<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 2, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 0-10181
ELJER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2270874
(State of Incorporation) (I.R.S. Employer I.D. No.)
17120 Dallas Parkway, Dallas, Texas 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 407-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days.
Yes X No _____
At November 7, 1994 there were 7,129,626 shares of registrant's common stock
outstanding.
<PAGE>
ELJER INDUSTRIES, INC.
FORM 10-Q
October 2, 1994
INDEX
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the nine months
ended October 2, 1994 and October 3, 1993
Condensed Consolidated Statements of Income for the three months
ended October 2, 1994 and October 3, 1993
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Notes to Unaudited Condensed Consolidated Financial Statements
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II--OTHER INFORMATION
ITEM 1--LEGAL PROCEEDINGS
ITEM 2--CHANGES IN SECURITIES
ITEM 3--DEFAULTS UPON SENIOR SECURITIES
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5--OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine Months Ended
October October
2, 1994 3, 1993
<S> <C> <C>
NET SALES $302,103 $283,120
COST OF SALES 218,378 204,238
-------- --------
GROSS PROFIT 83,725 78,882
SELLING & ADMINISTRATIVE EXPENSES 61,701 58,094
LITIGATION COSTS 5,935 4,399
-------- --------
INCOME FROM OPERATIONS 16,089 16,389
OTHER EXPENSE, net 1,109 1,095
INTEREST INCOME 1,182 1,029
INTEREST EXPENSE 9,246 11,119
-------- --------
INCOME BEFORE INCOME TAXES 6,916 5,204
INCOME TAX (BENEFIT) EXPENSE (95) 2,640
-------- --------
NET INCOME $ 7,011 $ 2,564
======== ========
EARNINGS PER SHARE $ .99 $ .36
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,117 7,083
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended
October October
2, 1994 3, 1993
<S> <C> <C>
NET SALES $107,872 $102,965
COST OF SALES 75,850 74,101
-------- --------
GROSS PROFIT 32,022 28,864
SELLING & ADMINISTRATIVE EXPENSES 21,376 19,734
LITIGATION COSTS 2,664 661
-------- --------
INCOME FROM OPERATIONS 7,982 8,469
OTHER EXPENSE, net 352 296
INTEREST INCOME 439 229
INTEREST EXPENSE 2,847 3,634
-------- --------
INCOME BEFORE INCOME TAXES 5,222 4,768
INCOME TAX EXPENSE 957 1,632
-------- --------
NET INCOME $ 4,265 $ 3,136
======== ========
EARNINGS PER SHARE $ .60 $ .44
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,130 7,092
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
October January
A S S E T S 2, 1994 2, 1994
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash & temporary cash investments $ 24,386 $ 23,439
Restricted cash 17,182 15,966
Trade accounts receivable, net of
reserves of $8,511 and $8,890 66,353 49,995
Insurance receivable 5,178 6,621
Inventories 62,282 59,548
Other current assets 6,507 7,202
-------- --------
Total current assets 181,888 162,771
PROPERTIES & EQUIPMENT, net of accumulated
depreciation of $101,028 and $94,793 58,953 58,015
COST IN EXCESS OF NET TANGIBLE ASSETS
ACQUIRED, net 11,447 11,879
OTHER ASSETS 3,054 2,758
-------- --------
$255,342 $235,423
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
October January
LIABILITIES AND SHAREHOLDERS' EQUITY 2, 1994 2, 1994
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt and current maturities
of long-term debt $ 25,734 $ 18,430
Trade accounts payable 21,962 18,933
Prepetition liabilities subject to compromise 17,868 --
Accrued contingencies covered by insurance -- 6,621
Accrued expenses 61,730 63,687
-------- --------
Total current liabilities1 27,294 107,671
LONG-TERM DEBT 94,581 103,114
POSTRETIREMENT BENEFITS 41,260 40,743
OTHER LIABILITIES 13,374 13,144
DEFERRED INCOME TAXES 898 871
Total liabilities 277,407 265,543
-------- --------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value,
50,000,000 shares authorized;
7,129,626 and 7,092,326 shares
outstanding 7,186 7,186
Additional capital 78,936 78,700
Accumulated deficit (100,235) (107,246)
Foreign currency translation adjustments (7,895) (8,666)
Treasury stock (57) (94)
-------- --------
Total shareholders' equity (deficit) (22,065) (30,120)
$255,342 $235,423
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
October October
2, 1994 3, 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,011 $ 2,564
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation and amortization 7,554 8,382
Loss (gain) on disposition of fixed assets 110 (222)
Stock issued as compensation 273 180
Change in assets and liabilities-
Trade accounts receivable (19,076) (8,479)
Inventories (1,405) 5,495
Trade accounts payable and accrued expenses 11,423 6,367
Accrued litigation - Kowin Development 2,019 (13,897)
Postretirement benefits 517 652
Other assets 899 (7,208)
Other, net 2,113 (2,209)
------- -------
Net cash provided by (used in)
operating activities 11,438 (8,375)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment (8,049) (5,212)
Proceeds from disposition of properties
and equipment 408 1,539
------- -------
Net cash used in investing activities (7,641) (3,673)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 5,611 (6,287)
Decrease in long-term debt (7,020) (1,185)
Collateralization of letters of credit (1,642) (3,605)
Taxes paid on dividends from foreign
subsidiaries -- (3,974)
Net cash used in financing activities (3,051 (15,051)
------- -------
EFFECTS OF EXCHANGE RATES ON CASH 201 (1,707)
NET INCREASE (DECREASE) IN CASH & TEMPORARY
CASH INVESTMENTS 947 (28,806)
CASH & TEMPORARY CASH INVESTMENTS,
BEGINNING OF PERIOD 23,439 46,808
------- -------
CASH & TEMPORARY CASH INVESTMENTS,
END OF PERIOD $24,386 $18,002
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts of
Eljer Industries, Inc. ("Eljer Industries") and its wholly-owned subsidiaries
(collectively, the "Company") after the elimination of intercompany transactions
and balances.
Accounting policies used in the preparation of the quarterly condensed
consolidated financial statements, except as indicated below, are consistent in
all material respects with the accounting policies described in the notes to
financial statements appearing in the Company's Annual Report on Form 10-K for
the year ended January 2, 1994 as filed with the Securities and Exchange
Commission (the "Company's 1993 10-K"). In the opinion of management, the
interim financial statements reflect all adjustments which are necessary for a
fair presentation of the Company's financial position, results of operations and
cash flows for the interim periods presented. The results for such interim
periods are not necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the consolidated
financial statements and the accompanying notes to consolidated financial
statements included in the Company's 1993 10-K.
During the first quarter of 1994, the Company adopted the provisions of
Financial Accounting Standards Board Interpretation No. 39 ("FIN 39"). FIN 39
requires the Company to present separately in its balance sheet its contingent
liabilities which can be estimated and the related recoverable assets.
Accordingly, the accompanying condensed balance sheet as of January 2, 1994, and
condensed statement of cash flows for the year ended January 2, 1994, have been
reclassified to conform to the 1994 presentation. In addition, approximately
$5.2 million of accrued contingencies covered by insurance are included in
prepetition liabilities subject to compromise as of October 2, 1994 (see Note
(2) for additional discussion).
Certain other reclassifications have also been made to the prior year
financial statements to conform to the 1994 presentation.
(2) BANKRUPTCY OF AN INDIRECT WHOLLY-OWNED SUBSIDIARY:
As discussed in the Company's Report on Form 8-K dated May 27, 1994 and
Form 10-Q for the quarterly period ended July 3, 1994, on May 23, 1994 (the
"Petition Date"), United States Brass Corporation ("U.S. Brass"), an indirect,
wholly-owned subsidiary of the Company, filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Eastern District of Texas
(the "Bankruptcy Court"). The purpose of the filing is to resolve
systematically the issues resulting from the Celcon/Qest polybutylene plumbing
system (the "Qest System") and related litigation and to seek confirmation of a
plan of reorganization which, among other things, will provide for the payment,
satisfaction and discharge of all claims against U.S. Brass involving the Qest
System. Pursuant to the Bankruptcy Code, U.S. Brass is conducting its business
and affairs as a debtor-in-possession by its officers and directors, subject to
the supervision and orders of the Bankruptcy Court.
Under the Bankruptcy Code, claims against U.S. Brass that were or could
have been commenced prior to the Petition Date are stayed while U.S. Brass
continues business operations as a debtor-in-possession. Certain of these
claims are reflected in the October 2, 1994 balance sheet as "prepetition
liabilities subject to compromise." Additional claims (liabilities subject to
compromise) may arise subsequent to the Petition Date resulting from rejection
of executory contracts or unexpired leases, and from the determination by the
Bankruptcy Court, or agreed to by parties in interest, of allowed claims for
contingencies and other disputed amounts. U.S. Brass received approval from the
Bankruptcy Court to pay or otherwise honor certain of its prepetition
obligations, including its secured working capital facility, employee wages,
commissions, sales incentive programs, existing product warranties and
outstanding checks. See Note (5) for additional discussion. U.S. Brass
participates in various intercompanytransactions with its parent, Eljer
Manufacturing, Inc. ("Eljer Manufacturing") and an affiliated Canadian
company and, at October 2, 1994, U.S. Brass was in a net creditor position of
approximately $1.9 million.
Selected financial data for U.S. Brass as of October 2, 1994 and January
2, 1994 and the nine-month periods ended October 2, 1994 and October 3, 1993 are
as follows (in thousands):
<TABLE>
<CAPTION>
For the Nine Months Ended
October 2, October 3,
1994 1993
<S> <C> <C>
Net Sales to Customers $62,792 $53,811
Sales to Affiliates 12,406 12,722
Reorganization Items 1,576 --
Income from Operations 2,630 3,291
Income Before Income Taxes 1,693 2,516
Net Income 970 1,745
Cash (Used in) Provided by Operating Activities (3,330) 2,226
Cash (Used in) Investing Activities (1,725) (816)
Cash Provided by (Used in) Financing Activities 5,081 (823)
Total Cash Flow 26 587
</TABLE>
<TABLE>
<CAPTION>
As of As of
October January
2, 1994 2, 1994
<S> <C> <C>
Total Current Assets $41,904 $35,194
Total Assets 58,656 51,363
Total Liabilities 35,885 29,562
Total Shareholders' Equity 22,771 21,801
</TABLE>
No payments of reorganization items have been made since the Petition Date.
<PAGE>
(3) INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
October January
2, 1994 2, 1994
<S> <C> <C>
Finished goods $33,932 $33,572
Work in process 8,211 8,529
Raw materials 20,139 17,447
Total inventories $62,282 $59,548
</TABLE>
(4) LIQUIDITY & CAPITAL RESOURCES
On October 17, 1994, Eljer Manufacturing entered into a revolving
credit agreement (the "Revolver") with Congress Financial Corporation
(Southwest) ("Congress"). Under the terms of the Revolver, Congress may
advance up to $35.0 million to Eljer Manufacturing based upon a percentage of
eligible accounts receivable and subject to certain criterion. Advances by
Congress are secured primarily by the accounts receivable of Eljer
Manufacturing. The expiration date of the Revolver is October 17, 1997, with
automatic annual renewals thereafter. Approximately $13.0 million of the
proceeds from the Revolver was used to repay all amounts outstanding under
the previously disclosed accounts receivable sale program. An additional
$7.5 million of the proceeds was used to repay a portion of existing term
debt pursuant to an amendment which allowed Eljer Manufacturing to enter
into the Revolver. Eljer Manufacturing also was required to accelerate a
$4.0 million principal repayment of term debt which was originally scheduled
for December 30, 1994. After making these payments and a $2.0 million scheduled
term debt payment on October 5, 1994, the remaining U.S. term debt balance was
$78.5 million. No additional U.S. term debt principal reductions are required
until December 29, 1995.
(5) CONTINGENCIES:
U.S. Brass
On May 23, 1994, U.S. Brass filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The purpose of
the filing is to resolve systematically the issues resulting from the Qest
System and related litigation and to seek confirmation of a plan of
reorganization which, among other things, will provide for the payment,
satisfaction and discharge of all claims against U.S. Brass involving the
Qest System. Pursuant to the Bankruptcy Code, U.S. Brass is conducting its
business and affairs as a debtor-in-possession by its officers and directors,
subject to the supervision and orders of the Bankruptcy Court.
By reason of the filing of its voluntary Chapter 11 petition, U.S.
Brass is the subject of an automatic stay, applicable to all entities, of
certain litigation and other actions directed at U.S. Brass or its property.
Among other things, the automatic stay applies to the commencement or
continuation, including the issuance or employment of process, of federal,
administrative or other actions or proceedings against U.S. Brass that were
or could have been commenced before the commencement of the Chapter 11 case,
or to recover a claim against U.S. Brass that arose before the commencement
of the case. The automatic stay also applies to any act to obtain possession
of property of the estate in the bankruptcy of U.S. Brass or to exercise
control over property of the estate. Creditors and other persons affected by
the automatic stay have the right to seek relief from the stay by making a
motion to the Bankruptcy Court. U.S. Brass believes the automatic stay
extends also to claims made in those lawsuits against Eljer Industries, Eljer
Manufacturing and Household International, Inc. ("Household") based upon
alter ego and related theories of liability. U.S. Brass contends that under
bankruptcy law, such claims are property of U.S. Brass by reason of its
Chapter 11 filing.
Absent an extension, the Bankruptcy Code provides that a debtor's
exclusive right to file a plan of reorganization ends 120 days from the Petition
Date (the "exclusivity period"). On September 20, 1994, the Bankruptcy Court
entered an order extending to December 22, 1994 U.S. Brass' exclusivity period
subject to meeting certain other deadlines in conjunction with the U.S. Brass
reorganization. If any of the other deadlines are not met and are not extended
by the Bankruptcy Court for cause or by written agreement among U.S. Brass and
the committees of creditors in the U.S. Brass bankruptcy proceeding, U.S. Brass'
exclusivity period may be lost prior to December 22, 1994. U.S. Brass expects
either to file a plan of reorganization on or before December 22, 1994, or seek
an additional extension of the exclusivity period.
As previously reported, U.S. Brass had filed a motion with the
Bankruptcy Court for the appointment of an examiner to investigate the merits
and value, if any, of certain Qest System claims against Eljer Industries,
Eljer Manufacturing and Household based upon alter ego and related theories of
liability. Since the filing of U.S. Brass' bankruptcy petition, the committee
representing Qest System claimants in U.S. Brass' bankruptcy proceeding (the
"Polybutylene Claimants Committee") and certain co-defendants in the Qest System
litigation have asserted that Eljer Industries and Eljer Manufacturing are also
directly liable for damages arising from the design, manufacturing and marketing
of the Qest System. These allegations have been asserted both in the context of
the motion to appoint an examiner and in the underlying Qest System litigation,
where U.S. Brass has attempted to sever claims against Eljer Industries, Eljer
Manufacturing and Household on the basis that such claims are property of the
bankruptcy estate and subject to the automatic stay. U.S. Brass continues to
believe that alter ego and related claims are the property of the estate of U.S.
Brass, and Eljer Industries and Eljer Manufacturing continue to dispute the
merits of any alter ego or direct claims against Eljer Manufacturing and Eljer
Industries. However, U.S. Brass withdrew the motion for appointment of an
examiner, without prejudice to its refiling at a later date in an effort to
facilitate settlement discussions with Qest System claimants and to avoid the
expense and time of litigation over this matter.
While the Company may explore settlement alternatives on these
issues in the context of U.S. Brass' bankruptcy proceeding, including the nature
and extent of any contribution of cash, Eljer Industries' stock, or other
consideration to a U.S. Brass reorganization plan, the Company will vigorously
contest, absent a settlement, any such claims of derivative or direct
liability. However, if such derivative or direct claims were successfully
asserted against Eljer Industries or Eljer Manufacturing and a settlement is
not achieved during the pendency of the U.S. Brass bankruptcy proceeding, it
could, depending upon the availability of insurance coverage for costs and
indemnity, have a material adverse effect on the Company's liquidity and
financial condition and on its ability to continue to meet its financial
obligations. No assurances can be given that the reorganization of U.S.
Brass will successfully be concluded or, if it is concluded, what the effects
to U.S. Brass, Eljer Industries and Eljer Manufacturing would be.
<PAGE>
U.S. Brass Bankruptcy Developments Since the Balance Sheet Date
On October 28, 1994, the Bankruptcy Court issued an order and memorandum
opinion concerning the motion to remand to state courts certain Qest System
lawsuits that had been removed by co-defendant Shell Oil Company ("Shell") to
the Bankruptcy Court. In connection with that motion, Shell had moved to
have the automatic stay lifted if the Bankruptcy Court decided to remand the
cases. The Bankruptcy Court remanded the cases to state courts and denied
Shell's motion to lift the automatic stay to allow the lawsuits to proceed as
to U.S. Brass in state court. Eljer Industries and Eljer Manufacturing are
also parties to the remanded Qest System lawsuits and unless severed as
parties by the plaintiffs in this litigation, will assert that because of the
U.S. Brass bankruptcy, this litigation is also stayed as to Eljer Industries
and Eljer Manufacturing.
On October 28, the Bankruptcy Court also ruled on pending motions by
certain of the Company's insurance carriers to dismiss an adversary action,
which, as previously reported, was filed by the Company and U.S. Brass in the
Bankruptcy Court, for declaratory relief on Qest System insurance coverage
issues. The Bankruptcy Court dismissed the pending adversary action, deferring
to earlier-filed cases involving the same issues in state courts in Illinois.
U.S. Brass had previously removed those cases to federal court in Illinois. On
November 11, 1994, the Illinois federal judge remanded the cases to the Illinois
state courts. U.S. Brass is in the process of evaluating the effect of the
ruling, and intends to appeal the decision to remand the cases to the state
courts. Currently, the cases remain subject to the automatic stay.
At this time, the number and magnitude of Qest System related claims that
may be filed in connection with the U.S. Brass bankruptcy are unknown. The
Company continues to believe that given historic levels of Qest System claims
and subject to the outcome of the insurance litigation discussed above,
insurance proceeds should be adequate to settle claims arising before 1987.
As noted in "Liquidity and Capital Resources" in Item 7 in the Company's 1993
10-K, the Company has limited insurance coverage for the years 1987 through
1990.
U.S. Brass uses polybutylene pipe in connection with its Qest System.
Representatives of the Polybutylene Claimants Committee have recently stated to
the Company their belief that polybutylene pipe is subject to premature
failure. Since approximately 1988, U.S. Brass has used Shell Duraflex PB
4137 Resin to extrude the polybutylene pipe used in its Qest I plumbing
system. Shell has advised U.S. Brass that quality pipe made from this resin
and installed properly when used in a typical on/off plumbing system is
believed capable of meeting a service life of 50 years at continuous free
chlorine concentrations of 2.0 parts per million. Shell emphasizes, however,
that these are test results only and do not necessarily model all variables
found in actual service. As a result, actual service life may be longer or
shorter than these estimates depending on the conditions of exposure. U.S.
Brass does not recommend that its Qest I plumbing system be used where free
chlorine concentrations exceed 2.0 parts per million.
U.S. Brass is not aware of any material polybutylene pipe failures in its Qest
I system. The Company has not had the opportunity to make an independent
evaluation of the claims of the Polybutylene Claimants Committee.
Other
As discussed in the Company's 1993 10-K, the Company settled for
approximately $3.4 million the class action securities litigation against the
Company and certain present and former members of its Board of Directors.
During the third quarter of 1994, approximately $2.6 million of the settlement
was paid by the Company's liability insurance carrier and the remaining
$800,000 was paid by the Company. The Company's portion of the settlement
was covered by previously established litigation reserves and had no impact
on the 1994 financial results of the Company.
Reference is made to Note (13) "Contingencies" and Note (14) "Relationship
with Household" to the Consolidated Financial Statements in the Company's 1993
10-K for additional discussion of contingencies and legal matters involving the
Company.
(6) INCOME TAXES:
The Company's income tax benefit for the nine months ended October 2, 1994,
is a result of certain European and Canadian pretax losses in 1994, for which
tax benefits were recorded, and the Company's utilization of previously
reserved deferred tax benefits in the United States.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales increased by approximately $19.0 million to $302.1 million for
the nine-month period ended October 2, 1994, compared to the nine-month period
ended October 3, 1993, a 6.7% increase. Net sales increased by approximately
$4.9 million, or 4.8% for the three-month period ended October 2, 1994, compared
to the same period in 1993. The level of net sales for the nine-month and
three-month periods ended October 2, 1994 was the strongest since 1990. The
increase is the result of strong performances in substantially all North
American markets where the Company continues to benefit from an improving
housing economy and penetration of its traditional channels of distribution
and retail chains. Sales of products in North America in the first nine
months of 1994 increased $26.6 million, or 11.6%, over the same period of 1993.
Gross profit margin decreased to 27.7% for the nine-month period ended
October 2, 1994, from 27.9% for the comparable 1993 period and increased to
29.7% for the third quarter of 1994 compared to 28.0% for the same period in
1993. The year-to-date decline was the result of a significant reduction in
the level of sales of higher margin products in Europe, where the market has
remained soft, offset by improved margins on the Company's plumbing products
due to increased volume and product mix. The Company is in the process of
reengineering the European operations to reduce costs and anticipates that
the benefits of these changes as well as modest economic strengthening will
be realized in 1995. The reengineering consists primarily of the relocation
of the Company's operations in Germany to its plant in the United Kingdom.
The Company anticipates costs related to the restructuring to approximate
$750,000 in 1994. Costs associated with the reengineering are covered by
previously established restructuring reserves. Cash flows from European
operations are sufficient to cover the cash flow usage resulting from this
reengineering of operations.
Gross profit margins in North America improved to 26.7% in the first nine
months of 1994 from 24.7% in the 1993 period. This is primarily attributable to
production efficiencies and better cost absorption associated with increased
volume.
Total selling and administrative expenses through October 2, 1994, were
$3.6 million and $1.6 million higher, respectively, for the nine-month and
three-month periods then ended, as compared to the 1993 levels. The
increases resulted primarily from higher research, development and selling
costs related to the introduction of new plumbing products in North America
and higher sales commissions due to the increased level of sales in that
market. Litigation costs were approximately $1.5 million higher in the first
nine months of 1994 compared to the same period in 1993 due primarily to the
bankruptcy filing of U.S. Brass.
Other expense, net, remained relatively stable, increasing only $14,000 in
the first nine months of 1994 compared to the same period in 1993, and
increasing $56,000 in the third quarter of 1994 over the 1993 quarter.
Interest expense in the first nine months of 1994 decreased $1.9 million or
16.9% from the 1993 period. The decrease is due primarily to the April 1994
expiration of an unfavorable interest rate swap agreement. Interest expense
related to the swap agreement was approximately $1.3 million in the first
nine months of 1994 and approximately $3.3 million in the first nine months
of 1993.
