<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For The Fiscal Year Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ______________
COMMISSION FILE NUMBER 1-10651
MAVERICK TUBE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 43-1455766
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
16401 Swingley Ridge Road, Seventh Floor
Chesterfield, Missouri 63017-4800
(Address of principal executive offices) (Zip Code)
(314) 733-1600
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Share Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the 15,301,072 shares of Common Stock held by
non-affiliates of the Registrant as of December 10 was $______________ based
upon the closing price as reported on the NASDAQ National Market on that date.
As of December 10, 1998, the Registrant had 15,437,474 outstanding shares of
Common Stock.
----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
As provided herein, portions of the documents listed below are incorporated
herein by reference:
Document Part - Form 10-K
Annual Report to Stockholders for the Fiscal
Year Ended September 30, 1998 Parts I, II and IV
Proxy Statement for the 1999 Annual Meeting of Stockholders Part III
MAVERICK TUBE CORPORATION AND SUBSIDIARY
INDEX
PART I.
Item 1. BUSINESS
Item 2. PROPERTIES
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
SIGNATURES
EXHIBIT INDEX
This Form 10-K contains certain forward-looking statements within the meaning of
the federal securities laws which, while reflective of management's beliefs or
expectations, involve certain risks and uncertainties, many of which are beyond
the control of the Company. Accordingly, the Company's actual results and the
timing of certain events could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, oil and gas price volatility, steel price volatility and those other
factors discussed in the Sections captioned "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
those risk factors discussed in Exhibit 99.1 hereto.
PART I
ITEM 1
BUSINESS
General
Maverick Tube Corporation, together with its subsidiaries, Maverick Investment
Corporation, Maverick Tube, L.P. and Maverick Tube International, Inc.,
("Maverick" or the "Company") manufactures electric resistance welded ("ERW")
pipe used in the energy industry for drilling and production applications ("oil
country tubular goods" or "OCTG") and line pipe for surface handling and
transportation of oil and natural gas. OCTG and line pipe products are produced
through both the ERW and seamless processes, and ERW pipe is generally a lower
priced, comparable quality alternative to seamless pipe in many applications.
The Company believes it is one of the leading domestic producers of OCTG
products.
The Company also manufactures structural tubing (shapes and rounds) and standard
pipe. Structural tubing is an ERW product used predominately in construction,
transportation, agriculture, material handling and recreational applications.
Standard pipe, as in OCTG, is produced through both the ERW and seamless
processes, with the significant majority of producers manufacturing ERW.
Standard pipe is used in various industrial applications.
In fiscal 1999, the Company will begin the production of cold drawn mechanical
tubing through its recently purchased production facility in Beaver Falls,
Pennsylvania. This product will be included in the Company's industrial product
segment.
For information with regard to total revenue, operating profit or loss and
identifiable assets attributable to each of the energy and industrial product
segments, see Note 10 to the Consolidated Financial Statements on page 27 of the
Company's 1998 Annual Report to Stockholders ("Annual Report"), portions of
which are filed as Exhibit 13, hereto.
Effective October 1, 1997, the operating assets and related liabilities of the
Company's two operating divisions (i.e., its Texas division and its Arkansas
Division), which constituted substantially all of the assets and liabilities of
the Company, were contributed to Maverick Tube, L.P., a limited partnership (the
"Operating Company"). Maverick Tube Corporation holds a five-percent equity
interest in the Operating Company as the sole general partner thereof. Maverick
Investment Corporation, a wholly-owned subsidiary of Maverick Tube Corporation,
holds the ninety-five percent equity interest in the Operating Company as the
sole limited partner thereof. This restructure was effected to more accurately
reflect the manner in which the Company conducts its business. As a result of
this restructure, Maverick now conducts substantially all of its operations
through the Operating Company. The newly purchased production facility in Beaver
Falls, Pennsylvania, is therefore held by the Operating Company.
The Energy Pipe Industry
OCTG products are used in drilling, completion and production applications in
the energy industry. The domestic consumption of OCTG products depends on
several factors, the most significant being the number of oil and natural gas
wells being drilled. In addition, OCTG production tubing may be periodically
replaced during the life of a producing well. OCTG consumption is satisfied by
domestic production, imports and draw-downs of inventories owned by
manufacturers, distributors and end users.
A significant factor affecting the market for production of OCTG products is the
level of industry inventories maintained by manufacturers, distributors and end
users. For calendar years 1996 and 1997, increasing industry inventory levels
added 4.7% and 16.0%, respectively, to OCTG demand. For the nine months ended
September 30, 1998, industry inventory levels were relatively flat. However,
because of the prior build in industry inventories coupled with the declining
rig count (down 24.4% from its fiscal 1997 level of 998 rigs to 754 at the end
of fiscal 1998), the Company believes that inventory levels at September 30,
1998 resulted in a 30% increase in inventory per rig. This increase in inventory
per rig has been reflected in the current 7.3 months of supply in inventory.
OCTG products are produced in numerous sizes, weights, grades and end finishes.
The Company believes that most OCTG products are produced to American Petroleum
Institute ("API") specifications. In addition, the Company and other producers
manufacture pipe in certain custom or proprietary grades. The grade of pipe used
in a particular application depends on technical requirements for strength,
corrosion resistance and other performance qualities. OCTG products are
generally classified into groupings of "carbon" and "alloy" grades. Carbon
grades of OCTG (yield strength levels of 75,000 pounds per square inch or less)
are generally used in oil and natural gas wells drilled to depths of
approximately 8,000 to 11,000 feet. Alloy grades of OCTG (yield strength levels
of 75,000 pounds per square inch or more) are generally used in oil and natural
gas wells drilled to depths in excess of 11,000 feet.
Carbon and alloy grades of OCTG products are available from both ERW and
seamless producers. ERW pipe is produced by processing flat rolled steel into
strips which are cold-formed, welded, heat-treated or seam-annealed and
end-finished with threads and couplings. Seamless products are produced by
individually heating and piercing solid steel billets into pipe and then end
finishing such pipe into OCTG in a manner similar to ERW. The Company believes
that the seamless manufacturing process involves higher costs than the ERW
process and that, as a result, seamless products are generally priced higher
than comparable ERW products.
Based on published industry statistics, ERW products, which did not have
significant market penetration prior to the mid-1970's, now account for
approximately forty-six percent of the tonnage of domestic OCTG products
consumed annually. The Company believes ERW products have captured a significant
majority of the carbon grade OCTG market, while seamless products retain a
significant majority of the alloy grade OCTG market. The Company believes that
further significant market penetration of ERW products will depend upon
increased market acceptance of ERW products and technological advances in the
types of raw materials and equipment utilized in the ERW manufacturing process.
Line pipe, which is principally used for surface transmission of oil, natural
gas and other fluids, is produced principally by companies with capabilities to
produce OCTG products and is produced in both ERW and seamless form. Line pipe
markets are dependent not only on the factors which influence the OCTG market,
but also on the level of pipe line construction activity, line pipe replacement
requirements, new residential construction and utility purchasing programs. The
Company shipped 21,097 tons of line pipe in fiscal 1998 as compared to 26,501
and 30,112 tons of line pipe in fiscal 1997 and 1996, respectively. The
decreased sales by the Company of line pipe in fiscal 1997 were principally due
to a shift in manufacturing capacity as it concentrated on the improving OCTG
market. The decreased sales by the Company of line pipe in fiscal 1998 were due
to competition from imported pipe.
Products
The Company produces both OCTG and line pipe products. Prior to 1994, OCTG
products constituted approximately 90% of the Company's net sales. During fiscal
1996, the percentage decreased to 65% as the Company continued to grow its
industrial products market share. During fiscal 1997, the percentage increased
to 71.8% due to strong OCTG demand and increases by the Company in the number of
products offered. During fiscal 1998, the percentage returned to 65.3% as the
high demand in the energy market experienced during the first six months
decreased significantly, while the industrial products market continued on a
stable growth pattern.
OCTG products include production tubing, which is used to convey oil and natural
gas to the surface of a well, production casing, which is used to line a newly
completed well, and surface casing, which is used to protect water-bearing
formations during the drilling of a well. Generally, deeper wells drilled to
depths greater than 15,000 feet require products that presently cannot be made
by the Company's ERW process. Line pipe products are used for surface production
flow lines, gathering systems and pipeline transportation and distribution
systems for oil, natural gas and other fluids. The Company's energy products
meet API or other proprietary standards. The Company's proprietary OCTG and line
pipe products are generally designed to be utilized in similar applications as
products meeting API standards and are engineered to provide performance
features comparable to products meeting API standards. The Company warrants its
API casing and tubing to be free of defects in material or workmanship in
accordance with applicable API specifications and warrants its proprietary grade
products against defects in accordance with the Company's standards, which are
disclosed to customers in connection with their purchase of such products. The
Company has not incurred significant costs in connection with this warranty. The
Company maintains insurance coverage against potential claims in an amount which
it believes to be adequate.
The Company manufactures finished products in both carbon and alloy steel
grades. Virtually all of the Company's products are fully completed or
"end-finished" at the Company's facilities, in contrast to certain of the
Company's competitors which do not end-finish their products or which end-finish
their products at different locations, thus adding to their freight and handling
costs. The end-finish process includes, as appropriate, upsetting, beveling,
threading, pressure testing and the application of couplings. The Company's
fully finished OCTG products are ready to be installed in oil or natural gas
wells. By end-finishing its products, the Company is better able to control
quality, cost and service to customers. Both of the Company's energy facilities
provide heat-treatment capabilities necessary for the production of alloy grade
pipe. The Company's alloy grade tubing and casing products accounted for 24%,
23% and 27% of net sales in fiscal 1998, 1997 and 1996, respectively.
Marketing
The Company sells its products primarily throughout the United States and Canada
to numerous distributors, which resell the pipe to major and independent oil and
natural gas production, gathering and pipeline companies. During the fiscal
years ended September 30, 1998, 1997 and 1996, sales by the Company to Canadian
customers constituted $17.9 million, $26.3 million and $12.9 million,
respectively. Sales to other foreign customers in fiscal 1998, 1997 and 1996
made up an additional $900,000, $400,000 and $300,000, respectively. The
Company's marketing philosophy emphasizes delivering competitively priced
quality products and providing a high level of service to its customers. The
Company maintains inventories of finished goods which are housed at both of its
production facilities and at field locations close to areas of drilling activity
which allows the Company to provide timely delivery of its products. As of
September 30, 1998, 1997 and 1996, the Company's backlog orders (including bill
and hold sales not yet shipped) were approximately $19.5 million, $62.7 million
and $57.6 million, respectively. All of the backlog orders as of September 30,
1998 are expected to be filled in fiscal 1999. The Company's backlog orders as
of any particular date may not be indicative of the Company's actual operating
results for any fiscal period. There can be no assurance that the amount of
backlog at any particular date will ultimately be realized.
In fiscal 1998, 1997 and 1996, one distributor, National Oilwell, Inc.,
accounted for 14%, 14% and 16% of the Company's net sales, respectively. In
fiscal 1997, another distributor, Master Tubulars, Inc. accounted for 11% of the
Company's net sales. The Company currently utilizes several distributors and
believes that additional qualified distributors are available to assist the
Company in meeting the end-users' needs. While the Company believes that it
could replace any one distributor of its products, including National Oilwell,
Inc. or Master Tubulars, Inc. with other qualified distributors, no assurance
can be given that the loss of National Oilwell, Inc. or Master Tubulars, Inc.
would not have an adverse effect on the Company's net sales or results of
operations.
Raw Materials
All steel purchases are made at the Company's headquarters in order to optimize
pricing, quality, availability and delivery of the Company's raw materials. The
Company consumes approximately 2.5% of the total amount of hot rolled steel
produced annually in the United States and believes it is generally considered
to be a significant purchaser by its suppliers. The Company maintains favorable
working relationships with its steel suppliers and believes that it is treated
favorably with respect to volume allocations and deliveries. The Company
presently purchases the majority of its steel from several domestic suppliers,
with approximately 75% of consolidated purchases made from Nucor Corporation.
During fiscal 1998, the Company began purchasing some of its raw materials from
foreign suppliers due to their competitive pricing. To date, the Company has not
experienced any significant disruption in its supply of raw materials.
Manufacturing
The Company manufactures OCTG and line pipe products at its facilities in
Conroe, Texas and Hickman, Arkansas. The facilities are strategically located to
serve the energy markets in the United States. The Company can currently produce
at a consolidated maximum rate of approximately 669,000 tons of pipe per year
with approximately 477,000 tons currently dedicated to energy production. The
Company was operating its facilities at a capacity utilization of approximately
55% during fiscal 1998. Substantially all of the Company's energy products are
finished on site for immediate drilling, production or line pipe applications.
In order to control its manufacturing costs, the Company attempts to maximize
production yields from purchased steel and reduce unit labor costs. Purchased
steel represents approximately 67% of the Company's cost of goods sold. Labor
costs are controlled by automation of certain activities and by optimizing
product throughput and scheduling. For fiscal 1998, direct and indirect labor
costs accounted for approximately 10% of the cost of goods sold. The Company
maintains an innovative compensation plan at both of its manufacturing
facilities, whereby employees receive quarterly bonuses for superior
productivity and cost savings. In addition, some employees are eligible to
receive annual profitability bonuses based upon the Company's consolidated
earnings. The maximum achievable incentives and bonuses range from 15% to 75% of
an employee's salary or wages.
During fiscal 1998, the Company spent $7.5 million on new capital equipment for
its energy facilities. These capital expenditures are expected to result in
manufacturing cost savings, quality improvements and expanding or maintaining
production capabilities.
Competition
The market for OCTG and line pipe products is highly competitive. The Company
believes that the principal competitive factors affecting its business are
price, quality, delivery, availability and service. The Company believes it
enjoys an excellent reputation for quality products and outstanding customer
service. The Company competes with approximately nine domestic and numerous
foreign producers of OCTG products, some of which have greater financial
resources than the Company. The Company's more significant ERW pipe OCTG
competitors are Lone Star Steel Co. and Newport Steel Co. and its more
significant seamless pipe OCTG competitors include United States Steel
Corporation, North Star Steel Co. and C F & I Limited Partnership. The Company
also competes in the line pipe market against these same competitors, and with
foreign producers of OCTG products, most of which are units of large foreign
steel makers. During calendar years 1996, 1997 and the first nine months of
1998, domestic OCTG market penetration by imports was 11.8%, 22.5% and 18.6%,
respectively, of tons consumed.
The Structural Tube and Standard Pipe Industry
Structural tubing products are used in construction, transportation,
agriculture, material handling and recreational applications. The uses for
structural tubing include handrails, building columns, walkway components,
bridge frames, recreational vehicle frameworks, boat trailers, farm implement
components, tillage equipment, storage rack systems, conveying systems support
and exercise equipment. Demand for structural tubing is believed to be
influenced primarily by the level of general economic activity in the United
States. In addition, structural tubing is an attractive alternative to other
structural steel forms, such as I-beams and H-beams, as tubing products offer
strength and other product characteristics similar to beams, but with less steel
content, resulting in lower costs to the end user in certain applications.
The Company believes that domestic consumption of structural tubing during
calendar 1997, 1996 and 1995 was 1.7 million, 1.4 million and 1.5 million and
tons, respectively. Based on published industry statistics, the Company believes
that the types of structural tubing products it is capable of manufacturing
account for more than 85% of the domestic tonnage of all types of domestic
structural tubing products consumed.
Standard pipe products are used in industrial applications such as steam, water,
air and gas lines, and plumbing and heating. Demand for standard pipe is
believed to be influenced primarily by the level of general economic activity in
the United States. In recent years, standard pipe has faced limited new
competition from plastic pipe in certain applications.
The Company believes that domestic consumption of standard pipe during calendar
1997, 1996 and 1995 was 2.7 million, 2.6 million and 2.6 million tons,
respectively. Based on published industry statistics, the Company believes that
the types of standard products it is capable of manufacturing account for
approximately 30% of the domestic tonnage of all types of domestic standard pipe
products consumed annually.
Products
The Company is currently producing structural square and rectangular shaped
tubing products on two tubing mills in its structural tube facility located in
Hickman, Arkansas. The Company is also currently producing structural round
tubing products and standard pipe at its two energy facilities in Conroe, Texas
and Hickman, Arkansas. Because of the large number of applications for
structural tubing and standard pipe, the number of different structural tubing
and standard pipe products produced for the industrial market is considerably
larger than that produced for the OCTG market. The Company produces square,
rectangular and round structural tubing at its facilities in sizes ranging from
one and one half to eight inch square (and the equivalent sizes in rectangular
and round tubing) and in thicknesses from 0.120 to 0.500 inches. The annual
capacity dedicated to industrial products is approximately 192,000 tons. The
Company was operating at approximately 85% of capacity during 1998.
Marketing
The structural tubing and standard pipe markets are somewhat regional in nature,
primarily because order sizes are smaller and lead time requirements are shorter
than for OCTG products. The Company currently sells principally to distributors,
but during fiscal 1998 and 1997 significantly increased its sales to large
end-user customers. As in the case of OCTG products, the Company's marketing
strategy emphasizes delivering competitively priced quality products and
providing a high level of service to its customers. As indicated above, the
application of structural tubing and standard pipe products is diverse, and a
short lead time is required for customer satisfaction. Consequently, the Company
maintains inventory levels comparable to those for OCTG products (in terms of
months supply), but such finished goods inventory will consist of a larger
number of items than in the case of OCTG. The Company is utilizing several
experienced agency firms in its sales efforts. As of September 30, 1998, the
Company's backlog orders were approximately $5.5 million. All of the backlog
orders as of September 30, 1998 are expected to be filled in fiscal 1999. The
Company's backlog orders as of any particular date may not be indicative of the
Company's actual operating results for any fiscal period. There can be no
assurance that the amount of backlog at any given time ultimately will be
realized.
Manufacturing
The manufacturing process for structural tubing and standard pipe products is
similar to the process of manufacturing plain-end OCTG products. The machinery
and equipment used for the manufacture of structural tubing products are similar
to equipment used for the manufacture of OCTG products. Structural tubing and
standard pipe is not, however, subject to the same degree of tolerances as are
OCTG products, which results in lower production costs relating to testing and
inspection than for OCTG products. Moreover, structural tubing does not require
end finishing, flash elimination from the welding process or seam annealing.
Because less finishing is required of structural tubing products as compared to
OCTG, the average cost per ton to convert steel into structural tubing is
significantly less than OCTG. Unlike OCTG products, all structural tubing
products are ERW.
Consistent with its manufacturing strategy for OCTG production, the Company has
become a low-cost, high-volume producer of quality structural tubing and
standard pipe products. The Company believes that the application of its
efficient manufacturing process developed for the production of OCTG products,
the labor costs at its Arkansas facility and the strategic location of the
facility provide a conversion cost advantage relative to the majority of
existing structural tubing and standard pipe manufacturers.
During fiscal 1998, the Company spent approximately $722,000 on additional
equipment needed for manufacturing.
Competition
Although a significant market for structural tubing is located within a 400 mile
radius of the structural facility, no other major structural tubing facility is
currently located within this area. Foreign competition, primarily from Canada,
represent 24%, 26% and 29% of total domestic sales of structural tubing in
calendar 1997, 1996 and 1995. The Company competes primarily against
approximately seven domestic and numerous foreign producers of structural
tubing. The Company's more significant structural tube competitors are Leavitt
Tube Company, Inc., Welded Tube Corporation of America, Copperweld, Bull Moose
Tube Corporation and Ex-L-Tube, Inc.
A significant market for standard pipe also exists. Foreign competition has had
a large presence in the standard pipe market. Foreign competition represented
approximately 24%, 25% and 29% of total domestic sales of standard pipe in
calendar 1997, 1996 and 1995. The Company's more significant domestic
competitors are Wheatland Tube Company, Armco, Inc. Sawhill Tubular Division,
Laclede Steel Company and IPSCO Tubulars, Inc.
The Cold Drawn Mechanical Tubing Industry
In fiscal 1998, the Company acquired assets that will be used in the production
of cold drawn tubular products at a production facility in Beaver Falls,
Pennsylvania from PMAC, Ltd. for $11.5 million. This facility is expected to
begin production during the first six months of fiscal 1999.
Products
The drawn tubing market is comprised of mechanical or pressure tubing utilized
for applications that require closer tolerances and/or a better surface finish
than ordinary ERW or seamless tubing. Drawn tubing applications include
hydraulic, pneumatic and gas cylinder stock, power takeoff and auger shafts,
electric motor housings, conveyor rollers and axles. There are also some
oilfield applications such as mud pumps, precision pumps, perforating gun tubes,
subsurface pump shells and coupling stock and some consumer applications such as
motorcycle forks, exercise equipment, office furniture, playground equipment,
bicycles and boat trailers.
Marketing
The drawn tubing market is driven primarily by the economy. Other factors
include grain prices and infrastructure construction due to the large quantity
of drawn mechanical tubing consumed in cylinder manufacturing. The market size
is currently about 600,000 tons per year with ERW accounting for 450,000 tons
and seamless accounting for 150,000. Imports typically satisfy less than 10% of
consumption. The five year historic growth rate for the market is 5.7%.
The market is basically broken down into three segments based upon outside
diameter and wall of the tube. Group 1 is outside diameter through 4", wall
thicknesses through .134", Group 2 is outside diameter from through 7 1/2", wall
thicknesses through .320" and Group 3 is the outside diameter above 7 1/2", all
wall thicknesses. Maverick's current business plan for the facility will be
concentrated on the Group 2 and Group 3 market segments.
Manufacturing
Drawn Tubing starts with either a plain end ERW or seamless tube. Approximately
80% of the drawn tubing facility's raw material requirements can be produced by
any of Maverick's three other production facilities. The remainder will be
purchased from outside sources and will include both smaller (less than 1 9/10")
and larger diameter pipe (greater than 10") and seamless pipe. The source tube
is then pulled through a die and over a mandrel to create precise outside
diameter, inside diameter or wall tolerance and to create a smoother finish.
The Company anticipates having approximately 100,000 tons of drawing capacity.
Competition
A significant market for drawn tubing is located within a 500 mile radius of the
Pennsylvania facility. The Company anticipates that its competitors in this
market will be Alliance Midwest, Copperweld, Lone Star Steel, LTV, Metal Matic,
Pacific Tube, Plymouth Tube, Pittsburgh Tube, Vision Metals and Webco.
Employees
As of September 30, 1998, the Company had approximately 806 employees, of whom
approximately 25% were salaried and approximately 75% were employed on an hourly
basis. None of the Company's employees are represented by a union. The Company
considers its employee relations to be excellent.
ITEM 2
PROPERTIES
The Company leases approximately 40,000 square feet of office space in
Chesterfield, Missouri, for its executive offices pursuant to a lease which
expires in 2008. The Company owns a 21,000 square foot office facility located
on a 14-acre site in Union, Missouri that is leased to an unaffiliated third
party. The Company's 160-acre site in Hickman, Arkansas includes two buildings
with approximately 315,000 square foot of OCTG manufacturing and storage space,
utilizing 55 acres. The 275,000 square foot structural tube manufacturing plant
is located adjacent to the existing OCTG facility. Approximately 120,000 square
feet of this facility is utilized for manufacturing with the remainder used for
inventory and material storage and shipping. Approximately 80 acres remain in
Hickman, Arkansas for future expansion. Both facilities are leased with purchase
options exercisable on the expiration dates of the leases. The expiration dates
are August 1, 2007 for the OCTG facility and February 1, 2004 for the structural
tube facility. The Company also owns 117 acres and a 244,000 square foot
manufacturing facility located in Conroe, Texas. Of the 117 acres, approximately
30 acres are used for manufacturing and storage and 60 acres are available for
future expansion. The Company leases a 21 acre site and a 370,000 square foot
manufacturing facility in Beaver Falls, Pennsylvania, to be utilized the
production of cold drawn mechanical tubing at this site during early fiscal
1999. Each manufacturing facility operated by the Company is served by truck,
has its own rail spur and is within proximity of barge facilities.
The Company believes the facilities are in good condition, are adequately
insured and are suitable for its planned level of operations.
ITEM 3
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential claims in an amount which it
believes to be adequate. The Company believes that it is not presently a party
to any litigation in which the outcome would have a material adverse effect on
its business or operations.
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other things, wastewater disposal and air
emissions. The Company believes it is currently in compliance with all
applicable environmental regulations.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of fiscal 1998 covered
by this Report to a vote of the Company's security holders through the
solicitation of proxies or otherwise.
ITEM 4A
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title
Gregg M. Eisenberg 48 Chairman of the Board, President and
Chief Executive Officer
Barry R. Pearl 49 Vice President - Finance and Administration,
Treasurer, Secretary and Chief Financial
Officer
Sudhakar Kanthamneni 51 Vice President - Manufacturing and Technology
T. Scott Evans 51 Vice President - Commercial Operations
Set forth below are descriptions of the backgrounds of the executive officers of
the Company and their principal occupations for the last five years:
Mr. Eisenberg has served as Chairman of the Board since February 1996. He has
served as President, Chief Executive Officer and a director of the Company since
1988. He is a former director and past chairman of the Committee on Pipe and
Tube Imports.
Mr. Pearl has served as Vice President - Finance and Administration, Treasurer,
Secretary and Chief Financial Officer since June 1998. He was formerly the
Senior Vice President and Chief Financial Officer for Santa Fe Pacific Pipeline
Partners, L.P. in Orange, California from January, 1995 until March, 1998. Prior
to being named Chief Financial Officer, he was Senior Vice President, Business
Development.
Mr. Kanthamneni has served as Vice President - Manufacturing and Technology of
the Company since August 1992. From May 1991 to August 1992, Mr. Kanthamneni
served as the Company's Vice President - Manufacturing.
Mr. Evans has served as Vice President - Commercial Operations of the Company
since September 1992.
PART II
ITEM 5
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding Maverick's Common Stock included on page 32 of Maverick's
Annual Report under the captions "Market for the Company's Common Equity" and
"Related Stockholder Matters" is incorporated herein by this reference.
ITEM 6
SELECTED FINANCIAL DATA
Selected Financial Data included on page 31 of the Annual Report is incorporated
herein by this reference.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations included on pages 16 through 20 of the Annual Report is incorporated
herein by this reference.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, the notes thereto and the Report of Ernst
& Young LLP included on pages 21 through 30 of the Annual Report are
incorporated herein by this reference.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year. See also Part I, Item 4A hereof.
ITEM 11
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year. But excluding the information contained therein under the headings
"Compensation Committee Report" and "Stock Performance."
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. 1. Financial Statements
The following consolidated financial statements of Maverick Tube
Corporation and Subsidiaries, included in the Annual Report of the
Registrant to its shareholders for the year ended September 30,
1998, are incorporated herein by reference in Item 8:
Report of Independent Auditors.
Consolidated Balance Sheets as of September 30, 1998 and 1997.
Consolidated Statements of Operations for the years ended
September 30, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements as of
September 30, 1998.
2. Financial Statement Schedule
The following consolidated financial statement schedule of
Maverick Tube Corporation and Subsidiaries is included with
the Annual Report on Form 10-K:
Schedule II Valuation and qualifying accounts for the
years ended September 30, 1998, 1997 and
1996.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
3. Exhibits:
See Exhibit Index.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this
Annual Report on Form 10-K pursuant to Item 14(c) of this Report:
Maverick Tube Corporation Amended and Restated 1990 Stock Option
Plan
Maverick Tube Corporation Savings for Retirement Plan as revised
on January 1, 1993
The Amended Maverick Tube Corporation 1994 Stock Option Plan
The Amended Maverick Tube Corporation Director Stock Option Plan
Form of Deferred Compensation Agreement with Certain Executive
Officers
Employment Agreement with Barry R. Pearl
Form of Severance Agreement with Executive Officers
b. Reports on 8-K:
Two Form 8-K's were filed during the fourth quarter of the
Registrant's fiscal year ended September 30, 1998. The Form 8-K filed
on July 28, 1998 pertained to the adoption by the Company of the
Shareholder Rights Plan. The Form 8-K filed on August 27, 1998
pertained to the acquisition by the Company of its cold drawn
production facility in Beaver Falls, Pennsylvania.
<TABLE>
Maverick Tube Corporation and Subsidiary
Schedule II - Valuation and Qualifying Accounts
(In thousands)
<CAPTION>
Additions
-----------------------------
Balance at Charged to Charged
beginning cost and to other Deductions Balance at
Classification of year expenses accounts describe end of year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended September 30, 1996: Deducted from asset accounts:
Accounts receivable allowances $ 306 $ 339 $ -- $ 125 (2) $ 629
Valuation allowance for deferred
taxes $2,737 $ -- $ -- $(1,590) (1) $ 1,147
Year ended September 30, 1997: Deducted from asset accounts:
Accounts receivable allowances $ 629 $ 44 $ -- $ 285 (2) $ 388
Valuation allowance for deferred
taxes $1,147 $ -- $ -- $(1,147) (1) $ --
Year ended September 30, 1998: Deducted from asset accounts:
Accounts receivable allowances $ 388 $ 3 $ -- $ -- $ 391
<FN>
(1) Resulted from the utilization of net operating and alternative
minimum loss carryforwards and re-evaluation of remaining deferred
tax assets.
(2) Uncollectible accounts written off, net of recoveries.
</FN>
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized on December 11, 1998.
Maverick Tube Corporation
(registrant)
December 11, 1998 /s/ Gregg M. Eisenberg
----------------------
Gregg M. Eisenberg, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on behalf of the Company by the following persons in the
capacities on the dates indicated.
December 11, 1998 /s/ Gregg M. Eisenberg
----------------------
Gregg M. Eisenberg, Chairman, President
and Chief Executive Officer and Director
December 11, 1998 /s/ Barry R. Pearl
------------------
Barry R. Pearl, Vice President Finance
and Administration (Principal Financial
and Accounting Officer)
December 11, 1998 /s/ William E. Macaulay
-----------------------
William E. Macaulay, Director
December 11, 1998 /s/ John M. Fox
---------------
John M. Fox, Director
December 11, 1998 /s/ C. Robert Bunch
-------------------
C. Robert Bunch, Director
December 11, 1998 /s/ C. Adams Moore
------------------
C. Adams Moore, Director
December 11, 1998 /s/ David H. Kennedy
--------------------
David H. Kennedy, Director
December 11, 1998 /s/ Wayne P. Mang
------------------
Wayne P. Mang, Director
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the N/A
Registrant, incorporated herein by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1,
File No. 33-37363 (the "1991 Registration Statement").
3.2 Amended and Restated Bylaws of the Registrant as amended, filed
herewith.
4.1 Shareholder Rights Agreement dated as of July 24, 1998 between the N/A
Registrant and Harris Trust and Savings Bank as Rights Agent
incorporated herein by reference to Exhibit 1 of the Registrant's
Form 8-A filed on August 5, 1998.
4.2 Form of Stock Certificate for Common Stock, incorporated herein by N/A
reference to Exhibit 4.1 to the 1991 Registration Statement.
10.1 Lease and Agreement dated July 24, 1992, by and between the N/A
Registrant and the Arkansas Development Finance Authority
(the "Authority"), incorporated herein by reference to
Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1992.
10.2 Maverick Tube Corporation Amended and Restated 1990 Stock Option N/A
Plan, incorporated herein by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-K for the year ended
September 30, 1991.
10.3 Maverick Tube Corporation Savings for Retirement Plan effective on N/A
February 15, 1988, as amended, incorporated herein by reference
to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1993
10.4 Lease Agreement dated as of March 1, 1994, between the Authority, N/A
as lessor, and the Registrant as lessee, related to the
Registrant's Arkansas Structural Facility, incorporated herein by
reference to Exhibit 10.14 to the Registrant's Registration Statement
on Form S-2, file No 33-80096.
10.5 First Supplemental Trust Indenture to Lease Agreement between the N/A
Authority, as lessor and the Registrant, as lessee relating to the
Registrant's Arkansas Structural Facility, dated July 1, 1994,
incorporated by reference to Exhibit 10.1 to the Registant's
Quarterly Report on Form 10-Q for the period ended June 30, 1994.
10.6 Supplement to the Second Term Loan Agreement dated December 15, N/A
1994 incorporated herein by reference to Exhibit 10.16 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 (the "1994 Form 10-K").
10.7 The Maverick Tube Corporation 1994 Stock Option Plan, incorporated N/A
herein by reference to Exhibit 10.17 of the 1994 Form 10-K.
10.8 The Maverick Tube Corporation Director Stock Option Plan, N/A
incorporated herein by reference to Exhibit 10.18 of the 1994
Form 10-K.
10.9 Form of Deferred Compensation Agreement between the Registrant and N/A
Messrs. Gregg M. Eisenberg, T. Scott Evans and Sudhakar Kanthamneni
Dated October 1, 1995, incorporated herein by reference to
Exhibit 10.22 of the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996 (the "1996 Form 10-K").
10.10 Amendment #1 to The Maverick Tube Corporation's Director Stock N/A
Option Plan, incorporated herein by reference to Exhibit 10.24 of
the 1996 Form 10-K.
10.11 Amendment #1 to The Maverick Tube Corporation's 1994 Stock Option N/A
Plan, incorporated herein by reference to Exhibit 10.21 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997.
10.12 Employment Agreement of Barry R. Pearl, incorporated herein by N/A
reference to Exhibit 10 of the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1998.
10.13 Agreement of Limited Partnership between the Registrant, Maverick
Investment Corporation and Maverick Tube L.P., filed herewith
10.14 Secured Credit Agreement ("Secured Credit Agreement") dated
September 18, 1998, by and among the Registrant, Harris Trust
and Savings Bank ("Harris Trust") and Mercantile Bank of St. Louis,
N.A. ("Mercantile Bank"), filed herewith.
10.15 Note Receivable dated December 10, 1998, by and among the
Registrant, and Barry R. Pearl, Chief Financial Officer, filed
herewith.
10.16 Form of Severance Agreement dated December 10, 1998, by and
among the Registrant and Gregg M. Eisenberg, Barry R. Pearl,
Sudhakar Kanthamneni and T. Scott Evans, filed herewith.
10.17 First Amendment to Secured Credit Agreement dated as of
December 10, 1998, filed herewith.
13 Portions of Registrant's 1998 Annual Report to Shareholders,
which are incorporated by reference herein.
21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, independent auditors.
27.1 Financial Data Schedule.
99.1 Risk Factors.
</TABLE>
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
MAVERICK TUBE CORPORATION
TABLE OF CONTENTS
Page No.
ARTICLE I -- OFFICES....................................................... 1
Section 1. Registered Office......................................... 1
Section 2. Other Offices............................................. 1
ARTICLE II -- MEETINGS OF STOCKHOLDERS..................................... 1
Section 1. Place of Meetings......................................... 1
Section 2. Annual Meeting of Stockholders............................ 1
Section 3. Quorum; Adjourned Meetings and Notice Thereof............. 1
Section 4. Voting.................................................... 2
Section 5. Proxies................................................... 2
Section 6. Special Meetings.......................................... 2
Section 7. Notice of Stockholders' Meetings.......................... 3
Section 8. Waiver of Notice.......................................... 3
Section 9. Maintenance and Inspection of Stockholder List............ 3
Section 10. Stockholder Action by Written Consent Without a Meeting... 4
Section 11. Inspectors of Election.................................... 4
Section 12. Procedure for Stockholders' Meeting....................... 5
Section 13. Order of Business......................................... 5
Section 14. Procedures for Bringing Business Before an Annual Meeting. 5
Section 15. Procedures for Nominating Directors....................... 6
ARTICLE III -- DIRECTORS................................................... 7
Section 1. Number and Qualification of Directors..................... 7
Section 2. Election and Term of Office............................... 8
Section 3. Resignation and Removal of Directors...................... 8
Section 4. Vacancies................................................. 8
Section 5. Powers.................................................... 9
Section 6. Place of Directors' Meetings.............................. 9
Section 7. Regular Meetings.......................................... 9
Section 8. Special Meetings.......................................... 9
Section 9. Quorum.................................................... 9
Section 10. Action Without Meeting.................................... 10
Section 11. Telephonic Meetings....................................... 10
Section 12. Meetings and Action of Committees......................... 10
Section 13. Special Meetings of Committees............................ 11
Section 14. Minutes of Committee Meetings............................. 11
Section 15. Compensation of Directors................................. 11
Section 16. Indemnification........................................... 11
ARTICLE IV -- OFFICERS..................................................... 12
Section 1. Officers.................................................. 12
Section 2. Election of Officers...................................... 12
Section 3. Subordinate Officers...................................... 12
Section 4. Removal and Resignation of Officer........................ 12
Section 5. Vacancies in Office....................................... 13
Section 6. Chairman of the Board..................................... 13
Section 7. Vice Chairman of the Board................................ 13
Section 8. President................................................. 13
Section 9. Vice Presidents........................................... 14
Section 10. Secretary................................................. 14
Section 11. Chief Financial Officer................................... 14
Section 12. Treasurer................................................. 15
ARTICLE V -- CERTIFICATES FOR STOCK........................................ 15
Section 1. Certificates.............................................. 15
Section 2. Signatures on Certificates................................ 15
Section 3. Statement of Stock Rights, Preferences, Privileges........ 15
Section 4. Lost, Stolen or Destroyed Certificates.................... 16
Section 5. Transfers of Stock........................................ 16
Section 6. Fixing Record Date........................................ 16
Section 7. Registered Stockholders................................... 16
ARTICLE VI -- GENERAL PROVISIONS........................................... 17
Section 1. Dividends................................................. 17
Section 2. Payment of Dividends; Directors' Duties................... 17
Section 3. Checks.................................................... 17
Section 4. Corporate Contracts and Instruments....................... 17
Section 5. Fiscal Year............................................... 17
Section 6. Manner of Giving Notices.................................. 17
Section 7. Waiver of Notice.......................................... 18
Section 8. Annual Statement.......................................... 18
ARTICLE VII -- AMENDMENTS.................................................. 18
Section 1. Amendment by Directors.................................... 18
Section 2. Amendment by Stockholders................................. 18
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
MAVERICK TUBE CORPORATION
ARTICLE I -- OFFICES
Section 1. Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II -- MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at such place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting.
Section 2. Annual Meeting of Stockholders. An annual meeting of
stockholders shall be held on the third Tuesday in February in each year, if not
a legal holiday, and if a legal holiday, then on the next business day
following, at 2:00 p.m. or at such other date and time as may be determined from
time to time by resolution adopted by the Board of Directors of the Corporation,
and transacting such other business as may properly be brought before the
meeting.
