<PAGE>
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the quarterly period
ended June 30, 1996
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 34-022552
RAILTEX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Texas 74-1948121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4040 Broadway, Suite 200 78209
San Antonio, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number,
including area code: (210) 841-7600
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.
x YES NO
----- -----
Number of
Shares
Title of Class Outstanding
-------------- -----------
Common Stock, $0.10 Par Value 9,110,606
<PAGE>
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - Financial Information:
Item 1. Financial Statements: Page
----
Consolidated Statements of Income - For the Three and
Six Months Ended June 30, 1995 and 1996...................... 3
Consolidated Balance Sheets - December 31, 1995 and
June 30, 1996................................................ 4
Consolidated Statements of Cash Flows - For the Six Months
Ended June 30, 1995 and 1996................................. 5
Notes to Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 11
PART II - Other Information........................................... 21
Signatures............................................................ 27
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1995 1996 1995 1996
--------- ------- --------- ------
<S> <C> <C> <C> <C>
OPERATING REVENUES...................... $ 27,295 $30,148 $ 52,439 $58,757
OPERATING EXPENSES:
Transportation......................... 8,640 9,217 16,704 18,338
General and administrative............. 5,456 5,324 9,879 10,850
Equipment.............................. 4,080 3,881 8,211 7,541
Maintenance of way..................... 2,701 3,617 5,391 6,713
Depreciation and amortization.......... 1,999 2,451 3,809 4,727
Special Charge (Note 2)................ 2,140 -- 2,140 --
---------- ------- ---------- -------
Total operating expenses.............. 25,016 24,490 46,134 48,169
---------- ------- ---------- -------
OPERATING INCOME........................ 2,279 5,658 6,305 10,588
INTEREST EXPENSE........................ (1,348) (1,541) (2,830) (3,020)
OTHER INCOME............................ 319 175 637 440
---------- ------- ---------- -------
INCOME BEFORE INCOME TAXES.............. 1,250 4,292 4,112 8,008
INCOME TAXES............................ (605) (1,671) (1,739) (3,204)
---------- ------- ---------- -------
NET INCOME.............................. $ 645 $ 2,621 $ 2,373 $ 4,804
========== ======= ========== =======
NET INCOME PER SHARE.................... $0.07 $0.28 $0.28 $0.52
========== ======= ========== =======
WEIGHTED AVERAGE NUMBER OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS
OUTSTANDING............................ 9,214 9,235 8,587 9,230
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1995 1996
------ ------------ -----------
(AUDITED) (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 2,130 $ 5,574
Accounts receivable, net............. 19,522 20,074
Prepaid expenses..................... 2,244 1,656
Deferred tax assets, net............. 2,027 2,128
-------- --------
Total current assets.............. 25,923 29,432
-------- --------
PROPERTY AND EQUIPMENT, NET............. 174,593 197,445
-------- --------
OTHER ASSETS:
Investment, at cost (Note 4)......... -- 8,229
Other................................ 4,466 4,452
-------- --------
Total other assets................ 4,466 12,681
-------- --------
Total assets...................... $204,982 $239,558
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term notes payable, net........ $ 1,289 $ 417
Current portion of long-term debt.... 1,718 2,218
Accounts payable..................... 10,572 12,092
Accrued liabilities.................. 7,302 10,747
-------- --------
Total current liabilities......... 20,881 25,474
-------- --------
DEFERRED INCOME TAXES................... 11,129 16,689
-------- --------
LONG-TERM DEBT.......................... 1,208 20,097
-------- --------
SENIOR NOTES PAYABLE.................... 50,985 50,983
-------- --------
SENIOR SUBORDINATED NOTES PAYABLE....... 5,000 5,000
-------- --------
OTHER LIABILITIES....................... 3,177 3,889
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Preferred Stock; $1.00 par value;
10 million shares authorized;
no shares issued or outstanding
at December 31 and June 30.......... -- --
Common Stock; $.10 par value; 30 million
shares authorized; 9,110,606 issued
and outstanding at December 31 and
June 30............................. 911 911
Additional paid-in capital........... 83,439 83,439
Retained earnings.................... 28,316 33,120
Cumulative translation adjustment.... (64) (44)
-------- --------
Total shareholders' equity....... 112,602 117,426
-------- --------
Total liabilities and
shareholders' equity............ $204,982 $239,558
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------------
1995 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................. $ 2,373 $ 4,804
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 3,809 4,727
Special charge...................... 2,140 --
Deferred income taxes............... 1,031 1,346
Amortization of deferred financing
costs.............................. 133 188
Provision for losses on accounts
receivable......................... 164 301
Gain on sale of assets.............. (517) (332)
Changes in current assets and
liabilities--
Accounts receivable............... (5,695) 279
Prepaid expenses.................. 740 760
Accounts payable and accrued
liabilities...................... 3,082 3,255
-------- --------
Net cash provided by operating
activities......................... 7,260 15,328
-------- --------
INVESTING ACTIVITIES:
Payment for purchase of Indiana & Ohio
Railcorp, net of cash acquired........ -- (8,989)
Purchase of property and equipment..... (52,540) (10,177)
Investment in Ferrovia
Centro-Atlantica S.A.................. -- (8,229)
Proceeds from sale of property and
equipment............................. 542 353
Organization and acquisition costs..... (998) (280)
Other.................................. -- (96)
--------- --------
Net cash used in investing activities (52,996) (27,418)
--------- --------
FINANCING ACTIVITIES:
Short-term notes payable, net.......... (1,210) (873)
Sale of common stock................... 25,607 --
Proceeds from long-term debt........... 47,150 19,752
Deferred financing costs............... (110) (174)
Principal payments on long-term debt... (26,683) (3,324)
Change in other long-term liabilities.. -- 134
-------- --------
Net cash provided by financing
activities.......................... 44,754 15,515
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH. 45 19
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS. (937) 3,444
CASH AND CASH EQUIVALENTS, beginning of
period................................. 2,167 2,130
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,230 $ 5,574
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The interim consolidated financial statements presented herein include the
accounts of RailTex, Inc. and its wholly owned subsidiaries. References to
"RailTex" or the "Company" mean RailTex, Inc. and, unless the context indicates
otherwise, its consolidated subsidiaries. All significant inter-company
transactions and accounts have been eliminated in consolidation. These interim
consolidated financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). All adjustments have been made to the accompanying
interim consolidated financial statements which are, in the opinion of the
Company's management, necessary for a fair presentation of the Company's
operating results. All adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. It is recommended
that these interim consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995. The
results of operations for any interim period are not necessarily indicative of
the results of operations for the entire year. Certain reclassifications have
been made in the prior period financial statements to conform with the current
period presentation.
2. SPECIAL CHARGE:
One of the Company's railroads, the Austin & Northwestern Railroad Company,
Inc. (the "Austin & Northwestern"), began operations on August 15, 1986 under a
10 year management agreement with Capital Metro, the Austin, Texas area transit
authority and the City of Austin. This agreement provided for renewal options
for three additional 10 year terms. The Austin & Northwestern decided not to
pursue further its rights unilaterally to renew the existing contract for an
additional 10 year period and to cease operations on or before the expiration of
the original contract term in August 1996. As a result, the Company, Capital
Metro and the City of Austin entered into an agreement under which the Company,
Capital Metro and the City of Austin sought a substitute operator and under
which the Company was released from certain contingent liabilities. Therefore,
the Company recorded a Special Charge, in the second quarter of 1995, in the
amount of $2,140,000 before tax and $1,389,000 after tax, or $0.15 per share,
representing the write down of the unamortized value of leasehold improvements
of the Austin & Northwestern. Additionally, on May 6, 1996, the Company ceased
operations of the Austin & Northwestern as a new operator commenced operations.
3. ACQUISITIONS:
On February 4, 1995, a newly formed subsidiary of the Company, New England
Central Railroad, Inc. (the "NECR") acquired certain assets of the Central
Vermont Railway, Inc. (the "Central Vermont"). The purchase price, including
related costs, was $40.2 million and was funded by borrowings under the
Company's
6
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
U.S. Acquisition Facility. Unlike all of its previous acquisitions,
the Company acquired substantially all of the assets of the Central Vermont,
hired a substantial number of the Central Vermont employees to operate the NECR
and assumed certain contracts of the Central Vermont. Consequently, this
acquisition has been accounted for using the purchase method of accounting.
On June 4, 1996, the Company acquired 100% of the outstanding stock of the
Indiana & Ohio Railcorp, (the "I&O"), an existing short line railroad
headquartered in Cincinnati, Ohio. Through its subsidiaries, the I&O operates 10
line segments totaling 230 miles of track in southwestern Ohio and southeastern
Indiana. The purchase price was $12.4 million including a $8.9 million cash
payment and the assumption of $3.5 million of long term debt. This acquisition
has been accounted for using the purchase method of accounting. The purchase
price was allocated based on estimated fair values at the date of the
acquisition. (See Note 7)
The following unaudited pro forma results of operations for the six months
ended June 30, 1995 and 1996, assumes the acquisition of the NECR and the I&O
occurred as of January 1, 1995 (dollars are in thousands except per share
amounts).
SIX MONTHS ENDED
JUNE 30,
-----------------
1995 1996
------- -------
Operating Revenues.... $58,177 $61,499
======= =======
Net Income............ $ 3,035 $ 4,671
======= =======
Net Income Per Share.. $ 0.33 $ 0.51
======= =======
These proforma results have been prepared for comparative purposes only and
include certain adjustments such as depreciation expense as a result of a step-
up in the basis of fixed assets and an adjustment of depreciable lives,
additional amortization expense as a result of organization costs and increased
interest expense on acquisition debt. These results do not purport to be
indicative of the results of operations which actually would have resulted had
the combinations been in effect on January 1, 1995 or of future results of
operations of the consolidated entities.
4. INVESTMENTS:
In June 1996, a newly formed wholly owned subsidiary of the Company,
RailTex International Holdings, Inc., completed its initial investment in a
Consortium which was awarded a 30 year concession to operate the 4,400 mile
Center Eastern Network of the Brazilian federal railroad. The Consortium, for
which a new company was subsequently formed and named Ferrovia Centro Atlantica
S.A., was awarded the concession at the government's minimum bid price of
approximately U.S. $318.0 million. The Brazilian government structured the
transaction as a 30 year concession with a 20.0% down payment and future lease
payments due in quarterly installments after an initial two year grace period.
RailTex International Holdings owns 12.5% of the voting stock and 13.4% of the
non-voting stock of Ferrovia Centro Atlantica S.A. and will account for the
transaction using the cost method of accounting. The Company's initial
investment, which funded its share of the down payment, was approximately U.S.
$8.2 million and was funded by borrowings under the U.S. Acquisition Facility.
During the last six months of 1996, an additional investment of approximately
U.S. $7.9 million will be required to provide initial working capital to
Ferrovia Centro Atlantica S.A. and is expected to be funded by additional
borrowings under the U.S. Acquisition Facility.
7
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. LONG TERM DEBT:
On May 17, 1996 the Company entered into a new domestic credit agreement
consisting of a $10.0 million domestic working capital facility (the "U.S.
Working Capital Facility") and a $75.0 million domestic acquisition facility
(the "U.S. Acquisition Facility"), replacing similar facilities which would
expire in May 1996 and May 1997 respectively. The Company may borrow up to 65.0%
of its eligible accounts receivable under the U.S. Working Capital Facility to
provide working capital and may borrow under the U.S. Acquisition Facility to
finance acquisitions of property and equipment which meet defined criteria. The
new facilities expire on April 30, 1999. Interest is payable monthly under the
U.S. Working Capital Facility until April 30, 1999 when all borrowings become
payable. New borrowings under the U.S. Acquisition facility are monthly interest
only until they are rolled into a term note annually on April 30. The term notes
are amortized over a six year period, however all borrowings become payable
three years from their date of funding, none later than April 30, 2002. Both the
U.S. Working Capital and U.S. Acquisition Facility bear interest rates based on
stated borrowing margins over the London Interbank Offered Rate ("LIBOR") or the
U.S. prime rate. The borrowing margins are dependent upon the Company's leverage
ratio and are adjusted quarterly. On June 30, 1996 borrowings outstanding under
the U.S. Acquisition Facility were $19.3 million. There were no borrowings under
the U.S. Working Capital Facility at June 30, 1996.
On June 21, 1996 the Company entered into a new Canadian credit agreement
consisting of a $5.0 million Canadian revolving working capital facility (the
"Canadian Working Capital Facility"), which replaced a revolving credit facility
that expired May 31, 1996 and was subsequently extended until the closing of the
new agreement, and a new $25.0 million Canadian acquisition credit agreement
(the "Canadian Acquisition Facility"). The Canadian credit agreements contain
terms and conditions similar to the U.S. Agreements. The Canadian facilities
bear interest based on stated borrowing margins over the bankers acceptance rate
(the "BA Rate") or the Canadian prime rate. The borrowing margins are dependent
upon the Company's leverage ratio and are adjusted quarterly. On June 30, 1996
borrowings outstanding under the Canadian Working Capital Facility were CDN $1.0
million. There were no borrowings under the Canadian Acquisition Facility at
June 30, 1996.
Covenants contained in the agreements evidencing the Company's senior and
senior subordinated debt prohibit the Company from paying dividends in its
capital stock and limit its ability to incur additional indebtedness, create
liens on its assets, make capital expenditures over a defined limit and
repurchase shares of its capital stock or any outstanding options or other
rights to acquire stock of the Company. The Company is also limited in its
ability to make loans, investments, or guarantees. The Company is required to
maintain a minimum tangible net worth and to meet certain other financial
ratios. At June 30, 1996 the Company was in compliance with all covenants.
6. STOCK OPTIONS:
The Company grants non-qualified stock options to outside Directors and key
employees of the Company. In September 1993, the Board of Directors and
shareholders of the Company approved an equity incentive plan (the "93 Plan").
On June 12, 1996, the 1993 Plan was amended which (i) increased the maximum
number of shares of Common Stock under the 1993 Plan from 750,000 to 1,250,000,
without reduction for the number of shares issued upon exercise of options
granted outside of the 1993 Plan; (ii) extended the exercise period for Outside
Directors' Options from two to 10 years and increased the number of shares which
may be purchased under Outside Director's Options from 2,000 to 3,000; (iii)
specified 1,250,000 shares as the maximum number of shares issuable under the
1993 Plan to any employee in any year; (iv) permitted the 1993 Plan
administrator to specify shorter vesting periods for non-qualified options; and
(v) clarified that cashless exercises of stock rights are permitted under the
1993 Plan.
8
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In January 1996, the Company granted each outside Director of the Company
options to purchase 2,000 shares of Common Stock for a total of 12,000 options
under the 93 Plan. These options are exercisable over a two year period at the
fair market value of Common Stock on the date of the grant of $21.00 per share.
In January, March and June 1996, the Company granted options to purchase
10,000 shares, 20,371 shares and 373,000 shares of Common Stock, respectively,
to certain key employees under the 93 Plan, as amended. These options are
exercisable at the rate of 20.0% per year from the date of the grant at the fair
market value of Common Stock on the date of the grant of $21.13 per share,
$24.75 per share and $24.25 per share, respectively.
7. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1995 1996
------- -------
<S> <C> <C>
Cash paid during the period for:
Interest.................................. $2,277 $2,252
Income Taxes.............................. 1,501 1,051
Non-cash investing and financing activities:
Capital leases............................ 737 104
Grants.................................... 298 612
Conversion of senior subordinated notes... 5,000 --
Exercise of non-qualified stock options... 2,574 --
Prepaid secondary offering costs.......... 247 --
</TABLE>
On June 4, 1996, the Company acquired 100% of the outstanding capital stock
of Indiana & Ohio Railcorp for $8.9 million cash and the assumption of
approximately $3.5 million of long term debt and approximatley $5.3 million of
other liabilities (see note 3). In conjunction with the acquisition, liabilities
were assumed as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired.. $17,669
Cash paid for capital stock.... 8,873
-------
Liabilities assumed........ $ 8,796
=======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
In March 1996, one of the Company's railroads received notice from an
individual of his intent to file a citizen's suit under the Resource
Conservation and Recovery Act ("RCRA") primarily as a result of an oil spill
caused by a train derailment that occurred five years prior to the Company's
acquisition of the railroad property. The Company is unable to predict whether a
claim will be filed, the probable outcome of any such claim or the amount or
range of potential loss arising therefrom.
In October 1995 and April 1996, one of the Company's railroads received
notice of three environmental site evaluations being conducted by a state
environmental agency. The evaluations are the result of an alleged fuel spill
caused by a train derailment and alleged on-site burial of railroad ties and
unreported leaking underground storage tanks and an alleged presence of paint
and paint solvent wastes. The Company believes these evaluations relate to
events that occurred prior to the Company's acquisition of the railroad
property. The Company is cooperating with the state environmental agency to
complete these evaluations. However, the Company may be
9
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
held liable for some or all expenses associated with these evaluations and the
expenses associated with any necessary remedial actions. To the extent the
Company incurs expenses in connection with these evaluations, or remedial
actions, it may seek to recover such expenses from the prior owners of the
property or other responsible parties. The Company is unable to predict the
probable outcome of these site evaluations or the amount or range of potential
loss arising therefrom.
A Class I Railroad, which interchanges traffic with one of the Company's
railroads has filed a complaint against the Company in the United States
District Court for the Western District of Missouri. In this lawsuit, the
Plaintiff seeks recovery of certain switching and joint facility charges
amounting to approximately $632,000. The Company has interposed certain
defenses, including payment of substantially all of the joint facility charges
and the inapplicability of the switching charges. Since the service for which
the switching charges have been asserted is ongoing, it is likely that
additional charges accruing through the date the lawsuit is resolved will be
asserted. Discovery is in progress and trial has been set for February 1997. The
Company believes it has meritorious defenses and is vigorously defending this
litigation, therefore, no amounts are recorded on the books of the Company in
anticipation of a loss as a result of this contingency.
The Company maintains insurance to cover costs associated with personal
injury, including death, and property damage, including derailments. The
Company's primary liability policy is subject to a self-insured retention which
was increased to $500,000 per occurrence from $250,000 per occurrence as of July
15, 1996. In addition, the Company maintains an excess liability policy which
provides supplemental coverage for losses in excess of primary policy limits.
With respect to its transportation of hazardous commodities, the Company's
liability policy covers sudden releases of hazardous materials, including
expenses related to evacuation. Personal injuries associated with grade crossing
accidents are also covered under the Company's liability policy. The Company
also maintains all-risk property damage coverage, including damage to property
of shippers, subject to applicable retentions.
The Company is also involved in other litigation and various legal matters
which are being defended and handled in the ordinary course of business. In
management's judgment, based on the opinion of the Company's legal counsel, the
ultimate liability, if any, from such legal proceedings will not have a material
effect on the Company's financial position and results of operations.
9. SUBSEQUENT EVENTS:
On July 20, 1996, the Company's Central Oregon & Pacific Railroad (the
"CORP") experienced a derailment on its Siskiyou line in southern Oregon,
derailing five cars. One of the cars, a tank car containing formaldehyde
solution, ruptured and began to leak. CORP personnel immediately responded to
the accident and called in the appropriate governmental and environmental
agencies. The spill of approximately 700 gallons of solution was cleaned up
shortly after the accident occurred. The total cost of this derailment and clean
up is estimated to be approximately $750,000, of which the Company will be
responsible for $600,000 under its property damage and liability insurance
policies.
The remainder of this page is intentionally left blank.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Unaudited Consolidated Financial Statements and related notes included elsewhere
in this Quarterly Report on Form 10-Q.
GENERAL
The Company's growth to date has resulted primarily from implementation of
its expansion strategy. The number of miles operated by RailTex has grown to
more than 3,500 at June 30, 1996.
The Company has added railroad properties to its portfolio primarily
through purchase of track and roadbed, lease of such assets, and contracts to
operate such assets under management agreements. These arrangements typically
relate only to the physical assets of the railroad property; except for the
purchase of the Indiana & Ohio Railcorp, the Company typically does not
contractually assume any of the operations or liabilities of the divesting
carriers. After acquiring the right to operate each of its railroad properties,
the Company must arrange for the purchase or lease of operating equipment and
hire the work force necessary to operate the railroad. Accordingly, for any
railroad property, the historical results of operations of the railroad property
as previously operated are not necessarily indicative of the results of
operations for the property following commencement of operations by the Company.
Because of variations in the structure, timing and size of portfolio
additions and differences in economics among the Company's portfolio railroads
resulting from the unique terms, rates and other provisions for each railroad's
operation established through negotiation between RailTex and each divesting
carrier, the Company's results of operations in any reporting period are not
directly comparable to (i) its results of operations in other reporting periods
or (ii) the results of operations of other railroad companies. Therefore, care
should be taken when using traditional measurements of railroad operating
performance, such as freight revenues per carload, operating ratio and labor
ratio, in assessing or comparing the Company's operating results.
"Comparable Railroad Properties" for each period are railroad properties
which the Company operated throughout both the full current year period and the
full prior year period. "New Railroad Properties" for each period are railroad
properties which the Company began operating after the start of the prior year
period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30,
1995.
Comparable Railroad Properties for the three months ended June 30, 1996,
compared to the three months ended June 30, 1995, include all railroads except
for the Indiana & Ohio Railcorp (the "I&O") which commenced operations on June
4, 1996 and the Austin and Northwestern Railroad (the "AUNW") which terminated
operations on May 6, 1996.
Excluding the impact of the special charge recorded in 1995, the Company's
net income for the three months ended June 30, 1996, increased approximately
$587,000, or 28.9%, to $2.6 million from $2.0 million in the prior year period
and net income per share increased 27.3% to $0.28 per share from $0.22 per share
in the prior year period. Including the impact of the special charge recorded in
1995, net income for the three months ended June 30, 1996 increased $2.0
million, or 306.4% to $2.6 million from approximately $645,000 in the prior year
period and net income per share increased 400.0% to $0.28 per share from $0.07
per share in the prior year period.
11
<PAGE>
The following table compares operating revenues, operating expenses,
operating income and income before income taxes, excluding the 1995 special
charge, for the three months ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
1995 1996
--------- ---------
<S> <C> <C>
Operating Revenues.......... $27,295 $30,148
Operating Expenses.......... 22,876 24,490
------- -------
Operating Income............ 4,419 5,658
Other Income (Expense)...... (1,029) (1,366)
------- -------
Income Before Income Taxes.. $ 3,390 $ 4,292
======= =======
</TABLE>
Operating Revenues. Operating revenues for the three months ended June 30,
1996 increased by $2.9 million, or 10.5%, to $30.1 million from $27.3 million in
the prior year period. Operating revenues attributable to New Railroad
Properties accounted for 24.3% of this increase. Operating revenues for
Comparable Railroad Properties increased $2.2 million, or 8.1%. Carloads
transported increased by 10,212 carloads, or 12.8%, to 89,803 carloads from
79,591 carloads in the prior year period. Carloads attributable to New Railroad
Properties accounted for 11.0% of this increase. Carloads attributable to
Comparable Railroad Properties increased by 9,564, or 12.1%, from the prior year
period.
Freight revenues for the three months ended June 30, 1996 increased $2.7
million, or 11.5%, to $25.8 million from $23.2 million in the prior year period.
The following table compares freight revenues, traffic volume (in carloads) and
average freight revenues per carload by commodity group for the three months
ended June 30, 1995 and 1996.
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
THREE MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER CARLOAD AMOUNTS)
<TABLE>
<CAPTION>
AVERAGE FREIGHT
REVENUES PER
FREIGHT REVENUES CARLOADS CARLOAD(1)
-------------------------------------- ------------------------------- ---------------
1995 1996 1995 1996 1995 1996
-------------------- ---------------- --------------- -------------- ---- ----
% OF % OF % OF % OF
COMMODITY GROUP DOLLARS TOTAL DOLLARS TOTAL NUMBER TOTAL NUMBER TOTAL
- --------------- ------- ------- ------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lumber and forest products.... $ 4,719 20.4% $ 5,671 22.0% 11,641 14.6% 14,460 16.1% $405 $392
Coal.......................... 3,436 14.8 4,249 16.5 16,933 21.3 22,315 24.8 203 190
Chemicals..................... 2,535 10.9 2,744 10.6 7,506 9.4 7,996 8.9 338 343
Farm products................. 1,729 7.5 2,120 8.2 7,523 9.5 8,008 8.9 230 265
Scrap paper & paper products.. 2,620 11.3 2,094 8.1 6,115 7.7 5,087 5.7 428 412
Scrap metal & metal products.. 2,080 9.0 2,048 7.9 6,527 8.2 6,023 6.7 319 340
Non-metallic ores............. 1,488 6.4 1,832 7.1 8,090 10.2 9,658 10.8 184 190
Food products................. 1,263 5.5 1,446 5.6 5,103 6.4 5,381 6.0 248 269
Minerals & stone.............. 1,060 4.6 1,279 5.0 3,693 4.6 3,712 4.1 287 345
Petroleum products............ 1,213 5.2 1,033 4.0 2,719 3.4 2,569 2.9 446 402
Other......................... 1,012 4.4 1,294 5.0 3,741 4.7 4,594 5.1 271 282
------- -------- ------- ----- ------ ----- ------ -----
Total........................ $23,155 100.0% $25,810 100.0% 79,591 100.0% 89,803 100.0% $291 $287
======= ======== ======= ===== ====== ===== ====== =====
</TABLE>
- --------------
(1) Calculated as freight revenues divided by carloads.
Approximately $500,000, or 19.9%, of the increase in freight revenues for
the three months ended June 30, 1996, is attributable to a New Railroad
Property. This property added 1,126, carloads consisting primarily of chemicals
(223), non-metallic ores (222) and scrap paper and paper products (192). Freight
revenues for Comparable Railroad Properties increased $2.3 million, or 10.0%,
while carloadings for Comparable Railroad
12
<PAGE>
Properties increased by 9,654, or 12.1%, consisting primarily of coal (5,382),
lumber and forest products (2,784) and non-metallic ores (1,633).
Non-freight revenues for the three months ended June 30, 1996 increased
approximately $198,000, or 4.8%, to $4.3 million from $4.1 million in the prior
year period. Non-freight revenues include joint facilities, switching,
demurrage, car hire, car repair and track maintenance services performed for
third parties and lease income. These non-freight revenues contributed 14.4% and
15.2% of operating revenues in the three months ended June 30, 1996 and 1995,
respectively. New Railroad Properties contributed approximately $164,000, or
82.8%, of the increase. Non-freight revenues for Comparable Railroad Properties
decreased approximately $102,000, or 2.5%, primarily as a result of decreased
Amtrak revenues, car repair and other income which were partially offset by
increases in car hire income, switching income and demurrage. The remainder of
the increase is due to operating revenues associated with the Company's
agreement with Tengizchevroil ("TCO") to provide operating management of the TCO
railroad in Kazakhstan and due to a consulting fee earned in connection with the
Company's investment in Ferrovia Centro Atlantica S.A.
Operating Expenses. Operating expenses, excluding the special charge
recognized in 1995, for the three months ended June 30, 1996 increased $1.6
million, or 7.1%, to $24.5 million from $22.9 million in the prior year period.
The Company's operating ratio (operating expenses divided by operating
revenues), decreased for the period to 81.2%, compared to 83.8% in the prior
year period, primarily as a result of decreased equipment rents as discussed
below. Including the special charge recorded in 1995, the Company's operating
ratio improved by 10.5 points to 81.2% from 91.7% in the prior year period.
The following table sets forth a comparison of the Company's operating
expenses during the three month periods ended June 30, 1995 and 1996, in dollars
and as a percentage of operating revenues:
<TABLE>
<CAPTION>
OPERATING EXPENSES COMPARISON
THREE MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1995 1996
------------------------- -------------------------
% OF OPERATING % OF OPERATING
DOLLARS REVENUE DOLLARS REVENUE
------- ------- ------- -------
<S> <C> <C>
Labor and benefits...................... $ 8,441 30.9% $ 8,663 28.7%
Equipment rents......................... 3,837 14.1 3,416 11.3
Depreciation and amortization........... 1,998 7.3 2,451 8.1
Diesel fuel............................. 1,875 6.9 2,277 7.6
Purchased services...................... 1,476 5.4 2,179 7.2
Casualties and insurance................ 1,398 5.1 1,322 4.4
Materials............................... 1,151 4.2 1,139 3.8
Other................................... 2,700 9.9 3,043 10.1
------- ---- ------- ----
Total excluding special charge......... 22,876 83.8 24,490 81.2
Special charge.......................... 2,140 7.8 -- --
------- ---- ------- ----
Total.................................. $25,016 91.7% $24,490 81.2%
======= ==== ======= ====
</TABLE>
Labor and benefits for the three months ended June 30, 1996 increased
approximately $222,000, or 2.6%, to $8.6 million from $8.4 million in the prior
year period. Labor and benefits attributable to New Railroad Properties
accounted for 90.5% of this increase. Labor and benefits for Comparable Railroad
Properties were unchanged from the prior year period as increased wages
associated with higher business levels at certain properties were offset by cost
reductions at other properties. Additionally, headquarters' staff costs were
essentially unchanged during the current year period. The remainder of the
increase is due to labor and benefits associated with the management of the TCO
railroad in Kazakhstan.
Equipment rents for the three months ended June 30, 1996 decreased by
approximately $421,000, or 11.0%, to $3.4 million from $3.8 million in the prior
year period. Equipment rents attributable to New Railroad Properties increased
by approximately $65,000 due to the I&O acquisition. Equipment rents for
Comparable
13
<PAGE>
Railroad Properties decreased approximately 9.0% due primarily to decreased car
hire expense. The decrease in car hire expense is due to certain arrangements
made under which the Company agreed to place over 1,900 freight cars on its
railroads for prospective loading by customers and, in exchange, the Company
does not incur rent on these cars when these cars are on one of its railroads.
In addition, the car owners pay the Company a portion of the rents earned when
the freight cars are on railroads other than the Company's. Additionally, the
implementation of car hire reclaim arrangements on certain types of equipment
and a trackage rights arrangement with a connecting Class I carrier on one of
the Company's railroads, which resulted in lower car hire rates, contributed to
the decrease in car hire expense.
Depreciation and amortization for the three months ended June 30, 1996
increased by approximately $453,000, or 22.7%, to $2.5 million from $2.0 million
in the prior year period. New Railroad Properties accounted for 11.9% of this
increase. The remainder is due to capital projects completed for Comparable
Railroad Properties in 1995 and 1996, increased locomotive depreciation related
to the 1995 fleet expansion and depreciation of new computer hardware and
software.
Diesel fuel expense for the three months ended June 30, 1996 increased by
approximately $402,000, or 21.4%, to $2.3 million from $1.9 million in the prior
year period. New Railroad Properties accounted for 3.2% of this increase. Diesel
fuel expense for Comparable Railroad Properties increased by approximately
$399,000, or 21.5%, due to a combination of higher fuel prices and increased
consumption related to increased carloadings during the current year period. The
Company's average fuel cost per gallon increased approximately $0.10 per gallon,
or 14.5%, in the current year period. The Company has taken several steps to
reduce its exposure to fuel price fluctuations, including entering into a fuel
hedging collar for approximately 32.0% of the Company's estimated annual fuel
consumption. Additionally, the Company has retained an independent contractor to
negotiate fuel prices for the Company's railroads on a centralized basis. This
contractor will be compensated on a percentage of cost savings.
Purchased services for the three months ended June 30, 1996 increased
approximately $703,000, or 47.6%, to $2.2 million from $1.5 million in the prior
year period. Purchased services attributable to New Railroad Properties
accounted for 12.8% of this increase. Purchased services for Comparable Railroad
Properties increased by approximately $371,000, or 27.9%, primarily due to
increased contract labor related to maintenance of way and warehousing
operations. The remainder is primarily due to increased headquarters' computer
services expenses.
Casualties and insurance expense for the three months ended June 30, 1996
decreased by approximately $77,000, or 5.4%, to $1.3 million from $1.4 million
in the prior year period. Casualties and insurance expense for New Railroad
Properties increased approximately $10,000. Casualties and insurance expense for
Comparable Railroad Properties increased by $362,000, or 29.1%, due to an
increase in derailments and weather related casualty expenses this increase for
Comparable Railroad Properties was offset by lower headquarters insurance
premiums and adjustments to its self insured retention liability.
Materials expense for the three months ended June 30, 1996 decreased by
approximately $12,000, or 1.0%, to $1.1 million from $1.1 million in the prior
year period. Materials costs associated with New Railroad Properties increased
by approximately $34,000. Materials expense for Comparable Railroad Properties
decreased approximately $85,000, or 7.6%, primarily as a result of decreased car
repair and locomotive materials in the current year period.
Other expenses for the three months ended June 30, 1996, including property
and franchise taxes and joint facilities, increased approximately $343,000, or
12.7%, to $3.0 million from $2.7 million in the prior year period. Approximately
22.7% of this increase is attributable to New Railroad Properties. Other
expenses for Comparable Railroad Properties increased by approximately $156,000,
or 7.7%, due primarily to increased trackage rights expense, property taxes and
bad debt expense. Trackage rights expense increased due to the track lease and
operating rights agreement with a connectiong Class I carrier on one of the
Company's railroads. Property
14
<PAGE>
taxes increased due to higher tax valuations. The remainder of the increase is
due to increased corporate headquarters' costs associated with the Company's
growth.
Other Income. Other income for the three months ended June 30, 1996
decreased by approximately $144,000, or 45.1%, to $175,000 from $319,000 in the
prior year period due primarily to fewer sales of non-operating properties.
Income Taxes. The Company's effective tax rate, excluding the 1995 special
charge, decreased slightly in the three months ended June 30, 1996 to 38.9% from
40.0% in the prior year period.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995.
Comparable Railroad Properties for the six months ended June 30, 1996
compared to the six months ended June 30, 1995 include all railroads except for
the I&O which commenced operations on June 4, 1996, the New England Central
Railroad (the "NECR") which commenced operations on February 4, 1995 and the
AUNW which terminated operations on May 6, 1996.
Excluding the impact of the special charge recorded in 1995, the Company's
net income for the six months ended June 30, 1996 increased by $1.0 million, or
27.7%, to $4.8 million from $3.8 million in the prior year period. Net income
per share increased 18.2% to $0.52 per share from $0.44 per share in the prior
year period. Including the special charge recorded in 1995, the Company's net
income increased by $2.4 million, or 102.4%, to $4.8 million from $2.4 million
in the prior year period and net income per share increased 85.7% to $0.52 per
share from $0.28 per share.
The following table compares operating revenues, operating expenses,
operating income and income before income taxes, excluding the special charge,
for the six months ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995 1996
-------- --------
<S> <C> <C>
Operating Revenues.......... $52,439 $58,757
Operating Expenses.......... 43,994 48,169
------- -------
Operating Income............ 8,445 10,588
Other Income (Expense)...... (2,193) (2,580)
------- -------
Income Before Income Taxes.. $ 6,252 $ 8,008
======= =======
</TABLE>
Operating Revenues. Operating revenues for the six months ended June 30,
1996 increased by $6.3 million, or 12.0%, to $58.7 million from $52.4 million in
the prior year period. Operating revenues attributable to New Railroad
Properties accounted for 49.9% of this increase. Operating revenues for
Comparable Railroad Properties increased $3.1 million, or 6.8%. Carloads
transported increased by 19,865 carloads, or 12.7%, to 176,134 carloads from
156,269 carloads in the prior year period. Carloads attributable to New Railroad
Properties accounted for 27.5% of this increase. Carloads attributable to
Comparable Railroad Properties increased by 14,858, or 10.4%, from the prior
year period.
Freight revenues for the six months ended June 30, 1996 increased $5.4
million, or 12.2%, to $50.1 million from $44.7 million in the prior year period.
The following table compares freight revenues, traffic volume (in carloads) and
average freight revenues per carload by commodity group for the six months ended
June 30, 1995 and 1996.
15
<PAGE>
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER CARLOAD AMOUNTS)
<TABLE>
<CAPTION>
AVERAGE FREIGHT
REVENUES PER
FREIGHT REVENUES CARLOADS CARLOAD(1)
------------------------------------- -------------------------------- --------------
1995 1996 1995 1996 1995 1996
------------------ --------------- ---------------- -------------- ---- ----
% OF % OF % OF % OF
COMMODITY GROUP DOLLARS TOTAL DOLLARS TOTAL NUMBER TOTAL NUMBER TOTAL
- --------------- ------- -------- ------- ------ ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lumber and forest products. $ 9,141 20.4% $10,796 21.5% 23,287 14.9% 27,889 15.8% $393 $387
Coal....................... 7,419 16.6 8,150 16.2 35,607 22.8 42,222 24.0 208 193
Chemicals.................. 5,057 11.3 5,400 10.8 15,362 9.8 16,075 9.1 329 336
Scrap paper & paper
products.................. 4,781 10.7 4,526 9.0 11,449 7.3 10,927 6.2 418 414
Farm products.............. 3,400 7.6 4,172 8.3 14,683 9.4 17,010 9.7 232 245
Scrap metal & metal
products.................. 3,983 8.9 4,115 8.2 12,492 8.0 12,059 6.8 319 341
Non-metallic ores.......... 2,667 6.0 3,697 7.4 14,775 9.5 19,205 10.9 181 193
Food products.............. 2,321 5.2 2,662 5.3 9,655 6.2 10,051 5.7 240 265
Petroleum products......... 2,205 4.9 2,219 4.4 5,051 3.2 5,464 3.1 437 406
Minerals & stone........... 1,786 4.0 2,151 4.3 6,457 4.1 6,680 3.8 277 322
Other...................... 1,965 4.4 2,276 4.6 7,451 4.8 8,552 4.9 264 266
------- ----- ------- ----- ------- ----- ------- -----
Total..................... $44,725 100.0% $50,164 100.0% 156,269 100.0% 176,134 100.0% $286 $285
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ------------------------
(1) Calculated as freight revenues divided by carloads.
