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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
COMMISSION FILE NUMBER: 1-12881
LONE STAR TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
14681 MIDWAY ROAD, SUITE 200
DALLAS, TEXAS 75244
972/386-3981
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 75-2085454
Indicate by a 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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
As of April 15, 1999, the number of shares of Common Stock outstanding at
$1.00 par value per share was 22,501,373.
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LONE STAR TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
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Page
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<S> <C> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Earnings.................................3
Consolidated Balance Sheets.........................................4
Consolidated Statements of Cash Flows...............................5
Notes to Consolidated Financial Statements..........................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS....................................7
Results of Operations...............................................8
Financial Condition and Liquidity...................................9
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................10
Item 5. OTHER INFORMATION......................................................10
Item 6. REPORTS ON FORM 8-K....................................................10
</TABLE>
In the opinion of management, the unaudited consolidated financial statements
include all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the financial position as of March 31, 1999 and the
cash flows and the results of operations for the three months ended March 31,
1999 and 1998. Unaudited financial statements are prepared on a basis
substantially consistent with those audited for the year ended December 31,
1998. The results of operations for the interim periods presented may not be
indicative of total results for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations promulgated by the Securities and Exchange
Commission. However, management believes that the disclosures contained herein
are adequate to make the information presented not misleading. Certain
reclassifications of prior period amounts have been made to conform with the
current period. The unaudited financial statements should be read in conjunction
with the audited financial statements and accompanying notes in Lone Star
Technologies, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998.
2
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LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED; IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Net revenues $ 63.7 $ 151.0
Cost of goods sold (65.9) (135.6)
-------------------------------
Gross earnings (loss) (2.2) 15.4
Selling, general and administrative expenses (3.8) (5.1)
-------------------------------
Operating earnings (loss) (6.0) 10.3
Interest income 0.4 0.5
Interest expense (0.9) (0.7)
Other expense (0.1) -
-------------------------------
Earnings before income tax (6.6) 10.1
Income tax - (0.2)
-------------------------------
NET EARNINGS (LOSS) $ (6.6) $ 9.9
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Per common share - basic:
NET EARNINGS (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (0.29) $ 0.44
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Per common share - diluted:
NET EARNINGS (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (0.29) $ 0.43
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
3
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LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------
1999 1998
-------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23.1 $ 20.9
Short-term investments 1.1 3.1
Accounts receivable, net 33.8 36.3
Current inventories, net 74.4 88.9
Other current assets 4.5 3.7
-------------------------
TOTAL CURRENT ASSETS 136.9 152.9
Marketable securities 7.0 9.0
Property, plant, and equipment, net 155.3 157.8
Other noncurrent assets 15.7 16.1
-------------------------
TOTAL ASSETS $ 314.9 $ 335.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Current portion of term loan $ 2.0 $ -
Accounts payable 18.3 15.8
Accrued liabilities 19.8 25.6
-------------------------
TOTAL CURRENT LIABILITIES 40.1 41.4
-------------------------
Term loan 8.0 -
Revolving credit facility 27.7 46.0
Postretirement benefit obligations 38.7 41.5
Other noncurrent liabilities 17.9 17.8
-------------------------
TOTAL LIABILITIES 132.4 146.7
-------------------------
Commitments and contingencies (See Note 6) - -
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value
(authorized: 10,000,000 shares, issued: none) - -
Common stock, $1 par value
(authorized: 80,000,000 shares, issued: 23,061,864) 23.1 23.1
Capital surplus 209.9 209.9
Accumulated other comprehensive loss (12.8) (12.8)
Retained deficit (22.1) (15.5)
Treasury stock (560,491 and 566,116 common
shares, respectively) (15.6) (15.6)
-------------------------
TOTAL SHAREHOLDERS' EQUITY 182.5 189.1
-------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 314.9 $ 335.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
4
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LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
---------------------
1999 1998
---------------------
<S> <C> <C>
BEGINNING CASH AND CASH EQUIVALENTS $ 20.9 $ 14.2
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) (6.6) 9.9
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 4.2 3.8
Accounts receivable, net 2.5 0.8
Current inventories, net 14.5 (13.8)
Accounts payable and accrued liabilities (3.3) (19.5)
Other (1.4) 3.4
---------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 9.9 (15.4)
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1.4) (5.4)
Short-term investments 2.0 -
Marketable securities 2.0 4.0
---------------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 2.6 (1.4)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 10.0 -
Initial borrowings under new revolving credit facility 34.0 -
Net borrowings (payments) under revolving credit facility (10.3) 7.0
Net payments under old revolving credit facility (44.0) -
Treasury stock purchases - (0.3)
Issuance of common stock - 1.1
---------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (10.3) 7.8
---------------------
Net increase (decrease) in cash and cash equivalents 2.2 (9.0)
ENDING CASH AND CASH EQUIVALENTS $ 23.1 $ 5.2
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BUSINESS SEGMENTS DATA
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
(Unaudited; in millions)
1999 1998
-------------------------------
<S> <C> <C>
OILFIELD PRODUCTS
Net revenues $ 30.0 $ 98.8
Operating earnings (loss) (4.6) 8.7
Indentifiable assets 136.9 237.9
Capital expenditures 0.6 3.0
Depreciation and amortization 2.2 2.3
SPECIALTY TUBING
Net revenues $ 26.7 $ 35.4
Operating earnings 0.4 2.9
Identifiable assets 126.8 116.6
Capital expenditures 0.8 2.3
Depreciation and amortization 1.8 1.3
FLAT ROLLED STEEL AND OTHER TUBULAR PRODUCTS
Net revenues $ 7.0 $ 16.8
Operating loss (1.2) (0.5)
Identifiable assets 15.4 20.7
Capital expenditures - 0.1
Depreciation and amortization 0.2 0.2
CORPORATE AND OTHER NON-SEGMENTS
Net revenues $ - $ -
Operating loss (0.6) (0.8)
Identifiable assets 35.8 30.9
CONSOLIDATED TOTALS
Net revenues $ 63.7 $ 151.0
Operating earnings (loss) (6.0) 10.3
Identifiable assets 314.9 406.1
Capital expenditures 1.4 5.4
Depreciation and amortization 4.2 3.8
</TABLE>
NOTE 2 - LONE STAR STEEL COMPANY ("STEEL") REVOLVING CREDIT AGREEMENT
On March 16, 1999, Steel refinanced its revolving credit facility with a new
three year $90.0 million revolving line of credit and a three year $10.0 million
term loan with a new lender. The new revolving credit facility is similar to the
prior facility in that Steel can borrow an amount based on a percentage of
eligible accounts receivable and inventories, reduced by outstanding letters of
credit. However, the borrowing capacity is increased under the new facility due
to higher borrowing base percentages and less restrictive limitations on the
inventory portion of the borrowing base. At March 31, 1999, borrowings totaled
$37.7 million including the term loan with a remaining availability of $33.2
million. At Steel's option, the interest rate is the prime lending rate plus
1.0% or the LIBOR plus 3.0%. Steel also pays a 0.375% per annum fee on the
unused portion of the credit facility. The term loan is repayable in quarterly
installments of $0.5 million, plus interest at the prime lending rate plus 1.5%
or the LIBOR plus 3.5%. Steel's assets other than real estate secure these
loans.
6
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NOTE 3 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock. The numbers of shares used to compute
basic earnings per share for the three months ended March 31, 1999 and 1998 were
22.5 million. Diluted earnings per share is computed by dividing net income by
the weighted average number of shares of common stock and other dilutive
securities. The numbers of shares used to compute dilutive earnings per share
for the three months ended March 31, 1999 and 1998 were 22.5 million and 23.0
million, respectively.
NOTE 4 - INVENTORIES
At March 31, 1999, inventories totaled $103.2 million before LIFO reserves and
were composed of finished goods, $30.0 million; work in process, $32.5 million;
and raw materials and supplies, $40.7 million. Net of LIFO reserves of $21.1
million, inventories were $82.1 million, of which $7.7 million (consisting of
supplies and spare parts) were classified as noncurrent assets.
NOTE 5 - CASH, INVESTMENTS, AND MARKETABLE SECURITIES
Lone Star Technologies, Inc.'s (Lone Star) cash equivalents include highly
liquid investments in a fund consisting of U.S. government and related agencies
obligations with original maturities of less than three months. Short-term
investments consist of U.S. government and related agencies obligations with
maturities at purchase greater than three months and up to one year. Marketable
securities consist of U.S. government and related agencies obligations with
maturities at purchase greater than one year and up to two years. Lone Star's
total cash equivalents, short-term investments and marketable securities, the
weighted average maturity of which is less than one year, are classified as
held-to-maturity because Lone Star has the intent and ability to hold them to
maturity.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Steel has various commitments for the purchase of raw materials, certain tubular
goods, supplies, services, and energy arising in the ordinary course of
business. The majority of these commitments are for a period of less than one
year.
Steel's operations are subject to numerous environmental laws. The three major
areas of regulation are air quality, water quality, and solid and hazardous
waste management. The primary governmental oversight agencies include the Texas
Natural Resource Conservation Commission and the Environmental Protection
Agency. Steel has agreements with these agencies to conduct numerous
environmental studies and to develop plans to ensure continuous compliance with
applicable laws and regulations. Steel is engaged in various ongoing
environmental studies, monitoring programs, and capital projects. Steel believes
that its environmental expenditures will continue to fall within its
contemplated operating and capital plans.
NOTE 7 - INCOME TAXES
Lone Star had federal tax net operating loss carryforwards of approximately
$245.6 million at December 31, 1998, a portion of which may be related to
American Federal Bank (AFB), a previous subsidiary of Lone Star, and subject to
an agreement with the Federal Deposit Insurance Corporation (FDIC) whereby Lone
Star may be required to pay the FDIC for certain tax benefits. Because of the
net loss for the first quarter of 1999, no provision for taxes was recognized. A
provision for alternative minimum tax of $0.2 million was recognized for the
three months ended March 31, 1998. If not utilized, the net operating loss
carryforwards will expire between years 2003 and 2013.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Lone Star Technologies, Inc. (Lone Star) is a management and holding company
whose principal operating subsidiary, Lone Star Steel Company (Steel),
manufactures and globally markets oilfield products consisting of casing, tubing
and line pipe to the oil and gas drilling industry, specialty tubing products to
automotive, fluid power, and other markets for various mechanical applications,
and flat rolled steel and other tubular products to domestic industrial markets.
Substantial uncertainty exists regarding the future levels of oil and gas prices
and related drilling
7
<PAGE>
activity. Therefore, no assurance can be given regarding the extent of
future demand for Steel's oilfield products.
RESULTS OF OPERATIONS
Revenues of $63.7 million for the three months ended March 31, 1999 decreased
58% from the first quarter of 1998. Revenues comprised $30.0 million from
oilfield products, $26.7 million from specialty tubing products, and $7.0
million from flat rolled steel and other tubular products, representing a
decrease of 70%, 25%, and 58%, respectively.
First quarter 1999 shipments decreased 51% over the first three months of 1998
to 103,700 tons and consisted of 55,900 tons of oilfield products, 24,500 tons
of specialty tubing products and 23,300 tons of flat rolled steel and other
tubular products. Oilfield products, specialty tubing products, and flat rolled
steel and other tubular products shipments decreased by 59%, 24%, and 48%,
respectively.
Consolidated revenues reported in the statements of earnings are as follows:
<TABLE>
<CAPTION>
($ in millions)
For the Quarter Ended
March 31,
1999 % 1998 %
------ ------ ------ ---
<S> <C> <C> <C> <C>
Oilfield products revenues 30.0 47 98.8 66
Specialty tubing products revenues 26.7 42 35.4 23
Flat rolled steel and other tubular products revenues 7.0 11 16.8 11
------ ------ ------ ---
Consolidated net revenues 63.7 100 151.0 100
====== ====== ====== ===
</TABLE>
Shipments of products by segment are as follows:
<TABLE>
<CAPTION>
(in tons)
For the Quarter Ended
March 31,
1999 % 1998 %
------- ------- ------- -------
<S> <C> <C> <C> <C>
Oilfield products 55,900 54 135,500 64
Specialty tubing products 24,500 24 32,100 15
Flat rolled steel and other tubular products 23,300 22 44,800 21
------- ------- ------- -------
Total tons shipped 103,700 100 212,400 100
======= ======= ======= =======
</TABLE>
Decreased revenues for the first quarter of 1999 were due to reduced shipment
volumes and prices for all products. Demand for oilfield products declined as
the active rig count continued falling to 498 shortly after the end of the
quarter from 889 a year ago. Shipments of specialty tubing were down due to
lower demand in certain Asian markets and hydraulic cylinder applications. Flat
rolled steel and other tubular markets were weak due to the continued effect of
low-priced imports on the domestic market.
The gross loss and operating loss for the three months ended March 31, 1999 was
$2.2 million and $6.0 million, respectively, compared to gross earnings and
operating earnings of $15.4 million and $10.3 million, respectively, for the
same 1998 period. The gross loss and operating loss were due to lower realized
prices and shipments in Lone Star's three business segments. Significantly
decreased production volumes also negatively impacted gross and operating
margins as fixed and semi-fixed costs were absorbed by fewer units of
production.
The net loss from first quarter of 1999 was $6.6 million, or $.29 per diluted
share. Also, interest expense increased to $0.9 million from $0.7 million due to
higher interest rates on Steel's revolving credit facility.
8
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FINANCIAL CONDITION AND LIQUIDITY
Lone Star has no direct business operations other than Steel or significant
sources of cash other than from investments or the sale of securities. Lone Star
is reimbursed by Steel for most of its operating costs as provided by its
cost-sharing agreement with Steel. Under Steel's new revolving credit agreement,
Lone Star's operating costs and Steel's portion of Lone Star's consolidated
taxes are the only funds that can be distributed to Lone Star.
At March 31, 1999, Lone Star had available cash and cash equivalents, short-term
investments, and marketable securities of $31.2 million, down from $33.0 million
at December 31, 1998. Lone Star has no immediate cash requirements as Steel
reimburses Lone Star for those expenses incurred for Steel's benefit under a
cost-sharing plan. Lone Star has no debt.
Steel requires capital primarily to fund general working capital needs and
capital expenditures. Principal sources of funds include cash generated by
operations, borrowings under Steel's revolving credit facility and from Lone
Star.
On March 16, 1999, Steel refinanced its revolving credit facility with a new
three year $90.0 million revolving line of credit and a three year $10.0 million
term loan with a new lender. The new revolving credit facility is similar to the
prior facility in that Steel can borrow an amount based on a percentage of
eligible accounts receivable and inventories, reduced by outstanding letters of
credit. However, the borrowing capacity is increased under the new facility due
to higher borrowing base percentages and less restrictive limitations on the
inventory portion of the borrowing base. As of March 31, 1999, borrowings
totaled $37.7 million including the term loan with a remaining availability of
$33.2 million. At Steel's option, the interest rate is the prime lending rate
plus 1.0% or the LIBOR plus 3.0%. Steel also pays a 0.375% per annum fee on the
unused portion of the credit facility. The term loan is repayable in quarterly
installments of $0.5 million, plus interest at the prime lending rate plus 1.5%
or the LIBOR plus 3.5%. Steel's assets other than real estate secure these
loans.
Steel's operations are subject to numerous environmental laws. The three major
areas of regulation are air quality, water quality, and solid and hazardous
waste management. Steel believes that its environmental expenditures will
continue to fall within its contemplated operating and capital plans.
YEAR 2000. In order to prepare Lone Star and Steel for the Year 2000, a plan has
been implemented detailing a process to ensure that its various computer systems
are or become Year 2000 compliant. This plan encompasses three primary areas:
business systems (both hardware and software), communications equipment, and
manufacturing equipment. The various stages in this process include assessment
(identifying systems which need change), remediation (making changes in the
software or hardware), verification (testing the changes), and implementation of
the Year 2000 compliant systems. All stages of the process were completed for
the business systems hardware and software and communication equipment of Lone
Star and Steel during the first quarter of 1999, and they are now Year 2000
compliant. Approximately 90% of the manufacturing equipment has been assessed at
March 31, 1999 with no changes required. The remaining assessment is expected to
be completed by the end of April 1999, and, although no changes are expected to
be necessary, remediation, verification and implementation processes will be
developed at that time if needed.
This plan also entails assessing certain Year 2000 risks related to third party
relationships through communications with key suppliers and customers. The
processes described above will be performed on identified third party issues
that are correctable. For those key suppliers and customers that may be
identified as a concern, such concerns will be addressed in Lone Star and
Steel's contingency plan. Lone Star and Steel have not identified the "most
reasonably likely worst case year 2000 scenarios"; however, risks identified
through the process described above will be analyzed and evaluated and a
contingency plan will be developed in the second quarter of 1999 on how those
identified risks will be handled if that is deemed necessary. The cumulative
costs incurred through March 31, 1999 to achieve Year 2000 compliance are
approximately $1.5 million, and are estimated to total $1.6 million upon
completion in 1999.
Steel believes that funds generated by operations and its borrowing capacity
under the revolving credit agreement will provide the liquidity necessary to
fund its cash requirements for the remainder of 1999.
9
<PAGE>
The matters discussed or incorporated by reference in this report on Form 10-Q
that are forward-looking statements involve risks and uncertainties including,
but not limited to, economic conditions, product demand, the regulatory and
trade environment, and other risks indicated in other filings with the
Securities and Exchange Commission.
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
No. 10.30 Financing Agreement dated March 12, 1999 between Steel and
The CIT Group/Business Credit, Inc.
No. 10.31 Subordination Agreement dated March 12, 1999 between Lone
Star and The CIT Group/Business Credit, Inc.
No. 10.32 Intercreditor Agreement dated March 12, 1999 among Lone
Star, Steel and The CIT Group/Business Credit, Inc.
No. 27 Financial Data Schedule
(b) Reports on Form 8-K: none
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LONE STAR TECHNOLOGIES, INC.
By: /s/ Charles J. Keszler
---------------------------
(Charles J. Keszler)
Vice President - Finance
Dated: April 27, 1999
10
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FINANCING AGREEMENT
THE CIT GROUP/BUSINESS CREDIT, INC.
(AS AGENT AND LENDER)
THE LENDERS PARTY HERETO
AND
LONE STAR STEEL COMPANY
T&N LONE STAR WAREHOUSE CO.
AND
LONE STAR LOGISTICS, INC.
(AS BORROWERS)
DATED: MARCH 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 2. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3. REVOLVING LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4. TERM LOANS AND CAPEX TERM LOANS. . . . . . . . . . . . . . . . . . . . 28
SECTION 5. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . . . . . . . . 36
SECTION 8. INTEREST, FEES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9. POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . 53
SECTION 11. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
EXHIBIT
Exhibit A - Form of Revolving Loan A Promissory Note
Exhibit B - Form of Term Loan B Promissory Note
Exhibit C - Form of Assignment and Acceptance
SCHEDULES
Schedule 1 - Existing Liens
Schedule 2 - Collateral Information
Schedule 3 - List of Eligible Rack Transfer Sales to Customers
</TABLE>
These Exhibits and Schedules are not filed with this Financing Agreement.
Registrant agrees to furnish supplementally a copy of any omitted Exhibit or
Schedule to the Commission upon request.
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, (hereinafter
"CITBC") with offices located at Two Lincoln Centre, 5420 LBJ Freeway - Suite
200, Dallas Texas 75240, and CITBC as agent for the Lenders (the "Agent"), and
any other party which now or hereafter becomes a lender hereunder pursuant to
Section 13 hereof (individually a "Lender" and collectively the "Lenders") are
pleased to confirm the terms and conditions under which the Agent on behalf of
the Lenders and the Lenders shall make revolving loans, term loans and other
financial accommodations to LONE STAR STEEL COMPANY (herein "LSSC"), a Delaware
corporation with a principal place of business at 14681 Midway Road, Suite 200,
Dallas Texas 75244, T&N LONE STAR WAREHOUSE CO. (herein "T&N Warehouse"), a
Texas corporation with a principal place of business at 14681 Midway Road, Suite
200, Dallas Texas 75244, and LONE STAR LOGISTICS, INC. (herein "LSL"), a Texas
corporation with a principal place of business at 14681 Midway Road, Suite 200,
Dallas Texas 75244, (herein individually a "Company" and collectively the
"Companies").
SECTION 1. DEFINITIONS
ACCOUNTS shall mean all of the Companies' now existing and future: (a) accounts
(as defined in the UCC), and any and all other receivables (whether or not
specifically listed on schedules furnished to the Agent), including, without
limitation, all accounts created by or arising from all of the Companies' sales,
leases, rentals of goods or renditions of services to its customers, and all
accounts arising from sales, leases, rentals of goods or renditions of services
made under any of the Companies' trade names or styles, or through any of the
Companies' divisions; (b) any and all instruments, documents, contract rights
and chattel paper, all as defined in the UCC; (c) unpaid seller's or lessor's
rights (including rescission, replevin, reclamation, repossession and stoppage
in transit) relating to the foregoing or arising therefrom; (d) rights to any
goods represented by any of the foregoing, including rights to returned,
reclaimed or repossessed goods; (e) deposit accounts, reserves and credit
balances arising in connection with or pursuant hereto; (f) guarantees or
collateral for any of the foregoing; (g) insurance policies or rights relating
to any of the foregoing (h) General Intangibles (including all rights to
payment, including those arising in connection with bank and non-bank credit
cards) pertaining to any and all of the foregoing; (i) notes, deposits or
property of account debtors securing the obligations of any such account debtors
to the Companies, and (j) cash and non-cash proceeds of any and all of the
foregoing.
AGENT COMMITMENT LETTER shall mean the Commitment Letter dated February 11, 1999
(as supplemented by the letter agreement and addendum of even date therewith)
issued by the Agent to, and accepted by, the Companies.
ANNIVERSARY DATE shall mean the date occurring three (3) years from the Closing
Date and the same date in every year thereafter.
ASSIGNMENT AND TRANSFER AGREEMENT shall mean the Assignment and Transfer
Agreement in the form of Exhibit C hereto.
3
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AVAILABILITY shall mean at any time the positive difference between: (a) the
Borrowing Base, and (b) the sum of (i) the outstanding aggregate amount of all
Obligations, including without limitation, all Obligations with respect to
Revolving Loans, but excluding the Letters of Credit and Term Loan, and (ii) the
Availability Reserve.
AVAILABILITY RESERVE shall mean any reserve which the Agent may reasonably
require from time to time, including without limitation, for Letters of Credit
pursuant to Paragraph 5.1 of Section 5 hereof.
BORROWING BASE shall mean the sum of (a) eighty five percent (85%) of each of
the Companies' aggregate outstanding Eligible Accounts Receivable, plus (b) the
lesser of (i) sixty percent (60%) of aggregate value of each of the Companies'
Eligible Inventory, valued at the lower of cost or market, on a first in, first
out basis, or (ii) $50,000,000 (herein the "Inventory Loan Cap").
BUSINESS DAY shall mean any day that on which the Agent is open for business in
New York, New York, which is not (i) a Saturday, Sunday or legal holiday in the
state of New York or (ii) a day on which banking institutions chartered by the
State of New York, the State of Texas or the United States are legally required
to close.
CAPITAL EXPENDITURES for any period shall mean the aggregate of all expenditures
of the Companies during such period that, in conformity with GAAP, are required
to be included in or reflected by the property, plant or equipment or similar
fixed asset account reflected in the balance sheets of the Companies.
CAPITAL IMPROVEMENTS shall mean operating Equipment and facilities (other than
land) acquired or installed for use in any of the Companies' business
operations.
CAPITAL LEASE shall mean any lease of property (whether real, personal or mixed)
which, in conformity with GAAP, is accounted for as a capital lease or a Capital
Expenditure on the balance sheets of the Companies.
CHASE BANK RATE shall mean the rate of interest per annum announced by The Chase
Manhattan Bank, from time to time, as its prime rate in effect at its principal
office in New York City. (The prime rate is not intended to be the lowest rate
of interest charged by The Chase Manhattan Bank to its borrowers).
CHASE BANK RATE LOANS shall mean any loans or advances pursuant to this
Financing Agreement made or maintained at a rate of interest based upon the
Chase Bank Rate.
CLOSING DATE shall mean the date that this Financing Agreement has been duly
executed by the parties hereto and delivered to the Agent.
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COLLATERAL shall mean all present and future Accounts, Equipment, Inventory,
Documents of Title, General Intangibles, Pledged Stock of the Companies
(excluding LSSC) and their subsidiaries, and Other Collateral of the Companies.
COLLATERAL MANAGEMENT FEE shall mean the sum paid to the Agent in accordance
with Paragraph 8.8 of Section 8 of this Financing Agreement to offset the
costs (excluding Out-of-Pocket expenses) of the Agent's personnel in connection
with record keeping, periodic examinations, analyzing and evaluating the
Collateral.
COMMITMENT shall mean each Lender's commitment in accordance with this Financing
Agreement to make Revolving Loans (the "Revolving Credit Commitment") and the
Term Loan funding (the "Term Loan Commitment"), in the amount of their
respective pro rata share, as set forth in the Assignment and Acceptance
Agreement executed by each such Lender.
CONSOLIDATED BALANCE SHEET shall mean a consolidated or compiled, as applicable,
balance sheet for the Companies and their consolidated subsidiaries, eliminating
all inter-company transactions and prepared in accordance with GAAP.
CONSOLIDATING BALANCE SHEET shall mean a Consolidated Balance Sheet plus
individual balance sheets for the Companies and their consolidated subsidiaries,
showing all eliminations of inter-company transactions and prepared in
accordance with GAAP, and including a balance sheet for each Company
exclusively.
COPYRIGHTS shall mean all present and hereafter acquired copyrights,
registrations, recordings, applications, designs, styles, licenses, marks,
prints and labels bearing any of the foregoing, goodwill, general intangible,
intellectual property and copyright rights and all royalties, cash and non-cash
proceeds thereof.
DEFAULT shall mean any event specified in Section 10 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.
DEFAULT RATE OF INTEREST shall mean a rate of interest per annum on any
Obligations hereunder, equal to the lesser of (a) the Maximum Legal Rate or (b)
the sum of: (i) two percent (2%) and (ii) the applicable contract rate of
interest based upon any applicable increment over the Chase Bank Rate plus the
Chase Bank Rate, as determined under Section 8 hereof, which the Agent shall be
entitled to charge the Companies on all Obligations due the Agent and the
Lenders by the Companies, as further set forth in Paragraph 10.2 of Section 10
of this Financing Agreement.
DEPOSITORY ACCOUNTS shall mean the collection accounts, which are subject to the
Agent's instructions, as specified in Paragraph 3.4 of Section 3 of this
Financing Agreement.
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DOCUMENTATION FEE shall mean (a) the amount of $20,000.00 (which amount is
included in the Loan Facility Fee) and intended to compensate the Agent for the
use of the Agent's in-house Legal Department and facilities in documenting, in
whole or in part, the initial transaction solely on behalf of the Agent,
exclusive of Out-of-Pocket Expenses, and (b) subsequent to the Closing Date the
Agent's standard fees relating to any and all modifications, waivers, releases,
amendments or additional collateral with respect to this Financing Agreement,
the Collateral and/or the Obligations.
DOCUMENTS OF TITLE shall mean all present and future documents (as defined in
the UCC), and any and all warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or not and all goods and Inventory relating thereto and all cash and
non-cash proceeds of the foregoing.
EARLY TERMINATION DATE shall mean the date on which the Companies or any one of
them terminates this Financing Agreement or the Revolving Line of Credit which
date is prior to an Anniversary Date.
EARLY TERMINATION FEE shall: (a) mean the fee the Agent on behalf of the Lenders
is entitled to charge the Companies in the event the Companies or any one of
them terminates the Line of Credit or this Financing Agreement on a date prior
to an Anniversary Date; and (b) be determined by calculating the average daily
(i) loan balance under the Revolving Loan plus (ii) balance of outstanding
Letters of Credit for the period from the date of this Financing Agreement to
the Early Termination Date, and multiplying that number by (x) two percent (2%)
if the Early Termination Date occurs on or before one (1) year from the Closing
Date, (y) one percent (1%) if the Early Termination Date occurs after one (1)
year from the Closing Date but on or before two (2) years from the Closing Date;
and (z) one half of one percent (0.5%) if the Early Termination Date occurs
after two (2) years from the Closing Date but prior to an Anniversary Date, in
each case per annum for the number of days from the Early Termination Date to
the next succeeding Anniversary Date, PROVIDED THAT, if the Revolving Line of
Credit is refinanced by Lone Star Technologies, Inc. other than through the
incurrence of any debt or the issuance of any debt instrument except for any
debt instrument or issuance with convertible equity features, and one year from
the Closing Date has elapsed, then the Early Termination Fee would be reduced to
0.75% and 0.375%, in (y) and (z), respectively. Otherwise, the Early
Termination Fee would remain as outlined above.
