FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended June 30, 1994
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OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The transition period from to
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Commission file number 1-7677
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LSB INDUSTRIES, INC.
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Exact name of Registrant as specified in its charter
DELAWARE 73-1015226
- - ------------------------------ --------------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
16 South Pennsylvania, Oklahoma City, Oklahoma 73107
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Address of principal executive offices (Zip Code)
(405) 235-4546
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Registrant's telephone number, including area code
None
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Former name, former address and former fiscal year, if
changed since last report.
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
------ ------
The number of shares outstanding of the Registrant's voting Common Stock, as
of August 8, 1994 is 13,543,901 shares excluding 1,074,235 shares held as
treasury stock.
PART I
FINANCIAL INFORMATION
Company or group of companies for which report is filed: LSB Industries, Inc.
and all of its wholly-owned subsidiaries.
The accompanying condensed consolidated balance sheet of LSB Industries, Inc.
at June 30, 1994, the condensed consolidated statements of income for the six
month and three month periods ended June 30, 1994 and 1993 and the
consolidated statements of cash flows for the six month periods ended June 30,
1994 and 1993 have been subjected to a review, in accordance with standards
established by the American Institute of Certified Public Accountants, by
Ernst & Young LLP, independent auditors, whose report with respect thereto
appears elsewhere in this Form 10-Q. The financial statements mentioned above
are unaudited and reflect all adjustments, consisting primarily of adjustments
of a normal recurring nature, which are, in the opinion of management,
necessary for a fair presentation of the interim periods. The results of
operations for the six months and three months ended June 30, 1994 are not
necessarily indicative of the results to be expected for the full year. The
condensed consolidated balance sheet at December 31, 1993, was derived from
audited financial statements as of that date.
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 1994 is unaudited)
(Dollars in thousands)
<TABLE>
June 30, December 31,
ASSETS 1994 1993
<C> <C> <C>
_________________________________________ __________ __________
(Note 1)
Current assets:
Cash $ 5,588 $ 2,781
Trade accounts receivable, net of allowance 57,202 49,533
Inventories:
Finished goods 29,939 26,940
Work in process 7,145 9,643
Raw materials 10,039 11,801
__________ __________
Total inventory 47,123 48,384
Supplies and prepaid items 6,843 5,459
__________ __________
Total current assets 116,756 106,157
Property, plant and equipment, at cost 123,632 113,795
Accumulated depreciation (56,601) (53,269)
__________ __________
Property, plant and equipment, net 67,031 60,526
Loans receivable, secured by real estate 16,896 13,968
Other assets 14,277 15,387
__________ __________
$ 214,960 $ 196,038
========== ==========
</TABLE>
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(Information at June 30, 1994 is unaudited)
(Dollars in thousands)
<TABLE>
<S> <C> <C>
LIABILITIES, PREFERRED AND COMMON STOCKS June 30, December 31,
AND OTHER STOCKHOLDERS' EQUITY 1994 1993
________________________________________ __________ __________
(Note 1)
Current liabilities:
Drafts payable $ 1,836 $ 1,220
Accounts payable 30,508 22,645
Accrued liabilities 7,361 6,752
Current portion of long-term debt 9,396 9,763
__________ __________
Total current liabilities 49,101 40,380
Long-term debt 64,871 20,508
Net liabilities of Financial Services
Business sold in 1994 (Notes 1 and 2) - 60,124
Contingencies (Note 7)
Redeemable, noncumulative convertible
preferred stock, $100 par value; 1,619 shares
issued and outstanding (1,637 in 1993) 154 155
Non-redeemable preferred stock, common stock and
other stockholders' equity (Note 6):
Series B 12% cumulative, convertible
preferred stock, $100 par value;
20,000 shares issued and outstanding 2,000 2,000
Series 2 $3.25 convertible, exchangeable
Class C preferred stock, $50 stated
value; 920,000 shares issued and outstanding 46,000 46,000
Common stock, $.10 par value; 75,000,000
shares authorized, 14,615,276 shares
issued (14,514,056 in 1993) 1,462 1,451
Capital in excess of par value 37,355 37,120
Retained earnings (deficit) 19,873 (7,541)
__________ __________
106,690 79,030
Less common treasury stock, 1,060,085 shares
(840,085 in 1993), at cost 5,856 4,159
__________ __________
Total non-redeemable preferred stock, common
stock and other stockholders' equity 100,834 74,871
__________ __________
$ 214,960 $ 196,038
========== ==========
</TABLE>
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended June 30, 1994 and 1993
(Dollars in thousands, except per share amounts)
<TABLE>
1994 1993
__________ __________
(Note 1)
<S> <C> <C>
Revenues:
Net sales $ 132,265 $ 120,466
Other income - net 1,831 2,343
__________ __________
134,096 122,809
Costs and expenses:
Cost of sales 102,677 89,113
Selling, general and administrative expense 22,596 19,353
Interest expense 3,393 4,170
Provision for environmental matter (Note 7) 400 -
Settlement of dispute - 1,767
__________ __________
129,066 114,403
__________ __________
Income from continuing operations
before provision for income taxes 5,030 8,406
Provision for income taxes 355 637
__________ __________
Income from continuing operations 4,675 7,769
Income from discontinued operations, net
of income taxes (Notes 1 and 2) 584 646
Gain on sale of discontinued
operations (Note 2) 24,200 -
__________ __________
Net income $ 29,459 $ 8,415
========== ==========
Net income applicable to common stock (Note 4) $ 27,827 $ 7,988
========== ==========
Average common shares outstanding (Note 4):
Primary 14,386,371 12,365,204
Fully diluted 17,035,037 15,685,412
Earnings per common share (Note 4):
Primary:
Income from continuing operations $ .21 $ .59
========== ==========
Net income $ 1.93 $ .65
========== ==========
Fully diluted:
Income from continuing operations $ .21 $ .50
========== ==========
Net income $ 1.69 $ .54
========== ==========
</TABLE>
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, 1994 and 1993
(Dollars in thousands, except per share amounts)
<TABLE>
1994 1993
__________ __________
(Note 1)
<S> <C> <C>
Revenues:
Net sales $ 68,414 $ 67,869
Other income - net 1,330 1,547
__________ __________
69,744 69,416
Costs and expenses:
Cost of sales 53,184 49,802
Selling, general and administrative expense 11,428 9,734
Interest expense 1,712 1,987
Provision for environmental matter (Note 7) 400 -
Settlement of dispute - 1,767
__________ __________
66,724 63,290
__________ __________
Income from continuing operations
before provision for income taxes 3,020 6,126
Provision for income taxes 203 512
__________ __________
Income from continuing operations 2,817 5,614
Income from discontinued operations, net
of income taxes (Notes 1 and 2) 238 144
Gain on sale of discontinued
operations (Note 2) 24,200 -
__________ __________
Net income $ 27,255 $ 5,758
========== ==========
Net income applicable to common stock (Note 4) $ 26,447 $ 5,408
========== ==========
Average common shares outstanding (Note 4):
Primary 14,359,161 14,381,918
Fully diluted 18,985,827 16,584,949
Earnings per common share (Note 4):
Primary:
Income from continuing operations $ .14 $ .37
========== ==========
Net income $ 1.84 $ .38
========== ==========
Fully diluted:
Income from continuing operations $ .14 $ .34
========== ==========
Net income $ 1.44 $ .35
========== ==========
</TABLE>
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 1994 and 1993
(Dollars in thousands)
<TABLE>
1994 1993
__________ __________
(Note 1)
<S> <C> <C>
Cash flows from continuing operations:
Income from continuing operations $ 4,675 $ 7,769
Adjustments to reconcile income from
continuing operations to net cash
provided by continuing operations:
Depreciation, depletion and amortization:
Property, plant and equipment 3,332 2,767
Other 489 432
Provision for possible losses:
Trade accounts receivable 519 (115)
Environmental matter 400 -
Settlement of dispute - 1,767
Gain of sales of assets (519) (1,381)
Cash provided (used) by changes in assets
and liabilities:
Trade accounts receivable (8,188) (11,634)
Inventories 1,261 5,756
Supplies and prepaid items (1,384) (2,166)
Other assets (2,009) (548)
Accounts payable 7,862 7,202
Accrued liabilities 209 (4,594)
__________ __________
Net cash provided by
continuing operations 6,647 5,255
Cash flows from investing activities of
continuing operations:
Capital expenditures (7,993) (3,235)
Purchase of loans receivable (2,930) -
Sale of real estate properties 1,331 3,342
_________ _________
Net cash provided (used) by investing activities (9,592) 107
</TABLE>
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
Six Months Ended June 30, 1994 and 1993
(Dollars in thousands)
1994 1993
__________ __________
(Note 1)
Cash flows from financing activities of continuing
operations:
Payments on long-term and other debt $(6,012) $(7,240)
Long-term and other borrowings 2,700 -
Net change in revolving loans 45,465 (7,335)
Net decrease in receivables sold to
discontinued operations (31,844) (11,228)
Net change in drafts payable 616 (1,089)
Dividends paid (Note 6):
Preferred stocks (1,631) (302)
Common stock (414) (387)
Purchases of treasury stock (Note 6) (1,697) -
Net proceeds from issuance of stock (Note 6):
Common 244 2,230
Preferred - 44,071
________ ________
Net cash provided by financing
activities of continuing operations 7,427 18,720
________ ________
Net increase in cash from
continuing operations 4,482 24,082
Net decrease in cash from
discontinued operations (1,675) (5,761)
________ ________
Net increase in cash from all
activities 2,807 18,321
Cash at beginning of period 2,781 1,115
________ ________
Cash at end of period $ 5,588 $ 19,436
======== ========
(See accompanying notes)
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1994, and 1993
Note 1: The accompanying financial statements include the accounts of LSB
Industries, Inc. (the "Company") and its subsidiaries at June 30, 1994. The
accounts of its financial services subsidiary, Equity Bank for Savings, F.A.
("Equity Bank") which was sold on May 25, 1994 (see Note 2 below), have been
reclassified as discontinued operations at December 31, 1993. Additionally,
the condensed consolidated statements of income for the six month and three
month periods ended June 30, 1993, have been restated to present the
operations of Equity Bank as income from discontinued operations. The assets
and liabilities of the Company's financial services subsidiary, classified as
discontinued at December 31, 1993, are as follows:
December 31,
1993
____________
Assets: (In thousands)
Cash and cash equivalents $ 8,906
Loans and mortgage backed
securities, net 359,303
Other securities 7,806
Property and equipment, net 5,144
Excess of purchase price over net
assets acquired, net 17,041
Other assets 3,273
_______
401,473
Liabilities:
Deposits 332,511
Securities sold under agreement
to repurchase 38,721
Federal Home Loan Bank advances 87,650
Accrued liabilities 2,715
_______
461,597
_______
Net liabilities $ 60,124
=======
Note 2: On May 25, 1994, pursuant to a Stock Purchase Agreement, dated as of
February 9, 1994, (the Acquisition Agreement) the Company sold its wholly-
owned subsidiary, Equity Bank , which constituted the Financial Services
Business of the Company, to Fourth Financial Corporation (the "Purchaser").
The Purchaser acquired all of the outstanding shares of capital stock of
Equity Bank. All regulatory and shareholder approvals necessary to complete
the sale of Equity Bank were obtained prior to the closing of this
transaction.
Under the Acquisition Agreement, the Company acquired from Equity Bank, prior
to closing, certain subsidiaries of Equity Bank (Retained Corporations) that
own the real and personal property and other assets contributed by the Company
to Equity Bank at the time of the acquisition of the predecessor of Equity
Bank by the Company for Equity Bank s carrying value of the assets contributed
of approximately $67.4 million. At the time of closing of the sale of Equity
Bank, the Company was required under the Acquisition Agreement to acquire: (A)
the loan and mortgage on and an option to purchase Equity Tower located in
Oklahoma City, Oklahoma (Equity Tower Loan), which Equity Bank previously
classified as an in-substance foreclosure on its books, for an amount equal to
Equity Bank's carrying value of approximately $13.9 million; (B) other real
estate owned by Equity Bank that was acquired by Equity Bank through
foreclosure for an amount equal to Equity Bank's carrying value of
approximately $3.6 million (the Equity Tower Loan and other real estate owned
are collectively called the Retained Assets ), and; (C) the outstanding
accounts receivable sold to Equity Bank by the Company and its subsidiaries
under various purchase agreements, dated March 8, 1988 (the Receivables ) of
$6.9 million. In addition, the Company acquired certain other loans for $2.7
million previously owned by Equity Bank.
The Company used the proceeds of the sale of Equity Bank, together with
borrowings under its credit facilities, to purchase the Retained Corporations
for approximately $67.4 million, the Retained Assets for approximately $17.5
million, certain other loans for approximately $2.7 million and to repurchase
its accounts receivable previously financed by Equity Bank for approximately
$6.9 million.