Approximately $2.9 million, or 53.8%, of the $5.4 million increase in
freight revenues for the six months ended June 30, 1996, is attributable to New
Railroad Properties. These properties added approximately 5,460 carloads
consisting primarily of scrap paper and paper products (993), scrap metal and
metal products (823), non-metallic ores (811), chemicals (798), food products
(537) and lumber and forest products (447). Freight revenues for Comparable
Railroad Properties increased $2.7 million, or 7.0%, while carloadings for
Comparable Railroad Properties increased by 14,858, or 10.4%, consisting
primarily of coal (6,593), lumber and forest products (4,160), non-metallic ores
(3,884) and farm products (2,155).
Non-freight revenues for the six months ended June 30, 1996 increased
approximately $879,000, or 11.4%, to $8.6 million from $7.7 million in the prior
year period. Non-freight revenues include joint facilities, switching,
demurrage, car hire, car repair and track maintenance services performed for
third parties and lease income. These non-freight revenues contributed 14.6% and
14.7% of operating revenues in the six months ended June 30, 1996 and 1995,
respectively. New Railroad Properties contributed approximately $225,000, or
25.6% of the increase, primarily as a result of Amtrak revenues, demurrage and
lease income. Non-freight revenues for Comparable Railroad Properties increased
approximately $396,000, or 6.2%, primarily as a result of increased car hire,
switching and other income which were partially offset by corresponding
decreases in car hire expenses. The remainder of the increase is due to
operating revenues associated with the Company's agreement with TCO to provide
operating management of the TCO railroad in Kazakhstan and due to a consulting
fee earned in connection with the Company's investment in Ferrovia Centro
Atlantica S.A.
Operating Expenses. Operating expenses for the six months ended June 30,
1996, excluding the effects of the special charge recorded in 1995, increased
$4.2 million, or 9.5%, to $48.2 million from $44.0 million in the prior year
period. The Company's operating ratio (operating expenses divided by operating
revenues), decreased for the period to 82.0%, compared to 83.9% in the prior
year period, primarily as a result of decreased labor and benefits, equipment
rents and materials as discussed below. Including the special charge recorded in
1995, the Company's operating ratio improved by 6.0 points to 82.0% from 88.0%
in the prior year period.
16
<PAGE>
The following table sets forth a comparison of the Company's operating
expenses during the six month periods ended June 30, 1995 and 1996, in dollars
and as a percentage of operating revenues:
OPERATING EXPENSES COMPARISON
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------------ -------------
% OF OPERATING % OF OPERATING
DOLLARS REVENUE DOLLARS REVENUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Labor and benefits...................... $16,145 30.8% $17,088 29.1%
Equipment rents......................... 7,681 14.6 6,686 11.4
Depreciation and amortization........... 3,809 7.3 4,727 8.0
Diesel fuel............................. 3,786 7.2 4,679 8.0
Purchased services...................... 2,711 5.2 3,975 6.8
Casualties and insurance................ 2,669 5.1 2,919 5.0
Materials............................... 2,450 4.7 2,110 3.6
Other................................... 4,743 9.0 5,985 10.2
------- ---- ------- ----
Total excluding special charge......... $43,994 83.9% $48,169 82.0%
Special charge.......................... 2,140 4.1 -- --
------- ---- ------- ----
Total.................................. $46,134 88.0% $48,169 82.0%
======= ==== ======= ====
</TABLE>
Labor and benefits for the six months ended June 30, 1996 increased
approximately $943,000, or 5.8%, to $17.0 million from $16.1 million in the
prior year period. Labor and benefits attributable to New Railroad Properties
accounted for 76.2% of this increase. Labor and benefits for Comparable Railroad
Properties increased approximately $162,000, or 1.5%, despite the 10.4% increase
in carloadings due primarily to a focus on cost containment. Headquarters' staff
costs increased by approximately 3.0%.
Equipment rents for the six months ended June 30, 1996 decreased by
approximately $995,000, or 13.0%, to $6.7 million from $7.7 million in the prior
year period. Equipment rents attributable to New Railroad Properties increased
approximately $203,000, or 13.3%, due primarily to operating the New England
Central Railroad for six months in the current year period versus five months in
the prior year period. Equipment rents for Comparable Railroad Properties
decreased approximately 10.7% due primarily to decreased car hire expense. The
decrease in car hire expense is due to certain arrangements made under which the
Company agreed to place over 1,900 freight cars on its railroads for prospective
loading by customers and, in exchange, the Company does not incur rent on these
cars when these cars are on one of its railroads. In addition, the car owners
pay the Company a portion of the rents earned when the freight cars are on
railroads other than the Company's. Additionally, the implementation of car hire
reclaim arrangements on certain types of equipment and the trackage rights
arrangement with a connecting Class I carrier on one of the Company's railroads,
which resulted in lower car hire rates, contributed to the decrease in car hire
expense. The remainder of the decrease is attributable to the AUNW which ceased
operations in May 1996.
Depreciation and amortization for the six months ended June 30, 1996
increased by approximately $918,000, or 24.1%, to $4.7 million from $3.8 million
in the prior year period. New Railroad Properties accounted for 22.9% of this
increase. The remainder is due to capital projects completed for Comparable
Railroad Properties in 1995 and 1996, increased locomotive depreciation related
to the 1995 fleet expansion and depreciation of new computer hardware and
software.
Diesel fuel expense for the six months ended June 30, 1996 increased by
approximately $894,000, or 23.6%, to $4.7 million from $3.8 million in the prior
year period. New Railroad Properties accounted for 45.1%
17
<PAGE>
of this increase. Diesel fuel expense for Comparable Railroad Properties
increased by approximately $490,000, or 14.9%, due to a combination of increased
consumption related to increased carloadings and higher fuel prices during the
current year period. The Company's average fuel cost per gallon increased
approximately $0.07 per gallon, or 10.0%, in the current year period. The
Company has taken several steps to reduce its exposure to fuel price
fluctuations, including entering into a fuel hedging collar for approximately
32.0% of the Company's estimated annual fuel consumption. Additionally, the
Company has retained an independent contractor to negotiate fuel prices for the
Company's railroads on a centralized basis. This contractor will be compensated
on a percentage of cost savings.
Purchased services for the six months ended June 30, 1996 increased $1.3
million, or 46.6%, to $4.0 million from $2.7 million in the prior year period.
Purchased services attributable to New Railroad Properties accounted for 8.2% of
this increase. Purchased services for Comparable Railroad Properties increased
by approximately $809,000, or 35.2%, and was due primarily to increased contract
labor related to maintenance of way, car repair and warehousing activities. The
remainder is primarily due to increased headquarters' legal and computer
services.
Casualties and insurance expense for the six months ended June 30, 1996
increased by approximately $250,000, or 9.4%, to $2.9 million from $2.7 million
in the prior year period. New Railroad Properties accounted for 62.8% of this
increase. Casualties and insurance expense for Comparable Railroad Properties
increased by approximately $92,000, or 3.8%, as lower insurance premiums related
to an increase in the Company's self insured retention were offset by higher
casualty expenses.
Materials expense for the six months ended June 30, 1996 decreased by
approximately $340,000, or 13.9%, to $2.1 million from $2.4 million in the prior
year period. Materials costs associated with New Railroad Properties increased
by approximately $216,000. Materials expense for Comparable Railroad Properties
decreased approximately $620,000, or 29.2%, primarily as a result of decreased
car repairs and locomotive repairs in the current year period.
Other expenses for the six months ended June 30, 1996, including property
and franchise taxes and joint facilities, increased $1.3 million, or 26.1%, to
$6.0 million from $4.7 million in the prior year period. Approximately 32.3% of
this increase is attributable to New Railroad Properties. Other expenses for
Comparable Railroad Properties increased by approximately $394,000, or 12.3%,
due primarily to increased trackage rights expense, property taxes and bad debt
expense. Trackage rights expense increased due to the track lease and operating
rights agreement with a connecting Class I carrier on one of the Company's
railroads. Property taxes increased due to higher 1996 tax valuations. The
remainder of the increase is due to increased corporate headquarters costs
associated with the Company's growth.
Other Income. Other income for the six months ended June 30, 1996
decreased by approximately $197,000, or 30.9%, to $440,000 from $637,000 in the
prior year period due primarily to fewer sales of non- operating properties.
Income Taxes. The Company's effective tax rate, excluding the 1995 special
charge, increased slightly, in the six months ended June 30, 1996 to 40.0% from
39.8% in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied primarily on cash generated from
operations to fund working capital and capital expenditure needs relating to
ongoing operations while relying on contributed capital and borrowed funds to
finance its acquisitions.
During the six months ended June 30, 1996, the Company generated cash from
operations of $15.3 million, of which $10.2 million was used to fund non-
acquisition related capital expenditures and $1.2 million was
18
<PAGE>
used to reduce outstanding borrowings under the Company's bank credit facilities
exclusive of a $2.1 million paydown of long term debt assumed in the I&O
acquisition. Cash and cash equivalents increased by $3.4 million during the six
months ended June 30, 1996 resulting in a cash balance at June 30, 1996 of $5.6
million.
On June 4, 1996, the Company acquired 100% of the outstanding stock of the
Indiana & Ohio Railcorp (the "I&O") for $8.9 million cash and the assumption of
approximately $3.5 million of debt. This acquisition was funded by borrowings
under the Company's $75.0 million revolving acquisition facility (the "U.S.
Acquisition Facility").
In June 1996, a newly formed wholly owned subsidiary of the Company,
RailTex International Holdings, Inc., completed its initial investment in a
Consortium which was awarded a 30 year concession to operate the 4,400 mile
Center Eastern Network of the Brazilian federal railroad. The Consortium, for
which a new company was subsequently formed and named Ferrovia Centro Atlantica
S.A., was awarded the concession at the governments minimum bid price of
approximately U.S. $318.0 million. The Brazilian government structured the
transaction as a 30 year concession with a 20.0% down payment and future lease
payments due in quarterly installments after an initial two year grace period.
RailTex International Holdings owns 12.5% of the voting stock and 13.4% of the
non-voting stock of Ferrovia Centro Atlantica S.A. and will account for the
transaction using the cost method of accounting. The Company's initial
investment, to fund its share of the down payment, was approximately U.S. $8.2
million and was funded by borrowings under the U.S. Acquisition Facility. During
the last six months of 1996, an additional investment of approximately U.S. $7.9
million will be required to provide initial working capital to Ferrovia Centro
Atlantica S.A. and is expected to be funded by additional borrowings under the
U.S. Acquisition Facility.
At June 30, 1996, the Company had long-term senior debt, capital leases and
senior subordinated debt outstanding totaling $78.3 million, which constituted
40.0% of its total capitalization. Comparable figures at December 31, 1995 were
$58.9 million and 34.3%, respectively.
The Company now anticipates that its maintenance capital expenditure
requirements in 1996 for track, locomotives and equipment on properties it
currently operates will be approximately $12.0 million. Additionally, computer
hardware, software and related capital expenditures are currently expected to be
approximately $4.5 million.
On May 17, 1996 the Company entered into a new domestic credit agreement
consisting of a $10.0 million domestic working capital facility (the "U.S.
Working Capital Facility") and a $75.0 million domestic acquisition facility
(the "U.S. Acquisition Facility"), replacing similar facilities which would
expire in May 1996 and May 1997 respectively. The Company may borrow up to 65.0%
of its eligible accounts receivable under the U.S. Working Capital Facility to
provide working capital and may borrow under the U.S. Acquisition Facility to
finance acquisitions of property and equipment which meet defined criteria. The
new facilities expire on April 30, 1999. Interest is payable monthly under the
U.S. Working Capital Facility until April 30, 1999 when all borrowings become
payable. New borrowings under the U.S. Acquisition facility are monthly interest
only until they are rolled into a term note annually on April 30. The term notes
are amortized over a six year period, however all borrowings become payable
three years from their date of funding, none later than April 30, 2002. Both the
U.S. Working Capital and U.S. Acquisition Facility bear interest rates based on
stated borrowing margins over the London Interbank Offered Rate ("LIBOR") or the
U.S. prime rate. The borrowing margins are dependent upon the Company's leverage
ratio and are adjusted quarterly. On June 30, 1996 borrowings outstanding under
the U.S. Acquisition Facility were $19.3 million. There were no borrowings under
the U.S. Working Capital Facility at June 30, 1996.
On June 21, 1996 the Company entered into a new Canadian credit agreement
consisting of a $5.0 million Canadian revolving working capital facility (the
"Canadian Working Capital Facility"), which replaced a revolving credit facility
that expired May 31, 1996 and was subsequently extended until the closing of the
new agreement, and a new $25.0 million Canadian acquisition credit agreement
(the "Canadian Acquisition Facility").
19
<PAGE>
The Canadian credit agreements contain terms and conditions similar to the U.S.
Agreements. The Canadian facilities bear interest based on stated borrowing
margins over the bankers acceptance rate (the "BA Rate") or the Canadian prime
rate. The borrowing margins are dependent upon the Company's leverage ratio and
are adjusted quarterly. On June 30, 1996 borrowings outstanding under the
Canadian Working Capital Facility were approximately U.S. $725,000. There were
no borrowings under the Canadian Acquisition Facility at June 30, 1996.
At June 30, 1996, availability under the U.S. Acquisition Facility, the
U.S. Working Capital Facility, the Canadian Working Capital Facility and
Canadian Acquisition Facility was, in U.S. dollars, $55.7 million, $10.0
million, approximately $2.9 million and approximately $18.2 million,
respectively. The unused portion of all of the Company's senior bank credit
facilities are subject to a 0.25% commitment fee. In addition, RailTex, Inc.,
the parent company, is a guarantor of the Canadian Credit Facility.
Covenants contained in the agreements evidencing the Company's senior and
senior subordinated debt prohibit the Company from paying dividends in its
capital stock and limit its ability to incur additional indebtedness, create
liens on its assets, make capital expenditures over a defined limit and
repurchase shares of its capital stock or any outstanding options or other
rights to acquire stock of the Company. The Company is also limited in its
ability to make loans, investments, or guarantees. The Company is required to
maintain a minimum tangible net worth and to meet certain other financial
ratios. At June 30, 1996 the Company was in compliance with all covenants.
The Company believes its cash flow from operations together with available
amounts under the U.S. Working Capital Facility and Canadian Revolving Credit
Facility will allow it to meet its liquidity and capital expenditure
requirements for railroads it currently operates through the expiration of these
facilities in April 1999.
INFLATION
In recent years, inflation has not had a significant impact on the
Company's operations. The Company's contracts with connecting carriers typically
include clauses that adjust the Company's per car fees based on the ICC's cost
or inflation indices.
SEASONALITY
The Company's operating revenues from existing operations have not
historically been subject to significant seasonal changes.
ACCOUNTING MATTERS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123") was issued. FAS 123
defines a fair value based method of accounting for employee stock options or
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. Under the fair
value based method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period of the award, which
is usually the vesting period. However, FAS 123 also allows entities to continue
to measure compensation costs for employee stock compensation plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Entities electing to
remain with the accounting prescribed by APB 25 must make pro forma disclosures
of net income and earnings per share as if the fair value based method
recommended by FAS 123 had been applied. The accounting requirements of FAS 123
are effective for transactions entered into in fiscal years that begin after
December 15, 1995, though they may be adopted on issuance. The disclosure
requirements of FAS 123 are effective for financial statements for fiscal years
beginning after December 15, 1995. The Company intends to continue measuring
compensation costs using APB 25 and to provide pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
under FAS 123 had been applied. Therefore, FAS 123 is not expected to have a
material effect on the financial condition or results of operations of the
Company.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
- ------- ------------------------
ITEM 2. CHANGES IN SECURITIES - NONE
- ------- ----------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
- ------- --------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
- ------- ----------------------------------------------------
(a) The Annual Meeting of Shareholders was held on June 12, 1996.
(b) In accordance with the bylaws of the Company, the following directors
were elected to serve for a three year term expiring in 1999 and until
their respective successors are elected and qualified:
Bruce M. Flohr
Palmer L. Moe
Laura D. Davies
(c)(1) The directors named in (b) above were elected by the following votes:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Bruce M. Flohr 8,188,470 25,713
Palmer L. Moe 8,186,267 27,916
Laura D. Davies 8,187,659 26,524
</TABLE>
(c)(2) A majority of shares were voted to approve an amendment to the Company's
1993 Stock Plan (the "1993 Plan") which (i) increased the maximum number of
shares of Common Stock under the 1993 Plan from 750,000 to 1,250,000,
without reduction for the number of shares issued upon exercise of options
granted outside of the 1993 Plan; (ii) extends the exercise period for
Outside Directors' Options from two to 10 years and increases the number of
shares which may be purchased under Outside Directors' Options from 2,000
to 3,000; (iii) specified 1,250,000 shares as the maximum number of shares
issuable under the 1993 Plan to any employee in any year; (iv) permitted
the 1993 Plan administrator to specify shorter vesting periods for non-
qualified options; and (v) clarified that cashless exercises of stock
rights are permitted under the 1993 Plan. The vote was 6,775,064 votes for,
487,264 votes against and 15,499 abstentions.
(c)(3) A majority of shares were voted to approve Arthur Anderson LLP as the
Company's auditors for the 1996 fiscal year. The vote was 8,200,205 for,
6,738 against and 7,240 abstentions.
(d) None.
ITEM 5. OTHER INFORMATION -NONE
- ------- -----------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
21
<PAGE>
(A). EXHIBITS
--------
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -------------------------
*3(i) Restated Articles of Incorporation of the Company.
*3(ii) Bylaws of the Company.
*4.1 Specimen Common Stock Certificate.
*4.2 Note Agreement, dated as of January 1, 1993, among the Company and
Massachusetts Mutual Life Insurance Company, MassMutual
Participation Investors and MassMutual Corporate Investors.
*4.3 Purchase Agreement, dated as of August 28, 1991, among the Company
and Banc One Capital Partners Corporation, Ventex Partners Ltd.,
and First Century Partnership III.
10.1 Credit Agreement, dated as of May 17, 1996, between the Company;
First Interstate Bank of Texas, N.A.; as Agent, and the several
financial institutions that are parties to the Credit Agreement.
10.2 First Amendment to Credit Agreement, dated as of June 11, 1996,
between the Company; Wells Fargo Bank (Texas), N.A.; as
Agent, and the several financial institutions that are parties to
the Credit Agreement.
10.3 Second Amendment to Credit Agreement, dated as of July 22, 1996,
between the Company; Wells Fargo Bank (Texas), N.A.; as
Agent, and the several financial institutions that are parties to
the Credit Agreement.
10.4 Loan Agreement, dated as of June 21, 1996, between RailTex Canada,
Inc., as Borrower and National Bank of Canada and ABN AMRO Bank
Canada, as Lenders and National Bank of Canada, as Agent.
10.5 (This exhibit is intentionally left blank).
10.6 (This exhibit is intentionally left blank).
10.7 (This exhibit is intentionally left blank).
*10.8 Contract for Rail Freight Service, dated July 31, 1986, by and
between the City of Austin, Capital Metropolitan Transportation
Authority and Austin Railroad Company, Inc.
*10.9 Indenture of Lease and Option to Purchase Agreement, dated February
28, 1990, by and between Southern Railway Company and Chesapeake
and Albemarle Railroad Company, Inc.
*10.10 Lease Agreement, dated February 9, 1992, by and between Missouri
Pacific Railroad Company and Dallas, Garland & Northeastern
Railroad Company, Inc.
*10.11 Line Sale Contract, dated February 5, 1992, by and between Missouri
Pacific Railroad Company and Dallas, Garland & Northeastern
Railroad Company, Inc.
22
<PAGE>
*10.12 Smithville, GA to White Oak, AL Lease and Option to Purchase
Agreement, dated December 22, 1988, by and between Central of
Georgia Railroad Company, the South Western Rail Road Company and
South Carolina Central Railroad Company, Inc.
*10.13 Asset Purchase Agreement, dated October 29, 1990, by and between
the Goderich-Exeter Railway Company Limited and Canadian National
Railway Company.
*10.14 Operating and Marketing Agreement, dated October 29, 1990, between
Goderich-Exeter Railway Company Limited and Canadian National
Railway Company.
*10.15 Purchase and Sale Agreement, dated July 9, 1993, by and between
Central Michigan Railway Company and Grand Rapids Eastern Railroad.
*10.16 Purchase and Sale Agreement, dated March 19, 1992, by and between
Indiana Southern Railroad, Inc. and Consolidated Rail Corporation.
*10.17 Transportation Contract ICC-CR-C-4553, dated September 28, 1987, by
and between Consolidated Rail Corporation and Indianapolis Power &
Light Company and all amendments thereto.
*10.18 Lease Agreement, dated December 11, 1992, by and between Missouri
Pacific Railroad Company and Missouri & Northern Arkansas Railroad
Company, Inc.
*10.19 Line Sale Contract, dated December 11, 1992, by and between Missouri
Pacific Railroad Company and Missouri & Northern Arkansas Railroad
Company, Inc.
*10.20 Permanent Freight Railroad Operating Easement, dated March 31, 1993,
by and between the Union Pacific Railroad Company and the Salt Lake
City Southern Railroad Co., Inc.
*10.21 Administration and Coordination Agreement, dated March 31, 1993, by
and between the Salt Lake City Southern Railroad Co., Inc. and the
Utah Transit Authority.
*10.22 Agreement for Operation of Freight Service and Control Through
Management of SD&AE, dated March 8, 1984, between San Diego and
Arizona Eastern Railway Company, San Diego Metropolitan Transit
Development Board and the Company.
*10.23 Agreement, dated July 15, 1986, between San Diego and Imperial
Valley Railroad and Ferrocarril Sonora-Baja California.
*10.24 Lease Agreement, dated March 2, 1990, between Missouri Pacific
Railroad Company and Mid-Michigan Railroad, Inc.
*10.25 Lease and Option to Purchase Agreement, dated November 10, 1988, by
and between Southern Railway Company and North Carolina & Virginia
Railroad.
*10.26 Asset Purchase Agreement, dated September 18, 1992, by and between
Cape Breton & Central Nova Scotia Railway Limited and Canadian
National Railway Company.
*10.27 Operating and Marketing Agreement, dated September 18, 1992, between
Cape Breton & Central Nova Scotia Railway Limited and Canadian
National Railway Company.
23
<PAGE>
*10.28 Note Agreement, dated as of January 1, 1993, among the Company and
Massachusetts Mutual Life Insurance Company, MassMutual
Participation Investors and MassMutual Corporate Investors (included
as Exhibit 4.2).
*10.29 Purchase Agreement, dated as of August 28, 1991, among the Company
and Banc One Capital Partners Corporation, Ventex Partners Ltd., and
First Century Partners III (included as Exhibit 4.3).
10.30 Form of Amended 1993 Stock Plan of the Company.
*10.31 Form of Non-Statutory Stock Option Agreement between the Company
and its officers.
*10.32 Interest Rate Swap Agreement, dated September 16, 1992, between
the Company and First Interstate Bank of Texas, N.A.
*10.33 Form of Indemnification Agreement between the Company and its
officers and directors.
*10.34 Form of Indemnification Agreement between RailTex Service Co.,
Inc. and its officers and directors.
***10.35 First Amendment to Credit Agreement, dated as of February 3, 1995,
between the Company; First Interstate Bank of Texas, N.A.; National
Bank of Canada; First Interstate Bank of Texas, N.A., as Agent, and
the several financial institutions that are a party to the Credit
Agreement.
*10.36 Right of First Refusal Agreement, dated October 1, 1993, between
Cape Breton & Central Nova Scotia Railway Limited and Canadian
National Railway Company.
***10.37 Sale Agreement--Siskiyou Line, Coos Bay Branch and White City
Branch, dated as of November 21, 1994, by and between Southern
Pacific Transportation Company and Central Oregon & Pacific
Railroad, Inc.
***10.38 First Amendment to Sale Agreement--Siskiyou Line, Coos Bay Branch
and White City Branch, dated as of December 31, 1994, by and between
Southern Pacific Transportation Company and Central Oregon & Pacific
Railroad, Inc.
***10.39 Lease Agreement, dated as of December 31, 1994, by and between
Southern Pacific Transportation Company and Central Oregon & Pacific
Railroad, Inc.
***10.40 Cooperative Marketing Agreement, dated as of December 31, 1994, by
and between Southern Pacific Transportation Company and Central
Oregon & Pacific Railroad, Inc.
*****10.41 The Note Agreement, dated as of September 1, 1995, between the
Company and the Purchasers named on Schedule I on Note Agreement.
10.42 (This exhibit is intentionally left blank).
10.43 (This exhibit is intentionally left blank).
+10.44 Form of Non-Statutory Stock Option Agreement between the Company
and its outside directors.
24
<PAGE>
***10.45 Letter of Intent, dated May 23, 1994, between Central Vermont
Railway, Inc. and RailTex Service Company, Inc.
****10.46 Lease and Sale Agreement, dated October 6, 1994, by and between
New England Central Railroad, Inc. and Central Vermont Railway, Inc.
*****10.47 The Note Agreement (the "Canadian Note Agreement"), dated as of
September 1, 1995, between RailTex Canada, Inc. and the Purchasers
named on Schedule I to the Canadian Note Agreement.
*****10.48 Guaranty Agreement, dated as of September 1, 1995, by RailTex,
Inc. in favor of Purchasers named on Schedule I to the Canadian Note
Agreement.
+10.49 Interest Rate Swap Agreement, dated January 24, 1995, between
National Bank of Canada and RailTex Canada, Inc.
+10.50 Form of Split Dollar Insurance Agreement between the Company and
its Executive Officers.
10.51 Agreement of Sale Among RailTex, Inc. and Indiana & Ohio Rail Corp.
and all of the Shareholders of Indiana & Ohio Rail Corp.
11.1 Statement Regarding Computation of Per Share Earnings.
27 Financial Data Schedule
______________
* These exhibits are incorporated by reference to the same Exhibit to the
Registrant's Registration Statement No. 33-68938 filed on Form S-1 with
the Securities and Exchange Commission (the "Commission") on September
16, 1993, as amended by Amendment No. 1 to Form S-1 Registration
Statement filed with the Commission on November 1, 1993, Amendment No. 2
to Form S-1 Registration Statement filed with the Commission on November
16, 1993 and Post-Effective Amendment No. 1 to Form S-1 Registration
Statement filed with the Commission on November 19, 1993.
** These exhibits are incorporated by reference to the same Exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1994.
*** These exhibits are incorporated by reference to the same Exhibit to the
Registrant's Registration Statement No. 33-80782 filed on Form S-1 with
the Commission on June 28, 1994, as amended by Amendment No. 1 to Form S-
1 Registration Statement filed with the Commission on September 1, 1994,
Amendment No. 2 to Form S-1 Registration Statement filed with the
Commission on February 17, 1995 and Amendment No. 3 to Form S-1
Registration Statement filed with the Commission on March 6, 1995.
**** These exhibits are incorporated by reference to the same Exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1994.
***** These exhibits are incorporated by reference to the same Exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995.
****** This exhibit is incorporated by reference to the same Exhibit to the
Registrant's Form 10-K for the year ended December 31, 1993.
+ These exhibits are incorporated by reference to the same Exhibit to the
Registrants Annual Report on Form 10-K for the year ended December 31,
1995 filed with the Commission on March 29, 1996.
25
<PAGE>
(B). Reports on Form 8-K:
--------------------
No Reports on Form 8-K were filed by the Registrant during the period covered
by this report.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in San Antonio,
Texas.
RAILTEX, INC.
Date: August 14, 1996 By: /s/ Laura D. Davies
---------------------------
Name: LAURA D. DAVIES
Title: Vice President and Chief Financial
Officer
Date: August 14, 1996 By: /s/ Allen L. Smith
---------------------------
Name: ALLEN L. SMITH
Title: Controller and Chief Accounting
Officer
27
<PAGE>
EXHIBIT 10.1
================================================================================
CREDIT AGREEMENT
By and Among
RAILTEX, INC.,
THE SEVERAL FINANCIAL INSTITUTIONS
PARTY TO THIS AGREEMENT,
and
FIRST INTERSTATE BANK OF TEXAS, N.A.,
As Agent
Dated as of May 17, 1996
$85,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1. DEFINITIONS AND GENERAL RULES............................ 2
Section 1.1 General Rules............................................ 2
Section 1.2 Definitions.............................................. 2
ARTICLE 2 REPRESENTATIONS AND WARRANTIES........................... 18
Section 2.1 Corporate Authority...................................... 18
Section 2.2 Financial Statements..................................... 19
Section 2.3 Governmental Approvals................................... 19
Section 2.4 Litigation............................................... 19
Section 2.5 No Event of Default...................................... 19
Section 2.6 Use of Proceeds.......................................... 19
Section 2.7 Properties, Locations and Offices........................ 20
Section 2.8 Status................................................... 20
Section 2.9 Tax Returns.............................................. 20
Section 2.10 Availability of Records.................................. 20
Section 2.11 Regulations U and X...................................... 20
Section 2.12 Subsidiaries............................................. 21
Section 2.13 ERISA.................................................... 21
Section 2.14 Solvency................................................. 21
Section 2.15 Environmental Condition of the Property.................. 21
Section 2.16 Compliance............................................... 21
Section 2.17 Disclosure............................................... 22
ARTICLE 3 THE CREDIT FACILITY...................................... 22
Section 3.1 Revolving Loans.......................................... 22
Section 3.2 Acquisition Loans........................................ 23
Section 3.3 Advances/Fundings........................................ 24
Section 3.4 Optional Prepayments..................................... 26
Section 3.5 Mandatory Prepayments.................................... 27
Section 3.6 Fees..................................................... 27
Section 3.7 Payments................................................. 28
Section 3.8 Payments by the Lenders to the Agent..................... 29
Section 3.9 Computation of Interest.................................. 29
Section 3.10 No Default............................................... 30
Section 3.11 Taxes.................................................... 30
Section 3.12 Capital Adequacy......................................... 33
Section 3.13 Interest................................................. 34
Section 3.14 Interest Recapture....................................... 34
</TABLE>
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<TABLE>
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Section 3.15 Illegality............................................... 34
Section 3.16 Increased Cost and Reduced Return........................ 35
Section 3.17 Funding Losses........................................... 35
Section 3.18 Eurodollar Rate Protection............................... 36
Section 3.19 Conversions and Renewals................................. 37
ARTICLE 4 CONDITIONS PRECEDENT..................................... 38
Section 4.1 Conditions Precedent to First Loans...................... 38
Section 4.2 Conditions Precedent to Each Revolving Loan.............. 39
Section 4.3 Conditions Precedent to each Interim Acquisition Loan.... 40
Section 4.4 Conditions Precedent to Term Acquisition Loans........... 42
ARTICLE 5 AFFIRMATIVE COVENANTS.................................... 43
Section 5.1 Financial Statements..................................... 43
Section 5.2 Payment of Obligations................................... 44
Section 5.3 Notice; Litigation....................................... 44
Section 5.4 Maintenance of Corporate Existence and Properties;
Reconfiguration of Locomotives........................... 45
Section 5.5 Insurance................................................ 45
Section 5.6 Payment of Taxes......................................... 45
Section 5.7 Accounts Receivable and Payable.......................... 45
Section 5.8 Further Assurances....................................... 46
Section 5.9 Inspection............................................... 46
Section 5.10 Leverage Ratio........................................... 46
Section 5.11 Funded Debt/EBITDA....................................... 46
Section 5.12 Cash Flow Coverage Ratio................................. 46
Section 5.13 Tangible Net Worth....................................... 46
Section 5.14 Interest Coverage Ratio.................................. 46
Section 5.15 Environmental Compliance................................. 46
Section 5.16 Notification............................................. 47
ARTICLE 6 NEGATIVE COVENANTS....................................... 47
Section 6.1 Limitations on Borrowings................................ 47
Section 6.2 Limitations on Liens..................................... 48
Section 6.3 Limitations on Contingent Liabilities.................... 48
Section 6.4 Loans, Advances and Investments.......................... 48
Section 6.5 Limitations on Fundamental Changes; Disposition of Assets 48
Section 6.6 Dividends................................................ 49
</TABLE>
ii
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-----------------
(Continued)
<TABLE>
<CAPTION>
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<S> <C> <C>
Section 6.7 Subordination of Claims.................................. 49
Section 6.8 ERISA Compliance......................................... 49
Section 6.9 Nature of Business....................................... 49
Section 6.10 Leases................................................... 49
Section 6.11 Supply and Purchase Contracts............................ 50
Section 6.12 Transactions with Affiliates and Other Persons........... 50
Section 6.13 Capital Expenditures..................................... 50
Section 6.14 No Prepayment of MassMutual Debt Without Consent......... 50
ARTICLE 7 DEFAULT.................................................. 50
Section 7.1 Events of Default........................................ 50
Section 7.2 Optional Acceleration.................................... 52
Section 7.3 Automatic Acceleration................................... 52
Section 7.4 Additional Remedies...................................... 53
ARTICLE 8 RELATION OF LENDERS...................................... 53
Section 8.1 Appointment.............................................. 53
Section 8.2 Delegation of Duties..................................... 53
Section 8.3 Appointment of Additional Co-Agent....................... 53
Section 8.4 Liability of Agent....................................... 54
Section 8.5 Reliance by Agent........................................ 55
Section 8.6 Notice of Default........................................ 55
Section 8.7 Credit Decision.......................................... 56
Section 8.8 Indemnification.......................................... 56
Section 8.9 Agent in Individual Capacity............................. 57
Section 8.10 Successor Agent.......................................... 57
Section 8.11 Sharing of Payments...................................... 58
Section 8.12 Approval................................................. 58
Section 8.13 Collateral Matters....................................... 59
Section 8.14 No Liability............................................. 59
Section 8.15. Third Party Rights....................................... 59
ARTICLE 9 ASSIGNMENTS, PARTICIPATIONS.............................. 60
Section 9.1 Assignments.............................................. 60
Section 9.2 Participations........................................... 60
ARTICLE 10 COSTS, EXPENSES; INDEMNIFICATIONS........................ 61
Section 10.1 Costs and Expenses....................................... 61
</TABLE>
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Section 10.2 Indemnities 61
ARTICLE 11 AMENDMENTS AND WAIVERS................................... 63
Section 11.1 Amendments and Waivers................................... 63
ARTICLE 12 MISCELLANEOUS............................................ 63
Section 12.1 No Waiver; Cumulative Remedies.......................... 63
Section 12.2 Survival of Agreements................................... 64
Section 12.3 Successors............................................... 64
Section 12.4 Counterparts............................................. 64
Section 12.5 Severability............................................. 64
Section 12.6 Interest................................................. 64
Section 12.7 Notices.................................................. 66
Section 12.8 Notification of Addresses, Lending Offices, Etc.......... 66
Section 12.9 Controlling Document..................................... 66
Section 12.10 Table of Contents; Descriptive Headings.................. 66
Section 12.11 GOVERNING LAW............................................ 66
Section 12.12 SUBMISSION TO JURISDICTION............................... 66
Section 12.13 DTPA WAIVER.............................................. 67
Section 12.14 NO ORAL AGREEMENTS....................................... 67
Section 12.15 Construction............................................. 68
Section 12.16 WAIVER OF JURY TRIAL..................................... 68
</TABLE>
EXHIBITS
A - Interim Acquisition Note
A - 1 Term Acquisition Note
B - Compliance Certificate/Certificate of No Default
C - Notice of Borrowing
D - Notice of Conversion/Continuation
E - Revolving Note
F - Assignment and Acceptance Agreement
iv
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<TABLE>
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SCHEDULES
1.2 - Commitments
2.13 - List of Subsidiaries
4.3(c) - Acquisition Criteria
6.6 - Stock Option Plans
</TABLE>
v
<PAGE>
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT (this "Agreement") is entered into as of May 17,
1996, by and among RAILTEX, INC., a Texas corporation (the "Borrower"), the
SEVERAL FINANCIAL INSTITUTIONS THAT ARE FROM TIME TO TIME PARTY TO THIS
AGREEMENT, the initial Lenders being listed on the signature pages hereof,
(collectively, the "Lenders" and individually, a "Lender") and FIRST INTERSTATE
BANK OF TEXAS, N.A., a national banking association, as agent for the Lenders
(in such capacity, the "Agent").
R E C I T A L S:
- - - - - - - -
A. The Borrower, the Agent, and certain lenders have previously
entered into that certain Credit Agreement dated as of August 2, 1994, as
amended by First Amendment dated February 3, 1995 and Second Amendment dated
October 9, 1995 (as amended, the "Previous Agreement"). The Previous Agreement
is being terminated contemporaneously with, and the total outstanding principal
and accrued but unpaid interest, if any, will be fully repaid on, the date of
the first Borrowing hereunder and the commitments thereunder are cancelled
effective with the execution and delivery of this Agreement.
B. The Borrower has requested that the Lenders make available to it
credit facilities, including Acquisition Loans and Revolving Loans (both terms
hereinafter defined), for an aggregate amount outstanding at any time of not
more than $85,000,000, the purposes of such facilities being to (i) provide
working capital, (ii) provide availability for future acquisitions of short-line
railroads and (iii) refinance the acquisition cost of locomotives and/or
railcars previously purchased for cash.
C. The Lenders are willing to make such credit facilities available
to the Borrower upon the terms and conditions set forth herein.
NOW THEREFORE, to induce the Lenders to extend credit and financial
accommodations to the Borrower in accordance with the foregoing, to induce the
Agent to act as agent for the Lenders hereunder, for $1 and other such good and
valuable consideration, the receipt and sufficiency of which are acknowledged
hereby, and in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree as follows, intending to be legally bound:
<PAGE>
ARTICLE 1. DEFINITIONS AND GENERAL RULES. The following definitions and
general rules will apply hereto:
Section 1.1 General Rules. For purposes of this Agreement,
(a) The terms defined in this Article 1, unless the context requires
otherwise, will have the meanings applied to them in Article 1 and will include
the plural as well as the singular. Additional definitions may be found in the
preamble and throughout this Agreement;
(b) All accounting terms not otherwise defined herein shall be
construed in accordance with GAAP; and
(c) The words "herein," "hereof," "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular provision of
this Agreement.
