Subsidiary of the Company.
"Surety Instruments" means all letters of credit
(including standby and commercial), banker's acceptances, bank
guaranties, shipside bonds, surety bonds and similar instruments.
"Swap Contract" means any agreement, whether or not
in writing, relating to any transaction that is a rate swap,
basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap or option, bond, note or bill
option, interest rate option, forward foreign exchange
transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other,
similar transaction (including any option to enter into any of
the foregoing) or any combination of the foregoing, and, unless
the context otherwise clearly requires, any master agreement
relating to or governing any or all of the foregoing.
"Swap Termination Value" means, in respect of any one
or more Swap Contracts, after taking into account the effect of
any legally enforceable netting agreement relating to such Swap
Contracts, (a) for any date on or after the date such Swap
Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s),
and (b) for any date prior to the date referenced in clause (a)
the amount(s) determined as the mark-to-market value(s) for such
Swap Contracts, as determined based upon one or more mid-market
or other readily available quotations provided by any recognized
dealer in such Swap Contracts (which may include any Bank).
"Taxes" means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees,
withholdings or similar charges, and all liabilities with respect
thereto, excluding, in the case of each Bank and the Agent,
respectively, taxes imposed on or measured by its net income by
the jurisdiction (or any political subdivision thereof) under the
laws of which such Bank or the Agent, as the case may be, is
organized or maintains a lending office.
"Type" has the meaning specified in the definition of
"Revolving Loan."
"Unfunded Pension Liability" means the excess of a
Plan's benefit liabilities under Section 4001(a)(16) of ERISA,
over the current value of that Plan's assets, determined in
accordance with the assumptions used for funding the Pension Plan
pursuant to Section 412 of the Code for the applicable plan year.
"United States" and "U.S." each means the United
States of America.
"Unrestricted Subsidiary" means C.E.G.F. (USA), Inc.
and any other Subsidiary designated by the Company, upon the
prior written consent of the Required Banks, as an Unrestricted
Subsidiary.
"Wholly Owned Subsidiary" means any corporation in
which (other than directors' qualifying shares required by law)
100% of the capital stock of each class having ordinary voting
power, and 100% of the capital stock of every other class, in
each case, at the time as of which any determination is being
made, is owned, beneficially and of record, by the Company, or by
one of the other Wholly Owned Subsidiaries, or both.
"Woods Industries" means Woods Industries, Inc., a
Subsidiary of the Company.
1.2 Other Interpretive Provisions.
- ---------------------------------------
(a) The meanings of defined terms are equally
applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and
similar words refer to this Agreement as a whole and not to any
particular provision of this Agreement; and subsection, Section,
Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(c) (i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures,
notices and other writings, however evidenced.
(ii) The term "including" is not limiting and
means "including without limitation."
(iii) In the computation of periods of time from
a specified date to a later specified date, the word "from" means
"from and including"; the words "to" and "until" each mean
"to but excluding", and the word "through" means "to and
including."
(d) Unless otherwise expressly provided herein, (i)
references to agreements (including this Agreement) and other
contractual instruments shall be deemed to include all subsequent
amendments and other modifications thereto, but only to the
extent such amendments and other modifications are not prohibited
by the terms of any Loan Document, and (ii) references to any
statute or regulation are to be construed as including all
statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are
for convenience of reference only and shall not affect the
interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use
several different limitations, tests or measurements to regulate
the same or similar matters. All such limitations, tests and
measurements are cumulative and shall each be performed in
accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Agent or the Banks
by way of consent, approval or waiver shall be deemed modified by
the phrase "in its/their sole discretion."
(g) This Agreement and the other Loan Documents are
the result of negotiations among and have been reviewed by
counsel to the Agent, the Company and the other parties, and are
the products of all parties. Accordingly, they shall not be
construed against the Banks or the Agent merely because of the
Agent's or Banks' involvement in their preparation.
1.3 Accounting Principles.
- ------------------------------
(a) Except as otherwise expressly provided in this
Agreement, all accounting terms used in this Agreement shall be
interpreted, and all financial statements and certificates and
reports as to financial matters required to be delivered to the
Agent and the Banks under this Agreement shall (unless otherwise
disclosed to the Agent in writing at the time of delivery) be
prepared, in accordance with GAAP applied on a basis consistent
with those used in the preparation of the latest financial
statements furnished to the Agent and the Banks under this
Agreement. All calculations made for purposes of determining
compliance with this Agreement shall (except as otherwise
expressly provided for in this Agreement) be made by application
of GAAP applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial
statements furnished to the Agent and the Banks pursuant to
Section 7.1 unless (i) the Company shall have objected to
determining such compliance on such basis at the time of delivery
of such financial statements or (ii) the Agent on behalf of the
Required Banks shall so object in writing within 30 days after
delivery of such financial statements, in either of which events
such calculations shall be made on a basis consistent with those
used in the preparation of the latest financial statements as to
which such objection shall not have been made.
(b) References herein to "fiscal year" and "fiscal
quarter" refer to such fiscal periods of the Company.
ARTICLE II.
-----------
THE CREDITS
2.1 Amounts and Terms of Commitments.
- ------------------------------------------
(a) The Facility A Revolving Credit. Each Bank
severally agrees, on the terms and conditions set forth herein,
to make loans to the Company (each such loan, a "Facility A
Revolving Loan") from time to time on any Business Day during
the period from the Closing Date to the Facility A Revolving
Termination Date, in an aggregate amount not to exceed at any
time outstanding the amount set forth opposite such Bank's name
on Schedule 2.1 (such amount as the same may be reduced under
Section 2.5 or as a result of one or more assignments under
Section 11.8, the Bank's "Facility A Commitment"); provided,
however, that, after giving effect to any Borrowing of Facility A
Revolving Loans, (i) the Effective Amount of all outstanding
Facility A Revolving Loans and the Effective Amount of all L/C
Obligations shall not at any time exceed the combined Facility A
Commitments, and (ii) the Effective Amount of the Facility A
Revolving Loans of any Bank plus the participation of such Bank
in the Effective Amount of all L/C Obligations shall not at any
time exceed such Bank's Facility A Commitment. Within the limits
of each Bank's Facility A Commitment, and subject to the other
terms and conditions hereof, the Company may borrow under this
subsection 2.1(a), prepay under Section 2.6 and reborrow under
this subsection 2.1(a).
(b) The Facility B Revolving Credit. Each Bank
severally agrees, on the terms and conditions set forth herein,
to make loans to the Company (each such loan, a "Facility B
Revolving Loan") from time to time on any Business Day during
the period from the Closing Date to the Facility B Revolving
Termination Date, in an aggregate amount not to exceed at any
time outstanding the amount set forth opposite such Bank's name
on Schedule 2.1 (such amount as the same may be reduced under
Section 2.5 or as a result of one or more assignments under
Section 11.8, the Bank's "Facility B Commitment"); provided,
however, that, after giving effect to any Borrowing of Facility B
Revolving Loans, (i) the Effective Amount of all outstanding
Facility B Revolving Loans shall not at any time exceed the
lesser of the L/C Adjusted Borrowing Base and the combined
Facility B Commitments, and (ii) the Effective Amount of the
Facility B Revolving Loans of any Bank shall not at any time
exceed such Bank's Facility B Commitment. Within the limits of
each Bank's Facility B Commitment, and subject to the other terms
and conditions hereof, the Company may borrow under this
subsection 2.1(b), prepay under Section 2.6 and reborrow under
this subsection 2.1(b).
(c) Notwithstanding anything contained in this
Agreement, (i) the Effective Amount of all outstanding Revolving
Loans and the Effective Amount of all L/C Obligations shall not
at any time exceed the lesser of the L/C Adjusted Borrowing Base
and the combined Commitments, and (ii) the Effective Amount of
the Revolving Loans of any Bank plus the participation of such
Bank in the Effective Amount of all L/C Obligations shall not at
any time exceed the lesser of such Bank's Pro Rata Share of the
L/C Adjusted Borrowing Base and such Bank's Commitments.
2.2 Loan Accounts.
- -----------------------
(a) The Loans made by each Bank and the Letters of
Credit Issued by the Issuing Bank shall be evidenced by one or
more accounts or records maintained by such Bank or Issuing Bank,
as the case may be, in the ordinary course of business. The
accounts or records maintained by the Agent, the Issuing Bank and
each Bank shall be conclusive absent manifest error of the amount
of the Loans made by the Banks to the Company and the Letters of
Credit Issued for the account of the Company, and the interest
and payments thereon. Any failure so to record or any error in
doing so shall not, however, limit or otherwise affect the
obligation of the Company hereunder to pay any amount owing with
respect to the Loans or any Letter of Credit.
(b) Upon the request of any Bank made through the
Agent, the Loans made by such Bank may be evidenced by one or
more Notes, instead of or in addition to loan accounts. Each
such Bank shall endorse on the schedules annexed to its Note(s)
the date, amount and maturity of each Loan made by it and the
amount of each payment of principal made by the Company with
respect thereto. Each such Bank is irrevocably authorized by the
Company to endorse its Note(s) and each Bank's record shall be
conclusive absent manifest error; provided, however, that the
failure of a Bank to make, or an error in making, a notation
thereon with respect to any Loan shall not limit or otherwise
affect the obligations of the Company hereunder or under any such
Note to such Bank.
2.3 Procedure for Borrowing.
- ---------------------------------
(a) Each Borrowing of Revolving Loans shall be made
upon the Company's irrevocable written notice delivered to the
Agent in the form of a Notice of Borrowing (which notice must be
received by the Agent prior to 9:00 a.m. (San Francisco time) (i)
three Business Days prior to the requested Borrowing Date, in the
case of Offshore Rate Loans, and (ii) on the requested Borrowing
Date, in the case of Base Rate Loans, specifying:
(A) the amount of the Borrowing, which shall be
in an aggregate minimum amount of $2,000,000 or any
multiple of $1,000,000 in excess thereof;
(B) the requested Borrowing Date, which shall be
a Business Day;
(C) the Type of Loans comprising the Borrowing;
and
(D) the duration of the Interest Period
applicable to such Loans included in such notice. If
the Notice of Borrowing fails to specify the duration
of the Interest Period for any Borrowing comprised of
Offshore Rate Loans, such Interest Period shall be one
month;
(b) The Agent will promptly notify each Bank of its
receipt of any Notice of Borrowing and of the amount of such
Bank's Pro Rata Share of that Borrowing.
(c) Each Bank will make the amount of its Pro Rata
Share of each Borrowing available to the Agent for the account of
the Company at the Agent's Payment Office by 11:00 a.m. (San
Francisco time) on the Borrowing Date requested by the Company in
funds immediately available to the Agent. The proceeds of all
such Loans will then be made available to the Company by the
Agent at such office by crediting the account of the Company on
the books of BofA with the aggregate of the amounts made
available to the Agent by the Banks and in like funds as received
by the Agent.
(d) After giving effect to any Borrowing, unless the
Agent shall otherwise consent, there may not be more than six (6)
different Interest Periods in effect.
2.4 Conversion and Continuation Elections.
- ------------------------------------------------
(a) The Company may, upon irrevocable written notice
to the Agent in accordance with subsection 2.4(b):
(i) elect, as of any Business Day, in the case of
Base Rate Loans, or as of the last day of the applicable Interest
Period, in the case of any other Offshore Rate Loans, to convert
any such Loans (or any part thereof in an amount not less than
$2,000,000, or that is in an integral multiple of $1,000,000 in
excess thereof) into Loans of any other Type; or
(ii) elect as of the last day of the applicable
Interest Period, to continue any Revolving Loans having Interest
Periods expiring on such day (or any part thereof in an amount
not less than $2,000,000, or that is in an integral multiple of
$1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of Offshore
Rate Loans in respect of any Borrowing is reduced, by payment,
prepayment, or conversion of part thereof to be less than
$2,000,000, such Offshore Rate Loans shall automatically convert
into Base Rate Loans, and on and after such date the right of the
Company to continue such Loans as, and convert such Loans into,
Offshore Rate Loans shall terminate.
(b) The Company shall deliver a Notice of
Conversion/Continuation to be received by the Agent not later
than 9:00 a.m. (San Francisco time) at least (i) three Business
Days in advance of the Conversion/ Continuation Date, if the
Loans are to be converted into or continued as Offshore Rate
Loans; and (ii) on the Conversion/Continuation Date, if the Loans
are to be converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted
or continued;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) other than in the case of conversions into
Base Rate Loans, the duration of the
requested Interest Period.
(c) If upon the expiration of any Interest Period
applicable to Offshore Rate Loans, the Company has failed to
select timely a new Interest Period to be applicable to such
Offshore Rate Loans, or if any Default or Event of Default then
exists, the Company shall be deemed to have elected to convert
such Offshore Rate Loans into Base Rate Loans effective as of the
expiration date of such Interest Period.
(d) The Agent will promptly notify each Bank of its
receipt of a Notice of Conversion/Continuation or, if no timely
notice is provided by the Company, the Agent will promptly notify
each Bank of the details of any automatic conversion. All
conversions and continuations shall be made ratably according to
the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Bank.
(e) Unless the Required Banks otherwise consent,
during the existence of a Default or Event of Default, the
Company may not elect to have a Loan converted into or continued
as an Offshore Rate Loan.
(f) After giving effect to any conversion or
continuation of Loans, unless the Agent shall otherwise consent,
there may not be more than six (6) different Interest Periods in
effect.
2.5 Voluntary Termination or Reduction of Commitments.
- ---------------------------------------------------------
The Company may, upon not less than five Business Days'
prior notice to the Agent, terminate the Facility A Commitments
or the Facility B Commitments, or permanently reduce the Facility
A Commitments or Facility B Commitments by an aggregate minimum
amount of $5,000,000 or any multiple of $1,000,000 in excess
thereof; unless, after giving effect thereto and to any
prepayments of Loans made on the effective date thereof, (a) the
Effective Amount of all Facility A Revolving Loans and L/C
Obligations together would exceed the amount of the Facility A
Commitments then in effect, (b) the Effective Amount of all
Commercial L/C Obligations then outstanding would exceed the
Commercial L/C Commitment, (c) the Effective Amount of all
Standby L/C Obligations would exceed the Standby L/C Commitment,
or (d) the Effective Amount of all Facility B Revolving Loans
then outstanding would exceed the Facility B Commitment. Once
reduced in accordance with this Section, neither the Facility A
Commitments, Facility B Commitments, Commercial L/C Commitments,
nor the Standby L/C Commitments may be increased. Any reduction
of the Commitments shall be applied to each Bank according to its
respective Pro Rata Share. Any reduction in the Facility A
Commitments will correspondingly reduce the Commercial L/C
Commitment, and any reduction in the Facility A Commitments below
$10,000,000 will correspondingly reduce the Standby L/C
Commitment. All accrued Facility Fees to, but not including, the
effective date of any reduction or termination of Commitments,
shall be paid on the effective date of such reduction or
termination.
2.6 Optional Prepayments.
- --------------------------
Subject to Section 4.4, the Company may, at any time or
from time to time, upon not less than (i) one Business Day's
irrevocable notice to the Agent, in the case of Base Rate Loans,
or (ii) three Business Days' irrevocable notice to the Agent, in
the case of Offshore Rate Loans, ratably prepay Loans in whole or
in part, in minimum amounts of $2,000,000 or any multiple of
$1,000,000 in excess thereof. Such notice of prepayment shall
specify the date and amount of such prepayment and the Type(s) of
Loans to be prepaid. The Agent will promptly notify each Bank of
its receipt of any such notice, and of such Bank's Pro Rata Share
of such prepayment. If such notice is given by the Company, the
Company shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to each such
date on the amount prepaid and any amounts required pursuant to
Section 4.4
2.7 Mandatory Prepayments of Loans; Mandatory Commitment
- ---------------------------------------------------------
Reductions.
- -----------
If on any date the Effective Amount of Commercial L/C
Obligations exceeds the lesser of the L/C Adjusted Borrowing Base
and the Commercial L/C Commitment, the Company shall Cash
Collateralize on such date the outstanding Commercial Letters of
Credit in an amount equal to the excess of the maximum amount
then available to be drawn under the Commercial Letters of Credit
over the lesser of the L/C Adjusted Borrowing Base and the
Commercial L/C Commitment. If on any date the Effective Amount
of Standby L/C Obligations exceeds the lesser of the L/C Adjusted
Borrowing Base and the Standby L/C Commitment, the Company shall
Cash Collateralize on such date the outstanding Standby Letters
of Credit in an amount equal to the excess of the maximum amount
then available to be drawn under the Standby Letters of Credit
over the lesser of the L/C Adjusted Borrowing Base and the
Standby L/C Commitment. Subject to Section 4.4, if on any date
after giving effect to any Cash Collateralization made on such
date pursuant to the two preceding sentences, the Effective
Amount of all Facility A Revolving Loans then outstanding plus
the Effective Amount of all L/C Obligations exceeds the combined
Facility A Commitments, the Company shall immediately, and
without notice or demand, prepay the outstanding principal amount
of the Facility A Revolving Loans and L/C Advances by an amount
equal to the applicable excess. If on any date the Effective
Amount of all Facility B Revolving Loans then outstanding exceeds
the combined Facility B Commitments, the Company shall
immediately, and without notice or demand, prepay the outstanding
principal amount of the Facility B Revolving Loans by an amount
equal to the applicable excess. If on any date the Effective
Amount of all Loans then outstanding plus the Effective Amount of
all L/C Obligations exceeds the lesser of the L/C Adjusted
Borrowing Base and the combined Commitments, the Company shall
immediately, and without notice or demand, prepay the outstanding
principal amount of the Loans by an amount equal to the
applicable excess.
2.8 Repayment.
- ---------------
The Company shall repay to the Banks on the Facility A
Revolving Termination Date the aggregate principal amount of
Facility A Revolving Loans outstanding on such date. The Company
shall repay to the Banks on the Facility B Revolving Termination
Date the aggregate principal amount of Facility B Revolving Loans
outstanding on such date.
