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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________________ TO __________________ .
COMMISSION FILE NUMBER 1-10105
MATLACK SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 51-0310173
- ------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
ONE ROLLINS PLAZA, WILMINGTON, DELAWARE 19803
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (302) 426-2700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class Name of exchange on which registered
- --------------------------- ------------------------------------
Common Stock, $1, Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
___
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $28,648,000 as of November 30, 1999.
The number of shares of registrant's common stock outstanding as of
November 30, 1999 was 8,814,434.
The following documents are incorporated by reference:
Document Part of this form into which incorporated
- ------------------------------------- -----------------------------------------
Proxy Statement in connection with
<PAGE>
Annual Meeting of Shareholders to be
held February 10, 2000 III
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<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
The Registrant, Matlack Systems, Inc., together with its subsidiaries (herein
collectively referred to as the "Company" unless the context indicates
otherwise) is a bulk transportation company that provides transportation of bulk
commodities in tank trailers and tank containers to the nation's leading
chemical and dry bulk shippers. In conjunction with bulk transportation, the
Company also provides intermodal transportation services, tank cleaning
services, intermediate bulk and ISO container cleaning services, logistics
management services and dedicated contract carriage services to the chemical
industry. This segment represents more than 90% of the overall Company's
revenues.
The Company, through its subsidiary, Matlack Leasing Corp., leases trailers,
containers and intermediate bulk containers (IBCs or "totes"), which represents
the other major segment of the Company's operations. In addition to leasing this
highly specialized equipment either on a short- or long-term basis, Matlack
Leasing Corp. provides design assistance to a wide range of customers who are
primarily in the food and chemical industries. At September 30, 1999, a total of
752 trailers and containers were under lease contracts.
The Company operates out of approximately 55 facilities located in 30 states and
two Canadian provinces. Since 1994, the Company has been certified under ISO
9002, an internationally recognized standard for quality assurance. In order to
maintain this certification, the Company is audited bi-annually at locations
randomly selected by the American Bureau of Shipping Quality Evaluation, Inc.
("ABS"), an independent third party. These surveillance audits verify that the
Company's operations conform to both ISO 9002 and to the Company's own written
operating guidelines and procedures. During fiscal 1999, the Company passed its
tenth quality audit by ABS with all locations and logistics services being ISO
9002 certified.
The Company provides transportation and logistics services as described below.
Many of the value added adjunct services provided complement the Company's bulk
transportation services. Matlack, Inc. ("Matlack"), the Company's major
operating subsidiary, is one of the nation's largest bulk trucking companies
providing liquid and dry bulk transportation primarily to the chemical industry
throughout North America. More than 90 percent of the cargo transported by the
Company is hazardous and non-hazardous chemicals and wastes principally produced
or generated by the chemical industry. In terms of revenues, Matlack is one of
the largest companies in the country engaged in highway transportation of bulk
commodities primarily in tank trailers.
The number of trailers available for use in the Company's operations at the end
of fiscal years 1999, 1998 and 1997 were 2,800, 3,200 and 2,800, respectively.
At the end of fiscal 1999 the average age of tractors and trailers used in the
Company's operations was 5 years and 15.5 years, respectively. Additionally, the
useful life expectancy of the Company's tractor and trailer fleet was 7 years
and 20 years, respectively.
The age profile of the Company's tractor fleet as of September 30, 1999 was as
follows:
MODEL NUMBER
YEAR OF UNITS
----- --------
1998 13
1996 9
1995 769
1994 37
1993 26
Prior 7
-------
Total 861
=======
2
<PAGE>
The age profile of the Company's trailer fleet as of September 30, 1999 was as
follows:
AGE IN NUMBER
YEARS OF UNITS
1 to 5 276
6 to 10 585
11 to 15 369
16 to 20 641
21 to 25 650
Over 25 292
-------
Total 2,813
=======
The Company utilizes tank trailers in its operations. A tank trailer typical of
those used by the Company in its operations measures 43 feet in length, 8.5 feet
in width and 12 feet in height. Tank holding capacity normally ranges between
5,000 and 7,000 gallons with a payload capacity of up to 55,000 pounds.
The Company believes that it maintains its fleet of tractors and trailers in
excellent condition for the industry. Maintenance of revenue equipment is
performed by 135 mechanics employed by the Company. In addition, the Company
utilizes outside repair facilities for major tank repairs and reconditioning. In
fiscal 1999, the Company expended $7,924,000 for fleet maintenance. This amount
included mechanics compensation and the costs associated with both internal and
external repairs of equipment.
Matlack is subject to regulation by the U.S. Department of Transportation and
various state regulatory agencies. In Canada, the Company has terminals in
Sarnia, Ontario and Vancouver, British Columbia and it holds operating licenses
under which it may transport various commodities into and out of certain
Canadian Provinces via specific border entry points from the United States. To
the best of its knowledge, Matlack is in compliance with federal regulations and
those of the various state and provincial regulatory agencies where it operates.
The business of the Company is generally not subject to significant seasonal
variations, however, highway transportation activities can be adversely affected
depending on the severity of the weather in the various sections of the country
during the winter months. Also, companies in the chemical industry periodically
may change production streams of various products, which temporarily creates
greater than normal demand for the carriers to transport those products.
Conversely, companies in the chemical industry may shut down a plant temporarily
in order to balance inventories, which negatively affects the carriers serving
that company. No customer accounts for more than 7.5% of the Company's
consolidated revenues.
Competition in the bulk trucking industry is based primarily on rates, service
and convenience. Historically, competition was restricted and based primarily on
a carrier's ability to obtain certificates of public convenience and necessity
to transport defined commodities in specific geographic areas. Since the passage
of the Motor Carrier Act of 1980, many bulk carriers have obtained authority to
serve expanded geographic areas on an interstate basis, which, together with
increased capacity, has resulted in the intensification of price competition.
To the extent that competition is based on service and convenience, the number
and location of Matlack's terminals, together with its ability to clean tank
trailers (the Brite-Sol Services product line) places Matlack in a favorable
position to increase its business. Management believes that Matlack's fleet of
trailers is one of the largest and most diversified in the tank truck industry.
Matlack's network of company owned and strategically located terminal facilities
is, in management's opinion, one of the largest and the best in the industry.
Matlack's largest competitors in the tank truck industry, based upon a
comparison of gross revenues, are Quality Distribution, Inc., Trimac
Transportation Ltd., Initial DSI Transports, Inc., Superior Carriers, Inc.,
Miller Transporters, Inc. and Groendyke Transport, Inc. In addition, there are
approximately 190 other recognized
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<PAGE>
competitors operating in the various regions where Matlack has operating
authority.
The Company believes that its contractual arrangements and business policies are
adequate in securing rate increases to recover rising costs and expenses to the
extent permitted by competitive circumstances, which remain intense. Unusual
increases in fuel costs, when experienced, can generally be offset by fuel
surcharges to customers. Accordingly, while inflation with regards to drivers'
and mechanics' wages and cleaning supplies has had some impact on the Company's
operations during the last three fiscal years, competition within the industry
has been a major factor in establishing the rates that the Company can charge
for its services.
Matlack, Inc., under the trade-name Brite-Sol Services, operates 29 commercial
facilities nationwide that provide full-service cleaning, both internal and
external, of tank trucks, vans, tank containers, intermediate bulk containers,
ISO tank containers and other containers and vehicles. Brite-Sol Services also
provides hose and pump cleaning and tank and container maintenance and repairs.
The Company's tank cleaning facilities are ISO 9002 certified and operate in
compliance with all applicable federal and state EPA and OSHA requirements.
Cleaning procedures utilize systematized work processes to assure continued
compliance with all environmental regulations. Customized cleaning programs are
frequently established to meet specific customer requirements. After cleaning,
valves are vacuum tested to reduce chances of leaking and related possible
product release. Waste water is pre-treated to ensure environmental safety and
to reduce levels of waste. Container cleaning procedures also ensure the proper
handling and disposal of heels and effluents. Further, the Company's cleaning
network is operated by a team of experienced tank cleaning professionals and is
supported by centrally located technical staff to ensure maintenance of the
highest level of quality required by ISO 9002 standards.
REGULATION AND INSURANCE
In the normal course of its business, Matlack is subject to numerous state and
federal environmental laws and regulations and also is exposed to the cost and
risk of transporting and handling materials and wastes characterized as
hazardous by various regulatory agencies. Matlack has received notices from the
United States Environmental Protection Agency ("EPA") or a comparable state
agency indicating that it has been named at 27 third-party sites as a
potentially responsible party ("PRP") with respect to the cleanup of hazardous
wastes at such waste disposal sites. At a majority of these sites, the Company
has resolved its liability by settling with one or more of the governmental
agencies or PRP groups involved. As is typical in such settlements, certain
claims, such as those relating to natural resource damages or site cleanup cost
overruns, could still be made in later years.
The Company maintains liability insurance coverage that includes sudden and
accidental pollution insurance coverage providing protection against claims
which may arise from accidents involving spills or contamination. With regard to
public liability and workers' compensation claims, the Company retains a
specific portion of insurable risks. The Company maintains a $1,000,000 primary
insurance policy subject to $500,000 of retention per claim with a $6,000,000
aggregate stop-loss limit on retention. In excess of the primary policy, the
Company maintains $120,000,000 of insurance coverage.
Prior to June 1, 1999, the Company had relied on an in-house claims department
to reserve and settle liability and workers' compensation claims. On June 1,
1999, the Company restructured its insurance program by changing insurance
carriers, purchasing aggregate stop-loss protection and outsourcing the claims
administration function for past and future claims. Reserves are established by
the outside claims experts for claims incurred plus an estimate for claims
incurred but not reported. Reserve requirements are evaluated and established
utilizing known and expected information on each claim.
EMPLOYEES
A total of 1,970 persons were employed by the Company at September 30, 1999.
Operating personnel included 1,206 drivers, 135 mechanics and 205 tank cleaners.
The Company's 424 support personnel included dispatchers and individuals serving
in clerical, administrative and executive capacities. The Company believes that
its relationships with its employees are excellent.
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<PAGE>
A number of the Company's operating personnel are covered under various
collective bargaining agreements. The following table sets forth the expiration
dates and number of employees covered under those agreements.
Number of
Expiration Date Employees Covered
- --------------- -----------------
January 30, 2000 7
October 30, 2000 15
March 31, 2003 14
June 30, 2003 233
November 14, 2003 326
December 15, 2003 5
February 14, 2004 5
November 14, 2004 116
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Total 721
=======
ITEM 2. PROPERTIES.
The Company maintains its headquarters in space leased from Rollins Properties,
Inc., a wholly-owned subsidiary of Rollins Truck Leasing Corp., at 2200 Concord
Pike, Wilmington, Delaware. The Company's principal properties consist of land
and buildings used in its bulk trucking, cleaning and intermodal service
business. Matlack owns or leases approximately 55 truck terminals in 30 states
and two terminals in two Canadian provinces.
ITEM 3. LEGAL PROCEEDINGS.
There are various ordinary routine claims and legal actions pending against the
Company. In the opinion of management, based on the advice of in-house counsel,
the likelihood that the ultimate resolution of these claims and actions will be
material is remote.
During the fourth quarter of fiscal 1998, a judgment of $950,000 was entered
against the Company in connection with rent allegedly owed under an expired
lease for a terminal previously operated by the Company in Woodbridge, New
Jersey. The $950,000 judgment was based on a finding by the trial court that the
Company was responsible for double the fair market rent of the facility as a
tenant willfully holding over after the expiration of the lease term. An
appellate court has vacated this judgment and remanded the matter to the trial
level for further hearings to determine if the Company is liable for rent as a
holdover tenant and, if so, what the fair market rent should be. The Company
paid rent pursuant to the terms of the expired lease during the period in
controversy and the landland negotiated the rent payments. The Company believes
that it has viable defenses to the landlord's demand for additional rent and
intends to vigorously contest this matter. The Company has not provided for any
liability associated with this proceeding as the amount which it may be required
to pay, if any, is not estimatible.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
5
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
For the fiscal years ended September 30, 1999 and 1998, the range of share
prices for the Common Stock on the New York Stock Exchange is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
FISCAL QUARTER HIGH LOW HIGH LOW
- -------------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $8 7/16 $6 5/8 $9 3/4 $7 7/16
Second $7 5/8 $5 1/2 $12 1/4 $7 3/4
Third $5 13/16 $4 7/8 $9 1/2 $7 5/8
Fourth $5 15/16 $4 13/16 $8 3/16 $6 7/8
</TABLE>
No dividends have been paid since the Company became publicly held in January of
1989. At September 30, 1999, there were 1,371 holders of record of the Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 205,932 $238,905 $231,709 $224,866 $236,257
Earnings (loss) before income taxes
(benefit) $(25,611) $(2,761) $ 3,698 $(1,703) $ 11,211
Net earnings (loss) $(16,067) $(2,013) $ 1,886 $(1,477) $ 6,601
Earnings (loss) per share
Basic $ (1.82) $ (.23) $ .22 $ (.17) $ .74
Diluted $ (1.82) $ (.23) $ .21 $ (.17) $ .74
AT SEPTEMBER 30,
-------------------------------------------------------
Total assets $ 139,181 $143,263 $142,262 $128,127 $131,974
Long-term indebtedness $ 51,189 $ 47,446 $ 42,778 $ 29,878 $ 32,970
Shareholders' equity $ 39,601 $ 55,640 $ 57,557 $ 55,676 $ 57,532
</TABLE>
6
<PAGE>
QUARTERLY RESULTS
The following table sets forth the Company's quarterly financial results for the
fiscal years 1999 and 1998. As a result of a fourth quarter review of the
Company's operations and business, it was determined that certain required
adjustments of income and expense items should have been recorded in prior
quarters of the current year and, as such, the effect of these adjustments are
reflected below. In connection with these restatements, the Company has filed an
amended Form 10-Q for the first, second and third quarters of fiscal 1999.
<TABLE>
<CAPTION>
1999
----------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
<S> <C> <C> <C> <C>
Revenues
As previously reported ... $ 54,512 $ 51,638 $ 50,567 $ *
Adjustments .............. (281) (250) (419)
-------- -------- -------- ---------
As restated .............. $ 54,231 $ 51,388 $ 50,148 $ 50,165
======== ======== ======== =========
Gross profit
As previously reported ... $ 4,423 $ 3,387 $ 2,863 $ *
Adjustments .............. (1,016) (1,089) (1,706)
-------- -------- -------- ---------
As restated .............. $ 3,407 $ 2,298 $ 1,157 $ (4,631)
======== ======== ======== =========
Loss before income tax benefit
As previously reported ... $ (1,553) $ (2,375) $ (2,771) $ *
Adjustments .............. (1,518)(1) (1,438)(2) (2,168)(3)
-------- -------- -------- ---------
As restated .............. $ (3,071) $ (3,813) $ (4,939) $ (13,788)
======== ======== ======== =========
Net loss
As previously reported ... $ (991) $ (1,496) $ (1,758) $ *
Adjustments .............. (944) (892) (1,325)
-------- -------- -------- ---------
As restated .............. $ (1,935) $ (2,388) $ (3,083) $ (8,661)
======== ======== ======== =========
Loss per diluted share
As previously reported ... $ (.11) $ (.17) $ (.20) $ *
Adjustments .............. (.11) (.10) (.15)
-------- -------- -------- ---------
As restated .............. $ (.22) $ (.27) $ (.35) $ (.98)
======== ======== ======== =========
</TABLE>
(1) Primarily represents $281,000 for revenue adjustments, $260,000 for
write-down of inventories, $276,000 for depreciation adjustments, and
$192,000 for additional bad debt provision.
(2) Primarily represents $374,000 for adjustments to accounts receivable,
$323,000 for additional bad debt provision, $250,000 for revenue
adjustments, and $277,000 for depreciation adjustments.
(3) Primarily represents $827,000 for an increase in the environmental reserve
at a Company-owned site, $720,000 for additional self-insurance reserves,
$412,000 for additional bad debt provision, and $276,000 for depreciation
adjustments.
* Not previously reported
<TABLE>
<CAPTION>
1998
----------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- -------- ------------
<S> <C> <C> <C> <C>
Revenues $ 62,509 $ 61,201 $ 60,002 $ 55,193
Gross profit $ 6,048 $ 5,703 $ 7,713 $ (318)
Earnings (loss) before income taxes
(benefit) $ 1,033 $ 595 $ 1,610 $ (5,999)
Net earnings (loss) $ 599 $ 345 $ 805 $ (3,762)
Earnings (loss) per diluted share $ .07 $ .04 $ .09 $ (.43)
</TABLE>
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Financial Condition and Liquidity
The net loss of $16.1 million in 1999, which included $12.5 million non-cash
depreciation, caused a deficiency in cash flow from operations of $5.5 million.
The need to fund losses from operations, together with net capital expenditures
of $4.2 million, required the Company to secure additional funds of $9.7
million. Drawing down cash balances of $2.6 million and net borrowings of $6.5
million were the principal sources of these funds. The source of these
borrowings was the Company's $75.0 million bank credit facility, which had $49.4
million outstanding at September 30, 1999. Under this facility, borrowings are
restricted to the net book value of available equipment and eligible accounts
receivable less outstanding letters of credit. At September 30, 1999, a total of
$5.2 million was available to the Company under this facility.
The Company was not in compliance with the fixed charge coverage ratio and the
net worth covenant under this facility at September 30, 1999. On December 20,
1999, the Company received a waiver from its bank group with regard to these
events of default as of September 30, 1999. In addition, the bank group amended
the credit facility and reset ratios and requirements on certain covenants for
the next four quarters beginning with the quarter ending December 31, 1999
through the quarter ending September 30, 2000. This amendment also limits
capital expenditures, prohibits quarterly losses and increases the cost to the
Company for outstanding borrowings. The amendment permits additional advances
for working capital and other corporate needs. The credit agreement expires on
August 19, 2000, but may be renewed on a year-to-year basis thereafter upon
agreement of the parties thereto. Termination of the agreement would result in
the repayment of the outstanding balance over a period of 48 months in equal
monthly installments. Based on current projections, it is expected that the
Company will be in compliance with these modified covenants during fiscal year
2000. Current projections are based largely on the Company's fiscal year 2000
Plan. Operating results for the first two months of fiscal year 2000 have
exceeded the Plan. Although management believes that its fiscal year 2000 Plan
is achievable, there can be no assurance that it will be achieved.
The Company anticipates that its currently available funds, cash generated from
operations, cash realized from the sale of property and equipment, income tax
refunds, insurance settlements and available borrowing capacity under its
amended credit agreement will be sufficient to meet cash and working capital
requirements, including anticipated capital expenditures, through the end of
fiscal 2000. In addition to the expected positive cash flow from operations in
2000, the Company realized approximately $3.0 million from the sale of three
facilities in the first fiscal quarter of 2000 and $4.1 million from several
insurance companies resulting from settlements during a mediation in October
1999 in which the Company sought coverage for past and future environmental
costs associated with certain Company-owned sites. Additional amounts from other
insurance carriers are also expected in fiscal 2000. Known future environmental
evaluation and remediation costs of $1.4 million are included in accrued
liabilities at September 30, 1999.
The Company anticipates purchasing equipment in 2000 to replace older fully
depreciated equipment. It is expected that total capital expenditures for
equipment in 2000 will be between $5.0 million and $6.0 million. The Company
also expects to make modest capital expenditures for facilities in fiscal 2000.
Based on current operating projections and including the above capital
expenditure estimates, it is expected that overall indebtedness will decrease in
2000 by between approximately $3.0 million and $5.0 million.
RESULTS OF OPERATIONS
Fiscal Year 1999 vs. 1998
Revenues of $205.9 million for the year declined by $33.0 million or 13.8% from
$238.9 million in the prior year. The number of loads carried decreased by
36,712 loads or 19.9%, while the average miles per load decreased slightly.
Revenue per load increased by 6% over the prior year. Overall demand in the
chemical industry declined during the year causing the number of available loads
for carriers to transport to decline
8
<PAGE>
also. The Company's decision to substantially reduce its international presence
and to eliminate its waste van businesses accounted for $7.3 million of the
year-to-year decrease in revenue.
Operating expenses for 1999 decreased by $16.3 million to $191.2 million from
$207.5 million in 1998. The substantial reduction in loads carried, which
required fewer miles to be driven, caused most of the direct expense categories
including drivers' wages and fuel to be lower in 1999 than in 1998.
Operating expenses for 1999 included a number of unusual items, many of which
arose from the decision to close certain bulk trucking terminals, shut down
Safeway Transportation, Inc., the Company's waste-hauling van operation,
substantially reduce the international container business and streamline the
Company. In connection with the decision on the international container
business, a provision of $1.6 million was included in operating expense in the
fourth quarter to repair and return containers to lessors.
Drivers' wages, which is the Company's largest direct operating expense, was
$65.9 million in 1999 compared with $74.6 million in 1998, a 12% decrease. Fuel
expense was $11.7 million in 1999 compared with $14.1 million in 1998. This 17%
decrease was caused principally by the volume decline offset in part by higher
fuel prices in the second half of 1999.
Insurance expense, including property, general liability, cargo and workers'
compensation, decreased in 1999 by $3.3 million to $9.7 million principally due
to fewer claims resulting from lower business volume, but also due to the
implementation of a new property and casualty program effective June 1, 1999,
which provides the same level of coverage, but outsources the claims handling
function to the insurance carrier. This decrease contrasts favorably with the
increase in insurance costs in 1998 of $5.6 million which resulted from an
overall adverse development of claims. During the fourth quarter of 1999, the
Company included a charge of $1.9 million to increase its self-insurance
reserves. Overall fourth quarter 1999 insurance expense was $1.2 million less
than the fourth quarter of the prior year. During the fourth quarter of 1998,
with assistance from an outside insurance carrier, the Company reviewed its
overall self-insurance liability in connection with the contemplated outsourcing
of certain insurance programs.
Cleaning expenses, including costs associated with cleaning the Company's fleet
of trailers as well as customers' and others' fleets, decreased in 1999 by 20%
to $12.8 million principally due to lower volume, but also due to changes in
various cleaning programs implemented by the Company during 1999. Maintenance
expense increased in 1999 by $.8 million or 5% due to the ongoing costs of
maintaining the trailer fleet, particularly repairs to older stainless steel
trailers that are the principal asset used in the bulk trucking business.
Terminal costs including utilities, rent, communications and maintenance
increased by $1.6 million in 1999, due in part to the impact in the fourth
quarter of closing terminals and relocating equipment throughout the Company. A
review of various other balance sheet accounts in the fourth quarter indicated
that certain accounts required adjustments. The net impact of adjusting these
other accounts, including inventories and certain other assets, resulted in an
$.8 million increase in 1999 operating expenses.
Environmental expense was $2.3 million in 1999 compared with $.6 million in
1998. In the third quarter of 1999, a provision of $.8 million was recorded to
reflect remediation costs at one of the Company-owned sites. In the fourth
quarter of 1999 a provision of $.6 million was recorded to reflect known
evaluation and remediation costs at three other Company-owned sites. Additional
liability is possible at these sites, but not presently estimatible.
For the year, depreciation and amortization expenses increased slightly to $12.5
million compared with $12.3 million in 1998. The impact of purchasing new
equipment and facilities during 1999 generally offset the effect of the
disposition of older fully depreciated equipment. During the year, the Company
realized proceeds from the sale of property and equipment of $3.0 million
compared with $4.8 million in 1998.
9
<PAGE>
The Company reviewed all its long-lived asset categories in order to determine
if current net book values were appropriate or if any were impaired. The tractor
and trailer fleets were appraised at the end of the year with the results
indicating a substantially higher value than the net book value. Accordingly, no
adjustments were required for the tractor or trailer fleet. The owned terminals
also were reviewed and the results indicated that the estimated realizable value
of six facilities was less that the current book value. Accordingly, an
adjustment of $.6 million, which was included in other income, was made in the
fourth quarter of 1999 to reflect the impairment in value of these facilities.
Three of these facilities were sold in the first quarter of 2000 for $3.0
million.
In conjunction with closing Safeway Transportation, Inc., an adjustment was made
in the fourth quarter of 1999 to reduce the carrying value of specialized
trailers by $.4 million to estimated realizable value. A portion of this fleet
was sold in 1999 and the remainder is currently for sale.
Selling and administrative expenses increased by $5.3 million in 1999 to $24.9
million. Severance of $1.9 million and a provision for bad debts of $2.9 million
were the two largest changes in selling and administrative expense in 1999. All
of the severance was recorded in the fourth quarter. Accounts receivable
balances were reviewed for collectibility and the reserve for bad debts was
reviewed for adequacy. As a result of this review, during the fourth quarter the
allowance for doubtful accounts was increased by $1.8 million.
Other income included a net gain on sale of tractors and trailers of $.6
million. Other income also reflected a net benefit of $1.5 million, which
resulted from the settlement in the fourth quarter of an insurance claim and
subsequent receipt of insurance proceeds as reimbursement for a building loss
due to a fire.
Interest expense in 1999 was $4.1 million compared with $4.0 million in 1998.
Higher debt levels later in the year were almost offset by lower interest rates
during the first half of 1999.
The rate of income tax benefit in 1999 was 37.3% compared with a 27.1% rate of
income tax benefit in 1998. The smaller impact of non-deductible expenses in
1999 caused the rate of effective income tax benefit in 1999 to be dramatically
different than the rate of income tax benefit in 1998.
The Company's net loss for the year was $16.1 million or $1.82 per diluted share
compared with a net loss of $2.0 million or $.23 per diluted share in 1998.
Fiscal Year 1998 vs. 1997
Revenues for 1998 increased by $7.2 million (3.1%) to $238.9 million from the
$231.7 million reported in 1997. For the year, revenues of the Company's bulk
trucking business increased by $3.9 million or 2.2%. Total bulk trucking revenue
miles increased in 1998 by .8 million miles or .9% to 91.6 million miles from
90.8 million miles in 1997. The revenue per mile in 1998 increased slightly to
$2.14 per mile from $2.13 per mile in 1997. Revenues from the Company's non-bulk
trucking operations increased by $3.3 million or 6.5% in 1998.
Operating expenses for 1998 increased by $13.7 million (7.1%) to $207.5 million
from $193.8 million in 1997. Insurance expense increased by $4.8 million which
resulted primarily from a fourth quarter revision of estimates for future cost
increases of incurred but unpaid workers' compensation, auto and general
liability insurance claims of $4.6 million due to overall adverse development of
claims. In addition, during the year there were higher levels of claims
experience offset in large part in the fourth quarter by a premium refund of
$1.8 million and a $1.3 million recovery under a reinsurance program.
Compensation costs associated with drivers, mechanics and terminal operations
increased by $3.7 million. The increase in drivers' wages resulted from
increased compensation levels required to both keep and attract drivers in an
extremely competitive labor environment. Equipment lease expenses increased by
$2.2 million due to the utilization of additional leased transportation
equipment during the year. Additionally, costs associated with the cleaning of
tanks, trucks and containers increased by $2.0 million, reflecting higher
wastewater permitting, pretreatment, and disposal costs. Operating expenses also
include a fourth quarter charge of $.8 million incurred to provide for
settlement of a legal action against the Company. The remainder of the operating
expense increase of $1.4
10
<PAGE>
million was broad-based and resulted from the overall higher level of business.
The increased operating expenses were offset in part by a $1.2 million reduction
in fuel costs reflecting lower prices paid for fuel during 1998.
For the year, depreciation expense decreased by $.8 million (6.4%) reflecting
both the disposition of property and equipment during 1998 and the fact that a
larger portion of the Company's assets have become fully depreciated.
During the year, the Company realized proceeds from the sale of property and
equipment of $4.8 million which resulted in a gain of $1.7 million which has
been included in Other Income in the Company's Statement of Operations. The gain
on the sale of equipment in fiscal 1997 was $.2 million.
Selling and administrative expenses increased by $1.5 million (8.3%) due in
large part to legal and professional costs incurred during the year related to a
possible change in ownership of the Company. As a percentage of revenues, these
expenses were 8.2% and 7.8% in 1998 and 1997, respectively.
Interest expense increased by $.9 million reflecting the higher level of debt
carried throughout the year 1998 when compared with 1997.
The rate of income tax benefit in 1998 was 25.3%. The effective income tax rate
in 1997 was 49.0%. The low effective rate of benefit in 1998 and the high
effective income tax rate in 1997 were caused by the impact that non-deductible
expenses had upon the tax computations.
The Company's net loss for the year was $2.0 million or $.23 per diluted share
compared with net earnings of $1.9 million or $.21 per diluted share in 1997.
The Company expects that the number of loads available for transport during the
first fiscal quarter of 1999 will be lower than a year earlier due to a decline
in demand. According to the Chemical Manufacturers Association, the index of
industrial chemicals was almost 6% below the year earlier level at September 30,
1998.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on its results of operations,
financial position or cash flow.
FORWARD-LOOKING STATEMENTS
The Company may make forward-looking statements relating to anticipated
financial performance, business prospects, acquisitions or divestitures, new
products, market forces, commitments, and other matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements.
Forward-looking statements typically contain words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "predicts", or "projects", or
variations of these words, suggesting that future outcomes are uncertain.
Various risks and uncertainties may affect the operations, performance,
development and results of the Company's business and could cause future
outcomes to differ materially from those set forth in forward-looking
statements, including the following factors: general economic conditions,
competitive factors and pricing pressures, shift in market demand, the
performance and needs of industries served by the Company, equipment
utilization, management's success in developing and introducing new services and
lines of business, potential increases in labor costs, potential increases in
equipment, maintenance and fuel costs, uncertainties of litigation, the
Company's ability to finance its future business requirements through outside
11
<PAGE>
sources or internally generated funds, the availability of adequate levels of
insurance, success or timing of completion of ongoing or anticipated capital or
maintenance projects, management retention and development, changes in Federal,
State and local laws and regulations, including environmental regulations, as
well as the risks, uncertainties and other factors described from time to time
in the Company's SEC filings and reports.
YEAR 2000 ("Y2K") READINESS DISCLOSURE
The Company is aware of the issues related to the approach of the year 2000 and
has assessed and investigated what steps must be taken to ensure that its
critical systems and equipment will function appropriately after the turn of the
century. The Company has completed a review of each of its core systems to
determine their Y2K compliance. As a result, the Company has replaced its
Service Management System with one designed to be Y2K compliant from inception.
The remaining core systems are vendor-supplied and maintained systems where the
Company has received Y2K compliant upgrades. The Company has completed the
implementation of its Service Management System and all other core systems. The
Service Management System replacement is expected to cost approximately $4.6
million of which $4.4 million has been expended as of September 30, 1999.
The Company relies on Qualcomm to provide the satellite tracking system
necessary to track the location of its transportation equipment and to provide
dispatch and routing information to its drivers. The Company has been informed
that the software utilized by Qualcomm and the Company is fully Y2K compliant. A
failure of the satellite communication system could have a materially adverse
effect on the Company's results of operations. The Company is relying on the
contingency plan established by Qualcomm to prevent the interruption of
business. As an additional backup, the Company plans to use its existing
telephone systems to dispatch its equipment and provide support to its drivers
in the event of a complete satellite system failure. In addition, the Company
utilizes Comdata to allow drivers to purchase fuel outside of the Company's
terminal locations. The Company has been informed that Comdata's systems
associated with fuel purchases are Y2K compliant. The Company also interacts
with many of its vendors through electronic data interchange (EDI). Although the
Company is Y2K compliant in its EDI applications, it cannot guarantee the Y2K
compliance of its business partners' systems. However, as part of the Company's
contingency planning, programs are in place which permit the Company to deal
with its EDI business partners in a non-EDI environment, if necessary.
Therefore, the failure of any such business partners to achieve Y2K compliance
should not have a material adverse effect upon the Company's operations.
The Company has completed its contingency plan to deal with Y2K issues. However,
due to the complexity and widespread nature of such issues, the contingency
planning process of necessity must be an ongoing one requiring possible further
modification as more information becomes known regarding (1) the Company's own
systems and facilities, and (2) the status and changes therein of the Y2K
compliance efforts of outside suppliers and vendors. Management believes that
the Company's current state of readiness, the nature of the Company's business,
and the availability of the contingency plan minimizes Y2K risks. Management
does not foresee significant liability to third parties if one or more of the
Company's systems are not Y2K compliant. As significant Y2K uncertainties remain
outside the control of the Company, at this time the Company is unable to
determine a most reasonably likely worst case scenario.
Through September 30, 1999, the Company has incurred, in addition to the Service
Management System costs noted above, $.4 million of internal staff costs
necessary to review and further Y2K compliance of its core operating systems.
All Y2K costs have been and will continue to be funded from operations. The
Company expects future internal staff costs associated with its Y2K readiness
program to be nominal.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's major market risk exposure is to changing interest rates. The
Company has variable-rate debt representing 93% of its total long-term debt at
September 30, 1999. If interest rates average 25 basis points more in 2000 than
they did during 1999, the Company's interest expense would be increased by
$132,000.
