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 March 31, 1999
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
__________________________________________________
Registrant's telephone number, including area code
None
_____________________________________________________
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 April 30, 1999 was 11,835,386 shares excluding
3,273,290 shares held as treasury stock.
<PAGE>
<PAGE>
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 March 31, 1999, the condensed consolidated
statements of operations and cash flows for the three month periods
ended March 31, 1999 and 1998 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 only 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 three months ended
March 31, 1999 are not necessarily indicative of the results to be
expected for the full year. The condensed consolidated balance
sheet at December 31, 1998, was derived from audited financial
statements as of that date. Reference is made to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998,
for an expanded discussion of the Company's financial disclosures
and accounting policies.
<PAGE>
<TABLE>
<CAPTION>
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at March 31, 1999 is unaudited)
(dollars in thousands)
March 31, December 31,
ASSETS 1999 1998
_________________________________________ ___________ __________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,240 $ 1,555
Trade accounts receivable, net 57,113 52,730
Inventories:
Finished goods 33,322 34,236
Work in process 8,163 7,178
Raw materials 21,864 22,431
__________ __________
Total inventory 63,349 63,845
Supplies and prepaid items 9,503 7,809
__________ __________
Total current assets 131,205 125,939
Property, plant and equipment, net 99,102 99,228
Other assets, net 21,120 23,480
__________ __________
$ 251,427 $ 248,647
========== ==========
</TABLE>
(Continued on following page)
3
<PAGE>
<TABLE>
<CAPTION>
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at March 31, 1999 is unaudited)
(dollars in thousands)
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
________________________________________ ___________ __________
<S> <C> <C>
Current liabilities:
Drafts payable $ 499 $ 758
Accounts payable 20,534 24,043
Accrued liabilities 19,490 19,006
Current portion of long-term debt 14,559 13,954
___________ __________
Total current liabilities 55,082 57,761
Long-term debt (Note 6) 165,759 155,688
Commitments and Contingencies (Note 5)
Redeemable, noncumulative convertible
preferred stock, $100 par value; 1,463 shares
issued and outstanding 139 139
Stockholders' equity (Notes 3 and 7):
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, 15,108,676 shares
issued 1,511 1,511
Capital in excess of par value 38,329 38,329
Accumulated other comprehensive loss (1,337) (1,559)
Accumulated deficit (39,794) (35,166)
___________ __________
46,709 51,115
Less treasury stock, at cost:
Series 2 Preferred, 5,000 shares 200 200
Common stock, 3,273,290 shares
(3,202,690 in 1998) 16,062 15,856
___________ __________
Total stockholders' equity 30,447 35,059
___________ __________
$ 251,427 $ 248,647
=========== ==========
</TABLE>
(See accompanying notes)
4
<PAGE>
<TABLE>
<CAPTION>
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
(Amounts in thousands, except per share amounts)
1999 1998
__________ __________
<S> <C> <C>
Businesses continuing at March 31,:
Revenues:
Net sales $ 70,189 $ 73,290
Other income - 889
Gain on sale of the Tower 12,993
__________ __________
70,189 87,172
Costs and expenses:
Cost of sales 54,075 57,539
Selling, general and administrative 14,327 14,811
Interest 4,367 4,701
Other expenses 210 -
__________ __________
72,979 77,051
__________ __________
Income (loss) before subsidiary to be
disposed of during 1999 (2,790) 10,121
Subsidiary to be disposed of during 1999 (Note 9):
Revenues 2,868 4,779
Operating costs, expenses and interest 3,838 5,342
__________ __________
(970) (563)
Income (loss) before provision for
income taxes (3,760) 9,558
Provision for income taxes 50 280
Net income (loss) $ (3,810) $ 9,278
=========== ==========
Net income (loss) applicable to
common stock (Note 2) $ (4,626) $ 8,462
=========== ==========
Weighted average common shares
outstanding (Note 2):
Basic 11,881 12,746
Diluted 11,881 17,539
Income (loss) per common share (Note 2):
Basic $ (.39) $ .66
=========== ==========
Diluted $ (.39) $ .53
=========== ==========
</TABLE>
(See accompanying notes)
5
<PAGE>
<TABLE>
<CAPTION>
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
(dollars in thousands)
1999 1998
___________ ___________
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ (3,810) $ 9,278
Adjustments to reconcile net income (loss)
to cash flows used by operations:
Depreciation, depletion and amortization:
Property, plant and equipment 2,819 3,119
Other 318 262
Provision for possible losses
on receivables and other assets 427 399
Loss (gain) on sale of assets 23 (12,993)
Cash provided (used) by changes in assets
and liabilities:
Trade accounts receivable (4,633) (5,968)
Inventories 645 3,798
Supplies and prepaid items (1,692) (335)
Accounts payable (3,564) (563)
Accrued liabilities 2,522 1,644
___________ _________
Net cash used by operations (6,945) (1,359)
Cash flows from investing activities:
Capital expenditures (2,328) (2,290)
Principal payments on loans receivable 135 23
Proceeds from sales of equipment and
real estate properties - 18
Proceeds from sale of the Tower - 29,266
Decrease (increase) in other assets 1,827 (2,511)
___________ _________
Net cash provided (used) by investing activities (366) 24,506
Cash flows from financing activities:
Payments on long-term and other debt (2,522) (14,649)
Net change in revolving debt facilities 10,799 (5,558)
Net change in drafts payable (259) (405)
Dividends paid on preferred stocks (Note 3) (816) (816)
Purchases of treasury stock (Note 3) (206) (819)
Net proceeds from issuance of common stock - 71
___________ _________
Net cash provided (used) by financing activities 6,996 (22,176)
___________ _________
Net increase (decrease) in cash and cash
equivalents from all activities (315) 971
Cash and cash equivalents at beginning of period 1,555 4,934
__________ _________
Cash and cash equivalents at end of period $ 1,240 $ 5,905
========== =========
</TABLE>
(See accompanying notes)
6
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
Note 1: Income Taxes At December 31, 1998, the Company had regular-tax net
operating loss ("NOL") carryforwards for tax purposes of approximately $63.8
million (approximately $31.4 million alternative minimum tax NOLs). Certain
amounts of regular-tax NOL expire beginning in 1999.
The Company's provision for income taxes for the three months ended March 31,
1999 of $50,000 is for current state income taxes and federal alternative
minimum tax.
Note 2: Earnings Per Share Net income or loss applicable to common stock is
computed by adjusting net income or loss by the amount of preferred stock
dividends. Basic income or loss per common share is based upon the weighted
average number of common shares outstanding during each period after giving
appropriate effect to preferred stock dividends. Diluted income or loss per
share is based on the weighted average number of common shares and dilutive
common equivalent shares outstanding and the assumed conversion of dilutive
convertible securities outstanding, if any, after appropriate adjustment for
interest, net of related income tax effects on convertible notes payable, as
applicable. The Company has stock options, convertible preferred stock, and a
convertible note payable, which are potentially dilutive. All of these
potentially dilutive securities were antidilutive for the first quarter of 1999
and have thus, been excluded from the computation of diluted loss per share for
that period.
7
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Note 2: Earnings Per Share (continued) The following table sets forth the
computation of basic and diluted earnings per share:
(dollars in thousands, except per share amounts)
March 31,
1999 1998
___________ _________
<S> <C> <C>
Numerator:
Numerator for 1998 diluted earnings
per share - net income (loss) $ (3,810) $ 9,278
Preferred stock dividends (816) (816)
__________ __________
Numerator for 1999 and 1998 basic
and 1999 diluted earnings per
share - income (loss) available
to common stockholders $ (4,626) $ 8,462
========== ==========
Denominator:
Denominator for basic earnings per
share - weighted-average shares 11,880,625 12,746,178
Effect of dilutive securities:
Employee stock options - 126,290
Convertible preferred stock - 4,662,726
Convertible note payable - 4,000
__________ __________
Dilutive potential common shares - 4,793,016
Denominator for diluted earnings
per share - adjusted weighted-
average shares and assumed
conversions 11,880,625 17,539,194
========== ==========
Basic earnings (loss) per share (.39) $ .66
========== ==========
Diluted earnings (loss) per share (.39) $ .53
========== ==========
</TABLE>
8
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Note 3: Stockholders' Equity The table below provides detail of activity in
the stockholders' equity accounts for the three months ended March 31, 1999:
Common Stock Non- Capital Accumulated
_______________ redeemable in excess Other Com-
Par Preferred of par prehensive
Shares Value Stock Value Loss
______ ______ _________ _______ __________
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1998 15,109 $ 1,511 $ 48,000 $ 38,329 $(1,559)
Net loss
Foreign currency
translation adjustment 222
Total comprehensive
income (Note 8)
Dividends declared:
Series B 12% preferred
stock ($3.00 per share)
Series 2 preferred
stock ($.81 per share)
Redeemable preferred
stock ($10.00 per share)
Purchase of treasury stock
______ _______ _______ _______ _______
(1)
Balance at March 31, 1999 15,109 $ 1,511 $ 48,000 $ 38,329 $(1,337)
====== ======= ======== ======== =======
<PAGE>
Treasury
Accumu Treasury Stock
lated Stock- Prefer-
deficit Common red Total
________ _________ ________ ________
<S> <C> <C> <C> <C>
$(35,166) $(15,856) $ (200) $35,059
(3,810) (3,810)
222
_______
(3,588)
(60) (60)
(741) (741)
(15) (15)
(206) (206)
_________ _________ _________ ________
$(38,794) $(16,062) $ (200) $30,447
========= ========= ========= ========
<FN>
(1) Includes 3,273 shares of the Company's Common Stock held in treasury.
Excluding the 3,273 shares held in treasury, the outstanding shares
of the Company's Common Stock at March 31, 1999 were 11,836.
</FN>
</TABLE>
9
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Note 4: Segment Information
Three Months Ended March 31,
1999 1998
______ _______
(in thousands)
(unaudited)
<S> <C> <C>
Net sales:
Businesses continuing:
Chemical $ 30,745 $ 28,679
Climate Control 26,699 29,936
Automotive Products 10,105 10,490
Industrial Products 2,640 4,185
Subsidiary to be disposed of:
Chemical 2,868 4,746
___________ __________
$ 73,057 $ 78,036
=========== ==========
Operating profit (loss):
Businesses continuing:
Chemical $ 1,446 $ 1,557
Climate Control 2,707 2,812
Automotive Products 9 (407)
Industrial Products (411) (304)
Subsidiary to be disposed of:
Chemical (845) (406)
__________ _________
2,906 3,252
General corporate expenses and other (2,174) (1,829)
Interest expense (4,492) (4,858)
Gain on sale of the Tower - 12,993
__________ __________
Income (loss) before provision
for income taxes $ (3,760) $ 9,558
========== ==========
</TABLE>
Note 5: Commitments and Contingencies
Nitric Acid Project
In June 1997, two wholly owned subsidiaries of the Company, El
Dorado Chemical Company ("EDC"), and El Dorado Nitrogen Company
("EDNC"), entered into a series of agreements with Bayer
Corporation ("Bayer") (collectively, the "Bayer Agreement"). Under
the Bayer Agreement, EDNC agreed to act as an agent to construct,
and upon completion of construction, operate a nitric acid plant
10
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
(the "EDNC Baytown Plant") at Bayer's Baytown, Texas chemical
facility. EDC guaranteed the performance of EDNC's obligations
under the Bayer Agreement. Under the terms of the Bayer Agreement,
EDNC is to lease the EDNC Baytown plant pursuant to a leveraged
lease from an unrelated third party with an initial lease term of
ten years from the date on which the EDNC Baytown Plant becomes
fully operational. Upon expiration of the initial ten-year term,
the Bayer Agreement may be renewed for up to six renewal terms of
five years each; however, prior to each renewal period, either
party to the Bayer agreement may opt against renewal. It is
anticipated that construction cost of the EDNC Baytown Plant will
approximate $69 million and will be completed in the second quarter
of 1999. Construction financing of the EDNC Baytown Plant is
provided by an unaffiliated lender. Neither the Company nor EDC
has guaranteed any of the repayment obligations for the EDNC
Baytown Plant. In connection with the leveraged lease, the Company
entered into an interest rate forward agreement to fix the
effective rate of interest implicit in such lease. As of March 31,
1999, the fair value of such agreement represented a liability of
$2.6 million for which the Company has issued a letter of credit
totaling the same. See Note 7, "Changes in Accounting," for the
expected accounting upon adoption of SFAS #133.
In January 1999, the contractor constructing the EDNC Baytown Plant
under a turnkey agreement, informed the Company that it could not
complete construction alleging a lack of financial resources. EDNC
at that time demanded that the contractor's bonding company provide
funds necessary for subcontractors to complete construction. A
substantial portion of the costs to complete the EDNC Baytown
Plant ($12.9 million), which were to be funded by the construction
contractor, have been funded by proceeds from the bonding company;
however, the cost to the Company through its leveraged lease is
expected to be impacted by these events. As a result of the delay
in completion of the EDNC Baytown Plant, the Company's
subsidiaries, EDNC and EDC, have entered into an interim supply
agreement with Bayer to provide product from the manufacturing
facility in El Dorado, Arkansas.
In connection with the EDNC Baytown Plant, EDNC had entered into a
long-term production and supply agreement with Bayer. This
agreement provided for a commencement date of no later than
February 1, 1999. As mentioned above, EDNC is providing product to
Bayer under an interim supply agreement until the EDNC Baytown
Plant becomes operational. In connection with these agreements,
EDNC and Bayer are to determine the financial impact of the delay
in completing the Baytown Plant as scheduled. Based on current
11
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
estimates, the loss associated with these agreements and contract
provisions is not expected to be material.
Debt Guarantee
The Company previously guaranteed approximately $2.6 million of
indebtedness of a start-up aviation company, Kestrel Aircraft
Company ("Kestrel"), in exchange for a 44.9% ownership interest.
At December 31, 1998, the Company had accrued the full amount of
its commitment under the debt guarantees and fully reserved its
investments and advances to Kestrel. In the first quarter of 1999,
upon demand of the Company's guarantee, the Company assumed an
obligation for a $2.0 million term note, which is due in equal
monthly principal payments of $11,111, plus interest, through
August 2004 and funded its $600,000 obligation related to a
subsidiary's partial guarantee of Kestrel's obligation under a
revolving credit facility. In connection with the demand of the
Company to perform under its guarantees, the Company and the other
guarantors formed a new company ("KAC") which acquired the assets
of the aviation company through foreclosure.
The Company and the other shareholders of KAC are attempting to
sell the assets acquired in foreclosure. Proceeds received by the
Company, if any, from the sale of KAC assets will be recognized in
the results of operations when and if realized.
Legal Matters
Following is a summary of certain legal actions involving the
Company:
A. In 1987, the U.S. Environmental Protection Agency ("EPA")
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. In 1990, the
EPA added the site to the National Priorities List. Following
the remedial investigation and feasibility study, in 1992 the
Regional Administrator of the EPA signed the Record of
Decision ("ROD") for the site. The ROD detailed EPA's selected
remedial action for the site and estimated the cost of the
remedy at $3.6 million. In 1992, the Company made settlement
proposals which would have entailed a collective payment by
the subsidiaries of $47,000. The site owner rejected this
offer and proposed a counteroffer of $245,000 plus a reopener
for costs over $12.5 million. The EPA rejected the Company's
offer, allocating 60% of the cleanup costs to the potentially
responsible parties and 40% to the site operator. The EPA
12
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
estimated the total cleanup costs at $10.1 million as of
February 1993. The site owner rejected all settlements with
the EPA, after which the EPA issued an order to the site owner
to conduct the remedial design/remedial action approved for
the site. In August 1997, the site owner issued an "invitation
to settle" to various parties, alleging the total cleanup
costs at the site may exceed $22 million.
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 the estimated total cost
of clean-up of the site and the percentage of the total waste
which was alleged to have been contributed to the site by the
Company. As of March 31, 1999, the Company has accrued an
amount based on a preliminary settlement proposal by the
alleged potential responsible parties; however, there is no
assurance such proposal will be accepted. Such amount is not
material to the Company's financial position or results of
operations. This estimate is subject to material change in the
near term as additional information is obtained. The
subsidiary's insurance carriers have been notified of this
matter; however, the amount of possible coverage, if any, is
not yet determinable.
B. On February 12, 1996, the Chemical Business entered into a
Consent Administrative Agreement ("Administrative Agreement")
with the state of Arkansas to resolve certain compliance
issues associated with nitric acid concentrators. Pursuant to
the Administrative Agreement, the Chemical Business installed
additional pollution control equipment to address the
compliance issues. The Chemical Business was assessed $50,000
in civil penalties associated with the Administrative
Agreement. In the summer of 1996 and then on January 28, 1997,
the subsidiary executed amendments to the Administrative
Agreement ("Amended Agreements"). The Amended Agreements
imposed a $150,000 civil penalty, which penalty has been paid.
Since the 1997 amendment, the Chemical Business has been
assessed stipulated penalties of approximately $67,000 by the
Arkansas Department of Pollution Control and Ecology
("ADPC&E") for violations of certain provisions of the 1997
Amendment. The Chemical Business believes that the El Dorado
Plant has made progress in controlling certain off-site
emissions; however, such off-site emissions have occurred and
continue to occur from time to time, which could result in the
assessment of additional penalties against the Chemical
Business by the ADPC&E for violation of the 1997 Amendment.
13
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
During May 1997, approximately 2,300 gallons of caustic
material spilled when a valve in a storage vessel failed,
which was released to a storm water drain, and according to
ADPC&E records, resulted in a minor fish kill in a drainage
ditch near the El Dorado Plant. In 1998, the ADPC&E issued a
Consent Administrative Order ("1998 CAO") to resolve the
event. The 1998 CAO includes a civil penalty in the amount of
$183,700 which includes $125,000 to be paid over five years in
the form of environmental improvements at the El Dorado Plant.
The remaining $58,700 was paid in 1998. The 1998 CAO also
requires the Chemical Business to undertake a facility-wide
wastewater evaluation and pollutant source control program and
wastewater facility-wide wastewater minimization program.
The program requires that the subsidiary complete rainwater
drain-off studies including engineering design plans for
additional water treatment components to be submitted to the
ADCP&E by August 2000. The construction of the additional
water treatment components shall be completed by August 2001
and the El Dorado plant has been mandated to be in compliance
with final effluent limits on or before February 2002. The
wastewater program is currently expected to require future
capital expenditures of approximately $5.0 million.
C. A civil cause of action has been filed against the Company's
Chemical Business and five (5) other unrelated commercial
explosives manufacturers alleging that the defendants
allegedly violated certain federal and state antitrust laws in
connection with alleged price fixing of certain explosive
products. The plaintiffs are suing for an unspecified amount
of damages, which, pursuant to statute, plaintiffs are
requesting be trebled, together with costs. Based on the
information presently available to the Company, the Company
does not believe that the Chemical Business conspired with any
party, including but not limited to, the five (5) other
defendants, to fix prices in connection with the sale of
commercial explosives. This litigation has been consolidated,
for discovery purposes only, with several other actions in a
multi-district litigation proceeding in Utah. Discovery in
this litigation is in process. The Chemical Business intends
to vigorously defend itself in this matter.
The Company's Chemical Business has been added as a defendant
in a separate lawsuit pending in Missouri. This lawsuit
alleges a national conspiracy, as well as a regional
conspiracy, directed against explosive customers in Missouri
and seeks unspecified damages. The Company's Chemical
Business has been included in this lawsuit because it sold
14
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
products to customers in Missouri during a time in which other
defendants have admitted to participating in an antitrust
conspiracy, and because it has been sued in the preceding
described lawsuit. Based on the information presently
available to the Company, the Company does not believe that
the Chemical Business conspired with any party, to fix prices
in connection with the sale of commercial explosives. The
Chemical Business intends to vigorously defend itself in this
matter.
During the third quarter of 1997, a subsidiary of the Company
was served with a lawsuit in which approximately 27 plaintiffs
have sued approximately 13 defendants, including a subsidiary
of the Company alleging personal injury and property damage
for undifferentiated compensatory and punitive damages of
approximately $7,000,000. Specifically, the plaintiffs assert
property damage to their residence and wells, annoyance and
inconvenience, and nuisance as a result of daily blasting and
round-the-clock mining activities. The plaintiffs are
residents living near the Heartland Coal Company ("Heartland")
strip mine in Lincoln County, West Virginia, and an unrelated
mining operation operated by Pen Coal Inc. During 1999, the
plaintiffs withdrew all personal injury claims previously
asserted in this litigation. Heartland employed the
subsidiary to provide blasting materials and personnel to load
and shoot holes drilled by employees of Heartland. Down hole
blasting services were provided by the subsidiary at
Heartland's premises from approximately August 1991, until
approximately August 1994. Subsequent to August 1994, the
subsidiary supplied blasting materials to the reclamation
contractor at Heartland's mine. In connection with the
subsidiary's activities at Heartland, the subsidiary has
entered into a contractual indemnity to Heartland to indemnify
Heartland under certain conditions for acts or actions taken
by the subsidiary for which the subsidiary failed to take, and
Heartland is alleging that the subsidiary is liable thereunder
for Heartland's defense costs and any losses to, or damages
sustained by, the plaintiffs in this lawsuit as a result of
the subsidiary's operations. Discovery in this litigation in
process. The Company intends to vigorously defend itself in
this matter. Based on the limited information available, the
subsidiary's counsel believes that the subsidiaries' possible
loss, if any, related to this litigation is not presently
expected to have a material adverse effect on the Company.
The Company, including its subsidiaries, is a party to various
other claims, legal actions, and complaints arising in the ordinary
15
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
course of business. In the opinion of management after consultation
with counsel, all claims, legal actions (including those described
above) and complaints are not presently probable of material loss,
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 is not presently expected to have a
material effect on the financial position of the Company, but could
have a material impact to the net income (loss) of a particular
quarter or year, if resolved unfavorably.
Note 6: Long-Term Debt
In November, 1997, the Company's wholly owned subsidiary,
ClimaChem, Inc. ("ClimaChem"), completed the sale of $105 million
principal amount of 10 3/4% Senior Notes due 2007, (the "Notes").
Interest on the Notes is payable semiannually in arrears on June 1
and December 1 of each year, and the principal is payable in the
year 2007. The Notes are senior unsecured obligations of ClimaChem
and rank pari passu in right of payment to all existing senior
unsecured indebtedness of ClimaChem and its subsidiaries. The
Notes are effectively subordinated to all existing and future
senior secured indebtedness of ClimaChem.
ClimaChem owns substantially all of the companies comprising the
Company's Chemical and Climate Control Businesses. ClimaChem is a
holding company with no assets or operations other than its
investments in its subsidiaries, and each of its subsidiaries is
wholly owned, directly or indirectly, by ClimaChem. ClimaChem's
payment obligations under the Notes are fully, unconditionally and
joint and severally guaranteed by all of the existing subsidiaries
of ClimaChem, except for El Dorado Nitrogen Company ("EDNC"). The
assets, equity, and earnings of EDNC are currently inconsequential
to ClimaChem. Separate financial statements and other disclosures
concerning the guarantors are not presented herein because
management has determined they are not material to investors.
Summarized consolidated balance sheet information of ClimaChem and
its subsidiaries as of March 31, 1999 and December 31, 1998 and the
results of operations for the three month periods ended March 31,
1999 and 1998 are detailed below.
16
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
__________________________
<S> <C> <C>
Balance sheet data:
Current assets (1) (2) $ 95,569 $ 90,291
Property, plant and equipment, net 84,338 82,389
Notes receivable from LSB and affiliates, net 13,443 13,443
Other assets, net 11,267 10,480
___________ __________
Total assets $ 205,617 $ 196,603
=========== ==========
Current liabilities $ 38,482 $ 35,794
Long-term debt 134,626 127,471
Other 9,680 9,580
Stockholders' equity 22,829 23,758
___________ __________
Total liabilities and stockholders' equity $ 205,617 $ 196,603
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
_________________________
<S> <C> <C>
Operations data:
Total revenues $ 59,951 $ 63,428
Costs and expenses:
Cost of sales 47,171 50,411
Selling, general and administrative 10,603 9,780
Interest 3,278 3,313
_________ __________
61,052 63,504
_________ __________
Loss before provision (benefit) for
income taxes (1,101) (76)
Provision (benefit) for income taxes 50 (30)
_________ __________
Net loss $ (1,151) $ (46)
========= ==========
17
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
<FN>
(1) Notes receivable from LSB and affiliates is eliminated when
consolidated with LSB.
(2) Current assets include income tax and other receivables due
from LSB which aggregate $4.3 million and $5.0 million at
March 31, 1999, and December 31, 1998.
</FN>
</TABLE>
Note 7: Change in Accounting In June, 1998, the Financial
Accounting Standards Board issued Statement No. 133 ("SFAS #133"),
Accounting for Derivative Instruments and Hedging Activities, which
is required to be adopted in years beginning after June 15, 1999.
The Statement permits early adoption as of the beginning of any
fiscal quarter after its issuance. The Company has not yet
determined when this new Statement will be adopted. The Statement
will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must
be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion
of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what
all of the effects of SFAS #133 will be on the earnings and
financial position of the Company; however, the Company expects
that the interest rate forward agreement discussed in Note 5,
"Nitric Acid Project," will be accounted for as a cash flow hedge
upon adoption of SFAS #133, with the effective portion of the hedge
being classified in equity in accumulated other comprehensive
income or loss. The amount included in accumulated other
comprehensive income or loss will be amortized to income over the
initial term of the leveraged lease.
<TABLE>
<CAPTION>
Note 8: Comprehensive Income The Company presents comprehensive
income in accordance with Financial Accounting Standard No. 130
"Reporting Comprehensive Income" ("SFAS 130"). The provisions of
SFAS 130 require the Company to classify items of other
comprehensive income in the financial statements and display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity
section of the balance sheet. Other comprehensive income for the
three month periods ended March 31, 1999 and 1998 is detailed
below.
18
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
Three Months
Ended March 31,
_______________________
1999 1998
_______________________
(in thousands)
<S> <C> <C>
Net income (loss) $ (3,810) $ 9,278
Foreign currency
translation income 222 10
________ _________
Total comprehensive income
(loss) $ (3,588) $ 9,288
======== =========
</TABLE>
Note 9: Subsequent Events. The Company finalized a term and
revolving line of credit of a total of $18.55 million with an
asset-based lender for its Automotive Products Business which was
funded on May 10, 1999. This facility replaces the Automotive
Products Business' previous loan agreement under the Company's
Revolver and provides for a $2.55 million term loan and a $16.0
million revolving credit facility (an increase of borrowing ability
calculated as of March 31, 1999 of $2.7 million compared to the
Automotive Products Business' availability under the replaced
facility) based on eligible amounts of accounts receivable and
inventory. This facility provides for interest at a bank's prime
rate plus one percent (1%) per annum, or at the Company's option,
the lender's LIBOR rate plus two and three-quarters percent (2.75%)
per annum. The effective interest rate at closing was 8.75%.
The term of this new facility is through May 7, 2001, and is renewable
thereafter for successive twelve-month terms. As a result, the terms
and conditions of this facility, outstanding borrowings under the
revolving credit facility of $9.3 million at closing and $.6 million
under the term loan will be classified as long-term debt due within
one year (borrowings by the Automotive Products Business under the
Company's revolving credit agreement were classified as long-term
debt due after one year in the accompanying condensed consolidated
balance sheets as of March 31, 1999 and December 31, 1998).
The Automotive Products Business was required to secure such loan
with substantially all of its assets. The loan agreement contains
various affirmative and negative covenants, including a requirement
to maintain tangible net worth of not less than $6.4 million. The
Company was required to provide such lender with a $1.0 million
standby letter of credit to further secure such loan. In
connection with this financing, the Company's Revolving Credit
Facility, that is not available to the Automotive Products
19
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1999 and 1998
Business, provides for the elimination of its financial covenants
so long as the remaining borrowing group maintains a minimum
aggregate availability under such facility of at least $15 million.
On May 7, 1999, the Company's wholly owned subsidiary, Total Energy
Systems Limited and its subsidiaries ("TES") entered into an
agreement (the "Asset Sale Agreement") to sell substantially all
the assets of TES ("Defined Assets"). Under the Asset Sale
Agreement, TES retains its liabilities and will liquidate such
liabilities from the proceeds of the sale and from the collection
of its accounts receivables which were retained by TES pursuant to
the Asset Sale Agreement.
The gain or loss on the closing of the Asset Sale Agreement is
subject to the fluctuation in the exchange rate between Australian
dollars and U. S. dollars prior to the close. At the date of this
report, the gain or loss associated with this transaction is
expected to be comprised primarily of disposition costs of
approximately $250,000, the recognition in earnings of the
cumulative foreign currency loss at such time ($1,337,000 at
March 31, 1999) and the amount, if any, related to the resolution
of certain environmental matters.
The Asset Sale Agreement is subject to certain conditions
precedent, including the purchaser receiving proper authorization
from specifically identified government and industry regulatory
agencies in Australia, and resolution of certain environmental
matters.
The Company expects to finalize the Asset Sale Agreement in the
second quarter of 1999, but there are no assurances that the
Company will be successful in doing so.
20
<PAGE>
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 ("MD&A") should be
read in conjunction with the Company's March 31, 1999 Condensed
Consolidated Financial Statements.
Certain statements contained in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" may
be deemed forward-looking statements. See "Special Note Regarding
Forward-Looking Statements".
OVERVIEW
General
The Company is pursuing a strategy of focusing on its core
businesses and concentrating on product lines in niche markets
where the Company has established or believes it can establish a
position as a market leader. In addition, the Company is seeking
to improve its liquidity and profits through liquidation of
selected assets that are on its balance sheet and on which it is
not realizing an acceptable return and does not reasonably expect
to do so. In this connection, the Company has come to the
conclusion that its Automotive and Industrial Products Businesses
are non-core to the Company and the Company is exploring various
alternatives to maximize shareholder value from these assets. The
Company is also considering the sale of other assets that are non-
core to its Chemical and Climate Control Businesses.
The Company is continuing with its evaluation of the spin-off
of Automotive to its shareholders as a dividend. As part of its
evaluation, the Company has finalized a new credit facility for the
Automotive Products Business ("Automotive"). See "Liquidity &
Capital Resources" of this MD&A for a description of the credit
facility. In addition, the spin-off of Automotive will require,
among other things, commitment to a formal plan, receipt by the
Company of an opinion of counsel confirming tax-free treatment,
certain Securities and Exchange Commission filings, resolving
certain issues relating to a certain series of the Company's
outstanding preferred stock and LSB Board of Directors' approval.
Subject to completion and resolution of the above conditions,
management believes there is a strong likelihood that the spin-off
will be completed during 1999. However, there are no assurances
that the Company will spin-off Automotive.
Certain statements contained in this Overview are forward-
looking statements, and future results could differ materially from
such statements.
21
<PAGE>
<TABLE>
<CAPTION>
Information about the Company's operations in different
industry segments for the three months ended March 31, 1999 and
1998 is detailed below.
Three Months Ended March 31,
1999 1998
___________ ____________
(in thousands)
(Unaudited)
<S> <C> <C>
Sales:
Businesses continuing:
Chemical $ 30,745 $ 28,679
Climate Control 26,699 29,936
Automotive Products 10,105 10,490
Industrial Products 2,640 4,185
Subsidiary to be disposed of (1):
Chemical 2,868 4,746
_________ __________
$ 73,057 $ 78,036
========= ==========
Gross profit (loss) (2):
Businesses continuing:
Chemical $ 4,957 $ 4,426
Climate Control 8,321 8,336
Automotive Products 2,096 2,139
Industrial Products 740 849
Subsidiary to be disposed of (1):
Chemical (158) 166
_________ __________
$ 15,956 $ 15,916
========= ==========
Operating profit (loss) (3):
Businesses continuing:
Chemical $ 1,446 $ 1,557
Climate Control 2,707 2,812
Automotive Products 9 (407)
Industrial Products (411) (304)
Subsidiary to be disposed of (1):
Chemical (845) (406)
_________ __________
2,906 3,252
General corporate expenses (2,174) (1,829)
Interest expense (4,492) (4,858)
Gain on sale of the Tower - 12,993
_________ __________
Income (loss) before provision
for income taxes $ (3,760) $ 9,558
======== ==========
<FN>
(1) On May 7, 1999, the Company's wholly owned Australian
subsidiary, TES, entered into an agreement to sell
substantially all of its assets, subject to certain conditions
precedent. See Note 9 of Notes to Condensed Consolidated
Financial Statements for further information. The operating
results for TES have been presented separately in the above
table.
22
<PAGE>
(2) Gross profit by industry segment represents net sales less
cost of sales.
(3) Operating profit (loss) by industry segment represents
revenues less operating expenses before deducting general
corporate expenses, interest expense and income taxes and, in
1998, before gain on sale of the Tower.
</FN>
</TABLE>
Chemical Business
Sales in the Chemical Business (excluding the subsidiary being
disposed of) have increased from $28.7 million in the three months
ended March 31, 1998 to $30.7 million in the three months ended
March 31, 1999 (an increase of 7.0%) and the gross profit
(excluding the Australian subsidiary being disposed of) has
increased from $4.4 million in 1998 to $5.0 in 1999, the gross
profit percentage (excluding the subsidiary being disposed of) has
increased from 15.4% in 1998 to 16.1% in 1999.
The cost of the Chemical Business' primary raw material,
anhydrous ammonia, averaged approximately $22 per ton less in the
first quarter of 1999, than in the first quarter of 1998. The
Chemical Business purchases approximately 220,000 tons of anhydrous
ammonia per year under three contracts expiring in April, 2000,
June, 2000, and December, 2000, respectively. The Company's
purchase price of anhydrous ammonia under these contracts can be
higher or lower than the current market spot price of anhydrous
ammonia. Pricing is subject to variations due to numerous factors
contained in these contracts. Based on the price calculations
contained in the contracts, the contract expiring in April, 2000 is
presently priced above the current market spot price. The Chemical
Business is required to purchase 120,000 tons of its requirements
under a contract expiring in April, 2000, at least 24,000 tons of
its requirements under a second contract expiring in June, 2000,
and 60,000 tons of its requirements under a third contract expiring
in December, 2000, with additional quantities of anhydrous ammonia
available under each contract. Anhydrous ammonia is not being
currently supplied under the contract expiring in December, 2000,
due to that supplier's declaration of an event of force majeure as
a result of a shut down of its plant due to mechanical problems.
The Company has been able to obtain anhydrous ammonia from other
sources on similar terms as provided in the contract expiring in
December, 2000.
The anhydrous ammonia industry added an additional one million
tons of capacity of anhydrous ammonia in the western hemisphere in
1998, and the Company believes there is approximately one million
tons of additional annual capacity of anhydrous ammonia being
constructed in the western hemisphere scheduled for completion in
1999. The Company believes this additional capacity may contribute
to a decline in the future market price of anhydrous ammonia. See
"Special Note Regarding Forward-Looking Statements".
23
<PAGE>
In June, 1997, a subsidiary of the Company entered into an
agreement with Bayer Corporation ("Bayer") whereby one of the
Company's subsidiaries is acting as agent to construct a nitric
acid plant located within Bayer's Baytown, Texas chemical plant
complex. This plant will be operated by the Company's subsidiary
and will supply nitric acid for Bayer's polyurethane business under
a long-term supply contract. Management estimates that, after the
initial startup phase of operations at the plant, at full
production capacity based on terms of the Bayer Agreement and
dependent upon the price of anhydrous ammonia, based on the price
of anhydrous ammonia as of the date of this report, the plant
should generate approximately $35 million to $50 million in annual
gross revenues. Unlike the Chemical Business' regular sales
volume, the market risk on this additional volume is much less
since the contract provides for recovery of costs, as defined, plus
a profit. It is anticipated that the construction of the nitric
acid plant at Bayer's facility in Baytown, Texas, will cost
approximately $69 million and construction will be completed in the
second quarter of 1999. The Company's subsidiary is to lease the
nitric acid plant pursuant to a leverage lease from an unrelated
third party for an initial term of ten (10) years from the date
that the plant becomes fully operational, and the construction
financing of this plant is being provided by an unaffiliated
lender.
The results of operation of the Chemical Business' Australian
subsidiary have been adversely affected due to the recent economic
developments in certain countries in Asia. These economic
developments in Asia have had a negative impact on the mining
industry in Australia which the Company's Chemical Business
services. As these adverse economic conditions in Asia have
continued, such have had an adverse effect on the Company's
consolidated results of operations. On May 7, 1999, the Company's
wholly owned Australian subsidiary entered into an agreement to
sell substantially all of its assets, subject to certain conditions
precedent. Revenues of the Australian subsidiary for the three
month periods ended March 31, 1999, and March 31, 1998, were $2.9
million and $4.8 million, respectively. For the year ended
December 31, 1998, the Australian subsidiary had a net loss of
US$2.9 million and revenues of US$14.2 million. See Note 9 of
Notes to Condensed Consolidated Financial Statements and Item 5
"Other Information" of Part II of this report for further
information concerning this transaction. There are no assurances
that this sale will be successfully completed.
Climate Control
The Climate Control Business manufactures and sells a broad
range of hydronic fan coil, air handling, air conditioning,
heating, water source heat pumps, and dehumidification products
targeted to both commercial and residential new building
construction and renovation.
24
<PAGE>
The Climate Control Business focuses on product lines in the
specific niche markets of hydronic fan coils and water source heat
pumps and has established a significant market share in these
specific markets.
Although sales in the Climate Control Business were 10.8%
lower in the three months ended March 31, 1999, than in the three
months ended March 31, 1998, the gross profit remained $8.3 million
in both periods. The gross profit percentage of the Climate
Control Business has improved from 27.8% in the first quarter of
1998 to 31.2% in the first quarter of 1999.
Automotive and Industrial Products Businesses
As indicated in the above table, during the three months ended
March 31, 1999 and 1998, respectively, the Automotive and
Industrial Products recorded combined sales of $12.7 million and
$14.7 million, respectively, and reported operating losses (as
defined above) of $.4 million and $.7 million, respectively. The
net investment in assets of these Businesses has decreased during
the last three years and the Company expects to realize further
reductions in future periods. See "Overview General" for a
discussion of the Company's intent to spin off the Automotive
Products Business, subject to numerous conditions precedent. The
Company continues to eliminate certain categories of machines from
the Industrial Products product line by not replacing machines when
sold.
RESULTS OF OPERATIONS
Three months ended March 31, 1999 vs. Three months ended March 31,
1998.
Revenues
________
Total revenues, excluding the gain on the sale of the Tower,
for the three months ended March 31, 1999 and 1998 were $73.1
million and $79.0 million, respectively (a decrease of $5.9
million). Sales decreased $4.9 million and other income decreased
$1.0 million. The decrease in other income was primarily due to
nonrecurring operations of the Tower, sold in March 1998. The
Company recognized a pre-tax gain on the sale of approximately
$13.0 million in the first quarter of 1998.
Net Sales
_________
Consolidated net sales included in total revenues for the
three months ended March 31, 1999, were $73.1 million, compared to
$78.0 million for the first three months of 1998, a decrease of
$4.9 million. This decrease in sales resulted principally from:
(i) decreased sales in the Climate Control Business of $3.2 million
25
<PAGE>
due to decreased sales volume in this Business' Heat Pump and Fan
Coil product lines, as well as production line changes and training
time for new employees which slowed production temporarily, (ii)
decreased sales in the Automotive Products Business of $.4 million
which is reasonably consistent with the prior year quarter, and
(iii) decreased sales in the Industrial Products Business of $1.5
million due to decreased sales of machine tools, offset by (iv)
increased sales in the Chemical Business of $4.2 million primarily
due to sales of nitric acid products pursuant to the Bayer
Agreement (see Note 5 of Notes to Condensed Consolidated Financial
Statements), offset by reduced sales of the Australian subsidiary
and reduced selling prices on the Company's nitrogen end product
due to reduced raw material cost and general supply and demand.
Gross Profit
____________
Gross profit was 21.8% for the first three months of 1999,
compared to 20.4% for the first three months of 1998. The increase
in the gross profit percentage was due primarily to ( ) improved
product mix and pricing, as well as reduced costs of component
parts, in the Company's heat pump product line, (ii) lower
production costs in the Chemical Business due to the effect of
lower prices of anhydrous ammonia in 1999, and (iii) improved
product mix of machine tools sold.
Selling, General and Administrative Expense
___________________________________________
Selling, general and administrative ("SG&A") expenses as a
percent of net sales were 20.4% in the three-month period ended
March 31, 1999, compared to 20.2% for the first three months of
1998. This increase is primarily the result of decreased sales
volume in the Climate Control Business, the Industrial Products
Business, and the Australian Subsidiary of the Chemical Business,
without an equivalent corresponding decrease in SG&A.
Interest Expense
________________
Interest expense for the Company was $4.4 million in the first
quarter of 1999, compared to $4.7 million for the first quarter of
1998. The decrease of $.3 million primarily resulted from
decreased borrowings.
Income (Loss) Before Taxes
__________________________
The Company had a loss before income taxes of $3.8 million in
the first quarter of 1999 compared to income before income taxes of
$9.6 million in the three months ended March 31, 1998. The
decreased profitability of $13.4 million was primarily due to the
gain on the sale of the Tower in 1998, and the reduction in other
income as previously discussed.
26
<PAGE>
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
1 of Notes to Condensed Consolidated Financial Statements, the
Company's provisions for income taxes for the three months ended
March 31, 1999 and the three months ended March 31, 1998 are for
current state income taxes and federal alternative minimum taxes.
Liquidity and Capital Resources
_______________________________
Cash Flow From Operations
_________________________
Historically, the Company's primary cash needs have been for
operating expenses, working capital and capital expenditures. The
Company has financed its cash requirements primarily through
internally generated cash flow, borrowings under its revolving
credit facilities, and the issuance of senior unsecured notes by
its wholly owned subsidiary, ClimaChem, Inc. in November 1997.
Net cash used by operations for the quarter ended March 31,
1999 was $6.9 million, after $3.1 million for noncash depreciation
and amortization, $.4 million in provisions for possible losses on
accounts receivable, and including the following changes in assets
and liabilities: (i) accounts receivable increases of $4.6 million;
(ii) inventory decreases of $.6 million; (iii) increases in
supplies and prepaid items of $1.7 million; and (iv) decreases in
accounts payable and accrued liabilities of $1.0 million. The
increase in accounts receivable is primarily due to increased sales
and increased days of sales outstanding in the Climate Control
Business and seasonal sales of agricultural products in the
Chemical Business, offset by decreased sales in the Industrial
Products Business. The decrease in inventory was due primarily to
a decrease at the Automotive Products Business due to liquidation
of excessive inventories, offset by increases in the Climate
Control Business in anticipation of higher sales volume in the heat
pump product lines and increases in the Chemical Business due to
reduced sales of the Australian subsidiary. Inventory in the
Automotive and Industrial Products Businesses decreased from $26.3
million at December 31, 1998 to $24.7 million at March 31, 1999.
The decrease in accounts payable and accrued liabilities resulted
primarily from a decrease in trade accounts payable balances offset
by an increase in accrued interest expense related to senior
unsecured notes which is payable semi-annually.
Cash Flow From Investing And Financing Activities
_________________________________________________
Cash used by investing activities for the quarter ended
March 31, 1999 included $2.3 million in capital expenditures offset
by decreases in other assets of $1.8 million. The capital
expenditures took place primarily in the Chemical and Climate
27
<PAGE>
Control Businesses to enhance production and product delivery
capabilities. The decrease in other assets was primarily due to
the reduction of deposits made in connection with an interest rate
hedge contract related to the leveraged lease of the nitric acid
plant in Baytown, Texas.
Net cash provided by financing activities included (i)
payments on long-term debt of $2.5 million, (ii) net increases in
revolving debt of $10.8 million, (iii) decreases in drafts payable
of $.3 million, (iv) dividends of $.8 million, and (v) treasury
stock purchases of $.2 million.
During the first quarter of 1999, the Company declared and
paid the following aggregate dividends: (i) $3.00 per share on each
of the outstanding shares of its Series B 12% Cumulative
Convertible Preferred Stock; (ii) $.81 per share on each
outstanding share of its $3.25 Convertible Exchangeable Class C
Preferred Stock, Series 2; and (iii) $10.00 per share on each
outstanding share of its Convertible Noncumulative Preferred Stock.
Source of Funds
_______________
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.