2.9 Interest.
- --------------
(a) Each Revolving Loan shall bear interest on the
outstanding principal amount thereof from the applicable
Borrowing Date at a rate per annum equal to the Offshore Rate or
the Base Rate, as the case may be (and subject to the Company's
right to convert to other Types of Loans under Section 2.4), plus
the Applicable Margin.
(b) Interest on each Revolving Loan shall be paid in
arrears on each Interest Payment Date. Interest shall also be
paid on the date of any prepayment of Loans under Section 2.6 or
2.7 for the portion of the Loans so prepaid and upon payment
(including prepayment) in full thereof and, during the existence
of any Event of Default, interest shall be paid on demand of the
Agent at the request or with the consent of the Required Banks.
(c) Notwithstanding subsection (a) of this Section,
while any Event of Default exists or after acceleration, the
Company shall pay interest (after as well as before entry of
judgment thereon to the extent permitted by law) on the principal
amount of all outstanding Obligations, at a rate per annum which
is determined by adding 2% per annum to the Applicable Margin
then in effect for such Loans and, in the case of Obligations not
subject to an Applicable Margin, at a rate per annum equal to the
Base Rate plus 2%; provided, however, that, on and after the
expiration of any Interest Period applicable to any Offshore Rate
Loan outstanding on the date of occurrence of such Event of
Default or acceleration, the principal amount of such Loan shall,
during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Base
Rate plus 2%.
(d) Anything herein to the contrary notwithstanding,
the obligations of the Company to any Bank hereunder shall be
subject to the limitation that payments of interest shall not be
required for any period for which interest is computed hereunder,
to the extent (but only to the extent) that contracting for or
receiving such payment by such Bank would be contrary to the
provisions of any law applicable to such Bank limiting the
highest rate of interest that may be lawfully contracted for,
charged or received by such Bank, and in such event the Company
shall pay such Bank interest at the highest rate permitted by
applicable law.
2.10 Fees.
- ---------------
In addition to certain fees described in
Section 3.8:
(a) Certain Fees. The Company shall pay such fees to
the Arranger for the Arranger's own account, and shall pay such
fees to the Agent for the Agent's own account, as required by the
letter agreement ("Fee Letter") among the Company, the Arranger
and the Agent, dated August 12, 1997, as amended as of the date
hereof. In addition, the Company shall pay to the Agent on the
Closing Date for the account of each Bank a one-time fee equal to
0.10% of the sum of such Bank's Facility A Commitment and
Facility B Commitment (the "Participation Fee").
(b) Facility Fees. The Company shall pay to the Agent
for the account of each Bank a facility fee ("Facility Fee") on
such Bank's Commitments equal to the Facility Fee Percentage in
effect for that quarter multiplied by such Bank's Commitments.
Such facility fee shall accrue from the Closing Date to the
termination of the Commitments and shall be due and payable
quarterly in arrears on December 31, 1997 and thereafter on the
last Business Day of each calendar quarter through the Facility B
Revolving Termination Date, with the final payment to be made on
the Facility B Revolving Termination Date; provided that, in
connection with any reduction or termination of Commitments under
Section 2.5 or Section 2.7, the accrued Facility Fee for the
period ending on such date shall also be paid on the date of such
reduction or termination, with the following quarterly payment
being calculated on the basis of the period from such reduction
or termination date to such quarterly payment date. The Facility
Fees provided in this subsection shall accrue at all times after
the above-mentioned commencement date, including at any time
during which one or more conditions in Article V are not met.
2.11 Computation of Fees and Interest.
- ------------------------------------------
(a) All computations of interest for Base Rate Loans
when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed. All other computations of
fees and interest shall be made on the basis of a 360-day year
and actual days elapsed (which results in more interest being
paid than if computed on the basis of a 365-day year). Interest
and fees shall accrue during each period during which interest or
such fees are computed from the first day thereof to the last day
thereof.
(b) Each determination of an interest rate by the
Agent shall be conclusive and binding on the Company and the
Banks in the absence of manifest error.
2.12 Payments by the Company.
- ---------------------------------
(a) All payments to be made by the Company shall be
made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Company
shall be made to the Agent for the account of the Banks at the
Agent's Payment Office, and shall be made in dollars and in
immediately available funds, no later than 11:00 a.m. (San
Francisco time) on the date specified herein. The Agent will
promptly distribute to each Bank its Pro Rata Share (or other
applicable share as expressly provided herein) of such payment in
like funds as received. Any payment received by the Agent later
than 11:00 a.m. (San Francisco time) shall be deemed to have been
received on the following Business Day and any applicable
interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the
definition of "Interest Period" herein, whenever any payment is
due on a day other than a Business Day, such payment shall be
made on the following Business Day, and such extension of time
shall in such case be included in the computation of interest or
fees, as the case may be.
(c) Unless the Agent receives notice from the Company
prior to the date on which any payment is due to the Banks that
the Company will not make such payment in full as and when
required, the Agent may assume that the Company has made such
payment in full to the Agent on such date in immediately
available funds and the Agent may (but shall not be so required),
in reliance upon such assumption, distribute to each Bank on such
due date an amount equal to the amount then due such Bank. If
and to the extent the Company has not made such payment in full
to the Agent, each Bank shall repay to the Agent on demand such
amount distributed to such Bank, together with interest thereon
at the Federal Funds Rate for each day from the date such amount
is distributed to such Bank until the date repaid.
2.13 Payments by the Banks to the Agent.
- --------------------------------------------
(a) Unless the Agent receives notice from a Bank on or
prior to the Closing Date or, with respect to any Borrowing after
the Closing Date, at least one Business Day prior to the date of
such Borrowing, that such Bank will not make available as and
when required hereunder to the Agent for the account of the
Company the amount of that Bank's Pro Rata Share of the
Borrowing, the Agent may assume that each Bank has made such
amount available to the Agent in immediately available funds on
the Borrowing Date and the Agent may (but shall not be so
required), in reliance upon such assumption, make available to
the Company on such date a corresponding amount. If and to the
extent any Bank shall not have made its full amount available to
the Agent in immediately available funds and the Agent in such
circumstances has made available to the Company such amount, that
Bank shall on the Business Day following such Borrowing Date make
such amount available to the Agent, together with interest at the
Federal Funds Rate for each day during such period. A notice of
the Agent submitted to any Bank with respect to amounts owing
under this subsection (a) shall be conclusive, absent manifest
error. If such amount is so made available, such payment to the
Agent shall constitute such Bank's Loan on the date of Borrowing
for all purposes of this Agreement. If such amount is not made
available to the Agent on the Business Day following the
Borrowing Date, the Agent will notify the Company of such failure
to fund and, upon demand by the Agent, the Company shall pay such
amount to the Agent for the Agent's account, together with
interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any
Borrowing Date shall not relieve any other Bank of any obligation
hereunder to make a Loan on such Borrowing Date, but no Bank
shall be responsible for the failure of any other Bank to make
the Loan to be made by such other Bank on any Borrowing Date.
2.14 Sharing of Payments, Etc.
- ----------------------------------
If, other than as expressly provided elsewhere
herein, any Bank shall obtain on account of the Loans made by it
any payment (whether voluntary, involuntary, through the exercise
of any right of set-off, or otherwise) in excess of its ratable
share (or other share contemplated hereunder), such Bank shall
immediately (a) notify the Agent of such fact, and (b) purchase
from the other Banks such participations in the Loans made by
them as shall be necessary to cause such purchasing Bank to share
the excess payment pro rata with each of them; provided, however,
that if all or any portion of such excess payment is thereafter
recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the
purchasing Bank the purchase price paid therefor, together with
an amount equal to such paying Bank's ratable share (according to
the proportion of (i) the amount of such paying Bank's required
repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable
by the purchasing Bank in respect of the total amount so
recovered. The Company agrees that any Bank so purchasing a
participation from another Bank may, to the fullest extent
permitted by law, exercise all its rights of payment (including
the right of set-off, but subject to Section 11.10) with respect
to such participation as fully as if such Bank were the direct
creditor of the Company in the amount of such participation. The
Agent will keep records (which shall be conclusive and binding in
the absence of manifest error) of participations purchased under
this Section and will in each case notify the Banks following any
such purchases or repayments.
2.15 Quarterly Adjustments.
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If the Company shall have failed to deliver the
financial reports pursuant to Section 7.1 and the certificates
pursuant to Section 7.2 on a timely basis and if, when delivered
with respect to any fiscal quarter, such financial reports and
certificates indicate that the Applicable Margin or the Facility
Fee Percentage for any period after such failure should have been
higher than the Applicable Margin or the Facility Fee Percentage
assumed after such period pursuant to the definitions of such
terms by virtue of such failure, and the interest or fee that
would have been collected hereunder based upon the actual
Applicable Margin or the Facility Fee Percentage had such failure
not occurred exceeds the interest or fee actually collected
hereunder, then the Company shall pay an amount equal to such
excess on the next Interest Payment Date.
ARTICLE III.
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THE LETTERS OF CREDIT
3.1 The Letter of Credit Subfacilities.
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(a) On the terms and conditions set forth herein (i)
the Issuing Bank agrees, (A) from time to time on any Business
Day during the period from the Closing Date to the Facility A
Revolving Termination Date to issue Letters of Credit for the
account of the Company, and to amend or renew Letters of Credit
previously issued by it, in accordance with subsections 3.2(c)
and 3.2(d), and (B) to honor drafts under the Letters of Credit;
and (ii) the Banks severally agree to participate in Letters of
Credit Issued for the account of the Company; provided, that the
Issuing Bank shall not be obligated to Issue, and no Bank shall
be obligated to participate in, any Letter of Credit if as of the
date of Issuance of such Letter of Credit (the "Issuance Date")
(1) the Effective Amount of all L/C Obligations plus the
Effective Amount of all Facility A Revolving Loans exceeds the
combined Facility A Commitments, (2) the participation of any
Bank in the Effective Amount of all L/C Obligations plus the
Effective Amount of the Facility A Revolving Loans of such Bank
exceeds such Bank's Facility A Commitment, (3) the Effective
Amount of Commercial Letters of Credit exceeds the Commercial L/C
Commitment, or (4) the Effective Amount of Standby Letters of
Credit exceeds the Standby L/C Commitment. Within the foregoing
limits, and subject to the other terms and conditions hereof, the
Company's ability to obtain Letters of Credit shall be fully
revolving, and, accordingly, the Company may, during the
foregoing period, obtain Letters of Credit to replace Letters of
Credit which have expired or which have been drawn upon and
reimbursed.
(b) The Issuing Bank is under no obligation to Issue
any Letter of Credit if:
(i) any order, judgment or decree of any
Governmental Authority or arbitrator shall by its terms purport
to enjoin or restrain the Issuing Bank from Issuing such Letter
of Credit, or any Requirement of Law applicable to the Issuing
Bank or any request or directive (whether or not having the force
of law) from any Governmental Authority with jurisdiction over
the Issuing Bank shall prohibit, or request that the Issuing Bank
refrain from, the Issuance of letters of credit generally or such
Letter of Credit in particular or shall impose upon the Issuing
Bank with respect to such Letter of Credit any restriction,
reserve or capital requirement (for which the Issuing Bank is not
otherwise compensated hereunder) not in effect on the Closing
Date, or shall impose upon the Issuing Bank any unreimbursed
loss, cost or expense which was not applicable on the Closing
Date and which the Issuing Bank in good faith deems material to
it;
(ii) the Issuing Bank has received written notice
from any Bank, the Agent or the Company, on or prior to the
Business Day prior to the requested date of Issuance of such
Letter of Credit, that one or more of the applicable conditions
contained in Article V is not then satisfied;
(iii) the expiry date of any requested Letter of
Credit is (A) (i) more than six months after the date of
Issuance, in the case of Commercial Letters of Credit, or (ii)
more than one year after the date of Issuance, in the case of
Standby Letters of Credit, unless the Required Banks have
approved such expiry date in writing, or (B) after the Facility B
Revolving Termination Date, unless all of the Banks have approved
such expiry date in writing;
(iv) the expiry date of any requested Standby
Letter of Credit is prior to the maturity date of any financial
obligation to be supported by the requested Standby Letter of
Credit;
(v) any requested Letter of Credit does not
provide for drafts, or is not otherwise in form and substance
acceptable to the Issuing Bank, or the Issuance of a Letter of
Credit shall violate any applicable policies of the Issuing Bank;
(vi) any Standby Letter of Credit is for the
purpose of supporting the issuance of any letter of credit by any
other Person; or
(vii) such Letter of Credit is in a face amount
less than $50,000 if a Standby Letter of Credit or is denominated
in a currency other than Dollars;
3.2 Issuance, Amendment and Renewal of Letters of Credit.
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(a) Each Standby Letter of Credit shall be issued
upon the written request of the Company received by the Issuing
Bank (with a copy sent by the Company to the Agent) at least four
days (or such shorter time as the Issuing Bank may agree in a
particular instance in its sole discretion) prior to the proposed
date of issuance. Each such request for issuance of a Standby
Letter of Credit shall be by facsimile, confirmed immediately in
an original writing, in the form of an L/C Application, and shall
specify in form and detail reasonably satisfactory to the Issuing
Bank: (i) the proposed date of issuance of the Standby Letter of
Credit (which shall be a Business Day); (ii) the face amount of
the Standby Letter of Credit; (iii) the expiry date of the
Standby Letter of Credit; (iv) the name and address of the
beneficiary thereof; (v) the documents to be presented by the
beneficiary of the Standby Letter of Credit in case of any
drawing thereunder; (vi) the full text of any certificate to be
presented by the beneficiary in case of any drawing thereunder;
and (vii) such other matters as the Issuing Bank may reasonably
require.
(b) Each Commercial Letter of Credit shall be issued
in accordance with the Issuing Bank's usual and customary
business and documentation practices, as mutually agreed by the
Company and the Issuing Bank.
(c) At least two Business Days prior to the Issuance
of any Standby Letter of Credit, the Issuing Bank will confirm
with the Agent (by telephone or in writing) that the Agent has
received a copy of the L/C Application or L/C Amendment
Application from the Company and, if not, the Issuing Bank will
provide the Agent with a copy thereof. Unless the Issuing Bank
has received notice on or before the Business Day immediately
preceding the date the Issuing Bank is to issue a requested
Standby Letter of Credit from the Agent (A) directing the Issuing
Bank not to issue such Standby Letter of Credit because such
issuance is not then permitted under subsection 3.1(a) as a
result of the limitations set forth in clauses (1) through (3)
thereof or subsection 3.1(b)(ii); or (B) that one or more
conditions specified in Article V are not then satisfied; then,
subject to the terms and conditions hereof, the Issuing Bank
shall, on the requested date, issue a Standby Letter of Credit
for the account of the Company in accordance with the Issuing
Bank's usual and customary business practices.
(d) From time to time while a Standby Letter of
Credit is outstanding and prior to the Facility A Revolving
Termination Date, the Issuing Bank will, upon the written request
of the Company received by the Issuing Bank (with a copy sent by
the Company to the Agent) at least five days (or such shorter
time as the Issuing Bank may agree in a particular instance in
its sole discretion) prior to the proposed date of amendment,
amend any Standby Letter of Credit issued by it. Each such
request for amendment of a Standby Letter of Credit shall be made
by facsimile, confirmed immediately in an original writing, made
in the form of an L/C Amendment Application and shall specify in
form and detail satisfactory to the Issuing Bank: (i) the
Standby Letter of Credit to be amended; (ii) the proposed date of
amendment of the Standby Letter of Credit (which shall be a
Business Day); (iii) the nature of the proposed amendment; and
(iv) such other matters as the Issuing Bank may reasonably
require. The Issuing Bank shall be under no obligation to amend
any Standby Letter of Credit if: (A) the Issuing Bank would have
no obligation at such time to issue such Standby Letter of Credit
in its amended form under the terms of this Agreement; or (B) the
beneficiary of any such Standby Letter of Credit does not accept
the proposed amendment to the Standby Letter of Credit. The
Agent will promptly notify the Banks of the receipt by it of any
L/C Application or L/C Amendment Application.
(e) The Issuing Bank and the Banks agree that, while
a Standby Letter of Credit is outstanding and prior to the
Facility A Revolving Termination Date, at the option of the
Company and upon the written request of the Company received by
the Issuing Bank (with a copy sent by the Company to the Agent)
at least five days (or such shorter time as the Issuing Bank may
agree in a particular instance in its sole discretion) prior to
the proposed date of notification of renewal, the Issuing Bank
shall be entitled to take or omit to take such action as would
allow the automatic renewal of any Standby Letter of Credit
issued by it. Each such request for renewal of a Standby Letter
of Credit shall be made by facsimile, confirmed immediately in an
original writing, in the form of an L/C Amendment Application,
and shall specify in form and detail satisfactory to the Issuing
Bank: (i) the Standby Letter of Credit to be renewed; (ii) the
proposed date of notification of renewal of the Standby Letter of
Credit (which shall be a Business Day); (iii) the revised expiry
date of the Standby Letter of Credit; and (iv) such other matters
as the Issuing Bank may reasonably require. The Issuing Bank
shall be under no obligation so to renew any Standby Letter of
Credit if: (A) the Issuing Bank would have no obligation at such
time to issue or amend such Standby Letter of Credit in its
renewed form under the terms of this Agreement; or (B) the
beneficiary of any such Standby Letter of Credit does not accept
the proposed renewal of the Standby Letter of Credit. If any
outstanding Standby Letter of Credit shall provide that it shall
be automatically renewed unless the beneficiary thereof receives
notice from the Issuing Bank that such Standby Letter of Credit
shall not be renewed, and if at the time of renewal the Issuing
Bank would be entitled to authorize the automatic renewal of such
Standby Letter of Credit in accordance with this
subsection 3.2(e) upon the request of the Company but the Issuing
Bank shall not have received any L/C Amendment Application from
the Company with respect to such renewal or other written
direction by the Company with respect thereto, the Issuing Bank
shall nonetheless be permitted to allow such Standby Letter of
Credit to renew, and the Company and the Banks hereby authorize
such renewal, and, accordingly, the Issuing Bank shall be deemed
to have received an L/C Amendment Application from the Company
requesting such renewal.
