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 September 30, 1994
------------------------------
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The transition period from____________ to_____________
Commission file number 1-7677
------------------------------------
LSB INDUSTRIES, INC.
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
-------------------------------------------------------
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 November 8, 1994 is 13,060,046 shares excluding 1,558,590 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 September 30, 1994, the condensed consolidated statements of operations for
the nine month and three month periods ended September 30, 1994 and 1993 and
the consolidated statements of cash flows for the nine month periods ended
September 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 nine months and three months ended
September 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 September 30, 1994 is unaudited)
(Dollars in thousands)
September 30, December 31,
ASSETS 1994 1993
(Note 1)
Current assets:
Cash $ 6,286 $ 2,781
Trade accounts receivable, net of allowance 49,396 49,533
Inventories:
Finished goods 33,285 26,940
Work in process 8,136 9,643
Raw materials 11,479 11,801
-------- --------
Total inventory 52,900 48,384
Supplies and prepaid items 6,522 5,459
-------- -------
Total current assets 115,104 106,157
Property, plant and equipment, at cost 127,730 113,795
Accumulated depreciation (58,520) (53,269)
-------- -------
Property, plant and equipment, net 69,210 60,526
Loan receivable, secured by real estate 13,968 13,968
Other assets 19,321 15,387
-------- -------
$ 217,603 $ 196,038
======== =======
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(Information at September 30, 1994 is unaudited)
(Dollars in thousands)
LIABILITIES, PREFERRED AND COMMON STOCKS September 30, December 31,
AND OTHER STOCKHOLDERS' EQUITY 1994 1993
(Note 1)
Current liabilities:
Drafts payable $ 1,451 $ 1,220
Accounts payable 37,707 22,645
Accrued liabilities 5,910 6,752
Current portion of long-term debt 8,907 9,763
-------- -------
Total current liabilities 53,975 40,380
Long-term debt 66,714 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; 1,610 shares
issued and outstanding (1,637 in 1993) 153 155
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 46,000 46,000
Common stock, $.10 par value; 75,000,000
shares authorized, 14,618,636 shares
issued (14,514,056 in 1993) 1,462 1,451
Capital in excess of par value 37,365 37,120
Retained earnings (deficit) 18,158 (7,541)
------- ------
104,985 79,030
Less treasury stock, at cost:
Series 2 preferred, 5,000 shares
(none in 1993) 200 -
Common Stock, 1,403,935 shares
(840,085 in 1993) 8,024 4,159
Total non-redeemable preferred stock, common
stock and other stockholders' equity 96,761 74,871
$ 217,603 $ 196,038
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30, 1994 and 1993
(Dollars in thousands, except per share amounts)
1994 1993
(Note 1)
Revenues:
Net sales $ 190,954 $ 177,798
Other income - net 3,281 3,685
194,235 181,483
Costs and expenses:
Cost of sales 149,131 132,991
Selling, general and administrative expense 35,584 30,489
Interest expense 5,081 5,778
Provision for environmental matter (Note 7) 400 -
Settlement of dispute - 1,767
------- -------
190,196 171,025
Income from continuing operations ------- -------
before provision for income taxes 4,039 10,458
Provision for income taxes 277 820
------- -------
Income from continuing operations 3,762 9,638
Income from discontinued operations, net
of income taxes (Notes 1 and 2) 584 1,201
Gain on sale of discontinued
operations (Note 2) 24,200 -
-------- --------
Net income $ 28,546 $ 10,839
======== =======
Net income applicable to common stock (Note 4) $ 26,110 $ 9,604
======== =======
Average common shares outstanding (Note 4):
Primary 14,275,885 13,058,718
Fully diluted 16,041,622 15,497,418
Earnings per common share (Note 4):
Primary:
Income from continuing operations $ 0.09 $ 0.64
======== ========
Net income $ 1.83 $ 0.74
======== ========
Fully diluted:
Income from continuing operations $ 0.09 $ 0.57
======== ========
Net income $ 1.68 $ 0.64
======== ========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, 1994 and 1993
(Dollars in thousands, except per share amounts)
1994 1993
(Note 1)
Revenues:
Net sales $ 58,689 $ 57,332
Other income - net 1,450 1,342
-------- ---------
60,139 58,674
Costs and expenses:
Cost of sales 46,454 43,878
Selling, general and administrative expense 12,988 11,136
Interest expense 1,688 1,608
-------- ---------
61,130 56,622
Income (loss) from continuing operations -------- ---------
before provision (credit) for income taxes (991) 2,052
Provision (credit) for income taxes (78) 183
-------- ---------
Income (loss) from continuing operations (913) 1,869
======== =========
Income from discontinued operations, net
of income taxes (Notes 1 and 2) - 555
-------- ---------
Net income (loss) $ (913) $ 2,424
======== =========
Net income (loss) applicable to common
stock (Note 4) $ (1,718) $ 1,616
======== =========
Average common shares outstanding (Note 4):
Primary 14,054,914 14,445,747
Fully diluted 14,054,914 15,121,431
Earnings per common share (Note 4):
Primary:
Income (loss) from continuing operations $ (0.12) $ 0.07
========= =========
Net income (loss) $ (0.12) $ 0.11
========= =========
Fully diluted:
Income (loss) from continuing operations $ (0.12) $ 0.07
========= =========
Net income (loss) $ (0.12) $ 0.11
========= =========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, 1994 and 1993
(Dollars in thousands)
1994 1993
--------- -------
(Note 1)
Cash flows from continuing operations:
Income from continuing operations $ 3,762 $ 9,638
Adjustments to reconcile income from
continuing operations to net cash
provided (used) by continuing operations:
Depreciation, depletion and amortization:
Property, plant and equipment 5,250 4,061
Other 715 633
Provision for possible losses:
Trade accounts receivable 391 172
Environmental matter 400 -
Gain of sales of assets (1,117) (1,710)
Cash provided (used) by changes in assets
and liabilities:
Trade accounts receivable (253) (12,021)
Inventories (4,516) 4,605
Supplies and prepaid items (1,063) (2,482)
Other assets (5,584) (7,972)
Accounts payable 14,099 (374)
Accrued liabilities (1,241) (1,133)
-------- -------
Net cash provided (used) by
continuing operations 10,843 (6,583)
Cash flows from investing activities of
continuing operations:
Capital expenditures (12,090) (5,134)
Purchase of loans receivable (2,877) -
Proceeds from sales of real estate properties 4,071 5,687
Cash acquired in connection with acquisitions - 1,232
-------- -------
Net cash provided (used) by investing activities (10,896) 1,785
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
Nine Months Ended September 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 $ (6,275) $(17,629)
Long-term and other borrowings 2,676 -
Net change in revolving loans 47,101 (6,231)
Net change in receivables previously
financed by discontinued operations (31,844) 956
Net change in drafts payable 231 (1,427)
Dividends paid (Note 6):
Preferred stocks (2,433) (1,110)
Common stock (414) (387)
Purchases of treasury stock (Note 6):
Preferred stock (200) -
Common Stock (3,865) -
Net proceeds from issuance of stock (Note 6):
Common 256 2,251
Preferred - 44,019
--------- ---------
Net cash provided by financing
activities of continuing operations 5,233 20,442
---------- ---------
Net increase in cash from
continuing operations 5,180 15,644
Net decrease in cash from
discontinued operations (1,675) (9,058)
--------- ---------
Net increase in cash from all
activities 3,505 6,586
Cash at beginning of period 2,781 1,115
-------- --------
Cash at end of period $ 6,286 $ 7,701
======== ========
(See accompanying notes)
Note 1: The accompanying financial statements include the accounts of LSB
Industries, Inc. (the "Company") and its subsidiaries at September 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 operations for the nine
month and three month periods ended September 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 Acquisition 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 Acquisition Agreement or failure by the
Company to fulfill any agreement made by the Company in the Acquisition
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 September 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 nine months ended September
30, 1994 of $.3 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, as
applicable, 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 second quarter of 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.
<PAGE>
Note 6: The table below provides detail of activity in the Stockholders'
Equity accounts for the nine months ended September 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 - - - - 28,546 - 28,546
Conversion of 18 shares of
redeemable preferred stock
to common stock 2 - - 2 - - 2
Exercise of stock options
for cash 103 11 - 243 - - 254
Dividends declared:
Series B 12% preferred
stock ($9.00 per share) - - - - (180) - (180)
Redeemable preferred
stock ($10.00 per share) - - - - (16) - (16)
Common stock ($.03 per share) - - - - (414) - (414)
Series 2 preferred
stock ($2.44 per share) - - - - (2,237) - (2,237)
Purchases of treasury stock:
Common stock - - - - - (3,865) (3,865)
Series 2 preferred stock - - - - - (200) (200)
(1)
Balance at September 30, 1994 14,619 $1,462 $48,000 $37,365 $18,158 $(8,224) $ 96,761
====== ====== ======= ======= ======= ======= ========
</TABLE>
(1)
Includes 1,403,935 shares of the Company's Common Stock held in
treasury. Excluding the 1,403,935 shares held in treasury, the outstanding
shares of the Company's Common Stock at September 30, 1994 were 13,214,701.
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 nine (9) month period
ended September 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
contends 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.
Note 8: Subsequent Events
A. On November 3, 1994, the Company received a commitment letter (the
"Commitment") from an asset based lending institution for an asset based
working capital revolver ("New Revolver") in an amount of approximately
$75 million for an initial term of three (3) years with multiple
thirteen (13) month renewal periods under certain conditions. The
facility being proposed, if completed, will be secured principally by
the Company's accounts receivables, inventory, general intangibles,
chattel paper and the capital stock of certain of the Company's
subsidiaries. The Commitment is subject to the negotiation of a
definitive agreement which will incorporate in more specific details the
general terms and conditions of the commitment. Management expects to
complete negotiations and have the New Revolver in place by the end of
the fourth quarter of 1994; however, there are no assurances that such
will happen. The Commitment proposes advance rates of 85% for eligible
receivables and 60% for eligible inventories other than work-in-process.
If the New Revolver is agreed to, along the terms presently being
negotiated, it is anticipated that the borrowing availability under the
line should be adequate to finance the current working capital
requirements of the Company and its subsidiaries.
B. On November 4, 1994 the Company entered into an agreement to purchase
eighty percent (80%) of the outstanding stock of a specialty sales
organization to enhance the marketing of the Company's air conditioning
products. The total purchase price to be paid by the Company is $4
million, payable $1.5 Million at closing and $500,000, plus interest at
7% on the unpaid purchase price, annually for five (5) years. The
Company expects to close this transaction in January, 1995 however,
there are no assurances that such closing will be completed on such
schedule.
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 September 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 September 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 nine months and three months ended September 30,
1994 and 1993 is detailed below.
Nine Months Three Months
1994 1993 1994 1993
---- ---- ---- ----
(In thousands)
(Unaudited)
Sales:
Chemical $103,859 $ 90,515 $ 31,136 $ 27,512
Environmental Control 52,977 51,465 17,727 17,900
Automotive Products 25,420 21,956 7,820 7,250
Industrial Products 8,698 13,862 2,006 4,670
------- ------- ------- -------
$190,954 $177,798 $ 58,689 $ 57,332
======= ======= ======= =======
Gross profit:
Chemical $ 20,479 $ 22,401 $ 5,304 $ 5,911
Environmental Control 13,439 11,209 4,658 3,783
Automotive Products 6,188 7,488 1,886 2,501
Industrial Products 1,717 3,709 387 1,259
------- ------- ------- -------
$ 41,823 $ 44,807 $ 12,235 $ 13,454
======= ======= ======= =======
Operating profit (loss):
Chemical $ 11,130 $ 15,549 $ 2,564 $ 3,605
Environmental Control 3,527 2,701 1,198 584
Automotive Products (678) 2,306 (553) 529
Industrial Products (2,103) 1,423 (1,400) 758
Other 2,181 2,037 998 414
------- ------- ------- -------
14,057 24,016 2,807 5,890
General corporate expenses (4,937) (7,780) (2,110) (2,230)
Interest expense (5,081) (5,778) (1,688) (1,608)
Income (loss) from continuing ------- ------- ------- -------
operations before
provision (credit) for
income taxes $ 4,039 $ 10,458 $ (991) $ 2,052
======= ======= ======= =======
RESULTS OF OPERATIONS
Nine months ended September 30, 1994 vs. Nine months ended September 30, 1993.
Revenues
Total revenues for the nine months ended September 30, 1994 and 1993
were $194.2 million and $181.5 million, respectively (an increase of $12.7
million). Interest and other income included in total revenues was $3.3
million in 1994, compared to $3.7 million for 1993. This decrease of $.4
million resulted primarily from insurance claim proceeds recorded in the first
quarter of 1993. Consolidated net sales included in total revenues for the
nine months ended September 30, 1994 were $191.0 million, compared to $177.8
million for the first nine months of 1993, an increase of $13.2 million. This
increase in sales resulted principally from; (i) increased sales in the
Chemical Business of $13.3 million, primarily due to favorable weather
conditions for seasonal fertilizer sales and the higher price of ammonia being
partially passed through to customers; (ii) increased sales in the
Environmental Control Business of $1.5 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 $3.6 million due
to an expanded customer base in 1994, and (iv) decreased sales in the
Industrial Products Business of $5.2 million, of which $4.3 million relates
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 as a percent of net sales was 21.9% for the first nine
months of 1994, compared to 25.2% for the first nine months of 1993. The
decline in the gross profit percentage was due primarily to higher cost of the
primary raw material (ammonia) in the Chemical Business. During the first
nine months of 1994 the average cost of ammonia was approximately 35.3% higher
than the average cost of ammonia during the first nine months of 1993. This
higher cost was not fully passed on to customers in the form of price
increases. Other factors which affected the gross profit percentage were
improved gross profit 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 nine months of 1993; and, decreased
sales to a foreign customer in the Industrial Products Business which carried
a high gross profit percentage.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expenses as a percent of
net sales were 18.6% in the nine months ended September 30, 1994 and 17.1% in
the first nine months of 1993. This increase in SG&A as a percent of sales
was primarily due to: (i) decreased sales to a foreign customer in the
Industrial Products Business with no corresponding reduction in SG&A costs;
(ii) increased insurance costs in the Industrial Products Business resulting
from settlement of certain claims; (iii) costs incurred in the heat pump
segment of the Environmental Control Business related to acquisition of an OEM
contract with a large customer; and (iv) low provision for bad debt expenses
in 1993 in the Environmental Control Business compared to the provision in
1994. These factors were offset in part by a decrease in legal costs
resulting from settlement of the customs matter in the second quarter of 1993
and settlement of a dispute with one of the Company's insurors in the first
quarter of 1994, in addition to sales increases due to higher ammonia prices
in the Chemical Business with no corresponding increase in SG&A costs.
Interest Expense
Interest expense for the Company was approximately $5.1 million during
the nine months ended September 30, 1994 compared to approximately $5.8
million during the nine months ended September 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
$4.0 million in the first nine months of 1994 compared to $10.5 million in the
nine months ended September 30, 1993. The decreased profitability of $6.5
million was primarily due to lower gross profit realized on sales in the
Chemical Division due to unrecovered ammonia price increases in 1994 and
decreased profit of $1.3 million from 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 and $.4 million in increased insurance costs in 1994 in
the Industrial Products Business.
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 nine months ended September 30, 1994 and the nine months ended
September 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 nine months of 1994
compared to $1.2 million in the first nine 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 nine months ended
September 30, 1994.
Three months ended September 30, 1994 vs. Three months ended September 30,
1993.
Revenues
Total revenues for the three months ended September 30, 1994 and 1993
were $60.1 million and $58.7 million, respectively (an increase of $1.4
million). Interest and other income included in total revenues was
approximately $1.4 million in both periods. Consolidated net sales included
in total revenues for the three months ended September 30, 1994 were $58.7
million, compared to $57.3 million for the three months ended September 30,
1993, an increase of $1.4 million. This increase in sales resulted
principally from: (i) increased sales in the Chemical Business of $3.6
million, primarily due to the higher price of ammonia being partially passed
through to customers; and, improved sales of Total Energy Systems Limited
("TES") which was acquired in July, 1993; (ii) increased sales in the
Automotive Products Business of $.7 million due to an expanded customer base
in 1994, and (iii) decreased sales in the Industrial Products Business of $2.7
million, of which $1.9 million relates 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 as a percent of net sales was 20.8% for the third quarter
of 1994, compared to 23.5% for the third quarter of 1993. The decline in the
gross profit percentage was due primarily to higher cost of the primary raw
material (ammonia) in the Chemical Business. During the third quarter of 1994
the average cost of ammonia was approximately 65.1% higher than the average
cost of ammonia during the third quarter of 1993. This higher cost was not
fully passed on to customers in the form of price increases. Other factors
which affected the gross profit percentage were improved gross profit after
recovery from the effects of a strike in 1992 at the fan coil manufacturing
plant of the Environmental Control Business that was still being experienced
in the third quarter of 1993; and, decreased sales in 1994 to a foreign
customer which affected both the Industrial Products Business and the
Automotive Products Business.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expenses as a percent of
net sales were 22.1% in the three months ended September 30, 1994 and 19.4% in
the three months ended September, 1993. This increase in SG&A as a percentage
of net sales was attributable to: (i) decreased sales to a foreign customer in
the Industrial Products Business with no corresponding reduction in
administrative costs; (ii) increased insurance costs in the Industrial
Products Business resulting from settlement of certain claims; and (iii)
start-up costs related to a new subsidiary in the Industrial Products
Business. These factors were offset in part by sales increases in the
Chemical Business due to partial recovery of higher ammonia prices with no
corresponding increase in SG&A.
Interest Expense
Interest expense for the Company was approximately $1.7 million during
the three months ended September 30, 1994 compared to approximately $1.6
million during the three months ended September 30, 1993. The increase
primarily resulted from higher average interest rates.
Income From Continuing Operations Before Taxes
The Company had a loss from continuing operations before income taxes of
$1.0 million in the third quarter of 1994 compared to income of $2.1 million
in the third quarter of 1993. The decreased profitability of $3.1 million was
primarily due to lower gross profit realized on sales in the Chemical
Division, decreased profit of $.5 million from the foreign sales contract and
increased insurance cost of the Industrial Products Business of approximately
$.4 million.
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 or credits for
income taxes for the three months ended September 30, 1994 and the three
months ended September 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 third quarter of 1993.
There was no income from discontinued operations in the third quarter of 1994
due to the sale of Equity Bank in the second quarter of 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 sold to Fourth
Financial Corporation ("Fourth Financial") Equity Bank for Savings, F.A.
("Equity Bank") pursuant to the Acquisition Agreement, whereby the Company
agreed to sell Equity Bank, which constituted the Financial Services Business
of the Company. 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 $91.1 million, and was subject to determination and adjustment
in accordance with the Acquisition Agreement. Of the approximately $91.1
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
$91.1 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
$97 million at September 30, 1994. The Company is also in the process of
finalizing a comprehensive new debt capitalization program. 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. On November 3, 1994, the Company
received a commitment letter (the "Commitment") from an asset based lending
institution for an asset based working capital revolver ("New Revolver") in an
amount of approximately $75 million for an initial term of three (3) years
with multiple thirteen (13) month renewal periods under certain conditions.
The facility being proposed, if completed, will be secured principally by the
Company's accounts receivables, inventory, general intangibles, chattel paper
and the capital stock of certain of the Company's subsidiaries. The
Commitment is subject to the negotiation of a definitive agreement which will
incorporate in more specific details the general terms and conditions of the
Commitment. Management expects to complete negotiations and have the New
Revolver in place by the end of the fourth quarter of 1994; however, there are
no assurances that such will happen. The Commitment proposes advance rates of
85% for eligible receivables and 60% for eligible inventories other than work-
in-process. If the New Revolver is agreed to, along the terms presently being
negotiated, it is anticipated that 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 proposed 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 September 30, 1994 were $27.5 million and the
availability for additional borrowings was $2.3 million. This line of
credit terminates as of December 31, 1994. The outstanding borrowings
at September 30, 1994 are classified as long-term debt based upon the
application of the proceeds from the New Revolver as discussed above.
(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 November 30, 1994, but the Company believes the
Agreement can be extended at that time to December 31, 1994 if the New
Revolver has not been completed, although there are no assurances to
that effect. At September 30, 1994, the availability based on eligible
collateral exceeded the credit line. Borrowings (including letters of
credit) under the Revolver outstanding at September 30, 1994, were $7.2
million which is classified as long-term debt based upon the application
of the proceeds from the New Revolver as discussed above. 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
September 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.
This revolving facility terminates as of November 30, 1994. The Company
believes that if it has not been able to complete the New Revolver by
December 31, 1994, it will be able to continue borrowing under the
revolver until December 31, 1994, although there are no assurances to
that effect. At September 30, 1994 the borrowing base was fully
borrowed and was classified as long-term debt based upon the application
of the proceeds from the New Revolver as discussed above. The accounts
receivable and inventory securing the revolving facility will be
released when 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 September 30, 1994 would be approximately $3.4 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 nine
months of 1994, after a net adjustment for non-cash income and expenses of
$5.6 million, was $10.8 million. The net cash provided by continuing
operating activities included the following changes in assets and liabilities:
(i) accounts receivable increased $0.3 million; (ii) accounts payable and
accrued liabilities increased $12.9 million; (iii) inventory increased $4.5
million; and, (iv) supplies and prepaid items and other assets increased $6.6
million. The increase in accounts receivable is due to higher sales in the
Chemical and Automotive Products businesses, offset by decreased accounts
receivable in the Environmental Control and Industrial Products businesses due
to improved collections. The increase in accounts payable and accrued
liabilities was due primarily to increased business activity in the Chemical
and Automotive Products businesses, in addition to increases in the Chemical
Business due to the higher cost of ammonia. The increase in inventory was due
to purchases made in the Automotive Products Business to take advantage of
favorable prices from certain vendors, increased ammonia cost in the Chemical
Business, and increases in inventory at the businesses acquired in 1993 (TES
Australia - July, 1993 and International Bearings, Inc. - December, 1993).
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, loans made
in connection with certain acquisition candidates, and an increase in costs
and earnings in excess of billings on the foreign sales contract. Financing
activities in the first nine months of 1994 included net borrowings of $43.7
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 $2.8 million and
treasury stock purchases of $4.1 million. Cash flows from investing
activities included capital expenditures for property, plant and equipment in
the Chemical Business of $9.9 million related to construction of an additional
nitric acid plant which began in 1993 in addition to normal capital
improvements, and capital expenditures of $1.3 million in the Environmental
Control Business primarily for acquisition of certain equipment to improve
productivity and enhance the manufacturing processes of this business. Cash
flows from investing activities also included the purchase of certain loans
receivable for $2.9 million in connection with the sale of Equity Bank and
proceeds from the sale of real estate properties acquired in connection with
the sale of Equity Bank of $4.1 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 and/or the New Revolver. 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 $16 million including $1.6 million for new nitric acid
railcars used to deliver the product to the customers. As previously
discussed in the "cash Flows" section of this report, as of September 30,
1994, the Company had incurred approximately $8.8 million of the estimated $16
million. The Company expects the plant and asset installation to be complete
and operational in early 1995.
On October 31, 1994, a subsidiary of the Company entered into a Loan and
Security Agreement with a lender whereby the lender agreed to provide
construction financing of approximately $14 million for the installation of
the Chemical Business' concentrated nitric acid plant and assets, discussed
above, to be secured by such plant and assets. Subject to certain conditions
being met, such construction financing may be converted to an eighty-four (84)
month term loan at the end of the construction period. The lender has also
agreed to provide approximately $1.6 million of financing for the purchase of
the nitric acid railcars discussed above and approximately $1.5 million
financing for a mixed acid facility which the Chemical Business plans to
construct and begin operations during the second half of 1995. The subsidiary
received the initial funding of $5 million in construction funds on November
7, 1994. The receipt by the subsidiary of the remaining construction funds is
dependent on, among other things, the Company completing negotiations and
funding of the New Revolver discussed above. As previously noted, the Company
believes that it will be successful in funding the New Revolver prior to
December 31, 1994, although there are no assurances that the Company will be
able to do so.
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 of the 2,000 outstanding shares 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 of $240,000 on this series of preferred stock for 1994. 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 of the approximate 1600 outstanding shares 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 dividend 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.
On August 19, 1994 the Company's Board of Directors declared a $.81 per share
quarterly cash dividend on each outstanding share of its Series 2 $3.25
convertible exchangeable class C Preferred Stock, paid September 15, 1994 to
stockholders of record on September 1, 1994. The Company expects to continue
the payment of such dividends on the dates that such are required to be paid
in the future.
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 - 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.
On November 4, 1994 the Company entered into an agreement to purchase
eighty percent (80%) of the outstanding stock of a specialty sales
organization to enhance the marketing of the Company's air conditioning
products. The total purchase price to be paid by the Company is $4 million,
payable $1.5 Million at closing and $500,000, plus interest at 7% on the
unpaid purchase price, annually for five (5) years. The Company expects to
close this transaction in January, 1995 however, there are no assurances that
such closing will be completed on such schedule.
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.
Subsequently, the Company has decided to discontinue negotiations relating to
the prospective customer located in the former Soviet Union. The Company
continues negotiations regarding the customer in Poland. The Company expects
to complete agreements which will include the sale of licenses, designs,
tooling, machinery, equipment, technical information, proprietary expertise ,
and technical services. The total sales price for the contract is expected to
be approximately $25 million. The project is subject to completion of a
definitive agreement between the foreign customer and the Company's
subsidiary. There are no assurances that a definitive contract with the
customer 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 September 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 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 September 30, 1994, the related
condensed consolidated statements of operations for the nine-month and three-
month periods ended September 30, 1994 and 1993, and the condensed
consolidated statements of cash flows for the nine-month periods ended
September 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 operations, 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.
November 9, 1994 /s/ ERNST & YOUNG LLP
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no additional material legal proceedings pending against the Company
and/or its subsidiaries not previously reported by the Company in Item 1 of
its Form 10-Q for the fiscal period ended June 30, 1994, which Item 1 is
incorporated by reference herein.
Item 4. Submission of Matters to a Vote of Security Holders
On August 18, 1994, the Company held its Annual Meeting of Stockholders
(the "Meeting"). At the Meeting, the following shares were entitled to vote
as a single class 13,580,191 shares of the Company's Common Stock, 20,000
shares of the Company's Series B Cumulative Convertible Preferred Stock, par
value $100, and 1,614.5 shares of the Company's Redeemable convertible
Preferred Stock, par value $100. At the Meeting, the stockholders elected or
approved the following:
1. The following three (3) directors were reelected as members of the Board
of Directors: Barry H. Golsen, David R. Goss and Jerome D. Shaffer M.D.
At the Meeting, (i) Mr. Golsen was reelected, with 12,562,298 shares
voting "For", 71,540 shares voting "Against" or to "withhold authority"
and zero shares abstaining and broker non-votes, (ii) Mr. Goss was
reelected, with 12,563,125 shares voting "For", 70,713 shares voting
"Against" or to "withhold authority", and zero shares abstaining and
broker non-votes, and (iii) Dr. Shaffer was reelected with 12,560,608
shares voting "For", 73,230 shares voting "Against" or to "withhold
authority" and zero shares abstaining and broker non-votes.
2. Reappointment of Ernst & Young as the Company's independent auditors for
1994. Such reappointment was approved, with 12,571,348 shares voting
"For", 52,713 shares voting "Against" or to "withhold authority" and
9,777 abstaining and broker non-votes.
Item 6. Exhibits and Reports on Form 8K
(a)
Exhibits. The Company has included the following exhibits in this
report:
4. Instruments defining the rights of security holders, including
indentures
4.01 Twentieth Amendment to Loan Agreement, dated August 23, 1994, among
Congress, the Company, and certain subsidiaries of the Company.
4.02 Twenty-first Amendment to Loan Agreement, dated September 16, 1994,
among Congress, the Company, and certain subsidiaries of the Company.
4.03 Twenty-second Amendment to Loan Agreement, dated October 13, 1994,
among Congress, the Company, and certain subsidiaries of the Company.
4.04 Twenty-third Amendment to Loan Agreement, dated October 24, 1994,
among Congress, the Company, and certain subsidiaries of the Company.
4.05 Amendment dated September 29, 1994 to the Amended and Restated
Secured Credit Agreement and the Second Amended and Restated Working
Capital Agreement, both dated as of January 21, 1992 among El Dorado
Chemical Company, Slurry Explosive Corporation, Connecticut Mutual Life
Insurance Company, C.M. Life Insurance Company Mutual and Household
Commercial Financial Services, Inc.
4.06 Second Amendment Agreement dated as of October 31, 1994 among El
Dorado Chemical Company, Slurry Explosive Corporation Household
Commercial Financial Services, Inc., Connecticut Mutual Life Insurance
Company Mutual and C.M. Life Insurance Company Mutual
10. Material Contracts
10.1 Loan and Security Agreement dated October 31, 1994 between DSN
Corporation and the CIT Group.
10.2 Commitment Letter dated November 3, 1994 between the Company and
certain subsidiaries of the Company and Bank America Business Credit,
Inc.
10.3 Stock Purchase Agreement dated November 4, 1994 between the
Company and the shareholders of a specialty sales organization.
11.1 Statement Re: Computation of Earnings Per Share.
15.1 Letter Re: Unaudited Interim Financial Information.
27 Financial Data Schedule
(b) Reports on Form 8K. During the quarter ended September 30, 1994, the
Company did not file any reports on Form 8-K.
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 14th day of November, 1994.
LSB INDUSTRIES, INC.
