UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended JULY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-5276
PROLER INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter.)
Delaware 74-0494529
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4265 San Felipe, Suite 900 77027
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: [713] 627-3737
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] NO [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
stock, as of September 13, 1996:
COMMON 4,717,356
(Title of Class) (Number of Shares Outstanding)
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Condensed Consolidated Balance Sheet at July 31, 1996 and
January 31, 1996 .................................................... 1
Condensed Consolidated Statement of Operations for the
three and six months ended July 31, 1996 and 1995 ................... 2
Condensed Consolidated Statement of Cash Flows for the
six months ended July 31, 1996 and 1995 ............................. 3
Notes to Condensed Consolidated Financial Statements ................ 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 10
PART II. OTHER INFORMATION ......................................... 16
SIGNATURE PAGE ...................................................... 17
<PAGE>
PART I
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
ASSETS JULY 31, JANUARY 31,
1996 1996
-------- --------
Current assets:
Cash and cash equivalents .................... $ 263 $ 1,161
Accounts receivable, net ..................... 2,148 2,118
Inventories .................................. 2,703 2,776
Maintenance parts ............................ 608 669
Prepaid expenses ............................. 264 510
-------- --------
Total current assets .................... 5,986 7,234
Investments in joint operations, at equity ...... 53,642 39,359
Property, plant and equipment, net .............. 6,273 15,845
Other assets .................................... 4,281 4,334
-------- --------
Total assets .......................... $ 70,182 $ 66,772
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings ................... $ 25,900 $ --
Accounts payable ............................. 4,672 1,956
Accrued liabilities .......................... 2,905 1,776
-------- --------
Total current liabilities ............... 33,477 3,732
Long-term bank borrowings ....................... -- 9,700
Other liabilities ............................... 3,817 3,876
Contingencies
Stockholders' equity:
Common stock ................................. 5,351 5,351
Capital in excess of par value ............... 192 192
Retained earnings ............................ 33,402 49,978
-------- --------
38,945 55,521
Less treasury stock, at cost ................. (6,057) (6,057)
-------- --------
Total stockholders' equity .............. 32,888 49,464
-------- --------
Total liabilities and stockholders'
equity ............................. $ 70,182 $ 66,772
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
--------------------------- ---------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .............................................. $ 3,557 $ 2,939 $ 7,166 $ 6,464
Cost of sales .......................................... 4,240 3,061 8,004 6,404
-------- -------- -------- --------
Gross profit (loss) ................................. (683) (122) (838) 60
Earnings (loss) from joint operations .................. (60) 2,308 (303) 4,061
Selling, general and administrative
expense .............................................. (1,539) (1,219) (3,113) (2,429)
Research and development expense ....................... (299) (264) (601) (517)
Asset write-downs and other charges .................... (10,708) -- (10,708) --
-------- -------- -------- --------
Operating income (loss) ............................. (13,289) 703 (15,563) 1,175
-------- -------- -------- --------
Gain on sale of assets, net ............................ -- 318 -- 318
-------- -------- -------- --------
Other income (expense):
Interest income ..................................... 83 15 175 63
Interest expense .................................... (692) (109) (956) (159)
Other, net .......................................... (29) (179) (147) (113)
-------- -------- -------- --------
(638) (273) (928) (209)
-------- -------- -------- --------
Income (loss) before income taxes ...................... (13,927) 748 (16,491) 1,284
Provision for income taxes ............................. 18 93 69 155
-------- -------- -------- --------
Net income (loss) ...................................... $(13,945) $ 655 $(16,560) $ 1,129
======== ======== ======== ========
Weighted average shares outstanding .................... 4,717 4,714 4,717 4,714
======== ======== ======== ========
Net income (loss) per share ............................ $ (2.96) $ .14 $ (3.51) $ .24
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS
ENDED JULY 31,
--------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net income (loss) .................................... $(16,560) $ 1,129
Adjustments to reconcile net income (loss) to cash:
Depreciation ...................................... 797 457
Gain on sale of assets ............................ -- (318)
Asset write-downs and other charges ............... 9,260 --
(Earnings) loss from joint operations ............. 303 (4,061)
Advances to joint operations, net of
distributions and income taxes ................. (12,272) (2,345)
Other ............................................. -- (144)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable .......... (30) 135
(Increase) decrease in inventories and
maintenance parts .............................. 134 (807)
Decrease in prepaid expenses ........................ 246 127
Decrease in other assets ............................ 53 556
Increase (decrease) in accounts payable ............. 402 (484)
Increase in accrued liabilities ..................... 1,129 101
Decrease in other liabilities ....................... (59) (132)
-------- --------
Net cash used in operating activities ................ (16,597) (5,786)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment ........... (485) (5,074)
Proceeds from asset sales ............................ -- 1,030
-------- --------
Net cash used in investing activities ................ (485) (4,044)
-------- --------
Cash flows from financing activities:
Net bank borrowings .................................. 16,200 6,500
Redemption of preferred stock purchase rights ........ (16) --
-------- --------
Net cash provided by financing activities ............ 16,184 6,500
-------- --------
Net decrease in cash and cash equivalents .............. (898) (3,330)
Cash and cash equivalents, beginning of period ......... 1,161 3,829
-------- --------
Cash and cash equivalents, end of period ............... $ 263 $ 499
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Proler
International Corp. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal, recurring adjustments considered necessary for a fair presentation, have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended January 31, 1996, included
in the Company's 1996 Annual Report on Form 10-K filed pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. The results for the three and six
months periods included herein are not necessarily indicative of the results of
operations for the entire year.
NOTE 2: INVENTORIES
The Company's inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method. As of July 31, 1996 and January 31, 1996
inventories were comprised of the following:
JULY 31, 1996 JANUARY 31, 1996
------------- ----------------
(In Thousands)
Processed scrap........................ $ 895 $ 742
Unprocessed scrap and other............ 1,808 2,034
--------- --------
$ 2,703 $ 2,776
========= ========
NOTE 3: COMBINED JOINT OPERATIONS
A condensed summary of the financial position of the combined joint
operations (100% basis) is as follows:
JULY 31, 1996 JANUARY 31, 1996
------------- ----------------
(In Thousands)
Current assets ................................. $ 88,717 $ 82,121
Property and other assets, net ................. 34,963 33,265
-------- --------
$123,680 $115,386
======== ========
Current liabilities ............................ $ 11,841 $ 12,480
Other liabilities .............................. 3,997 2,739
Stockholders' and partners' equity ............. 107,842 100,167
-------- --------
$123,680 $115,386
======== ========
4
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Two of the 50%-owned joint operations account for inventories using the
last-in, first-out (LIFO) method while the other joint operations follow FIFO.
Such LIFO inventories are carried at $54.4 million and $42.7 million at July 31,
1996 and January 31, 1996 and the excess of replacement cost over the LIFO value
at both of those dates was approximately $24.3 million. The determination of
inventory under the LIFO method can be made only at the end of the year when
ending quantities and costs are known. As of July 31, 1996, approximately $1.5
million of LIFO income, net to the Company's interest, generated by these two
joint operations has been deferred since management cannot currently estimate
their year-end inventory quantities and costs with certainty.
The Company's investment in the joint operations and its percentage interest
in their assets and liabilities as of July 31, 1996 and January 31, 1996 are set
forth below:
JULY 31, 1996 JANUARY 31, 1996
------------- ----------------
(In Thousands)
Current assets............................... $ 40,701 $ 37,762
Property and other assets, net............... 15,593 14,825
Liabilities.................................. (7,174) (7,127)
Adjustment to conform reporting periods...... 4,522 (6,101)
--------- ---------
Net investment............................... $ 53,642 $ 39,359
========= =========
A summary of the results of operations of the combined joint operations is as
follows (in thousands):
Combined 100% Basis:
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
------------------------ -------------------------
1996 1995 1996 1995
---------- --------- --------- ---------
Net sales.............. $ 78,237 $ 93,536 $ 165,799 $ 172,164
========== ========= ========= =========
Gross profit........... $ 1,616 $ 5,500 $ 2,554 $ 11,566
========== ========= ========= =========
Earnings (loss)........ $ (823) $ 4,369 $ (1,771) $ 8,514
========== ========= ========= =========
Company Percentage Interest:
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
------------------------ -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Net sales.............. $ 36,230 $ 43,888 $ 77,090 $ 80,191
========= ========= ========= =========
Gross profit........... $ 1,082 $ 2,561 $ 1,711 $ 5,213
========= ========= ========= =========
Earnings (loss)........ $ (60) $ 2,308 $ (303) $ 4,061
========= ========= ========= =========
5
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In general, the Company's unincorporated joint operations are structured so
that the participants advance and withdraw funds equally, and policy decisions
require the unanimous consent of the participants. The Company makes advances to
the joint operations, primarily for the purchase of inventory and for operating
costs, and receives periodic distributions from the joint operations, primarily
from the sales proceeds of export shipments. During the period from February 1,
1996 through July 10, 1996, the Company's advances to joint operations exceeded
distributions by $12.3 million. From July 11, 1996 through September 13, 1996,
the Company did not make advances to the joint operations on the basis of its
liquidity position and management's belief that inventory levels were excessive.
During that period a proportion of advances made to the joint operations equal
to the Company's interest was paid by one of the other joint venture partners,
and the Company's share of distributions otherwise receivable were retained by
the same partner. The Company's proportion of net advances made to the joint
ventures from July 11, 1996, through July 31, 1996, totalled $2.3 million and
have been included in the accompanying financial statements as an accounts
payable. As of September 13, 1996, distributions receivable by the Company
exceeded the Company's proportion of advances made by approximately $3.6 million
and a distribution in that amount was made to the Company.
NOTE 4: ASSET SALES
In July, 1995, the Company sold a 65 acre tract of real estate in Houston to
an unrelated third party for $5.23 million. The consideration included $1.03
million in cash and a $4.2 million promissory note bearing interest at a bank's
prime rate. The note is payable in 66 monthly installments with the first six
payments of interest only, the next 59 payments of $61,000 of principal and
interest and a final payment of the remaining balance in January, 2001 (which
payment would approximate $2.0 million at current interest rates). The gain on
sale of $1.6 million is being accounted for using the installment method of
accounting and, accordingly, an initial $0.3 million gain on sale was recorded
during the quarter ended July 31, 1995 and $1.3 million of the gain was
deferred. The note receivable, net of the deferred gain, is included in other
assets in the accompanying balance sheet.
NOTE 5: ASSET WRITE-DOWNS AND OTHER CHARGES
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. In August, 1996, management concluded that the operational and
other problems currently experienced at its new Coolidge plant resulted in the
cost of the plant exceeding the revised estimate of future undiscounted cash
flows. Based on this conclusion, the carrying value of the plant was reduced to
its estimated fair value based on revised future discounted cash flows. As a
result, the Company recognized a charge of approximately $9.3 million related to
the plant's carrying cost during the quarter ended July 31, 1996.
The Company also recorded a charge to operations of approximately $1.4
million in the second quarter of fiscal 1997 for the accrual of costs associated
with the termination of its development of industrial waste processing and
recovery technologies conducted through its indirect wholly-owned subsidiary,
Proler Environmental Services, Inc. ("PESI"). The Company has concluded that the
capital requirements
6
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
for the continued development of this technology exceeds the Company's financial
capability and has deferred all discretionary expenditures on this project. The
suspension of research and development activities attributable to this operation
is expected to be completed by October 31, 1996. Research and development
expenses of PESI for the three and six months ended July 31, 1996 and 1995, were
$266,000 and $215,000, and $535,000 and $442,000, respectively. The PESI
operation had no revenues for these same periods.
NOTE 6: INCOME TAXES
The provision for income taxes for the three and six months ended July 31,
1996 and 1995 is for the Company's share of income taxes attributable to its
corporate joint operations. For the three and six months ended July 31, 1995,
the provision for federal income taxes otherwise payable by the Company was
eliminated by the utilization of net operating loss carryforwards.
NOTE 7: BANK CREDIT FACILITIES
In September, 1996, the Company amended its credit facilities to provide for
a $28 million revolving line of credit and a $5.7 million letter of credit
facility to maintain and renew existing letters of credit. The agreement is
collateralized by substantially all of the Company's assets, including its
rights to cash distributions from certain joint operations. As of July 31, 1996,
$25.9 million in borrowings were outstanding on the revolving line of credit and
$5.7 million of letters of credit were outstanding.
The $28 million line of credit terminates on January 31, 1997, and the $5.7
million letter of credit facility terminates on October 31, 1997. Amounts
available under the line of credit are computed in accordance with a borrowing
base formula and are generally limited by values assigned to accounts receivable
and inventory. A commitment fee of 1/4 percent per annum is charged on the $33.7
million commitment of the bank. Borrowings under the revolving line of credit
bear interest at either the bank's prime rate plus one percent or a
Eurodollar-based rate, at the Company's option.
Under the terms of the credit agreement, the Company must maintain, among
other things, a minimum net worth, a specified ratio of current assets to
current liabilities and specified levels of earnings before interest, taxes,
depreciation and amortization as computed in accordance with the agreements. In
addition, the Company is limited as to incurring additional indebtedness,
limited to incurring capital expenditures in excess of certain amounts, and
prohibited from paying cash dividends.
The joint operations have recently experienced lower prices and demand from
foreign steel mills and higher levels of inventory purchases, resulting in the
accumulation of excess inventories and increased financing requirements by the
Company. As of September 13, 1996, outstanding bank borrowings totalled $21.8
million, down from a high on June 10, 1996 of $28 million.
7
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8: CONTINGENCIES
Certain materials resulting from the Company's operations must be handled
consistent with federal and state environmental laws and regulations. Compliance
with such laws and regulations were an area of concern to the Company as
questions were being raised as to whether automobile shredder residue, ("ASR" or
"fluff") contains excessive concentrations of certain heavy metals,
polychlorinated biphenyls ("PCBs") and other contaminants. A 1988 United States
Environmental Protection Agency ("EPA") study released in 1990 concerning
potential contamination in ASR indicated that the potential risk depends on the
constituent make up of the fluff and the management practices at the sites where
the fluff is generated. Pending further study, the EPA recognized that shredding
operations that are well managed and conducted in an environmentally sound
manner provide valuable environmental benefits. The Company has successfully
implemented source control programs to identify and to reduce the sources of
lead and certain other heavy metals in ASR. To date, tests of ASR generated by
the Company and its joint operations indicate that levels of PCBs, lead,
cadmium, and other contaminants are generally within acceptable levels under EPA
and state procedures. The Company continues to evaluate additional methods of
further reducing contaminants in ASR. As with any business that produces
significant amounts of industrial wastes, the Company could face substantial
additional costs if past or present disposal practices would no longer be deemed
acceptable by Federal or state regulatory agencies, although it does not
currently expect this result. The Company could also be required to clean-up
sites now or formerly used in its operations.
As reported earlier, the EPA contacted MRI Corporation, an indirect
wholly-owned subsidiary of the Company, in August 1989 regarding testing for
possible contamination at a site in Tampa, Florida previously operated by MRI.
The EPA took split soil and groundwater samples from the site for analysis. The
Company learned that in late 1990, an EPA consultant issued a report
recommending that further consideration be given to possibly ranking this site
using the EPA's hazardous ranking package. Based on that recommendation, the EPA
took additional samples at the site in 1992. The EPA visited the site in April,
1996 to observe site conditions. In June, 1996 MRI received a General Notice
Letter and Request for Information from the EPA advising MRI that it may be a
responsible party with respect to any required clean-up at the site and
requesting certain information about the site. On June 17, 1996 the EPA proposed
listing the property as a Superfund site. The EPA has informed MRI verbally that
MRI will receive a letter to participate with other potentially responsible
parties in an appropriate response. The financial effect of the EPA action on
the Company is uncertain at this time but could be material depending on the
ultimate outcome of the EPA's ongoing assessment of the property and any
remedial action required. Because the EPA's assessment of the property is
ongoing and no remedy has been proposed, the Company is unable at this time to
estimate a range of loss, if any, resulting from this matter, and no estimate
has been included for it in the financial statements.
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the Company,
and the City of Los Angeles finalized a renewal of HNP's lease at its Terminal
Island location. The new lease provides for a thirty year term commencing August
30, 1994, the expiration date of the original lease. The lease has been executed
by HNP and approved by the City of Los Angeles subject to the expiration on
September 21, 1996 of the comment period on the Environmental Impact Report
issued in connection with the lease. In December, 1992, HNP signed a Memorandum
of Understanding with the Port of Los Angeles related to the lease renewal and
in fiscal 1994 and 1995 provided letters of credit totaling $9.78
8
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
million ($4.89 million each from the Company and HNP's other owner) to secure
HNP's remediation obligations under the original lease. In connection with the
lease renewal, HNP will be responsible for remediating certain environmental
conditions on the property caused by HNP, the extent and cost of which are
uncertain. Currently, HNP estimates that it will incur capital expenditures of a
minimum of $4.0 million to $5.0 million in connection with environmental control
facilities at the Terminal Island location over the next three to four years.
HNP has also accrued approximately $0.9 million to cover the costs of
anticipated remediation at this site.
On April 17, 1996, a Los Angeles Grand Jury subpoena was issued by the
Antitrust Division of the United States Department of Justice ("DOJ") requiring
the production of certain documents and information principally concerning the
purchase and pricing of scrap metal by HNP and others in the Southern California
market. HNP is cooperating with the DOJ, and HNP and its joint venture partners
have responded to the subpoena. One HNP employee has testified before the grand
jury and the Company expects that others may be called. The ongoing
investigation appears to be in its preliminary stage.
The Company is engaged in ongoing proceedings and communications with
regulatory authorities concerning environmental matters, and ongoing litigation
regarding non-environmental matters. An adverse outcome in these legal
proceedings, or any significant additional expenditures that may be required in
order for the Company or its joint operations to operate in accordance with
environmental laws and regulations, or to clean up sites now or formerly used by
them, could affect the Company's financial position.
NOTE 9: PER SHARE INFORMATION
Per share calculations are based on the average number of common shares
outstanding during the period. The per share calculations do not include the
common equivalent shares attributable to the assumed exercise of outstanding
stock options since the effect was not significant for the periods presented.
NOTE 10: SUBSEQUENT EVENT
On September 15, 1996, the Company and Schnitzer Steel Industries, Inc.
entered into a definitive agreement for the acquisition of the Company by
Schnitzer through a cash tender offer and cash merger. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
9
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The statements contained in this report, in addition to historical
information, are forward looking statements based on the Company's current
expectations, and actual results may vary materially. The Company's business and
financial results are subject to various risks and uncertainties, including the
cyclical nature of the scrap processing business, the fact that the Company
exercises limited control over its joint operations, competitive factors such as
the availability and cost of raw scrap for inventory, fluctuations in sales
prices and demand for the products of the Company and the joint operations, the
ability to reduce excess inventories at the joint operations, the Company's
ability to correct operational problems at its Coolidge facility as projected,
the resolution of environmental issues including the MRI Tampa site and the
other risks and uncertainties discussed herein and in the Company's Annual
Report on Form 10-K. These forward looking statements are provided as a
framework for the Company's discussion of its business and management's analysis
of the Company's financial condition and results of operations. The Company does
not intend to provide updated information other than in the context of its
Quarterly Reports on Form 10-Q.
GENERAL
The Company is primarily engaged, through its subsidiaries and its joint
operations, in buying, processing, recycling and selling ferrous and other scrap
metals. While the Company sells products from its consolidated operations
primarily to domestic markets, the joint operations primarily export scrap to
foreign markets. The Company's and its joint operations' current business is
characterized by cyclical fluctuations in profitability depending upon the
availability and price of raw scrap and the demand and prices for processed
scrap by the domestic and foreign iron and steel industries and the non-ferrous
metals industries.
In general, the Company's unincorporated joint operations are structured so
that the participants advance and withdraw funds equally, and policy decisions
require the unanimous consent of the participants. The Company makes advances to
the joint operations, primarily for the purchase of inventory and for operating
costs, and receives periodic distributions from the joint operations, primarily
from the sales proceeds of export shipments. During the six months ended July
31, 1996, the Company's advances to joint operations exceeded distributions by
$12.3 million.
During the past four years the Company has sold its domestic scrap
operations, certain joint venture operations, real estate holdings and other
non-operating assets. With the divestitures of the domestic scrap operations,
the Company's principal scrap processing business is conducted through its joint
operations, with the Company's remaining revenues derived from the three plants
owned by Proler Recycling, Inc. ("Proler Recycling"), a wholly-owned indirect
subsidiary of the Company.
10
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
As reported earlier, the Company retained two investment firms to assist in
evaluating a broad range of strategic alternatives including sales, public or
private offerings of debt or equity securities, mergers, spin-offs, joint
ventures and acquisitions. On September 15, 1996 the Company and Schnitzer Steel
Industries, Inc. ("Schnitzer") entered into a definitive agreement for the
acquisition of Proler by Schnitzer through a cash tender offer and cash merger.
The agreement calls for Schnitzer, through a subsidiary, to commence a cash
tender offer for all of the outstanding shares of the Company within five days
of the agreement at a cash price of $7.50 per share. Upon completion of the
tender offer, the Company will become a wholly owned subsidiary of Schnitzer
through a cash merger at the same price per share. The tender offer will be
conditioned on at least a majority of the Company's outstanding shares, on a
fully diluted basis, being validly tendered and not withdrawn prior to
expiration of the offer. The expiration date of the offer will be twenty
business days following the commencement of the offer, unless the offer is
extended. The tender offer and merger are subject to expiration or termination
of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and other customary conditions. The Company filed a
Current Report on Form 8-K with respect to this transaction on September 16,
1996.
LIQUIDITY, FINANCING AND CAPITAL RESOURCES
The Company's liquidity position continues to be its principal concern. The
joint ventures have continued to experience lower sales, thereby causing a
continued build up of inventory. The result has been increasing capital
requirements at the joint ventures that have strained the Company's financial
resources.
The Company currently meets its working capital requirements from
distributions from the joint operations and borrowings under the credit facility
described below. Based on the terms of the Company's credit agreement, the $25.9
million of bank debt outstanding as of July 31, 1996 is classified as a current
liability in the Company's financial statements. As of July 31, 1996, the
Company had negative working capital of $27.5 million, as compared to $3.5
million of positive working capital reported as of January 31, 1996. Between the
same periods, the Company's share of combined working capital in the joint
ventures increased by $14.1 million, from $25.9 million to $40.0 million.
As noted above, the Company makes advances to the joint operations and
receives periodic distributions, primarily from the sales proceeds of export
shipments. The joint operations also purchase inventory to maintain sources of
supply, even in periods of lower demand and lower sales prices. Given these
factors and the cyclical nature of the scrap markets, the Company's liquidity
can be adversely affected if lower sales, coupled with continued inventory
purchases, result in accumulation of excess inventories at the joint operations.
During the period from October, 1995 through December, 1995 and again in March,
1996 and continuing to date, the joint ventures have experienced lower prices
and demand from foreign steel mills and higher levels of inventory purchases,
resulting in the accumulation of excess inventories and increased financing
requirements. Currently, approximately 38% of these inventories are subject to
outstanding sales orders. During the period from July 11, 1996 through September
13, 1996, the Company did not make advances to the joint operations on the basis
of its liquidity position and management's belief that inventory levels were
excessive. During that period a proportion of advances made to the joint
operations equal to the Company's interest was paid by one of
11
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
the other joint venture partners, and the Company's share of distributions
otherwise receivable was retained by the same partner. See Note 3 to the
financial statements.
The Company is financing its share of increased inventory purchases primarily
through increased borrowings under its bank credit facilities. The level of debt
is reduced as the proceeds of export sales are received. Due to the volume of
sales activity and inventory levels, the Company's bank debt has fluctuated in
recent months and the Company expects that its outstanding borrowings will
continue to fluctuate as current joint venture export sales orders are completed
and new sales are made and collected. As of July 31, 1996, borrowings of $25.9
million were outstanding under the revolving line of credit and $5.7 million of
letters of credit were outstanding under the letter of credit facility,
including $4.89 million issued in connection with a lease at a joint operation's
Los Angeles facility. In February, 1996, the Company paid the revolving line of
credit down to $0.7 million from the $9.7 million outstanding at January 31,
1996, primarily from distributions of sales proceeds of export shipments.
Beginning in March, 1996 and continuing to date, the Company has made
significant advances to the joint operations, primarily for inventory purchases,
and has funded operating losses from the consolidated operations. As of
September 13, 1996, outstanding borrowings on the revolving line of credit
totalled $21.8 million, down from a high on June 10, 1996 of $28 million, the
current commitment level of the revolver.
As more fully described in Note 7 to the financial statements, the Company's
credit agreement with the bank, as amended, provides for a $28 million revolving
line of credit and a $5.7 million letter of credit facility. The $28 million
line of credit terminates on January 31, 1997, and the $5.7 million letter of
credit facility terminates on October 31, 1997. The agreements are
collateralized by substantially all of the Company's assets, including its
rights to distributions from certain joint operations. The revolving line of
credit is subject to a borrowing base of eligible receivables and inventory.
Management believes that the amounts available under its credit facilities,
together with distributions from the joint operations, should be sufficient to
meet its current working capital and short-term inventory financing
requirements, provided that inventories at the joint operations can be reduced
by additional sales and/or reduced levels of inventory purchases. However, those
requirements could increase if inventory accumulations at the joint ventures
continue. The Company's ability to borrow against assets of the joint operations
may be limited by the Company's inability to grant a direct security interest in
those assets to the bank and by certain limitations on the Company's ability to
pledge its interests in the joint operations.
Contributing to the Company's liquidity problems are continued losses at
Proler Recycling's new plant in Coolidge, Arizona. The Company has completed a
reassessment of these operations and concluded that the plant could become
marginally profitable if certain continuing operational and other problems can
be resolved. However, based on current projections it is not anticipated that
the plant will reach profitability status until January, 1997.
The Company has also determined that the cost of continued development of
gasification technology by Proler Environmental Services, Inc. ("PESI") is not
within the Company's means and has deferred all discretionary expenditures on
this project. The Company is currently seeking investors, partners and/or
acquirers for the gasification project.
12
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
The Company is engaged in ongoing proceedings and communications with
regulatory authorities concerning environmental matters, and ongoing litigation
regarding non-environmental matters. An adverse outcome in these legal
proceedings, or any significant additional expenditures that may be required in
order for the Company or its joint operations to operate in accordance with
environmental laws and regulations, or to clean up sites now or formerly used by
them, could affect the Company's financial position. See Note 8 to the financial
statements.