Section 3. Quorum; Adjourned Meetings and Notice Thereof. A majority of the
stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, without regard to class or series, shall constitute a quorum for the
transaction of business except as otherwise provided by law, by the Amended and
Restated Certificate of Incorporation of the Corporation, as it may be amended
from time to time (the "Certificate of Incorporation"), or by these Bylaws. A
quorum, once established, shall not be broken by the withdrawal of enough votes
to leave less than a quorum and the votes present may continue to transact
business until adjournment provided that any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum or, if higher, such percentage of the Corporation's voting
power as may be required by the express provision of the statutes, the
Certificate of Incorporation or these Bylaws. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat.
Section 4. Voting. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statues, the
Certificate of Incorporation or these Bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 5. Proxies. At each meeting of the stockholders, each stockholder
having the right to vote may vote in person or may authorize another person or
persons to act for him by proxy appointed by an instrument in writing or by the
transmission of a telegram, cablegram, or other means of electronic transmission
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument or transmission provides for a
longer period. All proxies must be filed with the Secretary of the Corporation
at the beginning of each meeting in order to be counted in any vote at the
meeting. A proxy shall be deemed signed if the stockholder's name is placed on
the proxy (whether by manual signature, telegraphic transmission or otherwise)
by the stockholder or the stockholder's attorney in fact. Except as otherwise
set forth in the Certificate of Incorporation, each stockholder shall have one
vote for each share of stock having voting power, registered in his name on the
books of the Corporation on the record date set by the Board of Directors as
provided in Article V, Section 6 hereof.
Section 6. Special Meetings. Special meetings of the stockholders, for any
purpose, or purposes, unless otherwise prescribe by statute or by the
Certificate of Incorporation, may be called at any time by the Board of
Directors or a committee of the Board of Directors which has been duly
designated by the Board of Directors and whose powers and authority, as provided
in a resolution of the Board of Directors or in these Bylaws, include the power
to call such meetings. Special meetings of stockholders of the Corporation may
not be called by any other person or persons. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Section 7. Notice of Stockholders' Meetings. Except as otherwise provided
by law, a written notice of each meeting of stockholders stating the place, day
and hour thereof and, in the case of a special meeting, the purposes for which
the meeting is called, shall be given not less than 10 nor more than 60 days
before the meeting, to each stockholder entitled to vote thereat, and to each
stockholder who, by law, by the Certificate of Incorporation, or by these
Bylaws, is entitled to notice. Any notice required to be given to stockholders
by statute, the Certificate of Incorporation or these Bylaws, including notice
of any meeting of stockholders, shall be given personally, by first-class mail
or by telegraphic communication, charges prepaid, addressed to the stockholder
at the address of such stockholder appearing on the books of the Corporation or
given by the stockholder to the Corporation for the purpose of notice. If no
such address appears on the Corporation's books or has been so given, notice
shall be deemed to have been given if sent by first-class mail or telegraphic
communication to the Corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where such
principal executive office is located. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail sent by telegram.
If any notice addressed to a stockholder at the address of such stockholder
appearing on the books of a Corporation is returned to the Corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the stockholder at such address, all
further notices shall be deemed to have been duly given without further mailing
if the same shall be available to the stockholder upon written demand of the
stockholder at the principal executive office of the Corporation for a period of
one year from the date of the giving of such notice.
Section 8. Waiver of Notice. Attendance of a person at a meeting shall
constitute a waiver of notice to such person of such meeting, except when the
person objects at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened, or objects to
the consideration of matters not included in the notice of the meeting.
Section 9. Maintenance and Inspection of Stockholder List. The officer or
agent who has charge of the stock ledger of the Corporation shall prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where their meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
open at the time and place of the meeting during the whole time thereof, and may
be inspected by any stockholder who is present. The stock ledger of the
Corporation shall be the only evidence as to who are the stockholders entitled
to examine such list or to vote at any meetings of stockholders.
Section 10. Stockholder Action by Written Consent Without a Meeting. Any
action which may be taken by stockholders at an annual or special meeting of
stockholders may be taken by written consent unless otherwise provided in the
Certificate of Incorporation of the Corporation.
Section 11. Inspectors of Election. Before any meeting of stockholders, the
Board of Directors shall appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. The Board of
Directors may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and the voting power of
each, the share represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies and ballots;
(b) Count all votes and ballots;
(c) Determine and retain for a reasonable period a record of the
disposition of any challenges and questions in any way arising in connection
with the right to vote;
(d) Certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots;
(e) Determine and announce when the polls shall open and close;
(f) Determine the results; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders and in accordance with law.
In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the General Corporation Law of the State of Delaware,
ballots and the regular books and records of the Corporation, and other reliable
information pursuant to Section 231 of the General Corporation Law of the State
of Delaware.
Section 12. Procedure for Stockholders' Meetings. Meetings of the
stockholders shall be presided over by the Chairman of the Board of Directors,
if any, or in his absence, the Vice Chairman, or in the event the corporation
has no Chairman of the Board or Vice Chairman, or in their absence, by the
President or by any Vice President, or, in the absence of any of such officers,
by a chairman to be chosen by a majority of the stockholder entitled to vote at
the meeting who are present in person or by proxy. The Secretary, or, in his
absence, any person appointed by the chairman of the meeting, shall act as
secretary of all meetings of the stockholders.
Section 13. Order of Business. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting.
Section 14. Procedures for Bringing Business Before an Annual Meeting.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at an annual meeting of the stockholders except in accordance with the
procedures hereinafter set forth in this Section 14; provided, however, that
nothing in this Section 14 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual meeting in
accordance with said procedures.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (1) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board; (2) otherwise properly brought before the meeting by or at the direction
of the Board; or (3) otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than forty-five (45) days nor more than ninety (90) days
prior to the anniversary date of the date on which the Corporation first mailed
its proxy materials for the preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is
not within thirty (30) days before or after the anniversary date of the prior
year's annual meeting of stockholders, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting is first mailed or public disclosure of the date of the annual meeting
is first made, whichever first occurs. A stockholder's notice to the secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting: (i) a brief description of the business desired to be brought
before the annual meeting and the stockholder's reasons for conducting such
business at the annual meeting; (ii) the name and record address of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 14 and, if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 15. Procedures for Nominating Directors. Notwithstanding anything
in these Bylaws to the contrary, only persons who are nominated in accordance
with the procedures hereinafter set forth in this Section 15 shall be eligible
for election as directors of the Corporation.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders only: (1) by or at the
direction of the Board of Directors; or (2) by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 15. Such
nominations, other than those made by or at the direction of the Board of
directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice to the Secretary must
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than forty-five (45) days nor more than ninety (90) days
prior to the anniversary date of the date on which the Corporation first mailed
its proxy materials for the preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is
not within thirty (30) days before or after the anniversary date of the prior
year's annual meeting of stockholders, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the annual meeting
is first mailed or public disclosure of the date of the annual meeting is first
made, whichever first occurs. Such stockholder's notice shall set forth: (i) as
to each person whom the stockholder proposes to nominate for election or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, or any successor regulation thereto
(including such person's written consent to being named as a nominee and to
serving as a director if elected); and (ii) as to the stockholder giving the
notice (A) the name and address, as they appear on the Corporation's books, of
such stockholder, and (B) the class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 15, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
ARTICLE III -- DIRECTORS
Section 1. Number and Qualification of Directors. The Board of Directors
shall consist of a minimum of five (5) and a maximum of fifteen (15) directors.
The number of directors shall be fixed from time to time within the minimum and
the maximum number established by the then-elected Board of Directors. The
number of directors until changed by the Board shall be seven (7). The directors
need not be stockholders.
Section 2. Election and Term of Office. Except as otherwise provided by
law, the Certificate of Incorporation or these Bylaws, each director shall hold
office until the annual meeting next succeeding his election. If any such annual
meeting is not held or the directors are not elected thereat, the directors may
be elected at any special meeting of stockholders held for that purpose. All
directors shall hold office until their respective successors are elected and
qualified or until their earlier death, resignation or removal.
Section 3. Resignation and Removal of Directors. Any director may resign at
any time by delivering his resignation in writing to the Chairman of the Board,
if any, the President, or the Secretary or to a meeting of the board of
directors. Such resignation shall be effective upon receipt unless specified to
be effective at some other time, and without in either case the necessity of its
being accepted unless the resignation shall so state. A director (including
persons elected by directors to fill vacancies in the Board) may be removed from
office for cause by the vote of the holders of a majority of the shares issued
and outstanding and entitled to vote in the election of directors, considered
for purposes of this Article III Section 3 as one class. No director resigning
and (except where a right to receive compensation shall be expressly provided in
a duly authorized written agreement with the Corporation) no director removed
shall have any right to any compensation as such director for any period
following his resignation or removal, or any right to damages on account of such
removal, whether his compensation be by the month or by the year or otherwise;
unless, in the case of a resignation, the directors, or, in the case of removal,
the stockholders, shall in their discretion provide for compensation.
Section 4. Vacancies. Except as otherwise provided by statute or the
Certificate of Incorporation, in the case of newly created directorships, such
additional director or directors, unless such position is to be filled by a vote
of the stockholders at an annual or special meeting, shall be elected by a
majority vote of the directors. In the case of any vacancy in the Board of
Directors, however created, the vacancy or vacancies shall be filled by majority
vote of the directors remaining or, if only one such director remains, by such
director. In the event one or more directors shall resign, effective at a future
date, such vacancy or vacancies shall be filled by majority vote of directors
then in office, including those resigning. Any director elected or chosen as
provided herein shall serve for the unexpired term of office or until his
successor is elected and qualified or until his earlier death, resignation or
removal.
In the event of any decrease in the authorized number of directors, each
director then serving as such shall nevertheless continue as a director until
the expiration of his current term, or his prior death, resignation or removal.
Section 5. Powers. The property and business of the Corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute, by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Section 6. Place of Directors' Meetings. The directors may hold their
meetings and have one or more offices, and keep the books of the Corporation
outside the State of Delaware.
Section 7. Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by the Board. Except as otherwise provided by statute, any business
may be transacted at any regular meeting of the Board of Directors.
Section 8. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board, if any, the Vice Chairman, if any or the
President on at least 48 hours notice to each director. Special meetings shall
be called by the President or the Secretary in like manner and on like notice on
the written request of one-third or more in number of the directors unless the
Board consists of only one director, in which case special meetings shall be
called by the President or Secretary in like manner and on like notice on the
written request of the sole director.
Section 9. Quorum. At all meetings of the Board of Directors a majority of
the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum, shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, the Certificate of Incorporation or these Bylaws. If a quorum shall
not be present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. A meeting at which
a quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action is approved by at least a majority of
the required quorum for such meeting.
Section 10. Action Without Meeting. Unless otherwise restricted by statute,
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 11. Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any such committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
Section 12. Meetings and Action of Committees. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. If no alternate members have been appointed, the
committee member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any absent or disqualified member. The Board of Directors shall, by
resolution passed by a majority of the whole Board, designate one member of each
committee as chairman of such committee. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, but no such committee
shall have the power or authority to authorize an amendment to the Certificate
of Incorporation, adopt an agreement of merger or consolidation, recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommend to the stockholders a dissolution
of the Corporation or a revocation of a dissolution, or amend the Bylaws of the
Corporation; and, unless the resolution or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
Section 13. Special Meetings of Committees. Special meetings of committees
may be called by the chairman of such committee, the Chairman the Board, if any,
or the President, on at least 48 hours notice to each member and alternate
member. Alternate members shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws. If a committee
is comprised of an odd number of members, a quorum shall consist of a majority
of that number. If the committee is comprised of an even number of members, a
quorum shall consist of one-half of that number. If a committee is comprised of
two members, a quorum shall consist of both members.
Section 14. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when requested.
Section 15. Compensation of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation and expenses for attending committee meetings.
Section 16. Indemnification.
(a) The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto.
(b) Expenses (including attorney's fees) incurred by an officer or director
of the Corporation or any of its direct or indirect wholly-owned subsidiaries in
defending any civil, criminal, administrative or investigative action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Section 16. Such expenses (including attorneys' fees)
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(c) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section 16 shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any provision of law, the Corporation's Certificate of
Incorporation, the certificate of incorporation or bylaws or other governing
documents of any direct or indirect wholly-owned subsidiary of the Corporation,
or any agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding any of the positions or having any of the relationships referred
to in this Section 16.
ARTICLE IV -- OFFICERS
Section 1. Officers. The officers of the Corporation shall be a President,
a Chief Financial Officer, a Vice President, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board, a Vice Chairman of the Board, one or more additional Vice
Presidents, and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article IV.
Section 2. Election of Officers. The officers of the Corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article, shall be chosen by the Board of Directors, and
each shall serve at the pleasure of the Board, subject to the rights, if any, of
any officer under any contract of employment.
Section 3. Subordinate Officers. The Board of Directors may appoint, and
may empower the President to appoint, such other officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the Bylaws or as the
Board of Directors may from time to time determine.
Section 4. Removal and Resignation of Officers. Any officer may be removed,
either with or without cause, by the Board of Directors, at any regular or
special meeting thereof or except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors, provided that such removal shall not prejudice the
remedy of such officer for breach of any contract of employment.
Any officer may resign at any time by giving written notice to the
Corporation. Any such resignation shall take effect on receipt of such notice or
at any later time specified therein. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
such resignation is without prejudice to the rights, if any, of the Corporation
under any contract to which the officer is a party.
No officer resigning and (except where a right to receive compensation
shall be expressly provided in a duly authorized written agreement with the
Corporation) no officer removed shall have any right to any compensation as such
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month or
by the year or otherwise; unless the directors shall in their discretion provide
for compensation.
Section 5. Vacancies in Office. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
Section 6. Chairman of the Board. The Chairman of the Board, if any, shall,
if present, preside at all meetings of the Board of Directors and the
stockholders, and shall exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or prescribed by
the Bylaws.
Section 7. Vice Chairman of the Board. The Vice Chairman of the Board, if
any, shall exercise and perform such powers and duties as may be from time to
time assigned to him by the Board of Directors or prescribed in these Bylaws. In
the absence of the Chairman of the Board, if any, the Vice Chairman of the Board
shall preside at all meetings of the stockholders and the Board of Directors.
Section 8. President. The President shall be the chief executive officer of
the Corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and the officers
of the Corporation. In the event the Corporation has no Chairman of the Board or
Vice Chairman of the Board, or in their absence, the President shall preside at
all meetings of the stockholders and the Board of Directors. He shall have the
general powers and duties of management usually vested in the office of
President of a Corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws.
Section 9. Vice Presidents. In the absence or disability of the President,
the Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the President,
shall perform all the duties of the President, and when so acting shall have all
the powers of, and be subject to all the restrictions upon, the President. The
Vice Presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the Board of
Directors, these Bylaws or the President.
Section 10. Secretary. The Secretary shall keep or cause to be kept, at the
principal office or such other place as the Board of directors may order, a book
of minutes of all meetings and actions of directors, committees of directors and
stockholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at directors' and committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or
at the office of the Corporation's transfer agent or registrar, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and he shall keep the seal of the Corporation, if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 11. Chief Financial Officer. The Chief Financial Officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall be open at all times to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other valuables in
the name and to the credit of the Corporation with such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and Directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have other powers and perform such other duties as may be
prescribed by this Board of Directors or these Bylaws.
Section 12. Treasurer. The Treasurer shall have such powers and perform
such duties as from time to time may be prescribed for him by the Board of
Directors, the President or these Bylaws.
ARTICLE V -- CERTIFICATES FOR STOCK
Section 1. Certificates. Every holder of stock of the Corporation shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or a Vice President, and by the Secretary or an Assistant Secretary,
if one be appointed, or the Treasurer or an Assistant Treasurer, if one be
appointed, of the Corporation, certifying the number of shares represented by
the certificate owned by such stockholder in the Corporation.
Section 2. Signatures on Certificates. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Statement of Stock Rights, Preferences, Privileges. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificates which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided by
statute, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificates which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors,
the Secretary and the Treasurer each may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the owner of such
certificate, or his legal representative. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to furnish the Corporation a bond in such form and substance and with such
surety as it may direct as indemnity against any claim that may be made against
the Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed.
Section 5. Transfers of Stock. Upon surrender to the Corporation, or the
transfer agent of the Corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. Fixing Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix
record date which shall not be more than 60 nor less than 10 days before the
date of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 7. Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, except as expressly provided by
the laws of the State of Delaware.
ARTICLE VI -- GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property or in shares of the
Corporation's capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Payment of Dividends; Director' Duties. Before declaration of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in their absolute discretion, thinks proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Board of Directors
shall think conducive to the interests of the Corporation, and the Board of
Directors may thereafter abolish any such reserve in its absolute discretion.
Section 3. Checks. All checks, drafts or other orders for payment of money,
notes or other evidences of indebtedness, issued in the name of or payable to
the Corporation shall be signed by such officer or officers as the Board of
Directors or the President or any Vice President, acting jointly, may from time
to time designate.
Section 4. Corporate Contracts and Instruments. The President, any Vice
President, the Secretary or the Treasurer may enter into contracts and execute
instruments on behalf of the Corporation. The Board of Directors, the President
or any Vice President may authorize any officer or officers, and any employee or
employees or agent or agents of the Corporation or any of its subsidiaries, to
enter into any contract or execute any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be October
1 through September 30, unless otherwise fixed by resolution of the Board of
Directors.
Section 6. Manner of Giving Notices. Whenever, under the provision of the
statutes, the Certificate of Incorporation or these Bylaws, notice is required
to be given to any director, it shall not be construed to require personal
notice, but such notice may be given in writing, by mail, addressed to such
director, at his address as it appears on the records of the Corporation (unless
prior to the mailing of such notice he shall have filed with the Secretary a
written request that notices intended for him be mailed to some other address,
in which case such notice shall be mailed to the address designated in the
request) with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail;
provided, however, that, in the case of notice of a special meeting of the Board
of Directors, if such meeting is to be held with in seven calendar days after
the date of such notice, notice shall be deemed given as of the date such notice
shall be accepted for delivery by a courier service that provide "opening of
business next day" delivery, so long as at least one attempt shall have been
made, on or before the date such notice is accepted for delivery by such courier
service, to provide notice by telephone to each director at his principal place
of business and at his principal residence. Notice to directors may also be
given by telegram, by personal delivery or telephone.
Section 7. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes, the Certificate of Incorporation or these
Bylaws, a waiver thereof in writing, or by telegraph, cable or other written
form of recorded communication, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
Section 8. Annual Statement. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
ARTICLE VII -- AMENDMENTS
Section 1. Amendment by Directors. Except as otherwise expressly provided
in a bylaw adopted by the stockholders as hereinafter provided, the directors,
by affirmative vote of a majority of the whole Board and without the assent or
vote of the stockholder, may at any meeting, make repeal, alter, amend or
rescind any of these Bylaws, provided the substance of the proposed amendment or
other action shall have been stated in a notice of the meeting.
Section 2. Amendment by Stockholders. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, these Bylaws may be altered,
amended or rescinded, and new Bylaws may be adopted, by the stockholders at any
annual meeting of the stockholders or at any special meeting of the stockholders
if notice of such alteration, amendment, repeal or adoption of new bylaws are
contained in the notice of such special meeting.
<PAGE>
UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS
OF MAVERICK TUBE CORPORATION
The undersigned, being all of the members of the Board of Directors of
Maverick Tube Corporation (the "Corporation") acting without notice or a
meeting, do hereby waive notice and the holding of such meeting and consent to,
adopt and vote in favor of the following, such consent to have the same effect
as the unanimous vote of the directors of the Corporation at a meeting duly
held:
AMENDMENT OF BYLAWS
WHEREAS, as a result of recent changes in the Federal securities laws, the
Board of Directors of the Corporation desires to amend certain of the Bylaws of
the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that Section 14 of Article II of the Bylaws
of the Corporation be, and it hereby is, deleted in its entirety and the
following substituted in lieu thereof:
"Section 14. Procedures for Bringing Business Before an Annual Meeting.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at an annual meeting of the stockholders except in accordance with the
procedures hereinafter set forth in this Section 14; provided, however, that
nothing in this Section 14 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual meeting in
accordance with said procedures.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (1) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board; (2) otherwise properly brought before the meeting by or at the direction
of the Board; or (3) otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than forty-five (45) days nor more than ninety (90) days
prior to the anniversary date of the date on which the Corporation first mailed
its proxy materials for the preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is
not within thirty (30) days before or after the anniversary date of the prior
year's annual meeting of stockholders, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the annual meeting
is first mailed or public disclosure of the date of the annual meeting is first
made, whichever first occurs. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the stockholder's reasons for conducting such business at
the annual meeting; (ii) the name and record address of the stockholder
proposing such business; (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder; and (iv) any material interest
of the stockholder in such business.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 14 and, if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted."; and
BE IT FURTHER RESOLVED, that Section 15 of Article II of the Bylaws of the
Corporation be, and it hereby is, deleted in its entirety and the following
substituted in lieu thereof:
"Section 15. Procedures for Nominating Directors. Notwithstanding anything
in these Bylaws to the contrary, only persons who are nominated in accordance
with the procedures hereinafter set forth in this Section 15 shall be eligible
for election as directors of the Corporation.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders only: (1) by or at the
direction of the Board of Directors; or (2) by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 15. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice to the Secretary must
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than forty-five (45) days nor more than ninety (90) days
prior to the anniversary date of the date on which the Corporation first mailed
its proxy materials for the preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is
not within thirty (30) days before or after the anniversary date of the prior
year's annual meeting of stockholders, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the annual meeting
is first mailed or public disclosure of the date of the annual meeting is first
made, whichever first occurs. Such stockholder's notice shall set forth: (i) as
to each person whom the stockholder proposes to nominate for election or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, or any successor regulation thereto
(including such person's written consent to being named as a nominee and to
serving as a director if elected); and (ii) as to the stockholder giving the
notice (A) the name and address, as they appear on the Corporation's books, of
such stockholder, and (B) the class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 15, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded."
ADOPTED AND APPROVED as of the 1st day of December, 1998.
/s/ Gregg M. Eisenberg
Greg M. Eisenberg
/s/ William E. Macaulay
William E. Macaulay
/s/ David H. Kennedy
David H. Kennedy
/s/ C. Robert Bunch
C. Robert Bunch
/s/ C. Adams Moore
C. Adams Moore
-----------------
Wayne Mang
/s/ John M. Fox
John Fox
BEING ALL OF THE MEMBERS OF THE BOARD OF DIRECTORS
<PAGE>
EXHIBIT 10.13
AGREEMENT OF LIMITED PARTNERSHIP
OF
MAVERICK TUBE, L.P.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, EXCEPT UPON DELIVERY TO THE
PARTNERSHIP OF ADVANCE NOTICE OF THE INTENDED SALE, TRANSFER OR OTHER
DISPOSITION AND, IF REQUESTED BY THE GENERAL PARTNER, AN OPINION OF COUNSEL
SATISFACTORY TO THE GENERAL PARTNER AND TO COUNSEL FOR THE PARTNERSHIP THAT
REGISTRATION OF SUCH SALE, TRANSFER OR OTHER DISPOSITION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR
ANY RULE OR REGULATION PROMULGATED THEREUNDER.
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF MAVERICK TUBE, L.P.
This Agreement of Limited Partnership is entered into as of this 30th
day of September 1997, by and among Maverick Tube Corporation, a Delaware
corporation, as the general partner (referred to herein as "Maverick" or
"General Partner"), and Maverick Investment Corporation, a Delaware corporation,
as a limited partner (referred to herein as "MIC" or "Limited Partner").
The Partnership was organized as a limited partnership pursuant to a
Certificate of Limited Partnership for the Partnership on September 11, 1997
filed with Secretary of State of the State of Delaware with Maverick Tube
Corporation, a Delaware corporation, as the sole General Partner and Maverick
Investment Corporation as the sole Limited Partner. Simultaneously with the
execution of this Agreement: (a) the General Partner is contributing the
Partnership Transferred Assets to the Partnership (subject to Assumed
Liabilities) in exchange for a five percent (5%) general partnership interest
(the "General Partnership Interest"); (b) the Partnership is assuming all of the
Assumed Liabilities; and (c) the Limited Partner is contributing the MIC
Transferred Assets to the Partnership in exchange for a ninety-five percent
(95%) limited partnership interest (the "Limited Partnership Interest").
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the Partners wish to incorporate completely the agreement
of the Partners.
ARTICLE I
DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, for
purposes of this Agreement, the following terms shall have the meaning ascribed
to them in this ARTICLE I. When the context requires, terms not otherwise
defined herein which, when initially used, are within quotation marks and with
the first letter of each word thereof (other than prepositions and articles
capitalized) shall have the same meaning as ascribed to them in the Contribution
Agreement.
1.1 Agreement. This Agreement of Limited Partnership and all amendments
thereof.
1.2 Assignment and Assumption Agreements. The assignment and assumption
agreements as contemplated by the Contribution Agreement, pursuant to which (i)
the General Partner will transfer and assign the Partnership Transferred Assets
to the Partnership (subject to the Assumed Liabilities), (ii) the Partnership
will assume the Assumed Liabilities, and (iii) the Limited Partner will transfer
and assign the MIC Transferred Assets to the Partnership.
1.3 Assumed Liabilities. The Assumed Liabilities as set forth in the
Contribution Agreement.
1.4 Business. The manufacture, distribution and sale of steel pipe and
tubular products heretofore conducted by Maverick at its Conroe, Texas and
Hickman, Arkansas facilities, as modified from time to time consistent with the
requirements of this Agreement.
1.5 Capital Contribution. The Partnership Transferred Assets (subject
to Assumed Liabilities) and the MIC Transferred Assets, contributed by the
General Partner and Limited Partner respectively.
1.6 Cash. Money and equivalents, such as checks, but only when
collected, and bank transfers.
1.7 Cash Available for Distribution. At any given time, all sums of
Cash, or converted to Cash by the Partnership during the period, provided by the
Business.
1.8 Code. The Internal Revenue Code of 1986, as amended, or any
successor statute or statutes constituting the United States tax laws.
1.9 Contribution Agreement. The Restructure and Contribution Agreement
among the parties hereto dated as of September 30, 1997 (the "Contribution
Agreement").
1.10 Delaware Limited Partnership Law. The Revised Uniform Limited
Partnership Act as adopted in the State of Delaware.
1.11 Dissolution Event. Any event affecting a General Partner which
would result in the dissolution of the Partnership under the Delaware Limited
Partnership Law.
1.12 Expenses. The expenses of the Partnership required in order to
operate the Partnership (including, without limitation, amounts set aside for
working capital, and to pay taxes, insurance, debt service obligations and other
costs and expenses incident to the operation of the Partnership).
1.13 General Partner. The general partner of the Partnership, initially
Maverick Tube Corporation, a Delaware corporation.
1.14 Limited Partner. The limited partner of the Partnership, initially
Maverick Investment Corporation, a Delaware corporation.
1.15 Partners. The General Partner and the Limited Partner.
1.16 Partnership. Maverick Tube, L.P., a Delaware limited partnership
governed by the Agreement and the Delaware Limited Partnership Law.
1.17 Regulation. The Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
1.18 Reserves. The sums which the General Partner, in its sole
discretion, reasonably determines should be set aside for the payment of future
Expenses (including capital expenditures) and for such other purposes as the
General Partner, in its sole discretion, reasonably determines to be desirable
for the Partnership.
1.19 Successor General Partner. The successor to the General Partner
appointed under Article VII of this Agreement.
1.20 Transferred Assets. The Transferred Assets as set forth in the
Contribution Agreement.
ARTICLE II
ORGANIZATION, OFFICE, TERM, LIMITATION ON LIABILITY,
LIMITED PARTNER POWERS AND REGISTERED AGENT
2.1 Organization of the Partnership. The Partnership is organized as a
limited partnership under the Delaware Limited Partnership Law, and the parties
desire that the Partnership continue to qualify as a limited partnership. As
otherwise required, the General Partner, on behalf of the Partnership and the
Limited Partner, shall execute and file an amended certificate of limited
partnership and all necessary or appropriate conforming certificates and
documents and perform such other filing, recording, publishing and other acts as
are necessary or appropriate to comply with all requirements for the formation
and operation of a limited partnership in the State of Delaware and all other
jurisdictions where the Partnership desires to conduct its Business. The General
Partner shall cause the Partnership to comply with all requirements for the
qualification of the Partnership as a limited partnership in any jurisdiction
before the Partnership conducts its Business in the jurisdiction.
2.2 Name and Principal Office. The name of the Partnership is "Maverick
Tube, L.P." or such other name or names as the General Partner determines and
designates by written notice to the Partners. The principal office of the
Partnership shall be located at 400 Chesterfield Center, Second Floor,
Chesterfield, Missouri 63017, or such other place as the General Partner
designates by written notice to the Limited Partner.
2.3 Term. The existence of the Partnership commenced on September 11,
1997, and shall continue until December 31, 2050, unless terminated earlier
pursuant to Section 8.1.
2.4 Purposes. The purposes of the Partnership shall be:
(a) To accept the Transferred Assets, subject to the Assumed
Liabilities, and to own and operate the Business of the manufacture,
distribution and sale of steel pipe and tubular products (the "Products"),
heretofore conducted by Maverick at two manufacturing and distribution
facilities, one located in Conroe, Texas and the other located in Hickman,
Arkansas; and
(b) To conduct such other activities, including, without
limitation, the borrowing of funds and pledging, hypothecation, assignment or
other transfer or disposal of any property of the Partnership, the entering into
contracts (including, without limitation, the Management Agreement with
Maverick) and any other activity as may be necessary or appropriate to promote
the purposes set forth in clause (a) above.
2.5 Title to Partnership Assets. Title to the property of the
Partnership, initially consisting of the Transferred Assets, will be held in the
name of the Partnership.
2.6 Admission of Limited Partner. The Partnership hereby admits the
Limited Partner to the Partnership as a Limited Partner.
2.7 Limited Partner.
(a) Limitation on Limited Partner's Liabilities. No Limited
Partner shall be bound by or be personally liable for the expenses, liabilities
or obligations of the Partnership, the General Partner or any other Limited
Partner, and the liability of the Limited Partner shall be limited solely to its
Capital Contributions. No Limited Partner shall be generally obligated to lend
funds to the Partnership for any purpose.
(b) No Control of Business or Right to Act for Partnership -
Powers of Limited Partner. The Limited Partner, in its capacity as limited
partner, shall not participate in the control of the Business of the
Partnership, or have any right or authority to act on behalf of the Partnership
or to sign for or bind the Partnership. The rights of the Limited Partner with
respect to the Partnership shall be limited to those expressly set forth herein,
or as required by the Delaware Limited Partnership Law. No salaries shall be
paid to any Limited Partner as a limited partner of the Partnership.
(c) No Priority. No Limited Partner shall be entitled to any
distribution or to withdraw from the Partnership or to demand the return of any
contribution to the capital of the Partnership, except as specifically provided
in this Agreement. No Limited Partner shall have the right to demand or receive
property other than Cash as a distribution of income or capital. No Limited
Partner shall have priority over any other Limited Partner either as to the
return of any contribution to capital or as to distributions, except with
respect to the additional distribution or as otherwise specifically provided in
this Agreement.
2.8 Registered Agent and Registered Office. The initial registered
agent for the Partnership is The Corporation Trust Company, whose place of
business is located at 1209 Orange Street, Wilmington, Delaware 19801. The
General Partner shall give the Limited Partner prior written notice of any
change in the registered agent or registered office of the Partnership.
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 General Partner Contributions. The General Partner will contribute
the Partnership Transferred Assets to the Partnership in exchange for the entire
General Partnership Interest in the Partnership.
3.2 Limited Partner Contributions. The Limited Partner shall contribute
the MIC Transferred Assets to the Partnership in exchange for the entire Limited
Partnership Interest.
3.3 Contribution Obligations. No Limited Partner, as a limited partner
of the Partnership, shall be required to contribute any capital to the
Partnership other than as provided in this Article III, except that if a Limited
Partner has received the return, by Cash distribution or otherwise, of the whole
or part of such Limited Partner's Capital Contribution, the Limited Partner will
remain liable to the Partnership, to the extent provided under the Delaware
Limited Partnership Law, for any sums (not in excess of the Capital Contribution
so returned) necessary to discharge the Partnership's liabilities to all
creditors who extended credit or whose claims arose before such return.
3.4 No Third Party Beneficiaries. The contribution obligation of the
Partners under this Article III is not intended to create any obligation to
third party beneficiaries. No creditor may rely on that obligation unless the
Partner against whom the obligation is asserted has expressly agreed in writing
that the creditor may so rely on the contribution obligation.
ARTICLE IV
DISTRIBUTIONS
Cash Available for Distribution, if any, shall be distributed at such
times as the General Partner may determine, as follows: (i) five percent (5%) to
the General Partner; and (ii) ninety-five percent (95%) to the Limited Partner.
ARTICLE V
RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER
Subject to the powers of the Limited Partner expressly provided in this
Agreement or as required by the Delaware Limited Partnership Law, the following
provisions shall govern the General Partner's management of the Partnership's
Business:
5.1 Management of Partnership Business. The General Partner shall be
solely responsible for the management of the Partnership's Business with all
rights and powers generally conferred by law or necessary, advisable or
consistent to and with the accomplishment of the purposes of the Partnership or
as otherwise determined by the General Partner, in its judgment, to be in the
best interests of the Partnership. All decisions regarding management of the
Partnership shall be made by the General Partner. The General Partner is
expressly authorized to execute and deliver, on behalf of the Partnership, the
Management Agreement, Assignment and Assumption Agreements and all other
agreements, instruments, documents, promissory notes, mortgages, deeds of trust
and loan or credit agreements, and any amendments or modifications thereto, and
to act or vote on behalf of the Partnership where required.
5.2 Rights and Powers of the General Partner. In addition to the rights
and powers possessed by general partners under law, the General Partner shall
have all specific rights and powers required for or appropriate, in its
judgment, to the management of the Partnership's Business. Such rights and
powers shall include, by way of illustration but not by way of limitation, the
following rights and powers in furtherance of the Business of the Partnership:
(a) To borrow money for Partnership purposes from any entity,
including a Partner, but in the case of any borrowing from one or more of the
Partners, such borrowing will be at a rate no greater than market rates of
interest otherwise available to the Partnership, and to mortgage or otherwise
pledge any property and in connection with any such borrowing, mortgaging or
encumbering, to grant to any secured party, as remedies upon default,
acceleration of the indebtedness, appointment of a receiver and such other
remedies as the secured party may require, provided that none of such remedies
shall provide for or result in any recourse against any Limited Partner;
(b) To employ the services of agents, attorneys, brokers,
managing agents, architects, contractors, subcontractors, accountants and
others, including affiliates of the General Partner, on behalf of the
Partnership, provided that such services are performed upon reasonable terms and
conditions and the consideration to be paid therefor is reasonable (for such
purposes, the terms and conditions under which services are performed, and the
compensation to be paid therefor, shall be deemed reasonable if such terms,
conditions and compensation are not less favorable than those obtainable from
non-affiliated providers of similar services at the location where the services
are performed);
(c) To pay, collect, compromise, arbitrate, resort to or
defend legal action with respect to, or otherwise adjust, claims or demands of
or against the Partnership;
(d) To consent to the modification, renewal or extension of
any obligation of any entity to the Partnership or any agreement to which the
Partnership is a party or of which it is a beneficiary or by which it is bound;
(e) To sell or exchange all or any part of the property,
including sales or exchanges to a Partner or an affiliate of a Partner, or to
purchase property (real or personal, tangible or intangible), including
purchases from a Partner or an affiliate of a Partner; provided, however, that
in the case of any sale, exchange or purchase from or to a Partner or an
affiliate of a Partner other than as contemplated herein or the Contribution
Agreement, such sale, exchange or purchase shall require the consent of the
majority of the Limited Partners.
(f) To execute, acknowledge and deliver any and all
instruments necessary to the foregoing.
Each power specified above shall be exercised in good faith, to the
extent and in the manner consistent with and necessary for the proper management
of the Business of the Partnership, in the best judgment of the General Partner.
Notwithstanding the foregoing, the General Partner may not, without the consent
of the Limited Partner: (i) cause the Partnership to make loans to, or guarantee
loans on behalf of, any third party (including Partners and their affiliates)
other than in the ordinary course of the Partnership's Business; or (ii) enter
into a material contract, transaction or agreement with a Partner or an
affiliate of a Partner other than as provided in or contemplated by the
Contribution Agreement. All such agreements between affiliates and such other
contracts, transactions and agreements shall be fair and reasonable.
5.3 Other Business Ventures. Any Partner and any officer, director or
affiliate of a Partner may engage in or possess an interest in other business
ventures of every nature and description, independently or with others, and
neither the Partnership nor any of the Partners shall have any right by virtue
of this Agreement in or to such independent ventures or to the income or profits
derived therefrom. However, nothing contained in this Section 5.3 is intended to
absolve the General Partner from any liability to the Partnership or the Limited
Partner arising as a result of any breach by the General Partner of its
fiduciary obligations as General Partner to the Partnership or to the Limited
Partner, as limited partner of the Partnership.
5.4 Liability of the General Partner to Limited Partner and
Partnership; Indemnification.
(a) The General Partner shall devote such time and attention
to the Partnership as the General Partner deems reasonably necessary and
advisable to manage the affairs of the Partnership to its best advantage. Except
as otherwise specifically set forth herein, the General Partner (and its
officers, directors and employees) shall not be liable to the Limited Partner
because any taxing authority disallows or adjusts any deduction or credit in the
income tax returns of the Partnership or the Limited Partner. In addition, the
doing of any act or omission to do any act by the General Partner (and its
officers, directors and employees) which may cause or result in loss or damage
to the Partnership, if done in good faith and within the scope of authority
conferred by this Agreement, shall not subject the General Partner (or its
officers, directors and employees) to any liability to the Partnership or to the
Limited Partner. The Partnership will indemnify and hold the General Partner
(and its officers, directors and employees) harmless from any claim, loss,
expense, liability, action or damage to it resulting from any such act or
omission in the conduct of the Business of the Partnership in good faith and
within the scope of the authority conferred by this Agreement, including,
without limitation, reasonable costs and expenses of litigation and appeal
(including reasonable fees and expenses of attorneys engaged by the General
Partner in the defense or prosecution of any action relating to such act or
omission); but the General Partner (and its officers, directors and employees)
shall not be entitled to be indemnified or held harmless from any claim, loss,
expense, liability, action or damage due to or arising from the fraud, bad faith
or gross negligence of the General Partner (or any of its officers, directors
and employees).