EBITDA shall mean, in any period, all consolidated earnings of the Companies and
their consolidated Subsidiaries, before all (i) interest and tax expenses,
accrued or paid, (ii) depreciation and (iii) amortization for said period, all
determined in accordance with GAAP on a consistent basis with the latest audited
financial statements of the Companies, but excluding the effect of extraordinary
and/or non-reoccurring gains or losses for such period.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean the gross amount of each of the
Companies' Trade Accounts Receivable that are subject to a valid, exclusive,
first priority and fully perfected security interest in favor of the Agent on
behalf of the Lenders, subject to inchoate tax liens (as set forth in paragraph
7.6 hereof) and the Parent's liens (as set forth in the Intercreditor Agreement
dated on or
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about the date hereof) which conform to the warranties contained herein and
at all times continue to be acceptable to the Agent in the exercise of its
reasonable business judgment, less, without duplication, the sum of: (a) any
returns, discounts, claims, credits and allowances of any nature (whether
issued, owing, granted, claimed or outstanding), and (b) reserves for any
such Trade Accounts Receivable that arise from or are subject to or include:
(i) sales to the United States of America, any state or other governmental
entity or to any agency, department or division thereof, except for any such
sales as to which the Companies have complied with the Assignment of Claims
Act of 1940 or any other applicable statute, rules or regulation, to the
Agent's satisfaction in the exercise of its reasonable business judgment;
(ii) foreign sales other than sales (x) secured by letters of credit (in form
and substance satisfactory to the Agent) issued or confirmed by, and payable
at, banks having a place of business in the United States of America and
payable in United States currency, or (y) to customers residing in Canada
provided such sales otherwise comply with all of the other criteria for
eligibility hereunder, are payable in United States currency and such
accounts receivable do not exceed $5,000,000 .00 in the aggregate at any one
time; (iii) accounts that remain unpaid more than sixty (60) days from the
due date or ninety (90) days from invoice date; (iv) contra accounts; (v)
sales to Parent, any subsidiary, or to any company affiliated with any of the
Companies or Parent in any way; (vi) bill and hold (deferred shipment) or
consignment sales, except that Rack Transfer Sales to those customers listed
on Schedule 3 hereto (as such Schedule 3 may be supplemented from time to
time hereafter by the Companies upon written notice to Agent) shall be
eligible; (vii) sales to any customer which is (A) insolvent, (B) the debtor
in any bankruptcy, insolvency, arrangement, reorganization, receivership or
similar proceedings under any federal or state law, (C) negotiating, or has
called a meeting of its creditors for purposes of negotiating, a compromise
of its debts or (D) financially unacceptable to the Agent or has a credit
rating unacceptable to the Agent; (viii) all sales to any customer if fifty
percent (50%) or more of either (y) all outstanding invoices to such customer
or (z) the aggregate dollar amount of all outstanding invoices to such
customer, are unpaid more than ninety (90) days from invoice date; (ix)
pre-billed receivables and receivables arising from progress billing; (x) an
amount representing, historically, returns, discounts, claims, credits and
allowances, credit balances, cross aged balances, and applicable terms; and
(xi) any other reasons deemed necessary by the Agent in its reasonable
business judgment, including those which are customary either in the
commercial finance industry or in the lending practices of the Agent or the
Lenders.
ELIGIBLE INVENTORY shall mean the gross amount of each of the Companies'
Inventory that is subject to a valid, exclusive first priority and fully
perfected security interest in favor of the Agent on behalf of the Lenders,
subject to inchoate tax liens (as set forth in paragraph 7.6 hereof) and the
Parent's liens (as set forth in the Intercreditor Agreement dated on or about
the date hereof), and which conforms to the warranties contained herein and
which at all times continue to be acceptable to the Agent in the exercise of its
reasonable business judgment, excluding, without duplication, any (a) materials
and supplies (other than raw materials), (b) goods not present in the United
States of America, (c) goods returned or rejected by the Companies' customers
(other than goods that are undamaged and resalable in the normal course of
business and goods to be returned to the Companies' suppliers), (d) goods in
transit to third parties (other than the Companies' agents or warehouses), or
Inventory in possession of a warehouseman, bailee, third party processor or
other third party, unless such warehouseman, bailee, processor or other
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third party has executed a notice of security interest agreement (in form and
substance satisfactory to the Agent) and the Agent shall have a first
priority perfected security interest in such Inventory, and (e) less any
reserves required by the Agent in its reasonable discretion, including for,
any Inventory purchased or sold to any affiliate of the Company, special
order goods, mill rejects, discontinued, slow-moving and obsolete Inventory,
market value declines, bill and hold (deferred shipment), consignment sales,
shrinkage and any applicable customs, freight, duties or taxes.
EQUIPMENT shall mean all present and hereafter acquired equipment (as defined in
the UCC) including, without limitation, all machinery, equipment, furnishings
and fixtures, and all additions, substitutions and replacements thereof,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto and all proceeds of
whatever sort.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended
from time to time and the rules and regulations promulgated thereunder from time
to time.
EUROCURRENCY RESERVE REQUIREMENTS for any day, as applied to a LIBOR Loan, shall
mean the aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect with respect to the Agent and/or any
present or future Lender on such day (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other governmental authority
having jurisdiction with respect thereto, as now and from time to time in
effect), dealing with reserve requirements prescribed for Eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of such
Board) maintained by the Agent and/or any such Lenders (such rate to be adjusted
to the nearest one sixteenth of one percent (1/16 of 1%) or, if there is not a
nearest one sixteenth of one percent (1/16 of 1%), to the next higher one
sixteenth of one percent (1/16 of 1%)).
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of this
Financing Agreement.
FISCAL QUARTER shall mean, with respect to the Companies, each three (3) month
period ending on March 31st, June 30th, September 30th and December 31st of each
Fiscal Year.
FISCAL YEAR shall mean each twelve (12) month period commencing on January 1st
of each year and ending on the following December 31st.
FIXED CHARGE COVERAGE RATIO shall mean, for the relevant period, the ratio
determined by dividing EBITDA by the sum of (a) all interest expense, cash
dividends and cash distributions for such period (b) the amount of principal
repaid or scheduled to be repaid on the Term Loan and Subordinated Debt during
such period, and (c) all federal, state and local income tax expenses for such
period.
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GAAP shall mean generally accepted accounting principles in the United States
of America as in effect from time to time and for the period as to which such
accounting principles are to apply, provided that in the event the Companies
modify their accounting principles and procedures as applied as of the
Closing Date, the Companies shall provide such statements of reconciliation
as shall be in form and substance acceptable to the Agent and the Required
Lenders.
GENERAL INTANGIBLES shall have the meaning set forth in the UCC, and shall
include, without limitation, all present and future right, title and interest in
and to: (a) all Trademarks, tradenames, corporate names, business names,
fictitious business names, logos and any other designs or sources of business
identities, indicative of origin, (b) Patents, together with any improvements on
said Patents, utility models, industrial models, and designs, (c) Copyrights,
(d) trade secrets, (e) licenses, (f) all applications with respect to the
foregoing, (g) all right, title and interest in and to any and all extensions
and renewals and (h) goodwill with respect to any of the foregoing, (i) any
other forms of similar intellectual property, (j) all customer lists,
distribution agreements, supply agreements, indemnification rights and tax
refunds, together with all monies and claims for monies now or hereafter due and
payable in connection with any of the foregoing or otherwise, and all cash and
non-cash proceeds thereof, including, without limitation, the proceeds or
royalties of any licensing agreements between the Companies and any licensee of
any of the Companies' General Intangibles.
GUARANTORS shall mean (i) each of the Companies and (ii) their subsidiaries,
including without limitation Texas & Northern Railway Company.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of money
(borrowed or otherwise) or for the deferred purchase price of property, services
or assets, other than accounts payable included in current liabilities and
incurred in the ordinary course of business, or (b) lease obligations which, in
accordance with GAAP, have been, or which should be capitalized.
INTEREST PERIOD shall mean:
(a) initially (but subsequent to seven days from the Closing Date), as the
case may be a one month, two month, three month or six month period commencing
on the borrowing or conversion date with respect to a LIBOR Loan and ending one,
two, three or six months thereafter, as applicable; and
(b) thereafter, at the option of the Companies, any one month, two month,
three month or six month period commencing on the last day of the immediately
preceding Interest Period applicable to such LIBOR Loan and ending one, two,
three or six months thereafter, as applicable;
PROVIDED THAT, the foregoing provisions relating to Interest Periods are subject
to the following:
(i) if any Interest Period would otherwise end on a day which is not a
Business Day or a Working Day, that Interest Period shall be extended to
the next succeeding Business Day,
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unless the result of such extension would extend such payment into another
calendar month in which event such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month, at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(iii) for purposes of determining the availability of Interest Periods,
such Interest Periods shall be deemed available if (x) Chase Manhattan Bank
quotes an applicable rate to the Agent or the Agent determines the LIBO
Rate, as provided in the definition of LIBOR, (y) the LIBO Rate determined
by Chase Manhattan Bank or the Agent on the basis of such quote will
adequately and fairly reflect the cost of maintaining or funding its loans
bearing interest at LIBOR, for such Interest Period, and (z) such Interest
Period will end on or before the Anniversary Date or the last day of the
then current term of this Financing Agreement. If a requested Interest
Period shall be unavailable in accordance with the foregoing sentence, the
Companies shall continue to pay interest on the Obligations at the
applicable per annum rate based upon the Chase Bank Rate.
INVENTORY shall mean all of the Companies' present and hereafter acquired
inventory (as defined in the UCC) and including, without limitation, all
oilfield products, oil country tubular goods, specialty tubing, rolled steel
tubular products, raw steel, steel tubing, pipe, casing, line pipe, raw
materials, including steel slabs, coils and ingots, and all other merchandise,
inventory and goods, and all additions, substitutions and replacements thereof,
wherever located, together with all goods and materials used or usable in
manufacturing, processing, packaging or shipping same; in all stages of
production - from raw materials through work-in-process to finished goods - and
all proceeds thereof of whatever sort.
ISSUING BANK shall mean the bank issuing Letters of Credit for the Companies.
LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of
the Agent in accordance with Section 5 hereof by the Issuing Bank for or on
behalf of any of the Companies.
LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by the Agent to the
Issuing Bank of the respective Companies' reimbursement obligations under the
Issuing Bank's reimbursement agreement, application for Letter of Credit or
other like document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee the Agent may charge the
Companies under Paragraph 8.3 of Section 8 of this Financing Agreement for: a)
issuing a Letter of Credit Guaranty and/or b) otherwise aiding the Companies in
obtaining Letters of Credit, all pursuant to Section 5 hereof.
LETTER OF CREDIT SUB-LINE shall mean the aggregate amount of $20,000,000,
consisting of a line
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for standby Letters of Credit and for documentary Letters of Credit.
LIBOR shall mean at any time of determination, and subject to availability, for
each applicable Interest Period, a variable rate of interest (the "LIBOR Rate"
or "LIBO Rate") equal to: (a) at the Agent's election (i) the London Interbank
Offered Rate paid in London, with a maturity of comparable duration as the
applicable Interest Period, on dollar deposits from other banks as published,
under "Money Rates", in the New York City edition of the Wall Street Journal,
(ii) the applicable LIBOR quoted to the Agent by The Chase Manhattan Bank (or
any successor thereof), or (iii) the rate of interest determined by the Agent at
which deposits in U.S. Dollars are offered for the relevant Interest Period
based on information presented on Telerate Systems at Page 3750 as of 11:00
A.M. (London time) on the day which is two (2) Business Days prior to the first
day of such interest period; PROVIDED THAT if at least two such offered rates
appear in the Wall Street Journal or on the Telerate System at Page 3750 in
respect of such interest period, the arithmetic mean of all such rates (as
determined by the Agent) will be the rate used; divided by (b) a number equal to
1.0 minus the aggregate (but without duplication) of the rates (expressed as
decimal fraction) of Eurocurrency Reserve Requirements in effect on the day
which is two (2) Business Days prior to the beginning of such Interest Period.
LIBOR LENDING OFFICE with respect to the Agent, shall mean the office of The
Chase Manhattan Bank or any successor thereof maintained at 270 Park Avenue,
New York, NY 10017.
LIBOR LOAN shall mean any loans made pursuant to this Financing Agreement at
such time as they are made and/or are being maintained at a rate of interest
based upon LIBOR, provided that (i) no Default or Event of Default has occurred
hereunder, which has not been waived in writing by the Required Lenders, and
(ii) no LIBOR Loan shall be made with an Interest Period that ends after the
Anniversary Date or any other applicable Early Termination Date.
LINE OF CREDIT shall mean the aggregate commitment of the Lenders to (a) make
Revolving Loans pursuant to Section 3 of this Financing Agreement (b) assist the
Companies in opening Letters of Credit pursuant to Section 5 of this Financing
Agreement and (c) make the Term Loan pursuant to Section 4 of this Financing
Agreement, in the aggregate amount equal to $100,000,000, provided that nothing
herein shall be deemed to increase any Lender's commitment hereunder, and which
commitment shall be set forth in the applicable Assignment and Transfer
Agreements executed by such Lender.
LINE OF CREDIT FEE shall: (a) mean the fee due the Agent at the end of each
month for the Line of Credit, and (b) be determined by multiplying the
difference between (i) the Revolving Line of Credit and (ii) the sum of (x) the
average daily balance of Revolving Loans of the Companies plus (y) the average
daily balance of Letters of Credit outstanding for said month, by 0.375% per
annum for the number of days in said month.
LOAN DOCUMENTS shall mean this Financing Agreement, the Promissory Notes, the
other closing
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documents and any other ancillary loan and security agreements executed from
time to time in connection with this Financing Agreement, all as may be
renewed, amended, extended, increased or supplemented from time to time.
LOAN FACILITY FEE shall mean the fee payable to the Agent and the Lenders (as
applicable) in accordance with, and pursuant to, the provisions of Paragraph 8.7
of Section 8 of this Financing Agreement.
MAXIMUM LEGAL RATE shall mean the maximum lawful interest rate which may be
contracted for, charged, taken, received or reserved under this Financing
Agreement by the Agent and/or the Lenders in accordance with applicable state or
federal law (whichever provides for the highest permitted rate), taking into
account all items contracted for, charged or received in connection with the
Obligations evidenced hereby which are treated as interest under the applicable
state or federal law, as such rate may change from time to time. To the extent
that any of the optional interest rate ceilings provided in Chapter 303 of the
Texas Finance Code (Vernon's Texas Code Annotated), as amended from time to time
(as amended, the "Texas Finance Code"), apply and may be available for
application to any loan(s) or extension(s) of credit evidenced by this Financing
Agreement and/or the Promissory Notes for the purpose of determining the maximum
allowable interest hereunder pursuant to the Texas Finance Code, the applicable
"weekly ceiling" with respect to LIBOR Loans (as such term is defined in Chapter
303 of the Texas Finance Code) from time to time in effect.
OBLIGATIONS shall mean all loans, advances and extensions of credit made or to
be made by the Agent and/or the Lenders to the Companies, or any one of them, or
to others for any of the Companies' account (including, without limitation, all
Revolving Loans, Letter of Credit Guaranties, and Term Loan) at the Companies'
request or as otherwise permitted under this Financing Agreement; any and all
indebtedness and obligations which may at any time be owing by the Companies, or
any one of them, to the Agent and/or the Lenders under any Loan Document,
whether now in existence or incurred by any of the Companies from time to time
hereafter; whether secured by pledge, lien upon or security interest in any of
the Companies' Collateral, assets or property or the assets or property of any
other person, firm, entity or corporation; whether such indebtedness is absolute
or contingent, joint or several, matured or unmatured, direct or indirect and
whether the Companies, or any one of them, are liable to the Agent and/or the
Lenders for such indebtedness as principal, surety, endorser, guarantor or
otherwise. Obligations shall also include indebtedness or obligations incurred
by, or imposed on, the Agent and/or the Lenders as a result of environmental
claims arising out of any of the Companies' operation, premises or waste
disposal practices or sites; any of the Companies' liability to the Agent and
the Lenders as maker or endorser of any promissory note or other instrument for
the payment of money; the Companies' liability to the Agent and/or the Lenders
under any instrument of guaranty or indemnity, or arising under any guaranty,
endorsement or undertaking which the Agent and/or the Lenders may make or issue
to others for the Companies' account, including any accommodation extended with
respect to applications for Letters of Credit, the Agent's acceptance of drafts
or the Agent's endorsement of notes or other instruments for the Companies'
account and benefit.
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OPERATING LEASES shall mean all leases of property (whether real, personal or
mixed) other than Capital Leases.
OTHER COLLATERAL shall mean all now owned and hereafter acquired lockbox,
blocked account and any other deposit accounts maintained with any bank or
financial institutions into which the proceeds of Collateral are or may be
deposited; all cash and other monies and property in the possession or control
of the Agent and/or the Lenders; all books, records, ledger cards, disks and
related data processing software at any time evidencing or containing
information relating to any of the Collateral described herein or otherwise
necessary or helpful in the collection thereof or realization thereon; all
investment property, and all cash and non-cash proceeds of the foregoing.
OUT-OF-POCKET EXPENSES shall mean all of the Agent's (and the Lenders upon the
occurrence of an Event of Default which is not waived by the Required Lenders),
reasonable present and future expenses incurred relative to this Financing
Agreement or any other Loan Documents, whether incurred heretofore or hereafter,
which expenses shall include, without being limited to: the cost of record
searches, all costs and expenses incurred by the Agent in opening bank accounts,
depositing checks, receiving and transferring funds, and wire transfer charges,
any charges imposed on the Agent due to returned items and "insufficient funds"
of deposited checks and the Agent's standard fee relating thereto, any amounts
paid by the Agent, incurred by or charged to the Agent and/or the Lenders by the
Issuing Bank under the Letter of Credit Guaranty or any of the Companies'
reimbursement agreement, application for Letter of Credit or other like document
which pertain either directly or indirectly to such Letters of Credit, and the
Agent's standard fees relating to the Letters of Credit and any drafts
thereunder, travel, lodging and similar expenses of the Agent's personnel in
inspecting and monitoring the Collateral from time to time hereunder, any
applicable counsel fees and disbursements, fees and taxes relative to the filing
of financing statements, and all expenses, costs and fees set forth in Paragraph
10.3 of Section 10 of this Financing Agreement.
PARENT shall mean Lone Star Technologies, Inc.
PATENTS shall mean all of the Companies' present and hereafter acquired patents,
patent applications, registrations, any reissues or renewals thereof, licenses,
any inventions and improvements claimed thereunder, and all general intangible,
intellectual property and patent rights with respect thereto of the Companies
and all income, royalties, cash and non-cash proceeds thereof.
PERMITTED ENCUMBRANCES shall mean: (a) liens existing on the date hereof on
specific items of Equipment and listed on Schedule 1 hereto and other liens
expressly permitted, or consented to in writing by the Agent and/or the Required
Lenders; (b) Purchase Money Liens; (c) liens of local or state authorities for
franchise or other like taxes, provided that the aggregate amounts of such liens
shall not exceed $250,000.00 in the aggregate at any one time; (d) statutory
liens of landlords and liens of carriers, warehousemen, mechanics, materialmen
and other like liens imposed by law or otherwise, created in the ordinary course
of business and for amounts not yet due (or which are being contested in good
faith, by appropriate proceedings or other appropriate actions which are
sufficient to prevent imminent foreclosure of such liens) and with respect to
which adequate reserves
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or other appropriate provisions are being maintained by each of the
Companies, as applicable, in accordance with GAAP; (e) deposits made (and the
liens thereon) in the ordinary course of business of any of the Companies
(including, without limitation, security deposits for leases, indemnity
bonds, surety bonds and performance and appeal bonds and letters of credit
serving such purposes) in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure the
performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations; (f) easements (including, without
limitation, reciprocal easement agreements and utility agreements),
encroachments, minor defects or irregularities in title, variation and other
restrictions, charges or encumbrances (whether or not recorded) affecting the
Real Estate, if applicable, and which in the aggregate (A) do not materially
interfere with the occupation, use or enjoyment by the Companies in their
business of the property so encumbered and (B) in the reasonable business
jugment of the Agent do not materially and adversely affect the value of such
Real Estate; and (g) liens granted the Agent by the Companies or any one of
them; (h) liens of judgment creditors provided such liens do not exceed, in
the aggregate, at any time, $250,000.00 (other than liens bonded or insured
to the reasonable satisfaction of the Agent); (i) liens for taxes not yet
due and payable; (j) liens for taxes which are being diligently contested in
good faith by the Companies by appropriate proceedings and which liens are
not (y) senior to the liens of the Agent or (z) for taxes due the United
States of America or any state thereof having similar priority statutes, as
further set forth in paragraph 7.6 hereof; (k) the second priority liens
granted to Parent, which are subject to Intercreditor and Subordination
Agreements, which are in form and substance satisfactory to the Agent; and
(l) without duplication of any of the foregoing, statutory, common law and
contractual warranty claims in favor of purchasers of the Companies'
Inventory.
PERMITTED INDEBTEDNESS shall mean: (a) current Indebtedness maturing in less
than one year and incurred in the ordinary course of business for raw materials,
supplies, equipment, services, taxes or labor; (b) the indebtedness secured by
Purchase Money Liens; (c) Subordinated Debt; (d) indebtedness arising under the
Letters of Credit and this Financing Agreement; (e) deferred taxes and other
expenses incurred in the ordinary course of business; and (f) other indebtedness
existing on the date of execution of this Financing Agreement and listed in the
most recent financial statement delivered to the Agent and/or the Lenders or
otherwise disclosed to the Agent and/or the Lenders in writing prior to the
Closing Date.
Pledged Stock shall mean the stock of LSSC's consolidated subsidiaries pledged
as collateral security for the Obligations hereunder.
PREPAYMENT PREMIUM shall: (a) mean the amount due the Agent on behalf of the
Lenders by the Companies upon any voluntary prepayment, in whole or in part, of
the Term Loan, and (b) be computed by multiplying the amount so prepaid by :
(i) two percent (2%) if such prepayment occurs on or before the
expiration of one (1) year after the Closing Date;
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(ii) one percent (1%) if such prepayment occurs after one (1) from the
Closing Date but on or before the expiration of two (2) years from the
Closing Date; and
(iii) one half of one percent (0.5%) if such prepayment occurs
thereafter,
PROVIDED THAT, if the Term Loan is refinanced by Lone Star Technologies, Inc.
other than through the incurrence of any debt or the issuance of any debt
instrument except for any debt instrument or issuance with convertible equity
features, and one year from the Closing Date has elapsed, then the Prepayment
Premium would be reduced to 0.75% and 0.375%, in (ii) and (iii), respectively.
Otherwise, the Prepayment Premium would remain as outlined above.
PROMISSORY NOTES shall mean the notes, in the form of Exhibit A and B attached
hereto, delivered by the Companies to the Agent on behalf of the Lenders to
evidence the Term Loan pursuant to the provisions of Section 4 of this Financing
Agreement, and the Revolving Loans pursuant to, and repayable in accordance
with, Section 3.
PURCHASE MONEY LIENS shall mean liens on any item of equipment acquired after
the date of this Financing Agreement provided that (a) each such lien shall
attach only to the property to be acquired, and additions and accessions
thereto, (b) a description of the property so acquired is furnished to the
Agent, and (c) the debt incurred in connection with such acquisitions shall not
exceed in the aggregate $5,000,000.00 in any Fiscal Year.
REAL ESTATE shall mean the Companies' fee and/or leasehold interests in the real
property.
RACK TRANSFER SALES shall mean those certain sales of Inventory by the Companies
to their customers which are evidenced by invoices on regular terms and although
title thereto has transferred to such customers, the Companies are requested by
such customers to store such inventory at the bonded warehouse of T & N
Warehouse or at another bonded location other than customers' premises.
REQUIRED LENDERS shall mean the Lenders holding aggregate commitments under this
Financing Agreement in an amount of 66 2/3% or more.
REVOLVING LINE OF CREDIT shall mean the aggregate commitment of the Lenders to
make loans and advances pursuant to Section 3 of this Financing Agreement and
issue Letters of Credit Guaranties pursuant to Section 5 hereof to the
Companies, in the aggregate amount of $90,000,000.
REVOLVING LOANS shall mean the loans and advances made, from time to time, to or
for the account of the Companies, or any of them, by the Agent on behalf of the
Lenders pursuant to Section 3 of this Financing Agreement.
REVOLVING LOAN ACCOUNT shall have the meaning specified in Paragraph 3.6 of
Section 3 of this Financing Agreement.
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SETTLEMENT DATE shall mean the date, weekly, and more frequently, at the
discretion of the Agent, upon the occurrence of an Event of Default or a
continuing decline or increase of the Revolving Loans that the Agent and the
Lenders shall settle amongst themselves so that x) the Agent shall not have, as
The Agent, any money at risk and y) on such Settlement Date the Lenders shall
have a pro rata amount of all outstanding Revolving Loans and Letters of Credit,
provided that each Settlement Date for a Lender shall be a Business Day on which
such Lender and its bank are open for business.
SUBORDINATED DEBT shall mean the debt due the Subordinating Creditor (and the
note(s) evidencing such) which has been subordinated, by a Subordination
Agreement, to the prior payment and satisfaction of the Obligations of each of
the Companies to the Agent and the Lenders (in form and substance satisfactory
to the Agent and the Required Lenders).
SUBORDINATING CREDITOR shall mean Parent and any other party hereafter executing
a Subordination Agreement.
SUBORDINATION AGREEMENT shall mean the agreement among the Companies, the
Subordinating Creditor and the Agent and the Required Lenders, pursuant to which
Subordinated Debt is subordinated to the prior payment and satisfaction of all
of the Companies' Obligations to the Agent and the Lenders (in form and
substance satisfactory to the Agent).
TANGIBLE NET WORTH shall mean, at any date of determination, an amount equal to
(a) Total Assets minus (b) Total Liabilities, and shall be determined in
accordance with GAAP, on a consistent basis with the latest audited financial
statements of the Companies.
TERM LOAN shall mean the term loan in the principal amounts of $10,000,000.00
made by the Agent on behalf of the Lenders pursuant to, and repayable in
accordance with, the provisions of Section 4 of this Financing Agreement.
TERM LOAN PROMISSORY NOTE B shall mean the promissory note in the form of
Exhibit B hereto executed by the Companies to evidence the Term Loan made by the
Agent on behalf of the Lenders under Section 4 hereof.
TOTAL ASSETS shall mean total assets determined in accordance with GAAP, on a
basis consistent with the latest audited financial statements of the Companies.
TOTAL LIABILITIES shall mean total liabilities determined in accordance with
GAAP, on a basis consistent with the latest audited financial statements of the
Companies.
TRADE ACCOUNTS RECEIVABLE shall mean that portion of each of the Companies'
Accounts which arises from the sale of Inventory or the rendition of services in
the ordinary course of the Companies' business.
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TRADEMARKS shall mean all present and hereafter acquired trademarks, trademark
registrations, recordings, applications, tradenames, trade styles, service
marks, prints and labels (on which any of the foregoing may appear), licenses,
reissues, renewals, general intangibles, and intellectual property and trademark
rights pertaining to any of the foregoing, together with the goodwill associated
therewith, and all cash, income, royalties, and non-cash proceeds thereof.
UCC shall mean the Uniform Commercial Code as in effect from time to time in the
state of New York.
WORKING DAY shall mean any Business Day on which dealings in foreign currencies
and exchange between banks may be carried on in the place where the Agent's
Eurodollar Lending Office is located in New York, New York.
SECTION 2. CONDITIONS PRECEDENT
The obligation of the Agent and the Lenders to make the initial loans hereunder
is subject to the satisfaction of, or waiver of, immediately prior to or
concurrently with the making of such loans, the following conditions precedent:
(a) LIEN SEARCHES - The Agent shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to the Agent for all locations
presently occupied or used by the Companies.
(b) CASUALTY INSURANCE - Each of the Companies shall have delivered to the
Agent evidence satisfactory to the Agent that casualty insurance policies
listing the Agent on behalf of the Lenders as loss payee or mortgagee, as the
case may be, are in full force and effect, all as set forth in Paragraph 7.5 of
Section 7 of this Financing Agreement.
(c) UCC FILINGS - Any documents (including without limitation, financing
statements) required to be filed in order to create, in favor of the Agent on
behalf of the Lenders, a first and exclusive (other than the Parent's second
lien thereon) perfected security interest in the Collateral with respect to
which a security interest may be perfected by a filing under the UCC shall have
been properly filed in each office in each jurisdiction required in order to
create in favor of the Agent a perfected lien on the Collateral. The Agent
shall have received acknowledgment copies of all such filings (or, in lieu
thereof, the Agent shall have received other evidence satisfactory to the Agent
that all such filings have been made); and the Agent shall have received
evidence that all necessary filing fees and all taxes or other expenses related
to such filings have been paid in full.
(d) BOARD RESOLUTION - The Agent shall have received a copy of the
resolutions of the Board of Directors of each of the Companies and the
Guarantors (as the case may be) authorizing the execution, delivery and
performance of (i) this Financing Agreement, (ii) the Guaranties, and (iii) any
related agreements, in each case certified by the Secretary or Assistant
Secretary of each of the Companies and the Guarantors (as the case may be) as of
the date hereof, together with a certificate of the Secretary or Assistant
Secretary of each of the Companies and the Guarantors (as the case may be) as to
the incumbency and signature of the officers of the Companies and/or the
Guarantors executing such Loan Documents and any certificate or other documents
to be delivered
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by them pursuant hereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
(e) CORPORATE ORGANIZATION - The Agent shall have received (i) a copy of
the Certificate of Incorporation of each of the Companies and the Guarantors
certified by the Secretary of State of its incorporation, and (ii) a copy of the
By-Laws of each of the Companies and the Guarantors certified by the Secretary
or Assistant Secretary thereof, all as amended through the date hereof.