Section 1.2 Definitions. As used in this Agreement, the following
capitalized terms will have the following meanings, unless the context requires
otherwise:
"Accrual Rate" has the meaning assigned to it in Section 3.13(a)
hereof.
"Acquisition Loan" means an extension of credit by a Lender to the
Borrower pursuant to Section 3.2 of this Agreement for the purpose of (a)
acquiring a short-line railroad (or short-line railroads, if the Borrower and
its Subsidiaries purchase more than one short-line railroad on the same day),
locomotives and/or railcars and (b) financing the acquisition cost of
locomotives and/or railcars previously purchased for cash; "Acquisition Loans"
means all extensions of credit by the Lenders to the Borrower pursuant to
Section 3.2 of this Agreement.
"Acquisition Loan Commitments" means the commitments of the Lenders to
make Acquisition Loans from time to time pursuant to Section 3.2 in the maximum
aggregate amount of $75,000,000 outstanding at any time; "Acquisition Loan
Commitment" means, for each Lender, such Lender's commitment to make Acquisition
Loans in an aggregate amount equal to its Commitment Percentage of the
Acquisition Loan Commitments, which Lender's Acquisition Loan Commitment is set
forth opposite such Lender's name in Schedule 1.2 under the heading "Acquisition
Loan Commitment," as the same may be reduced or adjusted as a result of one or
more assignments pursuant to Article 9 hereof or otherwise pursuant to the terms
and provisions hereof.
"Acquisition Loans Maturity Date" means the earlier of (a) April 30,
2002, and (b) the date on which the Acquisition Notes are accelerated pursuant
to the terms hereof.
"Acquisition Note" means an Interim Acquisition Note or a Term
Acquisition Note; "Acquisition Notes" means all of the Interim Acquisition Notes
and the Term Acquisition Notes.
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"Acquisition Loans Termination Date" means the earliest to occur of
(i) April 30, 1999, (ii) the date on which the Acquisition Notes are accelerated
pursuant to the terms hereof, and (iii) the date on which the Acquisition Loan
Commitment is terminated pursuant to the terms hereof.
"Adjustment Date" has the meaning assigned to it in the definition of
Applicable Percentage.
"Affiliate" of any Person means any Person that, directly or
indirectly, controls or is controlled by or is under common control with such
Person and, without limiting the generality of the foregoing, shall include any
Person that beneficially owns or holds five percent or more of any class of
voting securities of such Person and any Person owning or holding five percent
or more of any class or series of voting securities of such Person (or in the
case of a Person that is not a corporation, five percent or more of the equity
interest) of which is beneficially owned or held by such Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through ownership of voting securities or by contract or otherwise.
"Agent" means First Interstate Bank of Texas, N.A. in its capacity as
agent for the Lenders hereunder, and any successor Agent.
"Amortization Commencement Date" has the meaning set forth in Section
3.2(b) hereof.
"Applicable Percentage" means zero percent (in the case of the Prime
Rate Margin) and 1.25 percent (in the case of the Eurodollar Rate Margin) from
the Closing Date until June 30, 1996; thereafter, the Applicable Percentage
shall mean the rate determined, as of the date that is 45 days from and after
the last day of each calendar quarter (the "ADJUSTMENT DATE"), based on the
Leverage Ratio of Borrower as of the last day of each calendar quarter, as
follows (such rate to adjust on and as of each such Adjustment Date for the
period from but excluding such Adjustment Date to and including the next
succeeding Adjustment Date):
(i) with respect to Acquisition Loans which are Prime Rate Loans,
the applicable Prime Rate Margin; and
(ii) with respect to Acquisition Loans which are Eurodollar Rate
Loans, the applicable Eurodollar Rate Margin; and
(iii) with respect to Revolving Loans which are Prime Rate Loans,
the applicable Prime Rate Margin; and
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(iv) with respect to Revolving Loans which are Eurodollar Rate
Loans, the applicable Eurodollar Rate Margin;
provided, however, that, notwithstanding the foregoing, the Applicable
Percentage shall be the highest Applicable Percentage for the types of Loans
outstanding at any and all times during which the Borrower shall have failed to
deliver all requisite financial statements in accordance with Section 5.1
hereof.
"Assignee" has the meaning specified in Section 9.1(a) of this
Agreement.
"Available Credit" means at any time the amount equal to the Loan
Formula.
"Bankruptcy Code" means Title 11, United States Code, as amended from
time to time, and any statute enacted in replacement thereof.
"Borrowing" means a borrowing hereunder consisting of Loans made to
the Borrower on the same day by the Lenders pursuant to Article 3.
"Business Day" means a day (other than Saturday, Sunday or a legal
holiday) on which banks in Houston, Texas, and New York, New York are open for
business.
"Canadian Commitments" means the undrawn portion of any Canadian
Loans.
"Canadian Loan Documents" means the Canadian Notes and other documents
referred to, required or contemplated therein, as the same may be renewed,
extended, modified, or amended, from time to time, all of such Canadian Loan
Documents to be on terms and conditions satisfactory to the Majority Lenders.
Included in the definition of Canadian Loan Documents is the Borrower's guaranty
of the Canadian Loans.
"Canadian Loans" means the extensions of credit, not to exceed Cdn
$30,000,000, to RailTex Canada pursuant to the Canadian Loan Documents.
"Canadian Notes" means promissory notes of RailTex Canada evidencing
the Canadian Loans, as the same may be renewed, extended, modified, or amended,
from time to time.
"Capital Expenditure Amount Limit" means $23,000,000 plus $4,000 times
the number of miles of track added after the Closing Date (i) under management
to the extent the operating agreements relating thereto require the Borrower or
one of its Subsidiaries to make capital expenditures, (ii) owned by the Borrower
or one of its Subsidiaries or (iii) leased by the Borrower and its Subsidiaries.
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"Capital Lease" means any lease of any property (whether real,
personal or mixed) that, in conformity with GAAP, should be accounted for as a
capital lease on the balance sheet of a Person.
"Cash Equivalents" mean any of the following: (a) securities with
maturities of 180 days or less from the date of acquisition thereof issued or
fully guaranteed or insured as to payment of principal and interest by the
United States or any agency thereof; (b) certificates of deposit with maturities
of 180 days or less from the date of acquisition thereof issued by, and deposit
accounts at, any commercial bank having capital and surplus equal to or greater
than $350,000,000; (c) commercial paper of a domestic issuer rated at least
either A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service,
Inc. with maturities of 180 days or less from the date of acquisition thereof;
and (d) securities of a domestic municipal issuer rated at least either AAA by
Moody's Investors Service, Inc. or AAA by Standard & Poor's Corporation with
maturities of 180 days or less from the date of acquisition thereof.
"Cash Flow" means, for any period, consolidated EBITDA less cash taxes
paid.
"Cash Flow Coverage Ratio" means, for any period and with respect to
any Person, a ratio of Cash Flow to Fixed Charges; the Cash Flow Coverage Ratio
to be measured quarterly on a rolling four quarter basis.
"Cdn $" means Canadian dollars.
"Closing Date" means the date on which all of the conditions precedent
stated in Article 4 hereof have been met to the satisfaction of the Majority
Lenders (and which in any event must occur no later than May 31, 1996).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, any predecessor statute and any statute enacted in replacement thereof.
"Commitment Percentage" means as to any Lender the percentage
determined by dividing (a) the sum of (i) such Lender's Acquisition Loan
Commitment and (ii) such Lender's Revolving Loan Commitment by (b) the total
Commitments, which Lender's Commitment Percentage is set forth opposite such
Lender's name in Schedule 1.2 under the heading "Commitment Percentage," as the
same may be reduced or adjusted in accordance herewith.
"Commitments" means $85,000,000, and Commitment means, for each
Lender, the sum of its Acquisition Loan Commitment and Revolving Loan
Commitment, as set forth opposite such Lender's name in Schedule 1.2 under the
heading "Commitment," as the same may be reduced or adjusted in accordance
herewith.
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"Compliance Certificate" means a loan formula certificate in
substantially the form attached hereto as Exhibit B, setting forth the
computations of Available Credit and Loan Formula as of the close of business on
the last day of the month immediately preceding the day that such loan formula
certificate is delivered on behalf of the Borrower and its Subsidiaries to the
Agent and the Lenders pursuant to Section 5.1 hereof.
"Contingent Liabilities" means any and all liabilities of a Person,
direct or indirect, for or in connection with the obligations, stock or
dividends of any other Person, whether by guaranty, endorsement, agreement to
purchase or repurchase, agreement to lease, agreement to supply or advance funds
(including, without limitation, agreements to maintain working capital, solvency
or other balance sheet conditions or agreements to purchase stock or make
capital contributions) or otherwise.
"Conversion Date" means any date on which the Borrower elects to
convert a Prime Rate Loan to a Eurodollar Rate Loan, or a Eurodollar Rate Loan
to a Prime Rate Loan.
"Current Assets" means all assets of a Person that, in accordance with
GAAP, would be included as current assets on a balance sheet as of the date of
calculation.
"Current Liabilities" means all liabilities of a Person that, in
accordance with GAAP, would be included as current liabilities on a balance
sheet as of the date of calculation.
"Default" means any event specified in Section 7.1 of this Agreement,
regardless of whether any requirement for the giving of notice or lapse of time
or any other condition has been satisfied.
"Default Percentage" means, as to any Lender at the date of any
determination thereof, (a) the sum of the outstanding balance of Obligations to
such Lender, divided by (b) the sum of the outstanding balance of all
Obligations.
"Default Rate" means the lesser of (i) a rate that is three percentage
points above the Prime Rate, as it varies, or (ii) the Maximum Rate, as it
varies.
"Dollars," "United States dollars," "U.S. dollars," "US$" and "$" mean
dollars in lawful currency of the United States of America (unless otherwise
expressly specified all payments and amounts referenced in this Agreement and
the other Loan Documents shall be references to Dollars).
"Domestic Lending Office" means with respect to each Lender, the
office of such Lender designated as such on its signature page of this Agreement
or such other office of such Lender, as such Lender may from time to time
specify to the Borrower and Agent.
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"EBITDA" means, for any period and with respect to any Person, the sum
of the Net Income for such Person for such period, excluding, to the extent any
of the items referred to in any of the clauses below were deducted in the
determination of Net Income: (i) all amounts treated as expenses for
depreciation, amortization and interest expenses of such Person for such period,
(ii) all income and franchise taxes of such Person accrued for such period on or
measured by income, (iii) any non-cash after-tax gains or losses attributable to
asset dispositions, (iv) the income or loss of any other Person (other than
Subsidiaries) in which such Person or any of its Subsidiaries has an ownership
interest, unless and only to the extent received by such Person or its
Subsidiary in a non-cash cash distribution, and (v) to the extent not included
in (iii) or (iv) above, any after-tax extraordinary non-cash gains or
extraordinary non-cash losses.
"Eligible Accounts" means, at any time, an amount equal to the
accounts receivable balance reflected on the latest consolidated balance sheet
of the Borrower delivered to the Agent and the Lenders.
"Eligible Acquisition Costs" means, with respect to each acquisition
of a short-line railroad, the reasonable start-up costs (acceptable to the
Majority Lenders) incurred in connection therewith, which costs shall not exceed
5 percent of the total purchase price of the related acquisition.
"Environmental Laws" means any and all laws, subsequent enactments,
amendments and modifications, including without limitation, federal, state and
local laws, statutes, ordinances, rules, regulations, permits, licenses,
approvals, interpretations and orders of courts or Governmental Authorities
relating to the protection of human health or the environment, including, but
not limited to, requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Materials.
"EPA" means the United States Environmental Protection Agency.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Liabilities" has the meaning assigned to such term in
Regulation D of the Federal Reserve Board, as in effect from time to time.
"Eurodollar Lending Office" means with respect to each Lender, the
office of such Lender designated as such on its signature page of this Agreement
or such other office of such Lender, as such Lender may from time to time
specify to the Borrower and the Agent.
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"Eurodollar Rate" means, for each Interest Period for any Eurodollar
Rate Loan, an interest rate per annum (rounded upward, if necessary, to the
nearest 1/16 of one percent) determined pursuant to the following formula:
Eurodollar Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
"Eurodollar Rate Loan" means a Loan that bears interest based on the
Eurodollar Rate plus the Eurodollar Rate Margin.
"Eurodollar Rate Margin" means, with respect to Eurodollar Rate Loans,
the specified percentage ("x") set forth below based on the Leverage Ratio as
measured at the end of each calendar quarter throughout the term hereof as
specified in the definition of Applicable Percentage:
Leverage Ratio Eurodollar Rate Margin
-------------- ----------------------
Less than 30% 1.00%
30% to 39.9% 1.25%
40% to 44.9% 1.50%
45% to 49.9% 2.00%
Equal to or greater than 50% 2.25%
"Eurodollar Reserve Percentage" means the maximum reserve percentage
in effect on the date LIBOR for such Interest Period is determined under
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to liabilities
or assets consisting of or including Eurocurrency Liabilities having a term
equal to such Interest Period.
"Event of Default" means any event specified in Section 7.1 of this
Agreement, provided that any requirement in connection with such event for the
giving of notice or lapse of time or any other condition has been satisfied.
"Excess Cash Flow" means, for any period, the consolidated Cash Flow
of the Borrower and its Subsidiaries minus their Fixed Charges.
"Federal Funds Rate" means, for any period, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for the previous day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such previous day will be the rate set forth in the
daily statistical release
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designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities,
or any successor publication, published by the Federal Reserve Bank of New York
(including any such successor, the "Composite 3:30 p.m. Quotations") for such
previous day under the caption "Federal Funds Effective Rate". If on any
relevant day the appropriate rate for such previous day is not yet published in
either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such
previous day will be the arithmetic mean of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City, selected by the Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereof.
"Fixed Charges" means, for any period, scheduled principal payments on
long-term Indebtedness plus interest expenses.
"Follow-Up Notice" has meaning assigned to it in Section 3.3(b)
hereof.
"Form 1001" has the meaning assigned to it in Section 3.11(f)(i)(B)
hereof.
"Form 4224" has the meaning assigned to it in Section 3.11(f)(i)(A)
hereof.
"Funded Debt" of a Person means, at any time, the total Indebtedness
of such Person for borrowed money (other than Subordinated Indebtedness) at such
date, whether then due and payable (including, without limitation, the Loans and
the Canadian Loans).
"GAAP" means generally accepted accounting principles set forth in the
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements by the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination; and the requisite that such principles be applied on a consistent
basis shall mean that the accounting principles observed in a current period are
comparable in all material respects to those applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
province, county, city or other political subdivision, agency or instrumentality
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government (including, without limitation, the
EPA, the Surface Transportation Board and any state, provincial, local or other
authorities exercising similar powers).
"Hazardous Materials" means any substance or material (i) which is or
becomes defined as a hazardous waste, hazardous substance, pollutant,
contaminant or toxic substance, under any Environmental Law; (ii) which is
toxic, explosive, corrosive, flammable, infectious, radioactive, mutagenic or
otherwise hazardous and is or becomes regulated by any Governmental
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<PAGE>
Authority; (iii) the presence of which requires investigation or remediation
under any Environmental Law or common law; (iv) which is deemed to constitute a
nuisance, a trespass or pose a health or safety hazard to persons or neighboring
properties; (v) underground or aboveground storage tanks, whether empty, filled
or partially filled with any substance; or (vi) which contains, without
limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam
insulation, petroleum hydrocarbons, crude oil or any fraction thereof.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or hereafter occurring) of the buildings, facilities or
improvements, air, soil, groundwater, surface water or other elements of any
Property or other property as a result of the presence of Hazardous Materials on
such Property at any time.
"Indebtedness" means the total liabilities of a Person calculated in
accordance with GAAP consistently applied.
"Indemnified Parties" means collectively the Agent and each Lender and
all of their respective directors, officers, employees, agents, successors,
participants, attorneys and assigns.
"Interest Coverage Ratio" means, for any period and for any Person, a
ratio of EBITDA to actual interest expense on Indebtedness; the Interest
Coverage Ratio to be measured quarterly on a rolling four quarter basis.
"Interest Payment Date" means (i) with respect to any Prime Rate Loan,
the last day of each calendar month, beginning with May 31, 1996 (or if any such
date is not a Business Day, then the next preceding Business Day); (ii) with
respect to any Acquisition Loan that is a Eurodollar Rate Loan, the date on
which the related Interest Period ends; (iii) with respect to a Revolving Loan
that is a Eurodollar Rate Loan, the date on which the Interest Period ends; and
(iv) as to all Loans, at maturity (the Acquisition Loans Maturity Date and the
Revolving Termination Date).
"Interest Period" means, with respect to any Eurodollar Rate Loan, the
period commencing on the Business Day such Loan is disbursed or continued or on
the Conversion Date on which such Loan is converted to such Eurodollar Rate
Loan, and ending on the date one, two or three months thereafter, as selected by
the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
(i) if any Interest Period pertaining to a Eurodollar Rate Loan 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 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;
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(ii) any Interest Period pertaining to a Eurodollar Rate Loan that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(iii) no Interest Period for any Loans shall extend beyond the
maturity date thereof.
"Insolvency" and "Insolvent" mean, (a) with reference to a Person
other than a partnership, such Person is insolvent hereunder if (i) the sum of
its debts is greater than all of its properties, at a fair valuation, exclusive
of any properties transferred, concealed, or removed with intent to hinder,
delay, or defraud creditors, or (ii) it is generally not able to pay its debts
as they become due; and (b) with reference to a partnership, a Person is
insolvent hereunder if (i) its financial condition is such that the sum of its
debts is greater than the aggregate of, at a fair valuation, (y) all of such
partnership's properties exclusive of properties transferred, concealed or
removed with intent to hinder, delay or defraud creditors of the partnership,
and (z) the sum of the excess of the value of each general partner's non-
partnership properties, exclusive of properties transferred, concealed or
removed with intent to hinder, delay or defraud creditors, over such partner's
non-partnership debts, or (ii) it is generally not able to pay its debts as they
become due.
"Interim Acquisition Note" means a promissory note of the Borrower
payable to the order of a Lender, in substantially the form attached hereto as
Exhibit A, evidencing indebtedness of the Borrower to such Lender resulting from
Acquisition Loans made by such Lender prior to the Term Periods pursuant to
Section 3.2(a), as the same may be replaced, renewed, extended, modified,
supplemented or rearranged from time to time or at any time.
"Lending Office" means, with respect to any Lender, the office or
offices of such Lender specified as its "Domestic Lending Office" or "Eurodollar
Lending Office," as the case may be, opposite its name on the signature pages
hereof or such other office or offices of such Lender as such Lender may from
time to time specify to the Borrower and the Agent.
"Leverage Ratio" means the percentage determined by dividing the
consolidated Funded Debt of the Borrower and its Subsidiaries by the
consolidated Total Capitalization of the Borrower and its Subsidiaries.
"LIBOR" means an interest rate per annum equal to the average (rounded
upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is
not such a multiple) of the rates per annum at which deposits in Dollars are
offered to the Agent by prime banks in the London Interbank market at a time on
or about 9:00 a.m. (Houston, Texas time) (or as soon thereafter as practical)
two Business Days before the first day of any Interest Period, and in accordance
with the then existing practice in the London Interbank market for delivery of
such
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deposits on the first day of such Interest Period in immediately available
funds, in an amount approximately equal to the Loan to be made or continued as,
or converted into, a Eurodollar Rate Loan and for a period equal to such
Interest Period.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting the property. For
the purposes of this Agreement, a Person shall be deemed to be the owner of any
property which it or he has acquired or holds subject to a conditional sale
agreement, financing lease or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"Loan" means an Acquisition Loan or Revolving Loan; "Loans" means all
of the Acquisition Loans and the Revolving Loans.
"Loan Documents" means this Agreement, the Notes and any and all other
documents and instruments executed in connection therewith or contemplated
thereby.
"Loan Formula" means at any time the sum of 65% of the Eligible
Accounts of the Borrower and its Subsidiaries that are domiciled in the United
States.
"Majority Lenders" means at any time Lenders holding at least 67
percent of the then aggregate unpaid principal amount of the Loans or, if no
such principal amount is then outstanding, Lenders having at least 67 percent of
the Commitments.
"Mandatory Prepayment" means such payments from the Borrower to the
Agent, for the account of the Lenders, as may be necessary to reduce the
aggregate principal amount of indebtedness and liabilities of the Borrower under
the Revolving Notes to an amount permitted by the Loan Formula and this
Agreement.
"MassMutual" means Massachusetts Mutual Life Insurance Company,
MassMutual Corporate Investors, MassMutual Participation Investors or any
affiliate of MassMutual and their respective assignees, if any.
"MassMutual Agreement" means the Borrower's Note Agreement dated as of
January 1, 1993, regarding: $5 million Senior Subordinated Notes due January
15, 2002.
"MassMutual Debt" means the Subordinated Indebtedness issued pursuant
to the MassMutual Agreement.
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"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, or financial or other condition of Borrower or any
of its Subsidiaries, or (b) the Borrower's ability to perform and pay the
Obligations in accordance with the terms thereof or the Agent's and the Lenders'
rights to enforce or collect the Obligations.
"Maximum Rate" means the maximum lawful rate of interest permitted by
applicable laws, now or hereafter enacted, which interest rate shall change when
and as such laws change, to the extent permitted by such laws, effective on the
day such change in such laws becomes effective; provided, however, that the term
"Maximum Rate" shall mean a rate of interest equal to five percentage points
above the Prime Rate, as it varies, if there is no Maximum Rate under applicable
laws.
"Net Income" means, for any period, a Person's and its Subsidiaries'
consolidated net income (or loss) after income and franchise taxes determined in
conformity with GAAP, but excluding: (a) the income of any other Person (other
than Subsidiaries) in which such Person or any of its Subsidiaries has an
ownership interest, unless and except to the extent received by such Person or
its Subsidiaries in a cash distribution; and (b) to the extent not included in
clause (a) above, any after-tax extraordinary non-cash gains or extraordinary
non-cash losses.
"Note" means an Acquisition Note or a Revolving Note; "Notes" means
all of the Acquisition Notes and the Revolving Notes.
"Notice of Borrowing" means a notice given by the Borrower to the
Agent pursuant to Section 3.3, in substantially the form of Exhibit C attached
hereto.
"Notice of Conversion/Continuation" means a notice given by the
Borrower to the Agent pursuant to Section 3.19 hereof, in substantially the form
of Exhibit D hereof.
"Notice Date" has the meaning assigned to it in Section 3.3 hereof.
"Obligations" means all Loans and other Indebtedness, advances, debts,
liabilities, obligations, covenants and duties owing by the Borrower and/or any
of its Subsidiaries, or any of them, to any Lender, the Agent, or any of the
Indemnified Parties under any Loan Document, of any kind or nature, present or
future, whether or not evidenced by any note, guaranty or other instrument,
arising under this Agreement or any other Loan Document, whether or not for the
payment of money, whether arising by reason of an extension of credit, loan,
guaranty, indemnification or in any other manner, and whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising and however acquired. The term
"Obligations" includes, without limitation, all interest, charges, reasonable
expenses, reasonable fees, reasonable attorneys' fees and disbursements and any
other sum chargeable to the Borrower or any of its Subsidiaries under this
Agreement, or any other Loan Document.
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"Other Taxes" has the meaning assigned in Section 3.11 (b) hereof.
"Participant" has the meaning specified in Section 9.2 hereof.
"Payment Default" means the Default set forth
in Section 7.1(a) hereof.
"Permitted Liens" means (i) Liens created by this Agreement, or any
other Loan Document, if any, (ii) Liens for taxes, assessments and other
governmental charges not yet payable, or the validity of which are being
contested in good faith by appropriate proceedings and as to which adequate
reserves have been set aside on the books of the Borrower or its Subsidiaries,
as applicable, (iii) deposits or pledges to secure the payment of workmen's
compensation, unemployment insurance or other social security benefits or
obligations, public or statutory obligations, surety or appeal bonds or other
obligations of a like general nature incurred in the ordinary course of
business, (iv) mechanics', materialmen's, warehousemen's, carriers', vendors' or
other like Liens arising by operation of law in the ordinary course of business
securing obligations which are not overdue, or which are being contested in good
faith by appropriate proceedings and against which the Borrower or its
Subsidiaries, as applicable, has provided adequate reserves in accordance with
GAAP, (v) zoning restrictions, easements, licenses, restrictions on the use of
real property or minor irregularities in title thereto which do not materially
impair the use of such property in the operation of the business of the Borrower
or its Subsidiaries or the value of such property and would not affect adversely
a subsequent owner's use of such property for a similar purpose, (vi) inchoate
Liens arising under ERISA to secure current service pension liabilities as they
are incurred under the provisions of Plans from time to time in effect, (vii)
purchase money Liens or purchase money security interests on any asset acquired
or held by the Borrower or its Subsidiaries as applicable, in the ordinary
course of business, securing Indebtedness incurred or assumed for the purpose of
financing all or any part of the cost of acquiring such asset; provided that any
such Lien attaches to such asset concurrently with or within 30 days after the
acquisition thereof and provided that the principal amount of the Indebtedness
secured by any such purchase money Liens or purchase money security interests
shall not exceed the Indebtedness permitted under Section 6.1(v) hereof; (viii)
pledges of cash collateral to secure separate Indebtedness of the Borrower to
Wells Fargo otherwise permitted herein; (ix) Liens in favor of governmental
agencies, in connection with government grants, on assets of the Borrower or its
Subsidiaries, as applicable, as to which the grants are provided, and (x) Liens,
if any, permitted by the Majority Lenders in writing.
"Person" means any individual, trust, estate, association, joint
venture, partnership, corporation, unincorporated business entity, government or
any agency, instrumentality or political subdivision thereof, or other entity.
"Plan" means any plan subject to Title IV of ERISA and maintained by
the Borrower or any Subsidiary or any such plan to which the Borrower or any
Subsidiary is required to contribute on behalf of its employees.
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"Prime Rate" means the variable per annum rate of interest most
recently announced by Wells Fargo as its "prime rate," with the understanding
that Wells Fargo's "prime rate" may be one of several base rates which serves as
a basis upon which effective rates of interest from time to time are calculated
for loans making reference thereto and may not be the lowest of Wells Fargo's
base rates.
"Prime Rate Loan" means a Loan bearing interest based on the Prime
Rate plus the Prime Rate Margin.
"Prime Rate Margin" means, with respect to Prime Rate Loans, the
specified percentage ("x") set forth below based on the Leverage Ratio as
measured at the end of each calendar quarter throughout the term hereof as
specified in the definition of Applicable Percentage:
Leverage Ratio Prime Rate Margin
-------------- -----------------
Less than 45% 0.0%
45% to 49.9% 0.25%
Equal to or greater than 50% 0.50%
"Property" means any right or interest of the Borrower or any of its
Subsidiaries in or to property of any kind whatsoever, whether real, personal or
mixed and whether tangible or intangible.
"RailTex Canada" means RailTex Canada, Inc., an Ontario corporation
and a Subsidiary of the Borrower.
"Regulation D" means Regulation D of the Federal Reserve Board, 12
C.F.R., Part 204.
"Regulation G" means Regulation G of the Federal Reserve Board, 12
C.F.R., Part 207.
"Regulation T" means Regulation T of the Federal Reserve Board, 12
C.F.R., Part 220.
"Regulation U" means Regulation U of the Federal Reserve Board, 12
C.F.R., Part 221.
"Regulation X" means Regulation X of the Federal Reserve Board, 12
C.F.R., Part 224.
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"Responsible Officer" means, with respect to (i) any corporation, the
Chairman of the Board of Directors, the President, the chief executive officer,
the chief operating officer, the chief financial officer and the controller, and
(ii) any partnership, the aforementioned officers of (x) such partnership's
corporate managing partner or (y) in the event the managing partner is a
partnership, such partnership managing partner's corporate managing partner.
"Revolving Loan" means an extension of credit by a Lender to the
Borrower pursuant to Section 3.1 hereof for the purpose of providing working
capital; "Revolving Loans" means all extensions of credit by the Lenders to the
Borrower pursuant to Section 3.1 hereof.
"Revolving Loan Commitments" means the commitments of the Lenders to
make Revolving Loans pursuant to Section 3.1 in the maximum aggregate amount of
$10,000,000 and Revolving Loan Commitment means, for each Lender, such Lender's
commitment to make Revolving Loans in an aggregate amount equal to its
Commitment Percentage of the Revolving Loan Commitments which Revolving Loan
Commitment for each Lender is set forth opposite such Lender's name in Schedule
1.2 hereto under the heading "Revolving Loan Commitment", as the same may be
reduced or adjusted as a result of one or more assignments pursuant to Article 9
hereof or otherwise pursuant to the terms and provisions hereof.
"Revolving Note" means a promissory note of the Borrower payable to
the order of a Lender, in substantially the form attached hereto as Exhibit E,
evidencing the aggregate indebtedness of the Borrower to such Lender resulting
from the Revolving Loans made and to be made by such Lender from time to time in
accordance with Section 3.1 of this Agreement, as the same may be replaced,
renewed, extended, modified, supplemented or rearranged from time to time or at
any time.
"Revolving Termination Date" means the earliest to occur of (i) April
30, 1999, (ii) the date on which the Revolving Notes are accelerated pursuant to
the terms hereof, and (iii) the date on which the Revolving Loan Commitment is
terminated pursuant to the terms hereof.
"Rollover Date" means each April 30 of 1997, 1998 and 1999.
"Senior Indebtedness" means any Indebtedness that does not fall within
the definition of "Subordinated Indebtedness" as such term is defined herein.
"Senior Notes" means the $40,000,000 of 7.23% (due September 1, 2005)
and Cdn $15,000,000 of 9.21% (due September 1, 2005 and October 11, 2005) senior
unsecured notes, each due in a single installment of principal, and each issued
pursuant to a Note Agreement dated as of September 1, 1995 (copies of which have
been delivered to the Agent and the Lenders on or before the date of issuance).
The repayment of the Cdn $ Senior Notes is guaranteed by the Borrower.
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"Subordinated Indebtedness" means the Indebtedness of a Person,
calculated in accordance with GAAP consistently applied, heretofore or hereafter
incurred, that, by the express terms of the instrument evidencing or creating
such Indebtedness or by the terms of a subordination agreement in form and
substance satisfactory to the Majority Lenders, is validly and effectively made
subordinate and subject in right to payment, to whatever extent the Majority
Lenders may require, to the prior payment of the Obligations to the Lenders.
"Subsidiary" means as to any Person, (i) a corporation, limited
liability company or similar entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person and (ii) any partnership,
association, joint venture or other entity of which such Person or any
Subsidiary has more than 50% of the equity interest at the time. Unless
otherwise specified, all references to a "Subsidiary" or to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower and
to Subsidiaries of such Subsidiaries.
"Tangible Net Worth" of a Person means, at any time, the total assets
of such Person less the total liabilities of such Person as set forth on its
balance sheet at such date, prepared in accordance with GAAP consistently
applied, plus the non-current portion of any Subordinated Indebtedness of such
Person (being the portion of such Subordinated Indebtedness maturing one year or
more from the date of calculation), except that the sum of the following shall
be excluded therefrom: (i) goodwill, including any amounts (however designated
on such balance sheet) representing the cost of acquisition of Subsidiaries in
excess of the replacement cost of underlying tangible assets, (ii) any amounts
by which investments in Persons appearing on the asset side of such balance
sheet exceed the proportionate share of such Person and its Subsidiaries in the
book value of the assets of such Persons, (iii) patents, trademarks, copyrights,
deferred charges (including, but not limited to, unamortized discount and
expenses, organizational expenses, experimental and developmental expenses, but
excluding prepaid expenses), intangibles and other similar assets, and (iv) any
treasury stock.
"Taxes" has the meaning assigned in Section 3.11(a) hereof.
"Term Acquisition Loans" means Acquisition Loans outstanding during
the Term Periods; "Term Acquisition Loan" means one of the Term Acquisition
Loans.
"Term Acquisition Note" means a promissory note of the Borrower
payable to the order of a Lender in substantially the form attached hereto as
Exhibit A-1, evidencing Acquisition Loans during a Term Period, as the same may
be replaced, renewed, extended, modified, supplemented or rearranged from time
to time or at any time.
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"Term Period" means the period of time commencing on a Rollover Date
and ending on the Acquisition Loans Maturity Date.
"Total Capitalization" of a Person means, at any time, the sum of the
Funded Debt of such Person at such date plus the Tangible Net Worth of such
Person at such date.
"UCC" means the Texas Business and Commerce Code as presently enacted
or hereafter amended.
"Wells Fargo" means First Interstate Bank of Texas, N.A., a national
banking association, its successors and assigns.
ARTICLE 2 REPRESENTATIONS AND WARRANTIES.
The Borrower represents, warrants and agrees as follows:
Section 2.1 Corporate Authority. The Borrower and each of its Subsidiaries
is a corporation duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and is duly licensed,
qualified to do business and in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business requires such licensing
and qualification, and has all powers and all permits, consents and
authorizations necessary to own and operate its properties and to carry on its
business as presently conducted. The execution, delivery and performance of this
Agreement by the Borrower, the Borrowings hereunder and the execution and
delivery of the Notes and the other Loan Documents by the Borrower and its
Subsidiaries which are a party thereto, (i) have been duly authorized by proper
corporate proceedings, and (ii) will not contravene, or constitute a default
under, any provision of applicable law or regulation or of the Articles of
Incorporation or Bylaws of the Borrower or any of its Subsidiaries, as the case
may be, or of any mortgage, indenture, contract, agreement or other instrument,
or any judgment, order or decree, binding upon the Borrower or any of its
Subsidiaries, as the case may be. No consent of the Borrower's or any of its
Subsidiaries' shareholders or any holder of any Indebtedness of the Borrower or
any of its Subsidiaries or any other Person is required as a condition to the
validity of this Agreement or any other Loan Document, except such as has been
obtained. This Agreement, the Notes, and the other Loan Documents, when duly
executed and delivered in accordance with this Agreement, will constitute legal,
valid and binding obligations of the Borrower and its Subsidiaries that are a
party thereto in accordance with their respective terms.
Section 2.2 Financial Statements. The audited annual financial
statements of the Borrower and its Subsidiaries at December 31, 1995 and the
unaudited financial statements of the Borrower and its Subsidiaries for the
month ended March 31, 1996, respectively, and the related statements of income
and retained earnings and cash flow for the periods then ended,
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copies of which have been delivered to the Agent and the Lenders, fairly present
the financial position of the Borrower and its Subsidiaries at December 31, 1995
and March 31, 1996, respectively, and the results of their operations and the
changes in their financial position for the periods then ended in conformity
with GAAP applied on a basis consistent with the preceding period. Such
financial statements are true and correct and have been prepared in accordance
with GAAP consistently followed throughout the periods involved. No Material
Adverse Effect has occurred since December 31, 1995.
Section 2.3 Governmental Approvals. No approvals of any Governmental
Authority having jurisdiction over the Borrower or any of its Subsidiaries are
necessary to permit the Borrower and its Subsidiaries to enter into this
Agreement, the Notes and the other Loan Documents, to borrow hereunder and to
grant security and guaranty as provided herein.
Section 2.4 Litigation. There is no suit, action, investigation,
inquiry or proceeding pending or, to the knowledge of the Borrower, threatened
against the Borrower or any of its Subsidiaries before any court or other
Governmental Authority, which if adversely determined, (i) would subject the
Borrower or any of its Subsidiaries to any liability not fully covered by
insurance (subject to reasonable and customary deductibles), and (ii) would have
a Material Adverse Effect.
Section 2.5 No Event of Default. No Default or Event of Default has
occurred and is continuing.
Section 2.6 Use of Proceeds. The proceeds of the Revolving Loans
made pursuant to Section 3.1 hereof shall be used by the Borrower to provide
working capital for general corporate operating purposes (including loans for
subsidiary working capital). The proceeds of the Acquisition Loans made
pursuant to Section 3.2 hereof have been or, as applicable, shall be used by the
Borrower (i) to finance future acquisitions of short-line railroads, locomotives
and railcars (including Eligible Acquisition Costs), and (ii) to refinance the
acquisition cost of locomotives and/or railcars previously purchased for cash.
All Loans evidenced by the Notes are and shall be "business loans," as such term
is used in the Depository Institutions Deregulation and Monetary Control Act of
1980, as amended, and such loans are for business or commercial purposes and not
primarily for personal, family, household or agricultural use, as such terms are
used or defined in Texas Revised Civil Statutes, Article 5069-1.04, Texas Credit
Code, Regulation Z promulgated by the Federal Reserve Board, and Titles I and V
of the Consumer Credit Protection Act.
Section 2.7 Properties, Locations and Offices. Each of the Borrower
and its Subsidiaries has and will continue to have title to all of its assets
and Properties, free and clear of all Liens, except for Permitted Liens. The
chief executive offices of the Borrower and each of its Subsidiaries domiciled
in the United States are located in San Antonio, Bexar County, Texas.
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Section 2.8 Status. The Borrower is not subject to regulation as a
"public utility" or "public service corporation" or the equivalent by any
Governmental Authority. Neither the Borrower nor any of its Subsidiaries is (i)
an "investment company" or a company "controlled" by an "investment company" or
an "investment advisor" within the meaning of the Investment Company Act of
1940, as amended, or (ii) a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public Utilities
Holding Company Act of 1935, as amended.
Section 2.9 Tax Returns. Each of the Borrower and its Subsidiaries
has filed all United States and Canadian, as applicable, tax returns and all
city, state, provincial and foreign tax returns required to be filed by it and
has paid, or made provisions for the payment of, all taxes which have become due
pursuant to any such return or pursuant to any assessment received by the
Borrower or any of its Subsidiaries, except such taxes and assessments, if any,
as are being contested in good faith and as to which adequate reserves have been
provided in accordance with GAAP, and such returns properly reflect any United
States income tax, foreign tax, state tax, city tax, and/or Canadian tax and
provincial tax, as applicable, of the Borrower or its Subsidiaries, as the case
may be, for the periods covered thereby.