Income tax expense was reduced from $2.6 million and $1.6 million in the
first nine months and third quarter of 1993, respectively, to a tax benefit of
$95,000 and tax expense of $1.0 million for the comparable 1994 periods. This
was due to certain European and Canadian pretax losses in 1994 and the Company's
utilization of previously reserved deferred tax benefits in the United States.
Liquidity and Capital Resources
The net cash provided by operating activities of $11.4 million for the nine
months ended October 2, 1994, was a $19.8 million increase over the net cash
used in operating activities for the comparable 1993 period. The cash usage
in the 1993 period included a deposit of approximately $13.2 million in lieu
of an appeal bond for the previously disclosed Kowin Development Corporation
("Kowin") litigation, in addition to other costs and fees associated with
this lawsuit. On June 30, 1994, following refusal of the United States
Supreme Court to review the opinion of the Appeals Court, a final judgment
was entered in this suit, approximately $11.6 million of the deposit was paid
to Kowin and approximately $2.0 million of related amounts previously paid,
including interest thereon, was returned to the Company.
Capital expenditures for the first nine months of 1994 were $8.0 million
and included production expansion at the Company's Ford City, Pennsylvania
chinaware plant, as well as the replacement and improvement of capital equipment
at various other locations.
The Company experienced an increase in short-term borrowings during the
first nine months of 1994 related mainly to revolving debt at the Company's
indirect, wholly-owned subsidiary, U.S. Brass. The Company reduced its long-
term borrowings by $6.5 million due primarily to the principal repayment
required under the First Amendment to Amended and Restated Credit Agreement as
discussed in the Company's 1993 10-K.
On October 17, 1994, Eljer Manufacturing entered into a revolving credit
agreement with Congress. Under the terms of the Revolver, Congress may advance
up to $35 million to Eljer Manufacturing based upon a percentage of eligible
accounts receivable and subject to certain criterion. Advances by Congress are
secured primarily by the accounts receivable of Eljer Manufacturing. The
expiration date of the Revolver is October 17, 1997, with automatic annual
renewals thereafter. Approximately $13.0 million of the proceeds from the
Revolver was used to repay all amounts outstanding under the previously
disclosed accounts receivable sale program. An additional $7.5 million of
the proceeds was used to repay a portion of the existing term debt pursuant
to an amendment which allowed Eljer Manufacturing to enter into the Revolver.
Eljer Manufacturing also was required to accelerate a $4.0 million principal
repayment of term debt which was originally scheduled for December 30, 1994.
After making these payments and a $2.0 million scheduled term debt payment on
October 5, 1994, the remaining U.S. term debt balance is $78.5 million. No
additional U.S. term debt principal reductions are required until December 29,
1995.
The Company intends to explore some manner of debt restructuring prior to
the April 1996 term debt maturity date. Neither the Company nor any of its
subsidiaries has any commitment with respect to restructuring or other sources
of financing and there can be no assurance that any such commitment can be
obtained prior to the term debt maturity date.
As discussed in Note (13) "Contingencies" to the Consolidated Financial
Statements in the Company's 1993 10-K, after March 31, 1992, the Company was
unable to demonstrate financial responsibility for closure, post-closure and
third party liability with respect to its Salem, Ohio, facility and its
Marysville, Ohio, site. On February 8, 1994, the U.S. Department of Justice
( DOJ ) sent the Company a letter demanding that the Company pay $1.1 million in
stipulated penalties covering the period during which it was not able to meet
the financial responsibility requirements associated with closure and post-
closure care of its Salem facility required under a consent decree between
the Company and the United States Environmental Protection Agency ("U.S.
EPA"). The Company contested the demand and made a counter offer in August
1994. On September 30, 1994, DOJ rejected the Company's offer, but proposed
payment by the Company of a cash penalty of $175,000 with $912,000 to be held
in abeyance pending completion of the site closure activities. Such amount
would then be waived if the Company complies with the financial
responsibility requirements of the consent decree. On October 19, 1994, the
Company accepted the DOJ offer pending agreement on a modification to the
consent decree. The Company currently meets financial responsibility
requirements regarding the Salem facility through a letter of credit for
closure and post-closure costs obtained in September 1993 and third-party
liability coverage obtained in March 1994.
As previously disclosed in the Company's 1993 10-K, the Ohio Environmental
Protection Agency ("Ohio EPA") has informed the Company that its failure to
renew financial responsibility assurances for the Marysville site was being
referred to the U.S. EPA on this matter. Although Ohio EPA and U.S. EPA may
attempt to impose significant civil and criminal penalties for failure to renew
financial assurances for the Marysville site, the Company continues to believe
that it has meritorious defenses to the imposition of any penalties and intends
to vigorously defend against such penalties and that any penalties ultimately
imposed are likely to be less than the maximum potential penalties authorized
under the law.
As discussed in the Company's Report on Form 8-K dated May 27, 1994 and
Form 10-Q for the quarterly period ended July 3, 1994, and in Notes (2) and (5)
to the Condensed Consolidated Financial Statements in Item 1, on May 23, 1994,
U.S. Brass filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code. As previously disclosed, on June 28, 1994, U.S. Brass
entered into a debtor-in-possession financing agreement (the "DIP Financing
Agreement") with Congress. Pursuant to the DIP Financing Agreement,
Congress agreed to provide loans and advances in an amount not to exceed $20
million when added to the outstanding amount of advances made by Congress
prior to the Petition Date. As of October 2, 1994, the outstanding principal
amount of such advances was approximately $9.0 million. U.S. Brass believes
that it will have sufficient cash resources and financing to meet trade
obligations and cover operating and restructuring expenses during the
pendency of its reorganization proceedings. During the pendency of its
reorganization proceedings, U.S. Brass intends to pay all post-Petition Date
operating expenses (including trade obligations) in the ordinary course of
business.
On November 4, 1994, Shell and Celanese Specialty Resins, a unit of Hoechst
Celanese Corporation, notified U.S. Brass that they believe they have made
expenditures on behalf of U.S. Brass totaling approximately $53.8 million in
claims settlements and related administrative costs of the toll free telephone
service operated by them to handle calls from homeowners who have Qest Systems
which have experienced failures. However, insufficient information supporting
this amount has been provided to U.S. Brass, and when and if sufficient
information is ultimately provided, U.S. Brass believes that it has grounds to
seek substantial reductions in any such amount or to avoid any liability for
such demands. U.S. Brass is unable to estimate the potential liability, if
any, for which it may ultimately be responsible. Any such liability for claims
originating before 1987 should be covered by its general liability insurance
subject to the outcome of the insurance litigation discussed in Note (5)
"Contingencies" to the Condensed Consolidated Financial Statements in Part I,
Item 1. This claim will be addressed in the bankruptcy
proceedings currently pending for U.S. Brass.
As previously reported, U.S. Brass had filed a motion with the Bankruptcy
Court for the appointment of an examiner to investigate the merits and value, if
any, of certain Qest System claims against Eljer Industries, Eljer Manufacturing
and Household based upon alter ego and related theories of liability. Since the
filing of U.S. Brass' bankruptcy petition, the Polybutylene Claimant's Committee
and certain co-defendants in the Qest System litigation have asserted that Eljer
Industries and Eljer Manufacturing are also directly liable for damages arising
from the design, manufacturing and marketing of the Qest System. These
allegations have been asserted both in the context of the motion to appoint an
examiner and in the underlying Qest System litigation, where U.S. Brass has
attempted to sever claims against Eljer Industries, Eljer Manufacturing and
Household on the basis that such claims are property of the bankruptcy estate
and subject to the automatic stay. U.S. Brass continues to believe that alter
ego and related claims are the property of the estate of U.S. Brass, and Eljer
Industries and Eljer Manufacturing continue to dispute the merits of any alter
ego or direct claims against Eljer Manufacturing and Eljer Industries. However,
U.S. Brass withdrew the motion for appointment of an examiner, without prejudice
to refiling at a later date in an effort to facilitate settlement discussions
with Qest System claimants and to avoid the expense and time of litigation over
this matter.
While the Company may explore settlement alternatives on these issues in
the context of U.S. Brass' bankruptcy proceeding, including the nature and
extent of any contribution of cash, Eljer Industries' stock, or other
consideration to a U.S. Brass reorganization plan, the Company will
vigorously contest, absent a settlement, any such claims of derivative or
direct liability. However, if such derivative or direct claims were
successfully asserted against Eljer Industries or Eljer Manufacturing and a
settlement is not achieved during the pendency of the U.S. Brass bankruptcy
proceeding, it could, depending upon the availability of insurance coverage
for costs and indemnity, have a material adverse effect on the Company's
liquidity and financial condition and on its ability to continue to meet its
financial obligations. At this time, the number and magnitude of Qest System
related claims that may be generated in connection with the U.S. Brass
bankruptcy are unknown. The Company continues to believe that given historic
levels of Qest System claims and subject to the outcome of the insurance
litigation discussed herein, insurance proceeds should be adequate to settle
claims arising before 1987. As noted in "Liquidity and Capital Resources" in
Item 7 in the Company's 1993 10-K, the Company has limited insurance coverage
for the years 1987 through 1990. No assurances can be given that the
reorganization of U.S. Brass will successfully be concluded or, if it is
concluded, what the effects to U.S. Brass, Eljer Industries and Eljer
Manufacturing would be. (See also Note (5) to the Condensed Consolidated
Financial Statements in Part I, Item 1 in this report and Note (13)
"Contingencies" to the Consolidated Financial Statements in the Company's
1993 10-K.)
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
See Note (5) to the Condensed Consolidated Financial Statements in Part I,
Item 1 of this report and Note (13) "Contingencies" and Note (14) "Relationship
with Household" to the Consolidated Financial Statements in the Company's 1993
10-K, which are made a part hereof by this reference.
On June 1, 1994, a federal district judge in Oklahoma City, Oklahoma,
entered an order denying U.S. Brass' motions for judgment notwithstanding
verdict and for a new trial in a previously-announced lawsuit involving a
modified "crimping tool" used in the installation of the Qest Systems. A
jury in 1993 had returned a judgment in the amount of $1.2 million against
U.S. Brass. Plaintiffs' request for approximately $450,000 in lawyers fees
has not been ruled upon by the court. U.S. Brass believes that the judgment
is erroneous and has filed its notice of appeal with the Court of Appeals for
the Tenth Circuit. An estimate of potential liability in this case is covered
by previously established reserves. Any judgment that may ultimately be
obtained in this case will be an unsecured claim in U.S. Brass' bankruptcy
proceeding and would be paid in accordance with the provisions of a plan of
reorganization.
On October 24, 1994, the American Arbitration Association arbitrator in
Croft Investments, Ltd. ("Croft") v. Eljer Manufacturing, a/k/a Household
Manufacturing, Inc. ("Household Manufacturing") and Eljer Industries dismissed
the claim filed by Croft pursuant to a motion filed by Eljer Industries and
Eljer Manufacturing. This arbitration was discussed in Note (13)
"Contingencies" to the Consolidated Financial Statements in the Company's
1993 10-K under Kowin Development and Related Litigation. It is unknown
whether Croft will appeal the arbitrator's decision. As discussed in Note
(13), there remains pending an appeal by the Company to the Ninth Circuit
Court of Appeals challenging Croft's ability to pursue the claim discussed
above before the American Arbitration Association. If the arbitrator's
decision is not appealed and becomes final or is affirmed on appeal, the
Company will consider moving to dismiss the case pending before the Ninth
Circuit Court of Appeals. On October 26, 1994, Winston and Dorothy Ko,
owners of Kowin prior to its dissolution, filed suit in the Circuit Court of
Cook County, Illinois against Eljer Industries, Eljer Manufacturing,
Household Manufacturing, Household International and others,
seeking damages arising out of the dispute also discussed in that Note. The
Company intends to vigorously defend the lawsuit.
As discussed in the Company's 1993 10-K, on February 5, 1993, Household
filed an action in the Delaware Chancery Court against Eljer Industries, Eljer
Manufacturing and U.S. Brass seeking declaratory relief against the defendants
for any claims alleging any breach of fiduciary duty which Household owed to the
defendants during the time they were wholly-owned subsidiaries of Household and
for claims arising out of the distribution of the stock of the Company to
stockholders of Household in April 1989. The action also sought, among other
things, a declaration that Delaware law applied to any claims of the defendants
against Household arising from or related to such distribution. On July 8,
1994, the Delaware Chancery Court ruled that it had no subject matter
jurisdiction and subsequently transferred the pending Delaware suit filed by
Household against the Company to the Delaware Superior Court for trial on the
merits. Discovery is proceeding in that case pending a ruling by the Superior
Court on the Company's motion, filed October 10, 1994, to dismiss or stay the
Delaware action.
On February 11, 1993, Eljer Industries and Eljer Manufacturing filed an
action against Household in the District Court of Dallas County, Texas, alleging
claims for breach of contract in connection with the 1989 distribution of
Company stock to Household shareholders. In March 1993, Household raised
the defense of lack of personal jurisdiction over it and in September 1993,
the Delaware Chancery Court enjoined Eljer Industries and Eljer Manufacturing
from proceeding with its action in Texas. During the third quarter of 1994,
all previous injunctions against further prosecution of the case filed by the
Company against Household in Texas were terminated and no new injunctions have
been issued. On November 4, 1994, the Texas District Court Judge denied
Household's special appearance contesting the Texas court's exercise of
jurisdiction and ruled that Household is subject to jurisdiction by the Texas
State Court. Eljer Industries and Eljer Manufacturing are aggressively
preparing the Texas case for a March 1995 jury trial date.
The Consumer Product Safety Commission ("CPSC") has initiated an
investigation under Section 15 of the Consumer Product Safety Act as to whether
a vent pipe product manufactured by Chevron Chemical Company's Plexco
Performance Pipe Division poses a substantial product hazard under the Act.
The vent is used to exhaust combustion gases from mid- and high- efficiency
small water boilers and central heating furnaces. Eljer Manufacturing's
Selkirk division ("Selkirk") distributed the Plexco vent pipe from mid-1990
until the end of 1993. Selkirk then began manufacturing and selling a vent
pipe product in January, 1994. Selkirk has responded to an informal request
for information from the CPSC and has also sent samples, as requested, of its
own vent pipe product. The status, as well as the scope and extent of the CPSC
investigation are unknown. However, by law, the CPSC may direct repair,
replacement or refund of any product that it believes poses a substantial
product hazard. In Canada, use of Plexco and similar vent pipe has been
restricted to certain applications by provincial authorities pending further
investigation. Selkirk believes that its vent product does not exhibit the
same characteristics as the Plexco product, but is continuing to test and
monitor its product.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
4A Loan and Security Agreement by and among Congress
Financial Corporation (Southwest) as Lender and Eljer
Manufacturing, Inc. as Borrower and Eljer Industries,
Inc. as Guarantor dated October 17, 1994
4B Form of Second Amendment to Amended and Restated Credit
Agreement dated as of October 17, 1994
27 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on September 27, 1994, related to the
announcement that the Bankruptcy Court for the Eastern District of
Texas has extended the period during which U.S. Brass has the
exclusive right to file a plan of reorganization in its federal
bankruptcy proceeding and the assertion of direct claims against the
Company. See Note (2) and Note (5) to the Condensed Consolidated
Financial Statements in Part I, Item 1 for additional discussion.
Subsequent Reports on Form 8-K:
None
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELJER INDUSTRIES, INC.
Date November 16, 1994 By /s/ Henry W. Lehnerer
Henry W. Lehnerer
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement dated as of October 17, 1994 is entered
into by and between Congress Financial Corporation (Southwest), a Texas
corporation ("Lender") and Eljer Manufacturing, Inc., a Delaware corporation
("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code as adopted in the State of Texas shall have the
meanings given therein unless otherwise defined in this Agreement. All
references to the plural herein shall also mean the singular and to the
singular shall also mean the plural. All references to Borrower, Parent and
Lender pursuant to the definitions set forth in the recitals hereto, or to any
other person herein, shall include their respective successors and assigns.
The words "hereof", "herein", "hereunder", "this Agreement" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not any particular provision of this Agreement and as this Agreement
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced. Any Event of Default shall exist or continue
or be continuing until such Event of Default is waived in accordance with
Section 11.3 or cured in a manner satisfactory to Lender as determined in good
faith. Any accounting term used herein unless otherwise defined in this
Agreement shall have the meanings customarily given to such term in accordance
with GAAP. For purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods (other than Equipment) sold or leased or for services
rendered, which are not evidenced by instruments or chattel paper, and whether
or not earned by performance, provided, that, the term "Accounts" shall not
include rights of Borrower to payment (a) from Affiliates for services
rendered by Borrower to such Affiliates in the ordinary course of the business
of Borrower or (b) for goods sold or otherwise disposed of as part of the sale
or other disposition of a division of Borrower or of the assets constituting a
facility of Borrower.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-hundredth (1/100) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b)
a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign banking
authority for determining the reserve requirement which is or would be
applicable to deposits of United States dollars in a non-United States or an
international banking office of Reference Bank used to fund a Eurodollar Rate
Loan or any Eurodollar Rate Loan made with the proceeds of such deposit,
whether or not the Reference Bank actually holds or has made any such deposits
or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the
effective day of any change in the Reserve Percentage.
1.3 "Affiliate" shall mean, as to any Person, a Person (a) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person, or (b) that
directly or beneficially owns or holds ten (10%) percent or more of any class
of the voting stock (or in the case of a Person which is not a corporation,
ten (10%) percent or more of the voting interest) of such Person, or (c) ten
(10%) percent or more of whose voting stock (or in the case of a Person which
is not a corporation, ten (10%) percent or more of the voting interest) is
owned directly or beneficially held by such Person. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting stock, by contract or otherwise.
1.4 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and
revise in good faith reducing the amount of Loans and Letter of Credit
Accommodations which would otherwise be available to Borrower under the
lending formula provided for herein: (a) to reflect events, conditions,
contingencies or risks which, as determined by Lender in good faith, (i) do or
are reasonably likely to adversely affect either (A) the Collateral or any
other property which is security for the Obligations or its value or (B) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (ii) have a reasonable
likelihood of adversely affecting the business or assets of Borrower or (b) to
reflect Lender's good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower to Lender is or may have
been incomplete, inaccurate or misleading in any material respect or (c) in
respect of any state of facts which Lender determines in good faith
constitutes an Event of Default and (d) in amounts accrued at any time and
from time to time in respect of volume rebates offered to account debtors.
The amount of any Availability Reserves established by Lender shall have a
reasonable relationship as determined by Lender to the matter which is the
basis for it. Nothing set forth in this Section 1.4 shall give Lender the
right to establish an Availability Reserve solely and exclusively as a result
of the financial condition of U.S. Brass.
1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Borrowing Base Certificate" shall mean a certificate
substantially in the form of Exhibit A hereto, as such form may from time to
time be modified by Lender, which is duly completed (including all schedules
thereto) and executed by the chief financial officer or other appropriate
financial officer of Borrower acceptable to Lender and delivered to Lender.
1.7 "Business Day" shall mean (a) for the Prime Rate Loans, any day
other than a Saturday, Sunday, or other day on which commercial banks are
authorized or required to close under the laws of the State of New York or the
Commonwealth of Pennsylvania, and a day on which the Reference Bank and Lender
are open for the transaction of business, and (b) for all Eurodollar Rate
Loans, any such day as described in (a) above in this definition of Business
Day, excluding any day on which banks are closed for dealings in dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market.
1.8 "Canadian Dollars" shall mean legal tender according to the laws of
Canada.
1.9 "Capital Leases" shall mean any lease of any property (whether
real, personal or mixed) which, in conformity with GAAP, is or should be
accounted for as a capital lease on the balance sheet of the lessee.
1.10 "Capital Stock" shall mean any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock, including, without limitation, partnership interests.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.12 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.13 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than sixty (60) days after
the original due date thereof but in no event are not unpaid more than two
hundred ten (210) days after the original invoice date for them;
(c) such Accounts comply with the terms and conditions contained
in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America or Canada
(provided, that, at any time, promptly upon Lender's request, Borrower shall
execute and deliver, or cause to be executed and delivered, such other
agreements, documents and instruments as may be required by Lender to perfect
the security interests of Lender in those Accounts of an account debtor with
its chief executive office in Canada in accordance with the applicable laws of
the Province of Canada in which such chief executive office is located and
take or cause to be taken such other and further actions as Lender may request
to enable Lender as secured party with respect thereto to collect such
Accounts under the applicable laws of the Province of Canada) or, at Lender's
option, if the chief executive office of the account debtor with respect to
such Accounts is located other than in the United States of America or Canada,
then if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender, sufficient to cover such Account, in form and substance satisfactory
to Lender and, if required by Lender, the original of such letter of credit
has been delivered to Lender or Lender's agent and the issuer thereof notified
of the pledge or assignment of the proceeds of such letter of credit to
Lender, or (ii) such Account is subject to credit insurance payable to Lender
issued by an insurer and on terms and in an amount acceptable to Lender, or
(iii) such Account is otherwise acceptable in all respects to Lender (subject
to such lending formula with respect thereto as Lender may determine);
provided, that in no event shall Accounts of an account debtor with its chief
executive office in Europe be Eligible Accounts;
(f) such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay
such invoice;
(g) the account debtor with respect to any such Account has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against
such Accounts (except to the extent the account debtor engages in transactions
which may give rise to a right of setoff, the portion of the Accounts of an
account debtor in excess of the amount at any time and from time to time owing
by Borrower to such account debtor may be deemed an Eligible Account);
(h) there are no facts, events or occurrences which would
(i) impair the validity, enforceability or collectability of such Accounts,
(ii) reduce the amount payable in respect thereof or (iii) delay payment
thereunder to more than two hundred ten (210) days after the original invoice
date thereof;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are
not, and were not at the time of the sale thereof, subject to any liens except
those permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent
of or an Affiliate of Borrower or Parent directly or indirectly by virtue of
family membership, ownership, control, management or otherwise;
(k) the account debtor with respect to any such Account is not
Canada, any Province of Canada, any other foreign government, the United
States of America, or any State, political subdivision, department, agency,
instrumentality or other Governmental Agency thereof, unless, if the account
debtor is the United States of America, any State, political subdivision,
department, agency or instrumentality thereof, upon Lender's request, the
Federal Assignment of Claims Act of 1940, as amended or any similar State or
local law, if applicable, has been complied with in a manner satisfactory to
Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which in the
good faith determination of Lender have a reasonable likelihood of resulting
in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of a single account debtor or its affiliates do
not constitute more than twenty (20%) percent of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of such percentage may
be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than sixty (60) days past the original due date thereof,
but in any event no more than two hundred ten (210) days after the date of the
original invoice for them, which together constitute more than fifty (50%)
percent of the total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender in good faith from time to time (but
the portion of the Accounts not in excess of such credit limit may still be
deemed Eligible Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy
at all times by Lender, as determined by Lender in good faith.