(f) The Issuing Bank may, at its election (or as
required by the Agent at the direction of the Required Banks),
deliver any notices of termination or other communications to any
Letter of Credit beneficiary or transferee, and take any other
action as necessary or appropriate, at any time and from time to
time, in order to cause the expiry date of such Letter of Credit
to be a date not later than the Facility B Revolving Termination
Date.
(g) This Agreement shall control in the event of any
conflict with any L/C-Related Document (other than any Letter of
Credit).
(h) The Issuing Bank will also deliver to the Agent,
concurrently or promptly following its delivery of a Letter of
Credit, or amendment to or renewal of a Letter of Credit, to an
advising bank or a beneficiary, a true and complete copy of each
such Letter of Credit or amendment to or renewal of a Letter of
Credit.
3.3 Risk Participations, Drawings and Reimbursements.
- -------------------------------------------------------
(a) Immediately upon the Issuance of each Letter of
Credit in addition to those described in subsection 3.3(a), each
Bank shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Issuing Bank a
participation in such Letter of Credit and each drawing
thereunder in an amount equal to the product of (i) the Pro Rata
Share of such Bank, times (ii) the maximum amount available to be
drawn under such Letter of Credit and the amount of such drawing,
respectively. For purposes of subsection 2.1(b), each Issuance
of a Letter of Credit shall be deemed to utilize the Standby L/C
Commitment or Commercial L/C Commitment, as applicable, of each
Bank by an amount equal to the amount of such participation.
(b) In the event of any request for a drawing under a
Letter of Credit by the beneficiary or transferee thereof, the
Issuing Bank will promptly notify the Company. In the case of
Commercial Letters of Credit, such notice will be provided at
least one Business Day before the date that any amount is paid by
the Issuing Bank under any Letter of Credit (each such date, an
"Honor Date"); in the case of Standby Letters of Credit, the
Issuing Bank will endeavor to notify the Company at least one
Business Day before the Honor Date but its failure to provide
such notice shall neither give rise to liability against it nor
be any defense to the reimbursement obligations of the Company as
described in the next sentence. The Company shall reimburse the
Issuing Bank prior to 10:00 a.m. (San Francisco time) on each
Honor Date in an amount equal to the amount so paid by the
Issuing Bank. In the event the Company fails to reimburse the
Issuing Bank for the full amount of any drawing under any Letter
of Credit by 10:00 a.m. (San Francisco time) on the Honor Date,
the Issuing Bank will promptly notify the Agent and the Agent
will promptly notify each Bank thereof, and the Company shall be
deemed to have requested that Base Rate Loans be made by the
Banks to be disbursed on the Honor Date under such Letter of
Credit, subject to the amount of the unutilized portion of the
Facility A Revolving Commitment and subject to the conditions set
forth in Section 5.2. Any notice given by the Issuing Bank or
the Agent pursuant to this subsection 3.3(b) may be oral if
immediately confirmed in writing (including by facsimile);
provided that the lack of such an immediate confirmation shall
not affect the conclusiveness or binding effect of such notice.
(c) Each Bank shall upon any notice pursuant to
subsection 3.3(b) make available to the Agent for the account of
the relevant Issuing Bank an amount in Dollars and in immediately
available funds equal to its Pro Rata Share of the amount of the
drawing, whereupon the participating Banks shall (subject to
subsection 3.3(e)) each be deemed to have made a Facility A
Revolving Loan consisting of a Base Rate Loan to the Company in
that amount. If any Bank so notified fails to make available to
the Agent for the account of the Issuing Bank the amount of such
Bank's Pro Rata Share of the amount of the drawing by no later
than 12:00 noon (San Francisco time) on the Honor Date, then
interest shall accrue on such Bank's obligation to make such
payment, from the Honor Date to the date such Bank makes such
payment, at a rate per annum equal to the Federal Funds Rate in
effect from time to time during such period. The Agent will
promptly give notice of the occurrence of the Honor Date, but
failure of the Agent to give any such notice on the Honor Date or
in sufficient time to enable any Bank to effect such payment on
such date shall not relieve such Bank from its obligations under
this Section 3.3.
(d) With respect to any unreimbursed drawing that is
not converted into Facility A Revolving Loans consisting of Base
Rate Loans to the Company in whole or in part, because of the
Company's failure to satisfy the conditions set forth in
Section 5.2 or for any other reason, the Company shall be deemed
to have incurred from the Issuing Bank an L/C Borrowing in the
amount of such drawing, which L/C Borrowing shall be due and
payable on demand (together with interest) and shall bear
interest at a rate per annum equal to the Base Rate plus 2% per
annum, and each Bank's payment to the Issuing Bank pursuant to
this subsection 3.3(d) shall be deemed payment in respect of its
participation in such L/C Borrowing and shall constitute an L/C
Advance from such Bank in satisfaction of its participation
obligation under this Section 3.3.
(e) Each Bank's obligation in accordance with this
Agreement to make the Facility A Revolving Loans or L/C Advances,
as contemplated by this Section 3.3, as a result of a drawing
under a Letter of Credit, shall be absolute and unconditional and
without recourse to the Issuing Bank and shall not be affected by
any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have
against the Issuing Bank, the Company or any other Person for any
reason whatsoever; (ii) the occurrence or continuance of a
Default, an Event of Default or a Material Adverse Effect; or
(iii) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing;
provided, however, that each Bank's obligation to make Facility A
Revolving Loans under this Section 3.3 is subject to the
conditions set forth in Section 5.2.
3.4 Repayment of Participations.
- ----------------------------------
(a) Upon (and only upon) receipt by the Agent for the
account of the Issuing Bank of immediately available funds from
the Company (i) in reimbursement of any payment made by the
Issuing Bank under the Letter of Credit with respect to which any
Bank has paid the Agent for the account of the Issuing Bank for
such Bank's participation in the Letter of Credit pursuant to
Section 3.3 or (ii) in payment of interest thereon, the Agent
will pay to each Bank, in the same funds as those received by the
Agent for the account of the Issuing Bank, the amount of such
Bank's Pro Rata Share of such funds, and the Issuing Bank shall
receive the amount of the Pro Rata Share of such funds of any
Bank that did not so pay the Agent for the account of the Issuing
Bank.
(b) If the Agent or the Issuing Bank is required at
any time to return to the Company, or to a trustee, receiver,
liquidator, custodian, or any official in any Insolvency
Proceeding, any portion of the payments made by the Company to
the Agent for the account of the Issuing Bank pursuant to
subsection 3.4(a) in reimbursement of a payment made under the
Letter of Credit or interest or fee thereon, each Bank shall, on
demand of the Agent, forthwith return to the Agent or the Issuing
Bank the amount of its Pro Rata Share of any amounts so returned
by the Agent or the Issuing Bank plus interest thereon from the
date such demand is made to the date such amounts are returned by
such Bank to the Agent or the Issuing Bank, at a rate per annum
equal to the Federal Funds Rate in effect from time to time.
3.5 Role of the Issuing Bank.
- -------------------------------
(a) Each Bank and the Company agree that, in paying
any drawing under a Letter of Credit, the Issuing Bank shall not
have any responsibility to obtain any document (other than any
sight draft and certificates expressly required by the Letter of
Credit) or to ascertain or inquire as to the validity or accuracy
of any such document or the authority of the Person executing or
delivering any such document.
(b) No Agent-Related Person nor any of the respective
correspondents, participants or assignees of the Issuing Bank
shall be liable to any Bank for: (i) any action taken or omitted
in connection herewith at the request or with the approval of the
Banks (including the Required Banks, as applicable); (ii) any
action taken or omitted in the absence of gross negligence or
willful misconduct; or (iii) the due execution, effectiveness,
validity or enforceability of any L/C-Related Document.
(c) The Company hereby assumes all risks of the acts
or omissions of any beneficiary or transferee with respect to its
use of any Letter of Credit; provided, however, that this
assumption is not intended to, and shall not, preclude the
Company's pursuing such rights and remedies as it may have
against the beneficiary or transferee at law or under any other
agreement. No Agent-Related Person, nor any of the respective
correspondents, participants or assignees of the Issuing Bank,
shall be liable or responsible for any of the matters described
in clauses (i) through (vii) of Section 3.6; provided, however,
anything in such clauses to the contrary notwithstanding, that
the Company may have a claim against the Issuing Bank, and the
Issuing Bank may be liable to the Company, to the extent, but
only to the extent, of any direct, as opposed to consequential or
exemplary, damages suffered by the Company which the Company
proves were caused by the Issuing Bank's willful misconduct or
gross negligence or the Issuing Bank's willful failure to pay
under any Letter of Credit after the presentation to it by the
beneficiary of a sight draft and certificate(s) strictly
complying with the terms and conditions of a Letter of Credit.
In furtherance and not in limitation of the foregoing: (i) the
Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation,
regardless of any notice or information to the contrary; and (ii)
the Issuing Bank shall not be responsible for the validity or
sufficiency 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.
3.6 Obligations Absolute
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The obligations of the Company under this Agreement and
any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit, and to repay any L/C Borrowing
and any drawing under a Letter of Credit converted into Facility
A Revolving Loans, shall be unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of this
Agreement and each such other L/C-Related Document under all
circumstances, including the following:
(i) any lack of validity or enforceability of
this Agreement or any L/C-Related Document;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
obligations of the Company in respect of any Letter of Credit or
any other amendment or waiver of or any consent to departure from
all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense
or other right that the Company may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any
Person for whom any such beneficiary or any such transferee may
be acting), the Issuing Bank or any other Person, whether in
connection with this Agreement, the transactions contemplated
hereby or by the L/C-Related Documents or any unrelated
transaction;
(iv) any draft, demand, certificate or other
document presented under any Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or
any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of
Credit;
(v) any payment by the Issuing Bank under any
Letter of Credit against presentation of a draft or certificate
that does not strictly comply with the terms of any Letter of
Credit; or any payment made by the Issuing Bank under any Letter
of Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors,
liquidator, receiver or other representative of or successor to
any beneficiary or any transferee of any Letter of Credit,
including any arising in connection with any Insolvency
Proceeding;
(vi) any exchange, release or non-perfection of
any collateral, or any release or amendment or waiver of or
consent to departure from any other guarantee, for all or any of
the obligations of the Company in respect of any Letter of
Credit; or
(vii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing,
including any other circumstance that might otherwise constitute
a defense available to, or a discharge of, the Company or a
guarantor.
3.7 Cash Collateral Pledge.
- -----------------------------
Upon (i) the request of the Agent, (A) if the Issuing
Bank has honored any full or partial drawing request on any
Letter of Credit and such drawing has resulted in an L/C
Borrowing hereunder, or (B) if, as of the Facility B Revolving
Termination Date, any Letters of Credit may for any reason remain
outstanding and partially or wholly undrawn, or (ii) the
occurrence of the circumstances described in Section 2.7
requiring the Company to Cash Collateralize Letters of Credit,
then, the Company shall immediately Cash Collateralize the L/C
Obligations in an amount equal to such L/C Obligations.
3.8 Letter of Credit Fees.
- ----------------------------
(a) The Company shall pay to the Agent for the
account of each of the Banks a letter of credit fee with respect
to Standby Letters of Credit equal to the L/C Fee Percentage of
the average daily maximum amount available to be drawn of the
outstanding Standby Letters of Credit, computed on a quarterly
basis in arrears on the last Business Day of each calendar
quarter based upon Standby Letters of Credit outstanding for that
quarter as calculated by the Agent. Such letter of credit fees
shall be due and payable quarterly in arrears on the last
Business Day of each calendar quarter during which Letters of
Credit are outstanding, commencing on the first such quarterly
date to occur after the Closing Date, through the Facility A
Revolving Termination Date (or such later date upon which the
outstanding Standby Letters of Credit shall expire), with the
final payment to be made on the Facility A Revolving Termination
Date (or such later expiration date).
(b) The Company shall, pursuant to the terms of the
Fee Letter, pay to the Issuing Bank a letter of credit fronting
fee for each Standby Letter of Credit Issued by the Issuing Bank.
Such Standby Letter of Credit fronting fee shall be due and
payable on each date of Issuance of a Standby Letter of Credit,
and shall be fully earned upon the submission of a request for a
Letter of Credit, regardless of whether such request is later
revoked or withdrawn.
(c) With respect to Standby Letters of Credit, the
Company shall pay to the Issuing Bank from time to time on demand
the normal issuance, presentation, amendment and other processing
fees, and other standard costs and charges of the Issuing Bank
relating to standby letters of credit as from time to time in
effect. With respect to Commercial Letters of Credit, the
Company shall pay to the Issuing Bank from time to time on demand
such presentation, amendment and other processing fees, and other
standard costs and charges of the Issuing Bank relating to
commercial letters of credit as the Company and the Issuing Bank
may from time to time agree.
3.9 Uniform Customs and Practice.
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The Uniform Customs and Practice for Documentary
Credits as published by the International Chamber of Commerce
most recently at the time of issuance of any Letter of Credit
shall (unless otherwise expressly provided in the Letters of
Credit) apply to the Letters of Credit.
3.10 Subsidiaries as Account Parties.
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(a) As agreed from time to time between the Company
and the Issuing Bank, the L/C-Related Documents for any Letter of
Credit, and other communications required of the Company with
respect thereto under this Article III, may be executed by a
Subsidiary of the Company (an "L/C Subsidiary") rather than the
Company. The parties hereto acknowledge and agree that a letter
of credit issued pursuant to such L/C-Related Documents shall be
a Letter of Credit for all purposes hereunder, and the Company,
the Issuing Bank, and the Banks shall be obligated with respect
thereto hereunder, and the Company shall be obligated under the
related L/C-Related Documents, as though the Company were the
signatory to such L/C Related Documents. Without limiting the
foregoing, the Company hereby guarantees the payment when due,
upon maturity, acceleration or otherwise, of any and all
indebtedness of any L/C Subsidiary to the Issuing Bank, the
Agent, or any Bank arising under any L/C-Related Document. If
any or all of such indebtedness becomes due and payable , the
Company unconditionally promise to pay such indebtedness to Bank,
or order, on demand, in lawful money of the United States. The
word "indebtedness" as used in this Section 3.10 shall mean any
and all advances, debts, obligations and liabilities of an L/C
Subsidiary, or any one or more of them, heretofore, now, or
hereafter made, incurred or created, under any L/C-Related
Document, and any and all renewals, extensions or modifications
thereof, 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.
(b) The Company guarantees the payment of any and all
indebtedness of each L/C Subsidiary whether or not due or payable
by such L/C Subsidiary upon (a) the death, dissolution,
insolvency or business failure of, or any assignment for benefit
of creditors by, or commencement of any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief
proceedings by or against, such L/C Subsidiary or the Company, or
(b) the appointment of a receiver for, or the attachment,
restraint of or making or levying of any order of court or legal
process affecting, the property of such L/C Subsidiary or the
Company, and unconditionally promises to pay such indebtedness to
the Agent, on demand, in lawful money of the United States.
(c) The liability of the Company under this
Section 3.10 is exclusive and independent of any security for or
other guaranty of the indebtedness of any L/C Subsidiary, whether
executed by the Company or by any other party, and the liability
of the Company hereunder is not affected or impaired by (a) any
direction of application of payment by any L/C Subsidiary or by
any other party, or (b) any other guaranty or undertaking of the
Company or of any other party as to the indebtedness of any L/C
Subsidiary, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any dissolution,
termination or increase, decrease or change in personnel of any
L/C Subsidiary or the Company. To the extent any L/C Subsidiary
or the Company make any payment to the Issuing Bank or the Agent
in connection with the indebtedness, and all or any part of such
payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid or paid over to
a trustee, receiver or any other entity, whether in connection
with an Insolvency Proceeding or otherwise (any such payment is
hereinafter referred to as a "Preferential Payment"), then this
guaranty shall continue to be effective or shall be reinstated,
as the case may be, and, to the extent of such payment or
repayment, the indebtedness or part thereof intended to be
satisfied by such Preferential Payment shall be revived and
continued in full force and effect as if said Preferential
Payment had not been made.
(d) The obligations of the Company under this Section
3.10 are independent of the obligations of the L/C Subsidiaries,
and a separate action or actions may be brought and prosecuted
against the Company whether or not action is brought against any
L/C Subsidiary and whether or not any L/C Subsidiary be joined in
any such action or actions.
(e) The Company authorizes the Issuing Bank, without
notice or demand (except as shall be required by applicable
statute and cannot be waived), and without affecting or impairing
their liability hereunder, from time to time to (a) renew,
compromise, extend, accelerate or otherwise change the time for
payment of, or otherwise change the terms of the indebtedness or
any part thereof, including increase or decrease of the rate of
interest thereon; (b) take and hold security for the payment of
the indebtedness and exchange, enforce, waive and release any
such security; (c) apply such security and direct the order or
manner of sale thereof as Issuing Bank in its discretion may
determine; and (d) release or substitute any one or more
endorsers, guarantors, L/C Subsidiaries or other obligors.
(f) It is not necessary for the Issuing Bank to
inquire into the capacity or powers of any L/C Subsidiary or the
officers, directors, partners or agents acting or purporting to
act on their behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be
guaranteed hereunder, and if any L/C Subsidiary is a partnership,
the word "L/C Subsidiary" and "indebtedness" as used herein
include all successor partnerships and liabilities thereof to
Issuing Bank, the Agent, and the Banks.