As of March 31, 1999, the Company and certain of its
subsidiaries, including ClimaChem and its subsidiaries were parties
to a working capital line of credit evidenced by four separate loan
agreements ("Revolving Credit Agreements") with an unrelated lender
("Lender") collateralized by receivables, inventory, and
proprietary rights of the Company and the subsidiaries that are
parties to the Revolving Credit Agreements and the stock of certain
of the subsidiaries that are borrowers under the Revolving Credit
Agreements. The Revolving Credit Agreements, as amended, provide
for revolving credit facilities ("Revolver") for total direct
borrowings up to $65.0 million, including the issuance of letters
of credit. The Revolver provides for advances at varying
percentages of eligible inventory and trade receivables. The
Revolving Credit Agreements, as amended, provide for interest at
the lender's prime rate plus .5% per annum or, at the Company's
option, on the Lender's LIBOR rate plus 2.875% per annum. At
March 31, 1999, the effective interest rate was 8.3%. The term of
the Revolving Credit Agreements is through December 31, 2000, and
is renewable thereafter for successive thirteen month terms. At
March 31, 1999, the availability for additional borrowings, based
on eligible collateral, approximated $18.7 million. Borrowings
under the Revolver outstanding at March 31, 1999, were $34.9
million. The Revolving Credit Agreements, as amended, require the
Company to maintain certain financial ratios and contain other
financial covenants, including tangible net worth requirements and
28
<PAGE>
capital expenditure limitations; however, with the refinancing of
the Automotive Products Business loan agreement as discussed below,
the Company's financial covenants are eliminated, so long as the
remaining borrowing group maintains a minimum aggregate
availability under the Revolving Credit Facility of $15.0 million.
If the Company is unable to maintain aggregate availability of
$15.0 million, the Company would be required to maintain certain
financial ratios, including tangible net worth requirements. In
April 1999, prior to finalization of the new Automotive financing,
the Company obtained waivers of noncompliance and amendments to
reset the financial covenants through maturity. The annual
interest on the outstanding debt under the Revolver at March 31,
1999 at the rates then in effect would approximate $2.9 million.
The Revolving Credit Agreements also require the payment of an
annual facility fee of 0.5% of the unused revolver and restricts
the flow of funds, except under certain conditions, to subsidiaries
of the Company that are not parties to the Revolving Credit
Agreements.
Under the Revolving Credit Agreements discussed above, the
Company and its subsidiaries, other than ClimaChem and its
subsidiaries, have the right to borrow on a revolving basis up to
$24 million, based on eligible collateral. At March 31, 1999, the
Company and its subsidiaries, except ClimaChem and its
subsidiaries, had borrowings under the Revolver approximately equal
to then eligible collateral ($16.1 million).
On May 7, 1999, the Company's Automotive Products Business
entered into a Loan and Security Agreement (the "Automotive Loan
Agreement") with an unrelated lender (the "Automotive Lender")
secured by substantially all assets of the Automotive Products
Business to refinance the Automotive Products Business' working
capital requirements that were previously financed under the
Revolver. In addition, the Company was required to provide the
Automotive Lender a $1.0 million standby letter of credit to
further secure the Automotive Loan Agreement. As of the funding
date, the Automotive Products Business' availability for additional
borrowing, based on eligible collateral, was $3.8 million. The
Automotive Loan Agreement provides a Revolving Loan Facility (the
"Automotive Revolver"), Letter of Credit Accommodations and a Term
Loan (the "Automotive Term Loan").
The Automotive Revolver provides for total direct borrowings
up to $16.0 million, including the issuance of letters of credit.
The Automotive Revolver provides for advances at varying
percentages of eligible inventory and trade receivables. The
Automotive Revolver provides for interest at the rate from time to
time publicly announced by First Union National Bank as its prime
rate plus one percent (1%) per annum or, at the Company's option,
on the Automotive Lender's LIBOR rate plus two and three-quarters
percent (2.75%) per annum. The Automotive Revolver also requires
the payment of a monthly servicing fee of $3,000 and a monthly
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unused line fee equal to 0.5% of the unused credit facility. At
May 10, 1999, the funding date, the effective interest rate was
8.75%. The term of the Automotive Revolver is through May 7, 2001,
and is renewable thereafter for successive twelve-month terms.
The Automotive Loan Agreement restricts the flow of funds,
except under certain conditions, between the Automotive Products
Business and the Company and its subsidiaries.
The Automotive Term Loan is in the amount of $2,550,000. The
Automotive Term Loan is evidenced by a term promissory note (the
"Term Promissory Note") and is secured by all the same collateral
as the Automotive Revolver. The interest rate of the Automotive
Term Loan is the same as the Automotive Revolver discussed above.
The terms of the Term Promissory Note require sixty (60)
consecutive monthly principal installments (or earlier as provided
in the Term Promissory note) of which the first thirty-six (36)
installments shall each be in the amount of $48,611, the next
twenty-two (22) installments shall each be in the amount of
$33,333.33, and the last installment shall be in the amount of the
entire unpaid principal balance. Interest payments are also
required monthly as calculated on the outstanding principal
balance. On May 10, 1999, the Automotive Revolver funded
approximately $9.3 million, and the Automotive Term Loan funded
$2,550,000, the aggregate total of approximately $11.9 million was
simultaneously transferred to the lender in payment of the
Automotive Products Business' balance under the Revolver.
In addition to the credit facilities discussed above, as of
March 31, 1999, the Company's wholly owned subsidiary, DSN
Corporation ("DSN"), is a party to several loan agreements with a
financial company (the "Financing Company") for three projects. At
March 31, 1999, DSN had outstanding borrowings of $10.3 million
under these loans. The loans have repayment schedules of 84
consecutive monthly installments of principal and interest through
maturity in 2002. The interest rate on each of the loans is fixed
and range from 8.2% to 8.9%. Annual interest, for the three notes
as a whole, at March 31, 1999, at the agreed to interest rates
would approximate $.9 million. The loans are secured by the
various DSN property and equipment. The loan agreements require
the Company to maintain certain financial ratios, including
tangible net worth requirements. In April 1999, DSN obtained a
waiver of the covenants through June 2000.
As previously discussed, the Company is a holding company and,
accordingly, its ability to pay dividends on its outstanding Common
Stock and Preferred Stocks is dependent in large part on its
ability to obtain funds from its subsidiaries. The ability of the
Company's wholly owned subsidiary, ClimaChem (which owns all of the
stock of substantially all of the Company's subsidiaries comprising
the Chemical Business and the Climate Control Business) and its
subsidiaries to transfer funds to the Company is restricted by
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certain covenants contained in the Indenture to which they are
parties. Under the terms of the Indenture, ClimaChem and its
subsidiaries cannot transfer funds to the Company, except for (i)
the amount of income taxes that they would be required to pay if
they were not consolidated with the Company, (ii) an amount not to
exceed fifty percent (50%) of ClimaChem's consolidated net income
for the year in question, and (iii) the amount of direct and
indirect costs and expenses incurred by the Company on behalf of
ClimaChem and ClimaChem's subsidiaries pursuant to a certain
services agreement and a certain management agreement to which the
companies are parties. During 1998 and the first quarter of 1999,
ClimaChem reported a consolidated net loss of approximately $2.6
million and $1.1 million, respectively. Accordingly, ClimaChem and
its subsidiaries were unable to transfer funds to the Company in
1998 and the first quarter of 1999, except for reimbursement of
costs and expenses incurred by the Company on their behalf or in
connection with certain agreements.
Due to ClimaChem's net loss for 1998 and the Company's (other
than ClimaChem and its subsidiaries) limited borrowing ability
under the Revolver, management is considering, but has not made its
final decision, recommending to the Board of Directors that the
Company discontinue payment of cash dividends on its Common Stock
for periods subsequent to January 1, 1999, until the Board of
Directors determines otherwise. In addition, as of the date of
this report, management has not determined whether the Company will
have adequate liquidity to declare and pay the quarterly dividends
on its outstanding Preferred Stock subsequent to the first quarter
dividends already declared and paid.
Future cash requirements (other than cash dividends) include
working capital requirements for anticipated sales increases in the
Company's core Businesses and funding for future capital
expenditures. Funding for the higher accounts receivable resulting
from anticipated sales increases will be provided by cash flow
generated by the Company and the revolving credit facilities
discussed elsewhere in this report. Inventory requirements for the
higher anticipated sales activity should be met by reductions in
the inventories of the Industrial Products Business and in the
inventories of the Automotive Products Business. In addition, the
Company is also considering the sale of certain assets which it
does not believe are critical to its Chemical and Climate Control
Businesses. In 1999, the Company has planned capital expenditures
of approximately $10 million, primarily in the Chemical and Climate
Control Businesses, a certain amount of which it anticipates will
be financed by equipment finance contracts on a term basis and in
a manner allowed under its various loan agreements. Such capital
expenditures include approximately $2.4 million ($443,000 in the
three months ended March 31, 1999), which the Chemical Business
anticipates spending related to environmental control facilities at
its El Dorado Facility, as previously discussed in this report.
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The Company currently has no material commitments for capital
expenditures.
During the latter part of March 1999, the Company's management
began considering the realignment of certain of the Company's
overhead to better match its focus on its core businesses.
Consistent with this realignment, in April 1999, the Company's
Board of Directors approved the sale of certain assets to ClimaChem
in accordance with the terms of the Indenture to which ClimaChem
and its subsidiaries are parties to and the loan agreement that the
Company and subsidiaries of ClimaChem are borrowing under, which
assets are materially related to the lines of businesses of the
Chemical and Climate Control Businesses.
Management believes that, based upon the above described plans
and changes, the Company will have adequate cash flow from
operations, its revolving lines of credit and other sources to meet
its present anticipated working capital and debt service
requirements.
The spin-off being evaluated by the Company of the Automotive
Products Business would be accomplished in the form of a dividend
to the holders of the Company's Common Stock and the balance of the
amount the Automotive Products Business owes the Company would be
evidenced by a promissory note of approximately $6.0 million. In
order to declare and pay a dividend upon shares of capital stock,
the Delaware General Corporation Law ("Delaware Law") requires that
such either be declared and paid (1) out of "surplus", as defined
under the Delaware Law, or (2) in case there is no "surplus", out
of net profits of the Company for the fiscal year in which the
dividend is declared or the preceding fiscal year. The Company is
presently reviewing with its investment banker as to whether it has
sufficient "surplus" to accomplish the spin-off of the Automotive
Products Business to its holders of its Common Stock after the
capital contribution by the Company to the Automotive Products
Business as discussed above. The Company does not believe that it
will be able to pay such dividend out of net profits. If the
Company's investment banker is unable to opine that the Company has
sufficient "surplus" to accomplish the spin-off, under Delaware Law
the Company could reduce its "capital" (as defined under Delaware
Law) represented by issued shares of its capital stock without par
value and transfer the amount of such reduction to "surplus", as
long as the assets of the Company remaining after such reduction
shall be sufficient to pay the Company's debts for which payment
has not otherwise been provided. The terms of the Company's Series
B 12% Cumulative Convertible Preferred Stock ("Series B Preferred")
provides, in part, that "In the event of any voluntary or
involuntary liquidation, dissolution or winding up of LSB, or any
reduction in its capital resulting in any distribution of assets to
its stockholders, the holders of the Series B Preferred Stock shall
be entitled to receive in cash out of assets of LSB, whether from
capital or from earnings available for distribution to the
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stockholders, before any amount shall be paid to the holder of
Common Stock of LSB the sum of One Hundred & No/100 Dollars ($100)
(the par value of the Series B Preferred Stock) per share, plus an
amount equal to all accumulated and unpaid cash dividends thereon
to the date fixed for payment of such distributive amount".
Counsel to the Company has advised the Company that a transfer from
"capital" to "surplus" to distribute the stock of the Automotive
Products Business to the holders of the Company's Common Stock
would trigger a payment of $100 per outstanding share of Series B
Preferred. There are currently outstanding 20,000 shares of Series
B Preferred, all of which are owned by Jack E. Golsen or members of
his immediate family and/or entities wholly owned by members of Mr.
Golsen's immediate family. Mr. Golsen has advised the Company that
if the Company is required to transfer from "capital" to "surplus"
an amount necessary to complete the spin-off and such triggers the
payment under the Series B Preferred, he would not require the
Company to pay such in cash but would be willing to receive such
amount in a form other than cash, with the form to be determined
based on negotiations with independent members of the Company's
Board of Directors. The Series B Preferred was issued by the
Company in 1987 in connection with a transaction approved by the
Board of Directors and the stockholders of the Company.
Accordingly, as of the date of this report, there are no assurances
that the Company will ultimately commit to a formal plan to spin-
off the Automotive Products Business.
During 1998 and pursuant to the Company's previously announced
repurchase plan, the Company purchased 909,300 shares of Common
Stock, for an aggregate purchase price of $3,567,026. From
January 1, 1999, through March 31, 1999, the Company has purchased
under its repurchase plan a total of 70,600 shares of Common Stock
for an aggregate amount of $205,234. As of the date of this
report, management and the Board of Directors are considering
whether to continue with its repurchase plan to purchase shares of
its Common Stock and if so, to what extent for the balance of 1999.
Foreign Subsidiary
__________________
The Company's wholly owned Australian subsidiary, TES, has a
revolving credit working capital facility (the "TES Revolving
Facility") with Bank of New Zealand, Australia, in the amount of
AUS$10.5 million (approximately US$6.5 million). The TES Revolving
Facility allows for borrowings based on specific percentages of
qualified eligible assets. Based on the effective exchange rate at
March 31, 1999, approximately US$7.2 million (AUS$11.6 million
approximately) was borrowed at March 31, 1999. The borrowings
include approximately US$1.2 million of cash disbursements not
presented to the bank for payment prior to March 31, 1999. There
are no assurances that the bank would have cleared these checks if
they were presented for payment; however, TES received adequate
customer collection subsequent to March 31, 1999, to provide
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availability under their line of credit as such checks were
presented for payment. Such debt is secured by substantially all
the assets of TES, plus an unlimited guarantee and indemnity from
LSB and certain subsidiaries of TES. The interest rate on this
debt is dependent upon the borrowing option elected by TES and had
a weighted average rate of 6.87% at March 31, 1999. TES is in
technical noncompliance with a certain financial covenant contained
in the loan agreement involving the TES Revolving Facility.
However, this covenant was not met at the time of closing of this
loan and the Bank of New Zealand, Australia has continued to extend
credit under the Facility. The outstanding borrowing under the TES
Revolving Facility at March 31, 1999 has been classified as due
within one year in the accompanying consolidated financial
statements. As previously noted in this report, the Company has
entered into an agreement to sell certain assets of TES,
effectively disposing of this portion of the Chemical Business. If
this transaction is finalized, the TES Revolving Facility will be
paid off with proceeds from the sale. This transaction is subject
to conditions precedent and is expected to be finalized in the
second quarter of 1999; however, there are no assurances that the
Company will finalize this transaction. Under the terms of the
Indenture to which ClimaChem is bound, the net cash proceeds from
the sale of TES, if completed, are required (1) within 270 days
from the date of the sale to be applied to the redemption of the
notes issued under the Indenture or to the repurchase of such
notes, or (2) within 240 days from the date of such sale, the
amount of the net cash proceeds be invested in a related business
of ClimaChem or the Australian subsidiary or used to reduce
indebtedness of ClimaChem. As of the date of this report, the
Company expects that net proceeds from the possible sale of TES
will be reinvested in related businesses of ClimaChem or be used to
retire the indebtedness of ClimaChem.
Joint Ventures and Options to Purchase
_______________________________________
Prior to 1997, the Company, through a subsidiary, loaned $2.8
million to a French manufacturer of HVAC equipment whose product
line is compatible with that of the Company's Climate Control
Business in the USA. Under the loan agreement, the Company has the
option to exchange its rights under the loan for 100% of the
borrower's outstanding common stock. The Company obtained a
security interest in the stock of the French manufacturer to secure
its loan. During 1997 the Company advanced an additional $1
million to the French manufacturer bringing the total of the loan
at December 31, 1997 to $3.8 million. Parties to the option have
agreed to extend the exercise date of the option to June 15, 2005.
As of the date of this report, the decision has not been made to
exercise such option and the $3.8 million loan, less a $1.5 million
valuation reserve, is carried on the books as a note receivable in
other assets.
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In 1995, a subsidiary of the Company invested approximately
$2.8 million to purchase a fifty percent (50%) equity interest in
an energy conservation joint venture (the "Project"). The Project
had been awarded a contract to retrofit residential housing units
at a US Army base which it completed during 1996. The completed
contract was for installation of energy-efficient equipment
(including air conditioning and heating equipment), which would
reduce utility consumption. For the installation and management,
the Project will receive an average of seventy-seven percent (77%)
of all energy and maintenance savings during the twenty (20) year
contract term. The Project spent approximately $17.5 million to
retrofit the residential housing units at the US Army base. The
Project received a loan from a lender to finance approximately
$14.0 million of the cost of the Project. The Company is not
guaranteeing any of the lending obligations of the Project.
During 1995, the Company executed a stock option agreement to
acquire eighty percent (80%) of the stock of a specialty sales
organization ("Optioned Company"), which owns the remaining fifty
percent (50%) equity interest in the Project discussed above, to
enhance the marketing of the Company's air conditioning products.
The stock option has a four (4) year term, and a total option
granting price of $1.0 million and annual $100,000 payments for
yearly extensions of the stock option thereafter for up to three
(3) years. Through the date of this report the Company has made
option payments aggregating $1.3 million ($1.0 million of which is
refundable) and has loaned the Optioned Company approximately $1.4
million. The Company has recorded reserves of $1.5 million against
the loans and option payments. The loans and option payments are
secured by the stock and other collateral of the Optioned Company.
The Company has determined to not exercise the Option and has
allowed the term of the Option to lapse.
Debt Guarantee
______________
At December 31, 1998, the Company and one of its subsidiaries
had outstanding guarantees of approximately $2.6 million of
indebtedness of a startup aviation company in exchange for an
ownership interest in the aviation company of approximately 45%.
During the first quarter of 1999, the Company was called upon
to perform on both guarantees. The Company paid approximately
$600,000 to the lender in satisfaction of the guarantee and assumed
the obligation for the $2.0 million note, which is due in equal
monthly principal payments, plus interest, through August, 2004.
In connection with the demand on the Company to perform under its
guarantee, the Company and the other guarantors formed a new
company ("KAC") which acquired the assets of the aviation company
through foreclosure.
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The Company and the other shareholders of KAC are attempting
to sell the assets acquired in foreclosure. Proceeds received by
the Company, if any, from the sale of KAC assets will be recognized
in the results of operations when and if realized.
Availability of Company's Loss Carry-overs
__________________________________________
The Company anticipates that its cash flow in future years
will benefit from its ability to use net operating loss ("NOL")
carry-overs 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. Such benefit, if any is
dependent on the Company's ability to generate taxable income in
future periods, for which there is no assurance. Such benefit if
any, will be limited by the Company's reduced NOL for alternative
minimum tax purposes which is approximately $31.4 million at
March 31, 1999. As of December 31, 1998, the Company had available
regular tax NOL carry-overs of approximately $63.8 million based on
its federal income tax returns as filed with the Internal Revenue
Service for taxable years through 1998. These NOL carry-overs will
expire beginning in the year 1999. Due to its recent history of
reporting net losses, the Company has established a valuation
allowance on a portion of its NOLs and thus has not recognized the
full benefit of its NOLs in the accompanying Condensed Consolidated
Financial Statements.
The amount of these carry-overs has not been audited or
approved by the Internal Revenue Service and, accordingly, no
assurance can be given that such carry-overs will not be reduced as
a result of audits in the future. In addition, the ability of the
Company to utilize these carry-overs 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.
Year 2000 Issues
________________
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company's computer programs or hardware that have
date-sensitive software or embedded chips may recognize a date
using "00" as the Year 1900 rather than the Year 2000. This could
result in a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability
to process transactions, create invoices, or engage in similar
normal business activities.
Beginning in 1996, the Company undertook a project to enhance
certain of its Information Technology ("IT") systems and install
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certain other technologically advanced communication systems to
provide extended functionality for operational purposes. A major
part of the Company's program was to implement a standardized IT
system purchased from a national software distributor at all of the
Company and subsidiary operations, and to install a Local Area
Network ("LAN"). The IT system and the LAN necessitated the
purchase of additional hardware, as well as software. The process
implemented by the Company to advance its systems to be more
"state-of-the-art" had an added benefit in that the software and
hardware changes necessary to achieve the Company's goals are Year
2000 compliant.
Starting in 1996 through March 31, 1999, the Company has
capitalized approximately $1.0 million in costs to accomplish its
enhancement program. The capitalized costs include $425,000 in
external programming costs, with the remainder representing
hardware and software purchases. The Company anticipates that the
remaining cost to complete this IT systems enhancement project will
be less than $100,000, and such costs will be capitalized.
The Company's plan to identify and resolve the Year 2000 Issue
involved the following phases: assessment, remediation, testing,
and implementation. To date, the Company has fully completed its
assessment of all systems that could be significantly affected by
the Year 2000. Based on assessments, the Company determined that
it was required to modify or replace certain portions of its
software and hardware so that those systems will properly utilize
dates beyond December 31, 1999. For its IT exposures which include
financial, order management, and manufacturing scheduling systems,
the Company is 100% complete on the assessment and remediation
phases. As of the date of this report, the Company has completed
its testing and has implemented its remediated systems for all of
its businesses except a portion of the Industrial Products
Business. The uncompleted testing and remediation procedures
represent approximately 2% and 5%, respectively, of the total Year
2000 Program testing and remediation phase. Completion of the
remaining testing and implementation phase is expected by
August 31, 1999. The assessments also indicated that limited
software and hardware (embedded chips) used in production and
manufacturing systems ("operating equipment") also are at limited
risk. The Company has completed its assessment and identified
remedial action which will be completed in the second quarter 1999.
In addition, the Company has completed its assessment of its
product line and determined that the products it has sold and will
continue to sell do not require remediation to be Year 2000
compliant. Accordingly, based on the Company's current assessment,
the Company does not believe that the Year 2000 presents a material
exposure as it relates to the Company's products.
The Company has queried its significant suppliers,
subcontractors, distributors and other third parties (external
agents). The Company does not have any direct system interfaces
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with external agents. To date, the Company is not aware of any
external agent with a Year 2000 Issue that would materially impact
the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that
external agents will be Year 2000 ready. The inability of external
agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company. The effect of non-
compliance by external agents is not determinable at this time.
Management of the Company believes it has an effective program
in place to resolve the remaining aspects of the Year 2000 Issue
applicable to its businesses in a timely manner. If the Company
does not complete the remaining phases of its program, the Year
2000 Issue could have a negative impact on the operations of the
Company; however, management does not believe that, under the most
reasonably likely worst case scenario, such potential impact would
be material.
The Company is creating contingency plans for certain critical
applications. These contingency plans will involve, among other
actions, manual workarounds, increasing inventories, and adjusting
staffing strategies. In addition, disruptions in the economy
generally resulting from Year 2000 Issues could also materially
adversely affect the Company. See "Special Note Regarding Forward-
Looking Statements".
Contingencies
_____________
The Company has several contingencies that could impact its
liquidity in the event that the Company is unsuccessful in
defending against the claimants. Although management does not
anticipate that these claims will result in substantial adverse
impacts on its liquidity, it is not possible to determine the
outcome. The preceding sentence is a forward-looking statement
that involves a number of risks and uncertainties that could cause
actual results to differ materially, such as, among other factors,
the following: the EIL Insurance does not provide coverage to the
Company and the Chemical Business for any material claims made by
the claimants, the claimants alleged damages are not covered by the
EIL Policy which a court may find the Company and/or the Chemical
Business liable for, such as punitive damages or penalties, a court
finds the Company and/or the Chemical Business liable for damages
to such claimants for a material amount in excess of the limits of
coverage of the EIL Insurance or a court finds the Chemical
Business liable for a material amount of damages in the antitrust
lawsuits pending against the Chemical Business in a manner not
presently anticipated by the Company. See Note 5 of Notes to
Condensed Consolidated Financial Statements.
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Quantitative and Qualitative Disclosures about Market Risk
General
The Company's results of operations and operating cash flows
are impacted by changes in market interest rates and raw material
prices for products used in its manufacturing processes. The
Company also has a wholly owned subsidiary in Australia, for which
the Company has foreign currency translation exposure. The
derivative contracts used by the Company are entered into to hedge
these risks and exposures and are not for trading purposes. All
information is presented in U. S. dollars. See Note 9 of Notes to
Consolidated Financial Statements for a discussion of the
Australian subsidiary in 1999.
Interest Rate Risk
The Company's interest rate risk exposure results from its
debt portfolio which is impacted by short-term rates, primarily
prime rate-based borrowings from commercial banks, and long-term
rates, primarily fixed-rate notes, some of which prohibit
prepayment or require substantial prepayment penalties.
Reference is made to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, for an expanded analysis of
expected maturities of long-term debt and its weighted average
interest rates and discussion related to raw material price risk.
As of March 31, 1999, the Company's variable rate and fixed
rate debt which aggregated $180.3 million exceeded the debt's fair
market value by approximately $3.2 million. The fair value of the
Company's Senior Notes was determined based on a market quotation
for such securities.
The Company is also a party to a series of agreements under
which, upon completion of construction, it will lease a nitric acid
plant. The minimum lease payments associated therewith until
execution will be directly impacted by the change in interest
rates. To mitigate a portion of the Company's exposure to adverse
market changes related to this leveraged lease, in 1997 the Company
entered into an interest rate forward agreement whereby the Company
is the fixed rate payor on notional amounts aggregating $25
million, net to its 50% interest, with a weighted average interest
rate of 7.12%. The Company accounts for this forward under the
deferral method, so long as high correlation is maintained, whereby
the net gain or loss upon settlement will adjust the item being
hedged, the minimum lease rentals, in periods commencing with the
lease execution. As of March 31, 1999, the fair value of this
interest rate forward agreement represented a liability of
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approximately $2.6 million ($3.3 million at December 31, 1998) net
to the Company's 50% interest.
Foreign Currency Risk
_____________________
The Company has a wholly owned subsidiary located in
Australia, for which the functional currency is the local currency,
the Australian dollar. Since the Australian subsidiary accounts
are converted into U.S. dollars upon consolidation using the end of
the period exchange rate, declines in value of the Australian
dollar to the U.S. dollar result in translation loss to the
Company. Additionally, any cumulative foreign currency translation
loss will impact operating results in the period the Company sells
or disposes of substantially all of its investment in the
subsidiary. As of March 31, 1999, the Company's net investment in
this Australian subsidiary was $5.7 million ($5.8 million at
December 31,1998) with the cumulative translation loss not
recognized in results of operations aggregating approximately $1.3
million ($1.6 million at December 31, 1998).
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<PAGE>
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements contained within this report may be deemed
"Forward-Looking Statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements in
this report other than statements of historical fact are Forward-
Looking Statements that are subject to known and unknown risks,
uncertainties and other factors which could cause actual results
and performance of the Company to differ materially from such
statements. The words "believe", "expect", "anticipate", "intend",
"will", and similar expressions identify Forward-Looking
Statements. Forward-Looking Statements contained herein relate to,
among other things, (i) ability to improve operations and become
profitable on an annualized basis, (ii) establishing a position as
a market leader, (iii) construction costs of the EDNC Baytown Plant
will approximate $69 million and will be completed by the second
quarter of 1999, (iv) delay in completing the Baytown Plant as
scheduled will not result in material losses, (v) the sale of
substantially all of the assets of the Company's Australian
subsidiary, (vi) payment of dividends on Common Stock and Preferred
Stock, (vii) availability of net operating loss carryovers, (viii)
amount to be spent in 1999 relating to compliance with federal,
state and local Environmental laws at the El Dorado Facility, (ix)
Year 2000 issues, (x) improving liquidity and profits through
liquidation of assets or realignment of assets, (xi) the Company's
ability to develop or adopt new and existing technologies in the
conduct of its operations, (xii) anticipated financial performance,
(xiii) ability to comply with the Company's general working capital
and debt service requirements, (xiv) spin-off the Automotive
Products Business, (xv) ability to be able to continue to borrow
under the Company's revolving line of credit, and (xvi) ability of
the EDNC Baytown Plant to generate $35 to $50 million in gross
revenues once operational. While the Company believes the
expectations reflected in such Forward-Looking Statements are
reasonable, it can give no assurance such expectations will prove
to have been correct. There are a variety of factors which could
cause future outcomes to differ materially from those described in
this report, including, but not limited to, (i) decline in general
economic conditions, both domestic and foreign, (ii) material
reduction in revenues, (iii) material increase in interest rates;
(iv) inability to collect in a timely manner a material amount of
receivables, (v) increased competitive pressures, (vi) inability to
meet the "Year 2000" compliance of the computer system by the
Company, its key suppliers, customers, creditors, and financial
service organization, (vii) changes in federal, state and local
laws and regulations, especially environmental regulations, or in
interpretation of such, pending (viii) additional releases
(particularly air emissions into the environment), (ix) potential
increases in equipment, maintenance, operating or labor costs not
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presently anticipated by the Company, (x) inability to retain
management or to develop new management, (xi) the requirement to
use internally generated funds for purposes not presently
anticipated, (xii) inability to become profitable, or if unable to
become profitable, the inability to secure additional liquidity in
the form of additional equity or debt, (xiii) the effect of
additional production capacity of anhydrous ammonia in the western
hemisphere, (xiv) the cost for the purchase of anhydrous ammonia
increasing or the Company's inability to purchase anhydrous ammonia
on favorable terms when a current supply contract terminates, (xv)
changes in competition, (xvi) the loss of any significant customer,
(xvii) changes in operating strategy or development plans, (xviii)
inability to fund the working capital and expansion of the
Company's businesses, (xix) adverse results in any of the Company's
pending litigation, (xx) inability to obtain necessary raw
materials, (xxi) inability to satisfy the NYSE continued listing
requirements, (xxii) inability to complete the spinoff due to
inability to obtain (a) required tax ruling or opinion,
(b) necessary approvals by the Securities and Exchange Commission
("SEC") as to certain documents required to be filed with the SEC
relating to the spin-off, (c) certain opinions from financial
advisors, (d) unqualified audit report from the Company's auditors
as to the Automotive Products Business, and (e) satisfactory
resolution of a possible distribution to an outstanding series of
preferred stock in connection with the spinoff; (xxiii) inability
to recover the Company's investment in the aviation company, (xxiv)
inability to finalize the sale of TES due to the Australian
government's failure to approve the sale or the potential buyer's
inability or refusal to complete the sale; (xxv) Bayer's inability
or refusal to purchase all of the Company's production at the new
Baytown nitric acid plant; (xvii) material increases in equipment,
maintenance, operating or labor costs not presently anticipated by
the Company; and (xxiii) other factors described "Management's
Discussion and Analysis of Financial Condition and Results of
Operation" contained in this report. Given these uncertainties,
all parties are cautioned not to place undue reliance on such
Forward-Looking Statements. The Company disclaims any obligation
to update any such factors or to publicly announce the result of
any revisions to any of the Forward-Looking Statements contained
herein to reflect future events or developments.
42
<PAGE>
<PAGE>
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 March 31,
1999, and the related condensed consolidated statements of
operations and cash flows for the three month periods ended
March 31, 1999 and 1998. 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, 1998, and the related
consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein); and in
our report dated February 19, 1999, except for paragraphs (A) and
(C) of Note 5 and Note 14, as to which the date is April 14, 1999,
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, 1998, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
May 14, 1998
43
<PAGE>
<PAGE>
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 3 of its Form 10-K for the fiscal period
ended December 31, 1998, which Item 3 is incorporated by reference
herein.
Item 2. Changes in Securities
______ _____________________
Not applicable.
Item 3. Defaults upon Senior Securities
_______ _______________________________
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
______ ___________________________________________________
Not applicable.
Item 5. Other Information
______ __________________
(A) On May 7, 1999, the Company's wholly owned Australian
subsidiary entered into an agreement (the "Asset Sale
Agreement") to sell substantially all of its assets. The
Asset Sale Agreement is subject to certain conditions
precedent; however, the Company expects to finalize the
Asset Sale Agreement in the second quarter of 1999.
There are no assurances that the Company will finalize
the Asset Sale Agreement. See Note 9 of Notes to
Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial
Condition and Results of Operations of this report for
further information concerning the Asset Sale Agreement.
(B) On May 7, 1999, the Company's Automotive Products
Business entered into a Loan and Security Agreement (the
"Automotive Loan Agreement") with an unrelated lender.
The Automotive Loan Agreement consists of a Revolving
Loan Facility (the "Automotive Revolver"), Letter of
Credit Accommodations and a Term Loan (the "Automotive
Term Loan"). The Automotive Revolver provides for total
direct borrowings up to $16.0 million consisting of
advances based on varying percentages of eligible
inventory and trade receivables. The Automotive Term
Loan is in the amount of $2,550,000 and requires
44
<PAGE>
repayment in monthly installments of principal and
interest. The Automotive Products Business has secured
the Automotive Loan Agreement with substantially all of
its assets, and the Company has provided the lender with
a $1.0 million standby letter of credit to secure the
Automotive Loan Agreement. See Note 9 of Notes to
Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial
Condition and Results of Operations of this report for
further discussion concerning the Automotive Loan
Agreement.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits. The Company has included the following
exhibits in this report:
4.1 Loan and Security Agreement, dated May 7, 1999, by
and between Congress Financial Corporation and L&S
Automotive Products Co., International Bearings,
Inc., L&S Bearing Co., LSB Extrusion Co., Rotex
Corporation, and Tribonetics Corporation.
4.2 Termination and Mutual General Release Agreement,
dated as of May 10, 1999, by and among L&S Bearing
Co., L&S Automotive Products Co., LSB Extrusion
Co., Rotex Corporation, Tribonetics Corporation,
International Bearings, Inc., and Bank of America
National Trust and Savings Association (successor-
in-interest to BankAmerica Business Credit, Inc.).
4.3 Letter Agreement, dated April 30, 1999, by and
among Bank of America National Trust and Savings
Association (successor-in-trust to BankAmerica
Business Credit, Inc.), L&S Bearing Co., LSB
Extrusion Co., Tribonetics Corporation, Rotex
Corporation, L&S Automotive Products Co.,
International Bearings, Inc., and Congress
Financial Corporation.
10.1 Asset Purchase Agreement, dated May 7, 1999,
between Quantum Explosives Pty. Limited and Total
Energy Systems Limited, Total Energy Systems
(International) Pty. Ltd. and Total Energy Systems
(NZ) Limited. CERTAIN INFORMATION WITHIN THIS
EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF A
REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT
BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
FREEDOM OF INFORMATION ACT. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION
FOR PURPOSES OF SUCH REQUEST.
45
<PAGE>
15.1 Letter Re: Unaudited Interim Financial Information.
27.1 Financial Data Schedule
(B) Reports of Form 8-K. The Company did not file any
reports on Form 8-K during the quarter ended March 31,
1999.
46
<PAGE>
<PAGE>
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 21st day of
May 1999.
LSB INDUSTRIES, INC.
By: /s/ Tony M. Shelby
__________________________________
Tony M. Shelby,
Senior Vice President of Finance
(Principal Financial Officer)
By: /s/ Jim D. Jones
__________________________________
Jim D. Jones
Vice President, Controller and
Treasurer(Principal Accounting
Officer)
47
<PAGE>
EXHIBIT INDEX
_____________
Exhibit Sequential
No. Description Page No.
_______ ____________ ___________
4.1 Loan and Security Agreement, dated May 7, 1993, 49
by and between Congress Financial Corporation
and L&S Automotive Products Co., International
Bearings, Inc., L&S Bearing Co., LSB Extrusion
Co., Rotex Corporation, and Tribonetics
Corporation.
4.2 Termination and Mutual General Release Agree- 111
ment, dated as of May 10, 1993, by and among
L&S Bearing Co., L&S Automotive Products Co.,
LSB Extrusion Co., Rotex Corporation, Tribonetics
Corporation, International Bearings, Inc., and
Bank of America National Trust and Savings
Association (successor-in-interest to BankAmerica
Business Credit, Inc.).
4.3 Letter Agreement, dated April 30, 1999, by and 116
among Bank of America National Trust and Savings
Association (successor-in-trust to BankAmerica
Business Credit, Inc.), L&S Bearing Co., LSB
Extrusion Co., Tribonetics Corporation, Rotex
Corporation, L&S Automotive Products Co.,
International Bearings, Inc., and Congress
Financial Corporation.
10.1 Asset Purchase Agreement, dated May 7, 1999, 120
between Quantum Explosives Pty. Limited and
Total Energy Systems Limited, Total Energy
Systems (Internation) Pty. Ltd. and Total
Energy Systems (NZ) Limited. CERTAIN INFOR-
MATION WITHIN THIS EXHIBIT HAS BEEN OMITTED
AS IT IS THE SUBJECT OF A REQUEST BY THE
COMPANY FOR CONFIDENTIAL TREATMENT BY THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE
FREEDOM OF INFORMATION ACT. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH
THE SECRETARY OF THE SECURITIES AND EXCHANGE
COMMISSION FOR PURPOSES OF SUCH REQUEST.
15.1 Letter Re: Unaudited Interim Financial Information. 193
27.1 Financial Data Schedule. 194
THIS DRAFT HAS NOT BEEN REVIEWED BY CONGRESS AND IS SUBJECT TO
THEIR COMMENT
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
as Lender
and
L&S AUTOMOTIVE PRODUCTS CO.
TRIBONETICS CORPORATION
L&S BEARING CO.
LSB EXTRUSION CO.
ROTEX CORPORATION
AND
INTERNATIONAL BEARINGS, INC.
as Borrowers
Dated: May 7, 1999
<PAGE>
<PAGE>
TABLE OF CONTENTS
__________________
Page
Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . 1
SECTION 2. CREDIT FACILITIES. . . . . . . . . . . . . . . . 11
2.1 Revolving Loans. . . . . . . . . . . . . . . . . . 11
2.2 Letter of Credit Accommodation . . . . . . . . . . 12
2.3 Term Loan. . . . . . . . . . . . . . . . . . . . . 14
2.4 Availability Reserves. . . . . . . . . . . . . . . 15
2.5 Joint and Several Liability; Rights of
Contribution. . . . . . . . . . . . . . . . . . 15
2.6 Structure of Credit Facility . . . . . . . . . . . 17
2.7 Right of First Refusal . . . . . . . . . . . . . . 17
SECTION 3. INTEREST AND FEES. . . . . . . . . . . . . . . . 18
3.1 Interest . . . . . . . . . . . . . . . . . . . . 18
3.2 Closing Fee. . . . . . . . . . . . . . . . . . . . 20
3.3 Servicing Fee. . . . . . . . . . . . . . . . . . . 20
3.4 Unused Line Fee. . . . . . . . . . . . . . . . . . 20
3.5 Changes in Laws and Increased Costs of Loans . . . 20
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . 21
4.1 Conditions Precedent to Initial Loans and
Letter of Credit Accommodations . . . . . . . . 21
4.2 Conditions Precedent to All Loans and Letter
of Credit Accommodations. . . . . . . . . . . . 23
SECTION 5. GRANT OF SECURITY INTEREST . . . . . . . . . . . 23
SECTION 6. COLLECTION AND ADMINISTRATION. . . . . . . . . . 24
6.1 Borrowers' Loan Account. . . . . . . . . . . . . . 24
6.2 Statements . . . . . . . . . . . . . . . . . . . . 25
6.3 Collection of Accounts . . . . . . . . . . . . . . 25
6.4 Payments . . . . . . . . . . . . . . . . . . . . . 26
6.5 Authorization to Make Loans. . . . . . . . . . . . 26
6.6 Use of Proceeds. . . . . . . . . . . . . . . . . . 27
SECTION 7. COLLATERAL REPORTING AND COVENANTS . . . . . . . 27
7.1 Collateral Reporting . . . . . . . . . . . . . . . 27
1
<PAGE>
7.2 Accounts Covenants . . . . . . . . . . . . . . . . 28
7.3 Inventory Covenants. . . . . . . . . . . . . . . . 29
7.4 Equipment Covenants. . . . . . . . . . . . . . . . 30
7.5 Power of Attorney. . . . . . . . . . . . . . . . . 30
7.6 Right to Cure. . . . . . . . . . . . . . . . . . . 31
7.7 Access to Premises . . . . . . . . . . . . . . . . 31
SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . 32
8.1 Corporate Existence, Power and Authority;
Subsidiaries. . . . . . . . . . . . . . . . . . 32
8.2 Financial Statements; No Material Adverse
Change. . . . . . . . . . . . . . . . . . . . . 32
8.3 Chief Executive Office; Collateral Locations . . . 32
8.4 Priority of Liens; Title to Properties . . . . . . 33
8.5 Tax Returns. . . . . . . . . . . . . . . . . . . . 33
8.6 Litigation . . . . . . . . . . . . . . . . . . . . 33
8.7 Compliance with Other Agreements and
Applicable Laws . . . . . . . . . . . . . . . . 33
8.8 Employee Benefits. . . . . . . . . . . . . . . . . 34
8.9 Bank Accounts. . . . . . . . . . . . . . . . . . . 34
8.10 Environmental Compliance . . . . . . . . . . . . . 34
8.11 Accuracy and Completeness of Information . . . . . 35
8.12 Survival of Warranties; Cumulative . . . . . . . . 35
8.13 Year 2000 Issues . . . . . . . . . . . . . . . . . 36
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS . . . . . . . 36
9.1 Maintenance of Existence . . . . . . . . . . . . . 36
9.2 New Collateral Locations . . . . . . . . . . . . . 36
9.3 Compliance with Laws, Regulations, Etc.. . . . . . 37
9.4 Payment of Taxes and Claims. . . . . . . . . . . . 38
9.5 Insurance. . . . . . . . . . . . . . . . . . . . . 38
9.6 Financial Statements and Other Information . . . . 39
9.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc. . . . . . . . . . . . . . . . 40
9.8 Encumbrances . . . . . . . . . . . . . . . . . . . 41
9.9 Indebtedness . . . . . . . . . . . . . . . . . . . 42
9.10 Loans, Investments, Guarantees, Etc. . . . . . . . 43
9.11 Dividends and Redemptions. . . . . . . . . . . . . 44
9.12 Transactions with Affiliates . . . . . . . . . . . 44
9.13 Additional Bank Accounts . . . . . . . . . . . . . 44
9.14 Compliance with ERISA. . . . . . . . . . . . . . . 45
9.15 Net Worth. . . . . . . . . . . . . . . . . . . . . 45
9.16 Costs and Expenses . . . . . . . . . . . . . . . . 45
9.17 Further Assurances . . . . . . . . . . . . . . . . 46
SECTION 10. EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . 46
10.1 Events of Default. . . . . . . . . . . . . . . . . 46
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . 48
2
<PAGE>
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
CONSENTS; GOVERNING LAW . . . . . . . . . . . . . . . . 50
11.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver. . . . . . . . . . . 50
11.2 Waiver of Notices. . . . . . . . . . . . . . . . . 51
11.3 Amendments and Waivers . . . . . . . . . . . . . . 51
11.4 Indemnification. . . . . . . . . . . . . . . . . . 51
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS. . . . . . . . 52
12.1 Term . . . . . . . . . . . . . . . . . . . . . . . 52
12.2 Notices. . . . . . . . . . . . . . . . . . . . . . 54
12.3 Partial Invalidity . . . . . . . . . . . . . . . . 54
12.4 Successors . . . . . . . . . . . . . . . . . . . . 54
12.5 Entire Agreement . . . . . . . . . . . . . . . . . 55
12.6 NONAPPLICABILITY OF ARTICLE 5069-15.01 ET SEQ. . . 55
12.7 WAIVER OF CONSUMER RIGHTS. . . . . . . . . . . . . 55
12.8 ORAL AGREEMENTS INEFFECTIVE. . . . . . . . . . . . 56
3
<PAGE>
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
______________________
Exhibit A Information Certificate
Exhibit B Collateral Letter of Credit
Exhibit C Term Note
Schedule 1.9 Distribution Agreement
Schedule 8.3 Mortgages
Schedule 8.4 Existing Liens
Schedule 8.9 Bank Accounts
Schedule 8.10 Environmental Matters
Schedule 9.5 Insurance
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
Schedule 9.12 Transactions With Affiliates
Attachment I Excluded Equipment
4
<PAGE>
<PAGE>
LOAN AND SECURITY AGREEMENT
___________________________
THIS LOAN AND SECURITY AGREEMENT dated May 7, 1999,is entered
into by and between Congress Financial Corporation (Southwest), a
Texas corporation ("Lender") and L&S Automotive Products Co.
("LSAP"), a Delaware corporation, International Bearings, Inc.
("IBI"), an Oklahoma corporation, L&S Bearing Co. ("L&SB"), an
Oklahoma corporation, LSB Extrusion Co. ("LSBE"), an Oklahoma
corporation, Rotex Corporation ("Rotex"), an Oklahoma corporation,
and Tribonetics Corporation ("Tribonetics"), an Oklahoma
corporation (LSAP, IBI, L&SB, LSBE, Rotex and Tribonetics are
individually, collectively and jointly and severally herein
referred to as "Borrower" or the "Borrowers").