Section 2.10 Availability of Records. The Borrower will, and will
cause each of its Subsidiaries to, permit any representative, accountant,
officer, employee, or attorney of the Agent or any Lender to (i) visit and
inspect any of the Properties of the Borrower and its Subsidiaries, or any of
them, (ii) examine the books and financial records of the Borrower and its
Subsidiaries, or any of them (iii) verify the due investment and application of
the proceeds of the Notes in accordance with Section 2.6 hereof, and (iv)
discuss the affairs, finances and accounts of the Borrower and its Subsidiaries
or any of them with their respective officers and independent certified public
accountants, all at such reasonable times and during reasonable business hours,
and as often as the Agent or any Lender may deem necessary.
Section 2.11 Regulations U and X. No part of the proceeds received
by the Borrower hereunder will be used, directly or indirectly, for the purpose
of purchasing or carrying, or for payment in full or in part of Indebtedness
which was incurred for the purpose of purchasing or carrying, any "margin
stock," as such term is defined in Regulation U. No part of the proceeds
received by the Borrower from the loans made hereunder will be used for any
purpose which violates Regulation X.
Section 2.12 Subsidiaries. The Borrower has no investments in any
Person (other than Cash Equivalents) and has no Subsidiaries except those
Subsidiaries described on Schedule 2.12 hereto.
Section 2.13 ERISA. The Borrower and each of its Subsidiaries is in
compliance in all material respects with the applicable provisions of ERISA and,
to the best of the Borrower's
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knowledge, no "reportable event," as such term is defined in Section 4043 of
ERISA, has occurred with respect to any Plan of the Borrower or any of its
Subsidiaries.
Section 2.14 Solvency. The Borrower is not, either individually or
on a consolidated basis with its Subsidiaries, Insolvent, and, after giving
effect to the transactions contemplated hereby and by the other Loan Documents,
neither the Borrower nor any of its Subsidiaries will become Insolvent as a
result thereof. Each of the Borrower and its Subsidiaries is and will be able
to pay its debts as they become due, and has and will have capital sufficient to
carry on its business and all businesses in which it is about to engage.
Section 2.15 Environmental Condition of the Property.
(a) The location, construction, occupancy, operation, condition and
use of the Property do not violate any applicable law, statute, ordinance, rule,
regulation, order or determination of any Governmental Authority, or any
restrictive covenant or deed restriction (recorded or otherwise) affecting the
Property, including without limitation all applicable zoning ordinances and
building codes, flood disaster, occupational health and safety laws and
Environmental Laws, the violation of which could reasonably be expected to
result in a Material Adverse Effect.
(b) Neither the Property nor the Borrower nor any of its
Subsidiaries is subject to any existing, pending or threatened investigation,
request for information, administrative or consent order or agreement,
litigation or settlement by any Governmental Authority or subject to any
investigatory or remedial obligations under any Environmental Laws or the common
law with respect to the presence or suspected presence of Hazardous Materials
Contamination that could reasonably be expected to result in a Material Adverse
Effect.
(c) The Property is not currently on, and to Borrower's knowledge,
has never been on, any federal or state "superfund" or "superlien" list or
registry.
Section 2.16 Compliance. The Borrower and each of its Subsidiaries
is in compliance in all respects with all applicable governmental approvals and
laws, ordinances and regulations, including without limitation, Environmental
Laws and zoning, land use, and building laws, ordinances and regulations, except
to the extent that such non-compliance would not have a Material Adverse Effect;
and the Borrower has no knowledge of any notices of violations of any such laws,
ordinances or regulations issued by any Governmental Authority having
jurisdiction over the Property or the Borrower or any of its Subsidiaries.
Section 2.17 Disclosure. All factual information heretofore or
contemporaneously furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Agent or any Lender for purposes of or in connection with
this Agreement, the Notes, and the other Loan Documents, or any transaction
contemplated therein is, and all other such information hereafter furnished by
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or on behalf of the Borrower or any of its Subsidiaries to the Agent or any
Lender will be, true and accurate on the date as of which such information is
dated or certified and not incomplete by omitting to state any material fact
necessary to make such information not misleading at such time.
ARTICLE 3 THE CREDIT FACILITY.
Section 3.1 Revolving Loans. Subject to, and upon the terms,
conditions, covenants and agreements contained herein, each Lender severally
agrees to make Revolving Loans to the Borrower, at any time and from time to
time, prior to the Revolving Termination Date, equal to its Commitment
Percentage of such amounts as the Borrower may request, up to but not exceeding
an aggregate principal sum at any time outstanding equal to the lesser of (i)
such Lender's Revolving Loan Commitment and (ii) the product determined by
multiplying such Lender's Commitment Percentage times the Available Credit;
provided, however, that, after giving effect to any Borrowing of Revolving
Loans, the aggregate principal amount of all Revolving Loans outstanding at any
time shall not exceed the amount arrived at by the computation provided for in
the Loan Formula. Within such limits and during such period, the Borrower may
borrow, repay and reborrow hereunder. All loans hereunder shall be evidenced by
each such Lender's Revolving Note. Subject in all events to the provisions of
Section 12.6 hereof, all past due principal and interest of the Revolving Note,
whether due as the result of acceleration of maturity or otherwise, shall bear
interest at the Default Rate, from the date the payment thereof shall have
become due until the same have been fully discharged by payment.
Each advance and each payment of principal and interest under the
Revolving Notes shall be evidenced by notations made by the Agent in its
business records. The amounts of principal and interest reflected in the
Agent's business records shall be conclusive evidence absent manifest error of
amounts owing and unpaid on the Revolving Loans; provided, however, that the
failure of the Agent to make, or an error in making, a notation with respect to
any Revolving Loan shall not limit or otherwise affect the obligations of the
Borrower hereunder or under any such Revolving Note to each Lender.
The then outstanding principal amount of the Revolving Notes together
with all accrued unpaid interest thereon shall be immediately due and payable on
the Revolving Termination Date.
Interest on the Revolving Notes, prior to the maturity or default,
shall be due and payable as provided in Section 3.13 hereof (and the Borrower
agrees to pay the same).
Section 3.2 Acquisition Loans.
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(a) Origination. Subject to, and upon the terms, conditions,
covenants and agreements contained herein, each Lender severally agrees to make
Acquisition Loans to the Borrower at any time, and from time to time, prior to
the Acquisition Loan Termination Date, in such amount as the Borrower may
request up to such Lender's Commitment Percentage of 100% of the cost of the
acquisition of the (y) short-line railroad (or short-line railroads, if more
than one short-line will be acquired on the same day), including the Eligible
Acquisition Costs relating thereto, and/or (z) locomotives and/or railcars,
being acquired or refinanced after a purchase with the proceeds of such
Acquisition Loan; provided, however, that after giving effect to any Borrowing
of Acquisition Loans, the aggregate principal amount of all Acquisition Loans
shall not exceed the total Acquisition Loan Commitments. Prior to the
Acquisition Termination Date and within the limits of each Lender's Acquisition
Loan Commitment and each Lender's Commitment Percentage, the Borrower may
borrow, repay, and reborrow, hereunder, so long as the aggregate principal
amount advanced by the Lenders under this Section 3.2 and outstanding at the
time of the request does not exceed the Acquisition Loan Commitments. Each such
Acquisition Loan made by a Lender shall be evidenced initially by an Interim
Acquisition Note payable to the order of the respective Lender in the face
amount of such Acquisition Loan.
Subject in all events to the provisions of Section 12.6 hereof, all
past due principal and interest, whether due as a result of acceleration of
maturity or otherwise, shall bear interest at the Default Rate from the date
payment thereof shall have become due until the same have been discharged fully
by payment. All Acquisition Loans and all payments of principal and interest
with respect to all Acquisition Loans shall be evidenced by notations made by
the Agent in its business records. The amounts of principal and interest
reflected in the Agent's business records shall be conclusive evidence absent
manifest error of amounts owing and unpaid on the Acquisition Loans; provided,
however, that the failure of the Agent to make, or an error in making, a
notation thereon with respect to any Acquisition Loan shall not limit or
otherwise affect the obligations of the Borrower hereunder or under any such
Acquisition Note to each Lender.
Interest on the Interim Acquisition Notes shall be due and payable as
provided in Section 3.13 hereof (and the Borrower agrees to pay the same).
(b) Rollover into a Term Acquisition Note. On each Rollover Date, any
outstanding Interim Acquisition Loans shall be converted into Term Acquisition
Loans evidenced by a Term Acquisition Notes, which shall be repayable according
to the terms set out below.
The Borrower shall pay to the Agent for the account of the Lenders
accrued but unpaid interest on each Interest Payment Date and the outstanding
principal of each Term Acquisition Note as follows:
Commencing on the first July 31 occurring in the Term Period for
each one of the Term Acquisition Notes and continuing
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until the Acquisition Loans Maturity Date, in installments at the end
of each third calendar month, all of such installments, except for the
last, being in substantially equal amounts calculated to fully
amortize the principal evidenced by each such Term Acquisition Note
assuming 24 equal quarterly payments with the last and final
installment occurring at the Acquisition Loans Maturity Date and being
in the amount of the then remaining unpaid principal balance thereof.
Section 3.3 Advances/Fundings.
(a) Revolving Loans. Each Borrowing of Revolving Loans shall be made
upon the irrevocable written notice of a Borrower in the form of a Notice of
Borrowing which notice must be received by the Agent prior to 11:00 a.m.
(Houston, Texas time), (A) three (3) Business Days prior to the requested
borrowing date, in the case of Eurodollar Rate Loans and (B) one (1) Business
Day prior to the requested borrowing date, in the case of Prime Rate Loans (a
"NOTICE DATE"), specifying: (i) the requested date of Borrowing, which shall be
a Business Day; (ii) the total amount of the Borrowing, which shall be in an
aggregate minimum principal amount of $100,000 and in an integral multiple of
$100,000 above such amount; (iii) whether the Borrowing is to be comprised of
Eurodollar Rate Loans or Prime Rate Loans; (iv) the duration of the Interest
Period applicable to such Revolving Loans included in such notice, subject to
the definition of Interest Period (if the Notice of Borrowing shall fail to
specify the duration of the Interest Period for any Eurodollar Rate Loans, such
Interest Period shall be three months); and (v) the aggregate amount of all
Revolving Loans to be outstanding on the date of the applicable Borrowing
(including requested Loans); provided, however, that with respect to any
Borrowing to be made on the Closing Date, the Notice of Borrowing shall be
delivered to the Agent as aforesaid not later than 11:00 a.m. (Houston, Texas
time) one Business Day before the Closing Date and such Borrowings will consist
of Prime Rate Loans only.
The provisions of Section 3.3(a) of this Agreement notwithstanding, if the
Borrower shall not have given a timely Notice of Conversion/Continuation to be
made on the last day of any Interest Period for outstanding Eurodollar Rate
Loans, then unless the Agent shall have received notice that a Borrower elects
not to make or continue a Borrowing on such day (such notice to have been
received at least three Business Days prior to such day) the Agent shall be
deemed to have received a Notice of Conversion/Continuation from the Borrower
requesting Prime Rate Loans to be made on such day in an amount equal to the
amount of such outstanding Eurodollar Rate Loans reduced to the extent necessary
to reflect any reductions of the Revolving Loan Commitments on or prior to such
day.
The Borrower may request, collectively, up to a maximum number of three
Borrowings that are Eurodollar Rate Loans under the Revolving Loan Commitments
be made on the same date; provided, however, that each Borrowing is in the
minimum amount required under clause
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(ii) of Section 3.3(a) of this Agreement and that the total number of Borrowings
that are Eurodollar Rate Loans outstanding at any one time may not exceed five.
(b) Acquisition Loans. Requests for funding of Interim Acquisition
Loans may be made by written request in the form of a Notice of Borrowing signed
by a Responsible Officer of the Borrower and delivered to the Agent by mail or
by personal or overnight delivery or by facsimile, together with the documents
and instruments required pursuant to Article 4 hereof. The aggregate amount of
Interim Acquisition Loans advanced and outstanding at any time may not exceed
the Acquisition Loan Commitments. The Notices of Borrowing with respect to each
request for an Acquisition Loan must be received by the Agent prior to 11:00
a.m. (Houston, Texas time) on a day which is at least five Business Days prior
to the requested borrowing date (a "NOTICE DATE") specifying (i) the date of the
Borrowing, which shall be on or before the Acquisition Termination Date, and in
each instance shall be a Business Day, (ii) the amount of the Borrowing, which
shall be in a minimum principal amount of $1,000,000, (iii) (if determined)
whether the Borrowing is to be comprised of Eurodollar Rate Loans or Prime Rate
Loans, (iv) (if determined) the duration of the Interest Period applicable to
such Eurodollar Rate Loans included in such notice, subject to the definition of
Interest Period (if the Notice of Borrowing shall fail to specify the duration
of the Interest Period and if the Borrowing is comprised of Eurodollar Rate
Loans or if no Follow-up Notice shall have been given, such Interest Period
shall be three months), and (v) a certification to the Agent that the requested
Loans will not exceed the Borrowings permitted pursuant to Section 3.1 of this
Agreement. If the Borrower has not specified in the Notice of Borrowing whether
the requested Interim Acquisition Loans will be Eurodollar Rate Loans or Prime
Rate Loans, the Borrower shall give the Agent a follow-up notice ("FOLLOW-UP
NOTICE") to be received by Lender prior to 11:00 a.m. (Houston, Texas time)
three business Days prior to the requested date if it desires Eurodollar Rate
Loans specifying (i) whether the Borrowing is to be comprised of Eurodollar Rate
Loans or Prime Rate Loans and (ii) the duration of the Interest Period
applicable to such Eurodollar Rate Loan included in such notice, subject to the
definition of Interest Period (if the Follow-up Notice shall fail to specify the
duration of the Interest Period for any Eurodollar Rate Loans, such Interest
Period shall be three months); and if no such Follow-Up Notice is received, the
requested Interim Acquisition Loans shall be Prime Rate Loans. Upon receipt of
the Notice of Borrowing or Follow-up Notice, the Agent shall notify each Lender
thereof (within one Business Day after such receipt) and of the amount of such
Lender's Commitment Percentage of the Borrowing. Each Lender will make the
amount of its Commitment Percentage of such Borrowing available to the Agent for
the account of the Borrower at the office specified by the Agent in Section 12.7
for payment by 11:00 a.m. (Houston, Texas time) on the borrowing date requested
by the Borrower and in funds immediately available to the Agent. Unless any
applicable condition specified in Article 4 has not been satisfied, the proceeds
of such Interim Acquisition Loans will then be made available to the Borrower by
the Agent at such office by crediting the account of the Borrower on the books
of the Agent with the aggregate of the amounts made available to the Agent by
the Lenders and in like funds as received by the Agent.
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Section 3.4 Optional Prepayments; Permanent Reductions of Commitments.
(a) Acquisition Loans. The Borrower, at its option, at any time in
the case of Prime Rate Loans and upon at least three Business Days' prior
written notice to the Agent in the case of Eurodollar Rate Loans, without
premium or penalty (but subject to Section 3.17 hereof), may prepay the
Acquisition Loans, or any of them, and/or, subject to payment of the amount, if
any, necessary to reduce the outstanding principal balance of the Acquisition
Loans to an amount equal to or less than the amount specified in such notice,
permanently reduce the aggregate amount of the Acquisition Loan Commitments at
any time prior to maturity, upon payment of all accrued unpaid interest to the
date of prepayment on the unpaid principal amount to be paid. Each prepayment
of principal shall be applied to the Acquisition Loans selected by the Borrower
and shall be applied in inverse order of maturity. Such notice of prepayment
shall specify the date and amount of such prepayment. Such notice shall not
thereafter be revocable by the Borrower, and the Agent shall notify each Lender
thereof and of such Lender's Commitment Percentage of such prepayment (within
one Business Day after receipt of such notice). If such notice is given, the
Borrower shall make such prepayment and the payment amount specified in such
notice, together with accrued interest to each such date on the amount prepaid,
shall be due and payable on the date specified therein.
(b) Revolving Loans. The Borrower, at its option, without notice in
the case of Prime Rate Loans and upon three Business Days' notice to the Agent
in the case of Eurodollar Rate Loans, without premium or penalty (but subject to
Section 3.17 hereof and except as otherwise provided in the next sentence of
this Section), may prepay the Revolving Notes, in full at any time or from time
to time in part, and, at its option, upon at least 15 Business Days' prior
written notice to the Agent, without premium or penalty, may permanently reduce
the aggregate amount of the Revolving Loan Commitments at any time prior to
maturity upon payment of the amount, if any, necessary to reduce the outstanding
principal balance of the Revolving Notes to an amount equal to or less than the
amount specified in such notice, plus accrued interest to the date of such
payment on the portion of the unpaid principal amount thereof to be paid;
provided, however, that because the Revolving Notes are master revolving credit
notes, the Revolving Notes shall remain in full force and effect until
terminated as provided therein or until, at a time when no amounts, principal,
interest or otherwise, are then owing, the Borrower releases the Lenders from
any obligation to make loans pursuant thereto. Each prepayment of principal
shall be applied to the Revolving Loans on a ratable basis. If a notice of
permanent reduction is given, the Borrower shall make such prepayment and the
payment amount specified in such notice, together with accrued interest to each
such date on the amount prepaid, shall be due and payable on the date specified
therein.
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Section 3.5 Mandatory Prepayments.
(a) Sales and Dispositions. If the Borrower, or any of its
Subsidiaries, sells or otherwise disposes of any assets or property (including,
without limitation, the capital stock of any of the Borrower's Subsidiaries),
other than (i) the sale of inventory in the ordinary course of business, (ii)
the sale or disposition of equipment that is not necessary or desirable to the
conduct of the Borrower's and its Subsidiaries' business in the ordinary course
of business, and (iii) the sale of assets (excluding the capital stock of any of
the Subsidiaries) having a market value of $500,000 or less individually and
$2,500,000 or less in the aggregate in any one fiscal year, which sale,
disposition, sales, or dispositions (other than those described in clauses (i),
(ii) and (iii) above and other than sales or dispositions of those assets and
properties described on Schedule 6.5 attached hereto) shall occur only upon the
Borrower's receipt of the prior written consent of the Majority Lenders, the
Borrower shall make a mandatory prepayment to the Agent in an amount equal to
the gross proceeds of such sale or disposition less the reasonable costs of such
sale or disposition. Each mandatory prepayment under this Section 3.5(a) shall
be applied ratably, first, to the Acquisition Loans in the inverse order of
maturity, and, second, to the Revolving Loans.
(b) Loan Formula. At the same time a Compliance Certificate is
required to be delivered pursuant to Subsection 5.1(e) hereof, the Borrower will
pay the Mandatory Prepayment, if any.
Section 3.6 Fees.
(a) Closing Fee. For and in consideration of the Lenders' agreement
to participate in and provide the sum of the Revolving Loan Commitment and the
Acquisition Loan Commitment, the Borrower shall pay to the Agent, on the Closing
Date, for the benefit of the Lenders, as a previously agreed to non-refundable
commitment fee, the sum of $170,000.
(b) Facility Fee. The Borrower further agrees to pay the Agent for
the benefit of each Lender a commitment fee on the average daily unused portion
of such Lender's Revolving Loan Commitment and Acquisition Loan Commitment equal
to 1/4 of one percent per annum. Such commitment fee shall accrue with respect
to the Revolving Loan Commitment and the Acquisition Loan Commitment from the
date hereof to the date the Commitments are terminated, shall be payable
quarterly in arrears, as to each calendar quarter (or portion thereof), within
30 days after the last day of each calendar quarter, commencing on that date
which is 30 days after the last day of the calendar quarter in which this
Agreement is executed, and on the date the Commitments are terminated.
(c) Agency Fee. The Borrower further agrees to pay to the Agent, for
the Agent's sole account, an agency fee of $50,000 per annum. Such agency fee
shall be payable quarterly in arrears, as to each calendar quarter (or portion
thereof), within 30 days after the last
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day of each calendar quarter, commencing on that date which is 30 days after the
last day of the calendar quarter in which this Agreement is executed, and on the
date the Notes are fully and finally paid.
(d) Computation of Fees. All periodic fees shall be computed on the
basis of a year of 365 days and paid for the actual number of days elapsed.
Fees shall accrue during each period during which they are computed from and
including the first day thereof but excluding the last day thereof.
Section 3.7 Payments.
(a) All payments (including prepayments) to be made by the Borrower on
account of principal, interest and fees shall be made without set-off or
counterclaim and shall be made to the Agent at the Agent's office referred to in
Section 12.7 in U.S. Dollars and in immediately available funds no later than
11:00 a.m. (Houston, Texas time). Any payment which is received by the Agent
later than 11:00 a.m. (Houston, Texas time) shall be deemed to have been
received on the immediately succeeding Business Day. Interest shall cease to
accrue on any principal as of the end of the day immediately preceding the
Business Day on which any such payment or prepayment is deemed hereunder to have
been received by the Agent. The Agent shall distribute such payments that are
for the benefit of the Lenders, in like funds as received, pro rata to each
Lender in accordance with such Lender's Commitment Percentage of such principal,
interest, fees or other amounts. Each Lender's pro rata part of each such
payment or prepayment shall be distributed in like funds to such Lender
promptly, and in any event by 2:00 p.m. (Houston, Texas time) on the day such
payments or prepayments are deemed hereunder to have been received by the Agent.
If the Agent fails to transfer any principal amount to any Lender within the
time period provided above, then interest shall accrue thereon at the Federal
Funds Rate from the day such payment or prepayment is deemed hereunder to have
been received by the Agent until the date distributed to such Lender, payable
upon demand to such Lender by the Agent.
(b) Whenever any payment of principal of or interest on any Note shall
be due on a day which is not a Business Day, the date for payment thereof shall
be extended to the next succeeding Business Day and interest shall be payable
for such extended time at the rate of interest with respect thereto in effect at
the due date; provided, however, that if such extension would cause payment of
interest on, or principal of, Eurodollar Rate Loans to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(c) Unless the Agent shall have received written notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent may (but shall not be required to), in reliance upon such assumption,
cause to be distributed to each Lender on such due date an amount equal to the
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amount then due such Lender. If and to the extent the Borrower shall not have
made such payment in full to the Agent, each Lender shall repay to the Agent
forthwith on demand such amount distributed to such Lender, together with
interest thereon at the Federal Funds Rate for each day from the Business Day
such amount is distributed to such Lender (or, if such payment is not received
by such Lender before 12:00 noon Houston, Texas time on such Business Day, then
from the first Business Day thereafter) until the date such Lender repays such
amounts to the Agent, at the Federal Funds Rate as in effect on such date.
Section 3.8 Payments by the Lenders to the Agent.
(a) Each Lender shall make available to the Agent in immediately
available funds for the account of the Borrower the amount represented by its
Commitment Percentage of any Borrowing.
(b) The failure of any Lender to make any Loan on any date of
Borrowing shall not relieve any other Lender of its obligation, if any,
hereunder to make a Loan on the date of such Borrowing pursuant to the
provisions contained herein, but no Lender shall be responsible for the failure
of any other Lender to make the Loan to be made by such other Lender on the date
of any Borrowing.
Section 3.9 Computation of Interest.
(a) All computations of interest under this Agreement (i) relating to
Prime Rate Loans, shall be made on the basis of a year of 365 days and paid for
the actual number of days elapsed and (ii) relating to Eurodollar Rate Loans,
shall be made on the basis of a year of 360 days and paid for the actual number
of days elapsed. Interest shall accrue during each period during which interest
is computed from and including the first day thereof to but excluding the last
day thereof.
(b) The Agent shall, as soon as practicable, notify the Borrower and
the Lenders of each determination of a Eurodollar Rate; provided that any
failure to do so shall not relieve the Borrower of any liability hereunder. Any
change in the interest rate on a Loan resulting from a change in the
Eurocurrency Liabilities, the Eurodollar Reserve Percentage, or the Prime Rate
shall become effective as of the opening of business on the day of which such
change in the Eurocurrency Liabilities, the Eurodollar Reserve Percentage, or
the Prime Rate shall become effective. The Agent shall, as soon as practicable,
notify the Borrower and the Lenders of the effective date and the amount of each
such change; provided that any failure to do so shall not relieve the Borrower
of any liability hereunder.
(c) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error.
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(d) The Borrower will not be required to maintain any deposit as a
condition for the borrowings hereunder.
Section 3.10 No Default. The Agent and the Lenders may, but shall not be
required to, make or continue any advance under the Revolving Loan Commitment or
the Acquisition Loan Commitment if an event has occurred and is continuing which
constitutes an Event of Default or a Default.
Section 3.11 Taxes.
(a) Subject to Section 3.11(g), any and all payments by the Borrower
to each Lender or the Agent under this Agreement shall be made free and clear
of, and without deduction or withholding for, any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender and the Agent, such
taxes (including income taxes or franchise taxes) as are imposed on or measured
by each Lender's net income by the jurisdiction under the laws of which such
Lender or the Agent, as the case may be, is organized or maintains a Lending
Office or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "TAXES").
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents (hereinafter referred to as "OTHER
TAXES").
(c) Subject to Section 3.11(g), the Borrower will indemnify and hold
harmless each Lender and the Agent for the full amount of Taxes or Other Taxes
(including without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.11) paid by such Lender or
the Agent (as the case may be) and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days from the date
such Lender or the Agent, as the case may be, makes written demand therefor.
(d) If the Borrower shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Lender or the Agent, then, subject to Section 3.11(g),
(i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this Section 3.11) such Lender or the
Agent, as the
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case may be, receives an amount equal to the sum it would
have received had no such deductions been made,
(ii) the Borrower shall make such deductions, and
(iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with
applicable law.
(e) Within 30 days after the date of any payment by the Borrower of
Taxes or Other Taxes, the Borrower will furnish to the Agent the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Agent.
(f) Each Lender which is a foreign person (a person other than a
United States person for United States Federal income tax purposes) hereby
agrees that:
(i) it shall, no later than the Closing Date (or, in the case of
a Lender which becomes a party hereto pursuant to Section 9.1 hereof after
the Closing Date, the date upon which such Lender becomes a party hereto),
deliver to the Borrower through the Agent:
(A) if any Lending Office is located in the United States, two
(2) accurate and complete signed originals of Internal Revenue Service
Form 4224 or any successor thereto ("Form 4224"), and/or
(B) if any Lending Office is located outside the United States,
two (2) accurate and complete signed originals of Internal Revenue
Service Form 1001 or any successor thereto("Form 1001"),
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such Lending Office or Offices under this Agreement free from
withholding of United States Federal income tax;
(ii) if at any time such Lender changes its Lending Office or
Offices or selects an additional Lending Office as herein provided, it
shall, at the same time or reasonably promptly thereafter, deliver to the
Borrower through the Agent in replacement for, or in addition to, the forms
previously delivered by such Lender hereunder:
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(A) if such changed or additional Lending Office is located in
the United States, two (2) accurate and complete signed originals of
Form 4224; or
(B) otherwise, two accurate and complete signed originals of Form
1001,
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such changed or additional Lending Office under this Agreement
free from withholding of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of any
event (including the passing of time but excluding any event mentioned in
(ii) above) requiring a change in the most recent Form 4224 or Form 1001
previously delivered by such Lender and if the delivery of the same be
lawful, deliver to the Borrower through the Agent two (2) accurate and
complete original signed copies of Form 4224 or Form 1001 in replacement
for the forms previously delivered by such Lender; and
(iv) it shall, promptly upon the Borrower's reasonable request to
that effect, deliver to the Borrower such other forms or similar
documentation as may be required from time to time by any applicable law,
treaty, rule or regulation in order to establish such Lender's tax status
for withholding purposes.
(g) The Borrower will not be required to pay any additional amounts in
respect of United States Federal income tax pursuant to Section 3.11(d) to any
Lender for the account of any Lending Office of such Lender:
(i) if the obligation to pay such additional amounts would not
have arisen but for a failure by such Lender to comply with its obligations
under Section 3.11(f) in respect of such Lending Office;
(ii) if such Lender shall have delivered to the Borrower a Form
4224 in respect of such Lending Office pursuant to Section 3.11(f)(i)(A)
and such Lender shall not at any time be entitled to exemption from
deduction or withholding of United States Federal income tax in respect of
payments by the Borrower hereunder for the account of such Lending Office
for any reason other than a change in United States law or regulations or
in the official interpretation of such law or regulations by any
governmental authority charged with the interpretation or administration
thereof (whether or not having the force of law) after the date of delivery
of such Form 4224; or
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(iii) if such Lender shall have delivered to the Borrower a Form
1001 in respect of such Lending Office pursuant to Section 3.11(f)(i)(B)
and such Lender shall not at any time be entitled to exemption from
deduction or withholding of United States Federal income tax in respect of
payments by the Borrower hereunder for the account of such Lending Office
for any reason other than a change in United States law or regulations or
any applicable tax treaty or regulations or in the official interpretation
of any such law, treaty or regulations by any governmental authority
charged with the interpretation or administration thereof (whether or not
having the force of law) after the date of delivery of such Form 1001.
(h) If, at any time, the Borrower requests any Lender to deliver any
forms or other documentation pursuant to Section 3.11(f)(iv), then the Borrower
shall, on demand of such Lender through the Agent, reimburse such Lender for any
costs or expenses reasonably incurred by such Lender in the preparation or
delivery of such forms or other documentation.
(i) If the Borrower is required to pay additional amounts to any
Lender or the Agent pursuant to Section 3.11(d), then such Lender shall use its
best efforts (consistent with legal and regulatory restrictions) to change the
jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Borrower which may thereafter accrue if such change in the
judgment of such Lender is not otherwise disadvantageous to such Lender.
(j) The agreements and obligations of the Borrower contained in this
Section 3.11 shall survive the payment in full of principal and interest
hereunder and under the other Loan Documents.
Section 3.12 Capital Adequacy. If with respect to all or any portion of
any Loan, any future law, rule, regulation or guideline regarding capital
adequacy or compliance by any Lender with any request, directive, or requirement
now existing or hereafter imposed by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof and
applicable generally to Persons of a type similar to Lenders, regarding capital
adequacy (whether or not having the force of law) shall result in a reduction in
the rate of return on such Lender's capital as a consequence of such Lender's
obligations under this Agreement to a level below that which such Lender
otherwise could have achieved by an amount reasonably determined by such Lender
to be material (and such Lender may, in determining such amount, utilize
reasonable assumptions and allocations of costs and expenses and may use any
reasonable averaging or attribution method), then (unless the effect of such
event is already reflected in the rate of interest then applicable hereunder)
such Lender shall notify the Borrower and the Agent and deliver to the Borrower
and the Agent a certificate setting forth in reasonable detail the calculation
of the amount necessary, on a monthly basis, to compensate such Lender therefor,
and the Borrower shall pay such amount to such Lender each month thereafter, as
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necessary, together with the scheduled payments of principal and interest
hereunder, commencing within ten days after demand.
Section 3.13 Interest.
(a) Subject to Section 3.13(c) of this Agreement, each Loan shall bear
interest on the outstanding principal amount thereof from the date when made
until it becomes due at a rate per annum equal to the lesser of (i) the Maximum
Rate, on the one hand, and (ii) the Eurodollar Rate or the Prime Rate, as the
case may be, plus the Applicable Percentage, on the other hand (any interest
rate referred to in this Section 3.13(a) and the Default Rate are collectively
referred to in Section 3.14 as the "ACCRUAL RATE").
(b) Interest on each Loan shall be payable in arrears on each Interest
Payment Date, and for Prime Rate Loans, on each Conversion Date in respect
thereof. Interest shall also be payable on the date of any prepayment of Loans
pursuant hereto for the portion of the Loans so prepaid and upon payment
(including prepayment) in full thereof and, after the occurrence and during the
continuance of any Event of Default, interest shall be payable on demand.
(c) During the continuation of any Event of Default or after
acceleration, the Borrower shall pay interest (after, as well as before,
judgment to the extent permitted by law) on the principal amount of its Loans
due and unpaid at the Default Rate.
Section 3.14 Interest Recapture. Notwithstanding the foregoing, if at any
time the Accrual Rate shall exceed the Maximum Rate and thereafter the Accrual
Rate shall be less than the Maximum Rate, the rate of interest payable under the
Revolving Note and the Acquisition Notes shall be the Maximum Rate until such
time as each such Lender shall have received the amount of interest it would
otherwise have received if the rate of interest payable under the Revolving Note
and the Acquisition Notes had not been limited by the Maximum Rate during the
period of time the Accrual Rate exceeded the Maximum Rate.
Section 3.15 Illegality.
(a) If the introduction of any Requirement of Law, or any change in or
in the interpretation or administration thereof, shall make it unlawful, or any
central bank or other Governmental Authority shall assert that it is unlawful,
for any Lender or such Lender's Lending Office to make Eurodollar Rate Loans,
then, on notice thereof by such Lender to the Borrower through the Agent
(specifying such details as it may lawfully make available), the obligation of
such Lender to make Eurodollar Rate Loans shall be suspended until such
notifying Lender shall have notified the Agent and the Borrower that the
circumstances giving rise to such determination no longer exists.
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(b) If it shall be unlawful for any Lender to maintain any Eurodollar
Rate Loan, the Borrower shall, at the option of the Borrower, either (i) prepay
in full all Eurodollar Rate Loans of such Lender then outstanding or (ii)
convert such Eurodollar Rate Loans of such Lender then outstanding to Prime Rate
Loans, together with interest accrued but unpaid thereon, either on the last day
of the Interest Period thereof, if such Lender may lawfully continue to maintain
such Eurodollar Rate Loans to such day, or immediately, if such Lender may not
lawfully continue to maintain such Eurodollar Rate Loans, together with any
amounts required to be paid in connection therewith pursuant to Section 3.16
hereof.
(c) Before giving any notice to the Agent pursuant to this Section
3.15, the affected Lender shall designate a different Lending Office with
respect to its Eurodollar Rate Loans if such designation will avoid the need for
giving such notice or making such demand and will not, in the reasonable
judgment of such Lender, be illegal or otherwise disadvantageous to such Lender.
Section 3.16 Increased Cost and Reduced Return.
(a) If, due to either (i) the introduction of or any change (other
than any change by way of imposition of or increase in reserve requirements
included in the Eurodollar Reserve Percentage) in or in the interpretation of
any law or regulation, or (ii) the compliance with any guideline or request from
any central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to any Lender of agreeing
to make or making, funding or maintaining any Eurodollar Rate Loans, then the
Borrower shall be liable for, and shall from time to time, upon demand therefor
by such Lender (with a copy of such demand to the Agent), pay to the Agent for
the account of such Lender, additional amounts as are sufficient to compensate
such Lender for such increased costs, or the Borrower shall not thereafter
request or maintain any Eurodollar Rate Loans. If any Eurodollar Rate Loans are
outstanding on the effective date of any items referred to in clauses (i) or
(ii) of the preceding sentence, the Borrower may either (i) prepay any
Eurodollar Rate Loans of such Lender then outstanding or (ii) convert such
Eurodollar Rate Loans of such Lender then outstanding to Prime Rate Loans,
together with interest accrued but unpaid thereon and if the date of prepayment
or conversion is other than the last day of the Interest Period(s) relating
thereto, together with amounts required to be paid pursuant to Section 3.17
hereof.
(b) The provisions of this Section 3.16 are subject in their entirety
to the provisions of Section 12.6 of this Agreement.
Section 3.17 Funding Losses. Subject to the provisions of Section 12.6 of
this Agreement, the Borrower agrees to reimburse each Lender for, and to hold
such Lender harmless from, any loss or expense which such Lender may sustain or
incur as a consequence of:
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(a) the Borrower's failure to make any payment or prepayment of
principal with respect to any Eurodollar Rate Loan (including payments made
after any acceleration thereof),
(b) the Borrower's failure to borrow, continue or convert a Loan after
either Borrower has given (or is deemed to have given) a Notice of Borrowing or
a Notice of Conversion/Continuation,
(c) the Borrower's failure to make any prepayment after the Borrower
has given a notice in accordance with Section 3.4 of this Agreement,
(d) any prepayment (whether optional or mandatory under the terms of
this Agreement) of a Eurodollar Rate Loan (other than a mandatory repayment by
the Borrowers of a Eurodollar Rate Loan required pursuant to the terms of
Section 3.15(b)) on a day which is not the last day of the Interest Period with
respect thereto, including, without limitation, any such loss or expense arising
from the liquidation or reemployment of funds obtained by such Lender to
maintain its Eurodollar Rate Loans hereunder or from fees payable to terminate
the deposits from which such funds were obtained, and/or
(e) any conversion (whether optional or mandatory under the terms of
this Agreement) of a Eurodollar Rate Loan on a day which is not the last day of
the Interest Period with respect thereto, including, without limitation, any
such loss or expense arising from the liquidation or reemployment of funds
obtained by such Lender to maintain its Eurodollar Rate Loans hereunder or from
fees payable to terminate the deposits from which such funds were obtained.
A certificate of each Lender, respectively, with respect to amounts owing
under this Section 3.17 shall be conclusive absent manifest error.
This covenant shall survive termination of this Agreement and the Loan
Documents and repayment of the Loans. Each Lender will use its best efforts to
advise the Borrower of any reimbursement obligation owing to it within 90 days
after the termination of this Agreement.
Section 3.18 Eurodollar Rate Protection. In the event that the Agent
shall have reasonably determined (which determination shall be conclusive and
binding upon the Borrower) that, for any reason, adequate and reasonable means
do not exist for ascertaining the Eurodollar Rate for any requested Interest
Period with respect to a proposed Loan that the Borrower has requested be made
as a Eurodollar Rate Loan, the Agent shall forthwith give telex or telecopy
notice of such determination to the Borrower and each Lender at least one day
prior to the proposed borrowing date for such Eurodollar Rate Loan. If such
notice is given, any requested Eurodollar Rate Loan shall be made as a Prime
Rate Loan. Until such notice has been withdrawn by the Agent, in writing, no
further Eurodollar Rate Loans at the indeterminate rate may be
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requested by the Borrower and, on the Interest Payment Date of any Eurodollar
Rate Loan then outstanding and so affected, such outstanding Loan shall be
converted into a Prime Rate Loan.