By:
Tony M. Shelby, Sr. Vice President
(Chief Financial Officer)
By:
Jimmie D. Jones, Vice President
Controller (Chief Accounting Officer)
10q\10q-s94.tag
LSB INDUSTRIES, INC. Exhibit 11.1
Page 1 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1994 quarter ended
_______________________________________
March 31 June 30 Sept. 30
__________ __________ __________
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,673,971 13,659,691 13,555,191
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 360 - 180
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis 6,833 24,846 2,549
Purchases of treasury stock;
calculated on weighted average
basis (20,000) (29,176) (102,599)
__________ __________ __________
13,661,164 13,655,361 13,455,320
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) 934,807 877,794 827,591
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (247,510) (238,754) (292,577)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 65,120 64,760 64,580
__________ __________ __________
752,417 703,800 599,594
14,413,581 14,359,161 14,054,914
Earnings (loss) for primary
earnings (loss) per share:
Net earnings (loss) $2,203,665 $27,254,968 $(912,514)
Dividends on cumulative convertible
preferred stocks:
Series B (76,145) (60,000) (60,000)
Series 2 Class C (747,500) (747,500) (745,469)
__________ ___________ __________
Earnings (loss) applicable to
common stock $1,380,020 $26,447,468 $(1,717,983)
Earnings (loss) per share $.10 $1.84 $(0.12)
LSB INDUSTRIES, INC. Exhibit 11.1
Page 2 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Nine months
ended
Sept. 30, 1994
______________
Net earnings applicable to common stock $26,109,505
===========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 14,275,885
==========
Earnings per share $1.83
=====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 3 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1993 quarter ended
________________________________________
March 31 June 30 Sept. 30
_________ ________ _________
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 7,393,674 12,706,305 12,894,505
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 1,070 100 80
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 19,500 114,951 392,170
Purchases of treasury stock;
calculated on weighted average
basis - - (69,541)
Sale of stock; calculated on weighted
average basis 5,843 - -
__________ __________ __________
8,724,157 12,821,356 13,217,214
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 1,475,106
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (513,253) (446,403) (313,033)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 67,810 66,640 66,460
__________ __________ __________
1,624,333 1,560,562 1,228,533
__________ __________ __________
10,348,490 14,381,918 14,445,747
========== ========== ==========
Earnings for primary earnings per share:
Net earnings $2,657,133 $5,758,100 $2,423,644
Dividends on cumulative convertible
preferred stocks:
Series B (77,220) (60,000) (60,000)
Series 2 Class C (290,183) (747,500)
__________ __________ __________
Earnings applicable to common stock $2,579,913 $5,407,917 $1,616,144
========== ========== ==========
Earnings per share $.25 $.38 $.11
==== ==== ====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 4 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Nine months
ended
Sept. 30, 1993
______________
Net earnings applicable to common stock $9,603,974
==========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 13,058,718
==========
Earnings per share $.74
====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 5 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1994 quarter ended
_______________________________________
March 31 June 30 Sept. 30
_________ ________ _________
Shares for fully diluted earnings per
share:
Weighted average shares outstanding
for primary earnings per share 13,661,164 13,655,361 13,455,320
Shares issuable upon exercise of
options and warrants 934,807 877,794 827,591
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) (292,577)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above on
actual conversion 65,120 64,760 64,580
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 14,054,914
Earnings (loss) for fully diluted earnings
(loss) per share:
Net earnings (loss) $2,203,665 $27,254,968 $(912,514)
Interest on convertible note 180 180 -
Dividends on cumulative convertible
preferred stocks:
Series B - - (60,000)
Series 2 Class C (747,500) - (745,469)
_________ __________ __________
Earnings (loss) applicable to
common stock $1,456,345 $27,255,148 $(1,717,983)
========== =========== ===========
Earnings (loss) per share $.10 $1.44 $(0.12)*
==== ===== ======
Nine months
ended
Sept. 30, 1994
______________
Net earnings $26,993,510
Weighted average number of common and common
equivalent shares (average of three quarters
above) 16,041,662
Earnings per share $1.68
* Primary and fully diluted loss per share for the three months ended
September 30, 1994 are the same because the fully diluted
computation has an anti-dilutive effect.
LSB INDUSTRIES, INC. Exhibit 11.1
Page 6 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1993 quarter ended
________________________________________
March 31 June 30 Sept. 30
_________ ________ _________
Shares for fully diluted earnings
per share:
Weighted average shares outstanding
for primary earnings per share 8,724,157 12,821,356 13,217,214
Shares issuable upon exercise of
options and warrants 2,069,776 1,940,325 1,475,106
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) (308,015)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 67,810 66,640 66,460
Common shares issuable upon conversion
of convertible note payable 4,000 4,000 4,000
Common shares issuable upon conversion
of convertible preferred stock,
if dilutive, from date of issue:
Series B 666,666 666,666 666,666
Series 1, net share
held in treasury 3,748,470 - -
Series 2 - 1,494,489 -
__________ __________ __________
14,785,875 16,584,949 15,121,431
========== ========== =========
Earnings for fully diluted
earnings per share:
Net earnings $2,657,133 $5,758,100 $2,423,644
Interest on convertible note 180 180 180
Dividends on cumulative preferred
stocks - - (747,500)
__________ __________ __________
Earnings applicable to common stock $2,657,313 $5,758,280 $1,676,324
========== ========== ==========
Earnings per share $.18 $.35 $.11
==== ==== ====
Nine months
ended
Sept. 30, 1993
______________
Net earnings $10,091,917
===========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 15,497,418
==========
Earnings per share $.64
====
tq994.wpr
ERNST & YOUNG LLP EXHIBIT 15.1
1700 Liberty Tower
100 North Broadway
Oklahoma City, OK 73102
Phone: 405 278 6800
Fax: 405 278 6823
November 9, 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 November 9, 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 September 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
TWENTIETH AMENDMENT TO LOAN AGREEMENT EXHIBIT 4.01
August 23, 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, 1994, 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"), that certain Modification to Seventeenth Amendment to Loan
Agreement, dated May 25, 1994 (the "Modification Agreement"), and the
Nineteenth Amendment to Loan Agreement, dated June 29, 1994 ("Nineteenth
Amendment"), hereinafter collectively, 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, the "Borrowers") LSB Financial Corp., LSB Leasing
Corp., 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, the Modification Agreement, and the Nineteenth Amendment), and Bank
IV Oklahoma, N.A. (as to the Seventeenth Amendment, the Modification
Agreement, and the Nineteenth Amendment).
August 23, 1994
Page 2
Borrowers 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 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 "August 31, 1994" in
Section 9.1 of the Accounts Agreement, as heretofore amended, is hereby
deleted and replaced with the date "September 30, 1994".
II. TERM OF SELLING PERIOD. The date "August 31, 1994" in Section 2.1
of the Seventeenth Amendment is hereby deleted and replaced with the date
"September 30, 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 guarantees 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.
August 23, 1994
Page 3
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 hereby mutually covenant and agree a set forth herein (the
covenants and agreements of the Borrowers and Guarantors being joint and
several).
[SIGNATURES ON NEXT PAGE]
August 23, 1994
Page 4
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___________________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
August 23, 1994
Page 5
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACKNOWLEDGED:
BANK IV OKLAHOMA, N.A.
By__________________________________
Title_______________________________
PRIME FINANCIAL CORP.
By__________________________________
Title_______________________________
August 23, 1994
Page 5
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACKNOWLEDGED:
BANK IV OKLAHOMA, N.A.
By__________________________________
Title_______________________________
PRIME FINANCIAL CORP.
By__________________________________
Title_______________________________
TWENTY-FIRST AMENDMENT TO LOAN AGREEMENT EXHIBIT 4.02
September 16, 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, 1994, 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"), that certain Modification to Seventeenth Amendment to Loan
Agreement, dated May 25, 1994 (the "Modification Agreement"), the Nineteenth
Amendment to Loan Agreement, dated June 29, 1994 ("Nineteenth Amendment"), and
the Twentieth Amendment to Loan Agreement dated August 23, 1994 (the
"Twentieth Amendment"), hereinafter collectively, 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, the "Borrowers") LSB Financial Corp., LSB
Leasing Corp., 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, the Modification Agreement, the Nineteenth Amendment,
and the Twentieth Amendment), and Bank IV Oklahoma, N.A. (as to the
Seventeenth Amendment, the Modification Agreement, the Nineteenth Amendment,
and the Twentieth Amendment).
September 16, 1994
Page 2
Borrowers 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 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 "September 30, 1994" in
Section 9.1 of the Accounts Agreement, as heretofore amended, is hereby
deleted and replaced with the date "October 31, 1994".
II. TERM OF SELLING PERIOD. The date "September 30, 1994" in Section
2.1 of the Seventeenth Amendment is hereby deleted and replaced with the date
"October 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 guarantees 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.
September 16, 1994
Page 3
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 hereby mutually covenant and agree a set forth herein (the
covenants and agreements of the Borrowers and Guarantors being joint and
several).
[SIGNATURES ON NEXT PAGE]
September 16, 1994
Page 4
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___________________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
September 16, 1994
Page 5
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACKNOWLEDGED:
BANK IV OKLAHOMA, N.A.
By__________________________________
Title_______________________________
PRIME FINANCIAL CORP.
By__________________________________
Title_______________________________
September 16, 1994
Page 5
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACKNOWLEDGED:
BANK IV OKLAHOMA, N.A.
By__________________________________
Title_______________________________
PRIME FINANCIAL CORP.
By__________________________________
Title_______________________________
TWENTY-SECOND AMENDMENT TO LOAN AGREEMENT
October 13, 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, 1994,
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"), that certain Modification to Seventeenth Amendment to Loan
Agreement, dated May 25, 1994 (the "Modification Agreement"), the Nineteenth
Amendment to Loan Agreement, dated June 29, 1994 ("Nineteenth Amendment"), the
Twentieth Amendment to Loan Agreement, dated August 23, 1994 (the "Twentieth
Amendment"), and the Twenty-First Amendment to Loan Agreement, dated
September 16, 1994 (the "Twenty-First Amendment"), hereinafter collectively,
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, the "Borrowers"), LSB Financial
Corp., LSB Leasing Corp., 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, the Modification Agreement, the Nine-
teenth Amendment, the Twentieth Amendment and the Twenty-First Amendment), and
Bank IV Oklahoma, N.A. (as to the Seventeenth Amendment, the Modification
Agreement, the Nineteenth Amendment, the Twentieth Amendment and the
Twenty-First Amendment).
LSB has requested that Congress modify the Loan Agreement and
related loan documents (collectively, the "Loan Documents") in order to permit
LSB to guaranty the obligations of DSN Corporation, a subsidiary of LSB
("DSN"), under or pursuant to certain financing arrangements being entered
into between The CIT Group/Equipment Financing, Inc. ("CIT") as lender and DSN
as borrower, for advances of principal up to a total $15,000,000. Congress is
willing to agree to such request, subject to the following terms (capitalized
terms used herein, unless otherwise defined, shall have the meanings set forth
in the Loan Agreement):
1. Loan Documents Modification. Notwithstanding anything contained in the
Loan Documents to the contrary, Congress hereby consents to LSB's
unconditionally guaranteeing on a unsecured basis to CIT all payment and
performance obligations of DSN to CIT under or pursuant to the above-
referenced financing arrangements and any extension or renewal thereof or
modification or amendment thereto. The Loan Documents are hereby deemed
amended as necessary to conform to the provisions set forth herein.
2. 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. In the
event of a conflict between the terms of this Twenty-First Amendment and the
Loan Agreement or other Financing Agreements, the terms of this Twenty-First
Amendment will control.
3. 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 Twenty-First Amendment.
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____________________________
tq994x43.wpe
TWENTY-THIRD AMENDMENT TO LOAN AGREEMENT
October 24, 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, 1994,
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"), that certain Modification to Seventeenth Amendment to Loan
Agreement, dated May 25, 1994 (the "Modification Agreement"), the Nineteenth
Amendment to Loan Agreement, dated June 29, 1994 ("Nineteenth Amendment"), the
Twentieth Amendment to Loan Agreement, dated August 23, 1994 (the "Twentieth
Amendment"), and the Twenty-First Amendment to Loan Agreement, dated
September 16, 1994 (the "Twenty-First Amendment"), and the Twenty-Second
Amendment to Loan Agreement, dated October 13, 1994, hereinafter collectively,
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, the "Borrowers"), LSB Financial
Corp., LSB Leasing Corp., 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, the Modification Agreement, the Nine-
teenth Amendment, the Twentieth Amendment and the Twenty-First Amendment), and
Bank IV Oklahoma, N.A. (as to the Seventeenth Amendment, the Modification
Agreement, the Nineteenth Amendment, the Twentieth Amendment and the
Twenty-First Amendment).
Borrowers 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 "October 31, 1994" in
Section 9.1 of the Accounts Agreement, as heretofore amended, is hereby
deleted and replaced with the date "November 30, 1994".
II. Term of Selling Period. The date "October 31, 1994" in Section
2.1 of the Seventeenth Amendment is hereby deleted and replaced with the date
"November 30, 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
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 hereby mutually covenant and agree as set forth herein (the
covenants and agreements of the Borrowers and Guarantors being joint and
several).
[SIGNATURES ON NEXT PAGE]
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_____________________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACKNOWLEDGED:
BANK IV OKLAHOMA, N.A.
By_______________________________
Title____________________________
PRIME FINANCIAL CORP.
By_______________________________
Title____________________________
tq994x44.wpe
HOUSEHOLD COMMERCIAL LETTERHEAD EXHIBIT 4.05
September 29, 1994
Mr. James L. Wewers
President, El Dorado Chemical Company
P.O. Box 1373
Oklahoma City, Oklahoma 73101
Re: Amended and Restated Secured Credit Agreement dated as of January 21,
1992 (as amended, the "Secured Credit Agreement") among El Dorado
Chemical Company ("EDC"), Slurry Explosive Corporation ("Slurry"),
Connecticut Mutual Life Insurance Company, C.M. Life Insurance Company
and Household Commercial Financial Services, Inc. ("HCFS"), and the
Second Amended and Restated Working Capital Loan Agreement dated as of
January 21, 1992 (as amended, the "Working Capital Agreement") between
EDC, Slurry, and HCFS (collectively, the "Agreements").
Dear Mr. Wewers:
Reference is hereby made to the above-captioned Agreements. Unless otherwise
defined herein or the context hereof otherwise requires, terms which are
defined or defined by reference in the Agreements or any exhibit thereto shall
have the same meanings when used in this letter as such terms have in the
Agreements.
EDC has informed HCFS that the extremely high recent costs of ammonia, which
EDC requires as a key raw material in its production process, and the extended
duration of this pricing has had a negative impact on EDC's performance during
the last 12 months. EDC has further indicated that these ammonia costs are
anticipated to remain high for an unspecified additional period of time. As a
result of this ammonia pricing environment, EDC has informed HCFS that it was
not in compliance with the Fixed Charge Coverage Ratio covenant for the month
of July as stipulated in Section 11.2 of the Secured Credit Agreement and
Section 11B.2 of the Working Capital Agreement and does not anticipate being
in compliance with these covenants during the next 6-12 months.
As requested by EDC, HCFS as Agent and Required Lender hereby amends the
Agreements by replacing the tables in Sections 11.2 of the Secured Credit
Agreement and 11B.2 of the Working Capital Agreement with the following table.
Period Ratio
July 1, 1994 through June 30, 1995 2.00:1
July 1, 1995 through July 31, 1995 2.10:1
August 1, 1995 through August 31, 1995 2.20:1
September 1, 1995 through September 30, 1995 2.30:1
October 1, 1995 through October 31, 1995 2.40:1
November 1, 1995 and Thereafter 2.50:1
Subject to the terms and conditions herein, we are please to provide this
accommodation to EDC. This amendment is limited to the specific matter set
forth herein and does not in any other matter waive, amend, or alter the
Agreements or other Loan Documents, the provisions of which shall remain in
full force and effect.
Sincerely,
James J. Russell
Assistant Vice President
cc: Norm Thetford, Connecticut Mutual Life Insurance
Julia Sarron, Mayer Brown & Platt
G. Francis, HCFS
E. Szarkowicz, HCFS
File
SECOND AMENDMENT
TO
AMENDMENT AGREEMENT
THIS FIRST AMENDMENT TO AMENDMENT AGREEMENT, dated as of September
29, 1994 (this "Amendment"), is among EL DORADO CHEMICAL COMPANY ("EDC"),
SLURRY EXPLOSIVE CORPORATION ("SLURRY"), HOUSEHOLD COMMERCIAL FINANCIAL
SERVICES, INC. ("HCFS"), AND PRIME FINANCIAL CORPORATION ("PRIME").
BACKGROUND
A. EDC, Slurry and HCFS are parties to the Second Amended and Restated
Working Capital Loan Agreement, dated as of January 21, 1992 (as heretofore
and hereafter amended or supplemented, the "Working Capital Loan Agreement").
B. EDC, Slurry, HCFS, Connecticut Mutual Life Insurance Company and C.M.
Life Insurance Company are parties to the Amended and Restated Secured Credit
Agreement, dated as of January 21, 1992 (as heretofore or hereafter amended or
supplemented, the "Credit Agreement").
C. EDC, Slurry, HCFS and Prime are parties to an Amendment Agreement, dated
March 30, 1994 (the "Amendment Agreement"), which amended the Working Capital
Loan Agreement, the Credit Agreement, and that certain Agreement for Purchase
of Receivables, dated as of March 29, 1994, as amended, between Prime and EDC.
D. The parties hereto hereby desire to amend the Amendment Agreement to
reflect that the Amendment Agreement shall terminate on October 31, 1994.
NOW THEREFORE, in consideration of the foregoing and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings assigned thereto in the Working Capital
Loan Agreement.
2. TERMINATION. Paragraph 9 of the Amendment Agreement is hereby amended
by deleting the date "September 30, 1994" contained therein, as amended, and
substituting in lieu thereof the date "October 31, 1994".
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective duly authorized officers as of the date
above written.
EL DORADO CHEMICAL COMPANY
By____________________________
Name__________________________
Title_________________________
SLURRY EXPLOSIVE CORPORATION
By____________________________
Name__________________________
Title_________________________
HOUSEHOLD COMMERCIAL FINANCIAL
SERVICES, INC.
By____________________________
Name__________________________
Title_________________________
PRIME FINANCIAL CORPORATION
By____________________________
Name__________________________
Title_________________________
ACKNOWLEDGED:
BANK IV, OKLAHOMA N.A.
By____________________________
Name__________________________
Title_________________________
IHS:\K-M\LSB\HOUSEHOL\AMEND\AG.SA
SECOND AMENDMENT AGREEMENT EXHIBIT 4.06
THIS SECOND AMENDMENT AGREEMENT, dated as of October 31, 1994
(this "Agreement"), is among EL DORADO CHEMICAL COMPANY ("EDC"), SLURRY
EXPLOSIVE CORPORATION ("Slurry"), HOUSEHOLD COMMERCIAL FINANCIAL SERVICES,
INC. ("HCFS"), CONNECTICUT MUTUAL LIFE INSURANCE COMPANY ("Mutual") and C.M.
LIFE INSURANCE COMPANY MUTUAL ("C.M. Life").
BACKGROUND
A. EDC, Slurry and HCFS are parties to the Second Amended and Restated
Working Capital Loan Agreement, dated as of January 21, 1992 (as heretofore
and hereafter amended or supplemented, the "Working Capital Loan Agreement").
B. EDC, Slurry, HCFS, Mutual and C.M. Life are parties to the Amended and
Restated Secured Credit Agreement, dated as of January 21, 1992 (as heretofore
or hereafter amended and supplemented, the "Credit Agreement").
C. EDC, Slurry and HCFS are parties to a First Amendment to Amended and
Restated Secured Credit Agreement dated as of June 30, 1993, which amends the
Credit Agreement.
D. EDC, Slurry, HCFS, Equity Bank for Savings, F.A. and Prime Financial
Corporation ("Prime") are parties to an Amendment Agreement dated March 30,
1994 (the "Amendment Agreement"), which amended the Working Capital Loan
Agreement, the Credit Agreement, and that certain Agreement for Purchase of
Receivables, dated as of March 29, 1994, as amended, between Prime and EDC.
E. EDC, Slurry, HCFS and Prime are parties to: (i) a First Amendment to
Amendment Agreement dated as of August, 1994; and
(ii) a Second Amendment to Amendment Agreement dated as of September 29, 1994,
both of which amend the Amendment Agreement.
F. EDC and Northwest Financial Corporation ("Northwest") are parties to a
Partial Lease Termination Agreement (the "Termination Agreement") dated on or
about October 31, 1994, which terminated that certain Lease Agreement dated
March 7, 1988, between EDC, as tenant, and Northwest, as landlord, only with
respect to two (2) tracts of real property (the "Premises") located in El
Dorado, Arkansas, which Premises are more particularly described at Schedule
"A" attached hereto.
G. Northwest and DSN Corporation are parties to that certain Ground Lease
Agreement dated on or about October 31, 1994 (the "DSN Lease"), wherein
Northwest, as landlord, leased the Premises to DSN, as tenant.
H. DSN and EDC are parties to: (i) that certain Ground Sublease Agreement
of the Ground Lease dated on or about October 31, 1994 (the "EDC Sublease"),
wherein DSN, as sublandlord, leased the Premises to EDC, as subtenant, for
payment of approximately $10.00 per year; (ii) that certain Consulting
Agreement dated on or about October 31, 1994, wherein DSN agreed to provide
certain services to EDC in connection with EDC's operation of the Premises for
a payment of approximately $282,504.00 per year; (iii) that certain DSN Plant
Equipment Lease dated on or about October 31, 1994 (the "Equipment Lease"),
wherein DSN, as landlord, leased the facilities, plant and equipment located
on the Premises to EDC, as tenant, for payment of approximately $2,526,168.00
per year.
I. EDC and The CIT Group/Equipment Financing, Inc. are parties to that
certain Acknowledgement and Consent to Collateral Assignment dated on or about
October 31, 1994 (the "Consent").
J. The parties hereto desire to amend the Working Capital Loan Agreement
and the Credit Agreement in certain respects to reflect the entering into of
the Termination Agreement, the EDC Sublease, the Consulting Agreement, the
Equipment Lease and the Consent. The Termination Agreement, EDC Sublease,
Consulting Agreement, Equipment Lease and Consent are collectively herein
referred to as the "Agreements".
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used in the this Agreement and not
otherwise defined herein shall have the meanings assigned thereto in either or
both the Working Capital Loan Agreement and the Credit Agreement.
2. Unconditional Purchase Obligations. Notwithstanding any prohibition
contained in any of the Loan Documents, including, without implied limitation:
(i) Section 11.6 of the Credit Agreement; or (ii) Section 11B.7 of the Working
Capital Loan Agreement, HCFS hereby consents to EDC entering into the
Agreements.
3. Transactions with Affiliates. Notwithstanding any prohibition contained
in any of the Loan Documents, including, without implied limitation: (i)
Section 11.11 of the Credit Agreement; and (ii) Section 11B.12 of the Working
Capital Loan Agreement, HCFS, Mutual and C.M. Life hereby consent to EDC
entering into the Agreements.
4. Northwest Leases. Notwithstanding any prohibition contained in any of
the Loan Documents, including, without implied limitation, Section 11.16 of
the Credit Agreement, HCFS, Mutual and C.M. Life hereby consent to EDC
entering into the Termination Agreement.
5. Other Loan Documents. All other provisions of the Loan Documents not
specifically modified by the foregoing are hereby deemed modified as necessary
to reflect HCFS' consent to EDC entering into the Agreements. In the event of
a conflict between the terms of this Agreement and any of the Loan Documents,
the terms of this Agreement will control.
6. Cooperation. The parties hereto hereby agree that they shall cooperate
with each other, in good faith, to execute and deliver such other documents as
such other party may reasonably request in order to further effect the terms
of this Agreement.
7. Condition Precedent. The effectiveness of this Second Amendment
Agreement is conditioned on the execution by the respective parties of the
Termination Agreement, the EDC Sublease, the Consulting Agreement, the
Equipment Lease and the Consent.
8. Miscellaneous. Each Borrower hereby agrees to pay, or reimburse HCFS
for, reasonable attorneys' fees and disbursements, incurred by HCFS in
connection with this Second Amendment Agreement; all such costs and expenses
shall be payable on demand. This Second Amendment Agreement shall be governed
by the internal laws of the State of Illinois. This Agreement may be executed
in any number of counterparts, and by the different parties on different
counterparts, each of which shall constitute an original, but all of which
shall constitute one and the same agreement. The Credit Agreement and the
Working Capital Loan Agreement, both as previously amended and as amended
hereby, remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of
the date above written.
EL DORADO CHEMICAL COMPANY
By_______________________________
Name_____________________________
Title____________________________
SLURRY EXPLOSIVE CORPORATION
By_______________________________
Name_____________________________
Title____________________________
HOUSEHOLD COMMERCIAL FINANCIAL
SERVICES, INC.
By_______________________________
Name_____________________________
Title____________________________
CONNECTICUT MUTUAL LIFE
INSURANCE COMPANY
By_______________________________
Name___________________________
Title__________________________
C.M. LIFE INSURANCE COMPANY
By_______________________________
Name___________________________
Title__________________________
tq994x46.tag
EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
(DSN Plant)
Dated October 31, 1994
between
DSN CORPORATION,
as Borrower
and
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Lender
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 THE LOAN . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.1 The Loan . . . . . . . . . . . . . . . . . . . . 10
Section 2.2 Disbursement Methods . . . . . . . . . . . . . . 11
Section 2.3 Repayment of the Loan. . . . . . . . . . . . . . 15
Section 2.4 Interest Charges . . . . . . . . . . . . . . . . 16
Section 2.5 Late Charge Rate . . . . . . . . . . . . . . . . 17
Section 2.6 Maximum Interest . . . . . . . . . . . . . . . . 17
Section 2.7 Expenses . . . . . . . . . . . . . . . . . . . . 17
Section 2.8 Prepayment . . . . . . . . . . . . . . . . . . . 18
Section 2.9 Conditions of Lending. . . . . . . . . . . . . . 18
Section 2.10 Place and Form of Payments . . . . . . . . . . . 23
Section 2.11 Hold Back. . . . . . . . . . . . . . . . . . . . 23
Section 2.12 Commitment Fee . . . . . . . . . . . . . . . . . 23
ARTICLE 3 SECURITY FOR THE OBLIGATIONS . . . . . . . . . . . . . 23
Section 3.1 Grant of Security Interest . . . . . . . . . . . 23
Section 3.2 Continuing Obligation. . . . . . . . . . . . . . 24
ARTICLE 4 ADMINISTRATION OF THE COLLATERAL . . . . . . . . . . . 25
Section 4.1 The Equipment. . . . . . . . . . . . . . . . . . 25
Section 4.2 No Lender Liability. . . . . . . . . . . . . . . 25
Section 4.3 Use of Equipment; Identification . . . . . . . . 26
ARTICLE 5 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 26
Section 5.1 Organization and Qualification . . . . . . . . . 27
Section 5.2 Concerning the Loan Documents. . . . . . . . . . 27
Section 5.3 Guaranties . . . . . . . . . . . . . . . . . . . 27
Section 5.4 Equipment. . . . . . . . . . . . . . . . . . . . 27
Section 5.5 The DSN Plant. . . . . . . . . . . . . . . . . . 28
Section 5.6 Title to the DSN Plant and Equipment;
Security Interest. . . . . . . . . . . . . . . 28
Section 5.7 Financial Condition. . . . . . . . . . . . . . . 28
Section 5.8 Litigation . . . . . . . . . . . . . . . . . . . 29
Section 5.9 Disclosure . . . . . . . . . . . . . . . . . . . 29
Section 5.10 Tax Returns and Payments . . . . . . . . . . . . 29
Section 5.11 Compliance with Other Instruments. . . . . . . . 29
Section 5.12 Pension Plans. . . . . . . . . . . . . . . . . . 30
Section 5.13 Labor Relations. . . . . . . . . . . . . . . . . 30
Section 5.14 Environmental Laws . . . . . . . . . . . . . . . 30
Section 5.15 Trade Names. . . . . . . . . . . . . . . . . . . 31
Section 5.16 Subsidiaries . . . . . . . . . . . . . . . . . . 31
Section 5.17 Loans and Affiliate Payments . . . . . . . . . . 31
Section 5.18 Permits, Licenses. . . . . . . . . . . . . . . . 31
Section 5.19 Broker's or Transaction Fees . . . . . . . . . . 31
Section 5.20 Taxpayer ID No. and Chief Executive Office . . . 32
Section 5.21 No Default . . . . . . . . . . . . . . . . . . . 32
ARTICLE 6 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . 32
Section 6.1 Financial and Other Information. . . . . . . . . 32
Section 6.2 Access . . . . . . . . . . . . . . . . . . . . . 35
Section 6.3 Taxes. . . . . . . . . . . . . . . . . . . . . . 35
Section 6.4 Maintenance of Properties; Insurance . . . . . . 36
Section 6.5 Business . . . . . . . . . . . . . . . . . . . . 37
Section 6.6 Compliance . . . . . . . . . . . . . . . . . . . 37
Section 6.7 Litigation . . . . . . . . . . . . . . . . . . . 37
Section 6.8 Environmental Laws . . . . . . . . . . . . . . . 37
Section 6.9 Notices. . . . . . . . . . . . . . . . . . . . . 38
Section 6.10 Tangible Net Worth . . . . . . . . . . . . . . . 38
Section 6.11 Change of Ownership. . . . . . . . . . . . . . . 38
Section 6.12 Use of Proceeds. . . . . . . . . . . . . . . . . 38
Section 6.13 Books. . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 7 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . 39
Section 7.1 Corporate Structure. . . . . . . . . . . . . . . 39
Section 7.2 Dividends, Distributions, Redemptions. . . . . . 39
Section 7.3 Loans, Investments, Affiliate Payments,
Salaries . . . . . . . . . . . . . . . . . . . 39
Section 7.4 Change in Business, Structure or Business
Location . . . . . . . . . . . . . . . . . . . 39
Section 7.5 Guaranties . . . . . . . . . . . . . . . . . . . 39
Section 7.6 Sale of Property . . . . . . . . . . . . . . . . 39
Section 7.7 Prepayment . . . . . . . . . . . . . . . . . . . 40
Section 7.8 Liens. . . . . . . . . . . . . . . . . . . . . . 40
Section 7.9 Negative Pledge on Leases. . . . . . . . . . . . 40
Section 7.10 Pension Plans. . . . . . . . . . . . . . . . . . 40
Section 7.11 Borrower's Name. . . . . . . . . . . . . . . . . 40
Section 7.12 Changes to DSN Plant Documents . . . . . . . . . 40
Section 7.13 Other Debts. . . . . . . . . . . . . . . . . . . 40
Section 7.14 Transactions with Affiliates . . . . . . . . . . 41
ARTICLE 8 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.1 Events of Default. . . . . . . . . . . . . . . . 41
Section 8.2 Rights Upon Default. . . . . . . . . . . . . . . 44
ARTICLE 9 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . 46
Section 9.1 Survival . . . . . . . . . . . . . . . . . . . . 46
Section 9.2 Waiver of Notices. . . . . . . . . . . . . . . . 46
Section 9.3 Assignment . . . . . . . . . . . . . . . . . . . 46
Section 9.4 Complete Agreement Modification. . . . . . . . . 46
Section 9.5 Applicable Law . . . . . . . . . . . . . . . . . 47
Section 9.6 Indemnification. . . . . . . . . . . . . . . . . 47
Section 9.7 Stamp or other Tax . . . . . . . . . . . . . . . 48
Section 9.8 Captions . . . . . . . . . . . . . . . . . . . . 48
Section 9.9 Notices. . . . . . . . . . . . . . . . . . . . . 49
Section 9.10 No Waiver, Lender Performance. . . . . . . . . . 49
Section 9.11 Evidence of Obligations; Admissibility of
Lender's Books and Records . . . . . . . . . . 50
Section 9.12 No Liability for Brokers . . . . . . . . . . . . 50
Section 9.13 Further Assurances . . . . . . . . . . . . . . . 50
Section 9.14 Counterparts.. . . . . . . . . . . . . . . . . . 50
Section 9.15 Notice of Breach by Lender . . . . . . . . . . . 50
Section 9.16 Time . . . . . . . . . . . . . . . . . . . . . . 50
Section 9.17 Exhibits . . . . . . . . . . . . . . . . . . . . 50
Section 9.18 Authorization to Date, Complete Blanks and
Correct Errors . . . . . . . . . . . . . . . . 51
Section 9.19 No Oral Agreements; Entire Agreement . . . . . . 51
Section 9.20 Venue and Jurisdiction . . . . . . . . . . . . . 51
Section 9.21 Waiver of Trial by Jury. . . . . . . . . . . . . 52
Exhibits
A - Disclosure Statement
B - Promissory Note
C - Legal Description of DSN Plant Location
D - Disbursement Schedule
LOAN AND SECURITY AGREEMENT
(DSN Plant)
This LOAN AND SECURITY AGREEMENT (the "Agreement"), dated
October 31, 1994, is made and entered into by and between DSN CORPORATION,
an Oklahoma corporation (the "Borrower"), and THE CIT GROUP/EQUIPMENT
FINANCING, INC., a New York corporation (the "Lender").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and of any loans or other credit facilities
now or hereafter made to Borrower by Lender, the parties hereto covenant
and agree as follows:
ARTICLE 1
DEFINITIONS
The following capitalized terms have the following meanings
when used in this Agreement:
"Affiliate" means any of LSB, EDC, LSBC, Prime Financial Corp.,
Total Energy Systems, Ltd., Slurry Explosive Corporation, Universal Tech
Corporation, LSB Holdings, Inc., and any other Person controlling or
controlled by or under common control with LSB Industries, Inc. or any of
their Subsidiaries, successors or assigns.