(g) Absent a waiver of such right, the Company may
have the right to assert a defense to an action to enforce this
guaranty if (a) the Issuing Bank, the Agent, or the Banks do not
proceed against any L/C Subsidiary, or any security for the
indebtedness of any L/C Subsidiary, or pursue any other remedy in
their power that the Company cannot pursue, before enforcing this
guaranty, (b) the Issuing Bank, the Agent, or the Banks takes any
action, without the Company's consent, of the type specified in
subsection 3.10(c), or any other action by which the indebtedness
of any L/C Subsidiary is altered in any respect, or the remedies
or rights of the Company against any L/C Subsidiary or any other
person or any security are impaired, suspended or extinguished,
(c) any L/C Subsidiary is under a legal disability or any L/C
Subsidiary has any other defense to payment of the indebtedness,
(d) there is no liability on the part of any L/C Subsidiary or
such liability is limited or ceases for any reason other than
payment of the indebtedness in full, (e) Issuing Bank, the Agent,
or any Bank fails to notify the Company of information known to
them as to any L/C Subsidiary's financial condition, assets or
other circumstances bearing on repayment of the indebtedness or
the nature, scope and extent of the risks that the Company
assumes and incurs hereunder (and the Company agree that neither
the Issuing Bank, the Agent, nor any Bank shall have any duty to
advise the Company of any such information), (f) the statute of
limitations applicable to an action to enforce this guaranty has
run (and the Company agrees that any payment by any L/C
Subsidiary or other circumstance that operates to toll any
statute of limitations as to any L/C Subsidiary shall operate to
toll the statute of limitations as to the Company), (g) the
Issuing Bank, the Agent, or any Bank fails to make or provide any
presentment, demand for performance, or notice of nonperformance,
dishonor, the acceptance of this guaranty, or other notice, or
(h) any election of remedies by the Issuing Bank, the
Agent, or any Bank , including any election to proceed by
nonjudicial foreclosure on any security, or any act or omission
of the Issuing Bank, the Agent, or any Bank relating to such
foreclosure, operates to impair, suspend or extinguish any right
of contribution, subrogation or reimbursement that the Company
would otherwise have against any L/C Subsidiary. THE COMPANY HEREBY
EXPRESSLY WAIVES THE RIGHT TO ASSERT ANY DEFENSE DESCRIBED IN THIS
SUBSECTION 3.10(G).
ARTICLE IV.
-----------
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes.
- ------------
(a) Any and all payments by the Company to each Bank
or the Agent under this Agreement and any other Loan Document
shall be made free and clear of, and without deduction or
withholding for, any Taxes. In addition, the Company shall pay
all Other Taxes.
(b) If the Company shall be required by law to deduct
or withhold any Taxes, Other Taxes or Further Taxes from or in
respect of any sum payable hereunder to any Bank or the Agent,
then:
(i) the sum payable shall be increased as
necessary so that, after making all required deductions and
withholdings (including deductions and withholdings applicable to
additional sums payable under this Section), such Bank or the
Agent, as the case may be, receives and retains an amount equal
to the sum it would have received and retained had no such
deductions or withholdings been made;
(ii) the Company shall make such deductions and
withholdings;
(iii) the Company shall pay the full amount
deducted or withheld to the relevant taxing authority or other
authority in accordance with applicable law; and
(iv) the Company shall also pay to each Bank or
the Agent for the account of such Bank, at the time interest is
paid, Further Taxes in the amount that the respective Bank
specifies as necessary to preserve the after-tax yield the Bank
would have received if such Taxes, Other Taxes or Further Taxes
had not been imposed.
(c) The Company agrees to indemnify and hold harmless
each Bank and the Agent for the full amount of (i) Taxes, (ii)
Other Taxes, and (iii) Further Taxes in the amount that the
respective Bank specifies as necessary to preserve the after-tax
yield the Bank would have received if such Taxes, Other Taxes or
Further Taxes had not been imposed, and any liability (including
penalties, interest, additions to tax and expenses) arising
therefrom or with respect thereto, whether or not such Taxes,
Other Taxes or Further Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days
after the date the Bank or the Agent makes written demand
therefor.
(d) Within 30 days after the date of any payment by
the Company of Taxes, Other Taxes or Further Taxes, the Company
shall furnish to each Bank or the Agent the original or a
certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to such Bank or the Agent.
(e) If the Company is required to pay any amount to
any Bank or the Agent pursuant to subsection (b) or (c) of this
Section, then such Bank shall use reasonable efforts (consistent
with legal and regulatory restrictions) to change the
jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Company which may thereafter accrue, if
such change in the sole judgment of such Bank is not otherwise
disadvantageous to such Bank.
4.2 Illegality.
- -----------------
(a) If any Bank determines that the introduction of
any Requirement of Law, or any change in any Requirement of Law,
or in the interpretation or administration of any Requirement of
Law, has made it unlawful, or that any central bank or other
Governmental Authority has asserted that it is unlawful, for any
Bank or its applicable Lending Office to make Offshore Rate
Loans, then, on notice thereof by the Bank to the Company through
the Agent, any obligation of that Bank to make Offshore Rate
Loans shall be suspended until the Bank notifies the Agent and
the Company that the circumstances giving rise to such
determination no longer exist.
(b) If a Bank determines that it is unlawful to
maintain any Offshore Rate Loan, the Company shall, upon its
receipt of notice of such fact and demand from such Bank (with a
copy to the Agent), prepay in full such Offshore Rate Loans of
that Bank then outstanding, together with interest accrued
thereon and amounts required under Section 4.4, either on the
last day of the Interest Period thereof, if the Bank may lawfully
continue to maintain such Offshore Rate Loans to such day, or
immediately, if the Bank may not lawfully continue to maintain
such Offshore Rate Loan. If the Company is required to so prepay
any Offshore Rate Loan, then concurrently with such prepayment,
the Company shall borrow from the affected Bank, in the amount of
such repayment, a Base Rate Loan.
(c) If the obligation of any Bank to make or maintain
Offshore Rate Loans has been so terminated or suspended, the
Company may elect, by giving notice to the Bank through the
Agent, that all Loans which would otherwise be made by the Bank
as Offshore Rate Loans shall be instead Base Rate Loans.
(d) Before giving any notice to the Agent under this
Section, the affected Bank shall designate a different Lending
Office with respect to its Offshore Rate Loans if such
designation will avoid the need for giving such notice or making
such demand and will not, in the judgment of the Bank, be illegal
or otherwise disadvantageous to the Bank.
4.3 Increased Costs and Reduction of Return.
- ----------------------------------------------
(a) If any Bank determines that, due to either (i)
the introduction of or any change (other than any change by way
of imposition of or increase in reserve requirements included in
the calculation of the Offshore Rate or in respect of the
assessment rate payable by any Bank to the FDIC for insuring U.S.
deposits) in or in the interpretation of any law or regulation or
(ii) the compliance by that Bank with any guideline or request
from any central bank or other Governmental Authority (whether or
not having the force of law), there shall be any increase in the
cost to such Bank of agreeing to make or making, funding or
maintaining any Offshore Rate Loans or participating in Letters
of Credit, or, in the case of the Issuing Bank, any increase in
the cost to the Issuing Bank of agreeing to issue, issuing or
maintaining any Letter of Credit or of agreeing to make or
making, funding or maintaining any unpaid drawing under any
Letter of Credit, then the Company shall be liable for, and shall
from time to time, upon demand (with a copy of such demand to be
sent to the Agent), pay to the Agent for the account of such
Bank, additional amounts as are sufficient to compensate such
Bank for such increased costs.
(b) If any Bank shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change
in any Capital Adequacy Regulation, (iii) any change in the
interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or
(iv) compliance by the Bank (or its Lending Office) or any
corporation controlling the Bank with any Capital Adequacy
Regulation, affects or would affect the amount of capital
required or expected to be maintained by the Bank or any
corporation controlling the Bank and (taking into consideration
such Bank's or such corporation's policies with respect to
capital adequacy and such Bank's desired return on capital)
determines that the amount of such capital is increased as a
consequence of its Commitment, loans, credits or obligations
under this Agreement, then, upon demand of such Bank to the
Company through the Agent, the Company shall pay to the Bank,
from time to time as specified by the Bank, additional amounts
sufficient to compensate the Bank for such increase.
4.4 Funding Losses.
- ---------------------
The Company shall reimburse each Bank and hold each
Bank harmless from any loss or expense which the Bank may sustain
or incur as a consequence of:
(a) the failure of the Company to make on a timely
basis any payment of principal of any Offshore Rate Loan;
(b) the failure of the Company to borrow, continue or
convert a Loan after the Company has given (or is deemed to have
given) a Notice of Borrowing or a Notice of Conversion/
Continuation;
(c) the failure of the Company to make any prepayment
in accordance with any notice delivered under Section 2.6;
(d) the prepayment (including pursuant to Section
2.7) or other payment (including after acceleration thereof) of
an Offshore Rate Loan on a day that is not the last day of the
relevant Interest Period; or
(e) the automatic conversion under Section 2.4 of any
Offshore Rate Loan to a Base Rate Loan on a day that is not the
last day of the relevant Interest Period;
including any such loss or expense arising from the liquidation
or reemployment of funds obtained by it to maintain its Offshore
Rate Loans or from fees payable to terminate the deposits from
which such funds were obtained. For purposes of calculating
amounts payable by the Company to the Banks under this
Section and under subsection 4.3(a), each Offshore Rate Loan made
by a Bank (and each related reserve, special deposit or similar
requirement) shall be conclusively deemed to have been funded at
the IBOR used in determining the Offshore Rate for such Offshore
Rate Loan by a matching deposit or other borrowing in the
interbank eurodollar market for a comparable amount and for a
comparable period, whether or not such Offshore Rate Loan is in
fact so funded.
4.5 Inability to Determine Rates.
- -----------------------------------
If the Required Banks determine that for any reason
adequate and reasonable means do not exist for determining the
Offshore Rate for any requested Interest Period with respect to a
proposed Offshore Rate Loan, or that the Offshore Rate applicable
pursuant to subsection 2.9(a) for any requested Interest Period
with respect to a proposed Offshore Rate Loan does not adequately
and fairly reflect the cost to such Banks of funding such Loan,
the Agent will promptly so notify the Company and each Bank.
Thereafter, the obligation of the Banks to make or maintain
Offshore Rate Loans hereunder shall be suspended until the Agent
upon the instruction of the Required Banks revokes such notice in
writing. Upon receipt of such notice, the Company may revoke any
Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it. If the Company does not revoke such Notice, the
Banks shall make, convert or continue the Loans, as proposed by
the Company, in the amount specified in the applicable notice
submitted by the Company, but such Loans shall be made, converted
or continued as Base Rate Loans instead of Offshore Rate Loans.
4.6 Certificates of Banks.
- ----------------------------
Any Bank claiming reimbursement or compensation under
this Article IV shall deliver to the Company (with a copy to the
Agent) a certificate setting forth in reasonable detail the
amount payable to the Bank hereunder and the calculations with
respect thereto and such certificate shall be conclusive and
binding on the Company in the absence of manifest error.
4.7 Substitution of Banks.
- ----------------------------
Upon the receipt by the Company from any Bank (an
"Affected Bank") of a claim for compensation under Section 4.3,
the Company may: (i) request the Affected Bank to use its best
efforts to obtain a replacement bank or financial institution
(which in any event, shall be an Eligible Assignee) satisfactory
to the Company to acquire and assume all or a ratable part of all
of such Affected Bank's Loans and Commitment (a "Replacement
Bank") in accordance with the assignment provisions contained in
Section 11.8; (ii) request one more of the other Banks to acquire
and assume all or part of such Affected Bank's Loans and
Commitment in accordance with the assignment provisions contained
in Section 11.8; or (iii) designate a Replacement Bank. Any such
designation of a Replacement Bank under clause (i) or (iii) shall
be subject to the prior written consent of the Agent (which
consent shall not be unreasonably withheld) and shall be effected
in accordance with the assignment provisions contained in Section
11.8; provided, however, that the Company shall be liable for the
payment upon demand of all costs and other amounts arising under
Section 4.4 that result from any Replacement Bank's acquisition
of an Affected Bank's Loan and/or Commitment (or, in either case,
any portion thereof) on a date other than the last day of the
applicable Interest Period with respect to any Loans then
outstanding.
4.8 Survival.
- ---------------
The agreements and obligations of the Company in this
Article IV shall survive the payment of all other Obligations.
ARTICLE V.
----------
CONDITIONS PRECEDENT
5.1 Conditions of Initial Credit Extensions.
- ----------------------------------------------
The obligation of each Bank to make its initial Credit
Extension hereunder is subject to the condition that the Agent
shall have received on or before the Closing Date all of the
following, in form and substance satisfactory to the Agent and
each Bank, and in sufficient copies for each Bank:
(a) Credit Agreement. This Agreement executed by
each party thereto;
(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of
directors of the Company and each Guarantor authorizing the
transactions contemplated hereby, certified as of the Closing
Date by the Secretary or an Assistant Secretary of such Person;
and
(ii) A certificate of the Secretary or Assistant
Secretary of the Company, and each Guarantor certifying the names
and true signatures of the officers of the Company or such
Guarantor authorized to execute, deliver and perform, as
applicable, this Agreement, and all other Loan Documents to be
delivered by it hereunder;
(c) Organization Documents; Good Standing. Each of
the following documents:
(i) the articles or certificate of incorporation
and the bylaws, or partnership agreement, as applicable, of the
Company and each Guarantor as in effect on the Closing Date,
certified by the Secretary or Assistant Secretary of the Company
or such Guarantor, or the general partner of such Guarantor, as
of the Closing Date; and
(ii) a good standing and tax good standing
certificate for the Company and each Guarantor issued by the
Secretary of State (or similar, applicable Governmental
Authority) of its state of incorporation or organization and each
state where the Company or such Guarantor is qualified to do
business as a foreign corporation or partnership as of a date
within five days of the Closing Date in the case of the
certificates for the Company issued by its state of
incorporation, within fifteen days of the Closing Date in the
case of the certificates for the Guarantors issued by their
respective states of incorporation or organization, and within 30
days of the Closing Date in all other cases;
(d) Legal Opinions.
(i) an opinion of Holleb & Coff, counsel to the
Company and addressed to the Agent and the Banks, substantially
in the form of Exhibit D; and
(ii) a favorable opinion of Morrison & Foerster
LLP, special counsel to the Agent;
(e) Payment of Fees. Evidence of payment by the
Company of all accrued and unpaid fees, costs and expenses to the
extent then due and payable on the Closing Date, together with
reasonable Attorney Costs of BofA to the extent invoiced prior to
or on the Closing Date, plus such additional amounts of
reasonable Attorney Costs as shall constitute BofA's reasonable
estimate of Attorney Costs incurred or to be incurred by it
through the closing proceedings (provided that such estimate
shall not thereafter preclude final settling of accounts between
the Company and BofA); including any such costs, fees and
expenses arising under or referenced in Sections 2.10 and 11.4;
(f) Certificate. A certificate signed by a
Responsible Officer, dated as of the Closing Date, stating that:
(i) the representations and warranties contained
in Article V are true and correct on and as of such date, as
though made on and as of such date;
(ii) no Default or Event of Default exists or
would result from the Credit Extension; and
(iii) there has occurred since December 31,
1996, no event or circumstance that has resulted or could
reasonably be expected to result in a Material Adverse Effect;
and
(g) Other Documents. Such other approvals, opinions,
documents or materials as the Agent or any Bank may reasonably
request.
5.2 Conditions to All Credit Extensions.
- ------------------------------------------
The obligation of each Bank to make any Revolving Loan
to be made by it (including its initial Revolving Loan) or to
continue or convert any Revolving Loan under Section 2.4 and the
obligation of the Issuing Bank to Issue any Letter of Credit
(including the initial Letter of Credit) is subject to the
satisfaction of the following conditions precedent on the
relevant Borrowing Date, Conversion/Continuation Date or Issuance
Date:
(a) Notice, Application. The Agent shall have
received (with, in the case of the initial Revolving Loans only,
a copy for each Bank) a Notice of Borrowing or a Notice of
Conversion/Continuation, as applicable or in the case of any
Issuance of any Letter of Credit, the Issuing Bank and the Agent
shall have received an L/C Application or L/C Amendment
Application, as required under Section 3.2;
(b) Continuation of Representations and Warranties.
The representations and warranties in Article V shall be true and
correct on and as of such Borrowing Date or
Conversion/Continuation Date or Issuance Date with the same
effect as if made on and as of such Borrowing Date or
Conversion/Continuation Date or Issuance Date (except to the
extent such representations and warranties expressly refer to an
earlier date, in which case they shall be true and correct as of
such earlier date); and
(c) No Existing Default. No Default or Event of
Default shall exist or shall result from such Borrowing or
continuation or conversion or Issuance.
Each Notice of Borrowing, Notice of Conversion/Continuation and
L/C Application or L/C Amendment Application submitted by the
Company hereunder shall constitute a representation and warranty
by the Company hereunder, as of the date of each such notice and
as of each Borrowing Date, Conversion/Continuation Date, or
Issuance Date, as applicable, that the conditions in this
Section 5.2 are satisfied.
ARTICLE VI.
-----------
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Agent and each Bank
that:
6.1 Corporate Existence and Power.
- ------------------------------------
The Company and each of its Restricted Subsidiaries:
(a) is a corporation or partnership duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization;
(b) has the power and authority and all governmental
licenses, authorizations, consents and approvals to own its
assets, carry on its business and to execute, deliver, and
perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation or
partnership and is licensed and in good standing under the laws
of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such
qualification or license; and
(d) is in compliance with all Requirements of Law;
except, in each case referred to in clause (c) or clause (d), to
the extent that the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
6.2 Corporate Authorization; No Contravention.
- ------------------------------------------------
The execution, delivery and performance by the Company
or any of the Guarantors of this Agreement and each other Loan
Document to which such Person is party, have been duly authorized
by all necessary corporate or partnership action, and do not and
will not:
(a) contravene the terms of any of that Person's
Organization Documents;
(b) conflict with or result in any breach or
contravention of, or the creation of any Lien under, any document
evidencing any Contractual Obligation to which such Person is a
party or any order, injunction, writ or decree of any
Governmental Authority to which such Person or its property is
subject; or
(c) violate any Requirement of Law.
6.3 Governmental Authorization.
- ---------------------------------
No approval, consent, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental
Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against,
the Company or any of the Guarantors of the Agreement or any
other Loan Document.