Section 3.19 Conversions and Renewals.
(a) The Borrower may upon irrevocable written notice to the Agent:
(i) elect to convert, on any Business Day, any Prime Rate Loans
(or any part thereof in an amount not less than $100,000 or an integral
multiple of $100,000 above such amount) into Eurodollar Rate Loans;
(ii) elect to convert, on any Interest Payment Date, any
Eurodollar Rate Loans maturing on such Interest Payment Date (or any part
thereof in an amount not less than $100,000 or an integral multiple of
$100,000 above such amount) into Prime Rate Loans; and
(iii) elect to renew, on any Interest Payment Date therefor, any
Eurodollar Rate Loans (or any part thereof in an amount not less than
$500,000 or an integral multiple of $100,000 above such amount);
provided, that if the aggregate amount of Eurodollar Rate Loans shall have been
reduced, by payment, prepayment, or conversion of part thereof, to an aggregate
principal amount of less than $500,000 the Eurodollar Rate Loans shall
automatically convert into Prime Rate Loans, and, on and after such date, the
right of Borrower to convert or borrow such Loans to Eurodollar Rate Loans shall
be determined under the terms and provisions of this Agreement.
(b) The Borrower shall deliver by telex, cable or telecopy, confirmed
immediately in writing, a Notice of Conversion/Continuation to the Agent for
receipt by the Agent at a time not later than 1:00 p.m. (Houston, Texas time) at
least (i) three (3) Business Days in advance of the Conversion Date or renewal
date, if the Loans are to be converted into or continued as Eurodollar Rate
Loans, and (ii) one (1) Business Day in advance of the Conversion Date or
renewal date, if the Loans are to be converted into or renewed as Prime Rate
Loans, specifying
(1) the proposed Conversion Date or renewal date;
(2) the aggregate amount of Loans to be converted or renewed;
(3) the nature of the proposed conversion or continuation; and
(4) the duration of the requested Interest Period, subject to the
definition of Interest Period.
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(c) If, upon the expiration of any Interest Period applicable to
Eurodollar Rate Loans, the Borrower has failed to select a new Interest Period
to be applicable to such Eurodollar Rate Loans, or, if any Event of Default
shall then have occurred and be continuing, the Borrower shall be deemed to have
elected to convert such Eurodollar Rate Loans into Prime Rate Loans effective as
of the expiration date of such current Interest Period.
(d) Upon receipt of a Notice of Conversion/Continuation, the Agent
shall promptly notify each Lender of the receipt thereof. All conversions and
renewals shall be made pro rata according to the respective outstanding
principal amounts of the Loans held by each Lender with respect to which such
notice was given.
(e) Notwithstanding any other provision contained in this Agreement,
after giving effect to any conversion or renewal of any Loans, there shall be
not more than five different Interest Periods for Eurodollar Rate Loans in
effect.
ARTICLE 4 CONDITIONS PRECEDENT.
Section 4.1 Conditions Precedent to First Loans. The obligation of each
Lender to make the initial Revolving Loan provided herein is subject to the
condition precedent that on or before the Closing Date the following shall have
been delivered to the Agent and the Lenders in form and substance satisfactory
to the Majority Lenders (unless otherwise specifically noted):
(a) The Revolving Notes dated the Closing Date and duly executed and
delivered by the Borrower.
(b) The other Loan Documents and such evidence of filings,
acknowledgments or acceptances of any such documents as the Agent or any Lender
may reasonably request or require, all duly executed and delivered by all
parties thereto.
(c) Written opinion or opinions, dated as of the Closing Date, of
counsel for the Borrower, in form and substance satisfactory to the Lenders,
covering all such matters as the Lenders may require.
(d) A copy of the Borrower's articles or certificates of incorporation
and bylaws, including all amendments thereto, all certified, in the case of the
articles or certificates of incorporation, by the Secretary of State of the
Borrower's state of incorporation, and, in the case of bylaws and other
documents, by the chief executive officer or Vice President, and the Secretary
or an Assistant Secretary of each such Person as being in full force and effect
on the Closing Date, and all other documents the Agent or any Lender may request
relating to the existence, qualification and good standing of the Borrower and
its Subsidiaries.
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(e) A copy of a resolution or resolutions passed by the Boards of
Directors of the Borrower, certified by the chief executive officer or Vice
President and the Secretary or an Assistant Secretary of the Borrower as being
in full force and effect on the Closing Date, which corporate resolutions shall
authorize the Borrowings provided for herein and the execution, delivery and
performance of this Agreement, the Notes, and the other Loan Documents, and any
other instrument or agreement required hereunder from such Person, as the case
may be, and shall state the incumbency, and contain the specimen signature or
signatures, of the person or persons authorized to execute and deliver this
Agreement, the Notes, and the other Loan Documents and any other instrument or
agreement required hereunder.
(f) A summary of the insurance coverage of the Borrower and its
Subsidiaries, which shall be in form, scope and substance reasonably
satisfactory to the Majority Lenders, together with certificates from each
insurer required pursuant to Section 5.5 hereof.
(g) Evidence satisfactory to the Majority Lenders that as of the
Closing Date there exist no Liens, other than Permitted Liens, on any Property
of the Borrower or any of its Subsidiaries.
(h) The fees, costs and expenses then payable pursuant to Sections 3.6
and 10.1 of this Agreement (including the fees, expenses and disbursements of
the Agent's counsel) shall have been paid to the Agent or any Lender, or such
counsel, as applicable.
(i) A copy of all environmental assessments and reports that the
Borrower or any of its Subsidiaries may possess or have access, relating to any
and all of the Property.
(j) Such other evidence as the Agent or any Lender may reasonably
request to establish the consummation of the transactions contemplated hereby,
the taking of all proceedings in connection herewith and compliance with the
conditions set forth in this Agreement.
Section 4.2 Conditions Precedent to Each Revolving Loan. The obligation
of each Lender to make any Revolving Loan provided herein is subject to the
following further conditions precedent:
(a) The representations and warranties contained herein shall be true
and correct in all material respects on the date of each Revolving Loan and the
Borrower shall be deemed to repeat such representations and warranties made by
it on such date.
(b) The Borrower shall have performed and complied with all agreements
and conditions contained in this Agreement the violation of which would
constitute an Event of Default. No Event of Default or Default shall have
occurred and be continuing and no Event of Default or Default will result after
giving effect to the Loan being requested.
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(c) The making of the Revolving Loans shall be permitted by the laws
and regulations of each jurisdiction to which the Agent or any Lender, the
Borrower or its Subsidiaries is subject (including, without limitation,
Regulation G, T, U or X of the Federal Reserve Board), and shall not subject the
Agent or any Lenders to any penalty or, in the reasonable judgment of the
Majority Lenders, other burdensome condition under or pursuant to any applicable
law or governmental regulation.
(d) There shall be no suit, action, investigation, inquiry or other
proceeding pending or, to the knowledge of the Borrower, threatened before any
court or other Governmental Authority, which (i) questions the validity or
legality of any Loan Document or any of the transactions contemplated by any
Loan Document or seeks damages in connection with any of the foregoing or (ii)
if adversely determined, would have a Material Adverse Effect.
Section 4.3 Conditions Precedent to each Interim Acquisition Loan. The
obligation of each Lender to make each Interim Acquisition Loan is subject to
the following further conditions precedent unless and to the extent waived in
writing by the Agent with the consent of the Majority Lenders:
(a) The proceeds of each Interim Acquisition Loan may be used only to
finance (or refinance in the case of locomotives and/or railcars), in one
advance, up to the respective Lender's Commitment Percentage of 100% of the
cost, including Eligible Acquisition Costs, of subsequent short-line railroad
acquisitions or acquisitions of locomotives and/or railcars by Borrower or one
of its Subsidiaries domiciled in the United States.
(b) No Interim Acquisition Loans shall be available or used for costs
and expenses related to rail lines and/or locomotives and/or railcars leased by
the Borrower or any of its Subsidiaries (provided, however, that locomotives
and/or railcars purchased or refinanced by the Borrower with the proceeds of an
Acquisition Loan may subsequently be leased by the Borrower to one or more of
its Subsidiaries);
(c) Borrower shall have delivered to the Agent evidence satisfactory
to the Majority Lenders that each short-line railroad to be acquired by the
Borrower or one of the Borrower's Subsidiaries with proceeds of Interim
Acquisition Loans shall meet all of the criteria listed on Schedule 4.3(c)
attached hereto;
(d) No litigation, investigation or proceeding before or by any
arbitrator or Governmental Authority shall be continuing or threatened against
the short-line railroad to be acquired or any of its Subsidiaries or any of the
officers or directors of any thereof;
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(e) The Agent shall have received each additional document,
instrument, legal opinion or item of information reasonably requested by the
Agent and the Lenders including, without limitation, the following, each in form
and substance acceptable to the Agent and the Lenders:
(i) the Acquisition Notes evidencing the respective Acquisition
Loans;
(ii) opinions of counsel (including Surface Transportation Board
counsel);
(iii) upon the request of any Lender, copies of all acquisition
documents;
(iv) corporate resolutions, charter documents and bylaws
certified by the president or any vice president and the secretary or any
assistant secretary of the Borrower and Subsidiary making the acquisition,
as applicable, together with certificates of good standing, existence and
authority to do business;
(v) if the acquisition is being made by a newly formed Subsidiary
of the Borrower, the new Subsidiary shall have complied with all
requirements imposed on new Subsidiaries in the covenants set forth herein;
(vi) UCC, Surface Transportation Board and other appropriate lien
searches;
(vii) upon the request of any Lender, any applicable Surface
Transportation Board Certificate of Exemption; and
(viii) the pro forma consolidated balance sheets of the Borrower
and its Subsidiaries, as at the date of the respective Acquisition Loan
(after giving effect to the acquisition and the transactions contemplated
by this Agreement and the other Loan Documents), prepared in accordance
with GAAP on a basis consistent with the financial statements previously
delivered to the Agent and the Lenders and certified by the chief
accounting officer of the Borrower;
(f) Each request for an Interim Acquisition Loan shall be made in
writing, in the form of a Notice of Borrowing, which certifies as to
representations and warranties, no Default and other matters reasonably
requested by the Agent on behalf of the Lenders; and
(g) All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with each acquisition shall be
satisfactory in form and substance
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to the Agent and the Lenders and the Agent shall have received such other
documents, legal opinions and other opinions in respect of any aspect or
consequence of the transactions contemplated hereby as it and the Lenders shall
reasonably request.
Section 4.4 Conditions Precedent to Term Acquisition Loans. The
obligations of each Lender to accept a Term Acquisition Note is subject to the
following further conditions precedent:
(a) The Borrower shall have executed and delivered the Term
Acquisition Notes of the Lenders.
(b) The representations and warranties contained herein shall be true
and correct in all material respects on the first day of the applicable Term
Period and the Borrower shall be deemed to repeat such representations and
warranties made by it on such date.
(c) The Borrower shall have performed and complied with all agreements
and conditions contained in this Agreement the violation of which would
constitute an Event of Default. No Event of Default or Default shall have
occurred and be continuing.
(d) The making of the Loans shall be permitted by the laws and
regulations of each jurisdiction to which the Agent or any Lender, the Borrower
or its Subsidiaries is subject (including, without limitation, Regulation G, T,
U or X of the Federal Reserve Board), and shall not subject the Agent or any
Lenders to any penalty or, in the reasonable judgment of the Majority Lenders,
other burdensome condition under or pursuant to any applicable law or
governmental regulation.
(e) There shall be no suit, action, investigation, inquiry or other
proceeding pending or, to the knowledge of the Borrower, threatened before any
court or other Governmental Authority, which (i) questions the validity or
legality of any Loan Document or any of the transactions contemplated by any
Loan Document or seeks damages in connection with any of the foregoing or (ii)
if adversely determined, would have a Material Adverse Effect.
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ARTICLE 5 AFFIRMATIVE COVENANTS.
During the term of this Agreement and until the Notes and all of the
Obligations have been paid in full, unless compliance with the provisions of the
following subsections shall have been waived in writing by the Majority Lenders,
the Borrower agrees as follows:
Section 5.1 Financial Statements. The Borrower will, and, as applicable,
will cause its Subsidiaries to, furnish the following to the Agent, with copies
for each Lender:
(a) As soon as available, but in any event, within 90 days after the
end of each fiscal year of the Borrower, a copy of the Borrower's and its
Subsidiaries' annual audited consolidated financial statements (consisting of at
least a balance sheet and related statements of income, retained earnings and
cash flow prepared in conformity with GAAP applied on a basis consistent with
that of the preceding fiscal year), and certified (with an unqualified opinion)
by an independent certified public accountant selected by the Borrower and
acceptable to the Majority Lenders;
(b) As soon as available, but in any event, within 45 days of the end
of each month during the term hereof, unaudited interim consolidated and
consolidating financial statements of the Borrower and its Subsidiaries prepared
and certified by a Responsible Officer of the Borrower and prepared similarly to
the audited statements referred to in clause (a) above (subject to normal year-
end audit adjustments) and consisting of at least balance sheets as of the close
of such period and profit and loss statements for the month then ended and for
the period from the beginning of the fiscal year to the close of such period and
acceptable to the Majority Lenders;
(c) Upon request by any Lender, a copy of the federal income tax
return of the Borrower and its Subsidiaries for the current fiscal year then
ended, certified by a Responsible Officer of the Borrower and its Subsidiaries;
(d) (i) Promptly after the filing thereof with the United States
Secretary of Labor or the Pension Benefit Guaranty Corporation, copies of each
annual and other report with respect to each Plan or any trust created
thereunder, and (ii) immediately upon becoming aware of the occurrence of any
"reportable event," as such term is defined in Section 4043 of ERISA, or of any
"prohibited transaction," as such term is defined in Section 4975 of the
Internal Revenue Code of 1954, as amended, in connection with any Plan or any
trust created thereunder, a notice signed by a Responsible Officer of the
Borrower or its Subsidiary, as applicable, specifying the nature thereof, what
action the Borrower is taking or proposes to take with respect thereto and, when
known, any action taken by the Internal Revenue Service with respect thereto;
(e) As soon as available, but in any event, within 45 days after the
end of each month during the term hereof, a Compliance Certificate for the
appropriate time period, certified
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by a Responsible Officer of the Borrower and containing a certificate of a
Responsible Officer of the Borrower and each Subsidiary stating that a review of
the activities of the Borrower and its Subsidiaries during the period covered by
such certificate has been made under his supervision with a view to determining
whether each of the Borrower and its Subsidiaries has kept, observed, performed
and fulfilled all of its obligations under this Agreement, the Notes, and the
other Loan Documents, and that, to the best of his knowledge, during such
period, it has kept, observed, performed and fulfilled each and every covenant
in this Agreement, the Notes, and the other Loan Documents, and is not at the
time in default under any of the same, or if it shall have been or shall be in
default, specifying the same;
(f) Forthwith upon the filing or receipt of same, a copy of any
material filings pertaining to the Borrower and each Subsidiary, or any
properties or assets thereof, with the Surface Transportation Board or the
National Transportation Agency of Canada; and
(g) Such other financial and other information concerning the Borrower
and its Subsidiaries as any Lender shall request from time to time.
Section 5.2 Payment of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, pay and discharge when due all of their respective
Indebtedness and all obligations, except those being contested in good faith by
appropriate proceedings, and against which the Borrower (or the applicable
Subsidiary) has set up adequate reserves, in accordance with GAAP.
Section 5.3 Notice; Litigation. The Borrower shall promptly give written
notice to the Agent and each Lender of (i) the occurrence of any Default or
Event of Default; (ii) any legal, judicial or regulatory proceedings (y) of the
type described in Section 5.14 hereof or (z) otherwise affecting the Borrower,
any of its Subsidiaries or any of its or their Properties or assets in which the
amount involved is material, is not covered (subject to normal deductibles) by
insurance, and could have a Material Adverse Effect; (iii) any dispute between
the Borrower or any of its Subsidiaries, and any Governmental Authority or other
Person that is likely to materially interfere with the normal business
operations of the Borrower or any of its Subsidiaries; (iv) any substantial
damage to any material part of its Property, specifying the nature and extent of
damage and whether such damage is being repaired in due course, or total loss or
destruction of any material part of its Property; (v) any demands for collective
bargaining by any union or organization or other attempt to organize employees
of the Borrower or any of its Subsidiaries, any material grievances, disputes or
controversies with any union or any other organization of the Borrower's or any
of its Subsidiaries' employees and any pending or threatened strikes or work
stoppages; (vi) any other action, event or condition of any nature of which it
has knowledge which may have, or lead to, or result in, any Material Adverse
Effect; (vii) the voluntary or involuntary bankruptcy of, or any assignment for
the benefit of creditors or the seeking of any relief under any bankruptcy or
other similar laws by, the Borrower or any of its Subsidiaries; (viii) any
Change of Control Notice or Declaration Notice (as such terms are
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defined in the MassMutual Agreement), any notice of optional prepayment given
pursuant to Section 2.2 of the MassMutual Agreement and any other notice given
pursuant to the MassMutual Agreement; and (ix) any notice given pursuant to the
Senior Notes.
Section 5.4 Maintenance of Corporate Existence and Properties;
Reconfiguration of Locomotives. The Borrower will, and will cause each of its
Subsidiaries to, (i) continue to engage in the businesses presently being
operated, (ii) maintain their respective corporate existence and good standing
in each jurisdiction in which they, or any of them, are required to be
qualified, (iii) keep and maintain all franchises, permits, licenses and
properties useful and necessary in the conduct of their respective businesses in
good order and condition, and (iv) duly observe and conform to all material
requirements of any Governmental Authorities relative to the conduct of their
respective businesses or the operation of their respective properties or assets,
if such failure duly to observe and conform to such requirements would have a
Material Adverse Effect or could result in criminal prosecution.
Section 5.5 Insurance. The Borrower will, and will cause each of its
Subsidiaries to, maintain insurance with financially sound and responsible
companies in such form, in such amounts, and against such risks (including,
without limitation, public liability, evacuation liability, umbrella, and
property damage insurance) as is customarily carried by companies engaged in the
same or similar businesses, operating like and similarly situated Properties.
The Borrower and its Subsidiaries, as applicable, will have the right to place
any such insurance with any insurance carrier acceptable to the Majority
Lenders. Upon execution of this Agreement, the Borrower will furnish to the
Agent, with copies to each Lender (i) a summary of the insurance coverage of the
Borrower and its Subsidiaries, and will supplement such summary from time to
time as the amounts or terms of such insurance coverage change, and (ii) upon
request, copies of the applicable policies and proof of payment of the premiums
therefor.
Section 5.6 Payment of Taxes. The Borrower will, and will cause each of
its Subsidiaries to, pay and discharge when due all taxes, assessments and other
liabilities, except those being contested in good faith by appropriate
proceedings, and against which the Borrower (or its applicable Subsidiary) has
set up adequate reserves, in accordance with GAAP.
Section 5.7 Accounts Receivable and Payable. The Borrower will, and will
cause each of its Subsidiaries to, pay their respective accounts payable and
maintain their respective accounts receivable in a manner consistent with normal
business practices, including normal terms and conditions for payment, for
companies engaged in similar operations in similar jurisdictions.
Section 5.8 Further Assurances. The Borrower, at any time and from time
to time, will, and will cause each of its Subsidiaries to, execute and deliver
such further instruments and take such further action as may reasonably be
requested by the Majority Lenders, in order to cure any defects in the execution
and delivery of, or to comply with or accomplish the covenants and agreements
contained in this Agreement, the Notes, or the other Loan Documents.
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Section 5.9 Inspection. The Borrower will, and will cause each of its
Subsidiaries to, permit the Agent or any Lender (and any Person appointed by any
Lender to act for it and on its behalf) to examine their respective corporate
and financial books and records and other records, books and properties and to
discuss their respective affairs, finances and accounts with the officers of the
Borrower and its Subsidiaries and the Borrower's and its Subsidiaries'
independent certified public accountants at all reasonable times and as often as
may be reasonably requested by the Agent or any Lender.
Section 5.10 Leverage Ratio. The Borrower and its Subsidiaries will
maintain, on a consolidated basis, a Leverage Ratio of 60% or less, at all times
during the term hereof.
Section 5.11 Funded Debt/EBITDA. The Borrower and its Subsidiaries will
maintain, on a rolling and consolidated basis, a ratio of Funded Debt on the
last day of each month to EBITDA for the preceding 12 months of 4.50 to 1.0 or
less.
Section 5.12 Cash Flow Coverage Ratio. The Borrower and its Subsidiaries
will maintain, on a rolling 12-month and consolidated basis, Cash Flow Coverage
Ratio of at least 1.40 to 1.00 (tested as of the last day of each month during
the term hereof).
Section 5.13 Tangible Net Worth. The Borrower and its Subsidiaries will
maintain, on a consolidated basis, a positive consolidated Tangible Net Worth
from the Closing Date and at all times thereafter of at least $105,000,000 plus,
on a cumulative annual basis, 75% of consolidated Net Income.
Section 5.14 Interest Coverage Ratio. The Borrower and its Subsidiaries
will maintain, on a rolling 12-month and consolidated basis, Interest Coverage
Ratio of at least 2.50 to 1.0 (tested as of the last day of each month during
the term hereof).
Section 5.15 Environmental Compliance. The Borrower will, and will cause
each of its Subsidiaries, contractors and invitees to, comply in all respects
with the requirements of all Governmental Authorities pursuant to Environmental
Laws or the common law, except to the extent that such non-compliance could not
reasonably be expected to have a Material Adverse Effect. Borrower shall not,
and shall not permit any of its Subsidiaries to, cause or permit any Hazardous
Materials to be brought upon or kept or used on or about the Property, or take
or fail to take any other action with respect to any Hazardous Materials, in
violation of any Environmental Law.
Section 5.16 Notification. If the Borrower of any of its Subsidiaries
shall become aware of or receive notice or other communication concerning any
actual, alleged, suspected or threatened violation of Environmental Laws, or
liability of the Borrower or any of its Subsidiaries for any Hazardous Materials
Contamination in connection with the Property or past or present activities of
any Person thereon, or that any representation set forth in this Agreement is
not or
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is no longer accurate, including but not limited to notice or other
communication concerning any actual or threatened investigation, inquiry,
lawsuit, claim, citation, directive, summons, proceeding, complaint, notice,
order, writ, or injunction, relating to same and the effect of such violation,
liability or inaccurate representation could reasonably be expected to have or
result in a Material Adverse Effect, then the Borrower will, and will cause each
of its Subsidiaries to, deliver to the Agent and each Lender within 10 days of
the receipt of such notice or communication by the Borrower or any of its
Subsidiaries, a written description of such violation, liability, correcting
information, or actual or threatened event or condition, together with copies of
any document evidencing same. Receipt of such notice shall not be deemed to
create any obligation on the part of the Agent or any Lender to defend or
otherwise respond to any such notification or communication. Further, the
Borrower will, and will cause each of its Subsidiaries to, promptly undertake
and diligently pursue to completion any appropriate and legally required or
authorized investigation, abatement and remedial containment and cleanup action
in the event of any release or discharge, or threatened release or discharge, of
a Hazardous Material on, upon, into or from the Property.
ARTICLE 6 NEGATIVE COVENANTS.
During the term of this Agreement and until the Notes and all of the
Obligations have been paid in full, unless compliance with the following
subsections shall have been waived in writing by the Majority Lenders, the
Borrower agrees as follows:
Section 6.1 Limitations on Borrowings. The Borrower will not, and will
not permit any of its Subsidiaries to, create, incur, assume or suffer to exist
any Indebtedness except (i) the Indebtedness incurred under this Agreement and
the other Loan Documents, (ii) the Indebtedness (other than for borrowed money)
on open account or under trade acceptances in the ordinary course of business in
connection with normal trade obligations, (iii) unsecured intercompany accounts
between the Subsidiaries of the Borrower, or any of them on the one hand, and
the Borrower, on the other hand, (iv) deferred insurance expense financed for a
period not to exceed 12 months, (v) purchase money indebtedness of any one
Subsidiary not in excess of $500,000 at any one time outstanding or collective
purchase money indebtedness of the Borrower and all of its Subsidiaries not in
excess of $2,500,000 aggregate at any one time outstanding, (vi) the
Indebtedness for taxes and other charges to the extent permitted under Sections
5.2 and 5.6 hereof, (vii) other unsecured or cash secured indebtedness of the
Borrower or its Subsidiaries to Wells Fargo that, when combined with the
indebtedness described in item (v) above (whether or not to Wells Fargo), does
not exceed $1,500,000, (viii) the MassMutual Debt or other Subordinated
Indebtedness, (ix) the Senior Notes; and (x) the Canadian Loans.
Section 6.2 Limitations on Liens. The Borrower will not, and will not
permit any of its Subsidiaries domiciled in the United States to, create, assume
or suffer to exist any mortgage, Lien, pledge, charge, security interest or
other encumbrance of any kind upon any of their
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respective properties or assets (including, without limitation, real property,
equipment, inventory and all leased railroad lines), whether now owned or
hereafter acquired, except Permitted Liens.
Section 6.3 Limitations on Contingent Liabilities. The Borrower will not,
and will not permit any of its Subsidiaries to, create, assume or suffer to
exist any Contingent Liabilities, except (i) as permitted hereunder (including
the Borrower's guaranties of repayment of the Cdn $ Senior Notes and the
Canadian Loans), (ii) for endorsements of instruments for collection in the
ordinary course of business, (iii) any such liability under a Loan Document in
favor of the Agent and the Lenders, and (iv) any such liability under a Canadian
Loan Document.
Section 6.4 Loans, Advances and Investments. The Borrower will not, and
will not permit any of its Subsidiaries to, make or permit to remain outstanding
any advances, loans or extensions of credit to, or purchase or own any stock,
bonds, notes, debentures, or other securities of, or make any investments in,
any Person except pursuant to the Canadian Loan Documents and except (i)
accounts, instruments, chattel paper and general intangibles (as defined in the
UCC) arising or acquired in the ordinary course of business as presently
conducted, (ii) Cash Equivalents, (iii) expenses, advances and loans made to
employees of the Borrower in the ordinary course of business and not exceeding
an aggregate amount of $200,000 at any one time outstanding, (iv) intercompany
advances between the Borrower and any of its Subsidiaries, or between any of
such Subsidiaries, and (v) ownership by the Borrower of the capital stock of its
Subsidiaries.
Section 6.5 Limitations on Fundamental Changes; Disposition of Assets.
The Borrower will not, and will not permit any of its Subsidiaries to, (i) form
any new Subsidiary, provided, however, the Borrower may form new Subsidiaries so
long as (1) no Default or Event of Default has occurred or is continuing and
would not occur as a result thereof; and (2) the new Subsidiary delivers a UCC
and other lien search and other documents evidencing compliance with Section 6.2
hereof and, upon request, opinions of counsel, all in form and substance
satisfactory to the Majority Lenders; (ii) enter into any transaction of merger
or consolidation; (iii) liquidate or dissolve themselves or any of them (or
suffer any liquidation or dissolution); (iv) convey, sell, lease, charter or
otherwise dispose of all or any part of their respective property, assets or
business (other than individual items of property or assets not reasonably
necessary to the conduct of Borrower's and its Subsidiaries' business); or (v)
except in the ordinary course of business, enter into any arrangement, directly
or indirectly, whereby the Borrower or any of its Subsidiaries would sell or
transfer any properties, either now owned or hereafter acquired, and then or
thereafter lease as lessee such properties or any part thereof or any other
property to be used for substantially the same purpose; provided, however, that
the Borrower may contribute its Property to wholly-owned Subsidiaries engaged
principally in domestic United States operations.
Section 6.6 Dividends. The Borrower will not, and will not permit any of
its Subsidiaries to, declare or pay any dividend (other than dividends payable
solely in stock) or make any other distribution on account of, or purchase,
acquire, retire, or redeem any stock of
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the Borrower or any applicable Subsidiary whether now owned or hereafter
outstanding; provided, however, that (i) any Subsidiary may pay cash dividends
out of retained earnings to the Borrower and (ii) the Borrower may re-acquire
stock of the Borrower distributed pursuant to its Stock Option Plans within the
limits set forth in Schedule 6.6 attached hereto.
Section 6.7 Subordination of Claims. The Borrower will not, and will not
permit any of its Subsidiaries to, subordinate or permit to be subordinated any
claim against, or obligation of, another Person held or owned by it to any other
claim against, or obligation of, such other Person.
Section 6.8 ERISA Compliance. The Borrower will not, and will not permit
any of its Subsidiaries to, permit at any time any Plan maintained by any of
them to:
(a) Engage in any "prohibited transaction," as such term is defined in
Section 4975 of the Code;
(b) Incur any "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA; or
(c) Terminate any such Plan in a manner which could result in the
imposition of a lien on the property of the Borrower or its applicable
Subsidiary pursuant to Section 4068 of ERISA.
Section 6.9 Nature of Business. The Borrower will not, and will not
permit any of its Subsidiaries to, engage in any lines of business other than
that in which they are presently engaged or that are directly related thereto.
Section 6.10 Leases. The Borrower will not, and will not permit any of
its Subsidiaries to, enter into any new Capital Leases in any year during the
term hereof; provided, however, the Borrower and its Subsidiaries may enter into
Capital Leases not in excess of $2,500,000 in the aggregate per fiscal year of
the Borrower.
Section 6.11 Supply and Purchase Contracts. Except with respect to
contracts that, in the aggregate, do not obligate the Borrower for amounts in
excess of $2,500,000 at any one time, the Borrower will not, and will not permit
any of its Subsidiaries to, enter into or be a party to, as a purchaser, any
contract for the purchase of materials, supplies or other property if such
contract requires that payment for such materials, supplies or other property
shall be made, regardless of whether or not delivery of such materials, supplies
or other property is ever made or tendered.
Section 6.12 Transactions with Affiliates and Other Persons. The Borrower
will not, and will not permit any of its Subsidiaries to, engage in any
transaction with an Affiliate on terms
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less favorable to them than would be obtainable at the time in comparable
transactions with Persons not affiliated with the Borrower or any Subsidiary.
The Borrower will not, and will not permit any of its Subsidiaries to incur,
create or assume any commitments to make payments, whether as rental or
otherwise, under any lease, rental or other arrangement, written or oral, for
the use of any other Person if, under the terms of any such agreements, the
amount of rentals payable thereunder is greater than the rentals presently paid
by the Borrower or any of its Subsidiaries.
Section 6.13 Capital Expenditures. Except for capital expenditures funded
from (i) borrowed money permitted under this Agreement, (ii) the sale of capital
assets permitted by this Agreement, (iii) equity or Subordinated Indebtedness,
or (iv) government grants, the Borrower will not, and will not permit any of its
Subsidiaries to, expend or enter into any commitment to expend an amount in the
aggregate for the acquisition or lease of tangible, fixed or capital assets,
including repairs, replacements and improvements, which are capitalized under
proper accounting practice, which exceeds the Capital Expenditure Amount Limit
in the aggregate during any twelve-month period during the term hereof;
provided, however, the Lenders will review the Capital Expenditure Amount Limit
on an annual basis and adjust such Capital Expenditure Amount Limit in the
Majority Lenders' sole discretion.
Section 6.14 No Prepayment of MassMutual Debt Without Consent. The
Borrower will not give any notice of prepayment or prepay or purchase any
MassMutual Debt (whether pursuant to Sections 2.2 or 4.10 of the MassMutual
Agreement or otherwise); provided, however, that this provision does not
prohibit prepayment pursuant to Sections 2.1 and 2.3 of the MassMutual
Agreement.
ARTICLE 7 DEFAULT.
Section 7.1 Events of Default. The occurrence of any of the following
events or conditions shall constitute an "Event of Default":
(a) Failure of the Borrower to pay any principal of or interest on any
of the Notes, or to perform any of the Obligations, declared due or within five
days of when due;
(b) Any representation or warranty made by either of the Borrower or
any of its Subsidiaries in this Agreement or in any of the other Loan Documents
or in any certificate, financial or other statement furnished by either of the
Borrower or any of its Subsidiaries pursuant hereto or thereto or in connection
herewith or therewith is untrue in any material respect as of the date made or
furnished;
(c) Failure of the Borrower or any of its Subsidiaries to observe or
perform any of the covenants, terms or agreements of this Agreement, the other
Loan Documents or any other
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agreements with the Agent or any Lender and such failure shall continue for a
period of 10 days or more from the date observance or performance was due
(except with respect to the failure to observe and perform the covenants covered
by Section 7.1(a) above, Sections 5.3, 5.5, 5.10, 5.11, 5.12 hereof, or Article
6 hereof, as to which there shall be no grace period);
(d) The Borrower or any of its Subsidiaries (i) is generally not
paying its Indebtedness as it becomes due, (ii) fails to pay any principal of or
interest on any obligation or obligations for borrowed money beyond the period
of grace, if any, provided for in the instrument or agreement under which the
same was created, or (iii) fails to observe or perform any other term, condition
or agreement contained in any obligation or obligations for borrowed money or in
any instrument or agreement evidencing, securing or relating thereto if the
effect thereof is to cause or permit the holder or holders of such obligation
(or a trustee or an agent on behalf of such holder or holders) to cause any such
obligation to become due prior to its stated maturity;
(e) An event of default shall occur under any of the Loan Documents;
(f) Filing by either of the Borrower or any of its Subsidiaries of a
voluntary petition or any answer seeking reorganization, arrangement,
readjustment of its or his debts or for any other relief under any applicable
bankruptcy act or law, or under any other insolvency act or law, now or
hereafter existing, or any action by any of the Borrower or any of its
Subsidiaries consenting to, approving of or acquiescing in any such petition or
proceeding; the application by any of the Borrower or any of its Subsidiaries
for, or the appointment by consent or acquiescence of, a receiver or trustee for
any of the Borrower or any of its Subsidiaries or for all or a substantial part
of its or his property; the making by any of the Borrower or any of its
Subsidiaries of an assignment for the benefit of creditors, the inability of any
of the Borrower or any of its Subsidiaries, or the admission by any of the
Borrower or any of its Subsidiaries in writing of its or his inability, to pay
its or his debts as they mature (the term "acquiescence" means the failure to
file a petition or motion in opposition to such petition or proceeding or to
vacate or discharge any order, judgment or decree providing for such appointment
within 30 days after the appointment of a receiver or trustee);
(g) Filing of an involuntary petition against any of the Borrower or
any of its Subsidiaries in bankruptcy or seeking reorganization, arrangement or
readjustment of its or his debts or for any other relief under any applicable
bankruptcy act or law, or under any other insolvency act or law, now or
hereafter existing and such petition remains undismissed or unanswered for a
period of 30 days from such filing; or the involuntary appointment of a receiver
or trustee for any of the Borrower or any of its Subsidiaries for all or a
substantial part of its or his property and such appointment remains unvacated
or unopposed for a period of 10 days from such appointment; or the issuance of a
writ of attachment, execution or similar process against
any substantial part of the property of any of the Borrower or any of its
Subsidiaries and such
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writ remains unbonded or undismissed for a period of 10 days from notice to any
of the Borrower or any of its Subsidiaries of its issuance;
(h) Final judgment for the payment of money in excess of $50,000 shall
be rendered against any of the Borrower or any of its Subsidiaries and the same
shall remain undischarged for a period of 30 days, during which execution shall
not be effectively stayed;
(i) Any loss, damage or destruction (not covered by insurance) of any
material part of the Property of the Borrower and its Subsidiaries taken as a
whole on a consolidated basis; or
(j) A trustee shall be appointed by an appropriate United States
District Court to administer any Plan of the Borrower or any of its
Subsidiaries, or the Pension Benefit Guaranty Corporation shall institute
proceedings to terminate any Plan of the Borrower or any of its Subsidiaries.
Section 7.2 Optional Acceleration. Upon the occurrence and during the
continuance of any Event of Default set forth in Subsection 7.1(a), (b), (c),
(d), (e), (f), (i) or (j) hereof, any obligation of the Agent and the Lenders to
extend credit to the Borrower pursuant hereto shall immediately terminate and
the Agent shall at the request of the Majority Lenders, and may with the consent
of the Majority Lenders, without notice to any of the Borrower or any of its
Subsidiaries, declare the principal of and interest accrued on the Notes to be
forthwith due and payable, whereupon the same shall become due and payable
without any presentment, demand, protest, notice of protest, notice of intent to
accelerate, notice of acceleration, or notice of any kind (except notice
required pursuant to this Agreement), all of which are hereby waived.
Section 7.3 Automatic Acceleration. Upon the occurrence of any Event of
Default set forth in Subsection 7.1(f) or (g) hereof, of any obligation of the
Agent and the Lenders to make Loans or advances under the Commitments and the
Notes shall automatically terminate and the principal of and interest accrued on
the Notes shall be immediately and automatically due and payable without notice
or demand of any kind, and the same shall be due and payable immediately without
any presentment, acceleration, demand, protest, notice of protest, notice of
intent to accelerate, notice of acceleration, or notice of any kind, all of
which are hereby waived.
Section 7.4 Additional Remedies. In case any one or more Events of
Default or Defaults shall occur, the Agent shall, at the request of the Majority
Lenders, and may with the consent of the Majority Lenders, proceed to protect
and enforce the rights of the Agent and the Lenders by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein, in the Notes, or in the other Loan Documents, or
for an injunction against a violation of any of the terms hereof or thereof, or
in aid of the exercise of any power granted hereby or thereby or by law, or
otherwise. In addition,
the Borrower will pay to the Agent and the Lenders such further amount as shall
be sufficient
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to cover the cost and expenses of collection, including, without limitation,
reasonable attorneys' fees, expenses and disbursements of the Agent or any
Lender. No course of dealing and no delay on the part of any holder of the Notes
in exercising any right, power to remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement, the Notes, or by the other Loan Documents
upon any holder thereof shall be exclusive of any other right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise.