Under the Acquisition Agreement, the Company made certain representations and
warranties. The Company also agreed under the Stock Purchase Agreement to
indemnify the Purchaser and its wholly-owned subsidiary, Bank IV Oklahoma,
National Association ("Bank IV "), against, among other things, (i) losses
that may be sustained by them due to breach of any representations or
warranties made by the Company in the Stock Purchase Agreement or failure by
the Company to fulfill any agreement made by the Company in the Stock Purchase
Agreement, provided losses by Fourth and Bank IV exceed $1 million in the
aggregate, net of income tax effect, and such liability by the Company shall
not exceed $25 million. The Company has further agreed to indemnify the
Purchaser and Bank IV against certain liabilities which are not subject to the
$1 million deductible and the $25 million maximum liability, including, but
not limited to, environmental matters relating to the real estate contributed
to Equity Bank at the time that the Company acquired Equity Bank. The
representations and warranties made by the Company under the Agreement survive
the closing of the sale of Equity Bank for a period of two (2) years, except
certain tax-related representations and warranties which have a three (3) year
survival period. In addition, there are no time limits (other than as
provided by law) in connection with the indemnifications provided by the
Company relating to certain environmental matters, a certain pending lawsuit,
and a certain "frozen" 401-K Plan.
Note 3: At June 30, 1994, the Company has net operating loss ("NOL")
carryforwards for tax purposes of approximately $35 million. Such amounts
expire beginning in 1999. The Company also has investment tax credit
carryforwards of approximately $600,000, which expire beginning in 1994.
The Company's provision for income taxes for the six months ended June 30,
1994 of $.4 million are for current state income taxes and federal alternative
minimum tax.
Note 4: Primary earnings per common share are based on the weighted average
number of common shares and dilutive common equivalent shares outstanding
during each period, after giving appropriate effect to preferred stock
dividends.
Fully diluted earnings per share are based on the weighted average number of
common shares and dilutive common equivalent shares outstanding and the
assumed conversion of dilutive convertible securities outstanding after
appropriate adjustment for interest and related income tax effects on
convertible notes payable.
Net income applicable to common stock is computed by adjusting net income by
the amount of preferred stock dividends, including undeclared or unpaid
dividends, if cumulative.
Note 5: On July 6, 1992, a subsidiary of the Company signed an agreement to
supply a foreign customer with equipment, technology and technical assistance
to manufacture certain types of automotive products. The contract provided for
a total price of $56 million with $12 million to be retained by the customer,
as the subsidiary s equity participation, which represented a minority
interest in the customer. Of the balance of the contract price of $44 million,
$13.9 million has been billed and collected by the Company. The remaining
$30.1 million is to be collected in 38 equal quarterly installments beginning
December 31, 1994 of $791,000, plus interest at a rate of 7.5% per annum.
During the last quarter of 1993, the Company s subsidiary exchanged its rights
to the equity interest in the customer with a foreign nonaffiliated company
("Purchaser of the Interest") for $12 million in notes. The Company has been
advised that the customer has agreed to repurchase from the Purchaser of the
Interest up to $6 million of such equity interest over a six-year period, with
payment to the Purchaser of the Interest to be either in cash or bearing
products. The notes issued to the subsidiary for its rights to the equity
interest in the customer will only be payable when, as and if the Purchaser of
the Interest collects from the customer for such equity interest, and the
method of payment to the subsidiary will be either cash or bearing products,
in the same manner as received by the Purchaser of the Interest from the
customer. During the three months ended June 30, 1994, the Company received
approximately $250,000 in bearing products as partial payment on such notes.
Due to the Company s inability to determine what payments, if any, it will
receive on such notes, the Company will continue to carry such notes at a
nominal amount.
The Company s subsidiary has agreed to make its best effort to purchase
approximately $14.5 million of bearing products each year for ten years
commencing in the customer s first year of operations, which is anticipated to
be in 1994. However, the subsidiary is not required to purchase more product
from the customer in any one year than the quantity of tapered bearing
products the subsidiary is able to sell in its market. The customer has also
agreed to repurchase over six years, up to $6 million of the subsidiary s
former equity participation in the customer. In the event that the customer is
unable to repurchase such equity participation, and therefore the Company's
subsidiary is unable to collect such amount from the Purchaser of the Interest
the parties may renegotiate and modify the agreement for the Company s
subsidiary to purchase products from the customer.
Revenues, costs and profits related to the contract are being recognized in
two separate phases. The first phase involves the purchase, modification,
development and delivery of the machinery, tooling, designs and other
technical information and services. Sales to be recognized during this phase
are limited to the expected collections under the contract during this phase.
Sales and costs during the first phase are being recognized using the
percentage of completion method of accounting based on the ratio of total
costs incurred, excluding the cost of purchased machinery, to estimated total
costs, excluding the cost of purchased machinery. The cumulative effect of
future revisions in the contract terms or total cost estimates will be
reflected in the period in which changes become known.
The second phase of the contract includes payments by the customer under the
financing terms set forth above and purchases of bearing products by the
Company s subsidiary from the customer. Contract revenues will be recognized
as the Company performs its obligation to purchase products from the customer,
which timing generally coincides with the timing that amounts are to be
collected from the customer. Interest will be recognized as the amounts are
collected from the customer.
Note 6: The table below provides detail of activity in the Stockholders' Equity
accounts for the six months ended June 30, 1994:
<TABLE>
Common Stock Non- Capital
_______________ redeemable in excess Retained
Par Preferred of par Earnings Treasury
Shares Value Stock Value (Deficit) Stock Total
____________ ________________________________________________
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 14,514 $1,451 $48,000 $37,120 $(7,541) $(4,159) $74,871
Net Income - - - - 29,459 - 29,459
Conversion of 18 shares of
redeemable preferred stock
to common stock 1 - - 1 - - 1
Exercise of stock options
for cash 100 11 - 234 - - 245
Dividends declared:
Series B 12% preferred
stock ($6.00 per share) - - - - (120) - (120)
Redeemable preferred
stock ($10.00 per share) - - - - (16) - (16)
Common Stock ($.03 per share) - - - - (414) - (414)
Series 2 preferred
stock ($1.62 per share) - - - - (1,495) - (1,495)
Purchase of treasury stock - - - - - (1,697) (1,697)
______ _______ _______ _______ _______ _______ ________
(1)
Balance at June 30, 1994 14,615 $1,462 $48,000 $37,355 $ 19,873 $(5,856) $100,834
====== ====== ======= ======= ======== ======= ========
</TABLE>
(1)
Includes 1,060,085 shares of the Company's Common Stock held in
treasury. Excluding the 1,060,085 shares held in treasury, the outstanding
shares of the Company's Common Stock at June 30, 1994 were 13,555,191.
Note 7: Following is a summary of certain legal actions involving the Company:
A. In 1987, the U.S. Government notified one of the Company s subsidiaries,
along with numerous other companies, of potential responsibility for
clean-up of a waste disposal site in Oklahoma. No legal action has yet
been filed. The amount of the Company s cost associated with the clean-
up of the site is unknown due to continuing changes in (i) the estimated
total cost of clean-up of the site and (ii) the percentage of the total
waste which was alleged to have been contributed to the site by the
Company, accordingly, no provision for any liability which may result
has been made in the accompanying financial statements. In a settlement
offer that was rejected by the Company, the Environmental Protection
Agency ("EPA") did indicate that the Company was eligible for settlement
as a de minimis party. The subsidiary s insurance carriers have been
notified of this matter; however, the amount of possible coverage, if
any, is not yet determinable.
B. The primary manufacturing facility of the Company s Chemical Business,
located in El Dorado, Arkansas, (the "Site") has been placed in the
EPA's tracking system ("System") of sites which are known or suspected
to be a site of a release of contaminated waste. Inclusion in the EPA s
tracking system does not represent a determination of liability or a
finding that any response action is necessary. As a result of being
placed in the System, the State of Arkansas performed a preliminary
assessment. The Company has been advised that there have occurred
certain releases of contaminants at the Site. In addition, as a result
of certain releases of contaminants at the Site, the Company's
subsidiary will be subject to enforcement action, which will include
certain civil penalties. On July 18, 1994, the Company's subsidiary
received from the State of Arkansas a report of multimedia inspection of
the Site (the "Report"). The Report contains findings of violations of
certain environmental laws and requests the Company's subsidiary to
conduct further investigations to better determine the compliance status
of and releases at the Site. The Company's subsidiary has been advised
that the State of Arkansas is currently preparing an administrative
consent agreement to outline specific activities necessary to bring the
Site into compliance and to remediate identified releases. While the
Company is at this time unable to determine the ultimate cost of
compliance with the expected administrative consent agreement, the
Company has determined the subsidiary's cost to be at least $400,000,
therefore the Company has included a provision for environmental costs
of $400,000 in the results of operations for the six (6) month and three
(3) month periods ended June 30, 1994. Based on information presently
available, the Company does not believe, as of the date of this report,
that compliance with the administrative consent agreement, or the
assessment of penalties, or the facility being placed in the System,
should have a material adverse effect on the Company, the Company's
subsidiary or the Company's financial condition, however, there are no
assurances to that effect.
C. A subsidiary of the Company was named in April 1989 as a third party
defendant in a lawsuit alleging defects in fan coil units installed in a
commercial building. The amount of damages sought by the owner against
the general contractor and the subsidiary s customer are substantial.
The subsidiary s customer alleges that to the extent defects exist in
the fan coil units, it is entitled to recovery from the subsidiary. The
Company s subsidiary generally denies their customer s allegations and
that any failures in the fan coil units were a result of improper design
by the customer, improper installation or other causes beyond the
subsidiary s control. The subsidiary has in turn filed claims against
the suppliers of certain materials used to manufacture the fan coil
units to the extent any failures in the fan coil units were caused by
such materials. Discovery in these proceedings is continuing. The
Company believes it is probable that it will receive insurance proceeds
in the event of an unfavorable outcome.
The Company, including its subsidiaries, is a party to various other claims,
legal actions, and complaints arising in the ordinary course of business. In
the opinion of management after consultation with counsel, all claims, legal
actions (including those described above) and complaints are adequately
covered by insurance, or if not so covered, are without merit or are of such
kind, or involve such amounts that unfavorable disposition would not have a
material effect on the financial position or results of operations of the
Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with a
review of the Company's June 30, 1994 Condensed Consolidated Financial
Statements. This discussion and analysis is intended to provide information
about the Company's continuing operations. Accordingly, it contains only
limited discussions of the Company's Financial Services Business, sold in
1994, which has been reported as a discontinued operation in the Company's
Condensed Consolidated Financial Statements at June 30, 1994. See "Liquidity
and Capital Resources" of this "Management's Discussion and Analysis", and
Note 2 of Notes to Condensed Consolidated Financial Statements for further
discussion of the sale of Equity Bank.
OVERVIEW
The Company is a diversified holding company which is engaged, through
its subsidiaries, in the Chemical Business, the Environmental Control
Business, the Automotive Products Business and the Industrial Products
Business.
Information about the Company's continuing operations in different
industry segments for the six months and three months ended June 30, 1994 and
1993 is detailed below.
Six Months Three Months
1994 1993 1994 1993
____ ____ ____ ____
(In thousands)
(Unaudited)
Sales:
Chemical $ 72,723 $ 63,003 $ 41,771 $ 38,563
Environmental Control 35,250 33,565 14,998 16,193
Automotive Products 17,600 14,706 9,036 8,555
Industrial Products 6,692 9,192 2,609 4,558
_______ _______ _______ _______
$132,265 $120,466 $ 68,414 $ 67,869
======= ======= ======= =======
Gross profit:
Chemical $ 15,175 $ 16,490 $ 9,087 $ 10,782
Environmental Control 8,781 7,426 3,394 3,277
Automotive Products 4,302 4,987 2,290 2,833
Industrial Products 1,330 2,450 459 1,175
_______ _______ _______ _______
$ 29,588 $ 31,353 $ 15,230 $ 18,067
======= ======= ======= =======
Operating profit (loss):
Chemical $ 8,566 $ 11,944 $ 5,677 $ 8,474
Environmental Control 2,329 2,117 236 787
Automotive Products (125) 1,777 (10) 960
Industrial Products (703) 665 (486) 435
Other 1,183 1,623 729 1,175
_______ _______ _______ _______
11,250 18,126 6,146 11,831
General corporate expenses (2,827) (5,550) (1,414) (3,718)
Interest expense (3,393) (4,170) (1,712) (1,987)
_______ _______ _______ _______
Income from continuing
operations before
provision for income taxes $ 5,030 $ 8,406 $ 3,020 $ 6,126
======= ======= ======= =======
RESULTS OF OPERATIONS
Six months ended June 30, 1994 vs. Six months ended June 30, 1993.
Revenues
Total revenues for the six months ended June 30, 1994 and 1993 were
$134.1 million and $122.8 million, respectively (an increase of $ 11.3
million). Interest and other income included in total revenues was $1.8
million in 1994, compared to $2.3 million for 1993. This decrease of $.5
million resulted primarily from insurance claim proceeds recorded in the first
quarter of 1993. Consolidated net sales included in total revenues for the
three months ended June 30, 1994 were $132.3 million, compared to $120.5
million for the first six months of 1993, an increase of $11.8 million. This
increase in sales resulted principally from; (i) increased sales in the
Chemical Business of $9.7 million, primarily due to favorable weather
conditions for seasonal fertilizer sales, higher price of ammonia being
partially passed through to customers, the acquisition of Total Energy Systems
Limited ("TES") in July, 1993, and higher sales of Universal Tech Corporation
("UTC"), offset by reduced sales by Slurry Explosives Corporation ("Slurry")
due to unfavorable weather conditions in some of their market areas; (ii)
increased sales in the Environmental Control Business of $1.7 million,
primarily due to an expanded customer base in 1994 and the continued recovery
from the effects of a strike that took place in 1992 at the fan coil
manufacturing plant of this business; (iii) increased sales in the Automotive
Products Business of $2.9 million due to an expanded customer base in 1994,
and (iv) decreased sales in the Industrial Products Business of $2.5 million,
primarily due to decreased sales to a foreign customer (see Note 5 to Notes to
Condensed Consolidated Financial Statements and discussion under the
"Liquidity and Capital Resources" section of this report).