General criteria for Eligible Accounts may be established and revised from
time to time by Lender in good faith based on some event, condition or other
circumstance arising after the date hereof which affects or has a reasonable
likelihood of affecting the Accounts in the good faith determination of
Lender. Any Accounts which are not Eligible Accounts shall nevertheless be
part of the Collateral.
1.14 "Environmental Laws" shall mean all Federal, State, district,
local and foreign laws, rules, regulations, ordinances, and consent decrees
relating to health, safety, hazardous substances, pollution and environmental
matters, as now or at any time hereafter in effect, applicable to Borrower's
business and facilities (whether or not owned by it), including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances,
materials or wastes into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata)
or otherwise relating to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals, or hazardous, toxic or dangerous
substances, materials or wastes.
1.15 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to
time be amended, modified, recodified or supplemented, together with all rules
and regulations thereunder.
1.16 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.17 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.
1.18 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.19 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the
arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which
Reference Bank is offered deposits of United States dollars in the London
interbank market (or other Eurodollar Rate market selected by Borrower and
approved by Lender) on or about 9:00 a.m. (New York time) two (2) Business
Days prior to the commencement of such Interest Period in amounts
substantially equal to the principal amount of the Eurodollar Rate Loans
requested by and available to Borrower in accordance with this Agreement, with
a maturity of comparable duration to the Interest Period selected by Borrower.
1.20 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.21 "Excess Availability" shall mean the amount calculated at any
time, equal to: (a) the lesser of (i) the amount of the Loans available to
Borrower as of such time based on the applicable lending formula (presently
eighty-five (85%) percent) multiplied by the Net Amount of Eligible Accounts,
subject to the sublimits and Availability Reserves from time to time
established by Lender hereunder, and (ii) the Maximum Credit, minus (b) the
sum of: (i) the amount of all then outstanding and unpaid Obligations, plus
(ii) the aggregate amount of all trade payables of Borrower which are more
than sixty (60) days past due as of such time.
1.22 "Existing Letters of Credit" shall mean, individually and
collectively, the letters of credit issued by Texas Commerce Bank for the
account of Borrower and/or Parent prior to the date hereof payable to the
beneficiaries thereof in the amounts and with the maturity dates described on
Schedule 1.22 hereto, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.23 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrower or any of its Affiliates in connection with this Agreement, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
1.24 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Boards which are
applicable to the circumstances as of the date of determination consistently
applied.
1.25 "Governmental Agency" shall mean the government of any country or
any province or state thereof, or a local municipality, or political
subdivision of any country, province or state, or local municipality, or any
body, department, authority, agency, public corporation or instrumentality of
any of the foregoing.
1.26 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including, without limitation any that are or become classified as hazardous
or toxic under any Environmental Law).
1.27 "Indebtedness" shall mean with respect to any Person any
liability, whether or not contingent, (a) in respect of borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof) or evidenced by bonds, notes,
debentures or similar instruments, (b) representing the balance deferred and
unpaid of the purchase price of any property or services (except any such
balance that constitutes an account payable to a trade creditor (whether or
not an Affiliate) created, incurred, assumed or guaranteed by such Person in
the ordinary course of business of such Person in connection with obtaining
goods, materials or services that is not overdue by more than ninety (90)
days, unless the trade payable is being contested in good faith), (c) all
obligations as lessee under leases which have been, or should be, in
accordance with GAAP recorded as Capital Leases, (d) any contractual
obligation, contingent or otherwise, of such Person to pay or be liable for
the payment of any indebtedness described in this Section 1.27 of another
Person, including, without limitation, any such Indebtedness, directly or
indirectly guaranteed, endorsed (other than for collection or deposit in the
ordinary course of business), co-made or discounted or sold with recourse by
such Person, or in respect of which such Person is otherwise directly or
indirectly liable, including contractual obligations (contingent or otherwise)
arising through any agreement to purchase, repurchase, or otherwise acquire
such Indebtedness, obligation or liability or any security therefor, or to
provide funds for the payment or discharge thereof (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain solvency, assets, level of income, or other financial condition, or
to make payment other than for value received, (e) all obligations with
respect to redeemable stock and redemption or repurchase obligations under any
Capital Stock or other equity securities issued by such Person, (f) all
reimbursement obligations and other liabilities of such Person with respect to
letters of credit, banker's acceptances or similar documents or instruments
issued for such Person's account, (g) all indebtedness of such Person in
respect of indebtedness of another Person for borrowed money or indebtedness
of another Person otherwise described in this Section 1.27 which is secured by
any consensual lien, security interest, collateral assignment, conditional
sale, mortgage, deed of trust, or other encumbrance upon interest on any asset
of such Person, whether or not such obligations, liabilities or indebtedness
are assumed by or are a personal liability of such Person, all as of such
time, and (h) all obligations, liabilities and indebtedness of such Person
(marked to market) in respect of interest rate exchange contracts and foreign
currency exchange agreements.
1.28 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2) or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.29 "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one
(1%) percent per annum in excess of the Prime Rate and, as to Eurodollar Rate
Loans, a rate of three (3%) percent per annum in excess of the Adjusted
Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest
Period selected by Borrower as in effect three (3) Business Days (or if Lender
and Borrower from time to time agree, two (2) Business Days) after the date of
receipt by Lender of the request of Borrower for such Eurodollar Rate Loans in
accordance with the terms hereof, whether such rate is higher or lower than
any rate previously quoted to Borrower); provided, that, the Interest Rate
shall mean, at Lender's option, the rate of three (3%) percent per annum in
excess of the Prime Rate as to Prime Rate Loans and five and one-half (5-1/2%)
percent per annum in excess of the applicable Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, (a) (i) for the period on and after the date of
termination or non-renewal hereof until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of any judgment against
Borrower) and (ii) for the period on and after the date one (1) day after
written notice by Lender to Borrower of Lender's intention to charge such rate
after the occurrence of any Event of Default pursuant to Section 10.1(a)(i),
10.1(a)(ii) as a result of the failure to comply with Section 9.8 or
Section 10.1(b) or five (5) days after written notice by Lender to Borrower of
Lender's intention to charge such rate after the occurrence of any other Event
of Default, and in any case for so long as such Event of Default is
continuing, and (b) on the amount of the outstanding Loans in excess of the
amounts available to Borrower under Section 2, if any (whether or not such
excess(es), arise or are made with or without Lender's knowledge or consent
and whether made before or after an Event of Default).
1.30 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.31 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of Borrower or (b) with
respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrower of its obligations to such issuer.
1.32 "Loans" shall mean the loans now or hereafter made by Lender to or
for the benefit of Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.33 "Maximum Credit" shall mean the amount of $35,000,000.
1.34 "Maximum Legal Rate" shall mean the maximum rate of interest
permitted to be charged by Lender to Borrower by applicable Federal or State
law as in effect from time to time. In the event that Texas Revised Civil
Statutes Annotated article 5069-1.04 provides for a ceiling on the rate of
interest, such ceiling shall be the indicated rate ceiling.
1.35 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the
amount thereof and (b) returns, discounts, claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding, available or
claimed with respect thereto.
1.36 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of
every kind, nature and description owing by Borrower to Lender, including
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether
arising under this Agreement, the other Financing Agreements or by operation
of law, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute (including, without limitation, the
payment of interest and other amounts which would accrue and become due but
for the commencement of such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, and secured or unsecured.
1.37 "Parent" shall mean Eljer Industries, Inc., a Delaware corporation,
and its successors and assigns.
1.38 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.39 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects "S" corporation status under the Internal Revenue
Code of 1986, as amended), limited liability company, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.
1.40 "Prime Rate" shall mean the rate from time to time publicly
announced by Philadelphia National Bank, incorporated as CoreStates Bank,
N.A., or its successors, at its office in Philadelphia, Pennsylvania, as its
prime rate, whether or not such announced rate is the best rate available at
such bank.
1.41 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.42 "Receivables" shall mean all present and future indebtedness owed
to Borrower, whether constituting an Account, chattel paper, instrument or
general intangible, arising from the sale or other disposition of goods (other
than Equipment) or the rendering of services by Borrower; provided, that, the
term "Receivables" shall not include rights of Borrower to payment (a) from
Affiliates for services rendered by Borrower to such Affiliates in the
ordinary course of business of Borrower or (b) for goods sold or otherwise
disposed of as part of the sale or other disposition of a division of Borrower
or of the assets constituting a facility of Borrower.
1.43 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, lists of account debtors, bills of lading and other shipping
evidence, statements, correspondence, memoranda, credit files and other data
relating to the Collateral or any account debtor, together with the tapes,
disks, diskettes and other data and software storage media and devices, file
cabinets or containers in or on which the foregoing are stored (including any
rights of Borrower with respect to the foregoing maintained with or by any
other person).
1.44 "Reference Bank" shall mean Philadelphia National Bank,
incorporated as CoreStates Bank, N.A., or such other bank as Lender may from
time to time designate.
1.45 "Refinancing Indebtedness" shall have the meaning set forth in
Section 9.9 hereof.
1.46 "Subsidiary" or "subsidiary" shall mean any corporation,
association or organization, active or inactive, as to which more than fifty
(50%) percent of the outstanding voting stock or shares or interests shall now
or hereafter be owned or controlled, directly or indirectly, by Borrower,
Parent, any Subsidiary of Borrower or Parent, or any Subsidiary of such
Subsidiary.
1.47 "Term Loan Agent" shall mean NationsBank of Texas, N.A., a national
banking association, in its capacity as Administrative Agent pursuant to the
Term Loan Agreement, together with its successors and assigns in such
capacity.
1.48 "Term Loan Agreement" shall mean the Amended and Restated Credit
Agreement, dated as of December 11, 1992, by and among Borrower, Parent, Term
Loan Agent, NationsBank of Texas, N.A. and Morgan Guaranty Trust Company of
New York, as Co-Agents and the Term Loan Lenders, as amended pursuant to the
First Amendment, dated as of March 25, 1994, and the Second Amendment, dated
of even date herewith, as the same may be further amended, modified,
supplemented, extended, renewed, restated or replaced.
1.49 "Term Loan Lender Collateral" shall mean the assets and properties
of Borrower and Parent described on Schedule 1.49 hereto.
1.50 "Term Loan Lender Letters of Credit" shall mean, individually and
collectively, the letters of credit issued by certain of the Term Loan Lenders
for the account of Borrower pursuant to the terms of the Term Loan Agreement
prior to the date hereof payable to the beneficiaries thereof in the amounts
and with the maturity dates set forth on Schedule 1.50 hereto, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.51 "Term Loan Lenders" shall mean individually and collectively the
parties to the Term Loan Agreement which are listed on Schedule 1.51 hereto,
and their respective successors and assigns.
1.52 "U.S. Brass" shall mean United States Brass Corporation, a Delaware
corporation, and its successors and assigns.
1.53 "U.S. Dollar Equivalent" shall mean the number of U.S. Dollars
which Lender can purchase with the amount of the available currency,
including, without limitation, Canadian Dollars, at any time or from time to
time in order to perform any provision of this Agreement or the other
Financing Agreements, provided, that, such determination shall be at the
buying rate of exchange available to Lender on such date, at such time, at any
branch in New York, New York or Philadelphia, Pennsylvania of any bank,
chartered, incorporated or qualified to do banking business under the laws of
the United States of America, the State of New York or the Commonwealth of
Pennsylvania, as may be selected by Lender, in its discretion. In determining
the Net Amount of Eligible Accounts, any such Accounts payable in Canadian
Dollars shall be converted to their U.S. Dollar Equivalent.
1.54 "U.S. Dollars" shall mean legal tender according to the laws of
the United States of America.
1.55 "Weighted Average Life to Maturity" shall mean, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the
then outstanding principal amount of such Indebtedness into (b) the total of
the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by
(ii) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment.
SECTION 2. CREDIT FACILITIES
2.1 Loans.
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to:
(i) eighty-five (85%) percent of the Net Amount of
Eligible Accounts,
minus
(ii) the sum of Lender's liabilities with respect to
Letter of Credit Accommodations (subject to
Section 2.2(d) below),
minus
(iii) all Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrower, reduce the lending formula
with respect to Eligible Accounts to the extent that Lender determines in good
faith that: (i) the dilution with respect to the Accounts for any period
(based on the ratio of (A) the aggregate amount of reductions in Accounts
other than as a result of payments in cash to (B) the aggregate amount of
total sales) has increased in any material respect or may be reasonably
anticipated to increase in any material respect above historical levels, or
(ii) the general creditworthiness of account debtors has declined. The amount
of such reduction in the lending formula pursuant to this Section 2.1(b) shall
bear a reasonable relationship to the increase in dilution or decline in the
creditworthiness of account debtors which is the basis for such reduction in
the lending formula.
(c) Except in Lender's discretion, the aggregate amount of the
Loans and the Letter of Credit Accommodations outstanding at any time shall
not exceed the Maximum Credit. In the event that the outstanding amount of
any component of the Loans, or the aggregate amount of the outstanding Loans
and Letter of Credit Accommodations, exceed the amounts available under the
lending formula in Section 2.1(a), the sublimits for Letter of Credit
Accommodations set forth in Section 2.2(d) or the Maximum Credit, as
applicable, such event shall not limit, waive or otherwise affect any rights
of Lender in that circumstance or on any future occasions and Borrower shall,
upon demand by Lender, which may be made at any time or from time to time,
immediately repay to Lender the entire amount of any such excess(es) for which
payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms
and conditions acceptable to Lender and the issuer thereof. Any payments made
by Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Loans to Borrower
pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations,
Borrower shall pay to Lender a letter of credit fee at a rate equal to one and
one-half (1-1/2%) percent per annum on the daily outstanding balance of the
Letter of Credit Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each succeeding month.
Such letter of credit fee shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed and the obligation of Borrower to
pay such fee shall survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless
on the date of the proposed issuance of any Letter of Credit Accommodations,
the Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than an amount equal to one
hundred (100%) percent of the face amount thereof.
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations shall not at any time exceed $10,000,000. At
any time an Event of Default exists or has occurred and is continuing, upon
Lender's request, Borrower will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter of
Credit Accommodations or furnish cash collateral to Lender for the Letter of
Credit Accommodations, and in either case, the Loans otherwise available to
Borrower shall not be reduced as provided in Section 2.1(a)(ii) to the extent
of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with
respect to any Letter of Credit Accommodation. Borrower assumes all risks
with respect to the acts or omissions of the drawer under or beneficiary of
any Letter of Credit Accommodation and for such purposes the drawer or
beneficiary shall be deemed Borrower's agent. Borrower assumes all risks for,
and agrees to pay, all foreign, Federal, State and local taxes, duties and
levies relating to any goods subject to any Letter of Credit Accommodations or
any documents, drafts or acceptances thereunder. Borrower hereby releases and
holds Lender harmless from and against any acts, waivers, errors, delays or
omissions, whether caused by Borrower, by any issuer or correspondent or
otherwise with respect to or relating to any Letter of Credit Accommodation.
The provisions of this Section 2.2(e) shall survive the payment of Obligations
and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter
of Credit Accommodation provided by an issuer other than Lender unless Lender
has duly executed and delivered to such issuer the application or a guarantee
or indemnification in writing with respect to such Letter of Credit
Accommodation. Borrower shall be bound by any interpretation made in good
faith by Lender, or any other issuer or correspondent under or in connection
with any Letter of Credit Accommodation or any documents, drafts or
acceptances thereunder, notwithstanding that such interpretation may be
inconsistent with any instructions of Borrower.
(i) At any time an Event of Default exists or has occurred
and is continuing, Lender, at its option, shall have the sole and exclusive
right and authority to, and Borrower shall not, after receiving notice of the
exercise by Lender of such option: (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications
for steamship or airway guaranties, indemnities or delivery orders.
(ii) Lender shall have the sole and exclusive right and
authority to, and Borrower shall not, at any time, (A) grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents, and (B) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letter of Credit Accommodations, or
documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral. Nothing contained in this Section 2.2(f)(ii) shall be
construed to give Lender the right and authority to agree to any amendments to
any of the terms of any agreement of Borrower with a third person (other than
the issuer or any agent or correspondent of the issuer) to which such Letter
of Credit Accommodations relate.
(iii) Lender may take such actions pursuant to
Sections 2.2(f)(i) and 2.2(f)(ii) above either in its own name or in
Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for
any Letter of Credit Accommodation, or any other agreement in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall
be deemed to have been granted or undertaken by Borrower to Lender. Any
duties or obligations undertaken by Lender to any issuer or correspondent in
any application for any Letter of Credit Accommodation, or any other agreement
by Lender in favor of any issuer or correspondent relating to any Letter of
Credit Accommodation, shall be deemed to have been undertaken by Borrower to
Lender and to apply in all respects to Borrower.
2.3 Availability Reserves. All Loans otherwise available to Borrower
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's continuing right to
establish and revise Availability Reserves.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate.
(b) Borrower may from time to time request that Prime Rate Loans
be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate
Loans continue for an additional Interest Period. Such request from Borrower
shall specify the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth below) and the Interest
Period to be applicable to such Eurodollar Rate Loans. Subject to the terms
and conditions contained herein, three (3) Business Days (or, if Borrower and
Lender from time to time agree, two (2) Business Days) after receipt by Lender
of such a request from Borrower, such Prime Rate Loans shall be converted to
Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the
case may be, provided, that, (i) no Event of Default, or event which with
notice or passage of time or both would constitute an Event of Default exists
or has occurred and is continuing, (ii) no party hereto shall have sent any
notice of termination or non-renewal of this Agreement in accordance with the
terms hereof, (iii) Borrower shall have complied with such customary
procedures as are established by Lender for its customers generally and
specified by Lender to Borrower from time to time for requests by Borrower for
Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods may be in
effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, (vi) the maximum amount of the Eurodollar Rate
Loans at any time requested by Borrower shall not exceed the amount equal to
seventy-five (75%) percent of the daily average of the principal amount of the
Loans which it is anticipated will be outstanding during the applicable
Interest Period, in each case as determined by Lender in good faith (but with
no obligation of Lender to make such Loans on terms other than as provided
herein) and (vii) Lender shall have determined that the Interest Period or
Adjusted Eurodollar Rate is available to Lender through the Reference Bank and
can be readily determined as of the date of the request for such Eurodollar
Rate Loan by Borrower. Any request by Borrower to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall
be irrevocable. Notwithstanding anything to the contrary contained herein,
Lender and Reference Bank shall not be required to purchase United States
Dollar deposits in the London interbank market or other applicable Eurodollar
Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall
be deemed to apply as if Lender and Reference Bank had purchased such deposits
to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate
Loan at least three (3) Business Days (or, if Borrower and Lender from time to
time agree, two (2) Business Days) prior to such last day in accordance with
the terms hereof. Borrower shall pay to Lender, upon demand by Lender (or
Lender may, at its option, charge any loan account of Borrower) any amounts
required to compensate Lender, the Reference Bank or any participant with
Lender for any loss (excluding loss of anticipated profits), cost or expense
incurred by such person, as a result of the conversion of Eurodollar Rate
Loans to Prime Rate Loans for any reason or in the event that the aggregate
principal amount of the Prime Rate Loans which have previously been converted
to Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the
case may be, at the beginning of an Interest Period shall at any time during
such Interest Period exceed either (A) the aggregate principal amount of the
Loans then outstanding or (B) the amount of the Loans then available to
Borrower under Section 2 hereof.
(d) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month (provided, that,
all accrued and unpaid interest on and after the date of any Event of Default
and for so long as the same is continuing or termination or non-renewal hereof
shall be payable on demand) and shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed. The interest rate on
non-contingent Obligations (other than Eurodollar Rate Loans) shall increase
or decrease by an amount equal to each increase or decrease in the Prime Rate
effective on the first day of the month after any change in such Prime Rate is
announced based on the Prime Rate in effect on the last day of the month in
which any such change occurs. In no event shall charges constituting interest
payable by Borrower to Lender exceed the Maximum Legal Rate or the maximum
amount permitted under any applicable law or regulation, and if any such part
or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
(e) No agreements, conditions, provisions or stipulations
contained in this Agreement or any of the other Financing Agreements or an
Event of Default, or the exercise by Lender of the right to accelerate the
payment of any of the Obligations, or the occurrence of any contingency
whatsoever, shall entitle Lender to contract for, charge, or receive interest
exceeding the Maximum Legal Rate. In no event shall Borrower be obligated to
pay interest exceeding such Maximum Legal Rate and all agreements, conditions
or stipulations, if any, which may in any event or contingency whatsoever
operate to bind, obligate or compel Borrower to pay a rate of interest
exceeding the Maximum Legal Rate, shall be without binding force or effect, at
law or in equity, to the extent only of the excess of interest over such
Maximum Legal Rate. In the event any interest is contracted for, charged or
received in excess of the Maximum Legal Rate ("Excess"), Borrower acknowledges
and stipulates that any such contract, charge, or receipt shall be the result
of an accident and bona fide error, and that any Excess received by Lender
shall be applied, first, to reduce the principal then unpaid hereunder;
second, to reduce the other Obligations; and third, returned to Borrower, it
being the intention of the parties hereto not to enter at any time into a
usurious or otherwise illegal relationship. Borrower recognizes that, with
fluctuations in the Prime Rate, the Adjusted Eurodollar Rate and the Maximum
Legal Rate, such a result could inadvertently occur. By the execution of this
Agreement, Borrower covenants that (i) the credit or return of any Excess
shall constitute the acceptance by Borrower of such Excess, and (ii) Borrower
shall not seek or pursue any other remedy, legal or equitable, against Lender,
based in whole or in part upon contracting for, charging or receiving of any
interest in excess of the Maximum Legal Rate. For the purpose of determining
whether or not any Excess has been contracted for, charged or received by
Lender, all interest at any time contracted for, charged or received by Lender
in connection with this Agreement shall be amortized, prorated, allocated and
spread during the entire term of this Agreement in accordance with the amounts
outstanding from time to time hereunder and the Maximum Legal Rate from time
to time in effect in order to lawfully charge the maximum amount of interest
permitted under applicable law.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of $175,000, which shall be fully earned as of and payable on the date
hereof.