"Assignment of Construction Contract, Plans and
Specifications" means the Assignment of Construction Contract Plans and
Specifications in form and substance satisfactory to the Lender, wherein
the Lender is assigned the Construction Contract and the Plans and
Specifications as security for the Obligations.
"Bonding Company" means American Bonding Company, the company
issuing payment and performance bond No. 9417875 in connection with the
construction of the DSN Plant.
"Business Day" means any day which is not a Saturday, Sunday or
day on which banks in New York are required or permitted to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means: (i) all personal property referred to in
Section 3.1; (ii) all real property interests of Borrower in the DSN Plant
Location, the DSN Plant and the Ground Lease and the Ground Sublease; and
(iii) all other property and interests in property, real or personal, now
owned or leased or hereafter acquired or leased, which is hereafter pledged
or assigned to Lender as collateral security for payment of any of the
Obligations.
"Consent to Encumbrance" means that certain Consent to
Encumbrance of Leasehold Estate and Landlord's Waiver of even date herewith
executed by Northwest Financial Corporation and Borrower in favor of
Lender.
"Construction Consultant" means Brown & Root, Inc., and any
subsequent consultant, selected by Lender as Construction Consultant under
Section 2.2(c) hereof.
"Construction Contract" means, collectively, that certain
correspondence dated November 22, 1993 and November 24, 1993, between EDC
and Systems Contracting Corporation, which has been assigned to Borrower,
together with all other correspondence with Systems Contracting Corporation
and all other construction contracts and equipment purchase contracts
related to the construction of the DSN Plant.
"Construction Period" means the period commencing on the date
hereof and ending on the first to occur of: (i) March 31, 1995 or (ii) the
DSN Plant Completion Date.
"Consulting Agreement" means the Consulting Agreement dated
October 31, 1994 between EDC and DSN relating to the DSN Plant.
"Contractor" means Systems Contracting Corporation and each
other Person who has entered into a Construction Contract with, or which
has been assigned to, Borrower.
"Contractors' Consents" means, collectively, the Contractor's
Consent and Certification executed by each Contractor in favor of Lender.
"Default" means any Event of Default or event which, with
notice or passage of time or both, would constitute an Event of Default.
"Disbursement Schedule" means the disbursement schedule and
budget annexed to this Agreement as Exhibit "D", in form and substance
acceptable to Lender.
"Disclosure Schedule" means the disclosure schedule annexed to
this Agreement as Exhibit "A".
"DSN Plant" means Borrower's direct strong nitric acid plant
located at the DSN Plant Location.
"DSN Plant Equipment Lease" means that lease dated to be
effective as of the date hereof between Borrower as lessor and EDC as
lessee with respect to the DSN Plant and including
the Equipment relating thereto.
"DSN Plant Completion Date" means the date on which Lender
reasonably determines that all of the following have occurred:
(a) Borrower and EDC shall have certified to Lender in writing that the DSN
Plant has been fully constructed and completed in substantial accordance
with the Plans and Specifications and is in operation, that the DSN Plant
as completed complies with applicable zoning, building and land use laws,
and that the DSN Plant Equipment Lease, the Ground Lease, the Ground
Sublease and the Consulting Agreement are in full force and effect; (b) the
Construction Consultant shall have confirmed to Lender that construction of
the DSN Plant has been completed in substantial accordance with the Plans
and Specifications, and that direct connection has been made to all
pipelines, supply lines, and all water, gas, sewer, telephone and
electrical facilities necessary for the operation and use of the DSN Plant,
(c) a valid notice of completion has been filed for record in the Office of
the County Recorder for the County in which the DSN Plant is located,
(d) all inspections by any applicable governmental entities necessary to
permit the start-up of the DSN Plant have been completed and all necessary
certificates and approvals for occupation and operation of the DSN Plant
have been obtained, and (e) the period for filing mechanics' and
materialmen's liens has expired without any material liens having been
filed or recorded or lien waivers have been obtained from contractors which
performed more than $50,000 of work or provided more than $50,000 of
materials, or, where applicable, Lender's Title Policy has fully insured
against mechanics' or materialmen's liens.
"DSN Plant Location" means the location of the DSN Plant at
El Dorado, Union County, Arkansas, more particularly described in
Exhibit "C."
"EDC" means El Dorado Chemical Company, an Oklahoma
corporation.
"Environmental Laws" means all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidance, orders and
consent decrees relating to hazardous substances, discharges, releases or
disposals of pollutants, solid waste or hazardous materials, or any other
environmental matters applicable to the Borrower's business, the DSN Plant
or the DSN Plant Location. Such laws and regulations include the Resource
Conservation and Recovery Act, 42 U.S.C. section 6901 et seq., as amended;
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. section 9601 et seq., as amended; the Toxic Substances Control
Act, 15 U.S.C. section 2602 et seq., as amended; the Clean Water Act,
33 U.S.C. section 466 et seq., as amended; the Clean Air Act, 42 U.S.C.
section 7401 et seq., as amended; state and federal superlien and
environmental cleanup programs; and U.S. Department of Transportation
regulations. The terms "hazardous substance" and "release" shall have the
meanings specified in the Federal Comprehensive Environmental
Responsibility Cleanup and Liability Act of 1980, as the definition of such
terms may be subsequently modified, supplemented or amended ("CERCLA") and
the terms "solid waste" and "disposal" shall have the meanings specified in
the Federal Resource Conservation and Recovery Act of 1976, as the
definition of such terms may be subsequently modified, supplemented or
amended ("RCRA"; provided, however, that in the event either CERCLA or RCRA
is amended so as to broaden the meaning of any term defined thereby, such
broader meaning shall apply subsequent to the effective date of such
amendment; and provided, further, however, that to the extent a parcel of
real property is situated in a state or other jurisdiction in which the
applicable laws may establish a meaning for "hazardous substance,"
"release," "solid waste," or "disposal" which is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply.
"Equipment" means all now or hereafter acquired equipment (as
that term is defined in the UCC) now or hereafter located at the DSN Plant
or relating to the DSN Plant, including machinery, data processing hardware
and software, furniture, fixtures, trade fixtures, leasehold improvements,
office equipment, strong acid plant equipment, storage tanks, strong acid
building structure, compressor building, refrigeration facilities, piping,
valves, plant equipment, machinery, electronics, instrumentation, panels,
control systems and other tangible personal property and all accessions,
accretions, replacements and additions to Equipment, and all other
component and auxiliary parts used or to be used in connection with or
attached to any of the same, and all manuals, drawings, instructions,
warranties and rights with respect thereto wherever any of the foregoing is
located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" means any event so described in Section 8.1.
"Fair Market Value" means the price that a knowledgeable buyer
would be willing to pay a knowledgeable seller, neither being under any
duress to buy or sell and both having reasonable knowledge of relevant
facts, for the machinery and equipment in place and in operation, taking
advantage of all leasehold and site improvements designed to facilitate its
operation, with the seller accurately and completely representing the
existing condition and operability of the machinery and equipment to the
buyer. Consideration is given to each asset's contribution to the
operating facility, or the contribution of all the assets as a whole,
whichever appropriately addresses production capabilities of the plant. It
is assumed that all specially designed and built machinery and equipment
will continue to be utilized in the manner for which it was originally
intended.
"Financial Statement" means any financial statement given to
the Lender pursuant to Section 6.1.
"Fiscal Year" means, as to any Person, such Person's fiscal
year for financial accounting purposes. The Borrower's current Fiscal Year
ends on December 31, 1994.
"Funding Date" means the date on which the initial advance is
made.
"GAAP" means, as of any date of determination, generally
accepted accounting principles consistently applied during each interval
and from interval to interval.
"Ground Lease" means the lease agreement dated as of
October 31, 1994 between the Borrower and Northwest Financial Corporation
pursuant to which Northwest Financial Corporation granted Borrower the
right to occupy the real property associated with the DSN Plant and to
construct, use, occupy and sublease the DSN Plant at the DSN Plant
Location.
"Ground Sublease" means the sublease dated
October 31, 1994 of the Ground Lease from DSN to EDC.
"Guarantor" means any Person who has executed a Guaranty in
favor of the Lender with respect to the Obligations, including LSB and
LSBC.
"Guaranty" means each continuing guaranty executed and
delivered by LSB, LSBC and any other Guarantor in form and substance
acceptable to Lender guarantying the Obligations.
"Hazardous Substance" means any substance, material or waste
(including petroleum and petroleum products) which is or becomes
designated, classified or regulated as being "toxic" or "hazardous" or a
"pollutant," or which is or becomes similarly designated, classified or
regulated, under any Environmental Laws.
"Indebtedness" means, as to any Person, (a) all indebtedness of
such Person for borrowed money, (b) that portion of the obligations of such
Person under capital leases which is properly recorded as a liability on a
balance sheet of that Person prepared in accordance with GAAP, (c) any
obligation of such Person that is evidenced by a promissory note or other
instrument representing an extension of credit to such Person, whether or
not for borrowed money, or any obligation of such Person for the deferred
purchase price of property or services (other than trade or other accounts
payable in the ordinary course of business in accordance with terms
customary to DSN or its Affiliates), (d) any obligation of such Person that
is secured by a Lien on assets of such Person, whether or not that Person
has assumed such obligation or whether or not such obligation is
non-recourse to the credit of such Person, but only to the extent of the
fair market value of the assets so subject to the Lien, (e) obligations of
such Person arising under acceptance facilities or under facilities for the
discount of accounts receivable of such Person and (f) obligations of such
Person for unreimbursed draws under letters of credit issued for the
account of such Person.
"Late Charge Rate" shall mean a rate per annum equal to the
higher of 3% over the applicable interest rate set forth in Section 2.4 or
18%, but not to exceed the highest rate permitted by applicable law.
"Leasehold Mortgage" means the leasehold mortgage, in form and
substance satisfactory to Lender, wherein Lender is granted a first
priority Lien in Borrower's right, title and interest in the DSN Plant
Location, the DSN Plant, the Ground Lease, and the Ground Sublease.
"Libor Rate" means the rate of interest equal to the 30-day
London Interbank Offered Rate. The Libor Rate shall be that which is
reported and published in The Wall Street Journal for the 15th day of each
month (if the 15th day is not a day for which The Wall Street Journal
reports the Libor Rate, then on the first preceding day for which The Wall
Street Journal reports the Libor Rate), and shall become effective as of
the first day of the calendar month succeeding such determination and shall
continue in effect to, and including, the last day of such calendar month.
If The Wall Street Journal ceases to be published, or ceases to publish the
Libor Rate, then the Libor Rate shall be that which is reported and
published on the day specified above in any similar publicly available
source designated by Lender.
"Lien" means any mortgage, deed of trust, pledge, deed to
secure debt, hypothecation, assignment, encumbrance, lien (statutory or
other), security interest or other security agreement, including any
conditional sale or other title retention agreement. "Lien" includes
reservations, exceptions, easements, leases and other restrictions and
encumbrances affecting real property. For purposes hereof a Person shall
be deemed to own property acquired or held pursuant to a conditional sale
or similar security arrangement.
"Loan" shall have the meaning assigned in Section 2.1.
"Loan Documents" means, collectively:
a. this Agreement
b. the Note
c. the DSN Plant Equipment Lease
d. the Assignment of the DSN Plant Equipment Lease
e. the acknowledgment and Consent to Assignment of the DSN
Plant Equipment Lease
f. sufficient UCC-1 Financing Statements for filing in
Arkansas and Oklahoma
g. the Leasehold Mortgage with Assignment to Leases and
Rents
h the Guaranty (LSB)
i. the Guaranty (LSBC)
j. the Consent to Encumbrance
k. Request for Advance
l. the Assignment of Construction Contract, Plans and
Specifications
m. the Tenant Subordination Agreement
n. the Contractors' Consents
and any other opinions, resolutions, certificates, documents or agreements
of any nature or type heretofore or hereafter executed or delivered by
Borrower, Affiliates or Guarantors to Lender pursuant to this Agreement or
any Loan Document in each case either as originally executed or as the same
may from time to time be supplemented, modified, amended, restated or
extended.
"LSB" means LSB Industries, Inc., a Delaware corporation.
"LSBC" means LSB Chemical Corp., an Oklahoma corporation.
"Mixed Acid Plant Loan" means that certain loan in the original
principal amount of approximately $1,075,200 to be made by Lender to
Borrower pursuant to the Mixed Acid Plant Loan Documents.
"Mixed Acid Plant Loan Documents" means that certain Loan and
Security Agreement (Mixed Acid Plant) which the parties intend to prepare
and execute between Lender and Borrower, and all other "Loan Documents"
described therein, relating to a loan by Lender to Borrower to finance the
acquisition and construction of a mixed acid plant in North Carolina.
"Note" means the promissory note which evidences the Loan,
substantially in the form of Exhibit "B".
"Obligations" means and includes the aggregate of the unpaid
principal balance of the Loan and all accrued interest thereon, and all
other loans, indebtedness, debts, liabilities, obligations, interest, fees,
premiums, guarantees, amounts, indemnities, reimbursements, covenants and
duties owing by the Borrower to the Lender under any one or more of the
Loan Documents, of every kind and description (whether or not evidenced by
any note or other instrument and whether or not for the payment of money),
direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising. "Obligations" include: (i) all interest,
fees, charges or other costs and payments that the Borrower is required to
pay to the Lender under or as a result of the Loan Documents or by law and
(ii) all costs and expenses described in Section 2.7 or otherwise required
to be paid by the Borrower to the Lender pursuant to any Loan Document.
"Pension Plan" means any pension plan as defined in
Section 3(2) of ERISA which is a multi employer plan or a single employer
plan as defined in Section 4001 of ERISA and subject to Title IV of ERISA
and which is: (i) a plan maintained by the Borrower, or any Subsidiary or
any Related Company; (ii) a plan to which the Borrower, or any Subsidiary
or any Related Company contributes or is required to contribute; (iii) a
plan to which the Borrower, or any Subsidiary or any Related Company was
required to make contributions at any time during the five calendar years
preceding the date of this Agreement; or (iv) any other plan with respect
to which the Borrower, or any Subsidiary or any Related Company has
incurred or may incur liability, including contingent liability, under
Title IV of ERISA, either to such plan or to the Pension Benefit Guaranty
Corporation.
"Permitted Liens" means: (i) Liens for taxes not yet payable
or being contested in good faith and by appropriate proceedings diligently
pursued, provided that the reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made therefor; (ii) mechanics'
and similar liens incurred in the ordinary course of business or in the
construction of the DSN Plant, not to exceed, at any given time, an
aggregate of $150,000.00, securing non-overdue obligations or for which an
adequate bond has been posted; (iii) Liens in favor of the Lender;
(iv) Liens described on the Disclosure Schedule as such Disclosure Schedule
is in effect on the date hereof; and (v) all exceptions and Liens
identified in the Title Policy.
"Person" means any individual, trust, firm, partnership,
corporation or any other form of public, private or governmental entity or
authority.
"Plans and Specifications" means those Plans and Specifications
related to the construction of the DSN Plant, which Plans and
Specifications must be acceptable to Lender.
"Proceeds" means all products and proceeds (as defined in the
UCC) of any Collateral, and all proceeds of any such proceeds, including
all awards for taking by eminent domain, all proceeds of fire or other
insurance and all proceeds obtained as a result of any legal action or
proceeding with respect to any Collateral.
"Rail Car Loan" means that certain loan in the original
principal amount of approximately $1,169,800, made by Lender to Borrower
pursuant to Rail Car Loan Documents.
"Rail Car Loan Documents" means that certain Loan and Security
Agreement (Rail Car) which the parties intend to prepare and execute
between Lender and Borrower, and all other "Loan Documents" described
therein, relating to a loan by Lender to Borrower to acquire ten new nitric
acid rail cars.
"Related Company" means any member of any controlled group of
corporations (as defined in the Code) of which the Borrower is a party, or
any trade or business (whether or not incorporated) which together with the
Borrower would be treated as a single employer under Section 4001 of ERISA.
"Reportable Event" shall have the meaning assigned to that term
in Title IV of ERISA, including a reportable event described in
Section 4043 of ERISA or the regulations thereunder, a withdrawal from a
Plan described in Section 4063 of ERISA, or a creation of operations
described in Section 4062(e) of ERISA.
"Request for Advance" means a certificate executed and
delivered by Borrower in form acceptable to Lender which contains all of
the information as described in Section 2.2(b) hereof.
"Security Interest" collectively means the Liens created for
the benefit of the Lender pursuant to the Loan Documents.
"Subsidiary" means any present or future corporation of which
more than 50% of the outstanding stock having by its terms the ordinary
voting power to elect a majority of the board of directors, managers or
trustees of such corporation is at the time, directly or indirectly through
one or more intermediaries, owned or controlled by the Borrower and/or one
or more of its Subsidiaries, irrespective of whether or not, at the time,
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency. If at any
time, and only for so long as, the Borrower has no Subsidiaries, provisions
of this Agreement which refer to Subsidiaries shall be of no force and
effect insofar a they pertain to Subsidiaries although they shall remain in
full force and effect as to all other Persons in question.
"Tenant Subordination Agreement" means that certain
Subordination, Nondisturbance, Estoppel and Attornment Agreement dated
October 31, 1994, executed by EDC and Borrower in favor of Lender.
"Term Out Period" has the meaning assigned to such term in
Section 2.3(b) of this Agreement.
"Title Policy" means the policy of title insurance referred to
in Section 2.9 hereof.
"Treasury Rate" means the rate per annum equal to the yield to
maturity for the U.S. Treasury Security having a remaining term to maturity
closest to five (5) years as at (and shall be fixed as of) the close of
business on the third Business Day prior to the first day of the Term Out
Period, as such yield to maturity is reported on page 5 ("U.S. Treasury and
Money Markets") of the information ordinarily provided by Telerate Systems
Incorporated (provided that if Telerate Systems Incorporated ceases to
report such information, then such information shall be taken from any
publicly available source of similar data designated by Lender).
"UCC" means the Uniform Commercial Code (or any successor
statute) as from time to time in effect in any applicable jurisdiction.
ARTICLE 2
THE LOAN
Section 2.1 The Loan. On the basis of the covenants,
agreements and representations of Borrower contained herein and subject to
the terms and conditions hereinafter set forth, Lender agrees to lend to
Borrower and Borrower agrees to borrow from Lender a sum not to exceed the
principal amount of TWELVE MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($12,750,000.00) (the "Loan"), the proceeds of which are to be
disbursed by Lender exclusively for the payment of the following costs and
expenses as hereinafter provided: (i) costs and expenses incurred in
connection with the construction of the DSN Plant; (ii) other costs and
expenses incidental to the DSN Plant; and (iii) costs and expenses incurred
in connection with the Loan and Borrower's undertakings hereunder, which
proceeds shall be disbursed in accordance with the Disbursement Schedule
and as follows:
(a) Recordation Disbursements. Upon recordation of the
Leasehold Mortgage, provided that the title insurer has issued or
irrevocably committed in writing to issue to Lender the Title Policy,
Lender shall disburse to the Persons entitled thereto the amounts (if
acceptable to Lender) necessary to pay all or portions of: (i) out
of pocket costs, charges, expenses and legal fees incurred by
(A) Lender and payable by Borrower hereunder or (B) Borrower in
connection with title charges and premiums, tax and lien service
charges, recording fees, escrow fees, real property taxes and
assessments, and insurance premiums payable in connection with the
Loan; and (ii) other DSN Plant costs and expenses theretofore
incurred by Borrower, all in accordance with the applicable
provisions of the Disbursement Schedule.
(b) Course-of-Construction Disbursements. Subsequent
to recordation of the Leasehold Mortgage and subject to the
provisions of this Agreement, including without limitation the
provisions contained in Section 2.2 hereof, Lender shall disburse to
Borrower, or if reasonably deemed necessary by Lender, Lender shall
disburse directly to such Persons as have actually supplied labor,
materials or services in connection with or incidental to the
construction of the DSN Plant, and subject to the applicable
retention percentage set forth in the Construction Contract, such
sums as are required to be used and which shall be used only for the
payment of (i) the costs and expenses of any of Borrower's
undertakings in this Agreement, the Note, the Leasehold Mortgage or
any of the other Loan Documents, (ii) interest on borrowings under
the Note, (iii) the costs and expenses of Lender which are payable by
Borrower or reimbursable by Borrower as set forth herein, and
(iv) the costs and expenses of the labor and materials used in
constructing the DSN Plant and costs and expenses incidental thereto,
with all disbursements under this Agreement to be made in accordance
with the applicable provisions of the Disbursement Schedule.
Section 2.2 Disbursement Methods.
(a) Notwithstanding any other terms of this Agreement,
the disbursements under the Loan shall be capped at $5,000,000 until
such time as LSB and certain of its subsidiaries shall have in full
force and effect, a new $75,000,000 revolving credit facility with
BankAmerica Business Credit or affiliate thereof on terms and
conditions reasonably acceptable to Lender.
(b) Request for Advance. From time to time, but not
more frequently than twice per month, Borrower shall furnish to
Lender, separately with respect to each request for any disbursement
of proceeds of the Loan, a Request for Advance duly signed and sworn
to with all blanks appropriately filled in, setting forth such
details concerning construction of the DSN Plant as Lender shall
require, including (i) a detailed breakdown of the applicable
percentages of completion and costs of the various phases of
construction of the DSN Plant, showing the amounts expended to date
for such construction and the amounts then due and unpaid, an
itemized estimate of the amount necessary to complete construction of
the DSN Plant in its entirety, and a certification by Borrower and
Mr. Leo Hilinski or his designee that construction of the DSN Plant
to the date of such certificate complies with the Plans and
Specifications; (ii) a list of the names and addresses of all
materials dealers, laborers and subcontractors to whom payments are
due under such Request for Advance; and (iii) if required by Lender,
receipted invoices or bills of sale and unconditional partial
releases of lien (on forms approved by Lender) from each materials
dealer, laborer and subcontractor who has done work or furnished
materials for construction of the portion of the DSN Plant covered by
each such Request for Advance acknowledging acceptance of such
payment in satisfaction of Borrower's obligations. A Request for
Advance must be for an amount not less than $500,000. Lender may
disburse a part of the funds requested if it approves part but not
all of the Request for Advance.
(c) Construction Consultant. Throughout the course of
construction of the DSN Plant, Lender will employ, at Borrower's sole
cost and expense, Construction Consultant or Consultants who shall
review as agent for Lender all construction activities undertaken in
regard to the DSN Plant, which Construction Consultant(s) shall
certify or otherwise indicate to Lender that construction of the DSN
Plant to the date of each Request for Advance and certificate of
Borrower is as set forth in the Request for Advance and certificate
submitted by Borrower, that such construction substantially complies
with the Plans and Specifications and that the progress of
construction is such that the construction of the DSN Plant will be
completed within the Construction Period, with each such certificate
and indication from such inspector or inspectors to be a further
condition precedent to Lender's approval of Borrower's then submitted
Request for Advance. Lender may change Construction Consultants or
modify the terms of its agreement with any Construction Consultant,
if deemed reasonably necessary by Lender.
(d) Disbursements; Deficiencies. The proceeds of the
Loan disbursed under this Agreement shall be evidenced by the Note
and shall be secured by the Borrower's interest in the DSN Plant
Equipment Lease, the Ground Lease, the Ground Sublease and the other
Collateral, and all such proceeds shall be disbursed, as aforesaid,
directly to and to reimburse such Persons, or to Borrower to
reimburse such Persons as have actually supplied labor, materials or
services in connection with or incidental to construction of the DSN
Plant, or to reimburse Borrower in the event Borrower shall have
already paid such Persons. In no event shall Lender be required to
disburse any amount which, in Lender's reasonable opinion, will
either (i) reduce the total undisbursed amount of the Loan below the
amount necessary to pay for the balance of the work, labor and
materials necessary fully to complete construction of the DSN Plant
in accordance with the Plans and Specifications, or (ii) reduce the
undisbursed amount of Loan proceeds allocated to the cost category
described in any paragraph contained in the Disbursement Schedule
below the amount which Lender reasonably deems sufficient to pay in
full the costs to which such amount is allocated. In the event any
amount in a cost category of the Disbursement Schedule is deficient,
and Borrower has not made alternative payment arrangements for the
costs in question, then upon ten (10) days' written notice from
Lender, Borrower shall furnish Lender with paid invoices, bills and
receipts indicating that Borrower has paid, from Borrower's own
funds, for the costs of completing the construction of the DSN Plant
or the costs in the cost category in question, as the case may be, in
a sufficient amount to make the undisbursed amount of the Loan or the
undisbursed portion thereof under the cost category in question
sufficient to pay for the entire balance of the costs of completing
the construction of the DSN Plant or the entire balance of the costs
in such cost category, but only if such work has been performed and
materials have been provided.
(e) Limitations on Disbursements. Disbursements of
Loan proceeds shall be made by Lender only to defray costs actually
incurred by Borrower and in accordance with the Disbursement
Schedule. Disbursements on account of the direct costs of
constructing the DSN Plant shall be limited to the lesser of (i) the
actual cost to Borrower of work and labor performed on the DSN Plant
and materials incorporated into the DSN Plant or suitably stored at
the DSN Plant Location or (ii) the actual value (as determined by
Lender in its reasonable discretion) of said work and labor performed
and materials stored; disbursements on account of indirect or "soft"
costs relating to the construction of the DSN Plant, the Loan, the
preparation of the Plans and Specifications, and all of the other
transactions contemplated hereby shall be limited to the actual
amounts of such costs as indicated by invoices, statements, vouchers,
receipts or other written evidence satisfactory to Lender.
(f) Continuation and Date-Down Endorsements. After
recordation of the Leasehold Mortgage and as a condition precedent to
each disbursement under the Loan after the initial advance, Borrower
shall, at its own cost and expense, deliver or cause to be delivered
to Lender from time to time such continuation and date-down
endorsements to be attached to the Title Policy in form and substance
satisfactory to Lender, as Lender deems necessary to insure the
priority of the Leasehold Mortgage as a valid first priority lien on
the DSN Plant Location and the DSN Plant as of the date of and
including the amount covered by each such disbursement, and Borrower
agrees to furnish to the title insurer such surveys and other
information as are reasonably required by Lender or the title insurer
to enable the title insurer to issue such endorsements to Lender.