(f) OFFICER'S CERTIFICATE - The Agent shall have received an executed
Officer's Certificate of each of the Companies, satisfactory in form and
substance to the Agent, certifying that (i) the representations and warranties
contained herein are true and correct in all material respects on and as of the
date hereof; (ii) each of the Companies is in compliance with all of the terms
and provisions set forth herein; and (iii) no Default or Event of Default has
occurred
(g) OPINIONS - Counsel for the Companies and the Guarantors shall have
delivered to the Agent on behalf of the Lenders opinions satisfactory to the
Agent opining, inter alia, that, subject to the (i) filing, priority and
remedies provisions of the Uniform Commercial Code, (ii) the provisions of the
Bankruptcy Code, insolvency statutes or other like laws, (iii) the equity powers
of a court of law and (iv) such other matters as may be agreed upon with the
Agent: this Financing Agreement, the Guaranty and all other Loan Documents of
the Companies and the Guarantors are (A) valid, binding and enforceable
according to their terms, (B) are duly authorized, executed and delivered, and
(C) do not violate any terms, provisions, representations or covenants in the
charter or by-laws of any of the Companies or the Guarantors or, to the best
knowledge of such counsel, of any loan agreement, mortgage, deed of trust, note,
security or pledge agreement or indenture to which the Companies, or any one of
them, or the Guarantors are a signatories or by which the Companies, or any one
of them, or the Guarantors or their assets are bound. In addition, counsel to
the Subordinating Creditor (Parent) shall have delivered an opinion satisfactory
to the Agent that the Subordination Agreement has been duly authorized, executed
and delivered and constitutes a valid and binding agreement enforceable against
such Subordinating Creditor in accordance with the terms thereof.
(h) ABSENCE OF DEFAULT - No Default, Event of Default shall have occurred
and no material adverse change shall have occurred in the financial condition,
business, prospects, profits, operations or assets of the Parent, or the
Companies taken as a whole.
(i) LEGAL RESTRAINTS/LITIGATION - As of the Closing Date, there shall be
no x) litigation, investigation or proceeding (judicial or administrative)
pending or threatened against any of the Companies or the Guarantors or their
assets, by any agency, division or department of any county, city, state or
federal government arising out of this Financing Agreement, y) injunction, writ
or restraining order restraining or prohibiting the financing arrangements
contemplated under this Financing Agreement or z) to the best knowledge of the
Companies, suit, action, investigation or proceeding (judicial or
administrative) pending or threatened against the Parent, any of the Companies
or the Guarantors or their assets, which, in the opinion of the Agent, if
adversely determined could reasonably be expected to have a material adverse
effect on the business, operation, assets, financial condition or Collateral of
the Parent, or the Companies taken as a whole.
(j) GUARANTIES - The Guarantors shall have executed and delivered to the
Agent guaranties, in form acceptable to the Agent, guaranteeing all present and
future obligations of the
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Companies to the Agent and the Lenders. In addition, Texas & Northern
Railway Company shall execute a Security Agreement in its assets and UCC-1's
with respect thereto.
(k) SUBORDINATION AGREEMENT - The Subordinating Creditor shall have
executed and delivered to the Agent on behalf of the Lenders a Subordination
Agreement and Intercreditor Agreement, in form and substance satisfactory to the
Agent, subordinating the liens and debt due the Subordinating Creditor by the
Companies to the prior payment and satisfaction of the Obligations of each of
the Companies to the Agent and the Lenders. Additionally, interest on the
Subordinated Debt will be able to be paid current (absent the occurrence of a
Default or an Event of Default) and will be calculated at one quarter of one
percent (0.25%) below the Revolving Loan rate paid by the Borrowers to the
Lenders. Principal on the Subordinated Debt may be repaid provided the
following conditions have been satisfied:
a) Two years after the closing date of this Financing Agreement have
elapsed;
b) At the time of each repayment, and based upon a trailing twelve months
of financial information, the Companies must have achieved a Fixed
Charge Coverage Ratio (on a consolidated basis and for calculation
thereof, including capital expenditures in the denominator) of at
least 1.25x 1.0;
c) After any repayment of the Senior Subordinated Debt, there will be at
least $20,000,000 of Availability within the Revolving Line of Credit;
and
d) At the time of each repayment, the outstanding amount of the Term Loan
cannot exceed $5,000,000.
(l) CASH BUDGET PROJECTIONS - The Agent shall have received, reviewed and
be satisfied with (i) 1997 and 1998 consolidated income statements and (ii) a 12
month financial plan and cash budget projection prepared by the Companies in the
form provided by the Agent.
(m) PLEDGE AGREEMENT - The Companies shall (i) execute and deliver to the
Agent on behalf of the Lenders a pledge and security agreement pledging to the
Agent on behalf of the Lenders as additional collateral for the Obligations of
the Companies not less than 100% of the issued and outstanding stock of each of
the Companies (excluding LSSC) and the stock of all subsidiaries of the
Companies and, (ii) deliver to the Agent on behalf of the Lenders the stock
certificates evidencing such stock together with duly executed stock powers
(undated and in-blank) with respect thereto.
(n) ADDITIONAL DOCUMENTS - Each of the Companies shall have executed and
delivered to the Agent all Loan Documents necessary to consummate the lending
arrangement contemplated between the Companies, the Agent and the Lenders.
(o) DISBURSEMENT AUTHORIZATION - The Companies shall have delivered to the
Agent all information necessary for the Agent and the Lenders to issue wire
transfer instructions on behalf of the Companies for the initial and subsequent
loans and/or advances to be made under this Financing Agreement including, but
not limited to, disbursement authorizations in form acceptable to the Agent.
(p) EXAMINATION & VERIFICATION - The Agent and the Lenders shall have
completed to the satisfaction of the Agent and the Lenders an examination and
verification of the Accounts, Inventory, books and records of the Companies and
the Guarantors, and which examination shall
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indicate that, after giving effect to all Revolving Loans advances and
extensions of credit to be made at closing, the Companies shall have an
opening additional Availability of at least $20,000,000, as evidenced by a
borrowing base certificate delivered by the Companies to the Agent as of the
Closing Date, all as more fully required by the Agent's Commitment Letter.
It is understood that such requirement contemplates that all debts and
obligations are current, and that all payables are being handled in the
normal course of each of the Companies' business and consistent with its past
practice.
(q) DEPOSITORY ACCOUNTS - Each of the Companies shall have established a
system of lockbox and bank accounts with respect to the collection of Accounts
and the deposit of proceeds of Inventory as shall be acceptable to the Agent in
all respects. Such accounts shall be subject to three party agreements (between
the Companies, the Agent and the depository bank), which shall be in form and
substance satisfactory to the Agent.
(r) EXISTING REVOLVING CREDIT AGREEMENT - The Companies' existing
credit agreement with PNC Bank, NA, as Agent (the "Existing Lender") shall be
(x) terminated, (y) all loans and obligations of each of the Companies and/or
the Guarantors thereunder shall be paid or satisfied in full, including
thorough utilization of the proceeds of the initial Revolving Loans and Term
Loan to be made under this Financing Agreement and (z) all liens upon or
security interests in favor of the Existing Lender on the Collateral and
otherwise in connection therewith shall be terminated and/or released upon
such payment.
(s) SUBORDINATED DEBT INVESTMENT - Parent and/or the Companies shall
provide the Agent with documentation evidencing receipt of Subordinated Debt
by the Companies in the amount of $25,000,000.00 from Parent. More
specifically, concurrent with or prior to the closing of the Line of Credit,
the Parent, Lone Star Technologies, Inc., will provide $25,000,000 of
Subordinated Debt to the Companies which will be secured by a second lien
upon the Companies' assets, but only those assets which have been provided to
Agent and the Lenders through a first and exclusive lien as discussed in the
Collateral section of this Financing Agreement. The Subordinated Debt will
be evidenced by an Intercreditor Agreement and Subordination Agreement
between Lone Star Technologies, Inc. and the Agent, in favor of the Lenders
in form and substance satisfactory to the Agent.
(t) APPRAISALS - The Agent shall have received appraisals on each of
the Companies' Inventory and Equipment, which appraisals shall be by an
appraiser reasonably acceptable to the Agent, and shall indicate an orderly
liquidation value of not less than $30,000,000.00 with respect to Equipment.
(u) THE AGENT COMMITMENT LETTER - The Companies shall have fully
complied, to the satisfaction of the Agent, with all of the terms and
conditions of the Agent Commitment Letter (including the addendum thereto).
With respect to fees, this condition shall continue subsequent to the
Closing Date.
Upon the execution of this Financing Agreement, certain of the above Conditions
Precedent shall not have been deemed satisfied, including without limitation,
conditions (a), (b), (c), (g), (h), (j), (m), (n) and (r), provided that,
notwithstanding the foregoing, except as the Agent and the Companies may
otherwise agree in writing, on or before seven (7) business days from the
Closing
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Date, the Companies must fulfill and comply with all of the Conditions
Precedent, all to the Agent's satisfaction. All applicable fees hereunder
shall be due and payable upon execution and delivery of this Financing
Agreement and shall be deemed fully earned upon the execution of this
Financing Agreement whether or not all Conditions Precedent are satisfied.
2.2 CONDITIONS TO EACH REQUEST FOR EXTENSION OF CREDIT
Except to the extent expressly set forth in this Financing Agreement, the
Companies on any date (including without limitation, the initial extension of
credit) on which they request any loan or extension of credit hereunder make the
following representations and warranties:
a) REPRESENTATIONS AND WARRANTIES - Each of the representations and
warranties made by each of the Companies in or pursuant to this Financing
Agreement shall be true and correct in all material respects on and as of such
date as if made on and as of such date.
b) NO DEFAULT - No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extension of credit
requested to be made on such date.
c) BORROWING BASE - Except as may be otherwise agreed to from time to
time by the Agent and/or the Required Lenders and the Companies or any one of
them in writing, after giving effect to the extension of credit requested to be
made by the Companies on such date, the aggregate outstanding balance of the
Revolving Loans and outstanding Letters of Credit owing by the Companies will
not exceed the lesser of (i) the Revolving Line of Credit or (ii) Availability
of the Companies.
d) ADDITIONAL MATTERS - All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Financing Agreement and the other Loan
Documents shall be reasonably satisfactory in form and substance to the Agent
and/or the Required Lenders and (to the extent that such proceedings documents,
instruments and other matters relate to the Collateral or the Agent) the Agent
shall have received such other documents and legal opinions in respect of any
aspect or consequence of the transactions contemplated hereby or thereby, as the
Agent shall reasonably request.
Each borrowing by the Companies hereunder shall constitute a representation and
warranty by each of the Companies as of the date of such loan or advance that
each of the representations, warranties and covenants contained in the Financing
Agreement have been satisfied and are true and correct, except as the Companies
and the Agent and/or the Required Lenders shall otherwise agree herein or in a
separate writing.
SECTION 3. REVOLVING LOANS
3.1 (a) The Lenders agree, subject to the terms and conditions of this
Financing Agreement from time to time, and within the Availability but subject
to the Agent's and the Lenders' rights to make "Overadvances", as further set
forth in this Financing Agreement, to make loans and advances to the Companies
on a revolving basis (i.e. subject to the limitations set forth herein, the
Companies may borrow, repay and re-borrow Revolving Loans). Such loans and
advances shall be
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in amounts not to exceed the lesser of (i) the Borrowing Base or (ii) the
Revolving Line of Credit. All requests for loans and advances must be
received by an officer of the Agent no later than 1:00 p.m., New York time,
of the day on which such loans and advances are required. Should the Agent
for any reason honor requests for advances in excess of the limitations set
forth herein, such advances shall be considered "Overadvances" and shall be
made in the Agent's sole discretion, subject to any additional terms the
Agent deems necessary.
(b) (i) Whenever the Companies desire the Agent, on behalf of the
Lenders, to make a Revolving Loan pursuant to this Section 3, it shall give
the Agent notice in writing or irrevocable telephonic notice confirmed
promptly in writing, specifying (A) the amount to be borrowed, and (B) the
requested borrowing date (which shall be a business day and shall be prior
to: the Anniversary Date, and if applicable, any Early Termination Date, or
prior to any effective termination date of this Financing Agreement, all as
further set forth herein), and (C) specify whether the requested Revolving
Loan shall bear interest at the Chase Bank Rate or at the LIBO Rate, as
further set forth herein. All requests for loans and advances must be
received by an officer of the Agent no later than 1:00 P.M. New York time on
any borrowing date. The procedure for Revolving Loans to be made on a
requested borrowing date may be such other procedure as is mutually
satisfactory to the Companies, the Agent and the Lenders. The Agent shall
make loans and advances to the Depository Account (as hereinafter defined) of
the Companies.
(ii) Subject to paragraph 14.10 hereof, should the Agent, on behalf of the
Lenders, for any reason honor requests for advances in excess of the limitations
set forth herein, such advances shall be considered "Overadvances" and shall be
made in the Agent's sole discretion, subject to any additional terms the Agent
or the Required Lenders deem necessary. Requests for loans and advances shall be
made solely by the Companies and shall be directed solely to the Agent.
(c) The Agent shall on any Settlement Date, and upon notice given by the
Agent no later than 2:00 P.M. New York time, request each Lender to make, and
each Lender hereby agrees to make, a Revolving Loan in an amount equal to such
Lender's Revolving Credit Commitment percentage (calculated with respect to the
aggregate Revolving Credit Commitments then outstanding) of the aggregate amount
of the Revolving Loans made by the Agent from the preceding Settlement Date to
the date of such notice. Each Lender's obligation to make the Revolving Loans
referred to in subsection (a) and to make the settlements pursuant to this
subsection (c) shall be absolute and unconditional and shall not be affected by
any circumstance, including without limitation (i) any set-off, counterclaim,
recoupment, defense or other right which any such Lender or the Companies may
have against the Agent, the Companies, any other Lender or any other person for
any reason whatsoever; (ii) the occurrence or continuance of a Default or an
Event of Default; (iii) any adverse change in the condition (financial or
otherwise) of the Companies; (iv) any breach of this Financing Agreement or any
other loan document by the Companies or any other Lender; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing. Without limiting the liability and obligation of each Lender to
make such advances, the Companies authorizes the Agent to charge the Companies'
account with the Agent to the extent amounts received from the Lenders are not
sufficient to repay in full the amount of any such
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deficiency.
(d) The Companies' Revolving Loan Obligations hereunder shall be
evidenced by the Promissory Note in the form of Exhibit A attached hereto.
3.2 In furtherance of the continuing assignment and security interest in
the Companies' Accounts and Inventory, each of the Companies will, upon the
creation of Accounts and purchase or acquisition of Inventory, execute and
deliver to the Agent in such form and manner as the Agent may reasonably
require, solely for the Agent's convenience in maintaining records of
Collateral, such confirmatory schedules of Accounts and Inventory as the Agent
may reasonably request, and such other appropriate reports designating,
identifying and describing the Accounts and Inventory as the Agent may
reasonably require, provided that prior to the occurrence of a Default and/or
Event of Default hereunder the Company shall not be required to report as to (i)
Accounts more frequently than weekly and (ii) Inventory more frequently than
monthly. Subsequent to the occurrence of a Default and/or an Event of Default
the Agent shall be entitled to request and receive more frequent reporting as to
Accounts and/or Inventory. In addition, upon the Agent's prior reasonable
request, each of the Companies shall provide the Agent with copies of agreements
with, or purchase orders from, the Companies' customers, and copies of invoices
to customers, proof of shipment or delivery and such other documentation and
information relating to said Accounts and other collateral as the Agent may
reasonably require. Failure to provide the Agent with any of the foregoing shall
in no way affect, diminish, modify or otherwise limit the security interests
granted herein. Each of the Companies hereby authorizes the Agent to regard the
Companies' printed name or rubber stamp signature on assignment schedules or
invoices as the equivalent of a manual signature by one of the Companies'
authorized officers or agents.
3.3 Each of the Companies hereby represents and warrants that: each Trade
Account Receivable is based on an actual and bona fide sale and delivery of
goods or rendition of services to their respective customers, made by the
Companies in the ordinary course of their business; the goods and Inventory
being sold and the Trade Accounts Receivable created are the exclusive property
of the Companies and are not and shall not be subject to any lien, consignment
arrangement, encumbrance, security interest or financing statement whatsoever,
other than the Permitted Encumbrances; the invoices evidencing such Trade
Accounts Receivable are in the name of the respective Companies; and the
customers of such Companies have accepted the goods or services, owe and are
obligated to pay the full amounts stated in the invoices according to their
terms, without dispute, offset, defense, counterclaim or contra, except for
disputes and other matters arising in the ordinary course of business with
respect to which the Companies have complied with the notification requirements
of Paragraph 3.5 of Section 3 of this Financing Agreement. Subject to paragraph
7.6 of Section 7 hereof, each of the Companies confirms to the Agent that any
and all taxes or fees relating to its business, its sales, the Accounts or goods
relating thereto, are its sole responsibility and that same will be paid by such
Company when due and that none of said taxes or fees represent a lien on or
claim against the Accounts. Each of the Companies hereby further represents and
warrants that each such Company owns its Inventory free and clear of any
security interest, encumbrances, liens or financing statements whatsoever other
than Permitted Encumbrances, and if it acquires any Inventory on a consignment
basis it shall so notify the Agent
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in writing on its monthly Inventory statement and as further required by the
Agent from time to time with respect thereto, nor co-mingle its Inventory
with any of its customers or any other person, including pursuant to any bill
and hold sale (including any Rack Transfer Sale), consignment Inventory, or
otherwise, and that its Inventory is marketable to its customers in the
ordinary course of its business, except as it may otherwise report in writing
to the Agent pursuant to paragraph 3.5 hereof from time to time. Each of the
Companies also warrants and represents that it is a duly and validly existing
corporation and is qualified in all states where the failure to so qualify
would have a material adverse effect on the business of such Company or the
ability of such Company to enforce collection of any material portion of the
Accounts, provided that the Agent may exclude from Eligible Accounts
Receivable any Accounts due from customers residing in any state where such
Company's failure to so qualify would adversely affect the Company's ability
to enforce collection of such Account. Each of the Companies agrees to
maintain such books and records regarding Accounts and Inventory as the Agent
may reasonably require and agrees that the books and records of the Companies
will reflect the Agent's interest in the Accounts and Inventory. All of the
books and records of the Companies will be available to the Agent at normal
business hours, including any records handled or maintained for any of the
Companies by any other Company or entity, upon reasonable prior notice or at
any time upon the occurrence of a Default or Event of Default.
3.4 Until the Agent has advised the Companies to the contrary after the
occurrence of an Event of Default, each of the Companies may and will enforce,
collect and receive all amounts owing on the Accounts for the Agent's and
Lenders' benefit and on the Agent's behalf, but at the Companies' joint and
several expense; such privilege shall terminate automatically upon the
institution by or against any of the Companies of any proceeding under any
bankruptcy or insolvency law (unless such proceeding is involuntary and stayed
by the applicable Company within thirty (30) days and the Agent consents
thereto) or, at the election of the Agent, upon the occurrence of any other
Event of Default and until such Event of Default is waived in writing by the
Required Lenders or cured to the Required Lenders' satisfaction. Any checks,
cash, credit card sales and receipts, notes or other instruments or property
received by the Companies with respect to any Accounts shall be held by each of
the Companies in trust for the Agent, on behalf of the Lenders, separate from
the Companies' own property and funds, and immediately turned over to the Agent
with proper assignments or endorsements by deposit to the special depository
accounts in the Agent's name (whether lockbox accounts or otherwise) designated
by the Agent for such purposes (the "Depository Accounts"). Each of the
Companies shall: (i) direct all of its account debtors to deposit any and all
proceeds of Collateral into the Depository Accounts; (ii) irrevocably authorize
and direct any banks which maintain the Companies' initial receipt of cash,
checks and other items to promptly wire transfer all available funds to a
Depository Account; (iii) advise all such banks of the Agent's security interest
in such funds; and (iv) indicate on all of its invoices that funds should be
delivered to and deposited in a Depository Account. The Companies shall provide
the Agent with prior written notice of any and all deposit accounts opened or to
be opened subsequent to the Closing Date. All amounts received by the Agent in
payment of Accounts will be credited to the Companies' Revolving Loan Account
(as further set forth in paragraph 3.6 below) upon the Agent's receipt of
"collected funds" at the Agent's bank account in New York, New York on the
Business Day of receipt if received no later than 1:00 p.m. New York time or on
the next succeeding Business
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Day if received after 1:00 PM New York time. No checks, drafts or other
instrument received by the Agent shall constitute final payment to the Agent
and/or the Lenders unless and until such instruments have actually been
collected. If the Companies' Revolving Loan Account reflects a zero Loan
balance for fifteen consecutive business days and there is then no Default or
Event of Default and the outstanding Letters of Credit do not exceed
Availability, then the Agent shall upon the written request of the Companies
instruct the banks in which Depository Accounts are maintained to remit to
the Companies operating account or to such other account, as the Companies
may designate in the United States of America (other than any payroll
account), any balances in such Depository Accounts; PROVIDED, HOWEVER, that
upon the occurrence of a Default or Event of Default or in the event that at
any time thereafter there is a Revolving Loan balance or the outstanding
Letters of Credit exceed Availability, the Agent shall have the right to
immediately instruct such banks to begin to remit any balances in such
Depository Accounts directly to the Agent.
3.5 The Companies agree to notify the Agent promptly of any matters
materially affecting the value, enforceability or collectibility of any
material Account and of all material customer disputes, offsets, defenses,
counterclaims, returns, rejections and all reclaimed or repossessed
merchandise or goods of a material nature, and of any material adverse effect
in the value of its Inventory. In addition, all such matters shall be
reported in the weekly and monthly collateral reports (as applicable)
provided to the Agent hereunder, in such detail and format as the Agent may
reasonably require from time to time. The Companies agree to issue credit
memoranda promptly (with duplicates to the Agent upon request after the
occurrence of an Event of Default) upon accepting returns or granting
allowances, and they may continue to do so until the Agent has notified the
Companies that an Event of Default has occurred and that all future credits
or allowances are to be made only after the Agent's prior written approval.
At the Agent's election, upon the occurrence of an Event of Default and until
such time as such Event of Default is waived in writing by the Required
Lenders or cured to the Required Lenders' satisfaction, and on notice from
the Agent, the Companies agree that all returned, reclaimed or repossessed
merchandise or goods shall be set aside by the Companies, marked with the
Agent's name (as secured party) and held by the Companies for the Agent's
account.
3.6 (a) Subject to the provisions of paragraph (b) below, the Agent shall
maintain a separate account on its books in each of the Companies' names (herein
each a "Revolving Loan Account" and collectively the "Revolving Loan Accounts")
in which the Companies will be charged with loans and advances made by the Agent
to them or for their account, and with any other Obligations, including any and
all costs, expenses and reasonable attorney's fees which the Agent may incur in
connection with the exercise by or for the Agent of any of the rights or powers
herein conferred upon the Agent, or in the prosecution or defense of any action
or proceeding to enforce or protect any rights of the Agent in connection with
this Financing Agreement or the Collateral assigned hereunder, or any
Obligations owing to the Agent and the Lenders by the Companies. Each of the
Companies will be credited with all amounts received by the Agent and/or the
Lenders from them or from others for their account, including, as above set
forth, all amounts received by the Agent in payment of assigned Accounts and
such amounts will be applied to payment of the Obligations. In no event shall
prior recourse to any Accounts or other security granted to or by the Companies
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be a prerequisite to the Agent's right to demand payment of any Obligation.
Further, it is understood that the Agent and/or the Lenders shall have no
obligation whatsoever to perform in any respect any of the Companies'
contracts or obligations relating to the Accounts.
(b) In order to utilize the collective borrowing powers of the Companies
(collectively the "Collective Borrowers") in the most efficient and economical
manner, and in order to facilitate the handling of the accounts of the
Collective Borrowers on the Agent's books, the Collective Borrowers have
requested, and the Agent has agreed to handle accounts of the Collective
Borrowers on the Agent's books on a combined basis, all in accordance with the
following provisions: (i) In lieu of maintaining separate accounts on the
Agent's books in the name of each of the Collective Borrowers, the Agent shall
maintain one account under the name: Lone Star Steel Company (herein the
"Collective Account"). Confirmatory assignments of Accounts will continue to be
made to the Agent by each of the Collective Borrowers. Loans and advances made
by the Agent to any of the Collective Borrowers will be charged to the
Collective Account indicated above, along with any charges and expenses under
this Financing Agreement. The Collective Account will be credited, with all
amounts received by the Agent from any of the Collective Borrowers or from
others for their account including all amounts received by the Agent in payment
of Accounts assigned to the Agent as provided in this Financing Agreement; (ii)
each month the Agent will render to the Collective Borrowers one extract of the
combined Collective Account, which shall be deemed to be an account stated as to
each of the Collective Borrowers and which will be deemed correct and accepted
by all of the Collective Borrowers unless the Agent receives a written statement
of exceptions from them within thirty (30) days after such extract has been
rendered by the Agent. It is expressly understood and agreed by each of the
Collective Borrowers that the Agent shall have no obligation to account
separately to any of the Collective Borrowers; (iii) requests for loans and
advances may be made by LSSC as agent for the Collective Borrowers and the Agent
is hereby authorized and directed to accept, honor and rely on such instructions
and requests, subject to the limitation and provisions set forth in this
Financing Agreement. It is expressly understood and agreed by each of the
Collective Borrowers that the Agent shall have no responsibility to inquire into
the correctness of the apportionment, allocation, or disposition of (x) any
loans and advances made to any of the Collective Borrowers or (y) any of the
Agent's expenses and charges relating thereto. All loans and advances are made
for the Collective Account; (iv) the Collective Borrowers jointly and severally
unconditionally guarantee to the Agent and the Lenders the prompt payment in
full of (A) all loans and advances made and to be made by the Agent and/or the
Lenders to any of them under this Financing Agreement, as well as (B) all other
Obligations of the Collective Borrowers to the Agent and/or the Lenders and
hereby expressly confirm in all respects the Guaranties executed by each of the
Collective Borrowers in the Agent's and/or the Lenders' favor as more fully set
forth therein; (v) All Accounts assigned to the Agent for the benefit of the
Lenders by any of the Collective Borrowers and any other collateral security now
or hereafter given to the Agent and/or the
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Lenders and any of the Collective Borrowers; (vi) It is understood that
the handling of the accounts of the Collective Borrowers in a combined
fashion, as more fully set forth herein, is done solely as an accommodation
to the Collective Borrowers and at their request, and that the Agent shall
incur no liability to the Collective Borrowers as a result hereof. To induce
the Agent and the Lenders to do so, and in consideration thereof, each of the
Collective Borrowers hereby agrees to indemnify the Agent and the Lenders and
hold the Agent and the Lenders harmless against any and all liability,
expense, loss or claim of damage or injury, made against the Agent and/or the
Lenders by any of the Collective Borrowers or by any third party whosoever,
arising from or incurred solely by reason of (1) the method of handling the
accounts of the Collective Borrowers as herein provided, (2) the Agent
relying on any instructions of any of the Collective Borrowers, or (3) any
other action taken by the Agent in accordance with this subparagraph (b) of
Paragraph 3.6 of Section 3 of this Financing Agreement; and (vii) The
foregoing request was made because the Collective Borrowers are engaged in an
integrated operation that requires financing on a basis permitting the
availability of credit from time to time to each of the Collective Borrowers
as required for the continued successful operation of each of the Collective
Borrowers. Each of the Collective Borrowers expects to derive benefit,
directly or indirectly, from such availability since the successful operation
of each of the Collective Borrowers is dependent on the continued successful
performance of the functions of the integrated group. In addition, the
Companies have informed the Agent that:
(a) LSSC, in order to increase the efficiency and
productivity of each of the other Collective Borrowers,
has centralized in itself a cash management system which
entails, in part, central disbursement and operating
accounts in which it provides the working capital needs of
each of the other Collective Borrowers and manages and timely
pays the accounts payable of each of the other Collective
Borrowers;
(b) LSSC is further enhancing the operating efficiencies of
the other Collective Borrowers by purchasing, or causing to
be purchased, in its name for its account all materials,
supplies, inventory and services required by the other
Collective Borrower which will result in reducing the
operating costs of the other Collective Borrowers; and
(c) Since all of the Collective Borrowers are now engaged
in an integrated operation that requires financing on an
integrated basis and since each Collective Borrower expects
to benefit from the continued successful performance of
such integrated operations and in order to best utilize the
collective borrowing powers of each Collective Borrower in
the most effective and cost efficient manner and to avoid
adverse effects on the operating efficiencies of each
Collective Borrower and the existing back-office practices
of the Collective Borrowers, each Collective Borrower has
requested that all Revolving Loans and advances be
disbursed solely upon the request of LSSC and to bank
accounts managed solely by LSSC and that
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LSSC will manage for the benefit of each Collective Borrower
the expenditure and usage of such funds.
3.7 After the end of each month, the Agent shall promptly send the
Companies, or such Company as they may designate (as set forth in paragraph 3.6
hereof) a statement showing the accounting for the charges, loans, advances and
other transactions occurring between the Agent and the Companies during that
month. The monthly statements shall be deemed correct and binding upon the
Companies and shall constitute an account stated between the Companies and the
Agent unless the Agent receives a written statement of the exceptions within
thirty (30) days of the date of the monthly statement.
3.8 In the event that any requested advance or Letter of Credit exceeds
Availability or that (a) the sum of (i) the outstanding balance of Revolving
Loans and (ii) outstanding balance of Letters of Credit exceeds (b)(x) the
Borrowing Base or (y) the Revolving Line of Credit or (z) the applicable amounts
set forth in Sections 3 and 5 hereof (herein the amount of any such excess shall
be referred to as the "Excess") such Excess shall be due and payable to the
Agent on behalf of the Lenders immediately upon the Agent's demand therefor.
SECTION 4. TERM LOAN
4.1 The Companies hereby agree to execute and deliver to the Agent on
behalf of the Lenders Term Loan Promissory Note B, in the form of Exhibit B
attached hereto, to evidence the Term Loan to be extended by the Lenders.