The Company's consolidated balance sheet included elsewhere herein presents
the Company's share of the joint operations using the equity method of
accounting in accordance with generally accepted accounting principles. The
following table presents a proforma condensed combined balance sheet of the
Company assuming its proportionate share of the joint operations is combined
with the Company. Management believes this presentation is informative of the
Company's financial condition since the majority of the Company's underlying
investment in its joint operations consists of net current assets.
PROFORMA CONDENSED COMBINED BALANCE SHEET
AS OF JULY 31, 1996
PROPORTIONATE
SHARE OF COMBINED
COMPANY JOINT OPERATIONS COMPANY
------- ---------------- -------
(in thousands)
Current assets ............................ $ 5,986 $45,223 $51,209
Investments in joint operations ........... 53,642 -- --
Property and other assets, net ............ 10,554 15,593 26,147
------- ------- -------
$70,182 $60,816 $77,356
======= ======= =======
Current liabilities:
Short-term bank borrowings ................ $25,900 $ -- $25,900
Accounts payable and accrued liabilities... 7,577 5,176 12,753
------- ------- -------
33,477 5,176 38,653
Other liabilities ......................... 3,817 1,998 5,815
Stockholders' and partners' equity ........ 32,888 53,642 32,888
------- ------- -------
$70,182 $60,816 $77,356
======= ======= =======
RESULTS OF OPERATIONS
The Company's consolidated results of operations included elsewhere herein
present the Company's share of the joint operations using the equity method of
accounting in accordance with generally accepted accounting principles. The
following table presents a proforma condensed combined statement of operations
of the Company assuming its proportionate share of the joint operations is
combined with the Company. Management believes this presentation is informative
of the Company's results of operations given that a significant portion of the
Company's business is conducted through the joint operations.
13
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1996
PROPORTIONATE
SHARE OF COMBINED
COMPANY JOINT OPERATIONS COMPANY
--------- --------- ---------
(in thousands)
Net sales.......................... $ 7,166 $ 77,090 $ 84,256
Cost of sales...................... (8,004) (75,379) (83,383)
--------- --------- ---------
Gross profit (loss)........... (838) 1,711 873
Loss from joint operations......... (303) --
Selling, general and administrative
expense....................... (3113) (2,049) (5,162)
Research and development expense... (601) (601)
Asset write-downs and other charges. (10,708) (10,708)
--------- --------- ---------
Operating income (loss)........ (15,563) (15,598)
Other income (expense), net........ (928) 35 (893)
--------- ---------
Loss before income taxes........... (16,491) (16,491)
Provision for income taxes......... 69 69
--------- --------- ---------
Net loss........................... $ (16,560) $ (303) $ (16,560)
========= ========== =========
Consolidated net sales and cost of sales increased 21% and 39%,
respectively, during the quarter ended July 31, 1996 as compared to the prior
year's second quarter. Sales and cost of sales for the six months ended July 31,
1996 also had significant increases as compared to the prior period. Such
increases are primarily from the new copper recovery and specialty chemical
operations. Cost of sales exceeded the sales from these activities primarily due
to continuing operational problems. Losses attributable to these operations were
approximately $1.1 million and $1.7 million for the three and six month periods
ending July 31, 1996. Precipitation iron sales volumes declined 7% and 9% for
the three and six month periods as compared to the prior year periods; however,
gross margins increased approximately 11% and 14% for the three and six month
periods as compared to the prior year periods due mainly to lower unit
production costs resulting from the consolidation of those activities into one
location.
Joint operations results decreased from net earnings of $2.3 million and
$4.1 million in the second quarter and first half of fiscal 1996, respectively,
to losses of $0.1 million and $0.3 million for the same periods in fiscal 1997.
As reported earlier, the Company completed the sales of the joint venture
interests in HPI and HPNJ in October, 1995. The Company's share of earnings
related to the sold joint ventures were not significant in fiscal 1996.
Excluding the results from the sold joint venture interests, the following table
highlights the more significant per ton operating information for the joint
operations.
14
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
THREE MONTHS SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Sales volumes (gross tons) . 560,000 565,000 1,205,000 1,070,000
Net sales .................. $ 139 $ 149 $ 138 $ 146
Cost of sales .............. 135 139 135 135
---------- ---------- ---------- ----------
Gross profit ............... $ 4 $ 10 $ 3 $ 11
========== ========== ========== ==========
Gross profit margins declined 56% for the quarter ending July 31, 1996,
compared to the same period in 1995. The decline is primarily attributable to a
1% decrease in total sales volumes, combined with a 7% decrease in the overall
average sales price. The decrease in overall sales price is a result of a 7%
decline in the average ferrous sales price in the second quarter partially
offset by a 5% increase in the average nonferrous sales price. Gross profit
margins for the six month period ending July 31, 1996 as compared to the prior
year period were similarly lower due to reduced non-ferrous sales volumes and
lower ferrous sales prices, partially offset by increased ferrous sales volumes.
General and administrative expenses increased 26% and 28% for the three
and six months periods ended July 31, 1996 compared to the same periods in 1995
primarily due to higher personnel and marketing expenses attributable to the
Company's gasification project and the copper recovery unit, plus higher banking
charges.
Research and development expenses for the three and six months ended July
31, 1996 increased 13% and 16%, respectively, compared to the same periods in
1995 due mainly to accelerated research activities at PESI. The focus of PESI
during fiscal 1997 had been directed towards the conceptual demonstration of
gasification and vitrification of Proler's Syngas Process. In July, 1996, the
Company decided to suspend further development and is proceeding to wind down
these operations. See Note 5 to the financial statements.
As discussed more fully in Note 5 to the financial statements, the Company
recorded asset write-downs and other charges of $10.7 million in the second
quarter of fiscal 1997.
Interest income increased for the three and six months ended July 31, 1996
compared to the same periods of 1995 due to income from a note receivable from a
property sale consummated in July, 1995, partially offset by lower investable
cash balances. Interest expense increased for the three and six months ended
July 31, 1996 compared to the same periods of fiscal 1996 due to an increase in
outstanding bank borrowings.
Other expense, net (which includes real estate costs of $202,000 and
$418,000 for the three and six months ended July 31, 1996, respectively, and
costs of $198,000 and $366,000 for the comparable 1995 periods) decreased 84%
for the three months ended July 31, 1996 and increased 30% for the six months
ended July 31, 1996 compared to the same periods in 1995 primarily due to parts
and equipment sales variances between the periods.
15
PART II
OTHER INFORMATION
ITEMS 1 THROUGH 3 ARE NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Company's annual meeting of shareholders was held on July 16, 1996. At
the annual meeting, shareholders voted in favor of the election of Herman
Proler, Harvey Alter and Bruce Wilkinson as directors of the Company. The total
number of shares entitled to vote at the annual meeting was 4,717,356 of which
4,074,440 shares were present in person or by proxy.
Mr. Proler was elected as a director by a vote of 4,054,808 shares, with
19,632 shares withholding authority to vote. Dr. Alter was elected by a vote of
4,057,008 shares, with 17,432 shares withholding authority to vote. Mr.
Wilkinson was elected by a vote of 4,056,688 shares, with 17,752 shares
withholding authority to vote.
In addition to Mr. Proler, Dr. Alter and Mr. Wilkinson who were elected
at the meeting, Richard Mayor, John McKenna and Roman Boruta continued as
directors of the Company after the meeting.
ITEM 5 IS NOT APPLICABLE.
ITEM 6(A) EXHIBITS:
3 By-laws, as amended to date
10.1 Fifth Amended and Restated Credit Agreement
10.2 Description of Compensatory Arrangements
27.1 Financial Data Schedule as of July 31, 1996 and for the period then ended
ITEM 6(B) IS NOT APPLICABLE.
16
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.
PROLER INTERNATIONAL CORP.
(Registrant)
Date: SEPTEMBER 16, 1996 /s/ BRUCE W. WILKINSON
Bruce W. Wilkinson
President and Chief Executive Officer
Date: SEPTEMBER 16, 1996 /s/ MICHAEL F. LOY
Michael F. Loy
Vice President - Finance and Chief Financial
Officer (Principal Financial and Accounting
Officer)
17
EXHIBIT 3
BY-LAWS
OF
PROLER SUCCESSOR, INC.
(THE "CORPORATION")
ARTICLE I
OFFICES
Section 1.1. The principal office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 1.2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. All meetings of the stockholders for the election of
directors shall be held in the City of Houston, State of Texas, at such place as
may be fixed from time to time by the board of directors. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed wavier of notice thereof.
Section 2.2. Annual meetings of stockholders, commencing with the year
1996, shall be held on such day and at such time during the months of May or
June as may be fixed from time to time by the Board of Directors. At the annual
meetings of stockholders, they shall elect, by a plurality vote, a Board of
Directors, and transact such other business as may properly be brought before
the meeting. In the event that no date is fixed by the Board of Directors,
annual meetings of stockholders shall be held on the second Tuesday in June, if
not a legal holiday,and if a legal holiday, then on the next secular day
following, at 11:00 A.M.
Section 2.3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote thereat at least ten days before the date of the
meeting.
Section 2.4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address of and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, during ordinary business hours, for a period
of at least ten days prior to the election, either at a place within the city or
town where the election is to be held and which place shall be specified in the
notice of the meeting, or, if not specified, at the place where said
1
meeting is to be held, and the list shall be produced and kept at the time and
place of election during the whole time thereof, and subject to the inspection
of any stockholder who may be present.
Section 2.5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the chairman of the board of directors or by the
president or the board of directors and shall be called by the president or
secretary at the request in writing of any two members of the board of
directors, or at the request in writing of stockholders owning ten percent or
more in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 2.6. Written notice of a special meeting of stockholders, stating
the time, place and purpose thereof, shall be given to each stockholder entitled
to vote thereat, at least ten days before the date fixed for the meeting.
Section 2.7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 2.8. The holders of fifty percent of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 2.9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 2.10. Each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be voted
on after three years from its date, unless the proxy provides for a longer
period, and, except where the transfer books of the corporation have been closed
or a date has been fixed as a record date for the determination of its
stockholders entitled to vote, no shares of stock shall be voted on at any
election for directors which has been transferred on the books of the
corporation within twenty days next preceding such election of directors.
2
Section 2.11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provisions of the statutes or of the certificate of incorporation, the meeting
and vote of stockholders may be dispensed with, if all the stockholders who
would have been entitled to vote upon the action if such meeting were held,
shall consent in writing to such corporate action being taken.
ARTICLE III
DIRECTORS
Section 3.1. The number of directors which shall constitute the whole
Board shall be five (5), to be made up of one Class A director, two Class B
directors and two Class C directors, in accordance with the Corporation's
Certificate of Incorporation.
Section 3.2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
Section 3.3. The business of the corporation shall be managed by its board
of directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 3.5. The first meeting of each newly elected board of directors
shall be held immediately following the adjournment of the annual meeting of the
stockholders and at the same place as such meeting of the stockholders, or at
such other time and place as shall be fixed by the vote of the stockholders at
the annual meeting, and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event such meeting is not held at the time and
place herein specified or so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 3.6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
3
Section 3.7. Special meetings of the board may be called by the chairman
of the board of directors or by the president on three days' notice to each
director, either personally or by mail, or upon twenty-four hours notice by
telegram; special meetings shall be called by the chairman of the board of
directors or the president or secretary in like manner and on like notice on the
written request of any director.
Section 3.8. At all meetings of the board, a majority of the total number
of the board shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 3.9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if prior to such action a written consent thereto is signed
by all members of the board or of such committee as the case may be, and such
written consent is filed with the minutes of proceedings of the board or
committee.
COMMITTEES OF DIRECTORS
Section 3.10. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of two or more of the directors of the corporation, which, to the extent
provided in the resolution, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the board of
directors.
Section 3.11. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 3.12. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
4
ARTICLE IV
NOTICES
Section 4.1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 4.2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 5.1. The officers of the corporation shall be chosen by the board
of directors and there shall be a chairman of the board of directors, and a
president, one or more vice-presidents, a secretary and a treasurer. The board
of directors may also choose one or more assistant secretaries and assistant
treasurers and one of the Vice Presidents may be designated the Executive Vice
President. Two or more offices may be held by the same person, except that where
the offices of president and secretary are held by the same person, such person
shall not hold any other office.
Section 5.2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice-presidents, a
secretary and a treasurer.
Section 5.3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 5.4. The salaries of all officers of the corporation shall be
fixed by the board of directors.
Section 5.5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the board
of directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring in any office of the corporation
shall be filled by the board of directors.
5
CHAIRMAN OF THE BOARD
Section 5.6. The Chairman of the Board shall preside when present at all
meetings of the stockholders and the Board of Directors, and shall perform all
duties and have all powers which are commonly incident to the office of Chairman
of the Board.
THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
Section 5.7. The president shall be the chief executive officer and chief
operating officer of the Corporation and, subject to the direction of the Board
of Directors and the Chairman of the Board, shall in general supervise and
control all business and affairs of the Corporation and shall perform all duties
and have all powers which are commonly incident to the offices of chief
executive officer and chief operating officer or which are delegated to him by
the Chairman of the Board or by the Board of Directors. In the event of the
death or disability of the Chairman of the Board, the President shall perform
the duties of the Chairman of the Board, and, when so acting, shall have all the
powers of and shall be subject to all the restrictions upon the Chairman of the
Board.
Section 5.8. The president shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 5.9. The vice-president, or if there shall be more than one, the
vice-presidents in the order determined by the board of directors, shall, in the
absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 5.10. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
6
Section 5.11. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 5.12. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 5.13. The treasurer shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 5.14. If required by the board of directors the treasurer shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 5.15. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by or in the name of the corporation by the president
or a vice-president and the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation, certifying the number of
shares owned by him in the corporation.
Section 6.2. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the
7
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or destroyed.
CLOSING OF TRANSFER BOOKS
Section 6.3. The Board of Directors may close the stock transfer books of
the Corporation for a period not exceeding sixty (60) days preceding the date of
any meeting of stockholders or the date for payment of any dividend or the date
for the allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect or for a period of not exceeding
sixty (60) days in connection with obtaining the consent of stockholders for any
purpose. In lieu of closing the stock transfer books as aforesaid, the Board of
Directors may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of stockholders, or the date for the allotment of rights, or
the date when any change or conversion or exchange of capital stock shall go
into effect, or a date in connection with obtaining such consent, as a record
date for the determination of the stockholders entitled to notice of, and to
vote at, any such meeting, and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to exercise
the rights in respect of any such change, conversion or exchange of capital
stock, or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, or to give such consent, as the case may be
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 6.4. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
8
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 7.1. Dividends upon the capital stock of the corporation, subject
to any provisions of the certificate of incorporation, may be declared by the
board of directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the certificate of incorporation.
FISCAL YEAR
Section 7.2. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 7.3. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the word "Delaware". The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
INDEMNIFICATION OF DIRECTORS, OFFICER AND OTHER PERSONS
Section 7.4. To the extent permitted by law, the corporation shall
indemnify each of its directors in their capacity as directors or officers of
the corporation, and may indemnify any other person, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERS or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to be the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
9
The corporation shall indemnify each of its directors in their capacity as
directors or officers of the corporation, and may indemnify any other person,
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery of the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Any indemnification under this section (unless ordered by a court) shall
be made by the corporation only upon a determination that indemnification of the
director, officer, employee or agent is proper because he has met the applicable
standard of conduct set forth above. Such determination shall be made as
follows: by the board of directors by a majority vote of directors who are not
parties to such action, suit or proceeding, even though such directors do not
constitute a quorum; or if such a quorum is not obtainable, or even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or by the stockholders.
Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
board of directors upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as authorized in
this section. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
The indemnification and advance of expenses provided by this section shall
be a contract right and shall not be deemed exclusive of any other rights to
which those seeking indemnification or the advancement of expenses may be
entitled under the laws of the State of Delaware, under any agreement, including
any agreement to which the corporation is a party, vote of stockholders or
disinterested directors or otherwise, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person. No
amendment to or repeal of this section 7.4 shall apply to or have any effect on
the contract rights of any person under this section 7.4 for or with respect to
acts or omissions of such person occurring prior to such amendment.
10
ARTICLE VIII
AMENDMENTS
Section 8.1. These by-laws may be altered or repealed at any regular
meeting of the stockholders or of the board of directors or at any special
meeting of the stockholders or of the board of directors if notice of such
alteration or repeal be contained in the notice of such special meeting. No
change of the time or place of the meeting for the election of directors shall
be made within thirty days next before the day on which such meeting is to be
held, and in case of any change of such time or place, notice thereof shall be
given to each stockholder in person or by letter mailed to his last known post
office address at least twenty days before the meeting is held.
ARTICLE IX
BUSINESS COMBINATIONS
Section 9.1. The Company shall not be governed by the provisions of
Section 203 BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS of the Delaware
General Corporation Law.
11
Resolution adopted by the Board of Directors
March 5, 1996
RESOLVED, that Section 3.1 of Article III of the Bylaws of the Company be
amended to read hereinafter in its entirety as follows:
"Section 3.1 The number of directors which shall constitute the
whole Board shall be five (5), to be made up of two Class A directors, one
Class B director and two Class C directors, in accordance with the
Corporation's Certificate of Incorporation."
12
Resolution adopted by the Board of Directors
May 22, 1996
RESOLVED, that Section 3.1 of the By-laws of the Company is hereby
amended to read in its entirety as follows:
"Section 3.1 The number of directors which shall constitute
the whole Board shall be seven (7), consisting of three Class A
directors, two Class B directors, and two Class C directors, in
accordance with the Corporation's Certificate of Incorporation."
13
Resolution adopted by the Board of Directors
June 25, 1996
RESOLVED, that Section 5.6 and Section 5.7 of Article V of the
by-laws of the Company be, and hereby are, amended to read in their
entirety as follows:
"THE CHAIRMAN OF THE BOARD OF DIRECTORS
Section 5.6. The chairman of the board of directors shall
preside when present at all meetings of the board of directors. He
shall be available to advise and consult with the president and
other officers of the corporation on the corporation's business and
affairs, and he shall perform such other duties and exercise such
other powers as the board of directors may from time to time
prescribe.
THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
Section 5.7. The president shall be the chief executive
officer of the corporation and, subject to the direction of the
board of directors, shall in general supervise and control all
business and affairs of the corporation and shall perform all duties
and have all powers which are commonly incident to the office of
chief executive or which are delegated to him by the board of
directors. In the absence of the chairman of the board of directors
and any contrary delegation by the board of directors, he shall
preside when present at all meetings of the board of directors."
RESOLVED, FURTHER, that Section 2.1 of Article II of the bylaws of
the Company be, and hereby is, amended to add the following as the last
sentence of such Section:
"The chairman of the board of directors or the
president of the corporation shall preside at all meetings of
the stockholders."
14
EXHIBIT 10.1
FIFTH AMENDED AND RESTATED CREDIT AGREEMENT
$33,702,630.00 REVOLVING CREDIT FACILITY
$5,702,630.00 LETTER OF CREDIT (SUB-LIMIT)
AMONG
PROLER INTERNATIONAL CORP.,
AS BORROWER
AND
JOINT VENTURE OPERATIONS, INC.
PROLER INDUSTRIES, INC.
PROLER STEEL, INC.
PROLER POWER MARKETING, INC.
PROLERIDE TRANSPORT SYSTEMS, INC.,
PROLER ENVIRONMENTAL SERVICES, INC.,
PROLER INTERNATIONAL CORP.
PROLER PROPERTIES, INC.
PROLER RECYCLING, INC.,
AS GUARANTORS
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
DATED EFFECTIVE AS SEPTEMBER 13 , 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS, ACCOUNTING TERMS AND MISCELLANEOUS..............1
Section 1.01. Certain Defined Terms..................................1
Section 1.02. Accounting Terms......................................16
Section 1.03. Types of Advances.....................................17
ARTICLE II COMMITMENT AND TERMS OF CREDIT.............................17
Section 2.01. The Commitment; Existing Letters of Credit............17
Section 2.02. The Note..............................................18
Section 2.03. Making the Advances....................................18
Section 2.04. Conversions and Continuances..........................19
Section 2.05. Interest Rate and Interest Payment Dates..............19
Section 2.06. Interest Periods......................................20
Section 2.07. Interest Rate Not Ascertainable.......................21
Section 2.08. Principal Payments of Advances........................21
Section 2.09. Computations; Payments on Non-Business Days...........22
Section 2.10. Set-Off, Counterclaims and Taxes......................22
Section 2.11. The Borrower Unconditionally Liable...................22
Section 2.12. Change in Legality....................................23
Section 2.13. Reserve Requirements; Change in Circumstances.........23
Section 2.14. Eurodollar Advance Prepayment and Default Penalties..25
Section 2.15. Use of Proceeds of Advances...........................26
Section 2.16. Voluntary Prepayments.................................26
Section 2.17. Mandatory Prepayments.................................26
Section 2.18. Reduction of the Commitment...........................27
Section 2.19. Fees..................................................27
Section 2.21. Ratification..........................................29
ARTICLE III GUARANTY..................................................30
Section 3.01. Guaranty..............................................30
Section 3.02. Continuing Guaranty...................................31
Section 3.03. Effect of Debtor Relief Laws..........................32
Section 3.04. Waiver of Subrogation.................................32
Section 3.05. Subordination.........................................32
Section 3.06. Waiver................................................33
Section 3.07. Full Force and Effect.................................33
ARTICLE IV CONDITIONS PRECEDENT.......................................33
Section 4.01. Conditions Precedent to the Existing Letter of Credit.33
Section 4.02. Conditions Precedent to All Credit Events.............36
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ARTICLE V REPRESENTATIONS AND WARRANTIES..............................37
Section 5.01. Organization..........................................37
Section 5.02. Authority.............................................37
Section 5.03. No Conflict...........................................37
Section 5.04. Consents..............................................38
Section 5.05. Financial Condition...................................38
Section 5.06. Litigation; Material Adverse Effect...................38
Section 5.07. Indebtedness..........................................39
Section 5.08. No Margin Stock.......................................39
Section 5.09. Accuracy and Completeness of Information..............39
Section 5.10. ERISA.................................................39
Section 5.11. Government Regulation.................................40
Section 5.12. Property..............................................40
Section 5.13. Payment of Taxes......................................40
Section 5.14. Insurance.............................................40
Section 5.15. Subsidiaries; Joint Ventures..........................40
Section 5.16. Patents...............................................41
Section 5.17. Compliance with Statutes..............................41
Section 5.18. Labor Relations; Collective Bargaining Agreements.....42
Section 5.19. Liabilities...........................................42
Section 5.20. Solvency..............................................43
ARTICLE VI AFFIRMATIVE COVENANTS......................................43
Section 6.01. Reporting Requirements................................43
Section 6.02. Existence.............................................46
Section 6.03. Maintenance of Properties; Insurance..................46
Section 6.04. Notice of Litigation..................................47
Section 6.05. Taxes; Claims.........................................47
Section 6.06. Notice of Default.....................................47
Section 6.07. Inspections...........................................47
Section 6.08. Compliance with Laws; Notices.........................48
Section 6.09. Books and Records; Accounting Systems and Principles..49
Section 6.10. Ownership of Credit Parties...........................49
Section 6.11. Further Assurances....................................49
Section 6.12. Performance of Loan Documents.........................49
Section 6.13. Activities of Joint Venture...........................49
Section 6.14. Dividends...............................................49
ARTICLE VII NEGATIVE COVENANTS........................................49
Section 7.01. Liens.................................................50
Section 7.02. Indebtedness..........................................51
Section 7.03. Financial Covenants...................................52
Section 7.04. Consolidation, Mergers and Acquisitions; Fundamental
Changes...............................................................52
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Section 7.05. Transactions with Affiliates..........................53
Section 7.06. Use of Proceeds.......................................53
Section 7.07. Compliance with ERISA.................................53
Section 7.08. Limitation on Negative Pledge Clauses.................53
Section 7.09. Investments...........................................54
Section 7.10. Sale and Leaseback....................................54
Section 7.11. Capital Expenditures..................................54
Section 7.12. Limitation on Restrictions Affecting Subsidiaries.....55
Section 7.13. Restricted Payments...................................55
Section 7.14. Other Business........................................55
Section 7.15. Joint Venture Agreements..............................55
Section 7.16. No Transfers to Affiliates............................55
ARTICLE VIII DEFAULT AND REMEDIES.....................................55
Section 8.01. Events of Default.....................................55
Section 8.02. Set-Off in Event of Default...........................59
ARTICLE IX MISCELLANEOUS..............................................59
Section 9.01. Amendments............................................59
Section 9.02. Notices...............................................59
Section 9.03. Costs, Expenses and Taxes.............................60
Section 9.04. Binding Effect; Successors and Assigns................61
Section 9.05. Independence of Covenants.............................61
Section 9.06. Survival of Representations and Warranties............61
Section 9.07. Separability..........................................61
Section 9.08. No Waiver; Remedies...................................61
Section 9.09. Counterparts..........................................62
Section 9.10. Governing Law.........................................62
Section 9.11. Limitation on Interest................................62
Section 9.12. Indemnification.......................................63
Section 9.13. Notice and Defense of Claims..........................65
Section 9.14. Limitation by Law.....................................67
Section 9.15. Interpretation........................................67
Section 9.16. Waiver of Texas Deceptive Trade Practices Act.........68
Section 9.17. Releases..............................................68
Section 9.20. Final Agreement of the Parties........................69
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EXHIBITS AND SCHEDULES:
Exhibit 1.01-A Borrowing Base Certificate
Exhibit 1.01-B Outstanding Letters of Credit and Acceptances
Exhibit 1.01-C Consent
Exhibit 2.02 Note
Exhibit 2.03 Borrowing Request
Exhibit 5.06 Litigation
Exhibit 5.07 Indebtedness
Exhibit 5.15 Corporations and Joint Ventures
Exhibit 5.18 Collective Bargaining Agreements
Exhibit 7.01(b) Liens
Exhibit 7.09 Investments
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FIFTH AMENDED AND RESTATED CREDIT AGREEMENT
This FIFTH AMENDED AND RESTATED CREDIT AGREEMENT (this
"AGREEMENT") dated effective as of September 13, 1996, is entered into by and
among PROLER INTERNATIONAL CORP., a Delaware corporation ( the "BORROWER"),
JOINT VENTURE OPERATIONS, INC. ("JVOI"), PROLER ENVIRONMENTAL SERVICES, INC.,
PROLER INDUSTRIES, INC., PROLER POWER MARKETING, INC., PROLER RECYCLING, INC.,
PROLER STEEL, INC., PROLERIDE TRANSPORT SYSTEMS, INC., each a Delaware
corporation, PROLER PROPERTIES, INC., a Texas corporation (collectively,
together with the Borrower acting in its capacity as a guarantor hereunder, the
"GUARANTORS" and together with the Borrower collectively, the "CREDIT PARTIES"),
and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association
(the "BANK").