Gross Profit
Gross profit was 22.4% for the first six months of 1994, compared to
26.0% for the first six months of 1993. The decline in the gross profit
percentage was due primarily to (i) revisions to the estimates to complete the
foreign sales contract which caused the percentage of completion calculation
to yield a lower gross profit percentage in the first six months of 1994 than
was calculated for the first six months of 1993; and (ii) higher cost of the
primary raw material (ammonia) in the Chemical Business. During the first six
months of 1994 the average cost of ammonia was approximately 31.6% higher than
the average cost of ammonia during the first six months of 1993. This higher
cost was not fully passed on to customers in the form of price increases.
These factors were offset in part by gross profit improvement after recovery
from the effects of a strike in 1992 at the fan coil manufacturing plant of
the Environmental Control Business that were still being experienced in the
first six months of 1993.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expenses as a percent of
net sales were 17.1% in the six months ended June 30, 1994 and 16.1% in the
first six months of 1993. As sales increased, normal SG&A expenses increased
proportionally. Increases in SG&A which were not proportional to increases
in sales resulted from increased commissions of $400,000 by UTC as a result of
UTC's increased revenues in 1994 versus 1993 ($1.6 million increase); expenses
of companies acquired since June 30, 1993 of approximately $1.1 million (Total
Energy Systems - July 1993 - $600,000 and International Bearings, Inc. -
December, 1993 - $500,000); expenses of the heat pump segment of the
Environmental Control Business related to the acquisition of the O.E.M.
contract with a large multinational company; and, the low provision for bad
debt expenses in 1993 in the Environmental Control Business compared to the
provision in 1994 resulting in a variance between the periods of approximately
$750,000.
Interest Expense
Interest expense for the Company was approximately $3.4 million during
the six months ended June 30, 1994 compared to approximately $4.2 million
during the six months ended June 30, 1993. The decrease primarily resulted
from lower average balances of borrowed funds.
Income From Continuing Operations Before Taxes
The Company had income from continuing operations before income taxes of
$5.0 million in the first six months of 1994 compared to $8.4 million in the
six months ended June 30, 1993. The decreased profitability of $3.4 million
was primarily due to lower gross profit margins realized on sales in the
Chemical Division and on the foreign sales contract as previously discussed.
Also contributing to this decline is the $.4 million provision for
environmental matter discussed in Note 7 of Notes to Condensed Consolidated
Financial Statements.
Provision For Income Taxes
As a result of the Company's net operating loss carryforward for income
tax purposes as discussed elsewhere herein and in Note 3 of Notes to Condensed
Consolidated Financial Statements, the Company's provisions for income taxes
for the six months ended June 30, 1994 and the six months ended June 30, 1993
are for current state income taxes and federal alternative minimum taxes.
Income From Discontinued Operations
Income from discontinued operations reflects the results of operations
of the Financial Services Business excluding income and expenses of the
Retained Corporations and the Retained Assets as discussed in Note 2 of Notes
to Condensed Consolidated Financial Statements. Income from discontinued
operations, net of expenses, was $.6 million in the first six months of 1994
compared to $.6 million in the first six months of 1993.
Gain From Sale of Discontinued Operations
As more fully discussed in Note 2 of Notes to Condensed Consolidated
Financial Statements, the Company realized a gain of $24.2 million from the
sale on May 25, 1994 of its Wholly-owned subsidiary Equity Bank, which gain is
included in the company's results of operations for the six months ended June
30, 1994.
RESULTS OF OPERATIONS
Three months ended June 30, 1994 vs. Three months ended June 30, 1993.
- - ---------------------------------------------------------------------
Revenues
Total revenues for the three months ended June 30, 1994 and 1993 were
$69.7 million and $69.4 million, respectively (an increase of $.3 million).
Interest and other income included in total revenues was $1.3 million in 1994,
compared to $1.5 million for 1993. Consolidated net sales included in total
revenues for the three months ended June 30, 1994 were $68.4 million, compared
to $67.9 million for the three months ended June 30 1993, an increase of $.5
million. This increase in sales resulted principally from: (i) increased
sales in the Chemical Business of $3.2 million, primarily due to the higher
price of ammonia being partially passed through to customers, the acquisition
of Total Energy Systems Limited ("TES") in July, 1993, and higher sales of
Universal Tech Corporation ("UTC"); (ii) decreased sales in the Environmental
Control Business of $1.2 million, primarily due to soft market conditions in
1994 and production inefficiencies at the fan coil manufacturing plant; (iii)
increased sales in the Automotive Products Business of $ .5 million due to an
expanded customer base in 1994, and (iv) decreased sales in the Industrial
Products Business of $2.0 million, primarily due to decreased sales to a
foreign customer (see Note 5 to Notes to Condensed Consolidated Financial
Statements and discussion under the "Liquidity and Capital Resources" section
of this report).
Gross Profit
Gross profit was 22.3% for the second quarter of 1994, compared to 26.6%
for the second quarter of 1993. The decline in the gross profit percentage
was due primarily to (i) decreased sales in 1994 to a foreign customer in the
Industrial Products Business; and (ii) higher cost of the primary raw
material (ammonia) in the Chemical Business. During the second quarter of
1994 the average cost of ammonia was approximately 58.1% higher than the
average cost of ammonia during the second quarter of 1993. This higher cost
was not fully passed on to customers in the form of price increases. These
factors were offset in part by gross profit improvement after recovery from
the effects of a strike in 1992 at the fan coil manufacturing plant of the
Environmental Control Business that were still being experienced in the second
quarter of 1993.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expenses as a percent of
net sales were 16.7% in the three months ended June 30, 1994 and 14.3% in the
three months ended June, 1993. As sales increased, normal SG&A expenses
increased proportionally. Other increases in SG&A for the three months ended
June 30, 1994 as compared to the three months ended June 30, 1993 which did
not change proportionately as discussed above in the comparison of variances
in SG&A expenses for the six months ended June 30, 1994 compared to the six
months ended June 30, 1993 were approximately the same.
Interest Expense
Interest expense for the Company was approximately $1.7 million during
the six months ended June 30, 1994 compared to approximately $2.0 million
during the six months ended June 30, 1993. The decrease primarily resulted
from lower average balances of borrowed funds.
Income From Continuing Operations Before Taxes
The Company had income from continuing operations before income taxes of
$3.0 million in the second quarter of 1994 compared to $6.1 million in the
second quarter of 1993. The decreased profitability of $3.1 million was
primarily due to lower gross profit margins realized on sales in the Chemical
Division and on the foreign sales contract as previously discussed. Also
contributing to this decline is the $.4 million provision for environmental
matter discussed in Note 7 of Notes to Condensed Consolidated Financial
Statements.
Provision For Income Taxes
As a result of the Company's net operating loss carryforward for income
tax purposes as discussed elsewhere herein and in Note 3 of Notes to Condensed
Consolidated Financial Statements, the Company's provisions for income taxes
for the six months ended June 30, 1994 and the six months ended June 30, 1993
are for current state income taxes and federal alternative minimum taxes.
Income From Discontinued Operations
Income from discontinued operations reflects the results of operations
of the Financial Services Business excluding income and expenses of the
Retained Corporations and the Retained Assets as discussed in Note 2 of Notes
to Condensed Consolidated Financial Statements. Income from discontinued
operations, net of expenses, was $.2 million in the second quarter of 1994
compared to $.1 million in the second quarter of 1993.
Gain From Sale of Discontinued Operations
As more fully discussed in Note 2 of Notes to Condensed Consolidated
Financial Statements, the Company realized a gain of $24.2 million from the
sale on May 25, 1994 of its Wholly-owned subsidiary Equity Bank, which gain is
included in the company's results of operations for the three months ended
June 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a diversified holding Company and its liquidity is
dependent, in large part, on the operations of its subsidiaries and credit
agreements with lenders.
Sale of Equity Bank - As previously discussed, the Company and Fourth
Financial Corporation ("Fourth Financial") entered into the Acquisition
Agreement, whereby the Company agreed to sell Equity Bank, which constituted
the Financial Services Business of the Company, to Fourth Financial. Pursuant
to the Acquisition Agreement, Fourth Financial acquired all of the outstanding
shares of capital stock of Equity Bank on May 25, 1994. Under the Acquisition
Agreement, the Company acquired from Equity Bank prior to the completion of
the sale of Equity Bank certain subsidiaries of Equity Bank ("Retained
Corporations") that owned the assets contributed by the Company to Equity Bank
at the time of the acquisition of Equity Bank by the Company for Equity Bank's
carrying values of such Retained Corporations. At the time of the acquisition
of the Retained Corporations such carrying value was approximately $67.4
million. At the time of the closing of the sale of Equity Bank, a subsidiary
of the Company acquired the Equity Tower Loan and other real estate owned by
Equity Bank that were acquired by Equity Bank through foreclosure ("OREO"),
which have collectively been previously defined as the "Retained Assets". The
Retained Assets were acquired for an amount equal to Equity Bank's carrying
value of the Retained Assets at time of closing of the sale of Equity Bank,
which was approximately $17.5 million. In addition, the Company acquired (i)
certain loans owned by Equity Bank at book value or $1.00 in the case of loans
that had been charged off ("Other Loans")and (ii) certain other loans at
Equity Bank's carrying value of $4.6 million less a discount of $1.9 million.
The Purchase Price paid by Fourth Financial for Equity Bank was
approximately $91.3 million, and was subject to determination and adjustment
in accordance with the Acquisition Agreement. Of the approximately $91.3
million, the Company used approximately $67.4 million to repay certain
indebtedness the Company incurred to finance the purchase from Equity Bank of
the Retained Corporations. In addition, the Company used approximately $17.5
million to purchase the Retained Assets. The Company was further required
under the Acquisition Agreement to purchase from Equity Bank at the closing of
the proposed sale the outstanding amount of Receivables (approximately $7.0
million). The Company used approximately $3 million of borrowings from the
Bank IV Line of Credit discussed elsewhere in this Liquidity and Capital
resources section to purchase the balance of such Receivables and $2.7 million
of discounted loans (as discussed above) from Equity Bank. The Company has
subsequently obtained seven year term financing to replace the temporary
financing of the approximate $2.7 million in discounted loans it purchased
from Equity Bank.
The sale of Equity Bank pursuant to the Acquisition Agreement resulted
in a pre-tax gain for financial reporting purposes for the Company of
approximately $24.2 million, based upon the Purchase Price of approximately
$91.3 million. The Company's tax basis in Equity Bank was higher than its
basis for financial reporting purposes. Under current federal income tax
laws, the consummation of the Acquisition Agreement and the sale of Equity
Bank did not have any federal income tax consequences to either the Company or
to the shareholders of the Company.
Sources of funds - As a result of the sale of Equity Bank, the capitalization
of the Company improved considerably. Stockholders' equity is approximately
$100 million at June 30, 1994. The Company is also negotiating to restructure
its debt. The plan is to consolidate the current working capital requirements
of the Company and its subsidiaries into one loan agreement instead of the
three agreements that currently exist and are described below. At the present
time three banks and/or asset based lenders are making proposals for an asset
based working capital revolver ("New Revolver") in an amount of approximately
$75 million. The facility being proposed will include substantially all
accounts receivable and inventory of the Company and its subsidiaries except
foreign subsidiaries as collateral for loans.
Management expects to complete negotiations and have the New Revolver in place
by the end of the third quarter of 1994. Management is asking for advance
rates of 85% for receivables and 60% for inventories other than work in
process. If the New Revolver is agreed to, along the terms presently being
negotiated, the borrowing availability under the line should be adequate to
finance the current working capital requirements of the Company and its
subsidiaries.
Present lines of credit prior to the New Revolver being negotiated are:
(1) As a result of the sale of Equity Bank, the Company's accounts
receivable financing previously provided by Equity Bank had to be
replaced. Fourth Financial through its Oklahoma banking subsidiary has
provided a $35 million Line of Credit to finance such receivables "Line
of Credit". The Line of Credit provides for advance rates of 80% of
accounts receivable and is for a short term, allowing time for a more
comprehensive line of credit to be negotiated as discussed above. The
outstanding borrowings at June 30, 1994 were $25.6 million and the
availability for additional borrowings was $4.4 million.
(2) The Company and its subsidiaries (other than the Chemical Business) are
parties to a credit agreement ("Agreement"), with an unrelated lender
("Lender"), collateralized by certain inventory and certain other assets
of the Company and its subsidiaries (including the capital stock of
International Environmental Corporation) other than the assets and
capital stock of the Chemical Business. The Credit Agreement provides
for a revolving credit facility ("Revolver") for direct borrowing up to
$8 million, including the issuance of letters of credit. The Revolver
provides for advances at varying percentages of eligible inventory. This
Agreement expires on August 31, 1994, but the Company believes the
Agreement can be extended at that time. At June 30, 1994, the
availability based on eligible collateral approximated the credit line.