4.2 Upon receipt of such Term Loan Promissory Note B, the Lenders hereby
agree to extend to the Companies the Term Loan in the principal amount of
$10,000,000.00.
4.3 The principal amount of the Term Loan shall be repaid to the Agent on
behalf of the Lenders by the Companies, jointly and severally, by: i) four (4)
equal quarterly principal installments per year of $500,000.00 each, followed by
ii) one (1) installment of the outstanding balance thereof upon any termination
of this Financing Agreement prior to payment in full thereof, whereof the first
installment shall be due and payable on July 1, 1999 and the subsequent
installments shall be due and payable on the first Business Day of each quarter
thereafter until paid in full.
4.4 In the event this Financing Agreement or the Line of Credit is
terminated by the Agent, the Lenders or any of the Companies for any reason
whatsoever, the Term Loan shall become due and payable on the effective date of
such termination notwithstanding any provision to the contrary in the Term Loan
Promissory Note B or this Financing Agreement.
4.5 The Companies may prepay at any time, at their option, in whole or in
part, the Term Loan, provided that on each such prepayment, the Companies shall
pay: (a) accrued interest on the principal so prepaid to the date of such
prepayment and (b) the Prepayment Premium, if any.
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4.6 Each prepayment shall be applied to the then last maturing
installments of principal of the Term Loan.
4.7 Each of the Companies is jointly and severally liable for any and all
payments due hereunder and hereby authorize the Agent to charge their Revolving
Loan Accounts with the amount of all amounts due under this Section 4 as such
amounts become due. The Companies confirm that any charges, which the Agent may
so make to any of their Revolving Loan Accounts as herein provided, will be made
as an accommodation to the Companies and solely at the Agent's discretion.
SECTION 5. LETTERS OF CREDIT
In order to assist the Companies in establishing or opening documentary and
standby Letters of Credit with an Issuing Bank to cover the purchase of
inventory, equipment or otherwise, the Companies have requested the Agent, on
behalf of the Lenders, to join in the applications for such Letters of Credit,
and/or guarantee payment or performance of such Letters of Credit and any drafts
or acceptances thereunder through the issuance of the Letters of Credit
Guaranty, thereby lending the Agent's credit to the Companies and the Agent and
the Lenders have agreed to do so. These arrangements shall be handled by the
Agent subject to the terms and conditions set forth below.
5.1 Within the Letter of Credit Line of Credit, the Revolving Line of
Credit and Availability, the Agent shall assist the Companies, or any one of
them, in obtaining Letter(s) of Credit in an amount not to exceed the
outstanding amount of the Letter of Credit sub-line. The Agent's assistance for
amounts in excess of the limitation set forth herein shall at all times and in
all respects be in the Agent's sole discretion (subject to paragraph 14.10
hereof). It is understood that the form and purpose of each Letter of Credit
and all documentation in connection therewith, and any amendments, modifications
or extensions thereof, must be mutually acceptable to the Agent, the Issuing
Bank and the applicable Companies. Any and all outstanding Letters of Credit
shall be reserved dollar for dollar from Availability as an Availability
Reserve. Any Letter of Credit issued hereunder shall not have an expiry date
subsequent to the Anniversary Date, unless otherwise agreed to by the Agent, and
upon any termination of the Line of Credit or this Financing Agreement in
accordance with Section 11 hereof, the Agent may establish a reserve equal to
110% of the face amount of any such outstanding Letters of Credit.
Notwithstanding anything herein to the contrary, upon the occurrence of a
Default and/or Event of Default, the Agent's assistance in connection with the
Letter of Credit Guaranty shall be in the Agent's sole discretion and the Agent
may reserve 110% of the face amount of outstanding Letters of Credit, unless
such Default and/or Event of Default is cured to the Agent's satisfaction in
the exercise of the Agent's reasonable business judgement or waived by the
Required Lenders in writing.
5.2 The Agent shall have the right, without notice to the Companies, to
charge any of the Companies' Revolving Loan Accounts on the Agent's books or
establish cash reserve(s) in the amount of any and all indebtedness,
liability or obligation of any kind incurred by the Agent and/or the Lenders
under the Letters of Credit Guaranty at the earlier of a) payment by the
Agent under any
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Letters of Credit Guaranty, or b) the occurrence of any Event of Default
which has not been waived in writing by the Required Lenders. Any amount
charged to Companies' Revolving Loan Account, after payment by the Agent
under any Letters of Credit Guaranty or upon notice from or at the request of
the Issuing Bank, shall be deemed a Revolving Loan hereunder and shall incur
interest at the rate provided in Paragraph 8.1 of Section 8 of this Financing
Agreement.
5.3 Each of the Companies jointly and severally unconditionally
indemnifies the Agent and the Lenders and holds the Agent and the Lenders
harmless from any and all loss, claim or liability incurred by the Agent
arising from any transactions or occurrences relating to Letters of Credit
established or opened for the Companies' account, the collateral relating
thereto and any drafts or acceptances thereunder, and all Obligations
thereunder, including any such loss or claim due to any action taken by any
Issuing Bank, other than for any such loss, claim or liability arising out of
the gross negligence or willful misconduct by the Agent and the Lenders under
the Letters of Credit Guaranty. Each of the Companies further agrees to hold
the Agent and/or the Lenders harmless from any errors or omission, negligence
or misconduct by the Issuing Bank. The Companies' unconditional obligation
to the Agent and/or the Lenders hereunder shall not be modified or diminished
for any reason or in any manner whatsoever, other than as a result of the
Agent's and/or the Lenders' gross negligence or willful misconduct. The
Companies agree that any charges incurred by the Agent and the Lenders for
the Companies account by the Issuing Bank shall be conclusive on the Agent
and/or the Lenders and may be charged to any of the Companies' Revolving Loan
Accounts, provided that nothing contained herein shall, or shall be deemed,
to affect, waive or modify any right the Companies may have against the
Issuing Bank.
5.4 In connection with any Letters of Credit, the Agent and the Lenders
shall not be responsible for: the existence, character, quality, quantity,
condition, packing, value or delivery of the goods purporting to be represented
by any documents presented to the Issuing Bank; any difference or variation in
the character, quality, quantity, condition, packing, value or delivery of the
goods from that expressed in the documents; the validity, sufficiency or
genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; the time, place, manner or order in which
shipment is made; partial or incomplete shipment, or failure or omission to ship
any or all of the goods referred to in the Letters of Credit or documents; any
deviation from instructions; delay, default, or fraud by the shipper and/or
anyone else in connection with the Collateral or the shipping thereof; or any
breach of contract between the shipper or vendors and the Companies or any one
of them. Furthermore, without being limited by the foregoing, the Agent and/or
the Lenders shall not be responsible for any act or omission with respect to or
in connection with any Collateral arising in connection with or created by any
Letter of Credit, other than as the result of the Agent's and/or the Lenders'
own gross negligence or willful misconduct.
5.5 The Companies agree that any action taken by the Agent and/or the
Lenders, absent the gross negligence or willful misconduct by the Agent and/or
the Lenders, or any action taken by any Issuing Bank, under or in connection
with the Letters of Credit, the Letters of Credit Guarantees, the drafts or
acceptances relating to the Letters of Credit, or the Collateral, shall be
binding on each
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of the Companies and shall not put the Agent and/or the Lenders in any
resulting liability to any of the Companies, provided that nothing contained
in this Paragraph 5.5 of Section 5 of this Financing Agreement shall, or
shall be deemed to, affect, waive or modify any right the Company may have
against the Issuing Bank in connection with any Letters of Credit. In
furtherance thereof, the Agent shall have the full right and authority to
clear and resolve any questions of non-compliance of documents; to give any
instructions as to acceptance or rejection of any documents or goods; to
execute any and all steamship or airways guaranties (and applications
therefor), indemnities or delivery orders; to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents; and to give or withhold its consent to any
amendments, renewals, extensions, modifications, changes or cancellations of
any of the terms or conditions of any of the applications, Letters of Credit,
drafts or acceptances; all in the Agent's sole name, and the Issuing Bank
shall be entitled to comply with and honor any and all such documents or
instruments executed by or received solely from the Agent, all without any
notice to or any consent from the Companies or any one of them.
Notwithstanding any prior course of conduct or dealing with respect to the
foregoing including amendments and non-compliance with documents and/or the
Companies' instructions with respect thereto, the Agent may exercise its
rights hereunder in its sole and reasonable business judgement.
5.6 Without the Agent's express consent and endorsement in writing, the
Companies agree, in connection with any Letters of Credit: (a) not to (i)
execute any and all applications for steamship or airway guaranties, indemnities
or delivery orders; (ii) grant any extensions of the maturity of, time of
payment for, or time of presentation of, any drafts, acceptances or documents;
or (iii) agree to any amendments, renewals, extensions, modifications, changes
or cancellations of any of the terms or conditions of any of the applications,
Letters of Credit, drafts or acceptances; and (b) at the Agent's discretion
after the occurrence of an Event of Default which is not cured within any
applicable grace period, if any, not to (i) clear and resolve any questions of
non-compliance of documents, or (ii) give any instructions as to acceptance or
rejection of any documents or goods.
5.7 The Companies agree that any necessary import, export or other
licenses or certificates for the import or handling of the Collateral will
have been promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or
the financing thereof will have been promptly and fully complied with in all
material respects; and any certificates in that regard that the Agent may at
any time request will be promptly furnished. In this connection, each of the
Companies warrants and represents that all shipments made under any such
Letters of Credit are in accordance in all material respects with the laws
and regulations of the countries in which the shipments originate and
terminate, and are not prohibited by any such laws and regulations. The
Companies assume all risk, liability and responsibility for, and agree to pay
and discharge, all present and future local, state, federal or foreign taxes,
duties, or levies. Any embargo, restriction, laws, customs or regulations of
any country, state, city, or other political subdivision, where the
Collateral is or may be located, or wherein payments are to be made, or
wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely
at the Companies' risk, liability and responsibility.
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5.8 Upon any payments made to the Issuing Bank under the Letter of Credit
Guaranty, the Agent on behalf of the Lenders shall acquire by subrogation, any
rights, remedies, duties or obligations granted or undertaken by any of the
Companies to the Issuing Bank in any application for Letters of Credit, any
standing agreement relating to Letters of Credit or otherwise, all of which
shall be deemed to have been granted to the Agent and apply in all respects to
the Agent and shall be in addition to any rights, remedies, duties or
obligations contained herein.
5.9 Notwithstanding any provision to the contrary contained in this
Financing Agreement, nothing contained herein shall, or shall be deemed to,
affect, waive or modify any rights the Companies may have against the Issuing
Bank in connection with any Letters of Credit.
SECTION 6. COLLATERAL
6.1 As security for the prompt payment in full of all loans and advances made
and to be made to the Companies or any one of them from time to time by the
Agent and/or the Lenders pursuant hereto, as well as to secure the payment in
full of the other Obligations of any of the Companies, each of the Companies
hereby, and pursuant to the Loan Documents, pledges and grants to the Agent on
behalf of the Lenders a continuing general lien upon and security interest in
all of its:
(a) Accounts;
(b) Inventory;
(c) General Intangibles;
(d) Documents of Title;
(e) Other Collateral; and
(f) Equipment.
6.2 The security interests granted hereunder shall extend and attach to:
(a) All Collateral which is presently in existence and which is owned by
any of the Companies or in which any of the Companies has any interest, whether
held by the Companies or others for its account, and, if any Collateral is
Equipment, whether such Companies' interest in such Equipment is as owner or
lessee or conditional vendee;
(b) All Equipment whether the same constitutes personal property or
fixtures, including, but without limiting the generality of the foregoing, all
dies, jigs, tools, benches, molds, tables, accretions, component parts thereof
and additions thereto, as well as all accessories, motors, engines and auxiliary
parts used in connection with or attached to the Equipment; and
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(c) All Inventory and any portion thereof which may be returned, rejected,
reclaimed or repossessed by the Agent, the Lenders or any of the Companies from
the Companies' customers, as well as to all supplies, goods, incidentals,
packaging materials, labels and any other items which contribute to the finished
goods or products manufactured or processed by the Companies, or to the sale,
promotion or shipment thereof.
6.3 Each of the Companies agrees to safeguard, protect and hold all
Inventory for the Agent's account and make no disposition thereof except in the
regular course of the business of the Companies as herein provided. Unless the
Agent, at its election, has given the Companies notice to the contrary after the
occurrence of a Event of Default, any Inventory (including Inventory in
possession of any third party warehouseman or processor) may be sold and shipped
by the Companies to their customers in the ordinary course of said Companies'
business, on open account and on terms then currently being extended by the
Companies to their customers, provided that all proceeds of all sales (including
cash, accounts receivable, checks, notes, instruments for the payment of money
and similar proceeds) are forthwith transferred, endorsed, and turned over and
delivered to the Agent, on behalf of the Lenders, in accordance with Paragraph
3.4 of Section 3 of this Financing Agreement. The Agent, at its election, shall
have the right to withdraw this permission at any time upon the occurrence of a
Event of Default and until such time as such Event of Default is waived in
writing by the Required Lenders or cured to the Required Lenders' satisfaction,
and/or give instructions to any third party warehouseman or processor to cease
following the Companies' instructions with respect to any Inventory in
possession of such third parties, in which event no further disposition shall be
made of the Inventory by any of the Companies without the Agent's prior written
approval (other than sales previously contracted for in the ordinary course of
business which sales any such Company is legally obligated to make). Cash sales
or sales of inventory in which a lien upon, or security interest in, Inventory
is retained by the Companies or any one of them, shall be made by such
Companies only with the approval of the Agent, and the proceeds of such sales or
sales of inventory for cash shall not be commingled with the Companies' other
property, but shall e segregated, held by the Companies in trust for the Agent,
on behalf of the Lenders, as the Agent's exclusive property, and shall be
delivered immediately by the Companies to the Agent in the identical form
received by the Companies by deposit to the Depository Accounts. Upon the sale,
exchange, or other disposition of Inventory, as herein provided, the security
interest in each of the Companies' Inventory provided for herein shall, without
break in continuity and without further formality or act, continue in, and
attach to, all proceeds, including any instruments for the payment of money,
accounts receivable, contract rights, documents of title, shipping documents,
chattel paper and all other cash and non-cash proceeds of such sale, exchange or
disposition. As to any such sale, exchange or other disposition, the Agent and
the Lenders shall have all of the rights of an unpaid seller, including stoppage
in transit, replevin, rescission and reclamation. Notwithstanding the foregoing
the Companies may make cash sales of Inventory in the ordinary/regular course of
its business, provided that (i) the amount thereof shall not exceed $500,000 in
the aggregate in any Fiscal Year, and (ii) the proceeds of such sales shall be
held in trust for the Agent, on behalf of the Lenders, and promptly turned over
to the Agent by deposit in the Depository Accounts. Irrespective of the Agent's
perfection status in any and all of the Companies'
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General Intangibles, including without limitations any Trademarks, Copyrights
or licenses with respect thereto, each of the Companies hereby irrevocably
grants the Agent a royalty free license to sell or otherwise dispose or
transfer, in accordance with paragraph 10.3 and the applicable terms hereof,
any of the Companies' Inventory upon the occurrence of an Event of Default
which has not been waived in writing by the Required Lenders.
6.4 Each of the Companies agrees at its own cost and expense to keep the
Equipment in as good and substantial repair and condition as the same is now or
at the time the lien and security interest granted herein shall attach thereto,
reasonable wear and tear excepted, making any and all repairs and replacements
when and where necessary. Each of the Companies also agrees to safeguard,
protect and hold all Equipment for the Agent's account and make no disposition
thereof unless such Company first obtains the prior written approval of the
Agent. Any sale, exchange or other disposition of any Equipment shall only be
made by the Companies with the prior written approval of the Agent, and the
proceeds of any such sales shall not be commingled with the Companies' other
property, but shall be segregated, held by the Companies in trust for the Agent,
on behalf of the Lenders, as the Agent's exclusive property, and shall be
delivered immediately by the Companies to the Agent in the identical form
received by the Companies by deposit to the Depository Accounts. Upon the sale,
exchange, or other disposition of the Equipment, as herein provided, the
security interest provided for herein shall, without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, accounts receivable,
contract rights, documents of title, shipping documents, chattel paper and all
other cash and non-cash proceeds of such sales, exchange or disposition. As to
any such sale, exchange or other disposition, the Agent and the Lenders shall
have all of the rights of unpaid sellers, including stoppage in transit,
replevin, rescission and reclamation. Notwithstanding anything herein above
contained to the contrary, the Companies may sell, exchange or otherwise dispose
of obsolete Equipment or Equipment no longer needed in the Companies'
operations, provided, however, that (a) the then market value of the Equipment
so disposed of does not exceed $3,000,000 in the aggregate in any Fiscal Year
and (b) the proceeds of such sales or dispositions are delivered to the Agent in
accordance with the foregoing provisions of this paragraph, except that any such
Company or Companies may retain and use such proceeds to purchase forthwith
replacement Equipment which said Companies determine in their reasonable
business judgment to have a collateral value at least equal to the Equipment so
disposed of or sold, provided, however, that the aforesaid right shall
automatically cease upon the occurrence of an Event of Default which is not
cured within any applicable grace period or waived, provided further that if the
Companies do no promptly replace such Equipment the Agent may apply such
proceeds to the Term Loan or the Revolving Loans, in its sole discretion.
6.5 The rights and security interests granted to the Agent and the Lenders
hereunder are to continue in full force and effect, notwithstanding any notice
of termination of this Financing Agreement or the fact that the Revolving Loan
Account maintained in the Companies' name on the books of the Agent may from
time to time be temporarily in a credit position, until the final payment in
cash in full to the Agent on behalf of the Lenders of all Obligations and the
termination of the Agent's and Lenders' obligations under this Financing
Agreement. Any delay, or omission by the
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Agent and/or the Lenders to exercise any right hereunder, shall not be deemed
a waiver thereof, or be deemed a waiver of any other right, unless such
waiver shall be in writing and signed by Required Lenders. A waiver on any
one occasion shall not be construed as a bar to or waiver of any right or
remedy on any future occasion.
6.6 Notwithstanding the Agent's security interest in the various assets
constituting Collateral and to the extent that the Obligations are now or
hereafter secured by any assets or property other than the Collateral or by the
guarantee, endorsement, assets or property of any other person, the Agent shall
have the right in its sole discretion to determine which rights, security,
liens, security interests or remedies the Agent shall at any time pursue,
foreclose upon, relinquish, subordinate, modify or take any other action with
respect to, without in any way modifying or affecting any of them, or any of the
Agent's and/or the Lenders' rights hereunder.
6.7 Any reserves or balances to the credit of the Companies, or any one of
them, and any other property or assets of the Companies, or any one of them, in
the possession or control of the Agent and/or the Lenders may be held by the
Agent as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due. The liens and security interests
granted herein and any other lien or security interest the Agent and/or the
Lenders may have in any other assets of the Companies, shall secure payment and
performance of all now existing and future Obligations. The Agent may in its
discretion charge any or all of the Obligations to the Revolving Loan Account of
the Companies, or any one of them, when due.
6.8 The Companies shall deliver to the Agent on behalf of the Lenders,
and/or shall cause the appropriate party to deliver to the Agent, from time
to time such pledge or security agreements with respect to General
Intangibles (now or hereafter acquired) of each of the Companies and all of
its or their subsidiaries as the Agent shall require to obtain valid first
liens thereon. In furtherance of the foregoing, the Companies shall provide
timely notice to the Agent of any additional Patents, Trademarks, tradenames,
service marks, Copyrights, brand names, trade names, logos and other trade
designations acquired or applied for subsequent to the Closing Date and such
Companies shall execute such documentation as the Agent may reasonably
require to obtain and perfect its lien thereon. Each of the Companies hereby
confirms that it shall hold any stock pledged pursuant to the Loan Documents,
in trust for the Agent and deliver or cause to be delivered any stock issued
subsequent to the Closing Date, to the Agent on behalf of the Lenders in
accordance with the applicable Pledge Agreement. In the absence of a Default
or an Event of Default, the owner of any pledged stock shall be entitled to
vote such stock (in a manner which is not detrimental to the Agent and/or the
Lenders, or inconsistent with the terms of the Pledge Agreement) and to
receive any dividend thereon.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 Each of the Companies hereby warrants, represents and covenants
that: (a) the fair value of each of the Companies' assets exceeds the book
value of such Company's liabilities; (b) each of
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<PAGE>
the Companies is generally able to pay its debts as they become due and
payable; and (c) each of the Companies does not have unreasonably small
capital to carry on its business as it is currently conducted absent
extraordinary and unforeseen circumstances. Each of the Companies further
warrants and represents that Schedule 2 hereto correctly and completely sets
forth (i) the Companies' chief executive offices, (ii) all of the Company's
Collateral locations, (iii) all tradenames used by any of the Companies, (iv)
all Patents, Trademarks and Copyrights owned and/or used by any of the
Companies and (v) the applicable monthly rent or other charges with respect
to each Collateral location; and, except for the Permitted Encumbrances,
after filing of financing statements in the applicable filing clerks' offices
at the locations set forth in Schedule 2, this Financing Agreement creates a
valid, perfected and first priority security interest upon and security
interests in the Collateral and the security interests granted herein
constitute and shall at all times constitute the first and only liens on the
Collateral; that, except for the Permitted Encumbrances, any such Company is
or will be at the time additional Collateral is acquired by it, the absolute
owner of the Collateral with full right to pledge, sell, consign, transfer
and create a security interest therein, free and clear of any and all claims
or liens in favor of others, other than Permitted Encumbrances; that each of
the Companies will at its expense forever warrant and, at the Agent's
request, defend the same from any and all claims and demands of any other
person other than the Permitted Encumbrances; that the Companies, or any one
of them, will not grant, create or permit to exist, any lien upon or security
interest in the Collateral, or any proceeds thereof, in favor o any other
person other than the holders of the Permitted Encumbrances; and that the
Equipment does not comprise a part of the Inventory of any of the Companies
and that the Equipment is and will only be used by the Companies in their
business and will not be held for sale or lease, or removed from their
premises, or otherwise disposed of by the Companies without the prior written
approval of the Agent except as otherwise permitted in Paragraph 6.4 of
Section 6 of this Financing Agreement.
7.2 Each of the Companies agrees to maintain books and records
pertaining to the Collateral in such detail, form and scope as the Agent
shall reasonably require. Each of the Companies agrees that the Agent or its
agents, and any of the Lenders who may wish to accompany the Agent at their
own cost and expense, may enter upon the Companies' premises, upon reasonable
prior notice, at any time during normal business hours, and from time to time
in its reasonable business judgement, for the purpose of inspecting the
Collateral, and any and all records pertaining thereto. Each of the Companies
agrees to afford the Agent with written notice of any change (other than due
to sale thereof in the ordinary course of business) in the location of
Inventory (i) not to exceed $5,000,000 in value in the aggregate at any time,
within fifteen (15) days after the end of each calendar month (the Companies
will provide the Agent with a report of all locations of all such Inventory
other than locations known to the Agent and with respect to which the Agent
has filed financing statements, received applicable third party documents
with respect thereto (as may be required by the Agent from time to time) and
otherwise fully perfected its liens thereon, (ii) with respect to Inventory
in excess of $5,000,000 ten (10) business days prior to any such change of
location, and (iii) with respect to any and all Inventory and other
Collateral, the Companies will, (x) provide the Agent with monthly
Collateral reports, including notice of all locations of Inventory (and
specifically indicating any new locations or locations on which the Agent
does not have any applicable waiver
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<PAGE>
or filing), and (y) to promptly execute and deliver to the Agent upon the
Agent's request appropriate Uniform Commercial Code financing statements for
any new Collateral locations in the United States. Each of the Companies is
also to advise the Agent promptly, in sufficient detail, of any material
adverse change relating to the type, quantity or quality of the Collateral or
o the security interests granted to the Agent therein. The Companies shall
advise the Lenders of any material adverse change in the Collateral or
financial condition of the Companies, taken as a whole.
7.3 Each of the Companies agrees to: execute and deliver to the Agent,
from time to time, solely for the Agent's convenience in maintaining a record of
the Collateral, such written statements, and schedules as the Agent may
reasonably require, designating, identifying or describing the Collateral
pledged to the Agent hereunder, provided that prior to the occurrence of a
Default and/or Event of Default hereunder the Companies shall not be required to
report as to (i) Accounts more frequently than weekly and (ii) Inventory more
frequently than monthly. Subsequent to the occurrence of a Default and/or Event
of Default the Agent shall be entitled to request and receive more frequent
reporting as to Accounts and/or Inventory. The Companies' or a Company's
failure, however, to promptly give the Agent such statements, or schedules shall
not affect, diminish, modify or otherwise limit the Agent's and/or the Lenders'
security interests in the Collateral.
7.4 Each of the Companies agrees to comply in all material respects with
the requirements of all state and federal laws in order to grant to the Agent on
behalf of the Lenders valid and perfected first security interests in the
Collateral, subject only to the Permitted Encumbrances. The Agent is hereby
authorized by the Companies to file from time to time any financing statements
covering the Collateral whether or not any of the Companies' signatures appear
thereon. Each of the Companies agrees to do whatever the Agent may reasonably
request, from time to time, by way of: filing notices of liens, financing
statements, amendments, renewals and continuations thereof; cooperating with the
Agent's custodians; keeping stock records; transferring proceeds of Collateral
to the Agent's possession; and performing such further acts as the Agent and/or
the Lenders may reasonably require in order to effect the purposes of this
Financing Agreement.
7.5(a) Each of the Companies agrees to maintain insurance on its Real
Estate, Equipment and Inventory under such policies of insurance, with such
insurance companies, in such reasonable amounts and covering such insurable
risks as are at all times reasonably satisfactory to the Agent. The Agent
acknowledges and agrees that the insurance coverage maintained by each of the
Companies on the date hereof is satisfactory to each of the Lenders on the date
hereof. All policies covering the Equipment and Inventory are, subject to the
rights of any holders of Permitted Encumbrances holding claims senior to the
Agent, to be made payable to the Agent on behalf of the Lenders, in case of
loss, under a standard non-contributory "mortgagee", "lender" or "secured party"
clause and are to contain such other provisions as the Agent may require to
fully protect the Agent's interest in the Inventory and Equipment and to any
payments to be made under such policies., Certificates of insurance, or at the
Agent's prior reasonable request all original policies, are to be delivered to
the Agent, premium prepaid, with the loss payable endorsement in the Agent's
favor, and shall provide for not less than thirty (30) days prior written notice
to the Agent of the exercise of any right of cancellation. At any of the
Company's request, or if any Company fails to maintain
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<PAGE>
such insurance, the Agent may arrange for such insurance, but at the
Companies' expense and without any responsibility on the Agent's part for:
obtaining the insurance, the solvency of the insurance companies, the
adequacy of the coverage, or the collection of claims. Upon the occurrence
of an Event of Default which is not waived or cured to the Agent's
satisfaction, the Agent shall, subject to the rights of any holders of
Permitted Encumbrances holding claims senior to the Agent, have the sole
right, in the name of the Agent or the Companies or any one of them, to file
claims under any insurance policies, to receive, receipt and give acquittance
for any payments that may be payble thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other
documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.
(b)(i) In the event of any loss or damage by fire or other casualty,
insurance proceeds relating to Inventory shall first reduce the Companies'
Revolving Loan, then the Term Loans. Upon the occurrence of a Default or Event
of Default, such Proceeds shall be applied to the Obligations in such order as
the Agent may reasonably elect.
(ii) In the event any part of the Companies' Equipment is damaged by fire
or other casualty and the insurance proceeds for such damage or other casualty
(the "Proceeds") are less than or equal to $100,000.00, the Agent shall promptly
apply such Proceeds to reduce the Companies' outstanding balance in the
Revolving Loan Account. Upon the occurrence of a Default or Event of Default,
such Proceeds shall be applied to the Obligations in such order as the Agent may
reasonably elect.
(iii) As long as an Event of Default has not occurred (which is not cured
to the Required Lenders' satisfaction), the Companies have sufficient business
interruption insurance generally to replace the lost profits of any of the
Companies' facilities, and the Proceeds are in excess of $100,000.00, the
Companies may elect (by delivering written notice to the Agent) to replace,
repair or restore such Equipment to substantially the equivalent condition prior
to such fire or other casualty as set forth herein. If the Companies do not, or
cannot, elect to use the Proceeds as set forth above, the Agent may, subject to
the rights of any holders of Permitted Encumbrances holding claims senior to the
Agent, apply the Proceeds to the payment of the Obligations in such manner and
in such order as the Agent may reasonably elect.
(iv) If the Companies elect to use the Proceeds for the repair, replacement
or restoration of any Equipment, and there is then no Event of Default, i)
proceeds of insurance on Equipment in excess of $100,000.00 will be applied to
the reduction of the Revolving Loans and ii) the Agent may set up a reserve
against Availability for an amount equal to the proceeds referred to in clause
i) hereof. The reserve will be reduced dollar-for-dollar upon receipt of
non-cancelable executed purchase orders, delivery receipts or contracts for the
replacement, repair or restoration of Equipment and disbursements in connection
therewith. Prior to the commencement of any restoration, repair or replacement
of Equipment, the Companies shall provide the Agent with a restoration plan and
if requested, a total budget certified by an independent third party experienced
in construction costing. If there are insufficient Proceeds to cover the cost
of restoration as so determined, the Companies shall be responsible for the
amount of any such insufficiency, prior to
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<PAGE>
the commencement of restoration and shall demonstrate evidence of such before
the reserve will be reduced. Completion of restoration shall be evidenced by
a final, unqualified certification of the design architect employed, if any;
an unconditional Certificate of Occupancy, if applicable; such other
certification as may be required by law; or if none of the above is
applicable, a written good faith determination of completion by the Companies
(herein collectively the "Completion"). Upon Completion, any remaining
reserve as established hereunder will be automatically released.