PRELIMINARY STATEMENT
The Credit Parties entered into that certain Second Amended and
Restated Credit Agreement dated effective as of April 26, 1996 (the "L/C
AGREEMENT"), under the terms of which the Bank agreed to issue letters of credit
for the account of the Borrower and to maintain certain issued and outstanding
letters of credit for the account of Joint Venture Operations, Inc. and that
certain Fourth Amended and Restated Credit Agreement dated effective as of
February 28, 1996 (together with the L/C Agreement, the "PRIOR CREDIT
AGREEMENTS") pursuant to which the Bank agreed to make cash advances to the
Borrower.
The Borrower has requested that the Bank extend a line of credit
up to $33,702,630.00, the proceeds of which shall be used for working capital,
to continue certain existing letters of credit and to refinance existing debt
with the Bank.
Therefore, the parties wish to amend and restate the Prior Credit
Agreements in their entirety. In consideration of the foregoing and the mutual
covenants and premises herein contained, Proler International Corp.
(individually as the Borrower and also as a Guarantor), the other Guarantors and
the Bank do hereby agree as follows:
ARTICLE I
DEFINITIONS, ACCOUNTING TERMS AND MISCELLANEOUS
Section 1.01. CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms shall have the following meanings:
"ADVANCES" is defined in SECTION 2.01(A).
<PAGE>
"AFFILIATE" means, when used with respect to any Person, any
other Person which controls or is controlled by or is under common
control with such Person. As used in this definition, "control" means
the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person (whether
through ownership of securities or partnership or ownership interests or
otherwise).
"AGREEMENT" means this Fifth Amended and Restated Credit
Agreement, as the same may from time to time be amended, supplemented,
modified or restated.
"APPLICATION" means an application, in such form as the Bank may
specify from time to time, requesting the Bank to open a letter of
credit.
"APPRAISAL" means, collectively, an appraisal of each of the
Mortgaged Properties in form and substance satisfactory to the Bank.
"ASSURANCE" means, as to any Person, all obligations, contingent
or otherwise, of such Person guaranteeing or in effect guaranteeing in
any manner, whether directly or indirectly, any Indebtedness of any
other Person (the "PRIMARY OBLIGOR") including, without limitation,
obligations of such Person, direct or indirect, (a) to purchase or pay
(or advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the
purchase of) any direct or indirect security therefor, (b) to purchase
property, securities or services for the purpose of assuring the owner
of such Indebtedness of the payment of such Indebtedness, (c) to
maintain working capital, equity capital or other financial statement
condition of the primary obligor so as to enable the primary obligor to
pay such Indebtedness or otherwise to protect the owner thereof against
loss in respect thereof; PROVIDED that such obligations are entered into
by such Person directly with the primary obligee or (d) entered into for
the purpose of assuring in any manner the owner of such Indebtedness of
the payment of such Indebtedness or to protect such owner against loss
in respect thereof; PROVIDED that the term Assurance shall not include
endorsements for collection or deposit, in either case in the ordinary
course of business.
"AUTHORIZED OFFICER" means the Chief Executive Officer, Chief
Financial Officer, Controller, Chief Operating Officer or Treasurer of
the respective Credit Party or such other officer approved by the Bank
for the task indicated.
"BANK" is defined in the introduction to this Agreement.
"BOARD" means the Board of Governors of the Federal Reserve
System of the United States.
"BOARD OF DIRECTORS" means as to any Credit Party the Board of
Directors of such Credit Party.
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"BORROWER" is defined in the introduction to this Agreement.
"BORROWING BASE" means, at any date of determination an amount
equal to the sum of (x)(a) 50% of the Market Value of all Eligible
Proler Inventory or Eligible Joint Venture Inventory consisting of
Processed Scrap, PLUS (b) $25.00 per Gross Ton of all other Eligible
Proler Inventory or Eligible Joint Venture Inventory, PLUS (c) 50% of
the Eligible Joint Venture Receivables, PLUS (d) 80% of the Eligible
Proler Receivables; PROVIDED, that the Borrowing Base calculation shall
be reduced by an additional 33% in respect of any assets of any Joint
Venture which becomes a Joint Venture in accordance with the definition
thereof after the Effective Date and the Joint Venture Agreement with
respect to which requires the consent of the venture partner for the
collateral assignment of the right to receive distributions from the
Joint Venture, unless and until a fully executed original of a consent
by the venture partner of the relevant Joint Venture substantially in
the form of EXHIBIT 1.01(C) hereto is delivered to the Bank (the
"CONSENT") and an appropriate amendment to this Agreement, the Security
Agreement, the UCC-1 financing statements and such other documents as
the Bank may reasonably request, granting to the Bank a lien and
security interest, consistent with the relevant Consent, in the right to
distributions of cash and profits by said Joint Venture of the
appropriate Credit Party is delivered to the Bank, MINUS (y) the
principal amount of Indebtedness outstanding under the Revolving Credit
Facility; PROVIDED, HOWEVER, that in determining the Borrowing Base for
Advances, the provisos in the definitions of Eligible Joint Venture
Inventory and Eligible Joint Venture Receivables shall not apply.
"BORROWING BASE CERTIFICATE" means a certificate in the form of
EXHIBIT 1.01-A hereto, duly completed and executed by an Authorized
Officer and accompanied by an accounts receivable aging schedule and a
description by type and amount of the inventory included in the
Borrowing Base, in each case in form and substance satisfactory to the
Bank.
"BORROWING BASE DEFICIENCY" means, at any time, the amount, if
any, by which (i) the aggregate principal amount of all Advances then
outstanding exceeds (ii) the Borrowing Base.
"BORROWING DATE" means, when used with respect to any Advance,
the date upon which the proceeds of such Advance are made available to
the Borrower.
"BORROWING REQUEST" is defined in SECTION 2.03.
"BUSINESS DAY" means a day of the year on which national banking
associations are not authorized or required to close in Houston, Texas.
"CAPITAL LEASE", as applied to any Person, means any lease of any
property (whether real, personal or mixed) in respect of which such
Person's obligations as lessee
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under such lease or rental agreement constitute obligations which shall
have been or should be, in accordance with GAAP, capitalized on the
balance sheet of such Person.
"CLAIM" is defined in SECTION 9.17.
"CODE" means the Internal Revenue Code of 1986, as amended, or
any successor statute.
"COMMERCIAL LETTER OF CREDIT" is defined in SECTION 2.20(A).
"COMMITMENT" means, $33,702,630.00, subject to the limitations of
the Borrowing Base and as same is reduced from time to time in
accordance with the terms hereof.
"COMMITMENT FEE" is defined in SECTION 2.19(A).
"COMMITMENT PERIOD" is defined in SECTION 2.01(A).
"COMMONLY CONTROLLED ENTITY" means, with respect to any Person,
any Person which is a member of a controlled group of corporations and
trades or businesses (whether or not incorporated) (as such term is used
in ss. 414(b) or ss. 414(c) of the Code) of which such Person is also a
member.
"COMMUNICATIONS" is defined in SECTION 9.02.
"CONSENT" is defined in the definition of Borrowing Base.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as
liabilities and including in all events all amounts expended or
capitalized under Capital Leases but excluding any amount representing
capitalized interest) by the Borrower and its Subsidiaries during such
period that are required to be included in property, plant or equipment
reflected in the consolidated balance sheet of the Borrower and its
Subsidiaries.
"CONSOLIDATED CURRENT ASSETS" means, at any time, the current
assets of the Borrower and its Subsidiaries determined on a consolidated
basis.
"CONSOLIDATED CURRENT LIABILITIES" means, at any time, the
current liabilities of the Borrower and its Subsidiaries determined on a
consolidated basis.
-4-
"CONSOLIDATED NET INCOME" means, for any period, the consolidated
net income (or loss) of the Borrower and its Subsidiaries for such
period taken as a single accounting period computed in accordance with
GAAP.
"CONSOLIDATED NET WORTH" means, at any date of determination
thereof, the consolidated net worth of the Borrower and its Subsidiaries
on the Effective Date computed in accordance with GAAP plus cumulative
Consolidated Net Income for the period (taken as one accounting period)
from the Effective Date to such date.
"CREDIT EVENT" means and includes the making of an Advance.
"CREDIT PARTIES" is defined in the introduction to this
Agreement.
"DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United
States and all other applicable state or federal dissolution,
liquidation, conservatorship, bankruptcy, moratorium, readjustment of
debt, compromise, rearrangement, receivership, insolvency,
reorganization or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally.
"DEEDS OF TRUST" means those certain Deeds of Trust and Amended
and Restated Deeds of Trust covering the Mortgaged Properties executed
by the appropriate Credit Parties dated as of the Effective Date as
amended and modified from time to time.
"DEFAULT" means an event which with the giving of notice or the
lapse of time or both could, unless cured or waived, become an Event of
Default.
"DEFAULT RATE" is defined in SECTION 2.05(E).
"EBITDA" means, for any period, the Consolidated Net Income for
such period, before non-cash asset writedowns or impairment losses not
to exceed $10,000,000 in the aggregate during the term hereof, interest
income, interest expense, depreciation, amortization and provision for
taxes and without giving effect to any extraordinary gains or gains from
sales of assets (other than sales of inventory in the ordinary course of
business).
"EFFECTIVE DATE" means the time and Business Day on which the
conditions set forth in ARTICLE IV are satisfied or waived pursuant to
SECTION 9.01.
"ELIGIBLE INVENTORY" means, with respect to any Person at the
time any determination thereof is to be made, Inventory of such Person
consisting of Processed Scrap or Unprocessed Scrap which meets each of
the following criteria at such time:
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(a) such Person shall have good title to such Inventory;
(b) the Bank shall have been granted a perfected first priority
security interest in such Inventory except for Eligible Joint Venture
Inventory, it being agreed that the Bank shall not have a security
interest therein; and
(c) such Inventory shall be within the United States or the
Virgin Islands.
"ELIGIBLE JOINT VENTURE INVENTORY" means, as to each Joint
Venture, the Eligible Inventory of such Joint Venture (excluding any
Inventory of any Joint Venture in which such Joint Venture has granted
any lien or security interest to secure Indebtedness for money borrowed)
MULTIPLIED BY the aggregate percentage that all Credit Parties own in
the equity or, if different, the right to the profits of such Joint
Venture pursuant to the applicable Joint Venture Agreement; MINUS the
difference of (x) advances made by any Person to a Joint Venture in lieu
of capital contributions required to be made by a Credit Party to such
Joint Venture less (y) any distributions from such Joint Venture owed to
any Credit Party that have been retained by such Joint Venture or the
Person making such advance, on account of such advance; PROVIDED, that
the total of all items making up a part of the Borrowing Base that
consist either of Eligible Joint Venture Inventory or Eligible Joint
Venture Receivables shall not exceed, for any Joint Venture, the maximum
amount allowed to be distributed to the Bank in the most recent Consent
executed in respect of such Joint Venture.
"ELIGIBLE JOINT VENTURE RECEIVABLES" means, as to each Joint
Venture, the Eligible Receivables of such Joint Venture (excluding any
Receivables of any Joint Venture in which such Joint Venture has granted
any lien or security interest to secure Indebtedness for money borrowed)
MULTIPLIED BY the aggregate percentage that all Credit Parties own in
the equity or, if different, the right to the profits of such Joint
Venture pursuant to the applicable Joint Venture Agreement; PROVIDED,
that the total of all items making up a part of the Borrowing Base that
consist either of Eligible Joint Venture Inventory or Eligible Joint
Venture Receivables shall not exceed, for any Joint Venture, the maximum
amount allowed to be distributed to the Bank in the most recent Consent
executed in respect of such Joint Venture.
"ELIGIBLE PROLER INVENTORY" means all of the Eligible Inventory
of the Borrower and its Subsidiaries, excluding any Joint Venture.
"ELIGIBLE PROLER RECEIVABLES" means all of the Eligible
Receivables of the Borrower and its Subsidiaries, excluding any Joint
Venture.
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"ELIGIBLE RECEIVABLE" means, with respect to any Person at the
time any determination thereof is to be made, a Receivable of such
Person which complies with each of the following criteria at such time:
(a) which remains unpaid less than 60 days from the date of
invoice thereof, it being agreed that funds due from account debtors and
collected by Hugo Neu Corporation are not deemed paid until funds are
received from Hugo Neu Corporation; provided that if any funds are
collected from an account debtor by Hugo Neu Corporation on account of
any Receivable, and the portion of such funds owed to any Credit Party
are not paid over to such Credit Party within 15 days of Hugo Neu
Corporation's receipt of such funds, such Receivable shall cease to be
an Eligible Receivable;
(b) which is due from an account debtor whose principal place of
business is located within the United States or the United States Virgin
Islands unless (i) such Receivable is backed 100% by a letter of credit
issued or confirmed by a bank having a long term debt rating of at least
BBB or better by Standard & Poor's Ratings Group or Baa or better by
Moody's Investors Service or (ii) such account debtor has previously
been approved in a writing (which approval has not been withdrawn) by
the Bank as an eligible foreign account debtor for purposes of this
Agreement;
(c) which is not due from a Subsidiary or an Affiliate of such
Person;
(d) which is payable in U. S. Dollars;
(e) which is not due from an account debtor who is insolvent or
is the subject of any proceeding under any Debtor Relief Laws;
(f) as to which the Bank has a perfected first priority security
interest except for Eligible Joint Venture Receivables, it being agreed
that the Bank shall not have a security interest therein; and
(g) as to which Receivable the account debtor shall have not
asserted a default on the part of such Person or otherwise indicated a
dispute or refusal to make payments on such Receivable.
"ENVIRONMENTAL CLAIMS" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigations (other than
internal reports prepared by the Borrower or any of its Subsidiaries
solely in the ordinary course of such Person's business and not in
response to any third party action or request of any kind) or
proceedings relating in any
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way to any Environmental Law or any permit issued, or any approval
given, under any such Environmental Law (hereafter, "APPLICABLE
CLAIMS"), including (a) any and all applicable claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable
Environmental Law and (b) any and all applicable claims by any third
party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials
arising from alleged injury or threat of injury to health, safety or the
environment.
"ENVIRONMENTAL LAWS" means any and all laws, statutes, rules,
ordinances, codes, licenses, permits, regulations, orders, approvals
authorizations, judgments, decisions or determinations of any
governmental authority pertaining to health or the environment in effect
in any and all jurisdictions in which the property of the Borrower or
any of its Subsidiaries is located, including, the Clean Air Act, 42
U.S.C. ss.ss. 7401-7626, the Comprehensive Environmental, Response,
Compensation, and Liability Act, 42 U.S.C. ss.ss. 9601-9675, the
Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 1801-1813 the
Occupational Safety and Health Act, 29 U.S.C. ss.ss. 651-678, the
Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901-6992, the
Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f-300j, the Toxic
Substances Control Act, 15 U.S.C. ss.ss. 2601-2671, the Superfund
Amendment and Reauthorization Act of 1986 and other environmental
conservation and environmental protection laws, as any of the same may
be amended from time to time.
"ENVIRONMENTAL REPORTS" means, collectively, a Phase I
environmental audit and report of each of the Mortgaged Properties in
form and substance satisfactory to the Bank.
"ERISA" means the United States Employee Retirement Income
Security Act of 1974, as amended from time to time.
"EUROCURRENCY LIABILITIES" has the meaning specified in
Regulation D in effect from time to time.
"EURODOLLAR LENDING OFFICE" means the office designated by the
Bank from time to time as its Eurodollar Lending Office.
"EURODOLLAR RATE" means, with respect to any Eurodollar Rate
Advance, the rate (rounded to the nearest 1/16 of 1%) at which dollar
deposits approximately equal in principal amount to the entire portion
of such Advance and for a maturity equal to the applicable Interest
Period are offered in immediately available funds to the Bank by prime
banks in whatever eurodollar interbank market may be selected by the
Bank in its sole and absolute discretion at the time of determination
and in accordance with the then
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usual practice in such market at approximately 10:00 a.m. (Houston,
Texas time) two Business Days prior to the commencement of such Interest
Period.
"EURODOLLAR RATE ADVANCE" means any Advance bearing interest at a
rate determined by reference to the Eurodollar Rate.
"EVENTS OF DEFAULT" is defined in SECTION 8.01.
"EXECUTION DATE" means the date of execution of this Agreement by
all of the parties hereto.
"EXCESS SALES PROCEEDS" means, for any period, (a) the sum of
100% of (i) joint venture distributions and (ii) sales of any
non-inventory or non-equipment assets (including interests in Joint
Ventures) plus (b) 80% of the cumulative sales proceeds from the sale of
equipment (including obsolete equipment) above a total of $600,000.00.
"EXISTING LETTERS OF CREDIT" means the letters of credit in the
total maximum amount of $5,702,630 heretofore issued by the Bank and
listed on EXHIBIT 1.01B hereto or any renewal or replacement of any
letter of credit listed on EXHIBIT 1.01B issued for the account of
Borrower or JVOI which expires prior to the Termination Date and
contains (i) the same drawing conditions and beneficiary and (ii) a face
amount equal to or less than, the Existing Letter of Credit that it
replaces or renews.
"EXISTING L/C OBLIGATIONS" means, at any time, an amount equal to
the sum at such time of (a) the aggregate undrawn amount of the Existing
Letters of Credit PLUS (b) the aggregate amount of drawings under
Existing Letters of Credit which have not then been reimbursed pursuant
to SECTION 2.20.
"EXTENDED TERMINATION DATE" is defined in the term "Termination
Date."
"GAAP" means generally accepted accounting principles,
consistently applied.
"GOVERNMENT SECURITIES" means readily marketable direct full
faith and credit obligations of the United States or obligations
unconditionally guaranteed by the full faith and credit of the United
States.
"GROSS TON" means a unit of weight equal to 2,240 pounds.
"GUARANTEED OBLIGATIONS" is defined in SECTION 3.01.
"GUARANTORS" is defined in the introduction to this Agreement.
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"GUARANTY" means the guaranty contained in ARTICLE III.
"HAZARDOUS MATERIALS" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, transformers or other
equipment that contain or contained electric fluid containing
polychlorinated biphenyls, and radon gas, (b) any chemicals, materials
or substances defined as or included in the definition of "hazardous
substances," "hazardous waste," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "toxic substances,"
"toxic pollutants," "contaminants," or "pollutants," or words of similar
import, under any applicable Environmental Law and (c) any other
chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority.
"HIGHEST LAWFUL RATE" means, at any date, the maximum nonusurious
interest rate that may under applicable law then be contracted for,
charged, received, taken or reserved by the Bank in connection with the
Obligations.
"INDEBTEDNESS" of any Person means, without duplication: (a) any
obligation of such Person for borrowed money, including: (i) any
obligation of such Person evidenced by bonds, debentures, notes or other
similar debt instruments, (ii) any obligation of such Person in respect
of letters of credit and (iii) any obligation for borrowed money which
is non-recourse to the credit of such Person to the extent that it is
secured by any asset of such Person, (b) all obligations of such Person
under conditional sale or other title retention agreements relating to
property purchased by such Person, (c) any obligation of such Person for
the deferred purchase price of any property or services, except accounts
payable arising in the ordinary course of such Person's business that
have been outstanding less than ninety (90) days since the date of the
related invoice or, if longer, which are, in good faith, being disputed
by the obligor, and for which appropriate reserves have been set aside,
(d) the present value at ten percent (10%) per annum of all Capital
Leases of such Person, (e) Assurances of such Person, (f) any
Indebtedness of another Person to the extent secured by a Lien on any
asset of such first Person, whether or not such Indebtedness is assumed
by such first Person and (g) any Indirect Indebtedness of such Person.
"INDEMNIFIED PERSONS" is defined in SECTION 9.12.
"INDIRECT INDEBTEDNESS" of a Person means (a) the Indebtedness of
a partnership in which such Person is a general partner and (b) the
amount of any liability of such Person created by the Indebtedness of a
joint venture in which such Person is a joint venturer.
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"INTEREST PERIOD" has the meaning specified in SECTION 2.06.
"INVENTORY" means, with respect to any Person as of the date of
any determination thereof, all "inventory" (as defined in the Uniform
Commercial Code in effect in any jurisdiction) in which such Person may
now or hereafter have an interest wherever located, and shall also mean
and include all goods, merchandise, raw materials and other materials
and supplies, work in process, finished goods and any products made or
processed therefrom and all substances, if any, commingled therewith or
added thereto, and other tangible personal property presently existing
or hereafter acquired by such Person and held for sale or lease or
furnished or to be furnished under contracts for services or used or
consumed in the business of such Person.
"INVESTMENT" means any investment so classified under GAAP made
by stock purchase, capital contribution, loan or advance or by purchase
of property or otherwise.
"JVOI" has the meaning specified in the introduction to this
Agreement.
"JVOI LETTER OF CREDIT" has the meaning specified in SECTION
2.01(E).
"JOINT VENTURE AGREEMENTS" is defined in SECTION 5.15(B).
"JOINT VENTURES" means the joint ventures and corporations in
existence on the date hereof and set forth on EXHIBIT 5.15 hereof and
each other joint venture, partnership or other similar business entity
in which the Borrower or any of its wholly-owned Subsidiaries becomes a
participant from and after the Effective Date, in each case, for so long
as any such joint venture, corporation or other business entity shall
remain in existence and the Borrower or any of its Subsidiaries has an
interest therein.
"L/C FEES" means the fees described in SECTION 2.19(B).
"LIEN" means, when used with respect to any Person, any mortgage,
lien, charge, pledge, security interest or encumbrance of any kind
(whether voluntary or involuntary, affirmative or negative, and whether
imposed or created by operation of law or otherwise) upon, or pledge of,
any of its property or assets, whether now owned or hereafter acquired,
or any conditional sale agreement, Capital Lease or other title
retention agreement.
"LOAN DOCUMENTS" means this Agreement, the Note, the
Applications, the Security Documents and all other agreements,
instruments and documents, including security agreements, notes,
warrants, guaranties, mortgages, deeds of trust, subordination
agreements, pledges, powers of attorney, consents, assignments,
collateral assignments,
-11-
letter agreements, contracts, notices, leases, amendments, financing
statements, letter of credit applications and reimbursement agreements
and all other writings heretofore, now or hereafter executed by or on
behalf of any Credit Party, any of their respective Affiliates or any
other Person in connection with or relating to this Agreement, and the
Existing Letters of Credit.
"MARGIN" means, in respect of Eurodollar Rate Advances, 3.75% and
in respect of Prime Rate Advances, 1%.
"MARKET VALUE" means, at the time of determination, the weekly
shredded scrap price composite and the weekly steel scrap price
composite published in the most recent daily American Metal Market
publication available.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect
upon the business, operations, properties, assets, business prospects or
financial condition of the Credit Parties, taken as a whole, or (b) the
material impairment of the ability of the Credit Parties, taken as a
whole, to perform timely their Obligations under the Loan Documents to
which they are a party.
"MATURITY DATE" means January 31, 1997 or the earlier termination
in whole of the Commitment of the Bank pursuant to SECTION 2.18(A) or
SECTION 8.01.
"MORTGAGED PROPERTIES" means the real properties described in the
Deeds of Trust which are still owned by any of the Credit Parties.
"MORTGAGEE POLICIES" is defined in SECTION 4.01(H).
"NEW PLEDGE AGREEMENTS" means that certain Amended and Restated
Pledge Agreement (Fifth Amended and Restated Credit Agreement - Proler
International Corp.) and that certain Amended and Restated Pledge
Agreement (Fifth Amended and Restated Credit Agreement - Subsidiaries)
each dated as of the Execution Date, executed by the Credit Parties
therein named, pledging and granting to the Bank a lien and security
interest in and to the shares in certain subsidiaries of said Credit
Parties as therein described.
"NEW SECURITY AGREEMENTS" means that certain Amended and Restated
Security Agreement (Fifth Amended and Restated Credit Agreement - Proler
International Corp.) and that certain Amended and Restated Security
Agreement (Fifth Amended and Restated Credit Agreement - Subsidiaries)
each dated as of the Execution Date, executed by each of the Credit
Parties in favor of the Bank granting to the Bank a lien and security
interest in and to substantially all of the assets of each of the Credit
Parties as therein described.
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"NOTE" is defined in SECTION 2.02(A).
"NOTICE OF CONVERSION" is defined in SECTION 2.04.
"OBLIGATIONS" means all present and future obligations of every
kind or nature of any Credit Party at any time and from time to time
owed to the Bank under the Loan Documents (including the Existing L/C
Obligations), whether due or to become due, matured or unmatured,
liquidated or unliquidated, or contingent or non-contingent, including
obligations of performance as well as obligations of payment, and
including, to the extent permitted by applicable Debtor Relief Laws,
interest that accrues after the commencement of any proceeding under any
Debtor Relief Law by or against any Credit Party.
"PATENT SECURITY AGREEMENT" means that certain Patent Security
Agreement dated as of August 31, 1992 by and between Proler
Environmental Services, Inc. and the Bank.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"PERFECTION CERTIFICATE" is defined in the Security Agreement.
"PERMITTED INVESTMENTS" means, when used in connection with any
Person, the Person's Investments in:
(a) Government Securities due within one year of the making of
the Investment;
(b) readily marketable direct obligations of any state of the
United States or any political subdivision of any such state given on
the date of such investment a credit rating of at least Aa by Moody's
Investors Service or AA by Standard & Poor's Ratings Group, in each
case, due within one year from the making of the Investment;
(c) certificates of deposit issued by or money market deposits
with the Bank or with any other bank or trust company organized under
the laws of the United States or any state thereof or Canada and having
combined capital, surplus and undivided profits of not less than
$500,000,000 (as of the date of its most recent financial statements);
(d) commercial paper rated at least P-1 or A-1 by Moody's
Investors Service or Standard & Poor's Ratings Group, respectively; or
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(e) mutual funds regularly traded within the United States whose
investments are limited to those described in (a) through (d), above.
"PERMITTED LIENS" means (a) those liens, encumbrances and other
matters affecting title to any Mortgaged Property listed in the
Mortgagee Policies in respect thereof and found acceptable by the Bank
in its sole discretion, (b) as to any particular Mortgaged Property at
any time, such easements, encroachments, covenants, rights-of-way, minor
defects, irregularities or encumbrances on title which are not unusual
with respect to property similar in character to such Mortgaged Property
and which do not, in the reasonable opinion of the Bank, materially
impair such Mortgaged Property for the purpose for which it is held by
the mortgagor thereof, or the Lien held by the Bank, (c) municipal and
zoning ordinances, which are not violated by the existing improvements
and the present use made by the mortgagor thereof of the Premises (as
defined in the respective Deeds of Trust), (d) general real estate taxes
and assessments not yet delinquent, (e) Liens permitted under SECTION
7.01 except for subparagraph (f) thereof and to the extent and only for
the period affecting the respective Mortgaged Property or assets and (f)
such other items as the Bank may consent to.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, trust or unincorporated organization,
or a government or any agency or political subdivision thereof.