Borrowings (including letters of credit) under the Revolver outstanding
at June 30, 1994, were $7.4 million. The Revolver requires reductions
of principal equal to reductions as they occur in the underlying
inventory times the advance rate.
(3) The Company's wholly-owned subsidiaries, El Dorado Chemical Company and
Slurry Explosive Corp., which comprise the majority of the Company's
Chemical Business ("Chemical"), are parties to a loan agreement ("Loan
Agreement") with two institutional lenders ("Lenders"). This Loan
Agreement, as amended , provides for a seven year term loan of $28.5
million ("Term Loan"), and a $10 million asset based revolving credit
facility ("Revolving Facility"), The balance of the Term Loan at June
30, 1994 was $21.4 million. Annual principal payments on the Term Loan
are $7 million due in June, 1995; $7 million due in June 1996 and a
final payment of $7.4 million due in March 1997. Borrowings under the
Revolving Facility are available up to the lesser of $10 million or the
borrowing base. The borrowing base is determined by deducting 100% of
Chemical's accounts receivable financed by Fourth Financial from the
maximum borrowing availability as defined in the Revolving Facility. At
June 30, 1994 the borrowing base of $9.5 million was fully borrowed.
The accounts receivable and inventory securing the revolving facility
will be released when and if the revolving facility is paid off and the
Company and its subsidiaries enter into the New Revolver discussed
above. The Revolving Facility requires reductions of principal equal to
reductions as they occur in the underlying accounts receivable and
inventory times the applicable advance rate, assuming that the
outstanding balance under the Revolving Credit Facility is less than the
then maximum line availability based on eligible collateral. Borrowings
under the Revolving Facility are required to be reduced to zero for
forty-five (45) consecutive days annually. Annual interest at the
agreed to interest rates, if calculated on the $30.9 million outstanding
balance at June 30, 1994 would be approximately $3.3 million. The Term
Loan and Revolving Facility are secured by substantially all of the
assets and capital stock of Chemical. The Loan Agreement requires
Chemical to maintain certain financial ratios and contains other
financial covenants, including tangible net worth requirements and
capital expenditures limitations. As of the date of this report,
Chemical is in compliance with all financial covenants. Under the terms
of the Loan Agreement, Chemical cannot transfer funds to the Company in
the form of cash dividends or other advances, except for (i) the amount
of taxes that Chemical would be required to pay if it was not
consolidated with the Company; and (ii) an amount equal to fifty percent
(50%) of Chemical's cumulative adjusted net income as long as Chemical's
Total Capitalization Ratio, as defined, remains .65:1 or below.
Cash Flows
-----------
Net cash provided by continuing operating activities in the first six
months of 1994, after adjustment for non-cash expenses of $4.2 million, was
$6.6 million. The net cash provided by continuing operating activities
included the following changes in assets and liabilities: (i) accounts
receivable increased $8.2 million; (ii) accounts payable and accrued
liabilities increased $8.1 million; (iii) inventory decreased $1.3 million;
and, (iv) supplies and prepaid items and other assets increased $3.4 million.
The increase in accounts receivable is due to higher sales in the Chemical,
and Automotive Products Businesses, and the higher cost of ammonia as
discussed elsewhere herein offset by decreased accounts receivable in the
Environmental Control Business due to lower sales in the second quarter of
1994. The increase in accounts payable and accrued liabilities was due
primarily to increased business activity in the Chemical, and Automotive
Products Businesses. The reduction in inventory was due to seasonality in the
Chemical Business and lower inventory levels being maintained in the
Environmental Control Business, offset by increased inventory in the
Automotive Products Business due to purchases made to take advantage of
favorable prices from certain vendors. The increase in supplies and prepaid
items and other assets is primarily due to prepayments for insurance premiums,
supplies, and other items in the Chemical Business, in addition to increased
investment securities and an increase in costs and earnings in excess of
billings on the foreign sales contract. Financing activities in the first
six months of 1994 included net borrowings of $42.8 million used to offset
reductions in accounts receivable sold of $31.8 million resulting from
termination of the accounts receivable financing arrangement with Equity Bank,
in addition to dividend payments of $2.0 million and treasury stock purchases
of $1.7 million. Cash flows from investing activities included capital
expenditures for property, plant and equipment in the Chemical Business of
$6.4 million related to relocation of an additional nitric acid plant acquired
in 1993 in addition to normal capital improvements, and capital expenditures
of $1.1 million in the Environmental Control Business primarily for
acquisition of certain equipment to support the manufacturing processes of
this business. Cash flows from investing activities also included the
purchase of certain loans receivable for $2.9 million and proceeds from the
sale of real estate properties of $1.3 million.
Future cash requirements include working capital requirements for
anticipated sales increases in the Environmental Control Business, the
Chemical Business and the Automotive Products Business, and funding for future
capital expenditures, primarily in the Chemical Business. Funding for the
higher accounts receivable resulting from anticipated sales increases will be
provided by the Line of Credit. Inventory requirements for the higher
anticipated sales activity should be met by scheduled reductions in the
inventories of the Environmental Control and Automotive Products Businesses.
During November 1993, the Company's Chemical Business acquired an
additional concentrated nitric acid plant and related assets from a location
in Illinois. The plant is being installed at the existing manufacturing
plant site located in El Dorado, Arkansas. The Company anticipates that the
total amount to be expended to acquire, move and install the plant and assets
will be approximately $15 million including $2 million for new nitric acid
railcars used to deliver the product to the customers. The Company expects to
obtain financing secured by such assets, however there are no assurances that
such financing will be obtained. At June 30, 1994, the Company had incurred
and paid approximately $5.6 million of the estimated $15.0 million. The
Company expects the plant and asset installation to be complete and
operational in early 1995.
Management believes that cash flows from operations and other sources,
including the New Revolver that the Company is presently negotiating will be
adequate to meet its presently anticipated capital expenditure, working
capital, debt service and dividend requirements. The Company currently has no
material commitment for capital expenditures, other than those related to
Chemical's acquisition of the additional concentrated nitric acid plant as
discussed above.
In 1993, the Company's Board of Directors adopted a policy as to the
payment of annual cash dividends of $.06 per share on its outstanding Common
Stock, subject to termination or change by the Board of Directors at any time.
The Board of Directors declared a cash dividend of $.03 per share on the
Company's outstanding shares of Common Stock, which was paid January 1, 1994,
to the stockholders of record as of the close of business on December 15,
1993. On May 23, 1994 the Company's Board of Directors declared a $.03 per
share cash dividend on the Company's outstanding shares of Common Stock, which
was paid July 1, 1994, to stockholders of record as of the close of business
on June 15, 1994.
On November 11, 1993 the Company's Board of Directors declared a $12.00
a share annual cash dividend on each outstanding share of its Series B 12%
Cumulative Convertible Preferred Stock, $100 par value, payable January 1,
1994 to stockholders of record on December 1, 1993, which is the annual
dividend on this series of preferred stock for 1994. This dividend is being
recognized in the Company's financial statements throughout the year as $3.00
a share in each fiscal quarter. On February 10, 1994 the Company's Board of
Directors declared a (i) $.81 a share quarterly cash dividend on each
outstanding share of its Series 2 $3.25 Convertible Exchangeable Class C
Preferred Stock, paid March 15, 1994 to shareholders of record on March 1,
1994, and (ii) $10.00 a share annual cash dividend on each outstanding share
of its Convertible Noncumulative Preferred Stock ($100 par), paid April 1,
1994 to stockholders of record on March 15, 1994. On May 23, 1994, the
Company's Board of Directors declared a $.81 per share quarterly cash
dividends on each outstanding share of its Series 2 $3.25 convertible
exchangeable Class C Preferred Stock, paid June 15, 1994 to shareholders of
record on June 1, 1994.
Foreign Sales Contract - A subsidiary of the Company entered into an
agreement with a foreign company ("Buyer") to supply the Buyer with equipment,
technology and technical services to manufacture certain types of automotive
bearing products. The agreement provided for a total contract amount of
approximately $56 million, with $12 million of the contract amount to be
retained by the Buyer as the Company's subsidiary's equity participation in
the Buyer, which represented a minority interest. During 1993 the Company's
subsidiary exchanged its equity interest in the Buyer to a foreign
nonaffiliated company for $12 million in notes. Through the date of this
report, the Company's subsidiary has received $13.9 million from the buyer
under the agreement. During 1993, the Company and the foreign customer agreed
to a revised payment schedule which deferred the beginning of payments under
the contract from June 30, 1993 to one $791,000 principal payment on November
1, 1993, one principal payment of $791,000 on March 31, 1994, one principal
payment of $791,000 on December 31, 1994 and quarterly, thereafter, until the
contract is paid in full
The customer made the March 31, 1994 payment on April 20, 1994 and the
Company expects that after the customer becomes operational, they will make
future payments as they become due. See Note 5 of Notes to Condensed
Consolidated Financial Statements.
Business Acquisitions - In March, 1994, a subsidiary of the Company
advanced to Deepwater Iodides, Inc. ("Deepwater"), a specialty chemical
company, $450,000 on a demand basis. In connection with the loan, Deepwater
and the Company entered into an agreement in principle for the Company to
purchase from Deepwater an amount of stock of Deepwater equal to eighty
percent of the outstanding shares of Deepwater for approximately $4 million.
Having performed due diligence, the Company has determined as of August 18,
1994 not to proceed with the acquisition of the stock of Deepwater on the
basis originally proposed.
On July 27, 1994 the Company through a subsidiary loaned $1.4 million
to a French manufacturer of HVAC equipment. The agreements provide, among
other things, that at the Company's option this loan can be converted from a
loan into 80% of the outstanding stock of the French company on or after
September 1, 1994. At this time the decision has not been made to exercise
such option and the $1.4 million is carried on the books as a note receivable.
Additionally, the Company is performing due diligence on some other
small companies that might result in acquisitions in 1994 or 1995. Any such
acquisitions consummated will require additional financing which the Company
believes can be obtained.
Settlement of Litigation - In 1994, the Company settled its litigation
with one of it's insurers for $3.6 million, which was paid to the Company on
March 11, 1994. Such amounts were accrued in the fourth quarter of 1993 to
the extent that costs and expenses had been previously incurred.
Letters of Intent with Foreign Customers - During the second and third
quarters of 1993, a subsidiary of the Company signed two separate letters of
intent to supply separate customers, one in the former Soviet Union and one
in Poland, with equipment to manufacture environmental control products. Upon
completion, the agreements are expected to include the sale of licenses,
designs, tooling, machinery, equipment, technical information, proprietary
know how, and technical services. The total sales price for the two contracts
is expected to be approximately $98 million. The agreements are also expected
to include a provision that, in lieu of cash, the Company will accept payment
in kind of anhydrous ammonia from the foreign customers at the foreign
customers' option. The projects are subject to completion of two separate
definitive agreements between each of the foreign customers and the Company's
subsidiary. There are no assurances that definitive contracts with either of
these two customers will be finalized.
Availability of Company's Loss Carryovers - The Company anticipates that
its cash flow in future years will benefit to some extent from its ability to
use net operating loss ("NOL") carryovers from prior periods to reduce the
federal income tax payments which it would otherwise be required to make with
respect to income generated in such future years. As of June 30, 1994, the
Company, had available NOL carryovers of approximately $35 million, based on
its federal income tax returns as filed with the Internal Revenue Service for
taxable years through 1992, and on the Company's estimates for 1993. These
NOL carryovers will expire beginning in the year 1999.
The amount of these carryovers has not been audited or approved by the
Internal Revenue Service and, accordingly, no assurance can be given that such
carryovers will not be reduced as a result of audits in the future. In
addition, the ability of the Company to utilize these carryovers in the future
will be subject to a variety of limitations applicable to corporate taxpayers
generally under both the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations. These include, in particular, limitations imposed by
Code Section 382 and the consolidated return regulations.
ERNST & YOUNG LLP 1700 Liberty Tower
100 North Broadway
Oklahoma City, OK 73102
Phone: 405 278 6800
Fax: 405 278 6823
Independent Accountants' Review Report
Board of Directors
LSB Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of LSB
Industries, Inc. and subsidiaries as of June 30, 1994, the related condensed
consolidated statements of income for the six month and three month periods
ended June 30, 1994 and 1993 and the condensed consolidated statements of cash
flow for the six month periods ended June 30, 1994 and 1993. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of LSB Industries, Inc. as of
December 31, 1993, and the related consolidated statements of income, non-
redeemable preferred stock, common stock and other stockholders' equity and
cash flows for the year then ended (not presented herein); and in our report
dated March 15, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1993, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
August 10, 1994 /s/ ERNST & YOUNG LLP
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Since the 1940's, the the primary manufacturing facility of the
Company's Chemical Business, located in El Dorado, Arkansas, (the "Site") has
been a manufacturing facility for ammonium nitrate compounds, and until 1969,
was a manufacturing facility for ammonia. In 1955, the Site was acquired by
Monsanto Company ("Monsanto"), and in June, 1983, Monsanto sold the Site to El
Dorado Chemical Company ("EDC"). EDC was acquired by the Company in 1984.