ARTICLE 8 RELATION OF LENDERS.
Section 8.1 Appointment. Each Lender hereby irrevocably appoints
designates and authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it by the terms of
this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Agent.
Section 8.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorney's-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent, any additional co-agent appointed
pursuant to Section 8.3 below, or attorney-in-fact selected with reasonable
care.
Section 8.3 Appointment of Additional Co-Agent.
(a) It is the purpose of this Agreement that there shall be no
violation of any law of any jurisdiction denying or restricting the right of
banking corporations or associations to transact business as agent in such
jurisdiction. It is recognized that in case of litigation under this Agreement
or the Loan Documents and in particular in case of the enforcement thereof or
Default, or in case the Agent deems that by reasons of any present or future law
of any jurisdiction it may not exercise any of the powers, rights or remedies
herein or therein granted to the Agent or take any other action which may be
desirable or necessary in connection therewith, the Agent, with the consent of
the Majority Lenders, may appoint an additional individual or institution as a
separate or additional co-agent, in which event each and every remedy, power,
right, claim, demand, cause of action, immunity, interest and lien expressed or
intended by this Agreement or the Loan Documents to be exercised by or vested in
or conveyed
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to the Agent with respect thereto shall be exercisable by and vest in such
separate or additional co-agent, but only to the extent necessary to enable such
separate or additional co-agent to exercise such powers, rights and remedies,
and every covenant and obligation necessary to the exercise thereof by such
separate or additional co-agent shall run to and be enforceable by either of
them.
(b) Should any conveyance or instrument in writing from the Lenders be
required by such separate or additional co-agent so appointed by the Agent for
more fully and certainly vesting in and confirming to him or it such rights,
powers, duties and obligations, any and all such conveyances and instruments
shall, on request, be executed, acknowledged and delivered by the Majority
Lenders. In case any such separate or additional co-agent or a successor, shall
die, become incapable of acting, resign or be removed, all the rights, powers,
duties and obligations of such separate or additional co-agent, so far as
permitted by law, shall vest in and be exercised by the Agent until the
appointment of a successor to such separate or additional co-agent. Any such
separate or additional co-agent appointed by the Agent pursuant to this Section
8.3 may be removed by the Agent or Majority Lenders at any time, in which case
all powers, rights and remedies vested in such separate and additional co-agent
shall again vest in the Agent as if no such appointment of additional co-agent
had been made.
Section 8.4 Liability of Agent. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(a) liable for any action taken or omitted to be taken by any of them under or
in connection with this Agreement or any other Loan Document (except for its own
gross negligence or willful misconduct), or (b) responsible in any manner to any
of the Lenders for any recital, statement, representation or warranty made by
the Borrower or any of its Subsidiaries or any officer of any of them contained
in this Agreement or in any other Loan Document or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document or
for the value of any Property or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower or any of its Subsidiaries to perform its
obligations hereunder or thereunder, or (c) required to initiate or conduct any
litigation or collection proceedings hereunder or under any other Loan Document.
The Agent may deem and treat the payee of any Note as the holder thereof for all
purposes hereof unless and until a notice of the assignment or transfer thereof
shall have been filed with the Agent pursuant to Article 9 hereof, together with
the approval of the Borrower, which approval of the Borrower shall not be
unreasonably withheld, to such assignment or transfer. The Agent shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of the Borrower or any of its Subsidiaries.
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Section 8.5 Reliance by Agent.
(a) The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, telegram, telecopy, telex or telephone message, statement or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Majority Lenders as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Majority
Lenders and such request and any action taken or failure to act pursuant thereto
shall be binding upon all the Lenders and all future holders of the Loans.
(b) For purposes of determining compliance with the conditions
specified in Article 4, each Lender shall be deemed to have consented to,
approved or accepted or to be satisfied with each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Lenders unless an officer of the Agent responsible for the
transactions contemplated by the Loan Documents shall have received notice from
such Lender prior to the initial Borrowing specifying its objection thereto and
either such objection shall not have been withdrawn by written notice to the
Agent to that effect or such Lender shall not have made available to the Agent
such Lender's ratable portion of such Borrowing.
Section 8.6 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees payable
to the Agent for the account of the Lenders, unless the Agent shall have
received written notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." In the event that the Agent receives such a
notice, the Agent shall give notice thereof promptly to the Lenders.
The Agent shall take such action with respect to such Default or Event of
Default as shall be requested by the Majority Lenders in accordance with Article
7 hereof; provided, however, that unless and until the Agent shall have received
any such request, the Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
Section 8.7 Credit Decision. Each Lender expressly acknowledges that
neither the Agent nor any of its Affiliates nor any officer, director, employee,
agent, attorney-in-fact of any
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of them has made any representation or warranty to it and that no act by the
Agent hereinafter taken, including any review of the affairs of the Borrower and
its Subsidiaries shall be deemed to constitute any representation or warranty by
the Agent to any Lender. Each Lender represents to the Agent and the other
Lenders that it has independently and without reliance upon the Agent and the
other Lenders and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries and made its own decision
to enter into this Agreement and the other Loan Documents and extend credit to
the Borrower hereunder. Each Lender also represents that it will, independently
and without reliance upon the Agent and the other Lenders and based on such
documents and information as it shall deem appropriate at the time, continue to
make it own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent (a) shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower and its Subsidiaries which may come into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates, (b) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement or any other Loan Document, and (c) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan Document, or any instrument or document furnished or executed pursuant
hereto or therewith.
Section 8.8 Indemnification. The Lenders agree to indemnify the Agent (to
the extent not reimbursed by or on behalf of the Borrower and without limiting
the obligations of the Borrower to do so), ratably according to their respective
Default Percentages from and against any and all liabilities, obligations,
claims, losses, damages, penalties, actions, judgments, suits, costs, expenses
and disbursements of any kind whatsoever which may at any time (including at any
time following the repayment of the Loans) be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement, any other Loan Documents, or any document contemplated by or referred
to herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Agent under or in connection with any of the
foregoing; provided, however, that, although the Agent shall be indemnified for
its ordinary negligence, no Lender shall be liable for the payment to the Agent
of any portion of such liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements
resulting solely from the Agent's gross negligence or willful misconduct.
Without limitation of the foregoing, each Lender agrees to reimburse the Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including, without limitation, the costs and expenses which the Borrower is
obligated to pay under Article 10 hereof)
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incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein to the extent that the Agent
is not reimbursed for such expenses by or on behalf of the Borrower. Each Lender
shall be entitled to be reimbursed by the Agent for any amount such Lender paid
to the Agent under this Section 8.8 to the extent the Agent has been reimbursed
for such payments by the Borrower.
Section 8.9 Agent in Individual Capacity. Wells Fargo and its Affiliates
may make loans (up to, but not exceeding, an aggregate principal amount of
$2,000,000 at any time outstanding) to, issue letters of credit for the account
of, accept deposits from and generally engage in any kind of business with the
Borrower and its Subsidiaries as though Wells Fargo were not the Agent hereunder
and Wells Fargo and its Affiliates may accept fees and other consideration from
the Borrower for services in connection with this Agreement or otherwise without
having to account for the same to the Lenders. With respect to its Loans, Wells
Fargo (and any successor acting as Agent) shall have the same rights and powers
under this Agreement as any other Lender and may exercise the same as though it
were not the Agent, and the terms "Lender" and "Lenders" shall include Wells
Fargo in its individual capacity.
Section 8.10 Successor Agent. The Agent may, and at the request of the
Majority Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If
the Agent shall resign as Agent under this Agreement, the Majority Lenders shall
appoint from among the Lenders a successor agent for the Lenders. If no
successor Agent is appointed prior to the effective date of the resignation of
the Agent, the Agent shall appoint, after consulting with the Lenders and the
Borrower, a successor agent from among the Lenders. Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor agent and the retiring Agent's rights, powers and
duties, as Agent shall be terminated. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article 8 and Article 10 hereof shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
Section 8.11 Sharing of Payments.
(a) Except as provided below, subject to the Agent's or any Lender's
expressly stated right to receive certain payments or prepayments under any of
the Loan Documents independent of the other Lenders, all payments and
prepayments (whether received by voluntary payment or prepayment, mandatory
prepayment, exercise of setoff or banker's lien, counterclaim, cross-action, or
other legal proceedings, or realization on or with respect to any collateral) of
principal, interest, fees, or other sums due under the Loan Documents shall be
shared by Lenders ratably on the basis of their respective Commitment
Percentages.
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(b) Should any Lender ever receive any amounts in excess of its share
thereof, determined in accordance with this Section 8.11, then such Lender
shall, to the extent of such excess, purchase from each other Lender a
participation in the portion of the Obligations owed to each other Lender to the
extent necessary for each Lender to receive its share thereof determined as
provided in this Section 8.11.
(c) If all or any portion of any amounts shared with the other Lenders
through the purchase of one or more participations is thereafter recovered from
the Lender purchasing such participation, such purchase of participation shall
be rescinded (and the purchase price promptly refunded to such purchasing
Lender) to the extent of such recovery from such purchasing Lender, either (i)
without interest or (ii) if the purchasing Lender is required to pay interest on
the amount recovered from it, then interest thereon to the extent of each such
other Lender's ratable share of such interest paid by the purchasing Lender.
Section 8.12 Approval. Upon any occasion requiring or permitting an
approval, consent, waiver, election or other action on the part of the Majority
Lenders, action shall be taken by the Agent for and on behalf of, or for the
benefit of all Lenders, upon the direction of the Majority Lenders, and any such
action shall be binding on all Lenders. Unless all Lenders agree in writing, no
amendment, modification, consent or waiver shall be effective which:
(a) increases the amount of the Loans or increases the Commitment or
Commitment Percentage of any Lender;
(b) reduces interest, principal or commitment fees owing hereunder,
under the Notes or under any Loan Document;
(c) extends the fixed date on which any sum is due hereunder, under
the Notes or under any Loan Document;
(d) waives an Event of Default arising from a failure to pay principal
of or interest on a Loan within the applicable grace period;
(e) changes the provisions of this Section 8.12 and Section 11.1
hereof;
(f) releases any Lien other than in connection with the sale of any
property or assets permitted under this Agreement; or
(g) adjusts or revises any payment amortization schedule hereunder,
under the Notes, or under any Loan Document.
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Section 8.13 Collateral Matters.
(a) Further Assurances. The Agent and the Lenders each agree to
execute any further documents or amendments as may be necessary to effect the
purposes of this Article 8, including, without limitation, any registration or
recordation upon any applicable public records.
(b) Proceeds. Each Lender agrees that it will not take or cause to be
taken any action to accelerate the maturity of the Obligations owing to it or to
intentionally waive any default thereunder unless the Majority Lenders shall
have agreed in writing to accelerate all the Obligations or to waive such
default, any agreement of the Majority Lenders not to accelerate all the
Obligations or to waive such default shall be binding on all the Lenders with
respect to acceleration and waiver of defaults under this Agreement.
Section 8.14 No Liability. The Lenders have not made to each other, nor
do they hereby or otherwise make to each other, any warranties, express or
implied, nor do they assume any liability to each other with respect to (a)
obligors under any instruments of guarantee; (b) the enforceability, validity,
value or collectibility of the advances or other extensions of credit made or
acceptances created, any collateral therefor, or any guarantee or security which
may have been granted to any of them in connection with any of the agreements;
or (c) the Borrower's or any other Lender for any action or failure to act or
any error in judgment, negligence or mistake or oversight whatsoever on the part
of any Lender or any Lender's agents, officers, employees, or attorneys with
respect to any transaction relating to the agreements or security or guarantees
therefor, provided such Lender has acted in good faith and has not been guilty
of gross negligence or willful misconduct.
Section 8.15. Third Party Rights. The agreements and covenants contained
in this Article 8 are solely for the benefit of the Lenders and their respective
successors and assigns, and no other person, firm, entity or corporation shall
have any right, benefit, priority or interest under, or because of the existence
of, this Article 8.
ARTICLE 9 ASSIGNMENTS, PARTICIPATIONS.
Section 9.1 Assignments.
(a) Any Lender may, with the written approval of the Borrower and the
Agent, which approval of the Borrower and the Agent shall not be unreasonably
withheld, at any time assign and delegate to one or more banks or insurance
companies, and, with notice to the Agent but without the consent of the Borrower
or the Majority Lenders, may assign to any of its 100 percent owned Affiliates
(each an "ASSIGNEE") all or an equal percentage of all of the Loans, the
Commitments, and any other rights or obligations of such Lender hereunder in a
minimum amount of $5,000,000, provided, however, that the Borrower and the Agent
shall be entitled to continue to deal solely and directly with such Lender in
connection with the interests so assigned
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to an Assignee until (i) written notice of such assignment, together with
payment instructions, addresses and related information with respect to such
Assignee, shall have been given to the Borrower and the Agent by such Lender and
such Assignee; (ii) such Lender and its Assignee shall have delivered to the
Borrower and the Agent an executed Assignment and Acceptance Agreement (in the
form of Exhibit F attached hereto), together with any Note or Notes subject to
such assignment; and (iii) processing fees of $2,000 shall have been paid to the
Agent.
(b) From and after the date that the Agent notifies the assignor
Lender that it has received the Assignment and Acceptance Agreement, (i) the
Assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance Agreement, shall have the rights and obligations of a Lender under
the Loan Documents, and (ii) the assignor Lender shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance Agreement, relinquish its rights and be released from
its obligations under the Loan Documents.
(c) Within five Business Days after its receipt of notice by the Agent
that it has received an executed Assignment and Acceptance Agreement, the
Borrower shall execute and deliver to the Agent new Notes evidencing such
Assignee's assigned Loans and Commitments and, if the assignor Lender has
retained a portion of its Loans and its Commitments, replacement Notes in the
principal amount of the Acquisition Loans and Term Loans retained by the
assignor Lender (such Notes to be in exchange for, but not in payment of, the
Notes held by such Lender). Immediately upon each Assignee's making its payment
under the Assignment and Acceptance Agreement, this Agreement and Schedule 1.2
hereto, shall be deemed to be amended to the extent, but only to the extent,
necessary to reflect the addition of such Assignee and the resulting adjustment
of the Commitments arising therefrom. The Commitment allocated to each Assignee
shall reduce such Commitments of the assigning Lender pro tanto.
Section 9.2 Participations. Any Lender may at any time sell to one or
more banks or other entities (a "PARTICIPANT") a participating interest in any
Loans, the Commitment of such Lender, or any other interest of such Lender
hereunder, provided, however, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible for the performance of such obligations, (iii) the Borrower and the
Agent shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement and (iv) no
Lender shall transfer or grant any participating interest under which the
Participant shall have rights to approve any amendment to, or any consent or
waiver with respect to this Agreement (provided that, this provision shall not
prohibit a Lender from granting the Participant rights to direct the actions of
such Lender hereunder). In the case of any such participation, the Participant
shall not have any rights under this Agreement, or any of the other Loans, and
all amounts payable by the Borrower hereunder shall be determined as if such
Lender had not sold such participation, except that the Borrower agrees that if
amounts outstanding under this Agreement are due and unpaid, or shall have been
declared or
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shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement.
ARTICLE 10 COSTS, EXPENSES; INDEMNIFICATIONS.
Section 10.1 Costs and Expenses. The Borrower will pay (i) all out-of-
pocket expenses of the Agent (including reasonable fees, expenses and
disbursements of counsel for the Agent) in connection with the preparation,
negotiation, enforcement, operation, syndication and administration of this
Agreement, the Notes, the other Loan Documents, or any documents executed in
connection therewith, or any waiver, modification or amendment of, or consent
with respect to, any provision hereof or thereof; and (ii) if an Event of
Default occurs, all court costs and costs of collection of the Agent or any
Lender, including, without limitation, reasonable fees, expenses and
disbursements of counsel employed in connection with any and all collection
efforts, including those of any appellate proceedings, and all expenses, costs,
charges and other fees incurred by such counsel in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 10.1, together with interest thereon from the date incurred until paid
by the Borrower at the maximum rate allowed by applicable laws, which Borrower
agrees to pay on demand.
Section 10.2 Indemnities.
(a) The Borrower hereby indemnifies and agrees to hold harmless the
Indemnified Parties from and against all liabilities, claims, actions,
consequential damages, costs, expenses and losses, regardless of whether any of
the foregoing are foreseeable, unforeseeable or caused by reason of the
Indemnified Party's own negligence, whether by Governmental Authorities or third
parties, so long as any of the foregoing occur directly or indirectly by virtue
of (i) the breach of any representation or warranty, or affirmative or negative
covenant regarding any Environmental Laws or Hazardous Materials; (ii) any
Hazardous Material being present at any time in, upon or around any part of any
Property, or in the soil, air, groundwater, or surface water on, above or under
the Property; (iii) the use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal or presence of a Hazardous
Material on, under or about the Property; (iv) operations of Borrower or any of
its Subsidiaries; or (v) the imposition or recording of liens on the Property
pursuant to any Environmental Laws. The liabilities, claims, actions,
consequential damages, costs and expenses and losses included in the indemnity
in this Section 10.2(a) shall include, without limitation, amounts paid in
settlement of claims, all consultant, expert and legal fees and expenses of any
Indemnified Party incurred in connection with any investigations of site
conditions, or any abatement, cleanup, remediation, removal, or restoration
work, or any damages or injuries to the person or property of any third parties
or to land, air, water or other natural resources. Upon demand by the Agent or
any Lender, the
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Borrower and its Subsidiaries shall jointly and severally defend any
investigation, action, or proceeding alleging the presence of any Hazardous
Material which affects any Property or which is brought or commenced against any
Indemnified Party, whether alone or together with the Borrower, its Subsidiaries
or any other Person, all at the Borrower's cost and expense but with counsel to
be approved by the Majority Lenders in the exercise of their reasonable
judgment. In the alternative, the Agent or any Lender may elect to conduct its
own defense at the expense of the Borrower and its Subsidiaries, or any of them.
(b) The Borrower hereby indemnifies and agrees to hold harmless the
Indemnified Parties against any and all documentary taxes, assessments or
charges made by any Governmental Authority by reason of the execution and
delivery by the Borrower or any other Person of this Agreement, the Notes, the
other Loan Documents, and any documents executed in connection therewith; and
expressly indemnifies and agrees to hold harmless the Indemnified Parties from
any such claims, damages, liabilities, and expenses arising by reason of any
Indemnified Party's own negligence, provided, however, that the Borrower shall
not be required to indemnify any Indemnified Party from or against any portion
of such claims, damages, liabilities or expenses arising out of gross negligence
or willful misconduct of such Indemnified Party.
(c) The Borrower hereby indemnifies and agrees to hold harmless the
Indemnified Parties from and against any and all costs, losses, liabilities,
obligations, penalties, actions, judgments, suits, claims, damages, expenses or
disbursements of any kind whatsoever which may at any time (including, but not
limited to, at any time following the repayment of the Loans) be imposed on,
incurred by or asserted against any Indemnified Party (whether or not any of the
foregoing is designated a party thereto), including, but not limited to, those
caused by any Indemnified Party's ordinary negligence, (but excluding those
caused by the Agent's or any Lender's gross negligence or willful misconduct),
relating to, or arising out of, or by reason of any litigation or other similar
proceeding (including, but not limited to, preparation for such litigation or
proceeding) related to, the execution, delivery, and performance of this
Agreement, the Notes, or any other Loan Documents, or any document contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby or any actual or proposed use by the Borrower of the proceeds of the
Notes or the Borrower's entering into and performing of any agreement or
instrument referred to herein, or any action taken or omitted by any Indemnified
Party under or in connection with any of the foregoing, including, without
limitation, the reasonable fees and disbursements of any Indemnified Parties'
counsel incurred in connection with any of the foregoing.
(d) The Borrower hereby indemnifies and agrees to hold harmless the
Indemnified Parties against all claims, demands and liabilities in respect of
the fees and commissions, if any, of brokers and finders alleged to have been
incurred in connection with any of the transactions contemplated by this
Agreement and the other Loan Documents and any
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expenses, including reasonable legal fees arising in connection with such
claims, demands or liabilities.
ARTICLE 11 AMENDMENTS AND WAIVERS.
Section 11.1 Amendments and Waivers. No amendment, modification or waiver
of any provision of this Agreement or any Loan Document and no consent with
respect to any departure by the Borrower or any of its Subsidiaries therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Majority Lenders and then such waiver shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, modification or consent that requires
the written consent of all Lenders pursuant to Section 8.12 shall be effective
unless the written consent of all Lenders is so obtained and provided further
that no amendment, waiver or consent shall, unless in writing and signed by the
Agent in addition to the Majority Lenders, affect the rights or duties of the
Agent under this Agreement; provided, further, that any provision of any
interest rate contract between the Borrower and the Lenders, or any one or more
of them, may be amended, modified, or waived by the Borrower and such Lender or
Lenders that are a party thereto without the consent of any Lender that is not a
party thereto.
ARTICLE 12 MISCELLANEOUS.
Section 12.1 No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Agent or any Lender, any right, power
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law or in any other agreement.
Section 12.2 Survival of Agreements. All representations and warranties,
all covenants and all provisions for indemnification and for the payment of
expenses contained in this Agreement or made in writing by or on behalf of the
Borrower or any other Person in connection with the transactions contemplated by
this Agreement shall survive the execution and delivery of this Agreement and
the other Loan Documents, any investigation at any time made by the Agent or any
Lender or on its or their behalf, the making of any Loans by the Agent or any
Lender under this Agreement, any transfer of title to any Property (whether by
sale, foreclosure, deed in lieu of foreclosure or otherwise) and any disposition
or payment of the Notes. All statements contained in any certificate or other
instrument delivered by or on behalf of the Borrower, any of its Subsidiaries or
any other Person pursuant to this Agreement and the other Loan Documents or in
connection with the transactions contemplated by this Agreement and the
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other Loan Documents shall be deemed representations and warranties of the
Borrower under this Agreement.
Section 12.3 Successors. This Agreement shall be binding upon the
Borrower and its respective successors and assigns and shall inure to the
benefit of the Agent, each Lender, and their respective successors and assigns.
Section 12.4 Counterparts. This Agreement may be executed in any number
of counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 12.5 Severability. In case any one or more of the provisions
contained in this Agreement, the Notes, or any other Loan Document should be
invalid, illegal, or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not be affected in any way thereby.
Section 12.6 Interest. It is the intention of the parties hereto to
conform strictly to applicable usury laws. Accordingly, notwithstanding any
provision to the contrary in this Agreement, the Notes, the other Loan Documents
or in any of the documents securing or guarantying payment hereof or otherwise
relating hereto, or in any communication or writing by the Agent, the Lenders,
or any of them, or any other Person, relating to this loan, whether now or
hereafter arising, in no event or contingency shall this Agreement or such
instruments or documents, communications or writings permit or require the
payment of any sums which constitute interest under applicable law, or permit or
require the charging, taking, reserving, or receiving by the Agent, the Lenders,
or any of them, or any other Person, of any sums which constitute interest under
applicable law, in excess of the maximum amount permitted by such law. If any
excess interest otherwise would be deemed to be contracted for, charged, taken,
reserved or received under this Agreement, the Notes, the other Loan Documents
or under the terms of any of the documents, communications or writings by the
Agent, the Lenders, or any of them, or any other Person, securing payment
thereof or otherwise relating thereto, or in the event the maturity of the
indebtedness evidenced by the Notes is accelerated in whole or in part, or in
the event all or part of the principal or interest on the Notes shall be
prepaid, then it is agreed as follows: (i) any excess or unearned interest
contracted for, charged, taken, reserved, or received, shall be deemed a mistake
and canceled automatically, without the necessity of any other communication or
writing by the Agent, the Lenders, or any of them, or any other Person, (ii) any
excess or unearned interest which is paid shall be credited to the unpaid
principal amount hereof or, to the extent the unpaid principal amount hereof
shall have been or would be paid in full, refunded to the Borrower or other
obligor as the case may be, at the holder's option and (iii) the Agreement, the
Notes, the other Loan Documents or documents securing payment thereof or
otherwise relating thereto, communication or writing, as the case may be, shall
be reformed automatically to permit only the payment, charging, taking,
reserving, or receiving of accrued unpaid interest at the maximum lawful rate.
Without limiting the foregoing, in determining the
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maximum amount of lawful interest under this Agreement, the Notes, the other
Loan Documents or under such other documents or instruments which are made for
the purpose of determining such rate, all interest at any time contracted for,
charged, taken, reserved or received from the Borrower or otherwise by the
holder or holders thereof in connection with the Notes, the other Loan Documents
or this Agreement, shall be amortized, prorated, allocated, and spread, to the
full extent permitted by applicable law, during the period of the full term of
the loan evidenced hereby, taking into account all renewal and extension
periods.
The provisions set forth in the preceding paragraph shall be deemed to be
incorporated into each of the documents executed in connection with this
Agreement, the Notes, the other Loan Documents or under the terms of any of the
documents securing payment thereof otherwise relating thereto, and in every
communication and writing relating to this Agreement, the Notes, the other Loan
Documents or under the terms of any of the documents securing payment thereof
otherwise relating thereto, now or hereafter arising, whether or not the same
expressly references the preceding paragraph, and any and all figures set forth
therein shall, for the purpose of determining the extent of the indebtedness set
forth or asserted therein, or otherwise contracted for, charged, taken,
reserved, or received, as applicable, be recomputed automatically by the
Borrower or other obligor, or by any court with proper jurisdiction considering
the same, or both, as necessary to give effect to the adjustments and credits
required and agreed upon therein and the other agreements set forth therein,
without the necessity of any other communication or writing.
If the applicable state or federal usury law is amended after the date
hereof to permit a greater rate of interest to be contracted for, charged,
taken, reserved, or received under this Agreement, the Notes, the other Loan
Documents or under the terms of any of the documents securing payment thereof
otherwise relating thereto, than is permitted under applicable state or federal
law as of the date hereof, then the maximum lawful rate of interest applicable
to this Agreement, the Notes, the other Loan Documents or under the terms of any
of the documents securing payment thereof otherwise relating thereto, shall be
increased to the maximum rate of interest allowed by such subsequent law or
amendment, to be effective as of the effective date of such law or amendment,
and such additional charges that may become owing by reason of such increase
shall be payable on demand.
Section 12.7 Notices. All notices, requests and other communications
provided for hereunder shall be in writing (including telegraphic, telex,
facsimile transmission or cable communication) and mailed, telegraphed, telexed,
telecopied or delivered, to the address for notice for the specified party as
it appears on the signature pages hereof or to such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall, when sent by overnight delivery, telegraphed,
telecopied, telexed, or cabled, be effective when delivered for overnight
delivery or to the telegraph company, transmitted by telecopier, confirmed by
telex answerback or delivered to the cable company, respectively, or if
delivered, upon delivery or refusal thereof, except that notices pursuant to
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Articles 3 or 7 hereof, regardless of means of transmission or delivery, shall
not be effective until received by the Agent.
Section 12.8 Notification of Addresses, Lending Offices, Etc. Each Lender
shall notify the Agent in writing of any changes in the address to which notices
to such Lender should be directed, of payment instructions in respect to all
payments to be made to it hereunder, and of such other administrative
information as the Agent shall reasonably request.
Section 12.9 Controlling Document. In the event of actual conflict in the
terms and provisions of this Agreement, the Notes and the other Loan Documents,
the terms and provisions of this Agreement will control.
Section 12.10 Table of Contents; Descriptive Headings. The table of
contents and the descriptive headings of the several articles and sections of
this Agreement are inserted for convenience only and shall not effect the
interpretation of this Agreement.
Section 12.11 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT THE FEDERAL LAWS OF THE
UNITED STATES OF AMERICA MAY APPLY.
Section 12.12 SUBMISSION TO JURISDICTION. WITH RESPECT TO ANY AND ALL
DISPUTES ARISING HEREUNDER, UNDER THE NOTES, UNDER THE OTHER LOAN DOCUMENTS, OR
UNDER ANY OF THE OTHER INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH
OR THEREWITH, THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT, ANY NOTE AND ANY DOCUMENT TO WHICH
IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT OF ANY THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE
COURTS OF THE STATE OF TEXAS, THE COURTS OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF TEXAS, AND APPELLATE COURTS FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH
ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME;
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(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO IT AT ITS
ADDRESS SPECIFIED ON THE SIGNATURE PAGE HEREOF; AND
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
Section 12.13 DTPA WAIVER. TO THE MAXIMUM EXTENT NOT PROHIBITED BY
APPLICABLE LAW FROM TIME TO TIME IN EFFECT, THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY (AND AFTER THE BORROWER HAS CONSULTED WITH AN
ATTORNEY OF ITS OWN SELECTION) IRREVOCABLY AND UNCONDITIONALLY WAIVES THE
PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT
(TEXAS BUSINESS AND COMMERCE CODE, CHAPTER 17, SECTIONS 17.41 - 17.63).
Section 12.14 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE NOTES, THE
OTHER LOAN DOCUMENTS, AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NOT UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Section 12.15 Construction. The Borrower, the Agent, and each Lender
acknowledges that each of them has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 12.16 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above-written.
BORROWER:
RAILTEX, INC. Address: 4040 Broadway, Suite 200
San Antonio, Texas 78209
Attn: Laura D. Davies
By: _________________________ Vice President and
Laura D. Davies Chief Financial Officer
Vice President and Telephone No. (210) 841-7600
Chief Financial Officer Telecopy No. (210) 841-7629
AGENT:
FIRST INTERSTATE BANK OF Address: First Interstate Bank Plaza
TEXAS, N.A. 1000 Louisiana
Houston, Texas 77002
Attn: Bennett D. Douglas
Vice President
Telephone No. (713) 250-1039
By __________________________ Telecopy No. (713) 250-7031
Bennett D. Douglas
Vice President
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LENDERS:
FIRST INTERSTATE BANK OF Domestic Lending Office and
TEXAS, N.A. Eurodollar Lending Office
By___________________________ Address: First Interstate Bank Plaza
Bennett D. Douglas 1000 Louisiana
Vice President Houston, Texas 77002
Attn: Bennett D. Douglas
Vice President
Telephone No. (713) 250-1039
Telecopy No. (713) 250-7031
Domestic Lending Office and
Eurodollar Lending Office
NATIONAL BANK OF CANADA, Address: National Bank of Canada,
NEW YORK BRANCH New York Branch
125 W. 55th Street
New York, New York 10019
Attn: Mr. Wayne Rosen
Telephone No. (212) 632-8568
By ____________________________ Telecopy No. (212) 632-8736
Name:
Title: With a copy to:
National Bank of Canada
2121 San Jacinto, Suite 1850
By ____________________________ Dallas, Texas 75201
Douglas Clark Attn: Mr. Douglas Clark
Vice President Vice President
Telephone No. (214) 871-1265
Telecopy No. (214) 871-2015
Domestic Lending Office and
Eurodollar Lending Office
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ABN AMRO BANK, N.V.-HOUSTON Address: 3 Riverway, Suite 1700
AGENCY Houston, Texas 77056
By: ABN AMRO NORTH AMERICA, Attn: Belinda Rowell
INC., as Agent Telephone No. (713) 964-3363
Telecopy No. (713) 629-7533
Domestic Lending Office and
By:______________________________ Eurodollar Lending Office
Name:
Title:
and
By:______________________________
Name:
Title:
NATIONAL CITY BANK, KENTUCKY Address: 101 South Fifth Street
Louisville, Kentucky 40202
Attn: Donald R. Pullen, Jr.
Telephone No. (502) 581-6352
By:_________________________ Telecopy No. (502) 581-5122
Name: Domestic Lending Office and
Title: Eurodollar Lending Office
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SCHEDULE 1.2
------------
<TABLE>
<CAPTION>
Acquisition Revolving
Commitment Loan Loan Total
Bank Percentage Commitment Commitment Commitment
---- ------------ --------------- -------------- ------------
<S> <C> <C> <C> <C>
First Interstate Bank of Texas, N.A. 58.82352941% $44,117,647.06 $5,882,352.94 $50,000,000
National Bank of Canada 17.64705882% $13,235,294.12 $1,764,705.88 $15,000,000
ABN AMRO Bank, N.V. - Houston 11.76470588% $ 8,823,529.41 $1,176,470.59 $10,000,000
Agency
National City Bank, Kentucky 11.76470588% $ 8,823,529.41 $1,176,470.59 $10,000,000
=============================================================
TOTAL 100% $ 75,000,000 $ 10,000,000 $85,000,000
=============================================================
</TABLE>
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Schedule 2.12
-------------
LIST OF SUBSIDIARIES
(a) Austin & Northwestern Railroad Company, Inc. (formerly known as Austin
Railroad Company Inc.)
(b) Cape Breton & Central Nova Scotia Railway Limited
(c) Central Oregon and Pacific Railroad, Inc.
(d) Chesapeake & Albemarle Railroad Company, Inc.
(e) Dallas, Garland & Northeastern Railroad, Inc.
(f) Georgia Southwestern Railroad, Inc.
(g) Goderich - Exeter Railway Company Limited
(h) Grand Rapids Eastern Railroad, Inc.
(i) Indiana Southern Railroad, Inc.
(j) Michigan Shore Railroad Company, Inc.
(k) Mid-Michigan Railroad, Inc.
(l) Missouri & Northern Arkansas Railroad Company, Inc.
(m) New England Central Railroad, Inc.
(n) New Orleans Lower Coast Railroad, Inc.
(o) North Carolina & Virginia Railroad Company, Inc.
(p) Pittsburgh Industrial Railroad, Inc.
(q) RailTex Technical Services, Inc.
(r) RailTex Canada, Inc.
(s) RailTex Distribution Services, Inc.
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(t) RailTex TRAC Co., Inc.
(u) RailTex Service Co., Inc.
(v) Salt Lake City Southern Railroad Company, Inc.
(w) San Diego & Imperial Valley Railroad Company, Inc.
(x) South Carolina Central Railroad Company, Inc.
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Schedule 4.3(c)
---------------
Shortline Acquisition Criteria For Funding
1. Employees - maximum of 100
2. Length - 500 miles maximum
3. Purchase Price - $20,000,000 maximum
4. Commodity Concentration - 20% maximum proforma revenues in any one
commodity group
5. Track Condition - Class I or less, 50% maximum
6. Geographic Concentration - maximum of 33% revenues in a single geographic
region
7. Interchange Concentration - maximum of 50% of total proforma consolidated
revenues from cars interchange to any single Class I carrier
8. Shipper Concentration - 50% of revenues maximum
9. Bridge Traffic - Positive cash flow without bridge traffic
10. Passenger Service - None to be provided by RailTex or any of its
Subsidiaries
11. Projected Cash Flow - Positive (assuming terms of this Credit Facility)
12. Labor Protection Requirements - No assumption of seller's labor protection
obligations
13. Business Activity - Must be an active line
14. Purchase Structure - Sale of assets
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Schedule 6.6
------------
Stock Option Plans
[To Come from Borrower]
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EXHIBIT 10.2
================================================================================
FIRST AMENDMENT
TO
CREDIT AGREEMENT
By and Among
RAILTEX, INC.,
THE SEVERAL FINANCIAL INSTITUTIONS
PARTY TO THIS AGREEMENT,
and
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION,
As Agent
Dated as of June 11, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Defined Terms............................. 1
Section 2. Recitals.......................................... 1
Section 3. Amendments........................................ 1
Section 4. Ratification of Continued Force and Effect........ 11
Section 5. Conditions Precedent.............................. 12
Section 6. Applicable Law.................................... 12
Section 7. Successors and Assigns............................ 12
Section 8. Counterparts...................................... 12
Section 9. Effect of Waiver.................................. 12
Section 10. Headings.......................................... 12
Section 11. Non-Application of Chapter 15 of Texas Credit Code 12
Section 12. ENTIRE AGREEMENT.................................. 12
</TABLE>
i
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FIRST AMENDMENT TO CREDIT AGREEMENT
This is the First Amendment (the "Amendment") dated as of June 11,
1996 to a Credit Agreement, dated as of May 17, 1996, among Wells Fargo Bank
(Texas), National Association (formerly known as First Interstate Bank of Texas,
N.A.), individually and as Agent, National Bank of Canada, New York Branch, ABN
Amro Bank, N.V. - Houston Agency, National City Bank, Kentucky and RailTex, Inc.
(the "Agreement").
In consideration of the following Recitals, for $10 in hand paid and
for other good and valuable considerations, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows, intending to be legally
bound:
Section 1. Certain Defined Terms. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Agreement.
Section 2. Recitals. The Borrower has requested that (i) the Issuing
Bank issue the Letter of Credit, (ii) the Agent and the Lenders permit the
Brazilian Transaction and (iii) the Agent and the Lenders make Brazilian
Acquisition Loans. This Amendment shall be effective on the date (the
"Effective Date") that all of the Conditions Precedent set out in Section 5
hereof have been met.
Section 3. Amendments. The Agreement is amended as follows:
(A) The following definitions are added to the Agreement in
alphabetical order:
"Brazilian Acquisition Loan" means an extension of credit by a Lender
to the Borrower pursuant to Section 3.2 of this Agreement for the purpose
of participating in the Brazilian Transaction; "Brazilian Acquisition
Loans" means all of the extensions of credit by the Lenders to the Borrower
pursuant to Section 3.2 of the Agreement for the purpose of participating
in the Brazilian Transaction.
"Brazilian Equity" means cash equity of up to $19,500,000 in RailTex
International (plus the temporary equity contribution permitted under
Section 6.4 of the Agreement) which shall permit it to invest in the
Consortium, which investment in the Consortium shall represent at least
12.5% of the voting interests and 13.4404% of the non-voting interests in
the Consortium (totalling at least 12.9702% of the total equity interests
of the Consortium).
"Brazilian Transaction" means RailTex International's participation
in the GP Consortium which intends to acquire Rede Ferroviaria Federal
S.A.'s Center-Eastern Network at the June 14, 1996 privatization auction.