"PLAN" means any employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and in respect of which the Borrower or a
Commonly Controlled Entity is an "employer" as defined in Section 3(5)
of ERISA.
"PRIME RATE" means, as of any particular date, the prime rate per
annum most recently determined by the Bank as its prime rate of interest
per annum and thereafter entered in the minutes of the Bank's loan and
discount committee automatically fluctuating upward or downward, as the
case may be, on the day of each determination without special notice to
the Borrower or any other Person. The Borrower acknowledges that the
Prime Rate may not be the Bank's best or lowest rate, or favored rate,
and any statement, representation or warranty in that regard or to that
effect is hereby expressly disclaimed by the Bank.
"PRIME RATE ADVANCE" means any Advance bearing interest at the
Prime Rate.
"PROCESSED SCRAP" means scrap metal which has been prepared,
sheared, cleaned and/or separated into its ferrous and non-ferrous
components and is available for sale in its present condition.
-14-
"RECEIVABLE" means, as to any Person as at any date of
determination thereof, the unpaid principal portion of the obligation of
any customer of such Person to pay to such Person in respect of any
services performed by such Person or Inventory purchased from and
shipped or caused to be shipped by such Person, net of any credits,
rebates or offsets owed to such customer by such Person. For purposes
hereof, a credit or rebate paid by check or draft of such Person shall
be deemed to be outstanding until such check or draft shall have been
debited to the respective account of such Person on which such check or
draft was drafted or drawn.
"REGULATION D" means Regulation D of the Board (respecting
reserve requirements), as the same is from time to time in effect, and
all official rulings and interpretations thereunder or thereof.
"REGULATION G" means Regulation G of the Board (respecting margin
credit extended by Persons other than banks, brokers and dealers), as
the same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"REGULATION U" means Regulation U of the Board (respecting margin
credit extended by banks), as the same is from time to time in effect,
and all official rulings and interpretations thereunder or thereof.
"REGULATION X" means Regulation X of the Board (respecting the
borrower who obtains margin credit) as the same is from time to time in
effect, and all official rulings and interpretations thereunder or
thereof.
"REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"RESERVE PERCENTAGE" means, for any Interest Period, the reserve
percentage applicable during such Interest Period under regulations
issued from time to time by the Board (or if more than one such
percentage is so applicable, the daily average for such percentages for
those days in such Interest Period during which any such percentage
shall be so applicable) for determining the maximum reserve requirement
(including any marginal, supplemental or emergency reserves) for the
Bank in respect of liabilities or assets consisting of or including
Eurocurrency Liabilities.
"RESTRICTED PAYMENT" means, with respect to any Person:
(a) the declaration of any dividend on, or the incurrence of any
liability to make any other payment or distribution in respect of, any
shares of such Person (other than one payable solely in its shares); or
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(b) (i) any payment or distribution on account of the purchase,
redemption or other retirement of any shares of such Person, or of any
warrant, option or other right to acquire such shares, or any other
payment or distribution (other than pursuant to a dividend theretofore
declared or liability theretofore incurred as specified in subsection
(a)), made in respect thereof, either directly or indirectly, or (ii)
the purchase, redemption or other retirement of shares of such Person in
exchange for, or out of the net cash proceeds received by such Person
from a substantially concurrent sale of, other shares of such Person.
"SECURITY DOCUMENTS" means the Patent Security Agreement, the
Deeds of Trust, the Master Ratification Agreement, the New Pledge
Agreements, and the New Security Agreements.
"SUBSIDIARY" of any Person means and includes (a) any corporation
or limited liability company more than 50% of whose stock is at the time
owned by such Person directly or indirectly through its Subsidiaries and
(b) any partnership, association or other entity in which such Person,
directly or indirectly through Subsidiaries, has more than a 50% equity
interest at the time, but specifically excluding any Joint Ventures.
"TERMINATION DATE" means January 31, 1997 PROVIDED, HOWEVER, if
on such date any Existing Letter of Credit outstanding on such date
contains an expiration date later than such date, the Termination Date
shall be extended to the latest expiration date of any such Existing
Letter of Credit but not later than October 31, 1997 (such date being
the "EXTENDED TERMINATION DATE") solely for the purpose of funding
drawings under SECTION 2.20(C) hereof, paid by the Bank pursuant to any
such Existing Letter of Credit.
"UNIFORM CUSTOMS" means the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be revised from time to time.
"UNITED STATES" and "U.S." each means the United States of
America.
"UNPROCESSED SCRAP" means scrap metal which has been purchased
but has not been processed for sale in its present condition.
"UNUTILIZED COMMITMENT" means, at any time, an amount equal to
the Commitment minus the outstanding Advances.
Section 1.02. ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP
consistent with those applied in the
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preparation of the financial statements referred to in SECTION 5.05. The books
and records of the Borrower shall be kept, and all financial data submitted
pursuant to this Agreement shall be prepared, in accordance with GAAP.
Section 1.03. TYPES OF ADVANCES. Advances hereunder are
distinguished by "Type". The Type of an Advance refers to the determination of
whether such Advance is a Eurodollar Rate Advance or a Prime Rate Advance.
ARTICLE II
COMMITMENT AND TERMS OF CREDIT
Section 2.01. THE COMMITMENT; EXISTING LETTERS OF CREDIT. (a) The
Bank agrees, on the terms and conditions and relying upon the representations
and warranties herein set forth, to make revolving credit advances (each an
"ADVANCE", the "ADVANCES") not to exceed the Commitment from time to time on one
or more Business Days during the period from the Effective Date up to the
Maturity Date (the "COMMITMENT PERIOD"), which Advances shall, at the option of
the Borrower, be made as Prime Rate Advances or Eurodollar Rate Advances. Each
Eurodollar Rate Advance shall be in an original principal amount of not less
than $1,000,000.00 and an integral multiple of $100,000.00. Within the limits
set forth in this SECTION 2.01 and subject to the terms and conditions of this
Agreement, during the period from the date hereof until the Maturity Date, the
Borrower may borrow under this Section and prepay at any time and from time to
time without premium or penalty and reborrow under this Section.
(b) Notwithstanding any other term or provision hereof, no
Advance shall be made if after giving effect to the making of such Advance the
aggregate amount of outstanding Advances (including the amount of all Existing
L/C Obligations) would exceed the lesser of (i) the Borrowing Base and (ii) the
Commitment.
(c) The Existing Letters of Credit and any renewals or extensions
thereof during the term hereof shall be deemed to be issued under this Agreement
and shall be a part of the Commitment. Pursuant to SECTION 2.20(C), fundings of
any Existing Letter of Credit by the Bank shall be reimbursed immediately.
(d) The expiration date of an Existing Letter of Credit shall not
be extended beyond the Extended Termination Date.
(e) Borrower and the Bank acknowledge that JVOI, a Guarantor,
currently has outstanding that one certain letter of credit described on EXHIBIT
1.01B in favor of the City of Los Angeles (the "JVOI Letter of Credit"). The
Bank hereby agrees with JVOI that the JVOI Letter of Credit shall be considered
an Existing Letter of Credit and will be renewed upon
-17-
request of JVOI pursuant to the terms hereof and thereof. In respect of the JVOI
Letter of Credit, the Borrower, the Bank and JVOI hereby agree that all
references to the Borrower herein, including all obligations for payment,
reimbursement of expenses, indemnification, limits on interest and all other
matters, shall be deemed references to JVOI. The Borrower and the Bank
acknowledge and JVOI hereby agrees that JVOI shall be primarily and principally
liable for all amounts owed in respect of the JVOI Letter of Credit pursuant to
the terms hereof and the Application for the JVOI Letter of Credit. The Borrower
shall be liable for the amounts owed in respect of the JVOI Letter of Credit
only as a Guarantor.
Section 2.02. THE NOTE. All cash Advances shall be evidenced by a
single Note of even date herewith (said Note, together with all modifications,
extensions, renewals and rearrangements thereof, the "NOTE") of the Borrower
payable to the order of the Bank in the principal amount of the Commitment,
substantially in the form of EXHIBIT 2.02 PROVIDED, that, notwithstanding
anything herein contained, JVOI shall not be liable as a maker for any amounts
drawn under or paid in respect of any Existing Letter of Credit other than the
JVOI Letter of Credit, or for any amounts that would constitute interest under
applicable law thereon, or any other amounts owing in connection therewith, but
shall be liable for (i) any and all such amounts as a Guarantor and (ii) as a
maker for all such amounts relating to the JVOI Letter of Credit and; PROVIDED
FURTHER, that the Borrower shall not be liable as a maker for any amounts drawn
under or paid in respect of the JVOI Letter of Credit, or for any amounts that
would constitute interest under applicable law thereon, or any other amounts
owing in connection therewith, but shall be liable for any and all such amounts
as a Guarantor.
Section 2.03. MAKING THE ADVANCES. Each Advance shall be made
upon the request of an Authorized Officer of the Borrower and confirmed
immediately in writing by the Borrower, in substantially the form of EXHIBIT
2.03 hereto (a "BORROWING REQUEST"). Each Borrowing Request shall, in the case
of Prime Rate Advances, be given to the Bank not later than 10:00 a.m. (Houston,
Texas time), via telecopy or hand delivery on the Borrowing Date for such
Advance, and, in the case of Eurodollar Rate Advances, not later than 10:00 a.m.
(Houston, Texas time) three (3) days prior to the requested Advance. Each
Borrowing Request shall specify (a) the proposed Borrowing Date (which shall be
a Business Day), (b) the amount of the proposed Advance, (c) the Type of
Advance, (d) the availability of such Advance under the Commitment and (e) if
such Advance is to be a Eurodollar Rate Advance, the initial Interest Period (as
defined below in SECTION 2.06) to be applicable thereto. Each Borrowing Request
shall be irrevocable by the Borrower. Upon satisfaction of the applicable
conditions set forth in ARTICLE IV hereof, the Bank will make the proceeds of
each Advance available to the Borrower at the office of the Bank (or such other
reasonable place designated by the Borrower in advance) on the date specified in
the Borrowing Request.
Section 2.04. CONVERSIONS AND CONTINUANCES. Subject to SECTION
2.14 the Borrower shall have the option to convert on any Business Day all or a
portion of the
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outstanding principal amount of one Type of Advance into another Type of
Advance, PROVIDED, no Advances may be converted into or continued as Eurodollar
Rate Advances if a Default or Event of Default is in existence on the date of
the conversion. Each such conversion shall be effected by the Borrower's giving
the Bank written notice (each a "NOTICE OF CONVERSION") prior to 10:00 a.m.
(Houston, Texas time) at least (a) three (3) Business Days prior to the date of
such conversion in the case of conversion into or continuance as Eurodollar Rate
Advances and (b) prior to 10:00 a.m. (Houston, Texas time) one (1) Business Day
prior to the date of conversion in the case of a conversion into Prime Rate
Advances, specifying each Advance (or portions thereof) to be so converted and,
if to be converted into or continued as Eurodollar Rate Advances, the Interest
Period to be applicable thereto.
Section 2.05. INTEREST RATE AND INTEREST PAYMENT DATES. The
Borrower shall pay interest on the unpaid principal amount of each Advance made
by the Bank from the date of such Advance until such principal amount shall be
paid in full, on the dates and at the rates per annum specified below:
(a) Subject to the provisions of SECTIONS 2.05(E) AND 9.11, each
Prime Rate Advance shall bear interest on the unpaid principal amount thereof at
a rate per annum equal to the lesser of (i) the Prime Rate plus the Margin in
respect of Prime Rate Advances and (ii) the Highest Lawful Rate. Accrued and
unpaid interest on the Prime Rate Advances shall be due and payable (A) monthly
in arrears on the last day of each calendar month occurring after the Effective
Date and on the Maturity Date, (B) with respect to the principal amount of any
voluntary or mandatory repayment on the date of such voluntary or mandatory
repayment and (C) at maturity (whether by acceleration or otherwise) and, after
maturity, on demand.
(b) Subject to SECTIONS 2.05(E) and 9.11, each Eurodollar Rate
Advance shall bear interest on the unpaid principal amount thereof from the date
of such Advance at a rate per annum (computed on the basis of the actual number
of days elapsed over a year of 360 days) which shall, during each Interest
Period applicable thereto, be equal to the lesser of (i) the Highest Lawful Rate
and (ii) the applicable Eurodollar Rate for such Interest Period plus the Margin
in respect of Eurodollar Rate Advances. The applicable Eurodollar Rate and the
Margin shall be fixed for each Interest Period and shall not change during said
Interest Period. Interest on each Eurodollar Rate Advance shall be payable (A)
on the last day of the Interest Period applicable thereto, (B) with respect to
the principal amount of any voluntary or mandatory repayment on the date of such
voluntary or mandatory repayment, or on the date of any conversion or
continuance and (C) at maturity (whether by acceleration or otherwise) and,
after maturity, on demand.
(c) The Bank, upon determining the Eurodollar Rate for any
Interest Period, shall notify the Borrower thereof. Each such determination
shall, absent manifest error, be final and conclusive and binding on all parties
hereto. In addition, prior to the due date for the
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payment of interest on any Eurodollar Rate Advances set forth in the immediately
preceding paragraph, the Bank shall notify the Borrower of the amount of
interest due by the Borrower on all outstanding Eurodollar Rate Advances on the
applicable due date, but any failure of the Bank to so notify the Borrower shall
not reduce the Borrower's liability for the amount owed.
(d) The Borrower shall pay to the Bank, so long as the Bank shall
be required under regulations of the Board to maintain reserves with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities,
additional interest on the unpaid principal amount of each Eurodollar Rate
Advance, from the date of such Advance until such principal amount is paid in
full, at an interest rate per annum equal at all times during each Interest
Period for such Advance to the lesser of (i) the Highest Lawful Rate and (ii)
the remainder obtained by subtracting (A) the Eurodollar Rate for such Interest
Period from (B) the rate obtained by dividing such Eurodollar Rate referred to
in clause (A) above by that percentage equal to 100% minus the Reserve
Percentage of the Bank for such Interest Period. Such additional interest shall
be determined by the Bank as incurred and shall be payable upon demand therefor
by the Bank to the Borrower. Each determination by the Bank of additional
interest due under this Section shall be PRIMA FACIE evidence thereof for all
purposes in the absence of manifest error.
(e) Any amount of principal or, to the extent permitted by
applicable law, interest which is not paid when due including, without
limitation, any fundings of Existing Letters of Credit for which the Bank is not
reimbursed (whether by application of the proceeds of Advances under SECTION
2.20(C) or otherwise) immediately by the Borrower for the account of which such
Existing Letter of Credit was issued (whether at stated maturity, by
acceleration or otherwise) shall bear interest from the date on which such
amount is due until such amount is paid in full at a rate per annum equal at all
times to the Prime Rate plus four percent (4%) per annum but in no event to
exceed the Highest Lawful Rate (the "DEFAULT RATE") and shall be payable upon
demand.
(f) The Borrower shall, at the time of making each payment of
principal and/or interest hereunder and under the Note, specify to the Bank the
Advances or other sums payable by the Borrower hereunder or under the Note to
which such payment is to be applied and in the event that the Borrower fails to
so specify, the Bank may apply such payment to the Borrower's Obligations as it
may elect in its sole discretion.
Section 2.06. INTEREST PERIODS. (a) At the time the Borrower
gives any Borrowing Request or Notice of Conversion in respect of the making of,
or conversion into, a Eurodollar Rate Advance, the Borrower shall have the right
to elect, by giving the Bank on the dates and at the times specified in SECTION
2.03 or SECTION 2.04, as the case may be, notice of the interest period (each an
"INTEREST PERIOD") applicable to such Eurodollar Rate Advance, which Interest
Period shall be either a one, two or three month period; PROVIDED, that:
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(i) the initial Interest Period for any Eurodollar Rate Advance
shall commence on the date of such Eurodollar Rate Advance (including
the date of any conversion thereto or continuance thereof pursuant to
SECTION 2.04); each Interest Period occurring thereafter in respect of
such Eurodollar Rate Advance shall commence on the day following the
expiration date of the immediately preceding Interest Period;
(ii) if any Interest Period relating to a Eurodollar Rate Advance
begins on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period, such Interest
Period shall end on the last Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; PROVIDED, that if there are no more
Business Days in that month, the Interest Period shall expire on the
preceding Business Day; and
(iv) no Interest Period for Advances shall extend beyond the
Maturity Date.
(b) If, upon the expiration of any Interest Period applicable to
a Eurodollar Rate Advance, the Borrower has failed to elect a new Interest
Period to be applicable to such Advance as provided above, the Borrower shall be
deemed to have elected to convert such Advance into a Prime Rate Advance
effective as of the day following the expiration date of such current Interest
Period.
Section 2.07. INTEREST RATE NOT ASCERTAINABLE. In the event that
the Bank shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) that on any date for determining
the Eurodollar Rate for any Interest Period, by reason of any changes arising
after the date of this Agreement affecting the eurodollar interbank market or
the Bank's position in such market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in the
definition of Eurodollar Rate, then, and in any such event, the Bank shall
forthwith give notice to the Borrower of such determination. Until the Bank
notifies the Borrower that the circumstances giving rise to the suspension
described herein no longer exist, the obligations of the Bank to make Eurodollar
Rate Advances shall be suspended.
Section 2.08. PRINCIPAL PAYMENTS OF ADVANCES. The unpaid
principal balance of the Advances, together with all accrued and unpaid interest
thereon, shall be due and payable on the Maturity Date, subject to the mandatory
prepayments required pursuant to SECTION 2.17.
Section 2.09. COMPUTATIONS; PAYMENTS ON NON-BUSINESS DAYS. (a)
All payments by the Borrower of principal and interest hereunder, under the Note
and the other Loan
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Documents shall be made in U.S. Dollars to the Bank at its office at 712 Main
Street, Houston, Texas in immediately available funds not later than 12:00 noon
(Houston, Texas time) on the date when due.
(b) Interest on the Prime Rate Advances shall be computed by the
Bank on the actual number of days elapsed over a year of 365 days, unless such
computation would cause the interest contracted for, charged or received to
exceed the Highest Lawful Rate, in which event, interest shall be computed for
the actual number of days elapsed over a year of 365 or 366 days, as the case
may be. Determination by the Bank of an interest rate hereunder shall be PRIMA
FACIE evidence of its accuracy.
(c) Whenever any payment hereunder (other than payments of
interest on Eurodollar Rate Advances) shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day and such extension of time shall in such case be included in the computation
of payment of interest, the Commitment Fee, the L/C Fees and all other amounts
due under the Loan Documents, as the case may be.
Section 2.10. SET-OFF, COUNTERCLAIMS AND TAXES. All payments of
principal, interest, expenses, reimbursements, compensation and any other amount
from time to time due hereunder, under the Note or any other Loan Document shall
be made by the Borrower without set-off or counterclaim and shall be made free
and clear of and without deduction for any present or future tax, levy, impost
or any other charge, if any, of any nature whatsoever now or hereafter imposed
by any taxing authority upon the Borrower. If the making of such payments by the
Borrower is prohibited by law unless such a tax, levy, impost or other charge is
deducted or withheld therefrom, the Borrower shall pay to the Bank, on the date
of each such payment, such additional amounts as may be necessary in order that
the net amounts received by the Bank after such deduction or withholding shall
equal the amounts which would have been received if such deduction or
withholding were not required; PROVIDED, HOWEVER, that all amounts payable under
this Agreement which constitute interest under applicable law shall not exceed
an amount which would result in the payment of interest at a rate in excess of
the Highest Lawful Rate.
Section 2.11. THE BORROWER UNCONDITIONALLY LIABLE. (a) Subject to
the provisions of SECTIONS 9.11, 2.01(E) and 2.02, the Borrower and JVOI shall
(to the extent set forth herein) be unconditionally liable to the Bank for the
principal amount of any and all Advances made to it under the Note, and all
Existing L/C Obligations with respect to Existing Letters of Credit issued for
their respective accounts, interest due thereon, the L/C Fees relating thereto,
the Commitment Fee, and all other amounts due to the Bank from the Borrower or
JVOI, as the case may be hereunder or under any other agreement or security
document executed in connection herewith, and shall make prompt and punctual
payment when due of such amounts.
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(b) Notwithstanding anything herein contained, JVOI shall be
primarily and principally liable for all amounts owed in respect of the JVOI
Letter of Credit. The Borrower, by its execution hereof, does hereby absolutely
and unconditionally, jointly and severally with all other Guarantors, guaranty
the Obligations of JVOI with respect to the JVOI Letter of Credit and agrees
that, it shall pay same according to their terms. The Borrower does hereby
incorporate into this Section all of the terms, conditions, waivers and
agreements set forth in ARTICLE III hereof and agrees that same shall govern
this guaranty of JVOI's obligations in respect of the JVOI Letter of Credit.
Section 2.12. CHANGE IN LEGALITY. (a) Notwithstanding anything to
the contrary herein contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for the Bank or
its Eurodollar Lending Office to make or maintain any Eurodollar Rate Advance or
to give effect to its obligations as contemplated hereby with respect to
Eurodollar Rate Advances, then, by prompt written notice to the Borrower, the
Bank may:
(i) declare that Eurodollar Rate Advances will not thereafter be
made by the Bank hereunder, whereupon the Borrower shall be prohibited
from requesting Eurodollar Rate Advances from the Bank hereunder unless
such declaration is subsequently withdrawn; and
(ii) in the event that the maintenance of any Eurodollar Rate
Advance(s) shall have been made unlawful, require that all outstanding
Eurodollar Rate Advance(s) made by the Bank be converted to Prime Rate
Advances, in which event (A) all such Eurodollar Rate Advances shall be
automatically converted to Prime Rate Advances as of the effective date
of such notice as provided in paragraph (b) below and (B) all payments
and prepayments of principal which would otherwise have been applied to
repay the converted Eurodollar Rate Advances shall instead be applied to
repay the Prime Rate Advances resulting from the conversion of such
Eurodollar Rate Advances.
(b) For purposes of this Section, a notice to the Borrower by the
Bank pursuant to paragraph (a) above shall be effective on the date of receipt
thereof by the Borrower.
Section 2.13. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES. (a)
It is understood that the cost to the Bank of making or maintaining any Advance
or Existing Letter of Credit may fluctuate as a result of the applicability of,
or changes in, reserve requirements imposed by the Board. The Borrower agrees to
pay to the Bank from time to time, as provided in paragraph (d) below, such
amounts as shall be necessary to compensate the Bank, prospectively from the
date of demand, for the portion of the cost of making or maintaining any Advance
or Existing Letter of Credit resulting from any such reserve requirements to the
extent set forth in this Section.
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(b) Notwithstanding any other provision herein, if after the date
of this Agreement, the introduction of any applicable law or regulation or any
change in applicable law or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
applicable guideline or request from any central bank or governmental authority
(whether or not having the force of law) (i) shall change the basis of taxation
of payments to the Bank of the principal of or interest on any Advance made by
the Bank, any Existing L/C Obligations, any L/C Obligations or any other fees or
amounts payable hereunder (other than (x) taxes imposed on the overall net
income of the Bank or its applicable lending office by any jurisdiction or by
any political subdivision or taxing authority therein (or any tax which is
enacted or adopted by any such jurisdiction, political subdivision or taxing
authority as a direct substitute for any such taxes) or (y) any tax, assessment
or other governmental charge that would not have been imposed but for the
failure of the Bank to comply with any certification, information, documentation
or other reporting requirement), (ii) shall impose, modify or deem applicable
any reserve, special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, the Bank (without duplication
of any amounts paid pursuant to SECTION 2.05(D)), or (iii) shall impose on the
Bank any other condition affecting this Agreement or any Advance made by the
Bank, and the result of any of the foregoing shall be to increase the cost to
the Bank of maintaining the Commitment or of making or maintaining any Advance
or issuing or maintaining any Existing Letter of Credit or to reduce the amount
of any sum received or receivable by the Bank hereunder (whether of principal,
interest or otherwise) in respect thereof by an amount deemed in good faith by
the Bank to be material, then the Borrower shall pay to the Bank such additional
amount or amounts as will compensate the Bank for such increase or reduction
relating to any Commitment, Advance, or Existing Letter of Credit upon demand by
the Bank. Notwithstanding the foregoing, in no event shall the Bank be permitted
to receive any compensation hereunder constituting interest in excess of the
Highest Lawful Rate.
(c) If the Bank shall have determined in good faith that any law,
rule, regulation or guideline adopted pursuant to or arising out of the July
1988 Report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards" or that the adoption of any applicable law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the foregoing or
in the interpretation or administration thereof by any central bank or other
governmental authority charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such central
bank or governmental authority, affects or would affect the amount of capital
required or expected to be maintained by the Bank or any corporation controlling
the Bank and that the amount of such capital is increased by or based upon the
existence of the Commitment hereunder and other commitments of this type, then
the Borrower shall from time to time pay to the Bank upon demand additional
amounts sufficient to compensate the Bank or such corporation in the light of
such circumstances, to the extent that
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the Bank reasonably determines such increase in capital to be allocable to the
existence of the Commitment hereunder.
(d) If while any Existing Letter of Credit is outstanding, any
law, executive order or regulation is enforced, adopted or interpreted by any
central bank or other governmental authority so as to affect the Borrower's
obligations or the compensation to the Bank in respect of the Existing Letters
of Credit or the cost to the Bank of establishing or maintaining the Existing
Letters of Credit, then the Borrower shall from time to time upon demand,
reimburse or indemnify the Bank with respect thereto so that the Bank shall be
in the same position as if there had been no such enforcement, adoption or
interpretation. Notwithstanding the foregoing, in no event shall the Bank be
permitted to receive any compensation hereunder constituting interest in excess
of the Highest Lawful Rate.
(e) The Bank will notify the Borrower of any event occurring
after the date of this Agreement which will entitle the Bank to compensation
pursuant to this SECTION 2.13. A certificate of the Bank setting forth in
reasonable detail (i) such amount or amounts as shall be necessary to compensate
the Bank as specified in paragraph (a), (b), (c) or (d) above as the case may
be, and (ii) the calculation of such amount or amounts shall be simultaneously
delivered to the Borrower owing such amount or amounts and shall be PRIMA FACIE
evidence of its accuracy. The Borrower shall pay to the Bank the amount shown as
due on any such certificate within ten (10) days after its receipt of the same.
The failure of the Bank to demand increased compensation with respect to any
Interest Period shall not constitute a waiver of the right to demand
compensation thereafter.