3.3 Facility Fee. Borrower shall pay to Lender annually a facility
fee in an amount equal to $35,000 while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
fully earned as of and payable in arrears on each anniversary of the date
hereof.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused
line fee equal at a rate equal to one-half of one (1/2%) percent per annum
calculated upon the amount by which $28,000,000 exceeds the average daily
principal balance of the outstanding Loans plus the average daily amount of
outstanding undrawn Letter of Credit Accommodations during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, by an amount deemed by Lender to be
material, or (B) shall result in the increase in the costs to Lender,
Reference Bank or any participant of making or maintaining any Eurodollar Rate
Loans by an amount deemed by Lender to be material or (C) reduce the amounts
received or receivable by Lender in respect thereof, by an amount deemed by
Lender to be material or (ii) the cost to Lender or Reference Bank of making
or maintaining any Eurodollar Rate Loans shall otherwise increase by an amount
deemed by Lender to be material. Borrower shall pay to Lender, upon demand by
Lender (or Lender may, at its option, charge any loan account of Borrower) any
amounts required to compensate Lender, the Reference Bank or any participant
with Lender for any loss (excluding loss of anticipated profits), cost or
expense incurred by such person as a result of any such conversion, including,
without limitation, any such loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain the Eurodollar Rate Loans or any portion thereof. A
certificate of Lender setting forth the basis for the determination of such
amount necessary to compensate Lender as aforesaid shall be delivered to
Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of collections
under Section 6.3 or any other payments made with the proceeds of Collateral,
Borrower shall pay to Lender upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
additional loss (excluding loss of anticipated profits), cost or expense
incurred by such person as a result of such prepayment or payment, including,
without limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain such Eurodollar Rate Loans or any portion thereof.
Notwithstanding anything to the contrary contained herein, if Borrower has
previously notified Lender that it will request new Loans in an amount equal
to any payments pursuant to Section 6.3 which are applied to the repayment of
Eurodollar Rate Loans and Borrower concurrently receives such new Loans
hereunder, such new Loans to the extent of the payments applied to Eurodollar
Rate Loans shall be deemed to constitute part of such Eurodollar Rate Loans
for the remainder of the applicable Interest Period.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender
making the initial Loans and providing any Letter of Credit Accommodations
hereunder to be provided concurrently with such initial Loans:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral, subject only to the
security interests and liens permitted herein or in the other Financing
Agreements;
(b) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory
in form and substance to Lender, and Lender shall have received all
information and copies of all documents, including, without limitation,
records of requisite corporate action and proceedings which Lender may have
requested in connection therewith, such documents where requested by Lender or
its counsel to be certified by appropriate corporate officers or governmental
authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Lender to enforce the
Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Loans available to Borrower, the results of which
shall be satisfactory to Lender, not more than three (3) business days prior
to the date hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, an intercreditor agreement by and among Lender, the
Term Loan Agent and the Term Loan Lenders, as acknowledged and agreed to by
Borrower and Parent, providing for, inter alia, the subordination of the
security interests of the Term Loan Agent and the Term Loan Lenders in the
Collateral to the security interests of Lender in the Collateral and related
matters, duly authorized, executed and delivered by the Term Loan Agent, the
Term Loan Lenders, Borrower and Parent;
(f) Lender shall have received, in form and substance
satisfactory to Lender, a copy of an amendment to the Term Loan Agreement in
order to permit the financing arrangements provided by Lender to Borrower
pursuant to this Agreement and related matters, duly authorized, executed and
delivered by the Term Loan Agent, the Term Loan Lenders, Borrower and Parent;
(g) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by The First
National Bank of Chicago of its financing arrangements with Borrower (other
than its arrangements as a "Bank" pursuant to the Term Loan Agreement) and the
termination and release by it of any interest in and to any of the Collateral
in such capacity, duly authorized, executed and delivered by it, including,
but not limited to, UCC termination statements for all UCC financing
statements previously filed by it, as secured party and Borrower, as debtor;
(h) the Excess Availability as determined by Lender, as of the
date hereof, shall be not less than $8,000,000 after giving effect to the
initial Loans made or to be made and Letter of Credit Accommodations issued or
to be issued in connection with the initial transactions hereunder;
(i) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing
Agreements, in form and substance satisfactory to Lender, and certificates of
insurance policies and/or endorsements naming Lender as loss payee;
(j) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower and Parent
with respect to the Financing Agreements and such other matters as Lender may
request; and
(k) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making any Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties
had been made on and as of the date of the making of each such Loan or
providing each such Letter of Credit Accommodation and after giving effect
thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making
of such Loan or providing each such Letter of Credit Accommodation and after
giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right
of set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Receivables;
5.2 all present and future interest, late charges, penalties,
collection fees, and other sums which shall be due and payable in connection
with any of the Receivables and all other obligations owed to Borrower with
respect to the Receivables by the account debtors obligated on the
Receivables;
5.3 all present and future choses in action or causes of action or
claims arising out of the Receivables and the other amounts described in
Section 5.2;
5.4 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter
held or received by or in transit either to Lender or its Affiliates or, to
the extent constituting or holding proceeds of Receivables or the other
Collateral described herein, any other depository or other institution from or
for the account of Borrower, except, that, the Collateral shall not include
any of the property described in this Section 5.4 to the extent (a) Lender
shall have received written notice from the Term Loan Agent that any such
property constitutes proceeds of the assets and properties of Borrower (other
than the Collateral) which are subject to the valid, enforceable and perfected
liens of Term Loan Lenders permitted under Section 9.8(e) hereof within five
(5) days after the receipt of such proceeds by Lender or its affiliates and
(b) such property shall be subject to such liens of Term Loan Lenders;
5.5 all present and future interests of Borrower in goods (including
returned, repossessed and reclaimed goods) the sale or disposition of which
gave rise to any Receivable;
5.6 all present and future liens, security interests, rights, remedies,
titles and interests in, to and in respect of Receivables and other Collateral
described herein, including, without limitation, (i) rights and remedies under
or relating to guaranties, warranties, contracts of suretyship, letters of
credit and credit and other insurance related to the other Collateral, (ii)
rights of stoppage in transit, replevin, repossession, reclamation and other
rights and remedies of Borrower as an unpaid vendor, lienholder, or secured
party, and (iii) deposits by and property of account debtors or other persons
securing the obligations of account debtors;
5.7 all of Borrower's present and future instruments, agreements,
invoices or other writings pursuant to which any Receivable arises or which
evidence such Receivable and all of Borrower's present and future agreements
or arrangements with sales agents, sales representatives, distributors or the
like pursuant to which such parties participate in the monitoring and
collection of any of the Receivables;
5.8 all Records; and
5.9 all proceeds of the foregoing in any form, and including, without
limitation, all cash collections and other cash proceeds of any Receivables,
all items or remittances in any form issued in payment of any Receivables
(including checks, drafts or other instruments) and insurance proceeds and all
claims against third parties for loss or damage to or destruction of any or
all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all
payments made by or on behalf of Borrower and (c) all other appropriate debits
and credits as provided in this Agreement, including, without limitation,
fees, charges, costs, expenses and interest. All entries in the loan
account(s) shall be made in accordance herewith and with Lender's customary
practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s)
maintained by Lender for Borrower pursuant to the provisions of this
Agreement, including principal, interest, fees, costs and expenses. Each such
statement shall be subject to subsequent adjustment by Lender but shall,
absent manifest errors or omissions, be considered correct and deemed accepted
by Borrower and conclusively binding upon Borrower as an account stated except
to the extent that Lender receives a written notice from Borrower of any
specific exceptions of Borrower thereto within ninety (90) days after the date
such statement has been mailed by Lender. Until such time as Lender shall
have rendered to Borrower a written statement as provided above and unless and
until Lender shall have received a written notice of exceptions within the
ninety (90) day period provided above, the balance in Borrower's loan
account(s) shall be presumptive evidence of the amounts due and owing to
Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable
to Lender into which Borrower shall promptly deposit and direct its account
debtors to directly remit all payments on Accounts and all payments
constituting other Collateral or proceeds thereof in the identical form in
which such payments are made, whether by cash, check or other manner. The
banks at which the Blocked Accounts are established shall enter into an
agreement, in form and substance satisfactory to Lender, providing that all
items received or deposited in the Blocked Accounts are the property of
Lender, that the depository bank has no lien upon, or right to setoff against,
the Blocked Accounts, the items received for deposit therein, or the funds
from time to time on deposit therein and that the depository bank will wire,
or otherwise transfer, in immediately available funds, on a daily basis, all
funds received or deposited into the Blocked Accounts to such bank account of
Lender as Lender may from time to time designate for such purpose ("Payment
Account"). Borrower agrees that all payments made to such Blocked Accounts or
other funds received and collected by Lender, whether on the Accounts or as
proceeds of Inventory or other Collateral or otherwise shall be the property
of Lender.
(b) For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (subject to reversal for any
failure in final collection) to the Obligations one (1) Business Day following
the date of receipt of immediately available funds by Lender in the Payment
Account. For purposes of calculating the amount of the Loans available to
Borrower such payments will be applied (subject to reversal for any failure in
final collection) to the Obligations on the Business Day of receipt by Lender
in the Payment Account, if such payments are received within sufficient time
(in accordance with Lender's usual and customary practices as in effect from
time to time) to credit Borrower's loan account on such day, and if not, then
on the next Business Day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts
or any other payment constituting proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the
Blocked Accounts, or remit the same or cause the same to be remitted, in kind,
to Lender. In no event shall the same be commingled with Borrower's own
funds. Borrower agrees to reimburse Lender on demand for any amounts owed or
paid to any bank at which a Blocked Account is established or any other bank
or person involved in the transfer of funds to or from the Blocked Accounts
arising out of Lender's payments to or indemnification of such bank or person.
The obligation of Borrower to reimburse Lender for such amounts pursuant to
this Section 6.3 shall survive the termination or non-renewal of this
Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from
time to time. Lender may apply payments received or collected from Borrower
or for the account of Borrower (including, without limitation, the monetary
proceeds of collections or of realization upon any Collateral) to such of the
Obligations, whether or not then due, in such order and manner as Lender
determines, provided, that, (a) all such payments shall be applied to
Obligations which are then due and payable before being applied to prepay any
Obligations which are not then due and payable and (b) all such payments shall
be applied to Prime Rate Loans before being applied to Eurodollar Rate Loans.
At Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may
be charged directly to the loan account(s) of Borrower. The amount of any
deposits previously furnished by Borrower to Lender for the expenses of Lender
pursuant to the proposal letter dated August 12, 1994 between Borrower and
Lender which are not applied to such expenses, if any, shall be applied to the
Obligations. Borrower shall make all payments to Lender on the Obligations
free and clear of, and without deduction or withholding for or on account of,
any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment
of, any of the Obligations, Lender is required to surrender or return such
payment or proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by Lender. Borrower shall be liable
to pay to Lender, and does hereby indemnify and hold Lender harmless for the
amount of any payments or proceeds surrendered or returned. This Section 6.4
shall remain effective notwithstanding any contrary action which may be taken
by Lender in reliance upon such payment or proceeds. This Section 6.4 shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the
Loans and provide the Letter of Credit Accommodations based upon telephonic or
other instructions received from anyone purporting to be an authorized officer
of Borrower or other authorized person or, at the discretion of Lender, if
such Loans are necessary to satisfy any Obligations. Borrower will from time
to time furnish Lender with a list of authorized officers and persons. All
requests for Loans or Letter of Credit Accommodations hereunder shall specify
the date on which the requested advance is to be made or Letter of Credit
Accommodations established (which day shall be a Business Day) and the amount
of the requested Loan. Requests received after 11:00 a.m. Dallas time on any
day shall, at Lender's option, be deemed to have been made as of the opening
of business on the immediately following Business Day. All Loans and Letter
of Credit Accommodations under this Agreement shall be conclusively presumed
to have been made to, and at the request of and for the benefit of, Borrower
when deposited to the credit of Borrower or otherwise disbursed or established
in accordance with the instructions of Borrower or in accordance with the
terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the proceeds of the initial
Loans provided by Lender to Borrower hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by
Borrower to Lender on or about the date hereof and (b) costs, expenses and
fees in connection with the preparation, negotiation, execution and delivery
of this Agreement and the other Financing Agreements. All other Loans made or
Letter of Credit Accommodations provided by Lender to Borrower pursuant to the
provisions hereof shall be used by Borrower only for general operating,
working capital and other proper corporate purposes of Borrower not otherwise
prohibited by the terms hereof. None of the proceeds will be used, directly
or indirectly, for the purpose of purchasing or carrying any margin security
or for the purposes of reducing or retiring any indebtedness which was
originally incurred to purchase or carry any margin security or for any other
purpose which might cause any of the Loans to be considered a "purpose credit"
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting.
(a) Borrower shall provide Lender with the following documents in a
form satisfactory to Lender:
(i) on a weekly basis or more frequently at Borrower's option or
as Lender may request, a Borrowing Base Certificate setting forth Borrower's
calculation of the Loans and Letter of Credit Accommodations available to
Borrower pursuant to the terms and conditions contained herein as of the last
Business Day of the immediately preceding week as to the Accounts, as duly
completed and executed by the chief financial officer or other appropriate
financial officer acceptable to Lender, together with all schedules required
pursuant to the terms of the Borrowing Base Certificate duly completed
(including, without limitation, a schedule of all Accounts created,
collections received and credit memos issued for each Business Day of the
immediately preceding week); provided, that, without limiting any other rights
of Lender, upon Lender's request, Borrower shall provide Lender on a daily
basis with a schedule of Accounts, collections received and credits issued (A)
at any time an Event of Default exists or has occurred and is continuing, (B)
if at any time Borrower fails to deliver any Borrowing Base Certificate in
accordance with the terms hereof or (C) upon Lender's good faith belief that
any information contained in any Borrowing Base Certificate is incomplete,
inaccurate or misleading or (D) during any period that Excess Availability is
less than $3,500,000;
(ii) on a monthly basis as and when requested by Lender,
inventory reports by category;
(iii) upon Lender's request, (A) copies of customer statements and
credit memos, remittances advices and reports, and copies of deposit slips and
bank statements and (B) copies of shipping and delivery documents, and of
purchase orders and invoices for Inventory sold by Borrower;
(iv) agings of accounts receivable and agings of accounts payable
on a monthly basis or more frequently as Lender may request; and
(v) such other reports as to the Collateral as Lender shall
request from time to time.
(b) Nothing contained in any Borrowing Base Certificate shall be deemed
to limit, impair or otherwise affect the rights of Lender contained herein or
bind Lender to accept any calculation made by Borrower which is not made in
accordance with the terms hereof in the good faith determination of Lender.
Lender shall have the exclusive right to determine Eligible Accounts and any
Availability Reserves as otherwise provided herein. Without limiting the
foregoing, Borrower shall furnish to Lender any information which Lender may
reasonably request regarding the determination and calculation of any of the
amounts set forth in the Borrowing Base Certificate. If any of Borrower's
records or reports of the Collateral are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports and related documents to Lender and to follow Lender's
instructions with respect to the delivery of them to Lender at any time that
an Event of Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its obligations to any account
debtor or (other than requests for replacement of damaged or defective
Inventory in the ordinary course of business) the assertion of any claims,
offsets, defenses or counterclaims by any account debtor, or any disputes with
account debtors, or any settlement, adjustment or compromise thereof, (ii) all
material adverse information relating to the financial condition of any
account debtor obtained by Borrower in the ordinary course of its business
pursuant to its customary credit practices and procedures and (iii) any event
or circumstance which, to Borrower's knowledge would cause Lender to consider
any then existing Accounts as no longer constituting Eligible Accounts. No
credit, discount, allowance or extension or agreement for any of the foregoing
shall be granted to any account debtor without Lender's consent, except in the
ordinary course of Borrower's business in accordance with practices and
policies previously disclosed in writing to Lender. So long as no Event of
Default exists or has occurred and is continuing, and Lender has not exercised
its option to do so, Borrower may in its discretion settle, adjust or
compromise any claim, offset, counterclaim or dispute with any account debtor.
At any time that an Event of Default exists or has occurred and is continuing,
Lender shall, at its option, have the exclusive right to settle, adjust or
compromise any claim, offset, counterclaim or dispute with account debtors or
grant any credits, discounts or allowances.
(b) Borrower shall promptly report to Lender the aggregate
returns of Inventory by account debtors. At any time that Inventory is
returned, reclaimed or repossessed, the related Account shall not be deemed an
Eligible Account to the extent of the portion of the Account which relates to
the sale by Borrower to the account debtor of the returned, reclaimed or
repossessed Inventory. In the event any account debtor returns Inventory when
an Event of Default exists or has occurred and is continuing, Borrower shall,
upon Lender's request, (i) hold the returned Inventory in trust for Lender,
(ii) segregate all returned Inventory from all of its other property, (iii)
dispose of the returned Inventory solely according to Lender's instructions,
and (iv) not issue any credits, discounts or allowances with respect thereto
without Lender's prior written consent. Borrower shall report to Lender any
Inventory consisting of finished goods acquired or accepted by Borrower on
consignment or approval, and any Accounts or other amounts payable in respect
of the sale or other disposition of such Inventory shall not be deemed
Eligible Accounts unless and until such Inventory has been paid for in full by
Borrower and the consignor or other supplier of such Inventory does not have
any interest in, or claim to, such Inventory or Account and such Accounts
shall be listed as a separate category of Accounts which are not Eligible
Accounts on each Borrowing Base Certificate or other schedule of Accounts at
any time delivered by Borrower to Lender.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender shall be true and complete (excluding minor
arithmetical and pricing errors) and the amounts shown on any schedule thereof
delivered to Lender shall be true and complete, (ii) no payments shall be
accepted thereon except payments immediately delivered to Lender pursuant to
the terms of this Agreement, (iii) no credit, discount, allowance or extension
or agreement for any of the foregoing shall be granted to any account debtor
except as reported to Lender in accordance with this Agreement and except for
credits, discounts, allowances or extensions made or given in the ordinary
course of Borrower's business in accordance with practices and policies
previously disclosed to Lender, (iv) there shall be no setoffs, deductions,
contras, defenses, counterclaims or disputes existing or asserted with respect
thereto except as reported to Lender in accordance with the terms of this
Agreement, (v) none of the transactions giving rise thereto will violate any
applicable State or Federal laws or regulations, all documentation relating
thereto will be legally sufficient under such laws and regulations and all
such documentation will be legally enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower,
all chattel paper and instruments constituting Receivables which Borrower now
owns or may at any time acquire immediately upon Borrower's receipt thereof,
except as Lender may otherwise agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account
debtors that the Accounts have been assigned to Lender and that Lender has a
security interest therein and Lender may direct any or all account debtors to
make payment of Accounts directly to Lender, (ii) extend the time of payment
of, compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations (except to the extent paid
thereby), (iii) demand, collect or enforce payment of any Accounts or such
other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) otherwise
exercise any rights of Lender as Lender may deem necessary or desirable for
the protection of its interests. At any time that an Event of Default exists
or has occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor shall state that the Accounts and such
other obligations have been pledged or assigned as collateral to Lender and
are payable directly and only to Lender and Borrower shall deliver to Lender
such originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain satisfactory inventory records, keeping correct
and accurate records itemizing and describing the kind, type, quality and
quantity of Inventory, Borrower's cost therefor and daily withdrawals
therefrom and additions thereto; (b) Borrower shall conduct a physical count
of the Inventory at least once each year, and promptly following such physical
inventory make such adjustments to its books and records as may be required as
a result of such physical inventory; (c) Borrower shall not remove any
Inventory constituting Collateral or other tangible Collateral from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) Borrower shall produce, use,
store and maintain the Inventory, with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including, but not limited to, the requirements of the
Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); and (e) as between Borrower and
Lender, Borrower assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of the Inventory.
7.4 Equipment Covenants. With respect to the Equipment: (a) Borrower
shall keep the Equipment used in its business in good order, repair and
running condition consistent with past practices (ordinary wear and tear
excepted); (b) Borrower shall use such Equipment with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with all applicable laws; (c) such Equipment is and shall be used
in Borrower's business and not for personal, family, household or farming use;
and (d) as between Borrower and Lender, Borrower assumes all responsibility
and liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's
name, to: (a) at any time an Event of Default exists or has occurred and is
continuing (i) demand payment on Receivables or other proceeds arising from
the sale or other disposition of other Collateral, (ii) enforce payment of
Receivables by legal proceedings or otherwise, (iii) exercise all of
Borrower's rights and remedies to collect any Receivables or other Collateral,
(iv) sell or assign any Receivable upon such terms, for such amount and at
such time or times as the Lender deems advisable, (v) settle, adjust,
compromise, extend or renew a Receivable, (vi) discharge and release any
Receivable, (vii) prepare, file and sign Borrower's name on any proof of claim
in bankruptcy or other similar document against an account debtor, (viii)
notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and dispose of
all mail addressed to Borrower relating to any of the Collateral (provided,
that, Lender shall, promptly upon Borrower's request, provide to Borrower all
mail addressed to Borrower and received by Lender pursuant to the exercise of
Lender's rights under this Section 7.5(a) which does not relate to any of the
Collateral), and (ix) do all acts and things which are necessary, in Lender's
determination, to exercise Lender's rights and remedies provided in Sections
7.2, 7.6, 7.7 and Section 10.2 hereof and (b) at any time, (i) take control in
any manner of any item of payment constituting any of the Collateral or
proceeds thereof, (ii) have access to any lockbox or postal box into which any
of the Collateral or any proceeds thereof is deposited, (iii) endorse
Borrower's name upon any items of payment constituting any of the Collateral
or proceeds thereof and deposit the same in the Lender's account for
application to the Obligations, (iv) endorse Borrower's name upon any chattel
paper, document, instrument, invoice, or similar document or agreement
constituting any of the Collateral, (v) sign Borrower's name on any
verification of Receivables and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. Borrower hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power
of attorney and in furtherance thereof, whether of omission or commission,
including, without limitation, as a result of Lender's own negligence, except
as a result of Lender's own gross negligence or willful misconduct as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
Borrower under any agreement with an account debtor relating to any of the
Receivables or under any other agreement with a third party as may otherwise
be required in the good faith determination of Lender to facilitate the
collection of any of the Receivables or enable Lender to have access to any of
the Collateral or any Equipment in which any of the Records are stored,
(b) after notice to Borrower, pay or bond on appeal any judgment entered
against Borrower which upon levy, execution, attachment or the exercise of any
similar remedy with respect thereto would result in a lien on any of the
Collateral or impair the ability of Lender to obtain possession of, realize
upon or collect any of the Collateral, (c) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (d) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect
thereto. Lender may add any amounts so expended to the Obligations and charge
Borrower's account therefor, such amounts to be repayable by Borrower on
demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation
or liability of Borrower. Any payment made or other action taken by Lender
under this Section shall be without prejudice to any right to assert an Event
of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at
the cost and expense of Borrower, (a) Lender or its designee shall have
complete access to all of Borrower's premises during normal business hours and
after notice to Borrower, or at any time and without notice to Borrower if an
Event of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records, and (b) Borrower
shall promptly furnish to Lender such copies of such books and records or
extracts therefrom as Lender may request, and (c) use during normal business
hours such of Borrower's personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing (and Borrower and Lender shall
cooperate with each other to reduce the effect of such use by Lender on the
conduct of the business of Borrower to the extent practical) and if an Event
of Default exists or has occurred and is continuing for the collection of
Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower
is a corporation duly organized and in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation and in
good standing in all states or other jurisdictions where the nature and extent
of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure
to so qualify would not have a material adverse effect on Borrower's financial
condition, results of operation or business or the rights of Lender in or to
any of the Collateral. The execution, delivery and performance of this
Agreement, the other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within Borrower's corporate powers, have been
duly authorized and are not in contravention of law or the terms of Borrower's
certificate of incorporation, by-laws, or other organizational documentation,
or any indenture, agreement or undertaking to which Borrower is a party or by
which Borrower or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding obligations of
Borrower and its Affiliates, to the extent they are parties thereto,
enforceable in accordance with their respective terms except as limited by
bankruptcy, insolvency, reorganization and other laws affecting the
enforcement of creditors' rights and by general principles of equity.