(g) Change Orders. Borrower shall not permit any
amendments or modifications of the Plans and Specifications, the
Construction Contract or any subcontracts, or the performance of any
work pursuant to such amendments or modifications, which individually
exceed $250,000 or, when added to the cumulative amount of all net
increases in the prices payable under the Construction Contract and
all such subcontracts resulting from all such amendments and
modifications theretofore permitted by Borrower, would result in a
net increase in the total price payable under all such subcontracts
in excess of $750,000.
(h) Other General Conditions. No Request for Advance
will include (i) any amounts previously disbursed hereunder, (ii) any
costs not approved, certified or verified as provided above,
(iii) any costs for which payment reimbursement was previously
requested by Borrower and for which proof of payment has been
requested but not yet received by Lender, and/or (iv) any real estate
taxes, mechanics' liens, security interests, claims or other charges
against the Collateral, or any interest, fees or other costs which
Borrower may have failed to pay in accordance with this Agreement or
the other Loan Documents. If Lender considers that its best interest
and the best interest of the completion of the construction lies in
accelerating the amounts to be advanced hereunder, it shall be
entitled to do so, and no such advance shall be deemed to be a waiver
of any condition contained herein.
Section 2.3 Repayment of the Loan. The Borrower promises to
repay the Loan as follows:
(a) During the Construction Period, monthly
interest payments on outstanding principal balance of the Loan at the
applicable rate set forth in Section 2.4 shall be paid to Lender
commencing December 1, 1994 and on the first day of each month
thereafter.
(b) The principal balance outstanding under the
Note, and all accrued and unpaid interest, and all other Obligations
owing under any of the Loan Documents shall be due and payable in
full on the date on which the Construction Period terminates;
provided, however, that if the Construction Period ends on the DSN
Plant Completion Date, then the Loan shall be converted to a term
Loan and shall be extended for a period (the "Term Out Period")
commencing on the day immediately succeeding the last day of the
Construction Period and ending on the date which is eight-four (84)
months after such date, subject to the following terms and
conditions:
(i) no uncured Default has occurred and is
continuing, and no material adverse change in the business,
financial condition or operations of Borrower, any Guarantor or
EDC shall have occurred;
(ii) any undisbursed Loan proceeds existing
at the end of the Construction Period shall be cancelled, and
Borrower shall have no further right to request or receive any
further disbursements of Loan proceeds, provided, that this
limitation shall not apply if Borrower demonstrates to Lender
that additional conforming costs and expenses have been
incurred in connection with the DSN Plant and Lender approves
such additional costs and expenses for payment from such
undisbursed Loan Proceeds prior to the commencement of the Term
Out Period;
(iii) Lender shall have determined, based
upon an appraisal of the DSN Plant conducted at Borrower's sole
expense by an independent appraiser selected by Lender, that
the Fair Market Value of the DSN Plant and the Equipment equals
or exceeds the outstanding principal balance of the Loan. This
shall be performed and completed not later than January 1,
1995;
(iv) LSB and certain of its subsidiaries
shall have entered into a new $75,000,000 credit facility with
BankAmerica Business Credit or affiliate thereof on terms and
conditions reasonably acceptable to Lender;
(v) commencing on the first day of the
first month which begins not less than 31 days after the last
day of the Construction Period and thereafter on the first day
of each subsequent month, Borrower shall pay to Lender during
the Term Out Period in eighty-four (84) consecutive, equal
monthly payments of principal and interest, calculated by fully
amortizing the outstanding principal balance of the Loan as of
the commencement of the Term Out Period over an 84-month period
at the applicable interest rate set forth in Section 2.4; and
(vi) the principal balance outstanding under
the Note, and all accrued and unpaid interest not sooner paid
when due under the Note, and all other Obligations of Borrower
owing under any and all of the Loan Documents, shall due and
payable in full on the last day of the Term Out Period.
(c) In the event the Loan is not converted to a
term Loan because Borrower has chosen to finance the DSN Plant with a
lender other than Lender, not due to any default by Lender, then in
addition to all other sums owing on the date on which the
Construction Period ends, Borrower shall pay to Bank a termination
fee equal to five percent (5%) of the outstanding principal balance
of the Loan as of the date on which the Construction Period ends.
The Borrower's obligation to pay all amounts payable hereunder is absolute
and unconditional and shall not be affected by any circumstance of any
character whatsoever, including (i) any setoff, counterclaim, recoupment,
defense, abatement or reduction or any right which the Borrower may have
against the Lender, the manufacturer or supplier of any of the Equipment or
anyone else for any reason whatsoever; (ii) the invalidity, enforceability
or disaffirmance of this Agreement or any other Loan Document related
hereto; or (iii) the prohibition of or interference with the use or
possession-by the Borrower of all or any part of the DSN Plant Location or
the Equipment, for any reason whatsoever.
Section 2.4 Interest Charges. During the Construction Period,
the outstanding principal balance of the Loan shall bear interest at a rate
per annum equal to the Libor Rate plus 3.10%. During the Term Out Period,
the outstanding principal balance of the Loan shall bear interest at a per
annum rate equal to the Treasury Rate plus 2.70%. In each instance,
interest shall be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Section 2.5 Late Charge Rate. In the event the Borrower fails
to pay any amount hereunder when due, the amount due shall bear charges
thereon calculated at the Late Charge Rate. At any time when any Event of
Default has occurred, irrespective of any cure periods, and continues for
over ten (10) days, the Borrower will pay interest on the Loan at the Late
Charge Rate.
Section 2.6 Maximum Interest. In no event shall the interest
charged with respect to the Obligations exceed the maximum amount permitted
under applicable law. Notwithstanding anything to the contrary herein or
elsewhere, if at any time the rate of interest called for hereunder or
under the Note or other Loan Document (the "Stated Rate") exceeds the
highest rate of interest permissible under any applicable law (the "Maximum
Lawful Rate"), then for so long as the Maximum Lawful Rate would be so
exceeded, the rate of interest payable shall be equal to the Maximum Lawful
Rate; provided, however, that if at any time thereafter the Stated Rate is
less than the Maximum Lawful Rate, the Borrower shall, to the extent
permitted by law, continue to pay interest at the Maximum Lawful Rate until
such time as the total interest received by the Lender is equal to the
total interest which the Lender would have received had the Stated Rate
been (but for the operation of this provision) the interest rate payable.
Thereafter, the interest rate payable shall be the Stated Rate unless and
until the Stated Rate again exceeds the Maximum Lawful Rate, in which event
this provision shall again apply.
Section 2.7 Expenses. The Borrower agrees to pay on demand
all reasonable out of pocket costs and expenses (including reasonable
legal, appraisal, accounting, auditing and similar fees) incurred at any
time, before or after the Obligations are paid in full, in connection with
(i) the enforcement, attempted enforcement, amendment or termination of
this Agreement or any of the other Loan Documents, the performance of any
of the Borrower's duties under this Agreement and the other Loan Documents
or any exercise by Lender of its rights and remedies under this Agreement
or any other of the Loan Documents, including in connection with a
reorganization or bankruptcy reorganization of the Borrower or any
Affiliate; (ii) the filing or recordation of all documents or instruments
relating to the Collateral; (iii) realizing upon or protecting any
Collateral and enforcing and collecting any Obligations or guaranty
thereof; and (iv) any Default or Event of Default. The Borrower also
agrees to reimburse the Lender, on the Funding Date, for its legal fees for
outside counsel plus any appraisal fees, recording and search fees and
related expenses, including travel and other out of pocket expenses of the
Lender's agents and its counsel, incurred by it in connection with the
preparation, negotiation, execution, closing and delivery of the Loan
Documents.
Section 2.8 Prepayment. No prepayment of the Loan shall be
permitted during the Construction Period or prior to the date which is
forty-two (42) months after the date on which the Term Out Period begins.
Thereafter, provided no Default has occurred and is continuing, the
Borrower may prepay the Loan in whole, but not in part, on the first day of
any month, upon at least thirty (30) Business Days' prior written notice to
the Lender. Such prepayment of the Loan shall be accompanied by the
payment of all principal, all accrued but unpaid interest on the Loan to
the date of prepayment and all outstanding and unpaid costs, fees and
expenses. In addition, the prepayment of the Loan shall be made with a
prepayment fee in an amount equal to the greater of (a) two percent (2.0%)
of the outstanding principal balance of the Loan being prepaid, or (b) the
excess, if any, of (i) the present value of the principal and interest
payments which would have been payable during the remainder of the Term Out
Period in the absence of the prepayment, using a discount rate equal to one
percent (1.0%) plus the yield to maturity, as of the Third Business Day
prior to the date on which the prepayment is made, on U.S. Treasury
Securities having a remaining term to maturity closest to the remaining
average life of the Loan, as such yield to maturity is reported on page 5
("U.S. Treasury and Money Markets") of the information ordinarily provided
by Telerate Systems Incorporated, over (ii) the principal amount being
prepaid.
Section 2.9 Conditions of Lending. The obligation of the
Lender to make the initial and any subsequent advance under the Loan is
subject to the prior satisfaction (or waiver in writing and signed by
Lender in its sole discretion) of each of the following conditions
precedent:
(a) Representations and Warranties. The
representations and warranties made by the Borrower and the
Guarantors in the Loan Documents and any certificate, document or
financial or other written statement furnished at any time under or
in connection herewith shall be true and correct in all material
respects on and as of the date given and on and as of the date of the
Funding Date as if made on and as of such date and otherwise in
exactly the same language.
(b) Compliance. The Borrower shall have complied and
shall then be in compliance with all the terms, covenants and
conditions of the Loan Documents.
(c) No Default. No Default shall have occurred and be
continuing.
(d) No Material Adverse Change. No material adverse
change shall have occurred with respect to the business, financial
condition or operations of the Borrower since the financial statement
of LSB dated December 31, 1993 and the Lender shall have received a
certificate from the Chief Executive Officer of the Borrower to that
effect; and no material adverse change shall have occurred with
respect to the business, financial condition or operations of EDC or
any Guarantor, as may be determined by Lender in the exercise of its
reasonable discretion.
(e) Delivery of Documents. Each of the Loan Documents,
the Ground Lease, the DSN Plant Equipment Lease and the Ground
Sublease shall have been executed and delivered to the Lender in form
and substance satisfactory to the Lender and shall be in full force
and effect.
(f) No Change In Law. No change in state or federal
law shall have been enacted or proposed which would make the Loan
unlawful to the Lender.
(g) Review of Real Property Records. Prior to the
initial advance the Lender shall have reviewed and approved the real
property records and encumbrances relating to the DSN Plant Location,
including the Ground Lease and the Ground Sublease.
(h) Landlord/Mortgagee Waivers. Prior to the initial
advance the Borrower shall have provided to the Lender such
Landlord/Mortgagee Waivers, in form, substance and number as may be
reasonably required by the Lender.
(i) Mortgage and Title Insurance. Prior to the initial
advance, the Lender shall have received the Leasehold Mortgage
encumbering Borrower's interest under the Ground Lease and the Ground
Sublease, in form and priority as may be acceptable to the Lender in
its sole discretion, and the Leasehold Mortgage shall have been
recorded and any recording fees and any Arkansas intangible recording
tax shall have been paid in full. The Lender shall also have
received an ALTA lender's policy of title insurance, issued by a
title insurer acceptable to Lender, in form, amount and with such
priority and endorsements as the Lender may reasonably require,
including:
(i) Coverage against mechanics' liens;
(ii) An endorsement insuring the continuing
priority of subsequent advances;
(iii) A single tax parcel endorsement; and
(iv) Proof that all real estate taxes for
the Premises due and owing as of the Closing Date have been
paid.
(j) Opinions of Counsel. Prior to the initial advance
the Lender shall have received an opinion of legal counsel for
Borrower, LSB, LSBC and EDC, in form and substance satisfactory to
the Lender and its counsel, which opinion will include, among other
things, opinions affirming the Borrower's authority to enter into
this Agreement, the perfection and priority of the Security Interest,
LSB's and LSBC's authority to enter into the Guaranties and EDC's
authority to enter into the DSN Plant Equipment Lease and the Ground
Lease, the Ground Sublease, and the enforceability of the Loan
Documents.
(k) Environmental Compliance. Not later than ten (10)
days prior to the initial advance, the Lender shall have received and
found satisfactory an environmental report on the DSN Plant location
in form acceptable to the Lender. Subject to Borrower's
environmental representations and warranties, Lender acknowledges
that an acceptable report has been received by Lender.
(l) Bond. The Bonding Company shall have named Lender
as an additional insured.
(m) Consultant's Construction Report. Lender shall
have received a report from the Construction Consultant regarding
such matters as Lender may reasonably request.
(n) Permits. Lender and the Construction Consultant
shall have received evidence that Borrower has obtained all necessary
governmental approvals, permits and other approvals (or no impediment
exists to them being timely obtained) for completion and operation of
the DSN Plant and other improvements to be constructed pursuant to
the Plans and Specifications, including building, site plan, and such
other permits or approvals as are requested by Lender, and that all
such permits and approvals are or are expected to be in full force
and effect, with no appeal of the granting of any thereof having been
made.
(o) Contractor's Consents. Lender shall receive a
complete copy of the fully executed Contractor's Consents, if any,
which shall permit assignment thereof to Lender and its successors
and assigns and shall recognize Lender as a permitted assignee of
such Construction Contract.
(p) UCC Searches. Prior to the initial advance Lender
shall have received UCC searches for Oklahoma and Arkansas reflecting
Lender's first priority lien in the personal property Collateral.
(q) Loan Fee and Expenses. The Borrower shall have
paid in full the up front fee referenced in Section 2.12 hereof and,
from the initial funding, the expenses referenced in Section 2.7
hereof.
(r) Certificate of Good Standing and Tax Clearances.
Prior to the initial advance the Lender shall have received certified
copies indicating the Borrower is in good standing under the laws of
its state of incorporation and qualified to do business in the states
where it does business and such tax clearance certificates as may be
required by the Lender.
(s) Proceedings. All proceedings and actions shall
have been taken in connection with the transactions contemplated by
this Agreement, and all documents contemplated in connection herewith
shall be satisfactory in form and substance to the Lender and its
counsel.
(t) Evidence of Insurance. Prior to the initial
advance the Lender shall receive evidence of all insurance required
by the terms of this Agreement and the Loan Documents.
(u) Termination of Liens. Prior to the initial advance
the Lender shall have received duly executed UCC termination
statements and other instruments in form and substance satisfactory
to the Lender, as shall be necessary to terminate and satisfy any
Liens on the Collateral except for Permitted Liens.
(v) Certificate of Incumbency of Borrower. Prior to
the initial advance Lender shall have received a certificate of
incumbency of Borrower signed by the Borrower's Secretary or
Assistant Secretary, which certificate shall certify the names of the
officers of the Borrower authorized to execute any Loan Documents and
any other related documents on behalf of Borrower, together with the
signatures of such officers, and Lender may conclusively rely on such
certificate until receipt of a further certificate of the Secretary
or Assistant Secretary of Borrower cancelling or amending the prior
certificate and submitting the signatures of the officers named in
such further certificate.
(w) Resolutions of Borrower. Prior to the initial
advance Lender shall have received a certified copy of all corporate
proceedings of Borrower evidencing that all action required to be
taken in connection with the authorization, execution, delivery, and
performance of this Agreement, the other Loan Documents, the Lease
and the DSN Plant Equipment Lease, and the transactions contemplated
hereby and thereby, has been duly taken.
(x) Certificate of Incumbency of Each Guarantor. Prior
to the initial advance Lender shall have received a certificate of
incumbency of each Guarantor signed by such Guarantor's Secretary or
Assistant Secretary, which certificate shall certify the names of the
officers of such Guarantor authorized to execute the Guaranty and any
other related documents on behalf of such Guarantor, together with
the signatures of such officers, and Lender may conclusively rely on
such certificate until receipt of a further certificate of the
Secretary or Assistant Secretary of such Guarantor cancelling of
amending the prior certificate and submitting the signatures of the
officers named in such further certificate.
(y) Resolutions of Each Guarantor. Prior to the
initial advance Lender shall have received a certified copy of all
corporate proceedings of each Guarantor evidencing that all action
required to be taken in connection with the authorization, execution,
delivery and performance of the Guaranty to be executed by such
Guarantor, and the transactions contemplated thereby, has been duly
taken.
(z) References. Prior to the initial advance Lender
shall have received, reviewed and found satisfactory bank and
customer references for EDC and each Guarantor.
(aa) $75,000,000 Credit Facility. Prior to the initial
advance, LSB and certain of its subsidiaries shall have received and
accepted an executed commitment to lend, and shall be in the process
of completing a new $75,000,000 credit facility with BankAmerica
Business Credit or affiliate thereof on terms and conditions
reasonably acceptable to Lender.
(ab) Other Required Documentation. Borrower shall
execute and/or deliver such other documents, instruments, agreements
or items as Lender may reasonably require.
Section 2.10 Place and Form of Payments. Unless the Lender
otherwise directs in writing, all payments and prepayments permitted or
required by any Loan Document shall be made in immediately available funds
and not later than the time necessary for good funds to be credited on the
same day received at the Lender's account in accordance with the
instructions annexed hereto as Rider 2.10 or to such other location as the
Lender shall hereafter designate to the Borrower in writing. Whenever any
payment is stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such
extension of time shall be included in the computation of interest or fees.
Section 2.11 Hold Back. Lender will hold back construction
fund advances in an amount of $2,500,000 until such time as Lender shall
have determined, based upon an appraisal of the DSN Plant performed at
Borrower's sole cost and expense by an independent appraiser selected by
Lender, that the Fair Market Value of the DSN Plant is at least equal to
$12,750,000.
Section 2.12 Commitment Fee. In consideration of the Lender's
commitment to enter into this Agreement, the Mixed Acid Plant Loan
Documents and the Rail Car Loan Documents, the Borrower acknowledges that
the Lender has previously received a non-refundable fee in the amount of
$124,950, paid in connection with the Lender's proposal and commitment.
ARTICLE 3
SECURITY FOR THE OBLIGATIONS
Section 3.1 Grant of Security Interest. As collateral
security for the prompt and due payment and performance of the Obligations
and all Indebtedness of Borrower to Lender under the Mixed Acid Plant Loan
Documents and the Rail Car Loan Documents, the Borrower hereby assigns to
the Lender and grants to the Lender a continuing lien on and security
interest in all of the Borrower's right, title and interest in and to the
following property, present or future, tangible or intangible, now owned or
existing or hereafter acquired or arising:
(a) All documents, instruments, rentals and other
rights to payment relating to the DSN Plant, the DSN Plant Equipment
Lease, the Ground Lease, the Ground Sublease and the Consulting
Agreement and all other agreements, contracts, chattel paper,
contract rights, rights to payment and insurance policies and surety
bonds relating thereto, and the Plans and Specifications and all
Construction Contracts, and all proceeds of all of the foregoing;
(b) All general intangibles, trade secrets, computer
programs, software, customer lists, trademarks, trade names, patents,
licenses, copyrights, technology, processes, proprietary information,
and insurance proceeds relating to the DSN Plant;
(c) All books and records, including books of account
and ledgers of every kind and nature, all electronically recorded
data relating to Borrower or the business thereof, all receptacles
and containers for such records, and all files and correspondence
relating to the DSN Plant;
(d) All Equipment, goods, including all inventory,
machinery, tools, molds, dies, furniture, furnishings, fixtures,
trade fixtures, motor vehicles and all other goods used in connection
with or in the conduct of Borrower's business relating to the
DSN Plant;
(e) All accessions, appurtenances, components, repairs,
repair parts, spare parts, replacements, substitutions, additions,
issue and/or improvements to or of or with respect to any of the
foregoing;
(f) All rights, remedies, powers and/or privileges of
Borrower with respect to any of the foregoing; and
(g) Any and all Proceeds and products of any of the
foregoing, including all money, rentals, accounts, general
intangibles, deposit accounts, documents, instruments, chattel paper,
goods, insurance proceeds, and any other tangible or intangible
property received upon the sale or disposition of any of the
foregoing.
Except in the ordinary or normal course of its operations in Section 7.6
herein, Borrower has no right to dispose of or sell any of the
above-described Collateral.
Section 3.2 Continuing Obligation. Except with respect to
those Permitted Liens and those liens which by law are accorded a first
priority, the Borrower shall take all action necessary to grant the Lender
a valid first priority lien on and security interest in all Collateral on
the Funding Date, and to maintain at all times the validity,
enforceability, perfection and first priority of the Security Interest.
Until the Obligations are fully paid and satisfied, the Borrower will at
all times do, make, execute, deliver, record, register or file all such
financing statements, fixture filings, deeds of trust, mortgages,
assignments, certificates, charges, instruments, acts, pledges, assignments
and transfers (or cause the same to be done) and will deliver to the Lender
such instruments constituting or evidencing the Collateral, as the Lender
may request, to assure, continue or establish the validity, enforceability,
perfection and first priority (except for Permitted Liens) of the Security
Interest. To the extent permitted by applicable law, the Borrower hereby
authorizes the Lender to: (i) sign Borrower's name and on behalf of such
Borrower to execute and file mortgages, deeds of trust, financing
statements, and notices of lien necessary to protect or perfect the
security interest granted herein in any or all of the Collateral and
(ii) file a carbon, photocopy or other reproduction of this Agreement or
any of the other Loan Documents as a financing statement in each case which
the Lender, in its discretion, deems necessary or desirable to perfect or
maintain the perfection of the Security Interest.
ARTICLE 4
ADMINISTRATION OF THE COLLATERAL
Section 4.1 The Equipment. The Borrower, at its own cost and
expense, will keep, or cause EDC to keep, the Equipment in good operating
condition and repair, except for normal wear and tear, and will not waste
or destroy, or allow EDC to waste or destroy, such Equipment, or any part
thereof, or be negligent in the care and use thereof and will make all
necessary replacements thereof and repairs thereto. The Borrower shall
promptly inform the Lender of any material additions to such Equipment and
of any material loss, damage, or destruction of such Equipment. The
Borrower will not permit any Equipment to become a fixture to any real
property or an accession to any other personal property, unless the Lender
has a first priority perfected Security Interest in such real or personal
property or has been provided with such waivers or consents as the Lender
may reasonably require. The Borrower shall, promptly upon the Lender's
request, deliver to Lender any and all evidence of ownership of such
Equipment.
Section 4.2 No Lender Liability. The Lender shall have no
duty of care with respect to any Collateral unless and until it takes the
same into its own possession or control. The Lender shall be deemed to
have satisfied its duty of due care with respect to Collateral in its
custody and control if it accords to such Collateral treatment
substantially equal to the treatment the Lender accords its own property,
or if the Lender takes such action with respect to the Collateral as the
Borrower requests in writing, but no failure to comply with any such
request nor any omission to do any such act requested by the Borrower shall
be presumptively deemed, from that failure or omission, an absence of
reasonable care. The Lender shall not be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause
thereof, unless caused by the Lender's gross negligence or willful
misconduct. The Lender does not, by anything contained herein or in any
other Loan Document or otherwise, assume any obligation of the Borrower
under the Ground Lease, the Ground Sublease, or the DSN Plant Equipment
Lease or any other contract or agreement assigned to Lender or in which
Lender is granted a security interest, and the Lender shall not be
responsible in any way for the performance by the Borrower of any of the
terms and conditions thereof.
Section 4.3 Use of Equipment; Identification.
(a) The Borrower shall use the Equipment in a careful
and proper manner, will comply with and conform to all governmental
laws, rules and regulations relating thereto, and will cause the
Equipment to be operated properly or in substantial accordance with
the manufacturer's or supplier's instructions or manuals and only by
competent and duly qualified personnel.
(b) The Borrower shall not move any of the Equipment
from the DSN Plant Location without the prior written consent of CIT.
(c) Upon Lender's written request and at the Borrower's
sole expense, the Borrower shall attach to each item of Equipment a
notice satisfactory to Lender disclosing Lender's security interest
in such item of Equipment.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make
the Loan, the Borrower represents and warrants to the Lender as set forth
below. The representations and warranties of the Borrower contained in
this Article V and otherwise herein and in any other Loan Document shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Lender and shall survive the
execution and delivery of this Agreement and the other Loan Documents and
the making of the Loan.
Section 5.1 Organization and Qualification. The Borrower is
duly incorporated and organized and is validly existing as a corporation in
good standing under the laws of the State of Oklahoma, with all power
(corporate or otherwise) to own or lease and operate the DSN Plant and its
other properties and assets and to carry on its business in the manner in
which such business is now conducted. The Borrower is duly licensed and
qualified to do business and is in good standing in the state of Arkansas
and in every other state where failure to be so licensed or qualified and
in good standing would have a material adverse effect on its business,
properties or assets.
Section 5.2 Concerning the Loan Documents. The Borrower has
the power to authorize, execute and deliver the Loan Documents to which
Borrower is a party, to incur and perform its Obligations hereunder and
thereunder, and, as applicable, to grant the Security Interest. The
Borrower has duly taken all necessary corporate action to authorize the
execution, delivery and performance of such Loan Documents, and no consent,
approval or authorization of, or declaration or filing with, any
governmental or other public body, or any other Person (including without
limitation any stockholders, trustees or holders of Indebtedness of the
Borrower), is required in connection with such authorization, execution,
delivery and performance by the Borrower or the consummation of the
transactions contemplated hereby or thereby. Such Loan Documents have been
duly authorized, executed and delivered by or on behalf of the Borrower,
and constitute the legal, valid and binding Obligations of the Borrower and
are enforceable against the Borrower in accordance with their respective
terms.
Section 5.3 Guaranties. Each Guarantor has the power to
authorize, execute and deliver its Guaranty and to incur and perform its
obligations under its Guaranty. Each Guarantor has duly taken all
necessary corporate action to authorize the execution, delivery and
performance of its Guaranty, and no consent, approval or authorization of,
or declaration or filing with, any governmental or other public body, or
any other Person (including without limitation any stockholders, trustees
or holders of Indebtedness of such Guarantor), is required in connection
with such authorization, execution, delivery and performance by such
Guarantor. Each Guarantor's Guaranty has been duly authorized, executed
and delivered by or on behalf of such Guarantor, and constitutes the legal
valid and binding obligations of such Guarantor and is enforceable against
such Guarantor in accordance with its terms.
Section 5.4 Equipment. All Equipment is in good operating
order and condition and repair, except for ordinary wear and tear, is used
or useful in the business of the Borrower and is readily moveable without
harm or damage. The invoices previously delivered to the Lender by the
Borrower respecting the Equipment are genuine, true and accurate, and the
descriptions and locations of the Equipment set forth in the Disclosure
Schedule are true, complete and accurate.
Section 5.5 The DSN Plant. Construction of the DSN Plant is
in full compliance with all requirements of the DSN Plant Equipment Lease
and the Ground Lease; the description of the DSN Plant Location in Exhibit
"C," and the description of the Ground Lease, the Ground Sublease and the
DSN Plant Equipment Lease in Article 1 above is accurate and complete. The
Ground Lease, the Ground Sublease and the DSN Plant Equipment Lease are
valid and enforceable in accordance with their respective terms and are in
full force and effect. Neither the Borrower nor any other party to the
Ground Lease, the Ground Sublease or the DSN Plant Equipment Lease is in
default of its obligations thereunder or has delivered or received any
notice of default under the Lease or the Equipment Lease (as applicable)
which default has not been waived or cured.
Section 5.6 Title to the DSN Plant and Equipment; Security
Interest. Except for the Security Interest and Permitted Liens and all
items set forth in the Title Policy, under the Ground Lease and subject to
the right of quiet enjoyment under the Ground Sublease and the DSN Plant
Equipment Lease, the Borrower has good, and merchantable title to the DSN
Plant and all Equipment and other Collateral, and neither the DSN Plant nor
any of such Equipment nor any other Collateral is or will be subject to any
Lien. The provisions of the Loan Documents create legal, valid and
enforceable security interests in and liens on the DSN Plant and all
Equipment and other Collateral, and the Loan Documents and such UCC and
real property filings create a perfected and continuing first priority
security interest upon the DSN Plant and all the Equipment and other
Collateral securing the Obligations, and are enforceable against the
Borrower and all third parties.
Section 5.7 Financial Condition. The Borrower has furnished
to the Lender LSB's consolidated and consolidating financial statements as
of December 31, 1993, accompanied by the report of LSB's independent
certified public accountants, which statements present fairly in all
material respects the consolidated and consolidating financial position of
LSB and its consolidated Affiliates as of the date thereof. Such financial
statements have been prepared in accordance with GAAP. From the date of
such financial statements to the date of the execution of this Agreement,
there has not been any material adverse change from the financial condition
reflected in such financial statements or in the Borrower's business or
condition since the date thereof. As of the date hereof, the Borrower has
no direct or contingent material liabilities which are not provided for or
reflected in such financial statements.
Section 5.8 Litigation. There are no actions, suits,
proceedings or investigations pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower or EDC as it may affect the
Ground Lease, the Ground Sublease or the DSN Plant Equipment Lease, nor to
the knowledge of Borrower is there any basis therefor on the date of this
Agreement.
Section 5.9 Disclosure. No representation or warranty made by
the Borrower hereunder and no written information, exhibit, report,
document or certificate furnished by or on behalf of the Borrower or any
Affiliate to the Lender in connection with this Agreement, contained or
will contain, as of its date or as of the Funding Date, any material mis-
statement of fact or omits, as of its date, to state a material fact or any
fact necessary to make the statements contained therein not misleading.
There is no fact known to the Borrower that materially adversely affects or
that, insofar as the Borrower can now reasonably foresee, may materially
adversely affect, the condition, financial or otherwise, operations,
properties or prospects of the Borrower and Affiliates, or the ability of
the Borrower to carry out its Obligations under any Loan Document.