"Consortium" means RailTex International, GP Capital Partners, L.P.
and certain other investors.
"Consortium Documents" means constituent documents of the Consortium
and any railroad operating company formed by the Consortium, whether the
same is a partnership
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agreement, consortium agreement or other document, or any combination
thereof, as well as any and all other documents and agreements to which the
Borrower, RailTex International or any Affiliate of the foregoing, or any
combination thereof, is a party that are related, directly or indirectly,
to the Brazilian Transaction.
"Credit Exposure" means the sum of the aggregate face amount of the
Letter of Credit minus the aggregate amount of drafts paid under Letters of
Credit for which the Issuing Bank has been reimbursed.
"Credit Request" shall have the meaning set forth in Section 4.5 of
the Agreement.
"Interim Acquisition Loans" means Acquisition Loans made pursuant to
Section 3.2(a) of this Agreement until the Rollover Date applicable thereto
and satisfaction of the conditions set forth in Section 4.4 of this
Agreement; "Interim Acquisition Loan" means one of the Interim Acquisition
Loans.
"Issuing Bank" means Wells Fargo Bank (Texas), National Association,
which is also a Lender.
"Letter of Credit" means the letter of credit issued pursuant to
Section 3.2 of the Agreement in order to permit RailTex International to
participate in the Brazilian Transaction.
"Letter of Credit Agreement" means the application and letter of
credit agreement now or hereafter executed by the Borrower or RailTex
International, or both, such agreement to be on the Issuing Bank's standard
form (with such changes thereto as the Borrower and the Issuing Bank may
agree to from time to time) and completed in form and substance
satisfactory to the Issuing Bank.
"RailTex International" means RailTex International Holdings, Inc., a
Delaware corporation.
"Reimbursement Obligation" has the meaning assigned to it in Section
3.20 of the Agreement.
(B) The definition of "Loan Documents" found in Section 1.2 of the
Agreement is amended by adding the following after the words "Notes" found
therein: ", the Letter of Credit, the Letter of Credit Agreement."
(C) The definition of "Obligations" found in Section 1.2 of the Agreement
is amended by adding after the word "disbursements" in the last sentence thereof
the following: ", all Reimbursement Obligations."
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(D) The definitions of "Acquisition Loan," Acquisitions Loans Maturity
Date," "Acquisition Loans Termination Date" and "Closing Date" are amended in
their entirety to read as follows:
"Acquisition Loan" means an extension of credit by a Lender to the
Borrower pursuant to Section 3.2 of this Agreement for the purposes
specified in Section 3.2(a) of this Agreement.
"Acquisition Loans Maturity Date" means the earlier of (a) April 30,
2002 in the case of Term Acquisition Loans other than Brazilian Acquisition
Loans and April 30, 1999 in the case of the Brazilian Acquisition Loans,
and (b) the date on which the Acquisition Notes are accelerated pursuant to
the terms hereof.
"Acquisition Loans Termination Date" means the earliest to occur of
(i) April 30, 1999 in the case of Acquisition Loans other than Brazilian
Acquisition Loans and September 30, 1996 in the case of the Brazilian
Acquisition Loans, (ii) the date on which the Acquisition Notes are
accelerated pursuant to the terms hereof, and (iii) the date on which the
Acquisition Loan Commitments are terminated pursuant to the terms hereof.
"Closing Date" means May 17, 1996 for all purposes except Section
3.6(a) hereof and shall mean June 3, 1996 in the case of Section 3.6(a)
hereof.
(E) The first paragraph of Section 3.2(a) of the Agreement is amended in
its entirety to read as follows:
"(a) Origination. "Subject to, and upon the terms, conditions,
covenants and agreements contained herein, each Lender severally agrees to
make Acquisition Loans to the Borrower at any time, and from time to time,
prior to the Acquisition Loans Termination Date, in such amount as the
Borrower may request up to such Lender's Commitment Percentage of (i) the
Brazilian Equity and (ii) 100% of the cost of the acquisition of the (y)
short-line railroad (or short-line railroads, if more than one short-line
will be acquired on the same day), including the Eligible Acquisition Costs
relating thereto, and/or (z) locomotives and/or railcars, being acquired or
refinanced after a purchase with the proceeds of such Acquisition Loan;
provided, however, that after giving effect to any Borrowing of Acquisition
Loans, the aggregate principal amount of all Acquisition Loans plus any
Credit Exposure shall not exceed the total Acquisition Loan Commitments.
Prior to the Acquisition Loans Termination Date and within the limits of
each Lender's Acquisition Loan Commitment and each Lender's Commitment
Percentage, the Borrower may borrow, repay, and reborrow, hereunder, so
long as the aggregate principal amount advanced by the Lenders under this
Section 3.2 and outstanding plus any Credit Exposure at the time of the
request does not exceed the Acquisition Loan Commitments. Each such
Acquisition Loan made by a Lender shall be evidenced initially by an
Interim Acquisition Note payable to the order of the respective Lender."
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(F) Section 3.2(b) of the Agreement is amended in its entirety to read as
follows:
"On each Rollover Date, all outstanding Interim Acquisition Loans
(other than Brazilian Acquisition Loans) shall be converted into Term
Acquisition Loans evidenced by Term Acquisition Notes, which shall be
repayable according to the terms set out below. On the first Rollover Date
occurring after the making of the Brazilian Acquisition Loans, the
Brazilian Acquisition Loans shall be converted into Term Acquisition Loans
evidenced by Term Acquisition Notes separate from the Term Acquisition
Notes for other Interim Acquisition Loans converted on such Rollover Date,
which shall be repayable according to the terms set out below.
"The Borrower shall pay to the Agent for the account of the Lenders
accrued but unpaid interest on each Interest Payment Date and the
outstanding principal of each Term Acquisition Note (including any Term
Acquisition Notes evidencing Brazilian Acquisition Loans) as follows:
"Commencing on the first July 31 occurring in the Term Period for
each one of the Term Acquisition Notes and continuing until the
Acquisition Loans Maturity Date, in installments at the end of each
third calendar month, all of such installments, except for the last,
being in substantially equal amounts calculated to fully amortize the
principal evidenced by each such Term Acquisition Note assuming 24
equal quarterly payments with the last and final installment occurring
at the Acquisition Loans Maturity Date and being in the amount of the
then remaining unpaid principal balance thereof."
(G) Section 3.2 is further amended by adding the following new subsections
thereto:
"(c) Letter of Credit. Subject to, and upon the terms, conditions,
covenants and agreements contained herein and in the Letter of Credit
Agreement, prior to June 30, 1996, the Issuing Bank agrees to issue a
nontransferable standby Letter of Credit, in form and substance
satisfactory to the Issuing Bank, for the account of a Borrower in an
aggregate undrawn face amount at any time outstanding not to exceed the
lesser of (i) $19,500,000 or (ii) the Acquisition Loan Commitments less the
outstanding principal amount of Borrowings under the Acquisition Loan
Commitments. In the event of an actual conflict between the terms and
conditions of this Agreement and the terms and conditions of the Letter of
Credit Agreement, the terms and conditions of this Agreement shall prevail.
The Letter of Credit shall be issued for a period not exceeding 15 days.
"(d) In the event, on the Acquisition Loans Termination Date, there
remains any Credit Exposure, the Borrower agrees to deposit in a cash
collateral account maintained by the Agent an amount equal to the aggregate
undrawn amount of Letter of Credit as of such date or with respect to which
presentment for honor may not then be made; the
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unused portion thereof, if any, shall be returned to the Borrower after the
expiration date of the Letter of Credit and after all Notes and Obligations
hereunder and under the Loan Documents applicable to the Letter of Credit
are paid in full."
(H) Section 3.6 of the Agreement is amended by relettering the existing
paragraph (d) as (g) and adding the following subsections thereto:
"(d) Letter of Credit Fee. Borrower further agrees to pay to the
Agent, for the benefit of the Lenders in proportion to their respective
Commitment Percentages, a letter of credit fee of 1/2% of the face amount
of the Letter of Credit. Such fee shall be fully earned and non-refundable
upon acceptance by the Agent of the Letter of Credit Application.
"(e) Brazilian Acquisition Loans Fee. The Borrower further agrees to
pay to the Agent, for the benefit of the Lenders in proportion to the
respective Commitment Percentages, a non-refundable fee equal to 1% of
Brazilian Acquisition Loans, a pro rata portion of such fee to be paid upon
the date of each funding of Brazilian Acquisition Loans.
"(f) Bridge Fee. If the Brazilian Acquisition Loans have not been
repaid in full by March 31, 1997, the Borrower further agrees to pay to the
Agent, for the benefit of Lenders in proportion to the respective
Commitment Percentages, fees equal to one-half of 1% of the outstanding
principal balance of the Brazilian Acquisition Loans outstanding (i) on
such date and (ii) on the last day of each succeeding calendar quarter
until the Brazilian Acquisition Loans are paid in full (the Borrower, the
Agent and the Lenders understanding and agreeing that the Brazilian
Acquisition Loans will be repaid through internally generated cash flow of
the Borrower or the proceeds of a common stock equity offering, but not
with any other Indebtedness)."
(I) Article III of the Agreement is amended by adding a new Section thereto
reading as follows:
"Section 3.20 Certain Additional Agreements Regarding the Letter of
Credit.
"(a) The Issuing Bank shall not have any obligation to issue the
Letter of Credit unless the Borrower shall have complied with all the
material terms and conditions of this Agreement. If, in accordance with
its standard operating procedures, the Issuing Bank reasonably determines
that a demand for payment under the Letter of Credit conforms to the terms
and conditions of the Letter of Credit, the Issuing Bank shall, as soon as
reasonably practicable, give notice to the Borrower and to the Agent and
the Lenders of the date the Issuing Bank will make payment to the
beneficiary in accordance with the terms of the Letter of Credit. The
Borrower's obligation to reimburse the Issuing Bank as provided herein is
absolute, unconditional and irrevocable, and shall be paid strictly in
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accordance with the terms of this Agreement, under all circumstances
whatsoever, including, without limitation, the following circumstances:
"(i) any lack of validity or enforceability of this Agreement,
the Letter of Credit, the Letter of Credit Agreement, or any other
document;
"(ii) the existence of any claim, setoff, defense or other right
which a Borrower may have at any time against the beneficiary of the
Letter of Credit, the Agent, a Lender, or any other Person, whether in
connection with this Agreement, the Letter of Credit, or the Letter of
Credit Agreement, the transactions contemplated herein or any
unrelated transactions;
"(iii) any draft, certificate or other document presented under
the Letter of Credit proves to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein is untrue or
inaccurate in any respect whatsoever;
"(iv) payment by the Issuing Bank under the Letter of Credit
against presentation of a sight draft or certificate which complies in
all material respects with the terms of the Letter of Credit but does
not strictly comply therewith;
"(v) any failure of the Issuing Bank to provide notice to the
Borrowers of any drawing under the Letter of Credit;
"(vi) the occurrence or continuance of a Default; or
"(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
"In the event the Issuing Bank has not been totally reimbursed for its
payment of a draft under the Letter of Credit on the date paid, the
unreimbursed amount shall bear interest from the date of such payment until
reimbursement is made in immediately available funds at the Default Rate.
"(b) Each Lender hereby agrees that it shall be liable under and
pursuant to the Letter of Credit pro rata in proportion to its Commitment
Percentage to the same extent and with the same effect as if such Lender
had issued the Letter of Credit. In that regard, immediately upon the
issuance by the Issuing Bank of the Letter of Credit in accordance with
this Agreement, each other Lender shall be deemed to have irrevocably and
unconditionally purchased and received from Issuing Bank, WITHOUT RECOURSE
OR WARRANTY, an undivided interest and participation in the Letter of
Credit, including all obligations of the Borrower with respect thereto and
any security therefor or guaranty pertaining thereto, in an amount equal to
the product of (i) the Commitment Percentage of such Lender and (ii) the
stated amount of the Letter of Credit. For purposes of this Agreement, the
issuance of the Letter of Credit by the Issuing Bank shall be deemed to
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utilize the Acquisition Loan Commitment of each Lender (other than the
Issuing Bank) by an amount equal to the Commitment Percentage of such
Lender and to utilize the Acquisition Loan Commitment of the Issuing Bank
by an amount equal to its Commitment Percentage.
"(c) The Borrower hereby unconditionally and irrevocably agrees to
reimburse the Issuing Bank for each payment made by the Issuing Bank under
the Letter of Credit for the Borrower's account or at its instruction (a
"Reimbursement Obligation") on the date the Issuing Bank makes such payment
in accordance with this Agreement, together with, (i) if applicable,
interest on the amount paid by the Issuing Bank from the date the payment
is made until it is reimbursed at a rate per annum equal to the lesser of
(y) the Maximum Rate, on one hand, and (z) the Default Rate on the other
hand, and (ii) if such reimbursement is not made when due (whether
directly, by means of Borrowings as provided in Section 3.20(d) below or by
application of any funds then contained in any cash collateral account),
interest on the amount so paid by the Issuing Bank from and including the
date on which it becomes due, to but not including the date the Issuing
Bank is reimbursed therefor, at a rate per annum equal to the lesser of (y)
the Maximum Rate, or (z) the Default Rate.
"(d) Subject to the conditions contained in Article IV and
availability under the Acquisition Loan Commitments, the Borrower may
satisfy its Reimbursement Obligation to the Issuing Bank by Borrowings
under the Acquisition Loan Commitments, the proceeds of which Borrowings
will be used to reimburse the Issuing Bank for the amount of any
disbursement made by it under a Letter of Credit, together with interest
thereon to the extent provided in Section 3.20(c). If the Borrower shall
fail to reimburse or cause the Issuing Bank to be reimbursed directly or by
application of funds contained in any cash collateral account on the same
day the Issuing Bank honors a drawing under the Letter of Credit, and on
the date of such notification there shall not exist any Default under
Section 7.1(f) or (g), the Borrower shall be deemed to have requested that
Borrowings under the Acquisition Loan Commitments be made by the Lenders to
be disbursed on the date of payment by the Issuing Bank under the Letter of
Credit. In the event that any Lender fails to make available to the Agent
the amount of such Lender's Commitment Percentage of such deemed Interim
Acquisition Loan, on the date payment is made under the Letter of Credit,
the Issuing Bank shall be entitled to recover such amount on demand from
such Lender together with interest thereon at the Federal Funds Rate. If
for any reason such Lender fails to repay such amount to the Issuing Bank,
then, and notwithstanding the provisions of this Agreement or of any Note
to the contrary, the Issuing Bank shall be automatically subrogated to the
right of such defaulting Lender to repayment in full of such Interim
Acquisition Loan prior to distribution of any repayments to the defaulting
Lender.
"(e) If any Reimbursement Obligation of the Borrower is not repaid
directly by the Borrower when due and cannot be repaid by means of a
Borrowing of Interim Acquisition Loans and there shall not then be
sufficient funds available for the payment
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due to the Issuing Bank in any cash collateral account, each other Lender
will promptly pay to the Agent the amount of such other Lender's
participation in such Reimbursement Obligation determined in accordance
with Section 3.20(b) hereof.
"(f) Upon and only upon receipt by the Issuing Bank of funds from the
Borrower (i) in reimbursement of any payment made under a Letter of Credit
with respect to which any Lender has theretofore made a payment to the
Agent pursuant to Section 3.20(d) or 3.20(e), or (ii) in payment of
interest on any Reimbursement Obligation, the Agent will pay to each such
Lender, in the same funds as those received by the Issuing Bank, such
Lender's Commitment Percentage of such funds.
"(g) If the Agent is required at any time to return to the Borrower
or to a trustee, receiver, liquidator, custodian or other similar official
any portion of the payments made by the Borrower to the Issuing Bank in
reimbursement of a payment made under the Letter of Credit or interest
thereon, each Lender shall, on demand of the Agent, forthwith return to the
Agent its Commitment Percentage of any amounts so returned by the Agent,
plus, to the extent the Issuing Bank is required to pay interest to the
Borrower or such official and such interest remains unreimbursed, of
interest thereon from the date such demand is made to, but not including,
the date such amounts are returned by such Lender to the Agent, at a rate
per annum equal to the Federal Funds Rate.
"(h) The Borrower assumes all risks of the acts or omissions of
beneficiaries of any of the Letter of Credit with respect to their use of
the Letter of Credit. The Issuing Bank will not pay drafts drawn under the
Letter of Credit unless such conform substantially to the requirements of
the Letter of Credit. Except in the case of gross negligence or willful
misconduct on the part of the Issuing Bank or any of its employees, neither
the Issuing Bank or its correspondents nor the Agent or any of the other
Lenders shall be responsible for any of the following (INCLUDING, BUT NOT
LIMITED TO, THOSE CAUSED BY THE ISSUING BANK'S, ITS CORRESPONDENTS', ANY OF
THE OTHER LENDERS' OR THE AGENT'S OWN NEGLIGENCE, WHETHER SUCH NEGLIGENCE
BE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE): (i) the validity or
genuineness of certificates or other documents, even if such certificates
or other documents should in fact prove to be invalid, fraudulent or
forged; (ii) errors, omissions, interruptions or delay in the transmission
or delivery of any messages, by mail, telex, telecopy or otherwise, whether
or not they be in code; (iii) errors in the translation or for errors in
interpretation of technical terms; or (iv) any consequences arising from
causes beyond the Issuing Bank's control or the control of its
correspondents; nor shall the Issuing Bank be responsible for any error,
neglect or default of any of its correspondents; and none of the above
shall affect, impair or prevent the vesting of any of the Issuing Bank's
rights or powers hereunder or under the Letter of Credit, all of which
rights shall be cumulative. The Issuing Bank and its correspondents may
accept certificates or other documents that appear on their face to be in
order, without responsibility for further investigation. In furtherance
but not in limitation of the foregoing provisions, the Borrowers agree that
any action taken by the Issuing Bank or
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any of its correspondents in good faith in connection with the Letter of
Credit, or any related drafts, certificates, documents or instruments,
shall be binding on the Borrower and shall not put the Agent, the Issuing
Bank, any Lender or correspondents under any resultant liability to the
Borrower; and the Borrower makes a like agreement as to any inaction or
omission, unless in breach of good faith.
"(i) The Lenders severally agree to indemnify the Agent and the
Issuing Bank, and each officer, director, employee, agent and Affiliate of
the Agent and the Issuing Bank, ratably according to their respective
Commitment Percentages, to the extent not reimbursed by the Borrower, from
and against any and all actions, causes of action, suits, losses,
liabilities, damages, and expenses which may at any time (including at any
time following the payment of any of the Reimbursement Obligations) be
imposed on, incurred by or asserted against such Person in any way relating
to or arising out of the issuance of, transfer of, or payment or failure to
pay under the Letter of Credit issued pursuant to this Agreement or the use
of proceeds of any payment made under the Letter of Credit issued in
accordance with the terms of this Agreement AND EVEN IF CAUSED BY SUCH
PERSON'S OWN NEGLIGENCE; provided, however, that no Lender shall be liable
for the payment of any portion of such actions, causes of action, suits,
losses, liabilities, damages and expenses resulting solely from such
Person's gross negligence or willful misconduct."
(J) Section 4.3 of the Agreement is amended by inserting the phrase "(other
than the Brazilian Acquisition Loans)" in the second line of the introductory
clause thereto immediately after the words "Interim Acquisition Loan."
(K) Article IV of the Agreement is amended by adding two new sections
thereto reading as follows:
"Section 4.5 Issuance of Letters of Credit.
"(a) The Letter of Credit shall be issued upon receipt by the Agent
and the Issuing Bank of a written request of a Borrower, which may be in
the form of a Letter of Credit Application (a "Credit Request"), together
with a duly executed Letter of Credit Agreement, not later than the date
set for the issuance of the Letter of Credit.
"The Credit Request shall be irrevocable and shall contain or specify,
among other things:
"(1) the proposed date of the issuance of the Letter of Credit,
which shall be a Business Day;
"(2) the stated amount of the Letter of Credit and the date of
expiration of the Letter of Credit;
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"(3) the name and address of the beneficiary of the Letter of
Credit;
"(4) the documents to be presented by the beneficiary of the
Letter of Credit in case of any drawing thereunder; and
"(5) the full text of any certificate to be presented by the
beneficiary in case of any drawing thereunder.
"Section 4.6 Conditions to Brazilian Acquisition Loans. The
obligation of each Lender to make Brazilian Acquisition Loans are subject
to the following further conditions precedent unless and to the extent
waived in writing by the Agent with the consent of the Majority Lenders:
"(a) Brazilian Acquisition Loans shall not exceed $19,500,000;
"(b) The Borrower shall have obtained political risk insurance at
levels satisfactory to the Agent and the Majority Lenders;
"(c) The Borrower shall have provided to the Agent and the Lenders
copies of the Consortium Documents, the Consortium Documents shall be
satisfactory to the Agent and the Majority Lenders in their sole
discretion, the Consortium Documents shall clearly provide that none of the
Borrower, RailTex International or any Affiliate shall be liable for any
additional capital calls or similar arrangements and none of the Consortium
Documents shall provide for a reduction (other than dilution because of
additional capital injected by other members) or forfeiture of interest for
failure to make capital calls;
"(d) The Borrower shall have provided to the Agent and each Lender
details, satisfactory to the Agent and the Majority Lenders, of (i) the
Consortium and its investment structure, (ii) ownership interest of the
railroad operating entity and (iii) the Brazilian Equity;
"(e) No litigation, investigation or proceeding before or by any
arbitrator or Governmental Authority shall be continuing or threatened
against the consummation of the Brazilian Transaction or against the
Borrower or any of its Subsidiaries in respect thereof;
"(f) Each request for a Brazilian Acquisition Loan shall be made in
writing, in the form of a Notice of Borrowing, which certify as to the
representations and warranties, no Default and other matters reasonably
requested by the Agent on behalf of the Lenders;
"(g) All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Brazilian
Transaction shall be in form and substance satisfactory to the Agent and
the Majority Lenders and the Agent shall be received all such other
documents, legal opinions and other opinions with respect to any
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aspect or the consequence of the transactions contemplated hereby as it and
the Majority Lenders may reasonably request;
"(h) The Borrower shall have performed and complied with all
agreements and conditions contained in this Agreement, the violation of
which would constitute an Event of Default. No Event of Default or Default
shall have occurred or be continuing and no Event of Default or Default
will result after giving effect to the Loan being requested;
"(i) The making of the Brazilian Acquisition Loans shall be permitted
by the laws and regulations of each jurisdiction to which the Agent or a
Lender, the Borrower or any of its Subsidiaries is subject (including,
without limitation, Regulation G, T, U or X of the Federal Reserve Board),
and shall not subject the Agent or any of the Lenders to any penalty or, in
the reasonable judgment of the Majority Lenders, any other burdensome
condition under or pursuant to any applicable law or governmental
regulation; and
"(j) There shall be no suit, action, investigation, inquiry, or other
proceeding pending or, to the knowledge of the Borrower threatened, before
any court or other Governmental Authority which (i) questions the validity
or legality of any Loan Document or of any of the transactions contemplated
by any Loan Document or seeks damages in connection with any of the
foregoing or (ii) if adversely determined, would have a Material Adverse
Effect."
(L) Section 6.1 of the Agreement is amended by deleting the number
"1,500,000" from clause (vii) and inserting in lieu thereof the number
"2,500,000."
(M) Section 6.4 of the Agreement is amended by deleting the word "and"
immediately before clause (b) and inserting the following immediately
thereafter: "and (vi) the Brazilian Equity."
(N) Section 6.5 of the Agreement is amended by adding the following phrase
to the proviso found at the end thereof:
"and the Borrower or its Subsidiaries may contribute, at book value
not to exceed $15,000,000, locomotives to RailTex International
provided that the same are reacquired at book value, within 10 days
after the date of the funding of the Brazilian Acquisition Loans by
RailTex International."
Section 4. Ratification of Continued Force and Effect. Except as
specifically amended herein, all of the terms and conditions of the Agreement
and all of the Loan Documents executed in connection therewith or contemplated
thereby are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set
out in the Agreement, unless amended hereby or unless the context clearly
required otherwise. References in the Agreement to the "Agreement," and the
"Credit Agreement," "hereof," "herein" and the words of similar import shall be
deemed to be references to the Agreement as amended through the Effective Date.
Any reference in any Note or any other Loan Documents to the "Credit Agreement"
shall be deemed to be references to the Agreement as amended through the
Effective Date.
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Section 5. Conditions Precedent. The effectiveness of this Amendment is
subject to the full and complete satisfaction of the following conditions
precedent:
(A) Certain Authorizations. The Agent shall have received evidence of
corporate authorization by the Borrower and such other corporate documents
as it may reasonably request.
(B) Certain Documents. The Agent shall have received the following
documents:
(1) This Amendment executed by all parties; and
(2) Such other and further documents and agreements as the Agent
or its counsel shall reasonably request.
Section 6. Applicable Law. This Amendment and all other Loan Documents
executed pursuant hereto shall be deemed to have been made and to be performable
in Houston, Harris County, Texas and shall be governed by and construed in
accordance with the laws of the State of Texas.
Section 7. Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of the Lenders, the Agent and the Borrower and their
respective successors and assigns, except the Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Lenders and the Agent.
Section 8. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
Section 9. Effect of Waiver. No consent or waiver, express or implied, by
any Lender or the Agent to or for any breach of or deviation from any covenant,
condition or duty by the Borrower shall be deemed a consent or waiver to or of
any other breach of the same or any other covenant, condition or duty.
Section 10. Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 11. Non-Application of Chapter 15 of Texas Credit Code. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Annotated Texas
Statutes, Article 5069-15) are specifically declared by the parties not to be
applicable to this Amendment or any of the Loan Documents or the transactions
contemplated hereby.
Section 12. ENTIRE AGREEMENT. THIS AMENDMENT, THE AGREEMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS
12
<PAGE>
OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES HERETO.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered effective as of June 11, 1996.
<TABLE>
<CAPTION>
BORROWER:
<S> <C> <C>
RAILTEX, INC. Address: 4040 Broadway, Suite 200
San Antonio, Texas 78209
Attn: Laura D. Davies
By: _________________________ Vice President and
Laura D. Davies Chief Financial Officer
Vice President and Telephone No. (210) 841-7600
Chief Financial Officer Telecopy No. (210) 841-7629
AGENT:
WELLS FARGO BANK (TEXAS), Address: First Interstate Bank Plaza
NATIONAL ASSOCIATION 1000 Louisiana
(formerly known as FIRST INTERSTATE Houston, Texas 77002
BANK OF TEXAS, N.A.)
Attn: Bennett D. Douglas
Vice President
Telephone No. (713) 250-1039
By ____________________________ Telecopy No. (713) 250-7031
Bennett D. Douglas
Vice President
</TABLE>
13
<PAGE>
LENDERS:
WELLS FARGO BANK (TEXAS), Domestic Lending Office and
NATIONAL ASSOCIATION Eurodollar Lending Office
(formerly known as FIRST INTERSTATE
BANK OF TEXAS, N.A.)
Address: First Interstate Bank Plaza
By___________________________ 1000 Louisiana
Bennett D. Douglas Houston, Texas 77002
Vice President
Attn: Bennett D. Douglas
Vice President
Telephone No. (713) 250-1039
Telecopy No. (713) 250-7031
Domestic Lending Office and
Eurodollar Lending Office
NATIONAL BANK OF CANADA, Address: National Bank of Canada,
NEW YORK BRANCH New York Branch
125 W. 55th Street
New York, New York 10019
Attn: Mr. Wayne Rosen
Telephone No. (212) 632-8568
By__________________________ Telecopy No. (212) 632-8736
Name:
Title: With a copy to:
and National Bank of Canada
2121 San Jacinto, Suite 1850
Dallas, Texas 75201
By__________________________ Attn: Mr. Douglas Clark
Douglas Clark Vice President
Vice President Telephone No. (214) 871-1265
Telecopy No. (214) 871-2015
Domestic Lending Office and
Eurodollar Lending Office
14
<PAGE>
ABN AMRO BANK, N.V.- Address: 3 Riverway, Suite 1700
HOUSTON AGENCY Houston, Texas 77056
By: ABN AMRO NORTH AMERICA, INC., Attn: Belinda Rowell
as Agent Telephone No. (713) 964-3363
Telecopy No. (713) 629-7533
Domestic Lending Office and
By:_____________________________ Eurodollar Lending Office
Name:
Title:
and
By:_____________________________
Name:
Title:
NATIONAL CITY BANK, KENTUCKY Address: 101 South Fifth Street
Louisville, Kentucky 40202
Attn: Donald R. Pullen, Jr.
Telephone No. (502) 581-6352
By:_________________________ Telecopy No. (502) 581-5122
Name: Domestic Lending Office and
Title: Eurodollar Lending Office
15
<PAGE>
EXHIBIT 10.3
================================================================================
SECOND AMENDMENT
TO
CREDIT AGREEMENT
By and Among
RAILTEX, INC.,
THE SEVERAL FINANCIAL INSTITUTIONS
PARTY TO THIS AGREEMENT,
and
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION,
As Agent
Dated as of July 22, 1996
================================================================================
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
This is the Second Amendment (the "Amendment") dated as of July 22,
1996 to a Credit Agreement, dated as of May 17, 1996 (and previously amended by
First Amendment dated as of June 11, 1996), among Wells Fargo Bank (Texas),
National Association (formerly known as First Interstate Bank of Texas, N.A.),
individually and as Agent, National Bank of Canada, New York Branch, ABN Amro
Bank, N.V. - Houston Agency, National City Bank, Kentucky and RailTex, Inc. (the
"Agreement").
In consideration of the following Recitals, for $10 in hand paid and
for other good and valuable considerations, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows, intending to be legally
bound:
Section 1. Certain Defined Terms. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Agreement.
Section 2. Recitals. The Borrower has requested that the Agent and
the Lenders agree to the amendments contained herein to facilitate the Canadian
Commitments and the making of Canadian Loans to RailTex Canada. This Amendment
shall be effective on the date (the "Effective Date") that all of the Conditions
Precedent set out in Section 5 hereof have been met.
Section 3. Amendments. The Agreement is amended as follows:
(A) The following definitions are added to the Agreement in
alphabetical order:
"Adjusted Commitments" means the Commitments of the Lenders plus the
Dollar Equivalent of the "Acquisition Credit Commitments" and the "Working
Capital Credit Commitment" (as such terms are defined as of the date hereof in
the loan agreement constituting part of the Canadian Loan Documents).
"Dollar Equivalent" means the Dollar value calculated at the Exchange
Rate in effect on the date the Agent seeks consent of the Lenders to any
amendment, waiver or modification of the Financial Covenants.
"Exchange Rate" means and refers to the nominal rate of exchange
available to Agent in the Cdn $ exchange market for the purchase by Agent at
11:00 a.m., Houston, Texas time, one Business Day prior to any date of
determination, expressed as the number of units of Cdn $ per one Dollar.
"Financial Covenants" means the covenants and agreements found in
Sections 5.10, 5.11, 5.12, 5.13 and 5.14 of the Agreement.
<PAGE>
(B) The definition of "Majority Lenders" found in Section 1.2 of the
Agreement is amended by (1) deleting the words "at any time" found in the first
line thereof and inserting in lieu thereof the following: ", at any time with
respect to all matters except Financial Covenants,", (2) deleting the period
found at the end of the definition and substituting a semi-colon therefor and
(3) adding the following after the semi-colon: "'Majority Lenders' means, at
any time with respect to the Financial Covenants, Lenders holding, directly or
through Affiliates, at least 67 percent of the Adjusted Commitments."
Section 4. Ratification of Continued Force and Effect. Except as
specifically amended herein, all of the terms and conditions of the Agreement
and all of the Loan Documents executed in connection therewith or contemplated
thereby are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set
out in the Agreement, unless amended hereby or unless the context clearly
required otherwise. References in the Agreement to the "Agreement," and the
"Credit Agreement," "hereof," "herein" and the words of similar import shall be
deemed to be references to the Agreement as amended through the Effective Date.
Any reference in any Note or any other Loan Documents to the "Credit Agreement"
shall be deemed to be references to the Agreement as amended through the
Effective Date.
Section 5. Conditions Precedent. The effectiveness of this Amendment
is subject to the full and complete satisfaction of the following conditions
precedent:
(A) Certain Authorizations. The Agent shall have received evidence of
corporate authorization by the Borrower and such other corporate documents
as it may reasonably request.
(B) Certain Documents. The Agent shall have received the following
documents:
(1) This Amendment executed by all parties; and
(2) Such other and further documents and agreements as the Agent
or its counsel shall reasonably request.
Section 6. Applicable Law. This Amendment and all other Loan Documents
executed pursuant hereto shall be deemed to have been made and to be performable
in Houston, Harris County, Texas and shall be governed by and construed in
accordance with the laws of the State of Texas.
Section 7. Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of the Lenders, the Agent and the Borrower and their
respective successors and assigns, except the Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Lenders and the Agent.
2
<PAGE>
Section 8. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
Section 9. Effect of Waiver. No consent or waiver, express or implied, by
any Lender or the Agent to or for any breach of or deviation from any covenant,
condition or duty by the Borrower shall be deemed a consent or waiver to or of
any other breach of the same or any other covenant, condition or duty.
Section 10. Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 11. Non-Application of Chapter 15 of Texas Credit Code. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Annotated Texas
Statutes, Article 5069-15) are specifically declared by the parties not to be
applicable to this Amendment or any of the Loan Documents or the transactions
contemplated hereby.
Section 12. ENTIRE AGREEMENT. THIS AMENDMENT, THE AGREEMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES HERETO.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered effective as of July 22, 1996.
BORROWER:
RAILTEX, INC. Address: 4040 Broadway, Suite 200
San Antonio, Texas 78209
Attn: Laura D. Davies
By:______________________ Vice President and
Laura D. Davies Chief Financial Officer
Vice President and Telephone No. (210) 841-7600
Chief Financial Officer Telecopy No. (210) 841-7629
3
<PAGE>
<TABLE>
<CAPTION>
AGENT:
<S> <C> <C>
WELLS FARGO BANK (TEXAS), Address: First Interstate Bank Plaza
NATIONAL ASSOCIATION 1000 Louisiana
(formerly known as FIRST INTERSTATE Houston, Texas 77002
BANK OF TEXAS, N.A.)
Attn: Bennett D. Douglas
Vice President
Telephone No. (713) 250-1039
By:________________________________ Telecopy No. (713) 250-1048
Bennett D. Douglas
Vice President
LENDERS:
WELLS FARGO BANK (TEXAS), Domestic Lending Office and
NATIONAL ASSOCIATION Eurodollar Lending Office
(formerly known as FIRST INTERSTATE
BANK OF TEXAS, N.A.)
Address: First Interstate Bank
1000 Louisiana
By:__________________________ Houston, Texas 77002
Bennett D. Douglas
Vice President
Attn: Bennett D. Douglas
Vice President
Telephone No. (713) 250-1039
Telecopy No. (713) 250-1048
Domestic Lending Office and
Eurodollar Lending Office
</TABLE>
4
<PAGE>
NATIONAL BANK OF CANADA, Address: National Bank of Canada,
NEW YORK BRANCH New York Branch
125 W. 55th Street
New York, New York 10019
Attn: Mr. Wayne Rosen
Telephone No. (212) 632-8568
By:________________________ Telecopy No. (212) 632-8736
Name:
Title: With a copy to:
and National Bank of Canada
2121 San Jacinto, Suite 1850
Dallas, Texas 75201
By:________________________ Attn: Mr. Douglas Clark
Douglas Clark Vice President
Vice President Telephone No. (214) 871-1265
Telecopy No. (214) 871-2015
Domestic Lending Office and
Eurodollar Lending Office
5
<PAGE>
ABN AMRO BANK, N.V.- Address: 3 Riverway, Suite 1700
HOUSTON AGENCY Houston, Texas 77056
By: ABN AMRO NORTH AMERICA, INC., Attn: Belinda Rowell
as Agent Telephone No. (713) 964-3363
Telecopy No. (713) 629-7533
Domestic Lending Office and
By:____________________________ Eurodollar Lending Office
Name:
Title:
and
By:____________________________
Name:
Title:
NATIONAL CITY BANK, KENTUCKY Address: 101 South Fifth Street
Louisville, Kentucky 40202
Attn: Donald R. Pullen, Jr.
Telephone No. (502) 581-6352
By:____________________________ Telecopy No. (502) 581-5122
Name: Domestic Lending Office and
Title: Eurodollar Lending Office
6
<PAGE>
EXHIBIT 10.4
RAILTEX CANADA, INC.