(b) In addition to its obligations set forth in the
immediately preceding paragraph, the Partnership will indemnify and hold the
Limited Partner (and its respective officers, directors and employees) harmless
against and in respect of any and all damages, losses, deficiencies,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred or suffered by a Limited Partner resulting from,
relating to or arising out of: (a) the MIC Transferred Assets or the
manufacturer, distribution or sale by the Partnership of any Products resulting
from such operation; (b) the failure by the Partnership to perform and be bound
by any of the terms, covenants, conditions and restrictions relating to the MIC
Transferred Assets accepted by the Partnership under the Assignment and
Assumption Agreement; (c) any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other proceedings or investigations
against a Limited Partner or any director, officer, employee, agent,
representative or subcontractor of a Limited Partner, that relate to the MIC
Transferred Assets or the Business of the Partnership, whether or not the event
giving rise thereto occurred prior or subsequent to the occurrence of the MIC
Transferred Assets or that relate to any claim asserted against a Limited
Partner under any law or regulation, including, without limitation, laws and
regulations relating to the environment; and (d) any and all actions, suits,
claims, proceedings, investigations, demands, assessments, audits, fines,
judgments, cost and other expenses (including, without limitation, reasonably
legal fees and expenses) incident to any of the foregoing or to the enforcement
of the Partnership's obligation to indemnify the Limited Partner set forth in
this paragraph 5.4(b). The obligation of the Partnership to indemnify a Limited
Partner hereunder is limited to such party in its capacity as a Limited Partner.
ARTICLE VI
BOOKS, RECORDS AND REPORTS, ACCOUNTING,
TAX ELECTIONS, ETC.
6.1 Books, Records and Reports.
(a) The General Partner shall keep proper and complete records
and books of account in which all transactions and other matters relative to the
Partnership's Business are entered. The Partnership's books and records shall be
prepared in accordance with the method of accounting selected by the General
Partner in its sole discretion utilizing generally accepted accounting
principles, consistently applied. The Partnership shall also keep (i) a list or
lists containing the full name and last known mailing address of each current
and past Partner, (ii) a copy of the then effective Agreement and certificate of
limited partnership and all amendments thereto and restatements thereof,
together with executed copies of any powers of attorney pursuant to which any
certificate has been executed, (iii) copies of the Partnership's federal, state
and local income tax returns and reports, if any, for all years with respect to
which the period for assessment of a deficiency has not expired, (iv) copies of
any financial statements of the Partnership for the three most recent years, and
(v) such other records as required under the Delaware Limited Partnership Law.
Such books and records shall be maintained at the office of the Partnership and
shall be open for inspection and copying by the Partners or their duly
authorized representatives for reasonable Partnership purposes, including the
evaluation of their investment in the Partnership.
(b) The Partnership shall prepare quarterly and annual
financial statements showing the income and expenses of the Partnership for the
quarter or fiscal year and the balance sheets of the Partnership as of the end
of such quarter or fiscal year and shall have the annual statements audited by
the Partnership's certified public accountants. Each Partner shall be furnished
such quarterly statements within forty-five days of the end of each fiscal
quarter and the audited annual statements within one hundred twenty (120) days
of the close of each fiscal year. Prior to execution by the General Partner, the
Limited Partner shall be given a reasonable opportunity to review all federal
and material state income tax informational returns of the Partnership and to
consult with the General Partner with respect thereto. All additional
Partnership information necessary in the preparation of the Limited Partner's
federal income tax returns shall be furnished by the Partnership within one
hundred twenty (120) days of the close of each fiscal year of the Partnership.
Further, each Partner shall be furnished, within a reasonable time upon their
availability, such monthly general financial statements as are normally prepared
by the Partnership for management's internal use. The Partnership shall also
furnish to any Partner, upon reasonable demand (i) true and full information
regarding the state of the business and financial condition of the Partnership
and (ii) promptly after becoming available, a copy of the Partnership's federal,
state and local income tax returns for each year, together with a reconciliation
of capital account balances and changes thereto for each Partner.
6.2 Bank Accounts. The Partnership shall maintain its bank accounts in
such banking institutions as the General Partner determines, and withdrawals
shall be made only in the regular course of Partnership Business on such
signature or signatures as the General Partner determines.
6.3 Accountants. The independent accountants for the Partnership will
be selected by the General Partner, in its sole and absolute discretion. Such
independent accountants shall review the federal and all material state income
tax returns of the Partnership and shall audit and certify to all annual
financial statements of the Partnership.
6.4 Tax Elections.
(a) The Partners shall take all action on a timely basis
required to effect a Partnership election pursuant to Treasury Regulation
Section 301.7701-3(c) to be classified as an association taxable as a
corporation.
(b) All elections required or permitted by the Partnership
under the Code shall be made by the General Partner.
(c) The General Partner will not be responsible for initiating
any change in accounting methods from the methods initially chosen. The General
Partner shall not incur any liability for any election made by it in good faith.
ARTICLE VII
WITHDRAWAL OR REMOVAL AND ADMISSION OF PARTNERS
AND TRANSFER OF PARTNERSHIP INTERESTS
7.1 General Partner.
(a) The General Partner may not voluntarily withdraw from and
may not assign all or any part of its interest in the Partnership without the
consent of the majority of the Limited Partners.
(b) If a Dissolution Event occurs with respect to the General
Partner and no general partner remains as a general partner of the Partnership
to continue the Business of the Partnership, the General Partner or the General
Partner's legal representatives shall promptly notify the Limited Partner and
the Partnership shall wind up in accordance with Section 8.4, unless the consent
of the majority of the Limited Partners to continue the Business of the
Partnership is obtained. A Successor General Partner shall be appointed, if at
all, by the consent of the majority of the Limited Partners obtained within
ninety (90) days from the date of such Dissolution Event. The Successor General
Partner shall have the right to acquire the General Partner's interest in the
Partnership for an amount determined by the Partnership's accountants (at the
expense of the Partnership and with the assistance of such professional
appraisers or other counsel as are deemed necessary or desirable by such
accountants) to represent the fair market value of such interest at the date
upon which the Dissolution Event occurred; provided, however, that in the event
there is a material change involving the Partnership's assets, liabilities,
operations or Business during the period commencing on the date of the
occurrence of the Dissolution Event and ending on the date the Successor General
Partner is appointed, a request for a revaluation may be made by the Successor
General Partner or any Limited Partner. The right of a Limited Partner or the
Successor General Partner to request such revaluation shall be exercisable only
within 90 days after the date of notice to the Limited Partner of the
Dissolution Event. Such revaluation shall determine the fair market value of the
General Partner's interest in the Partnership immediately following the event
giving rise to the revaluation and shall be made by the Partnership's
accountants within thirty (30) days of the date requested. The expenses of the
revaluation, if any, shall be borne by the person requesting the revaluation.
The Successor General Partner's acquisition of the General Partner's interest
shall take place, if at all, within forty-five (45) days after the date upon
which the valuation is made, or if later, the date on which the revaluation is
made.
(c) The General Partner may be removed by any Limited Partner
if, and only if, the General Partner is found by a court of competent
jurisdiction to have willfully violated its fiduciary responsibilities as a
General Partner of the Partnership. Upon such removal, the Limited Partner may
designate a Successor General Partner in accordance with the procedure specified
in Section 7.1(b), whereupon the Successor General Partner will become entitled
to the removed General Partner's interest in the Partnership upon the Successor
General Partner's payment to the removed General Partner of the fair market
value of the General Partner's interest in the Partnership as determined in the
manner provided under Section 7.1(b).
7.2 Death, Incompetence, Dissolution or Withdrawal of a Limited
Partner.
(a) Upon the death, legal incapacity, bankruptcy or insolvency
of any individual Limited Partner (including an assignee who becomes a Limited
Partner), such Limited Partner's legally authorized personal representative
shall have all of the rights of a Limited Partner for the purpose of settling or
managing such Limited Partner's estate and shall have such power as the
deceased, incompetent, bankrupt or insolvent Limited Partner possessed to make
an assignment of the interest of such Limited Partner in the Partnership in
accordance with the terms of this Agreement.
(b) Upon the bankruptcy, insolvency, dissolution or other
cessation to exist as an entity of any Limited Partner which is not an
individual, the authorized representative of such entity shall have all the
rights of a Limited Partner for the purpose of effecting the orderly winding up
and disposition of the Business of such Limited Partner and such power as the
Limited Partner possessed to make an assignment of its interest in the
Partnership in accordance with the terms of this Agreement.
7.3 Assignment of Interest of Limited Partner.
(a) General. The Limited Partner shall have the right, subject
to the provisions of this Section 7.3, to sell or assign any and all of its
Limited Partnership Interest in the Partnership, provided that: (i) such
assignment is made by an instrument in form and substance satisfactory to
counsel for the Partnership, including an expression of the assignee to become a
Limited Partner, and such assignee's acceptance and adoption of the terms and
conditions of this Agreement, as amended from time to time, and agreement to pay
the expenses of such transfer incurred by the Partnership in connection with
such admission, including, for example, the cost of preparing, filing and
publishing any necessary amendment or amendments to the certificate of limited
partnership, and (ii) at the request of the General Partner, the assignee
delivers to the General Partner an opinion of counsel satisfactory to the
General Partner and counsel to the Partnership to the effect that registration
of the sale, assignment or other disposition is not required under the
Securities Act or applicable state law or any rule or regulation promulgated
thereunder.
ARTICLE VIII
DISSOLUTION, LIQUIDATION AND WINDING UP
8.1 Dissolution and Winding Up. Except as otherwise expressly provided
in this Agreement, the Partnership shall be dissolved and wound up upon the
occurrence of any of the following events:
(a) A Dissolution Event with respect to the last remaining General Partner,
unless the Business of the Partnership is continued in accordance with Section
7.1;
(b) A sale or other disposition of all or substantially all of the Partnership's
property;
(c) The distribution to the Partners of all Partnership property;
(d) The expiration of the term provided in Section 2.3;
(e) The written consent of the Partners;
(f) The entry of a decree of judicial dissolution by the circuit court of the
county of the principal place of business or registered office of the
Partnership; or
(g) as otherwise provided in the Delaware Limited Partnership Law.
Dissolution shall be effective on the date of the event giving rise to
the dissolution of the Partnership, but the Partnership shall not terminate
until its property shall have been distributed in accordance with the provisions
of Section 8.4. Neither the death, insanity, incompetency, bankruptcy,
insolvency or similar event of dissolution or liquidation of a Limited Partner
shall dissolve the Partnership.
8.2 Liquidating Trustee. Upon the occurrence of an event under Section
8.1 giving rise to the dissolution and winding up of the Partnership, the
liquidating trustee (which will be the General Partner unless the General
Partner is the subject of the Dissolution Event) will proceed diligently to wind
up the affairs of the Partnership and distribute its assets in accordance with
the provisions of Section 8.4. During the interim, the liquidating trustee will
continue to exercise the rights and operate the Business of the Partnership
consistently with the liquidation thereof, exercising in connection therewith
all the power and authority of the General Partner under this Agreement. If the
General Partner is not permitted to be the liquidating trustee, then a
liquidating trustee shall be selected by the holders of more than fifty percent
(50%) of the total Limited Partnership Interests.
8.3 Accounting on Dissolution. Upon the occurrence of an event under
Section 8.1 giving rise to the dissolution and winding up of the Partnership,
the liquidating trustee will cause the Partnership's accountants to make a
complete accounting of the assets, liabilities and operations of the Partnership
as of the last day of the month in which the dissolution occurs.
8.4 Liquidation and Termination. As expeditiously as possible:
(a) The liquidating trustee will pay all liabilities of the
Partnership and establish Reserves, if the liquidating trustee deems Reserves to
be necessary, for payment of future or contingent Partnership obligations.
(b) The liquidating trustee will distribute the balance of the
proceeds of the liquidation among the Partners as follows: (i) five percent (5%)
to the General Partner; and (ii) ninety-five percent (95%) to the Limited
Partner.
(c) Unless agreed to in writing by all of the Partners, the
Limited Partner shall have no right to demand and receive property other than
Cash upon liquidation and the liquidating trustee, in any event, shall have the
power to sell property for Cash in order to provide for payment of liabilities
and establishment of Reserves. All salable property of the Partnership may be
sold in connection with any liquidation at public or private sale, conducted in
a commercially reasonable manner, at such price and upon such terms as the
liquidating trustee, in its sole discretion, may deem advisable. Any Partner and
any Entity in which any Partner is in any way interested may purchase property
at such sale.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
9.1 Representations, Warranties and Agreements of the Limited Partner.
The Limited Partner represents, warrants, confirms and agrees with the other
Partners as follows:
(a) Such Limited Partner has full right, power and authority
to execute and deliver this Agreement and to perform each of such Limited
Partner's obligations hereunder.
(b) This Agreement has been duly executed and delivered by or
on behalf of such Limited Partner and constitutes the legal, valid and binding
obligation of such Limited Partner in accordance with its terms.
(c) Such Limited Partner is not subject to any restriction or
agreement which prohibits or would be violated by the execution and delivery of
this Agreement or by the consummation of the transactions contemplated herein or
pursuant to which the consent of any third person, firm or corporation is
required in order to give effect to the transactions contemplated herein.
(d) Such Limited Partner (i) has such knowledge of business
and financial affairs as is necessary to enable it to understand the nature of
and the risks attendant to the investment contemplated herein and to understand
the particular financial, legal and tax implications of the Business to be
conducted by the Partnership; and (ii) has had access to any and all information
concerning the Partnership which the Limited Partner and the Limited Partner's
legal, tax and other advisors requested or considered necessary to make a proper
evaluation of such an investment and has received such representations and
warranties with respect thereto as deemed by such Limited Partner as necessary
and appropriate in connection with such evaluation.
(e) Such Limited Partner understands that the Limited
Partnership Interest being acquired has not been registered under the Securities
Act of 1933, as amended, on the grounds that the investment in the Partnership
is exempt from registration thereunder. Such Limited Partner further understands
that the Limited Partnership Interest being acquired by it has not been
registered under the securities laws of any other jurisdiction on the grounds
that the investment in the Partnership is likewise exempt from registration.
Such Limited Partner represents that its Limited Partnership Interest is being
acquired for investment for such Limited Partner's own account, with no present
intention of reselling or otherwise disposing of any portion of such investment
and understands that the reliance of the Partners and the Partnership upon such
exemptions is predicated upon the lack of such intention. Such Limited Partner
in no event will sell, transfer or otherwise dispose of its Limited Partnership
Interest or any portion thereof, unless and until such Limited Partner delivers
to the Partnership advance notice of the intended sale, transfer or other
disposition and, if requested by the General Partner, an opinion of counsel
reasonably satisfactory to the General Partner and to counsel for the
Partnership that registration is not required for such sale, transfer or other
disposition under, and that any such sale, transfer or other disposition will
not violate the Securities Act, or applicable state securities laws or any rule
or regulation promulgated thereunder.
(f) Such Limited Partner further acknowledges the Limited
Partner's understanding that no trading market for Limited Partnership Interests
exists.
9.2 Representations, Warranties and Agreements of the General Partner.
The General Partner represents and warrants to and confirms and agrees with the
other Partners that:
(a) The General Partner has full right, power and authority to
execute and deliver this Agreement and to perform each of its obligations
hereunder.
(b) The General Partner has taken all corporate action to duly
execute and deliver this Agreement.
(c) This Agreement has been duly executed and delivered and is
a duly and validly binding obligation of the General Partner in accordance with
its terms.
(d) The General Partner is not subject to any restriction or
agreement which prohibits or would be violated by the execution and delivery of
this Agreement or the consummation of the transactions contemplated herein or
pursuant to which the consent of any third person, firm or corporation is
required in order to give effect to the transactions contemplated herein.
(e) The General Partner will not permit the Partnership to
issue additional Limited Partnership Interests, except in connection with a
permitted sale or other disposition by Limited Partner of all or any portion of
its Limited Partnership interest.
ARTICLE X
APPOINTMENT OF GENERAL PARTNER AS ATTORNEY-IN-FACT
10.1 Appointment as Attorney-in-Fact. Each Limited Partner hereby
irrevocably constitutes and appoints the General Partner its true and lawful
attorney-in-fact (with full power and authority in said attorney to substitute
another attorney in such attorney's place and to revoke such substitution) to
execute, acknowledge, deliver, swear to, file and record at the appropriate
public office such documents as may be necessary or appropriate to carry out the
provisions of this Agreement, including:
(a) This Agreement and any amendments to this Agreement
required by the laws of the United States or any state;
(b) All certificates of limited partnership and other
certificates or instruments (including counterparts of this Agreement) and
amendments thereto, and any amendment of this Agreement, which the General
Partner deems appropriate to qualify or continue the Partnership as a limited
partnership in any jurisdiction in which the Partnership may conduct business or
to correct an error in this Agreement or the certificate of limited partnership;
(c) All instruments, including amendments to the certificate
of limited partnership and amendments to this Agreement, which the General
Partner deems appropriate to reflect the admission of a Partner to or the
withdrawal of a Partner from the Partnership in accordance with the terms of
this Agreement; and
(d) All conveyances and other instruments which the General
Partner deems appropriate to reflect the dissolution and termination of the
Partnership.
10.2 Continuing Effect. The appointment by the Limited Partners of the
General Partner, as their attorney-in-fact shall be deemed to be a power coupled
with an interest, in recognition of the fact that each of the Partners under
this Agreement will be relying upon the power of the General Partner to act as
contemplated by this Agreement in any filing or other action on behalf of the
Partnership, and shall survive the bankruptcy, death or incompetence of any
Partners hereby giving such power and the transfer or assignment of all or any
part of the interest of such Partners; provided, that in the event of the
transfer by a Limited Partner of all or any part of its interest, the foregoing
power of attorney shall survive the delivery of the assignment by the Limited
Partner of the whole or any portion of such Limited Partner's interest; except
that where such assignee has been approved by the General Partner for admission
to the Partnership as a Limited Partner, the power of attorney shall survive the
delivery of such assignment for the sole purpose of enabling the General Partner
to execute, acknowledge and file any instruments necessary to effect such
substitution.
ARTICLE XI
GENERAL
11.1 Notices. All communications, notices and consents provided for
herein shall be in writing and be given in person or by means of telex, telecopy
or other wire transmission (with request for assurance of receipt in a manner
typical with respect to communications of that type) or by mail, and shall
become effective (x) on delivery if given in person, (y) on the date of
transmission if sent by telex, telecopy or other wire transmission, or (z) four
business days after being deposited in the mails (addressed to the address set
forth following the person's or Entity's name on the signature page hereto),
with proper postage for first class registered or certified mail, prepaid.
Partners may change their addresses for the purpose of this Section
11.1 by notice to the Partnership at its principal office in the manner provided
in this Section.
11.2 Further Assurances. The Partners agree to execute, acknowledge,
deliver, file, record and publish such further certificates, instruments,
agreements and other documents, and to take all such further action as may be
required by law or deemed by the General Partner to be necessary in furtherance
of the Partnership's purposes and the objectives and intentions underlying this
Agreement and not inconsistent with the terms of this Agreement.
11.3 Entire Agreement. This instrument incorporates the entire
agreement among the parties hereto, regardless of anything to the contrary
contained in any certificate of limited partnership or other instrument or
notice purporting to summarize the terms of this Agreement, whether or not the
same shall be recorded or published.
11.4 Amendments.
(a) To the extent permitted by the Delaware Limited
Partnership Law, this Agreement and any certificate of limited partnership may
be amended only upon the unanimous consent of the Partners.
(b) In addition to any amendment otherwise authorized herein,
the General Partner may amend this Partnership Agreement from time to time
without the consent of the Limited Partner:
(i) to reflect the addition or substitution of Limited
Partner; or
(ii) to make all filings as may be necessary or proper to
provide that this Agreement shall constitute, for all
purposes, an agreement of limited partnership under the
terms of the laws of the State of Delaware as in effect
from time to time.
11.5 Gender and Number. Unless the context otherwise requires, when
used in the Agreement, the singular includes the plural and vice versa, and the
masculine includes the feminine and neuter and vice versa.
A person is deemed to include an individual or any other Entity.
11.6 Benefit. This Agreement is binding upon and inures to the benefit
of the parties to this Agreement, their heirs, legal representatives, successors
and assigns.
11.7 Captions. Captions are inserted for convenience only and shall not
be given any legal effect.
11.8 Execution. This Agreement may be executed in any number of
counterparts, and each such counterpart will, for all purposes, be deemed an
original instrument, but all such counterparts together will constitute but one
and the same agreement.
11.9 Governing Law and Severability. This Agreement shall be governed
by the laws of the State of Delaware. If any provision hereof is determined to
be invalid or unenforceable, it shall be modified or deleted, if necessary, from
this Agreement in order to prevent this Agreement as a whole from being rendered
invalid or unenforceable, and this Agreement shall be interpreted to give effect
to the intention of the Partners ascertained from this Agreement as a whole,
even if that requires taking the invalid or unenforceable provision into
consideration in ascertaining such intention (but only for that purpose).
IN WITNESS WHEREOF, this Agreement has been duly sworn to and executed
as of the date first above written.
GENERAL PARTNER
Maverick Tube Corporation,
a Delaware corporation
By: /s/ Pamela G. Boone
Title: Assistant Secretary
400 Chesterfield Center
2nd Floor
Chesterfield, Missouri 63017
(314) 537-1314
LIMITED PARTNER
Maverick Investment Corporation,
a Delaware corporation
By: /s/ Charles O. Struckhoff
Title: Secretary
4950 North County Road 967
Blytheville, Arkansas 72315
(870) 763-6281
<PAGE>
EXHIBIT 10.14
Secured Credit Agreement
Among
Maverick Tube Corporation
And
Harris Trust And Savings Bank
AS AGENT
And
Harris Trust And Savings Bank
AND
Mercantile Bank National Association,
AS LENDERS
DATED AS OF SEPTEMBER 18, 1998
TABLE OF CONTENTS
MAVERICK TUBE CORPORATION
SECURED CREDIT AGREEMENT
SECTION 1. THE CREDITS........................................1
Section 1.1. The Revolving Credit...........................1
Section 1.2. The Notes......................................2
Section 1.3. Interest Rates.................................3
Section 1.4. Letter of Credit...............................6
Section 1.5. Reimbursement Obligations......................7
Section 1.6. Manner of Borrowing and Rate Selection.........7
Section 1.7. Participation in the L/C.......................8
Section 1.8. The Collateral.................................9
SECTION 2. FEES, PREPAYMENTS AND TERMINATIONS.................9
Section 2.1. Commitment Fees................................9
Section 2.2. Other Fees.....................................9
Section 2.3. Optional Prepayments..........................10
Section 2.4. Mandatory Prepayments-Borrowing Base..........10
Section 2.5. Terminations..................................10
Section 2.6. Capital Adequacy..............................10
SECTION 3. PLACE AND APPLICATION OF PAYMENTS.................11
SECTION 4. DEFINITIONS.......................................11
Section 4.2. Interpretation................................21
SECTION 5. REPRESENTATIONS AND WARRANTIES....................21
Section 5.1. Organization and Qualification................21
Section 5.2. Financial Reports.............................21
Section 5.3. Litigation; Tax Returns; Approvals............22
Section 5.4. Regulation U..................................22
Section 5.5. No Default....................................22
Section 5.6. ERISA.........................................22
Section 5.7. Environmental Law.............................23
Section 5.8. Security Interests............................23
Section 5.10. Accurate Information..........................24
Section 5.11. Enforceability................................24
Section 5.12. Year 2000 Compliance..........................25
SECTION 6. CONDITIONS PRECEDENT..............................25
Section 6.1. General.......................................25
Section 6.2. Initial Extension of Credit...................25
Section 6.3. Each Extension of Credit......................26
Section 6.4. Legal Matters.................................27
SECTION 7. COVENANTS.........................................27
Section 7.1. Maintenance of Property.......................27
Section 7.2. Taxes.........................................27
Section 7.3. Maintenance of Insurance......................27
Section 7.4. Financial Reports.............................28
Section 7.5. Inspection....................................29
Section 7.6. Consolidation and Merger......................29
Section 7.7. Transactions with Affiliates..................30
Section 7.8. Maximum Total Funded Debt Ratio...............30
Section 7.9. [Intentionally Omitted].......................30
Section 7.10. Consolidated Tangible Net Worth...............30
Section 7.11. Maximum Leverage Ratio........................30
Section 7.12. Minimum Fixed Charge Coverage Ratio...........30
Section 7.13. Restricted Payments...........................30
Section 7.14. Liens.........................................31
Section 7.15. Borrowings and Guaranties.....................32
Section 7.16. Investments, Loans, Advances and Acquisitions.33
Section 7.17. Sale of Property..............................35
Section 7.18. Notice of Suit or Adverse Change in
Business or Default.......................35
Section 7.19. ERISA.........................................35
Section 7.20. Supplemental Performance......................35
Section 7.21. Use of Proceeds...............................35
Section 7.22. Compliance with Laws, etc.....................36
Section 7.23. Environmental Covenant........................36
Section 7.24. No Restrictions on Subsidiaries...............36
SECTION 8. EVENTS OF DEFAULT AND REMEDIES....................37
Section 8.1. Definitions...................................37
Section 8.2. Remedies for Non-Bankruptcy Defaults..........39
Section 8.3. Remedies for Bankruptcy Defaults..............39
Section 8.4. L/Cs..........................................39
SECTION 9. CHANGE IN CIRCUMSTANCES REGARDING
EURODOLLAR LOANS................................40
Section 9.1. Change of Law.................................40
Section 9.2. Unavailability of Deposits or Inability to
Ascertain the Adjusted Eurodollar Rate....40
Section 9.3. Taxes and Increased Costs.....................40
Section 9.4. Funding Indemnity.............................41
Section 9.5. Lending Branch................................42
Section 9.6. Discretion of Bank as to Manner of Funding....42
SECTION 10. THE AGENT.........................................42
Section 10.1. Appointment and Powers........................42
Section 10.2. Powers........................................42
Section 10.3. General Immunity..............................42
Section 10.4. No Responsibility for Loans, Recitals, etc....43
Section 10.5. Right to Indemnity............................43
Section 10.6. Action Upon Instructions of Banks.............43
Section 10.7. Employment of Agents and Counsel..............43
Section 10.8. Reliance on Documents; Counsel................43
Section 10.9. May Treat Payee as Owner......................43
Section 10.10. Agent's Reimbursement.........................44
Section 10.11. Rights as a Lender............................44
Section 10.12. Bank Credit Decision..........................44
Section 10.13. Resignation of Agent..........................44
Section 10.14. Duration of Agency............................44
SECTION 11. MISCELLANEOUS.....................................45
Section 11.1. Amendments and Waivers........................45
Section 11.2. Waiver of Rights..............................45
Section 11.3. Several Obligations...........................45
Section 11.4. Non-Business Day..............................46
Section 11.5. Survival of Indemnities.......................46
Section 11.6. Documentary Taxes.............................46
Section 11.7. Representations...............................46
Section 11.8. Notices.......................................46
Section 11.9. Costs and Expenses............................47
Section 11.10. Counterparts..................................48
Section 11.11. Successors and Assigns; Governing Law;
Entire Agreement..........................48
Section 11.12. No Joint Venture..............................48
Section 11.13. Severability..................................48
Section 11.14. Table of Contents and Headings................48
Section 11.15. Sharing of Payments...........................48
Section 11.16. Conflict Among Documents......................49
Section 11.17. Confidentiality...............................49
Section 11.18. Participants..................................50
Section 11.19. Assignment Agreements.........................50
Exhibit A Revolving Credit Note
Exhibit B Pay-off Letter
Exhibit C Application and Agreement for Letter of Credit
Exhibit D Borrowing Base Certificate
Exhibit E Schedule of Subsidiaries
Exhibit F Security Agreement Re: Accounts Receivable
and Inventory
Exhibit G Compliance Certificate
Exhibit H Form of Legal Opinion
Exhibit I Accounts Receivable Aging Report
Exhibit J Environmental Disclosure
Exhibit K Liens
Exhibit L Indebtedness
Exhibit M Certain Restrictions
<PAGE>
MAVERICK TUBE CORPORATION
SECURED CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Mercantile Bank National Association
St. Louis, Missouri
Ladies and Gentlemen:
The undersigned, MAVERICK TUBE CORPORATION, a Delaware corporation (the
"Borrower") applies to you for your several commitments, subject to all the
terms and conditions hereof and on the basis of the representations and
warranties hereinafter set forth, to make a revolving credit (the "Revolving
Credit") available to the Borrower, all as more fully hereinafter set forth.
Each of you is hereinafter referred to individually as "Bank" and collectively
as "Banks." Harris Trust and Savings Bank in its individual capacity is
sometimes referred to herein as "Harris," and in its capacity as Agent for the
Banks is hereinafter in such capacity called the "Agent."
SECTION 1. THE CREDITS.
Section 1.1. The Revolving Credit. (a) Subject to all of the terms and
conditions hereof, the Banks agree, severally and not jointly, to extend a
Revolving Credit to the Borrower which may be utilized in the form of loans
(individually a "Revolving Credit Loan" and collectively the "Revolving Credit
Loans"), and L/Cs (as hereinafter defined). The aggregate principal amount of
all Revolving Credit Loans under the Revolving Credit plus the amount available
for drawing under the L/Cs, and the aggregate principal amount of all unpaid
Reimbursement Obligations (as hereinafter defined) at any time outstanding shall
not exceed the lesser of (i) the Banks' Revolving Credit Commitments (as
hereinafter defined) in effect from time to time during the term of this
Agreement and (ii) the Borrowing Base as determined on the basis of the most
recent Borrowing Base Certificate. The Revolving Credit shall be available to
the Borrower, and may be availed of by the Borrower from time to time, be repaid
(subject to the restrictions on prepayment set forth herein) and used again,
during the period from the date hereof to and including September 30, 2003 (the
"Termination Date").
The respective maximum aggregate principal amounts of the Revolving
Credit at any one time outstanding and the percentage (the "Commitment
Percentage") of the Revolving Credit available at any time which each Bank by
its acceptance hereof severally agrees to make available to the Borrower are as
follows (collectively, the "Revolving Credit Commitments" and individually, a
"Revolving Credit Commitment"):
Harris Trust and Savings Bank $25,000,000 50%
Mercantile Bank National Association $25,000,000 50%
Total $50,000,000 100%
(c) Loans under the Revolving Credit may be Eurodollar Loans or
Domestic Rate Loans. All Loans under the Revolving Credit shall be made from
each Bank in proportion to its respective Revolving Credit Commitment as above
set forth. Each Domestic Rate Loan shall be in an amount not less than $250,000
or such greater amount which is an integral multiple of $100,000 and each
Eurodollar Loan shall be in an amount not less than $1,000,000 or such greater
amount which is an integral multiple of $500,000.
(d) The initial borrowing under this Agreement shall be in an amount
sufficient to pay all amounts outstanding under that certain Secured Credit
Agreement dated as of May 15, 1992, as amended (the "Existing Agreement") among
the Borrower, Harris Trust and Savings Bank, individually and as agent
thereunder, and Mercantile Bank National Association. The Agent shall apply the
proceeds of the initial borrowing hereunder to pay all principal and interest
outstanding under the Existing Agreement.
Section 1.2. The Notes. All Revolving Credit Loans made by each Bank
under its Revolving Credit Commitment, shall be evidenced by a single Secured
Revolving Credit Note of the Borrower substantially in the form of Exhibit A
hereto individually, a "Revolving Note" and together, the "Revolving Notes")
payable to the order of each Bank in the principal amount of such Bank's
Revolving Credit Commitment, but the aggregate principal amount of indebtedness
evidenced by such Revolving Note at any time shall be, and the same is to be
determined by, the aggregate principal amount of all Revolving Credit Loans made
by such Bank to the Borrower pursuant hereto on or prior to the date of
determination less the aggregate amount of principal repayments on such
Revolving Credit Loans received by or on behalf of such Bank on or prior to such
date of determination. Each Revolving Note shall be dated as of the execution
date of this Agreement, shall be delivered concurrently herewith, and shall be
expressed to mature on the Termination Date and to bear interest as provided in
Section 1.3 hereof. Each Bank shall record on its books or records or on a
schedule to its Revolving Note the amount of each Revolving Credit Loan made by
it hereunder, whether each Revolving Credit Loan is a Domestic Rate Loan or
Eurodollar Loan, and, with respect to Eurodollar Loans, the interest rate and
Interest Period applicable thereto, and all payments of principal and interest
and the principal balance from time to time outstanding, provided that prior to
any transfer of such Revolving Note all such amounts shall be recorded on the
schedule to such Revolving Note. The record thereof, whether shown on such books
or records or on the schedule to the Revolving Note, shall be prima facie
evidence as to all such amounts; provided, however, that the failure of any Bank
to record, or any mistake in recording, any of the foregoing shall not limit or
otherwise affect the obligation of the Borrower to repay all Revolving Credit
Loans made hereunder together with accrued interest thereon. Upon the request of
any Bank, the Borrower will furnish a new Revolving Note to such Bank to replace
its outstanding Revolving Note and at such time the first notation appearing on
the schedule on the reverse side of, or attached to, such Revolving Note shall
set forth the aggregate unpaid principal amount of Revolving Credit Loans then
outstanding from such Bank, and, with respect to each Eurodollar Loan, the
interest rate and Interest Period applicable thereto. Such Bank will cancel and
deliver to the Borrower the outstanding Revolving Credit Note upon receipt of
the new Revolving Credit Note.
Section 1.3. Interest Rates. (a) Domestic Rate. Each Domestic Rate Loan
shall bear interest (computed on the basis of a year of 360 days and actual days
elapsed) on the unpaid principal amount thereof from the date such Loan is made
until maturity (whether by acceleration, upon prepayment or otherwise) at a rate
per annum equal to the sum of the Applicable Margin plus the Domestic Rate from
time to time in effect, payable monthly in arrears on the last day of each
month, commencing on September 30, 1998 and at maturity (whether by
acceleration, upon prepayment or otherwise).
(b) Eurodollar Rate. Each Eurodollar Loan shall bear interest (computed
on the basis of a year of 360 days and actual days elapsed) on the unpaid
principal amount thereof from the date such Loan is made until the last day of
the Interest Period applicable thereto or, if earlier, until maturity (whether
by acceleration or otherwise) at a rate per annum equal to the sum of the
Applicable Margin plus the Adjusted Eurodollar Rate, payable on the last day of
each Interest Period applicable thereto and at maturity (whether by acceleration
or otherwise), and, with respect to any Interest Period applicable to a
Eurodollar Loan in excess of three months, on the date occurring every three
months after the date such Interest Period began and at the end of such Interest
Period; provided that if on the last day of the Interest Period applicable to
any Eurodollar Loan the Borrower does not prepay such Loan, such Loan shall
become a Domestic Rate Loan as of the last day of the Interest Period applicable
thereto.
"Adjusted Eurodollar Rate" means a rate per annum determined pursuant
to the following formula:
Adjusted Eurodollar Rate = Eurodollar Rate/(100% - Reserve Percentage)
"Eurodollar Rate" means, for each Interest Period, (a) the LIBOR Index
Rate for such Interest Period, if such rate is available, and (b) if the LIBOR
Index Rate cannot be determined, the arithmetic average of the rates of interest
per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) at which
deposits in U.S. Dollars in immediately available funds are offered to the Agent
at 11:00 a.m. (London, England time) two (2) Business Days before the beginning
of such Interest Period by three (3) or more major banks in the interbank
eurodollar market selected by the Bank for a period equal to such Interest
Period and in an amount equal or comparable to the applicable Eurodollar Loan
scheduled to be outstanding during such Interest Period.
"LIBOR Index Rate" means, for any Interest Period, the rate per annum
(rounded upwards, if necessary, to the next higher one hundred-thousandth of a
percentage point) for deposits in U.S. Dollars for a period equal to such
Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m.
(London, England time) on the day two (2) Business Days before the commencement
of such Interest Period.
"Telerate Page 3750" means the display designated as "Page 3750" on the
Telerate Service (or such other page as may replace Page 3750 on that service or
such other service as may be nominated by the British Bankers' Association as
the information vendor for the purpose of displaying British Bankers'
Association Interest Settlement Rates for U.S. Dollar deposits). Each
determination of the Eurodollar Rate made by the Agent shall be conclusive and
binding absent manifest error.
"Interest Period" means, with respect to any Eurodollar Loan, the
period commencing on, as the case may be, the creation, continuation or
conversion date with respect to such LIBOR Loan and ending one (1), two (2),
three (3) or six (6) months thereafter as selected by the Borrower in its notice
as provided herein; provided that all of the foregoing provisions relating to
Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day which
is not a Business Day, that Interest Period shall be extended to the
next succeeding Business Day, unless in the case of an Interest Period
for a Eurodollar Loan the result of such extension would be to carry
such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the final maturity
date of the Notes;
(iii) the interest rate to be applicable to each Loan for each
Interest Period shall apply from and including the first day of such
Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect
thereto the Company will be unable to make a principal payment
scheduled to be made during such Interest Period without paying part of
a Eurodollar Loan on a date other than the last day of the Interest
Period applicable thereto.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month, provided, however, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the month
in which an Interest Period is to end, then such Interest Period shall end on
the last Business Day of such month.
"Reserve Percentage" means the daily arithmetic average maximum rate at
which reserves (including, without limitation, any supplemental, marginal and
emergency reserves) are imposed on member banks of the Federal Reserve System
during the applicable Interest Period by the Board of Governors of the Federal
Reserve System (or any successor) under Regulation D on "eurocurrency
liabilities" (as such term is defined in Regulation D), subject to any
amendments of such reserve requirement by such Board or its successor, taking
into account any transitional adjustments thereto. For purposes of this
definition, the Eurodollar Loans shall be deemed to be Eurocurrency liabilities
as defined in Regulation D without benefit or credit for any prorations,
exemptions or offsets under Regulation D.