Section 2.14. EURODOLLAR ADVANCE PREPAYMENT AND DEFAULT
PENALTIES. Subject to SECTION 9.11, the Borrower shall indemnify the Bank
against any reasonable loss or expense which it may actually sustain or incur as
a consequence of (a) an Advance of, or a conversion from or into, Eurodollar
Rate Advances that does not occur on the date specified therefor in a Borrowing
Request or Notice of Conversion (except by reason of SECTION 2.12) or (b) any
payment, prepayment or conversion of a Eurodollar Rate Advance required by any
other provision of this Agreement or otherwise made on a date other than the
last day of the applicable Interest Period (except for any conversion under
SECTION 2.12). Such loss or expense shall include an amount equal to the excess
determined by the Bank of (i) its actual cost of obtaining the funds for the
Advance being paid, prepaid or converted or not borrowed (based on the
Eurodollar Rate) for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Advance (or, in the case of a failure to borrow, the Interest Period for the
Advance which would have commenced on the date of such failure to borrow) OVER
(ii) the amount of interest (as reasonably determined by the Bank) that would be
realized in reemploying the funds so paid, prepaid or converted or not borrowed
for such period or Interest Period, as the case may be. The Bank will notify the
Borrower of any loss or expense which will entitle the Bank to compensation
pursuant to this
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Section, as promptly as possible after it becomes aware thereof, but failure to
so notify shall not affect the Borrower's liability therefor. A certificate of
the Bank setting forth any amount which it is entitled to receive pursuant to
this Section shall be delivered to the Borrower and shall be PRIMA FACIE
evidence of its accuracy. The Borrower shall pay to the Bank the amount shown as
due on any certificate within ten (10) days after its receipt of the same.
Without prejudice to the survival of any other obligations of the Borrower
hereunder, the obligations of the Borrower under this Section shall survive the
termination of this Agreement and the assignment of any of the Note.
Section 2.15. USE OF PROCEEDS OF ADVANCES. The Borrower will use
the proceeds of all Advances made hereunder for working capital and to refinance
existing debt owed the Bank.
Section 2.16. VOLUNTARY PREPAYMENTS. Upon at least three (3)
Business Days' prior written notice, the Borrower shall have the right to
voluntarily prepay Advances in whole or in part from time to time on the
following terms and conditions: (a) no Eurodollar Rate Advance may be prepaid
prior to the last day of its Interest Period unless, simultaneously therewith,
the Borrower pays to the Bank all sums necessary to compensate the Bank for all
costs and expenses resulting from such prepayment, as reasonably determined by
the Bank, described in SECTIONS 2.05(D), 2.13, and 2.14 hereof and (b) each
prepayment pursuant to this Section shall be applied first, to the payment of
accrued and unpaid interest, and then, to the outstanding principal of such
Advances as shall be designated by the Borrower.
Section 2.17. MANDATORY PREPAYMENTS. (a) If any Borrowing Base
Certificate shall disclose the existence of a Borrowing Base Deficiency, the
Borrower, on the day that the delivery of such Borrowing Base Certificate is
required by SECTION 6.01(F), shall prepay a principal amount of outstanding
Advances equal to such Borrowing Base Deficiency.
(b) If, on any day, the market valuation of the Inventory of the
Borrower, its Subsidiaries and the Joint Ventures included in the Borrowing
Base, based on the American Metals Market Composite Valuation or such other
source of value acceptable to the Bank, is less than or equal to ninety percent
(90%) of the market valuation of such Inventory as disclosed in the most recent
Borrowing Base Certificate required to be delivered pursuant to SECTION 6.01(F),
the Borrowing Base shall be recalculated by the Borrower as of such date using
such market valuations as of such date and, if such recalculation results in a
Borrowing Base Deficiency, the Borrower, on the third business day following the
date of such recalculation shall deliver a new Borrowing Base Certificate and,
as required by SECTION 6.01(F), shall prepay a principal amount of outstanding
Advances equal to such Borrowing Base Deficiency.
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(c) Upon its receipt of any Excess Sales Proceeds, the Borrower
will remit payments in the amount of such Excess Sales Proceeds to the Bank as a
prepayment of the principal then owing on the Advances.
(d) All sums collected in Borrower's lockbox shall be applied
daily as a prepayment of principal then owing on the Advances.
Section 2.18. REDUCTION OF THE COMMITMENT. (a) The Borrower shall
have the right, upon at least three (3) Business Days' notice to the Bank, to
terminate in whole or reduce in part the Unutilized Commitment; PROVIDED, that
each partial reduction shall be in the aggregate amount of $250,000.00 and an
integral multiple of $250,000.00 in excess thereof.
(b) The Commitment shall be permanently reduced by the amount of
all principal prepaid under SECTION 2.17(C) above, except for such prepayments
of Excess Sales Proceeds constituting Joint Venture distributions.
(c) The Commitment shall be reduced automatically without further
action by any Person by the amount of all or any portion of an Existing Letter
of Credit which prior to the Termination Date either (i) expires and is not
replaced or (ii) is funded and reimbursed by the Borrower other than with the
proceeds of an Advance.
(d) On the Maturity Date the Commitment shall be zero; PROVIDED,
HOWEVER, if any one or more Existing Letters of Credit outstanding on the
Maturity Date have a later expiration date, then the Commitment shall reduce to
a level equal to the sum of the undrawn face amount of each of the then
outstanding Existing Letters of Credit (reducing by the amount of any expiring
Existing Letter of Credit as it expires or is funded and reimbursed by the
Borrower) and shall, in any event, terminate in its entirety on the Extended
Termination Date.
Section 2.19. FEES. (a) The Borrower agrees to pay to the Bank a
commitment fee (the "COMMITMENT FEE") for the period from and including the date
hereof to but not including the Maturity Date, computed at a rate equal to
one-quarter of one percent (1/4%) per annum (based on a 360 day year) on the
total Commitment. Such Commitment Fee shall be due and payable in arrears on the
last Business Day of each calendar quarter and on the Termination Date.
(b) The Borrower shall pay to the Bank a letter of credit
commission with respect to each Existing Letter of Credit payable in advance and
computed for the period from the Effective Date or date of such payment to the
date upon which the next such payment is due hereunder at the rate of one
percent (1%) per annum (which shall be calculated on the basis of one-quarter of
one percent (1/4%) for each 90 day period or any part thereof) of the aggregate
amount available to be drawn under such Existing Letter of Credit on the date on
which such
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fee is calculated or the then minimum letter of credit insurance fee charged by
the Bank, whichever is greater; PROVIDED, HOWEVER, with respect to each Existing
Letter of Credit, the amount of such commission payable to the Bank shall be
paid at this rate from and after the Effective Date but shall be reduced by the
amount of the commissions already paid to the Bank with respect to such Existing
Letter of Credit with respect to any period from and after the Effective Date,
if any. Such commissions shall be payable in advance on the last day of each
calendar quarter and shall be nonrefundable.
(c) The Borrower will pay to the Bank an administrative fee of
$100,000.00 on the Effective Date.
The provisions of this SECTION 2.19(C) do not create and shall
not be construed to create any obligation on the part of the Bank to extend the
Maturity Date.
(d) In addition to the foregoing fees and commissions, the
Borrower shall pay or reimburse the Bank for such normal and customary costs and
expenses as are incurred or charged by the Bank in issuing, effecting payment
under, amending or otherwise administering any Existing Letter of Credit.
Section 2.20. EXISTING LETTERS OF CREDIT.
(a) The Bank shall not be required to issue any new letters of
credit (except for any of same that constitute renewals or replacements for the
letters of credit listed on EXHIBIT 1.01B, and are therefor "Existing Letters of
Credit").
(b) In respect of any Existing Letters of Credit, if any,
outstanding on the Termination Date, assuming no Default or Event of Default has
occurred, the Borrower may, at its option, provide to the Bank collateral in the
form of cash or a certificate of deposit issued by the Bank in the amount of
such Existing Letters of Credit and any expenses reasonably anticipated by the
Bank in connection therewith, whereupon, when all such Existing Letters of
Credit are so secured, the Bank shall release its Liens on all other collateral
hereunder or under any of the Loan Documents. In no event shall any Existing
Letters of Credit be outstanding beyond the Extended Termination Date. The
Borrower shall remain liable in respect of the Existing Letters of Credit on
terms consistent with the terms hereof, but for all other purposes of this
Agreement and the other Loan Documents, the Obligations will be deemed paid in
full and not outstanding and the Commitment and the L/C Limit shall be deemed
terminated.
(c) The Borrower agrees to reimburse the Bank on each date on
which the Bank notifies the Borrower of the date and amount of a draft presented
under any Existing Letter of Credit paid by the Bank for the amount of (i) such
draft so paid and (ii) any taxes, fees, charges or other costs or expenses
incurred by the Bank in connection with such payment. Upon
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the presentment of any draft for honor under any Existing Letter of Credit by
the beneficiary thereof which the Bank determines is in compliance with the
condition for payment thereunder, the Bank shall promptly notify the Borrower.
In the event the Bank makes any payment pursuant to a draft presented under an
Existing Letter of Credit, the Borrower shall immediately, upon demand, pay said
amount to the Bank in cash plus any interest due thereon from the date when due
at the Default Rate as provided in SECTION 2.05(E).
(d) The Borrower's obligations under this Section shall be
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the Borrower may have or
have had against the Bank or any beneficiary of an Existing Letter of Credit.
The Borrower also agrees with the Bank that the Bank shall not be responsible
for, and the Borrower's reimbursement obligations under SECTION 2.20(C) above
shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even through such documents shall in
fact prove to be invalid, fraudulent or forged, or any dispute between or among
the Borrower and any beneficiary of any Existing Letter of Credit or any other
party to which such Existing Letter of Credit may be transferred or any claims
whatsoever of the Borrower against any beneficiary of such Existing Letter of
Credit or any such transferee. The Bank shall not be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Existing Letter
of Credit, except for errors or omissions caused by the Bank's gross negligence
or willful misconduct. The Borrower agrees that any action taken or omitted by
the Bank under or in connection with any Existing Letter of Credit or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in the
Uniform Customs and, to the extent not inconsistent therewith, the Uniform
Commercial Code of the State of Texas, shall be binding on the Borrower and
shall not result in any liability of the Bank to the Borrower.
(e) The responsibility of the Bank to the Borrower in connection
with any draft presented for payment under any Existing Letter of Credit shall,
in addition to any payment obligation expressly provided for in such Existing
Letter of Credit be limited to determining that the documents (including each
draft) delivered under such Existing Letter of Credit in connection with such
presentment are in conformity with such Existing Letter of Credit.
(f) To the extent that any provision of any Application,
certificate, document or other papers related to any Existing Letter of Credit
is inconsistent with the provisions of this Agreement, the provisions of this
Agreement shall control and no such Application, certificate, document or other
paper shall give the Bank or the Borrower any greater rights than the Bank or
the Borrower would otherwise have under this Agreement.
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Section 2.21. RATIFICATION. Each Credit Party hereby confirms and
ratifies the terms of the Security Documents to which it is a party and the
creation of the Liens thereunder to secure the Obligations of the Borrower to
the Bank and hereby regrants the security interests and Liens of same to secure
the Obligations as more fully set forth therein and further agrees and
acknowledges (a) that the Liens of the Security Documents to which it is a party
extend to and expressly secure the Obligations of the Borrower under this
Agreement, the Note and the other Loan Documents and (b) that the Security
Documents to which it is a party and the Liens created thereunder are valid and
subsisting and shall remain enforceable against such Credit Party in accordance
with their terms and shall not be reduced or limited or impaired by the
execution of this Agreement and the Note.
ARTICLE III
GUARANTY
Section 3.01. GUARANTY. (a) In consideration of, and in order to
induce the Bank to make Advances and continue Existing Letters of Credit
hereunder, each Guarantor hereby absolutely, unconditionally and irrevocably,
jointly and severally guarantees the punctual payment and performance when due,
whether at stated maturity, by acceleration or otherwise, of all obligations and
covenants of the Borrower and, in respect of the JVOI Letter of Credit, the
obligations of JVOI, now or hereafter existing under this Agreement, the Note
and/or any of the other Loan Documents to which the Borrower or JVOI, as
applicable, is a party whether for principal, interest (including interest
accruing or becoming owing both prior to and subsequent to the commencement of
any proceeding against or with respect to the Borrower under any chapter of the
Bankruptcy Code of the United States (11 U.S.C. ss. 101 ET SEQ.) or any other
Debtor Relief Law, fees, commissions, expenses (including reasonable counsel
fees and expenses) or otherwise, and all reasonable costs and expenses, if any,
incurred by the Bank in connection with enforcing any rights under this Guaranty
(all such obligations being the "GUARANTEED OBLIGATIONS"); provided that the
Guaranteed Obligations of each Guarantor under this Guaranty shall not exceed an
amount that is $1.00 less than that amount that would render such Guarantor's
obligation under this Guaranty subject to avoidance under Section 548 of the U.
S. Bankruptcy Code or any comparable provisions of any applicable state or
foreign law. This Guaranty is an absolute, unconditional, present and continuing
guaranty of payment and not of collectibility and is in no way conditioned upon
any attempt to collect from the Borrower or any other action, occurrence or
circumstance whatsoever. Nothing herein is intended to provide that the Borrower
shall be liable as a Guarantor for any Obligations for which the Borrower is
primarily liable, but the Borrower shall be liable as a Guarantor for any
Obligations for which the Borrower is not primarily liable.
(b) Each Guarantor hereby, jointly and severally, agrees to pay
and to indemnify the Bank harmless from and against any damage, loss, cost or
expense (including
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reasonable attorneys' fees) that the Bank may incur or be subject to as a
consequence, direct or indirect, of (i) any breach by such Guarantor or any
other Credit Party of any warranty, covenant, term or condition in, or the
occurrence of any default under, this Guaranty, this Agreement or any other Loan
Document, together with all reasonable expenses resulting from the compromise or
defense of any claims or liabilities arising as a result of any such breach or
default and (ii) any legal action commenced to challenge the validity of this
Guaranty, this Agreement or any other Loan Document.
Section 3.02. CONTINUING GUARANTY. Each Guarantor guarantees that
the Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement, the Note and the other Loan Documents. Each Guarantor agrees
that the Guaranteed Obligations and Loan Documents may be extended or renewed,
and that it will remain bound upon this Guaranty notwithstanding any extension,
renewal or other alteration of any Guaranteed Obligations or Loan Documents. The
obligations of each Guarantor under this Guaranty shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms hereof under any circumstances whatsoever, including:
(a) any extension, renewal, modification, settlement, compromise,
waiver or release in respect of any Guaranteed Obligations, including any
reduction or termination of all or a portion of the Commitment;
(b) any extension, renewal, amendment, modification, rescission,
waiver or release in respect of any Loan Documents;
(c) any release, exchange, substitution, non-perfection or
invalidity of, or failure to exercise rights or remedies with respect to, any
direct or indirect security for any Guaranteed Obligations, including the
release of any Guarantor or other Person liable on any Guaranteed Obligations;
(d) any change in the corporate existence, structure or ownership
of the Borrower, any Guarantor, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting the Borrower, such Guarantor, any other
Guarantor or any of their respective assets;
(e) the existence of any claim, defense, set-off or other rights
or remedies which such Guarantor at any time may have against the Borrower, or
the Borrower or such Guarantor may have at any time against the Bank, any other
Guarantor or any other Person, whether in connection with this Guaranty, the
Loan Documents, the transactions contemplated thereby or any other transaction;
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(f) any invalidity or unenforceability for any reason of this
Agreement or other Loan Documents, or any provision of law purporting to
prohibit the payment or performance by the Borrower, such Guarantor or any other
Guarantor of the Guaranteed Obligations or Loan Documents, or of any other
obligation to the Bank; or
(g) any other circumstances or happening whatsoever, whether or
not similar to any of the foregoing.
Section 3.03. EFFECT OF DEBTOR RELIEF LAWS. If, after receipt of
any payment of, or proceeds of any security applied (or intended to be applied)
to the payment of all or any part of the Guaranteed Obligations, the Bank is for
any reason compelled to surrender or voluntarily surrenders, such payment or
proceeds to any Person (a) because such payment or application of proceeds is or
may be voided, invalidated, declared fraudulent, set aside, determined to be
void or voidable as a preference, fraudulent conveyance, fraudulent transfer,
impermissible set-off or a diversion of trust fund, or (b) for any other reason,
including (i) any judgment, decree or order of any court or administrative body
having jurisdiction over the Bank or any of its properties or (ii) any
settlement or compromise of any such claim effected by the Bank with any such
claimant (including the Borrower), then the Guaranteed Obligations or part
thereof intended to be satisfied shall be reinstated and continue, and this
Guaranty shall continue in full force as if such payment or proceeds have not
been received, notwithstanding any revocation thereof or the cancellation of the
Note or any other instrument evidencing any Guaranteed Obligations or otherwise;
and the Guarantors, jointly and severally, shall be liable to pay the Bank, and
hereby do indemnify the Bank and hold it harmless for the amount of such payment
or proceeds so surrendered and all expenses (including reasonable attorneys'
fees, court costs and expenses attributable thereto) incurred by the Bank in the
defense of any claim made against it that any payment or proceeds received by
the Bank in respect of all or part of the Guaranteed Obligations must be
surrendered. The provisions of this paragraph shall survive the termination of
this Guaranty, and any satisfaction and discharge of the Borrower by virtue of
any payment, court order or any federal or state law.
Section 3.04. WAIVER OF SUBROGATION. Notwithstanding any payment
or payments made by any Guarantor hereunder, or any set-off or application by
the Bank of any security or of any credits or claims, no Guarantor will assert
or exercise any rights of the Bank or of such Guarantor against the Borrower or
any other Guarantor to recover the amount of any payment made by such Guarantor
to the Bank hereunder by way of subrogation, reimbursement, contribution,
indemnity, or otherwise arising by contract or operation of law, until such time
as the Obligations have been satisfied and the Bank shall have no Commitment. If
any amount shall nevertheless be paid to a Guarantor by the Borrower or another
Guarantor prior to payment in full of the Guaranteed Obligations, such amount
shall be held in trust for the benefit of the Bank and shall forthwith be paid
to the Bank to be credited and applied to the Guaranteed Obligations, whether
matured or unmatured.
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Section 3.05. SUBORDINATION. Each Guarantor hereby subordinates
all indebtedness owing to it from the Borrower to all indebtedness of the
Borrower to the Bank, and agrees that it shall not accept any payment on the
same until payment in full of the obligations of the Borrower under this
Agreement, the Notes, the Existing Letters of Credit and all other Loan
Documents, and shall in no circumstance whatsoever attempt to set-off or reduce
any obligations hereunder because of such indebtedness. If any amount shall
nevertheless be paid to a Guarantor by the Borrower or another Guarantor prior
to payment in full of the Guaranteed Obligations, such amount shall be held in
trust for the benefit of the Bank and shall forthwith be paid to the Bank to be
credited and applied to the Guaranteed Obligations, whether matured or
unmatured.
Section 3.06. WAIVER. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and waives presentment, demand of
payment, notice of intent to accelerate, notice of dishonor or nonpayment and
any requirement that the Bank institute suit, collection proceedings or take any
other action to collect the Guaranteed Obligations, including any requirement
that the Bank protect, secure, perfect or insure any Lien against any property
subject thereto or exhaust any right or take any action against the Borrower or
any other Person or any collateral (it being the intention of the Bank and each
Guarantor that this Guaranty is to be a guaranty of payment and not of
collection). It shall not be necessary for the Bank, in order to enforce any
payment by any Guarantor hereunder, to institute suit or exhaust its rights and
remedies against the Borrower, any other Guarantor or any other Person,
including others liable to pay any Guaranteed Obligations, or to enforce its
rights against any security ever given to secure payment thereof. Each Guarantor
hereby expressly waives each and every right to which it may be entitled by
virtue of the suretyship laws of the State of Texas, including, without
limitation, any and all rights it may have pursuant to Rule 31, Texas Rules of
Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code
and Chapter 34 of the Texas Business and Commerce Code. Each Guarantor hereby
waives marshaling of assets and liabilities, notice by the Bank of any
indebtedness or liability to which the Bank applies or may apply any amounts
received by the Bank, and of the creation, advancement, increase, existence,
extension, renewal, rearrangement and/or modification of the Guaranteed
Obligations. Each Guarantor expressly waives, to the extent permitted by
applicable law, the benefit of any and all laws providing for exemption of
property from execution or for valuation and appraisal upon foreclosure.
Section 3.07. FULL FORCE AND EFFECT. This Guaranty is a
continuing guaranty and shall remain in full force and effect until payment in
full of the Obligations of the Borrower under this Agreement, the Note and all
other Loan Documents and all other amounts payable under this Guaranty.
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ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01. CONDITIONS PRECEDENT TO THE EXISTING LETTER OF
CREDIT. The obligation of the Bank to make its initial Advance and to maintain
any Existing Letter of Credit hereunder is subject to the conditions precedent
that the Bank shall have received on or before the Execution Date, to the extent
same have not previously been received all of the following, in form and
substance satisfactory to the Bank and in such number of counterparts as may be
reasonably requested by the Bank:
(a) the Note duly executed and delivered by the Borrower;
(b) this Agreement duly executed and delivered by the Credit
Parties;
(c) the New Security Agreement duly executed and delivered by the
Credit Parties to include existing collateral and Joint Venture interests as
provided therein;
(d) the Patent Security Agreement duly executed and delivered by
Proler Environmental Services, Inc.;
(e) the New Pledge Agreement duly executed and delivered by the
appropriate Credit Parties party thereto to include existing collateral and
Joint Venture interests as provided therein;
(f) the Deeds of Trust duly executed and delivered by all of the
parties holding title to the Mortgaged Properties;
(g) Mortgagee title insurance policies issued by title insurers
satisfactory to the Bank in amounts satisfactory to the Bank (the "MORTGAGEE
POLICIES") and assuring the Bank that the Deeds of Trust in respect of the
Mortgaged Properties are valid and enforceable first priority mortgages on the
respective Mortgaged Properties, free and clear of all defects and encumbrances
except Permitted Liens. Such Mortgagee Policies shall be in form and substance
reasonably satisfactory to the Bank;
(h) appropriate endorsements to Mortgagee Policies in form and
substance satisfactory to the Bank to reflect the extended Maturity Date;
(i) the Appraisal, if required by Bank;
(j) the Environmental Reports and, depending upon the content and
conclusion thereof, additional environmental reports, Phase II Audits and such
other related information concerning the Mortgaged Properties as the Bank may
require;
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(k) (i) executed financing statements for all jurisdictions as
may be necessary or, in the reasonable opinion of the Bank, desirable to perfect
the security interests created by the Security Documents and (ii) evidence that
all other actions necessary or, in the reasonable opinion of the Bank, desirable
to perfect and protect the Liens created by the Security Documents have been
taken;
(l) copies of surveys satisfactory to the Bank covering, all
together, each tract or parcel of land (including all appurtenant easements)
subject to the Deeds of Trust, satisfactory in form and substance to the Bank.
In addition, the Bank shall have received such officer's certificates and other
similar instruments relating to survey matters as the Bank may request;
(m) a Uniform Commercial Code search, tax search and judgment
report of the appropriate records of the States of Texas, Delaware, and all
other states in which the Borrower or any Joint Venture is conducting business
satisfactory in form and substance to the Bank;
(n) all of the issued and outstanding stock of the Guarantors
owned by any Credit Party together with related stock powers executed by the
pledgor of such stock;
(o) a certificate of the president or a vice president and of the
secretary or an assistant secretary of each Credit Party certifying, INTER ALIA,
(i) true and correct copies of resolutions adopted by the Board of Directors of
each such Credit Party, (A) authorizing the execution, delivery and performance
by each such Credit Party of the Loan Documents to which it is or will be a
party and, in the case of the Borrower, the borrowings thereunder, (B) approving
the forms of the Loan Documents to which it is a party and which will be
delivered at or prior to the Execution Date and (C) authorizing officers of each
such Credit Party to execute and deliver the Loan Documents to which it is or
will be a party and any related documents, (ii) true and correct copies of the
bylaws of each Credit Party that is a corporation, as amended to the date of
such certificate, (iii) the incumbency and specimen signatures of the officers
of each such Credit Party executing any documents on behalf of it, (iv) the
absence of any proceedings for the dissolution or liquidation of each such
Credit Party, (v) the absence of the occurrence and continuance of any Default
or Event of Default with respect to each such Credit Party and (vi) that no
event or condition has occurred since the Effective Date that would constitute a
Material Adverse Effect;
(p) the favorable, signed opinion of Mayor, Day, Caldwell &
Keeton, L.L.P., counsel for the Credit Parties, addressed to the Bank, as to
such matters as the Bank may reasonably request;
(q) a Perfection Certificate executed by an Authorized Officer of
each Credit Party;
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(r) Supplemental Deeds of Trust covering the Mortgaged Properties
executed by the appropriate Credit Parties dated as of the date hereof securing
all of the Obligations;
(s) payment of all reasonable fees and out-of-pocket expenses of
the Bank and of Andrews & Kurth L.L.P., counsel to the Bank, and any local
counsel retained by it;
(t) a Borrowing Base Certificate for the Note;
(u) copies of certificates of good standing and existence for
each of the Credit Parties in the jurisdiction of its incorporation and
certificates of authority to conduct business in each jurisdiction in which the
failure to obtain same would constitute a Material Adverse Effect;
(v) the Borrower's establishment of a lockbox (by execution of
the Bank's standard lockbox agreement) through which all cash, from all sources
will flow on terms satisfactory to the Bank; and
(w) such other documents as the Bank may reasonably request
relating to the existence and good standing of each Credit Party, the
authorization, execution and delivery of this Agreement and the other Loan
Documents, and all other matters relevant hereto and thereto, all in form and
substance reasonably satisfactory to the Bank.
Section 4.02. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The
obligation of the Bank to make any Advance, including the initial Advance, shall
be subject to the further conditions precedent that on the date of such Credit
Event the following statements shall be true (and each of the giving of the
applicable Borrowing Request and the acceptance by the Borrower of the proceeds
of such Advance, as the case may be, shall constitute a representation and
warranty by the Borrower that on the date of such Credit Event such statements
are true):
(a) with respect to each Advance, the Bank shall have received, a
Borrowing Request, as applicable, with respect to such Credit Event;
(b) with respect to any Advance, immediately after giving effect
to such Advance, the sum of the aggregate outstanding principal amount of all
Advances does not exceed the lesser of (i) the Commitment or (ii) the Borrowing
Base with respect to making Advances;
(c) the representations and warranties contained in ARTICLE V and
those contained in the other Loan Documents are true and correct in all material
respects as though made on and as of such date (except for those expressly made
as of the date thereof and except for changes in the Borrower and its
Subsidiaries arising from transactions contemplated by the terms hereof);
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(d) no Default or Event of Default has occurred and is continuing
or would result from such Credit Event;
(e) to the extent not previously delivered the Bank shall have
received the L/C Fees and all other fees, if any, theretofore or then due and
payable to it;
(f) since the date of the Borrower's last audited financials, no
event shall have occurred and be continuing which has had or is likely to have a
Material Adverse Effect except for any matters disclosed in writing to the Bank
prior to the Effective Date; and
(g) On or prior to October 1, 1996 the Bank shall have received
copies of financial audits and collateral inspection reports of the Joint
Ventures.