12
<PAGE>
These amounts are determined by considering the impact of the hypothetical
interest rates on the Company's variable-rate long-term debt at September 30,
1999.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors Matlack Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Matlack Systems,
Inc. and subsidiaries as of September 30, 1999 and 1998, and the related
consolidated statements of operations and cash flows for each of the years in
the three-year period ended September 30, 1999. In connection with our audits of
the consolidated financial statements, we also have audited the financial
statement schedules as listed in Item 14(a) of this Form 10-K. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Matlack Systems,
Inc. and subsidiaries as of September 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1999, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG LLP
Wilmington, Delaware
January 13, 2000
14
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues .......................... $ 205,932,000 $ 238,905,000 $ 231,709,000
Expenses
Operating ...................... 191,186,000 207,490,000 193,784,000
Depreciation and amortization .. 12,515,000 12,269,000 13,106,000
Selling and administrative ..... 24,881,000 19,612,000 18,155,000
Other income, net .............. (1,153,000) (1,749,000) (218,000)
------------- ------------- -------------
227,429,000 237,622,000 224,827,000
------------- ------------- -------------
Operating (loss) earnings ......... (21,497,000) 1,283,000 6,882,000
Interest expense .................. 4,114,000 4,044,000 3,184,000
------------- ------------- -------------
Earnings (loss) before income taxes
(benefit) ...................... (25,611,000) (2,761,000) 3,698,000
Income taxes (benefit) ............ (9,544,000) (748,000) 1,812,000
------------- ------------- -------------
Net earnings (loss) ............... $ (16,067,000) $ (2,013,000) $ 1,886,000
============= ============= =============
Earnings (loss) per share
Basic .......................... $ (1.82) $ (.23) $ .22
Diluted ........................ $ (1.82) $ (.23) $ .21
Average shares outstanding
Basic .......................... 8,814,000 8,790,000 8,763,000
Diluted ........................ 8,814,000 8,790,000 8,823,000
</TABLE>
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
15
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------
1999 1998
---------------- ----------------
ASSETS
<S> <C> <C>
Current assets
Cash $ 2,837,000 $ 5,477,000
Accounts receivable, net 34,330,000 31,625,000
Inventories 6,007,000 6,382,000
Other current assets 1,592,000 2,385,000
Refundable income taxes 2,631,000 -
Deferred income taxes 3,752,000 1,572,000
---------------- ----------------
Total current assets 51,149,000 47,441,000
Property and equipment, net 86,074,000 94,382,000
Other assets 1,958,000 1,440,000
---------------- ----------------
Total assets $ 139,181,000 $ 143,263,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 11,035,000 $ 6,846,000
Accrued liabilities 19,583,000 13,583,000
Income taxes payable -- 1,393,000
Current maturities of long-term debt 5,309,000 2,588,000
---------------- ----------------
Total current liabilities 35,927,000 24,410,000
Long-term debt 51,189,000 47,446,000
Self-insurance reserves 5,265,000 5,015,000
Other liabilities 2,429,000 1,266,000
Deferred income taxes 4,770,000 9,486,000
Commitments and contingencies (see Notes to the
Consolidated Financial Statements)
Shareholders' equity:
Common stock, $1.00 par value
Outstanding: 1999-8,814,434 shares; 1998-8,809,634 shares 8,814,000 8,809,000
Additional paid-in capital 10,620,000 10,597,000
Retained earnings 20,167,000 36,234,000
---------------- ----------------
Total shareholders' equity 39,601,000 55,640,000
---------------- ----------------
Total liabilities and shareholders' equity $ 139,181,000 $ 143,263,000
================ ================
</TABLE>
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
16
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) ............................. $(16,067,000) $ (2,013,000) $ 1,886,000
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Impairment loss ............................. 1,093,000 -- --
Depreciation and amortization ............... 12,515,000 12,320,000 13,127,000
Net gain on sale of equipment ............... (638,000) (1,749,000) (217,000)
Changes in assets and liabilities:
Accounts receivable ...................... (4,499,000) 586,000 (6,135,000)
Inventories and other assets ............. 2,782,000 (2,097,000) (589,000)
Accounts payable and accrued liabilities . 8,236,000 2,526,000 (2,318,000)
Current and deferred income taxes ........ (10,361,000) (1,784,000) 1,690,000
Other, net ............................... 1,414,000 1,245,000 1,297,000
------------ ------------ ------------
Net cash (used in) provided by operating activities (5,525,000) 9,034,000 8,741,000
------------ ------------ ------------
Cash flows from investing activities
Purchase of property and equipment .............. (7,133,000) (11,448,000) (24,024,000)
Proceeds from the sale of property and equipment 2,957,000 4,846,000 1,275,000
Business combination, net of cash acquired ...... 569,000 -- --
------------ ------------ ------------
Net cash used in investing activities .............. (3,607,000) (6,602,000) (22,749,000)
------------ ------------ ------------
Cash flows from financing activities
Proceeds of long-term debt ...................... 66,400,000 91,731,000 64,599,000
Repayment of long-term debt ..................... (59,936,000) (91,306,000) (51,081,000)
Exercise of stock options and other ............. 28,000 96,000 71,000
Common stock acquired and retired ............... -- -- (76,000)
------------ ------------ ------------
Net cash provided by financing activities .......... 6,492,000 521,000 13,513,000
------------ ------------ ------------
Net (decrease) increase in cash .................... (2,640,000) 2,953,000 (495,000)
Cash beginning of period ........................... 5,477,000 2,524,000 3,019,000
------------ ------------ ------------
Cash end of period ................................. $ 2,837,000 $ 5,477,000 $ 2,524,000
============ ============ ============
Supplemental information
Interest paid ................................... $ 4,040,000 $ 3,978,000 $ 3,242,000
Income taxes paid ............................... $ 817,000 $ 1,036,000 $ 122,000
Non-cash investing activities
Business combination
Fair value of assets acquired ............... $ 2,073,000 -- --
Less: Liabilities assumed .................. (2,022,000) -- --
Cash acquired ............................ (620,000) -- --
------------ ------------ ------------
Business combination, net of cash acquired $ (569,000) $ -- $ --
============ ============ ============
</TABLE>
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
17
<PAGE>
MATLACK SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ORGANIZATION AND ACCOUNTING POLICIES
Organization -- Matlack Systems, Inc., together with its subsidiaries, is a bulk
transportation company that provides transportation of bulk commodities in tank
trailers and tank containers, intermodal transportation services, tank cleaning
services and logistics management services to the nation's leading chemical and
dry bulk shippers. In addition to specialized trucking, the Company provides
trailer, container and intermediate bulk container leasing on a short- or
long-term basis to customers in the food and chemical industries.
Consolidation -- The consolidated financial statements include the accounts of
all subsidiaries with appropriate elimination of intercompany transactions and
balances.
Revenue recognition -- The Company recognizes revenue when shipments are
delivered. Lease service revenues are recognized over the terms of the lease.
Earnings per share -- The number of weighted average shares used in computing
basic and diluted earnings (loss) per share (EPS) are as follows:
1999 1998 1997
------------- -------------- -------------
Basic EPS 8,814,000 8,790,000 8,763,000
Effect of options -- (1) -- (1) 60,000
------------- -------------- -------------
Diluted EPS 8,814,000 8,790,000 8,823,000
============= ============== =============
(1) The effect of options was not considered as it would have been
anti-dilutive.
No adjustments to net earnings (loss) available to common shareholders were
required during the periods presented.
Inventories -- Inventories of transportation equipment parts and supplies are
valued at the lower of first-in, first-out cost or market. Tires on vehicles,
including new or recapped replacement tires, are valued at cost and are written
off over the expected aggregate useful life which approximates two to three
years.
Property and equipment -- Property and equipment are recorded at cost.
Depreciation is provided on a straight-line basis net of salvage or residual
values. Gain or loss on the sale or retirement of property and equipment is
included in other income in the Consolidated Statement of Operations. Repairs
and maintenance are expensed as incurred. Improvements that extend the original
life of the assets are capitalized and depreciated over the remaining lives of
the assets.
Claims and insurance reserves -- The Company retains a specific portion of
insurable risks with regard to public liability and workers' compensation
claims. The Company maintains a $1,000,000 primary insurance policy subject to
$500,000 of retention per claim with a $6,000,000 aggregate stop-loss limit on
retention. In excess of the primary policy, the Company maintains $120,000,000
of insurance coverage. Reserves are established for claims incurred plus an
estimate for claims incurred but not reported. Reserve requirements are
evaluated and established utilizing known and expected information on each
claim, historical payment trends, claim severity and other factors. In addition,
loss development trends on closed claims are also used to determine claim
reserves. The Company is not aware of any trends, uncertainties, or pending
claims that would have an adverse impact upon its insurance reserves. Claims
estimated to be paid within one year have been classified in accrued liabilities
with the balance reflected as non-current insurance reserves.
During 1998, the Company's insurance expense was reduced by the application of
$2,016,000 resulting from a premium refund in connection with an environmental
impairment liability insurance policy that expired on
18
<PAGE>
September 30, 1997. Between 1994 and 1997, premiums of $2,000,000 relating to
this policy were paid and expensed by the Company. During 1998 and in
conjunction with this policy, the Company received a net reimbursement of
$222,000 from a reinsurance company, resulting in a net premium refund of
$1,794,000 which is included in accounts receivable at September 30, 1998.
Use of estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
During the fourth quarter of 1998 as a result of unfavorable claims development,
the Company revised its estimates for future cost increases of incurred but
unpaid workers' compensation, auto and general liability insurance claims which
amounted to $4,600,000.
Fair values of financial instruments -- The carrying amounts reported in the
balance sheet for current assets and current liabilities approximate their fair
value at September 30, 1999.
Stock-based compensation -- The Company adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," on October 1, 1996. SFAS No. 123
defines a fair-value based method of accounting for stock-based compensation
plans, however, it allows the continued use of the intrinsic value method under
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees." The Company has elected to continue to use the intrinsic value
method.
Impairment of long-lived assets -- Periodically, the Company evaluates whether
the remaining useful life of long-lived assets requires revision and assesses
the recoverability of remaining unamortized balances. Should factors indicate
that an asset should be evaluated for possible impairment, an estimate of the
asset's cash flow is utilized in evaluating fair value. Should an impairment be
determined, the impaired asset's value would be adjusted and a charge to
operations would be recognized. During 1999, the Company recorded a non-cash
charge of $680,000 related to the write-down at six Company-owned locations and
$413,000 related to the write-down of certain van trailers that no longer are
used in the business of the Company.
Environmental remediation -- The Company accrues for environmental expenses
resulting from existing conditions that relate to past operations when the costs
are probable and estimable. In determining the Company's liability with respect
to environmental matters, consideration is given to the total cost to remediate
a site, the Company's contribution of waste at the site, the participation of
other responsible parties and all other relevant circumstances of the claim.
Liabilities, when established, do not consider recoverable insurance amounts and
are not discounted. Environmental liabilities are reviewed periodically as
assessment and remediation progresses. If required, based on additional
technical and legal information, liabilities are adjusted. Given the
uncertainties inherent in evaluating environmental exposure, actual future costs
incurred at identified sites may vary from current estimates. Recoveries of
environmental remediation costs from insurance carriers are recognized when
their receipt is deemed probable.
Recent accounting pronouncements -- The Company does not expect the adoption of
recently issued accounting pronouncements to have a significant impact on its
results of operations, financial position or cash flows.
Reclassification -- Certain prior year amounts have been reclassified to conform
with the current year presentation.
ACQUISITION
In September 1999, a subsidiary of the Company completed the acquisition of
American Transportation Service, Inc. (ATS), a provider of truck driver
services, by acquiring for a cash purchase price of $51,000 the remaining 51
percent of the ATS shares outstanding not already owned by the Company. In 1997,
the Company acquired a 49 percent interest in ATS.
19
<PAGE>
The ATS acquisition has been accounted for by the purchase method and the assets
acquired and liabilities assumed have been recorded at their estimated fair
values. The excess of cost over the estimated fair value of net assets acquired
of $757,000 is being amortized on a straight-line basis over five years. Pro
forma results of operations would be immaterial for all periods presented.
The Company paid ATS $35,492,000, $39,421,000 and $34,325,000 for drivers'
services in 1997, 1998 and 1999, respectively.
ACCOUNTS RECEIVABLE, NET
1999 1998
------------- ------------
Customers $ 34,076,000 $ 30,499,000
Insurance premium refund -- 1,794,000
Insurance claims 1,538,000 --
------------- ------------
35,614,000 32,293,000
Less allowance for doubtful accounts (1,284,000) (668,000)
------------- ------------
$ 34,330,000 $ 31,625,000
============= ============
PROPERTY AND EQUIPMENT
The Company's property and equipment accounts are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------
USEFUL
1999 1998 LIVES
--------------- --------------- -------------
<S> <C> <C>
Land $ 13,533,000 $ 13,498,000
Transportation equipment 135,274,000 143,215,000 4 to 12 years
Transportation service facilities 68,563,000 68,269,000 5 to 40 years
Less accumulated depreciation (131,296,000) (130,600,000)
-------------- --------------
$ 86,074,000 $ 94,382,000
=============== ===============
</TABLE>
As of September 30, 1999, the Company had no open commitments for the purchase
of property and equipment. The net book value of facilities held for sale at
September 30, 1999 was $5,403,000.
LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Bank credit agreement $ 49,400,000 $ 40,200,000
Equipment financing obligations due banks with
equipment pledged as security at interest rates
ranging from 6.99% to 7.65%, payable in
installments to 2005 6,840,000 9,324,000
Real estate mortgage obligations, at interest rates
ranging from 5.95% to 8.0%, with land and
buildings with a carrying value of $2,819,000
pledged as collateral, payable in installments
over various periods to 2001 258,000 510,000
Less amounts due within one year (5,309,000) (2,588,000)
------------ ------------
$ 51,189,000 $ 47,446,000
============ ============
</TABLE>
20
<PAGE>
The limit of the bank credit agreement is currently $75,000,000 and is secured
with unpledged equipment and accounts receivable. Interest rates on borrowings
under the agreement averaged 8.2% at September 30, 1999. The credit agreement
expires on August 19, 2000 but may be renewed on a year-to-year basis thereafter
upon agreement of the parties thereto. Termination of the agreement would result
in the repayment of the outstanding loan balance over a period of 48 months in
equal monthly installments. Otherwise, no repayments are required unless the
financing value of the equipment and accounts receivable falls below the
outstanding principal balance of the loans and letters of credit outstanding.
The credit agreement includes certain borrowing limitations based on the value
of equipment and accounts receivable. At September 30, 1999, a total of
$5,200,000 was available under the credit facility.
The credit agreement requires the maintenance of certain financial ratios,
restricts the payment of dividends and regulates payments to affiliated
companies. The Company was not in compliance with the fixed charge coverage
ratio and the net worth covenant under this facility at September 30, 1999. On
December 20, 1999, the Company received a waiver from its bank group with regard
to these events of default as of September 30, 1999. In addition, the bank group
amended the credit facility and reset ratios and requirements on certain
covenants for the next four quarters beginning with the quarter ending December
31, 1999 through the quarter ending September 30, 2000. This amendment also
limits capital expenditures, prohibits quarterly losses and increases the cost
to the Company for outstanding borrowings. The amendment permits additional
advances for working capital and other corporate needs subject to limitations on
its borrowing base, as amended. Based on current projections, it is expected
that the Company will be in compliance with these modified covenants during
fiscal year 2000. Current projections are based largely on the Company's fiscal
year 2000 Plan. Operating results for the first two months of fiscal year 2000
have exceeded the Plan.
The Company anticipates that its currently available funds, cash generated from
operations, realized from the sale of property and equipment, insurance
settlements, and available borrowing capacity under its credit agreement will be
sufficient to meet cash and working capital requirements, including anticipated
capital expenditures, through the end of fiscal 2000. In addition to the
expected positive cash flow from operations in 2000, the Company realized
approximately $3,000,000 from the sale of three facilities in the first fiscal
quarter of 2000 and $4,100,000 from several insurance companies, which resulted
from settlements during a mediation in October 1999 in which the Company sought
coverage for past and future environmental costs associated with six
Company-owned sites. Additional amounts from other insurance carriers are also
expected in fiscal 2000.
The expected positive cash flow from operations is based on the Company's fiscal
year 2000 Plan, which was developed by the new management team during the fourth
fiscal quarter of 1999. The expected turnaround in results from 1999 to 2000 is
based on a number of factors and assumptions. The most significant changes since
the end of fiscal 1999 that will affect fiscal 2000 results include the phasing
down of the international container business, the elimination of losses
associated with Safeway Transportation, Inc., the closing of several
unprofitable terminals, the sale of underutilized equipment and terminals,
lay-offs at both corporate and field locations, the elimination of unprofitable
contracts with certain customers and the securing of higher margin business from
other customers.
The overall assumptions used in the fiscal year 2000 Plan included no overall
change in rates and modest reductions in volumes based on the changing mix of
customers and routes. Planned capital expenditures for equipment and facilities
are limited to the replacement of existing assets. Although management believes
that its fiscal year 2000 Plan is achievable, there can be no assurance that it
will be achieved.
The aggregate amounts of maturities for all indebtedness during the next five
fiscal years are as follows: 2000 -- $5,309,000; 2001 -- $13,087,000, 2002 --
$13,047,000, 2003 -- $13,081,000 and 2004 -- $11,636,000.
Based upon borrowing rates available to the Company for long-term debt with
similar terms and maturities, the
21
<PAGE>
carrying amounts approximate the fair value of such financial instruments.
22
<PAGE>
ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Employee compensation $ 6,627,000 $ 5,184,000
Self-insurance reserves 5,319,000 4,296,000
Taxes other than income 1,584,000 1,461,000
Provision for container returns and repairs 1,566,000 --
Environmental reserves 2,165,000 1,166,000
Professional fees 540,000 83,000
Other 1,782,000 1,393,000
-------------- ---------------
$ 19,583,000 $ 13,583,000
============== ===============
</TABLE>
SHAREHOLDERS' EQUITY
Changes in the components of shareholders' equity are as follows:
<TABLE>
<CAPTION>
$1 Par Value Additional Total
Common Paid-In Retained Shareholders'
Stock Capital Earnings Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at September 30, 1996 ... $ 8,762,000 $ 10,553,000 $ 36,361,000 $ 55,676,000
Net earnings .................... 1,886,000 1,886,000
Exercise of stock options ....... 26,000 45,000 71,000
Common stock acquired and retired (10,000) (66,000) (76,000)
------------ ------------ ------------ ------------
Balance at September 30, 1997 ... 8,778,000 10,532,000 38,247,000 57,557,000
Net loss ........................ (2,013,000) (2,013,000)
Exercise of stock options ....... 31,000 65,000 96,000
------------ ------------ ------------ ------------
Balance at September 30, 1998 ... 8,809,00 10,597,000 36,234,000 55,640,000
Net loss ........................ (16,067,000) (16,067,000)
Exercise of stock options ....... 5,000 7,000 12,000
Other ........................... 16,000 16,000
------------ ------------ ------------ ------------
Balance at September 30, 1999 ... $ 8,814,000 $ 10,620,000 $ 20,167,000 $ 39,601,000
============ ============ ============ ============
</TABLE>
The Company is authorized to issue 24,000,000 shares of $1 Par Value Common
Stock and 1,000,000 shares of $1 Par Value Preferred Stock. The terms and
conditions of each issue of preferred shares will be determined by the Board of
Directors. No preferred shares have been issued.
Each share of common stock includes one common stock purchase right ("Right")
which is non-exercisable until certain defined events occur, including tender
offers or the acquisition by a person or group of affiliated or associated
persons of 20% of the Company's common stock. Upon the occurrence of certain
defined events, the Right entitles the holder to purchase additional stock of
the Company or stock of an acquiring company at a 50% discount. The Right
expires on June 30, 2009 unless earlier redeemed by the Company at a price of
$.01 per Right.
On December 14, 1998, the Company granted an exemption from its Rights Agreement
to Alpine Capital, L.P. ("Alpine") and the Anne T. and Robert M. Bass Foundation
(the "Foundation"), acting as a group, with respect to purchases of the
Company's common stock up to 23% of the amount outstanding. Prior to granting
the exemption, Alpine and the Foundation collectively owned 19.7% of the
outstanding common stock. The current threshold for a triggering event under the
Rights Agreement is 20%. The exemption was granted due to a request made by
representatives of Alpine and the Foundation, who have reaffirmed that their
acquisitions of the Company's common stock are for investment purposes only.
23
<PAGE>
Under the terms of the credit agreement, the Company's major subsidiary may not
make equity distributions to the Company in excess of 25% of its consolidated
net earnings subsequent to January 1, 1998.
OTHER INCOME
Other income, net at September 30 consisted of the following:
1999 1998
----------- -----------
Gain on sale of equipment, net ............ $ (638,000) $(1,749,000)
Impairment losses ......................... 1,093,000 --
Insurance recovery related to terminal fire (1,455,000) --
Miscellaneous ............................. (153,000) --
----------- -----------
$(1,153,000) $(1,749,000)
=========== ===========
STOCK OPTION PLANS
Under the Company's stock option plans, options to purchase common stock of the
Company may be granted to officers and key employees at not less than 100% of
the fair market value at the date of grant. Generally, options granted vest
ratably over a six-year period and have a maximum life of eight years.
The Company accounts for these plans under APB No. 25. Accordingly, no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with SFAS No. 123, the Company's pro forma net loss
for 1999, net loss for 1998 and net earnings for 1997 would have been
$16,684,000 ($1.89 loss per diluted share), $2,583,000 ($.29 loss per diluted
share) and $1,612,000 ($.18 per diluted share), respectively. Because the SFAS
123 method of accounting has not been applied to options granted prior to
October 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
As of September 30, stock option activity under the Company's plans is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 934,278 $ 7.61 805,594 $ 7.10 644,427 $ 8.19
Granted 25,000 5.50 177,000 8.88 206,400 6.38
Exercised (4,800) 2.42 (31,485) 3.05 (26,033) 2.74
Expired or canceled (64,800) 7.72 (16,831) 4.60 (19,200) 8.89
----------- ------- ---------- ------- ---------- -------
Outstanding at September 30 889,678 $ 7.58 934,278 $ 7.61 805,594 $ 7.10
============ ======= ========== ======= ========== =======
Exercisable at September 30 505,459 $ 7.50 387,773 $ 7.40 309,271 $ 6.89
============ ======= ========== ======= ========== =======
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and 1997
was $2.48, $2.60 and $2.54, respectively. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1999, 1998 and 1997,
respectively: risk-free interest rate of 6.2%, 4.4% and 6.0%; dividend yield of
0% for all years; expected volatility of .28, .30 and .29 and a weighted average
expected life of the option of 7 years, 7 years and 4.9 years.
24
<PAGE>
The following table summarizes information regarding stock options outstanding
and exercisable at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$2.42 5,499 .1 yrs $ 2.42 5,499 $ 2.42
$5.50 - $8.88 884,179 4.2 yrs $ 7.61 499,960 $ 7.56
</TABLE>
In June 1997, the Company modified the terms with regard to 363,979 outstanding
options, with exercise prices ranging from $8.92 to $11.33, by amending the
exercise price per share to $7.50, the then current market value.
At September 30, 1999, a total of 34,000 shares of common stock was available
for future grants.
LEASE COMMITMENTS
The Company leases certain of its transportation service and administrative
facilities, office space and transportation equipment. These leases are
classified as operating leases and expire on various dates during the next nine
years. Minimum future payments required under operating leases having
non-cancelable terms in excess of one year as of September 30 are considered in
the lease commitments.
Total rent expense incurred under operating leases for the fiscal years ended
September 30, 1999, 1998 and 1997 amounted to $12,686,000, $16,306,000 and
$12,917,000, respectively.
Minimum future payments are as follows:
YEAR ENDING SEPTEMBER 30,
2000 $ 5,639,000
2001 2,415,000
2002 772,000
2003 232,000
2004 160,000
Later years 186,000
---------------
Total minimum payments required $ 9,404,000
===============
On July 9, 1999 the Company committed to lease 100 sleeper tractors during the
first half of fiscal 2000 to replace an equal number of older tractors.
INCOME TAXES
The tax provisions (benefits) for the three years ended September 30, 1999 are
comprised as follows:
25
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1999 1998 1997
------------ ------------- --------------
<S> <C> <C> <C> <C>
Current: Federal $ (1,846,000) $ 1,598,000 $ 1,078,000
State (841,000) 435,000 472,000
Deferred: Federal (6,093,000) (2,341,000) 328,000
State (764,000) (440,000) (66,000)
------------ ------------- --------------
Total income taxes (benefit) $ (9,544,000) $ (748,000) $ 1,812,000
============ ============= ==============
</TABLE>
A reconciliation of the tax provisions (benefits) for the three years ended
September 30, 1999 with amounts calculated by applying the statutory federal
income tax rate for those years to earnings (loss) before income taxes (benefit)
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1999 1998 1997
------------ ------------- --------------
<S> <C> <C> <C>
Federal tax (benefit) $ (8,964,000) $ (966,000) $ 1,294,000
State taxes (benefit), net of federal benefit (1,044,000) (3,000) 264,000
Non-deductible business expenses 333,000 308,000 286,000
Other 131,000 (87,000) (32,000)
------------- ------------- --------------
Total income taxes (benefit) $ (9,544,000) $ (748,000) $ 1,812,000
============ ============= ==============
</TABLE>
The tax effect of temporary differences which comprise the current and
non-current deferred income tax amounts shown on the balance sheet are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Depreciation $ 11,843,000 $ 11,848,000
Expenses deductible when paid, primarily insurance reserves (6,749,000) (4,078,000)
Net operating loss carryforward (4,123,000) --
Other 47,000 144,000
-------------- --------------
Deferred income taxes, net $ 1,018,000 $ 7,914,000
============== ==============
</TABLE>
At September 30, 1999, the Company had a net operating loss carryforward of
$10,830,000 for federal income tax purposes which expires in 2019. Management
believes that it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the deferred tax assets.
26
<PAGE>
PENSION PLANS
The Company maintains a noncontributory pension plan for eligible employees not
covered by pension plans under collective bargaining agreements. Pension costs
are funded in accordance with the provisions of the Internal Revenue Code. The
Company also maintains a nonqualified, noncontributory defined benefit pension
plan for certain employees to restore pension benefits reduced by federal income
tax regulations. The cost associated with the plan is determined using the same
actuarial methods and assumptions as those used for the Company's qualified
pension plan.
The following table sets forth the funded status and the amount recognized in
the Company's balance sheet for the plans:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 12,595,000 $ 10,150,000
Service cost 667,000 575,000
Interest cost 921,000 783,000
Actuarial (gain) loss (2,021,000) 1,395,000
Acquisition 5,597,000 --
Benefits paid (325,000) (308,000)
-------------- -------------
Benefit obligation at end of year 17,434,000 12,595,000
-------------- --------------
Change in plan assets:
Fair value of plan assets at beginning of year 13,419,000 11,889,000
Actual return on plan assets 8,037,000 1,588,000
Employer contribution -- 250,000
Acquisition 5,720,000 --
Benefits paid (325,000) (308,000)
-------------- -------------
Fair value of plan assets at end of year 26,851,000 13,419,000
-------------- --------------
Funded status 9,417,000 824,000
Unrecognized net gain (10,994,000) (2,203,000)
Unrecognized prior service cost 76,000 85,000
Unrecognized overfunding at adoption (16,000) (32,000)
-------------- -------------
Accrued pension cost $ (1,517,000) $ (1,326,000)
============== =============
</TABLE>
At September 30, 1999, the assets of the pension plans were invested 85% in
equity securities and 13% in fixed income securities and the balance in other
short-term interest bearing accounts.
The discount rate in 1999 and 1998 was 8.5% and 7.0%, respectively. The assumed
rate of compensation increase in both 1999 and 1998 was 5.0%. The expected
long-term rate of return on assets for 1999 and 1998 was 9.5% and 9.0%,
respectively.
The components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Service cost $ 667,000 $ 575,000 $ 558,000
Interest cost 921,000 783,000 698,000
Return on plan assets (8,037,000) (1,588,000) (2,495,000)
Net amortization and deferral 6,763,000 371,000 1,584,000
----------------- ----------------- -----------------
Net periodic pension cost $ 314,000 $ 141,000 $ 345,000
================= ================= =================
</TABLE>
27
<PAGE>
The Company expensed payments to multi-employer pension plans required by
collective bargaining agreements of $3,615,000 in 1999, $3,859,000 in 1998 and
$3,367,000 in 1997. The actuarial present value of accumulated plan benefits and
net assets available for benefits to employees under these plans are not
available.
The Company also maintains a defined contribution 401(k) plan which permits
participation by substantially all employees not represented under a collective
bargaining agreement.
TRANSACTIONS WITH RELATED PARTIES
Certain directors and officers of the Company are also directors and officers of
Rollins Truck Leasing Corp.
The Company purchased materials, administrative services and rented office space
from Rollins Truck Leasing Corp., its subsidiaries and affiliates. The aggregate
cost of these materials, services and rents, which have been included in
operating expenses or selling and administrative expenses, as appropriate, in
the Consolidated Statement of Operations, was $4,093,000 in 1999, $4,401,000 in
1998 and $3,600,000 in 1997.
The Company paid insurance premiums of $904,000, $720,000 and $613,000 in 1999,
1998 and 1997, respectively, to Transrisk Limited, a wholly owned subsidiary of
Rollins Truck Leasing Corp., for various insurable risks. A substantial portion
of these risks were ceded to a non-affiliated reinsurance company.
An officer of the Company is the trustee of an employee benefits trust, which
provides certain insurance and health care benefits to employees of the Company.
Contributions to the trust, which were charged to operating or selling and
administrative expenses, as appropriate, were $1,184,000 in 1999, $2,302,000 in
1998 and $2,362,000 in 1997.
In the opinion of management of the Company, the foregoing transactions were
effected at rates that approximate those the Company would have realized or
incurred had such transactions been effected with independent third parties.
COMMITMENTS AND CONTINGENCIES
Environmental Matters
In the normal course of its business, Matlack is subject to numerous state and
federal environmental laws and regulations and also is exposed to the cost and
risk of transporting and handling materials and wastes characterized as
hazardous by various regulatory agencies. Matlack has received notices from the
United States Environmental Protection Agency ("EPA") and others indicating that
it is a potentially responsible party ("PRP") with respect to the cleanup of
hazardous wastes at several waste disposal sites. Matlack has been named as a
defendant in several lawsuits brought under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") for recovery of costs
associated with the cleanup of waste disposal sites. Matlack is not the owner or
lessor of any of these sites, many of which have several hundred PRPs. Because
Matlack is only one of many smaller or deminimis PRPs or defendants at these
sites, it is not actively involved in considering alternative methods of
remediation as it relates to cleanup or preventive measures at such sites and is
unable to quantify the total estimated recovery costs. In addition, Matlack has
responded to various governmental requests, principally those of the EPA
pursuant to CERCLA, for information with respect to possible disposition of
waste materials attributable to it at various waste disposal sites. Based on
information currently available and the advice of in-house counsel, the
Company's management believes its ultimate liability at these sites will not
have a material adverse effect upon the Company.
Where losses are probable, provision has been made based on available
information with respect to the cost of all such claims. In determining the
Company's liability with respect to such claims, consideration is given to the
28
<PAGE>
total cost to remediate the site, the Company's contribution of waste at the
site, the participation of other responsible parties and all other relevant
circumstances of the claim. All claims and litigations are reviewed to determine
the likelihood that their ultimate resolution would have a material adverse
effect upon the Company.
For the four owned sites at which the Company currently is investigating and
remediating environmental contamination, as of September 30, 1999 it had
expended a total of $3,400,000 since inception. Additional known liabilities
related to these four sites are $1,400,000, which are included in accrued
liabilities at September 30, 1999. Although it is likely that there will be
additional costs once the investigations are completed, remediation generally
occurs over a period of several years. Since the investigations are at such an
early stage, it is not possible at this time to predict what the ultimate
potential additional environmental-related costs may aggregate over the next
several years, however, such amounts could be material.
Subsequent to the end of fiscal year 1999, the Company entered into settlement
agreements with several insurance companies. Although no recoveries from these
insurance carriers were recognized as receivables at September 30, 1999, the
Company received $4,088,000 subsequent to the end of the fiscal year in
connection with these settlements. The Company believes that additional amounts
may be received later in fiscal 2000.
Litigation
During the fourth quarter of fiscal 1998, a judgment of $950,000 was entered
against the Company in connection with rent allegedly owed under an expired
lease for a terminal previously operated by the Company in Woodbridge, New
Jersey. The $950,000 judgment was based on a finding by the trial court that the
Company was responsible for double the fair market rent of the facility as a
tenant willfully holding over after the expiration of the lease term. An
appellate court has vacated this judgment and remanded the matter to the trial
level for further hearings to determine if the Company is liable for rent as a
holdover tenant and, if so, what the fair market rent should be. The Company
paid rent pursuant to the terms of the expired lease during the period in
controversy and the landland negotiated the rent payments. The Company believes
that it has viable defenses to the landlord's demand for additional rent and
intends to vigorously contest this matter. The Company has not provided for any
liability associated with this proceeding as the amount which it may be required
to pay, if any, is not estimable.
Matlack is involved in ordinary routine litigation incidental to the operation
of its business. In the opinion of management, based on the advice of in-house
counsel, the likelihood that the ultimate resolution of these claims and actions
will be material is remote.
INVOLUNTARY CONVERSION OF ASSETS
On March 6, 1998, the Company experienced a fire at its Toledo, Ohio terminal
that destroyed the Company's truck cleaning facility. The Company carries both
property damage and business interruption insurance to provide protection in
such situations. On August 25, 1999, the Company settled with its insurance
carrier and agreed that the aggregate loss which included business interruption
coverage amounted to $1,859,000. Accordingly, the Company included $301,000 in
operating earnings with the balance of $1,455,000, net of a deductible and the
carrying value of the damaged property, being recorded in other income. At
September 30, 1999, a receivable of $301,000, representing the final payment due
under the settlement, was included in accounts receivable. This amount was
subsequently collected in November, 1999.
SEGMENT INFORMATION
During fiscal 1999, the Company adopted Statement of Financial Standard (SFAS)
No. 131, "Disclosure about Segments of an Enterprise and Related Information".
SFAS No. 131 requires the presentation of descriptive financial information
about its reportable operating segments, which is consistent with that made
available to the management of the Company to assess performance.
The Company's operations are classified into two reportable business segments
based on differences in their operations. The Company's principal business is
the transportation of bulk commodities in tank trailers and
29
<PAGE>
tank containers for chemical and dry bulk shippers. In connection with this
transportation service, the Company may provide, when required, intermodal
transportation services and tank cleaning. The Company is also in the business
of leasing tank trailers, tank containers and other associated specialized
equipment primarily to customers in the chemical and food industries and its
suppliers.
The principal market for the Company's services is within the United States.
The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements as described in the summary of
organization and accounting policies.
Following is a tabulation of business segment information for each of the past
three fiscal years. Corporate and Other items principally include intersegment
eliminations and administrative expenses.
<TABLE>
<CAPTION>
Bulk Corporate
Transportation Leasing and Other Consolidated
Fiscal 1997 --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Revenues
External customers $ 229,697,000 $ 1,857,000 $ 155,000 $ 231,709,000
Intersegment 1,521,000 1,587,000 (3,108,000) --
--------------- ---------------- -------------- ---------------
Total revenues 231,218,000 3,444,000 (2,953,000) 231,709,000
Segment profit (loss) before income taxes 3,327,000 574,000 (203,000) 3,698,000
Total assets 148,677,000 8,019,000 (14,434,000) 142,262,000
Capital expenditures 19,628,000 4,396,000 -- 24,024,000
Depreciation 12,952,000 130,000 24,000 13,106,000
Interest expense 3,085,000 81,000 18,000 3,184,000
Fiscal 1998
Revenues
External customers $ 233,280,000 $ 5,531,000 $ 94,000 $ 238,905,000
Intersegment 469,000 840,000 (1,309,000) --
--------------- ---------------- -------------- ---------------
Total revenues 233,749,000 6,371,000 (1,215,000) 238,905,000
Segment profit (loss) before income taxes (4,400,000) 2,320,000 (681,000) (2,761,000)
Total assets 142,191,000 13,871,000 (12,799,000) 143,263,000
Capital expenditures 6,583,000 4,865,000 -- 11,448,000
Depreciation 11,355,000 891,000 23,000 12,269,000
Interest expense 3,718,000 323,000 3,000 4,044,000
Fiscal 1999
Revenues
External customers $ 198,113,000 $ 7,757,000 $ 62,000 $ 205,932,000
Intersegment 361,000 264,000 (625,000) --
--------------- ---------------- -------------- ---------------
Total revenues 198,474,000 8,021,000 (563,000) 205,932,000
Segment profit (loss) before income taxes (26,326,000) 2,303,000 (1,588,000) (25,611,000)
Total assets 129,410,000 16,263,000 (6,492,000) 139,181,000
Capital expenditures 4,722,000 2,411,000 -- 7,133,000
Depreciation 11,161,000 1,331,000 23,000 12,515,000
Interest expense 3,800,000 314,000 -- 4,114,000
</TABLE>
YEAR 2000 ("Y2K") READINESS DISCLOSURE (Unaudited)
The Company is aware of the issues related to the approach of the year 2000 and
has assessed and investigated what steps must be taken to ensure that its
critical systems and equipment will function appropriately after the turn of the
century. The Company has completed a review of each of its core systems to
determine their Y2K compliance. As a result, the Company has replaced its
Service Management System with one designed to be Y2K
30
<PAGE>
compliant from inception. The remaining core systems are vendor-supplied and
maintained systems where the Company has received Y2K compliant upgrades. The
Company has completed the implementation of its Service Management System and
all other core systems. The Service Management System replacement is expected to
cost approximately $4,600,000 of which $4,400,000 has been expended as of
September 30, 1999.