(v) The Companies agree to pay any reasonable costs, fees or expenses
that the Agent may reasonably incur in connection herewith.
(c) In the event any of the Companies fail to provide the Agent
with timely evidence, acceptable to the Agent, of their maintenance of
insurance coverage required pursuant to paragraph 7.5(a) above, the Agent may
purchase, at such Companies' expense, insurance to protect the Agent's interests
in the Collateral. The insurance acquired by the Agent may, but need not,
protect the Companies' interest in the Collateral, and therefore such insurance
may not pay claims which the Companies, or any one of them, may have with
respect to the Collateral or pay any claim which may be made against the
Companies in connection with the Collateral. The Companies may request
cancellation of any such insurance obtained by the Agent, but only after
providing the Agent with satisfactory evidence that the Companies have
applicable insurance. In the event the Agent purchases, obtains or acquires
insurance covering all or any portion of the Collateral, the Companies shall be
responsible for all of the applicable costs of such insurance, including
premiums, interest (at the applicable Chase Bank Rate for Revolving Loans set
forth in paragraph 8.1 of Section 8 hereof), fees and any other charges with
respect thereto, until the effective date of the cancellation or the expiration
of such insurance. The Agent may charge all of such premiums, fees, costs,
interest and other charges to the Companies' Revolving Loan Accounts. Each of
the Companies hereby acknowledges that the costs of the premiums of any
insurance acquired by the Agent may exceed the costs of insurance which the
Companies may be able to purchase on their own. In the event that the Agent
purchases such insurance, the Agent will notify the Companies or the applicable
Company of said purchase within thirty (30) days after the date of such
purchase. If, within thirty (30) days of the date of such notice, the Companies
provide the Agent with proof that the Companies had the insurance coverage
required pursuant to 7.5(a) above (in form and substance satisfactory to the
Agent) as of the date on which the Agent purchased insurance and the Companies
continued at all times to have such insurance, then the Agent agrees to cancel
the insurance purchased by the Agent and credit the Companies' Revolving Loan
Accounts with the amount of all costs, interest and other charges associated
with such insurance, including with any amounts previously charged by the Agent
to the Revolving Loan Accounts.
7.6 Each of the Companies agrees to pay, when due, all taxes, sales
taxes, assessments, claims and other charges (herein "taxes") lawfully levied or
assessed upon a Company, the Companies or the Collateral unless such taxes are
being diligently contested in good faith by the applicable Companies by
appropriate proceedings and adequate reserves are established in accordance with
GAAP. Notwithstanding the foregoing, if any lien shall be filed or claimed
thereunder x) for taxes due the United States of America or y) which in the
Agent's opinion might
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<PAGE>
create a valid obligation having priority over the rights granted to the
Agent herein, such lien shall not be deemed to be a Permitted Encumbrance
hereunder and the Companies shall immediately pay such tax and remove the
lien of record. If the Companies fail to do so promptly, then at the Agent's
election, the Agent may (i) create an Availability Reserve in such amount as
it may deem appropriate in its business judgement, or (ii) on the Company's
or the Companies' behalf, as applicable, pay such taxes, and the amount
thereof shall be an Obligation secured hereby and due to the Agent by the
Companies on demand.
7.7 Each of the Companies: (a) agrees to comply in all material respects
with all acts, rules, regulations and orders of any legislative, administrative
or judicial body or official, which the failure to comply with would have a
material and adverse impact on the Collateral, or any material part thereof, or
on the business or operations of the Companies taken as a whole; provided that
the Companies may contest any acts, rules, regulations, orders and directions of
such bodies or officials in any reasonable manner which will not, in the Agent's
reasonable opinion, materially and adversely effect the Agent's and/or the
Lenders' rights or priority in the Collateral; (b) agrees to comply in all
material respects with all environmental statutes, acts, rules, regulations or
orders as presently existing or as adopted or amended in the future, applicable
to the Collateral, the ownership and/or use of its real property and operation
of its business, which the failure to comply with would have a material and
adverse impact on the Collateral, or any material part thereof, or on the
operation of the business of the Companies taken as a whole; and (c) shall not
be deemed to have breached any provision of this Paragraph 7.7 if (i) the
failure to comply with the requirements of this Paragraph 7.7 resulted from good
faith error or innocent omission, (ii) the Companies promptly commence and
diligently pursue a cure of such breach, and (iii) such failure is cured within
thirty (30) business days following any of the Companies' receipt of notice of
such failure. Each of the Companies hereby indemnifies the Agent and the Lenders
and agrees to defend and hold the Agent and the Lenders harmless from and
against any and all loss, damage, claim, liability, injury or expense which the
Agent may sustain or incur (other than solely as a result of the physical
actions of the Agent on the Companies' premises which are finally determined to
constitute gross negligence or willful misconduct by a court of competent
jurisdiction) in connection with: any and all claims or expenses asserted
against the Agent and/or the Lenders as a result of any environmental pollution,
hazardous material or environmental clean-up of any of the Companies' Real
Property; or any claim or expense which results from the Companies' operations
(including, but not limited to, any of the Companies' off-site disposal
practices), and each of the Companies further agrees that this indemnification
shall survive termination of this Financing Agreement as well as the payment of
all Obligations or amounts payable hereunder.
7.8 Until termination of this Financing Agreement and payment and
satisfaction of all Obligations due hereunder, each of the Companies agrees
that, unless the Agent shall have otherwise consented in writing, the Companies
will furnish to the Agent and each Lender: (a) within ninety (90) days after the
end of each Fiscal Year of each of the Companies, an audited Consolidated
Balance Sheet, as at the close of such year, and statements of profit and loss,
cash flow and shareholders' equity, of the Companies and their consolidated
subsidiaries for such year, audited by independent public accountants selected
by the Companies and reasonably satisfactory to the Agent,
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and with a Consolidating Balance Sheet attached thereto; (b) within forty
five (45) days after the end of each Fiscal Quarter a Consolidated Balance
Sheet and Consolidating Balance Sheet as at the end of such period and
statements of profit and loss, cash flow and shareholders' equity of the
Companies and their consolidated subsidiaries, certified by an authorized
financial or accounting officer of the Companies; (c) within thirty (30) days
after the end of each month a Consolidated Balance Sheet as at the end of
such period and statements of profit and loss, cash flow and shareholders'
equity of the Companies and all their consolidated subsidiaries for such
period, certified by an authorized financial or accounting officer of each
of the Companies; (d) as of the end of each Fiscal Quarter, projections for
the next succeeding quarter, including balance sheets, income statements and
cash flow for such period, all in form reasonably satisfaction to the Agent;
(e) prior to any Fiscal Year End, projections for the next succeeding four
quarter period, including balance sheets, income statements and cash flow for
such period, all in form reasonably satisfaction to the Agent; and (f) from
time to time, such further information regarding the business affairs and
financial condition of the Companies and/or any subsidiaries thereof as the
Agent may reasonably requst, including without limitation (i) the
accountant's management practice letter and (ii) copies of all of the
Parent's 10K, 10Q and Proxy Statements. In conjunction with such financial
statements the Companies shall deliver the internal management letters
(prepared by financial officers of such Companies), if any, and the
accountants management practice letter. Each financial statement which the
Companies are required to submit hereunder must be accompanied by an
officer's certificate, signed by the President, Vice President, Controller,
or Treasurer, pursuant to which any one such officer must certify that, to
the best of such officer's knowledge after due inquiry: (x) the financial
statement(s) fairly and accurately represent(s) such Company's or the
Companies consolidated as applicable, financial condition at the end of the
particular accounting period, as well as such Company's or the Companies
consolidated operating results during such accounting period, subject to
year-end audit adjustments; and (y) during the particular accounting period:
(A) there has been no Default or Event of Default under this Financing
Agreement, PROVIDED, HOWEVER, that if any such officer has knowledge that any
such Default or Event of Default, has occurred during such period, the
existence of and a detailed description of same shall be set forth in such
officer's certificate; (B) any of the Companies have not received any notice
of cancellation with respect to its property insurance policies; (C) the
Companies have not received any notice that could result in a material
adverse effect on the value of the Collateral taken as a whole; and (D) the
exhibits attached to such financial statement(s) constitute detailed
calculations showing compliance with all financial covenants contained in
this Financing Agreement.
7.9 Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, each of the Companies agrees
that, without the prior written consent of the Agent, except as otherwise herein
provided, each such Company will not, nor will the Companies permit any
subsidiary, to:
(a) Mortgage, assign, pledge, transfer or otherwise permit any lien,
charge, security interest, encumbrance or judgment, (whether as a
result of a purchase money or title retention transaction, or other
security interest, or otherwise) to exist on any
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of its assets or goods, whether real, personal or mixed, whether now
owned or hereafter acquired, except for the Permitted Encumbrances;
(b) Incur or create any Indebtedness other than the Permitted
Indebtedness;
(c) Borrow any money on the security of any of the Company's Collateral or
any other assets or stock of the Companies from sources other than the
Agent and the Lenders;
(d) Sell, lease, assign, transfer or otherwise dispose of (i) Collateral,
except as otherwise specifically permitted by this Financing
Agreement, or (ii) either all or substantially all of any Company's or
the Companies' assets, which do not constitute Collateral;
(e) Merge, consolidate or otherwise alter or modify its corporate name,
principal place of business, structure, status or existence, or enter
into or engage in any operation or activity materially different from
that presently being conducted by any of the Companies, or purchase or
acquire all or substantially all of the capital stock or assets of any
corporation or entity, EXCEPT THAT a Company may change its corporate
name or address or merge with any other Company, provided that in any
such case (i) such Company shall give the Agent thirty (30) days prior
written notice thereof and (ii) such Company and the Companies shall
execute and deliver prior to or simultaneously with any such action
any and all applicable documents and agreements requested by the Agent
(including, without limitation, any and all U.C.C. financing
statements) to confirm the continuation and preservation of all
security interests and liens granted to the Agent hereunder, the
assumption by the surviving Company of all Obligations hereunder and
such ratification as the Agent may request with respect hereto;
(f) Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business;
(g) Declare or pay any dividend or distributions of any kind on, or
purchase, acquire, redeem or retire, any of the capital stock or
equity interest, of any class whatsoever, whether now or hereafter
outstanding, except that the Companies may declare and pay dividends
or distributions on their capital stock (or otherwise make payments)
in an amount sufficient to enable any applicable Company to (i) pay
any amounts due under the Companies' cost sharing agreements with
Parent, provided that any such payments do not exceed $4,000,000 in
any Fiscal Year; (ii) pay dividends in kind (and not in cash) on the
preferred stock of any of the Companies, (iii) pay dividends to any
other Company (as parent) in the ordinary course of their business, or
(iv) pay income or franchise taxes of the Companies due as a result of
the filing of a consolidated, combined or unitary tax return in which
the operations of the Companies are included, provided that, in any
instance under subparagraph (g)(i) and (iii), (x) a Default or Event
of Default has occurred hereunder, (y) after giving effect to such
payment, no Default and/or Event of Default has not occurred
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or would occur hereunder and (z) each of the Companies has sufficient
working capital to pay its debts as they come due;
(h) Make any advance or loan to, or any investment in, any firm, entity,
person or corporation or purchase or acquire all or substantially all
of the stock or assets of any entity, person or corporation, provided
that the Companies may make loans, deposits, prepayments and advances
to (i) their employees or third parties in the ordinary course of
their business in an amount not to exceed $1,000,000 in the aggregate
at any one time outstanding and (ii) to Texas & Northern Railway
Company in the ordinary course of their business in an amount not to
exceed $100,000 in the aggregate at any one time outstanding, provided
further that the foregoing loans and advances may be made absent the
occurrence of an Event of Default which has not been waived by the
Required Lenders.
7.10 Until termination of the Financing Agreement and payment and satisfaction
in full of all Obligations hereunder, the Companies on a consolidated basis
shall:
(a) maintain at all times during each Fiscal Quarter ending below a
Tangible Net Worth greater than $100,000,000 plus fifty percent (50%)
of net income (only if positive) for the applicable Fiscal Quarter.
(b) maintain at the end of each Fiscal Quarter during the periods set
forth below on a consolidated basis a Fixed Charge Coverage Ratio of
not less than the ratio set forth below for the applicable period:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
(i) For the Fiscal Quarter ending
September 30, 1999 1.25 to 1.0
(ii) For the two Fiscal Quarters ending
December 31, 1999 1.25 to 1.0
(iii) For the three Fiscal Quarters ending
March 31, 2000 1.25 to 1.0
(iv) for the four Fiscal Quarters ending
June 30, 2000 and each
Fiscal Quarter thereafter 1.25 to 1.0
</TABLE>
The foregoing ratio shall be calculated on a rolling four quarter basis
after June 30. 2000.
(c) maintain at the end of each Fiscal Quarter during the periods set
forth below on a consolidated basis EBITDA of not less than:
<TABLE>
<CAPTION>
FISCAL /QUARTER EBITDA
--------------- ------
<S> <C>
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(i) For the Fiscal Quarter ending
March 31, 1999 ($6,319,000)
(ii) For the two Fiscal Quarters ending
June 30, 1999 ($7,930,000)
</TABLE>
7.11 Without the prior written consent of the Agent, the Companies will
not:
(a) enter into any Operating Lease if after giving effect thereto the
aggregate obligations with respect to Operating Leases of the Companies
during any Fiscal Year would exceed $4,850,000; or
(b) contract for, purchase, make expenditures for, lease pursuant to a
Capital Lease or otherwise incur obligations with respect to Capital
Expenditures (whether subject to a security interest or otherwise) during
any period below in the aggregate amount in excess of the amount set forth
for such period:
(i) $8,000,000.00 for the Fiscal Year ending December 31, 1999; and
(ii) $10,000,000.00 for the Fiscal Year ending December 31, 2000, and for
each Fiscal Year thereafter.
7.12 The Companies agree to advise the Agent and each Lender in writing
of: a) all expenditures (actual or anticipated) in excess of $150,000.00 in
the aggregate from the budgeted amount therefor in any Fiscal Year for x)
environmental clean-up, y) environmental compliance or z) environmental
testing and the impact of said expenses on the Companies' Working Capital;
and b) any notices any of the Companies receive from any local, state or
federal authority advising such Companies, or any one of them, of any
environmental liability (real or potential) stemming from such Companies'
operations, their premises, their waste disposal practices, or waste disposal
sites used by the Companies, or any one of them, and to provide the Agent
with copies of all such notices if so required.
7.13 Each of the Companies, jointly and severally, hereby agrees to pay any
and all fees, costs, expenses, charges, liabilities, obligations and other
amounts relating to, or contemplated by, any Lockbox Agreement and any ancillary
agreements entered in connection therewith from time to time, including for the
establishment and maintenance of post office boxes and depository and collection
accounts. In furtherance thereof, each of the Companies hereby agrees that any
and all such payments shall be deemed Obligations and irrevocably instructs the
Agent to charge their Revolving Loan Accounts under this Financing Agreement
with any and all payments which the Agent may, in its sole discretion, make from
time to time with respect to any such Lockbox Agreement. Each of the Companies,
jointly and severally, hereby agrees to indemnify and hold harmless the Agent,
the Lenders and their officers, directors, employees, attorneys and agents (each
an "Indemnified Party") from, and holds each of them harmless against, any and
all losses arising under this Financing Agreement and the Loan Documents,
including, without limitation, losses
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resulting from items deposited and returned unpaid or returned under a claim
that a presentment of warranty has been breached, liabilities, obligations,
claims, actions, damages, costs and expenses (including attorney's fees) and
any payments made by the Agent pursuant to any indemnity provided by the
Agent with respect to or to which any Indemnified Party could be subject
insofar as such losses, liabilities, obligations, claims, actions, damages,
costs, fees or expenses arise from or relate to the lockbox and/or the
depository account and/or the agreements executed in connection therewith,
whether through the alleged or actual negligence of such person or otherwise,
except and to the extent that the same results solely and directly from the
gross negligence or willful misconduct of such Indemnified Party as finally
determined by a court of competent jurisdiction. This indemnity shall
survive trmination of this Financing Agreement. The Agent may, in its sole
business judgement, establish such Availability Reserves with respect thereto
as it may deem advisable under the circumstances and, upon any termination
hereof, hold such reserves as cash reserves for any such contingent
liabilities for the applicable duration of the Agent's indemnity under any
such Lockbox or Depository Account Agreements.
7.14 Each of the Companies shall take all action reasonably necessary to
assure that its computer-based systems are able to effectively process
date-sensitive data functions. Each of the Companies represents and warrants
that the "Year 2000" problem (that is, the inability of certain computer
applications to recognize and properly perform date-sensitive functions
involving certain dates on or about or subsequent to December 31, 1999) will
not result in a material adverse effect on any of the Companies' business,
assets or operations. The Companies reasonably anticipate that all Company
owned or licensed computer applications which are material to their business
will, on a timely basis, be able to properly perform date-sensitive functions
for all dates on and after January 1, 2000. Upon the Agent's request from
time to time, the Companies shall provide to the Agent assurances each of the
Companies' computer systems and software are or will be Year 2000 compliant
in all material respects and on a timely basis, all in form and substance
reasonably satisfactory to the Agent.
SECTION 8. INTEREST, FEES AND EXPENSES
8.1 Interest on the Revolving Loans shall be payable monthly as of the
end of each month and with respect to Chase Bank Rate Loans shall be an
amount equal to the lesser of (a) the Maximum Legal Rate or (b) the Chase
Bank Rate plus one percent (1%) per annum on the average of the net balances
owing by any of the Companies to the Agent and/or the Lenders in the
Companies' Revolving Loan Account at the close of each day during such month.
In the event of any change in said Chase Bank Rate, the rate hereunder for
Chase Bank Rate Loans shall change, as of the first of the month following
any such change, so as to remain one percent (1%) above the Chase Bank Rate.
The rate hereunder for Chase Bank Rate Loans shall be calculated based on a
360-day year. The Agent shall be entitled to charge the Companies, or any
one of their Revolving Loan Account(s) at the rate provided for herein when
due until all Obligations have been paid in full.
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8.2 Interest on the Term Loan shall be payable monthly as of the end of
each month on the unpaid balance or on payment in full prior to maturity and
with respect to Chase Rate Loans shall be in an amount equal to the lessor of
(a) the Maximum Legal Rate or (b) the Chase Bank Rate plus one and one half
percent (1.5%) per annum. In the event of any change in said Chase Bank Rate
the rate hereunder for Chase Bank Rate Loans shall change, as of the first of
the month following any change, so as to remain one and one half percent (1.5%)
above the Chase Bank Rate. The rate hereunder shall be calculated based on a
360 day year. The Agent shall be entitled to charge the Companies', or any one
of their Revolving Loan Account(s) at the rate provided for herein when due
until all Obligations have been paid in full.
8.3 In consideration of the Letter of Credit Guaranty of the Agent, the
Companies shall pay the Agent on behalf of the Lenders the Letter of Credit
Guaranty Fee which shall be an amount equal to (a) one and one-quarter percent
(1.25%) on the face amount of each documentary Letter of Credit payable upon
issuance thereof and (b) one and three-quarters percent (1.75%) per annum,
payable monthly, on the face amount of each standby Letter of Credit less the
amount of any and all amounts previously drawn under such standby Letter of
Credit.
8.4 Any and all charges, fees, commissions, costs and expenses charged to
the Agent and/or the Lenders for the Companies' account by any Issuing Bank in
connection with or arising out of Letters of Credit issued pursuant to this
Financing Agreement or out of transactions relating thereto will be charged to
the Companies' or any one of their Revolving Loan Account(s) in full when
charged to or paid by the Agent and/or the Lenders, or as may be due upon any
early termination hereof, and when made by any such Issuing Bank shall be
conclusive on the Agent and/or the Lenders.
8.5 The Companies shall, jointly and severally, reimburse or pay the
Agent, as the case may be, for: (a) all Out-of-Pocket Expenses of the Agent and
(b) any applicable Documentation Fee.
8.6 Upon the last Business Day of each month, commencing on March 31,
1999, the Companies shall pay the Agent the Line of Credit Fee.
8.7 To induce the Agent and the Lenders to enter into this Financing
Agreement and to extend to the Companies the Revolving Loan, Letters of Credit
Guaranties, and the Term Loan, the Companies shall pay to the Agent a Loan
Facility Fee in accordance with and subject to the Agent Commitment Letter and
the addendum thereto (which amount includes the Documentation Fee in
subparagraph (a) of the definition thereof) payable upon execution of this
Financing Agreement. The Commitment Fee shall, at the Agent's election, be
refunded or credited (less Out-of-Pocket Expenses) toward the Loan Facility Fee
upon consummation of this financing transaction on the Closing Date. The
Companies shall also pay the Agent for its own account, as of the Closing Date
and otherwise, the Syndication Fee in accordance with the Agent Commitment
Letter.
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8.8 On the Closing Date and each anniversary of the Closing Date
thereafter, the Companies shall pay to the Agent, for its account, the
Collateral Management Fee in the amount of $36,000, which shall be deemed fully
earned when paid.
8.9 Upon the occurrence of a Default or an Event of Default, which is not
waived in writing by the Agent, the Companies shall, jointly and severally, for
its account, pay the Agent's standard charges and the fees for the Agent's
personnel used by the Agent for reviewing the books and records of the Companies
and for verifying, testing, protecting, safeguarding, preserving or disposing of
all or any part of the Collateral (which fees shall be in addition to the
Collateral Management Fee and any Out-of-Pocket Expenses).
8.10 Each of the Companies hereby authorizes the Agent to charge the
Companies' Revolving Loan Account(s) with the Agent with the amount of all
payments due hereunder as such payments become due. Each of the Companies
confirms that (i) its liability for any and all of the Obligations under this
Financing Agreement and the Loan Documents is joint and several, (ii) the
Companies, as between themselves, shall determine how to pro-rate any payments
due hereunder, and (iii) any charges which the Agent may so make to any of the
Companies' Revolving Loan Account(s) as herein provided will be made as an
accommodation to the Companies and solely at the Agent's discretion.
8.11 In the event that the Agent shall have determined in the exercise of
its reasonable business judgement that subsequent to the Closing Date any change
in applicable law, rule, regulation or guideline regarding capital adequacy, or
any change in the interpretation or administration thereof, or compliance by the
Agent (or any financial institution which may become a participant or Lender
hereunder) with any new request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Agent's or any Lender's capital as a consequence of its obligations
hereunder to a level below that which the Agent or such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
the Agent's or such Lender's policies with respect to capital adequacy) by an
amount reasonably deemed by the Agent to be material, then, from time to time,
the Companies shall pay no later than five (5) days following demand to the
Agent such additional amount or amounts as will compensate the Agent for such
reduction. In determining such amount or amounts, the Agent or such Lender may
use any reasonable averaging or attribution methods. The protection of this
Paragraph 8.11 shall be available to the Agent and the Lenders regardless of any
possible contention of invalidity or inapplicability with respect to the
applicable law, regulation or condition. A certificate of the Agent setting
forth such amount or amounts as shall be necessary to compensate the Agent or
any Lender with respect to this Section 8 and the calculation thereof when
delivered to the Companies shall be conclusive on the Companies absent manifest
error. Notwithstanding anything in this paragraph to the contrary, in the event
the Agent or any Lender has exercised its rights pursuant to this paragraph, and
subsequent thereto determines that the additional amounts paid by the Companies
in whole or in part exceed the amount which the Agent or such Lender actually
required pursuant hereto, the
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excess, if any, shall be returned to the Companies by the Agent or such
Lender.
8.12. In the event that subsequent to the Closing Date any change in
applicable law, treaty or governmental regulation, or any change there in or in
the interpretation or application thereof, or compliance by the Agent or any
Lender with any new request or directive (whether or not having the force of
law) from any central bank or other financial, monetary or other authority,
shall:
(a) subject the Agent or such Lender to any tax of any kind whatsoever
with respect to this Financing Agreement or change the basis of taxation of
payments to the Agent and/or any such Lender of principal, fees, interest or any
other amount payable hereunder or under any other documents (except for changes
in the rate of tax on the overall net income of the Agent or such Lender by the
federal government or the jurisdiction in which it maintains its principal
office, and except for changes in franchise taxes applicable to the Lenders);
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by, any office of
the Agent or such Lender by reason of or in respect to this Financing Agreement
and the Loan Documents, including (without limitation) pursuant to Regulation D
of the Board of Governors of the Federal Reserve System; or
(c) impose on the Agent and/or any such Lender any other condition with
respect to this Financing Agreement or any other document,
and the result of any of the foregoing is to increase the cost to the Agent
and/or any such Lender of making, renewing or maintaining its loans hereunder by
an amount that the Agent or such Lender deems to be material in the exercise of
its reasonable business judgement or to reduce the amount of any payment
(whether of principal, interest or otherwise) in respect of any of the loans by
an amount that the Agent or such Lenders deem to be material in the exercise of
its or their reasonable business judgement, then, in any case the Companies
shall pay the Agent on behalf of such Lenders, within five (5) days following
its demand, such additional cost or such reduction, as the case may be. The
applicable Lenders shall certify the amount of such additional cost or reduced
amount to the Companies and the calculation thereof and such certification shall
be conclusive upon the Companies absent manifest error. No amount paid by the
Companies under this Paragraph 8.12 shall be duplicative of any amount paid by
the Companies under Paragraph 8.11. Notwithstanding anything in this paragraph
to the contrary, in the event such Lender has exercised its rights pursuant to
this paragraph, and subsequent thereto determine that the additional amounts
paid by the Companies in whole or in part exceed the amount which the Agent
actually required pursuant hereto, the excess, if any, shall be returned to the
Companies by such Lender.
8.13 LIBOR CONVERSION OPTIONS
(a) The Companies, or any one of them, may elect, subsequent to
seven (7) days from the Closing Date and from time to time thereafter, (i) to
request any loan made hereunder to
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be a LIBOR Loan as of the date of such loan or (ii) to convert Chase Bank
Rate Loans to LIBOR Loans, and may elect from time to time to convert LIBOR
Loans to Chase Bank Rate Loans by giving the Agent at least three (3)
Business Days' prior irrevocable notice of such election, PROVIDED that any
such conversion of LIBOR Loans to Chase Bank Rate Loans shall only be made,
subject to the second following sentence, on the last day of an Interest
Period with respect thereto. Should the Companies elect to convert Chase
Bank Rate Loans to LIBOR Loans, they shall give the Agent at least four (4)
Business Days' prior irrevocable notice of such election. If the last day of
an Interest Period with respect to a loan that is to be converted to a LIBOR
Loan is not a Business Day, then such conversion shall be made on the next
succeeding Business Day , and during the period from such last day of an
Interest Period to such succeeding Business Day, such loan shall bear
interest as if it were a Chase Bank Rate Loan. All or any part of
outstanding Chase Bank Rate Loans then outstanding with respect to Revolving
Loans, and Term Loan may be converted to LIBOR Loans as provided herein,
PROVIDED that partial conversions shall be in multiples in an aggregate
principal amount of $1,000,000 or more. The Agent shall be entitled to charge
the Companies, for its own account, a $500 processing fee, for its own
account, upon the first effective day of any such election for a LIBOR Loan.
(b) Any LIBOR Loans may be continued as such upon the expiration of
an Interest Period, PROVIDED the applicable Company so notifies the Agent, at
least three (3) Business Days prior to the expiration of said Interest Period,
and PROVIDED FURTHER that no LIBOR Loan may be continued as such upon the
occurrence of any Default or Event of Default under this Financing Agreement,
but shall be automatically converted to an Chase Bank Rate Loan on the last day
of the Interest Period during which occurred such Default or Event of Default.
Absent such notification, LIBOR Rate Loans shall convert to Chase Bank Rate
Loans on the last day of the applicable Interest Period. Each notice of
election, conversion or continuation furnished by the Companies pursuant hereto
shall specify whether such election, conversion or continuation is for a one,
two, three or six month period. Notwithstanding anything to the contrary
contained herein, the Agent and the Lenders (and any participant or co-lender,
if applicable) shall not be required to purchase United States Dollar deposits
in the London interbank market or from any other applicable LIBOR Rate market or
source or otherwise "match fund" to fund LIBOR Rate Loans, but any and all
provisions hereof relating to LIBOR Rate Loans shall be deemed to apply as if
the Agent (and any such other Lender or participant, if applicable) had
purchased such deposits to fund any LIBOR Rate Loans.
(c) The Companies may request a LIBOR Loan, convert any Chase Rate
Loan or continue any LIBOR Loan provided that no Default or Event of Default has
occurred hereunder, which has not been waived in writing by the Required
Lenders.
8.14 INTEREST RATE.
(a) The LIBOR Loans shall bear interest for each Interest Period with
respect thereto on the unpaid principal amount thereof at a rate per annum equal
to the lesser of (1) the Maximum Legal Rate or (2) the LIBOR determined for each
Interest Period in accordance with the terms hereof plus:
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(i) 3.00% with respect to Revolving Loans; and
(ii) 3.50% with respect to Term Loan.
(b) If all or a portion of the outstanding principal amount of the
Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such outstanding amount, to the extent it is a LIBOR
Loan, shall be converted to a Chase Bank Rate Loan at the end of the last
Interest Period therefor for which the Agent on or prior to the date such unpaid
principal amount became due, shall have determined LIBOR.
(c) The Companies may not have more than six (6) facilities which are
LIBOR Loans outstanding at any given time.