6.4 Binding Effect.
- ---------------------
This Agreement and each other Loan Document to which
the Company or any Guarantor is a party constitute the legal,
valid and binding obligations of the Company and any of the
Guarantors to the extent it is a party thereto, enforceable
against such Person in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating
to enforceability.
6.5 Litigation.
- -----------------
Except as specifically disclosed in Schedule 6.5, there
are no actions, suits, proceedings, claims or disputes pending,
or to the knowledge of the Company after due investigation,
threatened or contemplated, at law, in equity, in arbitration or
before any Governmental Authority, against the Company, or its
Subsidiaries or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or
any other Loan Document, or any of the transactions contemplated
hereby or thereby; or
(b) if determined adversely to the Company or its
Subsidiaries, would reasonably be expected to have a Material
Adverse Effect. No injunction, writ, temporary restraining order
or any order of any nature has been issued by any court or other
Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other
Loan Document, or directing that the transactions provided for
herein or therein not be consummated as herein or therein
provided.
6.6 No Default.
- -----------------
No Default or Event of Default exists or would result
from the incurring of any Obligations by the Company. As of the
Closing Date, neither the Company nor any Subsidiary is in
default under or with respect to any Contractual Obligation in
any respect which, individually or together with all such
defaults, could reasonably be expected to have a Material Adverse
Effect, or that would, if such default had occurred after the
Closing Date, create an Event of Default under subsection 9.1(e).
6.7 ERISA Compliance.
- -----------------------
Except as specifically disclosed in Schedule 6.7:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or
state law. Each Plan which is intended to qualify under
Section 401(a) of the Code has received a favorable determination
letter from the IRS and to the best knowledge of the Company,
nothing has occurred which would cause the loss of such
qualification. The Company and each ERISA Affiliate has made all
required contributions to any Plan subject to Section 412 of the
Code, and no application for a funding waiver or an extension of
any amortization period pursuant to Section 412 of the Code has
been made with respect to any Plan.
(b) There are no pending or, to the knowledge of
Company after due investigation, threatened claims, actions or
lawsuits, or action by any Governmental Authority, with respect
to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no
prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan which has resulted
or could reasonably be expected to result in a Material Adverse
Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any Unfunded Pension
Liability in an aggregate amount for the Company and its ERISA
Affiliates in excess of $1,000,000; (iii) neither the Company nor
any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability under Title IV of ERISA with respect to any Pension
Plan (other than premiums due and not delinquent under
Section 4007 of ERISA); (iv) neither the Company nor any ERISA
Affiliate has incurred, or reasonably expects to incur, any
liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) neither the Company nor any ERISA
Affiliate has engaged in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA.
6.8 Use of Proceeds; Margin Regulations.
- ------------------------------------------
The proceeds of the Loans are to be used solely for the
purposes set forth in and permitted by Section 7.12 and
Section 8.7. Neither the Company nor any Subsidiary is generally
engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin
Stock.
6.9 Title to Properties.
- --------------------------
The Company and each Restricted Subsidiary have good
record and marketable title in fee simple to, or valid leasehold
interests in, all real property necessary or used in the ordinary
conduct of their respective businesses, except for such defects
in title as could not, individually or in the aggregate, have a
Material Adverse Effect. As of the Closing Date, the property of
the Company and its Restricted Subsidiaries is subject to no
Liens, other than Permitted Liens.
6.10 Taxes.
- ------------
The Company and its Subsidiaries have filed all Federal
and other material tax returns and reports required to be filed,
and have paid all Federal and other material taxes, assessments,
fees and other governmental charges levied or imposed upon them
or their properties, income or assets otherwise due and payable,
except those which are being contested in good faith by
appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP. There is no proposed tax
assessment against the Company or any Subsidiary that would, if
made, have a Material Adverse Effect.
6.11 Financial Condition.
- --------------------------
(a) The audited consolidated financial statements of
the Company and its Subsidiaries dated December 31, 1996, and the
related consolidated statements of income or operations,
shareholders' equity and cash flows for the fiscal year ended on
that date, and the unaudited quarterly financial statements of
the Company and its Subsidiaries dated June 30, 1997, and the
related consolidated statements of income or operations,
shareholders' equity and cash flows for the fiscal quarter ended
on that date:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby,
except as otherwise expressly noted therein, subject, in the case
of quarterly financial statements, to ordinary, good faith year
end audit adjustments;
(ii) fairly present the financial condition of
the Company and its Subsidiaries as of the date thereof and
results of operations for the period covered thereby; and
(iii) except as specifically disclosed in
Schedule 6.11, show all material indebtedness and other
liabilities, direct or contingent, of the Company and its
consolidated Subsidiaries as of the date thereof, including
liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since December 31, 1996, there has been no
Material Adverse Effect.
6.12 Environmental Matters.
- ----------------------------
The Company conducts in the ordinary course of business
a review of the effect of existing Environmental Laws and
existing Environmental Claims on its business, operations and
properties, and as a result thereof the Company has reasonably
concluded that, except as specifically disclosed in Schedule
6.12, neither such Environmental Claims nor, to the knowledge of
the Company after due inquiry, such Environmental Laws could not,
individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
6.13 Regulated Entities.
- -------------------------
None of the Company, any Person controlling the
Company, or any Subsidiary, is an "Investment Company" within
the meaning of the Investment Company Act of 1940. The Company
is not subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other
Federal or state statute or regulation limiting its ability to
incur Indebtedness.
6.14 No Burdensome Restrictions.
- ---------------------------------
Neither the Company nor any Subsidiary is a party to or
bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of
Law, which could reasonably be expected to have a Material
Adverse Effect.
6.15 Copyrights, Patents, Trademarks and Licenses, etc.
- --------------------------------------------------------
The Company or its Restricted Subsidiaries own or are
licensed or otherwise have the right to use all of the patents,
trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably
necessary for the operation of their respective businesses,
without conflict with the rights of any other Person. To the
knowledge of the Company after due investigation, no slogan or
other advertising device, product, process, method, substance,
part or other material now employed, or now contemplated to be
employed, by the Company or any Subsidiary infringes upon any
rights held by any other Person. Except as specifically
disclosed in Schedule 6.5, no claim or litigation regarding any
of the foregoing is pending or, to the knowledge of the Company
after due investigation, threatened, and no patent, invention,
device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of
the Company after due investigation, proposed, which, in either
case, could reasonably be expected to have a Material Adverse
Effect.
6.16 Subsidiaries.
- -------------------
As of the Closing Date, the Company has no Subsidiaries
other than those specifically disclosed in part (a) of Schedule
6.16 hereto and has no equity investments in any other
corporation or entity other than those specifically disclosed in
part (b) of Schedule 6.16. Each Restricted Subsidiary that is a
Material Subsidiary has fully complied with Section 7.13, and
Bach-Simpson Ltd. and Glit/Gemtex, Ltd, each Ontario chartered
corporations, have aggregate assets, determined in accordance
with GAAP on a consolidated basis for such corporations and their
respective Subsidiaries, of less than $20,000,000. Part (c) of
Schedule 6.16 lists all Guarantors as of the Closing Date.
6.17 Insurance.
- ----------------
Except as specifically disclosed in Schedule 6.17, the
properties of the Company and its Restricted Subsidiaries are
insured with financially sound and reputable insurance companies
not Affiliates of the Company, in such amounts, with such
deductibles and covering such risks as are customarily carried by
companies engaged in similar businesses and owning similar
properties in localities where the Company or such Restricted
Subsidiary operates.
6.18 Swap Obligations.
- -----------------------
Neither the Company nor any of its Restricted
Subsidiaries has incurred any outstanding obligations under any
Swap Contracts, other than Permitted Swap Obligations. The
Company has undertaken its own independent assessment of its
consolidated assets, liabilities and commitments and has
considered appropriate means of mitigating and managing risks
associated with such matters and has not relied on any swap
counterparty or any Affiliate of any swap counterparty in
determining whether to enter into any Swap Contract.
6.19 Full Disclosure.
- ----------------------
None of the representations or warranties made by the
Company or any Subsidiary in the Loan Documents as of the date
such representations and warranties are made or deemed made, and
none of the statements contained in any exhibit, report,
statement or certificate furnished by or on behalf of the Company
or any Subsidiary in connection with the Loan Documents
(including the offering and disclosure materials delivered by or
on behalf of the Company to the Banks prior to the Closing Date),
contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under
which they are made, not misleading as of the time when made or
delivered. All financial projections provided to the Agent or to
any Bank have been prepared in good faith by the Company and were
reasonable based on the information available at the time
furnished. .
ARTICLE VII.
------------
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment
hereunder, or any Loan or other Obligation shall remain unpaid or
unsatisfied, or any Letter of Credit shall remain outstanding,
unless the Required Banks waive compliance in writing:
7.1 Financial Statements.
- ---------------------------
The Company shall deliver to the Agent and each Bank,
in form and detail satisfactory to the Agent and the Required
Banks:
(a) as soon as available, but not later than 90 days
after the end of each fiscal year (commencing with the fiscal
year ended December 31, 1997), a copy of the audited consolidated
balance sheet of the Company and its Subsidiaries as at the end
of such year and the related consolidated statements of income or
operations, shareholders' equity and cash flows for such year,
setting forth in each case in comparative form the figures for
the previous fiscal year, and accompanied by the opinion of
Deloitte & Touche or another nationally-recognized independent
public accounting firm ("Independent Auditor") which report
shall state that such consolidated financial statements present
fairly the financial position for the periods indicated in
conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of
a restricted or limited examination by the Independent Auditor of
any material portion of the Company's or any Subsidiary's
records;
(b) as soon as available, but not later than 45 days
after the end of each of the first three fiscal quarters of each
fiscal year (commencing with the fiscal quarter ended
September 30, 1997), a copy of the unaudited consolidated balance
sheet of the Company and its Subsidiaries as of the end of such
quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on
the first day and ending on the last day of such quarter, and
certified by a Responsible Officer as fairly presenting, in
accordance with GAAP (subject to ordinary, good faith year-end
audit adjustments), the financial position and the results of
operations of the Company and its Subsidiaries;
(c) as soon as available, but not later than 90 days
after the end of each fiscal year (commencing with the fiscal
year ended December 31, 1997), a copy of an unaudited
consolidating balance sheet of the Company and its Subsidiaries
as at the end of such year and the related consolidating
statement of income, shareholders' equity [and cash flows] for
such year, certified by a Responsible Officer as having been
developed and used in connection with the preparation of the
financial statements referred to in subsection 7.1(a); and
(d) as soon as available, but not later than 90 days
after the end of each of the first three fiscal quarters of each
fiscal year (commencing with the fiscal quarter ended
September 30, 1997), a copy of the unaudited consolidating
balance sheets of the Company and its Subsidiaries, and the
related consolidating statements of income, shareholders' equity
and cash flows for such quarter, all certified by a Responsible
Officer as having been developed and used in connection with the
preparation of the financial statements referred to in
subsection 7.1(b).
7.2 Certificates; Other Information.
- --------------------------------------
The Company shall furnish to the Agent and each Bank:
(a) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) and (b), a
Compliance Certificate executed by a Responsible Officer,
accompanied by calculations in reasonable detail evidencing the
elimination of items attributable to Unrestrcticted Subsidiaries
from the financial statements delivered pursuant to Section 7.1;
(b) promptly, copies of all audit reports and
management audit letters delivered by the Independent Auditor to
the Company;
(c) promptly, copies of all financial statements and
reports that the Company sends to its shareholders, and copies of
all financial statements and regular, periodical or special
reports (including Forms 10K, 10Q and 8K) that the Company or any
Restricted Subsidiary may make to, or file with, the SEC; and
(d) promptly, such additional information regarding
the business, financial or corporate affairs of the Company or
any Subsidiary as the Agent, at the request of any Bank, may from
time to time request.
7.3 Notices.
- --------------
The Company shall promptly notify the Agent and each
Bank:
(a) of the occurrence of any Default or Event of
Default, and of the occurrence or existence of any event or
circumstance that foreseeably will become a Default or Event of
Default;
(b) of any matter that has resulted or may result in
a Material Adverse Effect, including (i) breach or non-
performance of, or any default under, a Contractual Obligation of
the Company or any Restricted Subsidiary; (ii) any dispute,
litigation, investigation, proceeding or suspension between the
Company or any Restricted Subsidiary and any Governmental
Authority; or (iii) the commencement of, or any material
development in, any litigation or proceeding affecting the
Company or any Restricted Subsidiary; including pursuant to any
applicable Environmental Laws;
(c) of the occurrence of any of the following events
affecting the Company or any ERISA Affiliate (but in no event
more than 30 days after such event), and deliver to the Agent and
each Bank a copy of any notice with respect to such event that is
filed with a Governmental Authority and any notice delivered by a
Governmental Authority to the Company or any ERISA Affiliate with
respect to such event:
(i) an ERISA Event (except with respect to an
ERISA Event concerning a Mutiemployer Plan, in which event the
Company shall provide such notice as soon as practicable, but in
any event within 10 days, after receiving notice of the such
ERISA Event);
(ii) a material increase in the Unfunded Pension
Liability of any Pension Plan;
(iii) the adoption of, or the commencement of
material contributions to, any Plan subject to Section 412 of the
Code by the Company or any ERISA Affiliate; or
(iv) the adoption of any amendment to a Plan
subject to Section 412 of the Code, if such amendment results in
a material increase in contributions or Unfunded Pension
Liability.
(d) of any material change in accounting policies or
financial reporting practices by the Company or any of its
consolidated Subsidiaries; and
(e) upon the request from time to time of the Agent,
the Swap Termination Values, together with a description of the
method by which such values were determined, relating to any
then-outstanding Swap Contracts to which the Company or any of
its Restricted Subsidiaries is party.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the
occurrence referred to therein, and stating what action the
Company or any affected Subsidiary proposes to take with respect
thereto and at what time. Each notice under subsection 7.3(a)
shall describe with particularity any and all clauses or
provisions of this Agreement or other Loan Document that have
been (or foreseeably will be) breached or violated.
7.4 Preservation of Corporate Existence, Etc.
- -----------------------------------------------
The Company shall, and shall cause each Restricted
Subsidiary to:
(a) preserve and maintain in full force and effect
its corporate or partnership existence and good standing under
the laws of its state or jurisdiction of incorporation or
organization;
(b) preserve and maintain in full force and effect
all governmental rights, privileges, qualifications, permits,
licenses and franchises necessary or desirable in the normal
conduct of its business except in connection with transactions
permitted by Section 8.3 and dispositions of assets permitted by
Section 8.2;
(c) use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which
could reasonably be expected to have a Material Adverse Effect.
7.5 Maintenance of Property.
- ------------------------------
The Company shall maintain, and shall cause each
Restricted Subsidiary to maintain, and preserve all its property
which is used or useful in its business in good working order and
condition, ordinary wear and tear excepted and make all necessary
repairs thereto and renewals and replacements thereof except
where the failure to do so could not reasonably be expected to
have a Material Adverse Effect, except as permitted by
Section 8.2. The Company and each Restricted Subsidiary shall
use the standard of care typical in the industry in the operation
and maintenance of its facilities.
7.6 Insurance.
- ----------------
The Company shall maintain, and shall cause each
Restricted Subsidiary to maintain, with financially sound and
reputable independent insurers, insurance with respect to its
properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or
similar business, of such types and in such amounts as are
customarily carried under similar circumstances by such other
Persons.
7.7 Payment of Obligations.
- -----------------------------
The Company shall, and shall cause each Subsidiary to,
pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the
same are being contested in good faith by appropriate proceedings
and adequate reserves in accordance with GAAP are being
maintained by the Company or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law
become a Lien upon its property; and
(c) indebtedness, as and when due and payable, but subject to
any subordination provisions contained in any instrument or
agreement evidencing such Indebtedness.
7.8 Compliance with Laws.
- ---------------------------
The Company shall comply, and shall cause each
Subsidiary to comply, in all material respects with all
Requirements of Law of any Governmental Authority having
jurisdiction over it or its business (including the Federal Fair
Labor Standards Act), except such as may be contested in good
faith or as to which a bona fide dispute may exist.
7.9 Compliance with ERISA.
- ----------------------------
The Company shall, and shall cause each of its ERISA
Affiliates to: (a) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the
Code and other federal or state law; (b) cause each Plan which is
qualified under Section 401(a) of the Code to maintain such
qualification; and (c) make all required contributions to any
Plan subject to Section 412 of the Code.
7.10 Inspection of Property and Books and Records.
- ---------------------------------------------------
The Company shall maintain and shall cause each
Subsidiary to maintain proper books of record and account, in
which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions
and matters involving the assets and business of the Company and
such Subsidiary. The Company shall permit, and shall cause each
Subsidiary to permit, representatives and independent contractors
of the Agent or any Bank to visit and inspect any of their
respective properties, to examine their respective corporate,
financial and operating records, and make copies thereof or
abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers,
and independent public accountants, all at the expense of the
Company and at such reasonable times during normal business hours
and as often as may be reasonably desired, upon reasonable
advance notice to the Company; provided, however, when an Event
of Default exists the Agent or any Bank may do any of the
foregoing at the expense of the Company at any time during normal
business hours and without advance notice.
7.11 Environmental Laws.
- -------------------------
The Company shall, and shall cause each Subsidiary to,
conduct its operations and keep and maintain its property in
compliance with all Environmental Laws.
7.12 Use of Proceeds.
- -----------------------
The Company shall use the proceeds of the Loans for
working capital, capital expenditures, and other general
corporate purposes, including for purposes of undertaking
Permitted Acquisitions, not in contravention of any Requirement
of Law or of any Loan Document.
7.13 New Subsidiaries.
- -----------------------
If the Company or any of its Subsidiaries at any time
after the date hereof acquires, forms or establishes any
Restricted Subsidiary that is a Material Subsidiary, or if any
Restricted Subsidiary that has not executed a Guaranty becomes a
Material Subsidiary, the Company shall cause any such Restricted
Subsidiary to promptly execute a Guaranty substantially in the
form of Exhibit G and to provide the Agent and each Bank with
such evidence of due authorization, execution, and delivery of
such Guaranty as the Agent or the Required Banks may reasonably
require.