The Company relies on Qualcomm to provide the satellite tracking system
necessary to track the location of its transportation equipment and to provide
dispatch and routing information to its drivers. The Company has been informed
that the software utilized by Qualcomm and the Company is fully Y2K compliant. A
failure of the satellite communication system could have a materially adverse
effect on the Company's results of operations. The Company is relying on the
contingency plan established by Qualcomm to prevent the interruption of
business. As an additional backup, the Company plans to use its existing
telephone systems to dispatch its equipment and provide support to its drivers
in the event of a complete satellite system failure. In addition, the Company
utilizes Comdata to allow drivers to purchase fuel outside of the Company's
terminal locations. The Company has been informed that Comdata's systems
associated with fuel purchases are Y2K compliant. The Company also interacts
with many of its vendors through electronic data interchange (EDI). Although the
Company is Y2K compliant in its EDI applications, it cannot guarantee the Y2K
compliance of its business partners' systems. However, as part of the Company's
contingency planning, programs are in place which permit the Company to deal
with its EDI business partners in a non-EDI environment, if necessary.
Therefore, the failure of any such business partners to achieve Y2K compliance
should not have a material adverse effect upon the Company's operations.
The Company has completed its contingency plan to deal with Y2K issues. However,
due to the complexity and widespread nature of such issues, the contingency
planning process of necessity must be an ongoing one requiring possible further
modification as more information becomes known regarding (1) the Company's own
systems and facilities, and (2) the status and changes therein of the Y2K
compliance efforts of outside suppliers and vendors. Management believes that
the Company's current state of readiness, the nature of the Company's business,
and the availability of the contingency plan minimizes Y2K risks. Management
does not foresee significant liability to third parties if one or more of the
Company's systems are not Y2K compliant. As significant Y2K uncertainties remain
outside the control of the Company, at this time the Company is unable to
determine a most reasonably likely worst case scenario.
Through September 30, 1999, the Company has incurred, in addition to the Service
Management System costs noted above, $400,000 of internal staff costs necessary
to review and further Y2K compliance of its core operating systems. All Y2K
costs have been and will continue to be funded from operations. The Company
expects future internal staff costs associated with its Y2K readiness program to
be nominal.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except as presented below, the information called for by this Item 10 is
incorporated by reference from the Company's Proxy Statement to be filed
pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on
February 10, 2000.
Executive Officers of the Registrant. As of October 31, 1999, the Executive
Officers of the registrant were:
<TABLE>
<CAPTION>
NAME POSITION AGE TERM OF OFFICE
- ------------------- -------------------------------- --- --------------
<S> <C> <C> <C>
Patrick J. Bagley Vice President - Finance and 52 7/88 to date
Treasurer and Director
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C>
Klaus M. Belohoubek Vice President - General Counsel 40 7/99 to date
and Secretary
Michael B. Kinnard President and 41 7/99 to date
Chief Operating Officer
John W. Rollins, Jr Chairman of the Board and 57 7/88 to date
Chief Executive Officer 7/99 to date
</TABLE>
Klaus M. Belohoubek has been Vice President -- General Counsel and Secretary to
the Company since 1999 and was Assistant General Counsel from 1990 to 1999. Mr.
Belohoubek also serves as Vice President -- General Counsel and Secretary to
Rollins Truck Leasing Corp. and Vice President -- General Counsel to Dover Downs
Entertainment, Inc.
The Company's Executive Officers are elected for the ensuing year and until
their successors are elected.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 is incorporated by reference from the
Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual
Meeting of Shareholders to be held on February 10, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this Item 12 is incorporated by reference from the
Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual
Meeting of Shareholders to be held on February 10, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended September 30, 1999, the following officers and/or
directors of the Company were also officers and/or directors of Rollins Truck
Leasing Corp.; Patrick J. Bagley, Klaus M. Belohoubek, William B. Philipbar,
Jr., John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. John W. Rollins
owns directly and of record 12.6% of the outstanding shares of Common Stock of
Rollins Truck Leasing Corp. at October 31, 1999.
The description of transactions between the Company and Rollins Truck Leasing
Corp. appears under the caption "Transactions with Related Parties" of this 1999
Annual Report on Form 10-K. There were no situations encountered by the Company
during fiscal 1999 which required resolution as conflicts of interest.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements -- The following financial statements are
included under the caption "Financial Statements and Supplementary Data"
in Part II, Item 8 hereof and are incorporated herein by reference:
PAGE(S)
-------
Independent Auditors' Report 10
Consolidated Statement of Operations for the years ended
September 30, 1999, 1998 and 1997. 11
Consolidated Balance Sheet at September 30, 1999 and 1998 12
Consolidated Statement of Cash Flows for the years ended
September 30, 1999, 1998 and 1997. 13
Notes to the Consolidated Financial Statements 14-23
(2) Financial Statement Schedules
Matlack Systems, Inc. (Parent)
Schedule I -- Condensed Financial Information. 28
Balance Sheet at September 30, 1999 and 1998 28
Statement of Operations for the years ended September 30,
1999, 1998 and 1997. 29
Statement of Cash Flows for the years ended September 30,
1999, 1998 and 1997. 30
Note to the Financial Statements 31
Matlack Systems, Inc. and Subsidiaries Consolidated
Schedule II -- Valuation and Qualifying Accounts for the
years ended September 30, 1999, 1998 and 1997. 32
Any financial statement schedules otherwise required have been omitted because
they are not applicable or the required information is shown in the financial
statements or notes thereto.
33
<PAGE>
(3) Exhibits:
(3) (a) Articles of Incorporation and By-Laws of Matlack Systems, Inc. as filed
with Registration Statement No. 33-23524 dated August 5, 1988 are incorporated
herein by reference.
(3) (b) By-Laws of Matlack Systems, Inc. as last amended on December 29, 1999.
(4) (a) Credit Agreement, see Exhibit 10.
(b) Rights Agreement dated as of June 1, 1999 as filed as an Exhibit to
Registration Statement on Form 8-A filed by the Company on June 30, 1999 is
incorporated herein by reference.
(10)(a) Credit Agreement dated as of August 19, 1998 between Matlack (DE), Inc.
et al and certain banking institutions named therein with First Union National
Bank as agent as filed with the Company's annual report on Form 10-K for the
fiscal year ended September 30, 1998 is incorporated herein by reference.
(b) Amendment No. 1 dated February 12, 1999 to Credit Agreement dated as of
August 19, 1998 between Matlack (DE), Inc. et al and certain banking
institutions named therein with First Union National Bank as agent.
(c) Amendment No. 2 dated August 10, 1999 to Credit Agreement dated as of
August 19, 1998 between Matlack (DE), Inc. et al and certain banking
institutions named therein with First Union National Bank as agent.
(d) Amendment No. 3 dated December 20, 1999 to Credit Agreement dated as of
August 19, 1998 between Matlack (DE), Inc. et al and certain banking
institutions named therein with First Union National Bank as agent.
(e) Security Agreement-Accounts dated August 3, 1999 between Matlack (DE),
Inc. et al and certain banking institutions named therein with First Union
National Bank as agent.
(f) Security Agreement-Assigned Vehicles dated August 3, 1999 between
Matlack (DE), Inc. et al and certain banking institutions named therein with
First Union National Bank as agent.
(g) Security Agreement-Accounts dated September 8, 1999 between Matlack
(DE), Inc. et al and certain banking institutions named therein with First Union
National Bank as agent.
(h) Security Agreement-Assigned Vehicles dated September 8, 1999 between
Matlack (DE), Inc. et al and certain banking institutions named therein with
First Union National Bank as agent.
(i) Matlack Systems, Inc. 1988 Stock Option Plan as filed with Registration
Statement No. 33-23524 dated August 5, 1988 is incorporated herein by reference.
(j) Matlack Systems, Inc. 1995 Stock Option Plan, as filed with the
Company's Proxy Statement for the Annual Meeting of Shareholders held on January
25, 1996, is incorporated herein by reference.
(k) Matlack Systems, Inc. 1999 Stock Option Plan, as filed with the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
February 10, 2000, is incorporated herein by reference.
(21) Matlack Systems, Inc. Subsidiaries at September 30, 1999.
(27)(a) Matlack Systems, Inc. Financial Data Schedule at September 30, 1999.
(b) Reports on Form 8-K.
On July 29, 1999, the Company filed a report on Form 8-K which, as an Item 5 -
Other Event, announced the appointment of Klaus M. Belohoubek, Esquire to the
position of Vice President - General Counsel and Secretary. Additionally, the
filing reported the resignation of Michael B. Kinnard, Esquire, formerly Vice
President -
34
<PAGE>
General Counsel and Secretary as he had accepted the position of President and
Chief Operating Officer of Matlack Systems, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: January 19, 2000 MATLACK SYSTEMS, INC.
-------------------------------- (Registrant)
By: /s/ Michael B. Kinnard
---------------------------
Michael B. Kinnard
President and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ --------------------------------------- ---------------
<S> <C> <C>
/s/ Patrick J. Bagley Director, Vice President-Finance and January 19, 2000
- ------------------------ Treasurer, Chief Financial Officer,
PATRICK J. BAGLEY Chief Accounting Officer
/s/ John W. Rollins, Jr. Director, Chairman of the Board and January 19, 2000
- ------------------------ Chief Executive Officer
JOHN W. ROLLINS, JR.
/s/ John W. Rollins Director January 19, 2000
- ------------------------
JOHN W. ROLLINS
/s/ Henry B. Tippie Chairman of the Executive Committee and January 19, 2000
- ------------------------ Director
HENRY B. TIPPIE
</TABLE>
35
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
MATLACK SYSTEMS, INC.
BALANCE SHEET
($000 OMITTED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash ................................................... $ 75 $ 109
Accounts receivable from subsidiaries .................. -- 1
Other current assets ................................... -- 33
Refundable income taxes ................................ -- 396
Deferred taxes ......................................... 171 --
------- -------
Total current assets ................................... 246 539
Investments in subsidiaries, at equity* ..................... 42,079 57,518
------- -------
Total assets ........................................... $42,325 $58,057
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ....................................... $ 30 $ 119
Accrued liabilities .................................... 591 176
------- -------
Total current liabilities .............................. 621 295
Advance from subsidiary* .................................... 1,520 1,996
Other liabilities ........................................... 583 2
Deferred income taxes ....................................... -- 124
Shareholders' equity
Common stock $1 par value, 24,000,000 shares authorized;
issued and outstanding:
1999: 8,814,434; 1998: 8,809,634 ....................... 8,814 8,809
Additional paid-in capital ............................. 10,620 10,597
Retained earnings ...................................... 20,167 36,234
------- -------
Total shareholders' equity ............................. 39,601 55,640
------- -------
Total liabilities and shareholders' equity ............. $42,325 $58,057
======= =======
</TABLE>
* Eliminated in consolidation
The Note to the Financial Statements is an integral part of these statements.
36
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(CONTINUED)
MATLACK SYSTEMS, INC.
STATEMENT OF OPERATIONS
($000 OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Dividends from subsidiaries $ 504 $ 504 $ 504
Administrative expenses 1,378 412 38
--------- ---------- -----------
Earnings before income taxes (benefits) (874) 92 466
Income tax (benefits) (246) (194) (14)
--------- --------- ----------
Net earnings (loss) of Matlack Systems, Inc. (628) 286 480
Equity in undistributed net earnings (loss) of subsidiaries (15,439) (2,299) 1,406
--------- --------- ----------
Net earnings (loss) $ (16,067) $ (2,013) $ 1,886
========= ========= ==========
</TABLE>
The Note to the Financial Statements is an integral part of these statements.
37
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(CONTINUED)
MATLACK SYSTEMS, INC.
STATEMENT OF CASH FLOWS
($000 OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) prior to equity in subsidiaries' undistributed
earnings (loss) ................................................ $(628) $ 286 $ 480
Adjustments to reconcile earnings to net cash provided by operating
activities:
Changes in assets and liabilities:
Accounts receivable ........................................ 1 (1) 4
Accounts payable and accrued liabilities ................... 326 (137) 149
Current and deferred income taxes .......................... 101 (334) (384)
Other, net ................................................. 614 (50) 62
----- ----- -----
Net cash provided by (used in) operating activities ............ 414 (236) 311
----- ----- -----
Cash flows from investing activities .............................. -- -- --
Cash flows from financing activities:
Exercise of stock options and other ............................ 28 96 71
Common stock acquired and retired .............................. -- -- (76)
Capital contribution to subsidiary ............................. -- (429) (534)
Advance (to) from subsidiary ................................... (476) 100 533
----- ----- -----
Net cash used in financing activities .......................... (448) (233) (6)
----- ----- -----
Net (decrease) increase in cash ................................ (34) (469) 305
Cash beginning of period ....................................... 109 578 273
----- ----- -----
Cash end of period ............................................. $ 75 $ 109 $ 578
===== ===== =====
Supplemental information:
Income taxes paid (recovered) ..................................... $(324) $ 140 $ 530
</TABLE>
The Note to the Financial Statements is an integral part of these statements.
38
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(CONTINUED)
MATLACK SYSTEMS, INC.
NOTE TO THE FINANCIAL STATEMENTS
ACCOUNTING POLICIES
The accounting policies of the Company and its subsidiaries are set forth in the
Organization and Accounting Policies note in the consolidated financial
statements of this 1999 Annual Report on Form 10-K.
The Company's principal source of earnings is dividends paid by its
subsidiaries. A subsidiary's credit agreement restricts payments to the Company.
The Company also realizes cash receipts by assessing subsidiaries for federal
taxes on income and expends cash in payment of such taxes on a consolidated
basis. Tax assessments are based on the amount of federal income taxes which
would be payable (recoverable) by each subsidiary company based on its current
year's earnings (loss) reduced by that subsidiary's applicable portion of any
consolidated credits utilized currently in the consolidated federal income tax
return.
39
<PAGE>
MATLACK SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
($000 OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
----------------------
Balance Charged Balance
at to Costs at
Description Beginning and to Charged End
of Other to Other of
YEAR ENDED SEPTEMBER 30, Period Expenses Accounts Deductions Period
- ------------------------ --------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
1999: Allowance for doubtful accounts $ 668 $ 2,937 $ 16(1) $2,337(2) $ 1,284
1998: Allowance for doubtful accounts $ 583 $ 687 $ 91(1) $ 693(2) $ 668
1997: Allowance for doubtful accounts $ 414 $ 465 $ 126(1) $ 422(2) $ 583
1999: Self-insurance reserves $ 9,311 $ 9,723 -- $8,450(3) $10,584
Less: portion classified as current (4) (4,296) (5,319)
--------- -------
Non-current insurance reserves $ 5,015 $ 5,265
========= =======
1998: Self-insurance reserves $ 4,399 $ 13,019 -- $8,107(3) $ 9,311
Less: portion classified as current (4) (1,223) (4,296)
--------- -------
Non-current insurance reserves $ 3,176 $ 5,015
========= =======
1997: Self-insurance reserves $ 4,293 $ 7,465 -- $7,359(3) $ 4,399
Less: portion classified as current (4) (2,577) (1,223)
--------- -------
Non-current insurance reserves $ 1,716 $ 3,176
========= =======
</TABLE>
(1) Recoveries.
(2) Bad debt write-offs.
(3) Payments.
(4) Included in accrued liabilities.
40
<PAGE>
MATLACK SYSTEMS, INC.
Exhibits to Form 10-K
For Fiscal Year Ended September 30, 1999
Index to Exhibits
Exhibit (3) (b) By-Laws of Matlack Systems, Inc. as last amended on
December 29, 1999.
(10) (b) Amendment No. 1 dated February 12, 1999 to Credit
Agreement dated as of August 19, 1998 between Matlack (DE),
Inc. et al and certain banking institutions named therein
with First Union National Bank as agent.
(c) Amendment No. 2 dated August 10, 1999 to Credit Agreement
dated as of August 19, 1998 between Matlack (DE), Inc. et al
and certain banking institutions named therein with First
Union National Bank as agent.
(d) Amendment No. 3 dated December 20, 1999 to Credit Agreement
dated as of August 19, 1998 between Matlack (DE), Inc. et al
and certain banking institutions named therein with First
Union National Bank as agent.
(e) Security Agreement-Accounts dated August 3, 1999 between
Matlack (DE), Inc. et al and certain banking institutions
named therein with First Union National Bank as agent.
(f) Security Agreement-Assigned Vehicles dated August 3, 1999
between Matlack (DE), Inc. et al and certain banking
institutions named therein with First Union National Bank as
agent.
(g) Security Agreement-Accounts dated September 8, 1999 between
Matlack (DE), Inc. et al and certain banking institutions
named therein with First Union National Bank as agent.
(h) Security Agreement-Assigned Vehicles dated September 8, 1999
between Matlack (DE), Inc. et al and certain banking
institutions named therein with First Union National Bank as
agent.
(21) Matlack Systems, Inc. Subsidiaries at September 30, 1999.
(27) (a) Matlack Systems, Inc. Financial Data Schedule at
September 30, 1999.
41
Revised 12/29/99
BY-LAWS
OF
MATLACK SYSTEMS, INC.
-----------------------------------------------------
ARTICLE I
The Corporation
Section 1.1 Name. The title of this Corporation is MATLACK SYSTEMS, INC.
Section 1.2 Office. The registered office of this Corporation shall be
located at One Rollins Plaza, Wilmington, County of New Castle, State of
Delaware, or at such other place as the Board of Directors may designate in
accordance with Section 133 of the Delaware Corporation Law.
Section 1.3 Seal. The corporate seal of the Corporation shall have
inscribed thereon the name of the Corporation and the year of its creation
(1988) and the words "Incorporated Delaware".
1
<PAGE>
ARTICLE II
Stockholders
Section 2.1 Annual Meeting. The annual meeting of stockholders shall be
held at such place within or without the State of Delaware as the Board of
Directors from time to time determine.
A majority of the amount of the stock issued and outstanding and entitled
to vote shall constitute a quorum for the transaction of all business, except as
otherwise provided by law, the charter of the corporation or these by-laws. Each
stockholder shall be entitled to one vote, either in person or by proxy, for
each share of stock standing registered in his or her name on the books of the
Corporation on the record date selected by the Board of Directors in accordance
with these by-laws, unless more or less than one vote per share is, by the terms
of the instrument creating special or preferred shares, conferred upon the
holders thereof.
Notice of the annual meeting shall be mailed by the Secretary to each
stockholder at his or her last known post office address no less than ten days
and no more than fifty days prior thereto.
Section 2.2 Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board of
Directors, the Vice Chairman of the Board of Directors, the Chairman of the
Executive Committee or the President and not by any other person.
Section 2.3 Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation.
Section 2.4 Adjournments. Any meeting of the stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2.5 Quorum. At each meeting of stockholders, except where otherwise
provided by law or the certificate of incorporation or these by-laws, the
holders of a majority of the outstanding shares of stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 2.4 of these
by-laws until a quorum shall attend.
2
<PAGE>
Section 2.6 Organization. Meetings of stockholders shall be presided over
by the Chairman of the Board, if any, or in his absence by the Vice Chairman of
the Board, if any, or in his absence by the President, or in his absence by a
Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.7 Voting; Proxies. Unless otherwise provided in the certificate
of incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by him
which has voting power upon the matter in question. Each stockholder entitled to
vote at a meeting of stockholders may authorize another person or persons to act
for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A
stockholder entitled to vote may authorize a proxy by means of a writing, by
telephone, by the Internet, by other forms of electronic transmission or by any
other manner permitted by law. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of the Corporation.
Voting at meetings of stockholders need not be by written ballot and need not be
conducted by inspectors unless the holders of a majority of the outstanding
shares of all classes of stock entitled to vote thereon present in person or by
proxy at such meeting shall so determine. At all meetings of stockholders for
the election of directors a plurality of the votes cast shall be sufficient to
elect. All other elections and questions shall, unless otherwise provided by law
or by the certificate of incorporation or these by-laws, be decided by the vote
of the holders of a majority of the outstanding shares of stock entitled to vote
thereon present in person or by proxy at the meeting, provided that (except as
otherwise required by law or by the certificate of incorporation or these
by-laws) the Board of Directors may require a larger vote upon any election or
question.
Section 2.8 Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion of exchange or stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any other action. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; and (2) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
3
<PAGE>
Section 2.9 List of Stockholders Entitled To Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. The stock ledger
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list of stockholders or the books of the Corporation, or
to vote in person or by proxy at any meeting of stockholders.
Section 2.10 Action by Consent Of Stockholders. No action required to be
taken or which may be taken at any annual or special meeting of stockholders of
the Corporation may be taken without a meeting, and the power of stockholders to
consent in writing, without a meeting, to the taking of any action is
specifically denied.
4
<PAGE>
ARTICLE III
Board of Directors
Section 3.1 Number; Qualifications. The Board of Directors shall consist of
six members. Directors need not be stockholders.
Section 3.2 Election; Resignation; Removal; Vacancies. At each annual
meeting of stockholders, the stockholders shall elect Directors to replace those
Directors whose terms then expire. Any Director may resign at any time upon
written notice to the Corporation. Stockholders may remove Directors only for
cause. Any vacancy occurring in the Board of Directors for any cause may be
filled only by the Board of Directors, acting by vote of a majority of the
Directors then in office, although less than quorum. Each Director so elected
shall hold office until the expiration of the term of office of the Director
whom he has replaced.
Section 3.3 Notice Of Nomination Of Directors. Nominations for the election
of directors may be made by the Board of Directors or by any stockholder
entitled to vote for the election of directors. Such nominations shall be made
by notice in writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than fourteen days
nor more than fifty days prior to any meeting of the stockholders called for the
election of directors; provided, however, that if less than twenty-one days'
notice of the meeting is given to stockholders, such written notice shall be
delivered or mailed, as prescribed, to the Secretary of the Corporation not
later than the close of the seventh day following the day on which notice of the
meeting was mailed to stockholders. Notice of nominations which are proposed by
the Board of Directors shall be given by the Chairman on behalf of the Board.
Each such notice shall set forth (i) the name, age, business address and, if
known, residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee and (iii) the number of
shares of stock of the Corporation which are beneficially owned by each such
nominee. The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 3.4 Regular Meetings. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof need not be given.
Section 3.5 Special Meetings. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the President, the Chairman of the Board of Directors, the
Vice Chairman of the Board of Directors, or by the Chairman of the Executive
Committee. Reasonable notice thereof shall be given by the person calling the
meeting, not later than the second day before the date of the special meeting.
Section 3.6 Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board, may participate in any
meeting of such Board or committee
5
<PAGE>
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this by-law shall constitute presence in
person at such meeting.
Section 3.7 Quorum; Vote Required For Action; Informal Action. At all
meetings of the Board of Directors a majority of the whole Board shall
constitute a quorum for the transaction of business. Except in cases in which
the certificate of incorporation or these by-laws otherwise provide, the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. 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 all members of the Board or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
Section 3.8 Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as a
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 3.9 Compensation Of Directors. The Directors and members of
standing committees shall receive such fees or salaries as fixed by resolution
of the Executive Committee and in addition will receive expenses in connection
with attendance or participation in each regular or special meeting.
6
<PAGE>
ARTICLE IV
Committees
Section 4.1 Committees. 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 one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of the committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority 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; but no such committee shall have
power or authority in reference to amending the certificate of incorporation of
the Corporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange or all or substantially all of
the Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, or amending these
by-laws. The Board of Directors shall, at the annual organization meeting
thereof, elect an Executive Committee which shall consist of not more than four
members, all of whom shall be members of the Board of Directors. The Executive
Committee shall have and may exercise all of the powers and authority of the
Board of Directors in the management of business and affairs of the Corporation
to the fullest extent permitted by law (as presently allowed under Section 141
(c) to the Delaware General Corporation Law as revised effective July 1, 1996,
and as may be allowed in the future pursuant to amendments or revisions to
applicable law).
Section 4.2 Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these by-laws.
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ARTICLE V
Officers
Section 5.1 Executive Officers; Election; Qualifications; Term of Office;
Resignation; Removal; Vacancies. The officers of the Corporation shall consist
of a Chairman, Vice Chairman, President, Vice Presidents, Secretary, Assistant
Secretaries, Treasurer, Assistant Treasurers, General Counsel, and such other
officers as may from time to time be elected or appointed by the Board of
Directors. Any officer may resign at any time upon written notice to the
Corporation. The Board of Directors may remove any officer with or without cause
at any time, but such removal shall be without prejudice to the contractual
rights of such officer, if any, with the Corporation. Any number of offices may
be held by the same person. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board of Directors at any regular or
special meeting. In the absence of any officer, the Board of Directors may
delegate his power and duties to any other officer or to any director for the
time being.
Section 5.2 Duties Of The Chairman Of The Board And The Chairman Of The
Executive Committee. The Chairman shall preside at all meetings of the Board,
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board are carried into effect.
He shall submit a complete report of the operations and condition of the
Corporation for the year to the stockholders at their annual meeting. In all
cases, where a Chairman of the Executive Committee is elected, the Chairman of
the Executive Committee shall, in the absence of the Chairman of the Board of
Directors, act in the latter's capacity.
Section 5.3 President. The President shall be the Chief Executive Officer
of the Corporation, shall execute in the name of the Corporation all contracts
and agreements authorized by the Board or the Executive Committee, and shall
affix the seal to any instrument requiring the same, which shall always be
attested by the signature of the President, the Vice President or the Secretary
or any Assistant Secretary or the Treasurer. He may sign certificates of stock;
he shall have general supervision and direction of all the other officers of the
Corporation; he shall submit a complete report of the operations and condition
of the Corporation for the year to the Chairman and to the directors at their
regular meetings, and from time to time shall report to the directors all
matters which the interest of the Corporation may require to be brought to their
notice. He shall have the general powers and duties usually vested in the office
of a President of a corporation.
Section 5.4 Vice President Finance. The Vice President Finance shall be
Chief Accounting and Chief Financial Officer of the Corporation and shall be
responsible to the Board of Directors, the Executive Committee and the President
for all financial control and internal audit of the Corporation and its
subsidiaries. He shall perform such other duties as may be assigned to him by
the Board of Directors, the Executive Committee or the President.
Section 5.5 Vice Presidents. The Vice Presidents elected or appointed by
the Board of Directors shall perform such duties and exercise such powers as may
be assigned to them
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from time to time by the Board of Directors, the Executive Committee or the
President. In the absence or disability of the President, the Vice President
designated by the Board of Directors, the Executive Committee, or the President
shall perform the duties and exercise the powers of the President. A Vice
President may sign and execute contracts and other obligations pertaining to the
regular course of his duties.
Section 5.6 Secretary. The Secretary shall be ex-officio Secretary of the
Board of Directors and of the standing committees. He shall attend all sessions
of the Board, act as clerk thereof, record all votes and keep the minutes of all
proceedings in a book to be kept for that purpose. He shall perform like duties
for the standing committees when required. He shall see that the proper notices
are given of all meetings of stockholders and directors, and perform such other
duties as may be prescribed from time to time by the Board of Directors, the
Executive Committee, Chairman or President, and shall be sworn to the faithful
discharge of his duties.
He shall keep the accounts of stock registered and transferred in such form
and manner and under such regulations as the Board of Directors or Executive
Committee may prescribe.
Section 5.7 Treasurer. The Treasurer shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all monies 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 or Executive Committee. He shall disburse the funds of the Corporation
as may be ordered by the Board, the Executive Committee or the President, taking
proper vouchers therefor, and shall render to the President and the Executive
Committee and Directors, whenever they may require it, an account of all his
transactions as Treasurer, and of the financial condition of the Corporation,
and at the annual organization meeting of the Board a like report for the
preceding year.
Section 5.8 General Counsel. The General Counsel shall be the legal adviser
of the Corporation and shall perform such services as the Chairman, President,
Board of Directors or Executive Committee may require.
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ARTICLE VI
Stock
Section 6.1 Certificates. Every holder of stock shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman or Vice
Chairman of the Board of Directors, if any, or the President of the Corporation,
certifying the number of shares owned by him in the Corporation. Any of or all
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate, shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Section 6.2 Lost, Stolen Or Destroyed Stock Certificates; Issuance Of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
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ARTICLE VII
Indemnification
Section 7.1. General. The Company shall indemnify, and advance Expenses (as
hereinafter defined) to, Indemnitee (as hereinafter defined) to the fullest
extent permitted by applicable law in effect on July 23, 1986, and to such
greater extent as applicable law may thereafter from time to time permit. The
rights of Indemnitee provided under the preceding sentence shall include, but
shall not be limited to, the rights set forth in the other Sections of this
Article.
Section 7.2. Proceedings Other Than Proceedings By Or In The Right Of The
Company. Indemnitee shall be entitled to the indemnification rights provided in
this Section 7.2 if, by reason of his Corporate Status (as hereinafter defined),
he is, or is threatened to be made, a party to any threatened, pending, or
completed Proceeding (as hereinafter defined), other than a Proceeding by or in
the right of the Company. Pursuant to this Section 7.2, Indemnitee shall be
indemnified against Expenses, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, 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 Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 7.3. Proceedings By Or In The Right Of The Company. Indemnitee
shall be entitled to the indemnification rights provided in this Section 7.3 to
the fullest extent permitted by law if, by reason of his Corporate Status, he
is, or is threatened to be made, a party to any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 7.3, Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the Company.
Section 7.4. Indemnification For Expenses Of A Party Who Is Wholly Or
Partly Successful. Notwithstanding any other provision of this Article, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 7.5. Indemnification For Expenses Of A Witness. Notwithstanding any
other provision of this Article, to the extent that Indemnitee is, by reason of
his Corporate Status, a
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witness in any Proceeding, he shall be indemnified against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith.
Section 7.6. Advancement Of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 7.7. Procedure For Determination Of Entitlement To Indemnification.
(a) To obtain indemnification under this Article, Indemnitee shall submit
to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The determination of Indemnitee's entitlement to
indemnification shall be made not later than 60 days after receipt by the
Company of the written request for indemnification. The Secretary of the Company
shall, promptly upon receipt of such a request for indemnification, advise the
Board of Directors in writing that Indemnitee has requested indemnification.
(b) Indemnitee's entitlement to indemnification under any of Sections 7.2,
7.3 or 7.4 of this Article shall be determined in the specific case: (i) by the
Board of Directors by a majority vote of a quorum of the Board consisting of
Disinterested Directors (as hereinafter defined); or (ii) by Independent Counsel
(as hereinafter defined), in a written opinion, if (A) a Change of Control (as
hereinafter defined) shall have occurred and Indemnitee so requests, or (B) if a
quorum of the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, such quorum of Disinterested Directors so
directs; or (iii) by the stockholders of the Company; or (iv) as provided in
Section 7.8 of this Article.
(c) In the event the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 7.7(b) of this Article, the
Independent Counsel shall be selected as provided in this Section 7.7(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board of Directors, and the Company shall give written notice to
Indemnitee advising him of the identity of the Independent Counsel so selected.
If a Change of Control shall have occurred, and if so requested by Indemnitee in
his written request for indemnification, the Independent Counsel shall be
selected by Indemnitee, and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected. In either
event, Indemnitee or the Company, as the case may be, may, within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
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in Section 7.13 of this Article, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected shall be disqualified from acting as
such. If, within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 7.7(a) hereof, no Independent Counsel shall
have been selected, or if selected shall have been objected to, in accordance
with this Section 7.7(c), either the Company or Indemnitee may petition the
Court of Chancery of the State of Delaware for the appointment as Independent
Counsel of a person selected by the Court or by such other person as the Court
shall designate, and the person so appointed shall act as Independent Counsel
under Section 7.7(b) hereof. The Company shall pay any and all reasonable fees
and expenses of Independent Counsel incurred by such Independent Counsel in
acting pursuant to Section 7.7(b) hereof, and the Company shall pay all
reasonable fees and expenses incident to the procedures of this Section 7.7(c),
regardless of the manner in which such Independent Counsel was selected or
appointed.
Section 7.8. Presumptions And Effect Of Certain Proceedings. If a Change of
Control shall have occurred, Indemnitee shall be presumed (except as otherwise
expressly provided in this Article) to be entitled to indemnification under this
Article upon submission of a request for indemnification in accordance with
Section 7.7(a) of this Article, and thereafter the Company shall have the burden
of proof to overcome that presumption in reaching a determination contrary to
that presumption. Whether or not a Change of Control shall have occurred, if the
person or persons empowered under Section 7.7 of this Article to determine
entitlement to indemnification shall not have made a determination within 60
days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification unless (i)
Indemnitee misrepresented or failed to disclose a material fact in making the
request for indemnification, or (ii) such indemnification is prohibited by law.
The termination of any Proceeding described in any of Sections 7.2, 7.3, or 7.4
of this Article, or of any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this Article) of itself
adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal Proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful.
Section 7.9. Remedies Of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 7.7
of this Article that Indemnitee is not entitled to indemnification under this
Article, (ii) advancement of Expenses is not timely made pursuant to Section 7.6
of this Article, or (iii) payment of indemnification is not made within five (5)
days after a determination of entitlement to indemnification has been made or
deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article,
Indemnitee shall be entitled to an adjudication in an appropriate court of the
State of Delaware, or in any other court of competent jurisdiction, of his
entitlement to such indemnification or advancement of Expenses. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
The Company shall not oppose Indemnitee's right to seek any such adjudication or
award in arbitration.
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(b) In the event that a determination shall have been made pursuant to
Section 7.7 of this Article that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 7.9
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 7.9 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Sections 7.7 or 7.8 of this Article that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 7.9,
unless (i) Indemnitee misrepresented or failed to disclose a material fact in
making the request for indemnification, or (ii) such indemnification is
prohibited by law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 7.9 that the
procedures and presumptions of this Article are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Article.
(e) In the event that Indemnitee, pursuant to this Section 7.9, seeks a
judicial adjudication of, or an award in arbitration to enforce his rights
under, or to recover damages for breach of, this Article, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 7.13 of this Article) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 7.10. Non-Exclusivity And Survival Of Rights. The rights of
indemnification and to receive advancement of Expenses as provided by this
Article shall not be deemed exclusive of any other rights to which Indemnitee
may at any time be entitled under applicable law, the Certificate of
Incorporation, the By-Laws, any agreement, a vote of stockholders or a
resolution of directors, or otherwise. Notwithstanding any amendment, alteration
or repeal of any provision of this Article, Indemnitee shall, unless otherwise
prohibited by law, have the rights of indemnification and to receive advancement
of Expenses as provided by this Article in respect of any action taken or
omitted by Indemnitee in his Corporate Status and in respect of any claim
asserted in respect thereof at any time when such provision of this Article was
in effect. The provisions of this Article shall continue as to an Indemnitee
whose Corporate Status has ceased and shall inure to the benefit of his heirs,
executors and administrators.
Section 7.11. Severability. If any provision or provisions of this Article
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
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(a) the validity, legality and enforceability of the remaining provisions
of this Article (including without limitation, each portion of any Section of
this Article containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Article
(including, without limitation, each portion of any Section of this Article
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
Section 7.12. Certain Persons Not Entitled To Indemnification Or
Advancement Of Expenses. Notwithstanding any other provision of this Article, no
person shall be entitled to indemnification or advancement of Expenses under
this Article with respect to any Proceeding, or any claim therein, brought or
made by him against the Company.
Section 7.13. Definitions. For purposes of this Article:
(a) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner") (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities without the prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (ii) the Company is a
party to a merger, consolidation, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not and
was not a party to the Proceeding in respect of which indemnification is sought
by Indemnitee.
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(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
(e) "Indemnitee" includes any person who is, or is threatened to be made, a
witness in or a party to any Proceeding as described in Sections 7.2, 7.3 or 7.4
of this Article by reason of his Corporate Status.
(f) "Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the past five (5) years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this Article.
(g) "Proceeding" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 7.9 of this Article to enforce
his rights under this Article.