8.15 COMPUTATION AND PAYMENT OF INTEREST.
(a) Interest in respect of the LIBOR Loans shall be calculated on the
basis of a 360 day year and shall be payable monthly as of the end of each month
(although the applicable LIBOR shall apply to each tranch for each interest
period).
(b) the Agent shall, at the written request of the Companies, deliver to
the Companies a statement showing the quotations given by Chase Manhattan Bank
and the computations used by the Agent in determining any interest rate pursuant
to Paragraph 8.14 of Section 8 hereof.
8.16 INABILITY TO DETERMINE INTEREST RATE.
As further set forth in paragraph 8.11 above, in the event that the
Agent shall determine, or any Lender notifies the Agent in writing that it
has determined, in the exercise of its reasonable business judgement (which
determination shall be conclusive and binding upon the Companies), that by
reason of circumstances affecting the interbank LIBOR market, adequate and
reasonable means do not exist for ascertaining LIBOR applicable for any
Interest Period with respect to (a) a proposed loan that any of the Companies
have requested be made as a LIBOR Loan, (b) a LIBOR Loan that will result
from the requested conversion of a Chase Bank Rate Loan into a LIBOR Loan or
(c) the continuation of LIBOR Loans beyond the expiration of the then current
Interest Period with respect thereto, the Agent or such Lender, as
applicable, shall forthwith give written notice of such determination to the
Companies at least one (1) day prior to, as the case may be, the requested
borrowing date for such LIBOR Loan, the conversion date of such Chase Bank
Rate Loan or the last day of such Interest Period. If such notice is given
(i) any requested LIBOR Loan shall be made as a Chase Bank Rate Loan, (ii)
any Chase Bank Rate Loan that was to have been converted to a LIBOR Loan
shall be continued as a Chase Bank Rate Loan, and (iii) any outstanding LIBOR
Loan shall be converted, on the last day of then current Interest Period with
respect thereto, to a Chase Bank Rate Loan. Until the Agent or such Lender
has withdrawn such notice, no further LIBOR Loan shall be made nor shall the
Companies have the right to convert a Chase Bank Rate Loan to a LIBOR Loan.
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8.17 PAYMENTS.
If any payment on a LIBOR Loan becomes due and payable on a day other than
a Working Day, the maturity thereof shall be extended to the next succeeding
Business Day unless the result of such extension would be to extend such payment
into another calendar month in which event such payment shall be made on the
immediately preceding Working Day.
8.18 ILLEGALITY.
Notwithstanding any other provisions herein, if any law, regulation, treaty
or directive or any change therein or in the interpretation or application
thereof, shall make it unlawful for the Agent or any Lender to make or maintain
LIBOR Loans as contemplated herein, the then outstanding LIBOR Loans so
affected, if any, shall be converted automatically to Chase Bank Rate Loans on
the next succeeding Interest Payment Date or within such earlier period as
required by law. Each of the Companies hereby agrees promptly to pay the Agent,
upon its demand, any additional amounts necessary to compensate the Agent or any
Lender for any costs incurred by the Agent or any Lender in making any
conversion in accordance with this Paragraph 8.18 including, but not limited to,
any interest or fees payable by the Agent or any Lender or The Chase Manhattan
Bank to lenders of funds obtained by either of them in order to make or maintain
LIBOR Loans hereunder.
8.19 INDEMNITY
Each of the Companies agrees to indemnify and to hold the Agent and the
Lenders (including any participant or co-lender, if applicable) harmless from
any loss or expense which the Agent or any Lender may sustain or incur as a
consequence of (a) default by the Companies in payment of the principal amount
of or interest on any LIBOR Loans, as and when the same shall be due and payable
in accordance with the terms of this Financing Agreement, including, but not
limited to, any such loss or expense arising from interest or fees payable by
the Agent or any Lender to lenders of funds obtained by either of them in order
to maintain the Agent's and the Lenders LIBOR Loans hereunder, (b) default by
any of the Companies in making a borrowing or conversion after any such the
Company has given a notice in accordance with Paragraph 8.13 of Section 8
hereof, (c) any prepayment of LIBOR Loans on a day which is not the last day of
the Interest Period applicable thereto, including without limitation prepayments
arising as a result of the application of the collection of Accounts to the
Revolving Loans and (d) default by any of the Companies in making any prepayment
after any such Company had given notice to the Agent thereof. This covenant
shall survive termination of this Financing Agreement and payment of the
outstanding Obligations.
8.20 LIBOR PROVISIONS
Notwithstanding anything to the contrary in this Agreement, in the event
that, by reason of any Regulatory Change (for purposes hereof "Regulatory
Change" shall mean, with respect to the
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Agent or any Lender, any change after the date of this Agreement in United
States Federal, state or foreign law or regulations (including, without
limitation, Regulation D) or the adoption or making after such date of any
interpretation, directive or request applying to a class of banks including
the Agent or any Lender of or under any United States Federal, state or
foreign law or regulations (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful), the Agent or
any Lender either (a) incurs any material additional costs based on or
measured by the excess above a specified level of the amount of a category of
deposits or other liabilities of such bank which includes deposits by
reference to which the interest rate on LIBOR Loans is determined as provided
in this Financing Agreement or a category of extensions of credit or other
assets of the Agent or any Lender which includes LIBOR Loans or (b) becomes
subject to any material restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if the Agent or the Required
Lenders so elect by notice to the Companies the obligation of the Agent and
the Lenders to make or continue, or to convert Chase Bank Rate Loans into
LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases
to be in effect.
8.21 APPLICATION
For purposes of this Financing Agreement and Section 8 thereof, any
reference to the Agent or the Lenders shall include any financial institution
which may become a Lender subsequent to the Closing Date.
SECTION 9. POWERS
Each of the Companies hereby constitutes the Agent or any person or
agent the Agent may designate as its attorney-in-fact, at the Companies' cost
and expense, to exercise all of the following powers, which being coupled
with an interest, shall be irrevocable until all of the Companies'
Obligations to the Agent and the Lenders have been paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the name
of the Agent or the Companies or any one of them, any and all checks, notes,
drafts, and other documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Companies or
any one of them and to notify postal authorities to change the address for
delivery thereof to such address as the Agent may designate;
(c) To request from customers indebted on Accounts at any time, in the
name of the Agent or the Companies or any one of them or that of the Agent's
designee, information concerning the amounts owing on the Accounts;
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(d) To transmit to customers indebted on Accounts notice of the Agent's
interest therein and to notify customers indebted on Accounts to make payment
directly to the Agent for the Companies' account; and
(e) To take or bring, in the name of the Agent or the Companies or any one
of them, all steps, actions, suits or proceedings deemed by the Agent necessary
or desirable to enforce or effect collection of the Accounts.
Notwithstanding anything herein above contained to the contrary, the powers
set forth in (b), (d) and (e) above may only be exercised after the occurrence
of an Event of Default and until such time as such Event of Default is waived in
writing by the Required Lenders or cured to the Required Lenders' satisfaction.
In addition, absent the occurrence of a Default or Event of Default or the
consent of such Companies, the powers set forth in (c) above will be exercised
in the name of such Companies or in the name of a certified public accountant
designated by the Agent.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Notwithstanding anything herein above to the contrary, the Agent
and/or the Required Lenders may terminate this Financing Agreement
immediately upon the occurrence of any of the following (herein "Events of
Default"):
(a) cessation of the business of the Companies or any one of them, except
pursuant to a merger permitted hereunder, or the calling of a meeting
of the creditors of any of the Companies for purposes of compromising
the debts and obligations of such Companies;
(b) the failure of any of the Companies to generally meet debts as they
mature;
(c) (i) the commencement by any of the Companies or by the Parent of any
bankruptcy, insolvency, arrangement, reorganization, receivership or
similar proceedings under any federal or state law; (ii) the
commencement against Parent or any of the Companies, of any
bankruptcy, insolvency, arrangement, reorganization, receivership or
similar proceeding under any federal or state law by creditors of
Parent or any of the Companies, as applicable, provided that such
involuntary proceeding shall not have been controverted within ten
(10) days or shall not have been dismissed and vacated within sixty
(60) days of commencement, or any of the actions sought in any such
proceeding shall occur or Parent or such Companies shall take action
to authorize or effect any of the actions in any such proceeding, or
(iii) the commencement (x) by the Companies' consolidated
subsidiaries, or any one of them, of any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceeding under
any applicable state law, or (y) against the Companies' subsidiaries,
or any one of them, of any involuntary bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceeding under
applicable law, which proceeding shall not have been controverted
within ten (10) days and shall not have been dismissed or vacated
within sixty (60) days of
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commencement, or any of the actions sought in any such proceeding
shall occur or any such subsidiaries, or any one of them, shall take
action to authorize or effect any of the actions in any such
proceeding;
(d) breach by any of the Companies in any material respect of any
warranty, representation or covenant contained herein (other than
those referred to in sub-paragraph (e) below) or in any other written
agreement between such Companies or the Agent, provided that such
breach by such Companies of any of the warranties, representations or
covenants referred in this clause (d) shall not be deemed to be an
Event of Default unless and until such breach shall remain unremedied
to the Agent's or the Required Lender's satisfaction for a period of
ten (10) days from the date of such breach;
(e) breach by any of the Companies of any warranty, representation or
covenant of Paragraphs 3.3 (other than the third sentence of Paragraph
3.3) and 3.4 of Section 3 hereof; Paragraphs 6.3 and 6.4 (other than
the first sentence of Paragraph 6.4) of Section 6 hereof; Paragraphs
7.1, 7.5, 7.6, 7.8 through 7.14 hereof;
(f) failure of any of the Companies to pay any of the Obligations within
five (5) Business Days of the due date thereof, provided that nothing
contained herein shall prohibit the Agent from charging such amounts
to any of the Companies' Revolving Loan Accounts on the due date
thereof;
(g) Intentionally Omitted;
(h) any of the Companies shall (i) engage in any "prohibited transaction"
as defined in ERISA, (ii) have any "accumulated funding deficiency" as
defined in ERISA, (iii) have any "reportable event" as defined in
ERISA, for which the requirement to provide notice to the Pension
Benefit Guaranty Corporation ("PBGC") has not been waived by the PBGC,
(iv) terminate any "plan", as defined in ERISA, that is subject to
title IV of ERISA, or (v) be engaged in any proceeding in which the
Pension Benefit Guaranty Corporation shall seek appointment, or is
appointed, as trustee or administrator of any "plan", as defined in
ERISA, and with respect to this sub-paragraph (h) such event or
condition (x) remains uncured for a period of thirty (30) days from
date of occurrence and (y) could, in the reasonable opinion of the
Agent, subject the Companies to any tax, penalty or other liability
material to the business, operations or financial condition of the
Companies;
(i) without the prior written consent of the Agent, any of the Companies
shall (x) amend or modify the Subordinated Debt, or (y) make any
payment on account of the Subordinated Debt except as permitted in the
Subordination Agreement;
(j) the occurrence of any default or event of default (after giving effect
to any applicable grace or cure periods) under any instrument or
agreement evidencing (x) Subordinated Debt or (y) any other
Indebtedness of the Companies, or any one of them, having a principal
amount in excess of $250,000; or
(k) the stock of (x) any of the Companies presently held (directly or
indirectly) by the Parent is transferred so that Parent ceases to
beneficially own at least 66 2/3% of the shares of LSSC, and (y) LSSC
ceases to beneficially own all of the stock of each other Company
hereunder.
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10.2 Upon the occurrence of a Default and/or an Event of Default, at the
option of the Agent, or upon the written direction of the Required Lenders the
Agent shall declare that, all loans, advances and extensions of credit provided
for in Sections 3, 4 and 5 of this Financing Agreement shall be thereafter in
the Agent's or the Required Lenders' sole discretion and the obligation of the
Agent and the Lenders to make Revolving Loans and open Letters of Credit shall
cease unless such Default or Event of Default is waived in writing by the
Required Lenders or cured to the Agent's or the Required Lenders' satisfaction
in the exercise of the Agent's and the Lenders' reasonable business judgement,
and at the option of the Agent, or upon the written direction of the Required
Lenders, upon the occurrence of an Event of Default: (a) all Obligations shall
become immediately due and payable; (b) the Agent may charge the Companies the
lesser of (i) the Default Rate of Interest or (ii) the Maximum Legal Rate on
all then outstanding or thereafter incurred Obligations in lieu of the interest
provided for in Section 8 of this Financing Agreement, provided that, with
respect to this clause "(b)" (i) the Agent has given the Companies written
notice of the Event of Default, provided, however, that no notice is required if
the Event of Default is the Event listed in Paragraph 10.1(c) of this Section
10, and (ii) the Companies have failed to cure the Event of Default within ten
(10) days after (x) the Agent gave such notice pursuant to paragraph 12.6 below
or (y) the occurrence of the Event of Default listed in Paragraph 10.1 (c) of
this Section 10; and (c) the Agent may at its option, or shall, upon the written
direction of the Required Lenders, immediately terminate this Financing
Agreement upon notice to the Companies, provided, however, that no notice of
termination is required if the Event of Default is the Event listed in
Paragraph 10.1(c) of this Section 10. The exercise of any option is not
exclusive of any other option which may be exercised at any time by the Agent
and/or the Lenders.
10.3 Immediately upon the occurrence of any Event of Default, the Agent
may at its option, or shall at the direction of the Required Lenders, to the
extent permitted by law: (a) remove from any premises where same may be located
any and all books and records, software, documents, instruments, files and
records, and any receptacles or cabinets containing same, relating to the
Accounts, or the Agent may use, at the Companies' expense, such of the
Companies' personnel, supplies or space at the Companies' places of business or
otherwise, as may be necessary to properly collect and realize upon the
Accounts; (b) bring suit, in the name of any of the Companies or the Agent, and
generally shall have all other rights respecting said Accounts, including
without limitation the right to: accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of any of the Companies or the Agent; (c)
sell, assign and deliver the Collateral and any returned, reclaimed or
repossessed merchandise, with or without advertisement, at public or private
sale, for cash, on credit or otherwise, at the Agent's sole option and
discretion, and the Agent or the Lenders may bid or become a purchaser at any
such sale, free from any right of redemption, which right is hereby expressly
waived by each of the Companies; (d) foreclose the security interests in the
Collateral created herein or by the Loan Documents by any available judicial
procedure, or to take possession of any or all of the Collateral, including any
Inventory, Equipment and/or Other Collateral without judicial process, and to
enter any premises where any Inventory and Equipment and/or Other Collateral may
be located for the purpose of taking possession of or removing the same and (e)
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exercise any other rights and remedies provided in law, in equity, by
contract or otherwise. The Agent shall have the right, without notice or
advertisement, to sell, lease, or otherwise dispose of all or any part of the
Collateral whether in its then condition or after further preparation or
processing, in the name of any of the Companies or the Agent, or in the name
of such other party as the Agent may designate, either at public or private
sale or at any broker's board, in lots or in bulk, for cash or for credit,
with or without warranties or representations, and upon such other terms and
conditions as the Agent in its sole discretion may deem advisable, and the
Agent and the Lenders shall have the right to purchase at any such sale. If
any Inventory and Equipment shall require rebuilding, repairing, maintenance
or preparation, the Agent shall have the right, at its option, to do such of
the aforesaid as is necessary, for the purpose of putting the Inventory and
Equipment in such saleable form as the Agent shall deem appropriate. Each of
the Companies agrees, at the request of the Agent, to assemble the Inventory
and Equipment and to make it available to the Agent at premises of any of the
Companies or elsewhere and to make available to the Agent the premises and
facilities of any of the Companies for the purpose of the Agent's taking
possession of, removing or putting the Inventory and Equipment in saleable
form. However, if notice of intended disposition of any Collateral is
required by law, it is agreed that ten (10) days' notice shall constitute
reasonable notification and full compliance with the law. The net cash
proceeds resulting from the Agent's exercise of any of the foregoing rights,
(after deducting all charges, costs and expenses, including reasonable
attorneys' fees) shall be applied by the Agent to the payment of any of the
Companies' Obligations, whether due or to become due, in such order as the
Agent may elect, and each of the Companies shall remain liable to the Agent
for any deficiences, and the Agent in turn agrees to remit to the Companies
or its successors or assigns, any surplus resulting therefrom. The
enumeration of the foregoing rights is not intended to be exhaustive and the
exercise of any right shall not preclude the exercise of any other rights,
all of which shall be cumulative. Each of the Companies hereby indemnifies
the Agent and the Lenders and holds the Agent and the Lenders harmless from
any and all costs, expenses, claims, liabilities, Out-of-Pocket Expenses or
otherwise, incurred or imposed on the Agent and/or the Lenders by reason of
exercise of any rights, remedies and interests hereunder, including without
limitation from any sale or transfer of Collateral, preserving, maintaining
or securing the Collateral, defending its, the Agent's and/or the Lenders'
interests in Collateral (including pursuant to any claims brought by any of
the Companies, any of the Companies as debtor-in-possession, any secured or
unsecured creditors of any of the Companies, any trustee or receiver in
bankruptcy, or otherwise), and each of the Companies hereby agrees to so
indemnify and hold the Agent and the Lenders harmless, absent the Agent's, or
the Lenders', as applicable, gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction. The foregoing
indemnification shall survive termination of this Financing Agreement until
such time as all Obligations (including without limitation the foregoing and
any contingent obligations) have been finally and indefeasibly paid in full.
In furtherance thereof the Agent may establish such reserves for Obligations
hereunder (including any contingent Obligations) as it may deem advisable in
its reasonable business judgement.
SECTION 11. TERMINATION
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Except as otherwise permitted herein, the Companies or the Agent may
terminate this Financing Agreement and the Line of Credit only as of the
initial or any subsequent Anniversary Date and then only by giving the other
at least sixty (60) days prior written notice of termination.
Notwithstanding the foregoing the Agent or the Required Lenders may terminate
the Financing Agreement immediately upon the occurrence of an Event of
Default, provided, however, that if the Event of Default is an event listed
in Paragraph 10.1(c) of Section 10 of this Financing Agreement, the Agent
may regard the Financing Agreement as terminated and notice to that effect is
not required. This Financing Agreement, unless terminated as herein
provided, shall automatically continue from Anniversary Date to Anniversary
Date. Notwithstanding the foregoing, the Companies may terminate this
Financing Agreement, the Line of Credit, Revolving Line of Credit and the
Term Loan prior to any applicable Anniversary Date upon sixty (60) days'
prior written notice to the Agent, provided that the Companies, jointly and
severally, agree to pay to the Agent immediately on demand, an Early
Termination Fee and the Prepayment Premium, if applicable. All Obligations
shall become due and payable as of any termination hereunder or under Section
10 hereof and, pending a final accounting, the Agent may withhold any
balances in the Companies' accounts (unless supplied with an indemnity
satisfactory to the Agent) to cover all of the Companies' or any of their
Obligations, whether absolute or contingent. All of the Agent's and the
Lenders' rights, liens and security interests shall continue after any
termination until all Obligations have been paid and satisfied in full. Upon
termination of this Financing Agreement and full, final and indefeasible
payment or satisfaction (which in the case of Letters of Credit may be in the
form of a pledge and deposit with the Agent, in form and substance
satisfactory to the Agent, of an amount in cash equal to 110% of the
outtanding and undrawn Letters of Credit) of all Obligations hereunder (other
than the Companies' Obligations with respect to any indemnity set forth in
this Financing Agreement) provided the Agent has not prior thereto made a
demand for payment thereunder, the Agent agrees to release its liens upon the
Collateral and execute and deliver (at the Companies' cost and expense)
appropriate releases for such liens.
SECTION 12. MISCELLANEOUS
12.1 Each of the Companies hereby waives diligence, demand, presentment
and protest and any notices thereof as well as notice of nonpayment, notice
of intent to accelerate, notice of acceleration, and notice of dishonor, and
any and all defenses based on suretyship. No delay or omission of the Agent
and/or the Lenders or the Companies to exercise any right or remedy
hereunder, whether before or after the happening of any Event of Default,
shall impair any such right or shall operate as a waiver thereof or as a
waiver of any such Event of Default. No single or partial exercise by the
Agent and/or the Lenders of any right or remedy precludes any other or
further exercises thereof, or precludes any other right or remedy.
12.2 THIS FINANCING AGREEMENT AND THE LOAN DOCUMENTS EXECUTED AND
DELIVERED IN CONNECTION THEREWITH CONSTITUTE THE FINAL AND ENTIRE AGREEMENT
BETWEEN EACH OF THE COMPANIES, THE LENDERS AND THE AGENT AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES; SUPERSEDE ANY PRIOR AGREEMENTS; CAN BE CHANGED ONLY BY A WRITING
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SIGNED BY THE COMPANIES, THE LENDERS AND THE AGENT; AND SHALL BIND AND BENEFIT
THE COMPANIES, THE LENDERS AND THE AGENT AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS. For purposes of this Financing Agreement and the Loan Documents
"Companies" and "Company" shall be used in the broadest possible use and as
applicable in order to give use to the intent hereof to apply the terms and
provisions hereof to all of the applicable Companies to which such provisions
relate.
12.3 It is the intent of the Companies, the Lenders and the Agent to
conform strictly to all applicable state and federal usury laws. All agreements
between the Companies and the Agent and/or the Lenders whether now existing or
hereafter arising and whether written or oral, are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of acceleration of
the maturity hereof or otherwise, shall the amount contracted for, charged or
received by the Agent and/or the Lenders for the use, forbearance, or detention
of the money loaned hereunder or otherwise, or for the payment or performance of
any covenant or obligation contained herein or in any other document evidencing,
securing or pertaining to the Obligations evidenced hereby which may be legally
deemed to be for the use, forbearance or detention of money, exceed the maximum
amount which the Agent and the Lenders are legally entitled to contract for,
charge or collect under applicable state or federal law. If from any
circumstances whatsoever fulfillment of any provision hereof or such other
documents, at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, then the obligation to be
fulfilled shall be automatically reduced to the limit of such validity, and if
from any such circumstance the Agent and/or the Lenders shall ever receive as
interest or otherwise an amount in excess of the maximum that can be legally
collected, then such amount which would be excessive interest shall be applied
to the reduction of the principal indebtedness hereof and any other amounts due
with respect to the Obligations evidenced hereby, but not to the payment of
interest and if such amount which would be excess interest exceeds the
Obligations and all other non interest indebtedness described above, then such
additional amount shall be refunded to the Companies. In determining whether or
not all sums paid or agreed to be paid by the Companies for the use, forbearance
or detention of theObligations of the Companies to the Agent and/or the Lenders,
under any specific contingency, exceeds the maximum amount permitted by
applicable law, the Companies and the Agent and/or the Lenders shall to the
maximum extent permitted under applicable law, (a) treat all Obligations as but
a single extension of credit, (b) characterize any nonprincipal payment as an
expense, fee or premium rather than as sums paid or agreed to be paid by the
Companies for the use, forbearance or detention of money, (c) exclude voluntary
prepayments and the effect thereof, and (d) amortize, prorate, allocate and
spread the total amount of such sums paid or agreed to be paid by the Companies
for the use, forbearance or detention of money throughout the entire
contemplated term of the Obligations in accordance with all legal limits. The
terms and provisions of this paragraph shall control and supersede every other
provision hereof and all other agreements between the Companies and the Agent
and/or the Lenders.
12.4 If any provision hereof or of any other agreement made in connection
herewith is held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining provisions of the applicable agreement shall remain
in full force and effect and shall not be affected by such
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provision's severance. Furthermore, in lieu of any such provision, there
shall be added automatically as a part of the applicable agreement a legal
and enforceable provision as similar in terms to the severed provision as may
be possible.
12.5 TO THE FULLEST EXETENT PERMITTED BY APPLICABLE LAW, EACH OF THE
COMPANIES, THE LENDERS AND THE AGENT HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. TO THE
MAXIMUM EXTENT PERMITTED BY LAW, EACH OF THE COMPANIES HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED.
12.6 Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed to
have been validly served, given or delivered when hand delivered or sent by
telegram or telex, or three days after deposit in the United States mails, with
proper first class postage prepaid and addressed to the party to be notified as
follows:
(A) if to the Agent, at:
THE CIT GROUP/BUSINESS CREDIT, INC., AS AGENT
5420 LBJ Freeway
Dallas, TX 75240
Attn: Regional Manager
Fax No.: (972) 455-1690
(B) if to the Companies at:
c/o LONE STAR STEEL COMPANY
14681 Midway Road, Suite 200
Dallas Texas 75244
Attn: Richard W. Arp
Fax No.: (972) 770-6413
(C) if to any other Lender hereunder, at the address set forth
therefor in the applicable Assignment and Assumption Agreement
or to such other address as any party may designate for itself by like notice.
12.7 THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK TO THE EXTENT THAT TEXAS LAW MAY EVER APPLY, NOTWITHSTANDING
THE FOREGOING CHOICE
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OF LAW, THE PROVISIONS OF CHAPTER 346 (OTHER THAN Section 346.004 THEREOF) OF
THE TEXAS FINANCE CODE (VERNONS TEXAS CODE ANNOTATED), AS AMENDED FROM TIME
TO TIME (AS AMENDED, THE "TEXAS FINANCE CODE"), SHALL NOT BE APPLICABLE TO
ANY LOAN(S) OR EXTENSIONS OF CREDIT EVIDENCED BY THIS FINANCING AGREEMENT
AND/OR THE PROMISSORY NOTES.
SECTION 13. AGREEMENT BETWEEN THE LENDERS
13.1 a) The Agent, for the account of the Lenders, shall disburse all
loans and advances to the Companies and shall handle all collections of
Collateral and repayment of Obligations. It is understood that for purposes
of advances to the Companies and for purposes of this Section 13 the Agent is
using the funds of the Agent.
b) Unless the Agent shall have been notified in writing by any Lender
prior to any advance to the Companies that such Lender will not make the amount
which would constitute its share of the borrowing on such date available to the
Agent, the Agent may assume that such Lender shall make such amount available to
the Agent on a Settlement Date, and the Agent may, in reliance upon such
assumption, make available to the Companies a corresponding amount. A
certificate of the Agent submitted to any Lender with respect to any amount
owing under this subsection shall be conclusive, absent manifest error. If such
Lender's share of such borrowing is not in fact made available to the Agent by
such Lender on the Settlement Date, the Agent shall be entitled to recover such
amount with interest thereon at the rate per annum applicable to Revolving Loans
hereunder, on demand, from the Companies without prejudice to any rights which
the Agent may have against such Lender hereunder. Nothing contained in this
subsection shall relieve any Lender which has failed to make available its
ratable portion of any borrowing hereunder from its obligation to do so in
accordance with the terms hereof. Nothing contained herein shall be deemed to
obligate the Agent to make available to the Companies the full amount of a
requested advance when the Agent has any notice (written or otherwise) that any
of the Lenders will not advance its ratable portion thereof.
13.2 On the Settlement Date, the Agent and the Lenders shall each remit to
the other, in immediately available funds, all amounts necessary so as to ensure
that, as of the Settlement Date, the Lenders shall have their proportionate
share of all outstanding Obligations.
13.3 The Agent shall forward to each Lender, at the end of each month, a
copy of the account statement rendered by the Agent to the Companies.
13.4 The Agent shall, after receipt of any interest and fees earned under
this Financing Agreement, promptly remit to the Lenders: a) their pro rata
portion of all fees, provided, however, that the Lenders (other than CITBC in
its role as the Agent) shall x) not share in the Collateral Management Fee or
Documentation Fees or the fees provided for in Section 8, Paragraph 8.12; and
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y) receive their share of the Loan Facility Fee in accordance with their
respective agreements with the Agent; b) interest computed at the rate and as
provided for in Section 8 of this Financing Agreement on all outstanding
amounts advanced by the Lenders on each Settlement Date, prior to adjustment,
that are subsequent to the last remittance by the Agent to the Lenders of the
Companies' interest; c) its pro rata portion of all principal repaid on the
Term Loan; and d) interest on the Term Loan computed at the rate and as
provided for in Section 8 of this Financing Agreement.
13.5 (a) The Companies acknowledge that the Lenders with the prior written
consent of the Agent may sell participation in the loans and extensions of
credit made and to be made to the Companies hereunder. The Companies further
acknowledge that in doing so, the Lenders may grant to such participants certain
rights which would require the participant's consent to certain waivers,
amendments and other actions with respect to the provisions of this Financing
Agreement, provided that the consent of any such participant shall not be
required except for matters requiring the consent of all Lenders hereunder as
set forth in Section 14, Paragraph 14.10 hereof.
(b) The Companies authorize each Lender to disclose to any
participant or purchasing lender (each, a "TRANSFEREE") and any prospective
Transferee any and all financial information in such Lender's possession
concerning the Companies and their affiliates which has been delivered to such
Lender by or on behalf of the Companies pursuant to this Agreement or which has
been delivered to such Lender by or on behalf of the Companies in connection
with such Lender's credit evaluation of the Companies and their affiliates prior
to entering into this Agreement, provided that such Transferee agrees to hold
such information in confidence in the ordinary course of its business.
13.6 The Companies hereby agree that each Lender is solely responsible for
its portion of the Line of Credit and that neither the Agent nor any Lender
shall be responsible for, nor assume any obligations for the failure of any
Lender to make available its portion of the Line of Credit. Further, should any
Lender refuse to make available its portion of the Line of Credit, then the
other Lender may, but without obligation to do so, increase, unilaterally, its
portion of the Line of Credit in which event the Companies are so obligated to
that other Lender.
13.7 In the event that the Agent, the Lenders or any one of them is sued
or threatened with suit by the Companies or any one of them, or by any receiver,
trustee, creditor or any committee of creditors on account of any preference,
voidable transfer or lender liability issue, alleged to have occurred or been
received as a result of, or during the transactions contemplated under this
Financing Agreement, then in such event any money paid in satisfaction or
compromise of such suit, action, claim or demand and any expenses, costs and
attorneys' fees paid or incurred in connection therewith, whether by the Agent,
the Lenders or any one of them, shall be shared proportionately by the Lenders.