W I T N E S S E T H:
_ _ _ _ _ _ _ _ _ _
WHEREAS, Borrowers have requested that Lender enter into
certain financing arrangements with Borrowers pursuant to which
Lender may make loans and provide other financial accommodations to
each Borrower; on the terms and conditions set forth herein; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
___________
All terms used herein which are defined in Article 1 or
Article 9 of the Uniform Commercial Code shall have the meanings
given therein unless otherwise defined in this Agreement. All
references to the plural herein shall also mean the singular and to
the singular shall also mean the plural unless the context
otherwise requires. All references to Borrowers and Lender
pursuant to the definitions set forth in the recitals hereto, or to
any other person herein, shall include their respective successors
and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not any particular
provision of this Agreement. Any reference to this Agreement or
any other Financing Agreement shall mean such agreement as now
exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced. The word "including" when
used in this Agreement shall mean "including, without limitation".
An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3, is
cured pursuant to the terms of this Agreement, or is cured in a
manner satisfactory to Lender, if such Event of Default is capable
of being cured as determined by Lender. Any accounting term used
herein unless otherwise defined in this Agreement shall have the
1
<PAGE>
meanings customarily given to such term in accordance with GAAP.
For purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1.1 "Accounts" shall mean all present and hereafter arising
rights of each Borrower to payment for goods sold or leased or for
services rendered, which are not evidenced by instruments or
chattel paper, and whether or not earned by performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to
each Interest Period for any Eurodollar Rate Loan, the rate per
annum (rounded upwards, if necessary, to the next one-sixteenth
(1/16) of one (1%) percent) determined by dividing (a) the
Eurodollar Rate for such Interest Period by (b) a percentage equal
to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign
banking authority for determining the reserve requirement which is
or would be applicable to deposits of United States dollars in a
non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate
Loan made with the proceeds of such deposit, whether or not the
Reference Bank actually holds or has made any such deposits or
loans. The Adjusted Eurodollar Rate shall be adjusted on and as of
the effective day of any change in the Reserve Percentage.
1.3 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time
establish and revise in good faith reducing the amount of Revolving
Loans and Letter of Credit Accommodations which would otherwise be
available to Borrowers under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks
which, as determined by Lender in good faith, adversely affect or
may adversely affect either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii)
the assets or business of Borrowers or any Obligor when taken as a
whole, or (iii) the security interests and other rights of Lender
in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect Lender's good faith belief that
any collateral report or financial information furnished by or on
behalf of Borrowers or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or (c)
to reflect outstanding Letter of Credit Accommodations as provided
in Section 2.2 hereof or (d) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default, or
may, with notice or passage of time or both, constitute an Event of
Default.
1.4 "Blocked Accounts" shall have the meaning set forth in
Section 6.3 hereof.
1.5 "Business Day" shall mean any day other than a Saturday,
Sunday, or other day on which commercial banks are authorized or
required to close under the laws of the State of New York or the
State of North Carolina, and a day on which the Reference Bank and
Lender are open for the transaction of business, except that if a
determination of a Business Day shall relate to any Eurodollar Rate
Loans, the term Business Day shall also exclude any day on which
2
<PAGE>
banks are closed for dealings in dollar deposits in the London
interbank market or other applicable Eurodollar Rate market.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as
the same now exists or may from time to time hereafter be amended,
modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.7 "Collateral" shall have the meaning set forth in Section
5 hereof.
1.8 "Collateral Letter of Credit" shall mean the standby
letter of credit dated on or about the date hereof issued for the
account of LSB Industries, Inc. ("LSB") by Bank America Los
Angeles (or another issuer acceptable to Lender) in the amount of
$1,000,000 for the benefit of Lender substantially in the form of
Exhibit B.
1.9 "Distribution Agreement" shall mean (a) a fully executed
Distribution Agreement substantially in the form of the draft of
Distribution Agreement attached hereto as Schedule 1.9 between
Guarantor and LSB, and (b) all attachments and exhibits to such
agreement and all other agreements, leases and other documents,
executed in connection therewith in substantially the same form as
the attachments, exhibits, agreements, leases and other documents
attached hereto as Schedule 1.9.
1.10 "Eligible Accounts" shall mean Accounts created by any
Borrower which are and continue to be acceptable to Lender based on
the criteria set forth below. In general, Accounts shall be
Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide
sale and delivery of goods by Borrowers or rendition of services by
Borrowers in the ordinary course of their business which
transactions are completed in accordance with the terms and
provisions contained in any documents related thereto;
(b) such Accounts (i) are Accounts of Advance Stores
Co., Inc. ("Advance"), Western Auto Supply Co., Inc. ("Western"),
or other account debtors approved by Lender (such Accounts being
hereinafter collectively referred to as the "Advance Auto
Accounts") which are not unpaid more than one-hundred eighty (180)
days after the date of the original invoice for them or thirty (30)
days after the due date for them, whichever is earlier, or (ii)
such Accounts are not Advance Accounts and are not unpaid more than
one-hundred twenty (120) days after the date of the original
invoice for them or sixty (60) days after the due date for them,
whichever is earlier;
(c) such Accounts do not arise from sales on
consignment, guaranteed sale, sale and return, sale on approval, or
other terms under which payment by the account debtor may be
conditional or contingent;
3
<PAGE>
(d) the chief executive office of the account debtor
with respect to such Accounts is located in the United States of
America, Puerto Rico or Canada; or, if the chief executive office
of account debtor is located outside the United States of America,
Puerto Rico or Canada either: (i) the account debtor has delivered
to Borrower an irrevocable letter of credit issued or confirmed by
a bank satisfactory to Lender and payable only in the United States
of America and in U.S. dollars, sufficient to cover such Account,
in form and substance satisfactory to Lender and, if required by
Lender, the original of such letter of credit has been delivered to
Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or
(ii) such Account is subject to credit insurance payable to Lender
issued by an insurer and on terms and in an amount acceptable to
Lender, or (iii) such Account is otherwise acceptable in all
respects to Lender (subject to such lending formula with respect
thereto as Lender may determine);
(e) such Accounts do not consist of progress billings,
bill and hold invoices or retainage invoices, except as to bill and
hold invoices, if Lender shall have received an agreement in
writing from the account debtor, in form and substance satisfactory
to Lender, confirming the unconditional obligation of the account
debtor to take the goods related thereto and pay such invoice;
(f) the account debtor with respect to such Accounts has
not asserted a counterclaim, defense or dispute and does not have
any right of setoff against such Accounts (but the portion of the
Accounts of such account debtor in excess of the amount at any time
and from time to time owed by Borrower to such account debtor or
claimed owed by such account debtor may be deemed Eligible
Accounts);
(g) there are no facts, events or occurrences which
would impair the validity, enforceability or collectability of such
Accounts or reduce the amount payable or delay payment thereunder;
(h) such Accounts are subject to the first priority,
valid and perfected security interest of Lender and any goods
giving rise thereto are not, and were not at the time of the sale
thereof, subject to any liens except those permitted in this
Agreement;
(i) the account debtor with respect to such Accounts is
not affiliated with any Borrower directly or indirectly by virtue
of family membership, ownership, control, management or otherwise;
(j) the account debtors with respect to such Accounts
are not any foreign government, the United States of America, any
State, political subdivision, department, agency or instrumentality
thereof, unless, if the account debtor is the United States of
America, any State, political subdivision, department, agency or
instrumentality thereof, upon Lender's request, the Federal
Assignment of Claims Act of 1940, as amended or any similar State
or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
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(k) there are no proceedings or actions to the knowledge
of Borrowers or Lender which are threatened or pending against the
account debtors with respect to such Accounts which might result in
any material adverse change in any such account debtor's financial
condition;
(l) (i) for Accounts which are not Advance Auto Accounts
or Accounts described in subsection (iii) hereof, such Accounts of
a single account debtor or its affiliates do not constitute more
than ten percent (10%) percent of all otherwise Eligible Accounts
(but the portion of the Accounts not in excess of such percentage
may be deemed Eligible Accounts, in Lender's discretion); (ii) for
Accounts which are Advance Auto Accounts, such Accounts do not
constitute more than fifty percent (50%) of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of such
percentage may be deemed Eligible Accounts, in Lender's
discretion); and (iii) for Accounts of Dexter Axle, a division of
Tomkins Industries, and FMC Corporation, the Accounts of each such
account debtor do not constitute more than fifteen percent (15%) of
all otherwise Eligible Accounts (but the portion of the Accounts
not in excess of such percentage may be deemed Eligible Accounts,
in Lender's discretion);
(m) (i) for Accounts which are not Advance Auto
Accounts, such Accounts are not owed by an account debtor who has
Accounts unpaid more than one hundred twenty (120) days after the
date of the original invoice for them or sixty (60) days after the
due date for them, whichever is earlier and which such Accounts
constitute more than fifty percent (50%) of the total Accounts of
such account debtor; (ii) for Advance Auto Accounts, such Accounts
are not owed by an account debtor who has Accounts unpaid more than
one-hundred eighty (180) days after the date of the original
invoice for them or thirty (30) days after the due date for them,
whichever is earlier and which such Accounts constitute more than
twenty-five percent (25%) of the total Accounts of such account
debtor;
(n) such Accounts are owed by account debtors whose
total indebtedness to Borrower does not exceed the credit limit
with respect to such account debtors as determined by Lender from
time to time (but the portion of the Accounts not in excess of such
credit limit may be deemed Eligible Accounts);
(o) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender; and
(p) the principal office, assets or place of business of
the account debtors with respect to such Accounts are not outside
the United States, Puerto Rico or Canada (or as otherwise provided
in the Section 1.11(d)).
General criteria for Eligible Accounts may be established and
revised from time to time by Lender in good faith. Any Accounts
which are not Eligible Accounts shall nevertheless be part of the
Collateral.
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1.11 "Eligible Inventory" shall mean Inventory consisting of
finished goods held for resale in the ordinary course of the
business of any Borrower and raw materials for such finished goods,
(including raw materials stored or held by any Borrower in the work
in progress area of such Borrower but which are not characterized
as work in progress for accounting purposes) which are acceptable
to Lender based on the criteria set forth below. In general,
Eligible Inventory shall not include (a) work-in-process; (b)
components which are not part of finished goods and which are not
otherwise acceptable to Lender; (c) spare parts for Equipment; (d)
packaging and shipping materials; (e) supplies used or consumed in
Borrower's business; (f) Inventory at premises other than those
owned and controlled by any Borrower, except if Lender shall have
received an agreement in writing from the person in possession of
such Inventory and/or the owner or operator of such premises in
form and substance satisfactory to Lender acknowledging Lender's
first priority security interest in the Inventory, waiving security
interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, for a
reasonable period of time, the premises so as to exercise Lender's
rights and remedies and otherwise deal with the Collateral; (g)
Inventory subject to a security interest or lien in favor of any
person other than Lender except those permitted in this Agreement;
(h) bill and hold goods; (i) unserviceable, obsolete or slow moving
Inventory; (j) Inventory which is not subject to the first
priority, valid and perfected security interest of Lender; (k)
defective returned, damaged and/or defective Inventory; and (l)
Inventory purchased or sold on consignment. General criteria for
Eligible Inventory may be established and revised from time to time
by Lender in good faith. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.12 "Environmental Laws" shall mean all foreign, Federal,
State and local laws (including common law), legislation, rules,
codes, licenses, permits (including any conditions imposed
therein), authorizations, judicial or administrative decisions,
injunctions or agreements between any Borrower and any governmental
authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air,
water vapor, surface water, ground water, drinking water, drinking
water supply, surface land, subsurface land, plant and animal life
or any other natural resource), or to human health or safety,
(b) relating to the exposure to, or the use, storage, recycling,
treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or
disposal, or threatened release, of Hazardous Materials, or
(c) relating to all laws with regard to recordkeeping,
notification, disclosure and reporting requirements respecting
Hazardous Materials. The term "Environmental Laws" includes
(i) the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Federal Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Water Act, the Federal Clean Air Act, the
Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act,
the Federal Insecticide, Fungicide and Rodenticide Act, and the
Federal Safe Drinking Water Act of 1974, (ii) applicable state
counterparts to such laws, and (iii) any common law or equitable
doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
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1.13 "Equipment" shall mean all of each Borrower's now owned
and hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles, tools,
furniture, fixtures, all attachments, accessions and property now
or hereafter affixed thereto or used in connection therewith, and
substitutions and replacements thereof, wherever located.
1.14 "ERISA" shall mean the United States Employee Retirement
Income Security Act of 1974, as the same now exists or may
hereafter from time to time be amended, modified, recodified or
supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.15 "ERISA Affiliate" shall mean any person required to be
aggregated with any Borrower or any of its subsidiaries under
Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
1.16 "Eurodollar Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Adjusted
Eurodollar Rate in accordance with the terms hereof.
1.17 "Eurodollar Rate" shall mean with respect to the Interest
Period for a Eurodollar Rate Loan, the interest rate per annum
equal to the arithmetic average of the rates of interest per annum
(rounded upwards, if necessary, to the next one-sixteenth (1/16) of
one percent (1%)) at which Reference Bank is offered deposits of
United States dollars in the London interbank market (or other
Eurodollar Rate market selected by Borrowers and approved by
Lender) on or about 9:00 a.m. (New York time) two (2) Business Days
prior to the commencement of such Interest Period in amounts
substantially equal to the principal amount of the Eurodollar Rate
Loans requested by and available to Borrowers in accordance with
this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrowers.
1.18 "Event of Default" shall mean the occurrence or existence
of any event or condition described in Section 10.1 hereof.
1.19 "Excess Availability" shall mean the amount, as
determined by Lender, calculated at any time, equal to: (a) the
lesser of: (i) the amount of the Revolving Loans available to
Borrowers as of such time based on the applicable lending formulas
multiplied by the Net Amount of Eligible Accounts and the Value of
Eligible Inventory, as determined hereunder, and subject to the
sublimits and Availability Reserves from time to time established
by Lender hereunder, and (ii) the Maximum Credit (less the then
outstanding principal amount of the Term Loan), minus (b) the sum
of: (i) the amount of all then outstanding and unpaid Obligations
(but not including for this purpose the then outstanding principal
amount of the Term Loan), plus (ii) the aggregate amount of all
then outstanding and unpaid trade payables of Borrowers which are
more than sixty (60) days past due as of such time, plus (iii) the
amount of checks issued by Borrowers to pay trade payables, but not
yet sent, plus (iv) the book overdraft of Borrowers (in the
aggregate), in excess of $750,000.
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1.20 "Financing Agreements" shall mean, collectively, this
Agreement and all notes, guarantees, security agreements and other
agreements, documents and instruments now or at any time hereafter
executed and/or delivered by Borrowers or any Obligor in connection
with this Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.
1.21 "GAAP" shall mean generally accepted accounting
principles in the United States of America as in effect from time
to time as set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied,
except that, for purposes of Section 9.15 hereof, GAAP shall be
determined on the basis of such principles in effect on the date
hereof and consistent with those used in the preparation of the
audited financial statements delivered to Lender prior to the date
hereof.
1.22 "Guarantor" shall mean LSA Technologies Inc., a Delaware
corporation.
1.23 "Guaranty" shall mean that certain Guarantee, of even
date with this Agreement, from the Guarantor guaranteeing the
Obligations of each and every Borrower to the Lender, as amended,
modified, supplemented, extended, renewed, restated or replaced.
1.24 "Hazardous Materials" shall mean any hazardous, toxic or
dangerous substances, materials and wastes, including hydrocarbons
(including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde
insulation, radioactive materials, biological substances,
polychlorinated biphenyls, pesticides, herbicides and any other
kind and/or type of pollutants or contaminants (including materials
which include hazardous constituents), sewage, sludge, industrial
slag, solvents and/or any other similar substances, materials, or
wastes and including any other substances, materials or wastes that
are or become regulated under any Environmental Law (including any
that are or become classified as hazardous or toxic under any
Environmental Law).
1.25 "Information Certificate" shall mean the Information
Certificate of Borrowers constituting Exhibit A hereto containing
material information with respect to Borrowers, their business and
assets provided by or on behalf of Borrowers to Lender in
connection with the preparation of this Agreement and the other
Financing Agreements and the financing arrangements provided for
herein.
1.26 "Interest Period" shall mean for any Eurodollar Rate
Loan, a period of approximately one (1), two (2), or three (3)
months duration as Borrowers may elect, the exact duration to be
determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, Borrowers may
not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
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1.27 "Interest Rate" shall mean, as to Prime Rate Loans, a
rate of one percent (1%) per annum in excess of the Prime Rate and,
as to Eurodollar Rate Loans, a rate of two and three-quarters
percent (2.75%) per annum in excess of the Adjusted Eurodollar Rate
(based on the Eurodollar Rate applicable for the Interest Period
selected by Borrowers as in effect three (3) Business Days after
the date of receipt by Lender of the request of Borrowers for such
Eurodollar Rate Loans in accordance with the terms hereof, whether
such rate is higher or lower than any rate previously quoted to
Borrowers); provided, that, the Interest Rate shall mean the rate
of three percent (3%) per annum in excess of the Prime Rate as to
Prime Rate Loans and the rate of four and three-quarters percent
(4.75%) per annum in excess of the Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, at Lender's option, without notice, (a) for
the period (i) from and after the date of termination until Lender
has received full and final payment of all Obligations
(notwithstanding entry of a judgment against Borrowers) and (ii)
from and after the date of the occurrence of an Event of Default
for so long as such Event of Default is continuing as determined by
Lender, and (b) on the Revolving Loans at any time outstanding in
excess of the amounts available to Borrowers under Section 2
(whether or not such excess(es), arise or are made with or without
Lender's knowledge or consent and whether made before or after an
Event of Default).
1.28 "Inventory" shall mean all of each Borrower's now owned
and hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or
nature, wherever located.
1.29 "LSB" shall mean LSB Industries, Inc., a Delaware
corporation.
1.30 "Letter of Credit Accommodations" shall mean the letters
of credit, merchandise purchase or other guaranties which are from
time to time either (a) issued or opened by Lender for the account
of any Borrower or Borrowers or any Obligor or (b) with respect to
which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by any Borrower or Borrowers of its or
their obligations to such issuer.
1.31 "Loans" shall mean the Revolving Loans and the Term Loan.
1.32 "Maximum Credit" shall mean the amount of $18,550,000.
1.33 "Maximum Legal Rate" shall have the meaning set forth in
Section 3.1 hereof.
1.34 "Net Amount of Eligible Accounts" shall mean the gross
amount of Eligible Accounts less (a) sales, excise or similar taxes
included in the amount thereof and (b) returns, discounts, claims,
credits (including unissued credits) and allowances of any nature
at any time issued, owing, granted, outstanding, available or
claimed with respect thereto.
1.35 "Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its
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subsidiaries (if any), the amount equal to: (a) the difference
between: (i) the aggregate net book value of all assets of such
Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after
deducting from such book values all appropriate reserves in
accordance with GAAP (including all reserves for doubtful
receivables, obsolescence, depreciation and amortization) and (ii)
the aggregate amount of the indebtedness and other liabilities of
such Person and its subsidiaries (including tax and other proper
accruals) less (b) the value of any asset of such Person arising
from the conversion of any indebtedness or other liability of such
Person to equity.
1.36 "Obligations" shall mean any and all Revolving Loans, the
Term Loan, Letter of Credit Accommodations and all other
obligations, liabilities and indebtedness of every kind, nature and
description owing by each and every Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety,
endorser, guarantor or otherwise, whether arising under the
Financing Agreements, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal
term of this Agreement or after the commencement of any case with
respect to any such Borrower under the United States Bankruptcy
Code or any similar statute (including the payment of interest and
other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed
or allowable in whole or in part in such case), whether direct or
indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or
unsecured.
1.37 "Obligor" shall mean any guarantor, endorser, acceptor,
surety or other person liable on or with respect to the Obligations
or who is the owner of any property which is security for the
Obligations, other than any Borrower.
1.38 "Payment Account" shall have the meaning set forth in
Section 6.3 hereof.
1.39 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation
which elects subchapter S status under the Internal Revenue Code of
1986, as amended), limited liability company, limited liability
partnership, business trust, unincorporated association, joint
stock corporation, trust, joint venture or other entity or any
government or any agency or instrumentality or political
subdivision thereof.
1.40 "Prime Rate" shall mean the rate from time to time
publicly announced by First Union National Bank or its successors,
at its office in Charlotte, North Carolina, as its prime rate,
whether or not such announced rate is the best rate available at
such bank.
1.41 "Prime Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Prime Rate in
accordance with the terms thereof.
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1.42 "Records" shall mean all of each Borrower's present and
future books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other
shipping evidence, statements, correspondence, memoranda, credit
files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data
and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of
such Borrower with respect to the foregoing maintained with or by
any other person).
1.43 "Reference Bank" shall mean First Union National Bank, or
such other bank as Lender may from time to time designate.
1.44 "Revolving Loans" shall mean the loans now or hereafter
made by Lender to or for the benefit of each Borrower on a
revolving basis (involving advances, repayments and readvances) as
set forth in Section 2.1 hereof.
1.45 "Subordination Agreements" shall mean the Subordination
Agreement, of even date herewith, between LSB, Guarantor and
Borrowers, as amended, modified, supplemented, extended, renewed,
restated or replaced, subordinating the obligations owed by and
among Borrowers to Guarantor and LSB, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.46 "Term Loan" shall mean the term loan made by Lender to
Borrowers as provided for in Section 2.3 hereof.
1.47 "Term Promissory Note" shall have the meaning set
forth in Section 2.3 hereof.
1.48 "Value" shall mean, as determined by Lender in good
faith, with respect to Inventory, the lower of (a) cost computed on
a first-in-first-out basis in accordance with GAAP or (b) market
value.
SECTION 2. CREDIT FACILITIES
_________________
2.1 Revolving Loans.
_______________
(a) Subject to and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans to
Borrowers from time to time in amounts requested by such Borrower
or Borrowers up to the amount equal to the sum of:
(i) eighty-five percent (85%) of the Net Amount of
Eligible Accounts of such Borrower or Borrowers; provided,
however, the amount of Revolving Loans outstanding with
respect to Advance Auto Accounts which are not fully insured
by credit insurance payable to Lender issued by an insurer and
on terms and in an amount acceptable to Lender shall not
exceed $3,000,000, and provided further, subject to the
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provisions of Section 9.7, with respect to IBI, the amount of
Revolving Loans outstanding at any time with respect to
Eligible Accounts shall not exceed $1,600,000; plus
(ii) the lesser of: (A) the sum of forty percent
(40%) of the Value of Eligible Inventory consisting of
finished goods plus thirty percent and (30%) of the Value of
Eligible Inventory consisting of raw materials for such
finished goods or (B) $7,500,000; provided, however, subject
to the provisions of Section 9.7, with respect to IBI, the
amount of Revolving Loans outstanding at any time with respect
to Eligible Inventory shall not exceed $1,000,000.; less
(iii) any Availability Reserves.
The unused portion of the sublimits available to IBI may be
utilized by the other Borrowers.
(b) Lender may, in its discretion, from time to time,
upon not less than five (5) days prior notice to Borrowers, (i)
reduce the lending formula for with respect to Eligible Accounts to
the extent that Lender determines in good faith that: (A) the
dilution with respect to the Accounts for any period (based on the
ratio of (1) the aggregate amount of reductions in Accounts other
than as a result of payments in cash to (2) the aggregate amount
of total sales) has increased in any material respect or may
reasonably be anticipated to increase in any material respect,
above historical levels or (B) the general creditworthiness of
account debtors of Borrowers has declined or (ii) adjust the
lending formula(s) for Borrowers with respect to Eligible Inventory
to the extent that Lender determines that: (A) the number of days
of the turnover of the Inventory for any period has changed in any
material respect or (B) the liquidation value of the Eligible
Inventory, or any category thereof, has decreased, or (C) the
nature and quality of the Inventory has deteriorated. In
determining whether to reduce the lending formula(s), Lender may
consider events, conditions, contingencies or risks which are also
considered in determining Eligible Accounts, Eligible Inventory or
in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount
of the Loans and the Letter of Credit Accommodations outstanding to
all Borrowers at any time shall not exceed the Maximum Credit. In
the event that the outstanding amount of any component of the
Loans, or the aggregate amount of the outstanding Loans and Letter
of Credit Accommodations, exceed the amounts available under the
lending formulas, the sublimits for Letter of Credit Accommodations
set forth in Section 2.2(d) or the Maximum Credit, as applicable,
such event shall not limit, waive or otherwise affect any rights of
Lender in that circumstance or on any future occasions and any
Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire
amount of any such excess(es) for which payment is demanded.
(d) For purposes only of applying the sublimit on
Revolving Loans based on Eligible Inventory pursuant to
Section 2.1(a)(ii)(B), Lender may treat the then undrawn amounts of
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outstanding Letter of Credit Accommodations for the purpose of
purchasing Eligible Inventory as Revolving Loans to the extent
Lender is in effect basing the issuance of the Letter of Credit
Accommodations on the Value of the Eligible Inventory being
purchased with such Letter of Credit Accommodations. In
determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the
outstanding Revolving Loans and Availability Reserves shall be
attributed first to any components of the lending formulas in
Section 2.1(a) that are not subject to such sublimit, before being
attributed to the components of the lending formulas subject to
such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions
contained herein, at the request of any Borrower, Lender agrees to
provide or arrange for Letter of Credit Accommodations for the
account of Borrowers containing terms and conditions acceptable to
Lender and the issuer thereof. Any payments made by Lender to any
issuer thereof and/or related parties in connection with the Letter
of Credit Accommodations shall constitute additional Revolving
Loans to Borrowers pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged
by any bank or issuer in connection with the Letter of Credit
Accommodations, Borrowers shall pay to Lender a letter of credit
fee at a rate equal to one and one-half percent (1.5%) per annum on
the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each succeeding
month, except that Borrowers shall pay to Lender such letter of
credit fee, at Lender's option, without notice, at a rate equal to
three and one-half percent (3 1/2%) per annum on such daily
outstanding balance for: (i) the period from and after the date of
termination hereof until Lender has received full and final payment
of all Obligations (notwithstanding entry of a judgment against any
Borrower) and (ii) the period from and after the date of the
occurrence of an Event of Default for so long as such Event of
Default is continuing as determined by Lender. Such letter of
credit fee shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed and the obligation of
Borrowers to pay such fee shall survive the termination or non-
renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be
available unless on the date of the proposed issuance of any Letter
of Credit Accommodations, the Revolving Loans available to any
Borrowers (subject to the Maximum Credit and any Availability
Reserves) are equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of purchasing Eligible
Inventory, the sum of (A) seventy percent (70%) of the cost of such
Eligible Inventory, plus (B) freight, taxes, duty and other amounts
which Lender estimates must be paid in connection with such
Inventory upon arrival and for delivery to one of such Borrower's
locations for Eligible Inventory within the United States of
America and (ii) if the proposed Letter of Credit Accommodation is
for any other purpose, an amount equal to one hundred (100%)
percent of the face amount thereof and all other commitments and
obligations made or incurred by Lender with respect thereto.
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Effective on the issuance of each Letter of Credit Accommodation,
an Availability Reserve shall be established in the applicable
amount set forth in Section 2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other
commitments and obligations made or incurred by Lender in
connection therewith shall not at any time exceed $3,000,000 with
respect to all Borrowers; provided, however, that no Letter of
Credit Accommodations shall be made with respect to IBI. At any
time an Event of Default exists or has occurred and is continuing,
upon Lender's request, Borrowers will either furnish cash
collateral to secure the reimbursement obligations to the issuer in
connection with any Letter of Credit Accommodations or furnish cash
collateral to Lender for the Letter of Credit Accommodations, and
in either case, the Revolving Loans otherwise available to
Borrowers shall not be reduced as provided in Section 2.2(c) to the
extent of such cash collateral.
(e) Each Borrower shall jointly and severally indemnify
and hold Lender harmless from and against any and all losses,
claims, damages, liabilities, costs and expenses which Lender may
suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating
thereto, including any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent
with respect to any Letter of Credit Accommodation. Each Borrower
assumes all risks with respect to the acts or omissions of the
drawer under or beneficiary of any Letter of Credit Accommodation
and for such purposes the drawer or beneficiary shall be deemed
such Borrower's agent. Each Borrower assumes all risks for, and
agrees to pay, all foreign, Federal, State and local taxes, duties
and levies relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances thereunder.
Each Borrower hereby releases and holds Lender harmless from and
against any acts, waivers, errors, delays or omissions, whether
caused by any Borrower, by any issuer or correspondent or otherwise
with respect to or relating to any Letter of Credit Accommodation.
The provisions of this Section 2.2(e) shall survive the payment of
Obligations and the termination of this Agreement.
(f) Nothing contained herein shall be deemed or
construed to grant any Borrower any right or authority to pledge
the credit of Lender in any manner. Lender shall have no liability
of any kind with respect to any Letter of Credit Accommodation
provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such Letter
of Credit Accommodation. Each Borrower shall be bound by any
reasonable interpretation made in good faith by Lender, or any
other issuer or correspondent under or in connection with any
Letter of Credit Accommodation or any documents, drafts or
acceptances thereunder, notwithstanding that such interpretation
may be inconsistent with any instructions of such or any Borrower.
Lender shall have the sole and exclusive right and authority to:
(i) at any time an Event of Default exists or has occurred and is
continuing, (A) approve or resolve any questions of non-compliance
of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all
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applications for steamship or airway guaranties, indemnities or
delivery orders, and (ii) at all times, (A) grant any extensions of
the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the
applications, Letter of Credit Accommodations, or documents, drafts
or acceptances thereunder or any letters of credit included in the
Collateral. Lender may take such actions either in its own name or
in any Borrower's name.
(g) Any rights, remedies, duties or obligations granted
or undertaken by any Borrower to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other
agreement in favor of any issuer or correspondent relating to any
Letter of Credit Accommodation, shall be deemed to have been
granted or undertaken by any Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in
any application for any Letter of Credit Accommodation, or any
other agreement by Lender in favor of any issuer or correspondent
relating to any Letter of Credit Accommodation, shall be deemed to
have been undertaken by any Borrower to Lender and to apply in all
respects to such Borrower.
2.3 Term Loan.
(a) Lender is making a Term Loan to Borrowers in the
original principal amount of $2,550,000. The Term Loan is (i)
evidenced by a Term Promissory Note, substantially in the form of
Exhibit C attached hereto, in such original principal amount (the
"Term Promissory Note") duly executed and delivered by Borrowers to
Lender concurrently herewith; (ii) to be repaid, together with
interest and other amounts, in accordance with this Agreement, the
Term Promissory Note, and the other Financing Agreements and (a)
secured by all of the Collateral; provided, however, no amount of
the Term Loan shall be made available to IBI.
(b) Lender shall on at least thirty (30) days prior
written request (the "Release Request") from Borrowers and at
Borrowers' expense, release Lender's security interest in the
Equipment upon the payment in full of the Term Loan and
satisfaction of all of the following terms and conditions:
(i) Borrowers, on a consolidated basis, shall have net
income (exclusive of extraordinary gains and losses) in an
aggregate amount of not less than $2,000,000 for the fiscal
year of Borrowers immediately preceding the date of the
Release Request as shown on the financial statements of
Borrowers furnished to Lender pursuant to Section 9.6(a)(ii)
hereof and there shall not have been any material adverse
change since the date of such statement;
(ii) Excess Availability at the date of the Release
Request and at the time of the final release agreement shall
be in an amount of not less than $5,000,000;
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<PAGE>
(iii) Borrowers shall have received a bonafide
written offer from a third party financial institution with
respect to such Equipment to provide secured refinancing of
the Equipment;
(iv) No Event of Default or any Event which with notice
or lapse of time, will constitute an Event of Default shall
have occurred and be continuing at the Release Date; and
(v) Borrowers shall provide a certificate from an
officer of each Borrower representing that all the foregoing
conditions are satisfied on the Release Date;
(vi) Notwithstanding that Borrowers have satisfied the
foregoing conditions, Lender shall have the right (but not the
obligation) to exercise a right of first refusal to finance
such Equipment in accordance with the provisions of Section
2.7 hereof as if such Equipment were "Option Equipment"
thereunder. The Release Request shall be treated as the
Option Notice for purposes of applying the provisions of
Section 2.7 hereof.
2.4 Availability Reserves. All Revolving Loans otherwise
available to any Borrower pursuant to the lending formulas and
subject to the Maximum Credit and other applicable limits hereunder
shall be subject to Lender's continuing right to establish and
revise Availability Reserves as provided herein.
2.5 Joint and Several Liability; Rights of Contribution.
(a) Each Borrower states and acknowledges that: (i)
pursuant to this Agreement, such Borrower desires to utilize its
borrowing potential on a consolidated basis to the same extent
possible if it was merged into a single corporate entity with all
other Borrowers and that this Agreement reflects the establishment
of credit facilities which would not otherwise be available to such
Borrower if such Borrower were not jointly and severally liable for
payment of all of the Obligations; (ii) it has determined that it
will benefit specifically and materially from the advances of
credit contemplated by this Agreement; (iii) it is both a condition
precedent to the obligations of Lender hereunder and a desire of
the Borrowers that each Borrower execute and deliver to Lender this
Agreement; and (iv) Borrowers have requested and bargained for the
structure and terms of and security for the advances contemplated
by this Agreement.
(b) Each Borrower hereby irrevocably and
unconditionally: (i) agrees that it is jointly and severally liable
to Lender for the full and prompt payment of the Obligations and
the performance by each Borrower of its obligations hereunder in
accordance with the terms hereof; (ii) to the extent provided
herein agrees to fully and promptly perform all of its obligations
hereunder with respect to each advance of credit hereunder as if
such advance had been made directly to it; and (iii) agrees as a
primary obligation to indemnify Lender on demand for and against
any loss incurred by Lender as a result of any of the Obligations
of any one or more of the Borrowers being or becoming void,
voidable, unenforceable or ineffective for any reason whatsoever,
whether or not known to Lender or any Person, the amount of such
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loss being the amount which Lender would otherwise have been
entitled to recover, without duplication, from any one or more of
the Borrowers.
(c) It is the intent of each Borrower that the
indebtedness, obligations and liability hereunder of no one of them
be subject to challenge on any basis, including, without
limitation, pursuant to any applicable fraudulent conveyance or
fraudulent transfer laws. Accordingly, as of the date hereof, the
liability of each Borrower under this section, together with all of
its other liabilities to all Persons as of the date hereof and as
of any other date on which a transfer or conveyance is deemed to
occur by virtue of this Agreement, calculated in amount sufficient
to pay its probable net liabilities on its existing indebtedness as
the same become absolute and matured ("Dated Liabilities") is, and
is to be, less than the amount of the aggregate of a fair valuation
of its property as of such corresponding date ("Dated Assets"). To
this end, each Borrower under this section, (i) grants to and
recognizes in each other Borrower, ratably, rights of subrogation
and contribution in the amount, if any, by which the Dated Assets
of such Borrower, but for the aggregate of subrogation and
contribution in its favor recognized herein, would exceed the Dated
Liabilities of such Borrower or, as the case may be, (ii)
acknowledges receipt of and recognizes its right to subrogation and
contribution ratably from each of the other Borrowers in the
amount, if any, by which the Dated Liabilities of such Borrower,
but for the aggregate of subrogation and contribution in its favor
recognized herein, would exceed the Dated Assets of such Borrower
under this section. In recognizing the value of the Dated Assets
and the Dated Liabilities, it is understood that Borrowers will
recognize, to at least the same extent of their aggregate
recognition of liabilities hereunder, their rights to subrogation
and contribution hereunder. It is a material objective of this
section that each Borrower recognizes rights to subrogation and
contribution rather than be deemed to be insolvent (or in
contemplation thereof) by reason of an arbitrary interpretation of
its joint and several obligations hereunder. In addition to and
not in limitation of the foregoing provisions of this section, the
Borrowers and Lender hereby agree and acknowledge that it is the
intent of each Borrower and of Lender that the obligations of each
Borrower hereunder be in all respects in compliance with, and not
be voidable pursuant to, applicable fraudulent conveyance and
fraudulent transfer laws.
2.6 Structure of Credit Facility. Each Borrower agrees and
acknowledges that the present structure of the credit facilities
detailed in this Agreement is based in part upon the financial and
other information presently known to Lender regarding each
Borrower, the corporate structure of Borrowers, and the present
financial condition of each Borrower. Each Borrower hereby agrees
that Lender shall have the right, in Lender's good faith credit
judgment, to require that any or all of the following changes be
made to these credit facilities: (i) restrict loans and advances
between Borrowers, (ii) establish separate lockbox and dominion
accounts for each Borrower, and (iii) establish such other
procedures as shall be reasonably deemed by Lender to be useful in
tracking where the Revolving Loans are made under this Agreement
and the source of payments received by Lender on such Revolving
Loans.
2.7 Right of First Refusal. Pursuant to the provisions of
Section 9.9(e), each time any Borrower proposes to refinance all or
any part of its Equipment listed on Attachment I hereto (the
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<PAGE>
"Option Equipment"), Lender shall have the right (but not the
obligation) to exercise a right of first refusal to finance such
Option Equipment in accordance with the following provisions:
(a) Option Notice. Such Borrower shall deliver a
written notice ("Option Notice") to Lender stating (i) such
Borrower's bona fide intention to obtain financing for the Option
Equipment from a third party (each an "Equipment Lender") (which
may be a party existing and providing financing on the date hereof)
with respect to such Option Equipment (each such financing by any
financing party including the Lender being a "Refinancing"), (ii)
the terms and conditions of the proposed financing in reasonable
detail, including, without limitation, (A) the applicable interest
or other pricing, including financing fees, (B) the term of the
financing, and (C) and any covenants affecting such Borrower, and
(iii) the name and address of the proposed Equipment Lender and
other information reasonably requested by Lender (including an
executed copy of a written proposal or commitment of the proposed
Equipment Lender).
(b) Lender Financing Right. Within twenty (20) days
after receipt of the Option Notice, Lender shall have the right,
but not the obligation, to elect to provide financing for the
Option Equipment upon the price and terms of the applicable
Refinancing designated in the Option Notice, by providing a written
term sheet in a customary form for Lender containing terms
substantially identical to the terms provided to such Borrower by
the Equipment Lender for such Refinancing.
(c) Closing of Transfer. If Lender elects to provide
the Refinancing in place of the Equipment Lender as set forth in
the Option Notice, then the closing of such purchase shall occur as
soon as practicable, but in any event thirty (30) days after
receipt of such notice, and such Borrower, each other Borrower, the
Guarantor and other parties to the Financing Agreements which may
be affected thereby and Lender shall execute such documents and
instruments, provide such due diligence, take such actions and make
such deliveries as may be reasonably required by Lender to close
and fund such Refinancing.
(d) Equipment Lender's Refinancing Right. If Lender
elects not to provide the Refinancing designated in the Option
Notice, then such Borrower may complete the such proposed
Refinancing within sixty (60) days after the expiration of Lender's
right described in clause (b) above to provide such Refinancing
with the Equipment Lender on the terms presented to Lender under
this section. If such Refinancing by the Equipment Lender is not
completed within such sixty (60) day period, then the procedures
set forth in this section must be followed again as if any prior
Option Notice had not been given with respect to such Refinancing
or the Option Equipment.
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SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Each Borrower shall pay to Lender interest on the
outstanding principal amount of the non-contingent Obligations at
the Interest Rate. All interest accruing hereunder on and after
the date of any Event of Default or termination hereof shall be
payable on demand.
(b) Borrowers may from time to time request that Prime
Rate Loans be converted to Eurodollar Rate Loans or that any
existing Eurodollar Rate Loans continue for an additional Interest
Period. Such request from Borrowers shall specify the amount of
the Prime Rate Loans which will constitute Eurodollar Rate Loans
(subject to the limits set forth below) and the Interest Period to
be applicable to such Eurodollar Rate Loans. Subject to the terms
and conditions contained herein, three (3) Business Days after
receipt by Lender of such a request from Borrowers, such Prime Rate
Loans shall be converted to Eurodollar Rate Loans or such
Eurodollar Rate Loans shall continue, as the case may be, provided,
that, (i) no Event of Default, or event which with notice or
passage of time or both would constitute an Event of Default exists
or has occurred and is continuing, (ii) no party hereto shall have
sent any notice of termination or non-renewal of this Agreement,
(iii) Borrowers shall have complied with such customary procedures
as are established by Lender and specified by Lender to Borrowers
from time to time for requests by Borrowers for Eurodollar Rate
Loans, (iv) no more than four (4) Interest Periods may be in effect
at any one time, (v) the aggregate amount of the Eurodollar Rate
Loans must be in an amount not less than $5,000,000 or an integral
multiple of $1,000,000 in excess thereof, (vi) the maximum amount
of the Eurodollar Rate Loans at any time requested by Borrowers
shall not exceed the amount equal to (A) the principal amount of
the Term Loan which it is anticipated will be outstanding as of the
last day of the applicable Interest Period plus (B) eighty percent
(80%) of the lowest principal amount of the Revolving Loans which
it is anticipated will be outstanding during the applicable
Interest Period, in each case as determined by Lender (but with no
obligation of Lender to make such Revolving Loans) and (vii) Lender
shall have determined that the Interest Period or Adjusted
Eurodollar Rate is available to Lender through the Reference Bank
and can be readily determined as of the date of the request for
such Eurodollar Rate Loan by Borrowers. Any request by Borrowers
to convert Prime Rate Loans to Eurodollar Rate Loans or to continue
any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States
Dollar deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans, but the
provisions hereof shall be deemed to apply as if Lender and
Reference Bank had purchased such deposits to fund the Eurodollar
Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically
convert to Prime Rate Loans upon the last day of the applicable
Interest Period, unless Lender has received and approved a request
to continue such Eurodollar Rate Loan at least three (3) Business
Days prior to such last day in accordance with the terms hereof.
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Any Eurodollar Rate Loans shall, at Lender's option, upon notice by
Lender to Borrowers, convert to Prime Rate Loans in the event that
(i) an Event of Default or event which, with the notice or passage
of time, or both, would constitute an Event of Default, shall
exist, (ii) this Agreement shall terminate, or (iii) the aggregate
principal amount of the Prime Rate Loans which have previously been
converted to Eurodollar Rate Loans or existing Eurodollar Rate
Loans continued, as the case may be, at the beginning of an
Interest Period shall at any time during such Interest Period
exceed either (A) the aggregate principal amount of the Loans then
outstanding, or (B) the sum of the then outstanding principal
amount of the Term Loan plus the Revolving Loans then available to
Borrowers under Section 2 hereof. Borrowers shall pay to Lender,
upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrowers) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense
incurred by such person, as a result of the conversion of
Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the
foregoing.
(d) Interest shall be payable by Borrowers to Lender
monthly in arrears not later than the first day of each calendar
month and shall be calculated on the basis of a three hundred sixty
(360) day year and actual days elapsed. The interest rate on non-
contingent Obligations (other than Eurodollar Rate Loans) shall
increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime
Rate in effect on the last day of the month in which any such
change occurs.
(e) No agreements, conditions, provisions or
stipulations contained in this Agreement or any other instrument,
document or agreement between one or more Borrowers and Lender or
default of such Borrower(s), or the exercise by Lender of the right
to accelerate the payment of the maturity of principal and
interest, or to exercise any option whatsoever contained in this
Agreement or any other Financing Agreement, or the arising of any
contingency whatsoever, shall entitle Lender to contract for,
charge, or receive, in any event, interest exceeding the maximum
rate of interest permitted by applicable state or federal law in
effect from time to time (hereinafter "Maximum Legal Rate"). In no
event shall any Borrower be obligated to pay interest exceeding
such Maximum Legal Rate and all agreements, conditions or
stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate or compel such Borrower to pay
a rate of interest exceeding the Maximum Legal Rate, shall be
without binding force or effect, at law or in equity, to the extent
only of the excess of interest over such Maximum Legal Rate. In
the event any interest is contracted for, charged or received in
excess of the Maximum Legal Rate ('"Excess"), each Borrower
acknowledges and stipulates that any such contract, charge, or
receipt shall be the result of an accident and bona fide error, and
that any Excess received by Lender shall be applied, first, to
reduce the principal then unpaid hereunder; second, to reduce the
other Obligations; and third, returned to such Borrower, it being
the intention of the parties hereto not to enter at any time into
a usurious or otherwise illegal relationship. Each Borrower
recognizes that, with fluctuations in the Prime Rate, the LIBOR
Rate and the Maximum Legal Rate, such a result could inadvertently
occur. By the execution of this Agreement, each Borrower covenants
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that (i) the credit or return of any Excess shall constitute the
acceptance by such Borrower of such Excess, and (ii) such Borrower
shall not seek or pursue any other remedy, legal or equitable,
against Lender, based in whole or in part upon contracting for,
charging or receiving of any interest in excess of the maximum
authorized or receiving of any interest in excess of the maximum
authorized by applicable law (so long as any Excess is returned to
Borrower). For the purpose of determining whether or not any
Excess has been contracted for, charged or received by Lender, all
interest at any time contracted for, charged or received by Lender
in connection with this Agreement shall be amortized, prorated,
allocated and spread in equal parts during the entire term of this
Agreement.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing
fee the amount of $135,000, which shall be fully earned as of and
payable on the date hereof.