Section 7.14. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
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ARTICLE VIII
Miscellaneous
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 8.2 Waiver Of Notice Of Meetings Of Stockholders, Directors, And
Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 8.3 Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose, if: (1) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or the committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (2) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 8.4 Form Of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 8.5 Amendment Of By-Laws. The Board of Directors of the Corporation
is expressly authorized to adopt, amend or repeal the by-laws of the Corporation
by a vote of a majority of the entire Board. The stockholders may make, alter or
repeal any by-law whether or not
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adopted by them, provided however, that any such additional by-laws, alterations
or repeal may be adopted only by the affirmative vote of the holders of 75% or
more of the outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (considered for this purpose as one
class), unless such additional by-laws, alterations or repeal shall have been
recommended to the stockholders for adoption by a majority of the Board of
Directors, in which event such additional by-laws, alterations or repeal may be
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class).
18
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
Amendment No. 1, dated February 12, 1999 (the "Amendment"), to Credit
Agreement dated August 19, 1998 (as amended, the "Agreement") by and among
MATLACK (DE), INC. (the "Company"), MATLACK, INC. ("MI"), SAFEWAY CHEMICAL
TRANSPORTATION, INC. ("SCT"), BRITE-SOL SERVICES, INC. ("BSS"), MATLACK LEASING
CORPORATION. ("ML"), SUPER SERVICE, INC. ("SSI") (the Company, MI, SCT, BSS, ML
and SSI are each individually and collectively referred to as the "Borrowers"),
jointly and severally, the banking institutions signatories hereto and named in
Exhibit A attached hereto and such other institutions that hereafter become a
"Bank" pursuant to ss.11.4 hereof (collectively the "Banks" and individually a
"Bank") and FIRST UNION NATIONAL BANK, a national banking association, as agent
for the Banks under this Agreement ("First Union", which shall mean in its
capacity as agent unless specifically stated otherwise). All capitalized terms
used herein and not otherwise defined shall have the respective meanings
ascribed to them in the Agreement.
Preliminary Statement
WHEREAS, the Borrowers have requested that the Agreement be amended in the
manner hereinafter set forth.
WHEREAS, the Required Banks are willing to amend the Agreement in the
manner hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and promises hereinafter
set forth and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Section 1.1 of Agreement. The following definitions set forth in ss.1.1
of the Agreement shall be and hereby are amended and restated in their
entireties to read as follows:
"Fixed Charge Coverage Ratio" shall mean the ratio of EBITDA plus
Rental and Lease Expense to the sum of Consolidated Total Interest Expense,
Rental and Lease Expense, and (a) for all periods ending on or before
September 30, 1999, 15% all indebtedness for borrowed money or (b) for all
periods ending on or after October 1, 1999, Current Maturities plus 20% of
Obligations. This ratio shall be determined on a rolling four quarter
basis.
"LIBO Rate Margin" shall mean the percentage listed in the following
table.
Fixed Charge Coverage Ratio LIBO Rate Margin
Equal to or less than 1.15 2.000%
Greater than 1.15 but less than 1.25 1.750%
Equal to or greater than 1.25 but less than 1.50 1.375%
Equal to or greater than 1.50 but less than 1.75 1.125%
Equal to or greater than 1.75 0.875%
with such Fixed Charge Coverage Ratio to be computed as of the last
quarterly compliance period.
Amendment No. 1 to Dated
Credit Agreement - 1 - February 12, 1999
<PAGE>
"Unused Fee Percentage" shall mean the percentage listed in the
following table.
Fixed Charge Coverage Ratio Unused Fee Percentage
Equal to or less than 1.15 0.500%
Greater than 1.15 but less than 1.25 0.375%
Equal to or greater than 1.25 but less than 1.50 0.375%
Equal to or greater than 1.50 but less than 1.75 0.250%
Equal to or greater than 1.75 0.250%
with such Fixed Charge Coverage Ratio to be computed as of the last
quarterly compliance period."
2. Section 7.2 of Agreement. Section 7.2 shall be and hereby is amended
and restated in its entirety to be as set forth below:
"7.2 Fixed Charge Coverage Ratio. The Company, on a consolidated
basis, shall not incur a Fixed Charge Coverage Ratio of less than (a) 1.0
to 1.0 for any period ending on or before June 30, 1999, (b) 1.1 to 1.0 for
any period beginning on or after July 1, 1999 and ending on or before
September 30, 1999, or (c) 1.15 to 1.0 for any period ending on or after
October 1, 1999."
3. Representations and Warranties. The Borrowers hereby restate the
representations and war ranties made in the Agreement as amended by this
Amendment, including but not limited to Article 3 thereof, on and as of the date
hereof as if originally given on this date.
4. Covenants. The Borrowers hereby represent and warrant that they are in
compliance and have complied with each and every covenant set forth in the
Agreement as amended by this Amendment, including but not limited to Articles 5
and 6 thereof, on and as of the date hereof.
5. No Default. The Borrowers hereby confirm that no Event of Default or
Potential Default exists under the Agreement as amended by this Amendment.
6. Affirmation. The Borrowers each hereby affirms its absolute and
unconditional promise to pay to each Bank and First Union National Bank, as
agent under the Agreement, the Loans and all other amounts due under the
Agreement and any other Loan Document on the maturity date(s) provided in the
Agreement or any other Loan Document, as such documents may be amended hereby.
7. Corporate Authorization and Delivery of Documents. Each Bank shall have
received (a) copies, certified as of the date hereof, of all action taken by the
Borrowers and any other necessary Person to authorize this Amendment and such
other papers as any Bank shall require, (b) a copy of a Certificate of Good
Standing for each Borrower in the jurisdiction of formation of each entity and
in the jurisdiction where its executive offices are located, (c) a certificate
signed by the secretary or assistant secretary of each Borrower, together with
the true signature of the officer or officers authorized to execute and deliver
this Amendment, upon which the Banks shall be entitled to rely conclusively
until they shall have received a further certificate of the secretary or
assistant secretary of each Borrower changing the prior certificate and
submitting the signature of the officer or officers named in the new certificate
as being authorized to execute and deliver Loan Documents and certificates
thereunder, and (d) a favorable written opinion to the Banks from counsel for
the Borrowers substantially in the same form and substance as that delivered in
connection with the execution and delivery of the Agreement on August 19, 1998.
Amendment No. 1 to Dated
Credit Agreement - 2 - February 12, 1999
<PAGE>
8. Effect of Amendment. This Amendment amends the Agreement only to the
extent and in the manner herein set forth, and in all other respects the
Agreement is ratified and confirmed.
9. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures hereto were upon the same instrument.
10. Amendment Fee. Simultaneous with the execution and delivery of this
Amendment, the Borrowers shall deliver to First Union for the ratable benefit of
each Bank an amendment fee in the aggregate amount of $75,000 which will be
distributed to each Bank by First Union promptly following the execution and
delivery of this Amendment by the Required Banks.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment to
be duly executed by their duly authorized representatives as of the date first
above written.
MATLACK (DE), INC.
By: /s/ G. J. Trippitelli
-------------------------------------
Name: G. J. Trippitelli
Title: President
MATLACK, INC.
By: /s/ G. J. Trippitelli
-------------------------------------
Name: G. J. Trippitelli
Title: President
SAFEWAY CHEMICAL TRANSPORTATION, INC.
By: /s/ G. J. Trippitelli
-------------------------------------
Name: G. J. Trippitelli
Title: President
BRITE-SOL SERVICES, INC.
By: /s/ G. J. Trippitelli
-------------------------------------
Name: G. J. Trippitelli
Title: President
MATLACK LEASING CORPORATION
By: /s/ G. J. Trippitelli
-------------------------------------
Name: G. J. Trippitelli
Title: President
Amendment No. 1 to Dated
Credit Agreement - 3 - February 12, 1999
<PAGE>
SUPER SERVICE, INC.
By: /s/ G. J. Trippitelli
-------------------------------------
Name: G. J. Trippitelli
Title: President
FIRST UNION NATIONAL BANK
By: /s/ Michael J. Labrum
-------------------------------------
Name: Michael J. Labrum
Title: President
CHASE BANK OF TEXAS, N.A.
By: /s/ Ken M. Sample
-------------------------------------
Name: Ken M. Sample
Title: Senior Vice President
BANKBOSTON, NA
By: /s/ Tony Zhang
-------------------------------------
Name: Tony Zhang
Title: Vice President
SUNTRUST BANK, ATLANTA
By: /s/ Laura G. Harrison
-------------------------------------
Name: Laura G. Harrison
Title: Asst. Vice President
By: /s/ W. David Wisdom
-------------------------------------
Name: W. David Wisdom
Title: Vice President
Amendment No. 1 to Dated
Credit Agreement - 4 - February 12, 1999
AMENDMENT NO. 2
TO
CREDIT AGREEMENT
Amendment No. 2, dated August 10, 1999 (the "Amendment"), to Credit
Agreement dated August 19, 1998 (as amended, the "Agreement") by and among
MATLACK (DE), INC. (the "Company"), MATLACK, INC. ("MI"), SPECIALIZED DEDICATED
FLEETS, INC., succesor by merger to Safeway Chemical Transportation, Inc.
("SDF"), BRITE-SOL SERVICES, INC. ("BSS"), MATLACK LEASING CORPORATION. ("ML"),
SUPER SERVICE, INC. ("SSI") (the Company, MI, SCT, BSS, ML and SSI are each
individually and collectively referred to as the "Borrowers"), jointly and
severally, the banking institutions signatories hereto and named in Exhibit A
attached hereto and such other institutions that hereafter become a "Bank"
pursuant to ss.11.4 hereof (collectively the "Banks" and individually a "Bank")
and FIRST UNION NATIONAL BANK, a national banking association, as agent for the
Banks under this Agreement ("First Union", which shall mean in its capacity as
agent unless specifically stated otherwise). All capitalized terms used herein
and not otherwise defined shall have the respective meanings ascribed to them in
the Agreement. This Amendment shall be effective as of June 30, 1999.
Preliminary Statement
WHEREAS, the Borrowers have requested that the Agreement be amended in the
manner hereinafter set forth.
WHEREAS, the Required Banks are willing to amend the Agreement in the
manner hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and promises hereinafter
set forth and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Section 1.1 of Agreement. The following definitions set forth in ss.1.1
of the Agreement shall be and hereby are amended and restated in their
entireties to read as follows:
"LIBO Rate Margin" shall mean the percentage listed in the following table.
Fixed Charge Coverage Ratio LIBO Rate Margin
Less than 1.0 2.750%
Equal to or greater than 1.00 but less than 1.05 2.375%
Equal to or greater than 1.05 but less than 1.15 2.000%
Equal to or greater than 1.15 but less than 1.25 1.750%
Equal to or greater than 1.25 but less than 1.50 1.375%
Equal to or greater than 1.50 but less than 1.75 1.125%
Equal to or greater than 1.75 0.875%
with such Fixed Charge Coverage Ratio to be computed as of the last
quarterly compliance period.
"Unused Fee Percentage" shall mean the percentage listed in the following
table.
Amendment No. 2 to Dated
Credit Agreement - 1 - August 10, 1999
<PAGE>
Fixed Charge Coverage Ratio Unused Fee Percentage
Less than 1.0 0.625%
Equal to or greater than 1.00 but less than 1.05 0.500%
Equal to or greater than 1.05 but less than 1.15 0.500%
Equal to or greater than 1.15 but less than 1.25 0.375%
Equal to or greater than 1.25 but less than 1.50 0.375%
Equal to or greater than 1.50 but less than 1.75 0.250%
Equal to or greater than 1.75 0.250%
with such Fixed Charge Coverage Ratio to be computed as of the last
quarterly compliance period."
2. Section 7.1 of Agreement. Section 7.1 shall be and hereby is amended and
restated in its entirety to be as set forth below.
"7.1 Minimum Tangible Net Worth. Tangible Net Worth of the Company, on a
consolidated basis, will be equal to or greater than the sum of (i)
$45,000,000 and (ii) 50% of Consolidated Net Income for each Fiscal Quarter
ending after December 31, 1997, without deduction for any net losses."
3. Section 7.2 of Agreement. Section 7.2 shall be and hereby is amended and
restated in its entirety to be as set forth below.
"7.2 Fixed Charge Coverage Ratio. The Company, on a consolidated basis,
shall not incur a Fixed Charge Coverage Ratio of less than (a) 0.9 to 1.0
for any period ending on or before June 30, 1999, (b) 0.9 to 1.0 for any
period beginning on or after July 1, 1999 and ending on or before September
30, 1999, or (c) 1.15 to 1.0 for any period ending on or after October 1,
1999."
4. Safeway Chemical Transportation, Inc. Safeway Chemical Transportation,
Inc. was merged with and into Specialized Dedicated Fleets, Inc. on July 8, 1999
and Specialized Dedicated Fleets, Inc. is the surviving entity. In all places in
the Agreement, references to "Safeway Chemical Transportation, Inc." shall be
changed to "Specialized Dedicated Fleets, Inc." and references to "SCT" shall be
changed to "SDF".
5. Representations and Warranties. The Borrowers hereby restate the
representations and war ranties made in the Agreement as amended by this
Amendment, including but not limited to Article 3 thereof, on and as of the date
hereof as if originally given on this date.
6. Covenants. The Borrowers hereby represent and warrant that they are in
compliance and have complied with each and every covenant set forth in the
Agreement as amended by this Amendment, including but not limited to Articles 5
and 6 thereof, on and as of the date hereof.
7. No Default. The Borrowers hereby confirm that no Event of Default or
Potential Default exists under the Agreement as amended by this Amendment.
8. Affirmation. The Borrowers each hereby affirms its absolute and
unconditional promise to pay to each Bank and First Union National Bank, as
agent under the Agreement, the Loans and all other amounts due under the
Agreement and any other Loan Document on the maturity date(s) provided in the
Agreement or any other Loan Document, as such documents may be amended hereby.
Amendment No. 2 to Dated
Credit Agreement - 2 - August 10, 1999
<PAGE>
9. Corporate Authorization and Delivery of Documents. Each Bank shall have
received (a) copies, certified as of the date hereof, of all action taken by the
Borrowers and any other necessary Person to authorize this Amendment and such
other papers as any Bank shall require, (b) a copy of a Certificate of Good
Standing for each Borrower in the jurisdiction of formation of each entity and
in the jurisdiction where its executive offices are located, (c) a certificate
signed by the secretary or assistant secretary of each Borrower, together with
the true signature of the officer or officers authorized to execute and deliver
this Amendment, upon which the Banks shall be entitled to rely conclusively
until they shall have received a further certificate of the secretary or
assistant secretary of each Borrower changing the prior certificate and
submitting the signature of the officer or officers named in the new certificate
as being authorized to execute and deliver Loan Documents and certificates
thereunder, and (d) a favorable written opinion to the Banks from counsel for
the Borrowers substantially in the same form and substance as that delivered in
connection with the execution and delivery of the Agreement on August 19, 1998.
10. Effect of Amendment. This Amendment amends the Agreement only to the
extent and in the manner herein set forth, and in all other respects the
Agreement is ratified and confirmed.
11. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures hereto were upon the same instrument.
12. Amendment Fee. Simultaneous with the execution and delivery of this
Amendment, the Borrowers shall deliver to First Union for the benefit of each
Bank an amendment fee in the amount of $6,250 each (aggregating $25,000) which
will be distributed to each Bank by First Union promptly following the execution
and delivery of this Amendment by the Required Banks.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment to
be duly executed by their duly authorized representatives as of the date first
above written.
MATLACK (DE), INC.
By
------------------------------
Name:
Title:
MATLACK, INC.
By
------------------------------
Name:
Title:
SPECIALIZED DEDICATED FLEETS, INC.
successor by merger to Safeway Chemical
Transportation, Inc.
Amendment No. 2 to Dated
Credit Agreement - 3 - August 10, 1999
<PAGE>
By
------------------------------
Name:
Title:
BRITE-SOL SERVICES, INC.
By
------------------------------
Name:
Title:
MATLACK LEASING CORPORATION
By
------------------------------
Name:
Title:
SUPER SERVICE, INC.
By
------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By
------------------------------
Name:
Title:
Amendment No. 2 to Dated
Credit Agreement - 4 - August 10, 1999
<PAGE>
CHASE BANK OF TEXAS, N.A.
By
------------------------------
Name:
Title:
BANKBOSTON, NA
By
------------------------------
Name:
Title:
SUNTRUST BANK, ATLANTA
By
------------------------------
Name:
Title:
By
------------------------------
Name:
Title:
Amendment No. 2 to Dated
Credit Agreement - 5 - August 10, 1999
AMENDMENT NO. 3
TO
CREDIT AGREEMENT
Amendment No. 3, dated December 20, 1999 (the "Amendment"), to Credit
Agreement dated August 19, 1998 (as amended, the "Agreement") by and among
MATLACK (DE), INC. (the "Company"), MATLACK, INC. ("MI"), SPECIALIZED DEDICATED
FLEETS, INC., successor by merger to Safeway Chemical Transportation, Inc.
("SDF"), BRITE-SOL SERVICES, INC. ("BSS"), MATLACK LEASING CORPORATION. ("ML"),
SUPER SERVICE, INC. ("SSI") (the Company, MI, SCT, BSS, ML and SSI are each
individually and collectively referred to as the "Borrowers"), jointly and
severally, the banking institutions signatories hereto and named in Exhibit A
attached hereto and such other institutions that hereafter become a "Bank"
pursuant to ss.11.4 hereof (collectively, the "Banks" and individually a "Bank")
and FIRST UNION NATIONAL BANK, a national banking association, as agent for the
Banks under this Agreement ("First Union", which shall mean in its capacity as
agent unless specifically stated otherwise). All capitalized terms used herein
and not otherwise defined shall have the respective meanings ascribed to them in
the Agreement.
Preliminary Statement
WHEREAS, the Borrowers have requested that the Agreement be amended in the
manner hereinafter set forth and that waivers of non-compliance by the Borrowers
with certain financial covenants be granted as provided herein.
WHEREAS, the Banks are willing to amend the Agreement in the manner
hereinafter set forth and grant the requested waivers.
NOW, THEREFORE, in consideration of the premises and promises hereinafter
set forth and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Amendment of Section 1.1. The following definitions shall be added to
ss.1.1 of the Agreement:
"Capital Expenditures" shall mean, with respect to any Person, all
expenditures by such Person which should be capitalized in accordance with
generally accepted accounting principles, including all such expenditures
with respect to fixed or capital assets (including, without limitation,
expenditures for maintenance and repairs which should be capitalized in
accordance with generally accepted accounting principles) and the amount of
capitalized lease obligations incurred by such Person.
"Consolidated Net Loss" shall mean for any period, the consolidated net
loss of the Company and its Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in accordance with GAAP.
"Overadvances" shall mean Loans and L/C Obligations outstanding that exceed
the Borrowing Base.
Amendment No. 3 to Dated
Credit Agreement - 1 - December 20, 1999
<PAGE>
"Permitted Overadvances" shall mean Overadvances up to but not exceeding
the following amounts for the periods listed.
Period Permitted Overadvance
------ ---------------------
October 1999 $3,300,000
November 1999 $3,900,000
December 1999 $6,000,000
January 2000 $4,500,000
February 2000 $2,500,000
March 2000 $1,525,000
April 2000 $1,000,000
May 2000 $ 500,000
The following definitions set forth in ss.1.1 of the Agreement shall be and
hereby are amended and restated in their entireties to read as follows:
"Current Maturities" shall mean Indebtedness due within one year other than
Indebtedness with respect to the Obligations.
"Fixed Charge Coverage Ratio" shall mean the ratio of EBITDA plus Rental
and Lease Expense to the sum of Consolidated Total Interest Expense, Rental
and Lease Expense, Current Maturities and 25% of Obligations, determined on
a rolling four quarter basis, except that for the period October 1, 1999
through September 30, 2000 the determination shall not be on a rolling four
quarter basis but instead shall be determined on a year-to-date basis, i.e.
the determination for the Fiscal Quarter ending December 31, 1999 shall
EBITDA plus Rental and Lease Expense for that Fiscal Quarter in relation to
1/4 of the actual and anticipated sum of Consolidated Total Interest
Expense, Rental and Lease Expense, Current Maturities and 25% of the
Obligations for the twelve month period October 1, 1999 through September
30, 2000. For the Fiscal Quarter ending March 31, 2000 the calculation
shall include EBITDA plus Rental and Lease Expense for the two Fiscal
Quarters then ended in relation to 1/2 of the actual and anticipated sum of
Consolidated Total Interest Expense, Rental and Lease Expense, Current
Maturities and 25% of the Obligations for the twelve month period October
1, 1999 through September 30, 2000. For the Fiscal Quarter ending June 30,
2000 the calculation shall include EBITDA plus Rental and Lease Expense for
the three Fiscal Quarters then ended in relation to 3/4 of the actual and
anticipated sum of Consolidated Total Interest Expense, Rental and Lease
Expense, Current Maturities and 25% of the Obligations for the twelve month
period October 1, 1999 through September 30, 2000. For the Fiscal Quarter
ending September 30, 2000 and for all Fiscal Quarters ending thereafter,
the determination on a rolling four quarter basis.
Amendment No. 3 to Dated
Credit Agreement - 2 - December 20, 1999
<PAGE>
"LIBO Rate Margin" shall mean the percentage listed in the following table.
Fixed Charge Coverage Ratio LIBO Rate Margin
--------------------------- ----------------
Equal to or less than 1.0 3.250%
Greater than 1.00 but less than or equal to 1.05 3.000%
Greater than 1.05 but less than or equal to 1.15 2.750%
Greater than 1.15 2.250%
with such Fixed Charge Coverage Ratio to be computed as of the last
quarterly compliance period.
"Unused Fee Percentage" shall mean the percentage listed in the following
table.
Fixed Charge Coverage Ratio Unused Fee Percentage
--------------------------- ---------------------
Equal to or less than 1.0 0.625%
Greater than 1.00 but less than or equal to 1.05 0.500%
Greater than 1.05 but less than or equal to 1.15 0.500%
Greater than 1.15 0.375%
with such Fixed Charge Coverage Ratio to be computed as of the last
quarterly compliance period.
2. New Section 2.6(g). A new Section, ss.2.6(g), shall be and hereby is
added to the Agreement which shall be as set forth below.
"(g) Permitted Overadvances. Permitted Overadvances shall bear interest on
the unpaid principal amount thereof at the higher of (1) the rate then
applicable to Base Rate Loans or (2) the maximum rate then applicable to
LIBO Rate Loans, plus (3) 0.25%."
3. Amendment of Section 5.1(a) and (b). Section 5.1(a) and 5.1(b) each
shall be and hereby is amended to add the phrase ", together with management's
discussion and analysis of the important operational and financial developments
during such period." at the end thereof.
4. New Section 5.1(c). A new Section, ss.5.1(c), shall be and hereby is
added to the Agreement which shall be as set forth below.
"(c) Monthly Statements. As soon as available, but not later than 45 days
after the end of each calendar month (commencing with the month of December
1999), a copy of the unaudited consolidated balance sheet of the Company as
of the end of such quarter and the related consolidated statements of
income, shareholders equity and cash flows for the period commencing on the
first day and ending on the last day of such month, and certified by a
Responsible Officer as fairly presenting, in accordance with GAAP (subject
to ordinary, good faith year-end audit adjustments), the financial position
and the results of operations of the Borrowers and the Subsidiaries,
together with management's discussion and analysis of the important
operational and financial developments during such period."
5. New Section 5.1(d). A new Section, ss.5.1(d), shall be and hereby is
added to the Agreement which shall be as set forth below.
Amendment No. 3 to Dated
Credit Agreement - 3 - December 20, 1999
<PAGE>
"(d) Monthly Statements. Promptly following the receipt thereof by any
Borrower, a copy of any "management letter" (including but not limited to
any engagement letter or other report to management, the Board of Directors
or any committee of the Board of Directors) received by such Person from
the certified public accountants for the Borrowers and any responses
thereto."
6. New Section 6.11. A new Section, ss.6.11, shall be and hereby is added
to the Agreement which shall be as set forth below.
"6.11 Limitation on Capital Expenditures. For the Fiscal Year ending
September 30, 2000, incur Capital Expenditures (a) for revenue equipment in
excess of $6,400,000 or (b) for other purposes, including but not limited
to real and other tangible property, in excess of $4,300,000."
7. Amendment of Section 7.1. Section 7.1 shall be and hereby is amended and
restated in its entirety to be as set forth below.
"7.1 Minimum Tangible Net Worth. To and through September 29, 1999,
Tangible Net Worth of the Company, on a consolidated basis, will be equal
to or greater than the sum of (i) $45,000,000 and (ii) 50% of Consolidated
Net Income for each Fiscal Quarter ending after December 31, 1997, without
deduction for any net losses. From and after September 30, 1999, Tangible
Net Worth of the Company, on a consolidated basis, will be equal to or
greater than the sum of (i) that amount which is $500,000 less than the
Tangible Net Worth set forth in the Company's audited financial statements
for the Fiscal Year ended September 30, 1999, and (ii) 50% of Consolidated
Net Income for each Fiscal Quarter ending after September 30, 1999, without
deduction for any net losses."
8. Waiver of Section 7.1 Non-Compliance. At September 29, 1999, the
Borrowers' Tangible Net Worth was less than the Minimum Tangible Net Work
required by ss.7.1 of the Agreement. The Banks hereby waive the non-compliance
by the Borrowers' with said covenant to and including September 29, 1999.
9. Amendment of Section 7.2. Section 7.2 shall be and hereby is amended and
restated in its entirety to be as set forth below.
"7.2 Fixed Charge Coverage Ratio. To and including September 29, 1999, the
Company, on a consolidated basis, shall not incur a Fixed Charge Coverage
Ratio of less than 0.9 to 1.0 for any period ending on or before that date.
From and after September 30, 1999, the Company, on a consolidated basis,
shall not incur a Fixed Charge Coverage Ratio of less than (a) 0.8 to 1.0
for the period September 30, 1999 through December 31, 1999, (b) 0.9:1.0
for the period January 1, 2000 through March 31, 2000, (c) 0.95:1.0 for the
period April 1, 2000 through June 30, 2000, (d) 1.0:1.0 for the period July
1, 2000 through September 30, 2000, or (e) 1.15:1.0 from and after October
1, 2000."
10. Waiver of Section 7.2 Non-Compliance. At September 29, 1999 and at
various time prior thereto, the Borrowers' Fixed Charge Coverage Ratio was less
than the Fixed Charge Coverage Ratio required by ss.7.2 of the Agreement. The
Banks hereby waive the non-compliance by the Borrowers' with said covenant to
and including September 29, 1999.
11. Amendment of Section 7.4. Section 7.4 shall be and hereby is amended
and restated in its entirety to be as set forth below:
Amendment No. 3 to Dated
Credit Agreement - 4 - December 20, 1999
<PAGE>
"7.4 Borrowing Base. The aggregate principal amount of Loans and L/C
Obligations outstanding shall not at any time exceed the Borrowing Base
plus Permitted Overadvances or the Aggregate Loan Commitment, whichever is
less; provided, however, that this covenant shall not be deemed breached
if, at the time such aggregate amount exceeds said level, within four
Business Days after the earlier of the date any Borrower first has
knowledge of such excess or the date of the next Borrowing Base Certificate
disclosing the existence of such excess, a prepayment of Loans shall be
made in an amount sufficient to assure continued compliance with this
covenant in the future."
12. New Section 7.5. A new Section, ss.7.5, shall be and hereby is added to
the Agreement which shall be as set forth below.
"7.5 No Quarterly Net Losses. The Company shall not suffer a Consolidated
Net Loss for any Fiscal Quarter ending after September 30, 1999."
13. Representations and Warranties. The Borrowers hereby restate the
representations and war ranties made in the Agreement as amended and/or waived
by this Amendment, including but not limited to Article 3 thereof, on and as of
the date hereof as if originally given on this date.
14. Covenants. The Borrowers hereby represent and warrant that they are in
compliance and have complied with each and every covenant set forth in the
Agreement as amended by this Amendment, including but not limited to Articles 5
and 6 thereof, on and as of the date hereof as amended by this Amendment and as
waived by the waivers granted herein.
15. No Default. The Borrowers hereby confirm that no Event of Default or
Potential Default exists under the Agreement as amended by this Amendment and as
waived by the waivers granted herein.
16. Affirmation. The Borrowers each hereby affirms its absolute and
unconditional promise to pay to each Bank and First Union National Bank, as
agent under the Agreement, the Loans and all other amounts due under the
Agreement and any other Loan Document on the maturity date(s) provided in the
Agreement or any other Loan Document, as such documents may be amended hereby or
may be affected by the waivers granted herein.
17. Corporate Authorization and Delivery of Documents. Each Bank shall have
received (a) copies, certified as of the date hereof, of all action taken by the
Borrowers and any other necessary Person to authorize this Amendment and such
other papers as any Bank shall require, (b) a copy of a Certificate of Good
Standing for each Borrower in the jurisdiction of formation of each entity and
in the jurisdiction where its executive offices are located, (c) a certificate
signed by the secretary or assistant secretary of each Borrower, together with
the true signature of the officer or officers authorized to execute and deliver
this Amendment, upon which the Banks shall be entitled to rely conclusively
until they shall have received a further certificate of the secretary or
assistant secretary of each Borrower changing the prior certificate and
submitting the signature of the officer or officers named in the new certificate
as being authorized to execute and deliver Loan Documents and certificates
thereunder, and (d) a favorable written opinion to the Banks from counsel for
the Borrowers substantially in the same form and substance as that delivered in
connection with the execution and delivery of the Agreement on August 19, 1998.
18. Effect of Amendment. This Amendment amends the Agreement only to the
extent and in the manner herein set forth, and in all other respects the
Agreement is ratified and confirmed.
19. Effect of Waivers. The waivers granted herein waive compliance by the
Borrowers with the Credit Agreement only to the extent and in the manner herein
specifically set forth, and in all other respects the Credit Agreement and the
Loan Documents pertaining thereto are ratified and confirmed.
Amendment No. 3 to Dated
Credit Agreement - 5 - December 20, 1999
<PAGE>
20. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment to
be duly executed by their duly authorized representatives as of the date first
above written.
MATLACK (DE), INC.
By
------------------------------------
Name:
Title:
MATLACK, INC.
By
------------------------------------
Name:
Title:
SPECIALIZED DEDICATED FLEETS, INC.
successor by merger to Safeway Chemical
Transportation, Inc.
By
------------------------------------
Name:
Title:
BRITE-SOL SERVICES, INC.
By
------------------------------------
Name:
Title:
Amendment No. 3 to Dated
Credit Agreement - 6 - December 20, 1999
<PAGE>
MATLACK LEASING CORPORATION
By
------------------------------------
Name:
Title:
SUPER SERVICE, INC.
By
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By
------------------------------------
Name:
Title:
CHASE BANK OF TEXAS, N.A.
By
------------------------------------
Name:
Title:
BANKBOSTON, NA
By
------------------------------------
Name:
Title:
Amendment No. 3 to Dated
Credit Agreement - 7 - December 20, 1999
<PAGE>
SUNTRUST BANK, ATLANTA
By
------------------------------------
Name:
Title:
By
------------------------------------
Name:
Title:
Amendment No. 3 to Dated
Credit Agreement - 8 - December 20, 1999
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated August 3, 1999, is made
between and among Matlack DE, Inc., Matlack, Inc., Brite-Sol Services, Inc.,
Matlack Leasing, Inc., Super Service, Inc (each individually and collectively
referred to as the "Grantor"), jointly and severally, and FIRST UNION NATIONAL
BANK, a national banking association, as agent for the Banks (in such capacity,
and together with its successors as agent for the Banks, the "Collateral
Agent").
RECITALS
WHEREAS, Grantor is a party to that certain Credit Agreement dated as of
August 19, 1998 between and among Grantor, the banking institutions signatories
thereto and First Union National Bank, a national banking association, as agent
for the Banks (as amended, restated, modified, renewed, supplemented or extended
from time to time, the "Credit Agreement").
WHEREAS, pursuant to Section 9.01 of the Credit Agreement, the Banks have
required and Grantor has agreed to grant a security interest as herein provided;
WHEREAS, the Banks have requested a security interest as permitted under
the Credit Agreement;
NOW, THEREFORE, for and in consideration of any loan under the Credit
Agreement and any other loan or advance (including any other loan or advance by
renewal or extension) heretofore or hereafter made to Grantor by the Banks, the
parties hereto agree as follows:
SECTION 1. Definitions; Interpretation.
a. Terms Defined in Credit Agreement. All capitalized terms used in this
Agreement and not otherwise defined herein have the meanings specified
in the Credit Agreement.
b. Certain Defined Terms. As used in this Agreement, the following terms
have the following meanings:
"Accounts" means any and all accounts of Grantor, whether now existing or
hereafter acquired or arising, and in any event includes all accounts
receivable, contract rights, rights to payment and other obligations of any
kind owed to Grantor arising out of or in connection with the sale or lease
of merchandise, goods or commodities or the rendering of services or
arising from any other transaction, however evidenced, and whether or not
earned by performance, all guaranties, indemnities and security with
respect to the foregoing, and all letters of credit relating thereto, in
each case whether now existing or hereafter acquired or arising.
Security Agreement/Accounts August 3, 1999
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<PAGE>
"Books" means all books, records and other written, electronic or other
documentation in whatever form maintained now or hereafter by or for
Grantor in connection with the ownership of its assets or the conduct of
its business or evidencing or containing information relating to the
Collateral, including: (i) ledgers; (ii) records indicating, summarizing,
or evidencing Grantor's assets (including Inventory and Rights to Payment),
business operations or financial condition; (iii) computer programs and
software; (iv) computer discs, tapes, files, manuals, spreadsheets; (v)
computer printouts and output of whatever kind; (vi) any other computer
prepared or electronically stored, collected or reported information and
equipment of an, kind; and (vii) any and all other rights now or hereafter
arising out of any contract or agreement between Grantor and any service
bureau, computer or data processing company or other Person charged with
preparing or maintaining any of Grantor's books or records or with credit
reporting, including with regard to Grantor's Accounts.
"Chattel Paper" means all writings of whatever sort which evidence a
monetary obligation and a security interest in or lease of specific goods,
whether now existing or hereafter arising.
"Collateral" has the meaning specified in Section 2.
"Documents" means any and all documents of title, bills of lading, dock
warrants, dock receipts, warehouse receipts and other documents of Grantor,
whether or not negotiable, and includes all other documents which purport
to be issued by a bailee or agent and purport to cover goods in any
bailee's or agent's possession which are either identified or are fungible
portions of an identified mass, including such documents of title made
available to Grantor for the purpose of ultimate sale or exchange of goods
or for the purpose of loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing with goods in a manner
preliminary to their sale or exchange, in each case whether now existing or
hereafter acquired or arising.
"Financing Statements" has the meaning specified in Section 3.
"Lender Party" means, as the context may require, any Bank or the
Collateral Agent and each of their respective successors, transferees and
assigns.
"Proceeds" means whatever is receivable or received from or upon the sale,
lease, license, collection, use, exchange or other disposition, whether
voluntary or involuntary, of any Collateral or other assets of Grantor,
including "proceeds" as defined at UCC Section 9306, any and all proceeds
of any insurance, indemnity, warranty or guaranty payable to or for the
account of Grantor from time to time with respect to any of the Collateral,
any and all payments in any form whatsoever) made or due and payable to
Grantor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by
any Governmental Authority (or any person acting under color of
Governmental Authority), any and all other amounts from time to time paid
or payable under or in connection with any of the Collateral or for or on
account of any damage or injury
Security Agreement/Accounts August 3, 1999
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<PAGE>
to or conversion of any Collateral by any Person, any and all other
tangible or intangible property received upon the sale or disposition of
Collateral, and all proceeds of proceeds.
"Rights to Payment" means all Accounts, and any and all rights and claims
to the payment or receipt of money or other forms of consideration of any
kind in, to and under all Chattel Paper, Documents, Instruments and
Proceeds.