Under the agreement with Monsanto, Monsanto agreed to indemnify EDC for any
claim which is suffered, incurred or arises due solely out of Monsanto's
disposal of chemical or chemical byproducts prior to acquisition of the Site
by EDC from Monsanto or the use by Monsanto of any substance prior to the date
EDC acquired the Site from Monsanto which is subsequently determined to be
deleterious or dangerous to the public's health, safety or welfare. Under the
agreement with Monsanto, the indemnification is not assignable to a party to
which EDC transfers the Site without the prior written consent of Monsanto,
except to any company 100% of the voting stock of which is owned or controlled
directly or indirectly by EDC. Although EDC has operated the Site since
acquisition from Monsanto in 1983, in 1988, EDC transferred ownership of the
Site to the Company, which in turn transferred title to a subsidiary of the
Company. All of the outstanding stock of EDC and such subsidiary are,
directly or indirectly, wholly owned by the Company. Although no consent was
obtained from Monsanto when EDC transferred ownership of the Site to its
affiliated company to assign the Monsanto indemnification, if such a consent
was required under the agreement with Monsanto, the Monsanto indemnification
remains applicable to EDC. Recently, the Company's Chemical Business was
advised that the Site had been placed in the Environmental Protection Agency's
("EPA") data based tracking system (the "System"). The System maintains an
inventory of sites in the United States where it is known or suspected that a
release of hazardous waste has occurred. Notwithstanding inclusion in the
System, EPA regulations recognize that such does not represent a determination
of liability or a finding that any response action will be necessary. Over
36,000 sites in the United States are presently listed in the System. If a
site is placed in the System, EPA regulations required that the government or
its agent perform a preliminary assessment of the site. If the preliminary
assessment determines that there has been a release, or that there is
suspected to have occurred a release, at the site of certain types of
contamination, the EPA will perform a site investigation. Pursuant to such
regulations, the State of Arkansas performed such preliminary assessment for
the EPA. The preliminary assessment report prepared by the State of Arkansas,
dated September 30, 1992, regarding the Site states, in part that a release of
certain types of contaminants is suspected to have occurred at the Site. It
is anticipated that the EPA will, at some future date, perform a site
inspection at the Site, which inspection will usually involve the gathering of
additional data including environmental sampling of the Site. After
conducting the site inspection, the regulations provide that the EPA may
determine that: (i) the Site does not warrant further involvement in the
evaluation process, or (ii) that further study of the Site is warranted to
determine what appropriate action is to be taken in response to a release, if
any, of contaminants at the Site or whether such release, if any, justifies
the Site being placed on the National Priorities List. Being placed in the
System will generally be the first step in the EPA's determination as to
whether a site will be placed on the National Priorities List. After the EPA
completes its site inspection and evaluates other information, the EPA will
then assess a site using the Hazard Ranking System to ascertain whether a site
poses a sufficient risk to human health or the environment to be proposed for
the National Priorities List. There are approximately 1,200 sites in the
United States presently listed on the National Priorities List. The Company
has been advised that there have occurred certain releases of contaminants at
the Site. However, the Company does not believe that such releases should
warrant the Site being placed on the National Priorities List, but there are
no assurances to that effect. As a result of certain releases of contaminants
at the Site, the Company's subsidiary will be subject to enforcement action,
which will include certain civil penalties. On July 18, 1994, the Company's
subsidiary received from the State of Arkansas a report of multimedia
inspection of the Site (the "Report"). The Report contains findings of
violations of certain environmental laws and requests the Company's subsidiary
to conduct further investigations to better determine the compliance status
and the extent of releases at the Site. The Company's subsidiary has been
advised that the State of Arkansas is currently preparing an administrative
consent agreement to outline specific activities necessary to bring the Site
into compliance and to remediate identified releases. While the Company is at
this time unable to determine the ultimate cost of compliance with the
expected administrative consent agreement, the Company has determined the
subsidiary's cost to be at least $400,000; therefore, the Company has included
a provision for environmental costs of $400,000 in the results of operations
for the six (6) month and three (3) month periods ended June 30, 1994. Based
on information presently available, the Company does not believe, as of the
date of this report, that compliance with the administrative consent
agreement, or the assessment of penalties, or having the facility placed in
the System should have a material adverse effect on the Company, the Company's
subsidiary or the Company's financial condition; however, there are no
assurances to that effect.
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits. The Company has included the following
exhibits in this report:
4.01 Seventeenth Amendment to Loan Agreement, dated May 25, 1994,
among Congress, the Company, and certain subsidiaries of the
Company.
4.02 Eighteenth Amendment to Loan Agreement, dated May 20, 1994
among Congress, the Company, and certain subsidiaries of the
Company.
4.03 Nineteenth Amendment to Loan Agreement, dated June 29, 1994,
among Congress, the Company, and certain subsidiaries of the
Company.
4.04 Modification Agreement dated June 23, 1994 to agreement
between Prime Financial Corporation, the Company and Bank IV, N.A.
11.1 Statement Re: Computation of Earnings Per Share.
15.1 Letter Re: Unaudited Interim Financial Information.
(b) Reports on Form 8K. During the quarter ended June 30, 1994, the
Company filed one (1) report on Form 8-K, dated June 10, 1994,
reporting in Item 2 thereof in connection with the Company's sale
of Equity Bank for Savings, F.A., which comprised the Company's
Financial Services Business. As part of such form 8-K, the
Company filed a pro forma unaudited condensed consolidated balance
sheet at March 31, 1994, a proforma unaudited condensed
consolidated statement of income for the year ended December 31,
1993, a proforma unaudited condensed consolidated statement of
income for the three months ended March 31, 1994, and March 31,
1993, and (iv) notes to such pro forma unaudited condensed
consolidated financial statements, with such being presented to
give effect to the sale of Equity Bank.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has caused the undersigned, duly-authorized, to sign this
report on its behalf on this 18th day of August, 1994.
LSB INDUSTRIES, INC.
By: /s/ Tony M. Shelby
Tony M. Shelby, Sr. Vice President
(Chief Financial Officer)
By: /s/ Jimmie D. Jones
Jimmie D. Jones, Vice President
Controller (Chief Accounting Officer)
10q\10q-j94.wpe
LSB INDUSTRIES, INC. Exhibit 11.1
Page 1 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
<TABLE>
1994 quarter ended
____________________________________
March 31 June 30
__________ ___________
<S> <C> <C>
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,673,971 13,659,691
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 360 -
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis 6,833 24,846
Purchases of treasury stock;
calculated on weighted average
basis (20,000) (29,176)
__________ __________
13,661,164 13,655,361
Common Stock equivalents:
Shares issuable upon exercise of
options and warrants (including
the weighted average for shares
subject to options and warrants
granted during the period) 934,807 877,794
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (247,510) (238,754)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 65,120 64,760
__________ __________
752,417 703,800
__________ __________
14,413,581 14,359,161
========== ==========
Earnings for primary earnings per share:
Net earnings $ 2,203,665 $27,254,968
Dividends on cumulative preferred stocks (76,145) (60,000)
Dividends on convertible, exchangeable
Class C preferred Stock (6.5% annually) (747,500) (747,500)
__________ __________
Earnings applicable to common stock $ 1,380,020 $26,447,468
========== ==========
Earnings per share $ .10 $1.84
===== =====
</TABLE>
LSB INDUSTRIES, INC. Exhibit 11.1
Page 2 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Six months
ended
June 30, 1994
_______________
Net earnings applicable to common Stock $27,827,488
==========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 14,386,371
==========
Earnings per share $1.93
====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 3 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1993 quarter ended
____________________________________
March 31 June 30
_________ _________
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 7,393,674 12,706,305
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 1,070 100
Common shares issued on conversion
of convertible preferred stock;
calculated on weighted average
basis 1,304,070 -
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis 19,500 114,951
Sale of stock; calculated on weighted
average basis 5,843 -
__________ __________
8,724,157 12,821,356
Common Stock equivalents:
Shares issuable upon exercise of
options and warrants (including
the weighted average for shares
subject to options and warrants
granted during the period) 2,069,776 1,940,325
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (513,253) (446,403)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 67,810 66,640
__________ __________
1,624,333 1,560,562
__________ __________
10,348,490 14,381,918
========== ==========
Earnings for primary earnings per share:
Net earnings $ 2,657,133 $ 5,758,100
Dividends on cumulative preferred stocks 77,220 60,000
Dividends on convertible, exchangeable
Class C preferred stock (6.5% annually) - 290,183
__________ __________
Earnings applicable to common stock $ 2,579,913 $ 5,407,917
========== ==========
Earnings per share $.25 $.38
==== ====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 4 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Six months
ended
June 30, 1993
_______________
Net earnings applicable to common stock $ 7,987,830
==========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 12,365,204
==========
Earnings per share $.65
====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 5 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1994 quarter ended
_____________________________________
March 31 June 30
__________ __________
Shares for fully diluted earnings per
share:
Weighted average shares outstanding
for primary earnings per share 13,661,164 13,655,361
Shares issuable upon exercise of
options and warrants 934,807 877,794
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on ending market price
for the quarter if greater than
the average) (247,510) (238,754)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above on
actual conversion 65,120 64,760
Common shares issuable upon conversion
of convertible note payable 4,000 4,000
Common shares issuable upon conversion
of convertible preferred stock, if
dilutive, from date of issue:
Series B 666,666 666,666
Series 2 - 3,956,000
__________ __________
15,084,247 18,985,827
========== ==========
Earnings for fully diluted earnings
per share:
Net earnings 2,203,665 27,254,968
Interest on convertible note 180 180
Dividends on cumulative preferred
stocks (747,500) -
__________ __________
Earnings applicable to common stock 1,456,345 27,255,148
========== ==========
Earning per share .10 1.44
=== ====
Six months
ended
June 30, 1994
______________
Net earnings applicable to common stock $28,711,493
==========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 17,035,037
==========
Earnings per share $ 1.69
=====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 6 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1993 quarter ended
_____________________________________
March 31 June 30
__________ ___________
Shares for fully diluted earnings
per share:
Weighted average shares outstanding
for primary earnings per share 8,724,157 12,821,356
Shares issuable upon exercise of
options and warrants 2,069,776 1,940,325
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on ending market price for
the quarter if greater than the
average) (495,004) (408,527)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 67,810 66,640
Common shares issuable upon conversion
of convertible note payable 4,000 4,000
Common shares issuable upon conversion
of convertible preferred stock,
if dilutive, from date of issue:
Series B 666,666 666,666
Series 1, net of shares held in
treasury 3,748,470 -
Series 2 - 1,494,489
__________ __________
14,785,875 16,584,949
========== ==========
Earnings for fully diluted
earnings per share:
Net earnings $ 2,657,133 $ 5,758,100
Interest on convertible note 180 180
__________ __________
Earnings applicable to common stock $ 2,657,313 $ 5,758,280
========== ==========
Earnings per share $.18 $.35
==== ====
Six months
ended
June 30, 1993
______________
Net earnings applicable to common stock $ 8,415,593
==========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 15,685,412
==========
Earnings per share $.54
====
10q\tq694x11.wpe
ERNST & YOUNG LLP EXHIBIT 15.1
1700 Liberty Tower
100 North Broadway
Oklahoma City, OK 73102
Phone: 405 278 6800
Fax: 405 278 6823
August 10, 1994
The Board of Directors
LSB Industries, Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 33-8302) of LSB Industries, Inc. for the registration of
2,850,000 shares of its common stock of our report dated August 10, 1994
relating to the unaudited condensed consolidated interim financial statements
of LSB Industries, Inc. which are included in its Form 10-Q for the quarter
ended June 30, 1994.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Very truly yours,
Ernst & Young LLP
10q\tq694x15.wpe
May 25, 1994
Congress Financial Corporation
and Congress Financial
Corporation (Central)
1133 Avenue of the Americas
New York, New York 10036
Re: Modification to Seventeenth
Amendment to Loan Agreement
Ladies and Gentleman:
LSB Industries, Inc. ("LSB") and those certain
subsidiaries of LSB identified on the execution page hereof (LSB
and such subsidiaries being hereinafter collectively referred to
as the "LSB Companies") have requested that Congress Financial
Corporation and Congress Financial Corporation (Central)
(collectively, "Congress") agreed to and accept the following
modifications to the Seventeenth Amendment to Loan Agreement
dated March 30, 1994 ("Seventeenth Amendment") and Congress is
willing to agree to such request. Terms used herein will have
the meanings set forth in the Seventeenth Amendment.
1. The Introductory Paragraph of the Seventeenth Amendment is
amended by deleting subsection (b) in its entirety and by
inserting the following in lieu thereof:
(b) the guaranteeing by LSB of loans made to Prime by Bank
IV Oklahoma, N.A. ("Bank IV") in connection with the financing
of: (i) Accounts purchased by Prime from one or more of the
LSB Companies; and/or (ii) up to $5,000,000 of loans
purchased from Equity Bank for Savings, F.A. and/or Bank IV in
connection with the sale of Equity Bank to Fourth Financial
Corporation.
2. Section 2.4 of the Seventeenth Amendment is deleted in its
entirety and the following is inserted in lieu thereof:
2.4 Congress hereby consents to LSB's unconditionally
guaranteeing to Bank IV the repayment of any loan or
loans (including associated fees and expenses) made
to Prime by Bank IV in connection with the financing
of: (i) Accounts purchased from the LSB Companies in
accordance herewith; and/or (ii) up to $5,000,000 of
loans purchased from Equity Bank and/or Bank IV in
connection with the sale of Equity Bank to Fourth
Financial Corporation.