In addition, any costs, expenses, fees or disbursements incurred by outside
agencies or attorneys retained by the Agent to effect collection or enforcement
of any rights in the Collateral, including enforcing, preserving or maintaining
rights under this Financing Agreement shall be shared proportionately between
and among the Lenders to the extent not reimbursed by the Companies or from the
proceeds of Collateral. The provisions of this paragraph shall not apply to
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any suits, actions, proceedings or claims that x) predate the date of this
Financing Agreement or y) are based on transactions, actions or omissions
that predate the date of this Financing Agreement.
13.8 Each of the Lenders agrees with each other Lender that any money or
assets of the Companies held or received by such Lender, no matter how or
when received, shall be applied to the reduction of the Obligations (to the
extent permitted hereunder) after x) the occurrence of an Event of Default and
y) the election by the Required Lenders to accelerate the Obligations. In
addition, the Companies authorize, and the Lenders shall have the right,
without notice, upon any amount becoming due and payable hereunder, to set-off
and apply against any and all property held by, or in the possession of such
Lender the Obligations due such Lenders.
13.9 The Agent shall have the right at any time to assign to one or more
commercial banks, commercial finance lenders or other financial institutions all
or a portion of its rights and obligations under this Financing Agreement
(including, without limitation, its obligations under the Line of Credit, Term
Loans, the Revolving Loans and its rights and obligations with respect to
Letters of Credit). Upon execution of an Assignment and Transfer Agreement, (a)
the assignee thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such assignment,
have the rights and obligations of the Agent as the case may be hereunder and
(b) the Agent shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such assignment, relinquish its rights and be
released from its obligations under this Financing Agreement. The Companies
shall, if necessary, execute any documents reasonably required to effectuate the
assignments. No other Lender may assign its interest in the loans and advances
and extensions of credit hereunder without the prior written consent of the
Agent. In the event that the Agent consents to any such assignment by any other
Lenders (i) the amount being assigned shall in no event be less than the lesser
of (x) $5,000,000 or (y) the entire interest of such Lender hereunder, (ii) such
assignment shall be of a pro-rata portion of all of such assigning Lender's
loans and commitments hereunder and (iii) the parties to such assignment shall
execute and deliver to the Agent an Assignment and Transfer Agreement, and, at
the Agent's election, a processing and recording fee of $1,000 payable by the
Companies to the Agent for its own account.
SECTION 14. AGENCY
14.1 Each Lender hereby irrevocably designates and appoints CITBC as the
Agent for the Lenders under this Financing Agreement and any ancillary loan
documents and irrevocably authorizes CITBC as the Agent for such Lender, to
take such action on its behalf under the provisions of this Financing
Agreement and all ancillary documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Financing Agreement and all ancillary documents together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in this Financing Agreement, the Agent shall not
have any duties or responsibilities, except those expressly set forth herein,
or any fiduciary relationship with any Lender and no implied covenants,
functions, responsibilities, duties,
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obligations or liabilities shall be read into this Financing Agreement and
the ancillary documents or otherwise exist against the Agent.
14.2 The Agent may execute any of its duties under this Financing
Agreement and all ancillary documents by or through agents or attorneys-in-fact
and shall be entitled to the advice of counsel concerning all matters pertaining
to such duties.
14.3 Neither the Agent nor any of its officers, directors, employees,
agents, or attorneys-in-fact shall be (i) liable to any Lender for any action
lawfully taken or omitted to be taken by it or such person under or in
connection with this Financing Agreement and all ancillary documents (except for
its or such person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Companies or any officer thereof
contained in this Financing Agreement and all ancillary documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Financing Agreement
and all ancillary documents or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Financing Agreement and all
ancillary documents or for any failure of the Companies to perform their
obligations thereunder. The Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Financing Agreement and all
ancillary documents or to inspect the properties, books or records of the
Companies.
14.4 The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper person or
persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Companies), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Financing Agreement and all ancillary
documents unless it shall first receive such advice or concurrence of the
Lenders, or the Required Lenders, as the case may be, as it deems appropriate or
it shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Financing
Agreement and all ancillary documents in accordance with a request of the
Lenders, or the Required Lenders, as the case may be, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders.
14.5 The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the Agent has
received written notice from a Lender or the Companies describing such Default
or Event of Default. In the event that the Agent receives such a notice, the
Agent shall promptly give notice thereof to the Lenders. The Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Lenders, or Required Lenders, as the case may be;
PROVIDED that unless and until the Agent shall
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have received such direction, the Agent may in the interim (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable and in
the best interests of the Lenders.
14.6 Each Lender expressly acknowledges that neither the Agent nor any of
its officers, directors, employees, agents or attorneys-in-fact has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Companies shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Companies and made its own decision to enter into this
Financing Agreement. Each Lender also represents that it will, independently
and without reliance upon the Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under the Financing Agreement and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition or creditworthiness of the Companies. The Agent, however,
shall provide the Lenders with copies of all financial statements, projections
and business plans which come into the possession of the Agent or any of its
officers, employees, agents or attorneys-in-fact.
14.7 (a) The Lenders agree to indemnify the Agent in its capacity as such
(to the extent not reimbursed by the Companies and without limiting the
obligation of the Companies to do so), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements (including, without limitation, all Out-of-Pocket
Expenses) of any kind whatsoever (including negligence on the part of the Agent)
which may at any time be imposed on, incurred by or asserted against the Agent
in any way relating to or arising out of this Financing Agreement or any
ancillary documents or any documents contemplated by or referred to herein or
the transactions contemplated hereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; PROVIDED that no Lender shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Agent's gross negligence or willful
misconduct. The agreements in this paragraph shall survive the payment of the
Obligations.
(b) The Agent will use its reasonable business judgement in handling
the collection of the Accounts, enforcement of its rights hereunder and
realization upon the Collateral but shall not be liable to the Lenders for any
action taken or omitted to be taken in good faith or on the written advice of
counsel. The Lenders expressly release the Agent from any and all liability and
responsibility (express or implied), for any loss, depreciation of or delay in
collecting or failing to realize on any Collateral, the Obligations or any
guaranties therefor and for any mistake, omission or error in judgment in
passing upon or accepting any Collateral or in making (or in failing to make)
examinations or audits or for granting indulgences or extensions to the
Companies, any account debtor or any guarantor, other than resulting from the
Agent's gross negligence or willful
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misconduct.
14.8 The Agent may make loans to, and generally engage in any kind of
business with the Companies as though the Agent were not the Agent hereunder.
With respect to its loans made or renewed by it or loan obligations hereunder as
Lender, the Agent shall have the same rights and powers, duties and liabilities
under this Financing Agreement as any Lender and may exercise the same as though
it was not the Agent and the terms "Lender" and "Lenders" shall include the
Agent in its individual capacity.
14.9 The Agent may resign as the Agent upon 30 days' notice to the Lenders
and such resignation shall be effective upon the appointment of a successor
Agent. If the Agent shall resign as Agent, then the Lenders shall appoint a
successor Agent for the Lenders whereupon such successor Agent shall succeed to
the rights, powers and duties of the Agent and the term "Agent" shall mean such
successor agent effective upon its appointment, and the former Agent's rights,
powers and duties as Agent shall be terminated, without any other or further act
or deed on the part of such former Agent or any of the parties to this Financing
Agreement. After any retiring Agent's resignation hereunder as the Agent the
provisions of this Section 14 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was the Agent.
14.10 Notwithstanding anything contained in this Financing Agreement to
the contrary, the Agent will not, without the prior written consent of all
Lenders: (a) amend the Financing Agreement to (i) increase the Line of Credit;
(ii) reduce the interest rates; (iii) reduce or waive (x) any fees in which the
Lenders share hereunder, or (y) the repayment of any Obligations due the
Lenders; (iv) extend the maturity of the Obligations; or (v) alter or amend (x)
this Paragraph 14.10 or (y) the definitions of Eligible Accounts Receivable,
Eligible Inventory, Inventory Loan Cap, Collateral or Required Lenders, or (vi)
increase the advance percentages against Eligible Accounts Receivable or
Eligible Inventory or alter or amend the Agent's criteria for determining
compliance with such definitions of Eligible Accounts Receivable and/or Eligible
Inventory if the effect thereof is to increase Availability; (b) except as
otherwise required in this Financing Agreement, release any guaranty or
Collateral in excess of $500,000 during any year, or (c) knowingly make any
Revolving Loan or assist in opening any Letter of Credit hereunder if after
giving effect thereto the total of Revolving Loans and Letters of Credit
hereunder for the Company would exceed one hundred and ten percent (110%) of
the maximum amount available under this Financing Agreement (the portion in
excess of 100% of such maximum available amount shall be referred to herein as
the "Agent Permitted Overadvances"), provided that the Agent shall not be
entitled to continue to knowingly make such Agent Permitted Overadvances for a
period in excess of ninety (90) days without the Lenders' consent, and provided
further that the foregoing limitations shall not prohibit or restrict advances
by the Agent to preserve and protect Collateral. Subject to the provisions of
Section 12, Paragraph 12.2 and the provisions of this Paragraph 14.10 of Section
14 of this Financing Agreement, in all other respects the Agent is authorized by
each of the Lenders to take such actions or fail to ake such actions under this
Financing Agreement if the Agent, in its reasonable discretion, deems such to be
advisable and in the best interest of the Lenders. Notwithstanding any
provision to the contrary contained in this Financing Agreement (including the
provisions of Section 12,
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Paragraph 12.2 and Section 14, Paragraph 14.10 hereof) the Agent is
authorized to take such actions or fail to take such actions in connection
with (a) the exercise of (i) any and all rights and remedies under this
Financing Agreement (including but not limited to the exercise of rights and
remedies under Section 10, Paragraph 10.2 of this Financing Agreement) and
(ii) its discretion in (x) determining compliance with the eligibility
requirements of Eligible Accounts Receivable and/or Eligible Inventory and
establishing reserves against Availability in connection therewith and/or (y)
the making of Agent Permitted Overadvances, and/or (b) the release of
Collateral not to exceed $250,000 in the aggregate during any Fiscal Year,
and/or (c) curing any ambiguity, defect or inconsistency in the terms of this
Financing Agreement; provided that the Agent, in its reasonable discretion,
deems such to be advisable and in the best interests of the Lenders.
14.11 In the event any Lender's consent is required pursuant to the
provisions of this Financing Agreement and such Lender does not respond to any
request by the Agent for such consent within 10 days after such request is made
to such Lender, such failure to respond shall be deemed a consent. In addition,
in the event that any Lender declines to give its consent to any such request,
it is hereby mutually agreed that the Agent and/or any other Lender shall have
the right (but not the obligation) to purchase such Lender's share of the Loans
for the full amount thereof together with accrued interest thereon to the date
of such purchase.
14.12 Each Lender agrees that notwithstanding the provisions of Section
11 of this Financing Agreement any Lender may terminate this Financing
Agreement and the Line of Credit only as of the initial or any subsequent
Anniversary Date and then only by giving the Agent 90 days prior written
notice thereof. Within 30 days after receipt of any such termination notice,
the Agent shall, at its option, either (i) give notice of termination to the
Company hereunder or (ii) purchase, or arrange for the purchase of, the
Lender's share of the Obligations hereunder for the full amount thereof plus
accrued interest thereon. Unless so terminated this Financing Agreement and
the Line of Credit shall be automatically extended from Anniversary Date to
Anniversary Date. Termination of this Financing Agreement by any of the
Lenders as herein provided shall not affect the Lenders' respective rights
and obligations under this Financing Agreement incurred prior to the
effective date of termination as set forth in the preceding sentence.
14.13 If the Agent is required at any time to return to the Companies or
to a trustee, receiver, liquidator, custodian or other similar official any
portion of the payments made by the Companies to the Agent as result of a
bankruptcy or similar proceeding with respect to the Companies, any guarantor or
any other person or entity or otherwise, then each Lender shall, on demand of
the Agent, forthwith return to the Agent its ratable share of any such payments
made to such Lender by the Agent, together with its ratable share of interest
and/or penalties, if any, payable by the Lenders; this provision shall survive
the termination of this Financing Agreement.
14.14 The Lenders agree to maintain the confidentiality of any
non-public information provided by the Companies to them, in the ordinary
course of their business, provided that the foregoing confidentiality
provision shall terminate one (1) year after the termination date of this
Financing Agreement, and provided further that any such Lenders may disclose
such information (i) to any applicable bank regulatory and auditor personnel
and (ii) upon the advise of their counsel.
In the event the Agent terminates this Financing Agreement pursuant to clause
(a) above, the Agent will cease making any loans or advances upon the Effective
Date of Termination except for any loans or advances which are reasonably
required to maintain, protect or realize upon the Collateral.
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IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement
to be executed and delivered by their proper and duly authorized officers as of
the date set forth above. This Financing Agreement shall take effect as of the
date set forth above after being accepted below by an officer of the Agent after
which, the Agent shall forward to the Companies and each Lender a fully executed
original for its files.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC., AS AGENT
By /s/ Neal Legan
-------------------------
Neal Legan
Vice President
Read and Agreed to: LONE STAR STEEL COMPANY
/s/ Robert F. Spears By /s/ R.W. Arp
- ---------------------- ------------------------
Robert F. Spears R.W. Arp
Secretary Treasurer
T&N LONE STAR WAREHOUSE CO.
/s/ Robert F. Spears By /s/ R.W. Arp
- ---------------------- ------------------------
Robert F. Spears R.W. Arp
Secretary Treasurer
LONE STAR LOGISTICS, INC.
/s/ Robert F. Spears By /s/ R.W. Arp
- ---------------------- ------------------------
Robert F. Spears R.W. Arp
Secretary Treasurer
67
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Executed and Accepted at
New York, New York
THE CIT GROUP/BUSINESS
CREDIT, INC., AS AGENT AND LENDER
By:
----------------------------
Title:
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SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT, made and entered into this 12th day of March,
1999, by and between LONE STAR TECHNOLOGIES, INC. ("Subordinating Creditor")
with a principal place of business at 14681 Midway Road, Suite 200, Dallas, TX
75244 and THE CIT GROUP/BUSINESS CREDIT, INC., as agent for the Lenders ("the
Agent") with a place of business at Two Lincoln Centre, 5420 LBJ Freeway, Suite
200, Dallas, TX 74240. Capitalized terms not otherwise defined herein shall
have the meaning ascribed thereto in the Financing Agreement (as defined below).
WITNESSETH:
WHEREAS, Lone Star Steel Company,(herein, the "Company") has executed and
delivered to Subordinating Creditor certain loan and security agreements and its
promissory note, dated, on or about March 12, 1999 in the principal amount of
$25,000,000, (collectively, the "Subordinated Note");
WHEREAS, the Subordinating Creditor in is the Parent of the Company;
WHEREAS, the Company (and certain of its affiliates) desires to borrow
certain sums from the Agent and the Lenders pursuant to a Financing Agreement
("Financing Agreement") and they have executed certain Promissory Notes to
evidence the indebtedness due from the Company and said affiliates (herein the
"Guarantors"), or any one of them, to the Agent and/or the Lenders, including
the Term Loan Promissory note in the amount of $10,000,000 (collectively, the
"the Agent Note");
WHEREAS, the extension of credit by the Agent and the Lenders to the
Company will benefit the Subordinating Creditor;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Subordinating Creditor hereby agrees with the Agent as
follows:
1. SUBORDINATION. The Subordinating Creditor hereby subordinates and defers
the payment (including without limitation in any Insolvency Proceeding) of any
and all amounts which may be now or hereafter owing by the Company or the
Guarantors to the Subordinating Creditor pursuant to the Subordinated Note
and/or any other guarantees, agreements and promissory notes now or hereafter
executed and delivered by the Company and/or the Guarantors to the Subordinating
Creditor in
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payment of or as evidence of amounts now or hereafter owing by the
Company and/or the Guarantors, to the Subordinating Creditor arising pursuant to
or in connection with said Subordinated Note (the "Subordinated Debt") to the
prior payment in cash and satisfaction in full of any and all Senior Debt which
may be now or hereafter owing to the Agent and/or the Lenders by Company and/or
the Guarantors. "Senior Debt", as used herein, shall mean all Obligations (as
defined in the Financing Agreement), including, without limitation, any and all
now existing and future indebtedness, obligations or liabilities of the Company
and/or its consolidated subsidiaries and/or the Guarantors to the Agent and/or
the Lenders, whether direct or indirect, absolute or contingent, secured or
unsecured, arising under the Financing Agreement or the Agent Note or any
guaranty executed by Company and/or the Guarantors in favor of the Agent and/or
the Lenders, as now written or as amended or supplemented hereafter, or by
operation of law or otherwise, including any and all expenses (including
reasonable attorneys' fees) incurred in connection therewith and any interest
thereon, including, without limitation, any post petition interest accruing on
such Senior Debt after Company (and/or the Guarantors, as applicable), becomes
subject to an Insolvency Proceeding (whether or not such interest is
enforceable against the Company (and/or the Guarantors, as applicable) or
recoverable against the Company, or its bankruptcy estates). Senior Debt shall
also include all indebtedness, obligations and liabilities of the Company and/or
the Guarantors (i) arising in connection with any and all advances and
accommodations made to the Company and/or its consolidated subsidiaries, or any
one of them, as a debtor-in-possession, or a trustee for the Company under any
Insolvency Proceeding and (ii) to repay any amount previously paid by Company
(and/or its consolidated subsidiaries and/or the Guarantors, as applicable),
pursuant to the Financing Agreement which amounts have been returned to the
(Company and/or the Guarantors, as applicable) or to a trustee pursuant to
sections 547 or 548 of the Bankruptcy Code.
"Insolvency Proceeding" shall mean (i) any insolvency or bankruptcy case or
proceeding or any receivership, liquidation, reorganization, readjustment,
composition or other similar case or proceeding relating to the Company (or to
the extent applicable, its consolidated subsidiaries) or its assets, (ii) any
liquidation, dissolution, reorganization or winding up of Company (and/or the
Guarantors, as applicable), whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy proceedings or (iii) any assignment for the
benefit of creditors or any other marshalling of any of the Company's (and/or
the Guarantors, as applicable) assets.
2. REPRESENTATIONS AND WARRANTIES. The Subordinating Creditor hereby
warrants and represents:
2.1 That the Company owes to the Subordinating Creditor, as of the date
hereof, the Subordinated Debt; that the Subordinated Debt is not subject to
any
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defense, offset or counterclaim; that the Subordinating Creditor is the
exclusive owner of the Subordinated Debt; that there are, and will be, no
guarantees or collateral or security for said Subordinated Debt, except as
set forth in the Intercreditor Agreement of even date herewith; and that
neither the Subordinated Debt nor any collateral or guarantees (if any)
therefor is subject to any lien, security interest, guarantees, subordination
or assignment except the subordination in favor of the Agent.
2.2 That until such time as this Subordination Agreement is terminated as
herein below provided, except as otherwise specifically permitted in this
Subordination Agreement, the Subordinating Creditor will not, directly or
indirectly, demand or receive payment of; exchange, forgive, or modify; request
or obtain collateral or security or guarantees for, except as set forth in the
Intercreditor Agreement of even date herewith; effect a subordination or
transfer to others of; grant any security interest in or lien on; or assert, or
participate in, or bring any sort of action, suit or proceeding (including
without limitation bankruptcy or insolvency proceedings) either at law or in
equity for the enforcement, collection or realization on: the whole or any part
of, the Subordinated Debt.
3. INDUCEMENT. This Subordination Agreement is executed as an
inducement to the Agent and the Lenders to make loans or advances to the
Company, or otherwise to extend credit or financial accommodations to the
Company, and to enter into and continue a financing arrangement with the
Company and is executed in consideration of the Agent's and the Lenders doing
or having done any of the foregoing. The Subordinating Creditor agrees that
any of the foregoing shall be done or extended by the Agent and/or the
Lenders in their sole discretion and shall be deemed to have been done or
extended by the Agent and the Lenders in consideration of and in reliance
upon the execution of this Subordination Agreement, but that nothing herein
shall obligate the Agent and/or the Lenders to do any of the foregoing.
4. TERMINATION. This Subordination Agreement may be terminated only
upon payment and satisfaction in cash in full of all Senior Debt and
termination of the Financing Agreement and the Agent's and the Lenders
obligation to make loans, advances and/or extensions of credit thereunder
provided, however, that upon termination of this Subordination Agreement, the
Subordinating Creditor, shall remain bound hereunder, and this Subordination
Agreement shall continue in full force and effect with respect to any and all
Senior Debt created or arising prior to the effective date of such
termination and with respect to any and all extensions, renewals, or
modifications or reinstatement of said pre-existing Senior Debt. This is a
continuing agreement and the above means shall be the only means of
termination, notwithstanding the fact that for certain periods of time there
may be no Senior Debt owing to the Agent and/or the Lenders by the Company
(or the Guarantors).
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5. RIGHTS IN INSOLVENCY PROCEEDINGS. The Subordinating Creditor
irrevocably authorizes and empowers the Agent in any Insolvency Proceeding
involving or relating to the Subordinated Debt to: file a proof of claim in
behalf of the Subordinating Creditor with respect to the Subordinated Debt, ONLY
IF the Subordinating Creditor fails to file proof of its claims prior to 30 days
before the expiration of the time period during which such claims must be
submitted; and to accept and receive any payment or distribution which may be
payable or deliverable at any time upon or in respect of the Subordinated Debt
in an amount not in excess of the Senior Debt then outstanding and to take such
other action as may be reasonably necessary to effectuate the foregoing. The
Subordinating Creditor shall provide to the Agent all information and documents
necessary to present claims or seek enforcement as aforesaid. The Subordinating
Creditor agrees that while it shall retain the right to vote its claims and
otherwise act in any such Insolvency Proceeding relative to the Company
(including, without limitation, the right to vote to accept or reject any plan
of partial or complete liquidation, reorganization, arrangement, composition, or
extension), the Subordinating Creditor shall not take any action or vote in any
way so as to contest (i) the validity or the enforceability of the Financing
Agreement, the Loan Documents, the Agent Note, or the liens and security
interests to the extent granted to the Agent and/or the Lenders with respect to
the Senior Debt, (ii) the rights and duties of the Agent and/or the Lenders
established in the Financing Agreement or any security documents with respect to
such liens and security interests, or (iii) the validity or enforceability of
this Subordination Agreement or any agreement or instrument to the extent
evidencing or relating to the Senior Debt. The Agent agrees that while it shall
retain the right to vote its Senior Debt and otherwise act in any such
reorganization proceeding relative to the Company (or the Guarantors)
(including, without limitation, the right to vote or accept or reject any plan
of partial or complete liquidation, reorganization arrangement, composition or
extension), the Agent shall not take any action or vote in any way so as to
contest the enforceability of this Subordination Agreement, the Subordinated
Note or any other agreement or instrument to the extent evidencing or relating
to Subordinated Debt.
6. NO LIABILITY; OVERPAYMENT. The Agent and/or the Lenders shall in no
event be liable for any failure to prove the Subordinated Debt; for failure to
exercise any rights with respect thereto; or for failure to collect any sums
payable thereon or for failure to take any affirmative action in connection
therewith. If any dividends or payments received by the Agent on the
Subordinated Debt, when added to the dividends received directly by the Agent on
the Senior Debt, shall exceed the total Senior Debt, the Agent agrees to pay the
excess to the Subordinating Creditor.
7. ARRANGEMENTS WITH THE COMPANY. It is agreed that the Agent may enter
into any agreement or arrangements with respect to the Financing Agreement, the
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Loan Documents, and/or the Agent Note, and any amendments, thereto, with the
Company and/or the Guarantors, as the Agent and/or the Lenders may deem proper;
extend the time for payment of and/or renew any or all Senior Debt; surrender
any security, collateral or guarantees underlying all or any of such Senior
Debt, and make any settlements and compromises thereof; all without notice to or
consent from the Subordinating Creditor and without in any way impairing or
affecting this Subordination Agreement thereby.
8. PAYMENTS TO THE SUBORDINATING CREDITOR. (a) Subject to the provisions
of subparagraph (b) hereof, should any payment with respect to the Subordinated
Debt be received by the Subordinating Creditor in any form and from any source
whatsoever, including, without limitation, any payment or distribution of
collateral security (if any) or the proceeds of any such collateral security,
prior to the satisfaction in cash in full of all of the Senior Debt, the
Subordinating Creditor shall immediately deliver to the Agent on behalf of the
Lenders any monies, securities or other property received by it, or its
equivalent in cash, with proper endorsements or assignments, if necessary; and
pending such delivery the Subordinating Creditor shall hold such monies,
securities or other property as trustee for the account of the Agent and the
Lenders; and
(b) Notwithstanding anything to the contrary stated herein, the Company may
make payments of (i) interest when due, strictly in accordance with the terms
and provisions of the Subordinated Note as in effect on the date hereof, and
(ii) principal as set for the in the Subordinated Note to the Subordinating
Creditor under and strictly in accordance with the Subordinated Note as in
effect on the date hereof, all without prepayment or acceleration of the
Subordinated Debt, and the Subordinating Creditor may demand, receive and
retain said payments unless the Agent has notified the Subordinating Creditor in
writing that an Event of Default has occurred under the Financing Agreement (a
"Suspension Notice"); PROVIDED FURTHER THAT: (x) interest payments hereunder on
the Subordinated Debt cannot exceed one quarter of one percent (0.25%) below the
applicable Chase Revolving Loan Rate paid by the Company to the Agent and the
Lenders (pursuant to paragraph 8.1 of the Financing Agreement), and (y)
principal on the Subordinated Debt may be repaid provided hereunder the
following conditions have been satisfied:
a) Two years after the Closing Date of the Financing Agreement have
elapsed;
b) At the time of each repayment, and based upon a trailing twelve
months of financial information, the Company and its subsidiaries
(on a consolidated basis) must have achieved a Fixed Charge
Coverage Ratio (on a consolidated basis) of at least 1.25 x 1.0
(defined as EBITDA / (Taxes + Interest + CAPEX + Principal
Amortization, as set forth in the
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Financing Agreement, and if not otherwise defined therein, in
accordance with GAAP consistently applied);
c) After any repayment of the Senior Subordinated Debt, there will be
at least $20,000,000 of Availability under the Revolving Line of
Credit; and
d) At the time of each repayment, the outstanding amount of the Term Loan
(under the Financing Agreement) cannot exceed $5,000,000. (with
respect to the foregoing, all as defined and set forth in the
Financing Agreement.)
Upon receipt of a Suspension Notice, and at all times thereafter during the
applicable Suspension Period (as defined herein), (i) the Subordinating Creditor
may not take, demand, receive or accelerate any payment of the Subordinated Debt
and the Company shall not give, make or permit any such payment and (ii) the
Subordinating Creditor shall not assert, participate in or bring any sort of
action, suit or proceeding (including without limitation any Insolvency
Proceeding) either at law or in equity for the enforcement, collection or
realization of all, or any part of, the Subordinated Debt (herein "Commence
Legal Action"). In the event the Required Lenders shall waive the Event of
Default in writing, the Agent shall so notify the Subordinating Creditor and the
Company in writing and the suspended payments may resume. Such resumed payments
shall be subject to all of the terms and provisions of this Subordination
Agreement. Upon the expiration of an applicable Suspension Period, unless (A)
the Agent has prior to such expiration given a notice of acceleration to the
Company with respect to the Senior Debt and is pursuing remedies against the
Company or the Collateral (as defined in the Financing Agreement), or (B) the
Company has paid to the Subordinating Creditor all installments of principal and
interest that would have been due (without acceleration) during such Suspension
Period, the Subordinating Creditor may Commence Legal Action with respect to any
missed payments (absent acceleration). However, notwithstanding the foregoing,
should any Insolvency Proceeding occur at any time, the Subordinated Debt shall
be subordinated to the prior payment of all Senior Debt in accordance with
paragraph 1 hereof, and the aforesaid provisions of subparagraph (a) of this
paragraph.
(c) "Suspension Period" shall mean a period commencing on the date of the
occurrence of, a Default pursuant to paragraph 10.1(a), (b) or (c) of the
Financing Agreement or an Event of Default under the Financing Agreement through
the date that any and all such outstanding Events of Default are waived by the
Required Lenders (as defined in the Financing Agreement) or the Event of Default
is cured to the Agent's satisfaction. With respect to Suspension Notice(s), it
is hereby understood and agreed that:
(i) there shall be no limit of the number of Suspension Notices which
the Agent may give;
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(ii) the Agent shall not be entitled to give a Suspension Notices based
on an Event of Default which has been waived by the Required Lenders
under the Financing Agreement; and
(iii) nothing contained herein shall prohibit the Agent from giving
successive Suspension Notices based upon an Event of Default under the
Financing Agreement or a continuing Event of Default which was not the
basis for any prior Suspension Notice.
9. ACCELERATION RIGHTS AND REMEDIES
(a) The Subordinating Creditor shall have no right to accelerate the
Subordinated Debt or Commence Legal Action to enforce collection of all, or any
part of, the Subordinated Debt, except that the Subordinating Creditor may
accelerate and Commence Legal Action in the event that:
(i) the Company commence or has commenced against it an Insolvency
Proceeding, provided that any such involuntary Insolvency Proceeding which
is commenced against the Company is not dismissed or discharged within
60 days after commencement thereof; or
(ii) the Agent accelerates the Senior Debt, provided that upon any waiver
or recession of such acceleration by the Required Lenders (or the Agent, as
applicable) the Subordinating Creditor shall likewise rescind its
acceleration of the Subordinated Debt;
PROVIDED, HOWEVER that any amount received by the Subordinating Creditor as
a result of any acceleration permitted above, prior to payment in cash in full
of the Senior Debt, shall be held in trust and paid to the Agent in accordance
with the provisions of this Subordination Agreement.