(h) On or prior to October 15, 1996, originals of promissory
notes evidencing all loans of the proceeds of any Advance from the Borrower to
any of its Subsidiaries;
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement, to make
the Advances and to continue the Existing Letters of Credit, each Credit Party
represents and warrants to the Bank as to itself, and, to the extent
specifically stated, as to its Subsidiaries and each Joint Venture in which it
has an interest as follows.
Section 5.01. ORGANIZATION. Each Credit Party (a) is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, (b) is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which such qualification and good standing are necessary in
order for such Credit Party to conduct its business and own its properties as
conducted and owned and except where the failure to be so qualified or in good
standing would not constitute a Material Adverse Effect and (c) has all
requisite power and authority (corporate or otherwise) to conduct its business
as now conducted, to own or lease its property and assets and to execute,
deliver and perform each of the Loan Documents to which it is or may be a party.
Section 5.02. AUTHORITY. The execution, delivery and performance
by each Credit Party of this Agreement and the other Loan Documents to which it
is or may be a party and the consummation of the Advances contemplated hereby,
have been duly approved by the board of directors of such Credit Party and no
other corporate proceedings on the part of such Credit Party are necessary to
consummate such Advances. Each of the Loan Documents to
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which such Credit Party is a party has been duly executed and delivered by such
Credit Party and constitutes the legal, valid and binding obligation of such
Credit Party, enforceable against such Credit Party in accordance with its
terms.
Section 5.03. NO CONFLICT. The execution, delivery and
performance by such Credit Party of each of the Loan Documents to which it is or
may be a party, do not and shall not, by the lapse of time, the giving of notice
or otherwise, (a) constitute a violation of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to such Credit Party or a breach of any provision contained
in such Credit Party's articles or certificate of incorporation or bylaws, or
contained in any material agreement, instrument or document to which it is a
party or by which it is bound, other than violations or breaches which would
not, individually or in the aggregate, result in a Material Adverse Effect or
(b) result in or require the creation or imposition of any Lien whatsoever upon
any of the properties or assets of such Credit Party (other than Liens permitted
by this Agreement and Liens in favor of the Bank arising pursuant to the Loan
Documents).
Section 5.04. CONSENTS. No authorization, consent, approval,
permit, license, or exemption of or filing or registration with, any
governmental agency or any other Person which has not been obtained, was, is or
will be necessary for the valid execution, delivery or performance by any Credit
Party of any of the Loan Documents to which it is or may be a party.
Section 5.05. FINANCIAL CONDITION. (a) The Borrower delivered to
the Bank the consolidated balance sheet of JVOI and its Subsidiaries as of
January 31, 1996, and the related consolidated statements of operations, cash
flow and stockholders' equity for the year then ended, including the related
schedules and notes, reported on by Coopers & Lybrand.
(b) The unaudited consolidated balance sheet and statement of
operations and cash flow of the Borrower and its Subsidiaries as at April 30,
1996, copies of which have heretofore been furnished to the Bank, are correct in
all material respects, and present fairly the consolidated financial condition
of the Borrowers as at such date (subject to normal year-end audit adjustments).
(c) The financial statements referred to in paragraphs (a) and
(b) above, including the related schedules and notes thereto, have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved.
(d) The Borrower has disclosed to the Bank in writing any and all
facts which would result in, or which the Borrower believes may result in, a
Material Adverse Effect and since January 31, 1996, there has been no material
adverse change in the business, operations, properties, assets, business
prospects or financial condition of the Borrower and its Subsidiaries
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taken as a whole except as to those matters previously disclosed to the Bank as
of the date hereof.
Section 5.06. LITIGATION; MATERIAL ADVERSE EFFECT. (a) Except as
set forth in EXHIBIT 5.06 hereto, there are no actions, suits or proceedings
pending or, to the best of the Borrower's knowledge, threatened or probable of
assertion, against or affecting any Credit Party or any of its Subsidiaries or
any property or rights of any Credit Party or any of its Subsidiaries before any
court or any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely to the
Borrower or any such Subsidiary would constitute a Material Adverse Effect.
(b) Except as otherwise disclosed to the Bank in writing, neither
the business, properties nor operations of any Credit Party or any of its
Subsidiaries is materially and adversely affected by any fire, explosion,
accident, strike, lockout or other labor dispute, embargo, act of God or act of
a public enemy or other event, condition or casualty, provided the determination
of such effect shall include a consideration of available insurance proceeds.
Section 5.07. INDEBTEDNESS. Except as set forth in EXHIBIT 5.07
or as set forth in the financial statements referred to in SECTION 5.05, and
except for the Indebtedness represented by this Agreement, the Note and the
other Loan Documents and any other Indebtedness owing to the Bank, no Credit
Party, nor any of its Subsidiaries has any secured or unsecured Indebtedness.
Section 5.08. NO MARGIN STOCK. No Credit Party nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U), and no
part of the proceeds of any Advance or Existing Letter of Credit will be used,
directly or indirectly, (a) to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock or
(b) for the purpose of purchasing, carrying or trading in any securities under
such circumstances as to involve any Credit Party in a violation of Regulation
X.
Section 5.09. ACCURACY AND COMPLETENESS OF INFORMATION. All
written estimates, projections and forecasts furnished by or on behalf of the
Borrower and the other Credit Parties to the Bank for purposes of or in
connection with this Agreement, or in connection with any Existing Letter of
Credit, were and will be prepared on the basis of assumptions, data, tests or
conditions believed to be reasonable, valid or to represent industry conditions
existing at the time such estimates or forecasts were furnished. Neither this
Agreement, the Note, the other Loan Documents, the statements and documents
referred to in SECTION 5.05 nor any other document delivered by the Borrower or
any of their respective Subsidiaries to the Bank contains any material
misstatement of fact or omits to state a material fact necessary in order to
make the statements contained herein or therein not misleading as of
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the respective date thereof. The Borrower has not intentionally withheld any
fact known to them which has or is reasonably likely to constitute a Material
Adverse Effect which has not been set forth or referred to in this Agreement,
the Note, the other Loan Documents or such other document heretofore furnished
to the Bank.
Section 5.10. ERISA. (a) No Reportable Event or withdrawal from
or termination, reorganization or insolvency has occurred and is continuing with
respect to any Plan that would likely constitute a Material Adverse Effect and
(b) neither the PBGC nor the Borrower nor any Commonly Controlled Entity has
instituted any proceedings or taken any other actions with respect to the
withdrawal from, or the termination, reorganization or insolvency of any Plan
that would reasonably be expected to have a Material Adverse Effect.
Section 5.11. GOVERNMENT REGULATION. No Credit Party nor any of
its Subsidiaries is (a) an "investment company" or a company directly or
indirectly controlled by or acting on behalf of any Person which is an
"investment company," as such term is defined in the Investment Company Act of
1940, (b) a "holding company" or a "subsidiary company" of a "holding company"
or an "affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, or (c) a "public utility," as such term is defined in the
Federal Power Act.
Section 5.12. PROPERTY. Each Credit Party and each of its
Subsidiaries, as the case may be, has good record and defensible title in fee
simple to or valid leasehold interests in all its real properties and marketable
title to all its other property and assets except where the failure to so have
such title or interest would not reasonably be expected to have a Material
Adverse Effect.
Section 5.13. PAYMENT OF TAXES. The federal income tax returns of
the Borrower and other tax returns and reports of each Credit Party and its
Subsidiaries required to be filed with the appropriate governmental agencies in
all jurisdictions in which such returns and reports are required to be filed
have been filed and all of the foregoing are true, correct and complete, and the
Borrower paid all taxes and other similar charges, or made adequate provision
therefor, that are due and payable within the time prescribed for filing and
payment or an appropriate extension has been requested and obtained for such
filing or payment except where such failure would not reasonably be expected to
result in a Material Adverse Effect. Neither Borrower nor any of its
Subsidiaries has taken any reporting positions for which it does not have a
reasonable basis and no such Person anticipates any further material tax
liability with respect to the tax years for which returns have been filed. The
Borrower has no knowledge of any proposed tax assessment against the Borrower or
any of its Subsidiaries that would reasonably be expected to have a Material
Adverse Effect which is not being actively contested in good faith.
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Section 5.14. INSURANCE. Each Credit Party and each of its
Subsidiaries carries and will continue to carry insurance with reputable
insurers in respect of its properties in such amounts and against such risks as
is customarily maintained by other Persons of similar size engaged in similar
business and reasonably acceptable to the Bank.
Section 5.15. SUBSIDIARIES; JOINT VENTURES. (a) EXHIBIT 5.15
hereto lists each Subsidiary of each Credit Party and each Joint Venture in
which a Credit Party has an interest, the jurisdiction under which each such
Subsidiary and Joint Venture is incorporated or organized and the direct and
indirect ownership interest of such Credit Party therein. Each Subsidiary of a
Credit Party has been duly organized and is validly existing in good standing
under the laws of its jurisdiction of organization.
(b) The Borrower or its Subsidiaries have heretofore delivered to
the Bank a copy of the Articles or Certificate of Incorporation of each Joint
Venture that is a corporation and each agreement creating or governing the
rights of the parties to each other Joint Venture (collectively, the "JOINT
VENTURE AGREEMENTS") in existence on the date hereof, as amended to the date
hereof. Each Joint Venture Agreement is in full force and effect and as to each
Joint Venture Agreement creating each non-corporate Joint Venture is enforceable
against each Credit Party which is a party thereto in accordance with its terms.
Section 5.16. PATENTS. Each Credit Party and each of its
Subsidiaries owns or holds a valid license to use all material patents,
trademarks, service marks, trade names, copyrights, licenses and other rights,
that are necessary for, and no restriction applicable to any such patent,
trademark, service mark, trade name, copyright, license or other right would
interfere in any material respect with, the operation of its business taken as a
whole as presently conducted and as proposed to be conducted.
Section 5.17. COMPLIANCE WITH STATUTES. (a) Each Credit Party and
each of its Subsidiaries is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except such non-compliance as is not
likely to, in the aggregate, have a Material Adverse Effect.
(b) Each Credit Party and each of its Subsidiaries is in
compliance with all applicable Environmental Laws governing its business for
which failure to comply is likely to have a Material Adverse Effect, and no
Credit Party nor any of its Subsidiaries is liable for any material penalties,
fines or forfeitures for failure to comply with any of the foregoing in the
manner set forth above. All licenses, permits, registrations or approvals
required for the business of each Credit Party and each of its Subsidiaries, as
conducted as of the Effective Date, under any Environmental Law have been
secured and each Credit Party and each of its Subsidiaries is in substantial
compliance therewith, except such licenses, permits, registrations
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or approvals the failure to secure or to comply therewith is not likely to have
a Material Adverse Effect. No Credit Party nor any of its Subsidiaries is in
noncompliance with, breach of or default under any applicable writ, order,
judgment, injunction, or decree to which such Credit Party or such Subsidiary is
a party or which would affect the ability of such Credit Party or such
Subsidiary to operate any of its properties and no event has occurred and is
continuing which, with the passage of time or the giving of notice or both,
would constitute noncompliance, breach of or default thereunder, except in each
such case, such noncompliances, breaches or defaults as are not likely to, in
the aggregate, have a Material Adverse Effect. There are, as of the Effective
Date, no Environmental Claims pending or, to the best knowledge of any Credit
Party, threatened, which (i) question the validity, term or entitlement of such
Credit Party or any of its Subsidiaries for any permit, license, order or
registration required for the operation of any facility which such Credit Party
or any of its Subsidiaries currently operates and (ii) wherein any unfavorable
decision, ruling or finding would be reasonably likely to have a material
adverse effect on the financial viability of any facility thereof. There are no
facts, circumstances, conditions or occurrences on any real property or, to the
knowledge of the Credit Parties, on any property adjoining or in the vicinity of
any real property that could reasonably be expected (i) to form the basis of an
Environmental Claim against any Credit Party or any of its Subsidiaries or (ii)
to cause such real property to be subject to any restrictions on the ownership,
occupancy, use or transferability of such real property under any Environmental
Law, except in each such case, such Environmental Claims or restrictions that
individually or in the aggregate are not reasonably likely to have a Material
Adverse Effect.
(c) To the best of the Credit Parties' knowledge, Hazardous
Materials have not at any time been (i) generated, used, treated or stored on,
or transported to or from, any real property of any Credit Party or any of its
Subsidiaries or (ii) released on any real property, in each case where such
occurrence or event is reasonably likely to have a Material Adverse Effect.
Section 5.18. LABOR RELATIONS; COLLECTIVE BARGAINING AGREEMENTS.
(a) Set forth on EXHIBIT 5.18 is a list and description (including dates of
termination) of all collective bargaining or similar agreements between or
applicable to any Credit Party or any of its Subsidiaries and any union, labor
organization or other bargaining agent in respect of the employees of any Credit
Party or any of its Subsidiaries on the Effective Date.
(b) No Credit Party nor any of its Subsidiaries is engaged in any
unfair labor practice that could have a Material Adverse Effect. There is (i) no
significant unfair labor practice complaint pending against any Credit Party or
any of its Subsidiaries or, to the best knowledge of any Credit Party,
threatened against any of them before the National Labor Relations Board, and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is now pending against any Credit
Party or any of its Subsidiaries or, to the best knowledge of such Credit Party,
threatened against any of them, (ii) no significant strike, labor dispute,
slowdown or stoppage is pending against any
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Credit Party or any of its Subsidiaries or, to the best knowledge of such Credit
Party, threatened against such Credit Party or any of its Subsidiaries and (iii)
no union representation question exists with respect to the employees of any
Credit Party or any of its Subsidiaries, except such as is not reasonably likely
to have a Material Adverse Effect.
Section 5.19. LIABILITIES. (a) All contingent liabilities and
direct liabilities of the Credit Parties and their respective Subsidiaries, and
all anticipated losses of the Credit Parties and their respective Subsidiaries,
which in the aggregate are material to the Credit Parties and their respective
Subsidiaries taken as a whole, are set forth in the financial statements
referred to in SECTION 5.05 to the extent required by GAAP and modified by the
footnotes to such statements and (b) all contingent liabilities and direct
liabilities of the Credit Parties and all unrealized or anticipated losses of
the Credit Parties and their respective Subsidiaries, which in the aggregate are
material to the Credit Parties and their respective Subsidiaries taken as a
whole, to the extent required by GAAP will be set forth in the financial
statements next delivered pursuant to SECTION 6.01 hereof after any of such are
incurred or anticipated, as applicable.
Section 5.20. SOLVENCY. The Credit Parties, viewing their
businesses and operations as a single consolidated entity, have capital
sufficient to carry on their businesses and transactions and all businesses and
transactions in which they are about to engage and are now solvent and able to
pay their respective debts as they mature, and the Credit Parties now
collectively own property having a value, both at fair valuation and at present
fair salable value, greater than the amount required to pay all existing debts
of the Credit Parties.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any of the Obligations shall remain unpaid or
outstanding or the Bank shall have any Commitment or (subject to SECTION
2.20(B)(II)) any Existing Letter of Credit is outstanding, unless the Bank shall
otherwise consent in writing, each Credit Party covenants and agrees as to
itself, and, to the extent specifically stated, as to its Subsidiaries and each
Joint Venture in which it has an interest that:
Section 6.01. REPORTING REQUIREMENTS. The Borrower shall deliver
or cause to be delivered to the Bank:
(a) ANNUAL REPORTS. Upon the earlier of 90 days after the close
of each fiscal year of the Borrower or the day following the date of filing of
Borrower's Annual Report on Securities and Exchange Commission Form 10-K, either
(i) a copy of its Annual Report on Form 10-K as filed with respect to such year
or (ii) consolidated and consolidating balance sheets of
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the Borrower and its Subsidiaries, as at the end of such fiscal year and the
related statements of operations, cash flow and stockholders' equity for such
fiscal year, setting forth comparative figures for the preceding fiscal year,
and examined by Coopers & Lybrand (or other independent certified public
accountants of recognized national standing reasonably acceptable to the Bank)
whose opinion shall not be qualified as to the scope of audit and as to the
status of the Borrower or any of its Subsidiaries as a going concern, together,
in each case, with a certificate of the accounting firm referred to above
stating that in the course of its regular audit of the business of the Borrower,
which
audit was conducted in accordance with generally accepted auditing standards,
such accounting firm has obtained no knowledge of any Default or Event of
Default that has occurred and is continuing, or, if such firm has obtained
knowledge of any Default or Event of Default that has occurred and is
continuing, a statement as to the nature thereof.
(b) QUARTERLY REPORTS. Upon the earlier of 45 days after the
close of each of the first three quarterly accounting periods in each fiscal
year of the Borrower, or the day following each date of filing of the Borrower's
Quarterly Report on Form 10-Q either (i) a copy of such Quarterly Report on Form
10-Q as filed with respect to such quarterly period or (ii) consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries, as at the end
of such quarterly period and the related statements of operations and cash flows
for such quarterly period and for the elapsed portion of the fiscal year ended
with the last day of such quarterly period, and setting forth comparative
figures for the related periods in the prior fiscal year, in each case,
certified by an Authorized Officer, subject to changes resulting from audit and
normal year-end audit adjustments.
(c) MONTHLY REPORTS. As soon as practicable, and in any event
within 30 days (45 days in the case of the last monthly accounting period of
each fiscal quarter), after the end of each monthly accounting period
(commencing with July 31, 1996) of each fiscal year of the Borrower and each
Joint Venture, consolidated and consolidating balance sheets of the Borrower and
its Subsidiaries, as at the end of such period, and the balance sheet of any
Joint Venture that is accounted for in such month in the statements of the
Borrower or its Subsidiaries, and the related statements of operations for such
period setting forth comparative figures for the corresponding period of the
previous year, including listings and agings of all Receivables for the Borrower
and each Joint Venture, each of which shall be certified by an Authorized
Officer, subject to changes resulting from audit and normal year-end audit
adjustments.
(d) WEEKLY REPORTS. As soon as practicable, and in any event on
or before 5:00 p.m. Tuesday of the following week, weekly reports in form and
substance reasonably satisfactory to the Bank of the operations of the Joint
Ventures' detailing the business and financial status of the Joint Ventures, the
first such report to be provided on October 1, 1996.
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(e) The Borrower will provide the Bank with cash flow projections
by October 1, 1996, in form and substance reasonably satisfactory to the Bank.
(f) OFFICER'S CERTIFICATE. Together with each delivery of any
financial statements pursuant to clauses (a), (b) and (c) above, a certificate
of an Authorized Officer demonstrating compliance by the Borrower and the other
Credit Parties with the provisions of SECTION 7.03 and stating whether any Event
of Default or Default has occurred and is continuing, and if there is any Event
of Default or Default, describing it and the steps, if any, being taken to cure
it.
(g) SEC FILINGS. Promptly upon transmission thereof, copies of
all such financial statements, proxy statements, notices and reports as the
Borrower shall send to its public stockholders and copies of all registration
statements (without exhibits) and reports which it files with the Securities and
Exchange Commission.
(h) BORROWING BASE CERTIFICATE. Together with each delivery of
the monthly reports pursuant to clause (c) above and on each date on which a new
Borrowing Base Certificate is required to be delivered as provided in SECTION
2.17(B), a Borrowing Base Certificate in the form of EXHIBIT 1.01-A attached
hereto, signed by an Authorized Officer of the Borrower, including therein
information as at the end of the period covered by said certificate.
(i) ERISA FILINGS. Promptly upon the filing or making thereof,
copies of each filing and report made by the Borrower, under ERISA with the PBGC
or with the U.S. Department of Labor or which the Borrower may receive from such
Persons that, in each case, relate to a condition or event that would likely
have a Material Adverse Effect.
(j) REPORTABLE EVENTS. Forthwith upon the Borrower receiving
actual notice of the occurrence of a Reportable Event under, the termination,
insolvency or reorganization of, or the institution of steps by the PBGC, the
Borrower or any Commonly Controlled Entity with respect to the withdrawal,
termination, insolvency or reorganization of any Plan to which the Borrower may
have any liability, written notice thereof describing the same and the steps
being taken by the Borrower with respect thereto.
(k) AUDITORS' REPORTS. Promptly upon receipt thereof, a copy of
each other report or "management letter" submitted to the Borrower by its
independent accountants in connection with any annual, interim or special audit
made by it of the books of the Borrower, provided if said report contains
personnel information of a confidential nature, the Borrower may delete said
sections before delivery of same to the Bank.
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(l) APPRAISALS. Annually, upon written request by the Bank, an
Appraisal for each of the Mortgaged Properties serving as collateral in form
reasonably satisfactory to Bank.
(m) ENVIRONMENTAL REPORTS. Upon written request by the Bank, an
Environmental Report for each of the Mortgaged Properties; PROVIDED, HOWEVER,
that the Bank understands and agrees that it may not request or perform any
environmental inspection, audit or assessment of any property owned or leased by
any Credit Party unless (1) all of the obligations of the Borrower hereunder
shall have been accelerated in accordance with ARTICLE VIII hereof (and such
acceleration shall not have been rescinded), (2) the Borrower receives prior
notice of the inspection, audit or assessment and the proposed scope thereof,
(3) the Bank and the Credit Parties agree that the Borrower shall be entitled to
review any report produced from any such inspection, audit or assessment
simultaneously with its delivery to the Bank and (4) any environmental
consultant utilized in connection therewith shall be a party mutually acceptable
to the Bank and the Borrower, with the Bank and the Borrower hereby stipulating
that E.R.M. - SOUTHWEST, INC. IS MUTUALLY ACCEPTABLE.
(n) OTHER REPORTS. In addition to the reports and statements
described in this Section, the Borrower shall provide the Bank: (i) such other
material financial reports and information as the Bank may from time to time
reasonably request respecting the business, properties, operations or condition
(financial or otherwise) of the Borrower or any Joint Venture; and (ii) notice
of any additional Indirect Indebtedness incurred or Liens granted by any Joint
Venture in excess of $500,000.00 in any single transaction.
Section 6.02. EXISTENCE. Each Credit Party shall preserve and
maintain its and its Subsidiaries' existence, rights, franchises and privileges
in the jurisdictions of their incorporation or other organization and their
qualification and good standing in all jurisdictions in which the failure to
preserve or maintain such existence, rights, franchises, privileges,
qualification and good standing would be likely to constitute a Material Adverse
Effect.
Section 6.03. MAINTENANCE OF PROPERTIES; INSURANCE. (a) Each
Credit Party and each of its Subsidiaries shall maintain with financially sound,
responsible and reputable insurance companies insurance against such risks and
in such amounts as are usually insured against by Persons of established
reputation engaged in the same or similar businesses and similarly situated;
PROVIDED, HOWEVER, notwithstanding the foregoing, each Credit Party and its
Subsidiaries will maintain (i) all insurance required by state statutes to be
maintained by employers for the protection of employees against work related
injuries and (ii) to the extent available at commercially reasonable rates,
comprehensive general liability coverage in such amounts as are appropriate for
the operations of such Credit Party and its Subsidiaries and (iii) all insurance
that such Credit Party and its Subsidiaries are required to maintain by law and
(iv) insurance required to be maintained by any of the Credit Parties pursuant
to the Deeds of Trust. Each policy in effect from time to time pursuant to the
terms of this Section, shall
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include a provision for thirty (30) days' prior written notice to the Bank of
any cancellation or expiration thereof and shall show the Bank as an additional
insured.
(b) Each Credit Party will maintain and preserve all of its
material properties necessary for the proper conduct of its business in working
order and condition, ordinary wear and tear excepted.
(c) Upon the Bank's written request, but no more often than
annually, each Credit Party will provide the Bank with current certificates of
insurance, each in form reasonably satisfactory to the Bank. .
Section 6.04. NOTICE OF LITIGATION. The Borrower shall promptly,
upon actual notice or knowledge thereof, deliver or cause to be delivered to the
Bank notice of (a) the institution of or threat of, any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
Credit Party or any of its Subsidiaries not previously disclosed in writing to
the Bank pursuant to SECTION 5.06 which, if determined adversely to such Credit
Party or such Subsidiary, would constitute a Material Adverse Effect or (b) any
material development in any action, suit, proceeding, governmental investigation
or arbitration already disclosed, which is likely to constitute a Material
Adverse Effect.
Section 6.05. TAXES; CLAIMS. Each Credit Party and each of its
Subsidiaries shall (a) timely file all federal, state and local tax returns and
other reports which such Credit Party and such Subsidiaries are required by law
to file or obtain an appropriate extension for filing thereof, (b) maintain
adequate reserves on its books in accordance with GAAP for the payment of all
material taxes, assessments and governmental charges, and pay prior to
delinquency all such taxes, assessments and governmental charges, and (c) pay
all other material claims (including, without limitation, claims for labor,
services, materials and supplies) that have become due and payable and that by
law have or may become a Lien on Borrower's property or assets, prior to the
time when any penalty or fine may be incurred with respect thereto, other than
any such tax, assessment, charge, levy or claim which is being contested in good
faith, by proper proceedings and with respect to which adequate reserves have
been established.
Section 6.06. NOTICE OF DEFAULT. The Borrower shall notify the
Bank in writing within three (3) Business Days after the Borrower becomes aware
of the occurrence thereof, (a) of any condition or event that constitutes either
an Event of Default or a Default, (b) of any other default by the Borrower or
any of its Subsidiaries under any material note, indenture, advance, agreement,
mortgage, lease, deed or other similar agreement to which the Borrower or any of
its Subsidiaries is a party or by which the Borrower or any of its Subsidiaries
is bound, the existence of which might reasonably be expected to lead to a
Material Adverse Effect, or (c) of any event or condition that might reasonably
be expected to constitute a Material Adverse Effect, such notice to specify the
nature and period of existence of any such
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condition, event, default or potential default and what action the Borrower has
taken, is taking or proposes to take with respect thereto.
Section 6.07. INSPECTIONS. From time to time during regular
business hours and upon reasonable notice, each Credit Party will permit any
agents or representatives of the Bank to examine and make copies of and
abstracts from the records and books of account and files and visit the
properties of such Credit Party and its Subsidiaries to discuss the affairs,
finances and accounts of such Credit Party and its Subsidiaries with any of its
independent certified public accountants (with an officer or other
representative of such Credit Party present); PROVIDED, HOWEVER, that the Bank
shall keep any information obtained confidential to the extent that the Bank is
not required by law to disclose such information and such information is not
otherwise generally available to the public.