(c) Default Rate. If any payment of principal or interest on
any Revolving Credit Loan is not made when due (including any payment
due upon acceleration), such Loan shall bear interest (computed on the
basis of a year of 360 days and actual days elapsed) from the date such
payment was due until paid in full, payable on demand, at a rate per
annum equal to:
(i) with respect to any Domestic Rate Loan, the sum
of 2% plus the Applicable Margin plus the Domestic Rate from
time to time in effect; and
(ii) with respect to any Eurodollar Loan, the sum of
2% plus the rate of interest in effect thereon at the time of
such default until the end of the Interest Period then
applicable thereto, and, thereafter, at a rate per annum equal
to the sum of 2% plus the Applicable Margin plus the Domestic
Rate from time to time in effect.
(d) Interest Rate and Commitment Fee Margin Adjustments. The
Applicable Margin specified in subsections (a) and (b) hereof shall be
subject to reduction if the Borrower's Total Funded Debt to EBITDA
Ratio for any fiscal quarter and for the preceding fiscal quarter shall
have been in a lower range specified below than that range associated
with the interest rate margins then in effect, and shall be subject to
increase if the Borrower's Total Funded Debt to EBITDA Ratio for any
fiscal quarter shall be in a higher range specified below than the
range associated with the interest rate margins then in effect. The
margins from time to time applicable to the Revolving Credit Loans in
accordance herewith are hereinafter referred to as the "Applicable
Margins".
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SUMMARY PRICING MATRIX
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- --------------------------------------------------------------------------------
Level I Level II Level III Level IV
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Funded Debt less than greater than greater than greater than
to EBITDA Ratio 1.00 time or equal to or equal to or equal to
1.00 time and 2.00 times & 2.50 times
less than less than
2.00 times 2.50 times
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Domestic Rate 0% 0% 0% 0%
Margin
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Eurodollar Margin .75% 1.00% 1.25% 1.50%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Commitment Fee .20% .25% .25% .375%
- --------------------------------------------------------------------------------
Not later than ten Business Days after receipt by the Agent of the
financial statements called for by Section 7.4 hereof for the applicable
quarter, the Agent shall determine the Total Funded Debt to EBITDA Ratio for the
applicable period and shall promptly notify the Borrower and each Bank of such
determination and of any change in the Applicable Margins resulting therefrom.
Any such change in the Applicable Margins shall be effective as of the date the
Agent so notifies the Borrower with respect to all Loans outstanding on such
date, and such new Applicable Margins shall continue in effect until the
effective date of the next quarterly redetermination in accordance with this
Section 1.3(d). Each determination of the Total Funded Debt to EBITDA Ratio and
Applicable Margins by the Agent in accordance with this Section be conclusive
and binding on the Borrower absent manifest error or willful misconduct. The
Applicable Margins shall first be adjusted upon receipt of the financial
statements for the fiscal quarter ending September 30, 1999. From the date
hereof until the date the Applicable Margins are first adjusted pursuant hereto,
the Applicable Margins shall be those set forth in Level II above.
Section 1.4. Letter of Credit. (a) Subject to all the terms and
conditions hereof and satisfaction of all conditions precedent to borrowing
under this Agreement and so long as no Potential Default or Event of Default is
in existence, at the Borrower's request Harris shall issue letters of credit
(individually, an "L/C" and collectively the "L/Cs") for the account of the
Borrower in an aggregate amount not to exceed $5,000,000, subject to
availability under the Revolving Credit, and the Banks hereby agree to
participate therein as more fully described in Section 1.7 hereof. Each L/C
shall be issued pursuant to an application and agreement for letter of credit
(individually, an "L/C Agreement" and collectively the "L/C Agreements") in the
form of Exhibit C hereto, shall consist of a standby or trade letter of credit,
shall be in form and substance acceptable to Harris and the Banks, and shall
have an expiry date not more than one year from the date of issuance thereof,
subject to annual renewals (but in no event later than the Termination Date).
The aggregate amount available to be drawn under all L/Cs issued pursuant hereto
shall be deducted from the credit otherwise available under the Revolving
Credit. In consideration of the issuance of L/Cs the Borrower agrees to pay
Harris for the benefit of the Banks a fee (the "L/C Participation Fee") in the
amount per annum equal to the Applicable Margin (but not to exceed 1% in any
event) for Eurodollar Loans (computed on the basis of a 360 day year and actual
days elapsed) of the face amount for each L/C issued for the account of the
Borrower hereunder. In addition, the Borrower shall pay Harris (x) a fee (the
"L/C Issuance Fee") in the amount per annum equal to (i) for standby L/Cs,
one-eighth of one percent (0.125%) of the stated amount of each standby L/C
issued hereunder and (ii) for commercial L/Cs, the customary issuance fee for
commercial L/Cs as may be established by Harris from time to time, and (y) such
drawing, negotiation, amendment and other administrative fees in connection with
each L/C as may be established by Harris from time to time (the "L/C
Administrative Fee"). All L/C Issuance Fees and L/C Participation Fees shall be
payable quarterly in arrears on the last day of each December, March, June and
September commencing September 30, 1998 and on the Termination Date, and all L/C
Administrative Fees shall be payable on the date of issuance of each L/C
hereunder and on the date required by Harris.
(b) The Agent shall give prompt telephone, telex, or telecopy notice to
each Bank of each issuance of, or amendment to, an L/C specifying the effective
date of the L/C or amendment, the amount, the beneficiary, and the expiration
date of the L/C, in each case as established originally or through the relevant
amendment, as applicable, the account party or parties for the L/C, each Bank's
pro rata participation in such L/C and whether the Agent has classified the L/C
as a commercial, performance, or financial letter of credit for regulatory
reporting purposes.
Section 1.5. Reimbursement Obligations;. The Borrower is obligated, and
hereby unconditionally agrees to pay in immediately available funds to the Agent
for the account of Harris and the Banks who are participating in the L/Cs the
face amount of each draft drawn and presented under each L/C issued by Harris
hereunder (the obligation of the Borrower under this Section 1.5 is a
"Reimbursement Obligation"). If at any time the Borrower fails to pay any
Reimbursement Obligation when due, the Borrower shall be deemed to have
automatically requested a Domestic Rate Loan from the Banks hereunder, as of the
maturity date of such Reimbursement Obligation, the proceeds of which Loan shall
be used to repay such Reimbursement Obligation. Such Loan shall only be made if
no Potential Default or Event of Default shall exist and upon approval by all of
the Banks, and shall be subject to availability under the Revolving Credit. If
such Loan is not made by the Banks for any reason, the unpaid amount of such
Reimbursement Obligation shall be due and payable to the Agent for the pro rata
benefit of the Banks upon demand and shall bear interest at the rate of interest
specified in Section 1.3(c)(i) hereof.
Section 1.6. Manner of Borrowing and Rate Selection. (a) The Borrower
(through any one of its Authorized Representatives) shall give telephonic, telex
or telecopy notice to the Agent (which notice, if telephonic, shall be promptly
confirmed in writing) no later than (i) 11:00 a.m. (Chicago time) on the date
the Banks are requested to make each Domestic Rate Loan under the Revolving
Credit and (ii) 11:00 a.m. (Chicago time) on the date at least three (3)
Business Days prior to the date of each Eurodollar Loan under the Revolving
Credit which the Banks are requested to make. Each such notice shall specify the
date of the Loan requested (which shall be a Business Day), the amount of such
Loan, whether the Loan is to be made available by means of a Domestic Rate Loan
or Eurodollar Loan and, with respect to Eurodollar Loans, the Interest Period
applicable thereto; provided, that in no event shall the principal amount of any
requested Revolving Credit Loan plus the aggregate principal amount of all
Loans, the undrawn face amount of all L/Cs and unpaid Reimbursement Obligations
outstanding hereunder exceed the amounts specified in Section 1.1 hereof. The
Borrower agrees that the Agent may rely on any such telephonic, telex or
telecopy notice given by any person who the Agent believes is authorized to give
such notice without the necessity of independent investigation and in the event
any notice by such means conflicts with the written confirmation, such notice
shall govern if any Bank has acted in reliance thereon. The Agent shall, on the
day any such notice is received by it, give prompt telephonic, telex or telecopy
(if telephonic, to be confirmed in writing within one Business Day) notice of
the receipt of notice from the Borrower hereunder to each of the Banks (using
its best efforts to give such notice by no later than 1:00 p.m., Chicago time,
of the day such notice is received [if received at or before 11:00 a.m., Chicago
time] or by no later than the morning of the following Business Day [if not
received prior to 11:00 a.m., Chicago time]), and, if such notice requests the
Banks to make any Eurodollar Loans, the Agent shall confirm to the Borrower by
telephonic, telex or telecopy means, which confirmation shall be conclusive and
binding on the Borrower in the absence of manifest error or willful misconduct,
the Interest Period and the interest rate applicable thereto promptly after such
rate is determined by the Agent.
(b) Subject to the provisions of Section 6 hereof, the proceeds of each
Revolving Credit Loan shall be made available to the Borrower at the principal
office of the Agent in Chicago, Illinois, in immediately available funds, on the
date such Loan is requested to be made, except to the extent a Revolving Credit
Loan represents a refinancing of a Reimbursement Obligation, in which case the
proceeds of such Loan shall be applied to the payment of the relevant unpaid
Reimbursement Obligation. Not later than 3:00 p.m. Chicago time, on the date
specified for any Loan to be made hereunder, each Bank shall make its portion of
such Loan available to the Borrower in immediately available funds at the
principal office of the Agent, except as otherwise provided above with respect
to repaying any outstanding Reimbursement Obligations.
(c) Unless the Agent shall have been notified by a Bank prior to 2:00
p.m. (Chicago time) on the date of a Loan to be made by such Bank (which notice
shall be effective upon receipt and may be made by telecopy) that such Bank does
not intend to make the proceeds of such Loan available to the Agent, the Agent
may assume that such Bank has made such proceeds available to the Agent on such
date and the Agent may in reliance upon such assumption (but shall not be
required to) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent by such Bank,
the Agent shall be entitled to receive such amount on demand from such Bank (or,
if such Bank fails to pay such amount forthwith upon such demand, to recover
such amount, together with interest thereon at the rate otherwise applicable
thereto under Section 1.3 hereof, from the Borrower) together with interest
thereon in respect of each day during the period commencing on the date such
amount was made available to the Borrower and ending on the date the Agent
recovers such amount, at a rate per annum equal to the effective rate charged to
the Agent for overnight Federal funds transactions with member banks of the
Federal Reserve System for each day, as determined by the Agent (or, in the case
of a day which is not a Business Day, then for the preceding Business Day) (the
"Fed Funds Rate"). Nothing in this Section 1.6(c) shall be deemed to permit any
Bank to breach its obligations to make Loans under the Revolving Credit or to
limit the Borrower's claims against any Bank for such breach.
Section 1.7. Participation in the L/C. Each of the Banks will acquire a
risk participation in each L/C upon the issuance thereof ratably in accordance
with its Commitment Percentage. In the event any Reimbursement Obligation is not
immediately paid by the Borrower pursuant to Section 1.5 hereof, each Bank will
pay to Harris funds in an amount equal to such Bank's Commitment Percentage of
such Reimbursement Obligation. At the election of all of the Banks, such funding
by the Banks of an unpaid Reimbursement Obligations shall be treated as
additional Revolving Credit Loans to the Borrower hereunder rather than a
purchase of participations by the Banks in the L/C held by Harris. The
availability of funds to the Borrower under the Revolving Credit shall be
reduced in an amount equal to the undrawn face amount of the L/C. The obligation
of the Banks to Harris under this Section 1.7 shall be absolute and
unconditional and shall not be affected or impaired by any Event of Default or
Potential Default which may then be continuing hereunder. Harris shall notify
each Bank by telephone of its proportionate share relative to its percentage of
the total Banks' Revolving Credit Commitments set forth in Section 1.1 hereof (a
"Commitment Percentage") of such unpaid Reimbursement Obligation. If such notice
has been given to each Bank by 12:00 Noon, Chicago time, each Bank agrees to pay
Harris in immediately available and freely transferable funds on the same
Business Day its Commitment Percentage of such Reimbursement Obligation. Funds
shall be so made available at the account designated by Harris in such notice to
the Banks. Upon the election by the Banks to treat such funding as additional
Revolving Credit Loans hereunder and payment by each Bank, such Loans shall bear
interest in accordance with Section 1.3(a) hereof. Harris shall share with each
Bank its Commitment Percentage of each payment of a Reimbursement Obligation
(whether of principal or interest) and any L/C Participation Fee payable by the
Borrower. The L/C Issuance Fee and L/C Administration Fee shall be solely for
Harris' account and shall not be shared by the other Banks. Any such amount
shall be promptly remitted to the Banks when and as received by Harris from the
Borrower.
Section 1.8. The Collateral. The Revolving Notes and the other
obligations of the Borrower hereunder and under the Loan Documents shall be
secured by valid and perfected first liens on the inventory and accounts
receivable of the Borrower and the Guarantors, in each instance whether now
owned or existing or hereafter acquired or arising (collectively the
"Collateral") and the Borrower agrees that it will, and will cause each
Guarantor to, from time to time at the request of the Agent or any Bank execute
and deliver such documents and do such acts and things as the Agent or such Bank
may reasonably request in order to provide for or perfect such liens.
SECTION 2. FEES, PREPAYMENTS AND TERMINATIONS.
Section 2.1. Commitment Fees. For the period from the date hereof to
and including the Termination Date, or such earlier date on which the Revolving
Credit is terminated in whole pursuant to Section 2.5 hereof, the Borrower shall
pay to the Agent for the account of the Banks a commitment fee with respect to
the Revolving Credit at the rate per annum (computed on the basis of a year of
360 days for the actual number of days elapsed) equal to the Applicable Margin,
of the average daily unused amount of the Banks' Revolving Credit Commitments
hereunder in effect from time to time, all such fees to be payable quarterly in
arrears on the last day of each calendar quarter commencing on September 30,
1998, unless the Revolving Credit is terminated in whole on an earlier date, in
which event the commitment fees for the final period shall be paid on the date
of such earlier termination in whole.
Section 2.2. Other Fees.
(a) Agent's Fees. The Borrower shall pay to and for the sole account
of the Agent such fees as the Borrower and the Agent may agree upon in writing
from time to time. Such fees shall be in addition to any fees and charges the
Agent may be entitled to receive under the other Loan Documents.
(b) Closing Fee. The Borrower shall pay to the Agent for the ratable
account of the Banks a closing fee in an amount equal to 0.20% of the Banks'
Revolving Credit Commitments as in effect on the date hereof. All such closing
fees payable pursuant to this Section 2.2(b) shall be payable on the date of
this Agreement and shall be non-refundable.
Section 2.3. Optional Prepayments. (a) The Borrower shall have the
privilege of prepaying without premium or penalty and in whole or in part (but
if in part, then in a minimum principal amount of $100,000 or such greater
amount which is an integral multiple of $100,000) any Domestic Rate Loan under
the Revolving Credit at any time upon prior telex or telephonic notice to the
Agent on or before 12:00 Noon on the same Business Day. Except as otherwise
provided in Section 2.3(b) hereof, the Borrower may not prepay any Eurodollar
Loan under the Revolving Credit.
(b) The Borrower may prepay any Eurodollar Loans upon telephonic notice
(which shall be promptly confirmed in writing by facsimile communication, telex
or telegraph) by no later than 11:00 a.m. (Chicago time) on the date of such
prepayment from the Borrower to the Agent, such prepayment to be made by the
payment of the principal amount to be prepaid and accrued interest thereon and
any compensation required by Section 9.4 hereof, if applicable; provided,
however, that any such prepayment shall be in a principal amount of no less than
$250,000 or such greater amount which is an integral multiple of $100,000, and
after giving effect to any such prepayment the outstanding principal amount of
such Eurodollar Loans prepaid in part shall not be less than $250,000 or such
greater amount which is an integral multiple of $100,000.
(c) Any amount prepaid under the Revolving Credit may, subject to the
terms and conditions of this Agreement, be borrowed, repaid and borrowed again.
Section 2.4. Mandatory Prepayments-Borrowing Base. The Borrower shall
not permit the sum of the principal amount of all Loans plus the amount
available for drawing under the L/Cs and the aggregate principal amount of all
unpaid Reimbursement Obligations at any time outstanding to exceed the lesser of
(i) the Banks' Revolving Credit Commitments or (ii) the Borrowing Base as
determined on the basis of the most recent Borrowing Base Certificate. In
addition to the Borrower's obligations to pay any outstanding Reimbursement
Obligations as set forth in Section 1.5 hereof, the Borrower will make such
payments on any outstanding Loans and Reimbursement Obligations which are
necessary to cure any such excess within three Business Days after the
occurrence thereof without any notice or demand from the Agent or any of the
Banks, all of which are expressly waived by the Borrower. Any amount repaid
under the Revolving Credit may, subject to the terms and conditions of this
Agreement, be borrowed, repaid and borrowed again.
Section 2.5. Terminations. The Borrower shall have the right at any
time upon 5 Business Days' prior notice to the Banks to terminate the Revolving
Credit Commitments in whole or in part (but if in part in a minimum amount of
$5,000,000 or any integral multiple thereof); provided, however, that the
Borrower may not terminate any portion of the Revolving Credit Commitments that
is in use in the form of Revolving Credit Loans, Reimbursement Obligations or
L/Cs.
Section 2.6. Capital Adequacy. If, after the date of this Agreement,
any Bank or the Agent shall have determined in good faith that the adoption
after such date of any applicable law, rule or regulation regarding capital
adequacy, or any change therein (including, without limitation, any revision in
the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal
Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) or of
the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A), or in
any other applicable capital rules heretofore adopted and issued by any
governmental authority), or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Lending Office) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Bank's capital, or on the capital of any corporation controlling such
Bank, in each case as a consequence of its obligations hereunder, to a level
below that which such Bank would have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within thirty (30) days after demand by such Bank (with a copy to
the Agent), the Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such reduction.
SECTION 3. PLACE AND APPLICATION OF PAYMENTS.
All payments of principal and interest made by the Borrower in respect
of the Revolving Notes and Reimbursement Obligations and all fees payable by the
Borrower hereunder, shall be made to the Agent at its office at 111 West Monroe
Street, Chicago, Illinois 60690 and in immediately available funds, prior to
12:00 noon on the date of such payment. All such payments shall be made without
setoff or counterclaim and without reduction for, and free from, any and all
present and future levies, imposts, duties, fees, charges, deductions
withholdings, restrictions or conditions of any nature imposed by any government
or any political subdivision or taxing authority thereof. Any payments received
after 12:00 noon Chicago time (or after the time the Banks may otherwise direct)
shall be deemed received upon the following Business Day. The Agent shall remit
to each Bank its proportionate share of each payment of principal, interest,
commitment fees and L/C fees received by the Agent by 12:00 noon Chicago time on
the same day of its receipt and its proportionate share of each such payment
received by the Agent after 12:00 noon Chicago time on the Business Day
following its receipt by the Agent. In the event the Agent does not remit any
amount to any Bank when required by the preceding sentence, the Agent shall pay
to such Bank interest on such amount until paid at a rate per annum equal to the
Fed Funds Rate. The Borrower hereby authorizes the Agent to automatically debit
its accounts with Harris for any principal, interest and fees when due under the
Revolving Notes, the L/C Agreements or this Agreement and to transfer the amount
so debited from such account to the Agent for application as herein provided.
All proceeds of Collateral shall be applied in the manner specified in the
applicable Security Documents.
SECTION 4. DEFINITIONS.
Section 4.1. Certain Terms Defined. The terms hereinafter set forth
when used herein shall have the following meanings:
"Account Debtor" shall mean the person who is obligated on a
Receivable.
"PMAC Acquisition" shall mean the acquisition by the Borrower of
certain assets comprising the "Cold Draw Department" of PMAC, Ltd., a Texas
limited partnership, pursuant to the Acquisition Documents.
"Acquisition Documents" shall mean that certain Asset Purchase
Agreement dated as of August 17, 1998 between the Borrower and PMAC, Ltd. and
all other agreements executed in connection therewith.
"Adjusted Eurodollar Rate" shall have the meaning specified in
Section 1.3(b) hereof.
"Affiliate" shall mean any person, company or business entity under
common control or having shareholders owning at least ten percent (10%) of each
thereof, whether such common control be direct or indirect. All of the
Borrower's officers, directors, joint venturers, Subsidiaries and partners shall
be deemed to be the Borrower's Affiliates for purposes of this Agreement.
"Agent" is defined in the first paragraph of this Agreement.
"Agreement" shall mean this Secured Credit Agreement as supplemented
and amended from time to time.
"Applicable Margin" shall have the meaning specified in Section 1.3(d)
hereof.
"Authorized Representatives" shall mean Gregg Eisenberg, Barry Pearl,
Pam Boone, Mary Hulsey, Karen Thiel, and Delene Rice.
"Bank" and "Banks" shall have the meanings specified in the first
paragraph of this Agreement.
"Bill and Hold" shall mean unpaid Receivables resulting from the sale
of Inventory which has not yet been delivered to, and is not yet in the process
of being delivered to, the Account Debtor on such Receivables.
"Borrower" is defined in the first paragraph hereof.
"Borrowing Base", as determined on the basis of the information
contained in the most recent Borrowing Base Certificate, shall mean an amount
equal to:
(a) 85% of the amount of Eligible Receivables of the Borrower, plus
(b) 55% of the Value of Eligible Bill and Hold Receivables, plus
(c) 55% of the Value of Eligible Inventory of the Borrower,
provided that in no event shall such amount exceed an amount
equal to 60% of the aggregate principal amount of all Loans,
Reimbursement Obligations and L/Cs outstanding under this
Agreement at any time.
"Borrowing Base Certificate" shall mean the certificate in the form of
Exhibit D hereto which is required to be delivered to the Banks in accordance
with Sections 1.6(a) and 7.4(c) hereof.
"Business Day" shall mean any day except Saturday or Sunday on which
banks are open for business in Chicago, Illinois, and, with respect to
Eurodollar Loans, dealing in United States Dollar deposits in London, England
and Nassau, Bahamas.
"Capitalized Lease" shall mean any lease or obligation for rentals
which is required to be capitalized on a consolidated balance sheet of the
Borrower and its Subsidiaries in accordance with generally accepted accounting
principles.
"Capitalized Lease Obligation" shall mean the present discounted value
of the rental obligations under any Capitalized Lease determined on a
consolidated basis in accordance with generally accepted accounting principles.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.
"Change in Law" shall have the meaning specified in Section 9.3 hereof.
"Collateral" shall mean the collateral security provided to the Agent
for the benefit of the Banks pursuant to the Security Documents.
"Commitment Percentage" shall have the meaning set forth in Section 1.1
hereof.
"Consolidated EBITDA" shall mean, with reference to any period,
Consolidated Net Income for such period plus all amounts deducted in arriving at
such Consolidated Net Income amount in respect of (a) Consolidated Interest
Expense for such period, plus (b) foreign, federal, state and local income taxes
for such period, plus (c) all amounts properly charged for depreciation of fixed
assets and amortization of intangible assets during such period on the books of
the Company and its Subsidiaries.
"Consolidated Interest Expense" shall mean, with reference to any
period, the sum of all interest charges (including imputed interest charges with
respect to Capitalized Lease Obligations, all amortization of debt discount and
expense), of the Borrower and its Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Net Income" shall mean the net income of the Borrower and
its Subsidiaries, all as determined and computed on a consolidated basis in
accordance with generally accepted accounting principles consistently applied.
"Consolidated Stockholders' Equity" shall mean the stockholders' equity
of the Borrower and its Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles, consistently applied.
"Consolidated Tangible Net Worth" shall mean the sum of all capital
stock, preferred stock, capital in excess of par value and retained earnings,
less the amount of goodwill and all other Intangible Assets and Deferred Charges
(other than Deferred Charges for income taxes) of the Borrower and the
Subsidiaries, determined on a consolidated basis in accordance with generally
accepted accounting principles, consistently applied.
"Debt" of any Person shall mean as of any time the same is to be
determined, the aggregate of (i) all liabilities, reserves and any other items
which would be classified as a liability on a balance sheet in accordance with
generally accepted accounting principles, (ii) all guaranties, endorsements
(other than any liability arising out of the endorsement of items for deposit or
collection in the ordinary course of business) and other contingent obligations
in respect of, or any obligations to purchase or otherwise acquire, indebtedness
of others, (iii) all reimbursement and other obligations with respect to letters
of credit and banker's acceptances, (iv) the aggregate amount of rentals or
other consideration payable under all leases and other agreements for the use,
acquisition or retention of real or personal property of a nature such that
payments due thereunder may under generally accepted accounting principles in
effect on the date hereof be included in a balance sheet of the lessee, and (v)
all indebtedness and liabilities secured by any lien or any security interest on
any Property or assets of such person, whether or not the same would be
classified as a liability on a balance sheet, but excluding all general
contingency reserves and reserves for deferred income taxes and investment
credit, and with respect to Debt of the Borrower, all computed and determined on
a consolidated basis for the Borrower and its Subsidiaries after the elimination
of intercompany items in accordance with generally accepted accounting
principles consistent with those used in the preparation of the audit report
referred to in Section 5.2 hereof.
"Deferred Charges" shall mean all items which are classified as
deferred charges in accordance with generally accepted accounting principles
consistently applied, on a basis consistent with the principles reflected in the
financial statements referred to in Section 5.2 hereof.
"Domestic Rate" means for any day the rate of interest announced by
Harris from time to time as its prime commercial rate in effect on such day,
with any change in the Domestic Rate resulting from a change in said prime
commercial rate to be effective as of the date of the relevant change in said
prime commercial rate (the "Harris Prime Rate"), provided that if the rate per
annum determined by adding 0.5% to the rate at which Harris would offer to sell
federal funds in the interbank market on or about 10:00 a.m. (Chicago time) on
any day (the "Adjusted Fed Funds Rate") shall be higher than the Harris Prime
Rate on such day, the Domestic Rate for such day and for any succeeding day
which is not a Business Day shall be such Adjusted Fed Funds Rate. The
determination of the Adjusted Fed Funds Rate by Harris shall be final and
conclusive provided Harris has acted in good faith in connection therewith.
"Domestic Rate Loan" means a Revolving Credit Loan which bears interest
as provided in Section 1.3(a) hereof.
"Eligible Bill and Hold Receivables" shall mean Bill and Hold
Receivables which would otherwise be Eligible Receivables had the Inventory from
which they arose been delivered to, or been in the process of being delivered to
the Account Debtor on such Receivables.
"Eligible Inventory" shall mean any Inventory of the Borrower and the
Guarantors in which the Agent has a first priority perfected security interest
which the Banks in their reasonable judgment deem to be acceptable for inclusion
in the Borrowing Base, and which complies with each of the following
requirements:
(a) It consists of any material in the form of raw pipe or
tube and finished drawn over mandrill pipe or tube, which are in first
class condition and are suitable for sale in the ordinary course of the
Borrower's business or coil steel or couplings which are in first-class
condition, are in the form in which they were when originally acquired
by the Borrower or applicable Guarantor and are suitable for use in the
production of Borrower's or such Guarantor's finished goods Inventory;
(b) It substantially conforms to the Borrower's or such
Guarantor's advertised or represented specifications, applicable
government standards and regulations and other quality standards and
has not been determined by the Banks to be unacceptable due to age,
type, variety, quality, quantity, or location;
(c) All warranties of the Borrower or applicable Guarantor in
the Loan Documents are true and correct with respect thereto;
(d) It is owned by the Borrower or applicable Guarantor;
(e) It has been identified to the Agent in the manner
prescribed by the Banks pursuant to the Security Documents;
(f) It is either (i) located at a location disclosed to and
approved by the Agent and the Banks, and if requested by the Agent or
any Bank, any Person (other than the Borrower) owning or controlling
such location shall have waived all right, title and interest in and to
such Inventory in a manner satisfactory to the Agent and such Bank or
(ii) in transit between any two such locations and has not been in
transit for more than (A) four days if it has been shipped by truck,
(B) fourteen days if it has been shipped by rail or (C) 30 days if it
has been shipped by barge; and
(g) If it is evidenced by a negotiable warehouse receipt or
other negotiable document of title, such receipt or document of title
has been endorsed in blank or to the order of the Agent and has been
delivered to the Agent or its trustee or bailee.
"Eligible Receivables" shall mean any Receivable of the Borrower or any
Guarantor in which the Agent has a first priority perfected security interest
which the Banks in their reasonable judgment deem to be acceptable for inclusion
in the Borrowing Base, and which complies with each of the following
requirements:
(a) It arises out of a bona fide sale of Inventory which has
been delivered to, or is in the process of being delivered to the
Account Debtor on said Receivable in the ordinary course of Borrower's
or such Guarantor's business, in the case of payment terms, and
otherwise in the ordinary course of business on ordinary trade terms;
(b) All warranties of the Borrower or such Guarantor in the
Loan Documents are true and correct with respect thereto;
(c) It has been identified to the Banks in the manner
required by the Banks;
(d) It is evidenced by an invoice dated not later than the
date of shipment to the Account Debtor thereunder;
(e) It has not remained unpaid in whole or in part more than
90 days from and after its due date or more than 120 days from and
after its invoice date;
(f) It is net of any credit or allowance given by the
Borrower or such Guarantor to such Account Debtor;
(g) It is not owing by an Account Debtor who (i) has become
insolvent, (ii) is the subject of any bankruptcy, arrangement,
reorganization proceedings or other proceedings for relief of debtors
or (iii) has admitted its inability to pay its debts generally or has
stopped paying its debts generally;
(h) If the Account Debtor is also a supplier to or creditor
of the Borrower or a Guarantor, then either (i) that Account Debtor
shall have entered into an agreement with or for the benefit of the
Banks with respect to the waiver of rights of setoff which is
acceptable to the Banks or (ii) 120% of the amount owed at such time by
the Borrower or the applicable Guarantor to that Account Debtor shall
be subtracted from the amount of the Receivable;
(i) The Account Debtor is not principally located outside the
continental United States unless (A) such Receivable is secured by an
irrevocable letter of credit issued by a commercial Bank which is
acceptable to the Banks or the Banks are satisfied that all filings
have been made and actions taken as are required by the Banks in
connection therewith as a result of the location of such Account Debtor
or (B) the Account Debtor thereon is principally located in Canada and
either (i) the Administrative Agent shall have made such filings and
taken such other action as may be necessary for it to obtain a first
priority security interest therein under applicable Canadian law
without regard to any filings made in any State of the United States,
or (ii) the Administrative Agent shall have received an opinion of
Canadian counsel satisfactory in form and substance to the
Administrative Agent to the effect that the Administrative Agent's
security interest in such Receivables is perfected by filings made
under the applicable state's version of the Uniform Commercial Code;
(j) It is not owing by the United States of America or any
department, agency or instrumentality thereof unless the Banks shall
have received evidence satisfactory to the Banks of compliance with the
Assignment of Claims Act;
(k) Such Receivable is not subject to any dispute,
counterclaim or defense asserted by the Account Debtor thereunder;
(l) The Account Debtor has not failed to pay within the times
specified in subsection (e) above 50% or more in aggregate amount of
all its Receivables on which it is the Account Debtor;
(m) The Account Debtor is not an Affiliate of the Borrower or
any Guarantor;
(n) The Receivable does not arise from a "sale or return," or
a "sale on approval" of Inventory or a "Bill and Hold" sale of
Inventory; and
(o) If the Account Debtor is located in the State of New
Jersey or the State of Minnesota, Borrower or the applicable Guarantor
(i) has filed and has effective (A) in respect of Account Debtors
located in the State of New Jersey, a Notice of Business Activities
Report with the New Jersey Division of Taxation for the then current
year or (B) in respect of Account Debtors located in the State of
Minnesota, a Minnesota Business Activity Report with the Minnesota
Department of Revenue for the then current year, as applicable, or (ii)
is otherwise exempt from such reporting requirements under the laws of
such State(s).
"Environmental Laws" shall have the meaning specified in Section 5.7(a)
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Eurodollar Loan" means a Revolving Credit Loan which bears interest as
provided in Section 1.3(b) hereof.
"Eurodollar Rate" shall have the meaning specified in Section 1.3(b)
hereof.
"Event of Default" shall mean any event or condition identified as such
in Section 8.1 hereof.
"Executive Officer" shall mean, with respect to the Borrower or any
Subsidiary, any of the Chairman, Chief Executive Officer, Chief Financial
Officer or any Vice President of the Borrower or such Subsidiary.
"Existing Agreement" shall have the meaning specified in Section 1.1(d)
hereof.
"Existing Lender" shall have the meaning specified in Section 1.1(d)
hereof.
"Exposure" shall mean, as to any Bank, the sum (without duplication) of
such Bank's (a) unused Revolving Credit Commitment, if any, (b) outstanding
Revolving Credit Loans, if any, (c) interest in outstanding Reimbursement
Obligations, if any, and (d) the amount of its participation in outstanding
L/Cs.
"Fed Funds Rate" shall have the meaning specified in Section 1.6(c)
hereof.
"Fixed Charge Coverage Ratio" shall mean, for any period for which the
same is to be determined, the ratio for such period of (a) "Consolidated Net
Income Available for Fixed Charges", defined as earnings before interest and
taxes plus depreciation and amortization plus operating and capital lease
expenses less capital expenditures, all determined on a consolidated basis for
the Borrower and its Subsidiaries in accordance with generally accepted
accounting principles, consistently applied, to (b) "Fixed Charges", defined as
interest expense plus operating and capital lease expense plus current scheduled
maturities of all indebtedness for borrowed money other than the Revolving
Credit Loans, all determined on a consolidated basis for the Borrower and its
Subsidiaries in accordance with generally accepted accounting principles,
consistently applied.
"Funded Debt" of any Person shall mean all indebtedness for borrowed
money of such Person, whether classified as long-term or short-term under
generally accepted accounting principles.
"Generally accepted accounting principles" shall mean generally
accepted accounting principles consistently applied and consistent with the
audited consolidated financial statements described in Section 5.2 hereof.
"Guarantors" shall mean Maverick Tube, L.P., a Delaware limited
partnership, and Maverick Investment Corporation, a Delaware corporation, and
"Guarantor" shall mean any of the Guarantors.
"Harris" shall have the meaning specified in the first paragraph of
this Agreement.
"Intangible Assets" shall mean amortizable loan costs, business
acquisition costs, license agreements, trademarks, trade names, patents,
capitalized research and development, proprietary products (the results of past
research and development treated as long term assets and excluded from
Inventory), goodwill and all other assets which would be classified as
intangible assets (all determined in accordance with generally accepted
accounting principles consistently applied).
"Interest Period" shall have the meaning specified in Section 1.3(b)
hereof.
"Inventory" shall mean all raw materials, work in process, finished
goods, and goods held for sale or lease or furnished or to be furnished under
contracts of service in which the Borrower or any Subsidiary now has or
hereafter acquires any right.
"L/C" shall have the meaning set forth in Section 1.4 hereof.
"L/C Agreement" shall have the meaning set forth in Section 1.4 hereof.
"Loan" shall mean a Revolving Credit Loan and the term "Loans" shall
mean any two or more Revolving Credit Loans collectively.
"Loan Documents" shall mean this Agreement and any and all exhibits
hereto, the Revolving Notes, the L/C Agreements, the Subsidiary Guaranty and, if
applicable, the Security Documents.
"Person" shall mean and include any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or government (whether national,
federal, state, county, city, municipal, or otherwise, including, without
limitation, any instrumentality, division, agency, body or department thereof).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Plan" shall mean any employee benefit plan covering any officers or
employees of the Borrower or any Subsidiary, any benefits of which are, or are
required to be, guaranteed by the PBGC.
"Potential Default" shall mean any event or condition which, with the
lapse of time, or giving of notice, or both, would constitute an Event of
Default.
"Property" shall mean all assets and properties of any nature
whatsoever, whether real or personal, tangible or intangible, including without
limitation intellectual property.
"Receivables" shall mean all accounts, contract rights, instruments,
documents, chattel paper and general intangibles in which the Borrower or any
Subsidiary now has or hereafter acquires any right.
"Reimbursement Obligation" has the meaning specified in Section 1.5
hereof.
"Rentals" shall mean and include all fixed rents (including as such all
payments which the lessee is obligated to make to the lessor on termination of
the lease or surrender of the property) payable by the Borrower or a Subsidiary,
as lessee or sublessee under a lease of real or personal property, but shall be
exclusive of any amounts required to be paid by the Borrower or a Subsidiary
(whether or not designated as rents or additional rents) on account of
maintenance, repairs, insurance, taxes and similar charges. Fixed rents under
any so-called "percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee regardless of sales
volume or gross revenues. Capitalized Lease Obligations shall be excluded from
the definition of Rentals for all purposes hereunder other than the use of the
term "rentals" in the definitions of Capitalized Lease and Capitalized Lease
Obligations.
"Required Banks" shall mean any Bank or Banks which in the aggregate
hold 66-2/3% of the aggregate unpaid principal balance of the Loans and
Reimbursement Obligations or, if no Loans or Reimbursement Obligations are
outstanding hereunder, any Bank or Banks in the aggregate having 66-2/3% of the
Revolving Credit Commitments.
"Reserve Percentage" shall have the meaning specified in Section 1.3(b)
hereof.
"Restricted Payments" shall have the meaning specified in Section 7.15
hereof.
"Revolving Credit" shall have the meaning specified in the first
paragraph of this Agreement.
"Revolving Credit Commitment" and "Revolving Credit Commitments" shall
have the meanings specified in Section 1.1(b) hereof.
"Revolving Credit Loan" and "Revolving Credit Loans" shall have the
meanings specified in Section 1.1(a) hereof.
"Revolving Note" or "Revolving Notes" shall have the meanings specified
in Section 1.2 hereof.
"Security Agreement" shall mean the Security Agreement Re: Accounts
Receivable, Inventory and General Intangibles of the Borrower and the Guarantors
in the form of Exhibit F hereto.
"Security Documents" shall mean the Security Agreement and any other
agreements and financing statements now or hereafter executed and delivered by
the Borrower in respect of the Collateral.
"Subsidiary" shall mean any corporation or other entity at least a
majority of the outstanding voting stock of which is at the time owned directly
or indirectly by the Borrower and/or its Subsidiaries.