3.3 Servicing Fee. Borrowers shall pay to Lender monthly a
servicing fee in an amount equal to $3,000 in respect of Lender's
services for each month (or part thereof) while this Agreement
remains in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 Unused Line Fee. Borrowers shall pay to Lender monthly
an unused line fee at a rate equal to one-half percent (.5%) per
annum calculated upon the amount by which $16,000,000 exceeds the
average daily principal balance of the outstanding Revolving Loans
and Letter of Credit Accommodations during the immediately
preceding month (or part thereof) while this Agreement is in effect
and for so long thereafter as any of the Obligations are
outstanding, which fee shall be payable on the first day of each
month in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained
herein, all Eurodollar Rate Loans shall, upon notice by Lender to
Borrowers, convert to Prime Rate Loans in the event that (i) any
change in applicable law or regulation (or the interpretation or
administration thereof) shall either (A) make it unlawful for
Lender, Reference Bank or any participant to make or maintain
Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, or (B) shall result in
the increase in the costs to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans by
an amount deemed by Lender to be material, or (C) reduce the
amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender,
Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed
by Lender to be material. Each Borrower shall pay to Lender, upon
demand by Lender (or Lender may, at its option, charge any loan
account of such Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense
incurred by such person as a result of the foregoing, including,
without limitation, any such loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other
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funds acquired by such person to make or maintain the Eurodollar
Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to
compensate Lender as aforesaid shall be delivered to Borrowers and
shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other than on the last
day of the applicable Interest Period (whether pursuant to
acceleration, upon maturity or otherwise), including any payments
pursuant to the application of collections under Section 6.3 or any
other payments made with the proceeds of Collateral, each affected
Borrower shall pay to Lender upon demand by Lender (or Lender may,
at its option, charge any loan account of such Borrower) any
amounts required to compensate Lender, the Reference Bank or any
participant with Lender for any additional loss (including loss of
anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without
limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by
such person to make or maintain such Eurodollar Rate Loans or any
portion thereof.
SECTION 4. CONDITIONS PRECEDENT
____________________
4.1 Conditions Precedent to Initial Loans and Letter of
Credit Accommodations. Each of the following is a condition
precedent to Lender making the initial Loans and providing the
initial Letter of Credit Accommodations hereunder:
(a) Lender shall have received evidence, in form and
substance satisfactory to Lender, that Lender has valid perfected
and first priority security interests in and liens upon the
Collateral, subject only to the security interests and liens
permitted herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements
shall be satisfactory in form and substance to Lender, and Lender
shall have received all information and copies of all documents,
including records of requisite corporate action and proceedings
which Lender may have reasonably requested in connection therewith,
such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental
authorities;
(c) no material adverse change shall have occurred in
the assets, business or prospects of Borrowers as taken as a whole
since the date of Lender's latest field examination and no change
or event shall have occurred which would materially impair the
ability of the Borrowers when taken as a whole to perform their
obligations hereunder or under any of the other Financing
Agreements to which they are a party or of Lender to enforce the
Obligations or realize upon the Collateral;
22
(d) Lender shall have completed a field review of the
Records and such other information with respect to the Collateral
as Lender may require to determine the amount of Revolving Loans
available to Borrowers, the results of which shall be satisfactory
to Lender, not more than three (3) Business Days prior to the date
hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and
other agreements from third persons which Lender may deem necessary
or desirable in order to permit, protect and perfect its security
interests in and liens upon the Collateral or to effectuate the
provisions or purposes of this Agreement and the other Financing
Agreements, including acknowledgments by lessors, mortgagees and
warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting
Lender access to, and the right to remain on for a reasonable
period of time, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(f) Lender shall have received evidence of insurance
(including credit insurance on Advance Auto Accounts in amounts
satisfactory to Lender) and loss payee endorsements required
hereunder and under the other Financing Agreements, in form and
substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(g) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of in-house counsel to
Borrowers with respect to the Financing Agreements and such other
matters as Lender may request;
(h) the other Financing Agreements and all instruments
and documents hereunder and thereunder shall have been duly
executed and delivered to Lender, in form and substance
satisfactory to Lender; and
(i) the Excess Availability as determined by Lender, as
of the date hereof, shall be not less than $3,500,000 after giving
effect to the initial Loans made or to be made and Letter of Credit
Accommodations issued or to be issued in connection with the
initial transactions hereunder.
(j) the Lender shall have received in form and substance
satisfactory to Lender, an appraisal of the Collateral;
(k) Lender shall have received the Collateral Letter of
Credit;
(l) Lender shall have received, in form and substance
satisfactory to Lender, the Subordination Agreement;
(m) Lender shall have received, in form and substance
satisfactory to Lender, a Guaranty from Guarantor of the
Obligations;
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(n) Lender shall have received a payment in cash in the
amount of $550,000.00, in the form of a wire transfer from Borrower
or any affiliate of Borrower for the credit of Borrower; and
(o) Lender shall have received such other agreements and
documents which Lender shall requested.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition
precedent to Lender making Loans and/or providing Letter of Credit
Accommodations to Borrowers, including the initial Loans and Letter
of Credit Accommodations and any future Loans and Letter of Credit
Accommodations:
(a) all representations and warranties contained herein
and in the other Financing Agreements shall be true and correct in
all material respects with the same effect as though such
representations and warranties had been made on and as of the date
of the making of each such Loan or providing each such Letter of
Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which,
with notice or passage of time or both, would constitute an Event
of Default, shall exist or have occurred and be continuing on and
as of the date of the making of such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
__________________________
To secure payment and performance of all Obligations, each
Borrower hereby grants to Lender a continuing security interest in,
a lien upon, and a right of set off against, and hereby assigns to
Lender as security, the following property and interests in
property of any Borrower, whether now owned or hereafter acquired
or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general
intangibles (including tax and duty refunds), registered and
unregistered patents, patent rights, patent applications,
trademarks, trademark registrations, trademark applications,
service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or
licensee, chooses in action and other claims and existing and
hereinafter arising leasehold interests in equipment, real estate
and fixtures), chattel paper, documents, instruments, securities
and other investment property (other than the equity shares of
stock of any of the Borrowers), letters of credit, bankers'
acceptances and guaranties;
5.3 all present and future monies, securities, credit
balances, deposits, deposit accounts and other property of such
Borrower now or hereafter held or received by or in transit to
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Lender or its affiliates or at any other depository or other
institution from or for the account of such Borrower, whether for
safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of
Accounts and other Collateral, including (a) rights and remedies
under or relating to guaranties, contracts of suretyship, letters
of credit and credit and other insurance related to the Collateral,
(b) rights of stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including
returned, repossessed and reclaimed goods, and (d) rights of
Borrowers in deposits by and property of account debtors or other
persons securing the obligations of account debtors to Borrowers or
any Borrower;
5.4 Inventory;
5.5 Equipment, excluding the Equipment identified on
Attachment I attached hereto and incorporated herein by this
reference if and to the extent a lien has been granted by any
Borrower in respect of such Equipment and obligations remain
outstanding with respect to such lien and Equipment).
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims and proceeds of any
claims against third parties for loss or damage to or destruction
of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
_____________________________
6.1 Borrowers' Loan Account. With respect to all Borrowers
other than IBI, Lender shall maintain one or more loan account(s)
on its books as it deems appropriate in which shall be recorded (a)
all Loans, Letter of Credit Accommodations and other Obligations
and the Collateral, (b) all payments made by or on behalf of
Borrowers and (c) all other appropriate debits and credits as
provided in this Agreement, including fees, charges, costs,
expenses and interest. With respect to IBI, Lender shall use
reasonable efforts to maintain one or more loan account(s) on its
books in which shall be recorded (d) all Loans, Letter of Credit
Accommodations and other Obligations and the Collateral of IBI
reflecting sublimits imposed herein on Loans or Letter of Credit
Accommodations that may be made to IBI, (e) all payments made by or
on behalf of IBI, and (f) all other appropriate debits and credits
as provided in this Agreement, including fees, charges, costs,
expenses and interest or IBI. All entries in the loan account(s)
shall be made in accordance with Lender's customary practices as in
effect from time to time.
6.2 Statements. Lender shall render to Borrowers each month
a statement setting forth the balance in the Borrowers' loan
account(s) maintained by Lender for Borrowers pursuant to the
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provisions of this Agreement, including principal, interest, fees,
costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors
or omissions, be considered correct and deemed accepted by
Borrowers and conclusively binding upon any Borrower as an account
stated except to the extent that Lender receives a written notice
from any Borrower of any specific exceptions of any Borrower
thereto within one hundred eighty (180) days after the date such
statement has been mailed by Lender. Until such time as Lender
shall have rendered to Borrowers a written statement as provided
above, the balance in Borrowers' loan account(s) shall be
presumptive evidence of the amounts due and owing to Lender by
Borrowers.
6.3 Collection of Accounts.
(a) LSAP shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in
either case, "Blocked Accounts"), as Lender may specify, with such
banks as are acceptable to Lender into which Borrowers shall
promptly deposit and direct their account debtors to directly remit
all payments on Accounts and all payments constituting proceeds of
Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The
banks at which the Blocked Accounts are established shall enter
into an agreement, in form and substance satisfactory to Lender,
providing that all items received or deposited in the Blocked
Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the
items received for deposit therein, or the funds from time to time
on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily
basis, all funds received or deposited into the Blocked Accounts to
such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrowers agree
that all payments made to such Blocked Accounts or other funds
received and collected by Lender, whether on the Accounts or as
proceeds of Inventory or other Collateral shall be the property of
Lender.
(b) For purposes of calculating the amount of the Loans
available to Borrowers, such payments will be applied (conditional
upon final collection) to the Obligations on the Business Day of
receipt by Lender of immediately available funds in the Payment
Account provided such payments and notice thereof are received in
accordance with Lender's usual and customary practices as in effect
from time to time and within sufficient time to credit Borrower's
loan account on such day, and if not, then on the next Business
Day. For the purposes of calculating interest on the Obligations,
such payments or other funds received will be applied (conditional
upon final collection) to the Obligations one (1) Business Day
following the date of receipt of immediately available funds by
Lender in the Payment Account provided such payments or other funds
and notice thereof are received in accordance with Lender's usual
and customary practices as in effect from time to time and within
sufficient time to credit Borrowers' loan account on such day, and
if not, then on the next Business Day.
(c) Each Borrower and all of its affiliates,
subsidiaries, shareholders, directors, employees or agents shall,
acting as trustee for Lender, receive, as the property of Lender,
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any monies, checks, notes, drafts or any other payment relating to
and/or proceeds of Accounts or other Collateral which come into its
possession or under its control and immediately upon receipt
thereof, shall deposit or cause the same to be deposited in the
Blocked Accounts of such Borrower, or remit the same or cause the
same to be remitted, in kind, to Lender. In no event shall the
same be commingled with such Borrower's own funds. Each Borrower
agrees to reimburse Lender on demand for any amounts owed or paid
to any bank at which a Blocked Account is established or any other
bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Lender's payments to or
indemnification of such bank or person. The obligation of each
Borrower to reimburse Lender for such amounts pursuant to this
Section 6.3 shall survive the termination or non-renewal of this
Agreement.
6.4 Payments. All Obligations shall be payable to the
Payment Account as provided in Section 6.3 or such other place as
Lender may designate from time to time. Lender may apply payments
received or collected from any Borrower or for the account of
Borrowers (including the monetary proceeds of collections or of
realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender
determines. At Lender's option, all principal, interest, fees,
costs, expenses and other charges provided for in this Agreement or
the other Financing Agreements may be charged directly to the loan
account(s) of Borrowers. Each Borrower shall make all payments to
Lender on the Obligations free and clear of, and without deduction
or withholding for or on account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Lender is required to surrender
or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall
continue in full force and effect as if such payment or proceeds
had not been received by Lender. Each Borrower shall be liable to
pay to Lender, and does hereby indemnify and hold Lender harmless
for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any
contrary action which may be taken by Lender in reliance upon such
payment or proceeds. This Section 6.4 shall survive the payment of
the Obligations and the termination or non-renewal of this
Agreement.
6.5 Authorization to Make Loans. Lender is authorized to
make the Loans and provide the Letter of Credit Accommodations to
any Borrower based upon telephonic or other instructions received
from anyone purporting to be an authorized officer of such Borrower
or other authorized person or, at the discretion of Lender, if such
Loans are necessary to satisfy any Obligations. All requests for
Loans or Letter of Credit Accommodations hereunder shall specify
the date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a Business
Day) and the amount of the requested Loan. Requests received after
11:30 a.m. Dallas, Texas time on any day shall be deemed to have
been made as of the opening of business on the immediately
following Business Day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively presumed
to have been made to, and at the request of and for the benefit of,
Borrowers when deposited to the credit of Borrowers or otherwise
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disbursed or established in accordance with the instructions of any
Borrower or in accordance with the terms and conditions of this
Agreement.
6.6 Use of Proceeds. Borrowers shall use the initial
proceeds of the Loans provided by Lender to Borrowers hereunder
only for: (a) payments to each of the persons listed in the
disbursement direction letter furnished by LSAP to Lender on or
about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements. All
other Loans made or Letter of Credit Accommodations provided by
Lender to Borrowers pursuant to the provisions hereof shall be used
by any Borrower only for general operating, working capital and
other proper corporate purposes of any Borrower not otherwise
prohibited by the terms hereof. None of the proceeds will be used,
directly or indirectly, for the purpose of purchasing or carrying
any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of
Regulation U or X of the Board of Governors of the Federal Reserve
System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
__________________________________
7.1 Collateral Reporting. LSAP shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a
regular basis as required by Lender, a schedule of Accounts, sales
made, credits issued and cash received; (b) on a monthly basis (or
after a Default or Event of Default more frequently as Lender may
request), (i) perpetual inventory reports by mix, category and
locations, (ii) agings of accounts receivable, and (ii) agings of
accounts payable, (c) within sixty (60) days after the end of each
fiscal quarter of Advance quarterly financial statements of Advance
(including in each case balance sheets, statements of income and
loss, statements of cash flow, and statements of shareholders'
equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Advance and its
subsidiaries as of the end of and through such period, the Lender
acknowledging that such financial statements of Advance shall be
obtained through industry sources, such as MEMA Financial Services
Group, Inc. or any regular securities filings of Advance, to the
extent such filings are available, (d) upon Lender's request, (i)
copies of customer statements and credit memos, remittance advices
and reports, and copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii) copies of
purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by any Borrower; and (d) such other reports as
to the Collateral as Lender shall reasonably request from time to
time.
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7.2 Accounts Covenants.
___________________
(a) Each Borrower shall notify Lender promptly of (i)
any material delay in such Borrower's performance of any of its
obligations to any account debtor or the assertion of any claims,
offsets, defenses or counterclaims by any account debtor for an
amount in excess of $100,000, or any disputes with account debtors
for an amount in excess of $100,000, or any settlement, adjustment
or compromise thereof for an amount in excess of $100,000, (ii) all
material adverse information relating to the financial condition of
any account debtor and (iii) any event or circumstance which, to
such Borrower's knowledge would cause Lender to consider any then
existing Accounts as no longer constituting Eligible Accounts. No
credit, discount, allowance or extension or agreement for any of
the foregoing shall be granted to any account debtor without
Lender's consent, except in the ordinary course of such Borrower's
business in accordance with practices and policies previously
disclosed in writing to Lender (if applicable). So long as no
Event of Default exists or has occurred and is continuing,
Borrowers shall settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor. At any time that
an Event of Default exists or has occurred and is continuing,
Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute
with account debtors or grant any credits, discounts or allowances.
(b) Without limiting the obligation of any Borrower to
deliver any other information to Lender, Borrowers shall promptly
report to Lender any return of Inventory by any one account debtor
if either the Inventory so returned in such case has a value in
excess of $75,000 for all Borrowers in the aggregate or if the
Inventory so returned is not an exchange of substantially similar
and merchantable Inventory for other merchantable Inventory of a
similar value. At any time that Inventory is returned, reclaimed
or repossessed, the portion of the Account which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not
be deemed an Eligible Account. In the event any account debtor
returns Inventory when an Event of Default exists or has occurred
and is continuing, each Borrower shall, upon Lender's request, (i)
hold the returned Inventory in trust for Lender, (ii) segregate all
returned Inventory from all of its other property, (iii) dispose of
the returned Inventory solely according to Lender's instructions,
and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown
on any invoice delivered to Lender or schedule thereof delivered to
Lender shall be true and complete, (ii) no payments shall be made
thereon except payments immediately delivered to Lender pursuant to
the terms of this Agreement, (iii) no credit, discount, allowance
or extension or agreement for any of the foregoing shall be granted
to any account debtor except as reported to Lender in accordance
with this Agreement and except for credits, discounts, allowances
or extensions made or given in the ordinary course of any
Borrower's business in accordance with practices and policies
previously disclosed to Lender, (iv) there shall be no setoffs,
deductions, contras, defenses, counterclaims or disputes existing
or asserted with respect thereto except as reported to Lender or in
accordance with the terms of this Agreement, (v) none of the
transactions giving rise thereto will violate any applicable State
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or Federal laws or regulations, all documentation relating thereto
will be legally sufficient under such laws and regulations and all
such documentation will be legally enforceable in accordance with
its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the
validity, amount or any other matter relating to any Account or
other Collateral of any Borrower, by mail, telephone, facsimile
transmission or otherwise.
(e) To the extent that any Borrower or Borrowers have
knowledge thereof, each Borrower shall deliver or cause to be
delivered to Lender, within a reasonable time, with appropriate
endorsement and assignment, all chattel paper and instruments which
such Borrower now owns or may at any time acquire, except as Lender
may otherwise agree.
(f) Lender may, at any time or times that an Event of
Default exists or has occurred and is continuing, (i) notify any or
all account debtors that the Accounts have been assigned to Lender
and that Lender has a security interest therein and Lender may
direct any or all accounts debtors to make payment of Accounts
directly to Lender, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts
or other obligations included in the Collateral and thereby
discharge or release the account debtor or any other party or
parties in any way liable for payment thereof without affecting any
of the Obligations, (iii) demand, collect or enforce payment of any
Accounts or such other obligations, but without any duty to do so,
and Lender shall not be liable for its failure to collect or
enforce the payment thereof nor for the negligence of its agents or
attorneys with respect thereto and (iv) take whatever other action
Lender may deem necessary or desirable for the protection of its
interests. At any time that an Event of Default exists or has
occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are
payable directly and only to Lender and Borrower shall deliver to
Lender such originals of documents evidencing the sale and delivery
of goods or the performance of services giving rise to any Accounts
as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a)
Borrowers shall at all times maintain inventory records reasonably
satisfactory to Lender, keeping correct and accurate records
itemizing and describing the kind, type, quality and quantity of
Inventory, Borrowers' cost therefor and daily withdrawals therefrom
and additions thereto; (b) Borrowers shall conduct a physical count
of the Inventory at least once each year, but at any time or times
as Lender may request on or after an Event of Default and promptly
following such physical inventory, Borrowers shall supply Lender
with a report in the form and with such specificity as may be
reasonably satisfactory to Lender concerning such physical count;
(c) Borrowers shall not remove any Inventory from the locations set
forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of
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Borrowers' business and except to move Inventory directly from one
location set forth or permitted herein to another such location;
(d) upon Lender's request, Borrowers shall, at their expense, no
more than twice in any twelve (12) month period, but at any time or
times as Lender may request on or after an Event of Default that is
continuing; deliver or cause to be delivered to Lender written
reports or appraisals as to the Inventory in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly
permitted to rely; (e) Borrowers shall produce, use, store and
maintain the Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance and in
conformity with applicable laws (including the requirements of the
Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) each Borrower assumes
all responsibility and liability arising from or relating to the
production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, or
any other basis which entitles the customer to return or may
obligate Borrower to repurchase such Inventory, except in the
ordinary course of business; (h) Borrower shall keep the Inventory
in good and marketable condition; and (i) Borrower shall not,
without prior written notice to Lender, acquire or accept any
Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a)
upon Lender's request, Borrowers shall, at their expense, at any
time or times as Lender may request on or after an Event of Default
that is continuing, deliver or cause to be delivered to Lender
written reports or appraisals as to the Equipment in form, scope
and methodology acceptable to Lender and by an appraiser acceptable
to Lender; (b) Borrowers shall keep the Equipment in good order,
repair, running and marketable condition (ordinary wear and tear
excepted and excluding Equipment which is (i) obsolete and can or
will no longer be used in the ordinary course of Borrowers'
business; (ii) not repairable or useful for any purpose, (iii)
damaged beyond repair or constitutes a total loss or constructive
total loss, (iv) other than the Equipment on Attachment I hereto;
(c) Borrowers shall use the Equipment with all reasonable care and
caution and in accordance with applicable standards of any
insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in Borrowers' business and not for
personal, family, household or farming use; (e) Subject to the
provisions of Section 9.7 hereof, Borrowers shall not remove any
Equipment from the locations set forth or permitted herein, except
to the extent necessary to have any Equipment repaired or
maintained in the ordinary course of the business of any Borrower
or to move Equipment directly from one location set forth or
permitted herein to another such location and except for the
movement of motor vehicles used by or for the benefit of any
Borrower in the ordinary course of business; (f) the Equipment is
now and shall remain personal property and no Borrowers shall
permit any of the Equipment to be or become a part of or affixed to
real property; (g) Borrowers assume all responsibility and
liability arising from the use of the Equipment.
7.5 Power of Attorney. Each Borrower hereby irrevocably
designates and appoints Lender (and all persons designated by
Lender) as such Borrower's true and lawful attorney-in-fact, and
authorizes Lender, in such Borrower's or Lender's name, to: (a) at
any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists or has
occurred and is continuing (i) demand payment on Accounts or other
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proceeds of Inventory or other Collateral, (ii) enforce payment of
Accounts by legal proceedings or otherwise, (iii) exercise all of
such Borrower's rights and remedies to collect any Account or other
Collateral, (iv) sell or assign any Account upon such terms, for
such amount and at such time or times as the Lender deems
advisable, (v) settle, adjust, compromise, extend or renew an
Account, (vi) discharge and release any Account, (vii) prepare,
file and sign such Borrower's name on any proof of claim in
bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for
delivery of such Borrower's mail to an address designated by
Lender, and open and dispose of all mail addressed to Borrower,
(ix) take control in any manner of any item of payment or proceeds
thereof, (x) have access to any lockbox or postal box into which
such Borrower's mail is deposited, (xi) do all acts and things
which are necessary, in Lender's determination, to fulfill such
Borrower's obligations under this Agreement and the other Financing
Agreements, and (b) at any time to (i) endorse such Borrower's name
upon any items of payment or proceeds thereof and deposit the same
in the Lender's account for application to the Obligations, (ii)
endorse such Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to
any Account or any goods pertaining thereto or any other
Collateral, (iii) sign such Borrower's name on any verification of
Accounts and notices thereof to account debtors, and (iv) execute
in such Borrower's name and file any UCC financing statements or
amendments thereto. Such Borrower hereby releases Lender and its
officers, employees and designees from any liabilities arising from
any act or acts under this power of attorney and in furtherance
thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or willful misconduct as determined
pursuant to a final non-appealable order of a court of competent
jurisdiction.
7.6 Right to Cure. After the occurrence of an Event of
Default, Lender may, at its option, (a) cure any default by any
Borrower under any agreement with a third party or pay or bond on
appeal any judgment entered against such Borrower, (b) discharge
taxes, liens, security interests or other encumbrances at any time
levied on or existing with respect to the Collateral and (c) pay
any amount, incur any expense or perform any act which, in Lender's
judgment, is necessary or appropriate to preserve, protect, insure
or maintain the Collateral and the rights of Lender with respect
thereto. Lender may add any amounts so expended to the Obligations
and charge Borrowers' account therefor, such amounts to be
repayable by Borrowers on demand. Lender shall be under no
obligation to effect such cure, payment or bonding and shall not,
by doing so, be deemed to have assumed any obligation or liability
of such Borrower. Any payment made or other action taken by Lender
under this section shall be without prejudice to any right to
assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by
Lender, at the cost and expense of Borrowers, (a) Lender or its
designee shall have complete access to all of Borrowers' premises
during normal business hours and after notice to Borrowers, or at
any time and without notice to Borrowers if an Event of Default
exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of
Borrowers' books and records, including the Records, and (b)
Borrowers shall promptly furnish to Lender such copies of such
books and records or extracts therefrom as Lender may request, and
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(c) use during normal business hours such of any Borrower's
personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or
has occurred and is continuing for the collection of Accounts and
realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
______________________________
Each Borrower hereby jointly and severally represents and
warrants to Lender the following (which shall survive the execution
and delivery of this Agreement), the truth and accuracy of which
are a continuing condition of the making of Loans and providing
Letter of Credit Accommodations by Lender to any Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries.
Each Borrower is a corporation duly organized and in good standing
under the laws of its state of incorporation and is duly qualified
as a foreign corporation and in good standing in all states or
other jurisdictions where the nature and extent of the business
transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which
the failure to so qualify would not have a material adverse effect
on such Borrower's financial condition, results of operation or
business or the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within such Borrower's corporate
powers, have been duly authorized and are not in contravention of
law or the terms of such Borrower's certificate of incorporation,
by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which such Borrower is a party or by
which such Borrower or its property is bound. This Agreement and
the other Financing Agreements constitute legal, valid and binding
obligations of such Borrower enforceable in accordance with their
respective terms. Such Borrower does not have any subsidiaries
except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All
financial statements relating to Borrowers which have been or may
hereafter be delivered by Borrowers to Lender have been prepared in
accordance with GAAP and fairly present the financial condition and
the results of operation of Borrowers as at the dates and for the
periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrowers to Lender prior to the
date of this Agreement, there has been no material adverse change
in the assets, liabilities, properties and condition, financial or
otherwise, of Borrowers, taken as a whole since the date of the
most recent audited financial statements furnished by Borrowers to
Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief
executive office of each Borrower and such Borrower's Records
concerning Accounts are located only at the address set forth below
and its only other places of business and the only other locations
of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of such Borrower to
establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations
which are not owned by such Borrower and sets forth the owners
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and/or operators thereof. The holders of any mortgages on such
locations of which any Borrower is aware are identified on Schedule
8.3.
8.4 Priority of Liens; Title to Properties. The security
interests and liens granted to Lender under this Agreement and the
other Financing Agreements constitute valid and perfected first
priority liens and security interests in and upon the Collateral
when all proper filing, recordings and other actions necessary to
perfect such liens have been taken subject only to the liens
indicated on Schedule 8.4 hereto and the other liens permitted
under Section 9.8 hereof. To the best of its knowledge, each
Borrower has good and marketable title to all of its material
properties and assets subject to no liens, mortgages, pledges,
security interests, encumbrances or charges of any kind, except
those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrowers have filed, or caused to be
filed, in a timely manner all tax returns, reports and declarations
which are required to be filed by it (without requests for
extension except as previously disclosed in writing to Lender).
All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrowers have
paid or caused to be paid all taxes due and payable or claimed due
and payable in any assessment received by it, except taxes the
validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrowers and with
respect to which adequate reserves have been set aside on their
books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other
taxes whether or not yet due and payable and whether or not
disputed.
8.6 Litigation. Except as set forth on the Information
Certificate, there is no present investigation by any governmental
agency pending, or to the best of any Borrower's knowledge
threatened, against or affecting such Borrower, its assets or
business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of such Borrower's knowledge
threatened, against any Borrower or its assets or goodwill, or
against or affecting any transactions contemplated by this
Agreement, which if adversely determined against such Borrower
would result in a material adverse change in the assets, business
or prospects of Borrowers as taken as a whole or would impair the
ability of Borrowers to perform their obligations hereunder or
under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any
Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. No
Borrower is in default in any material respect under, or in
violation in any material respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment to which
it is a party or by which they or any of its assets are bound and
each Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders of any foreign, Federal, State or
local governmental authority the failure to comply with which would
have a material adverse effect on the Borrowers or any Borrower.
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8.8 Employee Benefits.
(a) No Borrower has engaged in any transaction in
connection with which such Borrower or any of its ERISA Affiliates
could be subject to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, including any accumulated funding deficiency described in
Section 8.8(c) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.8(d) hereof.
(b) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by any Borrower to be incurred
with respect to any employee benefit plan of such Borrower or any
of its ERISA Affiliates. There has been no reportable event
(within the meaning of Section 4043(b) of ERISA) or any other event
or condition with respect to any employee pension benefit plan of
any Borrower or any of its ERISA Affiliates which presents a risk
of termination of any such plan by the Pension Benefit Guaranty
Corporation.
(c) Full payment has been made of all amounts which such
Borrower or any of its ERISA Affiliates is required under Section
302 of ERISA and Section 412 of the Code to have paid under the
terms of each employee benefit plan as contributions to such plan
as of the last day of the most recent fiscal year of such plan
ended prior to the date hereof, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of
the Code), whether or not waived, exists with respect to any
employee benefit plan, including any penalty or tax described in
Section 8.8(a) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.8(d) hereof.
(d) The current value of all vested accrued benefits
under all employee benefit plans maintained by any Borrower that
are subject to Title IV of ERISA does not exceed the current value
of the assets of such plans allocable to such vested accrued
benefits, including any penalty or tax described in Section 8.8(a)
hereof and any accumulated funding deficiency described in Section
8.8(c) hereof. The terms "current value" and "accrued benefit"
have the meanings specified in ERISA.
(e) Neither any Borrower nor any of its ERISA Affiliates
is or has ever been obligated to contribute to any "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA) that
is subject to Title IV of ERISA.
8.9 Bank Accounts. All of the deposit accounts, investment
accounts or other accounts in the name of or used by each Borrower
maintained at any bank or other financial institution are set forth
on Schedule 8.9 hereto, subject to the right of such Borrower to
establish new accounts in accordance with Section 9.13 below.
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8.10 Environmental Compliance.
(a) Except as set forth on Schedule 8.10 hereto and the
Information Certificate, no Borrower has not generated, used,
stored, treated, transported, manufactured, handled, produced or
disposed of any Hazardous Materials, on or off its premises
(whether or not owned by it) in any manner which at any time
violates any applicable Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder and the
operations of Borrowers comply in all material respects with all
Environmental Laws and all licenses, permits, certificates,
approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.10 hereto and the
Information Certificate, there has been no investigation,
proceeding, complaint, order, directive, claim, citation or notice
by any governmental authority or any other person nor is any
pending or to the best of any Borrower's knowledge threatened, with
respect to any non-compliance with or violation of the requirements
of any Environmental Law by Borrower or the release, spill or
discharge, threatened or actual, of any Hazardous Material or the
generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects any
Borrower or its business, operations or assets or any properties at
which any Borrower has transported, stored or disposed of any
Hazardous Materials which would have a material adverse effect on
any Borrower.
(c) Except as set forth on Schedule 8.10 hereto and the
Information Certificate, no Borrower has any material liability
(contingent or otherwise) in connection with a release, spill or
discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials.
(d) Each Borrower has all licenses, permits,
certificates, approvals or similar authorizations ("Permits")
required to be obtained or filed in connection with the operations
of Borrower under any Environmental Law and all of which such
Permits are valid and in full force and effect unless the failure
to obtain such Permits would not have a material adverse effect on
any Borrower.
8.11 Accuracy and Completeness of Information. All
information furnished by or on behalf of each Borrower in writing
to Lender in connection with this Agreement or any of the other
Financing Agreements or any transaction contemplated hereby or
thereby, including all information on the Information Certificate
is true and correct in all material respects on the date as of
which such information is dated or certified and does not omit any
material fact necessary in order to make such information not
misleading. Since the date of the last financial statements
delivered to Lender, no event or circumstance has occurred which
has had or could reasonably be expected to have a material adverse
effect on the business, assets or prospects of Borrowers, taken as
a whole, which has not been fully and accurately disclosed to
Lender in writing.
8.12 Survival of Warranties; Cumulative. All representations
and warranties contained in this Agreement or any of the other
Financing Agreements shall survive the execution and delivery of
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this Agreement and shall be deemed to have been made again to
Lender on the date of each additional borrowing or other credit
accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or
information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in addition to
any other representations or warranties which any Borrower shall
now or hereafter give, or cause to be given, to Lender.
8.13 Year 2000 Issues. Each Borrower shall, and shall cause
any subsidiary to, take all actions which may be required so that
its computer-based information systems, including, without
limitation, all of its proprietary computer hardware and software
and all computer hardware and software leased or licensed from
third parties (and whether supplied by others) are able to operate
effectively and correctly process data using dates on or after
January 1, 2000. Compliance with the foregoing shall mean that the
Borrower's systems will operate and correctly process data without
human intervention such that (a) there is correct century
recognition, (b) calculations properly accommodate same century and
multi-century formulas and date values, (c) all leap years shall be
calculated correctly and (d) the information systems shall
otherwise comply with applicable industry standards and regulatory
guidelines regarding the change of the century and year 2000
compliance. Such Borrower shall, by no later than September 30,
1999, certify to Lender in writing that its information systems
have been modified, updated and reprogrammed as required by this
section. On and after September 30, 1999, the computer-based
information systems of such Borrower shall be, and with ordinary
course upgrading and maintenance, will continue to be sufficient to
permit such Borrower to conduct its business without any material
adverse effect as a result of the year 2000.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
___________________________________
9.1 Maintenance of Existence. Except as otherwise permitted
pursuant to the Distribution Agreement and the provisions of this
section, each Borrower shall at all times preserve, renew and keep
in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and
effect all permits, licenses, trademarks, tradenames, approvals,
authorizations, leases and contracts necessary to carry on the
business as presently or proposed to be conducted. Each Borrower
shall give Lender thirty (30) days prior written notice of any
proposed change in its corporate name, which notice shall set forth
the new name and such Borrower shall deliver to Lender a copy of
the amendment to the Certificate of Incorporation of such Borrower
providing for the name change certified by the Secretary of State
of the jurisdiction of incorporation of such Borrower as soon as it
is available.
9.2 New Collateral Locations. Any Borrower may open any new
location within the continental United States provided such
Borrower (a) gives Lender thirty (30) days prior written notice of
the intended opening of any such new location and (b) executes and
delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem
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reasonably necessary or desirable to protect its interests in the
Collateral at such location, including, without limitation, UCC
financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Each Borrower shall, at all times, comply in all
material respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it, and duly observe
all requirements of any Federal, State or local governmental
authority, including the Employee Retirement Security Act of 1974,
as amended, the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, and all
statutes, rules, regulations, orders, permits and stipulations
relating to environmental pollution and employee health and safety,
including all of the Environmental Laws, (except to the extent the
failure to so comply would not have a material adverse effect on
any Borrower).
(b) Each Borrower shall establish and maintain, at its
expense, a system to assure and monitor its continued compliance
with all Environmental Laws in all of its operations, which system
shall include annual reviews of such compliance by employees or
agents of Borrower who are familiar with the requirements of the
Environmental Laws. Copies of all environmental surveys, audits,
assessments, feasibility studies and results of remedial
investigations which are performed or received after the date
hereof shall be promptly furnished, or caused to be furnished, by
Borrower to Lender. Borrower shall take prompt and appropriate
action to respond to any non-compliance with any of the
Environmental Laws and shall regularly report to Lender on such
response.
(c) Borrowers shall give both oral and written notice to
Lender immediately upon any Borrower's receipt of any notice of, or
any Borrower's otherwise obtaining knowledge of, (i) the occurrence
of any event involving the release, spill or discharge, threatened
or actual, of any Hazardous Material or (ii) any investigation,
proceeding, complaint, order, directive, claims, citation or notice
with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or (B) the release, spill or
discharge, threatened or actual, of any Hazardous Material or (C)
the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous
Materials or (D) any other environmental, health or safety matter,
all which has or may be expected to have a material adverse effect
on any Borrower or its businesses, operations or assets or any
properties at which such Borrower transported, stored or disposed
of any Hazardous Materials.
(d) Without limiting the generality of the foregoing,
whenever Lender reasonably determines that there is non-compliance,
or any condition which requires any action by or on behalf of
Borrower in order to avoid any material non-compliance, with any
Environmental Law, Borrowers shall, at Lender's request and
Borrowers' expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where any
Borrower's non-compliance or alleged non-compliance with such
Environmental Laws has occurred as to such non-compliance and
prepare and deliver to Lender a report as to such non-compliance
setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an
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estimate of the costs thereof and (ii) provide to Lender a
supplemental report of such engineer whenever the scope of such
non-compliance, or Borrower's response thereto or the estimated
costs thereof, shall change in any material respect.
(e) Each Borrower shall indemnify and hold harmless
Lender, its directors, officers, employees, agents, invitees,
representatives, successors and assigns, from and against any and
all losses, claims, damages, liabilities, costs, and expenses
(including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release,
spill, discharge, disposal or presence of a Hazardous Material,
including the costs of any required or necessary repair, cleanup or
other remedial work with respect to any property of Borrower and
the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants
and indemnifications in this Section 9.3 shall survive the payment
of the Obligations and the termination or non-renewal of this
Agreement.
9.4 Payment of Taxes and Claims. Borrowers shall duly pay
and discharge all taxes, assessments, contributions and
governmental charges upon or against them or their properties or
assets, except for taxes the validity of which are being contested
in good faith by appropriate proceedings diligently pursued and
available to such Borrower and with respect to which adequate
reserves have been set aside on its books. Borrowers shall be
liable for any tax or penalties imposed on Lender as a result of
the financing arrangements provided for herein and Borrowers agree
to jointly and severally indemnify and hold Lender harmless with
respect to the foregoing, and to repay to Lender on demand the
amount thereof, and until paid by Borrowers such amount shall be
added and deemed part of the Loans, provided, that, nothing
contained herein shall be construed to require Borrowers to pay any
income or franchise taxes attributable to the income of Lender from
any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.5 Insurance. Borrowers shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to
the Collateral against loss or damage and all other insurance of
the kinds and in the amounts customarily insured against or carried
by corporations of established reputation engaged in the same or
similar businesses and similarly situated. Said policies of
insurance shall be satisfactory to Lender as to form, amount and
insurer. Lender acknowledges that the insurance amounts, carriers
and policies set forth in Schedule 9.5 are satisfactory to Lender
as of the time of Closing hereof. Borrowers shall furnish
certificates, policies or endorsements to Lender as Lender shall
require as proof of such insurance, and, if Borrowers fail to do
so, Lender is authorized, but not required, to obtain such
insurance at the expense of Borrowers. All policies shall provide
for at least thirty (30) days prior written notice to Lender of any
cancellation or reduction of coverage and that Lender may act as
attorney for any and every Borrower in obtaining, and at any time
an Event of Default exists or has occurred and is continuing,
adjusting, settling, amending and canceling such insurance.
Borrowers shall cause Lender to be named as a loss payee and an
additional insured as its interest may appear (but without any
liability for any premiums) under such insurance policies and
Borrowers shall obtain non-contributory lender's loss payable
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endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements
shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by any or
every Borrowers or any of its or their affiliates. At its option,
Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order
and in such manner as Lender may determine or hold such proceeds as
cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrowers shall keep proper books and records in
which true and complete entries shall be made of all dealings or
transactions of or in relation to the Collateral and the business
of Borrowers and their subsidiaries (if any) in accordance with
GAAP and LSAP and its subsidiaries shall furnish or cause to be
furnished to Lender: (i) within forty-five (45) days after the end
of each fiscal month, monthly unaudited consolidated financial
statements (including balance sheets, statements of income and
loss, statements of cash flow, and statements of shareholders'
equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of LSAP and its
subsidiaries as of the end of and through such fiscal month; (ii)
within one hundred (100) days after the end of each fiscal year,
audited consolidated financial statements of LSAP and its
subsidiaries (including in each case balance sheets, statements of
income and loss, and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the operations
of LSAP and its subsidiaries as of the end of and for such fiscal
year, together with either the unqualified opinion of independent
certified public accountants or if the opinion is qualified, such
qualifications are acceptable to Lender in its sole discretion, in
either case, which accountants shall be an independent accounting
firm selected by LSAP and reasonably acceptable to Lender, that
such financial statements have been prepared in accordance with
GAAP, and present fairly the results of operations and financial
condition of LSAP and its subsidiaries as of the end of and for the
fiscal year then ended; and (iii) as soon as available, a copy of
each regular, periodic or special report, registration statement,
or prospectus filed by LSA Technologies, Inc. with any securities
exchange or the Securities and Exchange Commission or any successor
agency.
(b) Each Borrower shall promptly notify Lender in
writing of the details of (i) any loss, damage, investigation,
action, suit, proceeding or claim relating to the Collateral or
which would result in any material adverse change in Borrowers'
business, properties, assets, goodwill or condition, financial or
otherwise and (ii) the occurrence of any Event of Default or event
which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
(c) Borrowers shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all
reports which Guarantor or such Borrower sends to its stockholders
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generally and copies of all reports and registration statements
which Guarantor or any Borrower files with the Securities and
Exchange Commission, any national securities exchange or the
National Association of Securities Dealers, Inc.
(d) Borrowers shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information
respecting the Collateral and the business of Borrowers, as Lender
may, from time to time, reasonably request. Lender is hereby
authorized to deliver a copy of any financial statement or any
other information relating to the business of Borrowers to any
court or other government agency or to any participant or assignee
or prospective participant or assignee. If at any time, (i) an
Event of Default occurs and is continuing, or (ii) for any reason,
Ernst & Young LLP no longer prepares the financial statements of
Borrower, Borrower hereby authorizes and directs all accountants or
auditors to deliver to Lender, at Borrower's expense, copies of the
financial statements of Borrower and any reports or management
letters prepared by such accountants or auditors on behalf of
Borrower and to disclose to Lender such information as they may
have regarding the business of Borrower. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by any Borrower
to Lender in writing.
(e) Borrowers shall furnish no later than sixty (60)
days prior to the expiry date of the Collateral Letter of Credit,
written confirmation of the extension, or notice of expiration, of
the Collateral Letter of Credit at such expiry date. Borrowers
shall cause the issuer of such Collateral Letter of Credit not
later than sixty (60) days prior to such expiry date, to furnish,
if applicable, a notice that such Collateral Letter of Credit will
not be renewed or extended.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Except as provided in the Distribution Agreement, no Borrower will,
directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with
or consolidate with it except for the merger of any Borrower with
any other Borrower upon the prior consent of Lender, or (b) sell,
assign, lease, transfer, abandon or otherwise dispose of any stock
or indebtedness to any other Person or any of its assets to any
other Person except (i) as between Borrowers, in the ordinary
course of and pursuant to the reasonable requirements of
such Borrowers' businesses; (ii) for sales of Inventory in the
ordinary course of business, or other sale, assignment, lease,
transfer or other disposal in an amount not to exceed $100,000 per
calendar year; (iii) for the disposition of worn-out or obsolete
Equipment or Equipment no longer used in the business of any
Borrower so long as (A) if an Event of Default exists or has
occurred and is continuing, any proceeds are paid to Lender and (B)
for all Borrowers, in the aggregate, such sales do not involve
Equipment having an aggregate fair market value in excess of
$100,000 for all such Equipment disposed of in any fiscal year;
(iv) for sales of Accounts of any Borrower, the principal office,
assets or place of business of the account debtors with respect to
such Accounts are outside either the United States Canada or Puerto
Rico provided (A) such Accounts are not Eligible Accounts; (B) the
Excess Availability at the time of the sale of such Accounts is
less than $1,000,000 and (C) the sales price for such Accounts is
not less than 100% of the original invoice for such Accounts); (v)
sale of capital stock with respect to a Borrower to the extent such
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transactions do not cause a Change of Control (as hereinafter
defined) of such Borrower; or (vi) sale of Inventory of IBI
pursuant to an Operating Agreement, an Inventory Purchase Agreement
and other related agreements substantially in the form of the
drafts of the Operating Agreement and Inventory Purchase Agreement,
dated as of April 16, 1999 previously provided to Lender, provided;
(A) Lender shall have received a payment equal to the amount of
Revolving Loans outstanding at any time with respect to Eligible
Inventory of IBI pursuant to Section 2.1(a)(ii) hereof plus undrawn
amounts available to IBI pursuant to section 2.1(a)(ii) hereof and
an additional amount of $500,000, and (B) after the sale of
Inventory pursuant to this subsection, no further amounts will be
made available with respect to IBI pursuant to this Agreement; or
(c) form or acquire any subsidiaries, or (d) wind up, liquidate or
dissolve or (e) agree to do any of the foregoing. For any sale of
assets of any Borrowers pursuant to subsections 9.7(b)(iii) or (iv)
hereof, Lender shall upon such sale and at the expense of
Borrowers, release its security interest in such assets. As used
in this section, "Change of control" shall mean the acquisition by
any Person or group of Persons acting together, of a direct
interest in more than fifty-one percent (51%) of the voting power
of the voting stock of or membership interests in, any Borrower,
including by way of merger or consolidation, or otherwise.