Section 6.08. COMPLIANCE WITH LAWS; NOTICES. (a) GENERAL. The
Borrower shall, and shall cause its Subsidiaries to, comply with all material
laws, rules and regulations, including, without limitation, all Environmental
Laws, and all restrictive covenants applicable to the Borrower and its
Subsidiaries, the noncompliance with which might, in any respect, constitute a
Material Adverse Effect; PROVIDED, HOWEVER, that neither the Borrower nor any of
its Subsidiaries shall be required to comply with any such law or restrictive
covenant if the applicability or validity thereof is being contested in good
faith, by proper proceedings and for which adequate reserves have been
established.
(b) ENVIRONMENTAL MATTERS. Promptly upon obtaining knowledge
thereof, the Borrower shall deliver to the Bank notice of (i) any pending or
threatened Environmental Claim against the Borrower or any of its Subsidiaries
or any real property of the Borrower or any of its Subsidiaries unless such
Environmental Claim could not, individually or when aggregated with all other
such Environmental Claims, reasonably be expected to have a Material Adverse
Effect; (ii) any condition or occurrence on any real property of the Borrower or
any of its Subsidiaries that (A) results in material noncompliance by the
Borrower or such Subsidiary with any applicable Environmental Law unless such
noncompliance could not, individually or when aggregated with all other such
non-compliance claims, reasonably be expected to have a Material Adverse Effect;
(iii) any condition or occurrence on any real property of the Borrower that
could reasonably be anticipated to cause such real property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such real
property under any Environmental Law unless such restrictions could not,
individually or when aggregated with all other such restrictions, reasonably be
expected to have a Material Adverse Effect; and (iv) the taking of any removal
or remedial action in response to the actual or alleged presence of any
Hazardous Material on any real property of the Borrower or any of its
Subsidiaries, unless the presence of such Hazardous Materials and the removal or
remedial action in response thereto could not, individually or when aggregated
with all such other occurrences or events, reasonably be expected to have a
Material Adverse Effect. All such notices shall describe in reasonable detail
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the nature, to the extent known, of the claim, investigation, condition,
occurrence or removal or remedial action and the response thereto of the
Borrower or of its applicable Subsidiary. In addition, the Borrower will provide
the Bank with copies of all material written communications with any government
or governmental agency relating to Environmental Law, all material
communications with any government or governmental agency relating to
Environmental Claims, and such detailed reports of any Environmental Claim, in
each case as they relate to the Mortgaged Properties as may reasonably be
requested in writing from time to time by the Bank.
Section 6.09. BOOKS AND RECORDS; ACCOUNTING SYSTEMS AND
PRINCIPLES. Each Credit Party will keep adequate records and books of account in
which complete entries will be made in accordance with GAAP, reflecting all
financial transactions of such Credit Party and its Subsidiaries.
Section 6.10. OWNERSHIP OF CREDIT PARTIES. The Borrower will at
all times maintain and cause to be maintained the legal and beneficial ownership
of the shares of capital stock of the Credit Parties to be as shown on EXHIBIT
5.15.
Section 6.11. FURTHER ASSURANCES. Each Credit Party shall at its
expense, promptly execute and deliver, or cause to be executed and delivered, to
the Bank upon reasonable request all such other and further documents,
agreements and instruments reasonably required to comply with or accomplish the
covenants and agreements of such Credit Party in the Loan Documents to which it
is a party.
Section 6.12. PERFORMANCE OF LOAN DOCUMENTS. Each Credit Party
will perform or cause to be performed all of the terms, covenants, agreements
and conditions on its part to be performed under this Agreement and each of the
other Loan Documents.
Section 6.13. ACTIVITIES OF JOINT VENTURE. Except for Liens and
Indebtedness incurred in connection with any project financing as described in
SECTIONS 7.02(D) and 7.09(G), each of the Credit Parties will use its good faith
efforts, within the bounds of good business judgment and its legal obligations
under or in connection with the Joint Venture Agreements to which it is a party
affecting the Joint Ventures, to limit the Indebtedness that may be incurred by,
and any liens that may be granted by, said Joint Ventures. To the extent that
said Credit Parties are able to do so within the aforesaid bounds, they will
encourage said Joint Ventures to minimize the imposition of any of said
Indebtedness or the granting of any liens.
Section 6.14. DIVIDENDS. To the extent permitted by law, the
Borrower agrees to take such actions within its power so that each of the Credit
Parties will pay, to the extent funds are legally available therefor, dividends
of an amount sufficient to allow the Borrower to make all required payments of
principal or interest due from the Borrower hereunder.
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ARTICLE VII
NEGATIVE COVENANTS
So long as any of the Obligations shall remain unpaid or
outstanding or the Bank shall have any Commitment, unless the Bank shall
otherwise consent in writing, each Credit Party covenants and agrees as to
itself, and, to the extent specifically stated, as to its Subsidiaries and each
Joint Venture in which it has an interest that:
Section 7.01. LIENS. Each Credit Party shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or permit to exist,
whether directly or indirectly, any Lien on or with respect to any of its
properties or assets, whether now held or hereafter acquired, except:
(a) Liens created pursuant to this Agreement or any other Loan
Document or other Liens in favor of the Bank;
(b) Liens existing on the Effective Date and set forth on EXHIBIT
7.01(B);
(c) Liens imposed by law, carriers', warehousemen's or mechanics'
liens, and Liens to secure claims for labor, material or supplies arising in the
ordinary course of business, but only to the extent that payment thereof shall
not at the time be due or is being contested in good faith by appropriate
proceedings diligently conducted and with respect to which appropriate reserves
have been set aside in accordance with GAAP, and so long as the enforcement
thereof has been stayed and such Liens do not individually or in the aggregate
have a Material Adverse Effect;
(d) Deposits or pledges to enable the Credit Parties and their
Subsidiaries to exercise any privilege or license, deposits or pledges made in
connection with, or to secure payment of, workmen's compensation, unemployment
insurance, old age pensions or other social security, or to secure the
performance of bids, tenders, contracts (other than those relating to borrowed
money) or leases or to secure statutory obligations or surety or appeal bonds,
or to secure indemnity, performance or other similar bonds in the ordinary
course of business, or in connection with contests, so long as such Liens do not
individually or in the aggregate materially impair the value or materially
interfere with the use of any property subject thereto or the operation of the
usual business of the Credit Party(ies) involved and do not, in the aggregate
exceed $1,000,000.00;
(e) Liens for taxes, assessments, levies or other governmental
charges not yet due or which are being contested in good faith by appropriate
proceedings diligently conducted and with respect to which appropriate reserves
have been set aside in accordance with GAAP,
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and so long as the enforcement thereof has been stayed and such Liens do not
individually or in the aggregate have a Material Adverse Effect;
(f) Liens arising out of judgments or awards against a Credit
Party, or any of its Subsidiaries with respect to which such Person shall be in
good faith prosecuting an appeal or a proceeding for review, or Liens incurred
by a Credit Party, or such Subsidiary for the purpose of obtaining a stay or
discharge of any legal proceeding to which such Person is a party, PROVIDED,
HOWEVER, nothing herein is intended to waive any Event of Default that may
result from any such judgment, award or proceeding under SECTION 8.01(K);
(g) Liens consisting of encumbrances, easements or reservations
of, or rights of others for, rights-of-way, sewers, electric lines, telegraph
and telephone lines, pipelines and other similar purposes, zoning restrictions,
restrictions on the use of real property and minor defects and irregularities in
the title thereto, landlord's or lessor's Liens under leases to which a Credit
Party, or any of its Subsidiaries is a party and other similar encumbrances,
none of which has a Material Adverse Effect;
(h) Rights of collecting banks having a right of set off,
revocation, refund or chargeback with respect to money or instruments of a
Credit Party or any of its Subsidiaries on deposit with or in the possession of
such bank;
(i) Liens to secure Indebtedness incurred in connection with the
purchase of equipment for use in Borrower's day to day office operations not to
exceed, in the aggregate during the term hereof, $250,000.00;
(j) Other Permitted Liens;
(k) Liens on assets of Proler Environmental Services, Inc. (but
not any other Credit Parties) to secure Indebtedness permitted by SECTION
7.02(D) hereof; and
(l) Extensions, renewals or replacements of any Lien referred to
in the foregoing clauses; PROVIDED, HOWEVER, that no Lien arising or existing as
a result of such extension, renewal or replacement shall be extended to cover
any property not theretofore subject to the Lien being extended, renewed or
replaced so as to violate this Agreement; and FURTHER PROVIDED that the
principal amount of Indebtedness secured thereby shall not exceed the principal
amount of Indebtedness so secured at the time of such extension, renewal or
replacement so as to violate this Agreement.
Section 7.02. INDEBTEDNESS. The Borrower shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness as defined herein exclusive of those items described in
subparagraph (g) of such definition except:
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(a) Indebtedness of the Credit Parties hereunder and under the
other Loan Documents or any other Indebtedness owing to the Bank;
(b) Indebtedness set forth in EXHIBIT 5.07 or as set forth in the
financial statements referred to in SECTION 5.05;
(c) Taxes, assessments or other governmental charges which are
not yet delinquent or are being contested in good faith by appropriate action
promptly initiated and diligently conducted, and in respect of which adequate
reserves shall have been made therefor; and
(d) Extensions, renewals and replacements (but not increases) of
any Indebtedness referred to in the foregoing clauses.
Section 7.03. FINANCIAL COVENANTS. (a) The Borrower shall not
permit the ratio of (i) Consolidated Current Assets to (ii) Consolidated Current
Liabilities to be less than 1.25 to 1.0 at the end of any fiscal quarter of the
Borrower; PROVIDED, notwithstanding the definition of "Joint Ventures," or
anything else herein contained, for purposes of this SECTION 7.03(A) only (but
not any other sections or subsections of this SECTION 7.03), Consolidated
Current Assets and Consolidated Current Liabilities shall include that portion
of the current assets and current liabilities of the Joint Ventures equal to
that portion of the Credit Parties' ownership interest therein.
(b) The Borrower shall not permit Consolidated Net Worth as of
the end of each fiscal quarter, commencing with the fiscal quarter ending July
31, 1996, to be less than $28,000,000.00.
(c) The Borrower shall not permit EBITDA (i) for the fiscal
quarter ending October 31, 1996 to be less than $(1,500,000.00) and (ii) for
each fiscal quarter ending thereafter, to be less than ($500,000.00), based on
the results of such quarter measured as of the end of such fiscal quarter.
Section 7.04. CONSOLIDATION, MERGERS AND ACQUISITIONS;
FUNDAMENTAL CHANGES. Except as otherwise provided herein, including, without
limitation, as provided in SECTION 7.09(G), the Borrower shall not, and shall
not permit any of its Subsidiaries, other than actions by Proler Environmental
Services, Inc., contemplated under SECTIONS 7.02, 7.09 or 7.11 without the prior
written consent of the Bank, to merge or consolidate with or acquire all or any
part of the outstanding capital stock or assets of any other Person (other than
purchases or other acquisitions of inventory and equipment in the ordinary
course of business) or liquidate, wind up or dissolve (or suffer any liquidation
or dissolution), or suffer a change in ownership directly or indirectly, except
that the following shall be permitted:
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(a) any Credit Party (other than the Borrower) may merge into or
consolidate with any Credit Party or with any other Subsidiary of any Credit
Party, PROVIDED that a Credit Party is the survivor; and
(b) any Subsidiary of a Credit Party may merge into or
consolidate with any other Subsidiary of any Credit Party, PROVIDED, that, if a
wholly-owned Subsidiary of a Credit Party is a party to such merger or
consolidation, a wholly-owned Subsidiary of a Credit Party is the survivor, and
PROVIDED, FURTHER, that if the outstanding shares of stock of a Subsidiary that
is a party to such a merger or consolidation are pledged to the Bank under the
Pledge Agreement, then the shares of such surviving Subsidiary which are held by
any Credit Party or any Subsidiary of a Credit Party shall be pledged to the
Bank under the Pledge Agreement.
Section 7.05. TRANSACTIONS WITH AFFILIATES. Subject to SECTION
7.16 hereof and the Investments allowed under SECTION 7.09(G), the Credit
Parties shall not, and shall not permit any of their Subsidiaries to, enter
into, or be a party to, any transaction with any Affiliate (including any Joint
Venture) except on terms and conditions as favorable (or more favorable) to such
Credit Party or such Subsidiary than would be obtained in a comparable arm's
length transaction between unrelated parties, PROVIDED, HOWEVER, that the Credit
Parties may deal with any Joint Venture as contemplated by SECTION 7.09(F) or
the Joint Venture Agreements or any other joint venture agreements to which they
are a party in accordance with past practice or within the bounds of good
business judgment.
Section 7.06. USE OF PROCEEDS. No proceeds of any Advance shall
be used by the Borrower for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock," within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System. The
Borrower shall not engage principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock within the meaning of such Regulation U.
Section 7.07. COMPLIANCE WITH ERISA. The Borrower shall not, and
shall not permit any of its Subsidiaries to, (a) terminate any Plan so as to
result in any liability to PBGC which could reasonably be expected to have a
Material Adverse Effect, (b) engage in any "prohibited transaction" (as defined
in Section 4975 of the Code) involving any Plan which would result in a
liability for an excise tax or civil penalty in connection therewith which could
reasonably be expected to have a Material Adverse Effect, (c) incur or suffer to
exist any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived involving any Plan which could reasonably be expected to
have a Material Adverse Effect or (d) allow or suffer to exist any event or
condition, which presents a material risk of incurring a liability to PBGC by
reason of termination of any such Plan which could reasonably be expected to
have a Material Adverse Effect.
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Section 7.08. LIMITATION ON NEGATIVE PLEDGE CLAUSES. The Credit
Parties shall not, and shall not permit any of their Subsidiaries to, enter into
any agreement with any Person other than the Bank which prohibits or limits the
ability of the Credit Parties or any of their Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of their property, assets or
revenues, whether now owned or hereafter acquired.
Section 7.09. INVESTMENTS. The Credit Parties shall not, and
shall not permit any of their Subsidiaries to, directly or indirectly, make any
Investments except:
(a) Investments existing on the Effective Date and listed on
EXHIBIT 7.09;
(b) Investments on terms customary in the industry involved in
the form of accounts receivable incurred, and Investments made in settlement of
such accounts receivable, all in the ordinary course of business of the Credit
Parties and their Subsidiaries;
(c) Permitted Investments;
(d) stock or securities received in the settlement of debts
(created in the ordinary course of business);
(e) travel advances to officers and employees made in the
ordinary course of business;
(f) Investments in Joint Ventures and Credit Parties; PROVIDED,
that Investments in Proler Environmental Services, Inc. shall be limited as set
forth in subclause (g) below; and
(g) Investments in the stock or assets not to exceed
$3,000,000.00 if made in or to Proler Environmental Services, Inc. by any other
Credit Party for the purpose of funding the construction or pre-construction
costs, research, development, marketing, feasibility studies, demonstration
projects or similar items by Proler Environmental Services, Inc. or a non-Credit
Party Affiliate thereof of a gasification plant for which no recourse exists to
any other Credit Party.
Section 7.10. SALE AND LEASEBACK. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into any arrangement with any
Person providing for the leasing by the Borrower or a Subsidiary of the Borrower
of real or personal property which has been or is to be sold or transferred by
the Borrower or such Subsidiary to such Person or to any other Person to whom
funds have been or are to be advanced by such Person on the security of such
property or rental obligations of the Borrower or such Subsidiary.
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Section 7.11. CAPITAL EXPENDITURES. The Borrower shall not incur
Consolidated Capital Expenditures (exclusive of (A) any Consolidated Capital
Expenditures attributable to capital expenditures made by the Borrower in
connection with any project financed in whole or in part by Indebtedness
permitted by SECTION 7.10, and (B) Investments permitted by SECTION 7.09) in an
aggregate amount in excess of $1,000,000.00 for any fiscal quarter during the
term of this Agreement, which Consolidated Capital Expenditures shall not exceed
$4,000,000.00 in the aggregate for the fiscal year ending January 31, 1997.
Section 7.12. LIMITATION ON RESTRICTIONS AFFECTING SUBSIDIARIES.
The Borrower shall not, and shall not permit any of its Subsidiaries to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction of any kind, on the ability of any such Subsidiary to
(a) pay dividends or make any distributions on its capital stock or joint
venture or partnership interests, (b) pay any indebtedness to the Borrower or
any other Subsidiary of the Borrower, (c) make loans or advances to the Borrower
or any Subsidiary of the Borrower or (d) transfer any of its property or assets
to the Borrower or any Subsidiary of the Borrower.
Section 7.13. RESTRICTED PAYMENTS. Except as contemplated or
permitted by the Rights Agreement dated as of February 28, 1996, as amended or
modified, the Borrower shall not directly or indirectly declare, order, pay,
make or set apart any Restricted Payment without the prior written consent of
the Bank.
Section 7.14. OTHER BUSINESS. The Credit Parties will not engage,
and will not permit any of their Subsidiaries to engage, in any lines of
business other than the business in which they are engaged on the Effective Date
and other activities incidental or related to such business, including, without
limitation, lines of business relating to processing, treatment and disposal of
waste streams and the sale, use or marketing of products produced in connection
therewith or the licensing of technology in connection therewith.
Section 7.15. JOINT VENTURE AGREEMENTS. The Joint Venture
Agreements shall not be modified, amended, terminated or otherwise affected
without the prior written consent of the Bank.
Section 7.16. NO TRANSFERS TO AFFILIATES. Other than as permitted
by SECTIONS 7.05 and 7.09, the Credit Parties shall not transfer to any of their
Affiliates any assets, during the term hereof, unless said transfer is paid for
by said Affiliate with cash as of the time of the transfer.
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ARTICLE VIII
DEFAULT AND REMEDIES
Section 8.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing, namely:
(a) the Borrower shall fail to pay when due any installment of
principal of or interest owed by it on any Advance or other amount due
hereunder, under the Note or any Loan Document to which it is a party; or
(b) the Borrower shall fail to pay immediately upon demand by the
Bank the amount paid by the Bank pursuant to a draft presented under an Existing
Letter of Credit; or
(c) any other Credit Party shall fail to pay any amount payable
to the Bank by such Credit Party hereunder or under any other Loan Document to
which it is a party when due thereunder; or
(d) the Borrower shall fail to comply with or perform any
covenant, agreement or condition in ARTICLE VII hereof; or
(e) any Credit Party shall fail to perform any other term,
covenant or agreement contained herein or in any other Loan Document to which it
is a party which failure could reasonably be expected to have a Material Adverse
Effect and such failure shall not have been remedied within thirty (30) days
after the earlier of (i) the discovery thereof by the Credit Party or (ii) the
receipt of written notice thereof by the Borrower from the Bank; or
(f) any representation or warranty made by any Credit Party in
any Loan Document to which it is a party or in any certificate, agreement,
instrument or statement contemplated by or delivered pursuant to, or in
connection with, any Loan Document shall prove to have been incorrect in any
material respect when made; or
(g) any Credit Party shall (i) fail to pay any Indebtedness owing
to the Bank evidenced by a promissory note, credit agreement or letter of credit
application; (ii) fail to pay any other Indebtedness having a principal amount
in excess of $250,000.00 (other than the amounts referred to in subsections (a)
and (b) of this SECTION 8.01) owing by such Person, or any interest or premium
thereon, when due (or, if permitted by the terms of the relevant document,
within any applicable grace period), whether such Indebtedness shall become due
by scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise; or (iii) fail to perform any term, covenant or condition on its part
to be performed under any agreement or instrument evidencing, securing or
relating to any such Indebtedness, when required to be performed, and such
failure shall continue after the applicable grace period, if
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any, specified in such agreement or instrument, if the effect of such failure is
to accelerate, or to permit the holder or holders of such Indebtedness to
accelerate, the maturity of such Indebtedness; or
(h) any Loan Document shall (other than with the consent of the
Bank), at any time after its execution and delivery and for any reason, cease to
be in full force and effect or to provide the Liens contemplated thereby, except
for such provisions or Liens that the Bank determines are not material either
individually or in the aggregate, or shall be declared to be null and void, or
the validity or enforceability thereof or of the Liens contemplated thereby
shall be contested by any Credit Party to the Loan Documents or any such Credit
Party shall deny that it has any or further liability or obligation under any
Loan Document; or
(i) any Reportable Event that might constitute grounds for the
termination of any Plan, or for the appointment by an appropriate United States
district court of a trustee to administer any Plan, shall have occurred and be
continuing for at least thirty (30) days, or any Plan shall be terminated, or a
trustee shall be appointed by an appropriate United States district court to
administer any Plan, or the PBGC shall institute proceedings to terminate any
Plan or to appoint a trustee to administer any Plan, and, in any such event, the
then-current value of such Plan's benefits guaranteed under Title IV of ERISA at
the time shall exceed by more than $270,000.00 the then-current value of such
Plan's assets, allocable to such benefits at such time; or
(j) any Credit Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the foregoing; or
(k) an involuntary case or other proceeding shall be commenced
against any Credit Party seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against such Credit Party under the federal bankruptcy
laws as now or hereafter in effect; or
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(l) a final judgment or order for the payment of money in excess
of $270,000.00 (net of acknowledged, uncontested insurance coverage) shall be
rendered against any Credit Party and either (i) enforcement proceedings shall
have been commenced by any creditor upon such judgment or order or (ii) a stay
of enforcement of such judgment or order by reason of a pending appeal or
otherwise, shall not be in effect for any period of thirty (30) consecutive
days; or
(m) (i) any single Person shall in a single transaction or a
series of related transactions acquire control of more than 51% of the
Borrower's capital stock, (ii) individuals who, as of the Effective Date,
constitute the Board of Directors of the Borrower (the "BORROWER INCUMBENT
BOARD") cease for any reason to constitute at least a majority of the Board of
Directors of the Borrower; PROVIDED, HOWEVER, that any individual becoming a
director of the Borrower subsequent to the Effective Date whose election, or
nomination for election by the Borrower's shareholders was approved by a vote of
at least a majority of the directors then comprising the Borrower Incumbent
Board, shall be considered as though such individual were a member of the
Borrower Incumbent Board, or (iii) if Bruce Wilkinson is dismissed or resigns as
Borrower's chief executive officer; or
(n) any party to any Joint Venture Agreement fails to make any
distribution to any Credit Party (i) required by any Joint Venture Agreement or
(ii) payable pursuant to usual custom and practice, and, in each case, such
failure shall continue for a period of 30 days;
then, (x) upon the occurrence of any Event of Default described in SECTION
8.01(J) or SECTION 8.01(K), (i) the Commitment shall automatically terminate and
the Bank's obligation to continue Existing Letters of Credit shall automatically
terminate and (ii) the unpaid principal amount of and accrued interest on all
Advances together with all other amounts owing by the Credit Parties under this
Agreement, the Note, the other Loan Documents and any other agreement or
security document contemplated by or delivered in connection with this Agreement
(including all Existing L/C Obligations) shall automatically become immediately
due and payable without, in any case, presentment for payment, further demand,
protest, notice of intent to accelerate, notice of acceleration or further
notice of any kind, all of which are hereby expressly waived by the Borrower,
and (y) upon the occurrence of any other Event of Default, the Bank may, by
notice to the Borrower, (i) declare the Commitment to be terminated, whereupon
the same shall forthwith terminate and (ii) declare the entire unpaid principal
amount of all Advances, all interest accrued and unpaid thereon and all other
amounts payable by any Credit Party under this Agreement (including all Existing
L/C Obligations), the Note, the other Loan Documents and any other agreement or
security document contemplated by or delivered in connection with this
Agreement, to be forthwith due and payable, whereupon all such amounts shall
become and be forthwith due and payable, without presentment for payment,
further demand, protest, notice of intent to accelerate, notice of acceleration
or further notice of any kind, all of which are hereby expressly waived by the
Borrower. With respect to all Existing
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Letters of Credit as to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to clause (x) or (y) above, the Borrower
shall at such time deposit in a cash collateral account opened by the Bank an
amount equal to the aggregate undrawn face amount of such Existing Letters of
Credit issued for its account. Amounts held in such cash collateral account
shall be applied by the Bank to the payment of drafts drawn under such Existing
Letters of Credit, and the unused portion thereof after all such Existing
Letters of Credit shall have expired or been fully drawn upon, if any, shall be
applied to repay other obligations of the Borrower hereunder and under the Note
and the other Loan Documents. After all such Existing Letters of Credit shall
have expired or been fully drawn upon, Existing L/C Obligations shall have been
satisfied and all other obligations of the Borrower hereunder and under the
Notes and the other Loan Documents shall have been paid in full, the balance, if
any, in such cash collateral account shall be returned to the Borrower that
deposited such cash collateral to be applied by the Borrowers as their interests
may appear.
Section 8.02. SET-OFF IN EVENT OF DEFAULT. Upon the occurrence
and during the continuance of any Event of Default, the Bank is hereby
authorized, at any time and from time to time, without notice to the Borrower or
any other Credit Party (any such notice being expressly waived by the Credit
Party) and to the fullest extent permitted by applicable law, to set-off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Bank or
any branch, subsidiary or Affiliate of the Bank to or for the credit or the
account of any Credit Party against any and all of the obligations of such
Credit Party, now or hereafter existing under this Agreement (including all
Existing L/C Obligations), the Note or the other Loan Documents to which each
such Credit Party is a party, irrespective of whether or not the Bank shall have
made any demand for satisfaction of such Obligations and although such
Obligations may be unmatured. The Bank agrees to notify the Borrower promptly
after any such set-off and application made by the Bank; PROVIDED, HOWEVER, that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of the Bank under this Section are in addition to
other rights and remedies (including other rights of set-off) which the Bank may
have hereunder or under any applicable law.
ARTICLE IX
MISCELLANEOUS
Section 9.01. AMENDMENTS. No modification, amendment or waiver of
any provision of this Agreement (including, without limitation, the Guaranty),
the Note or any other Loan Document, or consent to any departure by any Credit
Party herefrom or therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Bank and each Credit Party thereto, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
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Section 9.02. NOTICES. All notices, consents, requests,
approvals, demands and other communications (collectively, "COMMUNICATIONS")
provided for herein and in the other Loan Documents shall be in writing
(including telecopied communications) and mailed, telecopied or delivered as
follows:
if to the Borrower or any other Credit Party to, or in care of--
Proler International Corp.