"Subsidiary Guaranty" shall mean the Guaranty Agreement of even date
herewith from the Guarantors to the Banks, as the same may be supplemented and
amended from time to time.
"Termination Date" shall have the meaning set forth in Section 1.1(a)
hereof.
"Total Capitalization" shall mean the sum of (a) the Consolidated
Stockholders' Equity, plus (b) Consolidated Funded Debt.
"Total Consolidated Funded Debt" shall mean with respect to the
Borrower all Funded Debt of the Borrower and its Subsidiaries, on a consolidated
basis eliminating intercompany items.
"Total Funded Debt Ratio" shall mean, as of any date the same is to be
determined, the ratio of (a) the aggregate outstanding principal amount of the
Total Consolidated Funded Debt as of such date, to (b) the Consolidated EBITDA
for the four consecutive fiscal quarters of the Borrower most recently ended.
"Year 2000 Problem" means any significant risk that computer hardware,
software, or equipment containing embedded microchips essential to the business
or operations of the Borrower or any of its Subsidiaries will not, in the case
of dates or time periods occurring after December 31, 1999, function at least as
efficiently and reliably as in the case of times or time periods occurring
before January 1, 2000, including the making of accurate leap year calculations.
Section 4.2. Interpretation. Capitalized terms defined elsewhere in
this Agreement shall, unless otherwise specified, have the meanings so ascribed
to them in all provisions of this Agreement. The foregoing definitions are
equally applicable to both the singular and plural forms of the terms defined.
All references to time of day herein are references to Chicago, Illinois time
unless otherwise specifically provided. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, it shall be done in accordance with generally
accepted accounting principles except where such principles are inconsistent
with the specific provisions of this Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Banks as follows:
Section 5.1. Organization and Qualification. The Borrower is duly
organized and validly existing under the laws of the State of Delaware, has full
and adequate corporate power to carry on its business as now conducted, is duly
licensed or qualified in all jurisdictions wherein the nature of its activities
requires such licensing or qualifying, except where the failure to be so
licensed or qualified would not have a material adverse effect on the condition,
financial or otherwise, of the Borrower, has full right, power and authority to
make the PMAC Acquisition, to enter into the Acquisition Documents, this
Agreement and the other Loan Documents to which it is a party, to make the
borrowings herein provided for and encumber its assets as collateral security
therefor, to execute and issue the Revolving Notes in evidence thereof, and to
perform each and all of the matters and things herein and therein provided for;
and this Agreement does not, nor does the performance or observance by the
Borrower of any of the matters or things provided for in this Agreement, the
other Loan Documents and the Acquisition Documents, contravene any provision of
law or any charter or by-law provision or any covenant, indenture or agreement
of or judgment, order or decree applicable to or affecting the Borrower or any
of its Property.
Section 5.2. Financial Reports. The Borrower heretofore has delivered
to each Bank a copy of the annual audit report as of September 30, 1997, of the
Borrower and its Subsidiaries and unaudited financial statements of the Borrower
and its Subsidiaries as of, and for the nine month period ending June 30, 1998.
Such financial statements have been prepared in accordance with generally
accepted accounting principles (except that such unaudited financial statements
may omit any footnotes), on a basis consistent, except as otherwise noted
therein, with that of the previous fiscal year or period and fairly reflect the
financial position of the Borrower as of the dates thereof, and the results of
its operations for the periods covered thereby. To the best knowledge of the
Executive Officers of the Borrower and each Subsidiary, the Borrower and its
Subsidiaries have no significant contingent liabilities (determined in
accordance with generally accepted accounting principles consistently applied)
other than as indicated on said financial statements and since said date of
September 30, 1997, has been no material adverse change in the condition,
financial or otherwise, of the Borrower or any Subsidiary, except those
disclosed in writing to the Banks prior to the date of this Agreement.
Section 5.3. Litigation; Tax Returns; Approvals. There is no
litigation, labor controversy or governmental proceeding pending, nor to the
best knowledge of the Executive Officers of the Borrower and each Subsidiary
threatened, against the Borrower or any Subsidiary which if adversely determined
would result in any material adverse change in the properties, business or
operations of the Borrower or any Subsidiary. All United States federal income
tax returns for the Borrower and its Subsidiaries required to be filed have been
filed on a timely basis, and all amounts required to be paid as shown by said
returns have been paid. Except as disclosed in the letter referred to above in
this Section 5.3, there are no pending or, to the best knowledge of the
Executive Officers of the Borrower and each Subsidiary, threatened objections to
or controversies in respect of the United States federal income tax returns of
the Borrower and its Subsidiaries for any fiscal year. No authorization,
consent, license, exemption or filing or registration with any court or
governmental department, agency or instrumentality, is or will be necessary to
the valid execution, delivery or performance by the Borrower of the Loan
Documents or the Acquisition Documents to which it is a party.
Section 5.4. Regulation U. Neither the Borrower nor any Subsidiary is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System) and no part of the proceeds of any Loan
or other extension of credit hereunder will be used to purchase or carry any
margin stock or to extend credit to others for such a purpose.
Section 5.5. No Default. The Borrower is in full compliance with all of
the terms and conditions of the Loan Documents, and no Potential Default or
Event of Default is existing under this Agreement.
Section 5.6. ERISA. The Borrower and its Subsidiaries are in compliance
in all material respects with ERISA to the extent applicable to it and neither
the Borrower nor any Subsidiary has received any notice to the contrary from the
PBGC or any other governmental entity or agency. No steps have been taken to
terminate any Plan, and no contribution failure has occurred with respect to any
Plan sufficient to give rise to a lien under Section 302(f) of ERISA. No
condition exists or event or transaction has occurred with respect to any Plan
which might result in the incurrence by the Borrower or any Subsidiary of any
material liability, fine or penalty. Neither the Borrower nor any Subsidiary has
any contingent liability with respect to any post-retirement benefit under a
Plan, other than liability for continuation coverage described in Part 6 of
Title I of ERISA.
Section 5.7. Environmental Law. (a) Except as disclosed on Exhibit J,
no Executive Officer of the Borrower nor any Executive Officer of a Subsidiary
has received any notice to the effect, or has any knowledge, that its Property
or operations are not in compliance with any of the requirements of applicable
federal, state and local environmental, health and safety statutes and
regulations ("Environmental Laws") or are the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any hazardous substances as defined in the CERCLA or petroleum
products or crude oil or any fraction thereof (collectively "Hazardous
Substances") into the environment, which non-compliance or remedial action could
have a material adverse effect on the business, operations, Property, assets or
conditions (financial or otherwise) of the Borrower or any Subsidiary;
(b) there have been no releases of Hazardous Substances at, on or under
any Property now or previously owned or leased by the Borrower or any of its
Subsidiaries that, singly or in the aggregate, have, or may reasonably be
expected to have, a material adverse effect on the financial condition,
operations, assets, business, Properties or prospects of the Borrower and its
Subsidiaries;
(c) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any Property now or previously
owned or leased by the Borrower or any of its Subsidiaries that, singly or in
the aggregate, have, or may reasonably be expected to have, a material adverse
effect on the financial condition, operations, assets, business, Properties or
prospects of the Borrower and its Subsidiaries;
(d) neither the Borrower nor any Subsidiary has directly transported,
or received any notice or has any knowledge that they have directly arranged for
the transportation of, any Hazardous Substances to any location which is listed
or proposed for listing on the National Priorities List pursuant to CERCLA, on
the CERCLIS or on any similar state list or which is the subject of federal,
state or local enforcement actions or other investigations which may lead to
material claims against the Borrower or such Subsidiary thereof for any remedial
work, damage to natural resources or personal injury, including claims under
CERCLA; and
(e) except as disclosed on Exhibit J no conditions exist at, on or
under any Property now owned or leased by the Borrower or any Subsidiary, and
the Borrower has no knowledge that any conditions exist at, on or under any
Property previously owned or leased by the Borrower or any Subsidiary, which,
with the passage of time, or the giving of notice or both, would give rise to
liability under any Environmental Law which may reasonably be expected to have,
a material adverse effect on the financial condition, operations, assets,
business, Properties or prospects of the Borrower and its Subsidiaries.
Section 5.8. Security Interests. There are no security interests, liens
or encumbrances on any of the assets or Property of the Borrower or any
Subsidiary except the security interests, liens and charges which are now
existing and are permitted by Section 7.15 of this Agreement.
Section 5.9. Subsidiaries. As of the date hereof, the Borrower's only
Subsidiaries are identified on Exhibit E hereof. Each of said Subsidiaries is
duly organized and validly existing under the laws of the state or country of
its incorporation, has full and adequate corporate power to carry on its
business as now conducted, is duly licensed or qualified to do business in all
jurisdictions wherein the nature of its activities requires such licensing or
qualification except when the failure to be so licensed or qualified would not
have a material adverse effect on the condition, financial or otherwise, of such
Subsidiary. Each Guarantor has full right, power and authority to enter into the
Subsidiary Guaranty, to guaranty the payment of the Borrower's indebtedness,
obligations and liabilities to the Agent and the Banks, and to perform each and
all of the matters and things therein provided for; and the Subsidiary Guaranty
does not, nor does the performance or observance by any Guarantor of any of the
matters or things provided for therein, contravene any provision of law or any
charter, partnership agreement or by-law provision or any covenant, indenture or
agreement of or judgment, order or decree applicable to or affecting any
Guarantor or any of their respective Property.
Section 5.10. Accurate Information. No information, exhibit or report
furnished by the Borrower or any Subsidiary to the Banks in connection with the
negotiation or performance of the Loan Documents contains any material
misstatement of fact or omits to state a material fact or any fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which made. The financial projections furnished by the Borrower
to the Banks contain reasonable projections as of the date hereof of future
results of operations and financial position of the Borrower and its
Subsidiaries.
Section 5.11. Enforceability. This Agreement, when executed and
delivered by the Borrower, will be a legal, valid and binding agreement of the
Borrower, enforceable against it in accordance with its terms, except as may be
limited by (i) bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or other similar laws or judicial decisions for the relief of debtors
or the limitation of creditors' rights generally; and (ii) any equitable
principles relating to or limiting the rights of creditors generally or any
equitable remedy which may be granted to cure any defaults; and the Acquisition
Documents, the Revolving Notes, the other Loan Documents and any other
instrument or agreement required hereunder has been so authorized and, when
executed and delivered, will be similarly valid, binding and enforceable, except
as may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or other similar laws or judicial decisions for the relief
of debtors or the limitation of creditors' rights generally; and (ii) any
equitable principles relating to or limiting the rights of creditors generally
or any equitable remedy which may be granted to cure any defaults; and the
Subsidiary Guaranty, when executed and delivered by each Guarantor, will be a
legal, valid and binding agreement of such Guarantor, enforceable against it in
accordance with its terms, except as may be limited by (i) bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or other similar
laws or judicial decisions for the relief of debtors or the limitation of
creditors' rights generally; and (ii) any equitable principles relating to or
limiting the rights of creditors generally or any equitable remedy which may be
granted to cure any defaults.
Section 5.12. Year 2000 Compliance. The Borrower is in the process of
conducting a comprehensive review and assessment of the computer applications of
the Borrower and its Subsidiaries and is in the process of making inquiry of
their material suppliers, vendors (including data processors) and customers,
with respect to any defect in computer software, data bases, hardware, controls
and peripherals related to the occurrence of the year 2000 or the use at any
time of any date which is before, on and after December 31, 1999, in connection
therewith. Based on the foregoing review, assessment and inquiry, the Borrower
believes that no such defect could reasonably be expected to have a material
adverse effect on the business or financial affairs of the Borrower (or of the
Borrower and its Subsidiaries taken on a consolidated basis).
SECTION 6. CONDITIONS PRECEDENT.
The obligation of the Banks to make any Loan pursuant hereto or to
issue any L/C shall be subject to the following conditions precedent:
Section 6.1. General. The Agent shall have received the notice of
borrowings and request for any L/C hereinabove provided for.
Section 6.2. Initial Extension of Credit. Prior to the initial
extension hereunder, the following conditions precedent shall have been
satisfied:
(a) the Borrower shall have provided a Borrowing Base Certificate to
the Agent, and shall have delivered to the Agent for the benefit of the Banks in
sufficient counterparts for distribution to the Banks:
(a) the Revolving Notes;
(b) the fully executed Subsidiary Guaranty;
(c) the fully executed Security Agreement and such financing
statements relating thereto as the Agent may request;
(d) evidence of insurance required by Section 7.3 hereof and
by the Security Documents showing the Agent as loss payee thereunder
pursuant to an endorsement acceptable to the Banks;
(e) a good standing certificate or certificate of existence
for the Borrower and each Guarantor dated as of the date no earlier
than September 9, 1998 from the office of the secretary of state of the
states of their respective organization;
(f) copies of the Certificate of Incorporation or Certificate
of Limited Partnership, and all amendments thereto, of each Guarantor,
certified by the office of the secretary of state of Delaware as of the
date no earlier than September 9, 1998.
(g) copies of the By-Laws or Limited Partnership Agreement,
and all amendments thereto, of each Guarantor certified as true,
correct and complete on the date hereof by the Secretary of each
Guarantor;
(h) copies, certified by the Secretary or Assistant Secretary
of the Borrower and each Guarantor, of resolutions regarding the
transactions contemplated by this Agreement, duly adopted by the Board
of Directors of the Borrower and each Guarantor, respectively, and
satisfactory in form and substance to all of the Banks;
(i) an incumbency signature certificate for the Borrower
and each Guarantor satisfactory in form and substance to all of the
Banks;
(j) the favorable written opinions of counsel for the
Borrower and the Guarantors in form and substance satisfactory to each
of the Banks and their respective legal counsel; and
(k) copies, certified as true, complete and correct by the
Secretary of the Borrower, of the Acquisition Documents.
(b) all conditions precedent to the PMAC Acquisitions shall have been
satisfied;
(c) the Acquisition Documents shall be in form and substance
satisfactory to the Banks and their respective legal counsel;
(d) the Agent shall have received evidence satisfactory to the Banks
that the total consideration to be paid by the Borrower and its Subsidiaries in
connection with the PMAC Acquisition shall not exceed $12,500,000; and
(e) except as previously disclosed to the Lenders in the Borrower's
financial statements for the period ending July 31, 1998, no material adverse
change in the financial condition, operations or Properties of the Borrower and
its Subsidiaries shall have occurred since September 30, 1997;
Section 6.3. Each Extension of Credit. As of the time of the making
of each Loan and the issuance of the L/C hereunder:
(a) each of the representations and warranties set forth in
Section 5 hereof shall be and remain true and correct as of said time,
except that the representations and warranties made under Section 5.2
shall be deemed to refer to the most recent financial statements
furnished to the Banks pursuant to Section 7.4 hereof;
(b) the Borrower shall be in full compliance with all of the
terms and conditions hereof, and no Potential Default or Event of
Default shall have occurred and be continuing;
(c) after giving effect to the requested extension of credit
and to each Revolving Credit Loan that has been made and each L/C
issued hereunder, the aggregate principal amount of all Revolving
Credit Loans, the amount available for drawing under all L/Cs and the
aggregate principal amount of all Reimbursement Obligations then
outstanding shall not exceed the Banks' Revolving Credit Commitments
then in effect;
and the request by the Borrower for any Loan or L/C pursuant hereto shall be and
constitute a warranty to the foregoing effects.
Section 6.4. Legal Matters. Legal matters incident to the execution
and delivery of the Loan Documents shall be satisfactory to each of the Banks
and their legal counsel.
SECTION 7. COVENANTS.
It is understood and agreed that so long as credit is in use or
available under this Agreement or any amount remains unpaid on any Revolving
Note, Reimbursement Obligation or L/C remains outstanding, except to the extent
compliance in any case or cases is waived in writing by the Required Banks:
Section 7.1. Maintenance of Property. The Borrower will, and will cause
each Subsidiary to, keep and maintain all of its Properties necessary or useful
in its business in good condition, and make all necessary renewals,
replacements, additions, betterments and improvements thereto; provided,
however, that nothing in this Section shall prevent the Borrower or any
Subsidiary from discontinuing the operating and maintenance of any of its
properties if such discontinuance is, in the judgment of the Borrower, desirable
in the conduct of its business and not disadvantageous in any material respect
to the Banks as holders of the Revolving Notes.
Section 7.2. Taxes. The Borrower will, and will cause each Subsidiary
to, duly pay and discharge all taxes, rates, assessments, fees and governmental
charges upon or against the Borrower or any Subsidiary or against its Properties
in each case before the same becomes delinquent and before penalties accrue
thereon unless and to the extent that the same is being contested in good faith
and by appropriate proceedings which prevent enforcement of the matter under
contest and adequate reserves, determined in accordance with generally accepted
accounting principles consistently applied, have been established with respect
thereto.
Section 7.3. Maintenance of Insurance. The Borrower will, and will
cause each Subsidiary to, maintain insurance with insurers recognized as
financially sound and reputable by prudent business persons in such forms and
amounts and against such risks as is usually carried by companies engaged in
similar business and owning similar properties in the same general areas in
which the Borrower or such Subsidiary operates. The Agent shall be named as loss
payee under any insurance policies which relate to the Collateral. The Borrower
shall, at the Agent's or any Bank's request, provide copies to the Agent and
each Bank of all insurance policies and other materials related thereto
maintained by the Borrower and its Subsidiaries.
Section 7.4. Financial Reports. The Borrower will, and will cause each
Subsidiary to, maintain a system of accounting in accordance with sound
accounting practice and will furnish promptly to the Banks and their duly
authorized representatives such information respecting the business and
financial condition of the Borrower and its Subsidiaries as may from time to
time be requested and, without any request, will furnish each Bank:
(a) as soon as available, and in any event within 45 days
after the close of each monthly period of the Borrower which is also
the end of a fiscal quarter of the Borrower and within 30 days after
the close of each other monthly fiscal period of the Borrower (i) a
copy of consolidated balance sheets and profit and loss statements for
the Borrower and its Subsidiaries (for such monthly period and the year
to date) for such period of such Borrower and for the corresponding
periods of the preceding fiscal year, and (ii) consolidating balance
sheets and profit and loss statements for the Borrower and each
Subsidiary for the year to date, and (iii) in respect of each month
which is also the end of a fiscal quarter of the Borrower, a copy of
the Borrower's 10-Q for such period, all in reasonable detail, prepared
by the Borrower and certified by the chief financial officer of the
Borrower;
(b) as soon as available, and in any event within 90 days
after the close of each fiscal year of the Borrower, (i) a copy of the
audit report for such year and accompanying financial statements,
including consolidated and consolidating balance sheets,
reconciliations of change in stockholders' equity, profit and loss
statements and statements of cash flows for the Borrower and its
Subsidiaries showing in comparative form the figures for the previous
fiscal year of the Borrower, all in reasonable detail, accompanied by
the unqualified opinion of Ernst & Young or other independent public
accountants of nationally recognized standing selected by the Borrower
and satisfactory to each Bank;
(c) within 30 days after the last day of each month, a
Borrowing Base Certificate in the form of Exhibit D hereto, setting
forth a computation of the Borrowing Base as of the last day of the
period covered thereby, certified as correct by the Borrower's chief
financial officer, and certifying that the signer thereof has
re-examined the terms and provisions of the Loan Documents and that to
the best of his knowledge and belief, no Potential Default or Event of
Default has occurred or, if any such Potential Default or Event of
Default has occurred, setting forth the description of such Potential
Default or Event of Default and specifying the action, if any, taken by
the Borrower to remedy the same;
(d) within 30 days after the last day of every month, an
accounts receivable aging report in the form of Exhibit I attached
hereto;
(e) within 45 days after the last day of every month which is
also the end of a fiscal quarter of the Borrower and within 30 days
after the last day of every other month, a Compliance Certificate in
the form of Exhibit G attached hereto, prepared and signed by the chief
financial officer of the Borrower;
(f) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which the
Borrower shall have filed with the Securities and Exchange Commission
or any governmental agency substituted therefor, or any national
securities exchange, including copies of the Borrower's form 10K annual
report, including financial statements audited by Ernst & Young or
other independent public accountants of nationally recognized standing
selected by the Borrower and reasonably satisfactory to the Required
Banks, its form 10Q quarterly report to the Securities and Exchange
Commission and any Form 8K filed by the Borrower with the Securities
and Exchange Commission; and
(g) promptly upon the mailing thereof to the shareholders of
the Borrower generally, copies of all financial statements, reports and
proxy statements so mailed.
Section 7.5. Inspection. The Borrower shall, and shall cause each
Subsidiary to, permit the Banks, by their representatives and agents, to inspect
any of the Properties, corporate books and financial records of the Borrower and
each Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Borrower and its Subsidiaries and to discuss the
affairs, finances and accounts of the Borrower and its Subsidiaries with, and to
be advised as to the same by, its officers at such times and intervals as the
Banks may request. So long as no Potential Default or Event of Default shall
have occurred and be continuing, the Borrower shall pay to the Banks from time
to time upon demand an amount sufficient to compensate the Banks for their fees,
charges and expenses in connection with two field audits of the Collateral per
year for the Borrower. During the existence of any Event of Default or Potential
Default, the Banks may perform more than two field audits in each calendar year,
with all fees, charges and expenses of the Banks associated therewith to be paid
by the Borrower.
Section 7.6. Consolidation and Merger. The Borrower will not, and will
not permit any Subsidiary to, consolidate with or merge into any Person, or
permit any other Person to merge into it, or acquire (in a transaction analogous
in purpose or effect to a consolidation or merger) all or substantially all of
the Property or capital stock of any other Person, unless:
(a) the Borrower or Subsidiary shall be the surviving entity
of any such merger;
(b) the Person merging into or being acquired by the Borrower
or a Subsidiary shall be in the same or a related line of business as
the Borrower or one or more of its Subsidiaries;
(c) no Potential Default or Event of Default shall exist
before or after giving effect to such merger; and
(d) the aggregate consideration paid by the Borrower and its
Subsidiaries in all such mergers and acquisitions and all investments
and acquisitions permitted by Sections 7.16(j) and (k) hereof in any 12
month period, shall not exceed $5,000,000.
;provided, however, that nothing contained in this Section 7.6 shall operate to
prevent the PMAC Acquisition.
Section 7.7. Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, enter into any transaction, including without
limitation, the purchase, sale, lease or exchange of any Property, or the
rendering of any service, with any Affiliate of the Borrower except in the
ordinary course of and pursuant to the reasonable requirements of the Borrower's
business and upon fair and reasonable terms no less favorable to the Borrower or
such Subsidiary than would be obtained in a comparable arm's-length transaction
with a Person not an Affiliate of the Borrower.
Section 7.8. Maximum Total Funded Debt Ratio. The Borrower will
not permit its Total Funded Debt Ratio to exceed 3.25 to 1 at any time.
Section 7.9. [INTENTIONALLY OMITTED].
Section 7.10. Consolidated Tangible Net Worth. The Borrower will
maintain Consolidated Tangible Net Worth in an amount not less than (a)
$70,000,000 at all times from the date hereof through September 30, 1998 and (b)
at all times during each fiscal quarter of the Borrower thereafter, an amount
equal to the sum of (i) the minimum amount of Consolidated Tangible Net Worth
the Borrower was required to maintain during the immediately preceding fiscal
quarter, plus (ii) 75% of the Borrower's Consolidated Net Income (but not less
than zero) for such fiscal quarter then ended.
Section 7.11. Maximum Leverage Ratio. The Borrower will not permit the
ratio of its Total Consolidated Funded Debt to its Total Capitalization to
exceed 0.5 to 1 at any time.
Section 7.12. Minimum Fixed Charge Coverage Ratio. The Borrower will
not permit its Fixed Charge Coverage Ratio to be less than 1.25 to 1 at any
time.
Section 7.13. Restricted Payments. The Borrower will not (a) declare or
pay any dividends on any class of stock, (b) directly or indirectly purchase,
redeem or otherwise acquire or retire any of its capital stock, or (c) make any
distribution of any kind or character with respect to its capital stock;
provided, however, in each case no Potential Default or Event of Default shall
then exist or result therefrom the Borrower may pay cash dividends on its common
stock and may purchase its capital stock in an aggregate amount for all such
dividends and purchases in each fiscal year of the Borrower not exceeding the
lesser of a (a)$6,000,000 and (b) 50% of Borrower's consolidated net income for
the most recently completed fiscal year.
Section 7.14. Liens. The Borrower will not, and will not permit any
Subsidiary to, pledge, mortgage or otherwise encumber or subject to or permit to
exist upon or be subjected to any lien, charge or security interest of any kind
(including any conditional sale or other title retention agreement and any lease
in the nature thereof), on any of its Properties of any kind or character at any
time owned by the Borrower or any Subsidiary, other than:
(a) liens, pledges or deposits for worker's compensation,
unemployment insurance, old age benefits or social security
obligations, taxes, assessments, statutory obligations or other similar
charges, good faith deposits made in connection with tenders, contracts
or leases to which the Borrower or a Subsidiary is a party or other
deposits required to be made in the ordinary course of business,
provided in each case the obligation secured is not overdue or, if
overdue, is being contested in good faith by appropriate proceedings
and adequate reserves have been provided therefor in accordance with
generally accepted accounting principles and that the obligation is not
for borrowed money, customer advances, trade payables, or obligations
to agricultural producers;
(b) the pledge of assets for the purpose of securing an
appeal or stay or discharge in the course of any legal proceedings,
provided that the aggregate amount of liabilities of the Borrower and
all Subsidiaries so secured by a pledge of property permitted under
this subsection (b) including interest and penalties thereon, if any,
shall not be in excess of $2,500,000 at any one time outstanding;
(c) liens, pledges, mortgages, security interests, or other
charges granted to the Agent to secure the Revolving Notes,
Reimbursement Obligations, the L/Cs and other amounts payable under the
Loan Documents;
(d) liens, pledges, mortgages, security interests or other
charges existing on the date hereof and set forth on Exhibit K attached
hereto;
(e) liens, pledges, mortgages, security interests and other
encumbrances on Property which secure only indebtedness incurred to
finance the acquisition of such Property (but only to the extent of the
fair market value of such Property and not including purchase money
security interests in Inventory);
(f) liens for property taxes and assessments or governmental
charges or levies which are not yet due and payable;
(g) liens incidental to the conduct of business or the
ownership of Properties and assets (including warehousemen's liens,
grower liens and attorneys' liens and statutory landlords' liens) or
other liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money, provided in
each case, the obligation secured is not overdue or, if overdue, is
being contested in good faith by appropriate actions or proceedings and
for which adequate reserves, determined in accordance with generally
accepted accounting principles, have been established;
(h) minor survey exceptions or minor encumbrances, easements
or reservations, or rights of others for rights-of-way, utilities and
other similar purposes, or zoning or other restrictions as to the use
of real properties, which are necessary for the conduct of the
activities of the Borrower and its Subsidiaries or which customarily
exist on properties of corporations engaged in similar activities and
similarly situated and which do not in any event materially impair
their use in the operation of the business of the Borrower and its
Subsidiaries; and
(i) mortgages, liens and encumbrances on the Borrower's real
estate and equipment securing only Funded Debt permitted by Section
7.15(f) hereof.
Section 7.15. Borrowings and Guaranties. The Borrower will not, and will
not permit any Subsidiary to, issue, incur, assume, create or have outstanding
any indebtedness for borrowed money (including as such all indebtedness
representing the deferred purchase price of Property and all indebtedness,
obligations and liabilities relating to bankers acceptances and letters of
credit) or customer advances, nor be or remain liable, whether as endorser,
surety, guarantor or otherwise, for or in respect of any liability or
indebtedness of any other Person, other than:
(a) indebtedness of the Borrower arising under or pursuant
to this Agreement or the other Loan Documents;
(b) the liability of the Borrower and its Subsidiaries
arising out of the endorsement for deposit or collection of commercial
paper received in the ordinary course of business;
(c) indebtedness of the Borrower and its Subsidiaries
existing on the date hereof and set forth on Exhibit L attached hereto,
other than indebtedness under the Existing Agreement;
(d) trade payables of the Borrower and its Subsidiaries
arising in the ordinary course of the Borrower's and its Subsidiaries'
business;
(e) indebtedness of the Subsidiaries to the Borrower;
(f) Funded Debt in an aggregate principal amount of up to
$6,000,000 with respect to bonds or notes or other secured indebtedness
to be guaranteed by ADFA and/or AIDC and any refundings or refinancings
thereof;
(g) indebtedness not otherwise permitted by this Section
7.15, provided that the aggregate principal amount of all such
indebtedness outstanding at any time does not exceed $7,500,000; and
(h) indebtedness of the Guarantors to the Borrower and
indebtedness of the Guarantors to the Agent and the Banks under the
Subsidiary Guaranty.
Section 7.16. Investments, Loans, Advances and Acquisitions. The
Borrower will not, and will not permit any Subsidiary to, make or retain any
investment (whether through the purchase of stock, obligations, capital
contributions or otherwise) in or make any loan or advance to, any other Person,
or acquire substantially as an entirety the Property or business of any other
Person, other than:
(a) investments in certificates of deposit having a maturity
of two years or less issued by any Bank and which are held by the Bank
issuing the same;
(b) investments in commercial paper rated P1 by Moody's
Investors Services, Inc. or A1 by Standard and Poor's Corporation
maturing within 270 days of the date of issuance thereof;
(c) loans or advances in the usual and ordinary course of
business to officers, directors and employees for expenses (including
moving expenses related to a transfer) incidental to carrying on the
business of the Borrower or any Subsidiary of the Borrower;
(d) investments shown on the financial statements referred to
in Section 5.2 in existing Subsidiaries;
(e) advances to the Borrower's foreign sales corporations
made in the ordinary course of the Borrower's business in an aggregate
principal amount outstanding at any time of up to $100,000;
(f) marketable obligations issued, guarantied, or fully
insured by the United States of America, or those for which the full
faith and credit of the United States of America is pledged for the
repayment of principal and interest thereof; provided that such
obligations have a final maturity of no more than two years from the
date acquired by the Borrower;
(g) marketable obligations issued, guarantied or fully
insured by any agency, instrumentality, or corporation of the United
States established or to be established by the Congress, for the which
the credit of such agency, instrumentality, or corporation is pledged
for the repayment of the principal and interest thereof; provided that
such obligations have a final maturity of no more than one year from
the date acquired by the Borrower; and
(h) any investments listed from time to time on the "working
list" maintained by Harris Trust and Savings Bank or Harris Investment
Management, Inc., acting as a fiduciary agent;
(i) loans, advances and guaranties not otherwise permitted by
this Section 7.16, provided that the aggregate amount of all such
loans, advances and guaranties outstanding at any time does not exceed
$5,000,000;
(j) other investments in and acquisitions (other than by
merger or consolidation) substantially as an entirety of the Property
or business of any Person or a majority of the capital stock or other
equity interests of any other Person, provided that:
(i) such Person shall be in the same or a related
line of business as the Borrower or one or more Subsidiaries;
(ii) the board of directors (or equivalent governing
body) of such Person shall have given its prior effective
written consent or approval of such acquisition;
(iii) no Potential Default or Event of Default shall
exist before or after giving effect to such acquisition;
(iv) the aggregate consideration paid in connection
with all such investments and acquisitions, all mergers
permitted by Section 7.6 hereof and all investments and
acquisitions permitted by Section 7.16(k) hereof, does not
exceed $5,000,000 in any 12 month period;
(k) investments in and acquisitions of less than all or
substantially all of the Property or business of any Person or of less
than a majority of the capital stock or other equity interests of any
other Person, provided that:
(i) such Person shall be in the same or a related
line of business as the Borrower or one or more Subsidiaries;
(ii) the Board of Directors (or equivalent governing
body) of such Person shall have given its prior effective
written consent or approval of such acquisition;
(iii) no Potential Default or Event of Default shall
exist before or after giving effect to such acquisition;
(iv) the aggregate consideration paid in connection
with all such investments and acquisitions, all mergers
permitted by Section 7.6 and all investments and acquisitions
permitted by 7.16(j) hereof, does not exceed $5,000,000 in any
12 month period;
(l) investments in and loans and advances to the Guarantors;
and
(m) investments or advances made in connection with the PMAC
Acquisition.
Section 7.17. Sale of Property. The Borrower will not and will not
permit any Subsidiary to, sell, lease, assign, transfer or otherwise dispose of
(whether in one transaction or in a series of related transactions) all or a
material part of its Property to any other Person; provided, however, that so
long as no Event of Default or Potential Default has occurred and is continuing
or would result after giving effect thereto, the Borrower and its Subsidiaries
may make:
(a) sales of its Inventory in the ordinary course of
business; and
(b) sales or leases of its surplus, obsolete or worn-out
machinery and equipment.
For purposes of this Section, "material part" shall mean 5% or more of
the book value of all of the property of the Borrower and its Subsidiaries.
Section 7.18. Notice of Suit or Adverse Change in Business or Default.
The Borrower shall, as soon as possible, and in any event within ten (10) days
after it learns of the following, give written notice to the Agent and each Bank
of (i) any material proceeding(s) being instituted or threatened to be
instituted by or against the Borrower or any Subsidiary in any federal, state,
local or foreign court or before any commission or other regulatory body
(federal, state, local or foreign), (ii) any material adverse change in the
business, Property or condition, financial or otherwise (including, without
limitation, any material loss or depreciation in the value of the Collateral) of
the Borrower, and (iii) the occurrence of any Potential Default or Event of
Default.
Section 7.19. ERISA. The Borrower will, and will cause each Subsidiary
to, promptly pay and discharge all obligations and liabilities arising under
ERISA of a character which if unpaid or unperformed is likely to result in the
imposition of a lien against any of its Property and will promptly notify the
Agent and each Bank of (i) the occurrence of any reportable event (as defined in
ERISA) which might result in the termination by the PBGC of any Plan, (ii)
receipt of any notice from PBGC of its intention to seek termination of any such
Plan or appointment of a trustee therefor, and (iii) its intention to terminate
or withdraw from any Plan. The Borrower will not, and will not permit any
Subsidiary to, terminate any such Plan or withdraw therefrom unless it shall be
in compliance with all of the terms and conditions of this Agreement after
giving effect to any liability to PBGC resulting from such termination or
withdrawal.
Section 7.20. Supplemental Performance. The Borrower will, and will
cause each Subsidiary to, at any time and from time to time upon request of any
Bank take or cause to be taken any action and execute, acknowledge, deliver or
record any further documents, security agreements or other instruments which
such Bank in its discretion deems necessary to carry out the purposes of the
Loan Documents.
Section 7.21. Use of Proceeds. The Borrower shall use the proceeds of
each Loan and other extensions of credit hereunder only (a) to pay the
Borrower's indebtedness under the Existing Agreement, (b) to finance the PMAC
Acquisition and (c) so long as such use of proceeds is not otherwise prohibited
by the terms hereof and such use would not otherwise cause the occurrence of a
Potential Default or an Event of Default hereunder, for proper corporate
purposes of the Borrower.
Section 7.22. Compliance with Laws, etc. The Borrower will, and will
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include
(without limitation) the maintenance and preservation of its corporate existence
and qualification as a foreign corporation except where the failure to be so
qualified would not have a material adverse effect on the condition, financial
or otherwise, of Borrower or any Subsidiary.
Section 7.23. Environmental Covenant. The Borrower will, and will cause
each of its Subsidiaries to,
(a) use and operate all of its facilities and Properties in
compliance with all Environmental Laws where the failure to do so could
have a material adverse effect on the condition, financial or
otherwise, of the Borrower or any of its Subsidiaries, keep all
necessary permits, approvals, certificates, licenses and other
authorizations relating to environmental matters in effect and remain
in material compliance therewith, and handle all hazardous materials in
material compliance with all applicable Environmental Laws;
(b) immediately notify the Agent and each Bank and provide
copies upon receipt of all written claims, complaints, notices or
inquiries relating to the condition of its facilities and Property or
compliance with Environmental Laws, and shall promptly, but in no event
later than 45 days (or, if such actions or proceedings are capable of
being cured but not within 45 days, then, in no event later than 105
days so long as Borrower continues to diligently proceed to cure) after
the occurrence of such actions or proceedings, cure and have dismissed,
to the reasonable satisfaction of the Banks, any actions and
proceedings relating to compliance with Environmental Laws; and
(c) provide such information and certifications which the
Agent or any Bank may reasonably request from time to time to evidence
compliance with this Section 7.23.
Section 7.24. No Restrictions on Subsidiaries. The Borrower shall not
and shall not permit any of its Subsidiaries directly or indirectly to create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary (or the
Borrower, in the case of subsections (e) and (g) of this Section) to: (a) pay
dividends or make any other distribution on any of such Subsidiary's capital
stock or other equity interests owned by the Borrower or any Subsidiary of the
Borrower; (b) pay any indebtedness owed to the Borrower or any other Subsidiary;
(c) make loans or advances to the Borrower or any other Subsidiary; (d) transfer
any of its Property or assets to the Borrower or any other Subsidiary; (e) merge
or consolidate with or into the Borrower or any other Subsidiary of the
Borrower; (f) guaranty the payment when due of the Borrower's indebtedness,
obligations and liabilities to the Agent or the Banks; or (g) grant to the Agent
for the benefit of the Banks liens and security interests on such Subsidiary's
or the Borrower's assets to secure the payment of the Borrower's and the
Guarantors' indebtedness, obligations and liabilities under the Loan Documents;
provided that (i) the foregoing shall not apply to restrictions and conditions
imposed by law or by this Agreement, (ii) the foregoing shall not apply to
restrictions and conditions existing on the date hereof identified on Exhibit M
(but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition), (iii)
the foregoing shall not apply to customary restrictions and conditions contained
in agreements relating to the sale of a Subsidiary pending such sale, provided
such restrictions and conditions apply only to the Subsidiary that is to be sold
and such sale is permitted hereunder, (iv) clause (g) of the foregoing shall not
apply to restrictions or conditions imposed by any agreement relating to secured
indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the Property securing such indebtedness and (v) clause (g) of the
foregoing shall not apply to customary provisions in leases and other contracts
restricting the assignment thereof.