ARTICLE VIII.
-------------
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment
hereunder, or any Loan or other Obligation shall remain unpaid or
unsatisfied, or any Letter of Credit shall remain outstanding,
unless the Required Banks waive compliance in writing:
8.1 Limitation on Liens.
- --------------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to, directly or indirectly, make,
create, incur, assume or suffer to exist any Lien upon or with
respect to any part of its property, whether now owned or
hereafter acquired, other than the following ("Permitted
Liens"):
(a) any Lien existing on property of the Company or
any Restricted Subsidiary on the Closing Date and set forth in
Schedule 8.1 securing Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without
penalty, or to the extent that non-payment thereof is permitted
by Section 7.7, provided that no notice of lien has been filed or
recorded under the Code;
(d) carriers', warehousemen's, mechanics',
landlords', materialmen's, repairmen's or other similar Liens
arising in the ordinary course of business which are not
delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale
of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA)
consisting of pledges or deposits required in the ordinary course
of business in connection with workers' compensation,
unemployment insurance and other social security legislation;
(f) Liens on the property of the Company or any of
its Restricted Subsidiaries securing (i) the non-delinquent
performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, (ii) contingent
obligations on surety and appeal bonds, and (iii) other non-
delinquent obligations of a like nature; in each case, incurred
in the ordinary course of business , provided all such Liens in
the aggregate would not (even if enforced) cause a Material
Adverse Effect;
(g) Liens consisting of judgment or judicial
attachment liens, provided that the enforcement of such Liens is
effectively stayed and all such liens in the aggregate at any
time outstanding for the Company and its Restricted Subsidiaries
do not exceed $1,000,000;
(h) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount, and which
do not in any case materially detract from the value of the
property subject thereto or interfere with the ordinary conduct
of the businesses of the Company and its Restricted Subsidiaries;
(i) Liens on assets of corporations which become
Restricted Subsidiaries after the date of this Agreement,
provided, however, that such Liens existed at the time the
respective corporations became Restricted Subsidiaries and were
not created in anticipation thereof and do not secure
Indebtedness in excess of $3,000,000;
(j) purchase money security interests on any property
acquired or held by the Company or its Restricted Subsidiaries in
the ordinary course of business, securing Indebtedness incurred
or assumed for the purpose of financing all or any part of the
cost of acquiring such property; provided that (i) any such Lien
attaches to such property concurrently with or within 20 days
after the acquisition thereof, (ii) such Lien attaches solely to
the property so acquired in such transaction, (iii) the principal
amount of the debt secured thereby does not exceed 100% of the
cost of such property, and (iv) the principal amount of the
Indebtedness secured by any and all such purchase money security
interests shall not at any time exceed $5,000,000, (iv) no
Default or Event of Default shall exist at the time the
Indebtedness secured by such purchase money security interests
was incurred or would arise as a result thereof;
(k) Liens securing obligations in respect of Capital
Leases on assets subject to such leases, provided that such
Capital Leases are otherwise permitted hereunder and no Default
or Event of Default shall exist at the time the obligations in
respect of such Capital Leases arose or would arise as a result
thereof;
(l) Liens arising solely by virtue of any statutory
or common law provision relating to banker's liens, rights of
set-off or similar rights and remedies as to deposit accounts or
other funds maintained with a creditor depository institution;
provided that (i) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations
promulgated by the FRB, and (ii) such deposit account is not
intended by the Company or any Restricted Subsidiary to provide
collateral to the depository institution;
(m) Liens consisting of pledges of cash collateral or
government securities to secure on a mark-to-market basis
Permitted Swap Obligations only, provided that (i) the
counterparty to any Swap Contract relating to such Permitted Swap
Obligation is under a similar requirement to deliver similar
collateral from time to time to the Company or the Restricted
Subsidiary party thereto on a mark-to-market basis; and (ii) the
aggregate value of such collateral so pledged by the Company and
its Restricted Subsidiaries together in favor of all
counterparties does not at any time exceed $5,000,000; and
(n) Liens on the property comprising the Woods
Industries manufacturing facility to secure Indebtedness
permitted by subsection 8.5(g).
8.2 Disposition of Assets.
- ----------------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to, directly or indirectly, sell,
assign, lease, convey, transfer or otherwise dispose of (whether
in one or a series of transactions) any property (including
accounts and notes receivable, with or without recourse) or enter
into any agreement to do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or
surplus equipment, all in the ordinary course of business;
(b) the sale of equipment to the extent that such
equipment is exchanged for credit against the purchase price of
similar replacement equipment, or the proceeds of such sale are
reasonably promptly applied to the purchase price of such
replacement equipment;
(c) dispositions of inventory or equipment by the
Company or any Restricted Subsidiary to the Company or any
Restricted Subsidiary pursuant to reasonable business
requirements; and
(d) dispositions not otherwise permitted hereunder
which are made for fair market value; provided, that (i) such
dispositions are of assets of Subsidiaries in the Machinery and
Manufacturing Group or assets associated with lines of business
operated at the Closing Date by Hamilton Precision Metals, Inc.,
Savannah Energy Construction Company, Inc., Savannah Energy
Systems Company, Inc., or assets owned at the time of disposition
by any Unrestricted Subsidiary, or of Investments in Unrestricted
Subsidiaries or of Investments listed in Schedule 8.2, or, (ii)
if such dispositions are of assets other than those in the
preceding subsection 8.2(d)(i), (1) at the time of such
disposition, no Event of Default shall exist or shall result from
such disposition, (2) the aggregate sales price from such
disposition shall be paid in cash, (3) the aggregate value of all
assets so sold by the Company and its Restricted Subsidiaries,
together, shall not exceed in any fiscal year 15% of the book
value of the consolidated assets of the Company and its
Restricted Subsidiaries, and (4) prior to becoming contractually
committed to make any such disposition, the Company shall have
delivered to the Banks pro forma consolidated financial
statements for the Company and its Restricted Subsidiaries
accompanied by a Compliance Certificate signed by a Responsible
Officer certifying that at the end of the last fiscal quarter for
which such financial statements and Compliance Certificate have
been delivered pursuant to Sections 7.1 and 7.2, (A) the Company
and its Restricted Subsidiaries would have been in compliance
with the conditions in preceding clauses (1)-(3) with respect to
the proposed disposition, and (B) after giving pro forma effect
for four trailing quarters to such disposition by excluding
EBITDA with respect to the assets so sold, the Company and its
Restricted Subsidiaries would have been in compliance with the
financial covenants set forth in Sections 8.15, 8.16, 8.17 and
8.18.
8.3 Consolidations and Mergers.
- ---------------------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to, merge, consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions all or substantially
all of its assets (whether now owned or hereafter acquired) to or
in favor of any Person, except:
(a) any Subsidiary may merge with the Company,
provided that the Company shall be the continuing or surviving
corporation, or with any one or more Restricted Subsidiaries,
provided that if any transaction shall be between an Unrestricted
Subsidiary and a Restricted Subsidiary, the Restricted Subsidiary
shall be the continuing or surviving corporation, and if between
a Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned
Subsidiary shall be the continuing or surviving corporation; and
(b) any Restricted Subsidiary may sell all or
substantially all of its assets (upon voluntary liquidation or
otherwise), to the Company or another Wholly Owned Subsidiary
that is a Restricted Subsidiary.
8.4 Loans and Investments.
- ----------------------------
The Company shall not purchase or acquire, or suffer or
permit any Restricted Subsidiary to purchase or acquire, or make
any commitment therefor, any capital stock, equity interest, or
any obligations or other securities of, or any interest in, any
Person, or make or commit to make any Acquisitions, or make or
commit to make any advance, loan, extension of credit or capital
contribution to or any other investment in, any Person including
any Affiliate of the Company (together, "Investments"), except
for:
(a) Investments held by the Company or any Restricted
Subsidiary in the form of cash equivalents or short term
marketable securities;
(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of
goods or services in the ordinary course of business;
(c) Intercompany Advances by the Company to any of
its Restricted Subsidiaries other than SESCO that are Wholly
Owned Subsidiaries or by any of its Restricted Subsidiaries to
another of its Restricted Subsidiaries other than SESCO that is a
Wholly Owned Subsidiary;
(d) Investments incurred in order to consummate
Acquisitions, if and only if with respect to such Acquisitions
(i) Persons acquired are engaged in substantially the same lines
of business as the Distribution and Services Group or the
Industrial and Consumer Manufacturing Group, (ii) unless prior
approval is granted by the Required Banks, (1) the cash purchase
price (including assumed Indebtedness) of any single Acquisition
shall not exceed $20,000,000, (2) the aggregate cash purchase
price (including assumed Indebtedness) of all Acquisitions in any
12 month period shall not exceed $40,000,000, (3) any Person to
be acquired must have positive EBITDA for the four fiscal
quarters preceding the Acquisition date, and (4) prior to
becoming contractually committed to make any Acquisition, the
Company shall have delivered to the Banks pro forma consolidated
financial statements for the Company and its Restricted
Subsidiaries accompanied by a Compliance Certificate signed by a
Responsible Officer certifying that (A) at the time any such
Acquisition is consummated, the Company and its Restricted
Subsidiaries will be in compliance with the conditions in
preceding clauses (1)-(3), and (B) after giving pro forma effect
to any such Acquisition, the Company and its Restricted
Subsidiaries will remain in compliance with the financial
covenants set forth in Sections 8.15, 8.16, 8.17 and 8.18, (iii)
such Acquisitions are undertaken in accordance with all
applicable Requirements of Law; (iv) no Default or Event of
Default exists or would result from any such Acquisition, and (v)
such Acquisition has been solicited by the board of directors or
equivalent governing body of the Person acquired. For periods
preceding any Acquisition for which unqualified financial
statements audited by a Big 5 accounting firm are available
consolidated EBITDA for the Company and its Restricted
Subsidiaries shall include the EBITDA of such Person for such
prior periods as reflected in the audited financial statements
for such Person as long as such audited financial statements are
accompanied by a Compliance Certificate signed by a Responsible
Officer certifying that the EBITDA reflected in such audited
financial statements represents no more than the minimum
prospective EBITDA that such Person would contribute to the
consolidated EBITDA of the Company and its Restricted
Subsidiaries after giving pro forma effect to the acquisition of
such Person. For periods preceding any Acquisition for which
unqualified financial statements are available but such financial
statements were not audited by a Big 5 accounting firm, EBITDA
for the Company and its Restricted Subsidiaries shall include 50%
of the EBITDA of the Person or assets so acquired for such prior
periods as reflected in such audited financial statements as long
as such audited financial statements are accompanied by a
Compliance Certificate signed by a Responsible Officer certifying
that the EBITDA reflected in such audited financial statements
represents no more than the minimum prospective EBITDA that such
Person would contribute to the consolidated EBITDA of the Company
and its Restricted Subsidiaries after giving effect to the
acquisition of such Person. For purposes of determining
compliance with the Borrowing Base or any other financial
requirement, stock issued in conjunction with any Acquisition
shall not be considered as a part of the "cash purchase price";
(e) Investments in Unrestricted Subsidiaries and
SESCO not exceeding $5,000,000 made in any fiscal year as to all
such Investments in the aggregate made in such fiscal year,
provided that, at the time any such Investment is made, no
Default or Event of Default exists or would result from such
Investment; and
(f) Investments constituting Permitted Swap
Obligations or payments or advances under Swap Contracts relating
to Permitted Swap Obligations.
8.5 Limitation on Indebtedness.
- ---------------------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to, create, incur, assume, suffer to
exist, or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations
permitted pursuant to Section 8.8;
(c) Indebtedness existing on the Closing Date and set
forth in Schedule 8.5;
(d) Indebtedness secured by Liens permitted by
subsections 8.1(i) or (j) in an aggregate amount outstanding not
to exceed $8,000,000;
(e) Indebtedness secured by Liens permitted by
subsection 8.1(m) in an aggregate amount outstanding not to
exceed $5,000,000;
(f) Intercompany Advances permitted by
Section 8.4(c);
(g) Indebtedness incurred in connection with leases
permitted pursuant to Section 8.10; and
(h) Non-recourse Indebtedness of Woods Industries in
an aggregate principal amount not to exceed $1,200,000.
8.6 Transactions with Affiliates.
- -----------------------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to, enter into any transaction with any
Affiliate of the Company, except upon fair and reasonable terms
no less favorable to the Company or such Restricted Subsidiary
than would obtain in a comparable arm's-length transaction with a
Person not an Affiliate of the Company or such Restricted
Subsidiary. Without limiting the foregoing, the Company shall
not and shall not permit any Restricted Subsidiary to purchase
or lease assets from, or sell, lease, or otherwise contribute
assets to, Bach-Simpson Ltd. and Glit/Gemtex, Ltd., each Ontario
chartered corporations, outside of the ordinary course of
business.
8.7 Use of Proceeds.
- ----------------------
(a) The Company shall not, and shall not suffer or
permit any Restricted Subsidiary to, use any portion of the Loan
proceeds or any Letter of Credit, directly or indirectly, (i) to
purchase or carry Margin Stock, (ii) to repay or otherwise
refinance indebtedness of the Company or others incurred to
purchase or carry Margin Stock, (iii) to extend credit for the
purpose of purchasing or carrying any Margin Stock, or (iv) to
acquire any security in any transaction that is subject to
Section 13 or 14 of the Exchange Act.
(b) The Company shall not, directly or indirectly, use
any portion of the Loan proceeds or any Letter of Credit (i)
knowingly to purchase Ineligible Securities from the Arranger
during any period in which the Arranger makes a market in such
Ineligible Securities, (ii) knowingly to purchase during the
underwriting or placement period Ineligible Securities being
underwritten or privately placed by the Arranger, or (iii) to
make payments of principal or interest on Ineligible Securities
underwritten or privately placed by the Arranger and issued by or
for the benefit of the Company or any Affiliate of the Company.
The Arranger is a registered broker-dealer and permitted to
underwrite and deal in certain Ineligible Securities; and
"Ineligible Securities" means securities which may not be
underwritten or dealt in by member banks of the Federal Reserve
System under Section 16 of the Banking Act of 1933 (12 U.S.C. Sec.
24, Seventh), as amended.
8.8 Contingent Obligations.
- -----------------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the
ordinary course of business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of the Company and its
Restricted Subsidiaries existing as of the Closing Date and
listed in Schedule 8.8;
(d) Contingent Obligations with respect to Surety
Instruments incurred in the ordinary course of business and not
exceeding at any time $1,000,000 in the aggregate in respect of
the Company and its Restricted Subsidiaries together; and
(e) Contingent Obligations under the Loan Documents,
including L/C Obligations.
8.9 Joint Ventures.
- ---------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to enter into any Joint Venture, other
than in the ordinary course of business and in businesses related
to those carried on by the Company and its Restricted
Subsidiaries on the Closing Date.
8.10 Lease Obligations.
- ------------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to, create or suffer to exist any
obligations for the payment of rent for any property under any
Capital Lease, except for Capital Leases entered into by the
Company or any Restricted Subsidiary after the Closing Date to
finance the acquisition of equipment; provided that the aggregate
annual rental payments for all such Capital Leases shall not
exceed in any fiscal year $1,000,000.
8.11 Restricted Payments.
- --------------------------
The Company shall not, and shall not suffer or permit
any Subsidiary to, declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of its capital
stock, or purchase, redeem or otherwise acquire for value any
shares of its capital stock or any warrants, rights or options to
acquire such shares, now or hereafter outstanding; except that
the Company and any Restricted Subsidiary may:
(a) declare and make dividend payments or other
distributions payable solely in its common stock;
(b) purchase, redeem or otherwise acquire shares of
its common stock or warrants or options to acquire any such
shares with the proceeds received from the substantially
concurrent issue of new shares of its common stock; provided
that, immediately after giving effect to such proposed action, no
Default or Event of Default would exist;
(c) repurchase shares of its capital stock in an
aggregate amount not to exceed either (i) $5,000,000 in any 12
month period or (ii) $10,000,000 since the Closing Date
("Permitted Stock Repurchases"); provided, that, immediately
after giving effect to such proposed action, no Default or Event
of Default would exist; and
(d) declare or pay cash dividends to its stockholders
provided, that, immediately after giving effect to such proposed
action, no Default or Event of Default would exist.
8.12 ERISA.
- ------------
The Company shall not, and shall not suffer or permit
any of its ERISA Affiliates to: (a) engage in a prohibited
transaction or violation of the fiduciary responsibility rules
with respect to any Plan which has resulted or could reasonably
expected to result in liability of the Company in an aggregate
amount in excess of $1,000,000; or (b) engage in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
8.13 Change in Business.
- -------------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to, engage in any material line of
business substantially different from those lines of business
carried on by the Company and its Subsidiaries on the date
hereof.
8.14 Accounting Changes.
- -------------------------
The Company shall not, and shall not suffer or permit
any Restricted Subsidiary to, make any significant change in
accounting treatment or reporting practices, except as required
by GAAP, or change the fiscal year of the Company or of any
Subsidiary.
8.15 Minimum Net Worth.
- ------------------------
The Company shall not permit Net Worth, measured as of
the end of each fiscal quarter, to be less than the sum of (a)
$122,574,000, plus (b) 50% of quarterly net income (with no
deduction for losses) for the fiscal quarter ending September 30,
1997 and each fiscal quarter thereafter, plus (c) 75% of the net
proceeds to the Company of new capital stock or other equity
interests issued by the Company or any Restricted Subsidiary
after the Closing Date, minus (d) the actual amount of Permitted
Stock Repurchases after the Closing Date.
8.16 Maximum Leverage Ratio.
- -----------------------------
The Company shall not permit its Leverage Ratio, as of
the end of any fiscal quarter, to be greater than (i) 2.50 to
1.00 for the period from September 30, 1997 to June 30, 1999, and
(ii) 2.00 to 1.00 for each fiscal quarter thereafter.