Section 5.10 Tax Returns and Payments. The Borrower has filed
all federal, state and local tax returns and other reports which it was
required by law to file on or prior to the date hereof and has paid all
taxes, assessments, fees and other governmental charges and penalties and
interest, if any, payable against it or its property, income or franchise,
that are due and payable, and Borrower does not have any knowledge of any
actual or proposed deficiency or additional assessment in connection
therewith. The charges, accruals and reserves on the books of Borrower in
respect of federal, state and local taxes for all open years, and for the
current fiscal year, make adequate provision for all unpaid tax liabilities
for such periods.
Section 5.11 Compliance with Other Instruments. Neither the
Borrower nor EDC is in violation of any material term or provision of its
certificate of incorporation or by-laws, or of any material mortgage,
indenture, contract, agreement, instrument, or other undertaking to which
the Borrower or EDC is a party or which purports to be binding on Borrower
or EDC, or any of the assets of Borrower or EDC (including the Ground
Lease, the Ground Sublease and the DSN Plant Equipment Lease), or, except
as disclosed to Lender pursuant to Section 5.14 hereof, of any judgment,
decree, order or any material statute, rule or governmental regulation
applicable to it. The execution, delivery and performance of this
Agreement and the other Loan Documents do not and will not violate or
otherwise conflict with any such term or provision or result in the
creation of any security interest, lien, charge or encumbrance upon any of
the Collateral, except the Security Interest.
Section 5.12 Pension Plans. The Borrower has not participated
in any "prohibited transactions", as defined in Section 4975 of the
Internal Revenue Code, that could subject the Borrower to any tax or
penalty imposed by said Section 4975 (other than prohibited transactions
that have been "corrected", as defined in said Section 4975). Since the
effective date of the Employee Retirement Income Security Act of 1974, as
from time to time amended ("ERISA"), the Borrower has not incurred any
"accumulated funding deficiency", as such term is defined in Section 302 of
ERISA (other than any accumulated funding deficiency that has been
"corrected", as defined in Section 4971(c)(2) of the Internal Revenue Code.
Section 5.13 Labor Relations. To the best knowledge of
Borrower after due inquiry, Borrower and EDC are in material compliance
with the Fair Labor Standards Act with respect to the DSN Plant. To the
best knowledge of Borrower after due inquiry, neither the Borrower nor EDC,
with respect to the DSN Plant, is engaged in any unfair labor practice. To
the best knowledge of Borrower after due inquiry, there are: (i) no unfair
labor practice complaints pending or, to the best knowledge of the
Borrower, threatened against the Borrower or EDC and no grievance or
arbitration proceedings arising out of or under collective bargaining
agreements are so pending or, to the best knowledge of the Borrower,
threatened; (ii) no strikes, work stoppages or controversies pending or
threatened between the Borrower or EDC and any of their employees (other
than employee grievances arising in the ordinary course of business); and
(iii) no union representation questions exist with respect to the employees
of the Borrower or EDC and no union organizing activities taking place
which would have a material adverse effect on the financial condition,
results of operations or business of the Borrower or EDC;
Section 5.14 Environmental Laws. Except as disclosed by
Borrower to Lender by delivery to Lender of copies of documents publicly
filed with the Securities and Exchange Commission, a report of the Arkansas
Department of Pollution and Control and Ecology to EDC dated July 18, 1994,
an environmental report of Woodward Clyde regarding the DSN Plant Location,
and correspondence from Borrower and Affiliates regarding the DSN Plant
Location (all collectively referred to as "Environmental Disclosure
Documents"), to the best knowledge of Borrower after due inquiry, as of the
date hereof (a) the operations of the Borrower or EDC (with respect to the
DSN Plant) comply in all material respects with all applicable
Environmental Laws; (b) none of the operations of the Borrower or EDC (with
respect to the DSN Plant) is subject to any judicial or administrative
proceeding alleging the violation of any Environmental Laws; (c) none of
the operations of the Borrower or EDC (with respect to the DSN Plant) is
the subject of federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any Hazardous
Substance into the environment; (d) neither the Borrower nor EDC (with
respect to the DSN Plant) has filed any notice under any federal or state
law indicating past or present treatment, storage or disposal of a
Hazardous Substance or reporting a spill or release of a Hazardous
Substance into the environment; and (e) neither the Borrower nor EDC (with
respect to the DSN Plant) has any known material contingent liability in
connection with any release of any Hazardous Substance into the
environment. The materiality standard used in this Section 5.14 shall be
exceeded if the facts giving rise to a breach or breaches of the
representations or warranties contained herein might result in liability in
excess of $1,000,000 in the aggregate.
Section 5.15 Trade Names. Other than as disclosed on the
Disclosure Schedule, the Borrower, during the past five years, has not used
any corporate name other than its present corporate name (which is set
forth in the introductory paragraph of this Agreement) and has not been
known by or used any fictitious, trade or "doing business" name.
Section 5.16 Subsidiaries. The Disclosure Schedule contains a
correct and complete list of the name and relationship to the Borrower of
each and all of the Borrower's Subsidiaries, if any, and the location of
the chief executive office of each Subsidiary.
Section 5.17 Loans and Affiliate Payments. The Disclosure
Schedule fully and completely sets forth all notes and Indebtedness
together with the amount and schedule of any material payments owed by
Borrower to officers, directors, stockholders and Affiliates of Borrower.
Section 5.18 Permits, Licenses. Borrower possesses all
material permits, franchises, contracts and licenses required and owns or
has the right to use all trademarks, trade names, patents and fictitious
name rights necessary to enable it to conduct the business in which it is
engaged without conflict with the rights of others.
Section 5.19 Broker's or Transaction Fees. Borrower has no
obligation to any Person for any finder's, broker's or investment banker's
fee in connection with the transactions contemplated hereby.
Section 5.20 Taxpayer ID No. and Chief Executive Office.
Borrower's taxpayer identification number is 731456545. Borrower's chief
executive office is located at 16 South Penn, Oklahoma City, OK 73107, and
Borrower's principal place of business is located in Oklahoma City.
Section 5.21 No Default. No Default has occurred under this
Agreement.
ARTICLE 6
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as all or any
portion of the Obligations remain unpaid or unsatisfied, it will, at its
own cost and expense:
Section 6.1 Financial and Other Information. Promptly furnish
to the Lender or its agents all such financial or other information as the
Lender shall reasonably request, and, at the request of the Lender, notify
its auditors and accountants that the Lender is authorized to obtain such
information directly from them. Without limitation of the foregoing, the
Borrower will furnish to the Lender in such detail as the Lender shall
request:
(a) Not later than 120 days after the close of each
Fiscal Year of the Borrower, unaudited balance sheets of the Borrower
as at the end of such Fiscal Year and related unaudited statements of
income, expense and retained earnings and statements of cash flow of
the Borrower for such year, setting forth in each case in comparative
form figures for the previous Fiscal Year, all in reasonable detail,
fairly presenting in all material respects the financial position of
the Borrower and the results of operations of the Borrower for the
Fiscal Year then ended, and prepared in accordance with GAAP. Such
statements shall be accompanied by a certificate of the chief
financial officer or chief accounting officer of Borrower.
(b) Not later than 90 days after the close of each
fiscal quarter of Borrower, unaudited balance sheets of the Borrower
as at the end of such period, and unaudited statements of income and
expense from the beginning of the Fiscal year to the end of each such
period, for the Borrower, all in reasonable detail, fairly presenting
in all material respects the financial position and results of
operations of the Borrower, in each case, prepared in accordance with
GAAP and consistent with the audited financial statements required
pursuant to Section 6.1(e). Such statements shall be accompanied by
a certificate of the chief financial officer or accounting officer of
Borrower stating that, based upon such examination or investigation
as such officer shall have deemed necessary to enable him to render
an informed opinion in respect thereof, to the best of his knowledge
and belief the financial statements are materially correct and no
Default exists under this Agreement and is continuing except for
those, if any, described in such certificate in reasonable detail.
(c) Not later than 120 days after the close of each
Fiscal Year of EDC, audited consolidated and unaudited consolidating
balance sheets of EDC and its consolidated Subsidiaries as at the end
of such Fiscal Year and related audited consolidated and unaudited
consolidating audited statements of income, expense and retained
earnings and statements of cash flow of EDC and its consolidated
Subsidiaries for such year, all in reasonable detail, fairly
presenting in all material respects the financial position of EDC and
its consolidated Subsidiaries and the results of operations of EDC
and its consolidated Subsidiaries for the Fiscal Year then ended, and
prepared in accordance with GAAP. Such statements required hereunder
shall be examined and accompanied by a report of independent
certified public accountants which shall not contain any
qualifications or exceptions as to scope.
(d) Not later than 90 days after the close of each
fiscal quarter of EDC, unaudited consolidated and consolidating
balance sheets of EDC and its consolidated Subsidiaries as at the end
of such period, and consolidated and consolidating statements of
income and expense from the beginning of the Fiscal Year to the end
of each such period, for EDC and its consolidated Subsidiaries, all
in reasonable detail, fairly presenting in all material respects the
consolidated and consolidating financial position and results of
operations of EDC and its consolidated Subsidiaries, in each case,
prepared in accordance with GAAP and consistent with the audited
financial statements required pursuant to Section 6.1(c) above, and
certified to be materially correct by the chief financial officer or
the chief accounting officer of EDC.
(e) Not later than 120 days after the close of each
Fiscal Year of LSB, LSB's 10K Report filed with the Securities and
Exchange Commission, the audited consolidated and unaudited
consolidating balance sheets of LSB and its consolidated Affiliates
as at the end of such Fiscal Year and related audited consolidated
and unaudited consolidating statements of income, expense and
retained earnings and audited statements of cash flow of LSB and its
consolidated Affiliates for such year, setting forth in each case in
comparative form figures for the previous Fiscal Year, all in reason-
able detail, fairly presenting the financial position of LSB and its
consolidated Affiliates and the results of operations of LSB and its
consolidated Affiliates for the Fiscal Year then ended, and prepared
in accordance with GAAP. Such statements required hereunder shall be
examined and accompanied by a report of independent certified public
accountants which shall not contain any qualifications as to scope;
and such report shall also be accompanied by a certificate of such
accountants stating that in the course of performing their
examination such accountants did not become aware of the existence of
any default under this Agreement, except for those, if any, described
in such certificate in reasonable detail. In addition, the chief
financial officer or accounting officer of LSB shall provide a
certificate which shall also include a statement by such officer that
no breach, default or event of default has occurred and is continuing
under any document to which LSB or any consolidated Affiliate is a
party that evidences any Indebtedness of LSB or any such Affiliate
which exceeds, individually or together with any related
Indebtedness, $5,000,000, or if any such breach, default or event of
default has occurred, explaining the nature of such breach, default
or event of default and the status thereof. Such certificate shall
also include a statement from such officer that LSB is in compliance
with all covenants contained in this Agreement relating to the
financial condition of LSB, and such statement shall be accompanied
by the calculations of such financial covenants.
(f) Not later than 90 days after the close of each
fiscal quarter of LSB, LSB's 10Q Report filed with the Securities and
Exchange Commission and the unaudited consolidated balance sheets of
LSB and its consolidated Affiliates as at the end of such period, and
unaudited consolidated statements of income and expense from the
beginning of the Fiscal year to the end of each such period, for LSB
and its consolidated Affiliates, all in reasonable detail, fairly
presenting in all material respects the consolidated financial
position and results of operations of LSB and Affiliates, in each
case, prepared in accordance with GAAP and consistent with the
audited financial statements required pursuant to Section 6.1(e)
above. Such statements shall be accompanied by a certificate of the
chief financial officer or the chief accounting officer of LSB
stating that, based upon such examination or investigation as such
officer shall have deemed necessary to enable him to render an
informed opinion in respect thereof, to the best of his knowledge and
belief, such financial statements are materially correct and no
Default under this Agreement exists and is continuing except for
those, if any, described in such certificate in reasonable detail.
Such certificate shall also include a statement from such officer
that LSB is in compliance with all financial covenants contained in
this Agreement relating to the financial condition of LSB, and such
statement shall be accompanied by the actual calculations of such
financial covenants.
(g) Promptly after the Borrower or any Affiliate
receives the same, copies of management letters provided to the
Borrower by its independent certified public accountants;
(h) Promptly after their preparation, copies of any and
all proxy statements, financial statements, and reports which the
Borrower, or LSB or EDC sends to its shareholders or holders of its
Indebtedness, and copies of any and all periodic special reports, as
well as registration statements, filed by the Borrower, LSB or EDC
with the Securities and Exchange Commission or similar State
authority;
(i) Deliver to the Lender within 30 days of the end of
each quarter, a compliance certificate signed by the Borrower's Chief
Financial Officer or the Chief Accounting Officer certifying that the
Borrower is in compliance with all of the terms and conditions of the
Agreement and that no Default exists.
(j) Such additional information as the Lender may from
time to time reasonably request regarding the financial and business
affairs of the Borrower or any Subsidiary or Guarantor and which are
kept in the ordinary course of business.
Section 6.2 Access. At all reasonable times, and from time to
time, permit the Lender or its agents to inspect the Collateral and to
audit, examine and make extracts from or copies of any of its books,
ledgers, reports, correspondence and other records.
Section 6.3 Taxes. Promptly pay and discharge all taxes,
assessments and other governmental charges prior to the date on which same
are past due, establish adequate reserves for the payment of such taxes,
assessments and other governmental charges, make all required withholding
and other tax deposits, and, upon request, provide the Lender with receipts
or other proof that any or all of-such taxes, assessments or governmental
charges have been paid in a timely fashion; provided, however, that nothing
contained herein shall require the payment of any tax, assessment or other
governmental charge so long as its validity is being contested in good
faith and by appropriate proceedings diligently conducted.
Section 6.4 Maintenance of Properties; Insurance. At the
Borrower's sole cost and expense, defend all Collateral against the claims
or demands of all other parties; keep the Collateral in good operating
condition and repair and in compliance with all laws (except normal wear
and tear); and insure all Equipment, the DSN Plant and DSN Plant Location
against risk, in coverage, form and amount satisfactory to the Lender with
a carrier reasonably acceptable at all times to Lender with no greater
deductible amount than $250,000 per occurrence. Insurance on the
Equipment, the DSN Plant and the DSN Plant Location shall be in an amount
equal to the greater of the full replacement value thereof, or 100% of the
outstanding balance of the Loan. The Borrower shall also maintain
(a) builder's all risk completed value hazard insurance covering 100% of
the replacement cost of the DSN Plant and Equipment during the course of
construction in the event of fire, lightning, windstorm, earthquake,
vandalism, malicious mischief and all other risks normally covered by "all
risk" policies in the area where the DSN Plant is located (including loss
by flood if the DSN Plant is located in an area designated as subject to
the danger of flood); (b) product liability insurance in an amount
customary for the businesses conducted by the Borrower; and (c) general
public liability insurance in an amount satisfactory to Lender, but in no
event less than Fifteen Million Dollars ($15,000,000) per occurrence, for
bodily injury and property damage. The Borrower and EDC shall also
maintain workers' compensation insurance in accordance with Borrower's and
EDC's usual practices. Each insurance policy shall be endorsed in favor of
the Lender as additional loss payee in form and substance satisfactory to
the Lender, and provide that any proceeds payable thereunder will be paid
to the Borrower and the Lender as their interest may appear. Each policy
shall provide that if such insurance is cancelled for any reason
whatsoever, or if any substantial change is made in the coverage which
affects the Lender, or if such insurance is allowed to lapse for nonpayment
of premium, such cancellation, change or lapse shall not be effective as to
the Lender until 30 days after receipt by the Lender of written notice from
the carrier thereof. The Borrower hereby directs all insurers under such
policies to pay all proceeds with respect to losses of Collateral to
the Borrower and to Lender. With respect to occurrences giving rise to
insurance proceeds paid with respect to losses, the Lender shall, so long
as no uncured Default exists, release such proceeds to the Borrower after
receipt of evidence of satisfactory repair, replacement or reconstruction
of the assets subject to such casualty.
Section 6.5 Business. Take all necessary steps to preserve
its corporate existence and its right to conduct business in all state in
which the nature of its business or the ownership of it property requires
such qualification.
Section 6.6 Compliance. Use reasonable efforts to comply in
all material respects with all applicable laws and duly observe all valid
requirements of all applicable governmental authorities, including all
statutes, rules and regulations relating to public and employee health and
safety and social security and withholding taxes. The Borrower may contest
or dispute any taxes, assessments or impositions in good faith, so long as
such contest or dispute does not result in the creation or incurring of any
liens against the Lender's Collateral and the Borrower maintains adequate
reserves as required under GAAP for the satisfaction of the disputed tax,
assessment or imposition.
Section 6.7 Litigation. Except as disclosed in the
Environmental Disclosure Documents referred to in Section 5.14, promptly
notify the Lender in writing of any action, suit, proceeding, or
counterclaim against, or of any investigation of, the Borrower, the DSN
Plant Location or any of the Collateral, if: (i) the outcome of such
litigation, proceeding, counterclaim, or investigation would materially and
adversely affect the Collateral or the finances or operations of Borrower
or EDC; or (ii) such litigation, proceeding, counterclaim, or investigation
questions the validity of this Agreement or any other Loan Document or any
action taken or to be taken pursuant thereto. Borrower shall furnish to
the Lender such information regarding any such litigation, proceeding,
counterclaim, or investigation as the Lender shall request.
Section 6.8 Environmental Laws.
(a) Except as disclosed in the Environmental Disclosure
Documents referred to in Section 5.14, give written notice to Lender
immediately upon receipt of any notice that (i) the operations of the
Borrower or EDC with respect to the DSN Plant are not in material
compliance with requirements of applicable Environmental Laws;
(ii) the Borrower or EDC with respect to the DSN Plant is subject to
federal or state investigation evaluating whether any remedial action
is needed to respond to the release of any Hazardous Substance into
the environment which would have a material adverse effect on
Borrower; or (iii) any properties or assets of the Borrower or EDC
with respect to the DSN Plant are subject to an Environmental Lien.
As used herein, "Environmental Lien" means a lien in favor of any
governmental entity for (A) any liability under any Environmental
Laws, or (B) damages arising from or costs incurred by such
governmental entity in response to a release of a Hazardous Substance
into the environment.
(b) Except as disclosed in the Environmental Disclosure
Documents referred to in Section 5.14, without limiting the
generality of any of the Borrower's other covenants and agreements,
the operations of the Borrower or EDC with respect to the DSN Plant
shall at all times comply in all material respects with all
applicable Environmental Laws. The materiality standard used in this
Section 6.8 shall be exceeded if the facts giving rise to a breach or
breaches of the covenant herein is likely to result in liability in
excess of $500,000 in the aggregate.
Section 6.9 Notices. Promptly notify the Lender in writing of
any Default or of any default by any party under any Construction Contract,
the Ground Lease, Ground Sublease, the DSN Plant Equipment Lease, the
Consulting Agreement, or as required by Sections 6.7 and 6.8 of this
Agreement. The failure of the Borrower to promptly give the Lender such
notice of any Default of which it is aware, shall, at the Lender's option,
eliminate any cure period for such Default.
Section 6.10 Tangible Net Worth. LSB shall maintain at all
times, on a consolidated basis, a minimum tangible net worth of $80,000,000
after subtracting treasury stock and $92,800,000 before subtracting
treasury stock. Notwithstanding the foregoing, the tangible net worth
after subtracting treasury stock shall not be less than $83,000,000 at
December 31, 1995 and $85,000,000 at December 31, 1996 and thereafter. The
term tangible net worth is defined as total stockholders' equity, after
deducting any treasury stock, less all assets that are considered
intangible assets under GAAP (including but not limited to goodwill,
patents, trademarks, certain deferred charges (as approved by Lender) and
customer lists).
Section 6.11 Change of Ownership. LSB shall at all times hold
not less than one hundred percent (100%) of each class of stock of LSBC
and, at all times, LSBC shall hold, directly or indirectly, one hundred
percent (100%) of each class of stock of the Borrower.
Section 6.12 Use of Proceeds. Use the proceeds of the Loan
for construction and equipment costs, fees and expenses in accordance with
Article 2 hereof.
Section 6.13 Books. Keep proper books of record and account
in which full, true and correct entries in accordance with GAAP will be
made of all dealings or transactions in relation to its business and
activities.
ARTICLE 7
NEGATIVE COVENANTS
So long as all or any portion of the Obligations remains
unpaid, the Borrower covenants and agrees that, without the Lender's prior
written consent, which consent will not be unreasonably withheld, the
Borrower shall not:
Section 7.1 Corporate Structure. Merge, reorganize or
consolidate with or acquire any Person or make any investment in the
securities of any Person.
Section 7.2 Dividends, Distributions, Redemptions. Declare or
pay any dividends or other distributions upon any stock or make any
distribution of the Borrower's property or assets or redeem, retire,
purchase or otherwise acquire, directly or indirectly, the Borrower's
stock.
Section 7.3 Loans, Investments, Affiliate Payments, Salaries.
Make any loans or other advances of money (other than compensation) to any
Person; make any payments to any officers, directors, stockholders or
Affiliates on any existing loans except as set forth on the Disclosure
Schedule or pursuant to the Ground Lease or Administrative Services
Agreement between Borrower and LSB, or payments to LSB for the Borrower's
pro rata share of taxes with respect to the Borrower's business, or permit
the annual compensation and all other direct and indirect remuneration to
its officers to increase more than fifteen percent (15%) per year.
Section 7.4 Change in Business, Structure or Business
Location. Make any material change in the capital structure or any of
Borrower's business objectives, purposes and operations; engage, directly
or indirectly, in any business other than ownership of the DSN Plant, the
railcars acquired with the Rail Car Loan, the Mixed Acid Plant financed by
the Mixed Acid Plant Loan, and all items related thereto; or change the
location of its chief executive office without thirty days' prior written
notice to Lender.
Section 7.5 Guaranties. Borrower shall not guaranty or
otherwise, in any way, become liable with respect to the Indebtedness or
liabilities of any Person.
Section 7.6 Sale of Property. Offer to sell, convey, assign,
transfer, exchange, lease (except pursuant to the DSN Plant Equipment
Lease, the Ground Sublease or to the extent permitted in the Mixed Acid
Plant Loan Documents or the Rail Car Loan Documents) or otherwise dispose
of any Collateral, or, on an annual basis, any other real or personal
property having a value in excess of $25,000, except sales of supplies,
equipment and inventory in the ordinary course of the Borrower's business
and trade-ins on new purchases, provided that Lender shall have a first
priority perfected lien on any new purchases of property.
Section 7.7 Prepayment. Borrower shall not prepay any
Indebtedness, except the Obligations in accordance with this Agreement.
Section 7.8 Liens. Create, incur, assume or suffer to exist
any Lien upon any Collateral, the DSN Plant Equipment Lease or the Ground
Lease, except Liens in favor of the Lender and Permitted Liens and the
DSN Plant Equipment Lease, the Ground Sublease and the Consulting
Agreement.
Section 7.9 Negative Pledge on Leases. Pledge, encumber,
transfer or assign any of its right, title or interest in any of the real
property Collateral relating to the DSN Plant Location.
Section 7.10 Pension Plans. To the knowledge of Borrower,
with respect to all Pension Plans: (a) incur any liability to the Pension
Benefit Guaranty Corporation; (b) participate in any prohibited transaction
involving any of such plans or any trust created thereunder which would
subject the Borrower to a tax or penalty on prohibited transactions imposed
under Code Section 4975 or ERISA; (c) fail to make any contribution which
it is obligated to pay under the terms of such plan; (d) allow or suffer to
exist any occurrence of a Reportable Event, or any other event or condition
which presents a risk of termination by the Pension Benefit Guaranty
Corporation of any such plan; or (e) incur any withdrawal liability with
respect to any multiemployer Pension Plan which is not fully bonded.
Section 7.11 Borrower's Name. Change Borrower's corporate
name or use any trade name or style unless the Borrower shall first give
the Lender thirty days prior written notice of the change in question.
Section 7.12 Changes to DSN Plant Documents. Make any
alterations, amendments or modifications of any provisions of (a) the
DSN Plant Equipment Lease, (b) the Ground Lease, (c) the Ground Sublease,
(d) the Consulting Agreement, or (e) the Administrative Services Agreement
dated September 19, 1994 between LSB and the Borrower.
Section 7.13 Other Debts. Except for Permitted Liens,
Borrower shall not have outstanding or incur any direct or contingent
Indebtedness (other than those to Lender) or lease obligations (other than
the Ground Lease, DSN Plant Equipment Lease and Ground Sublease) or to
become liable for the Indebtedness of others without Lender's written
consent. This does not prohibit:
(a) Acquiring goods, supplies, services or merchandise
on normal trade credit, or payroll obligations or obligations under
the Administrative Services Agreement between LSB and Borrower;
(b) Endorsing negotiable instruments received in the
usual course of business;
(c) Debts, lines of credit and leases in existence on
the date of this Agreement and disclosed to Lender on the Disclosure
Schedule; or
(d) Taxes, Indebtedness associated with the
construction of the DSN Plant and lawsuits.
Section 7.14 Transactions with Affiliates. Not to enter
transactions with any Affiliate on terms less favorable than those
available to Borrower from persons or entitles not affiliated with Borrower
except:
(a) taxes on consolidated tax returns;
(b) the DSN Plant Equipment Lease;
(c) the Ground Lease;
(d) the Ground Sublease;
(e) the Consulting Agreement; and
(f) the Administrative Services Agreement.
None of the agreements in this Section 7.14(b) through (f) may be amended
or modified with Lender's prior written consent.
ARTICLE 8
DEFAULT
Section 8.1 Events of Default. The occurrence of any one or
more of the following events for any reason whatsoever shall constitute an
Event of Default:
(a) Any failure to pay any of the Obligations when due;
(b) Any representation or warranty made by the Borrower
in any Loan Document or in any Financial Statement or other
certificate furnished by the Borrower or any Affiliate at any time to
the Lender shall prove to be untrue in any material respect as of the
date on which made;
(c) Except with respect to cure periods as otherwise
set forth herein or therein, default shall occur in the observance or
performance of any of the other covenants and agreements contained in
any Loan Document and Borrower has not cured such default within ten
(10) days of Borrower's receipt of written notice identifying such
failure, or if any such agreement, instrument or document shall
terminate or become void or unenforceable without the written consent
of Lender and Borrower refuses to execute valid and enforceable
substitute documents;
(d) The DSN Plant Completion Date has not occurred
prior to the end of the Construction Period;
(e) Any Event of Default under the Mixed Acid Plant
Loan Documents, the Rail Car Loan Documents and Borrower has not
cured such Event of Default within any cure period provided therein;
(f) Any default by the Borrower under any material
agreement or instrument with any third party (other than an agreement
or instrument evidencing the lending of money) if such default
continues for thirty (30) days after such breach first occurs;
(g) Any default by the Borrower in any payment on any
indebtedness or obligation owed to any trade creditor in excess of
$100,000 in the aggregate beyond any period of grace provided with
respect thereto and Borrower is not contesting same in good faith and
diligently;
(h) Any uncured default beyond any applicable grace
period by LSB or any of its Subsidiaries under any agreement or
instrument evidencing any loan, extension of credit or other
Indebtedness of LSB or any of its Subsidiaries in an amount equal to
or greater than $5,000,000;
(i) Any material part of the Collateral shall be
nationalized, expropriated, condemned, seized or otherwise
appropriated, or custody or control of such Collateral or of the
Borrower shall be assumed by any public authority or any court of
competent jurisdiction at the instance of any public authority;
(j) One or more judgments for the payment of money
aggregating an excess of $1,000,000 (if not adequately covered by
insurance) shall be rendered against the Borrower or EDC and there is
a failure to pay or to bond and stay enforcement of such judgment and
commence appropriate proceedings to appeal such judgment within the
applicable appeal period or, after such appeal is filed, Borrower or
EDC fails to diligently prosecute such appeal or such appeal is
denied;
(k) The Borrower, EDC or any Guarantor shall: (i) file
a voluntary petition in bankruptcy or file a voluntary petition or an
answer or otherwise commence any action or proceeding seeking
reorganization, arrangement or for any other relief under the Federal
Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency act or law, state or federal, now or hereafter existing,
or consent to, approve of, or acquiesce in, any such petition, action
or proceeding; (ii) apply for or acquiesce in the appointment of a
receiver, assignee, liquidator, sequestrator, custodian, trustee or
similar officer for it or for all or a substantial part of its
property; (iii) make an assignment for the benefit of creditors; or
(iv) admit in writing that is unable generally to pay its debts as
they become due;
(l) An involuntary petition shall be filed or an action
or proceeding otherwise commenced seeking reorganization, arrangement
or readjustment of the Borrower's EDC's or any Guarantor's debt or
for any other relief under the Federal Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency act or law, state or
federal, now or hereafter existing; or a receiver, assignee,
liquidator, sequestrator, custodian, trustee or similar officer for
the Borrower or EDC or any Affiliate or any Guarantor or for all or a
substantial part of their property shall be appointed involuntarily;
or a warrant of attachment, execution or similar process shall be
issued against any substantial part of the property of the Borrower,
EDC or any Guarantor; and any of the foregoing remain undismissed or
undischarged for a period of 60 days;
(m) The Borrower, EDC or any Guarantor shall file a
certificate of dissolution under applicable state law or shall be
liquidated, dissolved or wound-up or shall commence or have commenced
against it any action or proceeding for dissolution, winding-up or
liquidation, or shall take any corporate action in furtherance
thereof without Lender's prior written consent;
(n) The Security Interest shall cease to be a valid and
perfected first priority security interest in any material portion of
the Collateral then in existence and Borrower refuses to or cannot
promptly cure any deficiency and restore the Lender's valid and first
perfected priority security interest;
(o) A material default shall occur in any Construction
Contract, the Consulting Agreement, the DSN Plant Equipment Lease,
the Ground Lease or the Ground Sublease and same are not being
contested diligently and in good faith, or the DSN Plant Equipment
Lease, the Lease, or the Ground Sublease shall expire or otherwise
terminate or become unenforceable;
(p) any Guarantor revokes or terminates any guaranty
relating to the Obligations or defaults under the terms of any such
guaranty; or
Section 8.2 Rights Upon Default. Upon the occurrence and
during the continuance of any Event of Default:
(a) The Lender may declare all the Obligations not
otherwise due to be forthwith due and payable, (provided that, in the
case of the occurrence of any Event of Default described in
Sections 8.l(i) or (j), all the Obligations shall forthwith become
due and payable without such declaration) whereupon the unpaid amount
of the Obligations (including any applicable prepayment penalty)
shall become immediately due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly
waived. Upon such acceleration, Lender shall not be obligated to
advance any further funds relating to the custodian of the DSN Plant.