Borrower does not have any Subsidiaries except as set forth on Schedule 8.1
hereto and as may be formed or acquired by Borrower after the date hereof to
the extent permitted in Section 9.7(c) hereof. Each of the existing
Subsidiaries of Borrower (other than U.S. Brass) set forth on Schedule 8.1
hereof is not engaged in the conduct of any business or other commercial
activity and each of them does not have any assets or liabilities, other than
the intangible asset consisting of its name and nominal amounts of cash.
Parent does not have any Subsidiaries except as set forth on Schedule 8.1 and
as may hereafter be disclosed in writing to Lender promptly upon the formation
or acquisition of such other Subsidiary.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower and Parent which have been or may hereafter be
delivered by Borrower or Parent to Lender have been prepared in accordance
with GAAP and fairly present the financial condition and the results of
operation of Borrower and Parent as at the dates and for the periods set forth
therein. Since Parent's Form 10-Q, dated August 16, 1994, for the period
ending July 3, 1994 and Parent's Form 8-K dated September 27, 1994, there has
been no material adverse change in the business or assets of Borrower and
Parent.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in
Schedule 8.3 hereto, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. Schedule 8.3 correctly
identifies any of such locations which are not owned by Borrower and sets
forth the lessors or operators thereof.
8.4 Priority of Liens; Title to Properties. The security interests
and liens granted to Lender under this Agreement and the other Financing
Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral subject only to the liens indicated on
Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof.
Borrower has good and marketable title to all of its properties and assets
subject to no liens, mortgages, pledges or security interests of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Each of Borrower and Parent has filed, or caused to
be filed, in a timely manner all tax returns, reports and declarations which
are required to be filed by it. Each of Borrower and Parent has paid or
caused to be paid all taxes due and payable or claimed due and payable in any
assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower or Parent (as the case may be) and with respect to which
adequate reserves have been set aside on its books in accordance with GAAP.
Adequate provision has been made in accordance with GAAP for the payment of
all accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 Litigation. There is no present investigation by any Governmental
Agency pending, or to the best of Borrower's knowledge threatened, against or
affecting Borrower or Parent, its assets or business and there is no action,
suit, proceeding or claim by any Person pending, or to the best of Borrower's
knowledge threatened, against Borrower or Parent, or its assets or goodwill,
or against or affecting any transactions contemplated by this Agreement, which
if adversely determined against Borrower or Parent would in the good faith
determination of Lender have a reasonable likelihood of resulting in any
material adverse change in the assets or business of Borrower or Parent or
would impair the ability of Borrower to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of
Lender to enforce any of the Obligations or realize upon the Collateral,
except: (a) as of the date hereof, as set forth on Schedule 8.6 and (b) after
the date hereof, as disclosed in writing by Borrower to Lender promptly after
a senior officer of Borrower obtains knowledge thereof, but in no event more
than three (3) Business Days after such event has occurred. If in the good
faith determination of Lender any such action, proceeding or claim after the
date hereof has a reasonable likelihood of resulting in any material adverse
change in the assets or business of Borrower or would impair the ability of
Borrower to perform its obligations hereunder or under the other Financing
Agreements to which it is a party or of Lender to enforce any of the
Obligations or realize upon the Collateral, notwithstanding the disclosure of
it by Borrower to Lender, such event may, at the option of Lender, be deemed
to constitute an Event of Default.
8.7 Employee Benefits.
(a) Each of Borrower and Parent has not engaged in any
transaction in connection with which either of them or any of their ERISA
Affiliates is reasonably likely to be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975
of the Code in an amount in excess of $100,000.
(b) No liability to the Pension Benefit Guaranty Corporation
(other than liabilities for annual premium payments) has been or is expected
by Borrower or Parent to be incurred with respect to any employee benefit plan
of Borrower or Parent or any of their ERISA Affiliates. There has been no
reportable event (within the meaning of Section 4043(b) of ERISA, excluding
those for which the Pension Benefit Guaranty Corporation has waived in writing
the statutory requirement for thirty (30) day notice), or any other event or
condition with respect to any employee benefit plan of Borrower or Parent or
any of their ERISA Affiliates which presents a risk of termination of any such
plan by the Pension Benefit Guaranty Corporation, so as to create a liability
of $100,000 or more to the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or
Parent or any of their ERISA Affiliates is required under Section 302 of ERISA
and Section 412 of the Code to have paid with respect to each employee benefit
plan as contributions to such plan as of the last day of the most recent
fiscal year of such plan ended prior to the date hereof, and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists with respect to any employee benefit
plan.
(d) Neither Borrower, Parent nor any of their ERISA Affiliates is
or has ever been obligated to contribute to any "multiemployer plan" (as such
term is defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of
ERISA.
8.8 Environmental Compliance.
(a) There has been no investigation, proceeding, complaint,
order, directive, claim, citation or notice by any Governmental Agency or any
other person nor is any pending or to the best of Borrower's knowledge
threatened, with respect to any non-compliance with or violation of the
requirements of any Environmental Law by Borrower or the release, spill or
discharge, threatened or actual, of any Hazardous Material or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or
safety matter, which affects Borrower or its business, operations or assets or
any properties at which Borrower has transported, stored or disposed of any
Hazardous Materials, except: (i) as of the date hereof, as set forth on
Schedule 8.8 hereto and (ii) after the date hereof, as disclosed in writing by
Borrower to Lender promptly after a senior officer of Borrower obtains
knowledge thereof, but in no event more than three (3) Business Days after
such event has occurred. If in the good faith determination of Lender any
such proceeding, complaint, order, directive, claim, citation or notice after
the date hereof has a reasonable likelihood of resulting in any material
adverse change in the assets or business of Borrower or would impair the
ability of Borrower to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Lender to enforce any
of the Obligations or realize upon the Collateral, notwithstanding the
disclosure of it by Borrower to Lender, such event may, at the option of
Lender, be deemed to constitute an Event of Default.
(b) Borrower has no material liability (contingent or otherwise)
in connection with a release, spill or discharge of any Hazardous Materials or
the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials or a violation of
any Environmental Laws, except: (i) as of the date hereof, as set forth on
Schedule 8.8 and (ii) after the date hereof, as disclosed in writing by
Borrower to Lender promptly after a senior officer of Borrower obtains
knowledge thereof, but in no event more than three (3) Business Days after
such event has occurred. If in the good faith determination of Lender any
such material liability arising after the date hereof has a reasonable
likelihood of resulting in any material adverse change in the assets or
business of Borrower or would impair the ability of Borrower to perform its
obligations hereunder or under any of the other Financing Agreements to which
it is a party or of Lender to enforce any of the Obligations or realize upon
the Collateral, notwithstanding the disclosure of it by Borrower to Lender,
such event may, at the option of Lender, be deemed to constitute an Event of
Default.
(c) Borrower has all licenses, permits, certificates, approvals
or similar authorizations which are material to its ability to conduct its
business and are required to be obtained or filed in connection with its
operations under any Environmental Law and all of such licenses, permits,
certificates, approvals or similar authorizations are valid and in full force
and effect.
8.9 Compliance with Other Agreements and Applicable Laws. Borrower is
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets
are bound and Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits,
approvals and orders of any Governmental Agency, except: (a) as of the date
hereof, as set forth on Schedule 8.9 and (b) after the date hereof, as
disclosed in writing by Borrower to Lender promptly after a senior officer of
Borrower obtains knowledge thereof, but in no event more than three (3)
Business Days after such event has occurred. If in the good faith
determination of Lender any such default or violation, or failure to comply,
arising after the date hereof, has a reasonable likelihood of resulting in any
material adverse change in the assets or business of Borrower or would impair
the ability of Borrower to perform its obligations hereunder or under any of
the other Financing Agreements to which it is a party or of Lender to enforce
any of the Obligations or realize upon the Collateral, notwithstanding the
disclosure of it by Borrower to Lender, such event may, at the option of
Lender, be deemed to constitute an Event of Default.
8.10 Accuracy and Completeness of Information. All information
(excluding forecasts and projections) furnished by or on behalf of Borrower or
Parent in writing to Lender in connection with this Agreement or any of the
other Financing Agreements or any transaction contemplated hereby or thereby,
including, without limitation, all information on the Information Certificates
delivered by Borrower and Parent to Lender is true and correct in all material
respects on the date as of which such information is dated or certified and
does not omit any material fact necessary in order to make such information
not misleading. Any forecasts or projections furnished by Borrower to Lender
represent the reasonable, good faith forecasts or projections of Borrower
using assumptions which are reasonable for the purposes thereof at the time
such forecasts and projects were prepared. No event or circumstance has
occurred which has had or could reasonably be expected to have a material
adverse effect on the business or assets of Borrower or Parent which has not
been fully and accurately disclosed to Lender in writing.
8.11 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing
Agreements shall survive the execution and delivery of this Agreement and
shall be deemed to have been made again to Lender on the date of each
additional borrowing or other credit accommodation hereunder and shall be
conclusively presumed to have been relied on by Lender regardless of any
investigation made or information possessed by Lender. The representations
and warranties set forth herein shall be cumulative and in addition to any
other representations or warranties which Borrower shall now or hereafter
give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights
and franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases
and contracts necessary to carry on the business as presently or proposed to
be conducted. Borrower shall give Lender thirty (30) days prior written
notice of any change in its corporate name, which notice shall set forth the
new name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of such person providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation of
such person as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location
within the continental United States provided Borrower (a) gives Lender thirty
(30) days prior written notice of the intended opening of any such new
location and (b) executes and delivers, or causes to be executed and
delivered, to Lender such agreements, documents, and instruments as Lender may
deem reasonably necessary or desirable to protect its interests in the
Collateral at such location, including, without limitation, UCC financing
statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall at all times, comply in all material respects
with all laws, rules, regulations, licenses, permits, approvals and orders
applicable to it and duly observe all requirements of any Federal, State or
local Governmental Agency, including, without limitation, ERISA, the Code, the
Occupational Safety and Hazard Act of 1970, as amended, the Fair Labor
Standards Act of 1938, as amended, and all statutes, rules, regulations,
orders, permits and stipulations relating to environmental pollution and
employee health and safety, including, without limitation, all of the
Environmental Laws.
(b) Borrower shall establish and maintain, at its expense, a
system to assure and monitor its continued compliance with all Environmental
Laws in all of its operations.
(c) Borrower shall give notice to Lender promptly upon receipt of
any notice from any Governmental Agency which alleges that any event or
condition exists or has occurred, which allegation, if true, would in the good
faith determination of Lender have a reasonable likelihood of resulting in any
material liability (contingent or otherwise) or a violation of any
Environmental Laws.
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is material non-compliance, or any
condition which requires any action by or on behalf of Borrower in order to
avoid any material non-compliance, with any Environmental Law, Borrower shall,
at Borrower's expense, cause an independent environmental engineer to conduct
such tests of the site where the non-compliance or alleged non-compliance with
such Environmental Laws has occurred as to such non-compliance and prepare and
deliver to Lender a report as to such non-compliance setting forth the results
of such tests, a proposed plan for responding to any environmental non-
compliance described therein, and an estimate of the costs thereof.
(e) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages,
liabilities, costs, and expenses (including attorneys' fees and legal
expenses) directly or indirectly arising out of or attributable to the use,
generation, manufacture, reproduction, storage, release, threatened release,
spill, discharge, disposal or presence of a Hazardous Material, including,
without limitation, the costs of any required or necessary repair, cleanup or
other remedial work with respect to any property of Borrower and the
preparation and implementation of any closure, remedial or other required
plans. All representations, warranties, covenants and indemnifications in
this Section 9.3 shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall pay and discharge all
taxes, assessments, contributions and governmental charges upon or against it
or its properties or assets, except for those the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to it with respect to which adequate reserves have been set aside on
its books in accordance with GAAP. Borrower shall be liable for any tax or
penalties imposed on Lender as a result of the financing arrangements provided
for herein and Borrower agrees to indemnify and hold Lender harmless with
respect to the foregoing, and to repay to Lender on demand the amount thereof,
and until paid by Borrower such amount shall be added and deemed part of the
Loans, provided, that, nothing contained herein shall be construed to require
Borrower to pay any income or franchise taxes attributable to the income of
Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage to the extent reasonably satisfactory to
Lender (which will not include credit insurance as to Accounts) and all other
insurance of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the same or
similar businesses and similarly situated. Borrower shall furnish
certificates, policies or endorsements to Lender as Lender shall require as
proof of such insurance, and, if Borrower fails to do so, Lender is
authorized, but not required, to obtain insurance with respect to the
Collateral at the expense of Borrower. All policies with respect to the
Collateral shall provide for at least thirty (30) days prior written notice to
Lender of any cancellation or reduction of coverage. Lender may act as
attorney for Borrower in obtaining insurance with respect to the Collateral to
the extent Borrower fails to do so in accordance with the terms hereof, and at
any time an Event of Default exists or has occurred and is continuing, in
adjusting, settling, amending and canceling such insurance. Borrower shall
cause Lender to be named as a loss payee and an additional insured (but
without any liability for any premiums) under such insurance policies and
Borrower shall obtain non-contributory lender's loss payable endorsements to
all such insurance policies in form and substance satisfactory to Lender.
Such lender's loss payable endorsements shall specify that the proceeds of
such insurance shall be payable to Lender as its interests may appear and
further specify that Lender shall be paid regardless of any act or omission by
Borrower or any of its affiliates. At its option, Lender may apply any
insurance proceeds received by Lender at any time to payment of the
Obligations, whether or not then due, as provided in Section 6.4 or hold such
proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower and Parent shall keep proper books and records in
which true and complete entries shall be made of all dealings or transactions
of or in relation to the Collateral and the business of Borrower and Parent in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within thirty (30) days after the end of each fiscal month,
monthly unaudited consolidated and consolidating financial statements, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Parent and its Subsidiaries as of the end of and through
such fiscal month and (ii) within ninety (90) days after the end of each
fiscal year, audited consolidated financial statements and unaudited
consolidating financial statements of Parent and its Subsidiaries (including
in each case balance sheets, statements of income and loss, statements of cash
flow and statements of shareholders' equity), and the accompanying notes
thereto, all in reasonable detail, fairly presenting the financial position
and the results of the operations of Parent and its Subsidiaries as of the end
of and for such fiscal year, together with the opinion of independent
certified public accountants, which accountants shall be an independent
accounting firm selected by Parent and reasonably acceptable to Lender, that
such audited financial statements have been prepared in accordance with GAAP,
and present fairly the results of operations and financial condition of Parent
and its Subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim which would result in any material adverse change in the business,
properties, assets, goodwill or condition, financial or otherwise, of Borrower
or Parent and (ii) the occurrence of any Event of Default or event which, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Parent
sends to its stockholders generally and copies of all reports (including,
without limitation, Form 10-K and Form 10-Q) and registration statements which
Parent files with the Securities and Exchange Commission, any national
securities exchange or the National Association of Securities Dealers, Inc.
(d) If during the period after the delivery by Borrower to Lender
of any Borrowing Base Certificate and before the delivery by Borrower to
Lender of the next Borrowing Base Certificate required in accordance with the
terms hereof either (i) the Loans made by Lender to Borrower and/or Letter of
Credit Accommodations outstanding at such time exceed the amount of the Loans
and Letter of Credit Accommodations then available to Borrower under
Section 2.1 hereof or (ii) the Excess Availability is less than $3,500,000,
then in either case, Borrower shall promptly notify Lender in writing of such
event and provide Lender with such other information with respect thereto as
Lender may request.
(e) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower and Parent, as Lender may, from time
to time, reasonably request. Lender is hereby authorized to deliver a copy of
any financial statement or any other information relating to the business of
Borrower and Parent to any court or other Government Agency, and, subject to
the confidentiality requirements provided for in Section 12.5 hereof, to any
participant or assignee or prospective participant or assignee. Borrower
hereby irrevocably authorizes and directs all accountants or auditors to
deliver to Lender, at Borrower's expense, copies of the financial statements
of Borrower and Parent required to be delivered to Lender pursuant to Section
9.6(a) hereof. Any documents, schedules, invoices or other papers delivered
to Lender may be destroyed or otherwise disposed of by Lender one (1) year
after the same are delivered to Lender, except as otherwise designated by
Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly,
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it, except,
that, any Subsidiary of Borrower or Parent (other than Borrower and U.S.
Brass) may merge into or with or consolidate with Borrower, provided, that,
each of the following conditions is satisfied as determined by Lender: (i)
Lender shall have received not less than ten (10) days prior written notice of
the intention of Borrower to so merge and such other information with respect
thereto as Lender may request, (ii) as of the effective date of the merger or
consolidation and after giving effect thereto, no Event of Default or act,
condition or event which with notice or passage of time or both would
constitute an Event of Default, shall exist or have occurred and be
continuing, (iii) Lender shall have received true, correct and complete copies
of all agreements, documents and instruments relating to such merger,
including, but not limited to, the certificate or certificates of merger as
filed with each appropriate Secretary of State, (iv) Borrower shall be the
surviving entity and shall immediately upon the effectiveness of the merger
expressly confirm in writing pursuant to an agreement, in form and substance
satisfactory to Lender, its continuing liability in respect of the Obligations
and the Financing Agreements and execute and deliver such other agreements,
documents and instruments as Lender may reasonably request in connection
therewith, (v) the surviving entity shall, immediately after giving effect to
such transaction or series of transactions, have a consolidated net worth as
determined in accordance with GAAP (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transactions or series of transactions) equal to or greater
than the consolidated net worth of Borrower as determined in accordance with
GAAP immediately prior to such transaction or series of transactions, and (vi)
Borrower shall not become obligated with respect to any Indebtedness, nor any
of its property become subject to any lien, unless Borrower could incur such
Indebtedness or create such lien hereunder; or
(b) sell, assign, lease, transfer, abandon or otherwise dispose
(in this subsection collectively called "transfers") of any Capital Stock or
Indebtedness owned by it or any of its assets to any other Person; except for:
(i) sales of Inventory in the ordinary course of business,
and
(ii) transfers of worn-out or obsolete Equipment or
Equipment no longer used in the business of Borrower and slow-moving or
obsolete Inventory, and
(iii) other transfers of assets other than Collateral,
provided, that, each shall be made in an arm's-length transaction to a person
other than an Affiliate, and
(iv) transfers by and between Borrower, Parent and any
Subsidiary of Parent of rights to use patents, trademarks and other
intellectual property, provided, that, such transfers shall not in any respect
limit or impair the rights of Borrower, if it is the owner or user of such
patents, trademarks or other intellectual property to continue to use the same
(other than in Europe),
(v) transfers to Affiliates to the extent permitted under
Section 9.12 hereof; or
(c) form or acquire any Subsidiaries, except, that, Borrower may
form or acquire any Subsidiary, provided, that, each of the following
conditions is satisfied as determined by Lender: (i) the aggregate amount of
the capital contribution (whether in cash or other property), or other
payments in respect of any equity or ownership interest, by Borrower to all
such Subsidiaries shall not exceed $2,000,000 and (ii) at the time of, and
after giving effect to, any capital contribution, or other payment in respect
of any equity or ownership interest, by Borrower to such Subsidiary, (A) the
Excess Availability shall be not less than $3,500,000 and (B) no Event of
Default, or act, condition or event which with notice or passage of time or
both would constitute an Event of Default, shall exist or have occurred and be
continuing, or
(d) wind up, liquidate or dissolve, or
(e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except:
(a) liens and security interests of Lender;
(b) liens securing the payment of taxes either not yet overdue or
the validity of which are being contested in good faith by appropriate
proceedings diligently pursued, and with respect to which adequate reserves
have been set aside on its books in accordance with GAAP;
(c) liens securing the payment of Indebtedness permitted under
Section 9.9(d) and Section 9.9(e) on assets of Borrower other than: (i) the
Collateral or (ii) any Inventory, except to the extent permitted therein;
(d) non-consensual statutory liens (other than liens imposed
under ERISA or any Environmental Laws) arising in the ordinary course of the
business of Borrower to the extent: (i) such liens secure indebtedness which
is not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith
by appropriate proceedings diligently pursued and available to Borrower, in
each case prior to the commencement of foreclosure or other similar
proceedings and so long as: (A) levy and execution thereon have been (and
continue to be) stayed, (B) neither the value nor use of the property subject
to such liens are adversely affected in any material respect and (C) adequate
reserves for such indebtedness have been set aside on its books in accordance
with GAAP;
(e) the security interests and liens of the Term Loan Agent and
the Term Loan Lenders in the Term Loan Lender Collateral to secure the
Indebtedness of Borrower and Parent to the Term Loan Lenders permitted under
Section 9.9(c) hereof; provided, that, the security interests and liens of the
Term Loan Agent and the Term Loan Lenders in the Collateral are junior and
subordinate to the security interests and liens of Lender on the Collateral
pursuant to the terms of the Intercreditor Agreement by and among Lender, Term
Loan Agent and Term Loan Lenders referred to in Section 4.1(e), as the same
may be from time to time amended, supplemented or restated;
(f) the security interests and liens existing as of the date
hereof as set forth on Schedule 8.4 hereto;
(g) the security interests in and liens upon assets of Borrower
other than the Collateral or the Inventory arising after the date hereof
granted by Borrower to any Person other than an Affiliate in the ordinary
course of the business of Borrower in connection with workers' compensation,
unemployment insurance, social security and other similar laws, or to secure
the performance of bids, tenders, contracts (other than contracts for the
payment of Indebtedness) or leases or to secure surety and appeal bonds, or
for other matters (other than the payment of or securing of Indebtedness)
arising in the ordinary course of the business of Borrower.