"Secured Obligations" means all Obligations of Grantor under or in
connection with the Credit Agreements and each other Loan Document to which
Grantor is or may become a party, whether for principal, interest, costs,
fees, expenses, indemnities or otherwise and all obligations of Grantor
existing under this Security Agreement and each other Loan Document to
which it is or may become a party, in each case whether now existing or
hereafter arising, and whether due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined.
"UCC" means the Uniform Commercial Code as the same may from time to time,
be in effect in the Commonwealth of Pennsylvania; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the Commonwealth of Pennsylvania, the term "UCC"
shall mean the Uniform Commercial Code as in effect In such other
jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related
to such provisions.
c. Terms Defined in UCC. Where applicable and except as otherwise defined
herein, terms used in this Agreement shall have the meanings assigned
to them in the UCC.
SECTION 2. Security Interest.
a. Grant of Security Interest. As security for the payment and
performance of the Secured Obligations, each Grantor hereby pledges,
assigns, transfers, hypothecates and sets over to the Collateral Agent
for its benefit and for the ratable benefit of the Lending Parties,
and hereby grants to the Collateral Agent for its benefit and for the
ratable benefit of the Banks, a security interest in, all of Grantor's
right, title and interest in, to and under the following property,
wherever located and whether now existing or owned or hereafter
acquired or arising collectively, the "Collateral"): (i) all Accounts;
(ii) all Chattel Paper; (iii) all Documents; (iv) all Books; and (v)
all products and Proceeds of any and all of the foregoing.
b. Grantor Remains Liable. Anything herein to the contrary
notwithstanding, (i) Grantor shall remain liable under any contracts,
agreements and other documents included in the Collateral, to the
extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been
executed, (ii) the exercise by the Collateral Agent of any of the
rights hereunder shall
Security Agreement/Accounts August 3, 1999
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<PAGE>
not release Grantor from any of its duties or obligations under such
contracts, agreements and other documents included in the Collateral,
and (iii) neither the Collateral Agent nor any other Lender Party
shall have any obligation or liability under any contracts, agreements
and other documents included in the Collateral by reason of this
Agreement, nor shall the Collateral Agent or any other Lender Party be
obligated to perform any of the obligations or duties of Grantor
thereunder or to take an, action to collect or enforce any such
contract, agreement or other document included in the Collateral
hereunder.
c. Continuing Security Interest. Grantor agrees that this Agreement shall
create a continuing security interest in the Collateral which shall
remain in effect until terminated in accordance with this Agreement.
SECTION 3. Financing Statements, Etc.
Grantor shall execute and deliver to the Collateral Agent concurrently with
the execution of this Agreement, and at any time and from time to time
thereafter, all financing statements, continuation financing statements,
termination statements, security agreements, chattel mortgages, assignments, and
all other documents and instruments relating to Accounts, in form satisfactory
to the Collateral Agent (the "Financing Statements"), and take all other action,
as the Collateral Agent may reasonably request, to perfect and continue
perfected, maintain the priority of or provide notice of the Collateral Agent's
security interest in the Collateral and to accomplish the purposes of this
Agreement.
SECTION 4. Representations and Warranties. In addition to the
representations and warranties of Grantor set forth in the Credit Agreement,
which are incorporated herein by this reference, Grantor represents and warrants
to the Collateral Agent that:
a. Location of Chief Executive Office and Collateral. Each of Grantor's
chief executive office and principal place of business is located at
Wilmington, Delaware, and all other locations where Grantor conducts
business is controlled from Wilmington, Delaware.
b. Locations of Books. All locations where Books pertaining to the Rights
to Payment are kept, including all equipment necessary for accessing
such Books and the names and addresses of all service bureaus,
computer or data processing companies and other Persons keeping any
Books or collecting Rights to Payment: for Grantor, are only in
Wilmington, Delaware.
c. Ownership of Collateral. Grantor is, and, permitted by Section 5(i),
will continue to be, the sole and complete owner of the Collateral
(or, in the case of after-acquired Collateral, at the time Grantor
acquires rights in such Collateral, will be the sole and complete
owner thereof), free from any Lien other than Permitted Liens.
Security Agreement/Accounts August 3, 1999
- 4 -
<PAGE>
d. Enforceability; Priority of Security Interest. (i) This Agreement
creates a security interest which is enforceable against the
Collateral in which Grantor now has rights and will create a security
interest which is enforceable against the Collateral in which Grantor
hereafter acquires rights at the time Grantor acquires any such
rights; and (ii) the Collateral Agent has a perfected and first
priority security interest in the Collateral, in which Grantor now has
rights, and will have a perfected and first priority security interest
in the Collateral in which Grantor hereafter acquires rights at the
time Grantor acquires any such rights, in each case for the Collateral
Agent's own benefit and for the ratable benefit of the other Lender
Parties, and in each case securing the payment and performance of the
Secured Obligations.
e. Other Financing Statements. Other than (i) financing statements or
similar filings naming the owner of the asset to which such lien
relates as debtor, under the UCC or any comparable law ("UCC Financing
Statements") disclosed to the Collateral Agent and (ii) UCC Financing
Statements in favor of the Collateral Agent in its capacity as
Collateral Agent for the other Lender Parties under the Credit
Agreements and any other Loan Documents, no effective UCC Financing
Statement naming Grantor as debtor, assignor, grantor, mortgagor,
pledgor or the like and covering all or any part of the Collateral is
on file in any filing or recording office in any jurisdiction.
f. Rights to Payment. The Rights to Payment represent valid, binding and
enforceable obligations of the account debtors or other Persons
obligated thereon, representing undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any
documents related thereto, and are and will be genuine, free from
Liens, and not subject to any adverse claims, counterclaims, setoffs,
defaults, disputes, defenses, discounts, retainages, holdbacks or
conditions precedent of any kind of character, except to the extent
reflected by Grantor's reserves for uncollectible Rights to Payment or
to the extent, if any, that such account debtors or other Persons may
be entitled to normal and ordinary course trade discounts, returns,
adjustments and allowances in accordance with Section 5(m), or as
otherwise disclosed to the Collateral Agent in writing;
i. to Grantor's knowledge, all account debtors and other obligors on
the Rights to Payment are solvent and generally paying their
debts as they come due except to the extent that Grantor has
established adequate reserves therefor in accordance with GAAP;
ii. to Grantor's knowledge, all Rights to Payment comply in all
material respects with all applicable laws concerning form,
content and manner of preparation and execution, including where
applicable any federal or state consumer credit laws;
Security Agreement/Accounts August 3, 1999
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<PAGE>
iii. Grantor has not assigned any of its rights under the Rights to
Payment except as provided in this Agreement or as set forth in
the other Loan Documents;
iv. with respect to the Rights to Payment constituting Eligible
Receivables, except as disclosed in writing to the Collateral
Agent, Grantor has no knowledge that any of the criteria for
eligibility are not or are no longer satisfied;
v. all statements made, all unpaid balances and all other
information in the Books and other documentation relating to the
Rights to Payment are true and correct and in all material
respects what they purport to be; and
vi. Grantor has no knowledge of any fact or circumstance which would
materially impair the validity or collectibility of any of the
Rights to Payment.
g. Corporate Existence and Power. Grantor (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has the power and authority
and all governmental licenses, authorizations, consents and approvals
to own its assets, carry on its business and to execute, deliver, and
perform its obligations under the Agreement and any other Loan
Document to which it is a party; (iii) is duly qualified as a foreign
corporation and is licensed and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property
or the conduct of its business requires such qualification or license;
(iv) is in compliance with all Requirements of Law; except, in each
case referred to in clause (iii) or clause (iv), to the extent that
the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
h. Corporate Authorization; No Contravention. The execution, delivery and
performance by Grantor of this Agreement and each other Loan Document
to which it is a party, have been duly authorized by all necessary
corporate action, and do not and will not: (i) contravene the terms of
any of Grantor's Organization Documents; (ii) conflict with or result
in any breach or contravention of, or the creation of any Lien under,
any document evidencing any Contractual Obligation to which Grantor is
a party cr any order, injunction, writ or decree of any Governmental
Authority to which Grantor or its property is subject; or (iii)
violate any Requirement of Law.
i. Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, Grantor
of this Agreement or any other Loan Document to which it is a party.
SECTION 5. Covenants. In addition to the covenants of Grantor set forth in
the Credit Agreements, which are incorporated herein by this reference, so long
as any of the Secured
Security Agreement/Accounts August 3, 1999
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<PAGE>
Obligations remain unsatisfied or any Bank shall have any Commitment or any
Letter of Credit shall be outstanding, Grantor agrees that:
a. Defense of Collateral. Grantor will appear in and defend any action,
suit or proceeding which may affect to a material extent its title to,
or right or interest in, or the Collateral Agent's right to or
interest in, the Collateral.
b. Preservation of Collateral. Grantor will do and perform all reasonable
acts that may be necessary and appropriate to maintain, preserve and
protect the Collateral.
c. Compliance with Laws, Etc. Grantor will comply in all material
respects with all laws, regulations and ordinances, and all policies
of insurance, relating in a material way to the possession, operation,
maintenance and control of the Collateral.
d. Location of Books and Chief Executive Office. Grantor will: (i) keep
all Books pertaining to the Rights to Payment at the locations
described in Section 4; and (ii) give at least 30 days' prior written
notice to the Collateral Agent of (A) any changes in any such location
where Books pertaining to the Rights to Payment are kept, including
any change of name or address of any service bureau, computer or data
processing company or other Person. preparing or maintaining any Books
or collecting Rights to Payment for Grantor or (B) any changes in the
location of Grantor's chief executive office or principal place of
business.
e. Location of Collateral. Grantor will: (i) keep the Collateral at the
location described in Section 4 and not remove the Collateral from
such locations (other than disposals of Collateral permitted by
subsection (ii) except upon at least 30 days' prior written notice of
any removal to the Collateral Agent; and (iii) give the Collateral
Agent at least 30 days' prior written notice of any change in the
locations set forth above.
f. Change in Name, Identity or Structure. Grantor will give at least 30
days' prior written notice of (i) any change in name, (ii) any changes
in, additions to or other modifications of its trade names and trade
styles set forth in Schedule 1, and (iii) any changes in its identity
or structure in any manner which might make any Financing Statement
filed hereunder incorrect or misleading.
g. Maintenance of Records. Grantor will keep separate, accurate and
complete Books with respect to the Collateral, disclosing the
Collateral Agent's security interest hereunder.
h. Invoicing of Sales. Grantor will invoice all of its sales upon forms
customary in the industry and to maintain proof of delivery and
customer acceptance of goods.
i. Disposition of Collateral. Grantor will not surrender or lose
possession of (other than to the Collateral Agent), sell, lease, rent,
or otherwise dispose of or transfer any of
Security Agreement/Accounts August 3, 1999
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<PAGE>
the Collateral or any right or interest therein, except to the extent
permitted by the Credit Agreement.
j. Liens. Other than liens in favor of the Collateral Agent in its
capacity as Collateral Agent under the Credit Agreement and Permitted
Liens, Grantor will keep the Collateral free of all liens and security
interests of any kind.
k. Expenses. Grantor will pay all expenses of protecting, storing,
warehousing, insuring, handling and shipping the Collateral.
l. Rights to Payment. Grantor will:
i. with such frequency as the Collateral Agent may reasonably
require, furnish to the Collateral Agent (A) master customer
listings, including all names and addresses, together with copies
or originals (as requested by the Collateral Agent) of documents,
customer statements, repayment histories and present status
reports relating to the Accounts; (3) accurate records and
summaries of Accounts, including detailed agings specifying the
name, face value and date of each invoice, and listings of
Accounts that are disputed or have been canceled; and (C) such
other matters and information relating to the Accounts as the
Collateral Agent shall from time to time reasonably request;
ii. give only normal discounts, allowances and credits as to Accounts
and other Rights to Payment, in the ordinary course of business,
according to normal trade practices utilized by Grantor in the
past, and enforce all Accounts and other Rights to Payment
strictly in accordance with their terms, and take all such action
to such end as may from time to time be reasonably requested by
the Collateral Agent, except that Grantor may grant any extension
of the time for payment;
iii. if any discount, allowance, credit, extension of time for
payment, agreement to make a rebate or otherwise to reduce the
amount owing on, or compromise or settle, an Account or other
Right to Payment exists or occurs, or if, to the knowledge of
Grantor, any dispute, setoff, claim, counterclaim or defense
exists or has been asserted or threatened with respect to an
Account or other Right to Payment, disclose such fact fully to
the Collateral Agent in the Books relating to such Account or
other Right to Payment and in connection with any invoice or
report furnished by Grantor to the Collateral Agent relating to
such Account or other Right to Payment;
iv. if any Accounts arise from contracts with the United States or
any department, agency or instrumentality thereof, immediately
notify the Collateral Agent thereof and execute any documents and
instruments and take any other steps requested by the Collateral
Agent in order that all monies due
Security Agreement/Accounts August 3, 1999
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<PAGE>
and to become due thereunder shall be assigned to the Collateral
Agent and notice thereof given to the Government Authorities
under the Federal Assignment of Claims Act;
v. in accordance with its sound business judgment perform and comply
in all material respects with its obligations in respect of the
Accounts and other Rights to Payment;
vi. upon the request of the Collateral Agent (A) upon the occurrence
of an Event of Default, notify all or any designated portion of
the account debtors and other obligors on the Rights to Payment
of the security interest hereunder, and (B) upon the occurrence
of an Event of Default, notify the account debtors and other
obligors on the Rights to Payment or an, designated portion
thereof that payment shall be made directly to the Collateral
Agent or to such other Person or location as the Collateral Agent
shall specify; and
vii. upon the occurrence of any Event of Default, establish such
lockbox or similar arrangements for the payment of the Accounts
and other Rights to Payment as the Collateral Agent shall
require.
m. Documents, Etc. Upon the request of the Collateral Agent, Grantor will
(i) immediately deliver to the Collateral Agent, or an agent
designated by it, appropriately endorsed or accompanied by appropriate
instruments of transfer or assignment, all Documents, Instruments and
Chattel Paper, and all other Rights to Payment at any time evidenced
by promissory notes, trade acceptances or other instruments, and (ii)
mark all Documents and Chattel Paper with such legends as the
Collateral Agent shall reasonably specify.
n. Notices, Reports and Information. Grantor will (i) notify the
Collateral Agent of any material claim made or asserted against the
Collateral by any Person and of any change in the composition of the
Collateral or other event which could materially adversely affect the
value of the Collateral or the Collateral Agent's Lien thereon; (ii)
furnish to the Collateral Agent such statements and schedules further
identifying and describing the Collateral and such other reports and
other information in connection with the Collateral as the Collateral
Agent may reasonably request, all in reasonable detail; and (iii) upon
request of the Collateral Agent make such demands and requests for
information and reports as Grantor is entitled to make in respect of
the Collateral.
SECTION 6. Collection of Rights to Payment.
Until the Collateral Agent exercises its rights hereunder to collect Rights
to Payment, Grantor shall endeavor in the first instance diligently to collect
all amounts due or to become due on or with respect to the Rights to Payment. At
the request of the Collateral Agent, upon and after the occurrence of any Event
of Default, all remittances received by the Grantor shall be held in trust for
Security Agreement/Accounts August 3, 1999
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<PAGE>
the Collateral Agent and, in accordance with the Collateral Agent's
instructions, remitted to the Collateral Agent or deposited to an account with
the Collateral Agent in the form received (with any necessary endorsements or
instruments of assignment or transfer).
SECTION 7. Authorization; Collateral Agent Appointed Attorney-in-Fact. The
Collateral Agent shall have the right to, in the name of Grantor, or in the name
of the Collateral Agent or otherwise, without notice to or assent by Grantor,
and Grantor hereby constitutes and appoints the Collateral Agent (and any of the
Collateral Agent's officers, employees or agents designated by the Collateral
Agent) as Grantor's true and lawful attorney-in-fact, with full power and
authority to:
a. sign any of the Financing Statements which must be executed or
filed to perfect or continue perfected, maintain the priority of
or provide notice of the collateral Agent's security interest in
the Collateral;
b. take possession of and endorse any notes, acceptances, checks,
drafts, money orders or other forms of payment or security and
collect any Proceeds of any Collateral;
c. sign and endorse any invoice or bill of lading relating to any of
the Collateral, warehouse or storage receipts, drafts against
customers or other obligors, assignments, notices of assignment,
verifications and notices to customers or other obligors;
d. notify the Postal Service authorities to change the address for
delivery of mail addressed to Grantor to such address as the
Collateral Agent may designate and, without limiting the
generality of the foregoing, establish with any Person lockbox or
similar arrangements for the payment of the Rights to Payment;
e. receive, open and dispose of all mail addressed to Grantor;
f. send requests for verification of Rights to Payment to the
customers or other obligors of Grantor;
g. contact, or direct Grantor to contact, all account debtors and
other obligors on the Rights to Payment and instruct such account
debtors and other obligors to make all payments directly to the
Collateral Agent;
h. exercise dominion and control over, and refuse to permit further
withdrawals from, Deposit Accounts maintained with the Collateral
Agent;
i. notify each Person maintaining lockbox or similar arrangements
for the payment of the Rights to Payment to remit all amounts
representing collections on the Rights to Payment directly to the
Collateral Agent;
Security Agreement/Accounts August 3, 1999
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<PAGE>
j. ask, demand, collect, receive and give acquittances and receipts
for any and all Rights to Payment, enforce payment or any other
rights in respect of the Rights to Payment and other Collateral,
grant consents, agree to any amendments, modifications or waivers
of the agreements and documents governing the Rights to Payment
and other Collateral, and otherwise file any claims, take any
action or institute, defend, settle or adjust any actions, suits
or proceedings with respect to the Collateral, as the Collateral
Agent may deem necessary or desirable to maintain, preserve and
protect the Collateral, to collect the Collateral or to enforce
the rights of the Collateral Agent with respect to the
Collateral;
k. execute any and all endorsements, assignments or other documents
and instruments necessary to sell, lease, assign, convey or
otherwise transfer title in or dispose of the Collateral; and
l. execute any and all such other documents and instruments, and do
any and all acts and things for and on behalf of Grantor, which
the Collateral Agent may deem necessary or advisable to maintain,
protect, realized upon and preserve the Collateral and the
Collateral Agent's security interest therein and to accomplish
the purposes of this Agreement.
The Collateral Agent agrees that, except upon and after the occurrence of
an Event of Default, it shall not exercise the power of attorney, or any rights
granted to the Collateral Agent, pursuant to the foregoing subclauses. The
foregoing power of attorney is coupled with an interest and irrevocable so long
as any Bank has any Commitment or any Letter of Credit remains outstanding or
the Secured Obligations have not been paid and performed in full. Grantor hereby
ratifies, to the extent permitted by law, all that the Collateral Agent shall
lawfully and in good faith do or cause to be done by virtue of and in compliance
with this Section 7.
SECTION 8. Collateral Agent's Duties.
Notwithstanding any provision contained in this Agreement, the Collateral
Agent shall have no duty to exercise any of the rights, privileges or powers
afforded to it and shall not be responsible to Grantor or any other Person for
any failure to do so or delay in doing so. Beyond the exercise of reasonable
care to assure the safe custody of Collateral in the Collateral Agent's
possession and the accounting for moneys actually received by the Collateral
Agent hereunder, the Collateral Agent shall have no duty or liability to
exercise or preserve any rights, privileges or powers pertaining to the
Collateral.
SECTION 9. Remedies.
a. Remedies. Upon the occurrence of any Event of Default, the
Collateral Agent shall have, in addition to all other rights and
remedies granted to it in this Agreement, the Credit, Agreement
or any other Loan Document, all rights and remedies of a secured
Security Agreement/Accounts August 3, 1999
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<PAGE>
party under the UCC and other applicable laws. without limiting
the generality of the foregoing, Grantor agrees that the
Collateral Agent may:
i. peaceably and without notice enter any premises of Grantor,
take possession of any the Collateral, remove or dispose of
all or part of the Collateral on any premises or elsewhere,
or, in the case of Equipment, render it nonfunctional, and
otherwise collect, receive, appropriate and realize upon all
or any part of the Collateral, and demand, give receipt for,
settle, renew, extend, exchange, compromise, adjust, or sue
for all or any part of the Collateral, as the Collateral
Agent may determine;
ii. require Grantor to assemble all or any part of the
Collateral and make it available to the Collateral Agent at
any place and time designated by the Collateral Agent;
iii. secure the appointment of a receiver of the Collateral or
any part thereof to the extent and in the manner provided by
applicable law;
iv. withdraw (or cause to be withdrawn) any and all funds from
Deposit Accounts; and
v. sell, resell, lease, use, assign, transfer or otherwise
dispose of any or all of the Collateral in its then
condition or following any commercially reasonable
preparation or processing (utilizing in connection therewith
any of Grantor's; assets, without charge or liability to the
Collateral Agent therefor) at public or private sale, by one
or more contracts, in one or more parcels, at the same or
different times, for cash or credit, or for future delivery
without assumption of any credit risk, all as the Collateral
Agent deems advisable; provided, however, that Grantor shall
be credited with the net proceeds of sale only when such
proceeds are finally collected by the Collateral Agent. The
Collateral Agent shall have the right upon any such public
sale, and, to the extent permitted by law, upon any such
private sale, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of
redemption, which right or equity of redemption Grantor
hereby releases, to the extent permitted by law. Grantor
hereby agrees that the sending of notice by ordinary mail,
postage prepaid, to the address of Grantor set forth in the
Credit Agreement, of the place and time of any public sale
or of the time after which any private sale or other
intended disposition is to be made, shall be deemed
reasonable notice thereof if such notice is sent ten days
prior to the date of such sale or other disposition or the
date on or after which such sale or other disposition may
occur, provided that the Collateral Agent may provide
Grantor shorter notice or no notice, to the extent permitted
by the UCC or other applicable law.
Security Agreement/Accounts August 3, 1999
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<PAGE>
b. Proceeds Account. To the extent that any of the Secured
Obligations may be contingent, unmatured or unliquidated
(including with respect to undrawn amounts under any Letter of
Credit) at such time as there may exist an Event of Default, the
Collateral Agent may, at its election, (i) retain the proceeds of
any sale, collection, disposition or other realization upon the
Collateral (or any portion thereof) in a special purpose
non-interest-bearing restricted deposit account (the "Proceeds
Account") created and maintained by the Collateral Agent for such
purpose (which shall constitute a Deposit Account included within
the Collateral hereunder) until such time as the Collateral Agent
may elect to apply such proceeds to the Secured Obligations, and
Grantor agrees that such retention of such proceeds by the
Collateral Agent shall not be deemed strict foreclosure with
respect thereto; (ii) in any manner elected by the Collateral
Agent, estimate the liquidated amount of any such contingent,
unmatured or unliquidated claims and apply the proceeds of the
Collateral against such amount; or (iii) otherwise proceed in any
manner permitted by applicable law. Grantor agrees that the
Proceeds Account shall be a blocked account and that upon the
irrevocable deposit of funds into the Proceeds Account, Grantor
shall not have any right of withdrawal with respect to such
funds. Accordingly, Grantor irrevocably waives until the
termination of the security interests granted under this
Agreement in accordance with this Agreement the right to make any
withdrawal from the Proceeds Account and the right to instruct
the Collateral Agent to honor drafts against the Proceeds
Account.
c. Application of Proceeds. Subject to subsection (b) immediately
above, the cash proceeds actually received from the sale or other
disposition or collection of Collateral, and any other amounts
received in respect of the Collateral the application of which is
not otherwise provided for herein, shall be applied (after
payment of any amounts payable to the Collateral Agent pursuant
to Section 8 or Section 14 in whole or in part by the Collateral
Agent for the benefit of the Lender Parties against all or any
part of the Secured Obligations in the following order: (i)
first, to any fees, costs, or other expenses due under the Loan
Documents; (ii) next, to any interest (iii) next, to any
principal due under the Loan Documents; and (iii) last, to any
other Secured Obligations. Any surplus thereof which exists after
payment and performance in full of the Secured Obligations shall
be promptly paid over to Grantor or otherwise disposed of in
accordance with the UCC or other applicable law. Grantor shall
remain liable to the Collateral Agent for any deficiency which
exists after any sale or other disposition or collection of
Collateral.
SECTION 10. Certain Waivers.
Grantor waives, to the fullest extent permitted by law, (i) any right of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshaling of the Collateral or other
collateral or security for the Secured Obligations; (ii) any right to require
the Collateral Agent (A) to proceed against any Person, (B) to exhaust any other
collateral or security for any of the Secured Obligations, (C) to pursue any
remedy in the Collateral Agent's power, or (D)
Security Agreement/Accounts August 3, 1999
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<PAGE>
to make or give any presentments, demands for performance, notices of
nonperformance, protests, notices of protests or notices of dishonor in
connection with any of the Collateral; and (iii) all claims, damages, and
demands against the Collateral Agent arising out of the repossession, retention,
sale or application of the proceeds of any sale of the Collateral.
SECTION 11. Certain Additional Consents and Waivers. This Agreement is
absolute, unconditional and irrevocable and is in no way conditioned or
contingent on Grantor's performance of any obligation under the Credit Agreement
or any other Loan Document, any attempt to enforce in whole or in part any of
the Grantor's liabilities and obligations to any Lender Party or the existence
or continuance of Grantor or any other Person as a legal entity, nor shall this
Agreement or Grantor's obligations hereunder be limited, impaired, restricted or
otherwise affected by the consolidation or merger of Grantor with or into any
other entity, the sale, lease or other disposition by Grantor of all or
substantially all of its assets to any other entity (whether or not effected in
compliance with the Loan Documents), or the bankruptcy, or insolvency of
Grantor, the admission in writing by Grantor of its inability to pay its debts
as they mature, or its making of a general assignment for the benefit of, or
entering into a composition or arrangement with, creditors.
a. The Collateral Agent and the other Lender Parties may, at any
time and from time to time, without the consent of or notice to
Grantor, except such notice as may be required by applicable
statute which cannot be waived, without incurring responsibility
to Grantor, and without impairing or releasing the obligations of
Grantor hereunder, upon or without any terms or Conditions and in
whole or in part, (i) to the extent permitted by the Credit
Agreement, change the manner, place and terms of payment or
change or extend the time of payment of, renew or alter any
obligation of Grantor hereby secured, or in any manner modify,
amend or supplement the terms of the Credit Agreement, or other
Credit Documents (other than this Agreement) or any documents,
instruments or agreements executed in connection therewith (other
than this Agreement), and this Agreement shall apply to the
obligations and liabilities of Grantor, as changed, extended,
renewed, modified, amended, supplemented or altered in any
manner, (ii) exercise or refrain from exercising any rights
against Grantor or others (including Grantor) or otherwise act or
refrain from acting, (iii) settle or compromise any obligations
and liabilities herein secured or any obligations and liabilities
(including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof and may subordinate the
payment of all or any part thereof to the payment of any
obligations and liabilities which may be due Collateral Agent,
the other Lender Parties or others, (iv) sell, exchange, release,
surrender, realize upon or otherwise deal with in any manner or
in any order any property pledged or mortgaged by anyone to
secure or in any manner securing the Secured Obligations, any
liabilities or obligation (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof or
any other obligations or liabilities of Grantor to the Lender
Parties or any offset thereagainst, (v) take and hold security or
additional security for any or all of the Secured Obligations,
(vi) apply any sums by whomsoever paid or howsoever realized to
any obligations and liabilities of Grantor to the Lender Parties
regardless of what
Security Agreement/Accounts August 3, 1999
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<PAGE>
obligations and liabilities remain unpaid, and (vii) in
accordance with the Credit Agreement, assign their rights and
interests under this Agreement, the Credit Agreement or the other
Loan Documents, in whole or in part. Without limiting the
generality of the foregoing, Grantor hereby specifically waives
Grantor's rights and benefits under any statute, regulation,
judicial decision or other law which purports to exonerate or
reduce the liability of a surety if the underlying obligation is
altered in any respect or if the rights and remedies of the
creditor against the principal in respect of a secured obligation
are in any way altered, impaired or suspended and agrees that, by
so doing, Grantor's obligations hereunder shall continue even if
the Lender Parties alter any obligations under the Credit
Agreement or the other Loan Documents (other than this Agreement)
in any respect or the Lender Parties' remedies or rights against
Grantor are in any way impaired or suspended without Grantor's
consent.
b. No invalidity, irregularity or unenforceability of the
obligations or liabilities of Grantor under the Credit Agreement
or any other Loan Document shall affect, impair or be a defense
to this Agreement. Grantor hereby waives any and all benefits and
defenses under any statute, regulation, judicial decision or
other law which purports to exonerate or reduce the liability of
a surety as a result of any disability or absence of liability of
the principal or any defense to liability or enforcement which
the principal may have and agrees that, by so doing, Grantor's
obligations and the security interests granted hereunder shall
continue even if Grantor had no liability at the time of
execution of the Credit Agreement or thereafter ceased or cease
to be liable. Grantor also waives any and all benefits and
defenses under any statute, regulation, judicial decision or
other law which purports to limit the liability of a surety to
that of the principal or to reduce the liability of a surety in
proportion to any reduction in the liability of the principal and
agrees that, by so doing, Grantor's obligations hereunder may be
more burdensome than that of Grantor.
c. Grantor, to the extent permitted under applicable law, hereby
waives any right, whether arising under any statute, regulation,
judicial decision or otherwise, to require the Collateral Agent
or any other Lender Party to (i) proceed against Grantor or any
other Person acting as surety, guaranteeing or providing
collateral or other credit support for Grantor's obligations
under the Credit Agreement or any other Loan Document (a "Third
Party Credit Support Provider"), (ii) proceed against or exhaust
any security received from Grantor or any Third Party Credit
Support Provider, or (iii) pursue any other right or remedy in
the Collateral Agent's or the other Lender Parties, Power
whatsoever.
d. Grantor further waives, to the extent permitted under applicable
law: (i) any defense resulting from the absence, impairment or
loss of any right of reimbursement, subrogation, contribution or
other right or remedy of Grantor against Grantor, any Third Party
Credit Support Provider or any security, whether resulting from
an election by the Collateral Agent and the other Lender Parties
to foreclose upon
Security Agreement/Accounts August 3, 1999
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<PAGE>
security by judicial or nonjudicial sale or otherwise; (ii) any
setoff or counterclaim of Grantor or any defense of any kind
(including defenses resulting from any disability) or the
cessation or stay of enforcement from any cause whatsoever of the
liability of Grantor (including without limitation the lack of
validity or enforceability of the Credit Agreement or any other
Loan Document); (iii) any right to exoneration, in whole or in
part, of sureties or Third Party Credit Support Providers which
would otherwise be applicable; (iv) any right of subrogation or
reimbursement, any right of contribution, any right to enforce
any remedy which the Collateral Agent and the other Lender
Parties now have or may hereafter have against Grantor, and any
benefit of, and any right to participate in, any security now or
hereafter held or received by the Lender Parties (or the
Collateral Agent on their behalf); (v) except as required under
the Credit Agreement, all presentments, demands for performance,
notices of non-performance, protests, notice of dishonor, notices
of acceptance of this Agreement or of the existence, creation or
incurring of new or additional obligations under the Credit
Agreement or the other loan Documents, or any other notices of
any kind; and (vi) all valuation, appraisal, extension or
redemption laws now or hereafter in effect. Without limiting the
generality of the preceding clause (iv), Grantor hereby waives
any right to be reimbursed by Grantor or any Third Party Credit
Support Provider for any payment of such obligations made
directly or indirectly by Grantor or from any property of
Grantor, whether arising by way of any statutory, contractual or
other right of subrogation, contribution, indemnification or
otherwise.
e. Grantor further specifically waives any and all benefits, rights
and defenses (i) arising out of an election of remedies by the
Collateral Agent or any other Lender Party even though that
election of remedies, such as a nonjudicial foreclosure with
respect to security for the Secured Obligations, has destroyed
Grantor's rights of subrogation and reimbursement against Grantor
by operation of applicable law, and all rights or defenses
Grantor may have by reason of protection afforded to Grantor with
respect to the Secured Obligations pursuant to the antideficiency
laws or other laws of the State of Illinois (or other applicable
jurisdiction) limiting or discharging the Secured Obligations.
f. Grantor acknowledges that it has the ability, and hereby assumes
the obligation and responsibility, to keep informed of the
financial condition of Grantor and any Third Party Credit Support
Provider and of other matters or circumstances affecting the
ability of any of them to pay or perform their respective
obligations thereunder or the risk of nonpayment and
nonperformance. Grantor hereby waives any obligation on the part
of the Collateral Agent or any other Lender Party to inform
Grantor of the financial condition, or any changes in financial
condition, of Grantor or any Third Party Credit Support Provider
or of any other matter or circumstance which might effect the
ability of Grantor to pay and perform under the Credit Agreement
or any or-her Loan Document, or the risk of nonpayment or
nonperformance.
SECTION 12. Notices.
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<PAGE>
All notices or other communications hereunder shall be given in the manner
and to the addresses specified in the Credit Agreement or, in the case of
Grantor, at the address set forth below its signature hereto. All such notices
and other communications shall be effective (i) if delivered by hand or pre-paid
courier service, when delivered; (ii) if sent by mail, upon the earlier of the
date of receipt or five Business Days after deposit in the mail, first class,
postage prepaid; (iii) if sent by telex, upon receipt by the sender of an
appropriate answerback; and (iv) if sent by facsimile transmission, when sent by
facsimile transmission, when sent.
SECTION 13. No Waiver; Cumulative Remedies.
No failure on the part of the Collateral Agent to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and remedies
under this Agreement are cumulative and not exclusive of any rights, remedies,
powers and privileges that may otherwise be available to the Collateral Agent.
SECTION 14. Costs and Expenses; Indemnification; Other Charges.
a. Costs and Expenses. Grantor agrees to pay on demand:
i. all title, appraisal including the allocated costs of
internal appraisal services), survey, audit, consulting,
search, recording, filing and similar costs, fees and
expenses incurred or sustained by the Collateral Agent or
any of its Affiliates in connection with this Agreement or
the Collateral; and
ii. all costs and expenses of the Collateral Agent and its
Affiliates, including Attorney Costs, in connection with the
enforcement or attempted enforcement of, and preservation of
any rights or interests under, this Agreement, including in
any out-of-court workout or other refinancing or
restructuring or in any bankruptcy case, and the protection,
sale or collection of, or other realization upon, any of the
Collateral, including all expenses of taking, collecting,
holding, sorting, handling, preparing for sale, selling, or
the like, and other such expenses of sales and collections
of Collateral, and any and all losses, costs and expenses
sustained by the Collateral Agent as a result of any failure
by Grantor to perform or observe its obligations contained
herein.
b. Indemnification. Grantor hereby agrees to indemnify the
Collateral Agent, the other Lender Parties, any Affiliate of any
of them, and their respective directors, officers, employees,
agents, counsel and other advisors (each an "Indemnified Person"
against, and hold each of them harmless from, any and all
liabilities, obligations, losses, claims, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever, including the reasonable fees and
Security Agreement/Accounts August 3, 1999
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<PAGE>
disbursements of counsel to an Indemnified Person (including
allocated costs of internal counsel), which may be imposed on,
incurred by, or asserted against any Indemnified Person by a
third party, in any way relating to or arising out of this
Agreement or any action taken or omitted to be taken by it
hereunder (the "Indemnified Liabilities",provided that Grantor
shall not be liable to any Indemnified Person for any portion of
such Indemnified Liabilities to the extent they are found by a
final decision of a court of competent jurisdiction to have
resulted from such Indemnified Person's gross negligence or
willful misconduct. If and to the extent that the foregoing
indemnification is for any reason held unenforceable, Grantor
agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
c. Other Charges. Grantor agrees to indemnify the Collateral Agent
against and hold it harmless from any and all present and future
stamp, transfer, documentary and other such taxes, levies, fees,
assessments and other charges made by an, jurisdiction by reason
of the execution, delivery, performance and enforcement of this
Agreement.
d. Interest. Any amounts payable to the Collateral Agent under this
Section 14 or otherwise under this Agreement if not paid upon
demand shall bear interest from the date of such demand until
paid in full, at the rate of interest set forth in subsection
2.09 of the Credit Agreement.