(b) Notwithstanding the foregoing in Section 8.2(a) but
subject to the provisions of Section 9.10, the effect of an event
described in Section 8.1(a) as an occurrence of an Event of Default
shall be after Lender gives notice of such payment Default to
Borrower and Borrower shall not have paid such amount within three
(3) days of such Notice. The effect as an Event of Default of any
other event described in Section 8.1 may be waived by Lender in
writing.
(c) In addition to all other rights provided herein or
at law, the Lender shall have all of the rights and remedies of a
secured party under the UCC and all of the rights and remedies
granted under each of the Loan Documents. At any time when an Event
of Default has occurred and is continuing, the Lender may enter any
premises where the Collateral is located, take physical possession of
the Collateral or any part thereof, and maintain such possession on
the Borrower' premises or remove any or all of the Collateral to such
other place or places as the Lender desires in its sole discretion.
If the Lender exercises its right to take possession of any
Collateral upon the occurrence and during the continuance of any
Event of Default, the Borrower, upon the Lender's demand, will
assemble the Collateral and at the Lender's option, make it available
to the Lender at the Borrower' premises at which it is located or
deliver it to such place or places as the Lender directs. The
Borrower hereby waives to the full extent permitted by law all rights
to notice and hearing prior to the Lender's exercise of its rights to
take possession of the Collateral without judicial process or to
replevy, claim and deliver, attach or levy upon the Collateral ex
parte. The Lender shall not be under any obligation to marshall any
assets in favor of the Borrower or any other party or against or in
payment of any or all of the Obligations.
(d) The Lender may sell and deliver any or all of the
Collateral at public or private sale, for cash, upon credit or
otherwise, at such prices and upon such terms as the Lender, in its
sole discretion, deems advisable, all in accordance with the
applicable provisions of the UCC including the standard of commercial
reasonableness.
(e) The requirement of reasonable notice with respect
to a disposition of the Collateral shall be met if such notice is
mailed both by regular and certified mail, postage prepaid to the
Borrower at the address as set forth herein at least ten days before
the time of the event of which notice is being given. Subject to the
provisions of any applicable Loan Document or law governing the
enforcement of liens or security interests, the Lender may be the
purchaser at any public sale, and to the extent permitted by
applicable law, at any private sale, free from any right of
redemption, which the Borrower also waives.
(f) The Proceeds of any sale of any of the Collateral
shall be applied first to all costs and expenses of sale, including
attorneys' fees, and second to the payment (in whatever order the
Lender elects) of all of the Obligations. The Lender will return any
excess Proceeds to the Borrower, subject to the claims of any other
parties with an interest in the Collateral or the Proceeds, and the
Borrower shall remain liable to the Lender for any deficiency. If
any Collateral is sold by the Lender upon credit or for future
delivery, the Lender shall not be liable for the failure of the
purchaser to pay for such Collateral, and in such event the Lender
may resell the same.
(g) The Lender may exercise any right or remedy it may
have at law or in equity with respect to the Obligations or the
subject matter of this Agreement. The rights and remedies provided
for herein are cumulative and not exclusive of any other of such
rights and remedies or any other rights or remedies provided by law.
(h) Upon any Default, and during any applicable cure
period, Lender shall not be obligated to make any further advances or
Loans to Borrower.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Survival. All agreements, representations and
warranties contained in this Agreement or made in writing by or on behalf
of the Borrower in connection with the transactions contemplated hereby
shall survive the execution and delivery of this Agreement, notwithstanding
any investigation at any time made by the Lender.
Section 9.2 Waiver of Notices. No notice to or demand on the
Borrower which the Lender is not required hereunder or by law to give but
nevertheless may elect to give shall entitle the Borrower to any other or
further notice or demand in the same, similar or other circumstances.
Section 9.3 Assignment. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors
and assigns of the parties hereto; provided, however, that no interest
herein may be assigned by the Borrower without the prior written consent of
the Lender. The rights and benefits of the Lender hereunder shall, if the
Lender so agrees, inure to any party acquiring any interest in the
Obligations or any part thereof. In the event of any such assignment by
the Lender, the Borrower agrees that such assignment by the Lender shall be
free from any set-off, counterclaim defense or other claim that any such
Borrower may have against such assignee, without waiving any claim such
Borrower may have against the Lender. The terms "Lender" and "Borrower" as
used herein shall include the respective successors and assigns of such
parties.
Section 9.4 Complete Agreement Modification. This Agreement
is intended by the Borrower and the Lender to be the final, complete and
exclusive expression of the agreement between them and supersedes all prior
agreements and understandings regarding the DSN Plant. No modification,
rescission, waiver, release or amendment of any provision of this Agreement
shall be made, except by a written agreement signed by the Borrower and a
duly authorized officer of the Lender.
Section 9.5 Applicable Law. This Agreement and the Loan
Documents (except to the extent, if any, expressly provided to the contrary
in any Loan Document) shall be governed by, construed, applied and enforced
in accordance with the laws of the State of New York.
Section 9.6 Indemnification.
(a) If after receipt of any payment of all or any part
of the Obligations, the Lender is for any reason compelled to
surrender such payment to any person or entity, because such payment
is determined to be void or voidable as a preference, impermissible
setoff, or a diversion of trust funds, or for any other reason,
Borrower's Obligations under the Note shall continue in full force
and the Borrower shall indemnify and hold the Lender harmless for,
the amount of such payment surrendered. The provisions of this
Section shall be and remain effective notwithstanding any contrary
action which may have been taken by the Lender in reliance upon such
payment, and any such contrary action so taken shall be without
prejudice to the Lender's rights under this Section and shall be
deemed to have been conditioned upon such payment having become final
and irrevocable. The provisions of this Section shall survive the
termination of this Agreement.
(b) The Borrower hereby indemnifies and holds the
Lender, and its directors, officers, agents, employees and counsel,
harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind (except
claims brought by the Borrower against the Lender for breach of this
Agreement of the Loan Documents) including without limitation, court
costs and attorneys' fees imposed on or incurred by or asserted
against any of them, whether direct, indirect or consequential
arising out of or by reason of any litigation, investigations,
claims, or proceedings whether based on any federal, state or local
laws or other statutes or regulations commenced or threatened, which
arise out of or are in any way based upon the negotiation,
preparation, execution, delivery, enforcement, performance or
administration of this Agreement or any other Loan Document, or any
undertaking or proceeding relating to any of the transactions
contemplated hereby or by any act, omission to act, event or
transaction related or attended thereto, except this indemnification
shall not apply to any losses, liabilities, damages, injuries, costs,
expenses and claims caused by the gross negligence or willful
misconduct of Lender.
(c) The Borrower hereby indemnifies the Lender and
agrees to hold the Lender harmless from and against any and all
losses, liabilities, damages, injuries, costs, expenses and claims of
any and every kind whatsoever (including, without limitation, court
costs and attorneys' fees) which at any time or from time to time may
be paid, incurred or suffered by, or asserted against the Lender for,
with respect to, or as a direct result of the violation by the
Borrower of the Environmental Laws or any laws or regulations
relating to Hazardous Substance, treatment, storage, disposal,
generation and transportation, air, water and noise pollution, soil
or ground or water contamination, the handling, storage or release
into the environment of Hazardous Substance, or with respect to, or
as a direct or indirect result of the presence on or under, or the
escape, seepage, leakage, spillage, discharge, emission or release
from, properties utilized by the Borrower or EDC with respect to the
DSN Plant in the conduct of their respective business into or upon
any land, the atmosphere, or any watercourse, body of water or
wetland, of any Hazardous Substance (including, without limitation,
any losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under the Environmental Laws).
(d) Without limiting any of the foregoing, if, by
reason of any suit or proceeding of any kind, nature or description
against the Borrower, which, in the Lender's sole discretion makes it
advisable for the Lender to seek counsel for protection and
preservation of its Liens, security or assets or to defend its own
interest, such reasonable expenses and counsel fees shall be allowed
to the Lender. The foregoing indemnity shall survive the payment of
the Obligations and the termination of this Agreement. All of the
foregoing costs and expenses shall be part of the Obligations and
secured by the Collateral.
Section 9.7 Stamp or other Tax. Should any stamp, excise,
sales, use or other tax, including mortgage, conveyance, deed, intangible
or recording taxes become payable in respect of this Agreement, or any
other Loan Document, any Obligations, or any Collateral, or any
modification hereof or thereof, the Borrower shall pay the same (including
interest and penalties, if any) and shall hold the Lender harmless with
respect thereto, except for income taxes of Lender as a result thereof.
Section 9.8 Captions. The captions of the various sections of
this Agreement have been inserted only for purposes of convenience; such
captions are not a part of this Agreement and shall not be deemed in any
manner to modify, explain, enlarge or restrict any provision hereof.
Section 9.9 Notices. All notices or other communications
which are required or permitted hereunder to be given to any party shall be
in writing and shall be deemed sufficiently delivered if delivered
personally or by registered or certified mail, return receipt requested, or
by nationally recognized overnight delivery service, to the address set
forth below or to such other address as each party may designate for itself
by like notice. Such notice or communication shall be deemed to have been
given on the date delivered; or if refused, on the date refused; or if
marked, on the date of actual receipt of such mailing as evidenced by the
return receipt.
If to the Lender: The CIT Group/Equipment
Financing, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn: Senior Vice President,
Credit
If to the Borrower: DSN Corporation
16 South Pennsylvania Avenue
Oklahoma City, Oklahoma 73107
Attn: President
Any such notice, demand, or request shall be deemed given upon receipt,
refusal of delivery or return for failure to be called for.
Section 9.10 No Waiver, Lender Performance. No course of
dealing between the Borrower and the Lender and no delay or omission by the
Lender in exercising any right or remedy hereunder or under any other Loan
Document or with respect to any Obligations shall operate as a waiver
thereof or of any other right or remedy, and no single or partial exercise
thereof shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. All rights and remedies of the
Lender hereunder or under any other Loan Document shall be cumulative.
Upon the failure of the Borrower to perform any of its duties under this
Agreement the Lender may, but shall not be obligated to, perform any or all
such duties and the Borrower will upon demand reimburse the Lender for all
reasonable costs, fees and expenses incurred in connection therewith.
Section 9.11 Evidence of Obligations; Admissibility of
Lender's Books and Records. The Borrower agrees that the Lender's books
and records showing the Obligations shall be admissible in any action or
proceeding arising herefrom.
Section 9.12 No Liability for Brokers. The Borrower covenant
and agree that the Lender shall have no liability for, and the Borrower
hereby indemnifies and holds the Lender harmless against, any brokerage fee
or finder's fee or other commission, or claim therefor, arising in
connection with the transactions contemplated by this Agreement.
Section 9.13 Further Assurances. The Borrower shall, at its
expense, do, execute and delivery such further acts and documents as the
Lender from time to time reasonably requires for the assuring and
confirming to the Lender of the rights created or intended to be created
hereunder, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document or for assuring the validity,
perfection, priority or enforceability of any Lien under any Loan Document.
Section 9.14 Counterparts. This Agreement and the other Loan
Documents may be executed by the parties hereto and thereto in any number
of separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute
but one and the same instrument.
Section 9.15 Notice of Breach by Lender. Borrower agrees to
give the Lender notice of any action or inaction by Lender or any agent or
attorney of the Lender in connection with this Agreement, any other Loan
Document, or the Obligations of Borrower under this Agreement or any other
Loan Document that may be actionable against Lender or any agent or
attorney of Lender or a defense to payment of any Obligations of Borrower
under this Agreement or any other Loan Document, for any reason, including
commission of a tort or violation of any contractual duty or duty implied
by law. Borrower agrees, to the fullest extent that it may lawfully do so,
that unless such notice is given promptly (and in any event within fifteen
(15) days after Borrower has knowledge, or with the exercise of reasonable
diligence could have had knowledge, of any such action or inaction),
Borrower shall not assert, and Borrower shall be deemed to have waived, any
claim or defense arising therefrom to the extent that the Lender could have
mitigated such claim or defense after receipt of such notice.
Section 9.16 Time. Time is of the essence.
Section 9.17 Exhibits. Exhibits "A", "B", "C", "D" and "E"
attached hereto are incorporated herein by this reference.
Section 9.18 Authorization to Date, Complete Blanks and
Correct Errors. The Borrower hereby irrevocably authorizes Lender and
Lender's agents, representatives and employees to date, complete any blank
spaces contained in, and to correct any errors appearing in, this
Agreement, the other Loan Documents or in any other document relating
hereto or thereto.
Section 9.19 No Oral Agreements; Entire Agreement. ORAL
AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH
DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWER AND LENDER FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWER AND
LENDER COVERING SUCH MATTERS ARE CONTAINED IN THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS, WHICH AGREEMENT AND OTHER LOAN DOCUMENTS ARE A COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN BORROWER AND LENDER, EXCEPT
AS BORROWER AND LENDER MAY LATER AGREE IN WRITING TO MODIFY THEM. THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND
UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDE ALL PRIOR AGREEMENTS
AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO THE SUBJECT MATTER HEREOF.
THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT WAS DRAFTED WITH THE JOINT
PARTICIPATION OF THE RESPECTIVE PARTIES THERETO AND SHALL BE CONSTRUED
NEITHER AGAINST NOR IN FAVOR OF ANY PARTY, BUT RATHER IN ACCORDANCE WITH
THE FAIR MEANING THEREOF.
Section 9.20 Venue and Jurisdiction. THIS AGREEMENT AND ANY
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. BORROWER
HEREBY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR IN ANY WAY IN CONNECTION WITH THIS AGREEMENT
MAY BE INSTITUTED OR BROUGHT IN THE COURTS OF THE STATE OF NEW YORK, IN THE
COUNTY OF NEW YORK, OR THE UNITED STATES DISTRICT COURTS FOR THE SOUTHERN
DISTRICT OF NEW YORK, AS LENDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, BORROWER HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL PROCEEDINGS IN SUCH
COURTS. BORROWER IRREVOCABLY CONSENTS TO SERVICE OF ANY SUMMONS AND/OR
LEGAL PROCESS BY REGISTERED OR CERTIFIED UNITED STATES AIR MAIL, POSTAGE
PREPAID, TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 9.9 HEREOF, SUCH
METHOD OF SERVICE TO CONSTITUTE, IN EVERY RESPECT, SUFFICIENT AND EFFECTIVE
SERVICE OF PROCESS IN ANY SUCH LEGAL ACTION OR PROCEEDING. NOTHING IN THIS
AGREEMENT SHALL AFFECT THE RIGHT TO SERVICE OF PROCESS OF PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR LIMIT THE RIGHT OF LENDER TO BRING
ACTIONS, SUITS OR PROCEEDINGS IN THE COURTS OF ANY OTHER JURISDICTION.
BORROWER FURTHER AGREES THAT FINAL JUDGMENT AGAINST IT IN ANY SUCH LEGAL
ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY
OTHER JURISDICTION, WITHIN OR OUTSIDE THE UNITED STATES OF AMERICA, BY SUIT
ON THE JUDGMENT, A CERTIFIED OR EXEMPLIFIED COPY OF WHICH SHALL BE
CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF LIABILITY.
Section 9.21 Waiver of Trial by Jury. THE PARTIES TO THIS
AGREEMENT ACKNOWLEDGE THAT JURY TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND
DELAYS NOT OCCASIONED BY NONJURY TRIALS. THE PARTIES TO THIS AGREEMENT
AGREE AND STIPULATE THAT A FAIR TRIAL MAY BE HAD BEFORE A STATE OR FEDERAL
JUDGE BY MEANS OF A BENCH TRIAL WITHOUT A JURY. IN VIEW OF THE FOREGOING,
AND AS A SPECIFICALLY NEGOTIATED PROVISION OF THIS AGREEMENT, EACH PARTY TO
THIS AGREEMENT EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
IN WITNESS WHEREOF, the parties have entered into this
Agreement on the date first above written.
"Borrower"
DSN CORPORATION, an Oklahoma
corporation
By __________________________
__________________________
[Printed Name & Title]
"Lender"
THE CIT GROUP/EQUIPMENT FINANCING,
INC., a New York corporation
By __________________________
__________________________
[Printed Name & Title]
Agreed as to Article 6:
LSB INDUSTRIES, INC.,
a Delaware corporation
By __________________________
__________________________
[Printed Name & Title]
EXHIBIT "A"
Disclosure Schedule
EXHIBIT "B"
Promissory Note
EXHIBIT "C"
Legal Description of DSN Plant Location
EXHIBIT "D"
Disbursement Schedule
tq994x46.wpe
BANKAMERICA BUSINESS CREDIT LETTERHEAD EXHIBIT 10.2
Joyce White
Senior Vice President
Group Executive Officer
November 3, 1994
Tony M. Shelby
Senior Vice President - Chief Financial Officer
LSB Industries, Inc.
16 South Pennsylvania
Oklahoma City, Oklahoma 73107
Re: COMMITMENT LETTER
Dear Mr. Shelby:
You have requested that we consider extending six separate financing
arrangements with LSB Industries, Inc. ("LSB") and certain of its subsidiaries
(hereinafter referred to individually as "Borrower" and collectively as
"Borrowers") in order to provide for their on-going working capital needs and
for repayment of their existing credit facilities. Subject to and upon the
terms and conditions hereinafter set forth, BankAmerica Business Credit, Inc.
("Lender") is pleased to provide to the Borrowers a total revolving credit
facility of up to $75,000,000 ("Total Credit Facility") on the following terms
and conditions:
1. REVOLVING CREDIT FACILITY:
(a) CREDIT FACILITIES AND BORROWERS: There shall be six
separate revolving credit facilities (each hereinafter referred to
as a "Facility" and collectively as the "Facilities") in the
following amounts to the following Borrowers:
FACILITY FACILITY AMOUNT BORROWERS
Facility One $ 7,000,000 LSB (and Affiliate Guarantors
as listed on Exhibit "A")
Facility Two $ 15,000,000 L&S Bearing Co.
Facility Three $ 8,000,000 Climate Master, Inc.
Facility Four $ 7,000,000 International Environmental
Corporation
Facility Five $ 8,000,000 Summit Machine Tool
Manufacturing Corp. ("Summit")
Facility Six $ 15,000,000 El Dorado Chemical Company
("EDC") and Slurry Explosive
Corporation ("Slurry")
LSB Industries, Inc.
November 3, 1994
Page 2
Notwithstanding the amounts set forth under the heading "Facility
Amount", and except as otherwise provided with respect to LSB,
Borrowers are not limited to the specific Facility Amount if they
would otherwise have sufficient Availability to exceed such
Facility Amounts, but in no event will the Loans outstanding to
all Borrowers exceed $75,000,000 in the aggregate. With respect
to LSB, the Facility Amount shall never be more than $8,400,000.
(b) AMOUNT OF REVOLVING CREDIT FACILITY: Each Facility shall
provide for advances of up to (i) eighty-five percent (85%)
of the net amount of eligible accounts receivable of the
applicable Borrowers and (ii) sixty percent (60%) of eligible
inventory of the applicable Borrower, valued at the lower of cost
(on a FIFO basis) or market value. Collections of accounts (other
than proceeds from the sale or other disposition of Borrowers'
fixed assets, i.e. equipment and real estate) would be transferred
daily to Lender from one or more restricted or lock box accounts
and would be credited to the loan balances of the appropriate
Borrower one (1) business day after receipt of good funds by
Lender. Advances to all Borrowers with respect to eligible
accounts receivables that are more than 180 days from the invoice
date shall not exceed the lesser of (i) $1,500,000 or (ii) five
percent (5%) of the gross eligible accounts receivable
availability under the Total Credit Facility. Advances made under
each Facility with respect to eligible inventory shall not exceed
the following amounts:
INVENTORY
FACILITY ADVANCE AMOUNT
Facility One $ 3,500,000
Facility Two $ 7,000,000
Facility Three $ 3,500,000
Facility Four $ 3,500,000
Facility Five $ 3,500,000
Facility Six $ 15,000,000
LSB Industries, Inc.
November 3, 1994
Page 3
Notwithstanding the amounts set forth under the heading "Inventory
Advance Amount", Borrowers are not limited to the specific
Inventory Advance Amount if they would otherwise have sufficient
Availability based on Eligible Inventory to exceed such Inventory
Advance Amount, but in no event will the Loans outstanding to all
Borrowers based on Eligible Inventory exceed $37,500,000 in the
aggregate.
(c) ELIGIBLE COLLATERAL: Collateral eligibility and the
establishment of reasonable reserves against borrowing
availability shall be determined by Lender in its reasonable
discretion, provided, however, that the following accounts shall
in any event be ineligible: (i) accounts past due for more than
90 days if their terms are 90 days or less, (ii) accounts past due
for more than 30 days if their terms are between 91 and 360 days,
(iii) intercompany accounts, (iv) note receivables (other than as
part of chattel paper in which Lender has a perfected security
interest), (v) foreign accounts that would otherwise be eligible
but which are in excess of five percent (5%) of the gross eligible
account receivables, without consideration of the foreign
accounts, and (vi) non-trade receivables and, provided further
that the following inventory shall be ineligible: i) slow moving,
(ii) work-in-progress, (iii) fifty percent (50%) of inventory
classified as "components" other than the "components" at Climate
Master, Inc. and International Environmental Corp., (iv) inventory
in transit (unless such inventory is covered by insurance and is
owned by Borrower and in which Lender has a perfected security
interest), (v) service parts, (vi) used parts, (vii) returns,
(viii) defective, (ix) off-site, (x) finished goods reserves as
shown on the books of the Borrowers, (xi) containers, and (xii)
"trade-in inventory" except that the trade-in equipment inventory
of Summit may be eligible provided, however, that Lender will only
advance 25% against such inventory with all such advances not to
exceed $500,000 in the aggregate at any one time.
(d) LETTERS OF CREDIT: Lender shall upon the Borrowers'
request, and subject to the existence of sufficient Availability
with respect to the requesting Borrower, cause to be issued for
the Borrowers' account, merchandise/documentary letters of credit
and standby letters of credit. The aggregate undrawn face amount
of the letters of credit issued under all Facilities to all
Borrowers shall not exceed at any one time outstanding $11,000,000
in the aggregate. One hundred percent (100%) of the aggregate
undrawn face amount of outstanding letters of credit will be
reserved against availability.
LSB Industries, Inc.
November 3, 1994
Page 4
The expiration date of the documentary letters of credit issued
under each Facility shall not exceed 180 days, but in no event
extend beyond the Maturity Date. The Expiration date of the
standby letters of credit may exceed 180 days.
2. MATURITY DATE: The Facilities shall mature three years from the
closing date ("Maturity Date") and all obligations shall then be
due and payable, provided however, that the Loan Agreement may be
automatically renewed and the Maturity Date extended for
successive 13-month terms if no event of default has occurred and
is continuing and as long as neither party has given the other
party notice of termination at least 60 days prior to the end of
the then current term.
3. INTEREST RATES:
(a) INTEREST RATE: The unpaid balance on the revolving loans
outstanding under each Facility shall bear interest at a
rate equal to:
(i) a fluctuating per annum rate equal to one-half percent
(.50%) in excess of the Reference Rate as quoted from
time to time by Bank of America NT & SA, San
Francisco, California ("Bank of America") ("Reference
Rate Loans"); or
(ii) at Borrower's option, 2.875 percent (2.875%) plus the
LIBOR rate for 90-day loans as quoted from time to
time by Bank of America ("LIBOR Loans"). Each LIBOR
Loan shall be for a $5,000,000 minimum amount, and
shall be subject to certain restrictions relating to
terms and incremental amounts.
All interest shall be calculated on the basis of a 360 day
year for actual days elapsed. Interest on all loans shall
be payable monthly on the first day of each month.
(b) DEFAULT RATE: If any such default occurs under any
Facility, then, from the date such event of default occurs
until it is cured, the Borrowers under each Facility shall
pay interest on the unpaid balance of the revolving loans at
a per annum rate two percent (2%) greater than the rate of
interest specified above and the letter of credit fee shall
be increased by two percent (2%).
LSB Industries, Inc.
November 3, 1994
Page 5
(c) REFERENCE RATE: "Reference Rate" means the rate of interest
publicly announced from time to time by Bank of America as
its reference rate. It is a rate set by Bank of America
based upon various factors, including Bank of America's
costs and desired return, general economic conditions, and
other factors, and it is used as a reference point for
pricing some loans. However, Bank of America may price
loans at, above, or below the reference rate.
4. FEES: Borrowers shall pay to Lender the following fees:
(a) CLOSING FEE: A one time closing fee ("Closing Fee") for
each Facility equal to .50 percent of the applicable
Facility Amount ($375,000 in the aggregate) which shall be
fully earned and payable at closing.
(b) UNUSED LINE FEE: An unused line fee, payable monthly, for
each Facility at the rate per annum equal to half percent
(.5%), on the difference between (a) the Facility Amount for
each Facility and (b) the sum of (i) the average daily
unpaid balance of the revolving loans outstanding under such
Facility during the month with the unpaid balance calculated
by applying payments immediately upon receipt, and (ii) the
average daily balance of the letters of credit outstanding
during the month.
(c) LETTER OF CREDIT FEES: The Borrowers under each Facility
shall pay monthly to Lender a fee equal to one percent
(1.0%) per annum of the face amount of all outstanding
letters of credit. Borrowers shall also pay to Lender all
commissions and processing fees incurred by Lender on the
Borrowers' behalf in arranging for the opening and
maintenance of the letters of credit, including all charges
of the issuing bank.
(d) EARLY TERMINATION FEE: In the event that any Facility is
for any reason whatsoever terminated prior to the initial
term, the Borrowers under each Facility shall pay Lender an
early termination fee in the amounts set forth below, in
order to compensate Lender for its reasonable expenses and
its loss of anticipated profits. If the effective date of
the termination of the Facilities occurs in the first year
of the term, then the early termination fee for each
Facility shall be three percent (3.0%) of the average daily
balance of the loans and letters of credit outstanding
during the 180 days (or any portion thereof) preceding the
effective date of termination; in the second year, the early
termination fee shall be two percent (2.0%) of the average
LSB Industries, Inc.
November 3, 1994
Page 6
daily balance of the loans and letters of credit outstanding
during the 180 days preceding the effective date of
termination; and in the third year, the early termination
fee shall be one percent (1.0%) of the loans and letters of
credit outstanding during the 180 days preceding the
effective date of termination. If at the time of prepayment
any LIBOR Loans are outstanding, then the Borrowers shall
pay to Lender additional sums to compensate for the
cancellation of part or all of the LIBOR financing. Prior
to an Event of Default which is continuing, the Borrower may
prepay at any time all outstanding Obligations due hereunder
without penalty or premium if (i) Lender under any condition
or for any reason changes the advance rates relating to
Eligible Accounts or Eligible Inventory from that set forth
in the definition of Availability, or (ii) as a result of or
in connection with or arising out of a public offering by
LSB of its securities (equity or debt) after the closing
date, the Borrower desires to prepay any of the Obligations
or terminate the Loan Agreement.
5. COLLATERAL: All loans, advances, obligations, liabilities and
indebtedness of the Borrowers to Lender shall be secured by valid,
perfected and enforceable, first priority liens upon and security
interests in all of the Borrowers' present and future accounts,
contract rights, instruments, documents, chattel paper, general
intangibles, patents, trademarks, trade names, inventory, and all
capital stock of the Borrowers (other than LSB, EDC and Slurry)
and certain affiliates and guarantors, including, but not limited
to, the Affiliate Guarantors. The parties agree that the capital
stock of DSN Corporation, Prime Financial Corporation and its
subsidiaries, and LSB Holdings, Inc. and its subsidiaries other
than the subsidiaries who are Affiliate Guarantors) will not be
pledged to Lender. In addition, Lender shall have the right to
take possession of all chattel paper but regardless of whether
Lender exercises such right, no Borrower will pledge or deliver
such chattel paper to other third parties without Lender's prior
written consent thereto. All of the Facilities shall be
coterminous, cross-collateralized and cross-guaranteed with each
other, except that the Borrowers under Facility Six shall not
guarantee and the collateral thereunder shall not secure the other
Facilities. In addition, it is agreed and understood by Lender
that certain general intangibles have previously been pledged by
EDC and Slurry to Household Commercial Financial Services, Inc.
("Household Bank") and may not be pledged to Lender so long as
loans are outstanding by Household Bank to EDC and Slurry.
LSB Industries, Inc.
November 3, 1994
Page 7
6. GUARANTEES. The Borrowers under each Facility, other than the
Borrowers under Facility Six, shall guarantee the obligations of
the Borrowers under the other Facilities. The obligations of LSB
and the other Borrowers to Lender shall be secured by secured
guarantees (the "Affiliate Guarantees") from the entities listed
on Exhibit A (the "Affiliate Guarantors"). The Affiliate
Guarantees shall contain grants of security interests in the same
type of collateral as is described in Section 5 of this letter.
In addition, each Affiliate Guarantor shall execute a note and
security agreement in favor of LSB (the "Guarantor Chattel Paper")
and LSB shall pledge and deliver to Lender all such Guarantor
Chattel Paper.