8.17 Minimum Interest Coverage Ratio.
- --------------------------------------
The Company shall not permit its Interest Coverage
Ratio, as of the end of any fiscal quarter, measured on a four
trailing quarter basis, to be less than 3.00 to 1.00.
8.18 Quarterly Losses.
- -----------------------
The Company shall not have a pre-tax loss in any two
consecutive fiscal quarters.
ARTICLE IX.
-----------
EVENTS OF DEFAULT
9.1 Event of Default.
- -----------------------
Any of the following shall constitute an "Event of
Default":
(a) Non-Payment. The Company fails to pay, (i) when
and as required to be paid herein, any amount of principal of any
Loan or of any L/C Obligation, or (ii) within 3 days after the
same becomes due, any interest, fee or any other amount payable
hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation
or warranty by the Company or any Guarantor made or deemed made
herein, in any other Loan Document, or which is contained in any
certificate, document or financial or other statement by the
Company, any Guarantor, or any Responsible Officer, furnished at
any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the
date made or deemed made; or
(c) Specific Defaults. (i) The Company or any
Guarantor fails to perform or observe any term, covenant or
agreement contained in either of Sections 7.1 or 7.2 and such
failure continues for 30 days, or (ii) the Company or any
Guarantor fails to perform or observe any term, covenant or
agreement contained in either of Sections 7.3 or 7.9 or in
Article VIII; or
(d) Other Defaults. The Company or any Guarantor
fails to perform or observe any other term or covenant contained
in this Agreement or any other Loan Document, and such default
shall continue unremedied for a period of 30 days after the
earlier of (i) the date upon which a Responsible Officer knew of
such failure or (ii) the date upon which written notice thereof
is given to the Company by the Agent or any Bank; or
(e) Cross-Default. (i) The Company or any Guarantor
(A) fails to make any payment in respect of any Indebtedness or
Contingent Obligation (other than in respect of Swap Contracts),
having an aggregate principal amount (including undrawn committed
or available amounts and including amounts owing to all creditors
under any combined or syndicated credit arrangement) of more than
$3,000,000 when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) and such failure
continues after the applicable grace or notice period, if any,
specified in the relevant document on the date of such failure;
or (B) fails to perform or observe any other condition or
covenant, or any other event shall occur or condition exist,
under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation, and such failure continues
after the applicable grace or notice period, if any, specified in
the relevant document on the date of such failure if the effect
of such failure, event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries)
to cause such Indebtedness to be declared to be due and payable
prior to its stated maturity, or such Contingent Obligation to
become payable or cash collateral in respect thereof to be
demanded; or (ii) there occurs under any Swap Contract an Early
Termination Date (as defined in such Swap Contract) resulting
from (1) any event of default under such Swap Contract as to
which the Company or any Guarantor Subsidiary is the Defaulting
Party (as defined in such Swap Contract) or (2) any Termination
Event (as so defined) as to which the Company or any Guarantor
Subsidiary is an Affected Party (as so defined), and, in either
event, the Swap Termination Value owed by the Company or such
Guarantor as a result thereof is greater than $3,000,000; or
(f) Insolvency; Voluntary Proceedings. The Company
or any Guarantor (i) ceases or fails to be solvent, or generally
fails to pay, or admits in writing its inability to pay, its
debts as they become due, subject to applicable grace periods, if
any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or
(iv) takes any action to effectuate or authorize any of the
foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary
Insolvency Proceeding is commenced or filed against the Company
or any Guarantor, or any writ, judgment, warrant of attachment,
execution or similar process, is issued or levied against a
substantial part of the Company's or any Guarantor properties,
and any such proceeding or petition shall not be dismissed, or
such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60
days after commencement, filing or levy; (ii) the Company or any
Guarantor admits the material allegations of a petition against
it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) the Company or any Guarantor acquiesces in
the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor), or other
similar Person for itself or a substantial portion of its
property or business; or
(h) ERISA. (i) An ERISA Event shall occur with
respect to a Pension Plan or Multiemployer Plan which has
resulted or could reasonably be expected to result in liability
of the Company under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess
of $1,000,000; the aggregate amount of Unfunded Pension Liability
among all Pension Plans at any time exceeds $1,000,000; or (iii)
the Company or any ERISA Affiliate shall fail to pay when due,
after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability
under Section 4201 of ERISA under a Multiemployer Plan in an
aggregate amount in excess of $1,000,000; or
(i) Monetary Judgments. One or more non-
interlocutory judgments, non-interlocutory orders, decrees or
arbitration awards is entered against the Company or any
Subsidiary involving in the aggregate a liability (to the extent
not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related
series of transactions, incidents or conditions, of $5,000,000 or
more; or
(j) Unstayed or Unvacated Monetary Judgments. One or
more non-interlocutory judgments, non-interlocutory orders,
decrees or arbitration awards is entered against the Company or
any Subsidiary involving in the aggregate a liability (to the
extent not covered by independent third-party insurance as to
which the insurer does not dispute coverage) as to any single or
related series of transactions, incidents or conditions, of
$1,000,000 or more, and the same shall remain unsatisfied,
unvacated and unstayed pending appeal for a period of 10 days
after the entry thereof; or
(k) Non-Monetary Judgments. Any non-monetary
judgment, order or decree is entered against the Company or any
Subsidiary which does or would reasonably be expected to have a
Material Adverse Effect, and there shall be any period of 30
consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; or
(l) Change of Control. There occurs any Change of
Control; or
(m) Adverse Change. There occurs a Material Adverse
Effect; or
(n) Guarantor Defaults. Any Guarantor fails in any
material respect to perform or observe any term, covenant or
agreement in the Guaranty; or any Guaranty is for any reason
partially (including with respect to future advances) or wholly
revoked or invalidated, or otherwise ceases to be in full force
and effect, or any Guarantor or any other Person contests in any
manner the validity or enforceability thereof or denies that it
has any further liability or obligation thereunder; or
(o) SESCO. The occurrence and continuance of an
"Event of Default" as defined in the SESCO Service Agreement by
SESCO or the Company that would entitle (upon the granting of any
necessary consents) the Resource Recovery Development Authority
for the City of Savannah or the Trustee (as defined in the SESCO
Service Agreement) to terminate the SESCO Service Agreement.
9.2 Remedies.
- ---------------
If any Event of Default occurs, the Agent shall, at the
request of, or may, with the consent of, the Required Banks,
(a) declare the commitment of each Bank to make Loans
and any obligation of the Issuing Bank to Issue Letters of Credit
to be terminated, whereupon such commitments and obligation shall
be terminated;
(b) declare an amount equal to the maximum aggregate
amount that is or at any time thereafter may become available for
drawing under any outstanding Letters of Credit (whether or not
any beneficiary shall have presented, or shall be entitled at
such time to present, the drafts or other documents required to
draw under such Letters of Credit) to be immediately due and
payable, and declare the unpaid principal amount of all
outstanding Loans, all interest accrued and unpaid thereon, and
all other amounts owing or payable hereunder or under any other
Loan Document to be immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Banks all
rights and remedies available to it and the Banks under the Loan
Documents or applicable law;
provided, however, that upon the occurrence of any event
specified in subsection (f) or (g) of Section 9.1 (in the case of
clause (i) of subsection (g) upon the expiration of the 60-day
period mentioned therein), the obligation of each Bank to make
Loans and any obligation of the Issuing Bank to Issue Letters of
Credit shall automatically terminate and the unpaid principal
amount of all outstanding Loans and all interest and other
amounts as aforesaid shall automatically become due and payable
without further act of the Agent, the Issuing Bank or any Bank.
9.3 Rights Not Exclusive.
- ---------------------------
The rights provided for in this Agreement and the other
Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in
equity, or under any other instrument, document or agreement now
existing or hereafter arising.
9.4 Certain Financial Covenant Defaults.
- ------------------------------------------
In the event that, after taking into account any extraordinary
charge to earnings taken or to be taken as of the end of any
fiscal period of the Company (a "Charge"), and if solely by
virtue of such Charge, there would exist an Event of Default due
to the breach of any of Sections 8.15, 8.16, 8.17, or 8.18, as of
such fiscal period end date, such Event of Default shall be
deemed to arise upon the earlier of (a) the date after such
fiscal period end date on which the Company announces publicly it
will take, is taking or has taken such Charge (including an
announcement in the form of a statement in a report filed with
the SEC) or, if such announcement is made prior to such fiscal
period end date, the date that is such fiscal period end date,
and (b) the date the Company delivers to the Agent its audited
annual or unaudited quarterly financial statements in respect of
such fiscal period reflecting such Charge as taken.
ARTICLE X.
----------
THE AGENT
10.1 Appointment and Authorization; "Agent".
- ----------------------------------------------
(a) Each Bank hereby irrevocably (subject to
Section 10.9) appoints, designates and authorizes the Agent to
take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it
by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere
in this Agreement or in any other Loan Document, the Agent shall
not have any duties or responsibilities, except those expressly
set forth herein, nor shall the Agent have or be deemed to have
any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent. Without limiting
the generality of the foregoing sentence, the use of the term
"agent" in this Agreement with reference to the Agent is not
intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom,
and is intended to create or reflect only an administrative
relationship between independent contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks
with respect to any Letters of Credit Issued by it and the
documents associated therewith until such time and except for so
long as the Agent may agree at the request of the Required Banks
to act for such Issuing Bank with respect thereto; provided,
however, that the Issuing Bank shall have all of the benefits and
immunities (i) provided to the Agent in this Article X with
respect to any acts taken or omissions suffered by the Issuing
Bank in connection with Letters of Credit Issued by it or
proposed to be Issued by it and the application and agreements
for letters of credit pertaining to the Letters of Credit as
fully as if the term "Agent", as used in this Article X,
included the Issuing Bank with respect to such acts or omissions,
and (ii) as additionally provided in this Agreement with respect
to the Issuing Bank.
10.2 Delegation of Duties.
- ---------------------------
The Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The
Agent shall not be responsible for the negligence or misconduct
of any agent or attorney-in-fact that it selects with reasonable
care.
10.3 Liability of Agent.
- -------------------------
None of the Agent-Related Persons shall (i) be liable
for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document
or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any
manner to any of the Banks for any recital, statement,
representation or warranty made by the Company or any Subsidiary
or Affiliate of the Company, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or
provided for in, or received by the Agent under or in connection
with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the
Company or any other party to any Loan Document to perform its
obligations hereunder or thereunder. No Agent-Related Person
shall be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the properties, books or
records of the Company or any of the Company's Subsidiaries or
Affiliates.
10.4 Reliance by Agent.
- ------------------------
(a) The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile,
telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons, and
upon advice and statements of legal counsel (including counsel to
the Company), independent accountants and other experts selected
by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other
Loan Document unless it shall first receive such advice or
concurrence of the Required Banks as it deems appropriate and, if
it so 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 or continuing to take any
such action. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of
the Required Banks and such request and any action taken or
failure to act pursuant thereto shall be binding upon all of the
Banks.
(b) For purposes of determining compliance with the
conditions specified in Section 5.1, each Bank that has executed
this Agreement shall be deemed to have consented to, approved or
accepted or to be satisfied with, each document or other matter
either sent by the Agent to such Bank for consent, approval,
acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to the
Bank.
10.5 Notice of Default.
- ------------------------
The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal,
interest and fees required to be paid to the Agent for the
account of the Banks, unless the Agent shall have received
written notice from a Bank or the Company referring to this
Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default." The Agent
will notify the Banks of its receipt of any such notice. The
Agent shall take such action with respect to such Default or
Event of Default as may be requested by the Required Banks in
accordance with Article IX; provided, however, that unless and
until the Agent has received any such request, the Agent may (but
shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the
Banks.
10.6 Credit Decision.
- ----------------------
Each Bank acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it, and that
no act by the Agent hereinafter taken, including any review of
the affairs of the Company and its Subsidiaries, shall be deemed
to constitute any representation or warranty by any Agent-Related
Person to any Bank. Each Bank represents to the Agent that it
has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation
into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Company and its
Subsidiaries, and all applicable bank regulatory laws relating to
the transactions contemplated hereby, and made its own decision
to enter into this Agreement and to extend credit to the Company
and its Subsidiaries hereunder. Each Bank also represents that
it will, independently and without reliance upon any Agent-
Related Person and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to
make such investigations as it deems necessary to inform itself
as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Company. Except
for notices, reports and other documents expressly herein
required to be furnished to the Banks by the Agent, the Agent
shall not have any duty or responsibility to provide any Bank
with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Company which may come into the
possession of any of the Agent-Related Persons.
10.7 Indemnification of Agent.
- -------------------------------
Whether or not the transactions contemplated hereby are
consummated, the Banks shall indemnify upon demand the Agent-
Related Persons (to the extent not reimbursed by or on behalf of
the Company and without limiting the obligation of the Company to
do so), pro rata, from and against any and all Indemnified
Liabilities; provided, however, that no Bank shall be liable for
the payment to the Agent-Related Persons of any portion of such
Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the
foregoing, each Bank shall reimburse the Agent upon demand for
its ratable share of any costs or out-of-pocket expenses
(including Attorney Costs) incurred by the Agent in connection
with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice
in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or
referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Company. The
undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the
Agent.
10.8 Agent in Individual Capacity.
- -----------------------------------
BofA and its Affiliates may make loans to, issue
letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or other
business with the Company and its Subsidiaries and Affiliates as
though BofA were not the Agent or the Issuing Bank hereunder and
without notice to or consent of the Banks. The Banks acknowledge
that, pursuant to such activities, BofA or its Affiliates may
receive information regarding the Company or its Affiliates
(including information that may be subject to confidentiality
obligations in favor of the Company or such Subsidiary) and
acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans,
BofA shall have the same rights and powers under this Agreement
as any other Bank and may exercise the same as though it were not
the Agent or the Issuing Bank.
10.9 Successor Agent.
- ----------------------
The Agent may, and at the request of the Required Banks
shall, resign as Agent upon 30 days' notice to the Banks. If the
Agent resigns under this Agreement, the Required Banks shall
appoint from among the Banks a successor agent for the Banks
which successor agent shall be approved by the Company unless an
Event of Default exists. If no successor agent is appointed
prior to the effective date of the resignation of the Agent, the
Agent may appoint, after consulting with the Banks and the
Company, a successor agent from among the Banks. Upon the
acceptance of its appointment as successor agent hereunder, such
successor agent shall succeed to all the rights, powers and
duties of the retiring Agent and the term "Agent" shall mean
such successor agent and the retiring Agent's appointment, powers
and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this
Article X and Sections 11.4 and 11.5 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement. If no successor agent has accepted
appointment as Agent by the date which is 30 days following a
retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become effective and the
Banks shall perform all of the duties of the Agent hereunder
until such time, if any, as the Required Banks appoint a
successor agent as provided for above. Notwithstanding the
foregoing, however, BofA may not be removed as the Agent at the
request of the Required Banks unless BofA shall also
simultaneously be replaced as "Issuing Bank" hereunder pursuant
to documentation in form and substance reasonably satisfactory to
BofA.
10.10 Withholding Tax.
- ----------------------
(a) If any Bank is a "foreign corporation,
partnership or trust" within the meaning of the Code and such
Bank claims exemption from, or a reduction of, U.S. withholding
tax under Sections 1441 or 1442 of the Code, such Bank agrees
with and in favor of the Agent, to deliver to the Agent:
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty,
two properly completed and executed copies of IRS Form 1001
before the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this
Agreement;
(ii) if such Bank claims that interest paid
under this Agreement is exempt from United States withholding tax
because it is effectively connected with a United States trade or
business of such Bank, two properly completed and executed copies
of IRS Form 4224 before the payment of any interest is due in the
first taxable year of such Bank and in each succeeding taxable
year of such Bank during which interest may be paid under this
Agreement; and
(iii) such other form or forms as may be
required under the Code or other laws of the United States as a
condition to exemption from, or reduction of, United States
withholding tax.
Such Bank agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Bank claims exemption from, or reduction
of, withholding tax under a United States tax treaty by providing
IRS Form 1001 and such Bank sells, assigns, grants a
participation in, or otherwise transfers all or part of the
Obligations of the Company to such Bank, such Bank agrees to
notify the Agent of the percentage amount in which it is no
longer the beneficial owner of Obligations of the Company to such
Bank. To the extent of such percentage amount, the Agent will
treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Agent sells,
assigns, grants a participation in, or otherwise transfers all or
part of the Obligations of the Company to such Bank, such Bank
agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of
the Code.
(d) If any Bank is entitled to a reduction in the
applicable withholding tax, the Agent may withhold from any
interest payment to such Bank an amount equivalent to the
applicable withholding tax after taking into account such
reduction. However, if the forms or other documentation required
by subsection (a) of this Section are not delivered to the Agent,
then the Agent may withhold from any interest payment to such
Bank not providing such forms or other documentation an amount
equivalent to the applicable withholding tax imposed by Sections
1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of
the United States or other jurisdiction asserts a claim that the
Agent did not properly withhold tax from amounts paid to or for
the account of any Bank (because the appropriate form was not
delivered or was not properly executed, or because such Bank
failed to notify the Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax
ineffective, or for any other reason) such Bank shall indemnify
the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the
amounts payable to the Agent under this Section, together with
all costs and expenses (including Attorney Costs). The
obligation of the Banks under this subsection shall survive the
payment of all Obligations and the resignation or replacement of
the Agent.
10.11 Co-Agents.
- ----------------
None of the Banks identified on the facing page or
signature pages of this Agreement as a "co-agent" shall have
any right, power, obligation, liability, responsibility or duty
under this Agreement other than those applicable to all Banks as
such. Without limiting the foregoing, none of the Banks so
identified as a "co-agent" shall have or be deemed to have any
fiduciary relationship with any Bank. Each Bank acknowledges
that it has not relied, and will not rely, on any of the Banks so
identified in deciding to enter into this Agreement or in taking
or not taking such action hereunder.
ARTICLE XI.