9.8 Encumbrances. No Borrower shall create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien,
charge or other encumbrance of any nature whatsoever on any of its
assets or properties, including the Collateral, except: (a) liens
and security interests of Lender; (b) liens in favor of
warehouseman, landlords, carriers, mechanics, materialmen, laborers
or suppliers; (c) liens arising from deposits made in connection
with obtaining workers' compensation or other unemployment
insurance; (d) liens arising by reason of security for surety,
appeal bonds or performance bonds; (e) liens resulting from any
judgment or award that would not have a material adverse effect on
the Borrowers taken as a whole; (f) liens securing the payment of
taxes, either not yet overdue or the validity of which are being
contested in good faith by appropriate proceedings diligently
pursued and available to such Borrower and with respect to which
adequate reserves have been set aside on its books; (g) non-
consensual statutory liens (other than liens securing the payment
of taxes) arising in the ordinary course of such Borrower's
business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to
claims or liabilities which are fully insured and being defended at
the sole cost and expense and at the sole risk of the insurer or
being contested in good faith by appropriate proceedings diligently
pursued and available to such Borrower, in each case prior to the
commencement of foreclosure or other similar proceedings and with
respect to which adequate reserves have been set aside on its
books; (h) zoning restrictions, easements, licenses, covenants and
other restrictions affecting the use of real property which do not
interfere in any material respect with the use of such real
property or ordinary conduct of the business of such Borrower as
presently conducted thereon or materially impair the value of the
real property which may be subject thereto; (i) purchase money
security interests in Equipment (including capital leases) arising
after the date hereof and purchase money mortgages on real estate
not to exceed $1,500,000 in the aggregate at any time outstanding
so long as such security interests and mortgages do not apply to
any property of such Borrower other than the Equipment or real
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estate so acquired, and the indebtedness secured thereby does not
exceed the cost of the Equipment or real estate so acquired, as the
case may be; (i) the security interests and liens set forth on
Schedule 8.4 hereto; (k) security interests and liens created
pursuant to the refinancing of obligations and indebtedness
pursuant to Section 9.9(e) hereof; (l) liens arising from operating
leases and (m) liens against any life insurance policy or the cash
surrender value thereof which relate to borrowings incurred to
finance the premiums made under such policy. Lender shall upon the
acquisition of Equipment as provided pursuant to subsection (i)
above, release its security interest in such Equipment so acquired
if so required under the terms of the financing arrangements
governing such acquisition.
9.9 Indebtedness. No Borrower shall incur, create, assume,
become or be liable in any manner with respect to, or permit to
exist, any obligations or indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the
ordinary course of business not yet due and payable, or with
respect to which such Borrower is contesting in good faith the
amount or validity thereof by appropriate proceedings diligently
pursued and available to such Borrower, and with respect to which
adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital
leases) to the extent not incurred or secured by liens (including
capital leases) in violation of any other provision of this
Agreement;
(d) the indebtedness set forth on Schedule 9.9; or as
set forth in the latest financial statements of any Borrower
submitted to Lender on or prior to the date hereof, to the extent
that there has been no change in or modification of terms of the
indebtedness described on such financial statements provided, that,
(i) such Borrower may only make regularly scheduled payments of
principal and interest in respect of such indebtedness in
accordance with the terms of the agreement or instrument evidencing
or giving rise to such indebtedness as in effect on the date
hereof, (ii) such Borrower shall not, directly or indirectly (A)
amend, modify, alter or change the terms of such indebtedness or
any agreement, document or instrument related thereto as in effect
on the date hereof as such may (1) increase the amounts payable
thereunder, (2) increase the amount or rate of interest payable
thereon (3) cause any payment thereon to be due on any earlier
date, or (4) provide additional collateral therefor (B) redeem,
retire, defease, purchase or otherwise acquire such indebtedness,
or set aside or otherwise deposit or invest any sums for such
purpose, and (iii) such Borrower shall furnish to Lender all
notices of default or demands in connection with such indebtedness
either received by any Borrower or on its behalf, promptly after
the receipt thereof, or sent by such Borrower or on its behalf,
concurrently with the sending thereof, as the case may be. No
Borrower is, or will be rendered, insolvent as a result of any
Revolving Loan or any other advance of credit by Lender to such
Borrower;
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(e) indebtedness incurred as a result of the refinancing
of Option Equipment pursuant to the terms of Section 2.7, provided
that, (i) the terms, conditions and amount of any such refinancing
shall be on terms no less favorable to any Borrower than the
indebtedness being refinanced up to the original principal amount
of such indebtedness, or otherwise satisfactory to Lender in its
sole discretion; (ii) Excess Availability at the time of such
refinancing, and after giving effect to such refinancing, is
greater than $2,000,000
(f) other indebtedness not to exceed $1,500,000;
(g) indebtedness described in the Subordination
Agreement;
(h) indebtedness resulting from a judgment having been
rendered against any Borrower that is being appealed in good faith
and in a timely manner for which adequate reserves acceptable to
Lender have been recorded and which is not covered by insurance;
(i) Borrowings based on the cash value of life insurance
policies, the proceeds of which are used to pay life insurance
premiums;
(j) other indebtedness approved by Lender in its sole
discretion; and
(k) indebtedness described in Section 9.10(e) and as
otherwise permitted hereunder.
9.10 Loans, Investments, Guarantees, Etc. Except as set out
in the Distribution Agreement and as otherwise provided herein, no
Borrower shall directly or indirectly, make any loans or advance
money or property to any person, or invest in (by capital
contribution, dividend or otherwise) or purchase or repurchase the
stock or indebtedness or all or a substantial part of the assets or
property of any person, or assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do
any of the foregoing, except: (a) loans to employees of Borrowers
not to exceed at any one time $75,000, in the aggregate; (b) the
endorsement of instruments for collection or deposit in the
ordinary course of business; (c) investments in: (i) short-term
direct obligations of the United States Government, (ii) negotiable
certificates of deposit issued by any bank satisfactory to Lender,
payable to the order of such Borrower or to bearer and delivered to
Lender, and (iii) commercial paper rated A1 or P1; provided, that,
as to any of the foregoing, unless waived in writing by Lender,
such Borrower shall take such actions as are deemed necessary by
Lender to perfect the security interest of Lender in such
investments; (d) the loans, advances and guarantees set forth on
Schedule 9.10 hereto; provided, that, as to such loans, advances
and guarantees, (i) such Borrowers shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of such
loans, advances or guarantees or any agreement, document or
instrument related thereto, or (B) as to such guarantees, redeem,
retire, defease, purchase or otherwise acquire the obligations
arising pursuant to such guarantees, or set aside or otherwise
deposit or invest any sums for such purpose, and (ii) such Borrower
shall furnish to Lender all notices of default or demands in
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connection with such loans, advances or guarantees or other
indebtedness subject to such guarantees either received by such
Borrower or on its behalf, promptly after the receipt thereof, or
sent by such Borrower or on its behalf, concurrently with the
sending thereof, as the case may be; and (e) loans, advances or
investments in the ordinary course of each such Person's business
operations, as presently existing, among LSAP, L&SB, LSBE, Rotex
and Tribonetics.
9.11 Dividends and Redemptions. Except for dividends duly
declared and paid by L&SB, LSBE, Rotex and Tribonetics to LSAP,
Borrowers shall not, directly or indirectly, declare or pay any
dividends on account of any shares of class of capital stock of
such Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem,
retire, defease, purchase or otherwise acquire any shares of any
class of capital stock (or set aside or otherwise deposit or invest
any sums for such purpose) for any consideration other than common
stock or apply or set apart any sum, or make any other distribution
(by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing other than the
distribution to Guarantor of actual franchise and related taxes
owing by Borrowers and otherwise, as may be permitted herein.
9.12 Transactions with Affiliates. Except as set out in
Schedule 9.12 hereto, and as otherwise provided herein, no Borrower
shall, directly or indirectly, (a) purchase, acquire or lease any
property from, or sell, transfer or lease any property to, (i) any
officer, director, agent or other person affiliated with such
Borrower; (ii) any other Borrower; or (iii) any officer, director,
agent or other person affiliated with any other Borrower, except in
the ordinary course of and pursuant to the reasonable requirements
of such Borrower's business and upon fair and reasonable terms no
less favorable to such Borrower than such Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person
or (b) make any payments of management, consulting or other fees
for management or similar services, or of any indebtedness owing to
(i) any officer, employee, shareholder, director or other person
affiliated with such Borrower; (ii) any other Borrower; or (iii)
any officer, employee, shareholder, director or other person
affiliated with any other Borrower. except (w) reasonable
compensation to officers, employees and directors for services
rendered to such Borrower in the ordinary course of business (x)
fees (i) for services and expenses actually incurred by the
provider of such services, (ii) for services performed by the
provider of such services in the ordinary course of business of
such provider and pursuant to the reasonable requirements of any
Borrower or Guarantor pursuant to either (A) the Services Agreement
(in the form substantially similar to the draft Services Agreement
attached to the Distribution Agreement) in an amount not to exceed
$250,000 per calendar year and (B) the Services and Consulting
Agreement (in the form substantially similar to the draft Services
and Consulting Agreement attached to the Distribution Agreement)
for administrative services offered by LSB in an amount not to
exceed $750,000 per calendar year; (y) payments made pursuant to
the Tax Sharing Agreement (in the form substantially similar to the
draft Tax Sharing Agreement attached to the Distribution Agreement)
in an amount not to exceed $100,000 per calendar year, or $250,000
in the aggregate, during the term hereof; and (z) payments made
pursuant to the Indemnity Agreement (in the form substantially
similar to the draft Indemnification Agreement attached to the
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Distribution Agreement) in an amount not to exceed $100,000 per
calendar year, or $500,000 in the aggregate, during the term
hereof.
9.13 Additional Bank Accounts. No Borrowers shall directly or
indirectly, open, establish or maintain any deposit account,
investment account or any other account with any bank or other
financial institution, other than the Blocked Accounts and the
accounts set forth in Schedule 8.9 hereto, except: (a) as to any
new or additional Blocked Accounts and other such new or additional
accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions
thereto as Lender may establish and (b) as to any accounts used by
any Borrower to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Lender.
9.14 Compliance with ERISA.
(a) No Borrower shall, with respect to any "employee
benefit plans" maintained by such Borrower or any of its ERISA
Affiliates: (i) terminate any of such employee benefit plans so as
to incur any liability to the Pension Benefit Guaranty Corporation
established pursuant to ERISA, (ii) allow or suffer to exist any
prohibited transaction involving any of such employee benefit plans
or any trust created thereunder which would subject such Borrower
or such ERISA Affiliate to a tax or penalty or other liability on
prohibited transactions imposed under Section 4975 of the Code or
ERISA, (iii) fail to pay to any such employee benefit plan any
contribution which it is obligated to pay under Section 302 of
ERISA, Section 412 of the Code or the terms of such plan, (iv)
allow or suffer to exist any accumulated funding deficiency,
whether or not waived, with respect to any such employee benefit
plan, (v) allow or suffer to exist any occurrence of a reportable
event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of
any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension
Benefit Guaranty Corporation or (vi) incur any withdrawal liability
with respect to any multiemployer pension plan.
(b) As used in this Section 9.14, the terms "employee
benefit plans", "accumulated funding deficiency" and "reportable
event" shall have the respective meanings assigned to them in
ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in Section 4975 of the Code and ERISA.
9.15 Net Worth. LSAP shall, at all times, maintain Net Worth
of not less than $6,400,000.
9.16 Costs and Expenses. Borrowers shall pay to Lender on
demand all reasonable costs, expenses, filing fees and taxes paid
or payable in connection with the preparation, negotiation,
execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing
Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into
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in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if
applicable); (b) costs, expenses and fees for insurance premiums,
environmental audits, surveys, assessments, engineering reports and
inspections, appraisal fees and search fees; (c) costs and expenses
of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts,
together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations; (e)
costs and expenses of preserving and protecting the Collateral; (f)
costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any
claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including
preparations for and consultations concerning any such matters);
(g) all out-of-pocket expenses and costs heretofore and from time
to time hereafter incurred by Lender during the course of periodic
field examinations of the Collateral and Borrowers' operations,
plus a per diem charge at the rate of $650.00 per person per day
for Lender's examiners in the field and office; and (h) the
reasonable fees and disbursements of outside counsel (including
legal assistants) to Lender in connection with any of the
foregoing.
9.17 Further Assurances. At the request of Lender at any time
and from time to time, each Borrower shall, at its expense, duly
execute and deliver, or cause to be duly executed and delivered,
such further agreements, documents and instruments, and do or cause
to be done such further acts as may be necessary or proper to
evidence, perfect, maintain and enforce the security interests and
the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other
Financing Agreements. Within three day's after Lender's request,
such Borrower shall provide a certificate from an officer of such
Borrower representing that all conditions precedent to the making
of Loans and providing Letter of Credit Accommodations contained
herein are satisfied. Where permitted by law, each Borrower hereby
authorizes Lender to execute and file one or more UCC financing
statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
______________________________
10.1 Events of Default. The occurrence or existence of any
one or more of the following events are referred to herein
individually as an "Event of Default", and collectively as "Events
of Default":
(a) (i) any Borrower fails to pay any of its Obligations
within two (2) Business Days after the same becomes due and payable
or (ii) such Borrower or any Obligor fails to perform any of the
covenants contained in Sections 9.1, 9.2, 9.3, 9.4, 9.6, 9.14, 9.16
and 9.17 of this Agreement and such failure shall continue for ten
(10) days; provided, that, such ten (10) day period shall not apply
in the case of: (A) any failure to observe any such covenant which
is not capable of being cured at all or within such ten (10) day
period or which has been the subject of a prior failure within a
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six (6) month period or (B) an intentional breach of such Borrower
or any Obligor of any such covenant or (iii) such Borrower fails to
perform any of the terms covenants, conditions or provisions
contained in this Agreement or any of the other Financing
Agreements other than those described in Sections 10.1(a)(i) and
10.1(a)(ii) above;
(b) any representation, warranty or statement of fact
made by any Borrower to Lender in this Agreement, the other
Financing Agreements or any other agreement, schedule, confirmatory
assignment or otherwise shall when made or deemed made be false or
misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform
any of the terms, covenants, conditions or provisions of any
guarantee, endorsement or other agreement of such party in favor of
Lender;
(d) any final judgment for the payment of money is
rendered against any Borrower or any Obligor in excess of $100,000
in any one case or in excess of $500,000 in the aggregate and shall
remain undischarged or unvacated for a period in excess of thirty
(30) days or execution shall at any time not be effectively stayed,
or any judgment other than for the payment of money, or injunction,
attachment, garnishment or execution is rendered against any
Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general
partner of an Obligor which is a partnership) dies or any Borrower
or any Obligor, which is a partnership, limited liability company,
limited liability partnership or a corporation, dissolves or
suspends or discontinues doing business;
(f) any Borrower or any Obligor becomes insolvent
(however defined or evidenced), makes an assignment for the benefit
of creditors, makes or sends notice of a bulk transfer or calls a
meeting of its creditors or principal creditors;
(g) a case or proceeding under the bankruptcy laws of
the United States of America now or hereafter in effect or under
any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now
or hereafter in effect (whether at law or in equity) is filed
against any Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within
thirty (30) days after the date of its filing or any Borrower or
any Obligor shall file any answer admitting or not contesting such
petition or application or indicates its consent to, acquiescence
in or approval of, any such action or proceeding or the relief
requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of
the United States of America now or hereafter in effect or under
any insolvency, reorganization, receivership, readjustment of debt,
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dissolution or liquidation law or statute of any jurisdiction now
or hereafter in effect (whether at a law or equity) is filed by any
Borrower or any Obligor or for all or any part of its property; or
(i) any default by any Borrower or Borrowers or any
Obligor under any agreement, document or instrument relating to any
indebtedness for borrowed money owing to any person other than
Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit,
indemnity or similar type of instrument in favor of any person
other than Lender, in any case in an amount, individually or in the
aggregate in excess of $250,000, which default continues for more
than the applicable cure period, if any, with respect thereto, or
any default by any Borrower or any Obligor under any material
contract, lease, license or other obligation to any person other
than Lender, which default continues for more than the applicable
cure period, if any, with respect thereto;
(j) any change in the controlling ownership of any
Borrower;
(k) the indictment of any Borrower or any Obligor under
any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against any Borrower or any Obligor,
pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of
such Borrower or such Obligor;
(l) there shall be a material adverse change in the
business or assets of any Borrower or any Obligor individually or
of Borrowers (in the aggregate) after the date hereof;
(m) there shall be an event of default under any of the
other Financing Agreements;
(n) (i) the Collateral Letter of Credit shall not be in
full force and effect at any time prior to the termination of the
Financing Agreements; or (ii) any drawing or renewal of the
Collateral Letter of Credit shall be subject to dispute or actual
legal challenge by LSB or the issuer thereof; or (iii) Lender shall
have received notice from the issuer of the Collateral Letter of
Credit that such Collateral Letter of Credit will not be renewed or
extended; or (iv) such Collateral Letter of Credit shall not be
renewed effective on or before its expiry date; or (v) Borrower
shall fail to furnish, or cause to be furnished, the notices
pursuant to Section 9.6(e); provided, however, that any such Event
of Default shall be deemed cured upon the indefeasible payment in
full by the issuer of the Collateral Letter of Credit to Lender of
the face amount of the Collateral Letter of Credit.
10.2 Remedies.
(a) At any time an Event of Default exists or has
occurred and is continuing, Lender shall have all rights and
remedies provided in this Agreement, the other Financing
Agreements, the Uniform Commercial Code and other applicable law,
all of which rights and remedies may be exercised without notice to
or consent by any Borrower or any Obligor, except as such notice or
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consent is expressly provided for hereunder or required by
applicable law. All rights, remedies and powers granted to Lender
hereunder, under any of the other Financing Agreements, the Uniform
Commercial Code or other applicable law, are cumulative, not
exclusive and enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of
equity for an injunction to restrain a breach or threatened breach
by any Borrower of this Agreement or any of the other Financing
Agreements. Lender may, at any time or times, proceed directly
against any Borrower (or any group of Borrowers) or any Obligor to
collect the Obligations without prior recourse to the Collateral
and without prejudice, waiver or impairment of any other rights and
remedies against, or with respect to, another Borrower Obligor or
other Person.
(b) Without limiting the foregoing, at any time an Event
of Default exists or has occurred and is continuing, Lender may, in
its discretion and without limitation, (i) accelerate the payment
of all Obligations and demand immediate payment thereof to Lender
(provided, that, upon the occurrence of any Event of Default
described in Sections 10.1(g) and 10.1(h), all Obligations shall
automatically become immediately due and payable), (ii) with or
without judicial process or the aid or assistance of others, enter
upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the
Collateral, (iii) require one or more Borrowers, at any Borrowers'
expense, to assemble and make available to Lender any part or all
of the Collateral at any place and time designated by Lender, (iv)
collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the
purpose of effecting the sale, foreclosure or other disposition
thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral
(including entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any office of
Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the
Lender having the right to purchase the whole or any part of the
Collateral at any such public sale, all of the foregoing being free
from any right or equity of redemption of any Borrower, which right
or equity of redemption is hereby expressly waived and released by
such Borrower and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, five (5)
days prior notice by Lender to such Borrower designating the time
and place of any public sale or the time after which any private
sale or other intended disposition of Collateral is to be made,
shall be deemed to be reasonable notice thereof and such Borrower
waives any other notice. In the event Lender institutes an action
to recover any Collateral or seeks recovery of any Collateral by
way of prejudgment remedy, such Borrower waives the posting of any
bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of the Obligations,
in whole or in part and in such order as Lender may elect, whether
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or not then due. Borrowers shall remain jointly and severally
liable to Lender for the payment of any deficiency with interest at
the highest rate provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees and legal
expenses.
(d) Without limiting the foregoing, upon the occurrence
of an Event of Default or an event which with notice or passage of
time or both would constitute an Event of Default, Lender may, at
its option, without notice, (i) cease making Loans or arranging for
Letter of Credit Accommodations or reduce the lending formulas or
amounts of Revolving Loans and Letter of Credit Accommodations
available to any Borrower or all Borrowers and/or (ii) terminate
any provision of this Agreement providing for any future Loans or
Letter of Credit Accommodations to be made by Lender to any
Borrower.
(e) Upon the occurrence of any Event of Default that is
continuing. Lenders may draw on the Collateral Letter of Credit
and apply the proceeds thereof to the repayment of the Obligations.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW
_________________________________________________
11.1 Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute
arising out of the relationship between the parties hereto, whether
in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of Texas (without giving effect to
principles of conflicts of law).
(b) Each Borrower and Lender irrevocably consent and
submit to the non-exclusive jurisdiction of the State of Texas and
the United States District Court for the Northern District of Texas
and waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other
Financing Agreements or the transactions related hereto or thereto,
in each case whether now existing or hereafter arising, and whether
in contract, tort, equity or otherwise, and agree that any dispute
with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring
any action or proceeding against such Borrower or its property in
the courts of any other jurisdiction which Lender deems necessary
or appropriate in order to realize on the Collateral or to
otherwise enforce its rights against such Borrower or its
property).
(c) Each Borrower hereby waives personal service of any
and all process upon it and consents that all such service of
process may be made by certified mail (return receipt requested)
directed to its address set forth on the signature pages hereof and
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service so made shall be deemed to be completed five (5) days after
the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Such Borrower in any other manner
provided under the rules of any such courts. Within thirty (30)
days after such service, Such Borrower shall appear in answer to
such process, failing which Such Borrower shall be deemed in
default and judgment may be entered by Lender against Such Borrower
for the amount of the claim and other relief requested.
(d) EACH BORROWER AND LENDER HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE. EACH BORROWER AND LENDER HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT SUCH
BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT
OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to any Borrower
(whether in tort, contract, equity or otherwise) for losses
suffered by such Borrowers in connection with, arising out of, or
in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a
final and non-appealable judgment or court order binding on Lender,
that the losses were the result of acts or omissions constituting
gross negligence or willful misconduct. In any such litigation,
Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this
Agreement.
11.2 Waiver of Notices. Each Borrower hereby expressly waives
demand, presentment, protest and notice of protest and notice of
dishonor with respect to any and all instruments and commercial
paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind
or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on such Borrower which
Lender may elect to give shall entitle such Borrower to any other
or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or discharged
orally or by course of conduct, but only by a written agreement
signed by an authorized officer of Lender, and as to amendments, as
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also signed by an authorized officer of each Borrower. Lender
shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be enforceable
only to the extent specifically set forth therein. A waiver by
Lender of any right, power and/or remedy on any one occasion shall
not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future
occasion, whether similar in kind or otherwise.
11.4 Indemnification. EACH BORROWER SHALL JOINTLY AND
SEVERALLY INDEMNIFY AND HOLD LENDER, AND ITS DIRECTORS, AGENTS,
EMPLOYEES AND COUNSEL (THE "INDEMNIFIED PARTIES"), HARMLESS FROM
AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, COSTS
OR EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY OF THEM
IN CONNECTION WITH ANY LITIGATION, INVESTIGATION, CLAIM OR
PROCEEDING COMMENCED OR THREATENED RELATED TO THE NEGOTIATION,
PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR
ADMINISTRATION OF THIS AGREEMENT, ANY OTHER FINANCING AGREEMENTS,
OR ANY UNDERTAKING OR PROCEEDING RELATED TO ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION, EVENT OR TRANSACTION
(INCLUDING LENDER'S OWN NEGLIGENCE) RELATED OR ATTENDANT THERETO,
INCLUDING AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE FEES AND
EXPENSES OF COUNSEL OTHER THAN THOSE ARISING SOLELY OUT OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNIFIED PARTY.
TO THE EXTENT THAT THE UNDERTAKING TO INDEMNIFY, PAY AND HOLD
HARMLESS SET FORTH IN THIS SECTION MAY BE UNENFORCEABLE BECAUSE IT
VIOLATES ANY LAW OR PUBLIC POLICY, EACH BORROWER SHALL PAY THE
MAXIMUM PORTION WHICH IT IS PERMITTED TO PAY UNDER APPLICABLE LAW
TO LENDER IN SATISFACTION OF INDEMNIFIED MATTERS UNDER THIS
SECTION. THE FOREGOING INDEMNITY SHALL SURVIVE THE PAYMENT OF THE
OBLIGATIONS AND THE TERMINATION OR NON-RENEWAL OF THIS AGREEMENT.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
________________________________
12.1 Term.
(a) This Agreement and the other Financing Agreements
shall become effective as of the date set forth on the first page
hereof and shall continue in full force and effect for a term
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ending on the date two (2) years from the date hereof (the "Renewal
Date"), and from year to year thereafter, unless sooner terminated
pursuant to the terms hereof. Lender or Borrowers may terminate
this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year
by giving to the other party at least sixty (60) days prior written
notice; provided, that, this Agreement and all other Financing
Agreements must be terminated simultaneously. Upon the effective
date of termination of the Financing Agreements, Borrowers shall
pay to Lender, in full, all outstanding and unpaid Obligations and
shall furnish cash collateral to Lender in such amounts as Lender
determines are reasonably necessary to secure Lender from loss,
cost, damage or expense, including attorneys' fees and legal
expenses, in connection with any contingent Obligations, including
issued and outstanding Letter of Credit Accommodations and checks
or other payments provisionally credited to the Obligations and/or
as to which Lender has not yet received final and indefeasible
payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to
such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrowers for such purpose. Interest shall
be due until and including the next Business Day, if the amounts so
paid by Borrowers to the bank account designated by Lender are
received in such bank account later than 12:00 noon, Dallas, Texas
time.
(b) No termination of this Agreement or the other
Financing Agreements shall relieve or discharge any Borrowers of
its respective duties, obligations and covenants under this
Agreement or the other Financing Agreements until all Obligations
have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements
and applicable law, shall remain in effect until all such
Obligations have been fully and finally discharged and paid and
Lender shall have no further obligations to make Loans or Letter of
Credit Accommodations available to any Borrower.
(c) Upon the payment in full, in cash, of all
Obligations and termination of the Financing Agreements, Lender
shall, at Borrowers' expense, release the Collateral from the
security interest granted herein and make such filings as may be
reasonably necessary in connection herewith.
(d) If for any reason this Agreement is terminated prior
to the end of the then current term or renewal term of this
Agreement, in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits as a result
thereof, Borrowers agree to pay to Lender, upon the effective date
of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period
indicated:
54
<PAGE>
Amount Period
______ ______
(i) 2% of Maximum Credit From the date hereof to
and including May 7,
2000.
(ii) 1% of Maximum Credit After May 7, 2000 to and
including the Renewal
Date.
(iii) .5% of Maximum Credit From the Renewal Date and
to but not including the
next occurring anni-
versary of this Agreement
after the Renewal Date.
Such early termination fee shall be presumed to be the amount of
damages sustained by Lender as a result of such early termination
and each Borrower agrees that it is reasonable under the
circumstances currently existing. In addition, Lender shall be
entitled to such early termination fee upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h) hereof,
even if Lender does not exercise its right to terminate this
Agreement, but elects, at its option, to provide financing to any
Borrower or permit the use of cash collateral under the United
States Bankruptcy Code. The early termination fee provided for in
this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder
shall be in writing and (a) made to Lender at its address set forth
below and to Borrowers at their chief executive offices set forth
below, or to such other address as each party may designate by
written notice to the other in accordance with this provision, and
(b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with
instructions to deliver the next Business Day, one (1) Business Day
after sending; and if by certified mail, return receipt requested,
five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement
is held to be invalid or unenforceable, such invalidity or
unenforceability shall not invalidate this Agreement as a whole,
but this Agreement shall be construed as though it did not contain
the particular provision held to be invalid or unenforceable and
the rights and obligations of the parties shall be construed and
enforced only to such extent as shall be permitted by applicable
law.
12.4 Successors. This Agreement, the other Financing
Agreements and any other document referred to herein or therein
shall be binding upon and inure to the benefit of and be
enforceable by Lender, Borrowers and their respective successors
and assigns, except that no Borrower may assign its rights under
this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written
consent of Lender. Lender may, after notice to Borrowers, assign
its rights and delegate its obligations under this Agreement and
55
<PAGE>
the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of
Credit Accommodations or any other interest herein to another
financial institution or other person, in which event, the assignee
or participant shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it
were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments
or documents delivered or to be delivered in connection herewith or
therewith represents the entire agreement and understanding
concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations,
warranties, commitments, proposals, offers and contracts concerning
the subject matter hereof, whether oral or written. In the event
of any inconsistency between the terms of this Agreement and any
schedule or exhibit hereto, the terms of this Agreement shall
govern.
12.6 NONAPPLICABILITY OF ARTICLE 5069-15.01 ET SEQ. BORROWER
AND LENDER HEREBY AGREE THAT, EXCEPT FOR SECTION 15.10(B) THEREOF,
THE PROVISIONS OF TEX. REV. CIV. STAT. ANN. ART. 5069-15.01 ET SEQ.
(VERNON 1987) (REGULATING CERTAIN REVOLVING CREDIT LOANS AND
REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS.
12.7 WAIVER OF CONSUMER RIGHTS. BORROWERS HEREBY WAIVE THEIR
RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION
ACT, SECTION 17.41 ET. SEQ. BUSINESS & COMMERCE CODE, A
56
<PAGE>
LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF THE BORROWERS' OWN SELECTION,
THE BORROWERS VOLUNTARILY CONSENT TO THIS WAIVER. BORROWERS
EXPRESSLY WARRANT AND REPRESENT THAT THE BORROWERS (a) ARE NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND
(b) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
BORROWERS HAVE READ AND UNDERSTAND
SECTION 12.7: ___________________
(INITIALS OF
AUTHORIZED OFFICER OF BORROWERS)
12.8 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE
OTHER FINANCING AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND THE SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
BORROWERS AND LENDER EACH
READ AND UNDERSTAND THIS
SECTION 12.8:
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF LENDER)
57
<PAGE>
IN WITNESS WHEREOF, Lender and Borrowers have caused these
presents to be duly executed as of the day and year first above
written.
LENDER BORROWERS
______ _________
CONGRESS FINANCIAL L&S AUTOMOTIVE PRODUCTS CO.
CORPORATION (SOUTHWEST)
By:___________________________
By:___________________________ Name:_________________________
Name:_________________________ Title:________________________
Title:________________________
Chief Executive Office:
______________________
Address:
________
6 South Pennsylvania
1201 Main Street, Ste. 1625 Oklahoma City, Oklahoma 73107
Dallas, TX 75250
L&S BEARING CO.
By:___________________________
Name:_________________________
Title:________________________
Chief Executive Office:
______________________
6 South Pennsylvania
Oklahoma City, Oklahoma 73107
LSB EXTRUSION CO.
By:___________________________
Name:_________________________
Title:________________________
Chief Executive Office:
______________________
6 South Pennsylvania
Oklahoma City, Oklahoma 73107
<PAGE>
ROTEX CORPORATION
By:___________________________
Name:_________________________
Title:________________________
Chief Executive Office:
______________________
6 South Pennsylvania
Oklahoma City, Oklahoma 73107
TRIBONETICS CORPORATION
By:___________________________
Name:_________________________
Title:________________________
Chief Executive Office:
______________________
6 South Pennsylvania
Oklahoma City, Oklahoma 73107
INTERNATIONAL BEARINGS, INC.
By:___________________________
Name:_________________________
Title:________________________
Chief Executive Office:
______________________
1775 Airways Boulevard
Memphis, Tennessee 38114
TERMINATION AND MUTUAL GENERAL
RELEASE AGREEMENT
THIS TERMINATION AND MUTUAL GENERAL RELEASE AGREEMENT (this
"Agreement") is dated as of May 10, 1999 and is entered into by and
among L&S Bearing Co. ("Borrower"), L&S Automotive Products Co.
("Automotive"), LSB Extrusion Co. ("Extrusion"), Rotex Corporation
("Rotex"), Tribonetics Corporation ("Tribonetics"), International
Bearings, Inc. ("Bearings") (Automotive, Extrusion, Rotex,
Tribonetics and Bearings each being referred to individually as
"Guarantor" and collectively as "Guarantors"), and Bank of America
National Trust and Savings Association (successor-in-interest to
BankAmerica Business Credit, Inc.) ("Lender").
RECITALS
This Agreement is entered into in reference to the following
facts:
A. Lender and Borrower have entered into that certain
Amended and Restated Loan and Security Agreement dated as of
November 21, 1997 as amended by that certain First Amendment to
Amended and Restated Loan and Security Agreement dated as of March
12, 1998, that certain Second Amendment to Amended and Restated
Loan and Security Agreement dated as of June 30, 1998, that certain
Third Amendment to Amended and Restated Loan and Security Agreement
dated as of August 14, 1998, that certain Fourth Amendment to
Amended and Restated Loan and Security Agreement dated as of
November 19, 1998, and that certain Fifth Amendment to Amended and
Restated Loan and Security Agreement dated as of April 8, 1999 (as
so amended, the "Loan Agreement");
B. In connection with the Loan Agreement, each Guarantor
executed a Continuing Guaranty dated as of November 21, 1997, and
Borrower, Lender and all Guarantors entered into a Cross-
Collateralization and Cross-Guaranty Agreement dated of even date
1
<PAGE>
therewith, guaranteeing both Borrower's obligations under the Loan
Agreement as well as the obligations of certain affiliates of
Borrower under other "LSB-Related Loan Agreements" (as defined in
the Loan Agreement).
C. Borrower and the Guarantors have obtained alternative
financing and have repaid the Obligations that they owe to Lender,
either directly or indirectly (the "Pay-out Amount").
D. Lender, Borrower, and the Guarantors have agreed to
terminate their relationship and release each other from all claims
as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Lender's Representations and Agreements. In
consideration of the payment in full of the Pay-Out Amount to
Lender as set forth above, Lender hereby: (a) represents that
lender has no other credit agreements with, loans outstanding to,
guaranties by, or interests or liens against Borrower or
Guarantors, Borrower's real or personal property, stock of
Borrower, or of the Guarantors; (b) agrees that all security
interests and liens which Borrower or Guarantors may have granted
to Lender are released and terminated; (c) agrees that all security
interests, if any, in the stock of Borrower or Guarantors are
released and terminated; and (d) acknowledges and agrees that
Borrower and the Guarantors have no further liability or obligation
and are hereby released by Lender from any liability or obligation
whether or not now known or suspected, under or in connection with
the Loan Agreement or any other Loan Documents and that payment to
Lender of the Pay-Out Amount has satisfied in full all of
Borrower's and the Guarantors' obligations to Lender.
2. Releases. Borrower and each Guarantor hereby represent
and warrant that there are no claims or offsets against, or
defenses or counterclaims to, the terms and provisions of and the
other obligations created or evidenced by the Loan Agreement or the
other Loan Documents. Borrower and each Guarantor hereby releases,
acquits, and forever discharges Lender, and its successors,
2
<PAGE>
assigns, and predecessors in interest, their parents, subsidiaries
and affiliated organizations, and the officers, employees,
attorneys, and agents of each of the foregoing (all of whom are
herein jointly and severally referred to as the "Released Parties")
from any and all liability, damages, losses, obligations, costs,
expenses, suits, claims, demands, causes of action for damages or
any other relief, whether or not now known or suspected, of any
kind, nature, or character, at law or in equity, which Borrower or
any Guarantor now has or may have ever had against any of the
Released Parties relating to the Loan Agreement or the other Loan
Documents, including, but not limited to, those relating to (a)
usury or penalties or damages therefor, (b) allegations that a
partnership existed between Borrower or any Guarantor and the
Released Parties, (c) allegations of unconscionable acts, deceptive
trade practices, lack of good faith or fair dealing, lack of
commercial reasonableness or special relationships, such as
fiduciary, trust or confidential relationships, (d) allegations of
dominion, control, alter ego, instrumentality, fraud,
misrepresentation, duress, coercion, undue influence, interference
or negligence, (e) allegations of tortious interference with
present or prospective business relationships or of antitrust, or
(f) slander, libel or damage to reputation, (all of the above
hereinafter being collectively referred to as the "Claims"), all of
which Claims are hereby waived.
3. No Assignment of Claims; Advice of Counsel. The parties
hereby warrant and represent that they have not assigned or in any
other way conveyed, transferred, or encumbered all or any portion
of the claims or rights covered by this Agreement. The parties,
and each of them, execute this Agreement voluntarily, after
consultation with counsel, and with full knowledge of its
significance.
3
<PAGE>
4. Sole Agreement; Amendments. This Agreement, the Loan
Agreement and the other written documents and instruments between
the parties set forth in full all of the representations and
agreements of the parties, and this Agreement may not be modified
or amended, nor may any rights hereunder be waived, except in
writing signed by the parties hereto.
SIGNED:
BORROWER:
L&S BEARING CO.
By:
______________________________________
Name:
_____________________________________
Title:
____________________________________
GUARANTORS:
L&S AUTOMOTIVE PRODUCTS CO.
By:
_______________________________________
Name:
_____________________________________
Title:
____________________________________
LSB EXTRUSION CO.
By:
_____________________________________
Name:
___________________________________
Title:
__________________________________
ROTEX CORPORATION
By:
_____________________________________
Name:
___________________________________
Title:
___________________________________
4
<PAGE>
TRIBONETICS CORPORATION
By:
_____________________________________
Name:
____________________________________
Title:
____________________________________
INTERNATIONAL BEARINGS, INC.
By:
_____________________________________
Name:
___________________________________
Title:
___________________________________
"LENDER":
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
______________________________________
Michael J. Jasaitis,
Vice President
5
May 19, 1999
Congress Financial Corporation (Southwest)
1201 Main Street, Suite 1625
Dallas, Texas 75250
Ladies and Gentlemen:
Reference is made to the financing agreements (the
"Financing Documents") between L&S Bearing Co., LSB Extrusion
Co., Tribonetics Corporation, Rotex Corporation, L&S
Automotive Products Co., and International Bearings, Inc.
(collectively, "Borrower") and Bank of American National Trust
and Savings Association, successor-in-interest to BankAmerica
Business Credit, Inc. ("Lender"). We understand that, on the
Payoff Date (as hereinafter defined), Borrower expects to
obtain financing (the "Financing") from Congress Financial
Corporation (Southwest) ("Congress") for the purpose of
repaying in full all of the obligations and liabilities of
Borrower to Lender under or in respect of the Financing
Documents (the "Lender Obligations").
1. This letter will confirm that, upon receipt by
Lender of:
(a) no later than 12:00 p.m., Pacific time on
May 10, 1999, a wire transfer of immediately available funds
to Lender in the aggregate amount of $11,834,739.33, subject
to adjustment as set forth in this paragraph 1 (as so adjusted
the "Payout Amount"), consisting of:
(i) $11,723,071.78 in respect of unpaid
principal outstanding under the Financing Documents (assuming
no further loans or repayments are made); and
(ii) $109,136.29 in respect of accrued and
unpaid interest on such unpaid principal amount, assuming no
changes in applicable interest rates and no changes in the
outstanding principal amount (the per diem accrual of such
interest being $2,464.42 per day);
(iii) $2,531.26 representing expenses of
Lender payable by Borrower pursuant to the Financing Documents
consisting of (A) $0 in respect of letter of credit
obligations outstanding, (B) $63.39 in respect of letter
credit fees and expenses, and (C) $2,467.87 in respect of
unused line fees.
<PAGE>
(b) a fully executed counterpart of this letter
agreement signed by Borrower.
(the date on which all of the foregoing conditions shall first
be satisfied herein called the "Payoff Date"), all of the
Lender Obligations shall be terminated and satisfied in full.
If the assumptions set forth above with respect to the
calculation of the principal and interest components of the
Payout Amount are not correct, we will so advise Borrower and
Congress and notify each of them writing on or before the
Payoff Date of the adjusted figure for the Payout Amount,
reflecting the appropriate changes in the amounts of principal
and interest. Upon receipt of the Payout Amount in accordance
with the foregoing and satisfaction of the other conditions
referred to above, Lender agrees to release, on and with
effect from the Payoff Date, all of its security interests,
liens and other documents created as security for the Lender
Obligations.
2. Please transfer the Payout Amount to Bank of
America, San Francisco, California, ABA No. 121000358, Account
No. 12575-03561 (reference LSB Industries), by wire transfer
of immediately available funds, for receipt no later than
12:00 p.m., Pacific time, on the Payoff Date.
3. Borrower hereby confirms that the commitments of
Lender to make loans to Borrower under the Financing Documents
are terminated as of the Payoff Date.
4. Lender will, concurrently with the satisfaction of
the conditions referred to in Paragraph 1 above, execute and
deliver any Uniform Commercial Code termination statements,
lien releases, mortgage releases, re-assignments of
trademarks, discharges of security interests, and other
similar discharge or release documents (and if applicable, in
recordable form) as are reasonably necessary to release, as of
record, the security interests, financing statements, and all
other notices of security interests and liens previously filed
by Lender with respect to the Lender Obligations.
5. Lender will, as promptly as practicable upon the
satisfaction of the conditions referred to in Paragraph 1
above, return to Borrower the originals of any and all
promissory notes and other documents evidencing or securing
Borrowers' obligations to Lender previously delivered to
Lender in connection with the Financing Documents, duly marked
"paid in full" or "cancelled" (or with written authorizations
to so mark such documents after the Payoff Date actually
occurs) as may be appropriate.
6. Lender shall execute and deliver to or for Borrower
or Congress such additional documents and shall provide
additional information as Borrower or Congress may reasonably
require to carry out the terms of this letter agreement.
7. Borrower acknowledges that the amounts referred to
in Paragraph 1 above are enforceable obligations of it owed to
Lender pursuant to the provisions of the Financing Documents
and confirms its agreement to the terms and provisions of this
letter by returning to Lender a signed counterpart of this
<PAGE>
letter. This letter may be executed by each party on a
separate counterpart, each of which when so executed and
delivered shall be an original, but all of which together
shall constitute one agreement.
Very truly yours,
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, successor-in-trust to
BankAmerica Business Credit, Inc.
By: __________________________________
Title: _________________________________
Agreed to by the undersigned:
L&S BEARING CO.
By: __________________________________
Title: _________________________________
LSB EXTRUSION CO.
By: __________________________________
Title: _________________________________
TRIBONETICS CORPORATION
By: __________________________________
Title: _________________________________
<PAGE>
ROTEX CORPORATION
By: __________________________________
Title: _________________________________
L&S AUTOMOTIVE PRODUCTS CO.
By: __________________________________
Title: _________________________________
INTERNATIONAL BEARINGS, INC.
By: __________________________________
Title: _________________________________
ASSET PURCHASE AGREEMENT*
Between
QUANTUM EXPLOSIVES PTY LIMITED
ACN 087 119 515
("Purchaser")
and
TOTAL ENERGY SYSTEMS LIMITED
ACN 010 876 150
("TES")
and
T.E.S. MINING SERVICES PTY LTD
ACN 010 975 676
("TES Mining")
and
TOTAL ENERGY SYSTEMS (INTERNATIONAL) PTY LTD
ACN 084 562 247
("TES International")
and
TOTAL ENERGY SYSTEMS (NZ) LIMITED
(DN/682396)
("TES NZ")
LEGAL & CONTRACT SERVICES
THIESS CONTRACTORS PTY LIMITED
PO Box 199 Archerfield Qld 4108
Ph: (07) 3275-8563 Fax: (07) 3275-8633
email address: [email protected]
Copyright 1999
*INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED FROM THIS PUBLIC
FILING PURSUANT TO A REQUEST BY THE COMPANY FOR CONFIDENTIAL
TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.
<PAGE>
TABLE OF CONTENTS Page No.