Section 7.25.Year 2000 Assessment. The Borrower shall take all actions necessary
and commit adequate resources to assure that its computerbased and other systems
(and those of all Subsidiaries) are able to effectively process dates, including
dates before, on and after January 1, 2000, without experiencing any Year 2000
Problem that could cause a material adverse effect on the business or financial
affairs of the Borrower (or of the Borrower and its Subsidiaries taken on a
consolidated basis). At the request of the Bank, the Borrower will provide the
Bank with written assurances and substantiations (including, but not limited to,
the results of internal or external audit reports prepared in the ordinary
course of business) reasonably acceptable to the Bank as to the capability of
the Borrower and its Subsidiaries to conduct its and their businesses and
operations before, on and after January 1, 2000, without experiencing a Year
2000 Problem causing a material adverse effect on the business or financial
affairs of the Borrower (or of the Borrower and its Subsidiaries taken on a
consolidated basis).
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
Section 8.1. Definitions. Any one or more of the following shall
constitute an Event of Default:
(a) Default in the payment when due of any principal of or
interest on any Revolving Note, whether at the stated maturity thereof
or as required by Section 2.4 hereof or at any other time provided in
this Agreement, or of any Reimbursement Obligation, or of any fee or
other amount payable by the Company pursuant to this Agreement, which
default, in the case of default in the payment when due of any interest
on any Revolving Note, continues for five days after the due date
therefor;
(b) Default in the observance or performance of any covenant
set forth in Sections 7.3, 7.5, 7.6, 7.8, 7.10, 7.11, 7.12, 7.13, 7.14,
7.15, 7.16, 7.17, 7.20 and 7.24, inclusive, hereof, or of any provision
of any Security Document requiring the maintenance of insurance on the
Collateral subject thereto or dealing with the use or remittance of
proceeds of such Collateral;
(c) Default in the observance or performance of any other
covenant, condition, agreement or provision hereof or any of the other
Loan Documents and such default shall continue for 30 days after the
first to occur of (i) the Borrower's knowledge thereof or (ii) written
notice thereof to the Borrower by the Agent or any Bank;
(d) Default shall occur under any evidence of indebtedness in
a principal amount exceeding $2,000,000 issued or assumed or guaranteed
by the Borrower or any Subsidiary, or under any mortgage, agreement or
other similar instrument under which the same may be issued or secured
and such default shall continue for a period of time sufficient to
permit the acceleration of maturity of any indebtedness evidenced
thereby or outstanding or secured thereunder;
(e) Any representation or warranty made by the Borrower
herein or in any Loan Document or in any statement or certificate
furnished by it pursuant hereto or thereto, proves untrue in any
material respect as of the date made or deemed made pursuant to the
terms hereof;
(f) Any judgment or judgments, writ or writs, or warrant or
warrants of attachment, or any similar process or processes, other than
those fully covered by insurance in a manner acceptable to the Banks,
in an aggregate amount in excess of $2,000,000 shall be entered or
filed against the Borrower or any Subsidiary or against any of their
respective Property or assets and remain unstayed and undischarged for
a period of 60 days from the date of its entry;
(g) Any reportable event (as defined in ERISA) which
constitutes grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a
trustee to administer or liquidate any such Plan, shall have occurred
and be continuing thirty (30) days after written notice to such effect
shall have been given to the Borrower by any Bank; or any such Plan
shall be terminated; or a trustee shall be appointed by the appropriate
United States District Court to administer any such Plan; or the
Pension Benefit Guaranty Corporation shall institute proceedings to
administer or terminate any such Plan;
(h) The Borrower or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the Bankruptcy Code
of 1978, as amended, (ii) admit in writing its inability to pay, or not
pay, its debts generally as they become due or suspend payment of its
obligations, (iii) make an assignment for the benefit of creditors,
(iv) apply for, seek, consent to, or acquiesce in, the appointment of a
receiver, custodian, trustee, conservator, liquidator or similar
official for it or any substantial part of its property, (v) file a
petition seeking relief or institute any proceeding seeking to have
entered against it an order for relief under the Bankruptcy Code of
1978, as amended, to adjudicate it insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, marshalling of
assets, adjustment or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, or (vi)
fail to contest in good faith any appointment or proceeding described
in Section 8.1(i) hereof;
(i) A custodian, receiver, trustee, conservator, liquidator
or similar official shall be appointed for the Borrower or any
Subsidiary or any substantial part of its respective Property, or a
proceeding described in Section 8.1(h)(v) shall be instituted against
any Borrower or any Subsidiary and such appointment continues
undischarged or any such proceeding continues undismissed or unstayed
for a period of 60 days; or
(j) Any Guarantor shall breach, repudiate, disavow or purport
to terminate its obligations under the Subsidiary Guaranty or any part
thereof, or the Subsidiary Guaranty or any part thereof shall for any
reason not be the legal, valid and binding obligation of any Guarantor
Subsidiary.
Section 8.2. Remedies for Non-Bankruptcy Defaults. When any Event of
Default, other than an Event of Default described in subsections (h) and (i) of
Section 8.1 hereof, has occurred and is continuing, the Agent, if directed by
any of the Banks, shall give notice to the Borrower and take any or all of the
following actions: (i) terminate the remaining Revolving Credit Commitments
hereunder on the date (which may be the date thereof) stated in such notice,
(ii) declare the principal of and the accrued interest on the Revolving Notes
and unpaid Reimbursement Obligations to be forthwith due and payable and
thereupon the Revolving Notes and unpaid Reimbursement Obligations including
both principal and interest, shall be and become immediately due and payable
without further demand, presentment, protest or notice of any kind, and (iii)
proceed to foreclose against any Collateral under any of the Security Documents,
take any action or exercise any remedy under any of the Loan Documents or
exercise any other action, right, power or remedy permitted by law. Any Bank may
exercise the right of set off with regard to any deposit accounts or other
accounts maintained by the Borrower with any of the Banks.
Section 8.3. Remedies for Bankruptcy Defaults. When any Event of
Default described in subsections (h) or (i) of Section 8.1 hereof has occurred
and is continuing, then the Revolving Notes shall immediately become due and
payable without presentment, demand, protest or notice of any kind, and the
obligation of the Banks to extend further credit pursuant to any of the terms
hereof shall immediately terminate.
Section 8.4. L/Cs. Promptly following the acceleration of the maturity
of the Revolving Notes pursuant to Section 8.2 or 8.3 hereof, the Borrower shall
immediately pay to the Agent for the benefit of the Banks the full undrawn face
amount of all then outstanding L/Cs. The Agent shall hold all such funds and
proceeds thereof as additional collateral security for the obligations of the
Borrower to the Banks under the Loan Documents. The amount paid under any L/C
for which the Borrower has not reimbursed the Banks shall bear interest from the
date of such payment at the default rate of interest specified in Section
1.3(c)(i) hereof.
SECTION 9. CHANGE IN CIRCUMSTANCES REGARDING EURODOLLAR LOANS.
Section 9.1. Change of Law. Notwithstanding any other provisions of
this Agreement or any Revolving Note, if at any time after the date hereof with
respect to Eurodollar Loans, any Bank shall determine in good faith that any
change in applicable law or regulation or in the interpretation thereof makes it
unlawful for such Bank to make or continue to maintain any Eurodollar Loan or to
give effect to its obligations as contemplated hereby, such Bank shall promptly
give notice thereof to the Borrower to such effect, and such Bank's obligation
to make or relend any such affected Eurodollar Loans under this Agreement shall
terminate until it is no longer unlawful for such Bank to make or maintain such
affected Loan. The Borrower shall prepay the outstanding principal amount of any
such affected Eurodollar Loan made to it, together with all interest accrued
thereon and all other amounts due and payable to the Banks under Section 9.4 of
this Agreement, on the earlier of the last day of the Interest Period applicable
thereto and the first day on which it is illegal for such Bank to have such
Loans outstanding; provided, however, the Borrower may then elect to borrow the
principal amount of such affected Loan by means of another type of Revolving
Credit Loan available hereunder, subject to all of the terms and conditions of
this Agreement.
Section 9.2. Unavailability of Deposits or Inability to Ascertain the
Adjusted Eurodollar Rate. Notwithstanding any other provision of this Agreement
or any Revolving Note to the contrary, if prior to the commencement of any
Interest Period any Bank shall determine (i) that deposits in the amount of any
Eurodollar Loan scheduled to be outstanding are not available to it in the
relevant market or (ii) by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the Adjusted
Eurodollar Rate, then the Agent shall promptly give telephonic or telex notice
thereof to the Borrower and the Banks (such notice to be confirmed in writing),
and the obligation of the Banks to make any such Eurodollar Loan in such amount
and for such Interest Period shall terminate until deposits in such amount and
for the Interest Period selected by the Borrower shall again be readily
available in the relevant market and adequate and reasonable means exist for
ascertaining the Adjusted Eurodollar Rate. Upon the giving of such notice, the
Borrower may elect to either (i) pay or prepay, as the case may be, such
affected Loan, subject to the provisions of Section 9.4 hereof or (ii) reborrow
such affected Loan as another type of Revolving Credit Loan available hereunder,
subject to all terms and conditions of this Agreement.
Section 9.3. Taxes and Increased Costs. With respect to any outstanding
Eurodollar Loans, if any Bank shall determine in good faith that any change in
any applicable law, treaty, regulation or guideline (including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve
System) or any new law, treaty, regulation or guideline, or any interpretation
of any of the foregoing by any governmental authority charged with the
administration thereof or any central bank or other fiscal, monetary or other
authority having jurisdiction over such Bank or its lending branch or the
Eurodollar Loans contemplated by this Agreement (whether or not having the force
of law) ("Change in Law") shall:
(a) impose, modify or deem applicable any reserve, special
deposit or similar requirements against assets held by, or deposits in
or for the account of, or Loans by, or any other acquisition of funds
or disbursements by, such Bank (other than reserves included in the
determination of the Adjusted Eurodollar Rate);
(b) subject such Bank, any Eurodollar Loan, or any Revolving
Note to any tax (including, without limitation, any United States
interest equalization tax or similar tax however named applicable to
the acquisition or holding of debt obligations and any interest or
penalties with respect thereto), duty, charge, stamp tax, fee deduction
or withholding in respect of this Agreement, any Eurodollar Loan, or
any Revolving Note except such taxes as may be measured by the overall
net income of such Bank or its lending branch and imposed by the
jurisdiction, or any political subdivision or taxing authority thereof,
in which such Bank's principal executive office or its lending branch
is located or in which the Bank has nexus;
(c) change the basis of taxation of payments of principal and
interest due from the Borrower to such Bank hereunder or under any
Revolving Note (other than by a change in taxation of the overall net
income of such Bank); or
(d) impose on such Bank any penalty with respect to the
foregoing or any other condition regarding this Agreement, its
disbursement, any Eurodollar Loan, or any Revolving Note;
and such Bank shall determine in good faith that the result of any of the
foregoing is to increase the cost (whether by incurring a cost or adding to a
cost) to such Bank of making or maintaining any Eurodollar Loan hereunder or to
reduce the amount of principal or interest received by such Bank, then the
Borrower shall pay to such Bank from time to time as specified by such Bank such
additional amounts as such Bank shall determine are sufficient to compensate and
indemnify it for such increased cost or reduced amount. If any Bank makes such a
claim for compensation, it shall provide to the Borrower a certificate setting
forth such increased cost or reduced amount as a result of any event mentioned
herein specifying such Change in Law, and such certificate shall be conclusive
and binding on the Borrower as to the amount thereof except in the case of
manifest error or willful misconduct. Upon the imposition of any such cost, the
Borrower may prepay any affected Loan, subject to the provisions of Sections 2.3
and 9.4 hereof.
Section 9.4. Funding Indemnity. (a) In the event any Bank shall incur
any loss, cost, expense or premium (including, without limitation, any loss of
profit and any loss, cost, expense or premium incurred by reason of the
liquidation or re-employment of deposits or other funds acquired by such Bank to
fund or maintain any Eurodollar Loan or the relending or reinvesting of such
deposits or amounts paid such Bank) as a result of:
(i) any payment or prepayment of a Eurodollar Loan on a date
other than the last day of the then applicable Interest Period;
(ii) any failure by the Borrower to borrow any Eurodollar Loan
on the date specified in the notice given pursuant to Section 1.6
hereof; or
(iii) the occurrence of any Event of Default;
then, upon the demand of such Bank, the Borrower shall pay to such Bank such
amount as will reimburse such Bank for such loss, cost or expense.
(b) If any Bank makes a claim for compensation under this Section 9.4,
it shall provide to the Borrower a certificate setting forth the amount of such
loss, cost or expense in reasonable detail and such certificate shall be
conclusive and binding on the Borrower as to the amount thereof except in the
case of manifest error.
Section 9.5. Lending Branch. Each Bank may, at its option, elect to
make, fund or maintain its Eurodollar Loans hereunder at the branch or office
specified opposite its signature on the signature page hereof or such other of
its branches or offices as such Bank may from time to time elect, subject to the
provisions of Section 1.6(b) hereof.
Section 9.6. Discretion of Bank as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, each Bank shall
be entitled to fund and maintain its funding of all or any part of its Loans in
any manner it sees fit, it being understood however, that for the purposes of
this Agreement all determinations hereunder (including determinations for the
purposes of Section 9.4) shall be made as if the Banks had actually funded and
maintained each Eurodollar Loan during each Interest Period for such Loan
through the purchase of deposits in the relevant interbank market having a
maturity corresponding to such Interest Period and bearing an interest rate
equal to the Adjusted Eurodollar Rate for such Interest Period.
SECTION 10. THE AGENT.
Section 10.1. Appointment and Powers. Harris Trust and Savings Bank is
hereby appointed by the Banks as Agent under the Loan Documents, including but
not limited to the Security Documents, wherein the Agent shall hold a security
interest for the benefit of the Banks, solely as the Agent of the Banks, and
each of the Banks irrevocably authorizes the Agent to act as the Agent of such
Bank. The Agent agrees to act as such upon the express conditions contained in
this Agreement.
Section 10.2. Powers. The Agent shall have and may exercise such powers
hereunder as are specifically delegated to the Agent by the terms of the Loan
Documents, together with such powers as are incidental thereto. The Agent shall
have no implied duties to the Banks, nor any obligation to the Banks to take any
action under the Loan Documents except any action specifically provided by the
Loan Documents to be taken by the Agent.
Section 10.3. General Immunity. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to the Banks or any
Bank for any action taken or omitted to be taken by it or them under the Loan
Documents or in connection therewith except for its or their own gross
negligence or willful misconduct.
Section 10.4. No Responsibility for Loans, Recitals, etc. The Agent
shall not (i) be responsible to the Banks for any recitals, reports, statements,
warranties or representations contained in the Loan Documents or furnished
pursuant thereto, (ii) be responsible for the value, worth, payment or
collection of any Loans hereunder, (iii) be bound to ascertain or inquire as to
the performance or observance of any of the terms of the Loan Documents, or (iv)
be responsible to determine or verify the existence, eligibility or value of any
Collateral, or the correctness of any Borrowing Base Certificate. In addition,
neither the Agent nor its counsel shall be responsible to the Banks for the
enforceability or validity of any of the Loan Documents.
Section 10.5. Right to Indemnity. The Banks hereby indemnify the Agent
for any actions taken in accordance with this Section 10, and the Agent shall be
fully justified in failing or refusing to take any action hereunder, unless it
shall first be indemnified to its satisfaction by the Banks pro rata against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action, other than any liability which may arise out
of Agent's gross negligence or willful misconduct.
Section 10.6. Action Upon Instructions of Banks. The Agent agrees, upon
the written request of the Banks, to take any action of the type specified in
the Loan Documents as being within the Agent's rights, duties, powers or
discretion. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with written instructions signed
by the Banks, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Banks and on all holders of the
Revolving Notes. In the absence of a request by the Banks, the Agent shall have
authority, in its sole discretion, to take or not to take any action, unless the
Loan Documents specifically require the consent of all of the Banks.
Section 10.7. Employment of Agents and Counsel. The Agent may execute
any of its duties as Agent hereunder by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Banks, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it in good faith
and with reasonable care. The Agent shall be entitled to advice and opinion of
legal counsel concerning all matters pertaining to the duties of the agency
hereby created.
Section 10.8. Reliance on Documents; Counsel. Absent gross negligence or
willful misconduct, the Agent shall be entitled to rely upon any Revolving Note,
notice, consent, certificate, affidavit, letter, telegram, statement, paper or
document believed by it to be genuine and correct and to have been signed or
sent by the proper person or persons, and, in respect to legal matters, upon the
opinion of legal counsel selected by the Agent.
Section 10.9. May Treat Payee as Owner. The Agent may deem and treat the
payee of any Revolving Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment or transfer thereof shall have been
filed with the Agent. Any request, authority or consent of any person, firm or
corporation who at the time of making such request or giving such authority or
consent is the holder of any such Revolving Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Revolving Note or of
any Revolving Note issued in exchange therefor.
Section 10.10. Agent's Reimbursement. Each Bank agrees to reimburse the
Agent pro rata in accordance with its Commitment Percentage for any reasonable
out-of-pocket expenses (including fees and charges for field audits) not
reimbursed by the Borrower (a) for which the Agent is entitled to reimbursement
by the Borrower under the Loan Documents and (b) for any other reasonable
expenses incurred by the Agent on behalf of the Banks, in connection with the
preparation, execution, delivery, administration and enforcement of the Loan
Documents.
Section 10.11. Rights as a Lender. With respect to its commitment, Loans
made by it, the L/C issued by it and the Revolving Notes issued to it, the Agent
shall have the same rights and powers hereunder as any Bank and may exercise the
same as though it were not the Agent, and the term "Bank" or "Banks" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent may accept deposits from, lend money to, and generally
engage in any kind of banking or trust business with the Borrower as if it were
not the Agent.
Section 10.12. Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements referred to in Section 5.2 and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into the Loan Documents. Each Bank also acknowledges that it
will, independently and without reliance upon the Agent or any other Bank and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Documents.
Section 10.13. Resignation of Agent. Subject to the appointment of a
successor Agent, the Agent may resign as Agent for the Banks under this
Agreement and the other Loan Documents at any time by sixty days' notice in
writing to the Banks. Such resignation shall take effect upon appointment of
such successor. The Banks shall have the right to appoint a successor Agent who
shall be entitled to all of the rights of, and vested with the same powers as,
the original Agent under the Loan Documents. In the event a successor Agent
shall not have been appointed within the sixty day period following the giving
of notice by the Agent, the Agent may appoint its own successor. Resignation by
the Agent shall not affect or impair the rights of the Agent under Sections 10.5
and 10.10 hereof with respect to all matters preceding such resignation. Any
successor Agent must be a national banking association or a Bank chartered in
any State of the United States.
Section 10.14. Duration of Agency. The agency established by Section 10.1
hereof shall continue, and Sections 10.1 through and including this Section
10.14 shall remain in full force and effect, until the Revolving Notes and all
other amounts due hereunder and thereunder, including without limitation all
Reimbursement Obligations, shall have been paid in full and the Banks'
commitments to extend credit to or for the benefit of the Borrower shall have
terminated or expired.
SECTION 11. MISCELLANEOUS.
Section 11.1. Amendments and Waivers. Any term, covenant, agreement or
condition of this Agreement may be amended only by a written amendment executed
by the Borrower, the Required Banks and, if the rights or duties of the Agent
are affected thereby, the Agent, or compliance therewith only may be waived
(either generally or in a particular instance and either retroactively or
prospectively), if the Borrower shall have obtained the consent in writing of
the Required Banks and, if the rights or duties of the Agent are affected
thereby, the Agent, provided, however, that without the consent in writing of
the holders of all outstanding Revolving Notes and unpaid Reimbursement
Obligations and the issuer of the L/Cs, or all Banks if no Revolving Note or L/C
is outstanding, no such amendment or waiver shall (a) change the amount or
postpone the date of payment of any scheduled payment or required prepayment of
principal of the Revolving Notes or reduce the rate or extend the time of
payment of interest on the Revolving Notes, or reduce the amount of principal
thereof, or modify any of the provisions of the Revolving Notes with respect to
the payment or prepayment thereof, (b) give to any Revolving Note any preference
over any other Revolving Notes, (c) amend the definition of Required Banks, (d)
alter, modify or amend the provisions of this Section 11.1, (e) change the
amount or term of any of the Banks' Revolving Credit Commitments or the fees
required under Section 2.1 hereof, (f) alter, modify or amend the provisions of
Section 6 of this Agreement, (g) alter, modify or amend any Bank's right
hereunder to consent to any action, make any request or give any notice, (h)
change the advance rates under the Borrowing Base, or (i) release any Collateral
under the Security Documents, unless such release is permitted or contemplated
by the Loan Documents. Any such amendment or waiver shall apply equally to all
Banks and the holders of the Revolving Notes and Reimbursement Obligations and
shall be binding upon them, upon each future holder of any Revolving Note and
Reimbursement Obligation and upon the Borrower, whether or not such Revolving
Note shall have been marked to indicate such amendment or waiver. No such
amendment or waiver shall extend to or affect any obligation not expressly
amended or waived.
Section 11.2. Waiver of Rights. No delay or failure on the part of the
Agent or any Bank or on the part of the holder or holders of any Revolving Note
or Reimbursement Obligation in the exercise of any power or right shall operate
as a waiver thereof, nor as an acquiescence in any Potential Default or Event of
Default, nor shall any single or partial exercise of any power or right preclude
any other or further exercise thereof, or the exercise of any other power or
right, and the rights and remedies hereunder of the Agent, the Banks and of the
holder or holders of any Revolving Notes are cumulative to, and not exclusive
of, any rights or remedies which any of them would otherwise have.
Section 11.3. Several Obligations. The commitments of each of the Banks
hereunder shall be the several obligations of each Bank and the failure on the
part of any one or more of the Banks to perform hereunder shall not affect the
obligation of the other Banks hereunder, provided that nothing herein contained
shall relieve any Bank from any liability for its failure to so perform. In the
event that any one or more of the Banks shall fail to perform its commitment
hereunder, all payments thereafter received by the Agent on the principal of
Loans and Reimbursement Obligations hereunder, whether from any Collateral or
otherwise, shall be distributed by the Agent to the Banks making such additional
Loans ratably as among them in accordance with the principal amount of
additional Loans made by them until such additional Loans shall have been fully
paid and satisfied, and all payments on account of interest shall be applied as
among all the Banks ratably in accordance with the amount of interest owing to
each of the Banks as of the date of the receipt of such interest payment.
Section 11.4. Non-Business Day. (a) If any payment of principal or
interest on any Domestic Rate Loan shall fall due on a day which is not a
Business Day, interest at the rate such Loan bears for the period prior to
maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
(b) If any payment of principal or interest on any Eurodollar Loan
shall fall due on a day which is not a Business Day, the payment date thereof
shall be extended to the next date which is a Business Day and the Interest
Period for such Loan shall be accordingly extended, unless as a result thereof
any payment date would fall in the next calendar month, in which case such
payment date shall be the next preceding Business Day.
Section 11.5. Survival of Indemnities. All indemnities and all
provisions relative to reimbursement to the Banks of amounts sufficient to
protect the yield to the Banks with respect to Eurodollar Loans, including, but
not limited to, Sections 9.3 and 9.4 hereof, shall survive the termination of
this Agreement and the payment of the Revolving Notes.
Section 11.6. Documentary Taxes. Although the Borrower is of the opinion
that no documentary or similar taxes are payable in respect to this Agreement or
the Revolving Notes, Borrower agrees that it will pay such taxes, including
interest and penalties, in the event any such taxes are assessed irrespective of
when such assessment is made and whether or not any credit is then in use or
available hereunder.
Section 11.7. Representations. All representations and warranties made
herein or in certificates given pursuant hereto shall survive the execution and
delivery of this Agreement and of the Revolving Notes, and shall continue in
full force and effect with respect to the date as of which they were made and as
reaffirmed on the date of each borrowing, request for L/C and as long as any
credit is in use or available hereunder.
Section 11.8. Notices. Unless otherwise expressly provided herein, all
communications provided for herein shall be in writing or by telex and shall be
deemed to have been given or made when served personally, when an answer back is
received in the case of notice by telex or 2 days after the date when deposited
in the United States mail (registered, if to Borrower) addressed if to Borrower
to 16401 Swingley Ridge Road, Suite 700, Chesterfield, Missouri 63017,
Attention: Vice President Finance; if to the Agent or Harris at 111 West Monroe
Street, Chicago, Illinois 60690, Attention: Emerging Majors West; and if to any
of the Banks, at the address for each Bank set forth under its signature hereon;
or at such other address as shall be designated by any party hereto in a written
notice to each other party pursuant to this Section 11.8.
Section 11.9. Costs and Expenses. (a) The Borrower agrees to pay on
demand all costs and expenses of the Agent and each Bank in connection with the
negotiation, preparation, execution and delivery of this Agreement, the
Revolving Notes and the other instruments and documents to be delivered
hereunder or in connection with the transactions contemplated hereby, including
the fees and expenses of Chapman and Cutler, special counsel to the Agent and
Thompson Coburn, counsel to Mercantile Bank National Association; all costs and
expenses of the Agent and the reasonable costs and expenses of each Bank
(including in each case attorneys' fees and expenses) incurred in connection
with any consents or waivers hereunder or amendments hereto, and all costs and
expenses (including attorneys' fees and expenses), if any, incurred by the
Agent, the Banks or any other holders of a Revolving Note or any Reimbursement
Obligation in connection with the enforcement of this Agreement or the Revolving
Notes and the other instruments and documents to be delivered hereunder. In
addition, at the time of requesting any amendment hereof the Borrower shall pay
to the Agent for the account of the Banks an amendment fee of $5,000 for each
such requested amendment. The Borrower agrees to indemnify and save harmless the
Banks and the Agent from any and all liabilities, losses, costs and expenses
incurred by the Banks or the Agent in connection with any action, suit or
proceeding brought against the Agent or any Bank by any Person which arises out
of the transactions contemplated or financed hereby or by the Revolving Notes,
or out of any action or inaction by the Agent or any Bank hereunder or
thereunder, except for such thereof as is caused by the gross negligence or
willful misconduct of the party indemnified.
(b) Without limiting the generality of the foregoing, the Borrower
unconditionally agrees to forever indemnify, defend and hold harmless, the Agent
and each Bank, and covenants not to sue for any claim for contribution against,
the Agent or any Bank for any damages, costs, loss or expense, including without
limitation, response, remedial or removal costs, arising out of any of the
following: (i) any presence, release, threatened release or disposal of any
hazardous or toxic substance or petroleum by the Borrower or any Subsidiary or
otherwise occurring on or with respect to their respective Property, (ii) the
operation or violation of any Environmental Law, whether federal, state, or
local, and any regulations promulgated thereunder, by the Borrower or any
Subsidiary or otherwise occurring on or with respect to their respective
Property, (iii) any claim for personal injury or property damage in connection
with the Borrower or any Subsidiary or otherwise occurring on or with respect to
their respective Property, and (iv) the inaccuracy or breach of any
environmental representation, warranty or covenant by the Borrower made herein
or in any loan agreement, promissory note, mortgage, deed of trust, security
agreement or any other instrument or document evidencing or securing any
indebtedness, obligations or liabilities of the Borrower owing to the Agent or
any Bank or setting forth terms and conditions applicable thereto or otherwise
relating thereto, except for damages arising from the Agent's or such Bank's
willful misconduct or gross negligence. This indemnification shall survive the
payment and satisfaction of all indebtedness, obligations and liabilities of the
Borrower owing to the Agent and the Banks and the termination of this Agreement,
and shall remain in force beyond the expiration of any applicable statute of
limitations and payment or satisfaction in full of any single claim under this
indemnification. This indemnification shall be binding upon the successors and
assigns of the Borrower and shall inure to the benefit of Agent and the Banks
and their respective directors, officers, employees, agents, and collateral
trustees, and their successors and assigns.
(c) The provisions of this Section 11.9 shall survive payment
of the Revolving Notes and Reimbursement Obligations and the termination of the
Banks' Revolving Credit Commitments hereunder.
Section 11.10. Counterparts. This Agreement may be executed in any number
of counterparts and all such counterparts taken together shall be deemed to
constitute one and the same instrument. One or more of the Banks may execute a
separate counterpart of this Agreement which has also been executed by the
Borrower, and this Agreement shall become effective as and when Borrower and all
of the Banks have executed this Agreement or a counterpart thereof and lodged
the same with the Agent.
Section 11.11. Successors and Assigns; Governing Law; Entire Agreement.
This Agreement shall be binding upon the Borrower and the Banks and their
respective successors and assigns, and shall inure to the benefit of the
Borrower and each of the Banks and the benefit of their respective successors
and assigns, including any subsequent holder of any Revolving Note or
Reimbursement Obligation. This Agreement and the rights and duties of the
parties hereto shall be construed and determined in accordance with the laws of
the State of Illinois, except conflict of laws principles. This Agreement
constitutes the entire understanding of the parties with respect to the subject
matter hereof and any prior agreements, whether written or oral, with respect
thereto are superseded hereby. The Borrower may not assign any of its rights or
obligations hereunder without the written consent of all of the Banks.
Section 11.12. No Joint Venture. Nothing contained in this Agreement
shall be deemed to create a partnership or joint venture among the parties
hereto.
Section 11.13. Severability. In the event that any term or provision
hereof is determined to be unenforceable or illegal, it shall deemed severed
herefrom to the extent of the illegality and/or unenforceability and all other
provisions hereof shall remain in full force and effect.
Section 11.14. Table of Contents and Headings. The table of contents and
section headings in this Agreement are for reference only and shall not affect
the construction of any provision hereof.
Section 11.15. Sharing of Payments. Each Bank agrees with each other Bank
that if such Bank shall receive and retain any payment, whether by set-off or
application of deposit balances or otherwise ("Set-Off"), on any Loan,
Reimbursement Obligation or other amount outstanding under this Agreement in
excess of its ratable share of payments on all Loans, Reimbursement Obligations
and other amounts then outstanding to the Banks, then such Bank shall purchase
for cash at face value, but without recourse, ratably from each of the other
Banks such amount of the Loans and Reimbursement Obligations held by each such
other Bank (or interest therein) as shall be necessary to cause such Bank to
share such excess payment ratably with all the other Banks; provided, however,
that if any such purchase is made by any Bank, and if such excess payment or
part thereof is thereafter recovered from such purchasing Bank, the related
purchases from the other Banks shall be rescinded ratably and the purchase price
restored as to the portion of such excess payment so recovered, but without
interest. Each Bank's ratable share of any such Set-Off shall be determined by
the proportion that the aggregate principal amount of Loans and Reimbursement
Obligations then due and payable to such Bank bears to the total aggregate
principal amount of Loans and Reimbursement Obligations then due and payable to
all the Banks.
Section 11.16. Conflict Among Documents. In the event of any conflict
between the terms hereof and the terms of any Loan Document other than the L/C
Agreement, the terms of such other Loan Document shall govern as to the
provision in conflict and in the event of any conflict between the terms hereof
and the terms of the L/C Agreement, the terms of this Agreement shall govern as
to the provision in conflict.
Section 11.17. Confidentiality. Each Bank agrees (on behalf of itself and
its affiliates, directors, officers, employees, agents and representatives) to
use reasonable precautions to keep confidential, in accordance with its
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, any non-public information
supplied to such Bank by the Borrower or any of its Subsidiaries pursuant to
this Agreement which is identified to such Banks by any of such, as being
confidential at the time the same is delivered to such Bank; provided, however,
that nothing contained in this Section 11.17 shall prohibit or limit the
disclosure by any Bank of any such information (i) to the extent required by any
statute, rule, regulation, subpoena or judicial process, (ii) to any
governmental or regulatory agency having jurisdiction over such Bank, (iii) to
any professional advisors, including counsel and accountants, for any Bank, (iv)
to any bank examiners or auditors, (v) in connection with any litigation to
which any Bank is a party, (vi) in connection with the enforcement of any Bank's
rights and remedies under this Agreement, any of the Revolving Notes or any of
the other Loan Documents or (vii) to any assignee or participant of any Bank (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to such Bank a
confidentiality agreement in substantially the form of this Section 11.17 and
such Bank delivers to the Borrower a copy of such executed confidentiality
agreement; and provided further, that in no event shall any Bank be obligated or
required to return any materials furnished to such Bank by the Borrower or any
of its Subsidiaries, hereunder. Notwithstanding the foregoing, no Bank shall
have any liability to the Borrower or to any of its Subsidiaries or to any of
their shareholders, partners, directors, officers, employees or agents by reason
of, or in any way claimed to be related to, any disclosure by such Bank (or any
of its affiliates, directors, officers, employees, agents or representatives) of
any information with respect to the Borrower or any of its Subsidiaries except
as the same results from the gross negligence or willful misconduct of such Bank
as determined by a court of competent jurisdiction.
Section 11.18. Participants. Each Bank shall have the right at its own
cost to grant participations (to be evidenced by one or more agreements or
certificates of participation) in the Revolving Credit Loans made and/or
Reimbursement Obligations, participations in L/Cs and Revolving Credit
Commitment held by such Bank at any time and from time to time to one or more
other Persons; provided that (i) no such participation shall relieve any Bank of
any of its obligations under this Agreement, (ii) no such participant shall have
any direct rights under this Agreement except as provided in this Section 11.18,
and no Agent shall have any obligation or responsibility to such participant.
Any agreement pursuant to which such participation is granted shall provide that
the granting Bank shall retain the sole right and responsibility to enforce the
obligations of the Borrower under this Agreement and the other Loan Documents
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of the Loan Documents, except that such agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of the Loan Documents that would reduce the amount of or postpone any fixed date
for payment of any Obligation in which such participant has an interest. Any
party to which such a participation has been granted shall have the benefits of
Section 9.3 and Section 9.4 hereof, up to an amount not exceeding the amount
that would otherwise have been payable to the Bank who sold the participation
interest to such party. The Borrower and each Guarantor authorizes each Bank to
disclose to any participant or prospective participant under this Section 11.18
any financial or other information pertaining to the Borrower or any Guarantor.
Section 11.19. Assignment Agreements. (a) Each Bank may, at its own
expense, from time to time, assign to other commercial lenders part of its
rights and obligations under this Agreement (including without limitation the
indebtedness evidenced by the Revolving Notes then owned by such assigning Bank,
together with an equivalent proportion of its obligation to make loans and
advances and participate in L/Cs) pursuant to written agreements executed by
such assigning Bank, such assignee lender or lenders, the Borrower and the
Agent, which agreements shall specify in each instance the portion of the
indebtedness evidenced by the Revolving Notes which is to be assigned to each
such assignee lender and the portion of the Revolving Credit Commitment of the
assigning Bank to be assumed by it (the "Assignment Agreements"); provided,
however, that unless, in the case of clauses (i) and (iii) the Agent, the
Borrower, the assignor Bank and the assignee lender, in writing, agree to the
contrary, (i) the aggregate amount of the Exposure of the assigning Bank being
assigned to such assignee lender pursuant to each such assignment (determined as
of the effective date of the relevant Assignment Agreement) shall in no event be
less than $5,000,000 and shall be an integral multiple of $1,000,000 (other than
assignments between existing Banks which may be in the amount of $1,000,000 or
in such greater amount which is an integral multiple of $500,000); (ii) the
parties to each such assignment shall execute and deliver to the Agent an
Assignment Agreement, together with any Revolving Notes subject to such
assignment, (iii) each Bank (other than Harris) shall maintain for its own
account at least $15,000,000 of its Exposure or assign all of its Exposure; (iv)
the Agent and (except for an assignment made during the continuance of any Event
of Default) the Borrower must each consent, which consents shall not be
unreasonably withheld, to each such assignment to (provided no such consent is
required for any assignment to any affiliate of the assigning Bank), and (v) the
assignee lender must pay to the Agent a processing and recordation fee of $3,500
and any out-of-pocket attorney's fees incurred by the Agent in connection with
such Assignment Agreement. Upon the execution of each Assignment Agreement by
the assigning Bank thereunder, the assignee lender thereunder, the Borrower and
the Agent, satisfaction of all of the conditions set forth above and payment to
such assigning Bank by such assignee lender of the purchase price for the
portion of the Exposure being acquired by it, (i) such assignee lender shall
thereupon become a "Bank" for all purposes of this Agreement with an Exposure in
the amounts set forth in such Assignment Agreement and with all the rights,
powers and obligations afforded a Bank hereunder, (ii) such assigning Bank shall
have no further liability for funding the portion of any of its Revolving Credit
Commitment assumed by such other Bank, and (iii) the address for notices to such
assignee Bank shall be as specified in the Assignment Agreement executed by it.
Concurrently with the execution and delivery of such Assignment Agreement, the
Borrower shall execute and deliver new Revolving Notes to the assignee Bank in
the amount of its Revolving Credit Commitment or Revolving Credit Loan and new
Revolving Notes to the assigning Bank in the amounts of its Revolving Credit
Commitment or Revolving Credit Loan after giving effect to the reduction
occasioned by such assignment, such new Revolving Notes to constitute "Revolving
Notes" for all purposes of this Agreement.
(b) Any Bank may at any time pledge or assign all or any
portion of its rights under this Agreement and its Revolving Note to any Federal
Reserve Bank, and this Section shall not apply to any such pledge or assignment.
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set forth.
Dated as of September 18, 1998.
MAVERICK TUBE CORPORATION
By /s/ Gregg M. Eisenberg______________________________
Its President_______________________________________
Accepted and Agreed to as of the day and year last above written.
HARRIS TRUST AND SAVINGS BANK, individually and as Agent
By /s/ Donald Busse
Its Vice President
Address: 111 West Monroe Street
Chicago, Illinois 60690
Attention: Emerging Majors West
MERCANTILE BANK NATIONAL ASSOCIATION
By
Its
Address: 721 Locust Street
St. Louis, Missouri 63101
Attention: St. Louis Group
<PAGE>
EXHIBIT 10.15
PROMISSORY NOTE
$370,000.00
December 10, 1998
St. Louis County, Missouri
FOR VALUE RECEIVED, the undersigned, BARRY R. PEARL, a resident of Wildwood,
Missouri, hereby promises to pay to the order of MAVERICK TUBE CORPORATION, a
Delaware corporation (the "Company"), the principal sum of Three Hundred and
Seventy Thousand and no/100 Dollars ($370,000.00), without interest. The
principal amount of this Note shall be payable in full on June 10, 1999 unless
renewed by the Company in its discretion on or prior to such date.