-----------
MISCELLANEOUS
11.1 Amendments and Waivers.
- -----------------------------
No amendment or waiver of any provision of this
Agreement or any other Loan Document, and no consent with respect
to any departure by the Company or any applicable Restricted
Subsidiary therefrom, shall be effective unless the same shall be
in writing and signed by the Required Banks (or by the Agent at
the written request of the Required Banks) and the Company and
acknowledged by the Agent, and then any such waiver or consent
shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no such
waiver, amendment, or consent shall, unless in writing and signed
by all the Banks and the Company and acknowledged by the Agent,
do any of the following:
(a) increase or extend the Commitment of any Bank (or
reinstate any such Commitment terminated pursuant to
Section 9.2);
(b) postpone or delay any date fixed by this
Agreement or any other Loan Document for any payment of
principal, interest, fees or other amounts due to the Banks (or
any of them) hereunder or under any other Loan Document,
including prepayments specified in Section 2.7, or reduce the
amount due to the Banks (or any of them) on any such date;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or (subject to clause (iii) below)
any fees or other amounts payable hereunder or under any other
Loan Document;
(d) change the percentage of the Commitments or of
the aggregate unpaid principal amount of the Loans which is
required for the Banks or any of them to take any action
hereunder; or
(e) amend this Section, or Section 2.14, or any
provision herein providing for consent or other action by all
Banks;
and, provided further, that (i) no amendment, waiver or consent
shall, unless in writing and signed by the Issuing Bank in
addition to the Required Banks or all the Banks, as the case may
be, affect the rights or duties of the Issuing Bank under this
Agreement or any L/C-Related Document relating to any Letter of
Credit Issued or to be Issued by it, (ii) no amendment, waiver or
consent shall, unless in writing and signed by the Agent in
addition to the Required Banks or all the Banks, as the case may
be, affect the rights or duties of the Agent under this Agreement
or any other Loan Document, and (iii) the Fee Letter may be
amended, or rights or privileges thereunder waived, in a writing
executed by the parties thereto.
11.2 Notices.
- ---------------
(a) All notices, requests, consents, approvals,
waivers and other communications shall be in writing (including,
unless the context expressly otherwise provides, by facsimile
transmission, provided that any matter transmitted by the Company
by facsimile (i) shall be immediately confirmed by a telephone
call to the recipient at the number specified on Schedule 11.2,
and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address
or facsimile number specified for notices on Schedule 11.2; or,
as directed to the Company or the Agent, to such other address as
shall be designated by such party in a written notice to the
other parties, and as directed to any other party, at such other
address as shall be designated by such party in a written notice
to the Company and the Agent.
(b) All such notices, requests and communications
shall, when transmitted by overnight delivery, or faxed, be
effective when delivered for overnight (next-day) delivery, or
transmitted in legible form by facsimile machine, respectively,
or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery;
except that notices pursuant to Articles II, III or X to the
Agent shall not be effective until actually received by the
Agent, and notices pursuant to Article III to the Issuing Bank
shall not be effective until actually received by the Issuing
Bank at the address specified for the "Issuing Bank" on the
applicable signature page hereof.
(c) Any agreement of the Agent and the Banks herein
to receive certain notices by telephone or facsimile is solely
for the convenience and at the request of the Company. The Agent
and the Banks shall be entitled to rely on the authority of any
Person purporting to be a Person authorized by the Company to
give such notice and the Agent and the Banks shall not have any
liability to the Company or other Person on account of any action
taken or not taken by the Agent or the Banks in reliance upon
such telephonic or facsimile notice. The obligation of the
Company to repay the Loans and L/C Obligations shall not be
affected in any way or to any extent by any failure by the Agent
and the Banks to receive written confirmation of any telephonic
or facsimile notice or the receipt by the Agent and the Banks of
a confirmation which is at variance with the terms understood by
the Agent and the Banks to be contained in the telephonic or
facsimile notice.
11.3 No Waiver; Cumulative Remedies.
- -------------------------------------
No failure to exercise and no delay in exercising, on
the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power
or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or
privilege.
11.4 Costs and Expenses.
- -------------------------
The Company shall:
(a) whether or not the transactions contemplated
hereby are consummated, pay or reimburse BofA (including in its
capacity as Agent and Issuing Bank) within five Business Days
after demand (subject to subsection 5.1(e)) for all costs and
expenses incurred by BofA (including in its capacity as Agent and
Issuing Bank) in connection with the development, preparation,
delivery, administration and execution of, and any amendment,
supplement, waiver or modification to (in each case, whether or
not consummated), this Agreement, any Loan Document and any other
documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby,
including reasonable Attorney Costs incurred by BofA (including
in its capacity as Agent and Issuing Bank) and any Bank with
respect thereto; and
(b) pay or reimburse the Agent, the Arranger and each
Bank within five Business Days after demand (subject to
subsection 5.1(e)) for all costs and expenses (including Attorney
Costs) incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies
under this Agreement or any other Loan Document during the
existence of an Event of Default or after acceleration of the
Loans (including in connection with any "workout" or
restructuring regarding the Loans, and including in any
Insolvency Proceeding or appellate proceeding).
11.5 Company Indemnification.
- ------------------------------
Whether or not the transactions contemplated hereby are
consummated, the Company shall indemnify, defend and hold the
Agent-Related Persons, and each Bank and each of its respective
officers, directors, employees, counsel, agents and attorneys-in-
fact (each, an "Indemnified Person") harmless from and against
any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and
disbursements (including reasonable Attorney Costs) of any kind
or nature whatsoever which may at any time (including at any time
following repayment of the Loans, the termination of the Letters
of Credit and the termination, resignation or replacement of the
Agent or replacement of any Bank) be imposed on, incurred by or
asserted against any such Person in any way relating to or
arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or
any action taken or omitted by any such Person under or in
connection with any of the foregoing, including with respect to
any investigation, litigation or proceeding (including any
Insolvency Proceeding or appellate proceeding) related to or
arising out of this Agreement or the Loans or Letters of Credit
or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided, that
the Company shall have no obligation hereunder to any Indemnified
Person with respect to Indemnified Liabilities resulting solely
from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Section shall survive
payment of all other Obligations.
11.6 Payments Set Aside.
- -------------------------
To the extent that the Company makes a payment to the
Agent or the Banks, or the Agent or the Banks exercise their
right of set-off, and such payment or the proceeds of such set-
off or any part thereof are subsequently invalidated, declared to
be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Agent or such Bank
in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any Insolvency Proceeding or
otherwise, then (a) to the extent of such recovery the obligation
or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment
had not been made or such set-off had not occurred, and (b) each
Bank severally agrees to pay to the Agent upon demand its pro
rata share of any amount so recovered from or repaid by the
Agent.
11.7 Successors and Assigns.
- -----------------------------
The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Company may
not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of the Agent and
each Bank.
11.8 Assignments, Participations, etc.
- ---------------------------------------
(a) Any Bank may, with the written consent of the
Company at all times other than during the existence of an Event
of Default and the Agent and the Issuing Bank, which consent of
the Company shall not be unreasonably withheld, at any time
assign and delegate to one or more Eligible Assignees (provided
that no written consent of the Company, the Agent or the Issuing
Bank shall be required in connection with any assignment and
delegation by a Bank to an Eligible Assignee that is an Affiliate
of such Bank) (each an "Assignee") all, or any ratable part of
all, of the Loans, the Commitments, the L/C Obligations and the
other rights and obligations of such Bank hereunder, in a minimum
amount of $5,000,000; provided, however, that (1) such assignment
shall be null and void if not undertaken on a pro rata basis
between Facility A Loans and Commitments and Facility B Loans and
Commitments, and (2) the Company and the Agent may continue to
deal solely and directly with such Bank in connection with the
interest so assigned to an Assignee until (i) written notice of
such assignment, together with payment instructions, addresses
and related information with respect to the Assignee, shall have
been given to the Company and the Agent by such Bank and the
Assignee; (ii) such Bank and its Assignee shall have delivered to
the Company and the Agent an Assignment and Acceptance in the
form of Exhibit E ("Assignment and Acceptance") together with
any Note or Notes subject to such assignment and (iii) the
assignor Bank or Assignee has paid to the Agent a processing fee
in the amount of $3,500.
(b) From and after the date that the Agent notifies
the assignor Bank that it has received (and provided its consent
with respect to) an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to
such Assignment and Acceptance, shall have the rights and
obligations of a Bank under the Loan Documents, and (ii) the
assignor Bank shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan
Documents.
(c) Promptly after its receipt of notice by the Agent
that it has received an executed Assignment and Acceptance and
payment of the processing fee, (and provided that it consents to
such assignment in accordance with subsection 11.8(a)), the
Company shall execute and deliver to the Agent, if Notes have
been made, new Notes evidencing such Assignee's assigned Loans
and Commitment and, if the assignor Bank has retained a portion
of its Loans and its Commitment, replacement Notes in the
principal amount of the Loans retained by the assignor Bank (such
Notes to be in exchange for, but not in payment of, the Notes
held by such Bank). Immediately upon each Assignee's making its
processing fee payment under the Assignment and Acceptance, this
Agreement shall be deemed to be amended to the extent, but only
to the extent, necessary to reflect the addition of the Assignee
and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce
such Commitments of the assigning Bank pro tanto.
(d) Any Bank may at any time sell to one or more
commercial banks or other Persons not Affiliates of the Company
(a "Participant") participating interests in any Loans, the
Commitment of that Bank and the other interests of that Bank (the
"originating Bank") hereunder and under the other Loan
Documents; provided, however, that (i) such participation shall
be null and void if not undertaken on a pro rata basis between
Facility A Loans and Commitments and Facility B Loans and
Commitments, (ii) the originating Bank's obligations under this
Agreement shall remain unchanged, (iii) the originating Bank
shall remain solely responsible for the performance of such
obligations, (iv) the Company, the Issuing Bank and the Agent
shall continue to deal solely and directly with the originating
Bank in connection with the originating Bank's rights and
obligations under this Agreement and the other Loan Documents,
and (v) no Bank shall transfer or grant any participating
interest under which the Participant has rights to approve any
amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document, except to the extent such
amendment, consent or waiver would require unanimous consent of
the Banks as described in the first proviso to Section 11.1. In
the case of any such participation, the Participant shall be
entitled to the benefit of Sections 4.1, 4.3 and 11.5 as though
it were also a Bank hereunder, and not have any rights under this
Agreement, or any of the other Loan Documents, and all amounts
payable by the Company hereunder shall be determined as if such
Bank had not sold such participation; except that, if amounts
outstanding under this Agreement are due and unpaid, or shall
have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be
deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest
were owing directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this
Agreement, any Bank may at any time create a security interest
in, or pledge, all or any portion of its rights under and
interest in this Agreement and the Note held by it, if any, in
favor of any Federal Reserve Bank in accordance with Regulation A
of the FRB or U.S. Treasury Regulation 31 CFR Sec. 03.14, and such
Federal Reserve Bank may enforce such pledge or security interest
in any manner permitted under applicable law.
11.9 Confidentiality.
- ----------------------
Each Bank agrees to take and to cause its Affiliates to
take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information provided to it by
the Company or any Subsidiary, or by the Agent on the Company's
or such Subsidiary's behalf, under this Agreement or any other
Loan Document, and neither it nor any of its Affiliates shall use
any such information other than in connection with or in
enforcement of this Agreement and the other Loan Documents or in
connection with other business now or hereafter existing or
contemplated with the Company or any Subsidiary; except to the
extent such information (i) was or becomes generally available to
the public other than as a result of disclosure by the Bank, or
(ii) was or becomes available on a non-confidential basis from a
source other than the Company, provided that such source is not
bound by a confidentiality agreement with the Company known to
the Bank; provided, however, that any Bank may disclose such
information (A) at the request or pursuant to any requirement of
any Governmental Authority to which the Bank is subject or in
connection with an examination of such Bank by any such
authority; (B) pursuant to subpoena or other court process; (C)
when required to do so in accordance with the provisions of any
applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which
the Agent, any Bank or their respective Affiliates may be party;
(E) to the extent reasonably required in connection with the
exercise of any remedy hereunder or under any other Loan
Document; (F) to such Bank's independent auditors and other
professional advisors; (G) to any Participant or Assignee, actual
or potential, provided that such Person agrees in writing to keep
such information confidential to the same extent required of the
Banks hereunder; (H) as to any Bank or its Affiliate, as
expressly permitted under the terms of any other document or
agreement regarding confidentiality to which the Company or any
Subsidiary is party or is deemed party with such Bank or such
Affiliate; and (I) to its Affiliates.
11.10 Set-off.
- --------------
In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have
been accelerated, each Bank is authorized at any time and from
time to time, without prior notice to the Company, any such
notice being waived by the Company to the fullest extent
permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any
time held by, and other indebtedness at any time owing by, such
Bank to or for the credit or the account of the Company against
any and all Obligations owing to such Bank, now or hereafter
existing, irrespective of whether or not the Agent or such Bank
shall have made demand under this Agreement or any Loan Document
and although such Obligations may be contingent or unmatured.
Each Bank agrees promptly to notify the Company and the Agent
after any such set-off and application made by such Bank;
provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application.
11.11 Automatic Debits of Fees.
- -------------------------------
With respect to any facility fee, arrangement fee,
letter of credit fee or other fee, or any other cost or expense
(including Attorney Costs) due and payable to the Agent, the
Issuing Bank, BofA or the Arranger under the Loan Documents, the
Company hereby irrevocably authorizes BofA to debit any deposit
account of the Company with BofA in an amount such that the
aggregate amount debited from all such deposit accounts does not
exceed such fee or other cost or expense. If there are
insufficient funds in such deposit accounts to cover the amount
of the fee or other cost or expense then due, such debits will be
reversed (in whole or in part, in BofA's sole discretion) and
such amount not debited shall be deemed to be unpaid. No such
debit under this Section shall be deemed a set-off.
11.12 Notification of Addresses, Lending Offices, Etc.
- ------------------------------------------------------
Each Bank shall notify the Agent in writing of any
changes in the address to which notices to the Bank should be
directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the
Agent shall reasonably request.
11.13 Counterparts.
- -------------------
This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be
deemed an original, and all of said counterparts taken together
shall be deemed to constitute but one and the same instrument.
11.14 Severability.
- -------------------
The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or
enforceability of the remaining provisions of this Agreement or
any instrument or agreement required hereunder.
11.15 No Third Parties Benefited.
- ---------------------------------
This Agreement is made and entered into for the sole protection
and legal benefit of the Company, the Banks, the Agent and the
Agent-Related Persons, and their permitted successors and
assigns, and no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any of the other Loan
Documents.
11.16 Governing Law and Jurisdiction.
- -------------------------------------
(a) THIS AGREEMENT AND ANY NOTES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN
ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE
NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-
EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE
AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN
RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE
COMPANY, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF
ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY CALIFORNIA LAW.
11.17 Waiver of Jury Trial.
- ---------------------------
THE COMPANY, THE BANKS AND THE AGENT EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY
TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE
VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
11.18 Entire Agreement.
- -----------------------
This Agreement, together with the other Loan Documents,
embodies the entire agreement and understanding among the
Company, the Banks and the Agent, and supersedes all prior or
contemporaneous agreements and understandings of such Persons,
verbal or written, relating to the subject matter hereof and
thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above
written.
KATY INDUSTRIES, INC.
/S/ Stephen P. Nicholson
_____________________________
Name: Stephen P. Nicholson
Title: Vice President, Finance and
Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent,
Issuing Bank, and a Bank
/S/ Kevin C. Leader
_____________________________
Name: Kevin C. Leader
Title: Vice President
LASALLE NATIONAL BANK, as a
Co-Agent
/S/ Andrew Kanfer
_____________________________
Name: Andrew Kanfer
Title: Assistant Vice President
BANQUE PARIBAS, as a Bank
/S/ Rowena P. Festin
______________________________
Name: Rowena P. Festin
Title: Vice President
/S/ Karen E. Coons
_____________________________
Name: Karen E. Coons
Title: Vice President
THE NORTHERN TRUST COMPANY, as a
Bank
/S/ Raheela Gill Anwar
_____________________________
Name: Raheela Gill Anwar
Title: Vice President
SOCIETE GENERALE
SOUTHWEST AGENCY, as a Bank
/S/ Richard A. Erbert
_____________________________
Name: Richard A. Erbert
Title: Vice President
SCHEDULE 11.2
OFFSHORE AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
Borrowing Notices:
Bank of America National Trust
and Savings Association
Agency Administrative Services #5596
1850 Gateway Blvd.
Concord, CA 94520-3281
Attention: AO KATY Industries
Telephone: (510) 675-8432
Facsimile: (510) 675-8500
Agent's Payment Office:
Bank of America National Trust
and Savings Association
ABA 121-000-358
Attention: PSO #5693
1850 Gateway Blvd.
Concord, CA 94520-3281
for credit to account No.: __________________
All Other Notices:
Bank of America National Trust
and Savings Association
SF Credit Products # 3838
555 California Street - 41st Floor
San Francisco, CA 94104
Attention: Kevin Leader, Vice President
Telephone: (415) 622-8168
Facsimile: (415) 622-2385
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank
Lending Office:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
Global Payment Operations
Customer Service Americas (#5693)
1850 Gateway Blvd.
Concord, CA 94520-3281
Attention: ____________________
ABA 121-000-358 SF
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association
SF Credit Products # 3838
555 California Street - 41st Floor
San Francisco, CA 94104
Attention: Kevin Leader, Vice President
Telephone: (415) 622-8168
Facsimile: (415) 622-4585
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Issuing Bank
Address for Notices:
International Trade
Banking Division #5655
333 S. Beaudry Ave., 19th Floor
Los Angeles, CA 90017
Attention: Sandra Leon
Telephone: (213) 345-5031
Facsimile: (213) 345-6694
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INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-55647, Registration Statement No. 33-60443, and Registration Statement No.
33-60449 of Katy Industries, Inc. on Forms S-8 of our report dated January 27,
1998, appearing in this Annual Report on Form 10-K of Katy Industries, Inc.
for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 25, 1998