1. Definitions and Interpretation. . . . . . . . . . . 1
2. Conditions Precedent. . . . . . . . . . . . . . . . 6
3. FIRB Approval . . . . . . . . . . . . . . . . . . . 8
4. Sale and Purchase. . . . . . . . . . . . . . . . . . 9
5. Risk and Property. . . . . . . . . . . . . . . . . . 9
6. Purchase Price . . . . . . . . . . . . . . . . . . . 9
7. Inventory. . . . . . . . . . . . . . . . . . . . . . 10
8. Accrued Liabilities. . . . . . . . . . . . . . . . . 10
9. Damage to Business Premises or Assets. . . . . . . . 11
10. Completion. . . . . . . . . . . . . . . . . . . . . 11
11. Final Instalment. . . . . . . . . . . . . . . . . . 14
12. Warranties. . . . . . . . . . . . . . . . . . . . . 14
13. Indemnities . . . . . . . . . . . . . . . . . . . . 15
14. Debtors and Creditors . . . . . . . . . . . . . . . 15
15. Employees . . . . . . . . . . . . . . . . . . . . . 16
16. Superannuation. . . . . . . . . . . . . . . . . . . 17
17. Plant Leases and Financing Leases . . . . . . . . . 17
18. Other Contracts . . . . . . . . . . . . . . . . . . 18
19. Contractual Indemnity . . . . . . . . . . . . . . . 18
20. Transition. . . . . . . . . . . . . . . . . . . . . 19
21. Other Obligations after Completion. . . . . . . . . 20
22. Default . . . . . . . . . . . . . . . . . . . . . . 20
23. Restraint on Competition. . . . . . . . . . . . . . 22
24. Expert Determination. . . . . . . . . . . . . . . . 23
25. International Sale of Goods - Exclusion of Vienna
Convention. . . . . . . . . . . . . . . . . . . 23
26. Interest . . . . . . . . . . . . . . . . . . . . . 23
27. Continuing Obligations . . . . . . . . . . . . . . 24
28. Reconstruction of Authority. . . . . . . . . . . . 24
________________________________________________________________
ASSET PURCHASE AGREEMENT i C COPYRIGHT 1999
B/222128
<PAGE>
29. Further Assurance. . . . . . . . . . . . . . . . . 24
30. Severability . . . . . . . . . . . . . . . . . . . 24
31. Entire Understanding . . . . . . . . . . . . . . . 24
32. Variation. . . . . . . . . . . . . . . . . . . . . 24
33. Waiver . . . . . . . . . . . . . . . . . . . . . . 25
34. Costs and Outlays. . . . . . . . . . . . . . . . . 25
35. Notices. . . . . . . . . . . . . . . . . . . . . . 25
36. Governing Law and Jurisdiction . . . . . . . . . . 26
37. Contaminated Land. . . . . . . . . . . . . . . . . 27
38. Licence from SEC . . . . . . . . . . . . . . . . . 27
39. *** Assets . . . . . . . . . . . . . . . . . . . . 27
40. Confidentiality. . . . . . . . . . . . . . . . . . 28
SCHEDULES
SCHEDULE 1A - VENDOR'S WARRANTIES . . . . . . . . . . . 29
SCHEDULE 1B - PURCHASER'S WARRANTIES. . . . . . . . . . 35
SCHEDULE 2 - PLANT, EQUIPMENT, FIXTURES AND FITTINGS . 36
SCHEDULE 3 - INTELLECTUAL PROPERTY . . . . . . . . . . 37
SCHEDULE 4 - BUSINESS NAMES. . . . . . . . . . . . . . 38
SCHEDULE 5 - PROPERTY LEASES . . . . . . . . . . . . . 39
SCHEDULE 6 - MATERIAL CONTRACTS. . . . . . . . . . . . 40
SCHEDULE 7 - EMPLOYEES . . . . . . . . . . . . . . . . 41
SCHEDULE 8 - RETIRMENT BENEFITS SCHEMES, PENSION
SCHEMES and OTHER SUPERANNUATION or PENSIONS
ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . 43
SCHEDULE 9 - NECESSARY APPROVALS . . . . . . . . . . . 44
SCHEDULE 10 - *** ASSETS. . . . . . . . . . . . . . . . 53
SCHEDULE 11 - OPERATING LEASES. . . . . . . . . . . . . 54
SCHEDULE 12 - FINANCING LEASES. . . . . . . . . . . . . 55
ANNEXURE A - PURCHASER'S PARENT AGREEMENT. . . . . . . 59
ANNEXURE B - VENDOR'S PARENT GUARANTEE . . . . . . . . 60
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY
OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH
REQUEST.
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<PAGE>
AGREEMENT made 1999
PARTIES TOTAL ENERGY SYSTEMS LIMITED ACN 010 876 150 ("TES")
T.E.S. MINING SERVICES PTY LTD ACN 010 975 676
("TES Mining")
TOTAL ENERGY SYSTEMS (INTERNATIONAL) PTY LTD
ACN 084 562 247 ("TES International")
and TOTAL ENERGY SYSTEMS (NZ) LIMITED ("TES NZ")
(DN/682396)
all c/- Level 7, 371 Queen Street, Brisbane, Queensland
("Vendors")
AND QUANTUM EXPLOSIVES PTY LIMITED ACN 087 119 515 of 146 Kerry
Road, Archerfield, Queensland ("Purchaser")
INTRODUCTION
A. The Vendors conduct the Business in Australia and elsewhere.
B. TES is a wholly owned indirect subsidiary of LSB Chemical.
TES Mining, TES International and TES NZ are subsidiaries of
TES.
C. The Vendors have agreed to sell the Assets and the Business
as a going concern to the Purchaser and the Purchaser has
agreed to buy the Assets and the Business as a going concern
from the Vendors on the terms of this Agreement.
IT IS AGREED
1. Definitions and Interpretation
1.1 Definitions
In this Agreement:
1.1.1 Advertising Material" means all advertising, sales
and marketing material owned or controlled by the
Vendors and used by the Vendors in relation to the
Business;
1.1.2 "Agreement" means this document, including any
schedule or annexure to it;
1.1.3 "Assets" means the property of the Vendors (other
than the Book Debts) used in the Business at the
opening of business on the Completion Date,
comprising:
.1 the Plant and Equipment and any other plant,
equipment, fixtures and fittings used in
connection with the Business at the date of
this Agreement or acquired or constructed by
the Vendors in connection with the Business
after the date of this Agreement and prior to
Completion;
.2 the goodwill of the Business including any
Know-how, Technical Data, Advertising
Material (including licence to use it) and
copyright in any labelling or printing used
by the Vendors in connection with the
Business and any goodwill attaching to the
trade marks and to the Business Names;
.3 the Intellectual Property used in connection
with the Business at the date of this
Agreement or acquired by the Vendors in
connection with the Business after the date
of this Agreement and prior to Completion
including the Intellectual Property listed in
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Schedule 3 but excluding the technology
previously licensed to the Vendors by
Mining Services International Inc. and
the Toprime trademark;
.4 the Inventory; and
.5 the Material Contracts, the Property Leases,
and, to the extent that they are capable of
assignment or novation, all other contracts
including all burdens and obligations of the
Vendors thereunder entered into by the
Vendors in the course of carrying on the
Business and subsisting at the opening of
business on the Completion Date including
without limitation the Operating Leases and
the Financing Leases;
1.1.4 "Balance Date" means the date to which the most
recent balance sheet and profit and loss account
of the Business have been made up;
1.1.5 "Book Debts" means the receivables of the Business
owing to the Vendors as of the Completion Date;
1.1.6 "Business" means the Vendors' business of
manufacturing and supplying bulk and packaged
explosives and blasting agents and other products
and services to the mining, quarrying, civil
engineering and other industries in Australia, New
Zealand and elsewhere;
1.1.7 "Business Day" means a day that is not a Saturday,
Sunday or any other day which is a public holiday
or a bank holiday in the place where an act is to
be performed or a payment is to be made;
1.1.8 "Business Names" means those names set out in
Schedule 4;
1.1.9 "Business Premises" means the premises and land
that is the subject of the Property Leases;
1.1.10 "Business Records" means all books of account,
accounts, records and data however recorded and
all other documents relating to the Business and
the Assets;
1.1.11 "Completion" means the performance of the acts set
out in clause 10 to be performed on the Completion
Date;
1.1.12 "Completion Date" means:
.1 1 June 1999 if the conditions precedent are
satisfied or waived by 27 May 1999; otherwise
.2 1July 1999.;
1.1.13 "Contaminant" includes:
.1 a gas, liquid or solid;
.2 an odour;
.3 energy including noise, heat, radioactivity
and electromagnetic radiation; and
.4 a combination of contaminants.
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1.1.14 "Contamination" means any release (whether by act
or omission) of a Contaminant;
1.1.15 "Default Rate" means 10% per annum;
1.1.16 "Employees" means the persons employed by the
Vendors in the Business at the date of this
Agreement specified in Schedule 7 and any other
persons who become so employed prior to
Completion;
1.1.17 "Encumbrance" means any legal or equitable
interest or power:
.1 reserved in or over any Asset or any interest
in any Asset; or
.2 created or otherwise arising in or over any
Asset or any interest in any Asset under a
transfer, bill of sale, mortgage, fixed or
floating charge, lien (other than repairer's
liens which will be discharged by the Vendors
in the ordinary course), pledge, trust or
power;
by way of security for the payment of a debt, any
other pecuniary obligation or the performance of
any other obligation but does not include the
burden of obligations and duties to be performed
under the Property Leases, Material Contracts,
Financing Leases, Operating Leases and other
contracts relating to the Business and any
existing licence or sublicence attaching to the
Intellectual Property including without limitation
the sublicence to Quin Investments Pty Ltd.;
1.1.18 "Environmental Law" means any law, whether statute
or common law, concerning environmental matters,
and includes but is not limited to law concerning
land use, development, pollution, waste disposal,
toxic and hazardous substances, conservation of
natural and cultural resources and resource
allocation including any law relating to
exploration for or development of any natural
resource;
1.1.19 "Environmental Liability" means any liability,
obligation, expense, penalty or fine, whether
present, prospective or contingent, under any
Environmental Law;
1.1.20 "Existing Environmental Cost" has the meaning
given in clause 37.3;
1.1.21 "Excluded Employees" means those Employees as
agreed by the Purchaser and the Vendors, to whom
the Purchaser does not have to make an offer of
employment;
1.1.22 "Expert" means a person agreed in writing by the
Vendors and the Purchaser or in default of
agreement, a person appointed by the President for
the time being of the Queensland Law Society on
the application of either the Vendors or the
Purchaser.
1.1.23 "Final Instalment Date" means 21 days after the
Completion Date;
1.1.24 "Financing Leases" means the leases and hire
purchase agreements listed in Schedule 12;
1.1.25 "Intellectual Property" means trade marks, logos,
service marks, trade names, business names,
copyrights, designs, patents, inventions,
processes and other technical know-how and other
rights in industrial property and applications for
them and licence agreements or other arrangements
under which a person has the right to use any of
the foregoing but excluding the technology
previously licensed to the Vendors by Mining
Services International Inc.;
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<PAGE>
1.1.26 "Know-how" means all the knowledge and information
(whether contained in the Business Records or
otherwise) which the Vendors or any Related Body
Corporate have relating to the Business and which
the Vendors are able to assign to the Purchaser
without breaching any law or contract;
1.1.27 "Leased Plant and Equipment" means those items of
Plant and Equipment specified in Schedule 12 as
being subject to a Financing Lease.
1.1.28 "Liability" includes a present, prospective or
contingent liability;
1.1.29 "LSB Chemical" means LSB Chemical Corp of 165
Pennsylvania Avenue, Oklahoma City, United State
of America;
1.1.30 "LSB Industries" means LSB Industries Inc of 165
Pennsylvania Avenue, Oklahoma City, United State
of America;
1.1.31 "Material Contracts" means the contracts specified
in Schedule 6 including all burdens and
obligations of the Vendors thereunder;
1.1.32 "Materials" means all files, input materials,
output materials, media upon which input and
output materials are located (including cards,
disks, tapes and other storage facilities),
software programs or packages and any related
documentation to the extent that they are capable
of assignment or novation, source codes and all
other materials, reports, information and results
in relation to the Business
1.1.33 "Necessary Approvals" means any consent,
registration, filing, certificate, licence,
approval, permit, authority or the like necessary
to enable the Purchaser to conduct the Business
including those specified in Schedule 9;
1.1.34 "Non-transferring Employees" means all of the
Employees (other than Excluded Employees) who do
not become Transferring Employees on or before the
Completion Date;
1.1.35 "*** Assets" means the plant and equipment listed
in Schedule 10;
1.1.36 "Operating Leases" means the leases listed in
Schedule 11;
1.1.37 "Plant and Equipment" means the plant, equipment,
vehicles, furniture, fixtures and fittings
(including spare parts) specified in Schedule 2
and any additions or deletions thereto agreed by
the parties;
1.1.38 "Plant Leases" means any leasing agreements,
hiring agreements and hire purchase agreements
affecting the Plant and Equipment prior to the
Completion Date other than the Financing Leases;
1.1.39 "Property Leases" means the real property leases
specified in Schedule 5 including all burdens and
obligations thereunder;
1.1.40 "Purchase Price" means the purchase price stated
in clause 6.1;
1.1.41 "PVI" means the total minimum Financing Lease
lease payments less future finance charges and
executory costs as shown in TES' lease statutory
accounts disclosure report prepared in accordance
with TES' usual practice as at the Completion
Date;
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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<PAGE>
1.1.42 "Related Body Corporate" has the meaning given in
section 9 of the Corporations Law;
1.1.43 "Inventory" means all trading stock, consumables,
packaging and packaging materials, work-in-
progress, raw materials and finished goods held,
used or to be used in the Business and owned,
unencumbered by the Vendors at the opening of
business on the Completion Date;
1.1.44 "Satisfaction Date" means 29 June 1999 or such
later date as the Parties may agree;
1.1.45 "SEC" means Slurry Explosive Corporation of 5700
North Portland, Oklahoma City, Oklahoma, United
States of America;
1.1.46 "Technical Data" means all designs, drawings,
specifications, formulae, manufacturing processes,
operating procedures and other technical data and
information of whatever kind relating to the Busi-
ness which the Vendors are able to assign to the
Purchaser without breaching any law or contract;
1.1.47 "Transferring Employees" means all Employees who
accept the offers of employment made by the
Purchaser under clause 15.1 on or before the
Completion Date;
1.1.48 "Vendors" means TES, TES Mining, TES International
and TES NZ; and
1.1.49 "Warranty" means a representation or warranty
contained in Schedule 1A and 1 B.
1.2 Interpretation
1.2.1 Reference to:
.1 one gender includes the others;
.2 the singular includes the plural and the
plural includes the singular;
.3 a person includes a body corporate;
.4 a party includes the party's executors,
administrators, successors and permitted
assigns;
.5 a statute, regulation or provision of a
statute or regulation ("Statutory Provision")
includes:
(i) that Statutory Provision as amended or
re-enacted from time to time; and
(ii) a statute, regulation or provision
enacted in replacement of that Statutory
Provision; and
.6 money is to Australian dollars, unless
otherwise stated.
1.2.2 "Including" and similar expressions are not words
of limitation.
1.2.3 Where a word or expression is given a particular
meaning, other parts of speech and grammatical
forms of that word or expression have a corresponding
meaning.
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<PAGE>
1.2.4 Headings are for convenience only and do not form
part of this Agreement or affect its
interpretation.
1.2.5 A provision of this Agreement must not be
construed to the disadvantage of a party merely
because that party was responsible for the
preparation of the Agreement or the inclusion of
the provision in the Agreement.
1.2.6 If an act must be done on a specified day which is
not a Business Day, it must be done instead on the
next Business Day.
1.3 Parties
1.3.1 If a party consists of more than 1 person, this
Agreement binds each of them separately and any 2
or more of them jointly.
1.3.2 An obligation, representation or warranty in
favour of more than 1 person is for the benefit of
them separately and jointly.
1.3.3 A party which is a trustee is bound both
personally and in its capacity as a trustee.
2. Conditions Precedent
2.1 This Agreement is subject to each of the following
conditions precedent to the sale and purchase being
fulfilled on or before the Satisfaction Date (unless
otherwise stated):
2.1.1 the lessors, and the lessors' mortgagees (if
required by the lessor), consenting to assignment
of the Property Leases from the Vendors to the
Purchaser with only such modifications or
conditions as are reasonably acceptable to the
Purchaser but the Purchaser shall accept as a
condition of any such assignment that it provide
to the lessors replacement security deposits or
guarantees for those lodged by or on behalf of the
Vendors;
2.1.2 all parties to the Material Contracts consenting
to the assignment or novation of those contracts
in favour of the Purchaser with only such
modifications or conditions as are reasonably
acceptable to the Purchaser but the Purchaser
shall accept as a condition of any such assignment
or novation that it provide to the other parties
to the Material Contracts replacement security
deposits or guarantees for those lodged by or on
behalf of the Vendors;
2.1.3 the Minister for Mines and Energy for and on
behalf of the State of Queensland:
.1 granting or otherwise agreeing in writing to
grant to the Purchaser a new occupancy
agreement, licence or lease to occupy the
*** Explosive Reserve site on terms
reasonably satisfactory to the Purchaser
provided that a lease or licence or occupancy
agreement on substantially similar terms to
that currently held by TES will be reasonably
satisfactory; and
.2 consenting to TES terminating without
liability its existing Occupancy Agreement in
respect of this site with effect on and from
the Completion Date;
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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<PAGE>
2.1.4 the Purchaser (by the Completion Date) obtaining
all Necessary Approvals in its own name on terms
and conditions (if any) acceptable to the
Purchaser provided the Purchaser has been advised
and hereby acknowledges and agrees and understands
that the Vendors operate a Business requiring
licences under the Environmental Protection Act
and that it will be necessary for an assignment of
those licences or new licences to be obtained by
the Purchaser in order to properly operate the
Business;
2.1.5 the Purchaser entering an agreement with LSB
Industries, under which LSB Industries agrees to
supply the Purchaser ammonium nitrate on terms
reasonably satisfactory to both the Purchaser and
LSB Industries;
2.1.6 THIESS Contractors Pty Limited ACN 010 221 486
validly executing and giving to the Vendors a
Guarantee in the form attached as Annexure A
within 14 days after the execution of this
Agreement or such longer time up to the
Satisfaction Date as to which the Vendors, in
their sole discretion may consent;
2.1.7 subject to clause 2.3 the Vendors and the
Purchaser each in their absolute discretion being
satisfied with the Existing Environmental Cost but
the Vendors and the Purchaser will be satisfied
with the Existing Environmental Cost if it is not
in excess of $100,000;
2.1.8 LSB Industries validly executing and giving to the
Purchaser a guarantee in the form attached as
Annexure B;
2.1.9 Subject to clause 38, SEC consenting to the
assignment or novation of the Licence Agreement,
dated 1 October 1996 between SEC and TES, from TES
to the Purchaser on terms reasonably acceptable to
the Purchaser. ***. The Purchaser also accepts
that it will be a reasonably acceptable term of
the assignment or novation of the licence
agreement that the Purchaser cannot assign the
licence or sublicence its rights thereunder
without the consent of SEC which consent will not
be unreasonably withheld in the case of a
sublicence for the purpose of the production of
product for the Purchaser's own use in selling to
its customers; and
2.1.10 the Vendors (by the Completion Date) either,
purchasing the Leased Plant and Equipment free
from any Financing Lease or Encumbrance or, all
parties to the Financing Leases consenting to the
assignment or novation of those contracts in
favour of the Purchaser with only such
modifications or conditions as are reasonably
acceptable to the Purchaser. Provided that the
Purchaser shall accept as a condition of any such
assignment or novation that where the lessor holds
title in the Leased Plant and Equipment that fact
may be registered pursuant to the Motor Vehicles
Securities Act 1986 (Qld) or any similar
legislation in any other Australian State.
2.2 Each party must at its own cost use its reasonable
endeavours and co-operate with the other parties to procure
satisfaction of the conditions precedent as quickly as
possible.
2.3 Except as otherwise provided in this clause 2.3, each
condition precedent is for the sole benefit of the Purchaser
which may waive it by giving notice to the Vendors, provided
that the Purchaser shall be deemed to have waived any
failure of any such condition precedent if such failure
arises as a result of the Purchaser's default. The condition
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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<PAGE>
precedent in clause 2.1.6 is for the sole benefit of the Vendors
and may be waived by the Vendors in their absolute discretion.
The condition precedent in clause 2.1.7 is for the benefit of
both the Vendors and the Purchaser and cannot be waived
without the agreement of the Parties provided that that
condition precedent will be deemed to be satisfied where the
Existing Environmental Cost exceeds $100,000 if any of the
following apply:
2.3.1 the Parties agree how the amount by which the
Existing Environmental Cost exceeds $100,000
("Excess Amount") is to be borne between them;
2.3.2 the Vendor elects in its absolute discretion to
accept the Existing Environmental Cost; or
2.3.3 the Purchaser agrees to bear the Excess Amount and
in such a case the deduction from the Purchase
Price in clause 6.1.4 shall be limited to
$100,000.
2.4 Subject to clauses 2.5, 2.6 and 2.7 if the conditions
precedent are not satisfied or waived by the Satisfaction
Date then this Agreement may be rescinded by the Purchaser
or the Vendors by notice to the other without penalty.
2.5 Notwithstanding clause 2.1.1 and clause 10.2.10 the parties
agree that there shall be no failure to fulfil the condition
precedent and no breach of the completion obligation in
those clauses where at the Satisfaction Date the consent of
the lessor and if required by the lessor, the lessor's
mortgagee to the assignment of the relevant Property Lease
has not been obtained in respect of the premises described
as *** or those premises which are used for residential
purposes only In such a case the Vendors and the Purchaser
will continue to pursue the lessors for consent to the
assignment subsequent to the Completion Date.
2.6 Notwithstanding clause 2.1.2 and clause 10.2.2 the parties
agree that there shall be no failure to fulfil the condition
precedent and no breach of the completion obligation in
those clauses if by the Satisfaction Date the consent of
Denasa Detonantes Nacionales S.A. ("DDN") to the assignment
of its contract with TES to the Purchaser has not been
obtained, provided TES agrees to obtain goods under that
contract for the Purchaser at the same price and otherwise
on the same terms as TES has with DDN.
2.7 Notwithstanding clause 2.1.2 and clause 10.2.2 the parties
agree that there shall be no failure to fulfil the condition
precedent and no breach of the completion obligation in
those clauses if by the Satisfaction Date the consent of
Beston Chemical International Limited ("Beston") to the
assignment of its contract with TES to the Purchaser has not
been obtained, provided TES agrees to obtain goods under
that contract for the Purchaser at the same price and
otherwise on the same terms as TES has with Beston. Subject
to the Beston contract being assigned to the Purchaser, the
Purchaser shall on Completion pay to the Vendors in addition
to the Purchase Price, an amount equal to the amount of
credit available to TES and transferred to the Purchaser
against the price for future purchases of goods under that
contract.
2.8 Notwithstanding clause 2.1.2 and clause 10.2.2 the parties
agree that there shall be no failure to fulfil the condition
precedent and no breach of the completion obligation in
those clauses if by the Satisfaction Date the consent of ***
to the assignment of its contract with TES ("the ***
Contract")to the Purchaser has not been obtained, provided
TES agrees to obtain goods under that contract for the
Purchaser at the same price and otherwise on the same terms
as TES has with ***. The Purchaser acknowledges and agrees
that it must order and pay for not less than 1200 tonnes of
a combination of ammonium nitrate at 90% concentration and
in prill form per 12 week period under the *** Contract.
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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3. FIRB Approval
3.1 Within 3 Business Days after the date of this Agreement the
Purchaser must apply to FIRB for approval to purchase the
Assets and the Business as a going concern. The Purchaser
must take all reasonable steps to obtain approval by the
Completion Date ("Approval Date").
3.2 The Purchaser may terminate this Agreement by notice to the
Vendors if by the Approval Date:
3.2.1 the Treasurer of the Commonwealth of Australia
advises either the Vendors or the Purchaser that
it objects to the purchase of the Assets and the
Business as a going concern by the Purchaser;
3.2.2. the Treasurer has not notified the Vendors or
Purchaser of his or her decision concerning the
Purchaser's application; or
3.2.3 the Treasurer approves the purchase subject to
conditions which are unsatisfactory to the
Purchaser in exercise of the Purchaser's
reasonable judgment.
4. Sale and Purchase
4.1 Subject to the terms, conditions and limitations of this
Agreement, the Vendors sell to the Purchaser and the
Purchaser purchases from the Vendors, the Assets and the
Business as a going concern, free from Encumbrances.
5. Risk and Property
5.1 Subject to Completion, the title in and right to possession of the
Assets passes to the Purchaser at the opening of business on the
Completion Date.
5.2 The Assets remain at the risk of the Vendors until Completion, at which
time such risk shall pass to the Purchaser.
6. Purchase Price
6.1 The Purchase Price for the Assets and the Business is the
aggregate of:
6.1.1 ***;
6.1.2 ***;
minus:
6.1.3 ***;
6.1.4 ***;
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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6.1.5 ***.
6.2 That part of the Purchase Price payable under
clause 6.1.1 is apportioned as follows:
Goodwill $***
Plant and Equipment ***
It is agreed that, although the price for the goodwill of
the Business has been specified, the goodwill has or may
have (having regard to the provisions of this Agreement as a
whole), a value to the Purchaser in excess of that price
and, in the event of a breach of contract by the Vendors in
relation to that Asset, the Purchaser is not restricted in
claiming damages for the breach, to that price.
6.3 The Purchaser must pay the Purchase Price to the Vendors in
accordance with clauses 10.5 and 11.
7. Inventory
7.1 The adjustments to the value of Inventory are determined in
accordance with this clause 7.
7.2 The Vendors shall undertake their usual monthly physical
stocktake of the Inventory as at the day prior to the
Completion Date and representatives of the Purchaser may be
present during that stocktake.
7.3 The Vendors and the Purchaser must use their reasonable
endeavours to ensure that the stocktake of Inventory is
completed prior to the opening of business on the Completion
Date and that the value of Inventory is agreed not later
than 15 days after the Completion Date.
7.4 The values ascribed to each item of Inventory must be ***.
7.5 The Vendors must not acquire any further Inventory after the
date of this Agreement and prior to the Completion Date
which would be excessive to the needs of the Business in the
ordinary course.
7.6 Subject to clauses 7.5 and 11.1.2, in addition to the
Purchase Price the Purchaser shall pay to the Vendors upon
presentation of relevant invoices or bills of lading and
reasonably satisfactory proof of payment, the costs payable
by the Vendors (including invoiced costs, freight and
transport charges, export and import duties and other
incidental costs) for all raw materials and finished goods
in transit or ordered by the Vendors but not delivered as at
the Completion Date. Upon receipt of such payment the Vendor
shall transfer to the Purchaser full and unencumbered title
to and possession of those raw materials and finished goods.
Provided that the Vendors may direct the Purchaser to make
the necessary payments direct to the relevant
supplier/creditor if upon the making of such payment full
and unencumbered title to and possession of those raw
materials and finished goods vests in the Purchaser.
8. Accrued Liabilities
8.1 The value of accrued liabilities referred to in clause 6.1.3
must be determined by the Vendors in accordance with this
clause 8 and notified by the Vendors to the Purchaser not
later than 15 days after the Completion Date.
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
________________________________________________________________
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<PAGE>
8.2 Annual leave must be calculated on the basis of full
statutory entitlements on all service of Transferring
Employees at the close of business on the last Business Day
prior to the Completion Date less leave taken.
8.3 Long service leave must be calculated on the service of
Transferring Employees to the close of business on the last
Business Day prior to the Completion Date as:
8.3.1 Full Statutory Entitlements where an Employee is
entitled to them, less leave taken; or
8.3.2 where an Employee has been employed for not less
than 1/2 of the Qualifying Period, the same
proportion of the Full Statutory Entitlements as
the period of service of the Employee bears to the
period of service required for Full Statutory
Entitlements.
8.4 For the purpose of clause 8.3:
8.4.1 "Full Statutory Entitlements" means the
entitlements of an Employee who has served the
period required to entitle the Employee by law to
take full long service leave without leaving the
employment; and
8.4.2 "Qualifying Period" means the period which
entitles an Employee by law to a proportional
payment for long service leave if the employment
terminates.
8.5 The Vendors must supply to the Purchaser on or prior to the
Final Instalment Date such verification of the calculation
of the accrued liabilities as the Purchaser may reasonably
require.
9. Damage to Business Premises or Assets
9.1 If between the date of this Agreement and Completion, the
Business Premises are damaged or destroyed or any item of
Plant and Equipment is lost damaged or destroyed then:
9.1.1 if the destruction or damage renders the Business
wholly or substantially incapable of being
conducted for a period in excess of 21 days, the
Purchaser may terminate this Agreement; or
9.1.2 if clause 9.1.1 does not apply, the Purchaser may
deduct from the Purchase Price a sum equal to the
*** value used in calculating that part of the
Purchase Price constituted by the item which has
been destroyed or lost or the cost of repair of
the item which has been damaged.
10. Completion
10.1 Completion must take place at the office of the solicitors
for the Vendors, in Brisbane, on the Completion Date or on
such other date and place as may be agreed by the Vendors
and the Purchaser.
10.2 At Completion, the Vendors must deliver the Assets and the
Business to the Purchaser by giving to the Purchaser
possession of the Assets and handing to the Purchaser:
10.2.1 all Business Records (including a complete and up-
to-date list of customers and suppliers and
records relating to each item of plant);
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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<PAGE>
10.2.2 assignments or novations of the Material Contracts
and such assignments or novations of other
contracts relating to the Business as it has then
obtained together with the originals or
counterparts of all contracts held by the Vendors;
10.2.3 "statements of change of persons in relation to
whom business name is registered" in respect of
the Business Names, signed by the Vendors,
together with the certificates of registration of
the Business Names;
10.2.4 [intentionally deleted];
10.2.5 a release of the deeds of charge given by the
Vendors to *** so far as they relate to the
Assets;
10.2.6 deeds of assignment of the trade marks which are
owned by the Vendors (other than the "HEF"
trademark ) together with certificates of
registration of the trade marks;
10.2.7 if the Vendors are recorded, or have applied to be
recorded, as claiming an interest in, or a right
in respect of, a trade mark (other than the "HEF"
trademark ), an application in the approved form
signed by the registered owner of or applicant for
the trade mark, to have a claim by the Purchaser
to the same interest or right recorded in the
register, together with a written consent by the
Vendors to the cancellation of their claim;
10.2.8 all Technical Data, Materials and Advertising
Material in the possession or under the control of
the Vendors;
10.2.9 notices by the Vendors of disposition of all motor
vehicles and certificates of roadworthiness for
those motor vehicles;
10.2.10 assignments of the Property Leases signed by the
Vendors and the lessors of the Property Leases,
consents in writing of the lessors' mortgagees (if
required by the lessor) to the Property Leases and
the assignment of those Property Leases, and
stamped counterparts of the Property Leases;
10.2.11 evidence to the reasonable satisfaction of the
Purchaser of the purchase by the Vendors of any of
the Plant and Equipment which had been subject to
Plant Leases;
10.2.12 all documents signed by the Vendors that may be
required to enable the Purchaser to apply for the
transfer into its name of all permits, regis-
trations, licences and documents necessary to
enable the Purchaser to legally and effectively to
carry on the Business other than the Necessary
Approvals required to be obtained by the Purchaser
prior to Completion under clause 2.1.4 which do
not involve the transfer of existing licences or
permits held by the Vendors or such Necessary
Approvals which the Purchaser has applied for and
for which the Purchaser has received written
assurances from the relevant government
authorities to the Purchaser's satisfaction;
10.2.13 releases of all Encumbrances affecting the Assets
other than the Leased Plant and Equipment which is
subject to a lease and that lease is assigned to
the Purchaser and under that lease the relevant
lessor retains the beneficial ownership of the
relevant item of Leased Plant and Equipment;
10.2.14 particulars of all outstanding contracts or orders
for the supply of goods or services of the
Business that have not been provided to the
Purchaser;
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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<PAGE>
10.2.15 particulars of all outstanding contracts or orders
for the acquisition of Materials, consumables,
components and other supplies and services that
have not been provided to the Purchaser;
10.2.16 particulars of the service and maintenance
agreements relating to the Business that have not
been provided to the Purchaser;
10.2.17 the employment records of all Employees;
10.2.18 details of the superannuation records of all
Transferring Employees;
10.2.19 details of all payments to be made in respect of
all Employees under any applicable legislation,
registered industrial awards and contracts of
employment;
10.2.20 all documents required from the Vendors to enable
the Purchaser to obtain the telephone and
facsimile services and numbers of the Business;
10.2.21 all keys and codes required to gain access to the
Business Premises, all computer systems and all
other property sold under this Agreement;
10.2.22 all other documents and information to be
delivered to the Purchaser under this Agreement;
and
10.2.23 all other information, items and documents
relating to the Business which the Purchaser may
reasonably require.
10.3 The Purchaser must prepare and submit to the Vendors within
a reasonable time before Completion all assignments,
applications and other documents which the Vendors are
required to sign and hand to the Purchaser on Completion.
10.4 At Completion, the Vendors must:
10.4.1 use its best endeavours to transfer to the
Purchaser the Financing Leases, the Operating
Leases, any contracts, including all burdens and
obligations of the Vendors thereunder, (other than
the Material Contracts and the Property Leases)
entered into by the Vendors in the course of
carrying on the Business;
10.4.2 do (at the Vendors cost) all things (including
executing deeds, documents and instruments)
reasonably required by the Purchaser to transfer
the legal and beneficial ownership and possession
of the Assets and the Business to the Purchaser
provided that the Purchaser shall prepare at its
own cost, all such deeds, documents and
instruments required to transfer the legal and
beneficial ownership and possession of the Assets
and the Business, including all deeds required to
assign the Property Leases and the Material
Contracts; and
10.4.3 comply with all requirements, notices, orders and
directions given by any statutory, public or other
competent authority affecting the Business or the
Business Premises with regard to the conduct of
the Business, which issued or of which the Vendors
were aware, (although no notice was issued),
before the date of this Agreement.
10.5 At Completion, the Purchaser must, subject to the Vendors
performing all their obligations under this Agreement
required to be performed by the Vendors at Completion pay to
TES by telegraphic transfer and/or bank cheques drawn in
the manner advised by the Vendors in writing:
10.5.1 ***;
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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<PAGE>
10.5.2 ***;
minus:
10.5.3 ***
10.5.4 ***.
10.6 Subject to this Agreement, the Vendors are entitled to the
income of the Business, and must pay the outgoings of the
Business, in respect of the period up to the close of
business on the last Business Day prior to the Completion
Date and, subject to this Agreement and to Completion, the
Purchaser is entitled to the income of the Business and must
pay the outgoings of the Business in respect of the period
after that date.
10.7 Within 7 months from Completion or such longer period as the
Purchaser may agree, the Vendors must change their names to
names that do not include the words "Total" or "Energy" or
any similar words but during that period the Vendors may
continue to operate under their existing names subject to
clause 23.
11. Final Instalment
11.1 At the Final Instalment Date:
11.1.1 the Purchaser must pay to TES the sum by which the
Purchase Price exceeds the amount paid to TES
under clause 10.5;
11.1.2 the Purchaser must reimburse the Vendors for:
.1 any payments made in advance by the Vendors
prior to the opening of business on the
Completion Date in respect of goods to be
supplied and services to be rendered to the
Business in the ordinary course after that
time for the benefit of the Purchaser, other
than any payments under contracts made in
breach of Warranty; and
.2 any other payment made in advance by the
Vendors in respect of the Business in the
ordinary course prior to the opening of
business on the Completion Date, the benefit
of which is not received by the Business
until after that time; and
11.1.3 the Vendors must reimburse the Purchaser for:
.1 any payments received in advance by the
Vendors prior to the opening of business on
the Completion Date in respect of goods to be
supplied or services to be rendered after
that time;
.2 any goods supplied and services rendered to
the Vendors in respect of the Business prior
to the opening of business on the Completion
Date, payment for which must be made by the
Purchaser after that time; and
.3 any payment which the Purchaser will become
liable to make in respect of the Business
after the opening of business on the
Completion Date, the benefit of which was
received by the Business before that time.
11.2 The Vendors must provide the Purchaser with details of all
the payments referred to in clause 11.1 in writing not later
than 15 days after the Completion Date together with such
verification as the Purchaser may reasonably require.
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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ASSET PURCHASE AGREEMENT 14 C COPYRIGHT 1999
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<PAGE>
12. Warranties
12.1 The Vendors jointly and each of them separately warrant to
the Purchaser in terms of the Warranties set out in
Schedule 1A.
12.2 The Purchaser warrants to the Vendors in terms of the
Warranties set out in Schedule 1B.
12.3 Each of the Warranties is made and applies at the date of
this Agreement.
12.4 Each of the Warranties is made and applies at the Completion
Date.
12.5 A Warranty which refers to "the knowledge, information and
belief" of the Vendors, or which refers to their
"knowledge", or contains words to that effect, or which
refers to them or any of them being aware or not being aware
of a matter, must be treated as including an additional
Warranty that the Vendors have made due and reasonable
enquiry as to the matter.
12.6 Any action for the breach of any Warranty made under this
Agreement must be taken, if at all, within twelve (12)
months after the Completion Date. Thereafter the person to
whom the Warranty is made will have no right, claim or cause
of action whatsoever arising out of any breach of or
inaccuracy in the Warranties.
12.7 The Purchaser and Vendors acknowledge and agree that, other
than as set out in Schedule 1A and 1B, neither the Vendors,
the Purchaser, nor any other person for or on their behalf
have made any representations, warranties or statements
concerning the Business, the Assets or the subject matter of
this Agreement.
12.8 The Inventory is sold to the Purchaser as is, where is, and
with all faults. There is no express or implied warranty as
to the condition, design, workmanship, or the lack of any
latent defects in connection with any of the Inventory and
the Vendors make no warranty of merchantability in respect
of the Inventory or of the fitness of the Inventory for any
particular purpose.
13. Indemnities
13.1 The Vendors indemnify the Purchaser against all Liabilities
and the cost of all demands, actions and other proceedings
against the Purchaser (including legal costs on a solicitor
and own client basis) arising directly or indirectly as a
result of or in connection with, any breach or non-
performance of the Warranties made by the Vendors or
obligations of the Vendors, whether express or implied,
under this Agreement, provided however that the aggregate
liability of the Vendors for all claims made for such breach
or non performance shall not in any circumstances exceed
$1,000,000.
13.2 The Purchaser indemnifies the Vendors against all
Liabilities and the cost of all demands, actions and other
proceedings against the Vendors (including legal costs on a
solicitor and own client basis) arising directly or
indirectly as a result of or in connection with, any breach
or non-performance by the Purchaser of the warranties made
by the Purchaser or the obligations of the Purchaser,
whether express or implied, under this Agreement or under
any other agreement assigned to the Purchaser under this
Agreement, provided however that the aggregate liability of
the Purchasers for all claims made for such breach or non
performance shall not in any circumstances exceed
$1,000,000.
13.3 If a claim is made by any person against a party
("Indemnified Party") which, if satisfied or paid by the
Indemnified Party, would permit the Indemnified Party to
make a claim against another party ("Indemnifier") under
this Agreement:
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<PAGE>
13.3.1 the Indemnified Party must give notice of the
claim to the Indemnifier; and
13.3.2 the Indemnifier must, within 21 days after receipt
of that notice, either:
.1 cause the Indemnified Party to be put in
sufficient funds to satisfy or pay the claim;
or
.2 by notice to the Indemnified Party, request
the Indemnified Party not to satisfy or pay
the claim in whole or in part but, at the
expense and direction of the Indemnifier, to
take such action (including legal proceed-
ings) and in such manner as the Indemnifier
may direct, to avoid, dispute, defend, appeal
or compromise the claim and any adjudication
of it and the Indemnifier must also cause the
Indemnified Party to be immediately put (and
thereafter maintained) in sufficient funds in
sufficient time to pay all costs and expenses
of the action directed by the Indemnifier and
indemnify the Indemnified Party against any
Liability incurred in respect of the action
and subject to this clause 13.3.2.2, the
Indemnified Party must comply with the
directions of the Indemnifier.
13.4 If the Indemnified Party becomes aware of a potential claim
by any person against the Indemnified Party which, if
satisfied by the Indemnified Party, would permit the
Indemnified Party to make a claim against the Indemnifier
under this Agreement, the Indemnified Party must give notice
to the Indemnifier within 28 days after becoming aware of
it.
14. Debtors and Creditors
14.1 The Vendors must within 15 days of the Date of Completion
hand to the Purchaser a list of the Vendors' Book Debts
incurred prior to opening of business on the Completion
Date.
14.2 The Purchaser, as agent for the Vendors, must collect the
Vendors' Book Debts and bank all money so collected into a
bank account nominated by the Vendors and account to the
Vendors for the Book Debts so collected.
14.3 The Purchaser's obligations under this clause 14 are subject
to the Vendors complying with their obligations under clause
14.6.
14.4 The Purchaser's obligations under this clause 14 are
confined to receiving money from the Vendors' debtors and
banking it into the bank account referred to in clause 14.2.
14.5 The Purchaser's obligations under this clause 14 cease at
the expiration of 3 months from the Completion Date at which
time the Vendors and the Purchaser shall deliver notice to
each person responsible for the then outstanding Book Debts
as to whom and where such Book Debts are to be paid so as to
allow the Vendors to collect such remaining Book Debts
directly.
14.6 The Vendors must not unreasonably dispute or delay any
payments which are due by the Vendors at the Completion Date
or become due by the Vendors thereafter to any creditors who
are suppliers to the Business.
15. Employees
15.1 At least 14 days prior to the Completion Date, the Purchaser
must make offers of employment to each of the Employees
(other than the Excluded Employees) upon terms and
conditions generally no less favourable than those under
which each Employee is employed by the Vendors at the date
of this Agreement, requesting each of them to notify the
Vendors prior to the Satisfaction Date whether he or she
intends to accept the offer. The Vendors and the Purchaser
must use their best endeavours to encourage the Employees to
accept the offers.
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<PAGE>
15.2 The Vendors agree, subject to Completion, to release all
Transferring Employees from the employment of the Vendors
from the close of business on the last Business Day prior to
the Completion Date and to pay to all Transferring Employees
all their outstanding wages, salaries and other
entitlements, prior to the Completion Date, other than their
entitlements in respect of long service leave, sick leave
and holiday pay.
15.3 The Purchaser assumes all sick leave, long service leave,
holiday pay and redundancy or severance obligations in
respect of the Transferring Employees on the basis that
there has been a transmission of the Business and that the
past service of each Transferring Employee with the Vendors
is, for these purposes, taken to be service with the
Purchaser.
15.4 Subject to the Vendors complying with its obligations under
clauses 15.1, 15.2 and 16.2 and Warranty 8 (Schedule 1A),
the Purchaser indemnifies the Vendors against all claims for
salary and wages, long service leave, sick leave, holiday
pay (including applicable loadings), redundancy payments,
severance payments, superannuation, rostered days off and
other entitlements to which the Transferring Employees are
or may become entitled whether under any contract of
employment, award or otherwise and against all liability to
payroll tax which is or may become payable from and after
Completion
15.5 The Vendors must pay the cost of any redundancy payments or
severance payments for Non-transferring and Excluded
Employees, provided that the Purchaser must reimburse the
Vendors for the full amount of any redundancy payment or
severance payment paid by the Vendors to a Non-transferring
or Excluded Employee where:
15.5.1 the Non-transferring or Excluded Employee is
employed or re-employed by the Purchaser within
6 months of receiving the redundancy payment or
severance payment; and
15.5.2 the Vendors have, at Completion, given the
Purchaser notice of the Employees who have been
paid redundancy or severance payments and of the
amounts paid to each.
15.6 The Vendors must use their best endeavours to ensure that
the Transferring Employees do not resign prior to or after
the Completion Date and must not for the longest valid
period specified in clause 23.1.2 employ or approach any of
them for the purpose of employing them or removing them from
the Business.
16. Superannuation
16.1 In respect of each Transferring Employee who is a member of
a superannuation scheme operated for the benefit of
Employees of the Vendors ("Vendors' Scheme"), the Purchaser
must offer to such Employee immediate membership of a
superannuation scheme operated for the benefit of employees
of the Purchaser ("Purchaser's Scheme") by virtue of which:
16.1.1 superannuation benefits accrue in future on the
usual basis applicable to members of the
Purchaser's Scheme; and
16.1.2 superannuation benefits which have accrued under
the Vendors' Scheme in respect of previous
employment or scheme membership are at least
preserved under the Purchaser's Scheme except that
the benefits secured under the Purchaser's Scheme
in respect of past employment or scheme membership
may be adjusted on an equitable basis if the
amount or assets transferred is insufficient to
support the provision of the preserved benefits.
16.2 If a Transferring Employee elects to become a member of the
Purchaser's Scheme, the Vendors must cause the amount or
assets representing the Employee's equitable entitlements
under the Vendors' Scheme to be transferred to the
Purchaser's Scheme as soon as practicable after the
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<PAGE>
Completion Date and must also cause to be provided to
the Purchaser such information as the Purchaser or the
trustee of the Purchaser's Scheme reasonably requests
regarding the Employee's entitlements under the Vendors'
Scheme.
17. Plant Leases and Financing Leases
17.1 For the avoidance of doubt the Vendors must purchase any
Plant and Equipment the subject of a Plant Lease and
transfer such Plant and Equipment to the Purchaser on
Completion free from any Plant Lease or Encumbrance.