9.9 Indebtedness. Borrower and Parent shall not incur, create,
assume, become or be liable in any manner with respect to, or permit to exist,
any Indebtedness, except:
(a) the Obligations;
(b) unsecured Indebtedness of Borrower to Parent or any
Subsidiary of Parent and Indebtedness of Parent to any Subsidiary of Parent;
provided, that, (i) as to any such Indebtedness of Borrower, prior to
incurring such Indebtedness, Lender shall have received, in form and substance
satisfactory to Lender, a subordination agreement by Parent or the Subsidiary
to whom such Indebtedness is owed (as the case may be) and Borrower providing
for, inter alia, the subordination in right of payment of such Indebtedness of
Borrower to the indefeasible payment and satisfaction in full of the
Obligations and related matters, duly authorized, executed and delivered by
Parent or such Subsidiary (as the case may be) and (ii) pursuant to the terms
of such subordination agreement, Borrower shall not, directly or indirectly,
make any payment in respect of such Indebtedness owed by Borrower except if
(A) at the time of, and after giving effect to each such payment, the Excess
Availability shall be not less than $3,500,000 and (B) no Event of Default, or
act, condition or event which with notice or passage of time or both would
constitute an Event of Default, shall exist or have occurred and be
continuing;
(c) Indebtedness of Borrower and Parent to the Term Loan Lenders
governed by or arising under the Term Loan Agreement, including, without
limitation, the Indebtedness consisting of the reimbursement obligations in
connection with the Term Loan Lender Letters of Credit; provided, that:
(i) the aggregate principal amount of such Indebtedness
plus the outstanding undrawn amount under the Term Loan Lender Letters of
Credit shall not exceed $110,000,000 (less the aggregate amount of all
repayments or repurchases of principal in respect thereof) plus interest
thereon at the rate set forth in the Term Loan Agreement and any commissions
or fees provided for in the Term Loan Agreement or in connection with the Term
Loan Lender Letters of Credit,
(ii) Lender shall have received true, correct and complete
copies of the Term Loan Agreement, and all other agreements, documents or
instruments requested by Lender which have been executed by Borrower, Parent
or any Subsidiary with, to or in favor of Term Loan Agent or any of the Term
Loan Lenders in connection therewith,
(iii) Borrower and Parent shall not, directly or
indirectly, amend, modify, alter or change the terms of the Term Loan
Agreement or any of the other agreements, documents and instruments executed
by Borrower or Parent with, to or in favor of Term Loan Agent or any of the
Term Loan Lenders in connection therewith as in effect on the date hereof so
as to: (A) prior to April 30, 1996, increase the interest rate or to pay any
additional fees or charges with respect thereto other than reasonable and
customary interest rate increases and fees in connection with waivers and
extensions which are disclosed to Lender in writing prior to the effectiveness
thereof, (B) increase the amount of any mandatory payments of principal or
interest in respect thereof, or make the maturity date thereof earlier or
otherwise require any payments in respect of such Indebtedness to be made
sooner than as is required under the terms thereof as in effect on the date
hereof, except, that, (1) at any time Borrower may amend the terms of such
Indebtedness to increase the amount of any mandatory prepayments, make the
maturity earlier or otherwise require payments sooner so long as Borrower
shall not be required to make, and shall not make, any payments pursuant to
such amendment which it would not be permitted to make as a prepayment in
respect of such Indebtedness under Section 9.9(c)(iv)(A) below and
(2) Borrower may amend the terms of such Indebtedness to provide for any
payments thereunder to be made after April 30, 1996, (C) limit or restrict (1)
the rights of Borrower to request, and Lender to make, any Loans or provide
any Letter of Credit Accommodations (including any Loans in excess of the
amounts available to Borrower under the lending formulas contained herein),
except to the extent of any restrictions with respect to such rights set forth
in the Intercreditor Agreement by and among Lender, Term Loan Agent and the
Term Loan Lenders, (2) the right of Borrower to amend or modify any of the
terms and conditions of this Agreement or any of the other Financing
Agreements or to extend or renew this Agreement or any of the other Financing
Agreements, or (3) the rights of Borrower to repay, prepay, refinance, replace
or substitute for the Indebtedness of Borrower to Lender, (D) require Lender
to release any of the Collateral or (E) prohibit the execution and delivery by
Borrower of this Agreement or any of the other Financing Agreements required
to be delivered hereunder or the performance by Borrower of any of the terms
and conditions contained herein or in any of the other Financing Agreements to
be performed by Borrower,
(iv) Borrower and Parent shall not, directly or indirectly
redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose or make any
optional or non-mandatory prepayments or other non-mandatory payments in
respect thereof, or make any mandatory prepayment required as a result of the
amount of the borrowings of Borrower from Lender (including, without
limitation, the mandatory prepayment required under Section 2.15(j) of the
Term Loan Agreement), except, that, Borrower may prepay, redeem, retire or
purchase such Indebtedness either (A) so long as at the time of, and after
giving effect thereto, the Excess Availability shall not be less than the
amount required under Section 4.1(h) hereof and no Event of Default, or act,
condition or event which with notice or passage of time or both would
constitute an Event of Default, shall exist or have occurred and be
continuing, or (B) to the extent permitted in Section 9.9(e) below, and
(v) Borrower shall furnish to Lender all notices or demands
in connection with such Indebtedness either received by Borrower or Parent or
on its or their behalf from the Term Loan Agent on behalf of the Term Loan
Lenders or from any of the Term Loan Lenders or on its or their behalf,
promptly after receipt thereof, or sent by Borrower or Parent or on its or
their behalf to the Term Loan Agent or any of the Term Loan Lenders or any
representative or agent or other person acting on its or their behalf,
concurrently with the sending thereof, as the case may be;
(d) Indebtedness of Borrower or Parent existing on the date
hereof set forth on Schedule 9.9(d) hereof (including, without limitation, the
Indebtedness consisting of the reimbursement obligations of Borrower or Parent
in connection with the Existing Letters of Credit) and additional Indebtedness
of Borrower arising after the date hereof which is not otherwise permitted
under Sections 9.9(a), 9.9(b) or 9.9(c) above; provided, that:
(i) as to each and all of such Indebtedness arising after
the date hereof:
(A) Lender shall have received not less than ten (10) days
prior written notice of the intention to incur such Indebtedness in excess of
$1,000,000, which notice shall set forth in reasonable detail satisfactory to
Lender, the amount of such Indebtedness, the person to whom such Indebtedness
will be owed, the interest rate, the schedule of repayments and maturity date
with respect thereto and such other information with respect thereto as Lender
may request,
(B) promptly upon Lender's request, Lender shall have
received true, correct and complete copies of all agreements, documents and
instruments evidencing or otherwise related to such Indebtedness, as duly
authorized, executed and delivered by the parties thereto,
(C) such Indebtedness shall be incurred by Borrower or
Parent in an arm's length transaction or if owed to any shareholder, officer,
director, agent, employee or other Affiliate of Borrower or Parent, on terms
no less favorable to Borrower than Borrower would have been obtained in a
comparable arm's length transaction with a person other than an Affiliate,
(D) at the time of incurring such Indebtedness and after
giving effect thereto, no Event of Default shall exist or have occurred and be
continuing,
(ii) as to each and all of such Indebtedness whether
existing on the date hereof or arising after the date hereof:
(A) such Indebtedness shall not at any time be secured by
(1) any of the Collateral or (2) any of the Inventory, except, that, such
Indebtedness may be secured by the Inventory (but not any Receivables or other
Collateral), provided, that, Lender shall have received, in form and substance
satisfactory to Lender, either an intercreditor agreement duly authorized,
executed and delivered by the holder of such security interest or an agreement
in writing by the holder of such security interest that it does not have and
will not have any security interest or other interest in or to any of the
Collateral (including, but not limited to, any proceeds from the sale of such
Inventory which constitute Collateral),
(B) Borrower shall not, directly or indirectly, amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto so as to increase the amount of any
mandatory payment of principal or interest in respect thereof, or make the
maturity date thereof earlier or otherwise require any payments in respect of
such Indebtedness to be made sooner than as is required under the terms
thereof as in effect on the date hereof or on the date incurred, as the case
may be, except, that, Borrower may amend the terms of such Indebtedness to
increase any mandatory payment, make the maturity date earlier or otherwise
require payments sooner so long as Borrower shall not be required to make, and
shall not make, any payments pursuant to such amendment which it would not be
permitted to make as a prepayment in respect of such Indebtedness under
Section 9.9(d)(ii)(D) below,
(C) such Indebtedness shall not at any time include terms
and conditions which (1) limit or restrict the rights of Borrower to request,
and Lender to make, any Loans or provide any Letter of Credit Accommodations
(including any Loans in excess of the amounts available to Borrower under the
lending formulas contained herein), the right of Borrower to amend or modify
any of the terms and conditions of this Agreement or any of the other
Financing Agreements or to extend or renew this Agreement or any of the other
Financing Agreements, or the rights of Borrower to repay, prepay, refinance,
replace or substitute for the Indebtedness of Borrower to Lender or
(2) require Lender to release any of the Collateral or (3) prohibit the
execution and delivery by Borrower of this Agreement or any of the other
Financing Agreements required to be delivered hereunder or the performance by
Borrower of any of the terms and conditions contained herein or in any of the
other Financing Agreements to be performed by Borrower,
(D) Borrower shall not, directly or indirectly, redeem,
retire, defease, purchase or otherwise acquire such Indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose or make any optional
or non-mandatory prepayments in respect thereof, except, that, Borrower may
prepay, redeem, retire or purchase any of such Indebtedness so long as at the
time of, and after giving effect thereto, (1) the Excess Availability shall be
not less than the amount required under Section 4.1(h) hereof and (2) no Event
of Default or act, condition or event which with notice or passage of time or
both would constitute an Event of Default shall exist or have occurred and be
continuing,
(E) the sum of: (1) the aggregate principal amount of such
Indebtedness plus (2) the aggregate outstanding undrawn amount of any letters
of credit established after the date hereof giving rise to any Indebtedness of
Borrower (other than in connection with the Term Loan Lender Letters of Credit
or the Letter of Credit Accommodations) plus (3) the amount of any increase in
the outstanding undrawn amount of any of the Existing Letters of Credit (other
than the increases of $275,000 on each of October 1, 1994, and January 1,
April 1, and July 1, 1995 to the letter of credit payable to Travelers
Insurance Company as beneficiary referred to below) in any twelve (12) month
period commencing on October 1, 1994 or any October 1 thereafter, shall not
exceed $20,000,000,
(F) the sum of the aggregate principal amount of such
Indebtedness plus the aggregate outstanding undrawn amount of any letters of
credit giving rise to any Indebtedness of Borrower (including the Existing
Letters of Credit, but other than in connection with the Term Loan Lender
Letters of Credit or the Letter of Credit Accommodations) at any time (whether
before or after the date hereof) shall not exceed the amount equal to (such
amount being referred to herein as the "Debt Cap"): (1) $51,008,947, plus (2)
as of the date of each increase in the amount of the letter of credit
no. D440752 issued by Texas Commerce Bank National Association for the account
of Borrower payable to Travelers Insurance Company, the amount of such
increase (provided, that, the aggregate amount of all such increases for
purposes of this calculation shall not exceed $1,100,000) minus (3) as of the
date of any decrease in the amount of any of the Existing Letters of Credit,
the amount of such decrease or in the event Borrower shall have no further
liability in connection with any of such Existing Letters of Credit, the
amount of such Existing Letter of Credit,
(G) the sum of: (1) the aggregate principal amount of such
Indebtedness plus (2) the aggregate outstanding undrawn amount of any letters
of credit giving rise to any Indebtedness of Borrower (other than in
connection with the Term Loan Lender Letters of Credit or the Letter of Credit
Accommodations) plus (3) the amount of the Refinancing Indebtedness permitted
under Section 9.9(e) below, if any, shall not exceed the sum of $100,000,000
plus the amount of the Debt Cap (as from time to time in effect), and
(H) Borrower shall furnish to Lender all notices or demands
in connection with such Indebtedness sent by Borrower or on its behalf,
concurrently with the sending thereof, or received by Borrower or on its
behalf, promptly after the receipt thereof, as the case may be;
(e) Indebtedness of Borrower or Parent issued in exchange for, or
the proceeds of which are used to repay, refinance, replace or substitute for
all or any part of the Indebtedness of Borrower and Parent to the Term Loan
Lenders permitted under Section 9.9(c) hereof ("Refinancing Indebtedness");
provided that:
(i) the Refinancing Indebtedness incurred shall have a
Weighted Average Life to Maturity and a final maturity equal to or greater
than the Weighted Average Life to Maturity and the final maturity,
respectively, of the Indebtedness being repaid, refinanced, replaced or
substituted for,
(ii) all Refinancing Indebtedness shall be, in all respects,
subject to the terms and provisions of Section 9.9(d)(i) and Section
9.9(d)(ii) hereof (except that the Refinancing Indebtedness may be secured by
the Collateral, subject to Section 9.9(e)(iii) below),
(iii) to the extent that the Refinancing Indebtedness may be
secured by the Collateral, Lender shall have received, in form and substance
satisfactory to Lender, an intercreditor agreement in favor of Lender, duly
authorized, executed and delivered by the holder or holders of such
Indebtedness,
(iv) in the event the terms thereof are in any way
unacceptable to Lender then Lender may, at its option, elect to terminate this
Agreement effective upon the date of the effectiveness of the Refinancing
Indebtedness and this Agreement shall terminate as provided in Section 12.1,
provided, that, so long as no Event of Default shall exist or have occurred
and be continuing, in the event Lender elects to terminate this Agreement
pursuant to this Section 9.9(e), notwithstanding anything to the contrary
contained in Section 12.1(c) hereof: (A) if Lender receives all amounts
required to be paid upon termination of this Agreement pursuant to Section
12.1(a) hereof after the first anniversary of the date of this Agreement, but
on or prior to the second anniversary of such date, the early termination fee
provided for in Section 12.1(c) shall be reduced to one-half (1/2%) percent of
the Maximum Credit and (B) if Lender receives all amounts required to be paid
upon termination of this Agreement pursuant to Section 12.1(a) hereof after
the second anniversary of the date of this Agreement, Borrower shall not be
required to pay the early termination fee provided for in Section 12.1(c)
hereof.
9.10 Loans, Investments, Etc. Borrower shall not, directly or
indirectly, make any loans or advance money or property to any Person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the Capital Stock or Indebtedness or all or a substantial part of
the assets or property of any Person, or agree to do any of the foregoing,
except:
(a) the existing equity investments by Borrower in the Capital
Stock of its Subsidiaries as of the date hereof, and any capital contributions
by Borrower after the date hereof to any newly formed or acquired Subsidiary
to the extent permitted under Section 9.7(c) hereof;
(b) expense accounts for and other advances to directors, officers
and employees of Borrower, Parent or any Subsidiary in the ordinary course of
business not to exceed $20,000 in the aggregate outstanding at any time for
any one director, officer or employee or $200,000 in the aggregate outstanding
at any time for all directors, officers and employees of Borrower, Parent and
their Subsidiaries;
(c) loans or advances to directors, officers and employees of
Borrower, Parent or any Subsidiary for relocation purposes, and purchases of
any such Person's residence in connection therewith, not to exceed $500,000 in
the aggregate at any time for all directors, officers and employees of all of
Borrower, Parent and their Subsidiaries;
(d) investments in direct obligations of the United States of
America and agencies thereof and obligations guaranteed by the United States
of America maturing within one (1) year from the date of acquisition;
(e) certificates of deposit issued by, and other deposits with,
any branch of any commercial bank organized under the laws of the United
States of America, Canada, the United Kingdom, France, Germany, Italy,
Switzerland, or any of their respective political subdivisions and having
combined capital, surplus and undivided profits of not less than $100,000,000
(as shown on its most recently-published statement of condition), and (i)(A)
whose commercial paper (or whose holding company's commercial paper) has a
rating from Moody's Investors Service, Inc., or Standard & Poors Corporation
no less than "P-3" or "A-2," respectively, or (B) are insured by the Federal
Deposit Insurance Corporation and (ii) mature within one (1) year from the
date of acquisition;
(f) commercial paper which shall have a rating from Moody's
Investors Service, Inc., or Standard & Poors Corporation of at least "P-1" or
"A-1," respectively;
(g) debt securities which shall have one of the two highest
ratings from Moody's Investors Service, Inc., or Standard & Poors Corporation
and which mature within one (1) year from the date of acquisition;
(h) extensions of credit in connection with trade receivables and
overpayments of trade payables, in each case resulting from transactions in
the ordinary course of business;
(i) investments in Eurodollars placed through any financial
institution having combined capital, surplus, and undivided profits of not
less than $100,000,000 (as shown on its most recently-published statement of
condition);
(j) repurchase agreements with any financial institution having
combined capital, surplus, and undivided profits of not less than $100,000,000
(as shown on its most recently-published statement of condition) for U.S.
government obligations maturing in less than ten (10) days;
(k) loans by Borrower to Parent or any other Subsidiary of Parent
or any Subsidiary of Borrower (other than U.S. Brass), provided, that, prior
to making any such loan, each of the following conditions is satisfied as
determined by Lender: (i) at the time of, and after giving effect to each such
loan, the Excess Availability shall be not less than $3,500,000, (ii) the
aggregate amount of all such loans at any time outstanding shall not exceed
the sum of: (A) the amount of such loans outstanding as of the date hereof
plus (B) an amount equal to: (1) at all times from November 1 of each year
until April 30 of such year, $10,000,000 and (2) at all other times,
$5,000,000 and (iii) no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Defaults
shall exist or have occurred and be continuing,
(l) the endorsement of instruments for collection or deposit in
the ordinary course of business,
(m) promissory notes or other Indebtedness received by Borrower
in consideration of a transfer permitted under Sections 9.7(b)(ii),
9.7(b)(iii), 9.7(b)(iv) or 9.7(b)(v) hereof.
9.11 Dividends and Redemptions. Borrower and Parent shall not
directly or indirectly, declare or pay any dividends on account of any shares
of class of Capital Stock of Borrower or Parent now or hereafter outstanding,
or set aside or otherwise deposit or invest any sums for such purpose or
redeem, retire, defease, purchase or otherwise acquire any shares of any class
of Capital Stock (or set aside or otherwise deposit or invest any sums for
such purpose) for any consideration other than common stock or apply or set
apart any sum, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. Borrower shall not enter into any
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any of its Affiliates, except in the ordinary course of
and pursuant to the reasonable requirements of its business and upon fair and
reasonable terms no less favorable to Borrower than it would obtain in a
comparable arm's length transaction with an unaffiliated person.
9.13 Compliance with ERISA.
(a) Borrower and Parent shall not with respect to any "employee
benefit plans" maintained by Borrower or Parent or any of their ERISA
Affiliates: (i) terminate any of such employee benefit plans so as to incur
any liability of $100,000 or more to the Pension Benefit Guaranty Corporation,
(ii) allow or suffer to exist any prohibited transaction involving any of such
employee benefit plans or any trust created thereunder which would subject
Borrower, Parent or such ERISA Affiliate to a tax or penalty or other
liability on prohibited transactions of $100,000 or more imposed under Section
4975 of the Code or ERISA, (iii) fail to pay to any such employee benefit plan
any contribution which it is obligated to pay under Section 302 of ERISA,
Section 412 of the Code or the terms of such plan, (iv) allow or suffer to
exist any accumulated funding deficiency, whether or not waived, with respect
to any such employee benefit plan, (v) allow or suffer to exist any occurrence
of a reportable event or any other event or condition which, in any such case,
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability of $100,000 or more to the
Pension Benefit Guaranty Corporation or (vi) incur any withdrawal liability
with respect to any multiemployer pension plan.
(b) Borrower shall promptly notify Lender in writing if: (i) a
reportable event (other than one for which the Pension Benefit Guaranty
Corporation has waived in writing the statutory requirements for thirty (30)
day notice) occurs with respect to any employee benefit plan of Borrower,
Parent or any of their ERISA Affiliates, or the Pension Benefit Guaranty
Corporation institutes proceedings to terminate any such employee benefit plan
or to appoint a trustee to administer any such employee benefit plan or the
failure of Borrower, Parent or any of their ERISA Affiliates fail to make a
required contribution to any employee benefit plan which results in the
imposition of a lien under Section 412 of the Code or Section 302 of ERISA or
any other event or condition occurs which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of trustee to administer, any employee benefit plan of Borrower,
Parent or any of their ERISA Affiliates or to cause the imposition of any
liability under Title IV of ERISA, (ii) Borrower, Parent or any of their ERISA
Affiliates have applied for a waiver of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code and Section 302 of ERISA, or
have committed a failure sufficient to give rise to a lien under
Section 302(f) of ERISA, (iii) Borrower, Parent or any of their ERISA
Affiliates have engaged in a prohibited transaction, or in a transaction
subject to the prohibitions of Section 406 of ERISA, that is not exempt under
Section 4975 of the Code and Section 408 of ERISA and is reasonably likely to
be subject to either a civil penalty assessed pursuant to Section 502(1) of
ERISA or a tax imposed by Section 4975 of the Code in excess of $100,000,
(iv) the aggregate present value (determined as of the most recent annual
calculation thereof) of all benefits under the employee benefit plans of
Borrower, Parent or any of their ERISA Affiliates exceeds the fair market
value of all assets of such plans allocable to such benefits, all as
determined as of the then most recent valuation date for such plans, by more
than $100,000, or (v) there is an action brought against Borrower, Parent or
any of their ERISA Affiliates under Section 502 of ERISA with respect to its
failure to comply with Section 515 of ERISA.
(c) As used in this Section 9.13, the term "employee pension
benefit plans", "employee benefit plan", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in
ERISA, and the term "prohibited transaction" shall have the meaning assigned
to it in Section 4975 of the Code and ERISA.