3. Continued Validity. Except as expressly set forth herein,
the Seventeenth Amendment and other Loan Documents will continue
in full force and effect.
4. Reliance. Bank IV may rely on this letter.
5. Counterpart Execution. This Agreement may be executed in
counterparts, each of which will be deemed an original document,
but all of which will constitute a single document.
LSB INDUSTRIES, INC.
L & S BEARING CO.
TRIBONETICS CORPORATION
LSB EXTRUSION CO.
ROTEX CORPORATION
SUMMIT MACHINE TOOL
MANUFACTURING CORP.
HERCULES ENERGY MFG.
CORPORATION
LSB FINANCIAL CORP.
LSB LEASING CORP.
LSB IMPORT CORP.
LSB BEARING CORP.
SUMMIT MACHINE TOOL
SYSTEMS, INC.
LSB EUROPA LIMITED
BOWERDEAN LIMITED
LSB INTERNATIONAL LIMITED
INTERNATIONAL ENVIRONMENTAL
CORPORATION
CHP CORPORATION
CLIMATE MASTER, INC.
KOAX CORP.
APR CORPORATION
CLIMATEX, INC.
By_______________________________
Name:__________________________
Title:_________________________
(the "LSB Companies")
CONSENTED AND AGREED TO:
PRIME FINANCIAL CORP.
By_______________________________
Name:__________________________
Title:_________________________
("Prime")
CONSENTED AND AGREED TO:
CONGRESS FINANCIAL CORPORATION
AND CONGRESS FINANCIAL
CORPORATION (CENTRAL)
By_______________________________
Name:__________________________
Title:_________________________
Date Executed:___________________
("Congress")
ACKNOWLEDGED:
BANK IV OKLAHOMA, N.A.
By_______________________________
Name:__________________________
Title:_________________________
("Bank IV")
tq694x41.wpe
May 20, 1994
Congress Financial Corporation
and Congress Financial
Corporation (Central)
1133 Avenue of the Americas
New York, New York 10036
Re: Eighteenth Amendment to Loan
Agreement
----------------------------
Ladies and Gentleman:
LSB Industries, Inc. ("LSB") and its subsidiary,
Prime Financial Corporation ("Prime"), have entered into a Stock
Purchase Agreement, dated as of February 9, 1994 ("Purchase
Agreement"), with Fourth Financial Corporation ("Fourth
Financial") to sell to Fourth Financial all of the issued and
outstanding stock of Equity Bank for Savings, F.A. ("Equity
Bank"). Under the terms of such Purchase Agreement, LSB or Prime
is to purchase from Equity Bank all of the outstanding stock
(collectively, the "Stock") of the following subsidiaries of
Equity Bank: Northwest Financial Corporation, Northwest Energy
Enterprises, Inc., and Northwest Capital Corporation
(individually called "Retained Corporation" and collectively
called "Retained Corporations"), which are the subsidiaries of
Equity Bank which own or have a substantial interest in
partnerships that own the assets previously contributed by LSB to
Equity Bank or one or more of the Retained Corporations, not
later than the business day immediately preceding the effective
date of the purchase of Equity Bank by Fourth Financial under the
Purchase Agreement. The price to be paid for the Retained
Corporations is based on the aggregate book value of the Retained
Corporations on the books of Equity Bank as of the date of such
purchase. Prime, which is not a Borrower or Guarantor under the
Loan Documents (as defined below), will purchase the Retained
Corporations, and, in connection therewith, will borrow from
Fourth Financial Corporation (the "Lender") the amount necessary
to purchase the Retained Corporations from Equity Bank, which is
anticipated to be approximately $67.4 million (the "Loan"). LSB
will be required to unconditionally guarantee the obligations of
Prime in connection with the Loan (the "LSB Guaranty"). The
Stock of the Retained Corporations and the proceeds of the Loan
will be held by Bank IV Oklahoma, N.A. ("Bank IV"), as escrow
agent, pursuant to the terms of an Escrow and Security Agreement,
dated May ___, 1994, until the consummation of the Purchase
Agreement ("Escrow Agreement"). The Loan will be repaid as soon
as possible after the close of the sale of Equity Bank to Fourth
Financial using a portion of the proceeds of the Purchase Price
(as defined in the Purchase Agreement). Prime's obligations as
the borrower of the Loan and LSB's performance of the LSB
Guaranty will be secured only by each of Prime's and LSB's
interests in and to (a) the Purchase Agreement, (b) the Escrow
Agreement (including the proceeds of the Loan), and (c) the
proceeds of the foregoing (collectively, the "Collateral").
LSB and those certain subsidiaries of LSB identified
on the execution page hereof (LSB and such subsidiaries being
hereinafter collectively referred to as the "LSB Companies") have
requested that Congress Financial Corporation and Congress
Financial Corporation (Central) (collectively, "Congress") (a)
modify the Loan Documents or give its consent thereunder in order
to permit the execution by LSB of the LSB Guaranty; (b)
subordinate in favor of Lender any and all security interests in
and to any portion of the Collateral, and (c) to the extent
required under the Loan Documents, consent to the grants of LSB
and Prime of a security interest in and to any interest that LSB
or Prime may have in the Collateral to secure repayment of the
Loan and the performance by Prime of its obligations relating to
the Loan and performance by LSB of its obligations under the LSB
Guaranty. Congress is willing to agree to such request, subject
to the following terms:
1. Loan Documents. As used herein, the term "Loan Documents"
will be deemed to refer to the following documents:
1.1 Loan Agreement dated March 29, 1984 (the "Loan Agree-
ment"), among Congress as the lender and those LSB
Companies named therein as the borrowers and guar-
antors;
1.2 Seventeen Amendments to the Loan Agreement variously
dated (the "Amendments") among those LSB Companies
named therein, Congress and certain other parties;
and
1.3 The other "Financing Agreements", as defined in the
Loan Agreement, including, without implied
limitation, the General Security Agreement dated
March 29, 1984.
2. Loan Documents Modification. Notwithstanding anything con-
tained in the Loan Documents to the contrary, the LSB Companies
and Congress hereby agree as follows:
2.1 Congress hereby consents to LSB's unconditionally
guaranteeing to the Lender the repayment by Prime of
the Loan (including interest thereon and associated
fees and expenses in connection therewith) and per-
formance by Prime of its obligations under the
documents relating to the Loan (the "LSB Guaranty");
2.2 Any security interest of Congress in and to any and
all of the Collateral is hereby subordinated in
priority to the security interest in such Collateral
of the Lender, to the extent of the Loan and LSB
Guaranty secured thereby;
2.3 Until the Loan is paid in full, the LSB Companies and
Prime, jointly and severally covenant and warrant to
Congress that none of the Collateral will be used to
pay any of the obligations of the LSB Companies to
Congress, nor used to purchase, or be commingled
with, property of the LSB Companies in which Congress
has a security interest;
2.4 To the extent such consent is required under the Loan
Documents, Congress hereby consents to LSB and Prime
pledging and granting a security interest in their
interest, if any, in and to the Collateral to the
Lender to secure the repayment by Prime of the Loan
and performance by Prime of its obligations relating
to the Loan and performance by LSB of its obligations
under the LSB Guaranty; and
2.5 The Loan Documents are hereby deemed amended as
necessary to conform to the provisions set forth
herein and in the event of a conflict between the terms
of the Loan Documents and this agreement, this agreement
will control.
3. Other Matters. Congress has no claim or rights to or
security interest or lien in, and, notwithstanding anything to
the contrary contained in the Loan Documents, Prime shall not be
bound by any contractual provisions contained in the Loan
Documents restricting, Prime's rights to own, use, transfer,
sell, pledge, encumber, or otherwise dispose of in any manner
consistent with applicable law and the rights of third parties,
the (i) Purchase Price received by Prime, (ii) proceeds of the
Loan, whether held by Prime or by Bank IV, as the escrow agent,
under the Escrow Agreement, or (iii) the Stock of the Retained
Corporations acquired by Prime, whether held by Prime or Bank IV,
as the escrow agent, under the Escrow Agreement.
4. Continued Validity. Except as expressly set forth herein,
the Loan Documents will continue in full force and effect.
5. Reliance. The Lender may rely on Sections 2 and 3 of this
letter.
6. Counterpart Execution. This Agreement may be executed in
counterparts, each of which will be deemed an original document,
but all of which will constitute a single document.
LSB INDUSTRIES, INC.
L & S BEARING CO.
TRIBONETICS CORPORATION
LSB EXTRUSION CO.
ROTEX CORPORATION
SUMMIT MACHINE TOOL
MANUFACTURING CORP.
HERCULES ENERGY MFG.
CORPORATION
LSB FINANCIAL CORP.
LSB LEASING CORP.
LSB IMPORT CORP.
LSB BEARING CORP.
SUMMIT MACHINE TOOL
SYSTEMS, INC.
LSB EUROPA LIMITED
BOWERDEAN LIMITED
LSB INTERNATIONAL LIMITED
INTERNATIONAL ENVIRONMENTAL
CORPORATION
CHP CORPORATION
CLIMATE MASTER, INC.
KOAX CORP.
APR CORPORATION
CLIMATEX, INC.
By_______________________________
Name:__________________________
Title:_________________________
(the "LSB Companies")
[Signatures continued on next page]
[Signatures continued from previous page]
CONSENTED AND AGREED TO:
CONGRESS FINANCIAL CORPORATION
AND CONGRESS FINANCIAL
CORPORATION (CENTRAL)
By_______________________________
Name:__________________________
Title:_________________________
Date Executed:___________________
("Congress")
tq694x42.wpe
NINETEENTH AMENDMENT TO LOAN AGREEMENT
--------------------------------------
June 29, 1994
Congress Financial Corporation and
Congress Financial Corporation (Central)
1133 Avenue of the Americas
New York, New York 10036
Gentlemen:
Reference is made to the Loan Agreement, dated March 29, 1984, as
heretofore amended, modified, or supplemented (including, without limitation,
pursuant to that certain Amendment to Loan Agreement, dated August 16, 1985,
that certain Second Amendment to Loan Agreement, dated April 3, 1986, that
certain Third Amendment to Loan Agreement, dated October 26, 1986, that
certain Fourth Amendment to Loan Agreement, dated December 17, 1986, that
certain Fifth Amendment to Loan Agreement, dated March 7, 1988, that certain
Sixth Amendment to Loan Agreement, dated March 31, 1989, that certain Seventh
Amendment to Loan Agreement, dated May 18, 1990, that certain Eighth Amendment
to Loan Agreement, dated May 1, 1991, that certain Ninth Amendment to Loan
Agreement, dated February 25, 1992, that certain Tenth Amendment to Loan
Agreement, dated March 31, 1992, that certain Eleventh Amendment to Loan
Agreement, dated December 10, 1992, that certain Twelfth Amendment to Loan
Agreement, dated April 23, 1993, that certain Thirteenth Amendment to Loan
Agreement, dated June 24, 1993, that certain Fourteenth Amendment to Loan
Agreement, dated September 23, 1993, that certain Fifteenth Amendment to Loan
Agreement, dated November 29, 1993 that certain Sixteenth Amendment to Loan
Agreement, dated January 25, 1994, that certain Seventeenth Amendment to Loan
Agreement, dated March 30, 1994 (the "Seventeenth Amendment"), that certain
Eighteenth Amendment to Loan Agreement, dated May 20, 1994 (the "Eighteenth
Amendment") and that certain Modification to Seventeenth Amendment to Loan
Agreement, dated May 25, 1994 (the "Modification Agreement") hereinafter, the
"Loan Agreement"), currently by and among Congress Financial Corporation and
Congress Financial Corporation (Central) (collectively, "Congress"), LSB
Industries, Inc. (hereinafter "LSB"), L&S Bearing Co., Rotex Corporation,
Tribonetics Corporation, LSB Extrusion Co., International Environmental
Corporation, CHP Corporation, Koax Corp., Summit Machine Tool Manufacturing
Corp., Hercules Energy Mfg. Corporation, Climate Master, Inc., APR Corporation
and Climatex, Inc. (collectively, with LSB Import Corp., LSB Bearing Corp.,
Summit Machine Tool Systems, Inc., LSB Europa Limited Bowerdean Limited and
LSB International Limited (collectively herein, and pursuant to the Loan
Agreement, the "Guarantors") and Prime Financial Corp. (as to the Seventeenth
Amendment, the Eighteenth Amendment and the Modification Amendment) and Bank
IV Oklahoma, N.A. (as to the Seventeenth Amendment and the Modification
Agreement).
Borrower and Guarantors have requested an extension of the termination
date of their existing arrangements with Congress and an extension of the
Selling Period and Congress is willing, subject to the terms and conditions
set forth herein, to so extend such termination date of the existing financing
arrangements with Borrowers and Guarantors and such Selling Period as provided
below. Congress, Borrowers and Guarantors agree as follows (capitalized terms
used herein, unless otherwise defined, shall have the meanings set forth in
the Loan Agreement):
I. Term of Financing Arrangements. The date "June 30, 1994" in
Section 9.1 of the Accounts Agreement, as heretofore amended, is hereby
deleted and replaced with the date "August 31, 1994".
II. Term of Selling Period. The date "June 30, 1994" in Section 2.1
of the Seventeenth Amendment is hereby deleted and replaced with the date
"August 31, 1994".