The undersigned shall have the right to prepay in whole or in part the balance
of this Note at any time without prepayment penalty. In addition, the
undersigned shall prepay the balance of this Note within ten (10) days after the
undersigned shall have closed the sale of the undersigned's former residence
located in Irvine, California, and all net proceeds from such sale, after
deduction of applicable expenses, shall be applied to the balance of this Note
until paid in full.
The undersigned agrees to pay all costs of collection, including attorneys' fees
and legal expenses in the event this Note is not paid when due, whether or not
legal proceedings are commenced.
The undersigned hereby waives presentment, demand for payment, notice of
non-payment, protest, notice of protest, notice of dishonor, and all other
notices in connection with this Note.
This Note is made in the State of Missouri and shall be governed by the internal
substantive laws of the state of Missouri, without giving effect to its
conflicts-of-law or its choice-of-law principles.
/s/ Barry R. Pearl__________________
BARRY R. PEARL
PAYABLE AT: 16401 Swingley Ridge Road, Seventh Floor, Chesterfield, Missouri
63107 or such other location as the holder of this Note may designate in writing
to the maker of this Note.
<PAGE>
EXHIBIT 10.16
SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is made as of the 11th day
of November, 1998, by and between MAVERICK TUBE CORPORATION, a Delaware
corporation (the "Company"), and ___________________ ("Executive").
WHEREAS, the Board of Directors of the Company ("Board") has determined
that it is in the best interests of the Company and its stockholders that the
continuous employment of key management personnel be fostered; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of such
personnel to their management duties;
NOW, THEREFORE, for good and valuable consideration the sufficiency and
receipt of which is hereby acknowledged, the Company and the Executive hereby
agree as follows:
1. Definitions. Capitalized terms used in this Agreement have the
meanings set forth below.
(a)_____"Cause" means the commission of (i) an act or acts of
personal dishonesty performed by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of the Company
or an affiliate; (ii) an act of disloyalty or conduct clearly tending to bring
discredit upon the Company or any affiliate; or (iii) a felony involving moral
turpitude.
(b)_____"Change in Control" means:
(i) the acquisition, direct or indirect, by any
individual, entity, or group ("Person"), of beneficial ownership of
thirty-five percent (35%) or more of either all then outstanding shares
of Stock or, if different, the combined voting power of all then
outstanding voting securities entitled to vote generally in the
election of directors ("Other Voting Securities") of the Company,
provided that the following acquisitions shall not constitute a change
of control: (A) any acquisition directly from the Company; (B) any
acquisition by the Company; (C) any acquisition by any employee benefit
plan or related trust sponsored or maintained by the Company or any
affiliate; and (D) any acquisition pursuant to a transaction
immediately following which the conditions described in clauses (A),
(B), and (C) of part (iii) of this Section 4 are satisfied; or
(ii) the cessation of those individuals who, as of
the date of this Agreement, constitute the Board (the "Incumbent
Board") for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director after the
date of this Agreement whose election or nomination was approved by at
least a majority of the directors then comprising the Incumbent Board
shall be deemed a member of the Incumbent Board, other than an
individual becoming a director as a result of either an actual or
threatened election contest or solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
(iii) the approval by the stockholders of the
Company of a reorganization, merger, or consolidation (each, a
"Transaction") unless, in each case, following such Transaction (A) all
or substantially all of the beneficial owners of the Stock and the
combined voting power of all outstanding Other Voting Securities of the
Company immediately prior to such Transaction beneficially own,
directly or indirectly, more than fifty percent (50%) of, respectively,
the common stock and the combined voting power of all outstanding Other
Voting Securities of the corporation resulting from such Transaction
("Resulting Corporation") in substantially the same proportions as
their ownership immediately prior to such Transaction; (B) no Person
(other than the Company and any employee benefit plan or related trust
of the Company or a Resulting Corporation) beneficially owns
thirty-five percent (35%) or more of, respectively, the then
outstanding shares of common stock of the Resulting Corporation or the
combined voting power of all then outstanding Other Voting Securities
of such Resulting Corporation and (C) at least a majority of the
directors of the Resulting Corporation were members of the Incumbent
Board at the time of the execution of the initial agreement providing
for such Transaction; or
(iv) the approval by the stockholders of the Company
of (A) a complete liquidation or dissolution of the Company or (B) the
disposition of substantially all of the assets of the Company other
than to a corporation with respect to which all of the following is
true following such disposition: (I) more than 50% of, respectively,
the then outstanding shares of common stock of such corporation ("New
Stock") and the combined voting power of all outstanding Other Voting
Securities of such corporation ("New Other Voting Securities") is then
owned beneficially, directly or indirectly, by substantially all of the
beneficial owners of the Stock and the combined voting power of all
outstanding Other Voting Securities of the Company in substantially the
same proportions as their ownership of such securities of the Company
immediately prior thereto; (II) no Person other than the Company and
any employee benefit plan or related trust of the Company or of such
corporation then beneficially owns thirty-five percent (35%) or more of
the New Stock or the New Other Voting Securities; and (III) at least a
majority of the directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement
or action providing for such disposition.
(c)_____"Effective Date" means the date on which the
termination of the Executive's employment is to be effective under the terms of
any written notice or other documentation thereof.
(d)_____"Good Reason" for termination by the Executive of his
employment means the occurrence (without the Executive's written consent) of any
of the following unless, in the case of any of (i), (v), (vi), or (vii), such
act or failure to act is corrected within five business days following the
giving of notice of termination by the executive, in the case of (iii) below,
such act is not objected to in writing by the Executive within fourteen days
after notification thereof:
(i) the assignment to the Executive of duties
inconsistent with his status as an executive officer of the Company or
a meaningful alteration, adverse to the Executive, in the nature or
status of his responsibilities (other than reporting responsibilities)
from those in effect immediately prior to the Change in Control;
(ii) a reduction in the Executive's Regular Annual
Salary except for an across-the-board salary reduction similarly
affecting all senior executives of the Company and all senior
executives of any person or entity in control of the Company;
(iii) a requirement by the Company that the
Executive relocate his residence outside the metropolitan area in which
the Executive was based immediately prior to a Change in Control,
provided that business travel in an amount substantially consistent
with an Executive's previous travel obligations shall in no event
constitute such a requirement;
(iv) failure by the Company to pay any portion of
his compensation within fourteen days of the date it is due;
(v) failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior
to a Change in Control that is material to the Executive's
compensation, unless an equitable arrangement has been made with
respect to such plan;
(vi) failure by the Company to continue the
Executive's participation in a plan described in (v) or a substitute or
alternative plan on a basis not materially less favorable to the
Executive as existed at the time of a Change in Control;
(vii) failure by the Company to continue to provide
the Executive with benefits substantially similar to those enjoyed by
him prior to a Change in Control; or
(viii) the determination by the Executive, in his
sole and absolute discretion, that the business philosophy or policies
of the Company or its successor or the implementation thereof is not
compatible with those of the Executive.
The Executive's continued employment shall not of itself constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(e)_____"Potential Change in Control" means:
(i) the entrance by the Company into an agreement
the consummation of which would result in the occurrence of a Change in
Control;
(ii) the announced intention of the Company or any
person or entity of taking any action that, if consummated, would
constitute a Change in Control; or
(iii) the adoption by the Board of a resolution to
the effect that for purposes of this Agreement, a Potential Change in
Control has occurred.
(f)_____"Regular Annual Salary" means the base annual salary
being paid to the Executive immediately prior to the Effective Date, exclusive
of any bonuses or other incentive compensation, but inclusive of any
compensation then being deferred by the Executive under the Company's Deferred
Compensation Plan.
(g)_____"Retirement" means the termination of employment of a
Company employee if such employee immediately thereafter receives benefits under
any retirement plan of the Company in effect immediately prior to a Change in
Control or if such termination is in accordance with any retirement arrangement
established with the Executive's consent with respect to the Executive.
(h)_____"Stock" means the $.01 par value common stock of the
Company.
(i)_____"Tax Gross-up Amount" means the sum of (x) an amount
equal to all taxes imposed upon Executive under Section 4999(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), resulting from payments or other
benefits (including, without limitation, accelerated vesting or exercisability
of stock rights or options) to Executive under this Agreement being deemed
"excess parachute payments," as such term is defined in Section 280(G)(b) of the
Code (the "Subject Taxes"), and (y) an amount which will as closely as
reasonably practicable approximate any additional income or excise taxes payable
by Executive as a result of the payment of the Subject Taxes on behalf of the
Executive pursuant to this Agreement.
(j)_____"Total Disability" means the inability of the
Executive to perform the duties of his position for the greater of 180
successive days or a total of 270 days in any period of 365 days or such period
as constitutes "total disability" under any disability insurance program or plan
maintained by the Company.
2. Term. The term of this Agreement shall begin as of the date set
forth above and shall continue through November 11, 2001, provided that as of
November 11, 2001 and each November 11 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not less than
six months prior to any such date, either (i) the Company or the Executive shall
have given notice to the contrary, or (ii) a Change of Control has occurred. If
a Change in Control occurs at any time during the term or any renewal term of
this Agreement, notwithstanding notice of termination having been given, this
Agreement shall remain in effect for a period of not less than two years from
the date of such Change in Control.
3. Severance Pay. If the employment of Executive is terminated at a
time not within the thirty (30) month period following a Change in Control,
other than (i) by the Company for Cause, (ii) by reason of death, Total
Disability, or Retirement, or (iii) by the Executive without Good Reason, as of
the Effective Date, and in addition to all obligations otherwise owing to the
Executive on the Effective Date, the Company shall continue to pay to the
Executive for a period of six months following the Effective Date (I) amounts
equal to those received periodically prior to the Effective Date in payment of
his Regular Annual Salary, on the same periodic schedule as prior to the
Effective Date, and (II) benefits under group health and life insurance plans in
which the Executive participated prior to the Effective Date, to the extent
permissible under the terms of such plans to do so. Except as specifically
provided herein, no other payments or benefits will be furnished or paid, and
all contributions or deductions, if any (other than deductions made in
connection with the benefits specifically provided for herein, if any), shall
cease as of the Effective Date.
4. Confidentiality. The Executive specifically acknowledges that all
information pertaining to the Company or its business received by him during the
course of his employment that has been designated confidential by the Company or
has not been made publicly available is the exclusive property of the Company,
and the Executive agrees that during and after his employment by the Company, he
will not disclose any of such information without the prior written consent of
the Board to anyone not employed by the Company or engaged by the Company to
render services to it. The Executive further agrees that he will not use such
information for his own benefit or the benefit of any party other than the
Company. This Section 4 shall survive termination of this Agreement.
5. Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the term of this Agreement, the Executive will remain in the
employ of the Company following the occurrence of such event until the earliest
of (i) six months from the date of such Potential Change in Control, (ii) the
date of a Change in Control, (iii) the date of termination by the Executive of
his employment for Good Reason (determined by treating a Potential Change in
Control as a Change in Control in applying the definition of Good Reason) or by
reason of death or Retirement, or (iv) the termination by the Company of the
Executive's employment for any reason.
6. Compensation Upon Termination Following a Change in Control. If,
within thirty (30) months after the occurrence of a Change in Control, the
Executive's employment is terminated other than (i) by the Company for Cause,
(ii) by reason of death, Total Disability, or Retirement, or (iii) by the
Executive without Good Reason, then, in addition to all obligations otherwise
owing to the Executive on the Effective Date, the Company shall pay or provide
to the Executive within sixty (60) days of the Effective Date the following: (I)
a lump sum amount equal to the product of 2.5 and the sum of (a) the Executive's
then Regular Annual Salary, and (b) the annual amount that would be paid to
Executive pursuant to the Company's Performance Bonus Plan assuming that all
performance levels had been achieved at maximum levels; (II) for a period of
thirty (30) months following the Effective Date, (A) the continuation of health
insurance, life insurance, and disability insurance benefits substantially the
same as any such benefits provided to Executive immediately prior to the
Effective Date by the Company under group insurance plans or otherwise, to the
extent permissible under the terms of such plans to do so and if such coverage
is not permitted, amounts necessary for premium payments for such coverage; (B)
the continuation of Executive's car allowance, and club membership fees, if any
(or an amount sufficient to cover such continued car allowance and club
membership fees); and (III) the Tax Gross-Up Amount, if applicable. Except as
specifically provided herein, no other payments or benefits will be furnished or
paid, and all contributions or deductions, if any (other than deductions made in
connection with the benefits specifically provided for herein, if any), shall
cease as of the Effective Date.
The Executive's employment shall be deemed to have been
terminated following a Change in Control by the Company without Cause or by the
Executive with Good Reason (i) if terminated prior to a Change in Control
without Cause at the direction of a person or entity who or that has entered
into an agreement with the Company the consummation of which will constitute a
Change in Control or (ii) if the Executive terminates his employment with Good
Reason prior to a Change in Control (determined by treating a Potential Change
in Control as a Change in Control in applying the definition of Good Reason) if
the circumstance or event that constitutes Good Reason occurs at the direction
of such person or entity.
7. Not an Employment Agreement; Superceding Effect. This Agreement
shall not be construed as creating an express or implied contract of employment.
This Agreement shall supercede any severance agreement previously entered into
or obligation otherwise agreed to between the parties hereto with respect to
severance payments.
8. Successors; Binding Agreement.
(a) In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business or assets (or a combination thereof) of the
Company expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive the payments
described in Section 5 that would be payable upon termination by the Executive
for Good Reason immediately after a Change in Control.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives and other successors in
interest, provided that this Agreement may not be assigned by Executive. If
Executive dies while any amount (other than an amount that by its terms is to
terminate upon his death) would still be payable to him hereunder if he was
still living, all such amounts shall be paid in accordance with this Agreement
to the executors, personal representatives, or administrators of the Executive's
estate.
9. Fees. The Company shall pay to Executive all legal fees and expenses
incurred by Executive as a result of Executive's termination (including al such
fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to or in connection with any tax audit or proceeding
to the extent attributable to the application of Section 4999 of the Code, to
any payment or benefit provided hereunder) unless such termination is (i) by the
Company for Cause; (ii) by reason of death, total disability or retirement, or
(iii) by the Executive without Good Reason.
10. Miscellaneous. No provision of this Agreement may be modified,
waived, or discharged unless so agreed by the parties in writing. No waiver
shall be deemed a waiver of the same or any other provision at the same or any
other time. This Agreement sets forth the entire agreement of the parties
regarding its subject matter. This Agreement shall be governed by the laws of
the State of Missouri other than the conflicts of law provisions thereof. All
payments provided for hereunder shall be made net of any applicable withholding
requirements of federal, state, or local law. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date set forth above.
MAVERICK TUBE CORPORATION
By:_______________________________
Title:____________________________
Executive:
----------------------------------
<PAGE>
EXHIBIT 10.17
MAVERICK TUBE CORPORATION
FIRST AMENDMENT TO SECURED CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Mercantile Bank National Association
St. Louis, Missouri
Ladies and Gentlemen:
Reference is hereby made to that certain Secured Credit Agreement dated as of
September 18, 1998 (the "Credit Agreement") among the undersigned, Maverick Tube
Corporation, a Delaware corporation (the "Borrower"), you (the "Banks") and
Harris Trust and Savings Bank, as agent for the Banks (the "Agent"). All defined
terms used herein shall have the same meaning as in the Credit Agreement unless
otherwise defined herein.
The Borrower, the Agent and the Banks wish to amend the definition of Fixed
Charge Coverage Ratio and to modify certain other terms and conditions of the
Credit Agreement, all on the terms and conditions set forth in this Amendment.
Section 1. Amendments to Credit Agreement.
Upon satisfaction of all of the conditions precedent set forth in Section 2
hereof, the Credit Agreement shall be amended as follows:
1.1. Section 4.1 of the Credit Agreement shall be amended by adding
thereto the following definitions:
"Consolidated Net Income Available for Fixed Charges" shall mean, for
any period, earnings before interest and taxes plus depreciation and
amortization plus operating lease expenses less capital expenditures
(excluding, in any event, (i) any expenditures arising from the PMAC
Acquisition to the extent and only to the extent such expenditures were
contemplated by the terms of the Acquisition Documents and (ii) capital
expenditures incurred in connection with the PMAC Acquisition during
the Borrower's Fiscal Year 1999 in an amount not in excess of
$5,600,000) plus, for the Borrower's fiscal quarters ending September
30, 1998, December 31, 1998, March 31, 1999 and June 30, 1999, software
and development related charges incurred during the fourth fiscal
quarter of the Borrower's Fiscal Year 1998 in an amount not in excess
of $1,600,000, all determined on a consolidated basis for the Borrower
and its Subsidiaries in accordance with generally accepted accounting
principles, consistently applied.
"Fixed Charges" shall mean, for any period, interest expense plus
operating lease expenses and all principal payments under Capitalized
Leases plus current scheduled maturities of all indebtedness for
borrowed money other than the Revolving Credit Loans, all determined on
a consolidated basis for the Borrower and its Subsidiaries in
accordance with generally accepted accounting principles, consistently
applied.
1.2. The definition of "Fixed Charge Coverage Ratio" appearing in
Section 4.1 of the Credit Agreement shall be amended in its entirety and so
amended shall be restated to read as follows:
"Fixed Charge Coverage Ratio" shall mean, at any time the same is to be
determined, the ratio of (a) Consolidated Net Income Available for
Fixed Charges, for the four most recently completed fiscal quarters of
the Borrower, to (b) Fixed Charges, for the same four fiscal quarters
of the Borrower.
1.3. Section 7.12 of the Credit Agreement shall be amended in its
entirety and as amended shall be restated to read as follows:
Minimum Fixed Charge Coverage Ratio. The Borrower, as of the close of
any fiscal quarter of the Borrower, will not permit its Fixed Charge
Coverage ratio to be less than (i) 1.0 to 1 for each of the Borrower's
fiscal quarters ended September 30, 1998, December 31, 1998, March 31,
1999 and June 30, 1999, and (ii) 1.25 to 1 for each fiscal quarter of
the Borrower thereafter.
1.4. Schedule I to the Compliance Certificate of the Credit Agreement
shall be amended in its entirety and as so amended shall be restated to read as
set forth on Exhibit A hereto.
Section 2. Conditions Precedent.
The effectiveness of this Amendment is subject to the satisfaction of all of the
following conditions precedent:
2.1. The Borrower, the Agent and the Banks shall have executed this
Amendment (such execution may be in several counterparts and the several parties
hereto may execute on separate counterparts).
2.2. A Guarantor's Consent for the benefit of the Banks shall have been
executed and delivered to the Agent, a form of which is attached hereto.
2.3. The Borrower shall be in full compliance with all of the terms and
conditions of the Loan Documents and no Event of Default or Potential Default
shall have occurred and be continuing thereunder or shall result after giving
effect to this Amendment.
2.4. Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to each of the Banks and their legal counsel.
2.5. The Agent shall have received payment by the Borrower of an
amendment fee in the amount of $5,000 for the ratable benefit of the Banks.
Section 3. Representations And Warranties.
The Borrower, by its execution of this Amendment, hereby certifies and warrants
the following:
(a) each of the representations and warranties set forth in Section 5
of the Credit Agreement is true and correct as of the date hereof as if made on
the date hereof, except that the representations and warranties made under
Section 5.2 shall be deemed to refer to the most recent annual report furnished
to the Banks by the Borrower; and
(b) the Borrower is in full compliance with all of the terms and
conditions of the Credit Agreement and no Event of Default or Potential Default
has occurred and is continuing thereunder.
Section 4. Miscellaneous.
4.1. The Borrower has heretofore executed and delivered to the Agent
the Security Agreement and the Borrower hereby agrees that notwithstanding the
execution and delivery hereof, such Security Agreement shall be and remain in
full force and effect and that any rights and remedies of the Agent thereunder,
obligations of the Borrower thereunder and any liens or security interests
created or provided for thereunder shall be and remain in full force and effect,
shall not be affected, impaired or discharged thereby and shall secure all of
its indebtedness, obligations and liabilities to the Agent and the Banks under
the Credit Agreement as amended hereby. Nothing herein contained shall in any
manner affect or impair the priority of the liens and security interests created
and provided for by the Security Agreement as to the indebtedness which would be
secured thereby prior to giving effect hereto.
4.2. Reference to this specific Amendment need not be made in any note,
document, letter, certificate, any security agreement, or any communication
issued or made pursuant to or with respect to the Credit Agreement, any
reference to the Credit Agreement being sufficient to refer to the Credit
Agreement as amended hereby.
4.3. This Amendment may be executed in any number of counterparts, and
by the different parties on different counterparts, all of which taken together
shall constitute one and the same agreement. Any of the parties hereby may
execute this agreement by signing any such counterpart and each of such
counterparts shall for all purposes be deemed to be an original. This agreement
shall be governed by the internal laws of the State of Illinois.
4.4. The Borrower agrees to pay all reasonable costs and expenses,
including without limitation attorneys fees, incurred by the Agent and each of
the Banks in connection with the preparation, negotiation, execution and
delivery of this Amendment and the other documents contemplated hereby. Upon
acceptance hereof by the Agent and the Banks in the manner hereinafter set
forth, this Amendment shall be a contract between us for the purposes
hereinabove set forth.
Dated as of December 10, 1998.
MAVERICK TUBE CORPORATION
By /s/ Gregg Eisenberg
Its President
Accepted and agreed to as of the day and year last above written.
HARRIS TRUST AND SAVINGS BANK,
individually and as Agent
By /s/ Donald Busse
Its Vice President
MERCANTILE BANK NATIONAL ASSOCIATION
By /s/ David Higbee
Its Vice President
<PAGE>
EXHIBIT 13
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Principal Market
The Company's common stock, par value $.01 per share, is traded on the
NASDAQ/National Market System under the symbol "MAVK."
Stock Price and Dividend Information
The high and low closing sales prices on the NASDAQ/National Market System of
the Company's Common Stock during the first, second, third and fourth quarters
of fiscal 1998 and fiscal 1997, respectively, were as follows:
Fiscal 1998 Fiscal 1997
Quarter High Low High Low
First 50 3/4 20 5/16 8 1/4 5 5/8
Second 25 3/4 14 5/8 9 1/2 6 1/8
Third 18 3/8 10 9/16 19 3/8 8 3/4
Fourth 11 1/4 5 3/8 41 3/4 17 1/8
The Company has not declared or paid cash dividends on its common stock since
its incorporation. The Company currently intends to retain earnings to finance
the growth and development of its businesses and does not anticipate paying cash
dividends in the near future. Any payment of cash dividends in the future will
depend upon the financial condition, capital requirements and earnings of the
Company as well as other factors the Board of Directors may deem relevant. The
Company's Revolving Credit Facility with commercial lenders restricts the amount
of dividends the Company can pay to its stockholders.
Approximate Number of Holders of Common Stock
There were 299 holders of record of the Company's common stock as of September
30, 1998.
Maverick Tube Corporation and Subsidiaries
Historical Financial Information
The following selected financial data are derived from the Company's
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent auditors. The selected data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
Year Ended September 30
1998 1997 1996(2) 1995(1) 1994
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 265,389 $ 291,060 $ 204,182 $ 167,896 $ 124,843
Cost of goods sold 232,038 252,803 182,042 159,865 117,833
Gross profit 33,351 38,257 22,140 8,031 7,010
Selling, general and administrative 13,210 13,966 10,198 7,728 4,896
Write-down of software costs 1,605 -- -- -- --
Total selling, general and
administrative 14,815 13,966 10,198 7,728 4,896
Structural start-up costs -- -- -- 245 392
Income from operations 18,536 24,291 11,942 58 1,722
Interest expense 1,731 2,067 2,522 3,164 1,125
Other income -- -- -- 772 --
Income (loss) before income taxes 16,805 22,224 9,420 (2,334) 597
Provision for income taxes 5,420 7,339 1,882 -- 168
Net income (loss) $11,385 $14,885 $7,538 $(2,334) $429
Diluted earnings (loss) per share $0.73 $0.97 $0.50 $(0.16) $0.04
Weighted average common
shares outstanding 15,564,325 15,281,653 15,000,812 14,920,274 12,844,822
Other Data:
Depreciation and amortization 6,172 5,697 5,201 4,691 3,395
Capital expenditures 22,181 9,537 5,497 5,592 20,759
Balance Sheet Data:
(End of period)
Working capital 60,362 44,992 32,652 30,272 23,111
Total assets 156,885 162,064 125,556 106,494 99,434
Current maturities of long-term debt 653 604 1,843 2,795 1,880
Long-term debt (less current maturities) 8,226 8,879 11,901 18,045 19,640
Revolving credit facility 27,400 10,000 13,250 15,000 4,000
Stockholders' equity 90,063 77,868 57,247 49,503 51,837
<FN>
(1) Includes the first period of results of operation of the Company's
structural tube facility which began operations in October 1994.
(2) Includes the one-time effect of the change in accounting practice which
resulted in a reduction in net sales, gross profit, net income and basic
and diluted net income per common share of $8,700,000, $1,000,000,
$839,000 and $0.06, respectively.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements contained in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding matters that are not
historical facts (including statements as to the beliefs or expectations of the
Company) are forward-looking statements. Because such forward-looking statements
include risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. For example,
uncertainty continues to exist as to future levels and volatility of oil and gas
price expectations and their effect on drilling levels and demand for the
Company's energy related products, the future impact of industry-wide draw-downs
of inventories and future import levels. Uncertainty also exists as to the trend
and direction of both product pricing and purchased steel costs. Reference is
made to the "Risk Factors" discussed in Exhibit 99.1 of Maverick's Form 10-K for
its fiscal year ended September 30, 1998.
OVERVIEW
The Company's products consist of Electric Resistance Welded (ERW) Oil Country
Tubular Goods (OCTG) and line pipe which are sold primarily to distributors who
supply end users in the energy industry and structural tubing and standard pipe
which are sold primarily to service centers who supply end users in
construction, transportation, agriculture and other industrial uses. Demand for
the Company's energy related products depends primarily upon the number of oil
and natural gas wells being drilled in the United States and Canada, the depth
and drilling conditions of these wells, and the number of well completions,
which are in turn primarily dependent on oil and natural gas prices. Domestic
consumption of OCTG is supplied by domestic and foreign pipe producers and
draw-downs of existing inventories held by distributors and end users. Demand
for the Company's industrial related products depends on the general level of
economic activity in the United States and draw-downs of existing inventories.
According to published reports, domestic drilling, the primary factor in
determining demand for the Company's OCTG products, remained relatively constant
from fiscal 1997 to fiscal 1998. Gas related drilling increased 11.1% and oil
related drilling declined 16.6%. Average energy prices decreased during fiscal
1998, with gas decreasing 8.5% and oil decreasing 25.7%. The decreases in energy
prices had a negative effect on drilling levels in the third and fourth quarter
of fiscal 1998 with the rig count falling by 7.4% and 20.0%, respectively. At
the end of fiscal 1998, drilling was at 754 rigs, down 24.4% from its fiscal
1997 year-end level of 998 rigs. Management estimates that consumption of OCTG
per rig rose by an estimated 3.0% during fiscal 1998 due to increased rig
efficiency and higher completion rates.
Competition from imports increased during fiscal 1998 from a 17.2% market share
in 1997 to 18.7%. Management believes that this increase is primarily
attributable to higher OCTG prices in the United States during the first six
months of the year. Industry inventory build positively impacted demand, as
increases in inventories resulted in additional demand of 3.1% of total domestic
OCTG consumption. However, this is significantly below the 14.2% demand from
inventory build in 1997, reflecting the downturn in drilling in 1998 as compared
to increased drilling activity during 1997. Management believes that the ratio
of inventories to current consumption rates is out of balance at fiscal year-end
1998, as months of supply of inventory have increased by approximately 30% to
7.3 months.
As a result of relatively constant drilling activity, increased imports, and a
relatively small increase in inventories, management estimates that total
domestic shipments of OCTG declined during fiscal 1998 by 11.5% as compared to
fiscal 1997. Maverick's shipments of OCTG were down 21.5% primarily due to
decreased exports to Canada, where the downturn in drilling was more significant
than in the United States. Management estimates that Maverick's domestic OCTG
market share decreased to 13% during fiscal 1998 from 14% during fiscal 1997.
Published information suggests that demand for line pipe was also up during
fiscal 1998 by an estimated 27.1%. However, domestic shipments only rose by
21.1% as import competition rose from 37.4% to 40.3%.
Management estimates that the demand for structural tube products (commonly
referred to as hollow structural sections or HSS) of the type produced by the
Company increased by 13.1% in fiscal 1998 and total domestic producer shipments
rose by 13.0% as import market share remained relatively constant. According to
published reports, the standard pipe market demand increased 4.1%, while total
domestic producer shipments declined by 0.6% as the import market share
increased from 24.9% to 28.3%.
Pricing of the Company's products was mixed during the year. Pricing of OCTG
rose by approximately 4.9% due to increased product pricing early in the year
and a favorable product mix. However, OCTG pricing during the fourth fiscal
quarter was down 3.4%. Line and standard product pricing decreased by 4.5% and
2.7%, respectively, primarily due to high levels of imports in fiscal 1998.
Structural product pricing remained relatively constant.
Steel costs included in cost of goods sold decreased during fiscal 1998 by $18
per ton, or 5.3%. Replacement costs for steel fluctuated during the year as the
cost increased by $10 per ton in February and remained at that level until July.
However, the Company's major supplier of steel has announced three price
decreases since mid-September, reducing the Company's current replacement cost
of steel by $50 per ton. Based on year-end inventory levels and the recently
announced price decreases, the Company estimates that such price reductions will
be fully reflected in the Company's cost of goods sold in the third quarter of
fiscal 1999. The supply of steel in the United States has increased dramatically
in 1998, primarily due to previous capacity additions and increased import
levels due largely to the strengthening of the dollar in comparison to other
world currencies. The Company anticipates that these market conditions should
help keep steel costs relatively low during 1999. However, steel trade cases
filed with the International Trade Commission in September, 1998 could
negatively impact the Company's future replacement cost of steel.
The OCTG market conditions described above impacted the Company and its
competitors significantly during 1998, as sales were substantially reduced later
in the year due to the rapid fall in oil prices and the resulting significant
decrease in drilling activity. Consequently, industry-wide inventory levels were
excessive. Inventory reductions in the fourth fiscal quarter sharply reduced
domestic shipments. As the Company's recent experience indicates, oil and gas
prices are volatile and can have a substantial effect upon drilling levels and
resulting demand for the Company's energy related products. Uncertainty also
exists as to the future demand levels and pricing for HSS and other industrial
related products. Although the Company believes that drilling activity will
ultimately recover from the currently depressed level, no assurance can be given
regarding the timing and extent of such recovery.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain information
relating to the operations of the Company expressed as a percentage of net
sales:
Year Ended September 30,
1998 1997 1996
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 87.4 86.9 89.2
------------------------------------------
Gross profit 12.6 13.1 10.8
Selling, general and
administrative 5.0 4.8 5.0
Loss on write-down of software
development costs .6 -- --
----------------------------------------
Total selling, general and
administrative 5.6 4.8 5.0
--------------------------------------
Income from operations 7.0 8.3 5.8
Interest expense, net .7 .7 1.2
------------------------------------------
Income before
income taxes 6.3 7.6 4.6
Provision for income taxes 2.0 2.5 .9
------------------------------------------
Net income 4.3 5.1 3.7
==========================================
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September 30,
1997
Overall Company
In fiscal 1998, net sales decreased $25.7 million, or 8.8%, from the preceding
fiscal year. These results were attributable primarily to a decrease of 8.9% in
total product shipments, from 469,958 tons in fiscal 1997 to 428,216 tons in
fiscal 1998. Overall average selling prices remained relatively constant during
fiscal 1998.
Cost of goods sold decreased $20.8 million, or 8.2%, in fiscal 1998 as compared
to fiscal 1997. The overall decrease was due primarily to decreased product
shipments. However, the overall unit cost per ton of products sold increased
0.7% (from an average of $538 to $542 per ton) in fiscal 1998. This increase was
due primarily to an increase in conversion costs from a higher costing product
mix and less favorable fixed cost absorption due to lower production. The
increase in conversion costs was mostly offset by a decrease in steel costs by
$18 per ton, or 5.3% in fiscal 1998. See "Overview."
Gross profit decreased $4.9 million, or 12.8%, in fiscal 1998 as compared to
fiscal 1997. Gross profit as a percentage of net sales was 12.6% for fiscal
1998, as compared to 13.1% for fiscal 1997.
Selling, general and administrative expenses increased $849,000, or 6.1%, from
fiscal 1997 to fiscal 1998. These expenses increased principally as a result of
the write-down of software development costs of $1.6 million in fiscal 1998.
These costs were also increased by higher sales commissions on industrial
products sales and partially offset by decreased employee incentive compensation
and decreased selling expenses related to lower energy sales volumes. Selling,
general and administrative expenses as a percentage of net sales increased from
4.8% in fiscal 1997 to 5.6% in fiscal 1998.
Interest expense decreased $336,000, or 16.3%, in fiscal 1998 as compared to
fiscal 1997 as a result of decreased average borrowings, decreased interest
rates and additional amounts of interest expense capitalized on additions to
property, plant and equipment. The decreased borrowings were principally the
result of principal repayments from funds generated from operations.
The provision for income taxes decreased $1.9 million in fiscal 1998 as compared
to fiscal 1997 as a result of the reduced level of income before income taxes
recorded in fiscal 1998, as compared to fiscal 1997. As permitted under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," realization of the Company's deferred tax asset
related to net operating loss carryforwards depends on generating sufficient
taxable income prior to their expiration. Management believes that based on
historical results, it is more likely than not that the Company will generate
sufficient future taxable income to realize the deferred tax assets related to
net operating losses prior to their expiration.
At September 30, 1998, the Company had available net operating loss
carryforwards of $2.3 million which it may use to offset future taxable income,
of which $1.2 million is available in 1999. In addition, at September 30, 1998,
the Company had alternative minimum tax credit carryforwards of $598,000
available for income tax purposes. See Note 8 of the Notes to the Consolidated
Financial Statements as of September 30, 1998.
As a result of the foregoing factors, net income decreased $3.5 million from net
income of $14.9 million, or $0.97 diluted earnings per share, in fiscal 1997 to
net income of $11.4 million, or $0.73 diluted earnings per share, in fiscal
1998.
Energy Products Segment
Energy product sales decreased $39.0 million, or 17.4%, from the preceding
fiscal year. OCTG product shipments decreased 66,282 tons, or 21.5%, from
308,428 to 242,146. The Company's domestic shipments of OCTG fell 14.7% due to
excessive levels of industry inventory and a declining rig count throughout the
fiscal year. The Company's export sales, primarily to Canada, decreased by
37.1%, from 41,092 tons in fiscal 1997 to 25,866 tons in fiscal 1998, as
Canadian drilling activity fell from 410 rigs at the end of fiscal 1997 to 187
at the end of fiscal 1998. Line pipe shipments decreased by 20.4% principally
due to increased import penetration. The average selling price for energy
products was $702, an increase of $34 per ton. The increase was principally due
to higher product pricing early in the year and improved mix of higher value
products.
Energy products cost of goods sold decreased $30.6 million, or 15.9%, from the
preceding fiscal year. Gross profit for energy products decreased approximately
$8.4 million or 27.0%. Energy products gross profit percentage was 12.3%, as
compared to 13.9% in fiscal 1997.
Industrial Products Segment
Industrial products sales increased $13.4 million, or 19.9%, from the preceding
fiscal year. Industrial products shipments increased 22.2%, from 135,029 tons in
fiscal 1997 to 164,973 tons in fiscal 1998. The average selling price of
industrial products was $488, a decrease of $10 per ton. This decrease was
principally due to the decline in standard pipe pricing caused by an increase in
the level of imported product.
Industrial products costs of goods sold increased $9.8 million, or 16.3%, from
the preceding fiscal year. Industrial products gross profit increased $3.5
million, or 49.9%. The improved gross profit was primarily attributable to
declining steel costs and improved operating efficiencies during fiscal 1998,
partially offset by slightly lower selling prices. Industrial products gross
profit percentage was 13.1%, as compared to 10.5% in fiscal 1997.
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended September 30,
1996
Overall Company
In fiscal 1997, net sales increased $86.9 million, or 42.5%, from the preceding
fiscal year. These results were attributable primarily to an increase of 36.1%
in total product shipments, from 345,232 tons in fiscal 1996 to 469,958 tons in
fiscal 1997. Total sales and total shipments were positively impacted by
Maverick's strengthened position in the industrial products market. Overall
average selling prices increased during fiscal 1997 by 4.7% (from an average of
$591 to $619 per ton). This increase augmented the increase in volume of total
sales.
Cost of goods sold increased $70.8 million, or 38.9%, in fiscal 1997 as compared
to fiscal 1996. The overall increase was due primarily to increased product
shipments. However, the overall unit cost per ton of products sold increased
2.0% (from an average of $527 to $538 per ton) in fiscal 1997. This increase was
due primarily to an increase in delivered steel costs in the first half of
fiscal 1997, resulting in an increase in the average prime steel cost of goods
sold of $17 per ton. See "Overview." The increase in steel costs was offset
somewhat by the operating efficiencies achieved by Maverick and improved fixed
cost absorption.
Gross profit increased $16.1 million, or 72.8%, in fiscal 1997 as compared to
fiscal 1996. Gross profit as a percentage of net sales was 13.1% for fiscal
1997, as compared to 10.8% for fiscal 1996.
Selling, general and administrative expenses increased $3.7 million, or 36.9%,
from fiscal 1996 to fiscal 1997. These expenses increased principally as a
result of increased employee incentive compensation, salary increases, increased
selling expenses related to higher sales volumes and the increase in sales
commissions on industrial products. Selling, general and administrative expenses
as a percentage of net sales decreased from 5.0% in fiscal 1996 to 4.8% in
fiscal 1997.
Interest expense decreased $455,000, or 18.0%, in fiscal 1997 as compared to
fiscal 1996 as a result of decreased borrowings. The decreased borrowings were
principally the result of principal repayments from internally generated funds.
The provision for income taxes increased $5.5 million in fiscal 1997 as compared
to fiscal 1996 as a result of the Company generating $12.8 million in additional
income before income taxes in fiscal 1997, as compared to fiscal 1996.
As a result of the foregoing factors, net income increased $7.4 million from net
income of $7.5 million, or $0.51 per share, in fiscal 1996 to net income of
$14.9 million, or $0.97 per share, in fiscal 1997.