9.14 Covenants Applicable to Canada. For the purposes of the
application and interpretation of the provisions of this Agreement or the
other Financing Agreements to the operations of Borrower in Canada and to any
of the Collateral which may at any time or from time to time be located in
Canada:
(a) all payments of principal, interest, fees and other amounts
to be made pursuant to this Agreement or the other Financing Agreements in
respect of all or any part of the Obligations shall be made free and clear and
without deduction for any and all present and future taxes, withholdings,
levies, duties, any charges of any Governmental Agency and all liabilities
with respect thereto (except for any income or franchise taxes under the laws
of the United States of America or any State thereof or subdivision thereof
attributable to the income of Lender from any amounts charged or paid
hereunder or under the other Financing Agreements to Lender), and without
setoff, withholding or deduction of any kind whatsoever and, if with regard to
any payment to be made by Borrower to Lender pursuant to this Agreement, the
other Financing Agreements or otherwise, any deduction for any and all such
present and future taxes, withholding, levies, duties, charges of a
Governmental Agency or any liability with respect thereto is required to be
made by Borrower, Borrower shall pay such additional amounts to Lender as may
be necessary in order that the net amount received by Lender after such
deduction shall equal such payment which would have been received by Lender in
the absence of such deduction; and
(b) Borrower shall make all payments in respect of the
Obligations in U.S. Dollars and any payment on account of the Obligations made
in a currency other than U.S. Dollars, whether pursuant to a judgment or order
of a court or a Governmental Agency or otherwise, shall constitute a discharge
of the Obligations only to the extent of the U.S. Dollar Equivalent which
Lender is able to purchase and if the number of U.S. Dollars which Lender is
so able to purchase is less than the number of U.S. Dollars originally due to
it, Borrower shall indemnify and save Lender harmless from and against any
loss or damage arising as a result of such deficiency and this indemnity
shall:
(i) constitute an obligation separate and independent from
the Obligations,
(ii) give rise to a separate and independent cause of
action,
(iii) apply irrespective of any indulgence granted by
Lender from time to time,
(iv) be secured by the assignment, charges and security
interests created in respect of the Collateral by this Agreement or the other
Financing Agreements, and
(v) the indemnity on the currency differential shall
continue in full force and effect notwithstanding any judgment or order for a
liquidated sum in respect of an amount due under this Agreement or the other
Financing Agreements or any judgment or order or any payment made under any
judgment or order or the termination or non-renewal of this Agreement and the
other Financing Agreements.
(c) For purposes of the Interest Act of Canada only, the
effective rate of any rate of interest stipulated to be payable under this
Agreement or the other Financing Agreements may be calculated from time to
time by multiplying (i) the amount of the stipulated rate of interest by (ii)
365 or 366, depending on the number of days in the calendar year in which the
calculation is being made, and dividing the product of such multiplication by
(iii) 360.
9.15 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and
all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including, but not
limited to: (a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees, if appl-
icable); (b) all title insurance and other insurance premiums, appraisal fees
and search fees; (c) costs and expenses of remitting loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the
Blocked Accounts, together with Lender's customary charges and fees with
respect thereto; (d) charges, fees or expenses charged by any bank or issuer
in connection with the Letter of Credit Accommodations; (e) costs and expenses
of preserving and protecting the Collateral; (f) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing
the security interests and liens of Lender, selling or otherwise realizing
upon the Collateral, and otherwise enforcing the provisions of this Agreement
and the other Financing Agreements or defending any claims made or threatened
against Lender arising out of the transactions contemplated hereby and thereby
(including, without limitation, preparations for and consultations concerning
any such matters); (g) all reasonable out-of-pocket expenses and costs heret-
ofore and from time to time hereafter incurred by Lender during the course of
periodic field examinations of the Collateral and Borrower's operations, plus
a per diem charge at the rate of $500 per person per day for Lender's
examiners in the field and office; and (h) the reasonable fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.
9.16 Further Assurances. At the request of Lender at any time and
from time to time, each of Borrower and Parent shall, at its expense, duly
execute and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may be necessary or proper to evidence, perfect, maintain and enforce
the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of
the other Financing Agreements. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or
more of the following events are referred to herein individually as an "Event
of Default", and collectively as "Events of Default":
(a)(i) any of the Obligations are not paid within two (2)
Business Days after the same are due or (ii) Borrower or Parent fails to
perform any of the terms, covenants, conditions or provisions contained in
this Agreement or any of the other Financing Agreements other than as
described in Section 10.1(a)(i) and such failure shall continue for ten (10)
days; provided, that, such ten (10) day period shall not apply in the case of:
(A) any failure to observe any such term, covenant, condition or provision
which is not capable of being cured at all or within such ten (10) day period
or which has been the subject of a prior failure within a six (6) month period
or (B) an intentional breach by Borrower or Parent of any such term, covenant,
condition or provision, or (C) the failure to observe or perform any of the
covenants or provisions contained in Sections 7.7, 9.7, 9.8, 9.9, 9.10 or 9.11
of this Agreement or any covenants or agreements covering substantially the
same matter as such sections in any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by
Borrower, Parent or any Subsidiary to Lender in this Agreement, the other
Financing Agreements or any other agreement, schedule, confirmatory assignment
or otherwise shall when made or deemed made be false or misleading in any
material respect;
(c) final judgments for the payment of money are rendered against
Borrower or Parent in excess of $3,000,000 in the aggregate in any
jurisdiction in which assets of Borrower or Parent are located or in any case
in any jurisdiction in the United States of America, which shall not be
appealed, discharged or vacated within thirty (30) days after the entry
thereof, or regardless of when or whether such judgments are appealed,
discharged or vacated, if execution shall at any time not be effectively
stayed, or any prejudgment remedy of attachment, garnishment or other
prejudgment remedy, or execution is rendered against any Collateral or other
assets necessary or material to the conduct of the business of Borrower;
provided, that, without limiting any rights or remedies of Lender under
Section 2.3 hereof or otherwise, Lender may establish an Availability Reserve
in respect of the liability of Borrower pursuant to any such judgment for the
payment of money and to the extent Lender elects, in its discretion, to
establish such an Availability Reserve as to any such judgment and so long as
execution thereon is at all times effectively stayed in a manner satisfactory
to Lender, such judgment shall not be deemed to constitute an Event of
Default;
(d) Borrower dissolves or suspends or discontinues doing
business;
(e) Borrower or Parent makes an assignment for the benefit of
creditors or makes or sends notice of a bulk transfer;
(f) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law
or in equity) is filed against Borrower or Parent or all or any part of its
properties and such petition or application is not dismissed within forty-five
(45) days after the date of its filing or Borrower or Parent shall file any
answer admitting or not contesting such petition or application or otherwise
in any manner shall indicate its consent to, acquiescence in or approval of,
any such action or proceeding or the relief requested is granted sooner;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a
law or equity) is filed by Borrower or Parent or for all or any part of its
property;
(h) any default by Borrower or Parent in the payment of any
Indebtedness owing to any person other than Lender (including, without
limitation, Indebtedness of Borrower to the Term Loan Lenders pursuant to the
Term Loan Agreement) in any case in an amount in excess of $3,000,000, which
default continues for more than the applicable cure period, if any, with
respect thereto, or any default by Borrower or Parent under any agreement,
document or instrument relating to any such Indebtedness in excess of
$3,000,000 (other than as a result of the failure of Borrower to make any
payment due thereunder) which results in the acceleration of such Indebtedness
or the exercise by the Person owed such Indebtedness of any of its rights or
remedies to foreclose on, or directly collect, or set off against, any
collateral or commence any legal action or proceeding against Borrower or
Parent;
(i) Borrower ceases to be a wholly-owned Subsidiary of Parent;
(j) the indictment of Borrower under any criminal statute, or
commencement of criminal or civil proceedings against Borrower, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of (i) any of the Collateral or (ii) any other property of
Borrower which is necessary or material to the conduct of its business;
(k) there shall be a material adverse change in the business or
assets of Borrower or Parent after the date hereof; or
(l) there shall be an "Event of Default" under any of the other
Financing Agreements which may define such term.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and
other applicable law, all of which rights and remedies may be exercised
without notice to or consent by Borrower or Parent, except as such notice or
consent is expressly provided for hereunder or required by applicable law.
All rights, remedies and powers granted to Lender hereunder, under any of the
other Financing Agreements, the Uniform Commercial Code or other applicable
law, are cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time
or times, proceed directly against Borrower to collect the Obligations without
prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its
discretion and without limitation, (i) accelerate the payment of all
Obligations and demand immediate payment thereof to Lender (provided, that,
upon the occurrence of any Event of Default described in Sections 10.1(f) and
10.1(g), all Obligations shall automatically become immediately due and
payable), (ii) with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the Collateral may be
located and take possession of any tangible Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (iii)
require Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of any tangible Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff
and realize upon any and all Collateral, (v) remove any or all of any tangible
Collateral from any premises on or in which the same may be located for the
purpose of effecting the sale, foreclosure or other disposition thereof or for
any other purpose, (vi) sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without limitation, entering
into contracts with respect thereto, public or private sales at any exchange,
broker's board, at any office of Lender or elsewhere) at such prices or terms
as Lender may deem reasonable, for cash, upon credit or for future delivery,
with the Lender having the right to purchase the whole or any part of the
Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower and/or (vii) terminate
this Agreement. If any of the Collateral is sold or leased by Lender upon
credit terms or for future delivery, the Obligations shall not be reduced as a
result thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, ten (10) days prior
notice by Lender to Borrower designating the time and place of any public sale
or the time after which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of
the Collateral to payment of the Obligations, in whole or in part and in such
order as Lender may elect, whether or not then due, provided, that, (i) all
such payments shall be applied to Obligations which are then due and payable
before being applied to any Obligations which are not then due and payable and
(ii) all such payments shall be applied to Prime Rate Loans before being
applied to Eurodollar Rate Loans. Borrower shall remain liable to Lender for
the payment of any deficiency with interest at the highest rate provided for
herein and all costs and expenses of collection or enforcement, including
attorneys' fees and legal expenses.
(d) Without limiting the foregoing, (i) upon the occurrence of an
Event of Default or an event which with notice or passage of time or both
would constitute an Event of Default, Lender may, at its option, without
notice, cease making Loans or arranging for Letter of Credit Accommodations or
reduce the amounts of Loans and Letter of Credit Accommodations available to
Borrower and (ii) upon the occurrence of an Event of Default, Lender may, at
its option, without notice, terminate any provision of this Agreement
providing for any future Loans or Letter of Credit Accommodations to be made
by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of
the relationship between the parties hereto, whether in contract, tort, equity
or otherwise, shall be governed by the internal laws of the State of Texas
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the District Court of the State of Texas and the
United States District Court for the Northern District of Texas and waive any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the
dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction which Lender deems necessary
or appropriate in order to realize on the Collateral or to otherwise enforce
its rights against each of Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
ten (10) days after the same shall have been so deposited in the U.S. mails,
or, at Lender's option, by service upon Borrower in any other manner provided
under the rules of any such courts. Within thirty (30) days after such
service, Borrower shall appear in answer to such process, failing which
Borrower shall be deemed in default and judgment may be entered by Lender
against Borrower for the amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO
IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on Lender, that the losses were the
result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit
of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this
Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, notice of intent to accelerate, notice of acceleration, protest
and notice of protest and notice of dishonor with respect to any and all
instruments and commercial paper, included in or evidencing any of the
Obligations or the Collateral, and any and all other demands and notices of
any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except as such are expressly provided for herein or in the
other Financing Agreements.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender (and, with respect to amendments, Borrower). Lender shall not, by any
act, delay, omission or otherwise be deemed to have expressly or impliedly
waived any of its rights, powers and/or remedies unless such waiver shall be
in writing and signed by an authorized officer of Lender. Any such waiver
shall be enforceable only to the extent specifically set forth therein. A
waiver by Lender of any right, power and/or remedy on any one occasion shall
not be construed as a bar to or waiver of any such right, power and/or remedy
which Lender would otherwise have on any future occasion, whether similar in
kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and
its directors, agents, employees and counsel, harmless from and against any
and all losses, claims, damages, liabilities, costs or expenses imposed on,
incurred by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any of the other Financing Agreements, or
any undertaking or proceeding related to any of the transactions contemplated
hereby or any act, omission, event or transaction related or attendant
thereto, including, without limitation, any and all losses, claims, damages,
liabilities, costs or expenses, caused by Lender and Lender's directors,
agents, employees and counsel, and further including, without limitation,
amounts paid in settlement, court costs, and the fees and expenses of counsel.
To the extent that the undertaking to indemnify, pay and hold harmless set
forth in this Section may be unenforceable because it violates any law or
public policy, Borrower shall pay the maximum portion which it is permitted to
pay under applicable law to Lender in satisfaction of indemnified matters
under this Section. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3)
years from the date hereof (the "Renewal Date"), and from year to year
thereafter, unless sooner terminated pursuant to the terms hereof. Lender or
Borrower may terminate this Agreement and the other Financing Agreements
effective on the Renewal Date or on the anniversary of the Renewal Date by
giving to the other party at least sixty (60) days prior written notice;
provided, that, this Agreement and all other Financing Agreements must be
terminated simultaneously. In addition, Borrower may, at any time, upon not
less than ten (10) days prior written notice to Lender (which notice shall be
irrevocable) terminate this Agreement and the other Financing Agreements
(provided, that, this Agreement and all other Financing Agreements must be
terminated simultaneously). Upon the effective date of termination or non-
renewal of this Agreement and the other Financing Agreements, Borrower shall
pay to Lender, in full, all outstanding and unpaid Obligations and shall
furnish cash collateral to Lender in such amounts as Lender determines are
reasonably necessary to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any
contingent Obligations consisting of (i) the liabilities of Borrower to Lender
in connection with the issued and outstanding Letter of Credit Accommodations,
(ii) checks or other payments provisionally credited to the Obligations and/or
as to which Lender has not yet received final and indefeasible payment and
(iii) any indemnification or reimbursement liabilities of Borrower to Lender
pursuant to any provisions hereof which by their terms survive the termination
hereof to the extent Lender in good faith determines that Lender is reasonably
likely to have any liability (including costs and expenses) for which Lender
is entitled to be indemnified or reimbursed by Borrower pursuant to such
provisions. Such payment of the Obligations and cash collateral shall be
remitted by wire transfer in Federal funds to such bank account of Lender, as
Lender may, in its discretion, designate in writing to Borrower for such
purpose. Interest on the Obligations shall be due until and including the
next business day, if the principal amount of the outstanding and unpaid
Obligations so repaid by Borrower to the bank account designated by Lender are
received in such bank account later than 12:00 noon, Dallas time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge either of Borrower or Parent of its
respective duties, obligations and covenants under this Agreement or the other
Financing Agreements until all Obligations have been fully and finally
discharged and paid (other than the contingent Obligations arising in
connection with the Letter of Credit Accommodations and amounts relating to
checks and other payments provisionally credited to the Obligations and the
other liabilities which survive, all as provided in Section 12.1(a) above for
which Lender has received cash collateral), and Lender's continuing security
interest in the Collateral and the rights and remedies of Lender hereunder,
under the other Financing Agreements and applicable law, shall remain in
effect until all such Obligations have been fully and finally discharged and
paid; provided, that, notwithstanding anything to the contrary contained
herein, no termination of this Agreement or the other Financing Agreements,
payment of all such Obligations and the delivery of cash collateral as
provided above shall: (i) relieve or discharge Borrower or Parent of their
respective duties, obligations and covenants: (A) to repay the Obligations
secured by such cash collateral, (B) in Section 2.2 or Section 3.1 hereof or
(C) in any cash collateral agreement by Borrower or Parent in favor of Lender
in connection therewith or (ii) release, waive, limit or otherwise affect any
security interests or rights of Lender with respect to such cash collateral.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's
lost profits as a result thereof, subject to Section 9.9(d), 3.1(e) and
Section 12.1(d) hereof, Borrower agrees to pay to Lender, upon the effective
date of such termination, an early termination fee in the amount set forth
below if such termination is effective in the period indicated:
Amount Period
(i) two (2%) percent of the From the date hereof to and including
Maximum Credit October 16, 1995
(ii) one (1%) percent of the October 17, 1995 to and including
Maximum Credit October 16, 1996
(iii) one-half (1/2%) percent October 17, 1996 to and including
of the Maximum Credit October 16, 1997
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. The early
termination fee provided for in this Section 12.1 shall be deemed included in
the Obligations.
<PAGE>
(d) Notwithstanding anything to the contrary contained in
Section 12.1(c) above, Borrower shall not be required to pay the early
termination fee provided for in this Section 12.1 in the event of the
termination of this Agreement when no Event of Default exists or has occurred
and is continuing and the receipt by Lender of the full and final repayment of
all of the Obligations in accordance with this Section 12.1 (and the delivery
of cash collateral as provided herein) with the proceeds of the initial loans
to Borrower from CoreStates Bank, N.A. or other Affiliate of Lender pursuant
to the financing arrangements of Borrower with such bank or other lender.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower
at its chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver
the next business day, one (1) business day after sending; and if by certified
mail, return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held
to be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors.
(a) This Agreement and the other Financing Agreements shall be
binding upon and inure to the benefit of and be enforceable by Lender,
Borrower and their respective successors and assigns, except that Borrower may
not assign its rights under this Agreement or the other Financing Agreements
without the prior written consent of Lender. Lender may assign its rights and
delegate its obligations under this Agreement and the other Financing
Agreements: (i) to any of its present and future Affiliates or Subsidiaries
or (ii) to the extent of the interests of participants as provided herein or
(iii) upon the merger, consolidation, sale, transfer or other disposition of
all or any substantial portion of its business, loan portfolio or other assets
or (iv) at any time after an Event of Default shall exist or have occurred and
be continuing.
(b) Lender may, after notice to and consulting with Borrower (but
Borrower's consent shall not be required with respect thereto), sell
participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution
or other person.
12.5 Confidentiality.
(a) Lender shall use all reasonable efforts to keep confidential,
in accordance with its customary procedures for handling confidential
information and safe and sound lending practices, any non-public information
supplied to it by Borrower pursuant to this Agreement, provided, that, nothing
contained herein shall limit the disclosure of any such information: (i) to
the extent required by statute, rule, regulation, subpoena or court order,
(ii) to bank examiners and other regulators, auditors and/or accountants,
(iii) in connection with any litigation to which Lender is a party, (iv) to
any assignee or participant (or prospective assignee or participant) so long
as such assignee or participant (or prospective assignee or participant) shall
have first agreed in writing to treat such information as confidential in
accordance with this Section 12.5, or (v) to counsel for Lender or any
participant or assignee (or prospective participant or assignee).
(b) In no event shall this Section 12.5 or any other provision of
this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrower or any
third party without breach of this Section 12.5 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on a non-confidential basis from a person other
than Borrower, (iii) require Lender to return any materials furnished by
Borrower to Lender or (iv) prevent Lender from responding to routine
informational requests in accordance with the Code of Ethics for the Exchange
of Credit Information promulgated by The Robert Morris Associates or other
applicable industry standards relating to the exchange of credit information.
The obligations of Lender under this Section 12.5 shall supersede and replace
the obligations of Lender under any confidentiality letter signed prior to the
date hereof.
12.6 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or
documents delivered or to be delivered in connection herewith or therewith
represents the entire agreement and understanding concerning the subject
matter hereof and thereof between the parties hereto, and supersede all other
prior agreements, understandings, negotiations and discussions,
representations, warranties, commitments, proposals, offers and contracts
concerning the subject matter hereof, whether oral or written.
12.7 Nonapplicability of Article 5069-15.01 et seq. Borrower and
Lender each hereby agree that, except for Section 15.10(b) thereof, the
provisions of Tex. Rev. Civ. Stat. Ann. art. 5069-15.01 et seq. (Vernon 1987)
(regulating certain credit loans and revolving tri-party accounts) shall not
apply to this Agreement or to any of the other Financing Agreements.
12.8 DTPA Waiver. BORROWER HEREBY WAIVES ALL PROVISIONS OF THE
DECEPTIVE TRADE PRACTICES -- CONSUMER PROTECTION ACT (TEX. BUS. & COM. CODE
ANN. (SECTION SYMBOL) 17.01 ET SEQ. (VERNON SUPP. 1987)), OTHER THAN SECTION
17.555 THEREOF, AND EXPRESSLY REPRESENTS AND WARRANTS THAT BORROWER (A) HAS
ASSETS OF $5,000,000 OR MORE ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENTS,
(B) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE
BORROWER TO EVALUATE THE MERITS AND RISKS OF THIS TRANSACTION, (C) IS NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (D) HAS
BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.
12.9 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER
FINANCING AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND
THE SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
BORROWER
ELJER MANUFACTURING, INC.
By: /s/ Henry W. Lehnerer
----------------------
Title: Vice President - Finance and
Chief Financial Officer
Chief Executive Office:
17120 Dallas Parkway
Dallas, Texas 75248
LENDER
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: /s/ Daniel T. Wolf
---------------------
Title: Vice President
Address:
1201 Main Street
Dallas, Texas 75250
DTPA WAIVER. The undersigned, legal counsel to Borrower, executes this
Agreement solely to acknowledge the waiver of the Texas Deceptive Trade
Practices -- Consumer Protection Act contained in Section 12.8 of the
Agreement.
BORROWER'S COUNSEL
THOMPSON & KNIGHT, P.C.
By: /s/ John W. Rain
-----------------
Attorney
<PAGE>
SECOND AMENDMENT
THIS SECOND AMENDMENT (this "Amendment") is entered into as of October 17,
1994, among the undersigned. Terms not defined in this Amendment have the
respective meanings given such terms in the Credit Agreement defined below.
RECITALS
A. That certain AMENDED AND RESTATED CREDIT AGREEMENT (as amended,
supplemented, or replaced, the "Credit Agreement") dated as of December 11,
1992, was executed by ELJER MANUFACTURING, INC., a Delaware corporation (the
"Borrower"); ELJER INDUSTRIES, INC., a Delaware corporation (the "Parent
Guarantor"); the financial institutions named on Schedule 1 to the Credit
Agreement; NATIONSBANK OF TEXAS, N.A., ("NationsBank"), as a Bank and a co-agent
and the administrative agent for itself, the other Banks and "First Chicago" (as
defined in the Credit Agreement); MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("Morgan Guaranty"), as a Bank and a co-agent for itself, the other Banks, and
First Chicago; and, for the limited purposes set forth in Section 10.14 of the
Credit Agreement, First Chicago.
B. The undersigned desire to amend the Credit Agreement to provide for
the following:
(1) An increase in the Applicable Margin of 100 basis points.
(2) The release of Borrower, Eljer Industries, Inc. and
Subsidiaries from their respective obligations to First Chicago under the
Loan Papers in its capacity as "First Chicago".
(3) The termination of First Chicago's Rights, in its capacity as
provider of the First Chicago Receivables Purchase Facility, as against
the Banks, the Agents, and the Administrative Agent under the Credit
Agreement and the Loan Papers, while at the same time retaining its Rights
as an Issuing Bank.
(4) An additional payment of Principal Debt by the Borrower from
the proceeds of the Congress Receivables Facility as defined below.