7. CONDITIONS PRECEDENT: The extension of the aforementioned
financing arrangement by Lender would necessarily be subject to
the fulfillment of a number of conditions, including, but not
limited to, the following:
(a) The execution and delivery, in form and substance acceptable
to Lender and its counsel, of Lender's customary agreements,
documents, guarantees, instruments, financing statements,
landlords' waivers, consents, documents indicating
compliance with all applicable federal and state
environmental laws and regulations, evidences of corporate
authority, certificates, insurance certificates evidencing
that Borrower has obtained insurance in amounts satisfactory
to Lender, opinions of counsel and such other writings to
confirm and effectuate the financing arrangements as may be
required by Lender and its counsel.
(b) The loan and security agreement for each Facility shall
contain financial covenants, acceptable to Lender, with
respect to leverage ratio, minimum tangible net worth, and
maximum capital expenditures, together with such other
representations, warranties, and covenants deemed
appropriate by Lender for this transaction, including
restrictions on certain distributions, loans, advances,
management fees, and similar transfers of funds or other
assets by Borrowers and an agreement by Borrowers to pay all
legal fees and audit and appraisal expenses incurred by
Lender together with an allocated charge of $500 per day per
auditor, with audits no more that three times per year prior
to an Event of Default to be charged to Borrower's account.
Any additional audits prior to an Event of Default will be
at Lender's expense. The loan agreement shall, without
limitation, (i) permit transfer of funds by and among the
Borrowers and Affiliate Guarantors, but advances and
LSB Industries, Inc.
November 3, 1994
Page 8
distributions, excluding lease payments by Borrowers to
Prime Financial Corporation ("Prime") and DSN Corporation,
by Borrowers to affiliates of LSB (other than Borrowers and
Affiliate Guarantors) shall not exceed $200,000 in the
aggregate during any one year, (ii) prohibit the Borrowers
from making acquisitions having a cost in excess of
$2,000,000 per transaction or in excess of $10,000,000 in
the aggregate during any one year period without the consent
of Lender, and (iii) prohibit the Borrowers from financing
any acquisition without the consent of Lender. In addition,
as long as no event of default has occurred and has not been
cured or otherwise waived to Lender's satisfaction LSB may
make the currently-scheduled dividends relating to or in
connection with or arising out of any and all series of
LSB's preferred stock issued and outstanding as of the date
hereof and the payments by LSB of an annual cash dividend on
its Common Stock in an amount equal to $.06 a share payable
on a semi-annual basis. The Loan Agreement between Lender,
EDC and Slurry shall contain additional financial covenants
which will be the same as those set forth in the Amended and
Restated Secured Credit Agreement dated as of January 21,
1992 among El Dorado, Slurry, Connecticut Mutual Life
Insurance Company, C.M. Life Insurance Company and Household
Bank.
(c) Except as disclosed in that Special Report to LSB
Shareholders dated September 15, 1994, no material adverse
change shall have occurred, as determined by Lender in its
sole discretion, in the business, operations, or profits of
any of the Borrowers since the financial statements dated
June 30, 1994.
(d) There shall exist no action, suit, investigation,
litigation, or proceeding pending or threatened in any court
or before any arbitrator or governmental instrumentality by
Borrower, and no material breach under any material
agreement or contract to which any Borrower or Affiliate
Guarantor is a party that (i) would have a material adverse
effect on the business, condition (financial or otherwise),
operations, performance, or properties of the Borrowers and
Affiliate Guarantors taken as a whole or which could impair
the ability of the Borrowers and Affiliate Guarantors taken
as a whole to perform satisfactorily under the proposed
financing arrangement, or (ii) in Lender's judgment, would
materially affect the transaction.
LSB Industries, Inc.
November 3, 1994
Page 9
(e) Lender and its counsel shall have received satisfactory
opinions of counsel to the Borrowers, as to the transactions
contemplated hereby (including, without limitation, the
opinions of such local counsel as lender may reasonably
require with respect to the Collateral and the perfection of
Lender's Lien thereupon and security interest therein).
(f) Receipt by Lender of policies of insurance, with terms of
coverage and endorsements as may be required by Lender and
its counsel.
(g) The Borrowers under each Facility shall have agreed to
deposit all funds relating to the Collateral collected by it
into one or more blocked accounts controlled by Lender and
to wire transfer all funds so deposited to Lender each day
for application to the outstanding loans.
(h) Execution by Lender of inter-creditor agreements with
Household Bank the terms of which shall be satisfactory to
Lender in its sole discretion.
(i) Prime shall lend to the Borrowers, simultaneously upon
receipt, an amount equal to all lease payments made by the
Borrowers to such entities. The loans shall be subject to
such terms as are acceptable to Lender and such loans may
not be repaid while the Facilities are outstanding.
(j) Receipt by Lender from Prime, in favor of Lender, of an
agreement in recordable form not to pledge the mortgage and
note that it holds relating to the real property commonly
known as the Equity Tower located in Oklahoma City, Oklahoma
unless the funds are turned over to LSB.
(k) Lender's satisfaction with the indemnities given by LSB to
Bank IV in connection with the sale by LSB to Bank IV of
Equity Bank.
(l) Receipt by Lender of all indemnity agreements between any of
the Borrowers and third parties for the benefit of the
Borrowers with respect to any environmental contamination of
any of the premises occupied or operated by any of the
Borrowers or any subsidiary of LSB, including all indemnity
agreements given by Monsanto Corporation in favor of the
Borrowers, and the terms of such indemnities shall be
satisfactory to Lender.
LSB Industries, Inc.
November 3, 1994
Page 10
(m) Receipt by Borrowers of part of the initial proceeds from a
$12,750,000 loan which is part of a $15,000,000 Capax
facility to be provided to Borrowers by CIT, on terms and
conditions acceptable to Lender.
(n) Review, to the satisfaction of Lender, of Borrowers'
potential liability relating to environmental matters at the
CERCLIS-listed site located at El Dorado, Arkansas.
(o) As of the Closing Date and after taking into account all
loans made to Borrowers by Lender and letters of credit
issued for the benefit of Borrowers and subject to
Borrowers' accounts payable being substantially current,
Borrowers collectively shall have remaining availability of
at least ten percent (10%) of the initial Availability that
existed prior to the making of such loans and the issuing of
such letters of credit.
8. EXPENSES: All out-of-pocket fees and expenses incurred by Lender
in connection with its review, and its due diligence, such as
reasonable legal, audit and appraisal expenses, together with an
allocated charge of $500 per day per auditor, shall be paid by the
Borrowers whether or not the transaction herein contemplated is
consummated. The Borrowers are obligated to make continuing
deposits to reimburse out of pocket costs upon the request of
Lender.
9. DISCLOSURE: Unless approved by Lender in advance, this letter may
not be delivered or disclosed to any third party except those who
are in a confidential relationship to the Borrowers such as
Borrowers' legal counsel, accountants, or financial advisors.
10. TERMINATION FEE: In the event that the transaction is not
consummated for any reason whatsoever, Lender shall be entitled to
retain the full amount of all deposits as compensation for
administrative costs incurred and damages sustained. In addition,
if Borrowers decline for any reason to borrow from Lender in
accordance with the terms of this letter, Borrowers shall pay
Lender $50,000 as a termination fee.
LSB Industries, Inc.
November 3, 1994
Page 11
11. INDEMNIFICATION: By acceptance of this letter, the Borrowers
jointly and severally agree to indemnify and hold Lender, its
affiliates and Lender's and such affiliates' directors, officers,
employees, agents, attorneys and consultants, harmless from and
against any and all losses, claims, damages, liabilities and
expenses (including fees and disbursements of counsel) that may be
incurred by or asserted against any such indemnities in connection
with or arising out of any documentation, investigation,
litigation or proceeding, and whether or not such financing
transaction is consummated or any future documentation executed;
PROVIDED HOWEVER, that no person shall have the right to be so
indemnified hereunder for matters arising solely from its own
willful misconduct or bad faith or gross negligence.
12. ARBITRATION: If this letter or any of the matters relating hereto
should become the subject of a dispute between us, any such
dispute, including any claim based on or arising from an alleged
tort, shall at the request of any party, be determined by
arbitration conducted in accordance with the United States
Arbitration Act under the commercial Rules of the American
Arbitration Association and shall be conducted within the Los
Angeles County, California. Judgment upon the arbitration award
may be entered in any court having jurisdiction.
13. DAMAGES AND AMENDMENTS: The Borrowers waive any claim for
consequential damages. This letter may not be modified or amended
except in writing executed by all parties hereto.
14. THIRD PARTIES: This letter is solely for the benefit of Borrowers
and may not be relied on by any other party without the prior
written consent of Lender.
15. GOVERNING LAW: This letter agreement shall be governed by
California law.
This letter supersedes and replaces all previous communications between
the parties, written or oral. This letter must be executed and returned to
Lender by no later than 5 p.m. Pasadena, California time, November 3, 1994, or
Lender's commitment in accordance with the foregoing shall automatically
terminate.
LSB Industries, Inc.
November 3, 1994
Page 12
This letter, unless previously terminated as above provided, shall
expire at 5 p.m. Pasadena, California time, November 30, 1994, unless extended
in writing by Lender in its sole discretion.
We look forward to working with you in the weeks ahead.
Sincerely,
BankAmerica Business Credit, Inc.
By:
Joyce White, Senior Vice President
ACCEPTED this 3rd day of November, 1994
LSB Industries, Inc. for itself and the other Borrowers
By:
Tony M. Shelby,
Senior Vice President - Chief Financial Officer
EXHIBIT "A"
Guaranty and Security Agreements
a. Universal Tech Corporation
b. L&S Automotive Products, Co.
c. Climatex, Inc.
d. Total Energy Systems, Ltd.
e. LSB Chemical Corp.
f. LSB Bearing Corp.
g. International Bearing, Inc.
h. LSB Extrusion Co.
i. Rotex Corporation
j. Tribonetics Corporation
k Summit Machine Tool Systems, Inc.
l. Hercules Energy Manufacturing Corporation
m. Morey Machinery Manufacturing Corporation
n. CHP Corporation
o. Koax Corp.
p. APR Corporation
q. Summit Machine Tool, Inc. Corporation
all collectively referred to as the "Affiliate Guarantors".
___ STOCK PURCHASE AGREEMENT EXHIBIT 10.3
This Stock Purchase Agreement ("Agreement") is made and entered into
effective as of the 14th day of November, 1994 by and between
_________________, an individual ("_______"), __________________, an
individual ("________"), ____________, an individual ("_____") (_______,
________ and _____ are hereinafter collectively referred to as the
"Shareholders"), _______________,
______________________________________________________________________________
_________ and LSB Industries, Inc., a Delaware corporation ("LSB").
R E C I T A L S:
WHEREAS, the Shareholders own: (a) one hundred percent (100%) of the
equity shares of ___, and (b) one hundred percent (100%) of the equity shares
of ___;
WHEREAS, ___ is currently authorized to issue 10,000 shares of common
stock and such common stock is the only class of stock issued and is the only
stock of ___ with voting rights;
WHEREAS, ___ is currently authorized to issue 2,500 shares of common
stock and such common stock is the only class of stock issued and is the only
stock of ___ with voting rights;
WHEREAS, a total of 10,000 shares of ___ common stock are currently
issued and outstanding;
WHEREAS, a total of 1,500 shares of ___ common stock are currently
issued and outstanding;
WHEREAS, _____ owns twenty percent (20%), _______ owns forty percent
(40%), and ________ owns forty percent (40%), of ___;
WHEREAS, _____, ________and ________ each own thirty-three and one-third
percent (33-1/3%) of ___;
WHEREAS, commencing upon the closing of this Agreement, the Shareholders
have agreed to the employment terms with ___ set forth in the Employment
Agreement attached hereto as Exhibit "A";
WHEREAS, LSB desires to purchase a total of eighty percent (80%) of
shares of ___, upon the terms and conditions set forth in this Agreement, so
as to allow LSB to become the owner of eighty percent (80%) of all issued and
outstanding common stock of ___;
WHEREAS, ___ and the Shareholders have, executed and agreed to a Stock
Purchase Agreement for _____ purchase of one hundred percent (100%) of all
issued and outstanding common stock of ___ (the "___ Stock Purchase
Agreement"), which purchase is to be consummated simultaneously with the
Closing of this Agreement.
WHEREAS, ___ and LSB have executed that certain Loan Agreement dated
September 15, 1994 (the "Loan Agreement"), under which Loan Agreement LSB may
make advances at its sole discretion to ___ up to $1.5 Million (the "Loan").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Shareholders and LSB agree as
follows:
1. Recitals. The recitals set forth above shall be deemed a part of this
Agreement and are incorporated herein by reference.
2. Stock Purchase.
2.1 Purchase. Subject to the terms and conditions contained herein,
the Shareholders hereby agree to sell to LSB and LSB agrees to purchase
from the Shareholders 8,000 shares of _____ common stock (constituting
80% of the shares of ___) (hereinafter collectively referred to as the
"Subject Shares"), from the following individual Shareholders in
accordance with the following schedule:
Number of
___ ___ Shares
Shareholder Subject to Purchase
________ 3,200
________ 3,200
________ 1,600
TOTAL (80% of all 8,000
outstanding shares)
For the purposes of this Agreement, the term "Participation Percentage"
shall mean the following percentages for each of the Shareholders:
Shareholder Participation Percentage
________ 40%
________ 40%
________ 20%
TOTAL 100%
2.2 Closing Date. The Closing of purchase and sale of the Subject
Shares under this Agreement shall occur on or before the later of
November 15, 1994 or three (3) days after LSB's financing with
BankAmerica closes, but in no event later than December 15, 1994 (the
"Closing" or the "Closing Date"); provided, however, if Closing does not
occur on or before November 15, 1994, LSB shall pay Shareholders
$100,000 as a down payment against the amounts to be paid at Closing.
2.3 Closing. At the Closing of LSB's purchase of the Subject Shares,
the Shareholders shall deliver to LSB the certificate(s) evidencing the
Subject Shares, together with assignments separate from the
certificate(s) endorsed in favor of LSB or its designee. The Subject
Shares shall be duly authorized, non-assessable, validly issued and
delivered to LSB free and clear of all liens, restrictions, claims
and/or agreements of any kind. At the Closing, the Shareholders, ___,
___ and LSB shall also fulfill all other obligations set forth herein as
items to occur at or before Closing.
2.4 Purchase Price. After delivery to LSB at the Closing of the
certificate(s) evidencing the Subject Shares, and conditioned upon ___,
___ and the Shareholders fulfilling all obligations to take place at or
before Closing, LSB agrees to pay the amount set forth below in Section
2.4.1 (the "Purchase Price"), payable as reflected in Section 2.4.2
below.
2.4.1 Purchase Price. The total Purchase Price to be paid to all
Shareholders under this Agreement shall be the total amount of $4
Million.
2.4.2 Payment of Purchase Price. LSB shall pay to the
Shareholders, in proportion to their Participation Percentage, the
total Purchase Price as follows:
(a) Thirty-seven and one-half percent (37.5%) of the
total Purchase Price shall be paid on the Closing Date;
(b) Twenty percent (20%) of the total Purchase Price
remaining after the payment in (a) above shall be paid on
or before the first anniversary of the Closing Date, with
such amount represented by a promissory note marked
negotiable with interest payable at seven percent (7%)
per annum;
(c) Twenty percent (20%) of the total Purchase Price
remaining after the payment in (a) above shall be paid on
or before the second anniversary of the Closing Date,
with such amount represented by a promissory note marked
negotiable with interest payable at seven percent (7%)
per annum from the date of the note;
(d) Twenty percent (20%) of the total Purchase Price
remaining after the payment in (a) above shall be paid on
or before the third anniversary of the Closing Date, with
such amount represented by a promissory note marked
negotiable with interest payable at seven percent (7%)
per annum from the date of the note;
(e) Twenty percent (20%) of the total Purchase Price
remaining after the payment in (a) above shall be paid on
or before the fourth anniversary of the Closing Date,
with such amount represented by a promissory note marked
negotiable with interest payable at seven percent (7%)
per annum from the date of the note;
(f) Twenty percent (20%) of the total Purchase Price
remaining after the payment in (a) above shall be paid on
or before the fifth anniversary of the Closing Date, with
such amount represented by a promissory note marked
negotiable with interest payable at seven percent (7%)
per annum from the date of the note;
The promissory notes as referenced in (b) through (f) above shall
be dated and delivered to Shareholders at Closing and may be
separately issued, at the option of the Shareholders, to _______,
________ and _____ in accordance with their respective
Participation Percentages(said promissory notes shall be
collectively referred to as the "Shareholders' Notes").
2.4.3 Post-Closing Confirmations. The Shareholders shall have
the obligations and shall make the transfers set forth below, in
the manner therein specified, in the event of the non-occurrence
of the following confirmation events (the "Confirmation Events"):
(i) on or before one (1) year after the Closing, ___ obtains a
valid and enforceable shared energy savings contract with respect
to _________ which includes financing therefor from a bona fide
lender (the "_________ Contract"), and (ii) the Net Present Value
of eighty percent (80%) of _____ interest in the net revenues
attributable to the energy savings from the ________ and _________
Projects shall be $4 Million or greater, calculated as of the
Closing date of this Agreement, using a ten percent (10%) discount
rate, measured two (2) years and six (6) months after the Closing
Date (but in no event sooner than one (1) full year following
completion of construction of the _________ project) (the
"Measurement Date"), using the energy saving attributable to the
respective projects during the one (1) full year period prior to
the Measurement Date (the "Calculated Net Present Value").
(a) In the event the Confirmation Event set forth in
2.4.3(i) above does not occur, then the Shareholders shall
transfer to LSB, in the manner set forth in Section 2.4.3(c)
below, an amount equal to the difference between $4 Million
and the Calculated Net Present Value without the _________
Project as of the Closing Date (the "____ Shortfall
Amount").
(b) In the event that the Confirmation Event set forth in
2.4.3(i) does occur, but the Confirmation Event set forth in
2.4.3(ii) above yields an amount less than $4 Million, then
the Shareholders shall transfer to LSB, in the manner set
forth in Section 2.4.3(c) below, an amount equal to the
difference between $4 Million and the Calculated Net Present
Value as of the Closing Date (the "Yield Shortfall Amount").
(c) The ____ Shortfall Amount and the Yield Shortfall
Amount shall be satisfied, to the extent possible, by
Shareholders' transfer to LSB by means of a joint and
several assignment to LSB of any and all amounts owed to
Shareholders, now or in the future, by ___, including,
without limitation, the Shareholder's Net Income Interest
and Net Profit Interest under the ___ Stock Purchase
Agreement. Accordingly, the Shareholders do hereby assign
to LSB or its designee, jointly and severally, any and all
amounts owed to Shareholders, now or in the future, by ___,
including, without limitation, their respective and combined
Net Income Interest and Net Profit Interest under the____
Stock Purchase Agreement, and the Shareholders hereby
irrevocably instruct ___ to pay any monies owed to
Shareholders by ___, now or in the future, to LSB or its
designee such sums as may be necessary to satisfy all ____
Shortfall Amounts and Yield Shortfall Amounts as those
amounts become known, owed or due.
(d) To the extent subsequent events occur during the
Shareholders' respective Bonus Period (as that term is
defined in the ___ Stock Purchase Agreement), which would
require adjustment (either increase or decrease) in the
amount paid or to be paid as a result of the non-occurrence
of one of the Confirmation Events, such adjustment and any
refund to Shareholder or additional payments to LSB as may
be required as a result of such adjustment, shall be
determined on or before the last day of the calendar year in
which such subsequent event occurs.
3. Representations & Warranties of Shareholders. The Shareholders, ___ and
___, jointly and severally represent and warrant to LSB as follows:
3.1 The Subject Shares. The Shareholders own and have full and valid
title to the Subject Shares free and clear of all liens, security
interests, claims and encumbrances, and have good right and
authority to sell the same.
3.2 ___ Stock. ___ is currently authorized to issue 10,000 shares of
common stock, and such shares of common stock are the only stock
of ___ which have voting rights. There are 10,000 shares of ___
common stock currently issued and such are all outstanding in the
names stated in Section 2.1 above, and such shall be the only
outstanding shares of ___ common stock as of the Closing Date.
3.3 ___ Stock. ___ is currently authorized to issue 2,500 shares of
common stock, and such shares of common stock are the only stock
of ___ which have voting rights. There are only 1,500 shares of
___ common stock currently issued and such are all outstanding in
the names stated in Section 2.1 above, and such shall be the only
outstanding shares of ___ common stock as of the Closing Date.
3.4 No Subscriptions, etc. There are no outstanding subscriptions,
options, rights, warrants, calls, commitments or agreements
relating to the authorized but unissued shares of ___ or ___.
3.5 Shareholder's Authority for Agreement. Each Shareholder has full
and requisite power and authority to deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the requisite
actions and this Agreement constitutes the valid and legally
binding obligation of each Shareholder enforceable against each of
the respective Shareholder in accordance with its terms. The
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not conflict with or
result in any violation of, or default under, any provision of the
formation documents of either ___ or ___ or with any other
agreement or document to which any Shareholder is a party.
3.6 Corporate Status and Authority. ___ is a corporation duly
organized and existing and in good standing under the laws of the
State of California and____ is a corporation duly organized and
existing and in good standing under the laws of the State of
Nevada. Both ___ and ___ have full power and authority to own and
operate each of their properties and to carry on its business all
as, and in the places where, such properties are now owned or
operated or such businesses are conducted. Both ___ and ___ are
duly qualified to do business and are in good standing in every
jurisdiction in which the nature of the property owned or leased
or the nature of the business conducted by each makes such
qualification necessary.
3.7 Subsidiaries. ____ has no subsidiaries and is not a partner in any
partnership or joint venture. ___ is not a partner in any
partnership or joint venture and has only two subsidiaries: ____,
Inc. ("____"), being a Louisiana corporation that is wholly owned
by ___; and, ______, Inc. ("______"), being a California
corporation certified to do business in Hawaii that is wholly
owned by ___. _____ interest in both ____ and ______ are included
in the Purchase Price, for no additional consideration. ______,
Inc. has no subsidiaries and is a partner in only one partnership
or joint venture: ________ Conservation Partners, L.P., a
Hawaiian limited partnership in which ______ is a 1% general
partner and a 49% limited partner and, which interest is included
in the Purchase Price, for no additional consideration. ___ is
also in the process of forming a Hawaiian corporation to be known
as ___________, Inc. ("___________"), which will be a wholly owned
subsidiary of ____and which is included in the Purchase Price for
no additional consideration. It is also anticipated that ______-
_______ will be a 50% joint venturer/partner with a wholly owned
subsidiary of __________________________to be known as
_______________________, when and if such joint venture/
partnership is formed, which interest is included in the Purchase
Price, for no additional consideration; provided, however,
Shareholders and ___ agree that the joint venture/partnership
contemplated with _________________________ shall not be formed or
agreed to prior to Closing without LSB's prior written approval of
the terms of such joint venture/partnership. All representations
or warranties under this Agreement also apply to those
subsidiaries, partnerships or joint ventures reflected above.
3.8 Financial Statements. ___ has heretofore delivered to LSB its
consolidated unaudited financial statements (the "Unaudited
Financials") of ___ and subsidiaries as of June 30, 1994,
including a Balance Sheet as of June 30, 1994 and statement of
operations for the year ended June 30, 1994, and ___ will continue
to furnish such financial information to LSB as of the end of each
month until the Closing. The Unaudited Financials have been
prepared by the management of ___ and fairly present the financial
position of ___ and its subsidiaries at June 30, 1994 and the
results of operations for the year then ended and as of the end of
each subsequent month for which such Unaudited Financials are
provided.
3.9 Undisclosed Liabilities. On the Closing Date, ________, and their
respective subsidiaries, will not be subject to any debts,
liabilities or obligations of any nature, whether accrued,
absolute, contingent or other, and whether due or to become due,
including, but not limited to, liabilities or obligations on
account of taxes (except ad valorem taxes accruing after December
31, 1993) constituting a lien but not yet due and payable, other
governmental charges, duties, penalties or fines, and there is no
valid basis for the assertion against either ________, or their
respective subsidiaries of any such debt, liability or obligation
other than those (i) reflected the Unaudited Financials, (ii)
which arise under obligations disclosed herein or (iii) which are
pursuant to obligations arising in the ordinary course of the
business of either ________, or their respective subsidiaries
consistent with those obligations reflected by the Additional
Unaudited Financials provided to LSB pursuant to Section 6.5
below.
3.10 Changes in Condition. There has not been since June 30, 1994, (i)
any change in the condition (financial or other) in or of the
properties, assets, liabilities, or business of ________, or their
respective subsidiaries, except changes in the ordinary course of
business which have not in any one case or in the aggregate been
materially adverse, (ii) any damage, destruction or loss (whether
or not covered by insurance) materially and adversely affecting
the properties, assets, or business of ________, or their
respective subsidiaries, (iii) any change in the accounting
methods or practices followed by ________, or their respective
subsidiaries or any change in depreciation or amortization
policies or rates heretofore adopted, (iv) any sale, lease,
abandonment or other disposition by ________, or their respective
subsidiaries of any interest in real property, or, other than in
the ordinary course of business, of any machinery, equipment or
other operating property or any sale, assignment, transfer,
license or other disposition by ___ of any intangible asset, (v)
any declaration setting aside or payment of any dividend or other
distribution on or in respect of the Subject Shares, or any direct
or indirect redemption, retirement, purchase or other acquisition
by ___ of any of the Subject Shares, or (vi) any change in the
Articles of Incorporation or By-laws of ________, or their
respective subsidiaries, or (vii) any other occurrence, event or
condition which materially adversely affects or may materially
adversely affect the properties, assets, or business of ________,
or their respective subsidiaries.
3.11 Taxes. ________, or their respective subsidiaries have duly and
timely filed all tax returns required to be filed, and have paid
all taxes shown to be due and payable on all such returns, all
assessments notice of which has been received by any of them, and
all other taxes, governmental charges, duties, penalties, interest
and fines due and payable by any of them on or before the Closing
Date. There are no agreements, waivers or other arrangements
providing for an extension of time with respect to the filing of
any tax returns by ________, or their respective subsidiaries, or
the payment by, or assessment against, ________, or their
respective subsidiaries of any tax, governmental charge, duty or
deficiency. There are no suits, actions, claims, investigations,
inquiries or proceedings threatened or now pending against
________, or their respective subsidiaries in respect to taxes,
governmental charges, duties or assessments, or any matters under
discussion with any governmental authority relating to taxes,
governmental charges, duties or assessments, or any claims for
additional taxes, governmental charges, duties or assessments
asserted by any such authority. The reserves made for taxes,
governmental charges and duties on the Financials and the
Unaudited Financials are sufficient for the payment of all unpaid
taxes, governmental charges and duties payable by ________, or
their respective subsidiaries attributable to all periods ended on
or before the date of the Unaudited Financials. ________, and
their respective subsidiaries have withheld or collected on each
payment made to each of its employees the amount of all taxes
(including, but not limited to, federal income taxes, Federal
Insurance Contribution Act taxes and state and local income and
wage taxes) required to be withheld or collected therefrom and has
paid the same to the proper tax receiving officers.
3.12 Real Property. Neither ________, nor their respective
subsidiaries owns any real property or interest therein except ___
has a leasehold interest of its office space at
_______________________________________________________.
3.13 Title to Personal Property. _________ and their respective
subsidiaries have good and marketable title to all tangible
personal property which each owns, including, but not limited to,
that reflected on the Unaudited Financials (except as disposed of
since the date of the Unaudited Financials in the ordinary course
of business and without involving any misrepresentation or breach
of warranty or covenant under this Agreement).
3.14 Plant, Buildings, Machinery and Equipment. All buildings, offices,
shops and other structures and all machinery, equipment, software,
computer hardware and general intangibles, fixtures, vehicles and
other properties owned, leased or used by either ________, and
their respective subsidiaries (whether under their control or the
control of others) are in good operating condition and repair and
are adequate and sufficient for all operations. ________, and
their respective subsidiaries own all computer software and
hardware, furniture, fixtures, machinery, equipment and other
assets required in the business of _________ and their respective
subsidiaries as now being conducted.
3.15 Regulatory Compliance. None of the real or personal properties
owned, leased, occupied or operated by ________, or their
respective subsidiaries, or the ownership, leasing, occupancy or
operation thereof, is in violation of any law or any building,
zoning, environmental or other ordinance, code, rule or
regulation, and no notice from any governmental body or other
person has been served upon ________, or their respective
subsidiaries or upon any property owned, leased, occupied or
operated by ________, or their respective subsidiaries claiming
any violation of any such law, ordinance, code, rule or regulation
or requiring, or calling attention to the need for, any work,
repairs, construction, alterations or installation an or in
connection with such property which has not been complied with.
________, and their respective subsidiaries have the right to use
their properties for all material operations conducted by it.
________, and their respective subsidiaries are in compliance with
all rules, regulations and laws that pertain to the conduct of
their business and ________, and their respective subsidiaries are
not aware of or have received any notice charging ________, or
their respective subsidiaries with such violations. Further,
neither ________, nor their respective subsidiaries, to the best
knowledge of the Shareholders, are under extraordinary
investigation by any governmental or industry regulatory body for
any reason.
3.16 Accounts. All account receivables of _________ and their
respective subsidiaries which are reflected in the Unaudited
Financials and those owned by ________, and their respective
subsidiaries on the Closing Date are and will be good and
collectible except to the extent charged off each month in
accordance with its normal accounting practices, consistently
applied.
3.17 Inventory. All items, if any, contained in the inventory of
_________ and their respective subsidiaries, as reflected in the
Unaudited Financials and as owned on the Closing Date are of a
quality and quantity salable or usable in the ordinary course of
____________, and their respective subsidiaries' business at
customary retail or wholesale prices; and the values of such
inventory reflect write-downs to realizable market value in the
case of items which had become obsolete or were unsalable except
at prices less than cost through regular distribution channels in
the ordinary course of_____________, and their respective
subsidiaries' business.