Energy Products Segment
Energy product sales increased $76.3 million, or 51.7%, from the preceding
fiscal year. OCTG product shipments increased 108,036 tons, or 53.9%. During
fiscal 1997, an increase in consumption of OCTG resulted from the average rig
count rising by 146 or 19.2% and a build in existing inventories held by
distributors. Also export sales, primarily to Canada, increased by 95.8%, from
20,985 tons in fiscal 1996 to 41,092 tons in fiscal 1997, as Canadian drilling
rose by 18.8%. Line pipe shipments decreased by 12.0% principally due to lack of
available capacity at Maverick. The average selling price for energy products
was $668, an increase of $28 per ton. The increase was principally due to higher
product pricing and improved sales of higher value products.
Energy products cost of goods sold increased $62.3 million, or 47.7%, from the
preceding fiscal year. Gross profit for energy products increased approximately
$14.1 million or 82.3%. Energy products gross profit percentage was 13.9%, as
compared to 11.6% in fiscal 1996.
Industrial Products Segment
Industrial products sales increased $10.6 million, or 18.6%, from the preceding
fiscal year. Industrial products shipments increased 17.7%, from 114,728 tons in
fiscal 1996 to 135,029 tons in fiscal 1997. The average selling price of
industrial products was $498, an increase of $4 per ton. This increase was
principally due to improved product pricing.
Industrial products costs of goods sold increased $8.5 million or 16.5%, from
the preceding fiscal year. Industrial products gross profit increased $2.0
million or 40.3%. The improved gross profit percentages were primarily
attributable to improved product pricing and improved operating efficiencies
during fiscal 1997. Industrial products gross profit percentage was 10.5%, as
compared to 8.9% in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1998 was $60.4 million and the ratio of current
assets to current liabilities was 3.3 to 1, as compared to September 30, 1997
when working capital was $45.0 million and the current ratio was 1.7 to 1. The
increase in working capital was principally due to a $19.2 million decrease in
accounts payable, a $3.5 million decrease in accrued expenses and a $12.7
million decrease in deferred revenue, partially offset by a $12.2 million
decrease in accounts receivable and a $7.8 million decrease in inventories. The
above changes in accounts receivable, inventories, accounts payable, accrued
expenses and deferred revenue are due to the decreased volume of energy
business, particularly in the last half of the fiscal year. Cash provided by
operating activities for fiscal 1998 was $3.1 million. The primary source of
cash was net income, exclusive of the impact of non cash items (primarily
depreciation, amortization and deferred income tax expense) of $18.7 million.
During fiscal 1997 and 1996, net cash provided by operations was $16.7 million
and $14.2 million, respectively. In these years, the net cash provided by
operations was primarily used to fund capital expenditures and the pay-down of
net long-term borrowings.
Cash used in investing activities in fiscal 1998, 1997 and 1996 was $22.2
million, $9.4 million and $5.5 million, respectively. This use was primarily for
purchases of property, plant, and equipment of $22.2 million (of which $11.5
million was spent on the purchase of the production facility for cold drawn
mechanical tubing), $9.5 million and $5.5 million during fiscal 1998, 1997 and
1996, respectively.
During fiscal 1998, 1997 and 1996, cash provided (used) by financing activities
was $17.0 million, ($5.0) million and ($8.6) million. Cash provided by financing
activities in fiscal 1998 was primarily attributable to a $17.4 million net
increase in the Company's Revolving Credit Facility used to fund the purchase of
the production facility for cold drawn mechanical tubing and other working
capital needs. The increase in the Company's Revolving Credit Facility was
offset by other regularly scheduled term debt payments. Cash used by financing
activities in fiscal 1997 was primarily attributable to the pay-off of a $3.7
million term note used to finance the relocation of the energy facility to
Arkansas, a $3.3 million net decrease in the Company's Revolving Credit Facility
and other regularly scheduled term debt payments. These debt pay-downs were
partially offset by $2.5 million of proceeds from the exercise of stock options.
The cash used by financing activities in fiscal 1996 was primarily attributed to
the pay-off of a $5.5 million term note (the proceeds of which were used in 1995
to finance the structural facility) and a $1.8 million net pay-down of the
Company's Revolving Credit Facility.
The Company's capital budget for fiscal 1999 is $16.5 million, which will be
used to complete and enhance the newly purchased cold drawn mechanical tube
facility, acquire new equipment for its existing manufacturing facilities and to
purchase and install a new enterprise resource planning system. The Company
expects that it will meet its ongoing working capital and capital requirements
from a combination of cash flow from operations, including a $5.1 million income
tax refund, which constitutes its primary source of liquidity, and available
borrowings under its Revolving Credit Facility.
In September 1998, the Company entered into a new Revolving Credit Facility. The
Revolving Credit Facility provides for maximum borrowings up to the lesser of
the eligible borrowing base or $50.0 million, and bears interest at either the
prevailing prime rate or the Eurodollar rate, adjusted by an interest margin,
depending upon certain financial measurements. The Revolving Credit Facility is
secured by the Company's accounts receivable and inventories and will mature on
September 30, 2003. As of September 30, 1998, the applicable interest rate was
6.61 percent per annum, and the Company had $4.9 million in additional available
borrowings under the Revolving Credit Facility. The Company anticipates that the
borrowing base will expand during the year as the cold drawn mechanical tubing
facility starts operations in the first quarter of fiscal 1999, thereby
generating accounts receivable and inventory balances. As of September 30, 1998,
the Company had $748,000 in cash and cash equivalents.
Year 2000 Readiness Disclosure
The Company is in the implementation phase of its conversion to a new Year 2000
compliant enterprise resource planning system which will replace and upgrade
many of the Company's older information systems, some of which are not Year 2000
compliant. The integrated information provided by this new system will enhance
the Company's ability to make more informed decisions regarding sales and
inventory, optimize inventory levels and minimize costs. Implementation is
expected to be completed by the fourth fiscal quarter of 1999. The total cost of
the system implementation, including the cost of software and related internal
cost, is expected to be $4.7 million, of which approximately $700,000 has been
expended through September 30, 1998. In addition, the Company is performing a
separate evaluation of its other systems, including its manufacturing related
systems, for Year 2000 compliance and is contacting its significant customers,
suppliers and vendors to determine their Year 2000 compliance. Business
interruption caused by these suppliers could negatively impact the Company's
operations. These evaluations and the conversion of these systems (if necessary)
are also expected to be completed in the same time frame as the implementation
of the Company's new enterprise resource planning system and the cost of these
procedures is not expected to be material.
Although the Company believes that the plans described above will address its
Year 2000 issues and as a result, the Company will not be significantly impacted
by it, the Company has established a contingency plan to address non-compliance
issues. This plan involves the utilization of various manual procedures that
bypass computer applications and may be utilized in the event of a significant
system shutdown or if the Company faces problems with its customers, suppliers
or vendors. If the Company is required to implement its contingency plan, such
action could have an adverse effect on the operations, liquidity and financial
condition of the Company.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Maverick Tube Corporation
and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
September 30
1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 748 $ 2,886
Accounts receivable, less allowances of $391
and $388 in 1998 and 1997, respectively 15,515 27,714
Inventories 61,685 69,436
Deferred income taxes 1,827 5,104
Income taxes refundable 5,078 --
Prepaid expenses and other current assets 1,200 798
---------------- --------------
Total current assets 86,053 105,938
Property, plant and equipment 69,879 55,506
Other assets 953 620
--------------- --------------
$ 156,885 $ 162,064
=============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 12,301 $ 31,477
Accrued expenses and other liabilities 9,153 12,614
Deferred revenue 3,584 16,251
Current maturities of long-term debt 653 604
--------------- --------------
Total current liabilities 25,691 60,946
Long-term debt, less current maturities 8,226 8,879
Revolving credit facility 27,400 10,000
Deferred income taxes 5,505 4,371
Commitments and contingencies (Notes 5, 11 and 12) -- --
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000
authorized shares -- --
Common stock, $.01 par value; 40,000,000
authorized shares; 15,437,474 and 15,410,974
shares issued and outstanding in 1998 and 1997,
respectively 154 154
Additional paid-in capital 44,216 43,406
Retained earnings 45,693 34,308
--------------- --------------
90,063 77,868
--------------- --------------
$ 156,885 $ 162,064
=============== ==============
<FN>
See accompanying notes.
</FN>
</TABLE>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
Year ended September 30
1998 1997 1996
Net sales $265,389 $291,060 $204,182
Cost of goods sold 232,038 252,803 182,042
---------------------------------
Gross profit 33,351 38,257 22,140
Selling, general and administrative 14,815 13,966 10,198
Income from operations 18,536 24,291 11,942
Interest expense (1,731) (2,067) (2,522)
---------------------------------
Income before income taxes 16,805 22,224 9,420
Provision for income taxes 5,420 7,339 1,882
---------------------------------
Net income $ 11,385 $ 14,885 $ 7,538
=================================
Basic earnings per share $ .74 $ .99 $ .50
=================================
Diluted earnings per share $ .73 $ .97 $ .50
=================================
See accompanying notes.
<TABLE>
<CAPTION>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
Common Stock
------------------------------------------------------------------------
Additional
Paid-in Retained Earnings
Shares Amount Capital
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at October 1, 1995 14,880,458 $149 $ 37,469 $11,885
Net income -- -- -- 7,538
Exercise of stock options 63,684 1 205 --
------------------------------------------------------------------------
Balance at September 30, 1996 14,944,142 150 37,674 19,423
Net income -- -- -- 14,885
Exercise of stock options 466,832 4 2,482 --
Tax benefit associated with the
exercise of nonqualified stock
options -- -- 3,250 --
------------------------------------------------------------------------
Balance at September 30, 1997 15,410,974 154 43,406 34,308
Net income -- -- -- 11,385
Exercise of stock options 26,500 -- 162 --
Tax benefit associated with the
exercise of nonqualified stock
options -- -- 648 --
------------------------------------------------------------------------
Balance at September 30, 1998 15,437,474 $154 $ 44,216 $45,693
========================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year ended September 30
1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 11,385 $ 14,885 $ 7,538
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,172 5,697 5,201
Deferred income taxes 1,161 2,577 585
Provision for losses on accounts receivable 3 44 339
Loss (gain) on sale of equipment 49 50 (3)
Loss on write-down of software development costs
1,605 -- --
Changes in operating assets and liabilities:
Accounts receivable 12,196 (9,358) 175
Inventories 7,751 (18,812) (17,352)
Prepaid expenses and other current assets (1,582) 59 5
Other assets (381) (67) 207
Accounts payable (19,176) 8,435 5,623
Accrued expenses and other liabilities (3,461) 5,136 3,746
Deferred revenue (12,667) 8,075 8,176
-----------------------------------------------------
Cash provided by operating activities 3,055 16,721 14,240
Investing activities
Expenditures for property, plant and equipment (10,717) (9,537) (5,497)
Expenditures for purchase of production facility (11,464) -- --
Proceeds from disposals of equipment 30 96 3
Collection of notes receivable -- 18 15
-----------------------------------------------------
Cash used by investing activities (22,151) (9,423) (5,479)
Financing activities
Proceeds from long-term borrowings and notes 121,000 92,400 64,250
Principal payments on long-term borrowings and notes
(104,204) (99,911) (73,095)
-----------------------------------------------------
16,796 (7,511) (8,845)
Proceeds from exercise of stock options 162 2,486 206
-----------------------------------------------------
Cash provided (used) by financing activities 16,958 (5,025) (8,639)
-----------------------------------------------------
Increase (decrease) in cash and cash equivalents (2,138) 2,273 122
Cash and cash equivalents at beginning of year 2,886 613 491
-----------------------------------------------------
Cash and cash equivalents at end of year $ 748 $ 2,886 $ 613
=====================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized of $355,
$268 and $81) $ 1,733 $ 2,138 $ 2,677
Income taxes $ 6,242 $ 4,020 $ 1,370
<FN>
See accompanying notes.
</FN>
</TABLE>
Maverick Tube Corporation and Subsidiaries
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Maverick Tube
Corporation and its wholly owned subsidiaries (collectively referred to as the
Company). All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition
The Company records revenue from product sales when the product is shipped from
its facilities. Prior to January 1, 1996, the Company had recorded revenue on
the sale of energy products to certain customers at the time the goods were set
aside for storage at the customer's request. Included in the results of
operations for the year ended September 30, 1996 was a one-time effect of this
change in practice which resulted in a reduction in net sales, gross profit, net
income and basic and diluted net income per common share of $8,700,000,
$1,000,000, $839,000 and $0.06, respectively.
Inventories
Inventories are principally valued at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost. Depreciation is
computed under the straight-line method over the respective assets' useful
lives. Useful lives of the Company's assets are as follows:
Land and leasehold improvements 10 to 20 years
Buildings 20 to 40 years
Transportation equipment 4 to 5 years
Machinery and equipment 5 to 12 years
Furniture and fixtures 3 to 7 years
Income Taxes
Deferred taxes are provided on an asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and other tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," the Company follows Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its director and employee stock options. The Company grants stock options for a
fixed number of shares to directors and employees with an exercise price equal
to the fair value of the shares at the time of the grant. Accordingly, the
Company has not recognized compensation expense for any of its stock option
grants. If the Company had elected to recognize compensation cost based on the
fair value of the options granted at the grant date as prescribed by SFAS No.
123, net income and earnings per share for 1998, 1997 or 1996 would not have
been reduced by a material amount. The compensation cost associated with the
fair value of the options calculated in 1998, 1997 and 1996 is not necessarily
representative of the potential effects on reported net income in future years.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to periodically make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Earnings per Common Share
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
share." SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and dilutive earnings per share. Basic earnings
per share excludes any dilutive effects of options. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per share. All
earnings per share amounts have been presented, and where appropriate, restated
to conform to the SFAS No. 128 requirements.
The reconciliation for diluted earnings per share for years ended September 30,
1998, 1997 and 1996 is as follows (in thousands):
1998 1997 1996
-----------------------------------
Average shares outstanding utilized in the
computation of basic earnings per share 15,437 15,018 14,940
Dilutive effect of outstanding stock options 127 264 60
-----------------------------------
Average shares utilized in
the computation of diluted
earnings per share 15,564 15,282 15,000
===================================
Net income used in basic and diluted
earnings per share $11,385 $14,885 $7,538
===================================
Business Segments
The Company's two identifiable segments are energy products, consisting of Oil
Country Tubular Goods (OCTG) and line pipe products sold primarily to customers
in the energy industry, and industrial products, consisting primarily of
structural tubing and standard pipe products. Energy products are used in the
completion of new wells and the handling and transporting of the oil and natural
gas produced from these wells. Industrial products are sold to customers in
various industries including construction, agriculture and transportation. The
Company's products are sold primarily to a network of distributors and are sold
throughout the United States and Canada.
Sales commission expenses are charged directly to the associated business
segments. Remaining selling, general and administrative expenses are allocated
based upon the net sales dollars generated by each segment.
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 specifies the presentation and disclosure requirements for business segment
information. The Company is required to adopt this statement in fiscal 1999 and
has determined that SFAS No. 131 will have no significant impact on the
Company's disclosures.
Cash Equivalents
The Company's policy is to consider demand deposits and short-term investments
with a maturity of three months or less when purchased as cash equivalents.
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable,
accounts payable and long-term debt obligations. The carrying value of amounts
reported in the consolidated balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value. Management's
estimate of the fair value of long-term debt obligations is discussed in Note 4
to the consolidated financial statements.
2. Purchase of Production Facility
On September 18, 1998, the Company acquired assets that will be used in the
production of cold drawn tubular products at a production facility in West
Mayfield, Pennsylvania from PMAC, Ltd. for $11,464,000. This facility is
expected to begin production during the Company's first quarter of fiscal 1999.
3. Write-Down of Software Developments Costs
During the year ended September 30, 1998, the Company recorded a pretax charge
of $1,605,000 in selling, general and administrative expense for the write-down
of certain software development costs relating to information systems being
replaced by a new enterprise resource planning system.
4. Stock Split
On August 1, 1997, the Company declared a two-for-one stock split effected in
the form of a 100% stock dividend to all stockholders of record as of August 12,
1997. The dividend was paid on August 21, 1997 and increased the number of
shares outstanding from 7,544,071 to 15,088,142. Approximately $75,000 was
transferred from retained earnings to common stock to record this dividend. All
share and per share amounts, including stock option information, in the
accompanying consolidated financial statements have been restated to reflect
this stock dividend.
5. Long-Term Debt and Revolving Credit Facility
Long-term debt and revolving credit facility at September 30, 1998 and 1997
consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
Capital lease obligation, secured by property, plant and equipment
(net book value $9,359,000 at September 30, 1998); payable in
monthly installments (including interest at 8.0%) of $59,479; final
payment due on August 1, 2007 $ 4,540 $ 4,875
Capital lease obligation, secured by property and plant (net
book value $6,629,000 at September 30, 1998); interest of 7.5%
payable monthly; payable in monthly principal installments of
approximately $20,000 (plus interest) commencing on March 1, 1996;
increasing to $31,250 in years two through seven and increasing
to $240,417 in year eight; final payment due on February 1, 2004
4,339 4,608
Revolving credit notes, secured by all accounts receivable and
inventories; due on September 30, 2003; interest payable
monthly at either prime or the Eurodollar rate, adjusted by an
interest margin, depending upon certain financial measurements
27,400 10,000
------------------------------
36,279 19,483
Less current maturities (653) (604)
------------------------------
$ 35,626 $ 18,879
==============================
</TABLE>
In September 1998, the Company entered a new revolving credit facility. The new
revolving credit agreement provides for advances up to the lesser of $50,000,000
or the eligible borrowing base as defined in the facility agreement. At
September 30, 1998, there was $27,400,000 outstanding under this line of credit
at an interest rate of 6.61 percent. In addition, the Company had an outstanding
letter of credit under this revolving credit agreement of $350,000 at September
30, 1998 (which expires in September 1999). Additional available borrowings at
that date were $4,913,000. The agreement includes restrictive covenants relating
to levels of funded debt and other financial measurements and restricts the
amount of dividends that can be paid on common stock. The revolving
5. Long-Term Debt and Revolving Credit Facility (continued)
credit agreement requires an annual commitment fee based upon certain financial
measurements.
The present value of future minimum lease payments under the capital lease
obligations as of September 30, 1998 is as follows (in thousands):
Present Value
Total Minimum Minimum Lease
Lease Payments Interest Payments
--------------------------------------------------
1999 $ 1,313 $660 $653
2000 1,320 612 708
2001 1,315 555 760
2002 1,315 493 822
2003 2,711 371 2,340
Thereafter 4,072 476 3,596
--------------------------------------------------
$12,046 $ 3,167 $ 8,879
==================================================
Property, plant and equipment at September 30, 1998 and 1997 include $18,295,000
and $17,483,000, respectively, under leases that have been capitalized.
Accumulated depreciation for these assets was $2,307,000 and $1,815,000 at
September 30, 1998 and 1997, respectively.
The fair value of the Company's long-term debt is based on estimates using
discounted cash flow analyses, based on quoted market prices for similar issues.
The estimated fair value of debt at September 30, 1998 was $36,802,000.
6. Property, Plant and Equipment
Property, plant and equipment at September 30, 1998 and 1997 consist of the
following (in thousands):
1998 1997
--------------------------------
Land $ 1,520 $ 1,519
Land and leasehold improvements 1,132 521
Buildings 23,392 22,212
Transportation equipment 1,356 1,204
Machinery and equipment 71,534 54,470
Furniture and fixtures 2,838 2,780
--------------------------------
101,772 82,706
Less accumulated depreciation (31,893) (27,200)
--------------------------------
$ 69,879 $ 55,506
================================
7. Inventories
Inventories at September 30, 1998 and 1997 consist of the following (in
thousands):
1998 1997
--------------------------------
Finished goods $ 34,674 $ 41,188
Work-in-process 2,868 3,589
Raw materials 12,042 14,065
In-transit materials 7,003 6,911
Storeroom parts 5,098 3,683
--------------------------------
$ 61,685 $ 69,436
================================
Finished goods at September 30, 1998 and 1997 include $3,538,000 and
$13,590,000, respectively of customer-obligated inventory.
8. Income Taxes
The components of the provision for income taxes for the years ended September
30, 1998, 1997 and 1996 are as follows (in thousands):
1998 1997 1996
---------------------------------------
Current:
Federal $ 4,120 $3,804 $ 1,297
State 139 958 --
Deferred 1,161 2,577 585
---------------------------------------
$ 5,420 $7,339 $ 1,882
=======================================
The difference between the effective income tax rate and the U.S. federal income
tax rate for the years ended September 30, 1998, 1997 and 1996 is explained as
follows (in thousands):
1998 1997 1996
-------------------------------------
Provision at statutory tax rate $ 5,714 $ 7,845 $ 3,203
State and local taxes, net of federal
tax benefit 139 958 --
Alternative minimum tax -- (510) 1,282
Operating loss carryforwards -- -- (1,192)
Decrease in valuation allowance -- (1,147) (1,590)
Benefit of foreign sales corporation (354) -- --
Other items (79) 193 179
-------------------------------------
$ 5,420 $ 7,339 $ 1,882
=====================================
The 1997 decrease in the valuation allowance relates primarily to the
utilization of alternative minimum tax credit carryforwards. Realization of the
Company's deferred tax assets is dependent on generating sufficient taxable
income prior to the expiration of the net operating loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
the net deferred tax assets will be realized.
Temporary differences which give rise to deferred tax assets and liabilities at
September 30, 1998 and 1997 are as follows (in thousands):
1998 1997
----------------------
Deferred tax assets:
Various accrued liabilities and reserves $1,280 $1,419
Net operating loss carryforwards 818 1,288
Alternative minimum tax carryforwards 598 390
Tax benefit associated with the exercise
of nonqualified stock options -- 3,250
------ ------
Total deferred tax assets 2,696 6,347
Deferred tax liabilities:
Accelerated depreciation 5,712 5,101
Asset valuations 662 513
------ ------
Total deferred tax liabilities 6,374 5,614
------ -----
Net deferred tax assets (liabilities) $(3,678) $ 733
====== ======
The Company has available acquired net operating loss carryforwards of
$2,320,000 at September 30, 1998 which it may use to offset future taxable
income. The acquired net operating loss carryforwards are limited to
approximately $1,160,000 annually. Any unused amounts can be carried forward to
increase the limitation in the following taxable year. These net operating loss
carryforwards expire in 2000. The total carryforwards will be applied to
financial statement earnings after temporary differences. At September 30, 1998,
the Company had alternative minimum tax credit carryforwards of $598,000
available for income tax purposes. These credit carryforwards do not expire.
9. Defined Contribution Plans
The Company sponsors a defined contribution 401(k) plan that is available to
substantially all employees. The plan may be amended or terminated at any time
by the Board of Directors. The Company, although not required to, has provided
matching contributions to the plan for the years ended September 30, 1998, 1997
and 1996 of $704,000, $590,000 and $343,000, respectively.
The Company also began sponsoring two deferred compensation plans covering
officers and key employees in 1996. One plan provides for discretionary
contributions based solely upon the Company's profitability and the individuals'
gross wages. The other plan provides for fixed contributions to certain officers
of the Company. The Company contribution to these plans for the years ended
September 30, 1998, 1997 and 1996 was $310,000, $200,000 and $192,000,
respectively.
10. Segment Information
The following table sets forth data for the years ended September 30, 1998, 1997
and 1996 for the reportable industry segments of energy products and industrial
products. Intersegment sales are not material. Identifiable assets are those
used in the Company's operations in each segment.
<TABLE>
<CAPTION>
Energy Industrial
Products Products Corporate Total
<S> <C> <C> <C> <C>
1998:
Net sales $184,824 $80,565 $ -- $265,389
Operating income (loss) 14,680 5,461 (1,605)* 18,536
Identifiable assets 99,357 46,095 11,433 156,885
Depreciation and amortization 4,255 1,448 469 6,172
Capital expenditures 7,512 12,186 2,483 22,181
1997:
Net sales $223,879 $67,181 $ -- $291,060
Operating income 17,641 6,650 -- 24,291
Identifiable assets 116,433 34,565 11,066 162,064
Depreciation and amortization 3,760 1,455 482 5,697
Capital expenditures 8,385 363 789 9,537
1996:
Net sales $147,555 $56,627 $ -- $204,182
Operating income 10,529 1,413 -- 11,942
Identifiable assets 87,091 32,033 6,432 125,556
Depreciation and amortization 3,375 1,331 495 5,201
Capital expenditures 3,757 894 846 5,497
<FN>
* During the year ended September 30, 1998, the Company recorded a
pre-tax charge of $1.6 million in selling, general and administrative
expense for the write-down of certain software development costs
relating to information systems being replaced by a new enterprise
resource planning system.
</FN>
</TABLE>
Transactions with one significant energy customer for the years ended September
30, 1998 and 1996 represented approximately 14 percent and 16 percent of total
sales, respectively. Transactions with two significant energy customers for the
year ended September 30, 1997 represented approximately 25 percent of total
sales.
Export sales were $18,828,000, $26,665,000 and $13,244,000 for the years ended
September 30, 1998, 1997 and 1996, respectively. These energy sales were
primarily to Canadian customers.
11. Operating Leases
The Company rents office facilities and equipment under various operating
leases. Future minimum payments under noncancellable operating leases with
initial or remaining terms in excess of one year, are as follows at September
30, 1998 (in thousands):
1999 $ 2,142
2000 1,971
2001 1,687
2002 1,316
2003 1,357
-------------------
$ 8,473
===================
Rent expense for all operating leases was $1,937,000, $1,222,000 and $973,000
for the years ended September 30, 1998, 1997 and 1996, respectively.
12. Contingencies
Various claims, incidental to the ordinary course of business, are pending
against the Company. In the opinion of management, after consultations with
legal counsel, resolution of these matters is not expected to have a material
effect on the accompanying financial statements.
13. Stock Option Plans
The Company sponsors two employee stock option plans (the "1990 Plan" and the
"1994 Plan") allowing for incentive stock options and nonqualified stock
options. The Company also sponsors a stock option plan for eligible directors
(the "Director Plan") allowing for non-qualified stock options. The 1990 Plan,
1994 Plan and the Director Plan provide that 340,000, 1,000,000 and 200,000
shares, respectively, may be issued under the plans at an option price not less
than the fair market value of the stock at the time the option is granted. The
1990 Plan, 1994 Plan, and the Director Plan expire in December 2000, November
1999 and November 2004, respectively. The options vest pursuant to the schedule
set forth for each option. Effective August 29, 1997, the Compensation Committee
of the Board of Directors removed the exercise restriction with respect to
certain options granted in 1995 which made them immediately exercisable. At
September 30, 1998 and 1997, 607,500 and 272,500 shares were available for grant
under the option plans.
The fair value of the options granted was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for fiscal years ended September 30, 1998, 1997 and 1996,
respectively: risk-free interest rate of 5.57%, 5.53% and 6.05%; no dividend
payments expected; volatility factors of the expected market price of the
Company's common stock of 0.555, 0.478 and 0.478; and a weighted-average
expected life of the options of 7.2 years, 1.0 year and 4.7 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
The following table summarizes option activity and related information for years
ended September 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted Weighted
Shares Under Average Average
Option Exercise Price Fair Value
<S> <C> <C> <C>
Options outstanding at
October 1, 1995 798,000 $5.26
Options exercised (63,684) 3.25
Options expired (146,316) 5.37
Options granted 284,000 5.29 $2.42
------- ----
Options outstanding at
September 30, 1996 872,000 5.39
Options exercised (466,832) 5.33
Options expired (3,000) 5.92
Options granted 37,500 8.50 $1.80
------ ----
Options outstanding at
September 30, 1997 439,668 5.71
Options exercised (26,500) 6.13
Options expired (60,000) 5.31
Options granted 125,000 15.11 $2.20
------- -----
Options outstanding at
September 30, 1998 478,168 $8.20
======= =====
</TABLE>
The following table summarizes information about fixed stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Weighted-Average Weighted- Weighted-
Exercise Remaining Average Average
Prices Options Contractual Life Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C>
$4.00 to $5.88 181,986 3.4 years $ 4.57 71,986 $ 5.44
$6.13 to $8.50 171,182 3.2 $ 7.00 81,182 $ 7.42
$11.38 to $21.75 125,000 7.8 $ 15.11 45,000 $ 21.75
- ---------------------------------------------------------------------------------------------------------
$4.00 to $21.75 478,168 4.5 $ 8.20 198,168 $ 9.96
=========================================================================================================
</TABLE>
14. Shareholder Rights Plan
In July 1998, the Company's Board of Directors adopted a common stock
shareholder rights plan ("Right") which entitles each shareholder of record to
receive a dividend distribution of common stock upon the occurrence of certain
events. The Right becomes exercisable the day that a public announcement is made
that a person or group of affiliated or associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of common stock, or the tenth day following the commencement
of a tender offer or exchange offer that would result in a person or a group
becoming the beneficial owners of 20% or more of such outstanding share of
common stock. When exercisable, each Right entitles the holder to purchase $100
worth of the Company's common stock for $50. Until a Right is exercised or
exchanged, the holder thereof will have no rights as a shareholder of the
Company, including, without limitation, the right to receive dividends. The
Right is subject to redemption by the Company's Board of Directors for $.01 per
Right at any time prior to the date which a person or group acquires beneficial
ownership of 20% or more of the Company's common stock or subsequent thereto at
the option of the Board of Directors. The Rights expire July 23, 2008.
15. Quarterly Financial Data (Unaudited)
The results of operations by quarter for 1998 and 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended
December 31, 1997 March 31, June 30, 1998 September 30,
1998 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net sales $ 86,479 $ 70,548 $ 56,590 $ 51,773
Gross profit 13,774 10,329 5,671 3,578
Net income (loss) 6,570 4,707 1,330 (1,221)*
Basic earnings (loss) per share
.43 .30 .09 (.08)*
Diluted earnings (loss) per share
.42 .30 .09 (.08)*
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
December 31, 1996 March 31, June 30, 1997 September 30,
1997 1997
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales $ 64,190 $ 66,920 $ 74,669 $ 85,281
Gross profit 6,663 7,692 9,794 14,108
Net income 2,608 2,978 3,938 5,361
Basic earnings per share .18 .20 .26 .35
Diluted earnings per share .18 .19 .25 .35
<FN>
* During the quarter ended September 30, 1998, the Company recorded a
pre-tax charge of $1.6 million in selling, general and administrative
expense for the write-down of certain software development costs
relating to information systems being replaced by a new enterprise
resource planning system.
</FN>
</TABLE>
Report of Independent Auditors
Board of Directors and Stockholders
Maverick Tube Corporation
We have audited the accompanying consolidated balance sheets of Maverick Tube
Corporation and subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Maverick Tube Corporation and subsidiaries at September 30, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young
St. Louis, Missouri
October 28, 1998
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Maverick Tube International, Inc.
Maverick Tube L.P.
Maverick Investment Corporation
<PAGE>
Exhibit 23.1
Independent Auditor's Consent
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Maverick Tube Corporation of our report dated October 28, 1998, and of the
reference to our firm under the caption "Historical Financial Information", both
included in the 1998 Annual Report to Stockholders of Maverick Tube Corporation.
Our audits also included the financial statement schedule of Maverick Tube
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-56568) of Maverick Tube Corporation and in the related
Prospectus and in the Registration Statements (Form S-8 No. 33-89526 and Form
S-8 No. 333-52621) pertaining to the Maverick Tube Corporation Amended and
Restated 1990 Stock Option Plan, the Maverick Tube Corporation 1994 Stock Option
Plan, and the Maverick Tube Corporation Director Stock Option Plan of Maverick
Tube Corporation of our reports dated October 28, 1998, with respect to the
consolidated financial statements and schedule of Maverick Tube Corporation
included and incorporated by reference in this Annual Report (Form 10-K) for the
year ended September 30, 1998.
/s/ Ernst & Young
St. Louis, Missouri
December 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 748
<SECURITIES> 0
<RECEIVABLES> 15,906
<ALLOWANCES> 391
<INVENTORY> 61,685
<CURRENT-ASSETS> 86,053
<PP&E> 101,772
<DEPRECIATION> 31,893
<TOTAL-ASSETS> 156,885
<CURRENT-LIABILITIES> 25,691
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 156,885
<SALES> 269,591
<TOTAL-REVENUES> 265,389
<CGS> 232,038
<TOTAL-COSTS> 14,815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,731
<INCOME-PRETAX> 16,805
<INCOME-TAX> 5,420
<INCOME-CONTINUING> 11,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,385
<EPS-PRIMARY> .74
<EPS-DILUTED> .73
</TABLE>
<PAGE>
Exhibit 99.1
RISK FACTORS
Dependence of Energy Industry
The Company's principal products consist of OCTG and line pipe, and sales of
these products to the energy industry constitute the most significant source of
Maverick's revenues. Revenues from the sale of OCTG and line pipe to the energy
industry accounted for approximately 65%, 77% and 65% of total sales in fiscal
1998, 1997 and 1996, respectively. Demand for Maverick's OCTG products depends
primarily upon the number of oil and natural gas wells being drilled in the
United States and Canada, the depth and drilling conditions of those wells and
the number of well completions, all of which are in turn primarily dependent on
oil and natural gas prices. These prices are dependent upon many factors
including world supply and demand for oil and weather conditons. Uncertainty
continually exists as to the future level and volatility of domestic oil and
natural gas prices.
Effect of Changing Steel Prices
Purchased steel represents slightly more than two-thirds of Maverick's cost of
goods sold. The steel industry is highly cyclical in nature and steel prices are
influenced by numerous factors, many of which are beyond the control of the
Company, including general economic conditions, industry capacity utilization,
import duties and other trade restrictions and currency exchange rates. The
Company's major supplier of steel has announced three price decreases since
mid-September, 1998 which reduced the Company's current replacement cost of
steel by $50 per ton. Although the Company expects that such price reductions
will be fully reflected in the Company's cost of goods sold in the third quarter
of fiscal 1999, no assurance can be given as to the duration of the price
decrease or anticipated future steel prices. Also, no assurance can be given
that these decreases in steel prices will not impact pricing levels of the
Company's products. Steel trade cases were filed with the International Trade
Commission in September, 1998 which could negatively impact the Company's future
replacement cost of steel.
Competition from Other Manufacturers
The production and marketing of the Company's energy and industrial products are
highly competitive. Some of Maverick's competitors have greater financial and
marketing resources and business diversification than Maverick. Unlike Maverick,
many of its large OCTG competitors are integrated steel producers who do not
purchase their raw materials in the open market. During periods of strong steel
demand and weak steel scrap prices, Maverick may be at a disadvantage to these
integrated competitors.
Competition from Imports
The domestic OCTG market is affected by the level of imports of OCTG products,
which has varied significantly over time. High levels of imports (which existed
in fiscal 1994 and most of fiscal 1995) reduced the volume sold by domestic
producers and suppressed selling prices of OCTG. The Company believes that
domestic import levels are affected by, among other things, overall world demand
for OCTG, the trade practices of and government subsidies to foreign producers,
and the presence and absence of governmentally imposed trade restrictions in the
U.S. Imports accounted for 18.7%, 17.2% and 11.1% of domestic shipments in
fiscal 1998, 1997 and 1996, respectively. Domestic sales of structural tubing
are also affected by imports.
Company's Sales Influenced by Industry Inventory Levels
Industry-wide inventory levels of OCTG products can vary significantly from
period to period and have a direct effect on the demand for new production of
such products. As a result, the Company's OCTG sales and net income may be
impacted significantly from period to period. Management believes that
industry-wide OCTG inventory is currently at above normal levels in relation to
demand as estimated months of supply of inventory increased as of fiscal
year-end to 7.3 months. There can be no assurance that OCTG inventory will not
again become excessive or that substantial draw-downs of such inventories will
not occur. Domestic sales of structural tubing are also affected by changing
industry inventory levels generally resulting from corresponding changes in
steel prices.
Company's Sales Affected by Seasonal Fluctuations
Maverick, as well as the OCTG industry in general, experiences seasonal
fluctuations in demand for its products. Because weather conditions during the
first half of the calendar year normally make drilling operations more
difficult, domestic drilling activity and the corresponding demand for
Maverick's products may be generally lower during the second and third fiscal
quarters, as compared with the first and fourth fiscal quarters. Maverick also
believes it experiences seasonal fluctuations in demand for its industrial
products, although the timing of such fluctuations may differ from fluctuations
experienced in the OCTG industry.
Dependence on Significant Customers
In fiscal 1998 and fiscal 1996, one distributor, National Oilwell Supply, Inc.
("National Oilwell") accounted for 14% and 16%, respectively, of Maverick's net
sales. In fiscal 1997, two distributors, National Oilwell and Master Tubulars,
Inc. accounted for 25% of Maverick's net sales. Maverick currently utilizes
numerous distributors of its products and believes that additional qualified
distributors are available to assist Maverick in meeting end users' needs.
Although Maverick believes that it could replace any one distributor of its
products, including National Oilwell or Master Tubulars, Inc., with other
qualified distributors, no assurance can be given that the loss of either of
these distributors or any other customer would not have a material adverse
effect on Maverick's net sales or results of operations.
Product Liability
Drilling for oil and natural gas involves a variety of risks. Certain losses may
result or be alleged to result from defects in Maverick's products, thereby
subjecting Maverick to claims for consequential damages. Maverick warrants
certain of its OCTG and line pipe products to be free of certain defects. The
use of structural tubing can also involve risks, and losses may result or be
alleged to result from defects in such pipe and tubing products, thereby
subjecting the manufacturer of such products to claims for consequential
damages. Maverick maintains insurance coverage against potential product
liability claims in amounts which it believes to be adequate. Maverick, has not
historically incurred material product liability costs, nor has it experienced
difficulties in obtaining or maintaining adequate product liability insurance
coverage; however, no assurance can be given that in the future, product
liability in excess of such insurance coverage will not be incurred or that
Maverick will be able to maintain such insurance coverage levels.
Regulatory Matters
The business of Maverick is subject to numerous local, state and federal laws
and regulations concerning environmental and safety matters. Although Maverick
has not incurred material costs of compliance with such laws and regulations,
there can be no assurance that future changes in such laws and regulations will
not have a material effect on Maverick's operations.