SECTION 15. Binding Effect.
This Agreement shall be binding upon, inure to the benefit of and be
enforceable by Grantor, the Collateral Agent and their respective successors and
assigns.
SECTION 16. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR PERFECTION OF THE
SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN RESPECT OF ANY
COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN ILLINOIS,
PROVIDED THAT THE COLLATERAL AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL
LAW.
SECTION 17. Forum Selection and Consent to Jurisdiction.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA
OR OF THE UNITED STATES FOR THE
Security Agreement/Accounts August 3, 1999
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<PAGE>
EASTERN DISTRICT OF PENNSYLVANIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF GRANTOR AND THE COLLATERAL AGENT CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH
OF GRANTOR AND THE COLLATERAL AGENT IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. GRANTOR AND THE COLLATERAL AGENT EACH WAIVE PERSONAL SERVICE OF
ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY PENNSYLVANIA LAW.
SECTION 18. Waiver of Jury.
GRANTOR AND THE COLLATERAL AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY COLLATERAL
AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. GRANTOR AND THE COLLATERAL AGENT EACH AGREE
THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.
SECTION 19. Entire Agreement; Amendment.
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and shall not be amended except by the written
agreement of the parties as provided in the Credit Agreement.
SECTION 20. Severability.
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under all applicable laws and
regulations. If, however, any provision of this Agreement shall be prohibited by
or invalid under any such law or regulation in any jurisdiction, it
Security Agreement/Accounts August 3, 1999
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<PAGE>
shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not deemed
so modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this
Agreement, or the validity or effectiveness of such provision in any other
jurisdiction.
SECTION 21. 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 but one and the same agreement.
SECTION 22. Incorporation of Provisions of the Credit Agreement.
To the extent the Credit Agreement contains provisions of general
applicability to the Loan Documents, such provisions are incorporated herein by
this reference.
SECTION 23. No Inconsistent Requirements.
Grantor acknowledges that this Agreement and the other Loan Documents may
contain covenants and other terms and provisions variously stated regarding the
same or similar matters, and agrees that all such covenants, terms and
provisions are cumulative and all shall be performed and satisfied in accordance
with their respective terms.
SECTION 24. Termination.
Upon termination of the Commitments of the Banks under the Loan Documents,
the surrender of any Letters of Credit issued by any Issuer for the account of
Grantor, and payment and performance in full of all Secured Obligations, the
security interests granted under this Agreement shall terminate and the
Collateral Agent shall promptly execute and deliver to Grantor such documents
and instruments reasonably requested by Grantor as shall be necessary to
evidence termination of all security interests given by Grantor to the
Collateral Agent hereunder, provided, however, that the obligations of Grantor
under Section 14 shall survive such termination.
Security Agreement/Accounts August 3, 1999
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
as of the date first above written.
MATLACK (DE), INC.
By
-----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
MATLACK, INC.
By
-----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Accounts August 3, 1999
- 21 -
<PAGE>
BRITE-SOL SERVICES, INC.
By
-----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
MATLACK LEASING, INC.
By
-----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Accounts August 3, 1999
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<PAGE>
SUPER SERVICE, INC.
By
-----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
FIRST UNION NATIONAL BANK, as
Collateral Agent
By
-----------------------------
Name:
Title:
Notices To:
Michael J. Labrum
Vice President
First Union National Bank
Transportation and Equipment Finance
PA4827
1345 Chestnut Street
Philadelphia, PA 19107
FAX No. (215) 786-7704
Security Agreement/Accounts August 3, 1999
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<PAGE>
Schedule 1
1. Locations of Chief Executive Office and Other Locations, Including of
Collateral
a. Chief Executive Office and Principal Place of Business:
1 Rollins Plaza, Wilmington, DE 19803 (physical address) P.O.
Box 8790, Wilmington, DE 19899 (mailing address)
b. other locations where Grantor conducts business or Collateral is kept:
2. Locations of Books Pertaining to Rights to Payment
3. Trade Names and Trade Styles; Other Corporate, Trade or Fictitious Names,
Etc.
4. Inventory Stored with Warehousemen or on Leased Premises, Etc.
5. Patents, Copyrights, Trademarks, Etc.
6. Leased Equipment
7. Deposit Accounts
Security Agreement/Accounts August 3, 1999
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated August 3, 1999, is made
between and among Matlack DE, Inc., Matlack, Inc., Brite-Sol Services, Inc.,
Matlack Leasing, Inc., Super Service, Inc (each individually and collectively
referred to as the "Grantor"), jointly and severally, and FIRST UNION NATIONAL
BANK, a national banking association, as agent for the Banks (in such capacity,
and together with its successors as agent for the Banks, the "Collateral
Agent").
RECITALS
WHEREAS, Grantor is a party to that certain Credit Agreement dated as of
August 19, 1998 between and among Grantor, the banking institutions signatories
thereto and First Union National Bank, a national banking association, as agent
for the Banks (as amended, restated, modified, renewed, supplemented or extended
from time to time, the "Credit Agreement").
WHEREAS, pursuant to Section 9.01 of the Credit Agreement, the Banks have
required and Grantor has agreed to grant a security interest as herein provided;
WHEREAS, the Banks have requested a security interest as permitted under
the Credit Agreement;
NOW, THEREFORE, for and in consideration of any loan under the Credit
Agreement and any other loan or advance (including any other loan or advance by
renewal or extension) heretofore or hereafter made to Grantor by the Banks, the
parties hereto agree as follows:
1. DEFINITIONS. Terms used herein and capitalized which are defined in the
Credit Agreement shall have the meanings ascribed to them therein. In addition,
when used herein, the following terms shall have the following meanings:
"Assignee Deposit Account" shall have the meaning given to such term in
Section 9 hereof.
"Assigned Vehicle" means a Vehicle as to which Grantor shall have executed
and delivered to the Collateral Agent a Mortgage on the Vehicle in form and
substance as required by this Agreement.
"Collateral" shall mean all property or rights in which a security interest
is granted hereunder.
"Contract Right" shall mean any right of Grantor to payment under a
contract for the sale or lease of goods or the rendering of services, which
right is at the time not yet earned by performance.
"Default" has the meaning given such term in Section 12 hereof.
Security Agreement/Assigned Vehicles August 3, 1999
- 1 -
<PAGE>
"General Intangibles" shall have the meaning given to such term in the
Pennsylvania Commercial Code, provided, that "General Intangibles" shall
include, without limitation, inventions, designs, patents, patent
applications, trademarks, trademark applications, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, tax refunds claims, rights to indemnification and rights
under warranties.
"Liabilities" shall mean all Obligations of Grantor to the Banks under the
Credit Agreement, and all obligations of Grantor to the Collateral Agent
hereunder, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing or due or to
become due and all other obligations of Grantor to the Banks or either of
them, howsoever created arising or evidenced, whether direct or indirect,
absolute or contingent, or now or hereafter existing, or due or to become
due.
"Mortgage" shall mean a supplement to this Agreement confirming the
granting of a. security interest in one or more Vehicles to the Collateral
Agent, as collateral security in the form of Exhibit A hereto.
2. GRANT OF SECURITY INTEREST. As security for the payment of all
Liabilities, Grantor hereby assigns to the Collateral Agent, and grants to the
Collateral Agent for its benefit and the ratable benefit of the Banks, a
continuing security interest in, the following property and rights of Grantor,
to the extent owned by the Grantor, whether now or hereafter existing or
acquired:
a. all Assigned Vehicles now or hereafter listed in any Mortgages from
time to time executed pursuant to this Agreement, whether such
property listed in such Mortgages constitutes machinery, equipment or
inventory of Grantor, together with all accessions thereto or other
property attached thereto or used in connection therewith;
b. all other Vehicles of Grantor, not subject to any other perfected
contractual lien or security interest at the time of purchase by
Grantor;
c. to the extent related only to the property described in the preceding
clauses (a) and (b) and not included therein or covered thereby, all
Contract Rights, chattel paper, instruments, documents and money and
General Intangibles of Grantor;
d. any and all balances, credits, deposits (general or special, time or
demand, provisional or final), accounts or moneys of or in the name of
Grantor now or hereafter with the Banks or the Collateral Agent and
any and all property of every kind or description of or in the name of
Grantor now or hereafter, for any reason or purpose whatsoever, in the
possession or control of, or in transit to, the Banks, the Collateral
Agent, or any other agent or bailee for the Banks;
e. to the extent related to the property described in clauses (a) through
(d) above, all books, correspondence, credit files, records, invoices
and other papers and documents, including, without limitation, to the
extent so related, all tapes, cards,
Security Agreement/Assigned Vehicles August 3, 1999
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<PAGE>
computer runs, computer, programs and other papers and documents in
the possession or control of Grantor or any computer bureau from time
to time acting for Grantor, and, to the extent so related, all rights
in, to and under all policies of insurance, including claims of rights
to payments thereunder and proceeds therefrom, including any credit
insurance; and
f. all proceeds and/or products, and/or substitutions and replacements,
for or of any of the foregoing.
3. MAINTENANCE OF FINANCED PROPERTY. Grantor shall keep and maintain or
cause each lessee to keep and maintain the Assigned Vehicles and other Vehicles
pledged hereunder in first-class condition.
4. OWNERSHIP OF COLLATERAL, TRANSFERS. Except for the Lien created
hereunder and under the Mortgages executed and delivered pursuant to this
Agreement, Grantor is or will be the owner of the Assigned Vehicles and the
other Collateral, free from all Liens, except for Permitted Liens and will
defend the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein.
5. INSPECTION OF COLLATERAL. Grantor shall at all reasonable times and from
time to time, permit each Bank and the Collateral Agent, their respective
officers, employees and designees, to inspect and evaluate the Vehicles,
including the Assigned Vehicles, and other Collateral in its possession, and to
inspect, audit, make copies of and extracts from all records and all other
papers in the possession of Grantor which relate to the Collateral and will,
upon request of the Banks or the Collateral Agent, deliver all of such records
and papers which pertain to the Collateral.
6. USE OF VEHICLES. Grantor shall use the Collateral only in a lawful
manner not inconsistent with this Agreement, the Credit Agreement and the Loan
Documents and terms and conditions of any policy of insurance regarding the
Assigned Vehicles.
7. ADDITIONAL REPRESENTATIONS AND WARRANTIES. Grantor hereby represents and
warrants:
a. that the execution and delivery of this Agreement and each of the
Mortgages, and the fulfillment of compliance with the terms and
provisions hereof or thereof, will not conflict with or result in a
breach of any of the terms, conditions or provisions of the Articles
of Incorporation or the By-Laws of Grantor or of any bond, debenture,
note, mortgage, indenture, agreement or other instrument to which
Grantor is a party or by which it or its property may be bound, or
constitute (with the giving of notice or the passage of time or both)
a default thereunder, or result in the creation or imposition of any
Lien, of any nature whatsoever upon the Collateral pursuant to the
terms of any such agreement or instrument;
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b. that no event has occurred which is or with notice or the passage of
time would be a Default hereunder;
c. this Agreement has been duly executed and delivered by Grantor and
constitutes the legal, valid and binding obligation of Grantor
enforceable against Grantor in accordance with its terms and the grant
of the security interest in the Collateral existing on the date hereof
constitutes, and, as to subsequently acquired Collateral, will
constitute, a valid and perfected first and prior Lien and security
interest, superior to the rights of any other person in and to the
Collateral;
d. all such action as is necessary has been taken to establish and
perfect the Collateral Agent's rights in and to the Collateral and all
financing statements relating thereto have been duly submitted for
filing, recordation and/or registration in each office and in each
Jurisdiction where required, and all notations have been made on any
certificate of title, if any, issued in respect of any part of the
Collateral where such notation is required in order to create and
perfect the first lien and security interest described above, and
except as provided above, no action by or with any governmental
authority is required in connection with the execution, delivery and
performance of this Agreement and the grant of the security interest
contemplated hereby;
e. all information with respect to Collateral set forth in any Mortgage,
schedule, certificate or other writing at any time heretofore or
hereafter furnished by Grantor to the Banks or the Collateral Agent,
and all other written information heretofore or hereafter furnished by
Grantor to the Banks or the Collateral Agent is and will be true and
correct as of the date furnished;
f. none of the Collateral is a fixture under applicable law or is
attached or to be attached to realty in any manner which might
materially adversely affect the collateral value to the Banks of such
Collateral or materially adversely affect Grantor's ownership of or
interest in such Collateral.
8. ADDITIONAL COVENANTS. Grantor agrees:
a. to keep the Collateral free and clear of all Liens whatsoever, except
those created by this Agreement or Permitted Liens and to pay all
charges, including without limitation, all taxes and assessments
levied or assessed against Grantor, which if unpaid would constitute a
Lien on the Collateral or any portion thereof. Grantor shall not be
required to pay or discharge any such charges, taxes or assessments so
long as it shall in good faith and by appropriate legal proceedings,
contest the validity thereof in any reasonable manner provided that
non-payment of such disputed taxes will not affect or endanger, the
Collateral Agent's security interest in the Collateral pursuant to
this Agreement, or result in the imposition of a Lien on the
Collateral;
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b. will upon request of the Collateral Agent, deliver lists specifically
identifying all Collateral and execute Mortgages with respect to all
Vehicles constituting Collateral;
c. will, upon request of the Collateral Agent, execute such financing
statements and other documents (and pay the cost of filing or
recording the same in all public offices deemed necessary by the
Collateral Agent) and do such other acts and things, all as the
Collateral Agent may from time to time request, to establish and
maintain a valid security interest in the Collateral (free of all
other Liens, claims and rights of third parties except for Liens
permitted by Section 4 hereof) to secure the payment of the
Liabilities, including, without limitation if necessary to perfect a
security interest, depositing with the Collateral Agent any
certificate of title issuable with respect to any of the Collateral
and noting thereon the security interest hereunder. Grantor agrees
that any carbon, photographic or other reproduction of this Agreement
or of any such Mortgage or financing statement shall be sufficient for
filing as a financing statement;
d. that all accessions which become attached to or part of any Collateral
shall become subject to the terms of this Agreement and shall
constitute part of the Collateral which secures payment of the
Liabilities and shall not be subject to any other lien, claim, or
encumbrance in favor of any other party except Permitted Liens;
e. that Grantor will not remove its records concerning the Collateral
from the address listed in on the first page of this Agreement except
to a jurisdiction where the Uniform Commercial Code shall be in
effect, and upon 30 days' prior written notice to the Banks and the
Collateral Agent;
f. that Grantor shall not permit any of the Collateral to be or to become
fixtures under applicable law;
g. to reimburse the Banks and the Collateral Agent upon demand for all
reasonable costs and expenses, including reasonable fees of attorneys
for the Banks and the Collateral Agent (who may be employees of the
Bank and the Collateral Agent) and legal expenses, incurred by the
Banks and the Collateral Agent in seeking to collect or enforce any
rights under the Collateral and, in case of Default, in seeking to
collect each Note and all other Liabilities and to enforce rights
hereunder, including expenses of any repairs to any realty or other
property to which any of the Collateral may be affixed or be a part;
h. to reimburse the Banks and the Collateral Agent upon demand for all
reasonable costs and expenses incurred by the Banks and the Collateral
Agent, their respective agents or designees in the course of the
evaluations audits and extractions referred to in Section 5;
Security Agreement/Assigned Vehicles August 3, 1999
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<PAGE>
i. to furnish, at the request of either Bank at monthly intervals, such
information concerning the Collateral to the Banks and the Collateral
Agent as may be requested, including, without limitation, with respect
to the period for which such report is made, a description of all net
proceeds received from the sale destruction, commandeering,
conversion, loss of or damage to, or use of, attachment, or insurance
on or with respect to the Collateral;
j. to cause the insurance arrangements required by the Credit Agreement
to be for the benefit of Grantor and the Collateral Agent as their
interests may appear (the Collateral Agent's interest to be for the
benefit of itself and the Banks), provided that all insurance policies
shall provide for ten (10) days written minimum cancellation notice to
Grantor and the Collateral Agent, and provided further, that after a
Default in the event of such cancellation and failure on the part of
Grantor to provide adequate insurance arrangements satisfactory to the
Banks and the Collateral Agent, the Collateral Agent, may at its
option provide such insurance and charge the cost thereof to Grantor
as provided for elsewhere in this Agreement; and
k. not use any mobile goods outside the territorial limits of the United
States, Mexico and Canada unless the Collateral Agent shall otherwise
consent in writing.
The Collateral Agent may from time to time, at its option after a Default,
perform any agreement of Grantor hereunder which Grantor shall fail to perform
and take any other action which the Collateral Agent deems necessary for the
maintenance or preservation of any of the Collateral or its interest therein,
and Grantor agrees to forthwith reimburse the Collateral Agent for all expenses
in connection with the foregoing, together with interest thereon at the Default
Rate, from the date incurred until reimbursed by Grantor.
9. RIGHTS OF COLLATERAL AGENT.
a. Grantor hereby irrevocably constitutes and appoints the Collateral
Agent and its agents as its attorney in fact with full power and
authority either in its own name or in the name of Grantor to take any
and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the
purposes of this Agreement including without limitation, the foregoing
appointment authorizes the Collateral Agent without notice to or
assent by Grantor, to do the following: (i) after a Default, to
endorse any loss payment or returned premium check and to make, settle
and release any claim under any insurance policy with respect to any
Collateral; (ii) after a Default, to file any claim or take any other
action or proceeding in any court of law or equity for the purpose of
collecting any and all monies due under or with respect to any of the
Collateral; (iii) after a Default, to file a financing statement
signed only by the Collateral Agent with respect to this Agreement in
accordance with the Uniform Commercial Code or signed by the
Collateral Agent as attorney in fact for Grantor; (iv) after a
Default, upon the occurrence and continuance of a failure by Grantor
to do so, to pay or discharge
Security Agreement/Assigned Vehicles August 3, 1999
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<PAGE>
taxes, liens, security interests or other encumbrances levied or
placed on or threatened against the Collateral, to effect any repairs
or any insurance called for by the terms of this Agreement or the
Credit Agreement and to pay all or any part of the premiums therefor
and the cost thereof; (v) after a Default, to receive payment of and
receipt for any and all monies claims and other amounts due and to
become due at any time in respect of or arising out of any Collateral;
(vi) after a Default, to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other
right in respect of the Collateral; (vii) after a Default, to settle,
compromise or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as
the Banks may deem appropriate; and (viii) after a Default, generally
to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Collateral Agent were the absolute owner thereof for all
purposes, and to do, at the Collateral Agent's option, at any time, or
from time to time, all acts and things which the Collateral Agent
deems necessary to protect, preserve or realize upon the Collateral
and the Collateral Agent's security interest therein in order to
effect the intent of this Agreement, all as fully and effectively as
Grantor might do. Grantor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof. This power of
attorney is a power coupled with an interest, shall be irrevocable and
shall terminate only upon payment in full of the Liabilities and the
termination of this Agreement. The powers conferred on the Collateral
Agent hereunder are solely to protect the Collateral Agent's interests
in the Collateral and shall not impose any duty upon it to exercise
any such powers. Any insurance premiums, taxes, assessments, charges,
and other amounts so paid by the Collateral Agent shall constitute
part of the Liabilities payment of which shall be secured by the
Collateral and shall be payable on demand by Grantor. The Banks and
the Collateral Agent shall be accountable only for amounts that are
actually received as a result of the exercise of such powers, and
neither the Banks, the Collateral Agent nor any of their respective
officers, directors, employees or agents shall be responsible to
Grantor for any action taken or omitted to be taken in good faith or
in reliance on the advice of counsel except for their own gross
negligence or willful misconduct.
b. After a Default, unless otherwise consented to by the Collateral
Agent, Grantor will forthwith, upon receipt, transmit and deliver to
the Collateral Agent, in the form received, all cash, checks, drafts,
chattel paper and other instruments or writings for the payment of
money (properly endorsed, where required, so that such items may be
collected by the Collateral Agent) which may be received by Grantor at
any time in full or partial payment or otherwise as proceeds of any of
the Collateral. Any such items which may be received by Grantor after
such request by the Collateral Agent will not be commingled with any
other of its funds or property, but will be held separate and apart
from its own funds or property and upon express trust for the Banks
until delivery is made to the Collateral Agent.
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<PAGE>
c. All items or amounts which are received by the Collateral Agent after
a Default from Grantor or any other party on account of partial or
full payment or otherwise as proceeds of any of the Collateral shall
be deposited to the credit of a deposit account (herein called the
"Assignee Deposit Account") of Grantor with the Collateral Agent, as
security for payment of the Liabilities. Grantor shall have no right
to withdraw any funds deposited in the Assignee Deposit Account.
Either Bank may, from time to time, in its discretion, and shall upon
request of Grantor made not more than once in any week, direct the
Collateral Agent to transfer all or any of the then balance,
representing collected funds, in the Assignee Deposit Account ratably
to the Banks, who shall promptly apply such funds, first, toward
payment of the Liabilities under the Credit Agreement, the Loan
Documents and this Agreement, and, second, toward payment of any other
Liabilities, whether or not then due, in such order of application as
the Banks may determine, and the Banks may, from time to time, in
their discretion, direct the Collateral Agent to release all or any of
such balance to Grantor. The Collateral Agent is authorized to
endorse, in the name of Grantor, any item, howsoever received by the
Collateral Agent, representing any payment on or other proceeds of any
of the Collateral.
10. THE COLLATERAL AGENT.
The Banks and the Collateral Agent agree among themselves as follows:
a. Responsibilities and Duties of Collateral Agent.
i. The Collateral Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and those
duties and liabilities shall be subject to the limitations and
qualifications set forth in this Section. The duties of the
Collateral Agent shall be mechanical and administrative in
nature.
ii. Neither the Collateral Agent nor any of its directors, officers
or employees shall be liable for any action taken or omitted
(whether or not such action taken or omitted is within or without
the Collateral Agent's responsibilities and duties expressly set
forth in this Agreement, the Credit Agreement or any other
instrument or document in connection herewith), except for gross
negligence or willful misconduct. Without limiting the foregoing,
neither the Collateral Agent nor any of its directors, officers
or employees shall be responsible for, or have any duly to
examine:
(1) the genuineness, execution, validity, effectiveness,
enforceability, value or sufficiency of (a) this Agreement,
or (b) any document or instrument furnished pursuant to or
in connection with this Agreement,
Security Agreement/Assigned Vehicles August 3, 1999
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<PAGE>
(2) the collectibility of any amounts owed by Grantor,
(3) any recitals or statements or representations or warranties
in connection with this Agreement, the Credit Agreement, or
the Loan Documents,
(4) any failure of any party to this Agreement to receive any
communication sent, or
(5) the assets, liabilities, financial condition, results of
operations, business or creditworthiness of Grantor.
iii. The Collateral Agent shall be entitled to act, and shall be fully
protected in acting upon, any communication in whatever form
believed by the Agent in good faith to be genuine and correct and
to have been signed or sent or made by a proper person or persons
or entity. The Collateral Agent may consult counsel and shall be
entitled to act, and shall be fully protected in any action taken
in good faith, in accordance with advice given by counsel. The
Collateral Agent may employ agents and attorneys-in-fact and
shall not be liable for the default or misconduct of any such
agents or attorneys-in-fact selected by the Collateral Agent with
reasonable care. The Collateral Agent shall not be bound to
ascertain or inquire as to the performance or observance of any
of the terms, provisions or conditions of this Agreement, the
Credit Agreement or the Loan Documents on Grantor's part.
b. Action on Instructions. The Collateral Agent shall be entitled to act
or refrain from acting, and in all cases shall be fully protected in
acting or refraining from acting under this Agreement, or any other
instrument or document in connection herewith or therewith in
accordance with Instructions in writing from the Banks.
c. Indemnification. To the extent Grantor does not reimburse and save the
Collateral Agent harmless according to the terms hereof for and from
all costs, expenses and disbursements in connection herewith or with
the Credit Agreement, such costs, expenses and disbursements to the
extent reasonable shall be borne by the Banks ratably in accordance
with their pro rata share of the Credit. The Banks shall (a) reimburse
the Collateral Agent for all such reasonable costs, expenses and
disbursements on request and (b) indemnify and save harmless the
Collateral Agent against and from any and all losses, obligations,
penalties, actions, judgments and suits and other reasonable costs,
expenses and disbursements of any kind or nature whatsoever which may
be imposed on, incurred by or asserted against the Collateral Agent,
other than as a consequence of actual gross negligence or willful
misconduct on the part of the Collateral Agent, arising out of or in
connection with this Agreement, or any instrument or document in
connection herewith or therewith or
Security Agreement/Assigned Vehicles August 3, 1999
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<PAGE>
any request of the Banks, including without limitation the reasonable
costs, expenses and disbursements in connection with defending itself
against any claim or liability, or answering any subpoena, related to
the exercise or performance of any of its powers or duties under this
Agreement or the taking of any action under or in connection with this
Agreement the Credit Agreement or the Loan Agreement.
d. Successor Agent. The Collateral Agent may resign at any time by giving
at least 30 days written notice thereof to the Banks and Grantor. Upon
any such resignation, the Banks and the Collateral Agent shall have
the right to appoint a successor Collateral Agent. If no successor
Collateral Agent shall have been appointed by the Banks and the
Collateral Agent and shall have accepted such appointment within 30
days after the retiring Collateral Agent's giving notice of
resignation, then the retiring Collateral Agent may, but shall not be
required to, on behalf of the Banks and the Collateral Agent, appoint
a successor Collateral Agent.
11. RELEASES. Prior to the termination of the Credit Agreement and the
payment in full of all Liabilities of Grantor, the Collateral Agent shall
execute and deliver an appropriate release of the Lien of this Agreement and any
Mortgage with respect to any Assigned Vehicle which Grantor wishes to sell,
provided that no Default or Potential Event of Default shall have occurred and
he continuing. Upon the termination of the Credit Agreement and the payment in
full of the liabilities thereunder, the Collateral Agent shall discharge all
Mortgages and release all Collateral held pursuant to this Agreement.
12. DEFAULT. The occurrence of any of the following shall be deemed a
Default under this Agreement: (a) non-payment, when due, of any amount payable
on any of the Liabilities or failure to perform any agreement of Grantor
contained herein or in any other agreement of Grantor with the Banks; (b) any
warranty of Grantor herein or in any other agreement of Grantor with the Banks
is untrue in any material respect; or (c) any Event of Default or Potential
Default shall occur under the Credit Agreement.
Whenever a Default shall be existing, the Liabilities may (notwithstanding
any provisions thereof), at the option of the Banks and the Collateral Agent in
the case of Liabilities owed to the Bank or the Collateral Agent and without
demand or notice of any kind, be declared, and thereupon immediately shall
become, due and payable, and the Collateral Agent may at the direction of the
Banks exercise from time to time any rights and remedies available to them under
applicable law. Grantor agrees, in case of Default, to assemble, at its expense,
all Collateral in its possession and control at a convenient. place acceptable
to the Collateral Agent. Without limiting the foregoing, upon Default the
Collateral Agent may at the direction of the Banks, to the fullest extent
permitted by applicable law, without notice, hearing or process of law of any
kind, (a) enter upon any premises where any of the Collateral may be located and
take possession of and remove such Collateral; (b) use, license or, to the
extent permitted by an applicable license, sublicense, whether general, special
or otherwise, and whether on an exclusive or non-exclusive basis, any Collateral
throughout the world for such term or terms, on such conditions, and in such
manner, as the Collateral Agent shall in its sole discretion determine, without
compensation to Grantor; and (c) sell any or all of the Collateral, free
Security Agreement/Assigned Vehicles August 3, 1999
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<PAGE>
of all rights and claims of Grantor therein and thereto, at, any public or
private sale. Upon Default, the Collateral Agent, the Banks may bid for and
purchase any or all of such Collateral at any such sale. Grantor hereby
expressly waives, to the fullest extent permitted by applicable law, any and all
notices, advertisements, hearings or process of law in connection with the
exercise by the Collateral Agent of any of its rights and remedies upon Default.
Any notification of intended disposition of any of Collateral required by law
shall be deemed reasonably and properly given if given at least five days before
such disposition. Any proceeds of any disposition by the Collateral Agent of any
of the Collateral may be applied by the Collateral Agent to the payment of
expenses in connection with the Collateral, including reasonable attorneys' fees
and legal expenses, and any balance of such proceeds may be applied by the
Banks, first, toward the payment of the Liabilities under the Credit Agreement,
the Loan Agreement and this Agreement and, second, toward the payment of any
other Liabilities.
13. MISCELLANEOUS.
a. Collateral Agent's Duties. The Collateral Agent shall be deemed to
have exercised reasonable care in the custody and preservation of any
of the Collateral in its possession if it takes such action for that
purpose as Grantor requests in writing, but failure of the Collateral
Agent to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care, and no failure of the Collateral
Agent to preserve or protect any rights with respect to such
Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by Grantor, shall be
deemed a failure to exercise reasonable care in the custody or
preservation of such Collateral.
b. Notices. Any notice from the Collateral Agent to Grantor, if by
telegram or telex, shall he deemed given when sent, and, if mailed,
shall he deemed given when mailed, postage prepaid, addressed to
Grantor either at Grantor's address shown on the signature page
hereto, or at any other address of Grantor appearing on the records of
the Collateral Agent.
c. Waivers. Grantor hereby expressly waives: (a) notice of acceptance by
the Collateral Agent of this Agreement, (b) notice of the existence or
creation of all or any Liabilities, and (c) all diligence in
collection or protection of or realization upon the Liabilities or any
thereof.
d. No Waiver; Cumulative Remedies. No failure on the part of the
Collateral Agent to exercise, and no delay in exercising, any right,
power or remedy shall operate as a waiver thereof, nor shall any
single or partial exercise by the Collateral Agent of any right, power
or remedy preclude other or further exercise thereof or the exercise
of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies which may be
available to the Collateral Agent at law or in equity or under any
other agreement or instrument relating to any of the Liabilities or
any security therefor.
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<PAGE>
e. Governing Law. This Agreement has been delivered at Philadelphia,
Pennsylvania, and shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania. Whenever possible,
each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
f. Binding Effect. The rights and privileges of the Collateral Agent
hereunder shall inure to the benefit of its successors and assigns.
g. Waiver of Jury Trial. Grantor waives any right to a trial by jury in
any action or proceeding to enforce or defend any rights (i) under
this Agreement or under any amendment, instrument, document or
agreement delivered or which may in the future be delivered in
connection herewith or (ii) arising from any banking relationship
existing in connection with this Agreement, and agrees that any such
action or proceeding shall be tried before a court and not before a
jury.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
as of the date first above written.
MATLACK (DE), INC.
By
----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Assigned Vehicles August 3, 1999
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<PAGE>
MATLACK, INC.
By
----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
BRITE-SOL SERVICES, INC.
By
----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Assigned Vehicles August 3, 1999
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<PAGE>
MATLACK LEASING, INC.
By
----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
SUPER SERVICE, INC.
By
----------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Assigned Vehicles August 3, 1999
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<PAGE>
FIRST UNION NATIONAL BANK, as
Collateral Agent
By
----------------------------
Name:
Title:
Notices To:
Michael J. Labrum
Vice President
First Union National Bank
Transportation and Equipment Finance Group
PA4827
1345 Chestnut Street
Philadelphia, PA 19107
FAX No. (215) 786-7704
Security Agreement/Assigned Vehicles August 3, 1999
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EXHIBIT A
MORTGAGE
Reference is hereby made to that certain Security Agreement, dated August 3,
1999 (the "Agreement), between and among Matlack DE, Inc., Matlack, Inc.,
Brite-Sol Services, Inc., Matlack Leasing, Inc., Super Service, Inc (each
individually and collectively referred to as the "Grantor"), jointly and
severally, and FIRST UNION NATIONAL BANK, a national banking association, as
agent for the Banks (in such capacity, and together with its successors as agent
for the Banks, the "Collateral Agent"). Grantor hereby grants a security
interest to Collateral Agent pursuant to the Agreement in the Assigned Vehicles
(as defined in the Agreement) listed on Schedule A hereto.
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By:
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Title:
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Security Agreement/Assigned Vehicles August 3, 1999
- 16 -
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated September 8, 1999, is
made between and among Matlack DE, Inc., Matlack, Inc., Specialized Dedicated
Fleets, Inc., successor by merger to Safeway Chemical Transportation, Inc.,
Brite-Sol Services, Inc., Matlack Leasing, Inc., Super Service, Inc (each
individually and collectively referred to as the "Grantor"), jointly and
severally, and FIRST UNION NATIONAL BANK, a national banking association, as
agent for the Banks (in such capacity, and together with its successors as agent
for the Banks, the "Collateral Agent").
RECITALS
WHEREAS, Grantor is a party to that certain Credit Agreement dated as of
August 19, 1998 between and among Grantor, the banking institutions signatories
thereto and First Union National Bank, a national banking association, as agent
for the Banks (as amended, restated, modified, renewed, supplemented or extended
from time to time, the "Credit Agreement").
WHEREAS, pursuant to Section 9.01 of the Credit Agreement, the Banks have
required and Grantor has agreed to grant a security interest as herein provided;
WHEREAS, the Banks have requested a security interest as permitted under
the Credit Agreement;
NOW, THEREFORE, for and in consideration of any loan under the Credit
Agreement and any other loan or advance (including any other loan or advance by
renewal or extension) heretofore or hereafter made to Grantor by the Banks, the
parties hereto agree as follows:
SECTION 1. Definitions; Interpretation.
a. Terms Defined in Credit Agreement. All capitalized terms used in this
Agreement and not otherwise defined herein have the meanings specified
in the Credit Agreement.
b. Certain Defined Terms. As used in this Agreement, the following terms
have the following meanings:
"Accounts" means any and all accounts of Grantor, whether now existing or
hereafter acquired or arising, and in any event includes all accounts
receivable, contract rights, rights to payment and other obligations of any
kind owed to Grantor arising out of or in connection with the sale or lease
of merchandise, goods or commodities or the rendering of services or
arising from any other transaction, however evidenced, and whether or not
earned by performance, all guaranties, indemnities and security with
respect to the foregoing, and all letters of credit relating thereto, in
each case whether now existing or hereafter acquired or arising.
Security Agreement/Accounts - 1 - September 8, 1999
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"Books" means all books, records and other written, electronic or other
documentation in whatever form maintained now or hereafter by or for
Grantor in connection with the ownership of its assets or the conduct of
its business or evidencing or containing information relating to the
Collateral, including: (i) ledgers; (ii) records indicating, summarizing,
or evidencing Grantor's assets (including Inventory and Rights to Payment),
business operations or financial condition; (iii) computer programs and
software; (iv) computer discs, tapes, files, manuals, spreadsheets; (v)
computer printouts and output of whatever kind; (vii) any other computer
prepared or electronically stored, collected or reported information and
equipment of an, kind; and (vii) any and all other rights now or hereafter
arising out of any contract or agreement between Grantor and any service
bureau, computer or data processing company or other Person charged with
preparing or maintaining any of Grantor's books or records or with credit
reporting, including with regard to Grantor's Accounts.
"Chattel Paper" means all writings of whatever sort which evidence a
monetary obligation and a security interest in or lease of specific goods,
whether now existing or hereafter arising.