17.2 The Purchaser acknowledges that the Financing Leases
represent leases of certain items of the Plant and Equipment
which would require the Vendors to pay sums whether or not
characterised as penalties, in addition to the PVI
thereunder in order to obtain unencumbered title to the
relevant Plant and Equipment. On and from the Completion
Date the Purchaser will assume all obligations of the
Vendors under those Financing Leases which the Vendors cause
to be assigned or novated to the Purchaser. Provided that
the Purchaser shall accept as a condition of any such
assignment or novation that where the lessor holds title in
the Leased Plant and Equipment that fact may be registered
pursuant to the Motor Vehicles Securities Act 1986 (Qld) or
any similar legislation in any other Australian State.
17.3 If a Financing Lease cannot be assigned or novated to the
Purchaser the Vendors must purchase the Plant and Equipment
the subject of any such Financing Lease.
18. Other Contracts
18.1 If any of the contracts entered into by the Vendors in
relation to the Business including the Property Leases or
the Operating Leases cannot be effectively transferred to
the Purchaser as contemplated by this Agreement except by
novation or by assignment made with the consent of a third
party, the Vendors must upon the signing of this Agreement
or so soon afterwards as is practical, do everything it can
to procure the novation or the consent to the assignment.
18.2 In the period (if any) from the opening of business on the
Completion Date until the particular contract, Operating
Lease or any Property Lease, has been novated or effectively
assigned to the Purchaser or has terminated, the Purchaser
must pay, perform and discharge all of the obligations of
the Vendors under the contract (including the return or
relinquishment to a third party of any confidential
information, know-how or technical data which may come into
the possession of the Purchaser which the Vendors are
obliged by law or contract to return or relinquish to that
party) and the Vendors must permit the Purchaser to receive
and must account to the Purchaser for all the proceeds and
benefits arising from the contract. The Purchaser shall,
subject to the terms of this Agreement, indemnify and keep
indemnified the Vendors against all Liability, claims or
demands of whatsoever nature which they may incur arising
under such contracts on and from the Completion Date as a
result of the acts or omissions of the Purchaser.
18.3 Where any of the contracts entered into by the Vendors in
relation to the Business (including the Operating Leases )
or any of the Property Leases cannot be assigned or novated
to the Purchaser despite the reasonable endeavours of both
the Vendors and the Purchaser (the Unassignable Contracts)
then on and from the Completion Date the Purchaser must pay,
perform and discharge all the obligations of the Vendors
under the Unassignable Contracts and the Vendors must permit
the Purchaser to receive all benefits arising from the
Unassignable Contracts on and from the Completion Date. The
Purchaser shall, subject to the terms of this Agreement,
indemnify and keep indemnified the Vendors against all
liability of whatsoever nature which they may incur at any
time on or from the Completion Date arising under the
Unassignable Contracts.
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19. Contractual Indemnity
19.1 The Purchaser shall indemnify and keep indemnified the
Vendors against all Liabilities, claims, demands and costs
suffered or incurred by the Vendors under any of the
Material Contracts, Property Leases, Operating Leases,
Financing Leases and other contracts entered into by the
Vendors in relation to the Business which the Vendors may
suffer or incur due to any failure by the Purchaser on and
from the Completion Date to discharge the burdens and
otherwise comply with the obligations of the Vendors under
those contracts and leases.
19.2 The Purchaser shall indemnify and keep indemnified each of
the Vendors, LSB Industries, LSB Chemical and their
respective Related Bodies Corporate against all Liabilities,
claims, demands and costs suffered or incurred by any of
them under any Guarantees (as defined in clause 19.3) as a
result of any failure by the Purchaser on and from the
Completion Date to discharge the burdens and otherwise
comply with the obligations of the Vendors under those
contracts and leases in respect of which the Guarantees
have been given. The Purchaser acknowledges and agrees that
LSB Industries, LSB Chemical and their respective Related
Bodies Corporate are deemed to have accepted the benefit of
this indemnity by having given written notice to that effect
to the Purchaser on or about the date hereof. The Purchaser
acknowledges and agrees that it has received valuable
consideration for this indemnity by LSB Chemical and LSB
Industries causing the Vendors to enter into this Agreement.
19.3 Where any of the Material Contracts, Property Leases,
Operating Leases, Financing Leases or other contracts
entered into by the Vendors in relation to the Business are
subject to a guarantee, guarantee and indemnity or other
form of security ("Guarantee") given by or on behalf of the
Vendors, LSB Industries, LSB Chemical or any Related Body
Corporate to either or both companies, the Purchaser shall
accept as a reasonable requirement of effecting the
assignment of those instruments that it obtain or provide a
replacement or substitute Guarantee in order that the
existing Guarantee can be fully released and discharged.
20. Transition
20.1 A party must not make any media release or announcement or
public statement (other than as may be required by law or
under the listing rules of any relevant stock exchange)
without the consent of the other parties and must consult
with each other as to the timing and wording of their
respective announcements of the sale and purchase of the
Assets and the Business.
20.2 The Vendors must use its good offices to procure good
relationships between the Purchaser and suppliers and
customers of the Business.
20.3 The Vendors must give notice in writing of this sale and
purchase to current customers of the Business in a form
approved by the Purchaser.
20.4 Between the date of this Agreement and the Completion Date,
the Vendors must allow a reasonable number of persons
properly authorised by the Purchaser, reasonable access
during normal business hours to inspect the Assets, Business
Records and Materials.
20.5 The Vendors must use its best endeavours to maintain and
preserve the Assets and the Business from the date of this
Agreement to the Completion Date.
20.6 Until the Completion Date the Vendors:
20.6.1 must continue to carry on the Business in the
ordinary and usual course; and
20.6.2 must not without the written consent of the
Purchaser, which the Purchaser may give or
withhold at the discretion of the Purchaser:
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.1 enter into or incur in the name or on behalf
of the Business, any commitments or
Liabilities, other than commitments or
Liabilities in the ordinary course of
business; or
.2 enter into any arrangement or agreement in
connection with the Business having a value
or involving an amount in excess of $100,000.
20.7 The Vendors must comply with any requirement, notice, order
or direction given by any statutory, public or other
competent authority affecting the Assets, the Business or
the Business Premises with regard to the conduct of the
Business which has issued or may issue or of which the
Vendors are or becomes aware (although no notice is issued)
before the Completion Date.
20.8 The Purchaser must comply with any requirement, notice,
order or direction given by any statutory, public or other
competent authority affecting the Business or the Business
Premises with regard to the conduct of the Business issued
or made known after the Completion Date The Purchaser shall
indemnify the Vendors against any Liability they may incur
arising out of the Purchaser's failure to comply with any
such requirements, notices, or direction.
21. Other Obligations after Completion
21.1 The Purchaser must preserve the Business Records received on
Completion for 7 years and the Vendors, at reasonable times,
may inspect and, at its expense, obtain copies of those
records for taxation purposes or for litigation. The Vendors
and their auditors shall have reasonable access at
reasonable times, to the Business Records including without
limitation use of computer processing facilities for the
purposes of closing their books of account up to the
Completion Date. The Vendors shall also be supplied with
such reasonable assistance as they may require from the
Transferred Employees in respect of processing information
to close their books of account subsequent to Completion.
21.2 The Purchaser is not liable for accidental loss, destruction
or damage to any of the Business Records, provided the
Purchaser has taken the same efforts to safeguard the
Business Records as it does its own records.
21.3 The Vendors must until 1 year after the Completion Date
retain and, upon request, make available to the Purchaser
any records, documents, Materials and papers not handed to
the Purchaser on Completion which are necessary to enable
the Purchaser to verify the Business Records and the
Warranties.
22. Default
22.1 In this clause 22:
22.1.1 "Defaulting Party" has the meaning given to it in
clause 22.2; and
22.1.2 "Correlative Party" means:
.1 where the Purchaser is the Defaulting Party,
the Vendors; and
.2 where any of the Vendors are the Defaulting
Party, the Purchaser.
22.2 Any of the Vendors or the Purchaser is a "Defaulting Party"
for the purposes of clause 22 if any of the following apply:
22.2.1 the Defaulting Party fails to carry out any
provision of this Agreement, the failure is
capable of remedy and the Defaulting Party does
not remedy that failure within 7 days after
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written notice to the Defaulting Party by a
Correlative Party requiring it to be remedied;
22.2.2 the Defaulting Party fails to carry out any
material provision of this Agreement and the
failure is not capable of remedy;
22.2.3 execution or other process of a court or authority
or distress is levied for an amount exceeding
$10,000 upon any of the Defaulting Party's
property and is not satisfied, set aside or
withdrawn within 7 days.
22.2.4 the Defaulting Party suspends payment of its
debts;
22.2.5 a Warranty given by the Defaulting Party in this
Agreement is materially incorrect as of the date
given;
22.2.6 it becomes unlawful for the Defaulting Party to
perform its obligations under this Agreement;
22.2.7 where the Defaulting Party is a body corporate:
.1 the Defaulting Party becomes an externally-
administered body corporate under the
Corporations Law;
.2 steps are taken by any person towards making
the Defaulting Party an externally-
administered body corporate;
.3 a controller (as defined in section 9 of the
Corporations Law) is appointed of any of the
property of the Defaulting Party or any steps
are taken for the appointment of such a
person;
.4 the Defaulting Party is taken to have failed
to comply with a statutory demand within the
meaning of section 459F of the Corporations
Law; or
.5 a resolution is passed for the reduction of
capital of the Defaulting Party or notice of
intention to propose such a resolution is
given, without the prior written consent of
the other parties to this Agreement.
22.3 The Purchaser may at any time (without prejudice to its
other rights and remedies under this Agreement or at law),
if the Vendors are a Defaulting Party within the meaning of
clause 22.2, terminate this Agreement by giving notice in
writing to the Vendors.
22.4 The Vendors may at any time (without prejudice to its other
rights and remedies under this Agreement or at law) if the
Purchaser is a Defaulting Party within the meaning of
clause 22.2, terminate this Agreement by giving notice in
writing to the Purchaser.
22.5 Termination under this clause 22 does not prejudice any
claim which a party may have against another at the time of
termination.
22.6 If the notice referred to in clause 22.2.1 is given within
7 days prior to the Completion Date, then the Completion
Date is extended to coincide with the expiry of the notice
period.
22.7 Subject to clauses 13.1 and 13.2 a Defaulting Party must on
demand pay to the Correlative Parties all of the expenses
(including legal costs on a solicitor and client basis)
incurred by the Correlative Parties in connection with the
breach or default (including the giving of a notice under
clause 22.2.1) and otherwise in connection with the
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termination of this Agreement. Should notice be served
on more than one party in connection with the same breach
or default those parties are liable under this clause 22.7
jointly and each of them separatetly.
22.8 If the Purchaser terminates this Agreement under either
clause 22.3 or its other rights under this Agreement or at
law, the Vendors must, without prejudice to any other rights
and remedies of the Purchaser, immediately refund to the
Purchaser all money paid by the Purchaser to the Vendors
under this Agreement.
22.9 If the Vendors terminate this Agreement under either
clause 22.4 or its other rights under this Agreement or at
law then:
22.9.1 the Vendors may either:
.1 retain the Assets and the Business and sue
for damages for breach of this Agreement; or
.2 resell the Assets and the Business in such
manner as the Vendors see fit and recover any
deficiency in the Purchase Price on the
resale and any costs and resulting expenses
by way of liquidated damages; and
22.9.2 the Vendors may, pending determination of damages,
retain any other money paid under this Agreement
and may apply that money in satisfaction or part
satisfaction of those damages.
23. Restraint on Competition
23.1 The Vendors, jointly and separately agree with the Purchaser
that in order to protect the goodwill of the Business none
of the Vendors will either directly or indirectly at any
time:
23.1.1 within the area of:
.1 Australia;
.2 New Zealand;
.3 Queensland;
.4 Western Australia;
.5 New South Wales;
.6 South Australia;
.7 Myanmar; and
.8 The Solomon Islands;
23.1.2 for a period up to and including the Completion
Date ("Pre-completion Period") and a period of:
.1 3 years after the Completion Date; and
.2 1 year after the Completion Date; and
.3 6 months after the Completion Date.
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either:
23.1.3 canvass or solicit:
.1 orders for goods or services supplied by the
Business in the 3 months prior to the
Completion Date;
.2 business the same as or similar to the
Business in the 3 months prior to the
Completion Date;
from any person who is or has been in the
12 months prior to the Completion Date a client or
customer of the Business other than, during the
Pre-completion Period, for the Business;
or:
23.1.4 engage or be concerned or interested in any
business:
.1 the same as or similar to the Business on the
Completion Date;
.2 the same as or similar to a material part of
the Business on the Completion Date;
other than, during the Pre-completion Period, the
Business.
23.2 The agreement by the Vendors in clause 23.1 applies to any
of them acting:
23.2.1 either alone or in partnership or in association
with another person;
23.2.2 as principal, agent, representative, director,
officer or employee;
23.2.3 as member, shareholder, debenture holder, note
holder or holder of any other security;
23.2.4 as trustee of or as a consultant or adviser to any
person (other than the Purchaser); or
23.2.5 in any other capacity.
23.3 Clauses 23.1 and 23.2 have effect as comprising each of the
separate provisions which results from each combination of a
capacity referred to in clause 23.2, an area referred to in
clause 23.1.1, a period referred to in clause 23.1.2 and a
category of conduct referred to in clause 23.1.3 or
clause 23.1.4. Each of these separate provisions operates
concurrently and independently.
23.4 If any separate provision referred to in clause 23.3 is
unenforceable, illegal or void, that provision is severed
and the other provisions remain in force. Each of the
Vendors acknowledges that each of those separate provisions
is a fair and reasonable restraint of trade.
23.5 This clause 23 does not preclude the Vendors from owning
securities of a corporation or trust which are quoted on a
recognised stock exchange in Australia or elsewhere provided
that they hold not more than 15% of the total quoted
securities.
24. Expert Determination
24.1 If any dispute arises in relation to any provision of this
Agreement, then either party may refer the dispute to the
Expert for determination and:
24.1.1 the Expert acts as an expert and not as an
arbitrator;
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24.1.2 the decision of the Expert is final and binding on
the parties; and
24.1.3 the parties must bear the costs of the
determination in such manner as the Expert
directs.
25. International Sale of Goods - Exclusion of Vienna Convention
25.1 The application of the United Nations Convention on
Contracts for the International Sale of Goods (known as the
Vienna Sales Convention 1980) is excluded.
26. Interest
26.1 If a party fails to pay an amount on the due date for
payment, that party must pay to the other party interest at
the Default Rate on that amount, calculated and payable
daily, computed from the due date until the amount is paid
in full.
27. Continuing Obligations
27.1 Each obligation and warranty (except an obligation fully
performed at Completion) continues in force despite
Completion.
28. Reconstruction of Authority
28.1 Where:
28.1.1 there is a reference to an authority, institution,
association or body whether statutory or otherwise
("Authority"); and
28.1.2 the Authority is reconstituted, reconstructed,
privatised, ceases to exist or is replaced or its
powers or functions are transferred to another
entity;
the reference must be read as being to the reconstituted,
reconstructed or privatised entity or an entity established
or constituted in replacement of or which succeeds to the
relevant powers and functions of or which serves
substantially the same purposes or has substantially the
same objects as the Authority.
29. Further Assurance
29.1 Each party must promptly at its own cost do all things
(including executing all documents) necessary or desirable
to give full effect to this Agreement.
30. Severability
30.1 If anything in this Agreement is unenforceable, illegal or
void then it is severed and the rest of this Agreement
remains in force.
31. Entire Understanding
31.1 This Agreement:
31.1.1 is the entire agreement and understanding between
the parties on everything connected with the
subject matter of this Agreement; and
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31.1.2 supersedes any prior agreement or understanding on
anything connected with that subject matter.
31.2 Each party has entered into this Agreement without relying
on any representation by any other party or any person
purporting to represent that party.
32. Variation
32.1 An amendment or variation to this Agreement is not effective
unless it is in writing and signed by the parties.
33. Waiver
33.1 A party's failure or delay to exercise a power or right does
not operate as a waiver of that power or right.
33.2 The exercise of a power or right does not preclude either
its exercise in the future or the exercise of any other
power or right.
33.3 A waiver is not effective unless it is in writing.
33.4 Waiver of a power or right is effective only in respect of
the specific instance to which it relates and for the
specific purpose for which it is given.
34. Costs and Outlays
34.1 Each party must pay its own costs and outlays connected with
the negotiation, preparation and execution of this
Agreement.
34.2 The Purchaser must pay all stamp duty and other government
imposts payable in connection with this Agreement and all
other documents and matters referred to in this Agreement
when due or earlier if requested in writing by the Vendors.
35. Notices
35.1 A notice or other communication connected with this
Agreement ("Notice") has no legal effect unless it is in
writing.
35.2 In addition to any other method of service provided by law,
the Notice may be:
35.2.1 sent by prepaid registered post to the address for
service of the addressee, if the address is in
Australia and the Notice is sent from within
Australia;
35.2.2 sent by prepaid airmail or internationally
recognised delivery service (eg. DHL or Federal
Express) to the address for service of the
addressee, if the address is outside Australia or
if the Notice is sent from outside Australia;
35.2.3 sent by facsimile to the facsimile number of the
addressee; or
35.2.4 delivered at the address for service of the
addressee.
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35.3 A certificate signed by a party giving a Notice or by an
officer or employee of that party stating the date on which
that Notice was sent or delivered under clause 35.2 is prima
facie evidence of the date on which that Notice was sent or
delivered.
35.4 If the Notice is sent or delivered in a manner provided by
clause 35.2, it must be treated as given to and received by
the party to which it is addressed:
35.4.1 if mailed from within Australia to an address in
Australia, on the sooner of actual delivery to
that address as evidenced by Australia Post
documentation or 3 days after mailing;
35.4.2 if mailed to an address outside Australia or
mailed from outside Australia, on the 5th Business
Day (at the address to which it is mailed) after
mailing;
35.4.3 if sent by facsimile and confirmed as transmitted
by the sending machine before 5 p.m. on a Business
Day at the place of receipt, on the day at the
place of receipt it is sent and otherwise at
8.00am on the next Business Day at the place of
receipt; or
35.4.4 if otherwise delivered before 5 p.m. on a Business
Day at the place of delivery, upon delivery, and
otherwise at 8.00am on the next Business Day at
the place of delivery.
35.5 If a Notice is served by a method which is provided by law
but is not provided by clause 35.2, and the service takes
place after 5 p.m. on a Business Day, or on a day which is
not a Business Day, it must be treated as taking place at
8.00am on the next Business Day.
35.6 A Notice sent or delivered in a manner provided by
clause 35.2 must be treated as validly given to and received
by the party to which it is addressed even if:
35.6.1 the addressee has been liquidated or deregistered
or is absent from the place at which the Notice is
delivered or to which it is sent; or
35.6.2 the Notice is returned unclaimed.
35.7 The Vendors' address for service and facsimile number are:
Name : Total Energy Systems Limited
Attention : Kevin Harman
Address : Level 7, 371 Queen Street, Brisbane
Facsimile No. : (07) 3251 0040
With copy to : Total Energy Systems Limited
Attention: General Counsel
Address : 16S.,Pennsylvania Oklahoma City,
Oklahoma USA 73107
Facsimile No. : 405 236 1209
35.8 The Purchaser's address for service and facsimile number
are:
Name : Quantum Explosives Pty Ltd
Attention : Nick Jukes
Address : 146 Kerry Road, Archerfield, Brisbane
Facsimile No. : 07 3275 8637
35.9 A party may change its address for service or facsimile
number by giving Notice of that change to each other party.
35.10 If the party to which a Notice is intended to be given
consists of more than 1 person then the Notice must be
treated as given to that party if given to any of those
persons.
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35.11 Any Notice by a party may be given and may be signed by
its solicitor.
36. Governing Law and Jurisdiction
36.1 The law of Queensland governs this Agreement.
36.2 The parties submit to the non-exclusive jurisdiction of the
courts of Queensland and the Federal Court of Australia.
37. Contaminated Land
37.1 The Purchaser and the Vendors shall at the Purchaser's cost,
commission an investigation to be carried out ("site
investigation") and a report to be prepared ("site
investigation report") in respect of Contamination ***. The
terms of this commission including the extent and nature of
the investigation and report shall be settled by the
Purchaser and the Vendors.
37.2 Any site investigation and site investigation report must be
carried out and prepared by or at the direction of Dames &
Moore Consulting Engineers of 127 Creek Street, Brisbane,
Queensland.
37.3 The site investigation report must clearly state a
reasonable estimate of the costs of doing all things
necessary to avoid any Environmental Liability existing as
at the Completion Date arising directly or indirectly as a
result of or in connection with any Contamination identified
at *** ("Existing Environmental Cost").
37.4 The Purchaser shall, subject to the terms of this Agreement,
indemnify and keep indemnified the Vendors against all
Liability, claims or demands of whatsoever nature which they
may incur, arising in respect of Contamination the subject
of a site investigation and site investigation report, ***.
38. Licence from SEC
38.1 The Purchaser acknowledges and agrees that it will take any
assignment or novation of the licence agreement with SEC as
referred to in clause 2.1.9 subject to and conditional upon
the Purchaser assuming the rights and obligations of TES
under a sublicence to *** ("the *** Sublicence"). The
Purchaser shall pay to SEC that proportion of the monies
paid to the Purchaser by *** under the *** Sublicence equal
to the amount TES would have been required to pay to SEC if
TES was still a party to the Licence agreement with SEC in
respect of the use of the technology by *** under the ***
Sublicence.
39. *** Assets
39.1 The Purchaser acknowledges and agrees that the Vendors may
on or before the Completion Date sell to another party the
*** Assets at a price equal to or higher than the *** and
the Vendors may assign the benefit and obligations of the
*** contract to such party.
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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39.2 If the Vendors effect the sale referred to in clause 39.1,
then the *** Assets shall be excluded from this Agreement
and shall be deemed not to form part of the Assets for the
purpose of this Agreement and the Purchase Price shall be
calculated (in accordance with clause 6.1.1) without
reference to the depreciated value of the *** Assets and the
*** contract will not be assigned or novated to or otherwise
benefit the Purchaser and it shall not be a Material
Contract. If the Vendors do not effect a sale of the ***
Assets in accordance with clause 39.1, then the *** Assets
shall form part of the Assets under this Agreement and the
depreciated value of those assets as shown in the books of
account of the Vendors shall be taken into account in
calculating the Purchase Price under clause 6.1.1. The ***
contract shall in that case remain a Material Contract.
40. Confidentiality
40.1 Subject to Completion all information concerning the
Business and the Assets shall remain the confidential
information of the Vendors and shall not be disclosed by the
Purchaser to any person (except with the prior written
consent of the Vendors) except to those of the Purchaser's
employees requiring to know that information to discharge
the Purchaser's obligations under this Agreement, its legal
and financial advisers and bankers and then only if the
recipient agrees prior to receipt to keep the information
disclosed confidential.
40.2 This Agreement and its terms shall be kept confidential by
the parties and shall not be disclosed to any other person
except that party's legal and financial advisers and bankers
and then only if the recipient agrees prior to receipt to
keep the information disclosed confidential. This
restriction does not apply to any disclosure of information:
40.2.1 made by the Vendors or the Purchaser in order to
permit them to comply with their obligations under
this Agreement; or
40.2.2 which is required by law or the rules of a
relevant stock exchange to be communicated to a
person who is authorised by law or by those rules
to receive that information.
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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SCHEDULE 1A
(Clauses 1.1.50 and 12)
Vendors' Warranties
1. Introduction and Information
The statements made in the Introduction are true and correct in
every particular.
2. Names
The Vendors have not allowed or consented to or to the Vendors'
knowledge suffered:
2.1 the use by any other person; or
2.2 the registration as a business name;
of a name similar to the any of the Vendors' names or the
Business Names but the Purchasers acknowledge the existence of a
company unrelated to the Vendors called "Total Mining Systems Pty
Ltd".
3. Litigation and Outstanding Undertakings, Preservation of
Rights
3.1 They are not aware of any facts or circumstances which are
likely to lead to prosecution, litigation or arbitration
involving the Assets or the Business except for the claim
made against TES due to ***.
3.2 The Vendors have full power and has obtained all necessary
consents of all persons and authorities to own, operate and
lease the Assets and to conduct the Business.
3.3 Other than the lessors under the Property Leases and
Operating Leases, the other contracting parties under the
Material Contracts, the mortgagees of any of the Assets and
the Lessors of the Leased Plant and Equipment, the Vendors
have the legal right and power without obtaining the consent
of any person or authority to enter into this Agreement and
to sell the Assets and there is no Encumbrance over them
which will not be discharged on or prior to Completion. The
Parties acknowledge and agree that the Leased Plant and
Equipment subject to leases which are assigned to the
Purchaser shall remain the property of the lessor and may be
subject to encumbrances which do no more than confirm that
ownership. The Purchaser will obtain beneficial ownership
of any Leased Plant and Equipment subject to leases which
are assigned to the Purchaser only in accordance with the
terms of the relevant Financing Leases.
3.4 Subject to Warranty 3.3, the beneficial ownership of the
Assets will, on Completion, vest in the Purchaser free from
all Encumbrances (whether arising by way of statute or
otherwise).
3.5 No statutory or contractual notices have been or will, prior
to the Completion Date, be served in respect of any of the
Assets or the Business which in any material respect impair,
prevent or otherwise interfere with the use of or
proprietary rights in the Assets or the Business.
3.6 The Vendors are not an externally-administered body
corporate under the Corporations Law and steps have not been
taken by any person towards making the Vendors an
externally-administered body corporate;
3.7 A controller (as defined in section 9 of the Corporations
Law) has not been appointed of any of the property of the
Vendors or any steps taken for the appointment of such a
person.
3.8 The Vendors have not been served with a demand under
section 459E of the Corporations Law which it is taken,
under section 459F of the Corporations Law, to have failed
to comply with.
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
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3.9 There are not and will not on the Completion Date, be any
contracts binding upon the Vendors relating to the Business
entered into outside the ordinary course of business.
3.10 The Vendors have produced or made available to the
Purchaser, all Material Contracts, Property Leases and Plant
Leases and, to the best of its knowledge, information and
belief, all employee records (including details of annual
compensation and accrued entitlements), superannuation
plans, labour and employee service contracts, Intellectual
Property rights, licences (including permits, consents,
approvals, authorisations, qualifications and orders) and
documentation relating to threatened or pending litigation,
arbitration or governmental investigations concerning the
Assets or the Business in its possession.
3.11 The Vendors are not aware of any proposals of any
government, governmental body or authority or any
organisation representing the Employees, the implementation
of which (whether by force of law or voluntarily) might
adversely affect the profitability of the Business or
require any substantial capital expenditure by the
Purchaser.
3.12 At the date of this Agreement and at the Completion Date,
there are no claims made, proceedings issued or disputes in
existence involving the Vendors or any other person under
which a party is claiming that an Asset is defective and
that loss or damage has been suffered as a result of the
defect.
4. Financial Matters
4.1 The Business Records have been fully, properly and
accurately prepared, kept and completed in accordance with
usual accounting concepts and practices and in accordance
with the accounting concepts and practices adopted by the
Vendors in the previous 3 financial years.
4.2 The most recent balance sheet and profit and loss account of
the Business:
4.2.1 present a true and fair view of the profit or loss
of the Business for the accounting period expiring
on the Balance Date and the state of affairs of
the Business at the Balance Date;
4.2.2 accurately disclose the assets and liabilities of
the Vendors in respect of the Business at the
Balance Date;
4.2.3 are not affected by any unusual or non-recurring
item; and
4.2.4 take account of all gains and losses, whether
realised or unrealised, arising from foreign
currency transactions.
4.3 Since the Date of this Agreement, no material change
detrimental to the interests of the Purchaser has taken
place in the financial position or business affairs of the
Vendors or the Business.
4.4 The Vendors have not, since the Date of this Agreement,
acquired any assets in respect of the Business other than in
the ordinary course of the Business.
4.5 The Vendors do not in respect of the Business have any debts
or liabilities other than those debts and Liabilities
disclosed in the most recent balance sheet and debts and
Liabilities which:
4.5.1 have been incurred in the ordinary course of the
Business up to the Completion Date; and
4.5.2 are neither:
.1 of an unusual nature; nor
.2 of an unusually large amount.
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5. Statutory Returns
5.1 The Vendors have completed and lodged all returns and
statements required to be lodged by law with any agency,
department, authority or commission and the returns and
statements so lodged were true and correct in every respect.
5.2 The books, records and registers of the Vendors in respect
of the Business have been kept in accordance with all
statutory requirements.
6. Disclosures
6.1 To the best of the knowledge and belief of the Vendors, all
details relating to the Assets and the Business which would
be material for disclosure to a prudent intending purchaser
of the Assets and the Business have been disclosed to the
Purchaser.
7. Conduct of the Business
7.1 The Business has been conducted in a normal and proper
manner and there has not been any capital expenditure or
agreement to incur capital expenditure since the Balance
Date other than as notified to and approved of by the
Purchasers except for the upgrade of TES 13 and the
conversion to emulsion pumping of the two pump trucks as
part of the *** Operations.
7.2 No schemes or arrangements operated by or relating to the
Vendors in respect of the Business exist, which provide to
any officer, Employee, independent contractor or agent of
the Vendors a commission, remuneration or other payment
calculated by reference to the whole or part of the
turnover, profits or sales of the Vendors or the Business.
8. Employment
8.1 Full disclosure of all remuneration payable to each Employee
has been made to the Purchaser and the Vendors are under no
Liability to pay wages, superannuation payments or provide
any other benefits to any Employee upon retirement, death,
disability, attainment of a specified age or completion of a
specified number of years of service at a rate or in a
manner exceeding that Employee's entitlement under the
legislation, industrial awards and registered industrial
agreements applicable to that Employee other than as
disclosed..
8.2 Full disclosure of all Liabilities for any long service
leave, superannuation payments or any other payments or
liabilities to any Employees due under any industrial award
or state or federal legislation or any contract, agreement
or arrangement has been made and there are no retirement
benefit schemes, pension schemes or other superannuation or
pension arrangements, whether legally enforceable or not,
relating to the Business other than those disclosed in
Schedule 8.
8.3 There are no existing, pending or threatened industrial
disputes, whether between any trade union and the Vendors or
not, relevant to the conduct of the Business and they are
not aware of any claims or other facts or circumstances
which may result in an industrial dispute and the Vendors
have no undisclosed agreements with any trade union.
8.4 After the date of this Agreement and prior to the Completion
Date, there will not be any change to the terms of
employment (including remuneration) of the persons employed
in the Business except pursuant to any award, determination
or legislation.
9. Vehicles, Plant and Equipment
Each item of Plant and Equipment and each item leased by the
Vendors under the Plant Leases:
9.1 is in good repair and condition taking into account normal
wear and tear;
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
________________________________________________________________
ASSET PURCHASE AGREEMENT 31 C COPYRIGHT 1999
B/222128
<PAGE>
9.2 has been fully and properly cared for, repaired, maintained
and serviced;
9.3 is of a specification and quality and in a condition to do
satisfactorily the work for which it was designed;
9.4 is within the physical possession of the Vendors; and
9.5 is not a fixture to any real property other than a fixture
which the Vendors have the right to remove.
10. No Contravention of Any Law
10.1 To the best of their knowledge, information and belief, the
Vendors, its officers, agents and Employees have not, within
the 5 years preceding the Completion Date, permitted or
omitted to do any act or thing the commission or omission of
which is, or could be, in contravention of any law and which
could have a material effect on the Assets or the Business.
10.2 The Vendors are not a party to any contract, arrangement or
understanding which is in breach of the Trade Practices Act
1974 or any other law.
11. Contracts
11.1 The Vendors have disclosed all material agreements or
arrangements made in relation to the Business and all of the
contractual documentation relating to any Material
Contracts, the Property Leases, the Financing Leases and the
Operating Leases.
11.2 The Vendors will not, on the Completion Date, be in default
in any material respect, under any Material Contract or have
committed any breach which would entitle the other
contracting party to terminate the Material Contract or be
in default in any material respect under any other contract
entered into by it which is relevant to the Business or be
in default in respect of any other obligations of the
Vendors in respect of the Business.
11.3 The Vendors have not received notice of termination,
rescission, avoidance or repudiation of any Material
Contract.
11.4 At the date of this Agreement, the Vendors have and at the
Completion Date will have, complied with all material terms
and conditions of the Financing Leases and the Operating
Leases, the Property Leases and in particular, terms and
conditions relating to the payment of rent, repair and
reinstatement of the leased Business Premises and the assets
the subject of the Operating Leases or the Financing Leases
and is not, at the date of this Agreement, and will not at
the Completion Date be, in breach, in any material respect,
or have committed any breach which would entitle the lessor
to terminate the lease.
11.5 There is no agreement or arrangement with the Vendors in
respect of the Business in respect of which any person is in
default (without regard to any requirement of notice or
period of grace or both).
11.6 No substantial customer or supplier of the Business has
ceased trading with or supplying to the Business in the
6 months prior to the date of this Agreement or indicated an
intention to cease or substantially reduce trading with or
supply to the Business after the date of this Agreement.
11.7 With the consent of the other contracting party, the Vendors
have the power and is entitled to assign the Material
Contracts to the Purchaser.
11.8 There is no offer, tender or quotation given or made by the
Vendors in respect of the Business, other than in the
ordinary course of the Business, and still outstanding
capable of giving rise to a contract by unilateral act of a
third party.
________________________________________________________________
ASSET PURCHASE AGREEMENT 32 C COPYRIGHT 1999
B/222128
<PAGE>
12. Intellectual Property
12.1 The Vendors are not aware of any product or publication of
the Business or any process, drawing or machine carried out
or used in the ordinary course of the Business, constitutes
or may constitute an infringement of a patent, design, trade
mark or copyright of any other person.
12.2 No proceedings have been instituted or are pending or are,
to their knowledge, threatened, which challenge the validity
of the ownership by the Vendors of the Intellectual Property
used in the Business.
12.3 The Vendors have not licensed and are not obliged to licence
anyone to use any of the Intellectual Property used in the
Business other than sublicence for the use of the technology
licence to TES by Slurry Explosives Corporation granted by
TES to *** under the terms of the processing contract
between the parties.
12.4 The Vendors are not aware of any infringing use or
infringement by any other person of the Intellectual
Property used in the Business.
12.5 The Vendors have and will at Completion have, the right to
use all of the software used in the Business at the date of
this Agreement and will provide to the Purchaser at
Completion, licences to use all of the software currently
used in the Business at the date of this Agreement.
12.6 The Vendors own or possess adequate and enforceable licences
or other rights to use all Intellectual Property used in the
Business at the date of this Agreement and has not received
any notice of conflict with the rights of any other person.
12.7 The Vendors have not passed off any of its goods or services
as those of any other person and its own use of Intellectual
Property in respect of the Business does not infringe the
rights of any other person.
13. Licences, Permits Etc.
13.1 The Vendors hold all permits, licences, authorities, rights
to use, approvals, registrations, qualifications, orders and
consents necessary for carrying on the Business
(collectively "Permits") and the Permits are valid and in
good standing and the Vendors are not in breach of any of
them and has not failed to comply with any requirements of
any of them and all material reports, returns and other
information required to be made or given have been duly made
or given.
13.2 There is no circumstance or fact involving the Vendors or
its affairs which may result in the variation in any
material respect, or revocation, of any permit, licence,
authority or consent which it holds in respect of the
Business.
14. Powers of Attorney Etc.
There is no subsisting power of attorney, appointment of agent or
other authority to act on behalf of the Vendors in respect of the
Business given by the Vendors to any person.
15. Land
15.1 All land and interests in land owned, leased, occupied or
used by the Vendors in respect of the Business (other than
in New Zealand and the *** Explosives Reserve) are set
out in Schedule 5.
15.2 The buildings and other improvements constructed on or in
the land owned, leased, occupied or used by the Vendors in
respect of the Business, are in good condition and repair
and fit for the purpose of carrying on the Business and the
land, buildings and other improvements are not subject to
any defect or other matter or circumstance (other than
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
________________________________________________________________
ASSET PURCHASE AGREEMENT 33 C COPYRIGHT 1999
B/222128
<PAGE>
Contamination or Environmental Liability) which will,
or may with the lapse of time, materially decrease the
value of the land, buildings or improvements.
16. Inventory
16.1 On Completion the Vendors' Inventory position including
Inventory on order and Inventory in transit or in bond or
held on a consignment basis by customers of the Vendors,
will be fully and accurately reflected in the Business
Records with Inventory being valued on the same basis as for
the most recent balance sheet of the Business.
17. No Unauthorised Disclosures
They have no knowledge of any unauthorised disclosure of any of
the financial or trade secrets or other confidential information
of the Vendors in respect of the Business.
________________________________________________________________
ASSET PURCHASE AGREEMENT 34 C COPYRIGHT 1999
B/222128
<PAGE>
<PAGE>
SCHEDULE 1B
(Clause 1.1.50)
Purchaser's Warranties
1. The Purchaser represents and warrants to the Vendors that:-
1.1 It has the power to execute and deliver this Agreement and
perform its obligations under or as contemplated by this
Agreement. All necessary corporate and other action has been
taken to authorise such execution, delivery and performance.
1.2 This Agreement constitutes valid and legally binding
obligations enforceable against the Purchaser in accordance
with the terms of this Agreement.
1.3 The execution and delivery by the Purchaser of, the
performance by the Purchaser of its obligations under and the
compliance by the Purchaser with the provisions of this
Agreement shall not contravene any existing applicable law to
which the Purchaser is subject or any deed or arrangement
binding the Purchaser.
1.4 The Purchaser has or will procure the skill, competence,
resources, commitment of experienced personnel available to
perform its obligations under this Agreement.
1.5 No litigation, arbitration, tax claim, dispute or
administrative proceeding is presently current or pending or,
to the Purchaser's knowledge, threatened, which is likely to
have a material adverse effect upon the Purchaser's ability to
perform its financial and other obligations under this
Agreement.
________________________________________________________________
ASSET PURCHASE AGREEMENT 35 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 2
(Clause 1.1.37)
Plant, Equipment, Fixtures and Fittings
Refer to separate bound document.
________________________________________________________________
ASSET PURCHASE AGREEMENT 36 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 3
(Clause 1.1.3.3)
Intellectual Property
Trademark Owner Class Registration
Application No.
_____________________________________________________________________________
TOTALPRILL TES 13 - explosives in the form of 732097
prills or pellets made by
prilling
_____________________________________________________________________________
SX WATERGEL TES 13 - explosives 732100
_____________________________________________________________________________
TOTALGEL TES 13 - explosives 732102
_____________________________________________________________________________
BLACK THUNDER TES 13 - explosives and explosive 764108
compositions including emul-
sion explosives
_____________________________________________________________________________
HI-DRIVE TES 13 - explosives including 774736
packaged explosives and
emulsion explosives
_____________________________________________________________________________
TOTAL TES 13 - explosives, explosive 779004
powders, explosive cart-
ridges, detonating fuses
for explosives, detonating
caps (other than toys),
Detonators, fuses for
explosives and all other
explosive compounds or com-
positions in this class
_____________________________________________________________________________
SCALERITE TES 13 - explosives 722663
_____________________________________________________________________________
TES TOTAL ENERGY TES 13 - explosives 732089
SYSTEMS QUALITY
EXPLOSIVES
_____________________________________________________________________________
SLX600 TES 13 - explosives 732091
_____________________________________________________________________________
TOTALPRIME TES 13 - explosives 732092
_____________________________________________________________________________
TOTALCORD TES 13 - explosives 732093
_____________________________________________________________________________
BREAKRITE TES 13 - explosives 732095
_____________________________________________________________________________
NITREX TES 13 - explosives 732096
_____________________________________________________________________________
BLASTMAX TES 13 - explosives 732098
_____________________________________________________________________________
_____________________________________________________________________________
ASSET PURCHASE AGREEMENT 37 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 4
(Clause 1.1.8)
Business Names
State of Registration
Name Registration No.
________________________________________________________________
Total Mining Chemicals Queensland BN6827251
________________________________________________________________
Total Mining Chemicals Western Australia 0230737C
________________________________________________________________
Total Mining Chemicals Tasmania 114386B
________________________________________________________________
Total Mining Chemicals New South Wales U6377808
________________________________________________________________
Total Mining Chemicals Northern Territory 69186B
________________________________________________________________
Total Mining Chemicals South Australia O427835X
________________________________________________________________
Total Mining Chemicals Victoria 1374989X
________________________________________________________________
________________________________________________________________
ASSET PURCHASE AGREEMENT 38 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 5
(Schedule 1A Warranty 15.1)
Property Leases
Part A - Business Leases
Location Lessor Start Date
____________________________________________________________________________
*** Queensland Investment Corporation 14/04/97
*** Queensland Investment Corporation 22/04/96
*** BHP -Utah Coal Limited and others 30/03/89
(sublessors from the crown of
special lease no. 12/42239)
*** Robert Hector McKenna 08/12/96
*** Sabemo (WA) Pty Ltd 15/09/98
*** The Minister for Mining (WA) 1996 (undated
and unsigned)
Part B - Residential Leases
Lease Location Start Date
_____________________________________________________________________________
Queensland Property Management *** 17/06/97
(Queensland Housing Commission)
Queensland Property Management *** 17/06/97
Queensland Property Management *** 17/06/97
Queensland Property Management *** 13/02/98
Queensland Property Management *** 17/06/97
Clermont Agencies *** 10/98
Ray Hooper Real Estate *** 11/96
North West Realty *** 12/06/98
D & C Bourke *** 20/03/95
Professionals Robe *** 20/03/96
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
________________________________________________________________
ASSET PURCHASE AGREEMENT 39 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 6
(Clause 1.1.31)
Material Contracts
Contract Parties Location Start Date
________________________________________________________________
*** *** *** 08/97
*** *** *** 03/98
*** *** *** 01/10/98
*** *** *** 09/98
*** *** *** 00/11/98
*** *** *** 01/12/98
*** *** *** 01/09/98
*** *** *** 01/08/98
Supply Contract between TES and ***.
Supply Contract between TES and ***.
Processing Agreement between TES and *** dated 22 November 1996.
Ammonium Nitrate Supply Agreement between TES and *** as set out in
a letter dated 19 June 1998.
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
________________________________________________________________
ASSET PURCHASE AGREEMENT 40 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 7
(Clause 1.1.16)
Employees
Management Position Category
________________________________________________________________
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** SIT
Administrative
*** *** Contract
*** *** Part Time
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
*** *** Perm
Operators
BW Govaars Casual
CC O'Niell Perm
D G Medlin Casual
G X Carige Casual
J B Barnicoat Casual
J I Medlin Perm
J J Mallett Casual
JN Hudson Casual
K J Backo Casual
M E Clarke Casual
N E Eaton Casual
P J Platzke Casual
S J M Medlin Casual
V J Lee Casual
W J Eaton Casual
W G Offord Casual
D E Roberts Perm
D P Gallagher Perm
M T Petrovic Perm
C B Wickett Perm
D P Kelly Casual
G H Brown Perm
R L Bingham Casual
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
________________________________________________________________
ASSET PURCHASE AGREEMENT 41 C COPYRIGHT 1999
B/222128
<PAGE>
Management Position Category
________________________________________________________________
S C Ruyter Perm
A T McHardy Perm
B V Fisher Perm
D P Hilder Perm
L T Sibeko Casual
P A Miller Casual
P A Morrison Casual
S W Walker Casual
T Park Casual
W B Gardener Perm
D I P Sargeant Casual
P A Galanty Casual
D L White Casual
D K P Stewart Casual
D P Kelly Casual
C B Wickett Perm
Z J Martin Casual
P Wowinski Perm
S R Staunton Perm
T G Hicks Perm
J S Tisdall Casual
M J Page Casual
P Rangi Casual
R Bentley Casual
A G Hundloe Perm
A Parsons Casual
D A Parish Casual
J M Malone Casual
L R Malone Casual
L R Gurr Perm
M J Polsen Casual
P J White Casual
P D Watts Casual
S J Eustace Operators
I R Press Casual
P Huttel Casual
R B Johnson Casual
W J Sutherland Perm
A S Brown Perm
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES
OF SUCH REQUEST.
________________________________________________________________
ASSET PURCHASE AGREEMENT 42 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 8
(Schedule 1 Warranty 8.2)
Retirement Benefit Schemes, Pension Schemes
and Other Superannuation or Pension Arrangements
The following public offer accumulation fund:
Colonial Master Fund Superannuation Fund (SFN 2975/329/46)
________________________________________________________________
ASSET PURCHASE AGREEMENT 43 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 9
(Clause 1.1.33)
Necessary Approvals
EXPLOSIVE AND ENVIRONMENTAL LICENCES
Location License to License to Environmental Others
Manufacture Store License
Explosives Explosives
_________________________________________________________________________
Queensland- Licence to
General Import Explo-
sives in
Queensland
Date Granted:
27-08-98
Expiry Date:
30-06-99
Licence to Sell
Explosives in
Queensland
Date Granted:
27-08-98
Expiry Date:
30-06-99
Licence No.:
1236
Licensee: TES
___________________________________________________________________________
*** General Licence General Licence Licence appears
to Manufacture Store More than to be required
Explosives 250KG for the activ-
Dated Granted: Date Granted: ities at this
27-08-98 27-08-98 site
Expiry Date: Expiry Date:
30-06-99 30-06-99
Licence No.: License No.