NOW THEREFORE, the undersigned agree as follows:
1. First Chicago Release. Substantially concurrently herewith, First
Chicago is executing and delivering to Borrower a release pursuant to which the
First Chicago Receivables Purchase Facility is being terminated and Borrower is
reacquiring the interests in its accounts receivable which were previously held
thereunder by First Chicago. At the time (the "Effective Time") at which both
of the following events have occurred:
(a) the execution and delivery of such release by First Chicago,
and
(b) the payment by Borrower to First Chicago of any amounts called
for thereunder,
First Chicago (in its capacity as "First Chicago" but not as an Issuing Bank)
shall cease to be a party to the Credit Agreement and the other Loan Papers and
cease to have any Rights thereunder, and Borrower, Parent Guarantor, all other
Related Companies, the Agents, the Banks, and the Administrative Agent shall,
without further action, be released from all duties and obligations to First
Chicago (in its capacity as "First Chicago" but not as an Issuing Bank) under
this Agreement and the other Loan Papers.
2. Changes to Definitions.
(a) The definition of "Applicable Margin" in Section 1.1 of the
Credit Agreement is amended to read as follows:
Applicable Margin means, for any day, the margin of interest over
the Prime Rate that is applicable when any interest rate is determined
under this Agreement, as follows:
Time Period Applicable
Margin
From March 25, 1994, through September 30, 1994 1.5%
From October 1, 1994, through March 31, 1995 3.0%
From April 1, 1995, through September 30, 1995 3.5%
From October 1, 1995, through March 31, 1996 4.0%
From April 1, 1996, through April 30, 1996 4.5%
(b) The definition of "Bank Liens" in Section 1.1 of the Credit
Agreement is amended to read as follows:
Bank Liens means Liens in favor of the Banks, or the
Administrative Agent on behalf of the Banks, securing all or any of the
Obligation, including, but not limited to, Rights in any Collateral
created in favor of the Banks or the Administrative Agent on behalf of
the Banks.
(c) The definition of "Material Debt" in Section 1.1 of the
Credit Agreement is amended to read as follows:
Material Debt means Restricted Debt of one or more Related
Companies, arising in one or more related or unrelated transactions, in
an aggregate principal amount exceeding $3,000,000, and without
limitation, includes the Debt of the Company under the Congress
Receivables Facility; provided, however, that Restricted Debt of one or
more Related Companies relating to industrial revenue bonds described on
Annex A to Schedule 5.15, the payment of which is supported by certain
Existing Letters of Credit or the HI Indemnity, shall not be deemed
"Material Debt".
3. New Definitions.
(a) Section 1.1 of the Credit Agreement is amended to add in
alphabetical order the definition of "Congress", which shall read as
follows:
Congress shall have the same meaning as "Revolving Loan Lender" in
the Intercreditor Agreement.
(b) Section 1.1 of the Credit Agreement is amended to add in
alphabetical order the definition of "Congress Receivables Facility",
which shall read as follows:
Congress Receivables Facility shall have the same meaning as
"Revolving Loan Agreements" in the Intercreditor Agreement.
(c) Section 1.1 of the Credit Agreement is amended to add in
alphabetical order the definition of "Intercreditor Agreement", which
shall read as follows:
Intercreditor Agreement means the Intercreditor Agreement dated as
of October 17, 1994 among Congress, the Administrative Agent and the
Banks, as amended from time to time.
4. Payments; Prepayments; Order of Application. Section 2.5(i) of
the Credit Agreement is amended to read as follows:
(i) If at any time after the occurrence and during the
continuance of an Event of Default or Default, the Administrative Agent,
either Agent, or any Bank receives any payment or distribution of any
character that represents, or is Proceeds of or from Collateral, then
such payment or distribution, shall first be applied in the order set
forth in Section 2.5(h)(A)-(D) and then applied to the remaining
Obligation in the order and manner as the Required Banks deem
appropriate.
5. Excess Borrowings. A new Section 2.5(j) of the Credit Agreement
is added to read as follows:
(j) If at any time the average outstanding principal
balance of the Congress Receivables Facility for a consecutive 60-day
period exceeds the "Threshold" (as hereinafter described), such excess
constitutes an "Excess Borrowing". Parent Guarantor shall, within
five (5) Business Days after the day upon which an Excess Borrowing
arises, pay to the Administrative Agent twenty-five percent (25%) of the
Excess Borrowing as a mandatory additional payment of Principal Debt.
The initial Threshold is $30,000,000. If at any time an Excess
Borrowing arises, the Threshold will be increased by the amount thereof
for purposes of determining the next Excess Borrowing. (For example, if
the first Excess Borrowing is $1,000,000, the Threshold will be
increased to $31,000,000 for the purpose of determining the next Excess
Borrowing.)
6. Offset. Section 2.11 of the Credit Agreement is amended in its
entirety to read as follows:
SECTION 2.11 Offset. Upon the occurrence of an Event of Default
(but subject to any limitations in the Restricted Account Agreement with
respect to the assets subject thereto), each Bank shall be entitled to
exercise (for the benefit of all Banks) the Rights of offset and/or
banker's Lien against each and every account and other Property, or any
interest therein, which any Related Company that has executed any Loan
Paper may now or hereafter have with, or which is now or hereafter in
the possession of, such Bank to the extent of the full amount of the
Obligation which is then due and payable to such Bank; provided,
however, that no Rights of offset and/or banker's Lien shall extend to
the Cash Collateral Account or to any account which is subject to a
pledge or security interest in favor of Congress to secure the Congress
Receivables Facility. The Borrower (for itself and each such Related
Company) agrees that any Participant may exercise rights of offset
and/or banker's Lien with respect to such participation as fully as if
such Participant were the direct creditor of such Related Company in the
amount of such participation.
7. Location; Real Estate Interests. Section 5.18 of the Credit
Agreement is amended in its entirety to read as follows:
SECTION 5.18 Location; Real Estate Interests. The chief
executive office of each Related Company that is a party to a Loan Paper
is located at the address as shown on Schedule 1. Each such Related
Company is entitled to receive notices under the Loan Papers at its
chief executive office, notwithstanding that it may maintain other
places of business. The Borrower has possession of all records relating
to its accounts. Substantially all of the Borrower's inventory is in its
possession, other than goods on consignment, goods in transit, and goods
stored in warehouses. All of the Borrower's material assets are located
at the locations described on Schedule 5.18. Except as described or
disclosed on Schedule 5.18, the Borrower has no ownership, leasehold, or
other interest in real estate.
8. Information. Section 6.1(i) of the Credit Agreement is amended to
read as follows:
(i) On the first Business Day of each week, a report as to
the daily outstanding principal balances of the Congress
Receivables Facility for each day in the prior week; and promptly
upon request therefor by the Administrative Agent, copies of any
information regularly furnished to Congress pursuant to the
Congress Receivables Facility.
9. General Indemnification. Section 6.11 of the Credit Agreement is
amended in its entirety to read as follows:
SECTION 6.11 General Indemnification. Each Related Company that
is party to a Loan Paper shall jointly and severally indemnify, protect,
and hold the Administrative Agent, each Agent, each Bank, and their
respective parents, subsidiaries, directors, officers, employees,
representatives, agents, successors, assigns, and attorneys
(collectively, the "Indemnified Parties") harmless from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, proceedings, and reasonable costs, expenses
(including, without limitation, reasonable attorneys' fees and legal
expenses whether or not suit is brought and settlement costs) and
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Indemnified Parties, in any way
relating to or arising out of the Loan Papers or any of the transactions
contemplated therein (collectively, the "Indemnified Liabilities"), to
the extent that any of the Indemnified Liabilities results, directly or
indirectly, from any claim made or action, suit, or proceeding commenced
by or on behalf of any Person other than another Indemnified Party;
provided, however, that although each Indemnified Party shall have the
Right to be indemnified from its own ordinary negligence, no Indemnified
Party shall have the Right to be indemnified hereunder for its own
fraud, gross negligence, or willful misconduct. The provisions of and
undertakings and indemnification set forth in this Section 6.11 shall
survive the satisfaction and payment of the Obligation and termination
of this Agreement.
10. Debt. Section 7.2 of the Credit Agreement is amended in its
entirety to read as follows:
SECTION 7.2 Debt. No Related Company shall create, incur, or
suffer to exist, any Restricted Debt, except Permitted Debt. No Related
Company shall make any voluntary prepayment of Restricted Debt (other
than prepayments of the Obligation, payments by the Borrower under the
Congress Receivables Facility, and prepayments of industrial revenue
bonds effected through drawings on Existing Letters of Credit), whether
subordinate to the Obligation or not, if a Default or Event of Default
exists under any Loan Paper or would result therefrom.
11. Liens. Section 7.3 of the Credit Agreement is amended in its
entirety to read as follows:
SECTION 7.3 Liens. No Related Company shall (a) create, incur,
or suffer to exist, any Lien upon any of its assets, except Permitted
Liens, or (b) enter into or permit to exist any arrangement or agreement
which prohibits any Related Company from creating or incurring any Lien
on any of its assets, other than (i) existing arrangements or
agreements, (ii) documents governing Permitted Debt listed in item 6 of
Schedule 5.15, (iii) the Loan Papers, and the Congress Receivables
Facility, and (iv) any future equipment or real estate lease which
prohibits any Related Company, as lessee, from creating or incurring any
Lien on any of its rights under such lease.
12. Loans to Directors and Employees. Clause (a) of Section 7.7 is
amended to read as follows:
(a) expense accounts for and other advances to directors,
officers, and employees of a Related Company in the ordinary
course of business not to exceed $20,000 in the aggregate
outstanding at any time for any one director, officer, or employee
or $200,000 in the aggregate outstanding at any time for all
directors, officers, and employees of all Related Companies;
13. Deletions of References to First Chicago.
(a) Clause (iii) of Section 7.5(b) of the Credit Agreement is
hereby deleted, but clauses (iv) through (ix) of Section 7.5(b) are not
renumbered.
(b) The words "and First Chicago" are deleted from Section
7.5(c), (d), and (f)(iv) and Section 7.7 of the Credit Agreement.
(c) The words "First Chicago" are deleted from Section 10.13 of
the Credit Agreement.
(d) The words "and First Chicago", "First Chicago and", "or
First Chicago" and "and termination of the First Chicago Receivables
Purchase Facility" are deleted from Section 10.9 of the Credit
Agreement.
14. Defaults.
(a) The word "or" is added after the semi-colon in Section
9.1(l) of the Credit Agreement, and a new Section 9.1(m) is added to
read as follows:
(m) (i) Any Related Company shall pay into any "Blocked
Account" (as that term is now defined in the Congress Receivables
Facility) any "Term Loan Collateral" as that term is defined in
the Intercreditor Agreement; or (ii) there shall be any "Loans"
(as defined in the Congress Receivables Facility as now written)
in excess of the amount set forth in Section 2.1(a) of the
Congress Receivables Facility as now written other than to the
extent permitted by Section 2.15 of the Intercreditor Agreement.
(b) The penultimate paragraph of Section 9.1 of the Credit
Agreement is amended to read as follows:
Furthermore, during the occurrence and continuance of any
Event of Default, the Administrative Agent shall, upon the request
of the Required Banks (or, with respect to an Event of Default
under Section 9.1(a) caused by a violation of Section 2.5(a), (b),
or (e), the Majority Banks), do any one or more of the following:
(i) reduce any claim to judgment; (ii) exercise (and direct each
Bank to exercise) the Rights of offset or banker's Lien against
the interest of any Related Company that is party to a Loan Paper
in and to every account and other Property of such Related Company
which are in the possession of the Administrative Agent or any
Bank to the extent of the full amount of the Obligation;
(iii) foreclose any or all Bank Liens or otherwise realize upon
any and all of the Rights any Bank may have in and to the
Collateral, or any part thereof; provided, however, that
notwithstanding any contrary provision in any Loan Paper, the
Administrative Agent shall not act to foreclose any Bank Lien on
Collateral consisting of real property without the unanimous
consent of all Banks, and provided further that no Bank may
exercise any Rights of offset and/or banker's Lien against the
Cash Collateral Account or against any account which is subject to
a pledge or security interest in favor of Congress to secure the
Congress Receivables Facility; and (iv) exercise any and all other
legal or equitable Rights afforded by the Loan Papers, the Laws of
the State of Texas or any other jurisdiction as the Administrative
Agent shall deem appropriate, or otherwise, including, but not
limited to, the Right to bring suit or other proceedings before
any Tribunal either for specific performance of any covenant or
condition contained in any of the Loan Papers or in aid of the
exercise of any Right granted to the Banks in any of the Loan
Papers.
15. Application of Proceeds. Section 9.8 of the Credit Agreement is
amended in its entirety to read as follows:
SECTION 9.8 Application of Proceeds. Any and all proceeds ever
received by the Banks from the exercise of any Rights pertaining to the
Obligation shall be applied in the order and manner set forth in Section
2.5.
16. First Chicago Provisions. Section 10.14 of the Credit Agreement
is deleted.
17. Amendments, Etc. The first sentence of Section 11.2 of the Credit
Agreement is amended to read as follows:
SECTION 11.2 Amendments, Etc. Subject to the last sentence of
this Section 11.2, no amendment or waiver of any provision of any Loan
Paper nor consent to any departure therefrom by any Related Company
shall be effective unless the same shall be in writing and signed by the
Required Banks, and then such amendment, waiver, or consent shall be
effective only in the specific instance and for the specific purpose for
which given; provided, however, that no amendment, waiver, or consent
shall, unless in writing and signed by all Banks, do any of the
following: (a) extend the due date for payment of any of the Obligation
(other than that part of the Obligation pertaining to Existing Letters
of Credit), (b) release, amend, or consent to a departure from any
provision in, the Guaranty, (c) reduce any principal or interest due on
any Loan or any interest rate applicable to the Obligation (other than
reductions contemplated herein), (d) amend or waive compliance with this
Section 11.2, or (e) amend the definition of "Maturity Date," "Principal
Debt," "Pro Rata Part," or "Required Banks"; provided that no amendment,
waiver, or consent shall, unless in writing and signed by the
Administrative Agent, in addition to the Banks required above to take
such action, affect the rights or duties of the Administrative Agent
under this or any other Loan Paper.
18. Permitted Liens. Item 19 on Schedule 5.14 is amended by deleting
the second and third items describing Liens Filed Against Borrower with the
Secretary of the State of Texas in connection with the First Chicago
Receivables Purchase Facility and by adding at the beginning of such item
describing Liens Filed Against Borrower in multiple locations the following:
Financing Statements filed or to be filed, indicating the security
interest of Congress Financial Corporation, which are filed in
connection with the Congress Receivables Facility.
19. Permitted Debt. Item 2 on Schedule 5.15 is amended to read as
follows:
2. The Congress Receivables Facility, provided that, the
outstanding principal balance may not at any time exceed $35,000,000.
20. Parties; Addresses; Wiring Information. Schedule 1 is amended as
of the date hereof to read as set forth in the Schedule 1 attached hereto.
21. Amendment of Security and Stock Pledge Agreement. Exhibit C-1 to
the Credit Agreement and the Security and Stock Pledge Agreement in the form
thereof is hereby amended by amending the last paragraph of Section 3 to read
as follows:
Notwithstanding the foregoing, "Collateral" shall not include any
interests of the Debtor in and to any instruments, agreements, or other
documents relating to any industrial revenue bonds described on Annex A
to Schedule 5.15, and any rights of the Debtor under such instruments,
agreements, or other documents, to the extent that inclusion of such
interests or rights of the Debtor in "Collateral" would contravene,
violate, conflict with, or constitute a default under such instruments,
agreements, or other documents.
22. Representations and Warranties. The Borrower and the Parent
Guarantor jointly and severally represent and warrant to each Agent and to
each Bank that at the Effective Time:
(a) the execution and delivery of this Amendment have been
authorized by all requisite corporate action and will not violate its
organizational documents;
(b) except for matters heretofore disclosed in writing by any
Related Company, the representations and warranties in each Loan Paper
(as affected by this Amendment) to which it is a party are true and
correct in all material respects on and as of the date hereof as though
made on and as of the date hereof (except to the extent that (i) such
representations and warranties speak to a specific date or (ii) the
facts on which such representations and warranties are based have been
changed by transactions contemplated by the Credit Agreement); and
(c) no Default or Event of Default exists.
23. Conditions. This Second Amendment shall not become effective
unless:
(a) The Administrative Agent shall have received a certificate
from a Responsible Officer certifying, based on due inquiry, that all of
the representations and warranties in paragraph 22, above, shall be true
and correct;
(b) Administrative Agent shall have received executed
counterparts of this Second Amendment from the Borrower, the Parent
Guarantor, First Chicago, and all Banks, and a certificate from a
Responsible Officer of each of the Borrower and Parent Guarantor
certifying as to (i) the due incumbency of its officers authorized to
execute this Second Amendment, (ii) resolutions duly adopted by its
directors approving and authorizing execution of this Second Amendment,
and (iii) any changes to its corporate charter or bylaws since March 25,
1994;
(c) The Borrower shall have made an additional payment of
$11,500,000 in Principal Debt, plus any outstanding amounts payable
under Section 6.6 of the Credit Agreement. $4,000,000 of the payment of
Principal Debt pursuant to this subparagraph shall be applied to satisfy
Borrower's obligations under Section 2.5(e)(ii) of the Credit Agreement.
(d) The Borrower shall have satisfied its obligation to First
Chicago in its capacity as provider of the First Chicago Receivables
Purchase Facility, so that the First Chicago Receivables Purchase
Facility shall have been terminated.
(e) The Borrower shall have executed, to the extent required by
the Administrative Agent or Required Banks, other Loan Papers to
continue the perfected lien on, charge against and security interest in
the Collateral, as presently in effect, subject only to the first
security interest of Congress in accounts receivable and proceeds
thereof, including inventory returns.
(f) The Effective Time (as defined above) shall have occurred.
(g) The Borrower shall have delivered to the Administrative
Agent a copy of the executed Congress Receivables Facility, together
with any other documents executed in connection therewith which have
been requested by the Administrative Agent on behalf of the Required
Banks, all of which documents shall be in all respects acceptable to the
Administrative Agent.
24. Release. In consideration of the agreement of the parties hereto
to enter into this Amendment, (a) the Parent Guarantor and the Borrower each
release the Administrative Agent, each Agent, each Bank, and their respective
parents, subsidiaries, directors, officers, employees, representatives,
agents, successors, assigns, and attorneys from all claims and causes of
action existing on or before the date hereof under or in connection with the
Existing Credit Facilities, the Morgan Guaranty Swap Agreement, or the
Existing Letters of Credit, or arising in connection with the execution,
negotiation, and preparation of this Amendment, the Credit Agreement and the
other Loan Papers, and (b) the Administrative Agent, each Agent, and each Bank
each release the Borrower, the Parent Guarantor, and their respective parents,
subsidiaries, directors, officers, employees, representatives, agents,
successors, assigns, and attorneys from all claims and causes of action
existing on or before the date hereof under or in connection with the Existing
Credit Facilities, the Morgan Guaranty Swap Agreement, the Existing Letters of
Credit or the Loan Papers, or arising in connection with the execution,
negotiation, and preparation of this Amendment, the Credit Agreement and the
other Loan Papers; provided that, nothing herein shall be deemed to be a
waiver of any Default or Event of Default under the Loan Papers.
25. Miscellaneous. This Amendment is a Loan Paper, and, therefore,
this Amendment is subject to the applicable provisions of Section 11 of the
Credit Agreement, all of which applicable provisions are incorporated herein
by reference the same as if set forth herein verbatim. Except as affected by
this Amendment, the Loan Papers are unchanged and continue in full force and
effect. Borrower and Parent Guarantor each agree that all Loan Papers to
which it is a party remain in full force and effect and continue to evidence
its legal, valid, and binding obligations enforceable in accordance with their
terms (as affected by this Amendment), except as enforceability may be limited
by applicable Debtor Relief Laws and general principles of equity. This
Amendment shall be binding upon and inure to the benefit of each of the
undersigned and their respective successors and permitted assigns.
THE LOAN PAPERS, INCLUDING THIS AMENDMENT, REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
26. Counterparts. This Amendment may be executed in more than one
counterpart, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
[Remainder of page left intentionally blank. Signature pages follow.]
<PAGE>
EXECUTED as of the date first written above.
ELJER MANUFACTURING, INC.,
as Borrower
By: /s/ Henry W. Lehnerer
Name: Henry W. Lehnerer
Title: Vice President - Finance
ELJER INDUSTRIES, INC.,
as Parent Guarantor
By: /s/ Henry W. Lehnerer
Name: Henry W. Lehnerer
Title: Vice President - Finance
NATIONSBANK OF TEXAS, N. A.,
as Administrative Agent, an Agent,
and a Bank
By: /s/ William E. Livingstone IV
Name: William E. Livingstone IV
Title: Senior Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
as an Agent and a Bank
By: /s/ Albert B. Gordon, Jr.
Name: Albert B. Gordon, Jr.
Title: Managing Director
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank and as "First Chicago" as
defined herein
By: /s/ Dennis Saletta
Name: Dennis Saletta
Title: Vice President
THE BANK OF TOKYO, LTD.,
DALLAS AGENCY,
as a Bank
By: /s/ John M. Mearns
Name: John M. Mearns
Title: Vice President and Manager
PEARL STREET, L.P.,
as a Bank
By: /s/ Robert J. O'Shea
Name: Robert J. O'Shea
Title: Authorized Signer
DK ACQUISITION PARTNERS,
as a Bank
By: M.H. Davidson & Co., a general
partner
By: /s/ Michael Leffell
Name: Michael Leffell
Title: General Partner
FOOTHILL CAPITAL CORPORATION,
as a Bank
By: /s/ Jeff Nikon
Name: Jeff Nikon
Title: Vice President
THIRD AVENUE VALUE FUND, INC.,
as a Bank
By: /s/ Michael Carney
Name: Michael Carney
Title: Chief Financial Officer
CITIBANK, N.A.,
as a Bank
By: /s/ Johnathan D. Calder
Name: Johnathan D. Calder
Title: Attorney-in-Fact
KLEINWORT BENSON LIMITED
as a Bank
By: /s/Iain D. Leigh
Name: Iain D. Leigh
Title: Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED OCTOBER 2, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-03-1994
<PERIOD-END> OCT-02-1994
<CASH> 24386
<SECURITIES> 0
<RECEIVABLES> 66353
<ALLOWANCES> 8511
<INVENTORY> 62282
<CURRENT-ASSETS> 181888
<PP&E> 159981
<DEPRECIATION> 101028
<TOTAL-ASSETS> 255342
<CURRENT-LIABILITIES> 127294
<BONDS> 94581
<COMMON> 7186
0
0
<OTHER-SE> (29251)
<TOTAL-LIABILITY-AND-EQUITY> 255342
<SALES> 302103
<TOTAL-REVENUES> 302103
<CGS> 218378
<TOTAL-COSTS> 286014
<OTHER-EXPENSES> 9173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9246
<INCOME-PRETAX> 6916
<INCOME-TAX> (95)
<INCOME-CONTINUING> 7011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7011
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