"Collateral" has the meaning specified in Section 2.
"Documents" means any and all documents of title, bills of lading, dock
warrants, dock receipts, warehouse receipts and other documents of Grantor,
whether or not negotiable, and includes all other documents which purport
to be issued by a bailee or agent and purport to cover goods in any
bailee's or agent's possession which are either identified or are fungible
portions of an identified mass, including such documents of title made
available to Grantor for the purpose of ultimate sale or exchange of goods
or for the purpose of loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing with goods in a manner
preliminary to their sale or exchange, in each case whether now existing or
hereafter acquired or arising.
"Financing Statements" has the meaning specified in Section 3.
"Lender Party" means, as the context may require, any Bank or the
Collateral Agent and each of their respective successors, transferees and
assigns.
"Proceeds" means whatever is receivable or received from or upon the sale,
lease, license, collection, use, exchange or other disposition, whether
voluntary or involuntary, of any Collateral or other assets of Grantor,
including "proceeds" as defined at UCC Section 9306, any and all proceeds
of any insurance, indemnity, warranty or guaranty payable to or for the
account of Grantor from time to time with respect to any of the Collateral,
any and all payments in any form whatsoever) made or due and payable to
Grantor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by
any Governmental Authority (or any person acting under color of
Governmental Authority), any and all other amounts from time to time paid
or payable under or in connection with any of the Collateral or for or on
account of any damage or injury
Security Agreement/Accounts - 2 - September 8, 1999
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to or conversion of any Collateral by any Person, any and all other
tangible or intangible property received upon the sale or disposition of
Collateral, and all proceeds of proceeds.
"Rights to Payment" means all Accounts, and any and all rights and claims
to the payment or receipt of money or other forms of consideration of any
kind in, to and under all Chattel Paper, Documents, Instruments and
Proceeds.
"Secured Obligations" means all Obligations of Grantor under or in
connection with the Credit Agreements and each other Loan Document to which
Grantor is or may become a party, whether for principal, interest, costs,
fees, expenses, indemnities or otherwise and all obligations of Grantor
existing under this Security Agreement and each other Loan Document to
which it is or may become a party, in each case whether now existing or
hereafter arising, and whether due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined.
"UCC" means the Uniform Commercial Code as the same may from time to time,
be in effect in the Commonwealth of Pennsylvania; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the Commonwealth of Pennsylvania, the term "UCC"
shall mean the Uniform Commercial Code as in effect In such other
jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related
to such provisions.
c. Terms Defined in UCC. Where applicable and except as otherwise defined
herein, terms used in this Agreement shall have the meanings assigned
to them in the UCC.
SECTION 2. Security Interest.
a. Grant of Security Interest. As security for the payment and
performance of the Secured Obligations, each Grantor hereby pledges,
assigns, transfers, hypothecates and sets over to the Collateral Agent
for its benefit and for the ratable benefit of the Lending Parties,
and hereby grants to the Collateral Agent for its benefit and for the
ratable benefit of the Banks, a security interest in, all of Grantor's
right, title and interest in, to and under the following property,
wherever located and whether now existing or owned or hereafter
acquired or arising collectively, the "Collateral"): (i) all
Accounts; (ii) all Chattel Paper; (iii) all Documents; (iv) all
Books; and (v) all products and Proceeds of any and all of the
foregoing.
b. Grantor Remains Liable. Anything herein to the contrary
notwithstanding, (i) Grantor shall remain liable under any contracts,
agreements and other documents included in the Collateral, to the
extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been
executed, (ii) the exercise by the Collateral Agent of any of the
rights hereunder shall
Security Agreement/Accounts - 3 - September 8, 1999
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not release Grantor from any of its duties or obligations under such
contracts, agreements and other documents included in the Collateral,
and (iii) neither the Collateral Agent nor any other Lender Party
shall have any obligation or liability under any contracts, agreements
and other documents included in the Collateral by reason of this
Agreement, nor shall the Collateral Agent or any other Lender Party be
obligated to perform any of the obligations or duties of Grantor
thereunder or to take an, action to collect or enforce any such
contract, agreement or other document included in the Collateral
hereunder.
c. Continuing Security Interest. Grantor agrees that this Agreement shall
create a continuing security interest in the Collateral which shall
remain in effect until terminated in accordance with this Agreement.
SECTION 3. Financing Statements, Etc.
Grantor shall execute and deliver to the Collateral Agent concurrently with the
execution of this Agreement, and at any time and from time to time thereafter,
all financing statements, continuation financing statements, termination
statements, security agreements, chattel mortgages, assignments, and all other
documents and instruments relating to Accounts, in form satisfactory to the
Collateral Agent (the "Financing Statements"), and take all other action, as the
Collateral Agent may reasonably request, to perfect and continue perfected,
maintain the priority of or provide notice of the Collateral Agent's security
interest in the Collateral and to accomplish the purposes of this Agreement.
SECTION 4. Representations and Warranties. In addition to the representations
and warranties of Grantor set forth in the Credit Agreement, which are
incorporated herein by this reference, Grantor represents and warrants to the
Collateral Agent that:
a. Location of Chief Executive Office and Collateral. Each of Grantor's
chief executive office and principal place of business is located at
Wilmington, Delaware, and all other locations where Grantor conducts
business is controlled from Wilmington, Delaware.
b. Locations of Books. All locations where Books pertaining to the Rights
to Payment are kept, including all equipment necessary for accessing
such Books and the names and addresses of all service bureaus,
computer or data processing companies and other Persons keeping any
Books or collecting Rights to Payment: for Grantor, are only in
Wilmington, Delaware.
c. Ownership of Collateral. Grantor is, and, permitted by Section 5(i),
will continue to be, the sole and complete owner of the Collateral
(or, in the case of after-acquired Collateral, at the time Grantor
acquires rights in such Collateral, will be the sole and complete
owner thereof), free from any Lien other than Permitted Liens.
Security Agreement/Accounts - 4 - September 8, 1999
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d. Enforceability; Priority of Security Interest. (i) This Agreement
creates a security interest which is enforceable against the
Collateral in which Grantor now has rights and will create a security
interest which is enforceable against the Collateral in which Grantor
hereafter acquires rights at the time Grantor acquires any such
rights; and (ii) the Collateral Agent has a perfected and first
priority security interest in the Collateral, in which Grantor now has
rights, and will have a perfected and first priority security interest
in the Collateral in which Grantor hereafter acquires rights at the
time Grantor acquires any such rights, in each case for the Collateral
Agent's own benefit and for the ratable benefit of the other Lender
Parties, and in each case securing the payment and performance of the
Secured Obligations.
e. Other Financing Statements. Other than (i) financing statements or
similar filings naming the owner of the asset to which such lien
relates as debtor, under the UCC or any comparable law ("UCC Financing
Statements") disclosed to the Collateral Agent and (ii) UCC Financing
Statements in favor of the Collateral Agent in its capacity as
Collateral Agent for the other Lender Parties under the Credit
Agreements and any other Loan Documents, no effective UCC Financing
Statement naming Grantor as debtor, assignor, grantor, mortgagor,
pledgor or the like and covering all or any part of the Collateral is
on file in any filing or recording office in any jurisdiction.
f. Rights to Payment. The Rights to Payment represent valid, binding and
enforceable obligations of the account debtors or other Persons
obligated thereon, representing undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any
documents related thereto, and are and will be genuine, free from
Liens, and not subject to any adverse claims, counterclaims, setoffs,
defaults, disputes, defenses, discounts, retainages, holdbacks or
conditions precedent of any kind of character, except to the extent
reflected by Grantor's reserves for uncollectible Rights to Payment or
to the extent, if any, that such account debtors or other Persons may
be entitled to normal and ordinary course trade discounts, returns,
adjustments and allowances in accordance with Section 5(m), or as
otherwise disclosed to the Collateral Agent in writing;
i. to Grantor's knowledge, all account debtors and other obligors on
the Rights to Payment are solvent and generally paying their
debts as they come due except to the extent that Grantor has
established adequate reserves therefor in accordance with GAAP;
ii. to Grantor's knowledge, all Rights to Payment comply in all
material respects with all applicable laws concerning form,
content and manner of preparation and execution, including where
applicable any federal or state consumer credit laws;
Security Agreement/Accounts - 5 - September 8, 1999
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iii. Grantor has not assigned any of its rights under the Rights to
Payment except as provided in this Agreement or as set forth in
the other Loan Documents;
iv. with respect to the Rights to Payment constituting Eligible
Receivables, except as disclosed in writing to the Collateral
Agent, Grantor has no knowledge that any of the criteria for
eligibility are not or are no longer satisfied;
v. all statements made, all unpaid balances and all other
information in the Books and other documentation relating to the
Rights to Payment are true and correct and in all material
respects what they purport to be; and
vi. Grantor has no knowledge of any fact or circumstance which would
materially impair the validity or collectibility of any of the
Rights to Payment.
g. Corporate Existence and Power. Grantor (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has the power and authority
and all governmental licenses, authorizations, consents and approvals
to own its assets, carry on its business and to execute, deliver, and
perform its obligations under the Agreement and any other Loan
Document to which it is a party; (iii) is duly qualified as a foreign
corporation and is licensed and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property
or the conduct of its business requires such qualification or license;
(iv) is in compliance with all Requirements of Law; except, in each
case referred to in clause (iii) or clause (iv), to the extent that
the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
h. Corporate Authorization; No Contravention. The execution, delivery and
performance by Grantor of this Agreement and each other Loan Document
to which it is a party, have been duly authorized by all necessary
corporate action, and do not and will not: (i) contravene the terms of
any of Grantor's Organization Documents; (ii) conflict with or result
in any breach or contravention of, or the creation of any Lien under,
any document evidencing any Contractual Obligation to which Grantor is
a party cr any order, injunction, writ or decree of any Governmental
Authority to which Grantor or its property is subject; or (iii)
violate any Requirement of Law.
i. Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, Grantor
of this Agreement or any other Loan Document to which it is a party.
SECTION 5. Covenants. In addition to the covenants of Grantor set forth in the
Credit Agreements, which are incorporated herein by this reference, so long as
any of the Secured
Security Agreement/Accounts - 6 - September 8, 1999
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Obligations remain unsatisfied or any Bank shall have any Commitment or any
Letter of Credit shall be outstanding, Grantor agrees that:
a. Defense of Collateral. Grantor will appear in and defend any action,
suit or proceeding which may affect to a material extent its title to,
or right or interest in, or the Collateral Agent's right to or
interest in, the Collateral.
b. Preservation of Collateral. Grantor will do and perform all reasonable
acts that may be necessary and appropriate to maintain, preserve and
protect the Collateral.
c. Compliance with Laws, Etc. Grantor will comply in all material
respects with all laws, regulations and ordinances, and all policies
of insurance, relating in a material way to the possession, operation,
maintenance and control of the Collateral.
d. Location of Books and Chief Executive Office. Grantor will: (i) keep
all Books pertaining to the Rights to Payment at the locations
described in Section 4; and (ii) give at least 30 days' prior written
notice to the Collateral Agent of (A) any changes in any such location
where Books pertaining to the Rights to Payment are kept, including
any change of name or address of any service bureau, computer or data
processing company or other Person. preparing or maintaining any Books
or collecting Rights to Payment for Grantor or (B) any changes in the
location of Grantor's chief executive office or principal place of
business.
e. Location of Collateral. Grantor will: (i) keep the Collateral at the
location described in Section 4 and not remove the Collateral from
such locations (other than disposals of Collateral permitted by
subsection (ii) except upon at least 30 days' prior written notice of
any removal to the Collateral Agent; and (iii) give the Collateral
Agent at least 30 days' prior written notice of any change in the
locations set forth above.
f. Change in Name, Identity or Structure. Grantor will give at least 30
days' prior written notice of (i) any change in name, (ii) any changes
in, additions to or other modifications of its trade names and trade
styles set forth in Schedule 1, and (iii) any changes in its identity
or structure in any manner which might make any Financing Statement
filed hereunder incorrect or misleading.
g. Maintenance of Records. Grantor will keep separate, accurate and
complete Books with respect to the Collateral, disclosing the
Collateral Agent's security interest hereunder.
h. Invoicing of Sales. Grantor will invoice all of its sales upon forms
customary in the industry and to maintain proof of delivery and
customer acceptance of goods.
i. Disposition of Collateral. Grantor will not surrender or lose
possession of (other than to the Collateral Agent), sell, lease, rent,
or otherwise dispose of or transfer any of
Security Agreement/Accounts - 7 - September 8, 1999
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the Collateral or any right or interest therein, except to the extent
permitted by the Credit Agreement.
j. Liens. Other than liens in favor of the Collateral Agent in its
capacity as Collateral Agent under the Credit Agreement and Permitted
Liens, Grantor will keep the Collateral free of all liens and security
interests of any kind.
k. Expenses. Grantor will pay all expenses of protecting, storing,
warehousing, insuring, handling and shipping the Collateral.
l. Rights to Payment. Grantor will:
i. with such frequency as the Collateral Agent may reasonably
require, furnish to the Collateral Agent (A) master customer
listings, including all names and addresses, together with copies
or originals (as requested by the Collateral Agent) of documents,
customer statements, repayment histories and present status
reports relating to the Accounts; (3) accurate records and
summaries of Accounts, including detailed agings specifying the
name, face value and date of each invoice, and listings of
Accounts that are disputed or have been canceled; and (C) such
other matters and information relating to the Accounts as the
Collateral Agent shall from time to time reasonably request;
ii. give only normal discounts, allowances and credits as to Accounts
and other Rights to Payment, in the ordinary course of business,
according to normal trade practices utilized by Grantor in the
past, and enforce all Accounts and other Rights to Payment
strictly in accordance with their terms, and take all such action
to such end as may from time to time be reasonably requested by
the Collateral Agent, except that Grantor may grant any extension
of the time for payment;
iii. if any discount, allowance, credit, extension of time for
payment, agreement to make a rebate or otherwise to reduce the
amount owing on, or compromise or settle, an Account or other
Right to Payment exists or occurs, or if, to the knowledge of
Grantor, any dispute, setoff, claim, counterclaim or defense
exists or has been asserted or threatened with respect to an
Account or other Right to Payment, disclose such fact fully to
the Collateral Agent in the Books relating to such Account or
other Right to Payment and in connection with any invoice or
report furnished by Grantor to the Collateral Agent relating to
such Account or other Right to Payment;
iv. if any Accounts arise from contracts with the United States or
any department, agency or instrumentality thereof, immediately
notify the Collateral Agent thereof and execute any documents and
instruments and take any other steps requested by the Collateral
Agent in order that all monies due
Security Agreement/Accounts - 8 - September 8, 1999
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and to become due thereunder shall be assigned to the Collateral
Agent and notice thereof given to the Government Authorities
under the Federal Assignment of Claims Act;
v. in accordance with its sound business judgment perform and comply
in all material respects with its obligations in respect of the
Accounts and other Rights to Payment;
vi. upon the request of the Collateral Agent (A) upon the occurrence
of an Event of Default, notify all or any designated portion of
the account debtors and other obligors on the Rights to Payment
of the security interest hereunder, and (B) upon the occurrence
of an Event of Default, notify the account debtors and other
obligors on the Rights to Payment or an, designated portion
thereof that payment shall be made directly to the Collateral
Agent or to such other Person or location as the Collateral Agent
shall specify; and
vii. upon the occurrence of any Event of Default, establish such
lockbox or similar arrangements for the payment of the Accounts
and other Rights to Payment as the Collateral Agent shall
require.
m. Documents, Etc. Upon the request of the Collateral Agent, Grantor will
(i) immediately deliver to the Collateral Agent, or an agent
designated by it, appropriately endorsed or accompanied by appropriate
instruments of transfer or assignment, all Documents, Instruments and
Chattel Paper, and all other Rights to Payment at any time evidenced
by promissory notes, trade acceptances or other instruments, and (ii)
mark all Documents and Chattel Paper with such legends as the
Collateral Agent shall reasonably specify.
n. Notices, Reports and Information. Grantor will (i) notify the
Collateral Agent of any material claim made or asserted against the
Collateral by any Person and of any change in the composition of the
Collateral or other event which could materially adversely affect the
value of the Collateral or the Collateral Agent's Lien thereon; (ii)
furnish to the Collateral Agent such statements and schedules further
identifying and describing the Collateral and such other reports and
other information in connection with the Collateral as the Collateral
Agent may reasonably request, all in reasonable detail; and (iii) upon
request of the Collateral Agent make such demands and requests for
information and reports as Grantor is entitled to make in respect of
the Collateral.
SECTION 6. Collection of Rights to Payment.
Until the Collateral Agent exercises its rights hereunder to collect Rights to
Payment, Grantor shall endeavor in the first instance diligently to collect all
amounts due or to become due on or with respect to the Rights to Payment. At the
request of the Collateral Agent, upon and after the occurrence of any Event of
Default, all remittances received by :he Grantor shall be held in trust for
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the Collateral Agent and, in accordance with the Collateral Agent's
instructions, remitted to the Collateral Agent or deposited to an account with
the Collateral Agent in the form received (with any necessary endorsements or
instruments of assignment or transfer).
SECTION 7. Authorization; Collateral Agent Appointed Attorney-in-Fact. The
Collateral Agent shall have the right to, in the name of Grantor, or in the name
of the Collateral Agent or otherwise, without notice to or assent by Grantor,
and Grantor hereby constitutes and appoints the Collateral Agent (and any of the
Collateral Agent's officers, employees or agents designated by the Collateral
Agent) as Grantor's true and lawful attorney-in-fact, with full power and
authority to:
a. sign any of the Financing Statements which must be executed or filed
to perfect or continue perfected, maintain the priority of or provide
notice of the collateral Agent's security interest in the Collateral;
b. take possession of and endorse any notes, acceptances, checks, drafts,
money orders or other forms of payment or security and collect any
Proceeds of any Collateral;
c. sign and endorse any invoice or bill of lading relating to any of the
Collateral, warehouse or storage receipts, drafts against customers or
other obligors, assignments, notices of assignment, verifications and
notices to customers or other obligors;
d. notify the Postal Service authorities to change the address for
delivery of mail addressed to Grantor to such address as the
Collateral Agent may designate and, without limiting the generality of
the foregoing, establish with any Person lockbox or similar
arrangements for the payment of the Rights to Payment;
e. receive, open and dispose of all mail addressed to Grantor;
f. send requests for verification of Rights to Payment to the customers
or other obligors of Grantor;
g. contact, or direct Grantor to contact, all account debtors and other
obligors on the Rights to Payment and instruct such account debtors
and other obligors to make all payments directly to the Collateral
Agent;
h. exercise dominion and control over, and refuse to permit further
withdrawals from, Deposit Accounts maintained with the Collateral
Agent;
i. notify each Person maintaining lockbox or similar arrangements for the
payment of the Rights to Payment to remit all amounts representing
collections on the Rights to Payment directly to the Collateral Agent;
Security Agreement/Accounts - 10 - September 8, 1999
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j. ask, demand, collect, receive and give acquittances and receipts for
any and all Rights to Payment, enforce payment or any other rights in
respect of the Rights to Payment and other Collateral, grant consents,
agree to any amendments, modifications or waivers of the agreements
and documents governing the Rights to Payment and other Collateral,
and otherwise file any claims, take any action or institute, defend,
settle or adjust any actions, suits or proceedings with respect to the
Collateral, as the Collateral Agent may deem necessary or desirable to
maintain, preserve and protect the Collateral, to collect the
Collateral or to enforce the rights of the Collateral Agent with
respect to the Collateral;
k. execute any and all endorsements, assignments or other documents and
instruments necessary to sell, lease, assign, convey or otherwise
transfer title in or dispose of the Collateral; and
l. execute any and all such other documents and instruments, and do any
and all acts and things for and on behalf of Grantor, which the
Collateral Agent may deem necessary or advisable to maintain, protect,
realized upon and preserve the Collateral and the Collateral Agent's
security interest therein and to accomplish the purposes of this
Agreement.
The Collateral Agent agrees that, except upon and after the occurrence of an
Event of Default, it shall not exercise the power of attorney, or any rights
granted to the Collateral Agent, pursuant to the foregoing subclauses. The
foregoing power of attorney is coupled with an interest and irrevocable so long
as any Bank has any Commitment or any Letter of Credit remains outstanding or
the Secured Obligations have not been paid and performed in full. Grantor hereby
ratifies, to the extent permitted by law, all that the Collateral Agent shall
lawfully and in good faith do or cause to be done by virtue of and in compliance
with this Section 7.
SECTION 8. Collateral Agent's Duties.
Notwithstanding any provision contained in this Agreement, the Collateral Agent
shall have no duty to exercise any of the rights, privileges or powers afforded
to it and shall not be responsible to Grantor or any other Person for any
failure to do so or delay in doing so. Beyond the exercise of reasonable care to
assure the safe custody of Collateral in the Collateral Agent's possession and
the accounting for moneys actually received by the Collateral Agent hereunder,
the Collateral Agent shall have no duty or liability to exercise or preserve any
rights, privileges or powers pertaining to the Collateral.
SECTION 9. Remedies.
a. Remedies. Upon the occurrence of any Event of Default, the Collateral
Agent shall have, in addition to all other rights and remedies granted
to it in this Agreement, the Credit, Agreement or any other Loan
Document, all rights and remedies of a secured
Security Agreement/Accounts - 11 - September 8, 1999
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party under the UCC and other applicable laws. without limiting the
generality of the foregoing, Grantor agrees that the Collateral Agent
may:
i. peaceably and without notice enter any premises of Grantor, take
possession of any the Collateral, remove or dispose of all or
part of the Collateral on any premises or elsewhere, or, in the
case of Equipment, render it nonfunctional, and otherwise
collect, receive, appropriate and realize upon all or any part of
the Collateral, and demand, give receipt for, settle, renew,
extend, exchange, compromise, adjust, or sue for all or any part
of the Collateral, as the Collateral Agent may determine;
ii. require Grantor to assemble all or any part of the Collateral and
make it available to the Collateral Agent at any place and time
designated by the Collateral Agent;
iii. secure the appointment of a receiver of the Collateral or any
part thereof to the extent and in the manner provided by
applicable law;
iv. withdraw (or cause to be withdrawn) any and all funds from
Deposit Accounts; and
v. sell, resell, lease, use, assign, transfer or otherwise dispose
of any or all of the Collateral in its then condition or
following any commercially reasonable preparation or processing
(utilizing in connection therewith any of Grantor's; assets,
without charge or liability to the Collateral Agent therefor) at
public or private sale, by one or more contracts, in one or more
parcels, at the same or different times, for cash or credit, or
for future delivery without assumption of any credit risk, all as
the Collateral Agent deems advisable; provided, however, that
Grantor shall be credited with the net proceeds of sale only when
such proceeds are finally collected by the Collateral Agent. The
Collateral Agent shall have the right upon any such public sale,
and, to the extent permitted by law, upon any such private sale,
to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption, which right or equity of
redemption Grantor hereby releases, to the extent permitted by
law. Grantor hereby agrees that the sending of notice by ordinary
mail, postage prepaid, to the address of Grantor set forth in the
Credit Agreement, of the place and time of any public sale or of
the time after which any private sale or other intended
disposition is to be made, shall be deemed reasonable notice
thereof if such notice is sent ten days prior to the date of such
sale or other disposition or the date on or after which such sale
or other disposition may occur, provided that the Collateral
Agent may provide Grantor shorter notice or no notice, to the
extent permitted by the UCC or other applicable law.
Security Agreement/Accounts - 12 - September 8, 1999
<PAGE>
b. Proceeds Account. To the extent that any of the Secured Obligations
may be contingent, unmatured or unliquidated (including with respect
to undrawn amounts under any Letter of Credit) at such time as there
may exist an Event of Default, the Collateral Agent may, at its
election, (i) retain the proceeds of any sale, collection, disposition
or other realization upon the Collateral (or any portion thereof) in a
special purpose non-interest-bearing restricted deposit account (the
"Proceeds Account") created and maintained by the Collateral Agent for
such purpose (which shall constitute a Deposit Account included within
the Collateral hereunder) until such time as the Collateral Agent may
elect to apply such proceeds to the Secured Obligations, and Grantor
agrees that such retention of such proceeds by the Collateral Agent
shall not be deemed strict foreclosure with respect thereto; (ii) in
any manner elected by the Collateral Agent, estimate the liquidated
amount of any such contingent, unmatured or unliquidated claims and
apply the proceeds of the Collateral against such amount; or (iii)
otherwise proceed in any manner permitted by applicable law. Grantor
agrees that the Proceeds Account shall be a blocked account and that
upon the irrevocable deposit of funds into the Proceeds Account,
Grantor shall not have any right of withdrawal with respect to such
funds. Accordingly, Grantor irrevocably waives until the termination
of the security interests granted under this Agreement in accordance
with this Agreement the right to make any withdrawal from the Proceeds
Account and the right to instruct the Collateral Agent to honor drafts
against the Proceeds Account.
c. Application of Proceeds. Subject to subsection (b) immediately above,
the cash proceeds actually received from the sale or other disposition
or collection of Collateral, and any other amounts received in respect
of the Collateral the application of which is not otherwise provided
for herein, shall be applied (after payment of any amounts payable to
the Collateral Agent pursuant to Section 8 or Section 14 in whole or
in part by the Collateral Agent for the benefit of the Lender Parties
against all or any part of the Secured Obligations in the following
order: (i) first, to any fees, costs, or other expenses due under the
Loan Documents; (ii) next, to any interest (iii) next, to any
principal due under the Loan Documents; and (iii) last, to any other
Secured Obligations. Any surplus thereof which exists after payment
and performance in full of the Secured Obligations shall be promptly
paid over to Grantor or otherwise disposed of in accordance with the
UCC or other applicable law. Grantor shall remain liable to the
Collateral Agent for any deficiency which exists after any sale or
other disposition or collection of Collateral.
SECTION 10. Certain Waivers.
Grantor waives, to the fullest extent permitted by law, (i) any right of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshaling of the Collateral or other
collateral or security for the Secured Obligations; (ii) any right to require
the Collateral Agent (A) to proceed against any Person, (B) to exhaust any other
collateral or security for any of the Secured Obligations, (C) to pursue any
remedy in the Collateral Agent's power, or
Security Agreement/Accounts - 13 - September 8, 1999
<PAGE>
(D) to make or give any presentments, demands for performance, notices of
nonperformance, protests, notices of protests or notices of dishonor in
connection with any of the Collateral; and (iii) all claims, damages, and
demands against the Collateral Agent arising out of the repossession, retention,
sale or application of the proceeds of any sale of the Collateral.
SECTION 11. Certain Additional Consents and Waivers. This Agreement is absolute,
unconditional and irrevocable and is in no way conditioned or contingent on
Grantor's performance of any obligation under the Credit Agreement or any other
Loan Document, any attempt to enforce in whole or in part any of the Grantor's
liabilities and obligations to any Lender Party or the existence or continuance
of Grantor or any other Person as a legal entity, nor shall this Agreement or
Grantor's obligations hereunder be limited, impaired, restricted or otherwise
affected by the consolidation or merger of Grantor with or into any other
entity, the sale, lease or other disposition by Grantor of all or substantially
all of its assets to any other entity (whether or not effected in compliance
with the Loan Documents), or the bankruptcy, or insolvency of Grantor, the
admission in writing by Grantor of its inability to pay its debts as they
mature, or its making of a general assignment for the benefit of, or entering
into a composition or arrangement with, creditors.
a. The Collateral Agent and the other Lender Parties may, at any time and
from time to time, without the consent of or notice to Grantor, except
such notice as may be required by applicable statute which cannot be
waived, without incurring responsibility to Grantor, and without
impairing or releasing the obligations of Grantor hereunder, upon or
without any terms or Conditions and in whole or in part, (i) to the
extent permitted by the Credit Agreement, change the manner, place and
terms of payment or change or extend the time of payment of, renew or
alter any obligation of Grantor hereby secured, or in any manner
modify, amend or supplement the terms of the Credit Agreement, or
other Credit Documents (other than this Agreement) or any documents,
instruments or agreements executed in connection therewith (other than
this Agreement), and this Agreement shall apply to the obligations and
liabilities of Grantor, as changed, extended, renewed, modified,
amended, supplemented or altered in any manner, (ii) exercise or
refrain from exercising any rights against Grantor or others
(including Grantor) or otherwise act or refrain from acting,
(iii) settle or compromise any obligations and liabilities herein
secured or any obligations and liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof and may subordinate the payment of all or any part thereof to
the payment of any obligations and liabilities which may be due
Collateral Agent, the other Lender Parties or others, (iv) sell,
exchange, release, surrender, realize upon or otherwise deal with in
any manner or in any order any property pledged or mortgaged by anyone
to secure or in any manner securing the Secured Obligations, any
liabilities or obligation (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof or any other
obligations or liabilities of Grantor to the Lender Parties or any
offset thereagainst, (v) take and hold security or additional security
for any or all of the Secured Obligations, (vi) apply any sums by
whomsoever paid or howsoever realized to any obligations and
liabilities of Grantor to the Lender Parties regardless of what
Security Agreement/Accounts - 14 - September 8, 1999
<PAGE>
obligations and liabilities remain unpaid, and (vii) in accordance
with the Credit Agreement, assign their rights and interests under
this Agreement, the Credit Agreement or the other Loan Documents, in
whole or in part. Without limiting the generality of the foregoing,
Grantor hereby specifically waives Grantor's rights and benefits under
any statute, regulation, judicial decision or other law which purports
to exonerate or reduce the liability of a surety if the underlying
obligation is altered in any respect or if the rights and remedies of
the creditor against the principal in respect of a secured obligation
are in any way altered, impaired or suspended and agrees that, by so
doing, Grantor's obligations hereunder shall continue even if the
Lender Parties alter any obligations under the Credit Agreement or the
other Loan Documents (other than this Agreement) in any respect or the
Lender Parties' remedies or rights against Grantor are in any way
impaired or suspended without Grantor's consent.
b. No invalidity, irregularity or unenforceability of the obligations or
liabilities of Grantor under the Credit Agreement or any other Loan
Document shall affect, impair or be a defense to this Agreement.
Grantor hereby waives any and all benefits and defenses under any
statute, regulation, judicial decision or other law which purports to
exonerate or reduce the liability of a surety as a result of any
disability or absence of liability of the principal or any defense to
liability or enforcement which the principal may have and agrees that,
by so doing, Grantor's obligations and the security interests granted
hereunder shall continue even if Grantor had no liability at the time
of execution of the Credit Agreement or thereafter ceased or cease to
be liable. Grantor also waives any and all benefits and defenses under
any statute, regulation, judicial decision or other law which purports
to limit the liability of a surety to that of the principal or to
reduce the liability of a surety in proportion to any reduction in the
liability of the principal and agrees that, by so doing, Grantor's
obligations hereunder may be more burdensome than that of Grantor.
c. Grantor, to the extent permitted under applicable law, hereby waives
any right, whether arising under any statute, regulation, judicial
decision or otherwise, to require the Collateral Agent or any other
Lender Party to (i) proceed against Grantor or any other Person acting
as surety, guaranteeing or providing collateral or other credit
support for Grantor's obligations under the Credit Agreement or any
other Loan Document (a "Third Party Credit Support Provider"), (ii)
proceed against or exhaust any security received from Grantor or any
Third Party Credit Support Provider, or (iii) pursue any other right
or remedy in the Collateral Agent's or the other Lender Parties, Power
whatsoever.
d. Grantor further waives, to the extent permitted under applicable law:
(i) any defense resulting from the absence, impairment or loss of any
right of reimbursement, subrogation, contribution or other right or
remedy of Grantor against Grantor, any Third Party Credit Support
Provider or any security, whether resulting from an election by the
Collateral Agent and the other Lender Parties to foreclose upon
Security Agreement/Accounts - 15 - September 8, 1999
<PAGE>
security by judicial or nonjudicial sale or otherwise; (ii) any setoff
or counterclaim of Grantor or any defense of any kind (including
defenses resulting from any disability) or the cessation or stay of
enforcement from any cause whatsoever of the liability of Grantor
(including without limitation the lack of validity or enforceability
of the Credit Agreement or any other Loan Document); (iii) any right
to exoneration, in whole or in part, of sureties or Third Party Credit
Support Providers which would otherwise be applicable; (iv) any right
of subrogation or reimbursement, any right of contribution, any right
to enforce any remedy which the Collateral Agent and the other Lender
Parties now have or may hereafter have against Grantor, and any
benefit of, and any right to participate in, any security now or
hereafter held or received by the Lender Parties (or the Collateral
Agent on their behalf); (v) except as required under the Credit
Agreement, all presentments, demands for performance, notices of
non-performance, protests, notice of dishonor, notices of acceptance
of this Agreement or of the existence, creation or incurring of new or
additional obligations under the Credit Agreement or the other loan
Documents, or any other notices of any kind; and (vi) all valuation,
appraisal, extension or redemption laws now or hereafter in effect.
Without limiting the generality of the preceding clause (iv), Grantor
hereby waives any right to be reimbursed by Grantor or any Third Party
Credit Support Provider for any payment of such obligations made
directly or indirectly by Grantor or from any property of Grantor,
whether arising by way of any statutory, contractual or other right of
subrogation, contribution, indemnification or otherwise.
e. Grantor further specifically waives any and all benefits, rights and
defenses (i) arising out of an election of remedies by the Collateral
Agent or any other Lender Party even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for the
Secured Obligations, has destroyed Grantor's rights of subrogation and
reimbursement against Grantor by operation of applicable law, and all
rights or defenses Grantor may have by reason of protection afforded
to Grantor with respect to the Secured Obligations pursuant to the
antideficiency laws or other laws of the State of Illinois (or other
applicable jurisdiction) limiting or discharging the Secured
Obligations.
f. Grantor acknowledges that it has the ability, and hereby assumes the
obligation and responsibility, to keep informed of the financial
condition of Grantor and any Third Party Credit Support Provider and
of other matters or circumstances affecting the ability of any of them
to pay or perform their respective obligations thereunder or the risk
of nonpayment and nonperformance. Grantor hereby waives any obligation
on the part of the Collateral Agent or any other Lender Party to
inform Grantor of the financial condition, or any changes in financial
condition, of Grantor or any Third Party Credit Support Provider or of
any other matter or circumstance which might effect the ability of
Grantor to pay and perform under the Credit Agreement or any or-her
Loan Document, or the risk of nonpayment or nonperformance.
Security Agreement/Accounts - 16 - September 8, 1999
<PAGE>
SECTION 12. Notices.
All notices or other communications hereunder shall be given in the manner and
to the addresses specified in the Credit Agreement or, in the case of Grantor,
at the address set forth below its signature hereto. All such notices and other
communications shall be effective (i) if delivered by hand or pre-paid courier
service, when delivered; (ii) if sent by mail, upon the earlier of the date of
receipt or five Business Days after deposit in the mail, first class, postage
prepaid; (iii) if sent by telex, upon receipt by the sender of an appropriate
answerback; and (iv) if sent by facsimile transmission, when sent by facsimile
transmission, when sent.
SECTION 13. No Waiver; Cumulative Remedies.
No failure on the part of the Collateral Agent to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and remedies
under this Agreement are cumulative and not exclusive of any rights, remedies,
powers and privileges that may otherwise be available to the Collateral Agent.