(b) The Subordinating Creditor shall have no right to Commence Legal
Action for enforcement or collection of all, or any part of, the Subordinated
Debt, except that, in the event (i) the Company defaults in payment of any
installment of interest or principal due the Subordinating Creditor under the
Subordinated Note and permitted by the terms of this Subordination Agreement,
(ii) the Subordinating Creditor notifies the Agent of such default in payment
and (iii) the Agent does not send a Suspension Notice to the Subordinating
Creditor within 30 days after the Agent's receipt of such notice from the
Subordinating Creditor, the Subordinating Creditor may Commence Legal Action to
enforce collection of the defaulted installment (without any acceleration of the
Subordinated Debt), provided, however, that the Subordinating
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Creditor may not participate in the commencement of any involuntary
Insolvency Proceeding against Company.
10. ACTION AGAINST. If the Subordinating Creditor in violation of this
Subordination Agreement shall assert or bring any action, suit or proceeding
against the Company (and/or any Guarantor), the Company may interpose as a
defense or dilatory plea the making of this Subordination Agreement, and the
Agent is hereby irrevocably authorized to intervene and to interpose such
defense or plea in its name or in Company's name. If the Subordinating Creditor
shall attempt to enforce, collect or realize upon any Subordinated Debt or, any
collateral, security or guarantees (if any), securing the Subordinated Debt in
violation of this Subordination Agreement, the Company may, by virtue of this
Subordination Agreement, restrain any such enforcement, collection or
realization, or upon failure to do so, the Agent may restrain any such
enforcement, collection or realization, either in their own name or in the name
of any of the Company (and/or any Guarantor).
11. ENDORSEMENT OF NOTE; OTHER DOCUMENTS. The Subordinating Creditor
agrees to mark the Subordinated Note evidencing the Subordinated Debt with a
notation in substantially the following form:
"This Note is subject to the terms and provisions of a Subordination
Agreement dated March 12, 1999 executed by the Payee in favor of The CIT
Group/Business Credit, Inc., as Agent", and to deliver proof of such notation to
the Agent.
12. MODIFICATIONS TO THE SUBORDINATED NOTE. Without obtaining the prior
written consent of the Agent, the Subordinated Note shall not be amended for (i)
any increase in the rate of interest charged thereunder (ii) any increase in the
principal amount of the Subordinated Note or any installment due thereunder,
(iii) any change of the maturity date of any payment for principal or interest
which would have the effect of accelerating payment thereof, (iv) amendment of
the form or method of payment, (v) the granting or obtaining of any additional
collateral security or obtaining any lien in any additional collateral, (vi)
providing for any additional financial covenants or events of default or making
more restrictive any existing covenants or events of default applicable to the
Company, or (vii) any other amendment which would have a material adverse effect
on the operations of the Company (and/or any Guarantor), the Agent's security
interest in the Collateral or the Agent's and/or the Lenders Senior Debt.
13. NO IMPAIRMENT OF COMPANY'S OBLIGATION. Subject to all of the Agent's
rights as expressly provided in this Subordination Agreement, nothing contained
in this Subordination Agreement shall impair, as between the Company and the
Subordinating Creditor, the obligation of the Company, which is unconditional
and absolute, to pay the Subordinated Debt to the Subordinating Creditor as and
when
-8-
<PAGE>
all or any portion thereof shall become due and payable in accordance with
its terms or prevent the Subordinating Creditor, upon any default under the
Subordinated Debt, from exercising all rights, powers and remedies otherwise
provided therein or by applicable law.
14. SUBROGATION. Until such time as all Senior Debt is paid in cash in
full and this Subordination Agreement is terminated as herein provided, the
Subordinating Creditor shall not assert or be entitled to any subrogation
rights. Subject to the prior sentence, if any payment or distribution to which
the Subordinating Creditor would otherwise have been entitled (but for the
provisions of this Subordination Agreement) shall have been turned over to the
Agent or otherwise applied to the payment of the Senior Debt pursuant to the
provisions of this Subordination Agreement, then the Subordinating Creditor
shall be entitled to receive from the Agent any payments or distributions
received by the Agent in excess of the amount sufficient to pay all Senior Debt
in full, and upon such payment in full of the Senior Debt shall be subrogated
(without any representation by, or any recourse whatsoever to the Agent and/or
the Lenders) to all rights of the Agent and the Lenders to receive all further
payments or distributions applicable to the Senior Debt until the Subordinated
Debt shall have been paid in full. For purposes of the Subordinating Creditor's
subrogation rights hereunder, payments to the Agent with respect to the Senior
Debt which the Subordinating Creditor would have been entitled to receive with
respect to the Subordinated Debt but for the provisions of this Subordination
Agreement shall not, as between any of the Company (and/or any Guarantor), its
creditors (other than the Agent and the Lenders) and the Subordinating Creditor,
be deemed payments with respect to the Senior Debt. The Agent and the Lenders
make absolutely no representation or warranty whatsoever in connection with such
rights or Senior Debt, including without limitation any representation or
warranty as to the enforceability of the Financing Agreement, the Senior Debt,
or any lien upon Collateral therefor, or the collectibility of said Senior Debt.
15. ENTIRE AGREEMENT. This Subordination Agreement embodies the whole
agreement of the parties and may not be modified except in writing. The Agent's
and/or the Lender's failure to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other rights at
any other time and from time to time thereafter, and such rights shall be
considered as cumulative rather than alternative. No knowledge of any breach or
other non-observance by the Subordinating Creditor of the terms and provisions
of this Subordination Agreement shall constitute a waiver thereof, nor a waiver
of any obligations to be performed by the Subordinating Creditor hereunder.
16. WAIVER OF NOTICE. The Subordinating Creditor hereby waives any and
all demands, presentments or notices (other than notices specifically provided
for in this Subordination Agreement) to which it might otherwise be entitled
(including, without
-9-
<PAGE>
limitation, any and all notice of the creation or accrual of any Senior
Debt; of any extension, modification, or renewal of any of said Senior Debt,
and of the Agent's and the Lender's reliance on this Subordination Agreement).
17. NOTICES All notices and other communications hereunder shall be in
writing or by overnight mail or telecopy, and shall be deemed to have been duly
made when delivered in person or sent by telecopy, same day or overnight
carrier, or when deposited in the United States first class or registered or
certified mail return receipt requested, postage prepaid. Notices shall be sent:
If to the Subordinating Creditor:
Lone Star Technologies, Inc.
14681 Midway Road, Suite 200
Dallas, TX 75244
Attention: Richard W. Arp
Fax# (972) 770-6413
If to the Company:
Lone Star Steel Company
14681 Midway Road, Suite 200
Dallas Texas 75244
Attention: Richard W. Arp
Fax# (972) 770-6413
If to the Agent:
The CIT Group/Business Credit, Inc., As Agent
Two Lincoln Centre, 5420 LBJ Freeway
Dallas, TX 74240
Attention: Regional Manager
Fax# (972) 455-1690
18. GENERAL PROVISIONS. When used in this Subordination Agreement all
pronouns shall, wherever applicable, be deemed to include the plural as well as
the masculine and feminine gender and any reference to "the Agent" shall mean
the Agent and/or the Lenders, as applicable. This Subordination Agreement:
shall inure to the benefit of the Agent and the Lenders, their successors and
assigns and any parent, subsidiary or affiliate of the Agent and the Lenders;
shall be binding upon the respective successors and assigns of the Subordinating
Creditor; and shall pertain to the Company and its respective successors and
assigns. This Subordination Agreement may be executed, in the original or by
telecopy, and in any number of
-10-
<PAGE>
counterparts, each of which when so executed shall be deemed an original, and
such counterparts shall together constitute but one and the same document.
19. CHOICE OF LAW. THIS SUBORDINATION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Subordination Agreement effective as of the date above set forth.
LONE STAR TECHNOLOGIES, INC.
By /s/ Rhys J. Best
------------------------------------
Title: President
THE CIT GROUP/BUSINESS CREDIT, INC.,
AS AGENT
By /s/ Neal Legan
-------------------------------------
Title: Vice President
-11-
<PAGE>
The undersigned, the Company (and the Guarantors) referred to in the
foregoing Subordination Agreement, hereby agrees to comply with all of the terms
and provisions of said Subordination Agreement in all respects. It shall
constitute an Event of Default under the Financing Agreement referenced above if
there shall occur a breach by the Company, any Guarantor, or the Subordinating
Creditor in the performance of any of the terms of the said Subordination
Agreement. The Company (and the Guarantors) hereby covenants that it will not
(except as otherwise provided in the Subordination Agreement) make any payment
on account of, recognize any forgiveness, assignment or transfer of additional
security for the Subordinated Debt while said Subordination Agreement is in
effect or until the Agent's and the Lender's Senior Debt has been satisfied in
cash in full and said Subordination Agreement is terminated as herein provided.
The Guarantors hereby confirm their understanding and agreement with the
foregoing.
READ AND AGREED TO:
LONE STAR STEEL COMPANY
By /s/ R.W. Arp
-------------------------------
Title: Treasurer
CONFIRMED:
T & N LONE STAR WAREHOUSE CO.
By /s/ R.W. Arp
-------------------------------
Title: Treasurer
LONE STAR LOGISTICS, INC.
By /s/ R.W. Arp
-------------------------------
Title: Treasurer
TEXAS & NORTHERN RAILWAY COMPANY
By /s/ R.W. Arp
-------------------------------
Title: Treasurer
-12-
<PAGE>
INTERCREDITOR AGREEMENT, dated March 12, 1999 by and among The CIT
Group/Business Credit, Inc., as agent for the Lenders ("herein, the Agent"),
Lone Star Technologies, Inc. (the "Senior Subordinated Lender"), and Lone Star
Steel Company, (herein"Company"). Capitalized terms herein which are otherwise
defined herein shall have the meaning applicable thereto in the CIT Financing
Agreement.
W I T N E S S E T H:
WHEREAS, the Company and certain of the Guarantors (as defined below) have
entered or is about to enter into a certain Financing Agreement and any and all
loan, guaranties and security agreements with the Agent and/or the Lenders party
thereto from time to time and as may be amended from time to time (the "CIT
Financing Agreement") pursuant to which the Agent and the Lenders have made, or
will make certain loans, advances and extensions of credit to or for the benefit
of the Company, upon the security of the Collateral (as defined therein and
herein) including without limitation the Company's and the Guarantors' Accounts,
Inventory, Equipment, Documents of Title, General Intangibles, and Subsidiary
Stock all as more fully set forth in said the CIT Financing Agreement; and
WHEREAS, Senior Subordinated Lender is the parent of the Company, and the
Company has entered into a certain promissory note and security agreement with
the Senior Subordinated Lender, each dated March 12, 1999 (collectively, the
"Senior Subordinated Lender Financing Agreement") pursuant to which Senior
Subordinated Lender has made certain loans, advances or extensions of credit to
the Company upon a junior security interest in the Collateral (as defined
herein) of the Company, all as more fully set forth in said Senior Subordinated
Lender Financing Agreement; and
WHEREAS, Senior Subordinated Lender wishes to subordinate its lien on all
Collateral to the Agent and the Lenders as herein provided.
NOW, THEREFORE, in consideration of each of the parties hereto entering
into the above referred to agreements and arrangements with the Companyand in
order to determine the relative priorities of the respective security interests
in the Collateral and the application of the proceeds thereof, it is hereby
agreed as follows:
-1-
<PAGE>
1. DEFINITIONS. As used in this Intercreditor Agreement, the following
terms shall have the following meanings, unless the context otherwise requires:
"ACCOUNTS" shall mean all present and future accounts, receivables,
instruments, documents, contract rights, chattel paper, general intangibles,
unpaid seller's rights, returned and repossessed goods, all rights to the goods
represented by the foregoing and all cash and non-cash Proceeds thereof.
"AGENT OBLIGATIONS" shall mean any and every Obligation of the Company to
the Agent and/or the Lenders (as defined in the CIT Financing Agreement) and any
and all, indebtedness and liabilities arising out of or in any way connected
with the CIT Financing Agreement or any post-petition financing, including
without limitation under section 364 of the Bankruptcy Code or any arrangement
for the use of cash collateral under section 363 of the Bankruptcy Code.
"COLLATERAL" shall mean all present and future Accounts, Inventory,
Equipment, Documents of Title, General Intangibles and Subsidiary Stock of the
Company and the Guarantors and all cash and non-cash Proceeds thereof.
"DOCUMENTS OF TITLE" shall mean all present and future warehouse receipts,
bills of lading, shipping documents, chattel paper, instruments and similar
documents, all whether negotiable or not and all goods and Inventory relating
thereto and all cash and non-cash Proceeds of the foregoing.
"EQUIPMENT" shall mean all present and hereafter acquired machinery,
equipment, furnishings and fixtures, and all additions, substitutions and
replacements thereof, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto and all cash and non-cash Proceeds thereof.
"GENERAL INTANGIBLES" shall have the meaning set forth in the Uniform
Commercial Code as in effect in the State of Texas and shall include, without
limitation, all present and future right, title and interest in and to all
tradenames, Trademarks (together with the good will associated therewith),
Patents, licenses, customer lists, distribution agreements, supply agreements
and tax refunds, together with all monies and claims for monies now or hereafter
due and payable in connection with any of the foregoing or otherwise, and all
cash and non-cash Proceeds thereof.
"GUARANTIES" shall mean the separate instruments of guaranty executed by
the Guarantors in favor of the Agent and/or Senior Subordinated Lender.
-2-
<PAGE>
"GUARANTORS" shall mean T & N Lone Star Warehouse Co., Lone Star Logistics,
Inc. and Texas & Northern Railway Company and the Company.
"INVENTORY" shall mean all present and hereafter acquired merchandise,
inventory and goods, and all additions, substitutions and replacements thereof,
wherever located, together with all goods and materials used or usable in
manufacturing, processing, packaging or shipping same; in all stages of
production - from raw materials through work-in-process to finished goods - and
all cash and non-cash Proceeds thereof.
"SENIOR SUBORDINATED LENDER OBLIGATIONS" shall mean any and every
obligation, indebtedness and liability of the Company and/or the Guarantors to
Senior Subordinated Lender arising under, and as set forth in, the Senior
Subordinated Lender Financing Agreement.
"OBLIGATIONS" shall mean the Agent Obligations and the Senior Subordinated
Lender Obligations.
"PATENTS" shall mean all present and hereafter acquired patents and/or
patents rights and all cash and non-cash Proceeds thereof.
"PROCEEDS" shall mean all proceeds as defined in the Uniform Commercial
Code of the State of Texas as well as all cash, securities, insurance proceeds,
condemnation awards and other property received in respect of any Collateral,
including any cash, securities or other property received from any liquidations
or adjustment of debt of the Company or any Guarantor, and any portion of the
Collateral or the proceeds thereof which may be distributed in kind.
"REAL ESTATE" shall mean all fee and/or leasehold interests in the real
property.
"SECURED PARTIES" shall mean the Agent,the Lenders and Senior Subordinated
Lender.
"SUBSIDIARY STOCK" shall mean all present and future stock issued by any
present or future subsidiary of the Company and/or the Guarantors and all cash
and non-cash Proceeds thereof.
"TRADEMARKS" shall mean all present and hereafter acquired trademarks
and/or trademark rights together with the good will associated therewith and all
cash and non-cash Proceeds thereof.
-3-
<PAGE>
2. PRIORITIES. Irrespective of any statement contained in any of the CIT
Financing Agreement or the Senior Subordinated Lender Financing Agreement or the
Guaranties to the contrary and irrespective of the time, order or method of
attachment or perfection of the security interests granted thereby or the time
or order of filing or recording of financing statements or other liens,
mortgages or security interests, and irrespective or anything contained in any
filing or agreement to which either the Agent or Senior Subordinated Lender may
now or hereafter be a party, any lien upon or security interest which Senior
Subordinated Lender may now or hereafter have in any Collateral, including
without limitation all Accounts, Inventory, Equipment, Documents of Title,
General Intangibles and/or Subsidiary Stock of the Company and/or the Guarantors
shall be, and hereby is subject and subordinate to the Agent's lien upon or
security interest in such Collateral.
3. EXERCISE OF RIGHTS AND REMEDIES. Irrespective of any other agreement or
arrangement, as to such Collateral of the Company, and/or the Guarantors and so
long as the CIT Financing Agreement remains in effect, the Agent and the Lenders
shall have the exclusive right to carry out the provisions of the CIT Financing
Agreement and to enforce and collect any loans, advances, or the Agent
Obligations secured thereby and to exercise and enforce all rights and
privileges accruing to the Agent by reason of said the CIT Financing Agreement
and any other agreements, security, guarantees or claims given to the Agent in
connection therewith, all in the Agent's sole discretion and in the exercise of
its sole business judgment. This includes more specifically, without
limitation, the rights: to make overadvances in its sole discretion, to effect
collection of all open Accounts and to settle and adjust the amounts due thereon
directly with the customers, to sell or otherwise dispose of Inventory, all in a
manner which the Agent deems to be necessary in its sole discretion, and to
incur expenses in relation to the foregoing; all as may be necessary in the
Agent's sole discretion, and all as more fully provided in the CIT Financing
Agreement and to exercise all the rights and remedies of a secured lender under
the Uniform Commercial Code of the State of Texas. In exercising its rights as
aforesaid, the Agent agrees that, except as the Agent and the Required Lenders
may otherwise agree from time to time in their sole discretion, it shall handle
all transactions relating to the Collateral in accordance with its usual
practices in the ordinary course of its business and shall adhere to the same
standards of conduct as would be the case if there were no subordinate liens.
Senior Subordinated Lender agrees that, so long as the Company, or any one of
them, and/or the Guarantors may be indebted or obligated to the Agent and/or the
Lenders in any manner whatsoever under the CIT Financing Agreement or otherwise,
Senior Subordinated Lender shall not seek to foreclose on its junior security
interest in or exercise any rights or assert any claims with respect to any
Collateral, including without limitation all Accounts, Inventory, Equipment,
Documents of Title, General Intangibles and/or Subsidiary Stock of the Company
and/or the Guarantors, nor shall Senior Subordinated Lender take any
-4-
<PAGE>
action, nor institute any proceedings with respect thereto or the Real
Estate, except as may be reasonably necessary to protect its junior lien
thereon in accordance with the terms hereof (for example - filing of a proof
of claim).
4. OTHER AGREEMENTS
(a) RELEASES. (i) If the Agent and/or the Lenders releases any of its or
their liens on any part of the Collateral in connection with the sale, lease,
exchange, transfer or other disposition thereof or in connection with any
refinancing or restructuring of the indebtedness of the Company, or any
Guarantor, the liens of the Senior Subordinated Lender shall be automatically,
unconditionally and simultaneously released, to the maximum extent permitted by
law, and Senior Subordinated Lender shall execute and deliver to the Agent or
the Company or the Guarantors such termination statements, releases and other
documents as the Agent or the Company or the Guarantor may request to
effectively confirm such release and to comply with the intent hereof.
Notwithstanding the foregoing, the lien granted to the Senior Subordinated
Lender shall, subject to all of the provisions of this Intercreditor Agreement,
continue in the proceeds of any sale, lease, exchange or other disposition of
the such Collateral if such proceeds are not applied to the Agent Obligations in
accordance with the CIT Financing Agreement or otherwise disbursed in accordance
with such the CIT Financing Agreement.
(ii) The Senior Subordinated Lender hereby waives any and all rights it may
have to object to the manner in which the Agent and/or the Lenders may seek to
enforce or collect the Agent Obligations or the liens granted in any of the
Collateral including waiving any right based on any duty to conduct any such
sale, lease, exchange, transfer or other disposition in a commercially
reasonable manner.
(iii) In furtherance of the foregoing, the Senior Subordinated Lender will
execute and deliver to the Agent undated UCC termination and/or release
statements in respect of all or any part of the Collateral in such number and
such jurisdictions as determined by the Agent. The Senior Subordinated Lender
hereby irrevocably appoints the Agent its attorney-in-fact and authorizes the
Agent solely to complete the UCC termination statements and file them in order
to carry out the purposes of this Intercreditor Agreement in the event that
Senior Subordinating Lender fails to provide any requested statements within ten
(10) business days of any written request therefor. This appointment and
authorization is coupled with an interest and is irrevocable.
(b) INSURANCE. Unless and until the Agent Obligations are paid in full
and the CIT Financing Agreement terminated, the Agent shall have the sole and
exclusive right, subject to the specific rights of the Company and Guarantors
under the CIT
-5-
<PAGE>
Financing Agreement to adjust settlement for any insurance policy covering
the Collateral in the event of any loss thereunder and to approve any award
granted in any condemnation or similar proceeding affecting the Collateral.
Unless and until the Agent Obligations are paid in full, all proceeds of any
such policy and any such award shall be paid to the Agent on behalf of the
Lenders and applied in accordance with the provisions of the CIT Financing
Agreement. In the event the Agent allows any portion of such insurance
proceeds or condemnation or similar award to be used by the Company or the
Guarantors to repair or replace the Collateral affected or for any other
purpose, the Senior Subordinated Lender hereby consents thereto.
(c) PROHIBITION ON CONTESTING LIENS AND THE AGENT OBLIGATIONS; NO NEW
LIENS. The Senior Subordinated Lender agrees that it shall not (and hereby
waives any right to) contest or support any other person in contesting, in any
action or proceeding or otherwise (including, without limitation, any federal or
state bankruptcy, insolvency or liquidation proceeding), the priority, the
validity or enforceability of the Agent Obligations or any lien held by the
Agent and/or the Lenders. Without the prior written consent of the Agent, the
Senior Subordinated Lender shall not request, obtain or hold any lien on any
assets of the Company or the Guarantors, other than liens granted pursuant to
the Senior Subordinated Lender Financing Agreement as in effect on the date
hereof in the Collateral or as otherwise may be agreed to from time to time in
writing by the Agent.
(d) FINANCING ISSUES. If the Company or any Guarantor shall be subject to
any federal or state bankruptcy, insolvency or liquidation proceeding and the
Agent shall desire to permit the use of cash Collateral or to permit any of the
Company or any Guarantor to obtain financing under section 363 or section 364 of
the Bankruptcy Code, then the Senior Subordinated Lender agrees that it will
raise no objection to such use or financing and will not request adequate
protection or any other relief in connection therewith and, to the extent
necessary, will subordinate its liens in the Collateral to any such financing.
(e) ADEQUATE PROTECTION. The Senior Subordinated Lender shall not seek or
request adequate protection (absent the prior written consent of the Agent), nor
shall it contest (or support any other person contesting) (i) any request by the
Agent for adequate protection or (ii) any objection by the Agent to any motion,
relief, action or proceeding based on the Agent claiming a lack of adequate
protection.
(f) AUTOMATIC STAY. The Senior Subordinated Lender shall not seek relief
from the automatic stay or any other stay in any federal or state bankruptcy,
insolvency or liquidation proceeding in respect of the Collateral (absent the
prior written consent of the Agent).
-6-
<PAGE>
5. FURTHER ASSURANCES. the Agent and Senior Subordinated Lender each agree
to execute any further documents or amendments as may be necessary to effect the
purpose of this Intercreditor Agreement on any applicable public records.
6. APPLICATION OF PROCEEDS .
(a) COLLATERAL. The Proceeds of any sale, disposition or other realization
upon all or any part of the Collateral, including without limitations all
Accounts, Inventory, Equipment, Documents of Title, General Intangibles and
Subsidiary Stock of the Company and/or the Guarantors shall be applied in the
following order of priorities:
FIRST, to the payment in full of the Agent's and the Lenders' expenses of
such sale, disposition or other realization, including all expenses, liabilities
and advances incurred or made by the Agent and/or the Lenders in connection
therewith, including attorneys' fees;
SECOND, to the payment in full in cash of any and all the Agent
Obligations;
THIRD, to the payment in full of Senior Subordinated Lender's expenses of
such sale, disposition or other realization, including all expenses, liabilities
and advances incurred or made by Senior Subordinated Lender in connection
therewith, including attorneys' fees;
FOURTH, to the payment in full in cash of all Senior Subordinated Lender
Obligations;
FINALLY, to pay to the Company, or the Guarantors, or their respective
representatives or as a court of competent jurisdiction may direct, any surplus
then remaining from such Proceeds.
(b) GUARANTIES. The Proceeds of the Guaranties including without
limitation those representing Proceeds of Collateral (whether received by the
Agent or the Senior Subordinated Lender) shall be applied first to the Agent
Obligations until paid in cash in full and then to the Senior Subordinated
Lender Obligations.
7. NOTICES. Each Secured Party agrees to use its best efforts to notify
the other Secured Party within a reasonable time in the event of any material
event of default or material breach by any of the Company resulting, or which
may result, in acceleration of any Obligation due to the Secured Party giving
notice and secured by any Collateral. Each Secured Party further agrees to use
its best efforts to furnish the other Secured Party with copies of any notices
of default, acceleration, demand or
-7-
<PAGE>
foreclosure as the Secured Party giving the notice may send to any of the
Company and/or the Guarantors, provided that failure to give any of the
foregoing notices shall not (i) affect the priorities of the liens upon the
Collateral set forth herein or (ii) result in any liability whatsoever to the
other party.
8. NO REPRESENTATIONS. The Secured Parties have not made to each other
nor do they hereby or otherwise make to each other any warranties, express or
implied, nor do they assume any liability to each other with respect to: (a)
obligors under any instruments of guarantees; (b) the enforceability, validity,
value or collectibility of: the loans made to the Company, the Accounts, the
Inventory, Equipment, Documents of Title, General Intangibles, Subsidiary Stock,
or any guarantee or security which may have been granted to any of them in
connection with any of their agreements; or (c) title or right to transfer any
Collateral or security. Senior Subordinated Lender expressly acknowledges that
the Agent may, in its sole discretion, make loans, advances and extensions of
credit to the Company or the Guarantors, or any one of them, in excess of the
amounts otherwise available to the them based upon the advance formulas set
forth in the CIT Financing Agreement. No party shall be liable to the other for
any action or failure to act or any error of judgment, negligence, or mistake,
or oversight whatsoever on the part of any party or any party's agents,
officers, employees or attorneys with respect to any transaction relating to the
agreements or security or guarantees therefor, provided said party has acted in
good faith and has not been guilty of willful misconduct.
9. WAIVERS. The Senior Subordinated Lender agrees not to assert and
hereby waives any rights to demand, request, plead or otherwise assert or
claim the benefit of, any marshalling or other similar right that may
otherwise be available under applicable law. In addition, notwithstanding
any interest which Senior Subordinating Lender may now or hereafter have in
any Real Estate which the Company or any Guarantor may occupy or on which
collateral may be placed or stored, Senior Subordinated Lender agrees that:
(a) it will not hinder or delay the Agent in enforcing its rights and
remedies with respect to the Inventory and Equipment of any of the Company
and/or the Guarantors; (b) such Inventory and Equipment may be repossessed or
removed by the Agent at any time and from time to time; (c) the Agent may go
on the Real Estate for such purposes at any time and from time to time and
Senior Subordinated Lender will provide access accordingly; and (d) said
Inventory and Equipment is, and will remain personal property at all times
hereafter notwithstanding any provision or language to the contrary in any
mortgage or security agreement between Senior Subordinated Lender and the
Company or the Guarantors.
10. MISCELLANEOUS Except as otherwise provided in this Intercreditor
Agreement, the rights and priorities of the parties shall be determined in
accordance with applicable law. This Intercreditor Agreement shall be governed
by the Laws of
-8-
<PAGE>
the State of New York and, except as otherwise defined in this Intercreditor
Agreement, all terms used herein which are defined in the Uniform Commercial
Code shall have the meanings therein stated. This Intercreditor Agreement is
solely for the benefit of the parties hereto and their respective successors
and assigns, and no other person, firm, entity or corporation shall have any
right, benefit, priority or, interest under, or because of the existence of,
this Intercreditor Agreement. The Company and the Guarantors although not
parties hereto have signed below to confirm their agreement to all of the
foregoing.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Intercreditor
Agreement to be duly executed by their proper and duly authorized officers as of
the day and year first above written.
LONE STAR TECHNOLOGIES, INC.
(the "Senior Subordinated Lender")
By /s/ Rhys J. Best
-------------------------------
Title: President
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Agent
By /s/ Neal Legan
-------------------------------
Title: Vice President
CONFIRMED:
LONE STAR STEEL COMPANY
(the "Company")
By /s/ R.W. Arp
-------------------------------
Title: Treasurer
T & N LONE STAR WAREHOUSE CO.
By /s/ R.W. Arp
-------------------------------
Title: Treasurer
LONE STAR LOGISTICS, INC.
By /s/ R.W. Arp
-------------------------------
Title: Treasurer
TEXAS & NORTHERN RAILWAY COMPANY
By /s/ R.W. Arp
-------------------------------
Title: Treasurer
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 23
<SECURITIES> 8
<RECEIVABLES> 35
<ALLOWANCES> 1
<INVENTORY> 74
<CURRENT-ASSETS> 137
<PP&E> 323
<DEPRECIATION> 168
<TOTAL-ASSETS> 315
<CURRENT-LIABILITIES> 40
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 160
<TOTAL-LIABILITY-AND-EQUITY> 315
<SALES> 64
<TOTAL-REVENUES> 64
<CGS> 66
<TOTAL-COSTS> 67
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (7)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