3.18 Patents, Trademarks, Etc. Neither ________, nor their respective
subsidiaries infringe on any patents, trademarks, trade names,
brand names or copyrights of any third party.
3.19 New Developments. There are no new developments in any business
conducted by ________, or their respective subsidiaries, nor any
new or improved methods, materials, products, processes or
services useful in connection with the business of ________, or
their respective subsidiaries as presently conducted, which may
adversely affect the properties, assets or business of_________,
or their respective subsidiaries.
3.20 Competition. Neither ________, nor their respective subsidiaries
nor any of their officers or employees have entered into any
agreement relating to the business of ________, or their
respective subsidiaries containing any prohibition or restriction
of competition or solicitation of customers with any person,
corporation, partnership, firm, association or business
organization, entity or enterprise which is now in effect.
3.21 Contractual Obligations. The Shareholders, ________, and their
respective subsidiaries have or will have prior to Closing
furnished LSB for its examination (i) a list of all written or
oral contracts, commitments, agreements and other contractual
obligations (not otherwise described herein) to which either
________, or their respective subsidiaries are a party or by which
their properties or assets are bound, affecting either ________,
or their respective subsidiaries, including, without limitation,
all labor agreements, employment contracts, leases, notes and
other evidence of indebtedness, pension and profit sharing and
other employee benefit plans or agreements, insurance policies and
contracts, and agreements obligating either ___ or ___ to expend
any substantial amount of money or acquire or dispose of any
substantial amount of property, and (ii) a list of all
governmental or court approvals and third party contractual
consents required in order to consummate the transactions
contemplated by this Agreement.
3.22 Compliance with Obligations. Neither ___, ___, nor their
respective subsidiaries is, nor is either alleged to be, in
default under, or in breach of any term or provision of, any
contract, agreement, lease, license, commitment, instrument or
obligation. No other party to any contract, agreement, lease,
license, commitment, instrument or obligation to which either
________, or their respective subsidiaries is a party is in
default thereunder or in breach of any term or provision thereof.
There exists no condition or event which, after notice or lapse of
time or both, would constitute a default by any party to any such
contract, agreement, lease, license, commitment, instrument or
obligation.
3.23 Litigation. There is no suit, action or claim, no investigation or
inquiry by any administrative agency or governmental body, and no
legal, administrative or arbitration proceeding pending or
threatened against either ________, or their respective
subsidiaries or any of their properties, assets, or business or to
which it is or might become a party, and there is no valid basis
for any such suit, action, claim, investigation, inquiry or
proceeding. There is no outstanding order, writ, injunction or
decree of any court, any administrative agency or governmental
body or arbitration tribunal against or affecting either ________,
or their respective subsidiaries or any of the capital stock,
properties, assets, or business of either ________, or their
respective subsidiaries other than those listed in Exhibit "B"
attached hereto and incorporated herein by reference.
3.24 Licenses and Permits. ________, and their respective subsidiaries
have all governmental licenses and permits necessary to conduct
their business and to operate their properties and assets, and
such licenses and permits are in full force and effect. No
violations exist or have been recorded in respect of any
governmental license or permit of either ________, or their
respective subsidiaries. No proceeding is pending or threatened
looking toward the revocation or limitation of any such
governmental license or permit and there is no valid basis for any
such revocation or limitation. ________, and their respective
subsidiaries have complied with all laws, rules, regulations,
ordinances, codes, orders, licenses, concessions and permits
relating to any of their properties or applicable to their
business including, but not limited to, the labor, environmental
and antitrust laws.
3.25 Labor Disputes. Since June 30, 1994, there has not been any
matter under discussion with any labor union or any strike, work
stoppage or labor trouble relating to employees of either ___,
___, or their respective subsidiaries. Since June 30, 1994, there
has not been any change in the relationship or course of dealing
between either ________, or their respective subsidiaries and any
of their suppliers or customers which has had or could have a
material adverse effect on their business.
3.26 Employee Compensation. An accurate list of (a) the name and the
current annual salary and other compensation or the rate of
compensation payable by either ________, or their respective
subsidiaries to each of their officers and each employee whose
current total annual compensation or estimated compensation
(including, but not limited to, normal bonus, profit sharing and
other extra compensation) is $25,000 or more, and (b) each loan or
advance (other than routine travel advances repaid or formally
accounted for within 60 days and routine vacation advances and
routine credit card advances) made by either ________, or their
respective subsidiaries to any director, officer or employee of
either ________, or their respective subsidiaries outstanding and
unpaid as of the date of this agreement and the current status
thereof, will be provided LSB by the Shareholders prior to the
Closing Date. Since December 31, 1993, there has not been any
increase in the total compensation payable or to become payable by
either ________, or their respective subsidiaries to each such
person or any general increase, in the total compensation or rate
of total compensation payable or to become payable by either
_________ or their respective subsidiaries to salaried employees
other than those specified in clause (a) of this Section or to
hourly employees ("general increase" for purposes of this Section
means any increase generally applicable to a class or group of
employees and not including increases granted to individual
employees for merit, length of service, change in position or
responsibility or other reasons applicable to specific employees
and not generally to a class or group thereof) other than as set
forth in ____________, or their respective subsidiaries' books and
records.
3.27 Insurance. ________, and their respective subsidiaries maintain
adequate insurance on their properties, assets, business and
personnel. Neither ________, nor their respective subsidiaries are
in default with respect to any provision contained in any
insurance policy, and neither have failed to give any notice or
present any claim under any insurance policy in due and timely
fashion.
3.28 No Default. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereunder will not
(a) result in the breach of any of the terms or conditions of, or
constitute a default under, the Articles of Incorporation or the
By-Laws of or the formation documents of ________, or their
respective subsidiaries or any contract, agreement, commitment,
indenture, mortgage, pledge agreement, note, bond, license or
other instrument or obligation to which ________, or their
respective subsidiaries or any shareholder is now a party or by
which ________, or their respective subsidiaries or any of the
properties or assets of ________, or their respective subsidiaries
may be bound or affected, or (b) violate any law, or any rule or
regulation of any administrative agency or governmental body, or
any order, writ, injunction or decree of any court, administrative
agency or governmental body.
3.29 Customers and Suppliers. No facts are known indicating that any
customer or supplier of ________, or their respective subsidiaries
intends to cease doing business with ________, or their respective
subsidiaries or to materially alter the amount of business that
they are presently or have historically done with ________, or
their respective subsidiaries.
3.30 Conflicts of Interest. No director, officer or employee of
_________ or their respective subsidiaries, including the
Shareholders, control or are an employee, officer, director, agent
or owner of any corporation, firm, association, partnership or
other businesses entity which is a competitor, supplier or
customer of ________, or their respective subsidiaries.
3.31 Full Disclosure. No representation or warranty of ________, or
their respective subsidiaries under this Agreement contains or
will contain any untrue statement of a material fact or omits or
will omit any material fact necessary to make the statements
herein not misleading.
3.32 Value of ________ and ________. Exhibit "C" accurately reflects
the net revenue expected to be derived from the ________ and
________ projects as well as ____s share of such net revenues from
those projects.
3.33 Freon Regulations. In the event any state or federal law, rule or
regulation addressing the use of Freon is adopted, ________ and
their respective subsidiaries have not entered into any agreement
or understanding, and will not enter into any such agreement or
understanding prior to Closing, which would require any of them to
replace or make any modifications to any Freon-utilizing equipment
which they may have sold or installed or may be maintaining.
3.34 No Obligations to Repay Debts Related to ________ Project. ___
and ___ have no responsibility, obligation or liability to pay any
debts or obligations of ______, including, without limitation, any
debt to any lender of ______ or to any partner of ______ related
to the ________ project.
4. Representations and Warranties of Buyer. LSB represents and warrants to
the Shareholders as follows:
4.1 Organization. LSB is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has the corporate power to enter into and to carry
out the terms and provisions of this Agreement.
4.2 Agreement Authorized. The execution, delivery and performance of
this Agreement by LSB has been authorized by all requisite
corporate action on the part of LSB and will not conflict with or
result in any breach in the terms, conditions or provisions of
LSB's corporate charter, by-laws or any other instrument to which
LSB is a party.
4.3 Securities Law Restrictions. LSB, will, within the meaning of the
Securities Act of 1933, acquire the Subject Shares for investment
and not with a view to the sale or distribution thereof.
4.4 Obligations. No officer, director, or shareholder of LSB shall
have any personal liability or obligation to __________ or any
other person under the terms of this agreement or under any
expressed or implied obligation, concept, principle or legal
theory.
5. Additional Agreements of Parties.
5.1 Changes in Directors of ___________. On the Closing Date, the
Shareholders will cooperate with LSB in arranging to have
available immediately after the Closing the transfer books of
________, and their respective subsidiaries and to cause such
action to be taken by the officers and directors of ________, and
their respective subsidiaries as may be required in order that the
Subject Shares delivered hereunder may forthwith be transferred of
record to LSB or its designee and in order that LSB or its
designee may cause such changes to be effected in the Board of
Directors and officers of ________, and their respective
subsidiaries as LSB or its designee may desire.
5.2 Conduct of Business. From June 30, 1994 to the Closing Date, the
Shareholders, ____and ____agree that ________________ and their
respective subsidiaries and affiliates shall operate only in the
ordinary course and, in particular, shall not engage in any of the
following activities without LSB's prior written consent:
5.2.1 Cancel or permit any insurance to lapse or terminate, unless
renewed or replaced by like coverage;
5.2.2 Change its Certificate of Incorporation or Bylaws;
5.2.3 Default under any material contract, agreement, commitment
or undertaking of any kind;
5.2.4 Violate or fail to comply with all laws applicable to it or
its properties or business, to the extent that the violation
or failure to comply would have a materially adverse effect
on ___________;
5.2.5 Commit any act or permit the occurrence of any event or the
existence of any condition prohibited by the terms of this
Agreement;
5.2.6 Enter into any material contract, agreement or other
commitment;
5.2.7 Fail to maintain and repair its assets in accordance with
good standards of maintenance and as required in any leases
or other agreements pertaining to its assets; or
5.2.8 Merge, consolidate or agree to merge or consolidate with or
into any other corporation.
5.2.9 Issue any stock to anyone other than LSB.
5.2.10 Create or assume any indebtedness.
5.2.11 Sell, encumber or otherwise dispose of, or grant any
security interest in or encumbrance on, any of their
assets.
5.2.12 Enter into or implement any employee benefit plan.
5.2.13 Enter into any employment, consulting or similar contract
for or on their behalf.
5.2.14 Increase the compensation, deferred compensation or
benefits payable to any employee or commissioned agent.
5.2.15 Take any action or, by inaction, permit any action to be
taken or event to occur, which would cause any
representation or warranty made in or pursuant to this
Agreement to be untrue as of the Closing.
5.2.16 Remove any assets other than those recorded in their
books and records as a sale in the ordinary course of
business at fair market value price.
5.2.17 Take any action that could impair the collectibility of
any of their accounts.
5.2.18 Enter into any agreement with respect to any of the
foregoing.
5.3 Access to Information. From and after the date of this agreement,
the Shareholders, _________and ______ shall give LSB, its legal
counsel, accountants and other representatives, upon receipt of
reasonable notice in writing, full and free access to all of the
employees, properties, books, contracts, commitments and records
of ________ and ______ in order to give LSB the full opportunity
to make an investigation of the affairs of ________ and ______, as
long as the investigation occurs only during the regular business
hours of ________ and ______ and does not interfere unreasonably
with the operation of ________ and ______. Any investigation
(whether heretofore conducted or to be conducted) shall not affect
the representations and warranties of Shareholders, ___ and ___
contained in this Agreement.
5.4 Preservation of Business Organization. The Shareholders, ___ and
___ shall use their best efforts to preserve the business
organization of ________, and their respective subsidiaries, to
keep available to LSB the services of the respective officers and
employees of ________, and their respective subsidiaries, and to
preserve for LSB the existing relationship of ________, and their
respective subsidiaries with all suppliers, customers and others
having business relations with ________, and their respective
subsidiaries.
5.5 Additional Financial Statements. ___, not less than fifteen (15)
days of the date of this Agreement, but no later than one (1) week
before Closing, will deliver to LSB unaudited financial statements
of ___, including a Balance Sheet as of June 30, 1994, and
Statement of Operations for the year ended June 30, 1994 and shall
continue to timely provide the same as of the last day of each
month thereafter until Closing (the "Additional Unaudited
Financials"). The Additional Unaudited Financials will have been
prepared in accordance with generally accepted accounting
principles, consistently applied, will have been prepared by the
management of ___ and will fairly present the financial position
and results of operations of ___ as of June 30, 1994, and as of
the end of each month thereafter.
5.6 Materiality. The parties hereto agree that for purposes of this
agreement, an occurrence, event or condition shall be deemed
"materially adverse" if it results in a reduction of stockholder's
equity of __________or their respective subsidiaries in excess of
$20,000.
5.7 Confidential Information. Each Shareholder acknowledges and
agrees that ___________ have developed and uses various
proprietary and confidential practices and methods of conducting
business, information and data, and computer software and data
bases. In particular, each Shareholder acknowledges that
___________ have developed specialized business methods,
techniques, plans and know-how; budgets, financing and accounting
techniques and projections; advertising, proposals, applications,
marketing materials and concepts; customer files and other non-
public information regarding customers; methods for developing and
maintaining business relationships with customers and prospective
customers; customer and prospect lists; copies of previous
insurance policies and renewal dates; procedure manuals; and
employee training and review programs and techniques. The
foregoing information, software, documents, practices, and methods
of conducting business shall hereinafter be referred to as the
"Confidential Information." Each Shareholder agrees that the
Confidential Information is a trade secret of ___________,
respectively, which shall remain the sole property of ___________,
respectively, notwithstanding that each Shareholder may have
participated in the development of the Confidential Information.
During the term of this Agreement and at all times thereafter for
perpetuity, each Shareholder shall not disclose any Confidential
Information to any person or entity for any reason or purpose
whatsoever, nor shall any Shareholder make use of any Confidential
Information for their own benefit or for the benefit of any other
person or entity.
5.8 Prohibition on Solicitation of Customers and Covenant Not to
Compete.
5.8.1 For a period of seven (7) years after the Closing Date, no
Shareholder shall directly or indirectly, either for
themselves or for any other person or entity, solicit any
person or entity to terminate or in any manner affect such
person's or entity's contractual and/or business
relationship with ________, or their respective
subsidiaries, nor shall any Shareholder interfere with or
disrupt or attempt to interfere with or disrupt any such
relationship.
5.8.2 Covenant Not to Compete. ___________ and each Shareholder
each acknowledge that each may have considerable specialized
knowledge and contacts in the business of ________ and their
respective subsidiaries and that it is important to ________
and their respective subsidiaries that each Shareholder
agree not to compete with ________ and their respective
subsidiaries in the business in which ________ and their
respective subsidiaries engage in presently or in any
business that has any connection with energy savings. As
part of the consideration for the Purchase Price during the
term of this Section 6.9.1 each Shareholder covenants that
each shall not, directly or indirectly, either as an
employee, employer, consultant, agent principal, partner,
stockholder, corporate officer or director or in any other
individual or representative capacity, engage or participate
in any business that is in competition with ________, or
their respective subsidiaries or in any business that uses,
distributes, handles or has any connection with energy
savings, provided that each Shareholder may invest in
publicly traded securities of companies in competition with
________, or their respective subsidiaries or mutual funds
whose assets include securities of such companies.
5.8.3 Corporate Opportunities. Each Shareholder shall be under an
obligation to present in writing, any business opportunity
relating to _____________, or their respective subsidiaries'
business of which he becomes aware. Unless ________, or
their respective subsidiaries notifies such Shareholder to
the contrary in writing, ________, and/or their respective
subsidiaries shall have the right to act in its own interest
and pursue any such business opportunity and such
Shareholder shall assist ________, or their respective
subsidiaries as requested. Each Shareholder hereby waives
any rights to act on his own behalf with respect to such
opportunities unless ________, or their respective
subsidiaries notifies him in writing that __________ will
not be pursuing a specific opportunity.
6. Conditions Precedent to Obligations of LSB. The obligations of LSB to
pay the Purchase Price and otherwise perform under this Agreement is
subject, at LSB's option, to the condition that all representations and
warranties and other statements of ________ and the Shareholders herein
are as of the Closing true and correct and the condition that
___________ perform all of their obligations hereunder to be performed
at or prior to the Closing, and the following additional conditions:
6.1 Certificates. There shall have been furnished or caused to be
furnished to LSB at the Closing, certificates of appropriate
officers of ________ and each Shareholder in form and substance
satisfactory to LSB as to the continuing accuracy at and as of the
Closing of the representations and warranties of ___________ and
the Shareholders and to the performance by ___________ and the
Shareholders of all their obligations hereunder to be performed at
or prior to the Closing, together with such other certificates as
LSB may reasonably request in connection with the Closing.
6.2 Delivery of Subject Shares. Certificates evidencing the Subject
Shares, duly executed for transfer to LSB or its designee shall
have been delivered to LSB and duly transferred to it on the books
of ___.
6.3 Board of Directors. The members of the Board of Directors of
_________ and their respective subsidiaries shall resign their
directorships effective as of the Closing, and LSB's designees
shall have been elected to such Board of Directors effective as of
the Closing.
6.4 Counsel to Buyer. All corporate proceedings and related matters
in connection with the organization and good standing of ________
and their respective subsidiaries the execution and delivery of
this Agreement and the consummation of the transactions herein
contemplated, and the performance by it of its obligations
hereunder shall have been satisfactory to counsel to LSB and such
counsel shall have been furnished with such papers and information
as he may reasonably have requested to enable him or her to pass
on the matters referred to in this section.
6.5 Opinion of Counsel to ___________. Counsel to ___________ shall
have furnished to LSB their written opinion in form satisfactory
to LSB to the effect that:
6.5.1 ________, and ______ have been duly incorporated and are
validly existing as a corporation in good standing under the
laws of the State of California;
6.5.2 This agreement has been validly authorized, executed and
delivered on the part of ___________, and is a valid and
binding agreement of ___________ in accordance with its
terms;
6.5.3 All of the issued and outstanding shares of ___________,
including the Subject Shares, have been duly authorized,
validly issued and are fully paid, nonassessable shares.
6.5.4 ___________ have no responsibility, obligation or liability
to pay any debts or obligations of ______, including,
without limitation, any debt to any lender of ______ or to
any partner of ______ related to the ________ project.
6.6 No Litigation. No suit or action, investigation, inquiry or
request for information by any administrative agency, governmental
body or private party, and no legal or administrative proceeding
shall have been instituted or threatened which questions or
reasonably appears to portend subsequent questioning of the
validity or legality of this agreement or the transactions
contemplated by this agreement, or which materially and adversely
affects or questions the title of ________, or their respective
subsidiaries to any of its properties or its ability to conducts
its business.
6.7 Consents. All consents from third parties required to consummate
the transactions provided for in this agreement shall have been
obtained.
6.8 No Change. There shall have been no material adverse change in
the condition or obligations of ________, or their respective
subsidiaries (financial or otherwise).
6.9 Loss. ________, or their respective subsidiaries will not have
sustained a substantial loss (whether or not insured) as a result
of fire, flood or other casualty which in the sole judgment of LSB
affects materially or interferes with the continuous conduct of
its business.
6.10 Subsequent Information. All exhibits, lists, contracts and other
documents hereafter furnished to LSB by Shareholders, __________
or discovered by LSB, including copies of pleadings and rulings
relating to litigation and administrative proceedings, and any
other information relating to the business and affairs of
_________ or their respective subsidiaries shall be acceptable to
LSB.
6.11 Employment Agreement. ________, _______ and______ shall have each
executed and delivered to LSB at or before Closing an Employment
Agreement in the form attached hereto as Exhibit "A" and made a
part hereof by reference, which reflects an "Initial Term" of five
(5) years for ________ and _______, respectively, and an "Initial
Term" of three (3) years for _____. All previous employment
and/or compensation agreements and/or arrangements between
___________(or their respective subsidiaries or affiliates) and
either ________, _______ or _____ shall be deemed null and void
upon such execution and delivery.
6.12 Loan Agreement. The Loan Agreement and the Loan Documents (as
that term is defined in the Loan Agreement) have been fully
executed and no Default or Event of Default exists under the Loan
Agreement or the Loan Documents.
6.13 Termination of Shareholders' Agreement. On or before Closing,
that certain Shareholders' Agreement dated April 11, 1991 by and
between _______, ________, _____ and ___ shall be terminated and
of no force or effect.
6.14 The closing under the ___ Stock Purchase Agreement shall occur
simultaneously with the Closing of this Agreement.
7. Conditions for the Benefit of the Shareholders. The obligations of the
Shareholders hereunder at the Closing shall be subject, at their option
to the following conditions:
8. Representations and Warranties. All representations and
warranties and other statements of LSB herein are at and as of the
Closing materially true and correct.
8.1 Performance of Obligations. LSB shall have performed all of its
obligations hereunder to be performed at or prior to the Closing.
8.2 No Suits. At the Closing Date, there shall not have been
instituted any suit, action, or other proceeding or any
investigation in any court or governmental agency in which it is
sought to restrain or prohibit the consummation of the
transactions contemplated by this agreement.
9. Survival of Representations and Warranties. Except the representations
and warranties of LSB (which shall not survive the Closing), all of the
representations and warranties of ________ and the Shareholders
hereunder shall survive the Closing for a period of one (1) year from
the Closing Date; provided, however, ________ and the Shareholders shall
have no liability with respect thereto unless LSB's loss occasioned
thereby exceeds $20,000.00, and provided further, representations and
warranties regarding the payment of taxes shall remain in force and
effect as long as liability therefor remains in effect.
10. Expenses. Except as otherwise herein provided, each party hereto will
bear and pay its or his own expenses of negotiating and consummating the
transactions contemplated hereby.
11. Notices.
11.1 All notices, requests, demands, instructions or other
communications called for hereunder or contemplated hereby, shall
be in writing, shall be deemed to have been given if personally
delivered, or if mailed, by registered or certified mail, return
receipt requested, to the parties at the addresses set forth
below. The date of personal delivery shall be the date of giving
notice or if any notice, request, demand, instruction or other
communication given or made by mail in the manner prescribed above
shall be deemed to have been given three (3) business days after
the date of mailing. Any party may change the address to which
notices are given, by giving notice in the manner herein provided.
11.1.1 Notices to LSB shall be addressed as follows:
LSB Industries, Inc.
16 South Pennsylvania
Oklahoma City, Oklahoma 73107
Attention: President
with a copy to:
LSB Industries, Inc.
16 S. Pennsylvania
Oklahoma City, OK 73107
Attention: Office of General Counsel
11.1.2 Notices to ___________ shall be addressed as follows:
_______________
__________________
_________
Santa Monica, CA 90401
Attn: President
________.
__________________
_________
Santa Monica, CA 90401
Attn: President
11.1.3 Notices to the Shareholders shall be addressed as
follows:
_________________
________________________
Santa Monica, CA 90403
__________________
_______________________
Long Beach, CA 90815
____________
_________________
Honolulu, HI 96815
11.2 The mailing of any notice, request, demand, instruction or other
communication hereunder shall be accomplished by placing such
writing in an envelope addressed to the party entitled thereto as
provided above and deposited in the United States mail, properly
stamped for delivery as a registered or certified letter.
12. LSB's Right of First Refusal on Non-Subject Shares. If, at any time, or
from time to time, should any Shareholder elect to sell, convey, assign,
or otherwise transfer to a third party or entity whomsoever the shares
of ___ owned by them that are not subject to this Agreement as part of
the Subject Shares ("Non-Subject Shares"), or any part or interest
therein, each Shareholder hereby grants to LSB the first and
preferential right and option to purchase fee simple title to the Non-
Subject Shares or to the part or interest therein which such Shareholder
intends to sell, convey, assign, or otherwise transfer, under the same
terms and conditions proposed by or to such third party or entity as
contained in a bona fide offer or conditional acceptance of offer from
such third party or entity. With respect to any proposed sale,
conveyance, assignment, contract or other transfer of the Non-Subject
Shares, each Shareholder seeking to sell Non-Subject Shares shall comply
with the following requirements:
12.1 Notice by Shareholder. Each Shareholder seeking to sell Non-
Subject Shares shall give LSB written notification of such
proposal, offer or conditional acceptance of any such offer that
has been made and accepted (subject to Buyer's first and
preferential right and option to purchase), and each Shareholder
seeking to sell Non-Subject Shares shall attach to the said
notification the tendered contract, or a true copy thereof, that
contains all necessary elements and information to constitute a
legally binding contract obligating the transferee to perform,
said contract being signed and acknowledge by said transferee, who
is ready, willing and able to perform.
12.2 Transfer of Right of Refusal. LSB shall have the right to
transfer, convey and assign to any third party whomsoever such
first and preferential right and option to purchase the Non-
Subject Shares, and the holder of such right of first refusal by
any assignment shall have the full right, power and authority to
exercise on its own behalf or for the account of itself or its
designee or assignee, any and all rights and privileges incident
thereto.
12.3 Exercise of Right. LSB shall notify in writing within fifteen
(15) business days of said written notification from each
Shareholder seeking to sell Non-Subject Shares as to LSB's
election to exercise its first and preferential right and option
to purchase the Non-Subject Shares. If LSB has not given said
notification within fifteen (15) business days, each Shareholder
seeking to sell Non-Subject Shares may proceed to close the sale
or other transfer to said third party or entity, provided that
said sale or other transfer is consummated at the same sum and
under the same terms and conditions contained in the contract
attached to said notification and on the closing dates set out
therein. If LSB (or its designee or assignee) should elect to
exercise its option to purchase, by written notification to each
Shareholder seeking to sell Non-Subject Shares within said fifteen
(15) business days, the transfer to LSB shall be consummated on
the closing date and under the same terms and conditions contained
in the contract from said third party or entity.
12.4 Continuing Right. The first and preferential right and option to
purchase shall be effective and shall apply at all times to any
and all proposed sales, conveyances, assignments, contracts and
other transfers by any Shareholder of their Non-Subject Shares or
any interest therein for a period of ten (10) years from the date
of this Agreement. Any sale, conveyance, assignment, contract or
transfer by any Shareholder of their Non-Subject Shares or any
interest therein within ten (10) years from the date hereof shall
be made expressly subject to the provisions of this right of first
refusal. Such first and preferential right and option to purchase
shall terminate on the date which is ten (10) years from the date
hereof with respect to rights which have not accrued by that date.
13. LSB's Sale of Stock. If, LSB should elect to sell the shares of ___
stock to be acquired by LSB under this Agreement (collectively the
"LSB's Shares"), or any part or interest therein, LSB agrees that it
shall provide each Shareholder that may then own any of the Non-Subject
Shares the opportunity for their Non-Subject Shares to be included in
any such sale on the same terms and conditions afforded to LSB to the
extent of their Sharing Percentage (as that term is defined below). The
"Sharing Percentage" of any Shareholder shall mean that percentage of
the total number of Shares of ___ Stock to be sold which is to be
contributed by that particular Shareholder, which percentage shall be
the same percentage that the number of Non-Subject Shares owned by that
particular Shareholder bears to the total number of all LSB's Shares and
Non-Subject Shares then outstanding. With respect to any proposed sale
of LSB's Shares, each Shareholder and LSB shall comply this the
following requirements:
13.1 Notice. LSB shall give each Shareholder then owning any of the
Non-Subject Shares, written notification of such proposal, offer
or conditional acceptance that has been made and LSB shall attach
to the said notification the tendered contract, or a true copy
thereof.
13.2 Exercise of Right. Each Shareholder shall notify LSB in writing
within fifteen (15) business days of said written notification as
to their election to exercise their right for their Non-Subject
Shares to be included in the sale. If any Shareholder has not
given said notification within fifteen (15) business days, LSB may
proceed to close the sale without participation of that
Shareholder, provided that said sale or other transfer is
consummated at the same sum and under the same terms and
conditions contained in the contract attached to said
notification.
13.3 Continuing Right. The right for the Non-Subject Shares to be
included in any such sale shall be effective and shall apply at
all times to any and all proposed sales by LSB of LSB's Shares or
any interest therein for a period of ten (10) years from the date
of this Agreement and such right shall terminate on the date which
is ten (10) years from the date hereof with respect to rights
which have not accrued by that date.
14. Miscellaneous.
14.1 Full Agreement - No Oral Modification. This Agreement embodies
all representations, warranties and agreements of the parties and
supersedes all negotiations and agreements prior to the execution
of this Agreement. This Agreement may not be altered or modified
except by an instrument in writing signed by the parties.
14.2 Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective
successors and assigns; provided, however, that no assignment of
this Agreement shall be made to any party other than any of LSB's
subsidiaries or affiliates without the written consent of the
other party, which consent shall not be unreasonably withheld.
14.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oklahoma applicable to
contracts made and performed entirely therein.
14.4 Counterparts. This Agreement may be executed in any number of
counterparts, which taken together shall constitute one and the
same instrument, and each of which shall be considered an original
for all purposes.
14.5 Section Headings. The section headings contained in this
Agreement are for convenience and reference only and shall not in
any way affect the meaning or interpretation of this Agreement.
14.6 Severability. All Agreements and covenants contained herein are
severable, and in the event any of them should be held to be
invalid by a court of competent jurisdiction, this Agreement shall
be interpreted and enforced as if such invalid Agreements or
covenants were not contained herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
_______________
By:
, President
_________
By:
, President
LSB INDUSTRIES, INC.
By:
___________________individually
___________________ individually
_____________ individually
Attachments:
Exhibit "A" - Form of Employment Agreement
Exhibit "B" - List of Suits, Claims, etc.
Exhibit "C" - Statement of Net Revenue Expected from _________and_________
Projects
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