SECTION 14. Costs and Expenses; Indemnification; Other Charges.
a. Costs and Expenses. Grantor agrees to pay on demand:
i. all title, appraisal including the allocated costs of internal
appraisal services), survey, audit, consulting, search,
recording, filing and similar costs, fees and expenses incurred
or sustained by the Collateral Agent or any of its Affiliates in
connection with this Agreement or the Collateral; and
ii. all costs and expenses of the Collateral Agent and its
Affiliates, including Attorney Costs, in connection with the
enforcement or attempted enforcement of, and preservation of any
rights or interests under, this Agreement, including in any
out-of-court workout or other refinancing or restructuring or in
any bankruptcy case, and the protection, sale or collection of,
or other realization upon, any of the Collateral, including all
expenses of taking, collecting, holding, sorting, handling,
preparing for sale, selling, or the like, and other such expenses
of sales and collections of Collateral, and any and all losses,
costs and expenses sustained by the Collateral Agent as a result
of any failure by Grantor to perform or observe its obligations
contained herein.
b. Indemnification. Grantor hereby agrees to indemnify the Collateral
Agent, the other Lender Parties, any Affiliate of any of them, and
their respective directors, officers, employees, agents, counsel and
other advisors (each an "Indemnified Person" against, and hold each of
them harmless from, any and all liabilities, obligations, losses,
claims, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever, including the
reasonable fees and
Security Agreement/Accounts - 17 - September 8, 1999
<PAGE>
disbursements of counsel to an Indemnified Person (including allocated
costs of internal counsel), which may be imposed on, incurred by, or
asserted against any Indemnified Person by a third party, in any way
relating to or arising out of this Agreement or any action taken or
omitted to be taken by it hereunder (the "Indemnified
Liabilities", provided that Grantor shall not be liable to any
Indemnified Person for any portion of such Indemnified Liabilities to
the extent they are found by a final decision of a court of competent
jurisdiction to have resulted from such Indemnified Person's gross
negligence or willful misconduct. If and to the extent that the
foregoing indemnification is for any reason held unenforceable,
Grantor agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
c. Other Charges. Grantor agrees to indemnify the Collateral Agent
against and hold it harmless from any and all present and future
stamp, transfer, documentary and other such taxes, levies, fees,
assessments and other charges made by an, jurisdiction by reason of
the execution, delivery, performance and enforcement of this
Agreement.
d. Interest. Any amounts payable to the Collateral Agent under this
Section 14 or otherwise under this Agreement if not paid upon demand
shall bear interest from the date of such demand until paid in full,
at the rate of interest set forth in subsection 2.09 of the Credit
Agreement.
SECTION 15. Binding Effect.
This Agreement shall be binding upon, inure to the benefit of and be enforceable
by Grantor, the Collateral Agent and their respective successors and assigns.
SECTION 16. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR PERFECTION OF THE
SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN RESPECT OF ANY
COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN ILLINOIS,
PROVIDED THAT THE COLLATERAL AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL
LAW.
SECTION 17. Forum Selection and Consent to Jurisdiction.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA OR OF
THE UNITED STATES FOR THE
Security Agreement/Accounts - 18 - September 8, 1999
<PAGE>
EASTERN DISTRICT OF PENNSYLVANIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF GRANTOR AND THE COLLATERAL AGENT CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH
OF GRANTOR AND THE COLLATERAL AGENT IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. GRANTOR AND THE COLLATERAL AGENT EACH WAIVE PERSONAL SERVICE OF
ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY PENNSYLVANIA LAW.
SECTION 18. Waiver of Jury.
GRANTOR AND THE COLLATERAL AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL
BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED
TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY COLLATERAL
AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. GRANTOR AND THE COLLATERAL AGENT EACH AGREE
THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.
SECTION 19. Entire Agreement; Amendment.
This Agreement contains the entire agreement of the parties with respect to the
subject matter hereof and shall not be amended except by the written agreement
of the parties as provided in the Credit Agreement.
SECTION 20. Severability.
Whenever possible, each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under all applicable laws and regulations.
If, however, any provision of this Agreement shall be prohibited by or invalid
under any such law or regulation in any jurisdiction, it
Security Agreement/Accounts - 19 - September 8, 1999
<PAGE>
shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not deemed
so modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this
Agreement, or the validity or effectiveness of such provision in any other
jurisdiction.
SECTION 21. 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 but
one and the same agreement.
SECTION 22. Incorporation of Provisions of the Credit Agreement.
To the extent the Credit Agreement contains provisions of general applicability
to the Loan Documents, such provisions are incorporated herein by this
reference.
SECTION 23. No Inconsistent Requirements.
Grantor acknowledges that this Agreement and the other Loan Documents may
contain covenants and other terms and provisions variously stated regarding the
same or similar matters, and agrees that all such covenants, terms and
provisions are cumulative and all shall be performed and satisfied in accordance
with their respective terms.
SECTION 24. Termination.
Upon termination of the Commitments of the Banks under the Loan Documents, the
surrender of any Letters of Credit issued by any Issuer for the account of
Grantor, and payment and performance in full of all Secured Obligations, the
security interests granted under this Agreement shall terminate and the
Collateral Agent shall promptly execute and deliver to Grantor such documents
and instruments reasonably requested by Grantor as shall be necessary to
evidence termination of all security interests given by Grantor to the
Collateral Agent hereunder, provided, however, that the obligations of Grantor
under Section 14 shall survive such termination.
Security Agreement/Accounts - 20 - September 8, 1999
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
MATLACK (DE), INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
MATLACK, INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Accounts - 21 - September 8, 1999
<PAGE>
SPECIALIZED DEDICATED FLEETS, INC.
successor by merger to Safeway Chemical
Transportation, Inc.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
BRITE-SOL SERVICES, INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Accounts - 22 - September 8, 1999
<PAGE>
MATLACK LEASING, INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
SUPER SERVICE, INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Accounts - 23 - September 8, 1999
<PAGE>
FIRST UNION NATIONAL BANK, as Collateral Agent
By
-------------------------------------------
Name:
Title:
Notices To:
Michael J. Labrum
Vice President
First Union National Bank
Transportation and Equipment Finance
PA4827
1345 Chestnut Street
Philadelphia, PA 19107
FAX No. (215) 786-7704
Security Agreement/Accounts - 24 - September 8, 1999
<PAGE>
Schedule 1
1. Locations of Chief Executive Office and Other Locations, Including of
Collateral
a. Chief Executive Office and Principal Place of Business:
1 Rollins Plaza, Wilmington, DE 19803 (physical address)
P.O. Box 8790, Wilmington, DE 19899 (mailing address)
b. other locations where Grantor conducts business or Collateral is kept:
None
2. Locations of Books Pertaining to Rights to Payment
Wilmington, Delaware
3. Trade Names and Trade Styles; Other Corporate, Trade or Fictitious Names,
Etc.
Pipeline on Wheels
4. Inventory Stored with Warehousemen or on Leased Premises, Etc.
N/A
5. Patents, Copyrights, Trademarks, Etc.
N/A
6. Leased Equipment
See attached.
7. Deposit Accounts
None
Security Agreement/Accounts - 25 - September 8, 1999
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated September 8, 1999, is
made between and among Matlack DE, Inc., Matlack, Inc., Specialized Dedicated
Fleets, Inc., successor by merger to Safeway Chemical Transportation, Inc.,
Brite-Sol Services, Inc., Matlack Leasing, Inc., Super Service, Inc (each
individually and collectively referred to as the "Grantor"), jointly and
severally, and FIRST UNION NATIONAL BANK, a national banking association, as
agent for the Banks (in such capacity, and together with its successors as agent
for the Banks, the "Collateral Agent").
RECITALS
WHEREAS, Grantor is a party to that certain Credit Agreement dated as of
August 19, 1998 between and among Grantor, the banking institutions signatories
thereto and First Union National Bank, a national banking association, as agent
for the Banks (as amended, restated, modified, renewed, supplemented or extended
from time to time, the "Credit Agreement").
WHEREAS, pursuant to Section 9.01 of the Credit Agreement, the Banks have
required and Grantor has agreed to grant a security interest as herein provided;
WHEREAS, the Banks have requested a security interest as permitted under
the Credit Agreement;
NOW, THEREFORE, for and in consideration of any loan under the Credit
Agreement and any other loan or advance (including any other loan or advance by
renewal or extension) heretofore or hereafter made to Grantor by the Banks, the
parties hereto agree as follows:
1. DEFINITIONS. Terms used herein and capitalized which are defined in the
Credit Agreement shall have the meanings ascribed to them therein. In addition,
when used herein, the following terms shall have the following meanings:
"Assignee Deposit Account" shall have the meaning given to such term in
Section 9 hereof.
"Assigned Vehicle" means a Vehicle as to which Grantor shall have executed
and delivered to the Collateral Agent a Mortgage on the Vehicle in form and
substance as required by this Agreement.
"Collateral" shall mean all property or rights in which a security interest
is granted hereunder.
"Contract Right" shall mean any right of Grantor to payment under a
contract for the sale or lease of goods or the rendering of services, which
right is at the time not yet earned by performance.
"Default" has the meaning given such term in Section 12 hereof.
Security Agreement/Assigned Vehicles - 1 - September 8, 1999
<PAGE>
"General Intangibles" shall have the meaning given to such term in the
Pennsylvania Commercial Code, provided, that "General Intangibles" shall
include, without limitation, inventions, designs, patents, patent
applications, trademarks, trademark applications, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, tax refunds claims, rights to indemnification and rights
under warranties.
"Liabilities" shall mean all Obligations of Grantor to the Banks under the
Credit Agreement, and all obligations of Grantor to the Collateral Agent
hereunder, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing or due or to
become due and all other obligations of Grantor to the Banks or either of
them, howsoever created arising or evidenced, whether direct or indirect,
absolute or contingent, or now or hereafter existing, or due or to become
due.
"Mortgage" shall mean a supplement to this Agreement confirming the
granting of a. security interest in one or more Vehicles to the Collateral
Agent, as collateral security in the form of Exhibit A hereto.
2. GRANT OF SECURITY INTEREST. As security for the payment of all Liabilities,
Grantor hereby assigns to the Collateral Agent, and grants to the Collateral
Agent for its benefit and the ratable benefit of the Banks, a continuing
security interest in, the following property and rights of Grantor, to the
extent owned by the Grantor, whether now or hereafter existing or acquired:
a. all Assigned Vehicles now or hereafter listed in any Mortgages from
time to time executed pursuant to this Agreement, whether such
property listed in such Mortgages constitutes machinery, equipment or
inventory of Grantor, together with all accessions thereto or other
property attached thereto or used in connection therewith;
b. all other Vehicles of Grantor, not subject to any other perfected
contractual lien or security interest at the time of purchase by
Grantor;
c. to the extent related only to the property described in the preceding
clauses (a) and (b) and not included therein or covered thereby, all
Contract Rights, chattel paper, instruments, documents and money and
General Intangibles of Grantor;
d. any and all balances, credits, deposits (general or special, time or
demand, provisional or final), accounts or moneys of or in the name of
Grantor now or hereafter with the Banks or the Collateral Agent and
any and all property of every kind or description of or in the name of
Grantor now or hereafter, for any reason or purpose whatsoever, in the
possession or control of, or in transit to, the Banks, the Collateral
Agent, or any other agent or bailee for the Banks;
e. to the extent related to the property described in clauses (a) through
(d) above, all books, correspondence, credit files, records, invoices
and other papers and documents, including, without limitation, to the
extent so related, all tapes, cards,
Security Agreement/Assigned Vehicles - 2 - September 8, 1999
<PAGE>
computer runs, computer, programs and other papers and documents in
the possession or control of Grantor or any computer bureau from time
to time acting for Grantor, and, to the extent so related, all rights
in, to and under all policies of insurance, including claims of rights
to payments thereunder and proceeds therefrom, including any credit
insurance; and
f. all proceeds and/or products, and/or substitutions and replacements,
for or of any of the foregoing.
3. MAINTENANCE OF FINANCED PROPERTY. Grantor shall keep and maintain or cause
each lessee to keep and maintain the Assigned Vehicles and other Vehicles
pledged hereunder in first-class condition.
4. OWNERSHIP OF COLLATERAL, TRANSFERS. Except for the Lien created hereunder and
under the Mortgages executed and delivered pursuant to this Agreement, Grantor
is or will be the owner of the Assigned Vehicles and the other Collateral, free
from all Liens, except for Permitted Liens and will defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest therein.
5. INSPECTION OF COLLATERAL. Grantor shall at all reasonable times and from time
to time, permit each Bank and the Collateral Agent, their respective officers,
employees and designees, to inspect and evaluate the Vehicles, including the
Assigned Vehicles, and other Collateral in its possession, and to inspect,
audit, make copies of and extracts from all records and all other papers in the
possession of Grantor which relate to the Collateral and will, upon request of
the Banks or the Collateral Agent, deliver all of such records and papers which
pertain to the Collateral.
6. USE OF VEHICLES. Grantor shall use the Collateral only in a lawful manner not
inconsistent with this Agreement, the Credit Agreement and the Loan Documents
and terms and conditions of any policy of insurance regarding the Assigned
Vehicles.
7. ADDITIONAL REPRESENTATIONS AND WARRANTIES. Grantor hereby represents and
warrants:
a. that the execution and delivery of this Agreement and each of the
Mortgages, and the fulfillment of compliance with the terms and
provisions hereof or thereof, will not conflict with or result in a
breach of any of the terms, conditions or provisions of the Articles
of Incorporation or the By-Laws of Grantor or of any bond, debenture,
note, mortgage, indenture, agreement or other instrument to which
Grantor is a party or by which it or its property may be bound, or
constitute (with the giving of notice or the passage of time or both)
a default thereunder, or result in the creation or imposition of any
Lien, of any nature whatsoever upon the Collateral pursuant to the
terms of any such agreement or instrument;
Security Agreement/Assigned Vehicles - 3 - September 8, 1999
<PAGE>
b. that no event has occurred which is or with notice or the passage of
time would be a Default hereunder;
c. this Agreement has been duly executed and delivered by Grantor and
constitutes the legal, valid and binding obligation of Grantor
enforceable against Grantor in accordance with its terms and the grant
of the security interest in the Collateral existing on the date hereof
constitutes, and, as to subsequently acquired Collateral, will
constitute, a valid and perfected first and prior Lien and security
interest, superior to the rights of any other person in and to the
Collateral;
d. all such action as is necessary has been taken to establish and
perfect the Collateral Agent's rights in and to the Collateral and all
financing statements relating thereto have been duly submitted for
filing, recordation and/or registration in each office and in each
Jurisdiction where required, and all notations have been made on any
certificate of title, if any, issued in respect of any part of the
Collateral where such notation is required in order to create and
perfect the first lien and security interest described above, and
except as provided above, no action by or with any governmental
authority is required in connection with the execution, delivery and
performance of this Agreement and the grant of the security interest
contemplated hereby;
e. all information with respect to Collateral set forth in any Mortgage,
schedule, certificate or other writing at any time heretofore or
hereafter furnished by Grantor to the Banks or the Collateral Agent,
and all other written information heretofore or hereafter furnished by
Grantor to the Banks or the Collateral Agent is and will be true and
correct as of the date furnished;
f. none of the Collateral is a fixture under applicable law or is
attached or to be attached to realty in any manner which might
materially adversely affect the collateral value to the Banks of such
Collateral or materially adversely affect Grantor's ownership of or
interest in such Collateral.
8. ADDITIONAL COVENANTS. Grantor agrees:
a. to keep the Collateral free and clear of all Liens whatsoever, except
those created by this Agreement or Permitted Liens and to pay all
charges, including without limitation, all taxes and assessments
levied or assessed against Grantor, which if unpaid would constitute a
Lien on the Collateral or any portion thereof. Grantor shall not be
required to pay or discharge any such charges, taxes or assessments so
long as it shall in good faith and by appropriate legal proceedings,
contest the validity thereof in any reasonable manner provided that
non-payment of such disputed taxes will not affect or endanger, the
Collateral Agent's security interest in the Collateral pursuant to
this Agreement, or result in the imposition of a Lien on the
Collateral;
Security Agreement/Assigned Vehicles - 4 - September 8, 1999
<PAGE>
b. will upon request of the Collateral Agent, deliver lists specifically
identifying all Collateral and execute Mortgages with respect to all
Vehicles constituting Collateral;
c. will, upon request of the Collateral Agent, execute such financing
statements and other documents (and pay the cost of filing or
recording the same in all public offices deemed necessary by the
Collateral Agent) and do such other acts and things, all as the
Collateral Agent may from time to time request, to establish and
maintain a valid security interest in the Collateral (free of all
other Liens, claims and rights of third parties except for Liens
permitted by Section 4 hereof) to secure the payment of the -------
Liabilities, including, without limitation if necessary to perfect a
security interest, depositing with the Collateral Agent any
certificate of title issuable with respect to any of the Collateral
and noting thereon the security interest hereunder. Grantor agrees
that any carbon, photographic or other reproduction of this Agreement
or of any such Mortgage or financing statement shall be sufficient for
filing as a financing statement;
d. that all accessions which become attached to or part of any Collateral
shall become subject to the terms of this Agreement and shall
constitute part of the Collateral which secures payment of the
Liabilities and shall not be subject to any other lien, claim, or
encumbrance in favor of any other party except Permitted Liens;
e. that Grantor will not remove its records concerning the Collateral
from the address listed in on the first page of this Agreement except
to a jurisdiction where the Uniform Commercial Code shall be in
effect, and upon 30 days' prior written notice to the Banks and the
Collateral Agent;
f. that Grantor shall not permit any of the Collateral to be or to become
fixtures under applicable law;
g. to reimburse the Banks and the Collateral Agent upon demand for all
reasonable costs and expenses, including reasonable fees of attorneys
for the Banks and the Collateral Agent (who may be employees of the
Bank and the Collateral Agent) and legal expenses, incurred by the
Banks and the Collateral Agent in seeking to collect or enforce any
rights under the Collateral and, in case of Default, in seeking to
collect each Note and all other Liabilities and to enforce rights
hereunder, including expenses of any repairs to any realty or other
property to which any of the Collateral may be affixed or be a part;
h. to reimburse the Banks and the Collateral Agent upon demand for all
reasonable costs and expenses incurred by the Banks and the Collateral
Agent, their respective agents or designees in the course of the
evaluations audits and extractions referred to in Section 5;
Security Agreement/Assigned Vehicles - 5 - September 8, 1999
<PAGE>
i. to furnish, at the request of either Bank at monthly intervals, such
information concerning the Collateral to the Banks and the Collateral
Agent as may be requested, including, without limitation, with respect
to the period for which such report is made, a description of all net
proceeds received from the sale destruction, commandeering,
conversion, loss of or damage to, or use of, attachment, or insurance
on or with respect to the Collateral;
j. to cause the insurance arrangements required by the Credit Agreement
to be for the benefit of Grantor and the Collateral Agent as their
interests may appear (the Collateral Agent's interest to be for the
benefit of itself and the Banks), provided that all insurance policies
shall provide for ten (10) days written minimum cancellation notice to
Grantor and the Collateral Agent, and provided further, that after a
Default in the event of such cancellation and failure on the part of
Grantor to provide adequate insurance arrangements satisfactory to the
Banks and the Collateral Agent, the Collateral Agent, may at its
option provide such insurance and charge the cost thereof to Grantor
as provided for elsewhere in this Agreement; and
k. not use any mobile goods outside the territorial limits of the United
States, Mexico and Canada unless the Collateral Agent shall otherwise
consent in writing.
The Collateral Agent may from time to time, at its option after a Default,
perform any agreement of Grantor hereunder which Grantor shall fail to perform
and take any other action which the Collateral Agent deems necessary for the
maintenance or preservation of any of the Collateral or its interest therein,
and Grantor agrees to forthwith reimburse the Collateral Agent for all expenses
in connection with the foregoing, together with interest thereon at the Default
Rate, from the date incurred until reimbursed by Grantor.
9. RIGHTS OF COLLATERAL AGENT.
a. Grantor hereby irrevocably constitutes and appoints the Collateral
Agent and its agents as its attorney in fact with full power and
authority either in its own name or in the name of Grantor to take any
and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the
purposes of this Agreement including without limitation, the foregoing
appointment authorizes the Collateral Agent without notice to or
assent by Grantor, to do the following: (i) after a Default, to
endorse any loss payment or returned premium check and to make, settle
and release any claim under any insurance policy with respect to any
Collateral; (ii) after a Default, to file any claim or take any other
action or proceeding in any court of law or equity for the purpose of
collecting any and all monies due under or with respect to any of the
Collateral; (iii) after a Default, to file a financing statement
signed only by the Collateral Agent with respect to this Agreement in
accordance with the Uniform Commercial Code or signed by the
Collateral Agent as attorney in fact for Grantor; (iv) after a
Default, upon the occurrence and continuance of a failure by Grantor
to do so, to pay or discharge
Security Agreement/Assigned Vehicles - 6 - September 8, 1999
<PAGE>
taxes, liens, security interests or other encumbrances levied or
placed on or threatened against the Collateral, to effect any repairs
or any insurance called for by the terms of this Agreement or the
Credit Agreement and to pay all or any part of the premiums therefor
and the cost thereof; (v) after a Default, to receive payment of and
receipt for any and all monies claims and other amounts due and to
become due at any time in respect of or arising out of any Collateral;
(vi) after a Default, to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other
right in respect of the Collateral; (vii) after a Default, to settle,
compromise or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as
the Banks may deem appropriate; and (viii) after a Default, generally
to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Collateral Agent were the absolute owner thereof for all
purposes, and to do, at the Collateral Agent's option, at any time, or
from time to time, all acts and things which the Collateral Agent
deems necessary to protect, preserve or realize upon the Collateral
and the Collateral Agent's security interest therein in order to
effect the intent of this Agreement, all as fully and effectively as
Grantor might do. Grantor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof. This power of
attorney is a power coupled with an interest, shall be irrevocable and
shall terminate only upon payment in full of the Liabilities and the
termination of this Agreement. The powers conferred on the Collateral
Agent hereunder are solely to protect the Collateral Agent's interests
in the Collateral and shall not impose any duty upon it to exercise
any such powers. Any insurance premiums, taxes, assessments, charges,
and other amounts so paid by the Collateral Agent shall constitute
part of the Liabilities payment of which shall be secured by the
Collateral and shall be payable on demand by Grantor. The Banks and
the Collateral Agent shall be accountable only for amounts that are
actually received as a result of the exercise of such powers, and
neither the Banks, the Collateral Agent nor any of their respective
officers, directors, employees or agents shall be responsible to
Grantor for any action taken or omitted to be taken in good faith or
in reliance on the advice of counsel except for their own gross
negligence or willful misconduct.
b. After a Default, unless otherwise consented to by the Collateral
Agent, Grantor will forthwith, upon receipt, transmit and deliver to
the Collateral Agent, in the form received, all cash, checks, drafts,
chattel paper and other instruments or writings for the payment of
money (properly endorsed, where required, so that such items may be
collected by the Collateral Agent) which may be received by Grantor at
any time in full or partial payment or otherwise as proceeds of any of
the Collateral. Any such items which may be received by Grantor after
such request by the Collateral Agent will not be commingled with any
other of its funds or property, but will be held separate and apart
from its own funds or property and upon express trust for the Banks
until delivery is made to the Collateral Agent.
Security Agreement/Assigned Vehicles - 7 - September 8, 1999
<PAGE>
c. All items or amounts which are received by the Collateral Agent after
a Default from Grantor or any other party on account of partial or
full payment or otherwise as proceeds of any of the Collateral shall
be deposited to the credit of a deposit account (herein called the
"Assignee Deposit Account") of Grantor with the Collateral Agent, as
security for payment of the Liabilities. Grantor shall have no right
to withdraw any funds deposited in the Assignee Deposit Account.
Either Bank may, from time to time, in its discretion, and shall upon
request of Grantor made not more than once in any week, direct the
Collateral Agent to transfer all or any of the then balance,
representing collected funds, in the Assignee Deposit Account ratably
to the Banks, who shall promptly apply such funds, first, toward
payment of the Liabilities under the Credit Agreement, the Loan
Documents and this Agreement, and, second, toward payment of any other
Liabilities, whether or not then due, in such order of application as
the Banks may determine, and the Banks may, from time to time, in
their discretion, direct the Collateral Agent to release all or any of
such balance to Grantor. The Collateral Agent is authorized to
endorse, in the name of Grantor, any item, howsoever received by the
Collateral Agent, representing any payment on or other proceeds of any
of the Collateral.
10. THE COLLATERAL AGENT.
The Banks and the Collateral Agent agree among themselves as follows:
a. Responsibilities and Duties of Collateral Agent.
i. The Collateral Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and those
duties and liabilities shall be subject to the limitations and
qualifications set forth in this Section. The duties of the
Collateral Agent shall be mechanical and administrative in
nature.
ii. Neither the Collateral Agent nor any of its directors, officers
or employees shall be liable for any action taken or omitted
(whether or not such action taken or omitted is within or without
the Collateral Agent's responsibilities and duties expressly set
forth in this Agreement, the Credit Agreement or any other
instrument or document in connection herewith), except for gross
negligence or willful misconduct. Without limiting the foregoing,
neither the Collateral Agent nor any of its directors, officers
or employees shall be responsible for, or have any duly to
examine:
(1) the genuineness, execution, validity, effectiveness,
enforceability, value or sufficiency of (a) this Agreement,
or (b) any document or instrument furnished pursuant to or
in connection with this Agreement,
Security Agreement/Assigned Vehicles - 8 - September 8, 1999
<PAGE>
(2) the collectibility of any amounts owed by Grantor,
(3) any recitals or statements or representations or warranties
in connection with this Agreement, the Credit Agreement, or
the Loan Documents,
(4) any failure of any party to this Agreement to receive any
communication sent, or
(5) the assets, liabilities, financial condition, results of
operations, business or creditworthiness of Grantor.
iii. The Collateral Agent shall be entitled to act, and shall be fully
protected in acting upon, any communication in whatever form
believed by the Agent in good faith to be genuine and correct and
to have been signed or sent or made by a proper person or persons
or entity. The Collateral Agent may consult counsel and shall be
entitled to act, and shall be fully protected in any action taken
in good faith, in accordance with advice given by counsel. The
Collateral Agent may employ agents and attorneys-in-fact and
shall not be liable for the default or misconduct of any such
agents or attorneys-in-fact selected by the Collateral Agent with
reasonable care. The Collateral Agent shall not be bound to
ascertain or inquire as to the performance or observance of any
of the terms, provisions or conditions of this Agreement, the
Credit Agreement or the Loan Documents on Grantor's part.
b. Action on Instructions. The Collateral Agent shall be entitled to act
or refrain from acting, and in all cases shall be fully protected in
acting or refraining from acting under this Agreement, or any other
instrument or document in connection herewith or therewith in
accordance with Instructions in writing from the Banks.
c. Indemnification. To the extent Grantor does not reimburse and save the
Collateral --------------- Agent harmless according to the terms
hereof for and from all costs, expenses and disbursements in
connection herewith or with the Credit Agreement, such costs, expenses
and disbursements to the extent reasonable shall be borne by the Banks
ratably in accordance with their pro rata share of the Credit. The
Banks shall (a) reimburse the Collateral Agent for all such reasonable
costs, expenses and disbursements on request and (b) indemnify and
save harmless the Collateral Agent against and from any and all
losses, obligations, penalties, actions, judgments and suits and other
reasonable costs, expenses and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against
the Collateral Agent, other than as a consequence of actual gross
negligence or willful misconduct on the part of the Collateral Agent,
arising out of or in connection with this Agreement, or any instrument
or document in connection herewith or therewith or
Security Agreement/Assigned Vehicles - 9 - September 8, 1999
<PAGE>
any request of the Banks, including without limitation the reasonable
costs, expenses and disbursements in connection with defending itself
against any claim or liability, or answering any subpoena, related to
the exercise or performance of any of its powers or duties under this
Agreement or the taking of any action under or in connection with this
Agreement the Credit Agreement or the Loan Agreement.
d. Successor Agent. The Collateral Agent may resign at any time by giving
at least 30 days written notice thereof to the Banks and Grantor. Upon
any such resignation, the Banks and the Collateral Agent shall have
the right to appoint a successor Collateral Agent. If no successor
Collateral Agent shall have been appointed by the Banks and the
Collateral Agent and shall have accepted such appointment within 30
days after the retiring Collateral Agent's giving notice of
resignation, then the retiring Collateral Agent may, but shall not be
required to, on behalf of the Banks and the Collateral Agent, appoint
a successor Collateral Agent.
11. RELEASES. Prior to the termination of the Credit Agreement and the payment
in full of all Liabilities of Grantor, the Collateral Agent shall execute and
deliver an appropriate release of the Lien of this Agreement and any Mortgage
with respect to any Assigned Vehicle which Grantor wishes to sell, provided that
no Default or Potential Event of Default shall have occurred and he continuing.
Upon the termination of the Credit Agreement and the payment in full of the
liabilities thereunder, the Collateral Agent shall discharge all Mortgages and
release all Collateral held pursuant to this Agreement.
12. DEFAULT. The occurrence of any of the following shall be deemed a Default
under this Agreement: (a) non-payment, when due, of any amount payable on any of
the Liabilities or failure to perform any agreement of Grantor contained herein
or in any other agreement of Grantor with the Banks; (b) any warranty of Grantor
herein or in any other agreement of Grantor with the Banks is untrue in any
material respect; or (c) any Event of Default or Potential Default shall occur
under the Credit Agreement.
Whenever a Default shall be existing, the Liabilities may (notwithstanding any
provisions thereof), at the option of the Banks and the Collateral Agent in the
case of Liabilities owed to the Bank or the Collateral Agent and without demand
or notice of any kind, be declared, and thereupon immediately shall become, due
and payable, and the Collateral Agent may at the direction of the Banks exercise
from time to time any rights and remedies available to them under applicable
law. Grantor agrees, in case of Default, to assemble, at its expense, all
Collateral in its possession and control at a convenient. place acceptable to
the Collateral Agent. Without limiting the foregoing, upon Default the
Collateral Agent may at the direction of the Banks, to the fullest extent
permitted by applicable law, without notice, hearing or process of law of any
kind, (a) enter upon any premises where any of the Collateral may be located and
take possession of and remove such Collateral; (b) use, license or, to the
extent permitted by an applicable license, sublicense, whether general, special
or otherwise, and whether on an exclusive or non-exclusive basis, any Collateral
throughout the world for such term or terms, on such conditions, and in such
manner, as the Collateral Agent shall in its sole discretion determine, without
compensation to Grantor; and (c) sell any or all of the Collateral, free
Security Agreement/Assigned Vehicles - 10 - September 8, 1999
<PAGE>
of all rights and claims of Grantor therein and thereto, at, any public or
private sale. Upon Default, the Collateral Agent, the Banks may bid for and
purchase any or all of such Collateral at any such sale. Grantor hereby
expressly waives, to the fullest extent permitted by applicable law, any and all
notices, advertisements, hearings or process of law in connection with the
exercise by the Collateral Agent of any of its rights and remedies upon Default.
Any notification of intended disposition of any of Collateral required by law
shall be deemed reasonably and properly given if given at least five days before
such disposition. Any proceeds of any disposition by the Collateral Agent of any
of the Collateral may be applied by the Collateral Agent to the payment of
expenses in connection with the Collateral, including reasonable attorneys' fees
and legal expenses, and any balance of such proceeds may be applied by the
Banks, first, toward the payment of the Liabilities under the Credit Agreement,
the Loan Agreement and this Agreement and, second, toward the payment of any
other Liabilities.
13. MISCELLANEOUS.
a. Collateral Agent's Duties. The Collateral Agent shall be deemed to
have exercised reasonable care in the custody and preservation of any
of the Collateral in its possession if it takes such action for that
purpose as Grantor requests in writing, but failure of the Collateral
Agent to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care, and no failure of the Collateral
Agent to preserve or protect any rights with respect to such
Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by Grantor, shall be
deemed a failure to exercise reasonable care in the custody or
preservation of such Collateral.
b. Notices. Any notice from the Collateral Agent to Grantor, if by
telegram or telex, shall he deemed given when sent, and, if mailed,
shall he deemed given when mailed, postage prepaid, addressed to
Grantor either at Grantor's address shown on the signature page
hereto, or at any other address of Grantor appearing on the records of
the Collateral Agent.
c. Waivers. Grantor hereby expressly waives: (a) notice of acceptance by
the Collateral Agent of this Agreement, (b) notice of the existence or
creation of all or any Liabilities, and (c) all diligence in
collection or protection of or realization upon the Liabilities or any
thereof.
d. No Waiver; Cumulative Remedies. No failure on the part of the
Collateral Agent to exercise, and no delay in exercising, any right,
power or remedy shall operate as a waiver thereof, nor shall any
single or partial exercise by the Collateral Agent of any right, power
or remedy preclude other or further exercise thereof or the exercise
of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies which may be
available to the Collateral Agent at law or in equity or under any
other agreement or instrument relating to any of the Liabilities or
any security therefor.
Security Agreement/Assigned Vehicles - 11 - September 8, 1999
<PAGE>
e. Governing Law. This Agreement has been delivered at Philadelphia,
Pennsylvania, and shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania. Whenever possible,
each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
f. Binding Effect. The rights and privileges of the Collateral Agent
hereunder shall inure to the benefit of its successors and assigns.
g. Waiver of Jury Trial. Grantor waives any right to a trial by jury in
any action or proceeding to enforce or defend any rights (i) under
this Agreement or under any amendment, instrument, document or
agreement delivered or which may in the future be delivered in
connection herewith or (ii) arising from any banking relationship
existing in connection with this Agreement, and agrees that any such
action or proceeding shall be tried before a court and not before a
jury.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
as of the date first above written.
MATLACK (DE), INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Assigned Vehicles - 12 - September 8, 1999
<PAGE>
MATLACK, INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
SPECIALIZED DEDICATED FLEETS, INC.
successor by merger to Safeway Chemical
Transportation, Inc.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Assigned Vehicles - 13 - September 8, 1999
<PAGE>
BRITE-SOL SERVICES, INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
MATLACK LEASING, INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
SUPER SERVICE, INC.
By
------------------------------------
Name:
Title:
Notices To:
Patrick J. Bagley
Vice President & Chief Financial Officer
Matlack Systems, Inc.
P.O. Box 8790
Wilmington, DE 19899
FAX No. (302) 426-3838
Security Agreement/Assigned Vehicles - 14 - September 8, 1999
<PAGE>
FIRST UNION NATIONAL BANK, as Collateral Agent
By
-------------------------------------------
Name:
Title:
Notices To:
Michael J. Labrum
Vice President
First Union National Bank
Transportation and Equipment Finance Group
PA4827
1345 Chestnut Street
Philadelphia, PA 19107
FAX No. (215) 786-7704
Security Agreement/Assigned Vehicles - 15 - September 8, 1999
<PAGE>
EXHIBIT A
MORTGAGE
Reference is hereby made to that certain Security Agreement, dated August 3,
1999 (the "Agreement), between and among Matlack DE, Inc., Matlack, Inc.,
Brite-Sol Services, Inc., Matlack Leasing, Inc., Super Service, Inc. (each
individually and collectively referred to as the "Grantor"), jointly and
severally, and FIRST UNION NATIONAL BANK, a national banking association, as
agent for the Banks (in such capacity, and together with its successors as agent
for the Banks, the "Collateral Agent"). Grantor hereby grants a security
interest to Collateral Agent pursuant to the Agreement in the Assigned Vehicles
(as defined in the Agreement) listed on Schedule A hereto.
------------------------------------
By:
Title:
Security Agreement/Assigned Vehicles - 16 - September 8, 1999
Exhibit 21
MATLACK SYSTEMS, INC.
Subsidiaries at September 30, 1999
Jurisdiction of
Name Incorporation
--------------------------- ---------------
Matlack (DE), Inc. Delaware
Bayonne Terminals, Inc. Pennsylvania
Matlack International, Inc. Delaware
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