0040 1236
Licensee: TES Licensee: TES
___________________________________________________________________________
*** Licences are Licences are
required for required for
this site this site
____________________________________________________________________________
*** Licence required Licence to Store
if TES is Explosives/
currently manu- Magazine License
facturing on - Magazine T3
site 50,000Kg
Dated Granted:
04-12-98
____________________________________________________________________________
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH
REQUEST.
________________________________________________________________
ASSET PURCHASE AGREEMENT 44 C COPYRIGHT 1999
B/222128
<PAGE>
Location License to License to Environmental Others
Manufacture Store License
Explosives Explosives
___________________________________________________________________________
Expiry Date:
01-12-99
Licensee: TES
License to Store
Explosives -
Magazine DET
Capacity 2,000
Date Granted:
17-01-99
Expiry Date:
16-01-2000
Licensee: TES
____________________________________________________________________________
*** Licences have Licenses have
expired expired
____________________________________________________________________________
AUTHORISATIONS FOR EXPLOSIVES
___________________________________________________________________________
Description UN No & Class Date of Gazettal
(where available)
_____________________________________________________________________________
New South Wales
_____________________________________________________________________________
PRILL BLENDED ANFO 0082/1.1D 26-4-94
BESTON (BST) BOOSTERS 0042/1.1D 21-8-96
DETAGEL CONTINUOUS PRESPLIT 0241/1.1D 30-10-96
______________________________________________________________________________
New Zealand
_____________________________________________________________________________
FRAGMAX 60-100 0332/1.5D 13-3-97
ERT ROGEL F PRESPLIT/RIOSPLIT 0241/1.1D 13-3-97
DENASA PREMADETS 0360/1.1B 13-3-97
TROJAN BOOSTER 0042/1.1D 13-3-97
TOTAL CORD 3 0065/1.1D 13-3-97
______________________________________________________________________________
Northern Territory
______________________________________________________________________________
SX-WATERGELS 0332/1.5D 7-2-94
ORANGE CAP BOOSTER 23-3-94
GREEN CAP BOOSTER 23-3-94
PRILL BLENDED ANFO 0222/1.1D 20-4-94
TOTAL PRIME 23-1-97
TOTALCORD 23-9-94
_____________________________________________________________________________
Queensland
_____________________________________________________________________________
ANFO ISL, L, TOE PACK 0082/1.1D 31-5-90
_____________________________________________________________________________
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED FROM
THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR CONFIDENTIAL
TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES
AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.
_____________________________________________________________________________
ASSET PURCHASE AGREEMENT 45 C COPYRIGHT 1999
B/222128
<PAGE>
_____________________________________________________________________________
Description UN No & Class Date of Gazettal
(where available)
_____________________________________________________________________________
AU 1000 0082/1.1D 15-3-90
AU 220 0082/1.1D 7-12-90
BESTON (BST) BOOSTERS / AND/OR 0042/1.1D 18-10-96
TOTALPRIME
BLASTRITE 0241/1.1D 15-3-90
BREAKRITE 0241/1.1D 15-3-90
DETAGEL HS DETAGEL PRE-SPLIT 0241/1.1D 1-8-85
1.25 X 8 (32X)
DETAGEL HS DETAGEL PRE-SPLIT 0241/1.1D 1-8-85
EMULEX 500 SERIES 0241/1.1D 13-3-92
EMULEX 700 SERIES 0241/1.1D 13-3-92
EMULINE - CONTINUOUS PRE-SPLIT 0241/1.1D 15-3-90
FANEL DETS MS, LP TRUNK 0030/1.1B 15-9-90
FRAG & FRAGMAX 0030/1.1B 15-9-90
HEF EMULSION FOR HANFO 24-8-89
HEXAPOUR AND HEXAPOUR SD 0082/1.1D 6-7-89
HX SERIES 110, 120, 130, 135- 0082/1.1D 17-8-89
HX HEAVY ANFO HX
HXSERIES 110, 120, 130, 135- 0082/1.1D 17-8-89
HX 130 and 301
HYDROMITE 600 SERIES 0241/1.1D 13-3-92
MINERITE 0241/1.1D 15-3-90
MS CONNECTORS-(EB) PRIMADET MS C 15-3-90
MS CONNECTORS(EB) PRIMADET MS C 15-3-90
MS CONNECTORS-(EB) PRIMADET MS C 15-3-90
MS CONNECTORS-(EB) PRIMADET MS C 15-3-90
MS CONNECTORS-(EB) PRIMADET MS50 15-3-90
MS CONNECTORS-(ETI) DETINEL MS CO 15-3-90
MS CONNECTORS-MS230 CONNECTORS 15-3-90
MS CONNECTORS-P/DET MSC CONN MS 15-3-90
MS CONNECTORS-P/DET MSC CONN MS 15-3-90
PENTACORD 3PE, 5PE, 10PE- 0065/1.1D 15-3-90
10PE CORD
________________________________________________________________
ASSET PURCHASE AGREEMENT 46 C COPYRIGHT 1999
B/222128
<PAGE>
____________________________________________________________________________
Description UN No & Class Date of Gazettal
(where available)
____________________________________________________________________________
PENTACORD 3PE, 5PE, 10PE - 5PE 0065/1.1D 15-3-90
CORD NEW
PRILL BELNDED ANFO- 0082/1.1D 24-8-94
ROCK CRUSHER BOOSTER 0042/1.1D 27-8-92
ROCK STAR ELECTRIC DETONATORS 0030/1.1B 15-1-90
SX-WATERGEL-SX550 COAL DUST SL 0241/1.1D 25-5-89
SX 20 0241/1.1D 7-12-90
14-10-97
SX 500, 550, 600 0241/1.1D 14-10-97
TOTALCORD (3, 5, 10 GM) 0065/1.1D 24-8-94
TOTALGEL 60-100 332/1.5D 19-3-97
SX WATERGEL TRIMRITE - TRIMRITE 0241/1.1D 14-10-97
25MM X 40
TRIMRITE - TRIMRITE 25MM X 44 0241/1.1D 5-10-90
RIOGEL 2F-25 AND RIOGEL G 31-5-90
RIOGEL TTX 31-5-90
DETAGEL PRE SPLIT 18-10-96
TOTAL GEL 15-12-94
______________________________________________________________________________
South Australia
______________________________________________________________________________
DETAGEL PRESPLIT 0241/1.1D 16-4-93
DETAGEL 0241/1.1D 16-4-93
ORANGE CAP CAST BOOSTER (454G) 0042/1.1D 16-4-93
GREEN CAP CAST BOOSTER (151G) 0042/1.1D 19-4-93
SCOTCH CORD 0065/1.1D 19-4-93
SCALERITE 0241/1.1D 16-6-97
BREAKRITE 0241/1.1D 16-6-97
TOTALPRIME 0241/1.1D 5-11-96
TOTALCORD-3 0065/1.1D 15-8-94
TOTALCORD-5 0065/1.1D 15-8-94
TOTALCORD-10 0065/1.1D 15-8-94
A"CORD 0065/1.1D 28-1-93
______________________________________________________________________________
Western Australia - Explosives
& Dangerous Goods Act 1961 and
Explosive Regulations 1963
_____________________________________________________________________________
_____________________________________________________________________________
ASSET PURCHASE AGREEMENT 47 C COPYRIGHT 1999
B/222128
<PAGE>
____________________________________________________________________________
Description UN No & Class Date of Gazettal
(where available)
____________________________________________________________________________
ANFO-BLASTING AGENT 0222/1.1D 28-4-94
AU100 WATERGEL 0332/1.5D
AU200 WATERGEL 0332/1.5D
AU600 WATERGEL 0332/1.5D
BLACK CAP CAST BOOSTER (340G) 0042/1.1D 31-3-94
BLASTRITE 0241/1.1D
CBS A-CORD DETONATING CORD 0065/1.1D
CXA MS CONNECTORS 0360/1.1B
DETAGEL-1.25X8 0241/1.1D
DETAGEL 1X8 0241/1.1D
DETAGEL PRE-SPLIT 0241/1.1D
DETONATORS-DET.NITRONOBELDY 0029/1.1B
EMULEX 500 SERIES-EMULEX 510 0241/1.1D 7-10-92
1.25X12
EMULEX 500 SERIES-EMULEX 520 0241/1.1D 7-10-92
1.5X12
EMULEX 700 SERIES-EMULEX 720 0241/1.1D 7-10-92
2.5X16
EMULEX 700 SERIES-EMULINE 0241/1.1D 7-10-92
1.25 INCH
ENSIGN BICKFORD H.D. PRIMACORD 0065/1.1D
ETINEL NON-ELECTRIC DETONATORS 0360/1.1B
ETINEL NON-ELECTRIC DETONATORS 0360/1.1B
FANEL NON-ELECTRIC DELAY 0360/1.1B
DETONATORS
FRAGMAX SERIES 0332/1.5D
HEF90FRAGMAX
GREEN CAP CAST BOOSTER (151G) 0042/1.1D 31-3-94
HEXAPOUR 0332/1.5D
MINERITE 2 0241/1.1D
NITREX -*** 0082/1.1D
NONEL PRIMADETS (EB) PRIMADET 0360/1.1B
SL P1
NONEL PRIMADETS 12M PRIMADET 0360/1.1B
P15 M
NONEL PRIMADETS 3.6M P/DET 0360/1.1B
P1 MS 25 1
NONEL PRIMADETS 3.6M PRIMADET
P8 M 0360/1.1B
NONEL PRIMADETS 6M PRIMADET P1 MS 0360/1.1B
NONEL PRIMADETS 6M PRIMADET P13 M 0360/1.1B
NONEL PRIMADETS 6M PRIMADET P14 M 0360/1.1B
NONEL PRIMADETS 6M PRIMADET P15 M 0360/1.1B
NONEL PRIMADETS 6M PRIMADET P2 MS 0360/1.1B
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF
SUCH REQUEST.
________________________________________________________________
ASSET PURCHASE AGREEMENT 48 C COPYRIGHT 1999
B/222128
<PAGE>
__________________________________________________________________
Description UN No & Class Date of Gazettal
(where available)
___________________________________________________________________
NONEL PRIMADETS 6M PRIMADET P4 MS 0360/1.1B
NONEL PRIMADETS 6M PRIMADET P5 MS 0360/1.1B
NONEL PRIMADETS 6M PRIMADET P6 MS 0360/1.1B
NONEL PRIMADETS 6M PRIMADET P7 MS 0360/1.1B
NONEL PRIMADETS 6M PRIMADET P8 MS 0360/1.1B
ORANGE CAP BOOSTER (454G) 0042/1.1D 31-3-94
PENTACORD 3PE 0042/1.1D
PENTACORD 5PE 0065/1.1D
PRIMADET MS CONNECTORS 0360/1.1B
PRIMADET TRUNKLINE DELAYS 0360/1.1B
3.6M P/DET NTD MS17
PRIMADET TRUNKLINE DELAYS 0360/1.1B
3.6M P/DET NTD MS42
PRIMADET TRUNKLINE DELAYS 0360/1.1B
6M P/DET NTD MS100
PRIMADET TRUNKLINE DELAYS 0360/1.1B
6M P/DET NTD MS25 2
PRIMADET TRUNKLINE DELAYS 0360/1.1B
9M (EB) NTD P4 MS10
RIOGEL 2SX200 0241/1.1D
RIOGEL 32X200 0241/1.1D
RIOGEL 55X400 0241/1.1D
RIOGEL 55X400 0241/1.1D
ROCK CRUSHER BOOSTERS 454G 0042/1.1D 7-10-92
ROCK CRUSHER BOOSTERS 908G 0042/1.1D
ROCK STAR DETONATORS 0030/1.1B
SCOTCH CORD 0065/1.1D
SHOCK STAR MS DELAYS DETONATORS 0360/1.1B 19-6-92
3.6M SOCKSTAR P8
SHOCK STAR MS DELAYS DETONATORS 0360/1.1B 19-6-92
6M SHOCKSTAR P3 M
SHOCK STAR SURFACE DELAY NON- 0360/1.1B 31-3-94
ELECTRIC
SILVER NUGGET CAST BOOSTER 0042/1.1D 31-3-94
________________________________________________________________
ASSET PURCHASE AGREEMENT 49 C COPYRIGHT 1999
B/222128
<PAGE>
_________________________________________________________________
Description UN No & Class Date of Gazettal
(where available)
_________________________________________________________________
TRIMITE 0241/1.1D 12-7-93
WHITE CAP BOOSTER (907G) 0042/1.1D 31-3-94
_________________________________________________________________
VEHICLE - EXPLOSIVES AND DANGEROUS GOODS LICENCES
__________________________________________________________________________
Date Expiry Licence Licences Authority/
Vehicle/License Granted Date No. State
___________________________________________________________________________
***
___________________________________________________________________________
793 EOD 01-10-98 15-09-99 38/056832/8 TES Dangerous
Ford Courier Goods Act
1975 (NSW)
Carriage of
Explosives
1000KG of 1.1D
Explosives
___________________________________________________________________________
379 CJT 27-08-98 30-06-99 1040 TES Explosives
Volvo FL 10 Act 1952
Pump (QLD)
Carriage of
Explosives
9.3 Tonnes of
1.5D Watergel
______________________________________________________________________________
379 CJT 27-08-98 30-06-99 1161 TES Explosives
Volvo FL 10 Act 1952
(QLD)
Manufacture
of Explosives
on/by vehicle
_____________________________________________________________________________
026 CXN 27-08-98 30-06-99 1176 TES Explosives
Volvo FL 10 Act (1952)
Pump (QLD)
Carriage of
Explosives
Above 10
tonnes-
rigid body
_____________________________________________________________________________
127 CCO 27-08-98 30-06-99 1160 TES Explosives
Volvo FL 10 Act 1952
Bowl 2 (QLD)
Carriage of
Explosives-
semi-trailers
_____________________________________________________________________________
127 CCO 27-08-98 30-06-99 1160 TES Explosives
Volvo FL 10 Act 1952
Bowl 2 (QLD)
Manufacture
of Explosives
on/by vehicle
_____________________________________________________________________________
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED
FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF
SUCH REQUEST.
__________________________________________________________________________
ASSET PURCHASE AGREEMENT 50 C COPYRIGHT 1999
B/222128
<PAGE>
____________________________________________________________________________
Date Expiry Licence Licences Authority/
Vehicle/License Granted Date No. State
____________________________________________________________________________
732 DDH 27-08-98 30-06-99 0804 TES Explosives
Volvo Act 1952
(QLD)
Carriage of
Explosives
above 10tonnes
- -rigid body
______________________________________________________________________________
732 DDH 27-08-98 30-06-99 1024 TES Explosives
Volvo Act 1952
(QLD)
Manufacture
of Explosives
on/by Vehicle
______________________________________________________________________________
563 CWR 27-08-98 30-06-99 1107 TES Explosives
Holden\Rodeo Act 1952
(QLD)
Carriage of
Explosives
up to 1000kg
_____________________________________________________________________________
668 DRA 27-08-98 30-06-99 1197 TES Explosives
Nissan Patrol Act 1952
(QLD)
Carriage of
Explosives
up to 1000kg
_____________________________________________________________________________
135 DZJ 27-08-98 30-06-99 1015 TES Explosives
Volvo Act 1952
(QLD)
Manufacture of
Explosives
on/by Vehicle
_____________________________________________________________________________
986 QCT 24-9-99 03-10-99 NA TES Dangerous Goods by
Trailer Road Act 1984 &
Regulations (QLD)
Carriage of
Dangerous
Goods
_____________________________________________________________________________
***
_____________________________________________________________________________
9BR 195 19-06-98 18-06-99 NA TES Explosives and
Mazda Dangerous
Goods Act
Licence to 1961 (WA)
Convey Blasting
Agent Mixing
Vehicles
_____________________________________________________________________________
9MA 964 23-9-98 22-09-99 NA TES Explosives &
Volvo Dangerous
Goods Act
Licence to 1961 (WA)
Convey
Explosives
_____________________________________________________________________________
8KP 430 31-12-97 30-12-98 NA TES Explosives &
Dangerous
______________________________________________________________________________
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED FROM
THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF
SUCH REQUEST.
________________________________________________________________
ASSET PURCHASE AGREEMENT 51 C COPYRIGHT 1999
B/222128
<PAGE>
______________________________________________________________________________
Date Expiry Licence Licences Authority/
Vehicle/License Granted Date No. State
______________________________________________________________________________
Licence to Goods Act
Convey Blasting 1961 (WA)
Agent Mixing
Vehicles
_____________________________________________________________________________
9MU 330 13-08-97 19-08-98 NA TES Explosives &
Dangerous
Licence to Goods Act
Convey Blasting 1961 (WA)
Agent Mixing
Vehicles
_____________________________________________________________________________
1ACP 119 03-02-98 19-02-99 NA TES Explosives &
Dangerous
Licence to Goods Act
Convey Blasting 1961 (WA)
Agent Mixing
Vehicles
____________________________________________________________________________
8PD 912 26-01-98 25-01-99 NA TES Explosives &
Dangerous
Licence to Goods Act
Convey Blasting 1961 (WA)
Agent Mixing
Vehicles
____________________________________________________________________________
______________________________________________________________________
ASSET PURCHASE AGREEMENT 52 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 10
(Clause 1.1.35)
*** Assets
ASSET DESCRIPTION TAG NUMBER
________________________________________________________________
Handport FM 138-156 mhz Radio
Tait T3010 Hand Held Portable Radio
Evacuation Alarm and Siren
2 Acid Tanks
Powder Coat 2 SS Acid Tanks
AN Store
Process Building
Amenities Building
Nokia 232 Cellphone
4 Drawer Filing Cabinet
2 Draw Filing Cabinet
Cat Pump 2259
Ingersoll 100-80 CPX-125 Pump 2251
Ingersoll 65-40 CPX-125 Pump 2252
Container-Vivian Containers
Site Upgrade for Environmental purpose
Storage Tank-4 tonne SX 2258
Solution Volumatic Tank 2.5mt 2246
Auger EX KG 6" 2248
Four Wheel Drive
Isotanker
Magazines
Transfer Pump
Shipping Containers
HiLux
Isuzu Bowl
Misc Plant & Equip
Mono Pump
Sheds
SX Plant
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED FROM
THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH
REQUEST.
________________________________________________________________________
ASSET PURCHASE AGREEMENT 53 C COPYRIGHT 1999
B/222128
<PAGE>
SCHEDULE 11
(Clause 1.1.36)
Operating Leases
Lease Location/Item Start Date
_____________________________________________________________________________
Ricoh Business Centre *** 28/08/98
R Duncan Pty Ltd *** 04/97
R Duncan Pty Ltd *** 10/03/98
R Duncan Pty Ltd *** 01/08/96
R Duncan Pty Ltd *** 01/08/96
R Duncan Pty Ltd *** 01/08/96
R Duncan Pty Ltd *** 01/08/96
R Duncan Pty Ltd ***
R Duncan Pty Ltd ***
R Duncan Pty Ltd ***
R Duncan Pty Ltd ***
R Duncan Pty Ltd ***
James Hardies Building Systems *** 10/04/98
James Hardies Building Systems *** 02/04/98
James Hardies Building Systems *** 1993
James Hardies Building Systems *** 05/05/94
James Hardies Building Systems *** 05/05/94
AGC *** 28/11/97
The Capital Corporation Limited *** 14/08/98
ACN 065 745 735 (AT & T Capital)
The Capital Corporation Limited *** 11/06/96
ACN 065 745 735 (AT & T Capital)
The Capital Corporation Limited *** 10/09/97
ACN 065 745 735 (AT & T Capital)
The Capital Corporation Limited *** 22/07/97
ACN 065 745 735 (AT & T Capital)
Red Australia *** 01/08/98
Red Australia *** 01/08/98
Red Australia *** 21/06/95
Western Portables ***
Brambles ***
Brambles ***
Brambles ***
***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED FROM
THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF
SUCH REQUEST.
_____________________________________________________________________
ASSET PURCHASE AGREEMENT 54 C COPYRIGHT 1999
B/222128
<PAGE>
Schedule 12
(Clause 1.1.24)
Financing Leases
LESSOR ASSET No. DESCRIPTION
____________________________________________________________________
AT & T CAPITAL 0004527000 SELEX PHOTOCOPIER
295002.000
SANWA 1B0049279 NISSAN DX 4 X 4 UTE
960008.000 REG 811 DOQ
SANWA 1B0049287 NISSAN DX 4 x 4 UTE
960009.000 REG 9MA 734
SANWA 1B0049295 NISSAN PATROL WAGON
960010.000 REG 564 DNZ
SANWA 1B0050472 NISSAN PATROL RX WAGON
960012.000 REG 9KA 303
SANWA 1B0050499 NISSAN PATROL RX WAGON
960013.000 REG 9KA 302
SANWA 1B0050501 NISSAN PATROL LEAF
960014.000 SPRING CAB CHASS
REG 668 DRA
SANWA 1B0050510 NISSAN PATROL LEAF
960015.000 SPRING CAB CHASS
REG 9JX 912
ESANDA 449521594 MITSUBISHI CANTER
960004.000 DEWATERING UNIT
REG 060 DMK
ESANDA 449546492 HOLDEN BS COMMODORE
960006.000 ACCLAIM V6 3.8L
REG 172 DMI
ESANDA 449547305 NISSAN PATROL ST TURBO
295001.000 WAGON
ADVANCE LEASING 85651/001 TNT KOMATSU FORKLIFT
970821.000 MODEL FD25T-12
ORIX 888478 MITSUBISHI VERADA
970816.000 E1 SEDAN
ORIX 934607 MITSUBISHI KE VERADA
970815.000 E1 AUTO SEDAN
GE CAPITAL CEO712S1 VOLVO BOWL TRUCK B#4
950001.000
GE CAPITAL CEO712S2 MITSUBISHI CANTER
950004.001 DEWATERING UNIT
GE CAPITAL CEO712S3 SANDERSON TELECOPIER
940004.000
GE CAPITAL CEO713S1 93 VOLVO FL10 PUMP
940005.000 REG 379 CJT P#3
GE CAPITAL CEO713S2 HOLDEN RODEO 1995
950052.000
GE CAPITAL CEO714S1 ISUZU PUMP BOWLER
940006.000 TRUCK
REG 8PD 912 TES#11
GE CAPITAL CEO714S3 VOLVO FL 10
950004.000 REG 026 CXN B#5(BODY)
GE CAPITAL CEO714S4 KOMATSU FD3-5 FORKLIFT
950005.000 4 TONNE
GE CAPITAL CEO714S5 ISUZU FV7 1400 MEDIUM
960001.000 CAB CHASSIS
REG 8PD 912
GE CAPITAL CEO714S6 NISSAN PATROL 4 x 4
960002.000 TRAY TOP UTE
_________________________________________________________________________
ASSET PURCHASE AGREEMENT 55 C COPYRIGHT 1999
B/222128
<PAGE>
REG 9GB 225
GE CAPITAL CEO714S6 NISSAN PATROL 4 x 4
960003.000 TRAY TOP UTE
REG 9GB 162
GE CAPITAL CEO714S7 MITSUBISHI FS42855
960005.000 8 x 4 TRUCK 1996
REG 91H 282
GE CAPITAL CEO922S2 COMPUTER SYSTEM
960011.000 BRISBANE OFFICE
GE CAPITAL CEO922S3 CHASSIS TRIPLE P
970817.000 EXPLOSIVES TRUCK
GE CAPITAL CEO922S3 BODY TRIPLE P
970818.000 EXPLOSIVE TRUCK
GE CAPITAL CEO922S4 TRIPLE P EXPLOSIVE
970820.000 TRUCK
GE CAPITAL CEO922S4 CHASSIS TRIPLE P
970819.000 EXPLOSIVES TRUCK
GE CAPITAL CEO922S5 VOLVO FL10 CAB
980028.000 CHASSIS
CAPITAL COMMERCIAL LC/1/4/5966
FINANCE LTD. 950038.000 HEF STORAGE
950024.000 FIRE HYDRANTS X 2
930049.000 ISUZU ANFO BLOWER
8EV02 TRUCK
920038.000 MAC HEAVY ANFO TRUCK
REG 296 CTE
920024.000 VOLVO F7-P2 2ND HAND
CHASSIS REG 9ET 727
CAPITAL COMMERCIAL LC/1/4/6161
FINANCE LTD. LC/1/4/6532
LC/1/6/5967
950006.000 BOWL PUMP TRUCK TES 14
REG 1AJR033
CAPITAL COMMERCIAL LC/1/6/6141 ISUZU BOWL PUMP TM
FINANCE LTD. 950007.000 327 B#7
ZAMOFAST 950002.000 VOLVO BOWL TRUCK
REG 9CO 347 #3
QLD WEIGHING 960007.000 25M CONCRETE WEIGH-
MACHINES PTY LTD BRIDGE SN 16438
________________________________________________________________
ASSET PURCHASE AGREEMENT 56 C COPYRIGHT 1999
B/222128
<PAGE>
EXECUTED as an agreement.
________________________________ ______________________________
EXECUTED by TOTAL ENERGY SYSTEMS
LIMITED ACN 010 876 150 in
accordance with section 127 of
the Corporations Law:
/s/ R. A. Rogers /s/ Peter Ivan Felix Geroff
Director/Company Secretary Director
R. A. Rogers
Name of Director/Company Name of Director (BLOCK
LETTERS)
Secretary
Peter Ivan Felix Geroff
_______________________________ _______________________________
EXECUTED by T.E.S. MINING
SERVICES PTY LTD ACN 010 175 676
in accordance with section 127
of the Corporations Law:
/s/ R. A. Rogers /s/ James L. Wewers
Director/Company Secretary Director
R. A. Rogers
Name of Director/Company Name of Director (BLOCK LETTERS)
Secretary (BLOCK LETTERS)
James L. Wewers
______________________________ _______________________________
EXECUTED by TOTAL ENERGY SYSTEMS
(INTERNATIONAL) PTY LTD ACN 084
562 24 in accordance with
section 127 of the Corporations
Law:
/s/ R. A. Rogers /s/ Peter Ivan Felix Geroff
Director/Company Secretary Director
R. A. Rogers
Name of Director/Company
Secretary (BLOCK LETTERS)
Peter Ivan Felix Geroff
______________________________ _______________________________
EXECUTED by TOTAL ENERGY SYSTEMS )
(NZ) LIMITED DN/682396 in )
accordance with resolution of a )
meeting of its board of directors )
/s/ David Shear /s/ James L. Wewers
Director/Company Secretary Director
David Shear
Name of Director/Company Name of Director (BLOCK LETTERS)
Secretary
James L. Wewers
______________________________ _______________________________
____________________________________________________________________
ASSET PURCHASE AGREEMENT 57 C COPYRIGHT 1999
B/222128
<PAGE>
______________________________ ______________________________
EXECUTED by QUANTUM EXPLOSIVES )
PTY LIMITED ACN 087 119 515 in )
accordance with section 127 of )
the Corporations Law:
/s/ Wrixon Frank Gasteen /s/ Nicholas Neil Jukes
Director/Company Secretary Director
Wrixon Frank Gasteen
Name of Director/Company Name of Director (BLOCK LETTERS)
Secretary
Nicholas Neil Junes
______________________________ _______________________________
________________________________________________________________
ASSET PURCHASE AGREEMENT 58 C COPYRIGHT 1999
B/222128
<PAGE>
ANNEXURE A
Purchaser's Parent Agreement
________________________________________________________________
ASSET PURCHASE AGREEMENT 59 C COPYRIGHT 1999
B/222128
<PAGE>
DEED OF GUARANTEE
By
THIESS CONTRACTORS PTY LIMITED
ACN 010 221 486
("Guarantor")
in favour of
TOTAL ENERGY SYSTEMS LIMITED
ACN 010 876 150,
T.E.S. MINING SERVICES PTY LTD
ACN 010 975 676,
TOTAL ENERGY SYSTEMS (INTERNATIONAL) PTY LTD
ACN 084 562 247
and
TOTAL ENERGY SYSTEMS (NZ) LIMITED
DN/682396
("THE VENDORS")
LEGAL & CONTRACT SERVICES
THIESS CONTRACTORS PTY LIMITED
po Box 199 Archerfield Qld 4108
Ph: (07) 3275-8563 Fax: (07) 3275-8633
email address: [email protected]
C Copyright 1999
<PAGE>
DEED OF GUARANTEE
THIS DEED is made on the seventh day of May 1999.
BY
THIESS CONTRACTORS PTY LIMITED (ACN 010 221 486) of 146 Kerry Road,
Archerfield, Queensland, Australia (with its successors and permitted
assigns "Guarantor")
IN FAVOUR OF
Total Energy Systems Limited ACN 010 876 150, T.E.S. Mining Services
Pty Ltd ACN 010 975 676, Total Energy Systems (International) Pty Ltd
ACN 084 462 247 and Total Energy Systems (NZ) Limited DN/682396
(together with their successors and permitted assigns "Vendors").
RECITALS
A Quantum Explosives Pty Limited ACN 087 119 515 ("the Purchaser")
is a wholly owned subsidiary of the Guarantor.
B The Vendors are in the business of manufacturing and supplying
bulk and packaged explosives and blasting agents and other
products and services to the mining, quarrying, civil
engineering and other industries in Australia, New Zealand and
elsewhere ("Business").
C At the request of the Guarantor, the Purchaser has entered an
asset purchase agreement with the Vendors dated the seventh day
of May 1999 for the purchase of the assets used by the Vendors
in the conduct of the Business ("Agreement").
D It is a condition precedent to performance under the Agreement
that the Guarantor enter into and execute this Deed.
OPERATIVE
1. Guarantee
The Guarantor guarantees to the Vendors the due and punctual
performance of all terms, provisions and conditions contained in
the Agreement on the part of the Purchaser to be performed
("Guaranteed Obligations").
2. Indemnity
The Guarantor indemnifies the Vendors and agrees to keep the
Vendors indemnified from and against all loss, damage, costs and
expenses suffered or incurred by any of the Vendors directly or
indirectly by reason of:
2.1 the Purchaser's default, breach or non-performance or non-
observance by the Purchaser of any of the Guaranteed
Obligations; and
2.2 any matter which the Purchaser has warranted to the Vendor
not being as warranted;
provided that in no circumstance shall the Guarantor be liable
under this Guarantee and Indemnity to any greater extent than
the Purchaser would have been liable to the Vendors for such
default, breach, non performance, non observance or failure of
warranty in accordance with the terms of the Agreement if the
Agreement was otherwise of full force and effect against the
Purchaser.
3. Enforcement
3.1 If:
3.1.1. The Purchaser defaults in the due and punctual
performance of any of the Guaranteed Obligations
and at any time after that default the Vendors
give written notice to the Guarantor of that
default and of the Vendors' intention to
exercise their rights under this Deed in respect
of that default; and
3.1.2 within 30 days of the giving of that notice, the
Purchaser (or the Guarantor on its behalf) has
failed to remedy the default,
the Guarantor shall (without further notice from the
Vendors) immediately remedy or cause to be remedied the
default.
1
<PAGE>
4. Obligations absolute and unconditional
The Guarantor remains liable under this Deed even if:
4.1 there is any modification of the liabilities of the
Purchaser under this Agreement;
4.2 any arrangement is made between the Vendors and the
Purchaser with or without assent of the Guarantor;
4.3 there is any alteration in the obligations undertaken by
the Purchaser under the Agreement including, without
limitation any forbearance as to payment, time, performance
or otherwise;
4.4 the Purchaser:
4.4.1 enters into any composition or scheme of
arrangement with creditors; or
4.4.2 enters into liquidation or are wound up;
4.5 The Vendors cannot, for any reason, enforce the Agreement
against the Purchaser;
4.6 The Vendors have not, for any reason, exercised or do not
exercise all or any one or more of their rights or powers
against the Purchaser;
4.7 The Vendors grant any time or other indulgence or
concession to the Purchaser;
4.8 The Vendors compound, compromise, release, abandon, waive,
vary, relinquish or renew any of the Vendors' rights
against the Purchaser, or waive or vary any other provision
of the Agreement; or
4.9 Any part of the Purchaser's liability to the Vendors is
satisfied by a payment which (whether because it is a
preference or for any other reason) the Vendors must pay
back or otherwise lose the benefit of, to the extent of the
repayment or benefit so lost.
5. Duration of Deed
This Deed shall continue and shall remain in full force until
all of the Guaranteed Obligations or any other obligation or
liability arising under the Agreement have been fully performed,
observed and satisfied by the Purchaser or the Guarantor.
6. Service of notices
6.1 Any notice required pursuant to this Deed must be:
6.1.1 in writing; and
6.1.2 either sent by facsimile transmission, certified
mail or delivered by hand.
6.2 A notice to the Vendors must be addressed to the Vendors at
care of LSB Industries Inc 16 S Pennsylvania Avenue,
Oklahoma City, Oklahoma, USA - facsimile no. 405 236 1209
or such other address as may be notified.
6.3 A notice to the Guarantor must be addressed to the
Guarantor at the address on page 1 of this Deed or such
other address as may be notified or to facsimile number 07
3275 8633.
6.4 A notice sent by certified mail or delivered by hand is
effective upon receipt.
6.5 A notice sent by facsimile transmission is effective upon
transmission unless it is transmitted after the close of
normal business hours, or on a Saturday, Sunday or public
holiday, in which case it is effective on the opening of
business on the next business day at the intended place of
receipt.
7. Representations
The Guarantor acknowledges that it has not been induced to enter
into this Agreement by virtue of any representation by or on
behalf of the Vendors but has acted entirely on its own
responsibility.
8. Costs
Each party shall pay its own legal costs of and incidental to
the preparation and execution of this Deed but any stamp duty
payable thereon shall be paid by the Guarantor.
2
<PAGE>
9. Governing Law and Jurisdiction
9.1 This Deed and all questions arising in connection with it
are governed by and will be construed according to the laws
from time to time in force in the State of Queensland and
the Guarantor hereby submits to the jurisdiction of those
courts having jurisdiction in the State of Queensland.
10. Construction
A reference in this Deed to the Vendors includes a reference to
the Vendors collectively and to each of the Vendors separately.
3
<PAGE>
Executed as a Deed
THE COMMON SEAL of THIESS CONTRACTORS PTY LTD )
is hereunto affixed in accordance with its )
Constitution: )
____________________________ ________________________________
Director Director/Secretary
_____________________________ ________________________________
Name (printed) Name (printed)
4
<PAGE>
ANNEXURE B
Vendor's Parent Guarantee
________________________________________________________________
ASSET PURCHASE AGREEMENT 60 C COPYRIGHT 1999
B/222128
<PAGE>
DEED OF GUARANTEE
By
LSB INDUSTRIES INC
("Guarantor")
in favour of
QUANTUM EXPLOSIVES PTY LIMITED
ACN 087 119 515
("Quantum Explosives")
LEGAL & CONTRACT SERVICES
THIESS CONTRACTORS PTY LIMITED
po Box 199 Archerfield Qld 4108
Ph: (07) 3275-8563 Fax: (07) 3275-8633
email address: [email protected]
C Copyright 1999
<PAGE>
DEED OF GUARANTEE
THIS DEED is made on the seventh day of May 1999.
BY
LSB INDUSTRIES INC of 165 Pennsylvania Avenue Oklahoma City,
Oklahoma, USA (with its successors and permitted assigns "Guarantor")
IN FAVOUR OF
QUANTUM EXPLOSIVES PTY LIMITED (ACN 087 119 515 of 146 Kerry Road,
Archerfield, Queensland, Australia (with its successors and permitted
assigns "Quantum Explosives").
RECITALS
A Total Energy Systems Limited (ACN 010 876 150), T.E.S. Mining
Services Pty Ltd (ACN 010 975 676), Total Energy Systems
(International) Pty Ltd (ACN 084 562 247), Total Mining Systems
Pty Ltd (ACN 709 315) andTotal Energy Systems (NZ) Limited all
c/-Level 7, 371 Queen Street, Brisbane, Queensland, Australia
("Vendors") are ultimately wholly owned subsidiaries of the
Guarantor.
B The Vendors are in the business of manufacturing and supplying
bulk and packaged explosives and blasting agents and other
products and services to the mining, quarrying, civil
engineering and other industries in Australia, New Zealand and
elsewhere ("Business").
C At the request of the Guarantor, Quantum Explosives has entered
an asset purchase agreement with the Vendors dated the seventh
day of May 1999 for the purchase of the assets used by the
Vendors in the conduct of the Business ("Agreement").
D It is a condition precedent to performance under the Agreement
that the Guarantor enter into and execute this Deed.
OPERATIVE
1. Guarantee
The Guarantor guarantees to Quantum Explosives the due and
punctual performance by the Vendors of all terms, provisions and
conditions contained in the Agreement on the part of the Vendors
to be performed ("Guaranteed Obligations"). The Guarantor
acknowledges that it has read and understood the Agreement,
which is attached hereto.
2. Indemnity
The Guarantor indemnifies Quantum Explosives and agrees to keep
Quantum Explosives indemnified from and against all loss,
damage, costs and expenses including legal costs suffered or
incurred by Quantum Explosives directly or indirectly by reason
of:
2.1 the Vendors' default, breach or non-performance or non-
observance by the Vendors of any of the Guaranteed
Obligations; and
2.2 any matter which the Vendors have warranted to Quantum
Explosives not being as warranted;
provided that in no circumstance shall the Guarantor be liable
under this Guarantee and Indemnity to any greater extent than
the Vendors would have been liable to Quantum Explosives for
such default, breach, non performance, non observance or failure
of warranty in accordance with the terms of the Agreement if the
Agreement was otherwise of full force and effect against the
Vendors.
3. Enforcement
3.1 If:
3.1.1. the Vendors defaults in the due and punctual
performance of any of the Guaranteed Obligations
and at any time after that default Quantum
Explosives gives written notice to the Guarantor
of that default and of Quantum Explosives'
intention to exercise its rights under this Deed
in respect of that default; and
3.1.2 within 30 days of the giving of that notice, the
Vendors (or the Guarantor on its behalf) has
failed to remedy the default,
the Guarantor shall (without further notice from Quantum
Explosives) immediately remedy or cause to be remedied the
default.
1
<PAGE>
4. Obligations absolute and unconditional
The Guarantor remains liable under this Deed even if:
4.1 there is any modification of the liabilities of the Vendors
under this Agreement;
4.2 any arrangement is made between the Vendors and Quantum
Explosives with or without assent of the Guarantor;
4.3 there is any alteration in the obligations undertaken by
the Vendors under the Agreement including, without
limitation any forbearance as to payment, time, performance
or otherwise;
4.4 the Vendors:
4.4.1 enter into any composition or scheme of
arrangement with creditors; or
4.4.2 enters into liquidation or are wound up;
4.5 Quantum Explosives cannot, for any reason, enforce the
Agreement against the Vendors;
4.6 Quantum Explosives, for any reason, has not exercised or
does not exercise all or any one or more of its rights or
powers against the Vendors;
4.7 Quantum Explosives grants any time or other indulgence or
concession to the Vendors;
4.8 Quantum Explosives compounds, compromises, releases,
abandons, waives, varies, relinquishes or renews any of
Quantum Explosives' rights against the Vendors, or waives
or varies any other provision of the Agreement; or
4.9 Any part of the Vendors' liability to Quantum Explosives is
satisfied by a payment which (whether because it is a
preference or for any other reason) Quantum Explosives must
pay back or otherwise lose the benefit of, to the extent of
the repayment or benefit so lost.
5. Duration of Deed
This Deed shall continue and shall remain in full force until
all of the Guaranteed Obligations or any other obligation or
liability arising under the Agreement have been fully performed,
observed and satisfied by the Vendors or the Guarantor.
6. Service of notices
6.1 Any notice required pursuant to this Deed must be:
6.1.1 in writing; and
6.1.2 either sent by facsimile transmission, certified
mail or delivered by hand.
6.2 A notice to Quantum Explosives must be addressed to Quantum
Explosives at the address on page 1 of this Deed or such
other address as may be notified.
6.3 A notice to the Guarantor must be addressed to the
Guarantor at the address on page 1 of this Deed or such
other address as may be notified or to facsimile number
0015-1-405 236 1209 attention: General Counsel.
6.4 A notice sent by certified mail or delivered by hand is
effective upon receipt.
6.5 A notice sent by facsimile transmission is effective upon
transmission unless it is transmitted after the close of
normal business hours, or on a Saturday, Sunday or public
holiday, in which case it is effective on the opening of
business on the next business day at the intended place of
receipt.
6.6 The Guarantor nominates Corrs Chambers Westgarth, Level 35,
Waterfront Place, 1 Eagle Street, Brisbane to receive
service of documents on the Guarantor's behalf in respect
of this Deed provided that a copy of each document so
served shall as soon as possible thereafter be forwarded by
facsimile to the Guarantor's General Counsel on facsimile
no. 0015-1-405 236 1209. The agent must accept service of
documents on the Guarantor's behalf with respect to any
action, proceeding or other process in connection with this
Deed.
7. Representations
The Guarantor acknowledges that it has not been induced to enter
into this Agreement by virtue of any representation by or on
behalf of Quantum Explosives but has acted entirely on its own
responsibility.
3
<PAGE>
8. Costs
Each party shall pay its own legal costs of and incidental to
the preparation and execution of this Deed but any stamp duty
payable thereon shall be paid by the Guarantor.
9. Governing Law and Jurisdiction
9.1 This Deed and all questions arising in connection with it
are governed by and will be construed according to the laws
from time to time in force in the States of Queensland and
Oklahoma. Any injunctions, orders or judgements issued or
granted therefrom shall be enforceable within the
Commonwealth of Australia and the United States of America,
including Oklahoma or any county or state with which the
Commonwealth of Australia or the State of Queensland has
agreed reciprocally to enforce injunctions, orders or
judgements, as the case may be.
9.2 The Guarantor must do all acts deeds or things necessary
for this Deed to be properly acknowledged, certified and
legalised by all relevant authorities, Governmental,
judicial or otherwise, for its enforcement within Oklahoma
and/or Queensland.
10. Construction
A reference in this Deed to the Vendors includes a reference to
the Vendors collectively and to each of the Vendors separately.
4
<PAGE>
Executed as a Deed
EXECUTED by LSB INDUSTRIES, INC., )
by its duly authorise officer pursuant )
to a resolution adopted by its Board of )
Directors at a duly called meeting of )
the Board of Directors )
__________________________________________
Authorised Officer of LSB Industries, Inc.
__________________________________________
Name (printed)
I, the notary public named below, hereby certify that the person
specified as the Authorised Officer above did in fact appear and sign
this Deed on behalf of LSB Industries, Inc.
__________________________________________
Notary Public
__________________________________________
Name (printed)
5
Letter of Acknowledgment RE: Unaudited Financial Information
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) pertaining to the 1981 and 1986
Incentive Stock Option Plans, the Registration Statement (Form S-8
No. 333-58225) pertaining to the 1993 Stock Option and Incentive
Plan, the Registration Statements (Forms S-8 No. 333-62831, No.
333-62835, No. 333-62839, No. 333-62843, and No. 333-62841)
pertaining to the registration of an aggregate 225,000 shares of
common stock pursuant to certain Non-Qualified Stock Option
Agreements for various employees and the Registration Statement
(Form S-3 No. 33-69800) of LSB Industries, Inc. and in the related
Prospectuses of our report dated May 14, 1999, 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 March 31, 1999.
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.
/s/ Ernst & Young LLP
Ernst & Young LLP
Oklahoma City, Oklahoma
May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> $ 1,240
<SECURITIES> 0
<RECEIVABLES> 59,487
<ALLOWANCES> 2,374
<INVENTORY> 63,349
<CURRENT-ASSETS> 131,205
<PP&E> 198,233
<DEPRECIATION> 99,131
<TOTAL-ASSETS> 251,427
<CURRENT-LIABILITIES> 55,082
<BONDS> 165,759
139
48,000
<COMMON> 1,511
<OTHER-SE> (19,064)
<TOTAL-LIABILITY-AND-EQUITY> 251,427
<SALES> 70,189
<TOTAL-REVENUES> 70,189
<CGS> 54,075
<TOTAL-COSTS> 72,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,367
<INCOME-PRETAX> (3,760)
<INCOME-TAX> 50
<INCOME-CONTINUING> (3,810)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,810)
<EPS-BASIC> (.39)
<EPS-DILUTED> (.39)
</TABLE>