III. Delivery of Cash Collateral Upon Termination. In addition to all
of Congress' other rights and remedies available to it upon the effective date
of termination or non-renewal of the Loan Agreement and the other Financing
Agreements, upon the effective date of such termination or non-renewal,
Borrower shall (a) pay to Congress, in full, all outstanding and unpaid
Obligations and (b) furnish cash collateral to Congress in an amount equal to
(i) 115% of the face amount of all contingent Obligations consisting of all
letters of credit, banker's acceptances, purchase guaranties and other
financial accommodations (collectively, "Credits") issued and outstanding on
the effective date of such termination or non-renewal plus (ii) an amount
Congress determines is reasonably necessary to secure Congress from loss,
cost, damage or expense, including reasonable attorneys' fees and legal
expenses, in connection with any checks or other payments provisionally
credited to the Obligations and/or as to which Congress has not yet received
the final and indefeasible payment (collectively, "Uncollected Payments").
Such amounts shall be remitted to Congress by wire transfer in federal funds
to such bank account of Congress, as Congress may, in its discretion,
designate in writing to Borrower for such purpose. Congress shall be entitled
to hold such cash collateral delivered to Congress with respect to each of the
Credits until forty-five (45) days after the expiration date of each Credit,
and for a period of forty-five (45) days following termination or non-renewal
as to such contingent Obligations in respect of Uncollected Payments.
Congress may apply the cash collateral to any such contingent Obligations
which may become due by virtue of drawings or claims made pursuant to the
Credits or for claims made against Congress in connection with the Uncollected
Payments and shall release any remaining cash collateral to LSB upon the
expiration of the applicable forty-five (45) day period referred to in this
paragraph.
IV. Effect of this Amendment. Except as modified pursuant hereto, the
Loan Agreement and the Financing Agreements are hereby specifically ratified,
restated and confirmed by the parties hereto as of the date hereof. To the
extent of conflict between the terms of this Amendment and the Loan Agreement
or other Financing Agreements, the terms of this Amendment control.
V. Further Assurances. The parties hereto shall execute and deliver
such additional documents and take such additional action as may be necessary
to effectuate the provisions and purposes of this Amendment.
By the signature hereto of each of their duly authorized officers, all
of the parties hereto mutually covenant and agree as set forth herein (the
covenants and agreements of the Borrowers and Guarantors being joint and
several).
Very truly yours,
LSB INDUSTRIES, INC.
L&S BEARING CO.
ROTEX CORPORATION
TRIBONETICS CORPORATION
LSB EXTRUSION CO.
INTERNATIONAL ENVIRONMENTAL
CORPORATION
CHP CORPORATION
KOAX CORP.
SUMMIT MACHINE TOOL MANUFACTURING
CORP.
HERCULES ENERGY MFG. CORPORATION
CLIMATE MASTER, INC.
APR CORPORATION
CLIMATEX, INC.
LSB FINANCIAL CORP.
LSB LEASING CORP.
LSB IMPORT CORP.
LSB BEARING CORP.
SUMMIT MACHINE TOOL SYSTEMS, INC.
LSB EUROPA LIMITED
BOWERDEAN LIMITED
LSB INTERNATIONAL LIMITED
By:__________________________________
Title:_______________________________
AGREED AND ACCEPTED:
CONGRESS FINANCIAL CORPORATION AND
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By:_______________________________________
Title:____________________________________
PRIME FINANCIAL CORP.
By:_______________________________________
Title:____________________________________
ACKNOWLEDGED:
BANK IV OKLAHOMA, N.A.
By:_______________________________________
Title:____________________________________
tq694x43.wpe
10q-10k\cfc19a.wp
MODIFICATION AGREEMENT
This Modification Agreement (hereinafter the "Agreement") is dated
the 23rd day of June, 1994, and is entered into by and between PRIME FINANCIAL
CORPORATION, an Oklahoma corporation (hereinafter the "Borrower"), whose
mailing address is 16 South Pennsylvania, Oklahoma City, Oklahoma 73107, the
location of Borrower's principal place of business and chief executive office
as of the date hereof, LSB INDUSTRIES, INC., a Delaware corporation
("Guarantor"), whose address is 16 South Pennsylvania, Oklahoma City, Oklahoma
73107 and BANK IV OKLAHOMA, N.A., a national banking association (the
"Lender"), whose address is 515 South Boulder (or P.O. Box 2360, 74101),
Tulsa, Oklahoma 74103.
RECITALS:
A. The parties have had a financing arrangement evidenced by that
certain Loan Agreement dated March 30, 1994 (the "Original Loan Agreement"),
along with the other documents and loan papers contemplated thereby, pursuant
to which the Borrower is entitled to borrow up to a maximum sum of
%25,000,000.00 from the Lender under a revolving line of credit (the "Loan")
for the purposes of purchasing accounts receivable from various "Account
Sellers" (as that term is defined in the Original Loan Agreement).
B. The Guarantor guaranteed repayment of the Loan as evidenced by
its certain Guaranty Agreement dated March 30, 1994 in favor of the Lender
(the "Guaranty Agreement").
C. The Borrower now desires that the Lender increase the maximum
amount of the Loan to %35,000,000.00, to which the Lender has agreed,
according to the terms and provisions of this Agreement.
D. Subject to the terms, conditions and provisions described
herein, the parties now desire to extend, amend, modify, ratify and renew the
Original Loan Agreement and the other documents and instruments contemplated
thereby in the manner hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing Recitals, the
mutual agreements herein contained, the conditions, covenants, representations
and warranties set forth herein, and other good and valuable consideration,
the receipt, sufficiency and adequacy of which are hereby acknowledged, the
parties hereto mutually agree as follows:
1. Extended Modified and Renewed Promissory Note. Concurrently
with the execution of this Agreement, Borrower shall execute its certain
Extended, Modified and Renewed Promissory Note (the "New Note") in the face
amount of $35,000,000.00, the form of which is attached hereto as Exhibit "A"
and which is incorporated herein by reference, payable to Lender, which note
shall extend, modify, renew and replace the "Note" (as that term is defined in
the Original Loan Agreement). All provisions in the Original Loan Agreement
and related loan documents referring to the "Note" are hereby amended to mean
the New Note. The Note shall be returned to the Borrower upon execution and
delivery to the Lender of this Agreement and the New Note.
2. Ratification of Guaranty. Concurrently with the execution of
this Agreement, Guarantor shall execute its certain Ratification of Guaranty
Agreement (the "Ratification") in favor of the Lender, the form of which is
attached hereto as Exhibit "B" and which is incorporated herein by reference.
3. "Loan Documents" and "Loan Agreement". The term "Loan Documents" as
used in the Original Loan Agreement, as amended hereby, shall be interpreted
to include this Agreement, the New Note, the Ratification and all of the other
documents heretofore or hereafter creating, evidencing, securing and/or
relating to the indebtedness and obligations of the Borrower to the Lender.
The term "Loan Agreement" as may be used in any of the Loan Documents,
including but not limited to this Agreement, shall be amended to mean the
Original Loan Agreement, together with and as modified by this Agreement.
The term "Indebtedness" as used in the Original Loan Agreement or any other
Loan Documents shall be amended to include the New Note and the indebtedness
represented thereby.
4. Loan. Paragraph 2.1 of the Original Loan Agreement is amended by
replacing the reference therein of "$25,000,000.00" with "$35,000,000.00."
5. Borrowing Base. The reference to the Borrowing Base in Paragraph
2.6(b) shall hereafter be amended to mean $35,000,000.00. The Borrowing Base
and Compliance Certificate attached as Exhibit "A" to the Original Loan
Agreement is hereby replaced with that Borrowing Base and Compliance
Certificate attached hereto as Exhibit "C". The Revolving Credit Loan Request
attached as Exhibit "C" to the Original Loan Agreement is hereby replaced with
that Revolving Credit Loan Request attached hereto as Exhibit "D". All
references in the Original Loan Agreement to %25,000,000.00 are hereby
changed to $35,000,000.00.
6. Ratification of Security Interests. Borrower hereby ratifies,
confirms and reaffirms all security interests, liens and other encumbrances
created under the Original Loan Agreement and all other Loan Documents as
security for repayment of any and all of Borrower's Indebtedness to the
Lender, including but not limited to the Indebtedness of Borrower to the
Lender as evidenced by the New Note together with all renewals, extensions,
modifications or changes in form thereof, and to secure Borrower's performance
of any and all other Loan Documents, all of which shall continue in fu11 force
and effect and with the same priority as security for repayment and
satisfaction of such Indebtedness and all extensions, modifications and
renewals thereof.
7. Modification, Ratification, Representations and Warranties. The
terms and provisions of the Original Loan Agreement and all other Loan
Documents executed in connection therewith shall be deemed amended, modified,
and changed throughout so as to reflect consistently the matters provided
herein. As extended, amended, modified, renewed or changed consistent
herewith, the terms and provisions of the Original Loan Agreement and all
other Loan Documents (except for the Note) shall remain in full force and
effect and the Borrower hereby ratifies, reaffirms and reasserts as of the
date hereof all covenants, representations, warranties, agreements and
statements contained therein. As amended consistent herewith, all the terms
and provisions of the Guaranty Agreement shall remain in full force and effect
and the Guarantor hereby ratifies, reaffirms and reasserts as of the date
hereof all covenants, representations, warranties, agreements and statements
contained therein.
8. Obligations Unaffected. Except as otherwise specified herein, the
terms and conditions hereof shall in no manner impair, limit, restrict or
otherwise affect the obligations of the Borrower and/or the Guarantor to the
Lender pursuant to and as evidenced by the Loan Documents. As a material
inducement to the Lender to execute and deliver this Agreement, Borrower and
Guarantor hereby acknowledge that there are no claims or offsets against, or
defenses or counterclaims to, the terms or provisions of the obligations
created or evidenced by the Loan Documents, including but not limited to
the Note. In the event of a conflict between the terms and conditions of this
Agreement and the terms and conditions of the other Loan Documents, the terms
and conditions of this Agreement shall control.
-2-
9. Costs. The Borrower agrees to pay to the Lender on demand all
reasonable out-of-pocket costs, fees and expenses (including without
limitation reasonable attorneys' fees and legal expenses) incurred by the
Lender in connection with the preparation, execution, delivery, filing,
recording and administration of this Agreement or any enforcement thereof,
including without limitation the Lenders reasonable attorneys' fees and
expenses. The Borrower further agrees that all such fees and expenses shall be
paid regardless of whether or not the transactions provided for in this
Agreement are eventually closed and regardless of whether or not any sums are
advanced to the Borrower by the Lender.
10. Separability. If any provision of this Agreement and the other
Loan Documents is held invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the other provisions hereof,
and this Agreement and the other Loan Documents shall be construed and
enforced as if such provision had not been included herein.
11. Binding Effect. Except as otherwise expressly provided herein,
this Agreement will remain in effect until all of Borrower's obligations to
Lender under this Agreement have been fully discharged. This Agreement shall
be binding upon Borrower and Guarantor and their successors and assigns and
shall inure to the benefit of the Lender, its successors and assigns.
12. Headings. The headings used herein are for convenience and
administrative purposes only and do not constitute substantive matters to be
considered in construing the terms and provisions of this Agreement.
13. Proceedings; Opinion of Borrower's and Guarantor's Counsel.
All corporate proceedings of the Borrower and the Guarantor shall be taken in
connection with the transactions contemplated by the Loan Documents and shall
be satisfactory in form and substance to the Lender and its counsel; the
Lender shall have received certified copies of resolutions of the Board of
Directors of the Borrower and the Guarantor as adopted, authorizing the
execution and delivery of this Agreement, the New Note, the borrowings under
this Agreement, the Ratification, and the ratification of the security
interests and mortgage liens in, and assignment and pledge of, the Collateral
pursuant to the "Security Instruments" (as defined in the Loan Agreement), to
secure the payment of the Indebtedness; and the Lender shall have received an
opinion of Borrower's and Guarantor's counsel pertaining to these matters and
such other matters as shall be required by the Lender, in a form acceptable to
the Lender and Lender's counsel.
14. Entirety. This Agreement and the other documents executed
concurrently or in connection herewith or pursuant hereto, as they modify the
Original Loan Agreement and the other Loan Documents, constitute the entire
agreement between the parties hereto, and may not be changed orally but shall
be changed or modified only in writing and signed by all of the parties
hereto.
15. Governing Law; Miscellaneous. This Agreement and the other
Loan Documents, as amended and modified by this Agreement and the attachments
hereto, have been executed, delivered and accepted pursuant to a lending
transaction negotiated, consummated, and to be performed in Tulsa, Tulsa
County, Oklahoma, and are intended to be a contract made under the laws of the
State of Oklahoma and to be construed in accordance with the laws of said
State. Nothing in this Agreement or any of the other Loan Documents is
intended to constitute Lender as a joint venturer with Borrower or to
constitute a partnership.