4265 San Felipe, Suite 900
Houston, Texas 77027
Attention: Michael F. Loy
Telecopy No.: (713) 627-2737
with a copy to:
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Attention: Gail Merel or Jeffrey B. King
Telecopy No.: (713) 225-7047
if to the Bank --
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: James W. Shreve
Telecopy No.: (713) 216-4566
with a copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: Thomas J. Perich
Telecopy No.: (713) 220-4285
or at such other address as the Bank or any Credit Party shall designate in a
Communication to each of the other parties hereto. All Communications shall be
effective, in the case of written or telecopied communications, three days after
being deposited in the mail, or upon the date sent by telecopy or (in the case
of Communications which are not mailed or telecopied) when
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delivered and (if a Communication is sent by telecopy or delivered) receipt
thereof is confirmed, respectively, in each case addressed as aforesaid.
Notwithstanding the foregoing, all Borrowing Requests shall not be effective
until received by the Bank.
Section 9.03. COSTS, EXPENSES AND TAXES. The Borrower agrees to
pay on demand all reasonable costs and expenses of the Bank in connection with
(a) the administration of the Loan Documents, the Letters of Credit and the
preparation, execution, delivery, filing, recording and administration of this
Agreement, the Advances, the Note, the Existing Letters of Credit and the other
Loan Documents and any other agreements or security documents delivered in
connection with or pursuant to any of the Loan Documents, including the
reasonable fees and out-of-pocket expenses of Andrews & Kurth L.L.P., counsel
for the Bank and any local counsel who may be retained by such counsel, and the
cost of any and all appraisals, surveys, environmental audits or studies subject
to the limitations of SECTION 6.01(L), title insurance policies and similar
items required hereby, (b) all reasonable costs and expenses, if any, incurred
by the Bank in connection with the enforcement of this Agreement and the other
Loan Documents and any other agreements or security documents executed in
connection with or pursuant to any of the Loan Documents, including the
reasonable fees and out-of-pocket expenses of counsel for the Bank and any local
counsel who may be retained by such counsel, and (c) the reasonable costs and
expenses in connection with the custody, preservation, use or operation of, or
the sale of, or collection from, or other realization upon the collateral
covered by any of the Loan Documents. The agreements of the Borrower contained
in this Section shall survive the termination of the Commitment and the payment
of all amounts owing by any Credit Party hereunder or under any of the other
Loan Documents.
Section 9.04. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This
Agreement shall be binding upon and inure to the benefit of the Credit Parties,
the Bank and their respective successors and assigns, except that no Credit
Party may assign or transfer its respective rights hereunder without the prior
written consent of the Bank.
Section 9.05. INDEPENDENCE OF COVENANTS. All covenants contained
in the Loan Documents shall be given independent effect so that if a particular
action or condition is not permitted by any of such covenants, the fact that
such action or condition would be permitted by an exception to, or otherwise be
within the limitations of, another covenant shall not avoid the occurrence of a
Default or an Event of Default if such action is taken or condition exists.
Section 9.06. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement and the other Loan
Documents, or made in writing by any Credit Party in connection herewith or
therewith, shall survive the execution and delivery of this Agreement, the Note,
the Existing Letters of Credit and the other Loan Documents. Any investigation
by the Bank shall not diminish in any respect whatsoever its right to rely on
such representations and warranties.
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Section 9.07. SEPARABILITY. Should any clause, sentence,
paragraph, subsection, Section or Article of this Agreement be judicially
declared to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Agreement, and the
parties hereto agree that the part or parts of this Agreement so held to be
invalid, unenforceable or void will be deemed to have been stricken herefrom by
the parties hereto, and the remainder will have the same force and effectiveness
as if such stricken part or parts had never been included herein.
Section 9.08. NO WAIVER; REMEDIES. No failure on the part of the
Bank to exercise, and any delay in exercising, any right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right. The remedies provided in this Agreement and the Note are cumulative
and not exclusive of any remedies provided in any of the other Loan Documents or
by law.
Section 9.09. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
Section 9.10. GOVERNING LAW. This Agreement, the Note, the
Existing Letters of Credit and, unless otherwise specified therein, all other
Loan Documents and all other documents executed in connection herewith or
therewith, shall be deemed to be contracts and agreements executed by Credit
Parties and the Bank under the laws of the State of Texas and of the United
States and for all purposes shall be construed in accordance with, and governed
by, the laws of the State of Texas and of the United States. Without limitation
of the foregoing, nothing in this Agreement, the Note or any other Loan
Documents shall be deemed to constitute a waiver of any rights which the Bank
may have under federal legislation relating to the rate of interest which the
Bank may contract for, take, receive, reserve or charge in respect of any
Advance or any of the Obligations. The Bank and the Borrower further agree that
insofar as the provisions of Article 1.04, Subtitle 1, Title 79, of the Revised
Civil Statutes of Texas, 1925, as amended, are applicable to the determination
of the Highest Lawful Rate with respect to the Obligations, the indicated
(weekly) rate ceiling computed from time to time pursuant to Section (a) of such
Article shall apply to the other Obligations; PROVIDED, HOWEVER, that to the
extent permitted by such Article, the Bank may from time to time by notice from
the Bank to the Borrower revise the election of such interest rate ceiling as
such ceiling affects the then current or future balances outstanding under the
Note. The provisions of Chapter 15 of Subtitle 3 of the said Title 79 do not
apply to this Agreement, the Note or any transactions contemplated by any Loan
Document.
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Section 9.11. LIMITATION ON INTEREST. Each provision in this
Agreement, the Note, the Existing Letters of Credit and each other Loan Document
is expressly limited so that in no event whatsoever shall the amount paid, or
otherwise agreed to be paid, to the Bank for the use, forbearance or detention
of the money to be advanced under this Agreement, the Note or any other Loan
Document or otherwise (including any sums paid as required by any covenant or
obligation contained herein or in any other Loan Document which is for the use,
forbearance or detention of such money), exceed that amount of money which would
cause the effective rate of interest to exceed the Highest Lawful Rate, and all
amounts owed under this Agreement and each other Loan Document shall be held to
be subject to reduction to the effect that such amounts so paid or agreed to be
paid which are for the use, forbearance or detention of money under this
Agreement or such Loan Document shall in all events be less than that amount of
money which would cause the effective rate of interest to exceed the Highest
Lawful Rate. Anything in this Agreement, the Note, the Existing Letters of
Credit or any other Loan Document to the contrary notwithstanding, the Borrower
shall never be required to pay unearned interest on the Advances or any of the
other Obligations or ever be required to pay interest on the Advances or any of
the other Obligations at a rate in excess of the Highest Lawful Rate, or if the
holder of any of the Advances or any of the other Obligations shall receive any
unearned interest or shall receive monies that are deemed to constitute interest
which would increase the effective rate of interest payable by the Borrower
under this Agreement, the Note and the other Loan Documents to a rate in excess
of the Highest Lawful Rate, then (a) the amount of interest which would
otherwise be payable by the Borrower under this Agreement, the Note and other
Loan Documents shall be reduced to the amount allowed under applicable law and
(b) any unearned interest paid by the Borrower or any interest paid by the
Borrower in excess of the Highest Lawful Rate shall be in the first instance
credited on the principal of the applicable Note with the excess thereof, if
any, refunded to the Borrower. It is further agreed that, without limitation of
the foregoing, all calculations of the rate of interest contracted for, charged
or received by the Bank under the Note, this Agreement, the Existing Letters of
Credit or the other Loan Documents, are made for the purpose of determining
whether such rate exceeds the Highest Lawful Rate, and shall be made, to the
extent permitted by usury laws applicable to the Bank (now or hereafter
enacted), by amortizing, prorating, allocating and spreading in equal parts
during the period of the full stated term of the Obligations evidenced by the
Note all interest at any time contracted for, charged or received by the Bank in
connection therewith. If, at any time and from time to time, (x) the amount of
interest payable to the Bank on any date shall be computed at the Highest Lawful
Rate pursuant to this Section and (y) in respect of any subsequent interest
computation period the amount of interest otherwise payable to the Bank would be
less than the amount of interest payable to the Bank computed at the Highest
Lawful Rate, then to the extent permitted by applicable usury law, the amount of
interest payable to the Bank in respect of such subsequent interest computation
period shall continue to be computed at the Highest Lawful Rate until the total
amount of interest payable to the Bank shall equal the total amount of interest
which would have been payable to the Bank if the total amount of interest had
been computed without giving effect to this Section.
-63-
Section 9.12. INDEMNIFICATION. (a) The Borrower and each other
Credit Party agrees to indemnify, defend and hold the Bank, as well as its
officers, employees, agents, directors, shareholders, counsels and Affiliates
(collectively, "INDEMNIFIED PERSONS") harmless from and against any and all
loss, liability, damage, judgment, claim, deficiency, penalty, fine, response
and remediation cost, stabilization cost, encapsulation cost, treatment, storage
or disposal cost, groundwater monitoring or environmental sampling cost or any
other reasonable cost or expense (including interest, penalties, reasonable
attorneys', experts' or consultants' fees, and disbursements in connection with
any investigative, administrative or judicial proceeding and amounts paid in
settlement) (collectively, "INDEMNIFIED LIABILITIES") incurred by or asserted
against any Indemnified Person arising out of, in any way connected with, or as
a result of (i) the execution and delivery of this Agreement and the other Loan
Documents, the performance by the parties hereto and thereto of their respective
obligations hereunder and thereunder (including the making of the Commitment of
the Bank) and consummation of the transactions contemplated hereby and thereby,
(ii) the actual or proposed use of the Existing Letters of Credit or the
proceeds of the Advances, (iii) any past, present or future violation by the
Borrower, any of its respective Subsidiaries, any operator who is not an
Indemnified Person of the Mortgaged Properties, or any other Person (other than
any Indemnified Person) of any requirement of law, including Environmental Laws,
with regard to the ownership, operation, use or occupancy of the Mortgaged
Properties occurring at any time prior to the repayment in full of the Advances
and the other Obligations, (iv) solely insofar as any of the following arises
out of any Mortgaged Property, the past, present or future treatment, storage,
disposal, generation, use, transport, movement, migration, presence, release,
spill or emission of any pollutants, contaminants, Hazardous Materials, or
hazardous or toxic substances or wastes into or onto soil, land, surface water,
ground water, watercourses, publicly-owned treatment works, drains, sewer
systems, wetlands or septic systems occurring at any time prior to the repayment
in full of the Advances and the other Obligations, (v) ownership by the Bank of
any real or personal property following rightful foreclosure under the Security
Documents, to the extent such losses, liabilities, damages, judgments, claims,
deficiencies or expenses arise out of or result from the presence or release of
any Hazardous Materials in, on or under such property during the period owned,
leased or operated by the Borrower or any of its respective Subsidiaries,
including, without limitation, losses, liabilities, damages, judgments, claims,
deficiencies or expenses which are imposed under Environmental Laws upon Persons
by virtue of their ownership, (vi) foreseeable consequential or punitive damages
incurred as a result of any matter or claim described above or (vii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnified Person is a party thereto.
(b) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS BUT IN ALL EVENTS SUBJECT TO SUBPARAGRAPH (C) OF THIS
SECTION 9.12, IT IS THE EXPRESS INTENTION OF THE BORROWER AND THE OTHER CREDIT
PARTIES THAT EACH INDEMNIFIED PERSON SHALL BE INDEMNIFIED AND HELD HARMLESS
AGAINST ANY AND
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ALL LOSSES, LIABILITIES, CLAIMS, DEFICIENCIES, JUDGMENTS OR REASONABLE EXPENSES
ARISING OUT OF OR RESULTING FROM THE ORDINARY NEGLIGENCE (WHETHER SOLE OR
CONTRIBUTORY) OF SUCH INDEMNIFIED PERSON. THE OBLIGATIONS OF THE BORROWER AND
THE OTHER CREDIT PARTIES UNDER THIS SECTION 9.12 SHALL SURVIVE THE TERMINATION
OF THIS AGREEMENT AND THE COMMITMENT AND THE REPAYMENT OF THE OBLIGATIONS.
(c) Notwithstanding any other provision of this Agreement or any
other Loan Document or any other document or instrument, in no event shall any
Credit Party be liable in any manner with respect to any or all Indemnified
Liabilities to the extent arising from any acts or omissions constituting gross
negligence or willful misconduct on the part of any Indemnified Person.
(d) With respect to all Indemnified Liabilities relating to any
Mortgaged Property or any Hazardous Material or any Environmental Law,
notwithstanding any other provision of this Agreement or any other Loan Document
or any other document or instrument, no Credit Party shall be liable (x) for any
acts of any Indemnified Person or of any Person acting on behalf of or at the
direction of any Indemnified Person, or (y) in the event that any Indemnified
Person, or any Person acting on behalf of or at the direction of any Indemnified
Person, is judicially or administratively determined to be a Person having
management participation or otherwise exercising control within the meaning of
the Environmental Laws in effect on the date of this Agreement, for any omission
of any Indemnified Person or any omission of any Person acting on behalf of, or
at the direction of any Indemnified Person, or (z) for any act or omission of
any Person occurring from and after the date on which none of the Credit Parties
holds title to such Mortgaged Property; PROVIDED, HOWEVER, that this clause (z)
shall not release any Credit Party from any liability which it would otherwise
have under this subparagraph (d) for conditions arising prior to said date as to
which any Indemnified Liability is asserted subsequent to said date.
Section 9.13. NOTICE AND DEFENSE OF CLAIMS. (a) The Credit
Parties shall give prompt notice to the Bank of:
(i) their receipt of any correspondence, demand, notice, order,
complaint, notice of violation, assessment, claim or request for
information issued pursuant to or under color of any Environmental Laws
or which refers to any Hazardous Materials from any federal, state or
local governmental authority or from any private party or organization
with respect to the Mortgaged Properties, any operator of the Mortgaged
Properties or any Credit Party, which, in the reasonable good faith
judgment of the Credit Parties, is likely to result in a Material
Adverse Effect;
-65-
(ii) the institution of any claim, suit, action, investigation or
administrative or judicial proceeding or action (formal or informal) of
which the Credit Parties are aware, brought with regard to the
condition, use, ownership, operation, occupancy or maintenance of the
Mortgaged Properties under the Environmental Laws or relating to
Hazardous Materials which claim, suit, action, investigation or
administrative or judicial proceeding or action, in the reasonable good
faith judgment of the Credit Parties, is likely to result in a Material
Adverse Effect; and
(iii) the discovery or detection, of which the Credit Parties are
aware, by any Person, of Hazardous Materials on the Mortgaged Properties
which, in the reasonable good faith judgment of the Credit Parties, is
likely to result in a Material Adverse Effect.
(b) The Credit Parties shall retain the exclusive right, at their
option, to compromise, settle or defend, at their expense and with their own
counsel, any Indemnified Liabilities; PROVIDED, HOWEVER, that the Credit Parties
shall provide the Bank with all such copies of documents and pleadings relating
to such Indemnified Liabilities as the Bank may reasonably request; PROVIDED,
FURTHER, that in the case of any action in which any Indemnified Person is a
named party thereto, such counsel retained by the Credit Parties shall be
reasonably acceptable to such Indemnified Person. In the case of any such action
in which an Indemnified Person is a named party thereto, the Credit Parties, at
the request of such Indemnified Person, shall keep such Indemnified Person
apprised of all matters relevant to such action and such Indemnified Person
shall have the full right, at its own expense, to participate, through counsel
or otherwise, in all meetings and proceedings with adverse parties or
governmental authorities (other than any confidential meetings unrelated to
claims against such Indemnified Person); PROVIDED, HOWEVER, that if any of the
Credit Parties give notice in writing to such Indemnified Person that the Credit
Parties do not intend, for whatever reason, to defend any such action, then such
Indemnified Person may prosecute its own defense or response with its own
counsel and the reasonable fees of such counsel shall be at the expense of the
Credit Parties for that portion of the action relating to any Indemnified
Liabilities if: (x) such Indemnified Person shall prosecute such defense or
response diligently and in an appropriate manner and (y) such Indemnified
Person, at the request of any of the Credit Parties, shall keep the Credit
Parties apprised of all matters relevant to such action; PROVIDED, FURTHER, that
in the event that such Indemnified Person does not consent to any settlement or
compromise proposed by the parties to such action and acceptable to the Credit
Parties, then the liability of the Credit Parties under SECTIONS 9.12 and 9.13
of this Agreement for any Indemnified Liabilities shall not exceed that
liability which the Credit Parties would have had if such Indemnified Person had
consented to such settlement or compromise.
(c) Upon the occurrence of any of the events contemplated by
subsection (a) above relating to any Mortgaged Property, the Bank shall have
(but need not exercise) the right to retain, at its own expense, consultants and
specialists of the Bank's choice to assess the necessity for and appropriateness
of the investigation, removal, remediation, encapsulation or
-66-
other treatment of any Hazardous Materials found on the Mortgaged Properties. If
the Bank reasonably determines that any such activities are necessary and
appropriate to prevent the occurrence of a Material Adverse Effect, it shall
deliver written notice to the Credit Parties of the basis of such determination,
describing such activities with reasonable specificity. Upon receipt of such
notice, and if such activities are required by law, the Credit Parties will
diligently, and in a reasonable manner, undertake and complete such activities
to the Bank's reasonable satisfaction, at the Credit Parties' sole expense.
(d) The Indemnified Persons shall give prompt written notice to
the Credit Parties of any claim against the Indemnified Persons which might give
rise to a claim by the Indemnified Persons against the Credit Parties under
SECTION 9.12.
Section 9.14. LIMITATION BY LAW. All rights, remedies and powers
provided in this Agreement and the other Loan Documents may be exercised only to
the extent that the exercise thereof does not violate any applicable provision
of law, and all the provisions of this Agreement and the other Loan Documents
are intended to be subject to all applicable mandatory provisions of law which
may be controlling and to be limited to the extent necessary so that they will
not render this Agreement or any other Loan Document invalid, unenforceable, in
whole or in part, or not entitled to be recorded, registered or filed under the
provisions of any applicable law.
Section 9.15. INTERPRETATION. (a) In this Agreement, unless a
clear contrary intention appears:
(i) the singular number includes the plural number and VICE
VERSA;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually,
PROVIDED that nothing in this clause (iv) is intended to authorize any
assignment not otherwise permitted by this Agreement;
(v) reference to any agreement, document or instrument means such
agreement, document or instrument as amended, supplemented or modified
and in effect from time to time in accordance with the terms thereof
and, if applicable, the terms
-67-
hereof, and reference to any note includes any note issued pursuant
hereto, in extension or renewal thereof and in substitution or
replacement therefor;
(vi) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section
hereof or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term;
(viii) with respect to the determination of any period of time,
the word "from" means "from and including" and the word "to" means "to
but excluding";
(ix) reference to any law means such as amended, modified,
codified or reenacted, in whole or in part, and in effect from time to
time; and
(x) whenever any accounting computation is required to be made,
for purposes hereof, such computation shall be made in accordance with
GAAP.
(b) The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or
construed against any Person solely because that Person or its legal
representative drafted such provision.
SECTION 9.16. WAIVER OF TEXAS DECEPTIVE TRADE PRACTICES ACT. EACH
CREDIT PARTY HEREBY WAIVES ALL RIGHTS, REMEDIES, CLAIMS, DEMANDS AND CAUSES OF
ACTION BASED UPON OR RELATED TO THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER
PROTECTION ACT AS DESCRIBED IN SECTION 17.41 ET SEQ. OF THE TEXAS BUSINESS &
COMMERCE CODE, AS THE SAME PERTAINS OR MAY PERTAIN TO ANY OF THE LOAN DOCUMENTS
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, TO THE MAXIMUM EXTENT THAT SUCH
RIGHTS, ETC. MAY LAWFULLY AND EFFECTIVELY BE WAIVED. IN FURTHERANCE OF THIS
WAIVER, EACH UNDERSIGNED OBLIGOR UNDER THE LOAN DOCUMENTS HEREBY REPRESENTS AND
WARRANTS THAT (A) EACH SUCH CREDIT PARTY HAS ASSETS OF $5,000,000.00 OR GREATER
ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENT PREPARED IN ACCORDANCE WITH
GAAP AND HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT
ENABLE IT TO EVALUATE THE MERITS AND RISKS OF A TRANSACTION, (B) EACH SUCH
CREDIT PARTY IS REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE NEGOTIATION,
EXECUTION AND DELIVERY OF THE LOAN DOCUMENTS AND (C) NO SUCH CREDIT PARTY
CONSIDERS ITSELF TO BE IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH
RESPECT TO THE LOAN DOCUMENTS.
-68-
SECTION 9.17. RELEASES. EACH CREDIT PARTY HEREBY RELEASES,
DISCHARGES AND ACQUITS FOREVER THE BANK AND ITS OFFICERS, DIRECTORS, TRUSTEES,
AGENTS, EMPLOYEES AND COUNSEL (IN EACH CASE, PAST, PRESENT OR FUTURE) FROM ANY
AND ALL CLAIMS EXISTING AS OF THE DATE HEREOF (OR THE DATE OF ACTUAL EXECUTION
HEREOF BY THE APPLICABLE PERSON OR ENTITY, IF LATER). AS USED HEREIN, THE TERM
"CLAIM" SHALL MEAN ANY AND ALL LIABILITIES, CLAIMS, DEFENSES, DEMANDS, ACTIONS,
CAUSES OF ACTION, JUDGMENTS, DEFICIENCIES, INTEREST, LIENS, COSTS OR EXPENSES
(INCLUDING COURT COSTS, PENALTIES, ATTORNEYS' FEES AND DISBURSEMENTS AND AMOUNTS
PAID IN SETTLEMENT) OF ANY KIND AND CHARACTER WHATSOEVER, INCLUDING CLAIMS FOR
USURY, BREACH OF CONTRACT, BREACH OF COMMITMENT, NEGLIGENT MISREPRESENTATION OR
FAILURE TO ACT IN GOOD FAITH, IN EACH CASE WHETHER NOW KNOWN OR UNKNOWN,
SUSPECTED OR UNSUSPECTED, ASSERTED OR UNASSERTED OR PRIMARY OR CONTINGENT, AND
WHETHER ARISING OUT OF WRITTEN DOCUMENTS, UNWRITTEN UNDERTAKINGS, COURSE OF
CONDUCT, TORT, VIOLATIONS OF LAWS OR REGULATIONS OR OTHERWISE ARISING OUT OF
THIS TRANSACTION, THE TRANSACTION CONTEMPLATED BY ANY PRIOR AGREEMENTS, AND ALL
RELATED DOCUMENTS, TRANSACTIONS AND EVENTS.
SECTION 9.18. SUBMISSION TO JURISDICTION. (A) ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS, IN HARRIS COUNTY OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH CREDIT PARTY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH CREDIT PARTY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN
SECTION 9.02, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH
MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST EACH CREDIT PARTY IN ANY OTHER JURISDICTION.
(B) EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
SECTION 9.19. WAIVER OF JURY TRIAL. EACH CREDIT PARTY HEREBY
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT
OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY
IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM OR RELATING TO
ANY BANKING RELATIONSHIP EXISTING IN
-69-
CONNECTION WITH THIS AGREEMENT, AND AGREES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT
AND NOT BEFORE A JURY.
SECTION 9.20. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT, THE
NOTE AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN
SECTION 26.02(A) OF THE TEXAS BUSINESS & COMMERCE CODE, AND REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER:
PROLER INTERNATIONAL CORP.
By: /s/ MICHAEL F. LOY
Michael F. Loy
Vice President - Finance
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GUARANTORS:
PROLER INTERNATIONAL CORP.
JOINT VENTURE OPERATIONS, INC.
PROLER POWER MARKETING, INC.
PROLER STEEL, INC.
PROLER INDUSTRIES, INC.
PROLERIDE TRANSPORT SYSTEMS, INC.
PROLER RECYCLING, INC.
PROLER ENVIRONMENTAL SERVICES, INC.
PROLER PROPERTIES, INC.
By: /s/ MICHAEL F. LOY
Michael F. Loy
Vice President - Finance
<PAGE>
BANK:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ JAMES W. SHREVE
James W. Shreve
Senior Vice President
EXHIBIT 10.2
DESCRIPTION OF CERTAIN COMPENSATORY ARRANGEMENTS
1. The Company has entered into an arrangement with David Juengel, the
Company's Vice President-Treasurer, providing for severance payments equal
to four months salary in the event that Mr. Juengel's employment is
terminated as a result of a sale of all or part of the Company or otherwise
without cause. Such severance payments are subject to mitigation by any
compensation received by Mr. Juengel from other employment. The Company has
also agreed to consider a bonus payment to Mr. Juengel not to exceed 30% of
his annual salary in the event that Mr. Juengel assists in the consummation
prior to January 31, 1997 of certain compensable events including a sale or
merger of the Company or a sale of its joint venture interests. Any such
bonus would be recommended in the discretion of the Company's President and
Chief Executive Officer based on Mr. Juengel's performance and would be
subject to approval by the Board of Directors.
2. The Company has entered into a separation arrangement with Michael Loy, the
Company's Vice President-Chief Financial Officer, providing for the
termination of his employment by the Company effective October 31, 1996.
Mr. Loy will be entitled to receive his salary through that date, plus
severance payments equal to four months salary, accrued vacation and other
employee benefits, the unvested portion of his outstanding award under the
Company's 1993 Incentive Compensation Plan due January 31, 1997 and
Company-paid health benefits through February 28, 1997. Mr. Loy would also
be eligible for a bonus equal to four months salary in the event that prior
to his termination Mr. Loy assists in effecting a sale of the Company's
joint venture interests or all or a majority of the Company that occurs
prior to January 31, 1997. In the event Mr. Loy voluntarily terminates his
employment prior to October 31, 1996 he would remain entitled to the
severance benefits described above but would no longer be eligible for a
bonus.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PROLER INTERNATIONAL CORP.'S CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 263
<SECURITIES> 0
<RECEIVABLES> 2,148
<ALLOWANCES> 0
<INVENTORY> 2,703
<CURRENT-ASSETS> 5,986
<PP&E> 6,273
<DEPRECIATION> 797
<TOTAL-ASSETS> 70,182
<CURRENT-LIABILITIES> 33,477
<BONDS> 0
0
0
<COMMON> 5,351
<OTHER-SE> 27,537
<TOTAL-LIABILITY-AND-EQUITY> 70,182
<SALES> 7,166
<TOTAL-REVENUES> 7,166
<CGS> 8,004
<TOTAL-COSTS> 8,004
<OTHER-EXPENSES> 14,697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 956
<INCOME-PRETAX> (16,491)
<INCOME-TAX> 69
<INCOME-CONTINUING> (16,560)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,560)
<EPS-PRIMARY> (3.51)
<EPS-DILUTED> (3.51)
</TABLE>