-3-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
PRIME FINANCIAL
CORPORATION, an Oklahoma
corporation
By: Jack E. Golsen._______President
"BORROWER"
LSB INDUSTRIES, INC., a
Delaware corporation
By: Jack E. Golsen,______President
"GUARANTOR"
BANK IV OKLAHOMA, N.A
By: Barry J. Woods
Senior Vice President
"LENDER"
4
EXHIBIT "A"
EXTENDED, MODIFIED AND
RENEWED PROMISSORY NOTE
%35,000,000.00 June .1994
1. FOR VALUE RECEIVED the undersigned PRIME FINANCIAL CORPORATION,
an Oklahoma corporation, promises to pay to the order of BANK IV OKLAHOMA,
N.A., a national banking association at its offices at 515 South Boulder,
Tulsa, Oklahoma 74103 ("Payee") the principal amount of this Note or such
amount thereof as shall be advanced and outstanding, together with interest
on the unpaid balance of such amount at the rate hereinafter set forth. This
Promissory Note is issued pursuant to that certain Loan Agreement dated March
30, 1994 as amended by the Modification Agreement of even date herewith (the
Loan Agreement as amended by the Modification Agreement is hereinafter
referred to as the "Agreement"), by and between Payee, as Lender, and Maker,
as Borrower, and is subject to the provisions therein set forth. The
obligations represented by this Note are secured by the Loan Documents
described in the Agreement.
2. Principal Amount. THIRTY-FIVE MILLION DOLLARS (%35,000,000.00).
3. Payments. All accrued interest on the unpaid balance of this
Note is due and payable on the first day of each calendar month, commencing
July 1, 1994, and continuing on the first day of each month thereafter until
the maturity date hereof, October 1, 1994, at which time all principal and
accrued and unpaid interest shall be due and payable to Payee in full.
Interest on this Note shall accrue from the date of the first advance under
this Note and any payment shall be applied first to the payment of interest
then due and second to the reduction of unpaid principal.
4. Interest Rate. Interest shall accrue on the outstanding
principal balance at one-fourth of one percent (1/4%) above the "Applicable
Prime Rate". The term "Applicable Prime Rate" shall mean the annual rate of
interest announced by the Wall Street Journal, New York, New York ("WSJ") from
time to time as average of corporate loan rates quoted by a certain number of
the nation's largest banks. The Applicable Prime Rate shall be adjusted daily
as announced, calculated on the basis of a year of 360 days and a month of 30
days. Changes in the Applicable Prime Rate are effective, without notice, on
the same day as the change in the Applicable Prime Rate as announced from time
to time. The Applicable Prime Rate shall not necessarily be the Payee's "best"
or lowest rate. Should WSJ fail to announce a prime rate, then the Applicable
Prime Rate shall be the rate announced by Chase Manhattan Bank, N.A., from
time to time as its prime rate. In any case where a payment or principal
and/or interest on this Note, or any part thereof, is due on a day on which
the Payee is not open for normal banking business, the undersigned shall be
entitled to delay such payments until the next succeeding business day,but
interest shall continue to accrue until the payment is in fact made.
5. Interest Rate After Maturity. Matured and unpaid principal,
whether by acceleration or otherwise, shall bear interest at the "Default
Rate" set forth in the Agreement.
6. Prepayment Penalties. This Note may be prepaid, in whole or in
part, at any time, without premium or penalty.
7. Default. If any Event of Default occurs under the Agreement, as
defined therein, the holder hereof may, without notice and without presentment
or demand for payment, declare all of the unpaid balance hereof to be
immediately due and payable. Such right of acceleration is cumulative and
in addition to any other right or rights of acceleration under the Agreement
and any other writing now or hereafter evidencing or securing payment of any
of the indebtedness evidenced hereby.
8. Costs and Attorneys' Fees. If this Note is placed in the hands of an
attorney for collection, or suit is brought on same, or the same is collected
through bankruptcy or other judicial proceeding, or Payee is required to
defend the priority of the security, then the undersigned shall pay all of
Payee's reasonable costs and expenses, including but not limited to a
reasonable amount as attorneys' fees.
9. Waivers. Maker and any party which may be or become liable for the
payment of any sums of money payable on this Note (including any surety,
endorser or guarantor) severally waive presentment and demand for payment,
protest, notice of protest and nonpayment, and notice of the intention to
accelerate, and agree that their liability on this Note shall not be affected
by any renewal or extension in the time of payment hereof, by any indulgences
or by any release or change in any security for the payment of this Note,
regardless of the number of such renewals, extensions, indulgences, releases
or changes.
10. Right of Offset. Any indebtedness due from holder hereof to the
undersigned or any party hereto including, but without limitation, any
deposits or credit balances due from holder, is pledged to secure payment of
this Note and any other obligation to holder of the undersigned or any party
hereto, and may at any time while the whole or any part of such obligation
remains unpaid either before or after maturity hereof, be appropriated, held
or applied toward the payment of this Note or any other obligation to holder
of the undersigned or any party hereto.
11. Governing Law. This Note has been executed and delivered in Tulsa
County, Oklahoma and shall be governed by and construed according to the laws
of the State of Oklahoma
12. Renewal. This Extended, Modified and Renewed Promissory Note
extends, modifies, renews and replaces (but does not extinguish the
indebtedness represented by) that certain Promissory Note dated March 30, 1994
by Maker in favor of Payee in the principal amount of %25,000,000.00.
PRIME FINANCIAL CORPORATION,
an Oklahoma corporation
By:__________________________
Name:________________________
Title:_______________President
-2-
EXHIBIT "B"
RATIFICATION OF GUARANTY AGREEMENT
WHEREAS, on March 30, 1994, LSB INDUSTRIES, INC., a Delaware corporation
("Guarantor"), made, executed and delivered to BANK IV OKLAHOMA, N.A., a
national banking association (the "Lender") its Guaranty Agreement (the
"Guaranty Agreement") whereby the Guarantor unconditionally guaranteed
repayment of all the "Guaranteed Indebtedness" (as defined in the Guaranty
Agreement) to the Lender of PRIME FINANCIAL CORPORATION, an Oklahoma
corporation ("Prime"), under that Loan Agreement dated March 30, 1994 (the
"Loan Agreement") between Prime and the Lender; and
WHEREAS, the Loan Agreement established a revolving line of credit
whereby Prime became entitled to borrow up to $25,000,000.00 from the Lender,
and
WHEREAS, Prime has requested that the Lender increase the amount
available under the revolving line of credit to $35,000,000.00; and
WHEREAS, the Lender has consented to such request in part upon the
condition that the Guarantor agree to the terms and provisions of this
Agreement.
NOW, THEREFORE, in consideration of the Recitals above and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor agrees as follows:
1. The Guarantor hereby consents to the amendments and modifications of
the Loan Agreement contained in that Modification Agreement of even date
herewith between the Lender, the Borrower and the Guarantor (the
"Modification") and the amendments to the "Loan Documents" (as defined in the
Modification) described in the Modification.
2. Guarantor hereby ratifies all of the terms and provisions of the
Guaranty Agreement and all the terms and provisions of all other Loan
Documents executed by Guarantor, and agrees that the "Guaranteed Indebtedness"
under the Guaranty Agreement shall now include all indebtedness upon which
the Borrower now or may hereafter, from time to time, become obligated to
Lender under the Loan Agreement, as modified by the Modification, and
specifically including, but not limited to, that certain Extended, Modified
and Renewed Promissory Note of even date herewith in the principal amount of
$35,000,000.00 by Prime in favor of Lender.
DATED the_____day of June, 1994.
LSB INDUSTRIES, INC., a
Delaware Corporation
By:_________________________
___________,________President
EXHIBIT "C"
BORROWING BASE AND COMPLIANCE CERTIFICATE
BANK IV Oklahoma, P. O. Box 2360, Tulsa, Oklahoma 74101
Pursuant to the terms and provisions of our Loan Agreement dated as of the
30th day of March, 1994, by and between PRIME FINANCIAL CORPORATION, an
Oklahoma corporation (the "Borrower") and BANK IV OKLAHOMA, N.A., a national
banking association (the "Lender"), as amended by that Modification Agreement
dated June , 1994 between the Borrower and the Lender and others (as
amended, hereinafter referred to as the "Loan Agreement"), Borrower hereby
certifies as follows:
BORROWING BASE
1. Total Accounts Receivable $_________
2. Less: Non-Eligible Accounts _________
3. Total Eligible Accounts per Section 2.7
of the Loan Agreement (Line 1 minus Line 2) $________
4. Total Borrowing Base (The lesser of(i) Line 3 x 80%
or (ii) %35,000,000.00) ________
5. Less outstanding principal due -NOTE ________
6. Available for advance (Line 4 less Line 5) $________
COMPLIANCE CERTIFICATE (NOT COMPREHENSIVE)
REPORTING
Quarterly Operating Enclosed ______________________________
Statements Last Furnished Dated _____________________________
Next Due ______________________________
Annual Audited Financial Enclosed ______________________________
Statements Last Furnished Dated _____________________________
Next Due ______________________________
Monthly Report of Accounts Enclosed ______________________________
Last Furnished Dated _____________________________
Next Due ______________________________
I
CERTIFICATION
All terms used herein shall have the same meaning as set forth in the Loan
Agreement. Borrower hereby certifies (i) that the information contained herein
is true and correct as of the date hereof; (ii) there has been no change in
the financial condition of Borrower which significantly impairs the security
of the Lender; (iii) that no Default has occurred or is occurring under the
Loan Agreement or any of the other Loan Documents; (iv) all Eligible Accounts
included within this Certificate as shown above comply with all terms and
conditions of Article II of the Loan Agreement, in all respects; (v) attached
hereto as Schedule "1" is a schedule of all Accounts which, since the date of
the last Borrowing Base and Compliance Certificate submitted to the Lender,
have become "Chargedback Receivables" pursuant to any Agreement for Purchase
of Receivables between the Borrower and any Account Seller; (vi) attached
hereto as Schedule "2" is a schedule of all cash receipts received since the
last Borrowing Base Certificate attributable to Accounts subject to Lender's
security interest, including customer number and name, date of Invoice, amount
of payment received and Invoice number.
PRIME FINANCIAL CORPORATION, an
Oklahoma corporation
By:_____________________________
Title:__________________________
Exhibit "D"
REVOLVING CREDIT LOAN REQUEST
BANK IV Oklahoma, N.A. (the "Lender")
P O. Box 2360
Tulsa, Oklahoma 74101
Pursuant to the terms and provisions of our Loan Agreement dated as of the
30th day of March, 1994, by and between PRIME FINANCIAL CORPORATION (the
"Borrower") and BANK IV OKLAHOMA, N.A. (the "Lender"), as amended by that
Modification Agreement dated June ____, 1994 between the Borrower and the
Lender and others (the Loan Agreement as amended by the Modification Agreement
hereinafter collectively referred to as the "Loan Agreement"), Borrower hereby
provides the following Borrowing Base to be used to present the amount of
Borrower's requested advance under the Loan Agreement:
1 Total Accounts Receivable $__________
2. Less: Non-Eligible Accounts __________
3. Total Eligible Accounts per Section 2.7
of the Loan Agreement (Line 1 minus Line 2) _________
4. Total Borrowing Base (the Lesser of (i) Line 3 x 80%
or (ii) %25,000,000.00) __________
5. Less outstanding principal due -NOTE __________
6. Available for advance (Line 4, less Line 5) __________
7. AMOUNT REQUESTED HEREBY _________
All terms used herein shall have the same meaning as set forth in the
Loan Agreement.
The undersigned certifies (i) that the information contained herein is
true and correct as of the date hereof; (ii) that there has been no change
in the financial condition of Borrower which significantly impairs the
security of the Lender; and (iii) that no Default has occurred under the Loan
Agreement or any of the other Loan Documents (as that term is defined in the
Loan Agreement).
Attached hereto as Exhibit "A" is a schedule of all Eligible Accounts
which form the basis for this Request, which includes for each such
Eligible Account the name of the Account Debtor, the Invoice Date, the Due
Date, the Invoice Number, the amount of the Account, and the name of the
Account Seller from whom each Eligible Account was or is to be purchased The
undersigned certifies (i) that all such Eligible Accounts are now owned by
Borrower or will be purchased from one or more of the Account Sellers, (ii)
that the same schedule has been transmitted to Congress and its liens or
security interests on all such Accounts, if any, will be released upon receipt
of the proceeds of the advance requested hereby, (iii) that all Eligible
Accounts contained in the attached schedule or included in the total Eligible
Accounts hereunder (except those Accounts to be purchased with proceeds of the
advance requested hereby, which are subject to the first lien of Congress or
Household) are free and clear of any liens, claims or interests of any party
except for the Lender, (iv) that the Lender has a first and prior and
perfected lien and security interest in and to all such Accounts except those
to be purchased with proceeds hereof which may currently be subject to first
and prior liens in favor of Congress, and (v) that the Lender's security
interest will be first and prior in and to such Accounts upon receipt by
Congress and/or Household of the proceeds of the requested advance.
To the extent that any Account on the attached listing of Eligible
Accounts was purchased from an Account Seller for whom the Lender has not
received (i) a fully executed Agreement for Purchase of Receivables as
contemplated by Sections 3.1(b) and 4.1(h) of the Loan Agreement, (ii) a fully
executed acknowledgement as contemplated by Section 4.1(i) of the Loan
Agreement and (iii) verification as contemplated by Section 4.1(j) of the Loan
Agreement, such documents are attached hereto and submitted for approval of
the Lender.
DATED this day of , 1994.
PRIME FINANCIAL CORPORATION, an
Oklahoma corporation
By:
Title:
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