AS BORROWER
- and -
NATIONAL BANK OF CANADA
ABN AMRO BANK CANADA
AS LENDERS
- and -
NATIONAL BANK OF CANADA
AS AGENT
-------------------
LOAN AGREEMENT
Made as of June 21, 1996
-------------------
Fraser & Beatty
P.O. Box 100
1 First Canadian Place
Toronto, Ontario
M5X 1B2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE ONE
INTERPRETATION
--------------
1.01 Definitions............................ 1
1.02 Accounting Terms....................... 7
1.03 Schedules.............................. 7
1.04 Currency............................... 8
1.05 Singular, Plural, etc.................. 8
ARTICLE TWO
THE CREDITS
-----------
2.01 Extension of Working Capital Credit.... 8
2.02 Extension of Acquisition Credit........ 8
2.03 Treasury Products...................... 9
2.04 Utilization of Proceeds................ 9
2.05 Types of Accommodation Under Credits... 9
2.06 Pro Rata Borrowings.................... 10
2.07 Rollovers and Conversions.............. 11
2.08 Conversion of Type of Accommodation.... 12
2.09 Letters of Credit...................... 12
ARTICLE THREE
INTEREST AND FEES - CREDIT FACILITIES
-------------------------------------
3.01 Interest on Canadian Prime Rate Loans.. 15
3.02 Acceptance Fee......................... 16
3.03 Calculation of Adjustment Factors...... 16
3.04 Closing Fee............................ 16
3.05 Commitment Fee......................... 17
3.06 Agency Fee............................. 17
3.07 Letter of Credit Fees.................. 17
3.08 Notes.................................. 17
3.09 Early Termination of Interest Periods.. 18
3.10 Changes in Circumstances............... 18
3.11 Capital Adequacy....................... 18
3.12 Interest Periods....................... 19
3.13 Payment Generally...................... 19
3.14 National Bank's and Agent's Records.... 19
3.15 Allocation............................. 19
</TABLE>
2
<PAGE>
ARTICLE FOUR
<TABLE>
<S> <C>
GENERAL PROVISIONS RELATING TO BANKERS' ACCEPTANCES
- ---------------------------------------------------
4.01 Bankers' Acceptances......................... 20
ARTICLE FIVE
REPAYMENT AND ACCOUNTS
----------------------
5.01 Repayment of Working Capital Accommodations.. 21
5.02 Repayment of Acquisition Accommodations...... 21
5.03 Repayment of Accommodations Generally........ 22
5.04 Prepayments.................................. 22
5.05 Maintenance of Accounts...................... 23
ARTICLE SIX
SECURITY
--------
6.01 Security..................................... 23
ARTICLE SEVEN
REPRESENTATIONS AND WARRANTIES
------------------------------
7.01 ............................................. 23
ARTICLE EIGHT
COVENANTS
---------
8.01 Affirmative Covenants........................ 26
8.02 Negative Covenants........................... 29
8.03 RailTex Credit Agreement Covenants........... 30
ARTICLE NINE
EVENTS OF DEFAULT
-----------------
9.01 Events of Default............................ 30
9.02 Acceleration................................. 31
9.03 Remedies Cumulative.......................... 32
9.04 Availability of Accommodation After Default
and......................................... 32
9.05 Non-Merger................................... 32
ARTICLE TEN
CONDITIONS PRECEDENT TO ACCOMMODATION
-------------------------------------
10.01 Initial Drawdown............................ 32
10.02 Conditions Precedent to Subsequent Drawdowns
Under Credits.............................. 34
10.03 Drawdowns Under the Acquisition Credit...... 35
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
10.04 Income Tax Notice..................... 36
ARTICLE ELEVEN
THE AGENT AND THE LENDERS
-------------------------
11.01 Authorization and Action.............. 37
11.02 Duties and Obligations................ 37
11.03 National Bank as Lender............... 38
11.04 Lender Credit Decision................ 38
11.05 Indemnifications...................... 39
11.06 Successor Agent....................... 39
11.07 Sub-Agent or Co-Agent................. 40
11.08 Assignment of Security................ 40
11.09 Payments from Borrower................ 40
11.10 Payments by the Lenders to the Agent.. 41
11.11 Allocation of Payments................ 41
11.12 Notice of Default..................... 42
11.13 Approval.............................. 43
11.14 Collateral Matters.................... 43
11.15 Agent's Exclusive Authority........... 44
11.16 Notices and Communications............ 44
11.17 Third Party Rights.................... 44
ARTICLE TWELVE
MISCELLANEOUS
-------------
12.01 Fees and Expenses..................... 44
12.02 Amendments and Waivers................ 44
12.03 Further Assurances.................... 45
12.04 Dealings by Lenders................... 45
12.05 Notices............................... 45
12.06 Maximum Rate of Return................ 46
12.07 Participation and Assignment.......... 47
12.08 Survival.............................. 48
12.09 Successors and Assigns................ 48
12.10 Governing Law......................... 48
12.11 Inconsistency......................... 48
12.12 Performance........................... 48
12.13 Time.................................. 49
</TABLE>
SCHEDULE A - Notice of Borrowing
SCHEDULE B - Notice of Rollover/Conversion
SCHEDULE C - Permitted Encumbrances
SCHEDULE D - Litigation
4
<PAGE>
SCHEDULE E - Confidentiality Agreement
SCHEDULE E - Shortline Railroad Criteria
SCHEDULE F - Confidentiality Agreement
SCHEDULE G - RailTex Guarantee
5
<PAGE>
THIS AGREEMENT is made as of the 21st day of June, 1996 among RAILTEX
CANADA, INC. as borrower (the "BORROWER"), NATIONAL BANK OF CANADA ("NATIONAL
BANK") and ABN AMRO BANK CANADA, as lenders (each a "LENDER" and collectively
the "LENDERS"), and NATIONAL BANK OF CANADA, as agent (in such capacity,
including its successors and assigns in such capacity, the "Agent").
WHEREAS the Lenders have agreed to provide certain financial
accommodation to the Borrower upon the terms and conditions hereinafter set
forth;
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is acknowledged, it is agreed by the parties hereto as
follows:
ARTICLE ONE
INTERPRETATION
1.01 Definitions
In this Agreement:
(a) "ACCOMMODATION" means an Acquisition Accommodation or a Working
Capital Accommodation;
(b) "ACQUISITION ACCOMMODATION" means any utilization of the Acquisition
Credit as provided for herein;
(c) "ACQUISITION CREDIT" has the meaning set out in Section 2.02;
(d) "ACQUISITION CREDIT COMMITMENT" and "ACQUISITION CREDIT COMMITMENTS"
have the respective meanings set out in Section 2.02;
(e) "ACQUISITION CREDIT MATURITY DATE" means April 30, 2002;
(f) "ADJUSTMENT DATE" has the meaning set out in Section 3.03;
(g) "AGREEMENT" means this agreement as amended, modified, restated,
supplemented, extended, revised or replaced from time to time;
(h) "AVAILABILITY PERIOD" means the period from and including the date
hereof to and including April 30, 1999;
6
<PAGE>
(i) "BA RATE" means the yield (excluding any stamping fee or other like
charge) expressed as a fixed annual rate of interest announced from
time to time by National Bank as being its reference rate for
computing the discount amount which would be applied on Canadian
dollar bankers' acceptances for a given term to maturity accepted in
Canada by National Bank, to realize a net or discounted amount
thereon;
(j) "BANKERS' ACCEPTANCE" means a draft of the Borrower denominated in
Canadian dollars which has been accepted by National Bank or a Lender
as described in Section 4.01;
(k) "BORROWING BASE CERTIFICATE" means a loan formula certificate in form
satisfactory to National Bank setting forth the computations of
amounts which may be borrowed under the Working Capital Credit as of
the last day of the month to which such certificate applies pursuant
to Section 8.01 hereof;
(l) "BUSINESS DAY" means any day, other than a Saturday, Sunday or legal
holiday in Toronto, Ontario, on which Canadian chartered banks are
open for business in Toronto, Ontario;
(m) "CANADIAN DOLLARS" and the symbol "$" mean lawful money of Canada;
(n) "CANADIAN PRIME RATE LOAN" means an Accommodation made to the Borrower
bearing interest by reference to the Canadian Prime Rate;
(o) "CANADIAN PRIME RATE" means at any time the greater of (i) the Prime
Rate at such time, and (ii) the BA Rate applicable to 30-day bankers'
acceptances at such time plus 0.75%;
(p) "CBNS" means Cape Breton & Central Nova Scotia Railway Limited, a Nova
Scotia corporation;
(q) "COMMITMENT PERCENTAGE" in respect of a Lender means that Lender's
Acquisition Credit Commitment expressed as a percentage of all
Acquisition Credit Commitments;
(r) "COMPLIANCE CERTIFICATE" has the meaning set out in Section 8.01(g);
(s) "CREDIT COMMITMENT" means, with respect to any Lender, the aggregate
of its Acquisition Credit Commitment and its Working Capital Credit
Commitment;
(t) "CREDITS" means the Acquisition Credit and the Working Capital Credit;
7
<PAGE>
(u) "DEFAULT" means any event which, but for the passage of time, the
giving of notice or otherwise, would constitute an Event of Default;
(v) "DOCUMENTS" means each of this Agreement, each promissory note
provided in connection herewith, if any, each document comprising the
Security and all other instruments, agreements, certificates, notices,
security and other documents delivered pursuant hereto or thereto;
(w) "DRAWDOWN DATE" means the date any Accommodation is initially made;
(x) "EBITDA CERTIFICATE" means a certificate in a form satisfactory to
National Bank and the Agent setting forth the calculations of the
ratio of the Borrower's consolidated Funded Debt to EBITDA and the
components thereof as of the last day of the month to which such
certificate applies;
(y) "ELIGIBLE ACCOUNTS RECEIVABLE" means, at any time, an amount equal to
the accounts receivable balance reflected on the latest consolidated
balance sheet of the Borrower delivered to National Bank;
(z) "ELIGIBLE ACQUISITION COSTS" means, with respect to each acquisition
of a shortline railroad, the reasonable start-up costs (acceptable to
the Majority Lenders) incurred in connection therewith, which costs
shall not exceed 5% of the total purchase price of the related
acquisition;
(aa) "EVENT OF DEFAULT" means any of the events specified in Section 9.01;
(ab) "EVENT OF INSOLVENCY" means, with respect to any Person, the
occurrence of any one of the following events:
(i) if such Person shall, other than as expressly permitted hereby:
(A) be wound up, dissolved or liquidated, or become subject to
the provisions of the Winding-up Act, as amended or re-
enacted from time to time, or have its existence terminated
or have any resolution passed therefor unless in conjunction
with a bona fide corporate reorganization in which a
successor corporation will succeed to its obligations and
enter into an agreement with the other parties to this
Agreement to that effect,
(B) make a general assignment for the benefit of its creditors
or a proposal or give notice of its intention to make a
proposal under the Bankruptcy and Insolvency Act, as amended
or re-enacted from time to time, or shall be declared
bankrupt or insolvent by a court of competent jurisdiction,
8
<PAGE>
(C) propose a compromise or arrangement under the Companies'
Creditors Arrangement Act or any similar legislation, as
amended or re-enacted from time to time, or shall file any
petition or answer seeking any re-organization, arrangement,
composition, re-adjustment, liquidation, dissolution or
similar relief for itself under any present or future law
relative to bankruptcy, insolvency or other relief for
debtors; or
(D) shall be unable to satisfy National Bank and the Agent,
acting reasonably, that such Person is not an insolvent
person (as defined in the Bankruptcy and Insolvency Act as
amended from time to time); or
(ii) if a petition shall be filed or other action or proceeding shall
be commenced against any such Person seeking any re-organization,
arrangement, composition, re-adjustment, liquidation,
dissolution, winding-up, termination of existence, appointment of
any trustee in bankruptcy, receiver, receiver and manager,
liquidator or any other officer with similar powers for such
Person, or of all or any substantial part of its property,
declaration of bankruptcy or insolvency or similar relief under
any present or future law relating to bankruptcy, insolvency or
other relief for or against debtors, and such Person shall
acquiesce in the entry of an order, judgment or decree approving
or giving effect to the relief sought in such petition, action or
other proceeding or such petition, action or other proceeding
shall not be abandoned, dismissed, withdrawn, quashed, vacated or
stayed within a period of thirty days (whether consecutive or
not) from the day of filing or commencement thereof;
(ac) "FUNDED DEBT" of a Person means, at any time, the total Indebtedness
of such Person for borrowed money (other than Subordinated
Indebtedness) at such date, whether or not then due and payable;
(ad) "GERC" means Goderich-Exeter Railway Company Limited, an Ontario
corporation;
(ae) "GUARANTORS" means, CBNS, GERC and any other present or future wholly-
owned subsidiary of the Borrower;
(af) "INDEBTEDNESS" of a person means the total liabilities of that Person
calculated in accordance with GAAP consistently applied.
9
<PAGE>
(ag) "INITIAL DRAWDOWN DATE" means the first date on which the Borrower
receives an Accommodation hereunder;
(ah) "INTEREST PERIOD" means, with respect to a Bankers' Acceptance, the
term thereof;
(ai) "LETTER OF CREDIT" means a standby letter of credit or letter of
guarantee issued or to be issued hereunder at the request of the
Borrower;
(aj) "LIEN" means any mortgage, charge, pledge, title retention, hypothec,
security interest, lien, assignment, claim or other encumbrance of any
nature whatsoever, whether fixed or floating, statutory or consensual,
and howsoever created;
(ak) "MAJORITY LENDERS" means at any time Lenders whose aggregate Credit
Commitments are at least 67 percent of all then outstanding Credit
Commitments;
(al) "NOTICE OF BORROWING" means a notice of the Borrower in substantially
the form attached as Schedule A signed by one or more authorized
signing officers of the Borrower;
(am) "NOTICE OF ROLLOVER/CONVERSION" means a notice of the Borrower in
substantially the form attached as Schedule B signed by one or more
authorized signing officers of the Borrower;
(an) "PARTICIPANT" has the meaning set out in Section 12.07;
(ao) "PARTICIPATION" has the meaning set out in Section 12.07;
(ap) "PERMITTED ENCUMBRANCES" means the Liens listed in Schedule C;
(aq) "PERMITTED INDEBTEDNESS" means any Indebtedness of:
(i) the Borrower to National Bank or any Lender under this Agreement;
(ii) a Guarantor to the Borrower, the Borrower to a Guarantor, or a
Guarantor to a Guarantor, all to the extent permitted by law;
(iii) the Borrower or a Guarantor (other than for borrowed money) on
open account or under trade acceptances in the ordinary course of
business in connection with normal trade obligations;
(iv) the Borrower or a Guarantor to RailTex in respect of unsecured
intercompany accounts;
10
<PAGE>
(v) the Borrower or a Guarantor constituting purchase money
indebtedness not in excess of $500,000.00 at any time outstanding or,
if less, the amounts permitted under the RailTex Credit Agreement;
(vi) the Borrower or a Guarantor in respect of taxes, assessments and
other governmental charges due and being contested in good faith by
appropriate proceedings, and against which the Borrower or Guarantor
(as applicable) has set up adequate reserves in accordance with GAAP;
and
(vii) the Borrower to holders of the ten year senior notes issued by
the Borrower in the aggregate amount of $15,000,000 pursuant to the
note agreement dated as of September 1, 1995 between the Borrower and
the note purchasers identified therein;
(ar) "PERSON" means an individual, a partnership, a corporation, a
government or any agent thereof, a trustee, a trust or any
unincorporated organization or any other entity whatsoever;
(as) "PRIME FACTOR" means the interest percentages added to the Canadian
Prime Rate pursuant to Section 3.01 to determine the interest rate
payable on Canadian Prime Rate Loans;
(at) "PRIME RATE" means the floating rate of interest per annum announced
from time to time by National Bank as the reference rate it will use
to determine rates of interest for Canadian dollar commercial loans
made by it to borrowers in Canada and designated as its prime rate;
(au) "RAILTEX" means RailTex, Inc., a Texas corporation;
(av) "RAILTEX CREDIT AGREEMENT" means the credit agreement dated as of May
17, 1996 among RailTex, National Bank and other lenders, and First
Interstate Bank of Texas, N.A. as agent, as the same may be amended,
modified, supplemented, extended, renewed, replaced or restated from
time to time;
(aw) "RAILTEX GUARANTEE" means the guaranty agreement entered into by
RailTex substantially in the form attached hereto as Schedule G;
(ax) "RIGHTS" has the meaning set out in Section 12.07;
(ay) "SECURITY" has the meaning set out in Section 6.01;
(az) "SUBORDINATED INDEBTEDNESS" means the indebtedness of a Person
heretofore or hereafter incurred that, by the express terms of the
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instrument evidencing or creating such indebtedness or by the terms of
a subordination agreement in form and substance satisfactory to
National Bank and the Agent, is validly and effectively made
subordinate and subject in right of payment, to whatever extent
National Bank and the Agent may require, to the prior payment of the
indebtedness, obligations and liabilities of such Person under or in
respect of this Agreement and any other Document;
(ba) "TREASURY AGREEMENT" means an agreement referred to in Section 2.03;
(bb) "WORKING CAPITAL ACCOMMODATION" means any utilization of the Working
Capital Credit as provided for herein;
(bc) "WORKING CAPITAL CREDIT" has the meaning set out in Section 2.01;
(bd) "WORKING CAPITAL CREDIT COMMITMENT" shall mean the amount of
$5,000,000;
(be) "WORKING CAPITAL CREDIT LIMIT" means at any time the lesser of (i)
$5,000,000 (or such lesser amount to which same may be reduced
pursuant to the provisions hereof); and (ii) the sum at such time of
(y) 65% of Eligible Accounts Receivable, and (z) the amount obtained
by subtracting the aggregate principal amount of then outstanding
Revolving Loans under the RailTex Credit Agreement from the amount
arrived at by the computation at the same time provided for in the
Loan Formula under the RailTex Credit Agreement;
(bf) "WORKING CAPITAL CREDIT MATURITY DATE" means April 30, 1999.
Defined terms used herein and not otherwise defined shall have the
meaning ascribed thereto in the RailTex Credit Agreement.
1.02 Accounting Terms
All accounting terms not otherwise defined herein shall have the
meanings respectively assigned to them by GAAP.
1.03 Schedules
The Schedules attached hereto and forming part of this Agreement are
as follows:
Schedule A Notice of Borrowing
Schedule B Notice of Rollover/Conversion
Schedule C Permitted Encumbrances
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Schedule D Litigation
Schedule E Shortline Railroad Criteria
Schedule F Confidentiality Agreement
Schedule G RailTex Guarantee
1.04 Currency
Unless otherwise stated, all amounts referred to herein are in Canadian
dollars.
1.05 Singular, Plural, etc.
As used herein, each gender shall include all gendes, and the singular
shall include the plural and the plural the singular as the context shall
require. References in this Agreement to "Section", "hereof", "herein" and
similar references shall, unless the context otherwise requires, be references
to this Agreement.
ARTICLE TWO
THE CREDITS
2.01 Extension of Working Capital Credit
Upon and subject to the terms and conditions of this Agreement National
Bank shall extend to the Borrower during the Availability Period a revolving
term credit (the "WORKING CAPITAL CREDIT") in the maximum aggregate principal
amount outstanding at any time equal to the Working Capital Credit Limit.
2.02 Extension of Acquisition Credit
Upon and subject to the terms and conditions of this Agreement, each
Lender severally (and not jointly and severally) agrees to extend to the
Borrower during the Availability Period a revolving term credit (the
"ACQUISITION CREDIT"), the aggregate outstanding principal amount of which shall
not at any time exceed the amount set out opposite its name below under the
caption "Amount of Commitment" (for each Lender, as such amount may be altered
pursuant to this Agreement, its "ACQUISITION CREDIT COMMITMENT" and for all
Lenders, the "ACQUISITION CREDIT COMMITMENTS"):
Name of Lender Amount of Commitment Commitment Percentage
- ------------------------- -------------------- ----------------------
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National Bank of Canada $15,000,000.00 60%
ABN AMRO Bank Canada $10,000,000.00 40%
2.03 Treasury Products
Any of National Bank and the Lenders may (but none are obligated to)
at its option and at the request of the Borrower, enter into interest rate or
foreign currency swap agreements, option, future, forward, foreign exchange rate
and other similar agreements with the Borrower in respect of its treasury
products. Such agreements shall not constitute an Accommodation hereunder, and
shall not reduce the amounts available under the Credits, but the aggregate face
or notional Canadian dollar amount of all such agreements outstanding at any
time shall not exceed $25,000,000. The Borrower acknowledges and agrees,
however, that on the earlier of the Working Capital Credit Maturity Date and the
date that the Borrower incurs any Indebtedness other than Permitted
Indebtedness, the Borrower shall immediately upon request of National Bank or
any Lender that has entered into any such agreement with Borrower provide to
such party security for any and all such agreements then outstanding (including,
without limitation, the interest rate swap agreement with National Bank
effective September 29, 1995 and maturing May 31, 1999) by way of letters of
credit in form, substance and amount and from a bank satisfactory to such party.
2.04 Utilization of Proceeds
(1) The Borrower shall use all Working Capital Accommodations (other than
Letters of Credit) obtained to provide loans to wholly-owned subsidiary
corporations of the Borrower for working capital purposes, for capital
expenditures or, to a maximum aggregate of $1,000,000 during the term of
this Agreement, for general corporate purposes. The loan of the Borrower
owing to National Bank, and all Bankers' Acceptances of Borrower issued,
under the loan agreement made as of August 2, 1994 (as amended) and
outstanding on the date hereof shall be deemed to be Working Capital
Accommodations outstanding hereunder.
(2) The Borrower shall use all Acquisition Accommodations for the purposes
set out in Section 10.03.
2.05 Types of Accommodation Under Credits
(1) Subject to the terms and conditions hereof, the Borrower may from time
to time at its option obtain Accommodations under either of the Credits by
way of Canadian Prime Rate Loans, Bankers' Acceptances or Letters of
Credit, provided that Letters of Credit shall only be available under the
Acquisition Credit to the extent they are required by the related vendor as
part of the acquisition transaction in respect of which the Acquisition
Accommodation is requested.
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(2) The Borrower may at any time and from time to time within the
Availability Period request an Accommodation by delivering a Notice of
Borrowing to National Bank (in the case of a Working Capital Accommodation)
or to the Agent (in the case of an Acquisition Accommodation). The
requested Accommodation shall not be less than $100,000 in the case of a
Working Capital Accommodation, and not less than $1,000,000 in the case of
an Acquisition Accommodation, and shall be in integral multiples of
$100,000. The Notice of Borrowing must be delivered at least two Business
Days prior to the requested Drawdown Date. Any Notice of Borrowing so
delivered shall be irrevocable by the Borrower and shall set out, among
other things:
(a) the applicable Drawdown Date;
(b) the amount requested;
(c) whether the requested Accommodation is a Working Capital
Accommodation or an Acquisition Accommodation;
(d) whether the requested Accommodation is a Canadian Prime Rate Loan, a
Bankers' Acceptance or a Letter of Credit;
(e) in the case of a Letter of Credit, the amount, term, beneficiary and
such other information as shall be required to permit preparation and
completion of the Letter of Credit; and
(f) the denominations and term desired if the requested Accommodation is
by way of Bankers' Acceptances.
The Agent shall promptly notify the Lenders of any requested Acquisition
Accommodation and the pro rata amounts thereof to be made available by each
Lender and in any event shall use reasonable efforts to provide such
notification by no later than 10:00 a.m. on the relevant Drawdown Date.
(3) Subject to Article Ten, upon receipt from the Borrower of a duly
completed and executed Notice of Borrowing delivered in accordance with
Section 2.05(2), the Borrower shall draw and National Bank (in the case of
a Working Capital Accommodation) or the Lenders (each in an amount
corresponding to its respective Commitment Percentage of the amount of the
Accommodation, in the case of an Acquisition Accommodation) shall advance
the Accommodation requested in such Notice of Borrowing on the requested
Drawdown Date.
2.06 Pro Rata Borrowings
(1) Except as otherwise specifically provided herein, each Acquisition
Accommodation shall be made available by the Lenders simultaneously and in
a pro rata amount and identical maturities from each Lender in accordance
with its respective
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Commitment Percentage. No Lender shall be responsible for any default by the
other Lender in its obligation to make any Acquisition Accommodation available
to the Borrower hereunder nor shall any Acquisition Credit Commitment be
increased as a result of any such default, except as provided in Section 2.06
(2).
(2) If either Lender shall fail to make available its pro rata amount of any
Acquisition Accommodation, the Agent shall promptly give notice thereof to the
Borrower, and the Agent and the Borrower shall thereupon agree on the most
appropriate action to be taken in the circumstances including, without
limitation, the introduction of a new chartered bank as an additional lender
hereunder or the advance to the Borrower by the other Lender of such failing
Lender's pro rata amount. The Lenders, the Borrower and the Agent shall
thereupon enter into documentation, in form and substance satisfactory to the
Agent acting reasonably, as may be appropriate to evidence any adjustments of
the Commitments and the Commitment Percentages set out in Section 2.02
necessitated by such action. Nothing herein shall be deemed to relieve either
Lender from its obligation to fulfill its Acquisition Credit Commitment or to
prejudice any rights which the Borrower, the Agent or the other Lender may have
against a Lender as a result of any default of such Lender hereunder.
(3) Each Lender other than National Bank hereby agrees to indemnify and save
harmless National Bank, in proportion to such Lender's Commitment Percentage,
from and against any and all amounts and moneys paid by National Bank under or
in connection with any Letter of Credit issued by it constituting an Acquisition
Accommodation and not repaid to National Bank by the Borrower on the date due.
Any such moneys paid by such Lenders to National Bank shall be deemed to be
advances to the Borrower of Canadian Prime Rate Loans, and shall constitute
Canadian Prime Rate Loans owing by the Borrower to the applicable Lender under
the Acquisition Credit. By virtue of the foregoing indemnity, each such Lender
shall be deemed, for the purpose of this Agreement, to have participated in the
Acquisition Accommodation constituted by the Letter of Credit to the extent of
their respective Commitment Percentages therein.
2.07 Rollovers and Conversions
Prior to the end of each Interest Period relating to an Accommodation
which is not to be repaid at the end of such Interest Period, the Borrower shall
deliver to National Bank (in the case of a Working Capital Accommodation) or to
the Agent (in the case of an Acquisition Accommodation) a Notice of
Rollover/Conversion which notice shall, among other things, set out whether,
following the end of such Interest Period, such Accommodation shall be a
Canadian Prime Rate Loan or a Bankers' Acceptance and any applicable Interest
Period in respect thereof. The Agent should promptly notify the Lenders of any
requested rollover/conversion of an Acquisition Accommodation. The Borrower
shall not be entitled to roll over or convert any Accommodation except upon the
expiry of the relevant Interest Period. Any Notice of
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Rollover/Conversion with respect to an Accommodation shall be delivered within
the time limits specified in Subsection 2.05 that would be applicable if the
Notice of Rollover/Conversion were a Notice of Borrowing. If the Borrower does
not deliver any such notice within the time limits provided by this Section, any
such Accommodation shall automatically be converted upon the expiry of such
Interest Period to a Canadian Prime Rate Loan. Any rollover or conversion
hereunder of an Accommodation shall result in the Accommodation bearing interest
or fees (as applicable) in accordance with the provisions hereof relating to the
type of Accommodation resulting from such rollover or conversion.
2.08 Conversion of Type of Accommodation
Subject to the terms and conditions hereof, the Borrower shall be
entitled from time to time to convert any type of Accommodation under a Credit
to any other type of Accommodation under the same Credit by giving notice
thereof in accordance with Section 2.07, provided that no such conversion of a
Bankers' Acceptance shall be made or purported to be made prior to the maturity
date of such Bankers' Acceptance except with the prior written consent of the
holder thereof and upon payment of all breakage costs and other losses, costs
and expenses incurred by such holder or any Lender as a result of the early
termination of the related Interest Period.
Any Accommodation so converted from one type of Accommodation to
another shall cease to bear interest and fees as the former type of
Accommodation, and shall begin to bear interest and fees as the new type of
Accommodation, on and as of the date of such conversion.
2.09 Letters of Credit
(1) Subject to all other provisions hereof, the Borrower shall be entitled
to obtain during the Availability Period from National Bank as an extension
of the Working Capital Credit, or from National Bank as issuing Lender
under, and as an extension of, the Acquisition Credit, Letters of Credit in
Canadian dollars provided that:
(a) the term of any Letter of Credit does not exceed one year;
(b) the term of any Letter of Credit does not extend beyond the Working
Capital Credit Maturity Date;
(c) the Borrower pays to National Bank and/or the Agent for the account of
the Lenders all fees required with respect thereto;
(d) if required by National Bank, the Borrower executes and delivers to
National Bank, in form and substance satisfactory to it, an indemnity
with respect to such Letter of Credit;
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(e) the Letter of Credit is in a form satisfactory to National Bank;
(f) the Borrower has delivered to National Bank or the Agent as applicable
the required Notice of Borrowing and, if required by National Bank, an
application in a form satisfactory to National Bank with respect to such
Letter of Credit; and
(g) the face amount of the then requested Letters of Credit under the
applicable Credit, plus the aggregate amount of then outstanding
Accommodations under such Credit (including undrawn amounts of all
Letters of Credit then outstanding) does not exceed the amount of
Accommodations available hereunder in respect of such Credit.
(2) The Borrower shall be indebted to National Bank under the Working
Capital Credit, and to National Bank as issuing Lender under the Acquisition
Credit, in an amount equivalent to the aggregate amount drawn on each Letter of
Credit issued under the respective Credit. Each amount drawn pursuant to a
Letter of Credit shall be deemed, on and after the date of such draw, unless
paid in full on such date by the Borrower, to be a Canadian Prime Rate Loan and
shall be subject to all of the provisions of this Agreement applicable to
Canadian Prime Rate Loans (until the same is converted to another form of
Accommodation permitted pursuant to the provisions hereof), including the
payment of interest thereon from and after the date on which such drawing was
made.
(3) The obligation of the Borrower to indemnify National Bank in its
respective capacities for drawings made under each Letter of Credit shall be
unconditional and irrevocable and shall be honoured in accordance with the
provisions of this Agreement under all circumstances including, without
limitation:
(a) any lack of validity or enforceability of any Letter of Credit; or
(b) the existence of any claim, set-off defence or other right which the
Borrower may have at any time against the beneficiary under, or any
transferee of, any Letter of Credit (or any person for whom any such
transferee may be acting), National Bank or any other person, whether in
connection with this Agreement, any other agreement, document,
transaction or obligation contemplated herein or otherwise.
(4) The Borrower shall pay to, indemnify and save harmless National Bank,
the Agent and the Lenders from and against any and all amounts, claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
legal fees and out-of-pocket expenses) paid, incurred or suffered thereby
pursuant to, in connection with or as a result of:
(a) the issue of a Letter of Credit;
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(b) a draw or draws under a Letter of Credit; or
(c) the failure of National Bank to honour a draw under a Letter of Credit
as a result of any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or governmental
authority.
(5) As between the Borrower and National Bank, the Agent and the Lenders,
the Borrower assumes all risks of acts and omissions with respect to, or
the misuse of, each Letter of Credit issued at its request. In furtherance
and not in limitation of the foregoing, neither National Bank, the Agent
nor any other Lender shall be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the
application for and issue of any Letter of Credit, even if it should in
fact prove to be in any and all respects invalid, insufficient,
inaccurate, fraudulent or forged;
(b) the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in full or in part, which
may prove to be invalid or ineffective for any reason;
(c) the failure of the beneficiary of any Letter of Credit to comply fully
with conditions required in order to draw upon such Letter of Credit
other than the conditions expressly set out in the Letter of Credit
itself;
(d) errors, omissions, interruptions or delays in transmission or delivery
of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher;
(e) errors in interpretation of technical terms used in the Letter of Credit
other than technical terms relating to rules and procedures which govern
the Letters of Credit generally;
(f) any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under a Letter of Credit or of the
proceeds thereof;
(g) the misapplication by the beneficiary of any Letter of Credit of the
proceeds of any drawing under the Letter of Credit; and
(h) any consequences arising from causes beyond the control of National
Bank, the Agent or such Lender.
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None of the above shall affect, impair or prevent the vesting of the rights or
powers of the Agent, National Bank or any other Lender hereunder. In
furtherance and not in limitation of the specific provisions hereof, any action
(other than an action which constitutes willful misconduct or gross negligence
of National Bank, the Agent or the applicable Lender) taken or omitted by it
under or in connection with any Letter of Credit or the related certificates, if
taken or omitted in good faith, shall not impose on National Bank, the Agent or
the applicable Lender any resulting liability to the Borrower.
(6) Upon the occurrence of an Event of Default, notwithstanding the
expiration date of any Letter of Credit, the Borrower shall pay to National
Bank, forthwith at its request, an amount equal to the amount or amounts
required to pay:
(a) the maximum amounts which could be drawn under all Letters of Credit
then outstanding, and
(b) all unpaid fees owed by the Borrower in respect of the issue or
extension of such Letters of Credit, if any, and
except for any amount payable in respect of unpaid fees as aforesaid, such
amounts and interest accruing thereon shall be held by National Bank for set-off
against the indebtedness and liability of the Borrower in respect of such
Letters of Credit. During the time such amounts are so held, interest shall
accrue thereon at a competitive market rate determined by National Bank based on
the amount and the term involved. Upon the expiry of any Letter of Credit,
National Bank shall apply the balance of such funds held in respect of such
Letter of Credit, and any interest accrued thereon, immediately in payment of
amounts owed by the Borrower hereunder, and any excess funds remaining after
such application shall be paid to the Borrower.
ARTICLE THREE
INTEREST AND FEES - CREDIT FACILITIES
-------------------------------------
3.01 Interest on Canadian Prime Rate Loans
The Borrower shall pay interest on the outstanding principal amount of
each Canadian Prime Rate Loan outstanding under either of the Credits from the
date on which such Canadian Prime Rate Loan was made until such outstanding
principal amount shall have been repaid in full, and both before and after
maturity, default and judgment, at a floating rate per annum equal to the
Canadian Prime Rate in effect from time to time plus:
(a) 1/2% at any time that the Leverage Ratio is greater than or equal
to 50%;
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(b) 1/4% at any time that the Leverage Ratio is 45% or greater but
less than 50%; and
(c) 0% at any time that the Leverage Ratio is less than 45%,
calculated daily and compounded and payable monthly in arrears on the last day
of each month and on the date on which such Canadian Prime Rate Loan becomes due
and payable in full or is changed to another type of Accommodation as
contemplated by Article Two, in any case based on the actual number of days
elapsed and a year of 365 (or 366 if applicable) days.
3.02 Acceptance Fee
The Borrower shall pay to National Bank in the case of a Working
Capital Accommodation and to the Agent for the account of the applicable Lender
in the case of an Acquisition Accommodation, for each Bankers' Acceptance, a fee
equal to the following percentage per annum of the face amount thereof based on
the term to maturity of such Bankers' Acceptance and a year of 365 (or 366 if
applicable) days, which fee shall be paid as a condition precedent to any
obligation on the part of any Lender to accept such Bankers' Acceptance:
(a) 2-1/4% at any time that the Leverage Ratio is greater than or
equal to 50%;
(b) 2% at any time that the Leverage Ratio is 45% or greater but less
than 50%;
(c) 1-1/2% at any time that the Leverage Ratio is 40% or greater but
less than 45%;
(d) 1-1/4% at any time that the Leverage Ratio is 30% or greater but
less than 40%; and
(e) 1% at any time that the Leverage Ratio is less than 30%.
3.03 Calculation of Adjustment Factors
The Prime Factor and the applicable fee referred to in Section 3.02
hereof shall be determined as of the date (the "ADJUSTMENT DATE") that is 45
days from and after the last day of each calendar quarter based on the Leverage
Ratio as of the last day of each calendar quarter, and shall be adjusted on and
as of each such Adjustment Date for the period from but excluding such
Adjustment Date to and including the next succeeding Adjustment Date; provided,
however, that at any and all times that the Borrower or RailTex shall have
failed to deliver all requisite financial statements as required by this
Agreement and the RailTex Credit Agreement, the highest Prime Factor and fee
referred to in Section 3.02 hereof shall apply. For greater certainty, no
adjustment shall be made on any Adjustment Date in respect of fees referred to
in Section 3.02 hereof which have been paid prior to such Adjustment Date.
3.04 Closing Fee
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The Borrower shall pay to National Bank as a closing fee the amount of
$10,000 in respect of the Working Capital Credit, and shall pay to the Agent for
account of the Lenders as a closing fee in respect of the Acquisition Credit the
amount of $50,000, which amounts shall be fully earned as of and payable on the
date hereof.
3.05 Commitment Fee
During the Availability Period, the Borrower shall pay to National Bank a
commitment fee equal to 0.25% per annum, based on a 365 (or 366 as applicable)
day year, of the undrawn portion of the Working Capital Credit (such undrawn
portion to be calculated assuming, for this purpose only, that the Working
Capital Credit Limit is the then applicable amount under Section 1.01(ba)(i)),
and shall pay to the Agent for account of the Lenders a commitment fee equal to
0.25% per annum, based on a 365 (or 366 as applicable) day year, of the undrawn
portion of the aggregate Acquisition Credit Commitments. Such fees shall be
calculated on a daily basis and payable quarterly in arrears as to each calendar
quarter (or portion thereof) within 30 days after the last day of each calendar
quarter in each year and on April 30, 1999.
3.06 Agency Fee
The Borrower shall pay to National Bank, for its own account, an agency
fee of $10,000 in calendar 1996 and $15,000 for each calendar year thereafter.
Such fee shall be payable commencing with an instalment of $2,500 on June 30,
1996, and thereafter quarterly in arrears as to each calendar quarter (or
portion thereof) in equal instalments of $3,750, within thirty days after the
last day of each calendar quarter, and on the date when all indebtedness
liability and obligations of the Borrower under or in respect of this Agreement
and in each of the other Documents have been fully and finally paid and
fulfilled and none of the Lenders is under any obligation to make any further
Accommodation hereunder.
3.07 Letter of Credit Fees
The Borrower shall pay to National Bank for its own account (in the case
of a Letter of Credit issued under the Working Capital Credit), or to National
Bank for its own account as issuing Lender to the extent of 20% of such fee, and
to the Agent for the account of the Lenders to the extent of 80% of such fee (in
the case of a Letter of Credit issued under the Acquisition Credit) a
non-refundable fee in respect of each Letter of Credit issued (or extended) at
the time the Letter of Credit is issued (or extended) in an amount equivalent to
1% per annum of National Bank's maximum liability thereunder based on the term
of the Letter of Credit (or its extension).
3.08 Notes
As evidence of each Accommodation, and the Borrower's obligation with
respect thereto, National Bank or the Agent may, but need not, request the
delivery of a
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promissory note (in such form as it may specify from time to time) from the
Borrower in favour of National Bank or the applicable Lender or Lenders,
specifying inter alia the amount of such Accommodation and the applicable rate
of interest.
3.09 Early Termination of Interest Periods
If National Bank or the Agent is required to arrange for early termination
of any Interest Period as a result of any prepayment or if the Borrower is
required, as a result of acceleration pursuant to Section 9.02, to make payment
of amounts outstanding in connection with an Accommodation prior to the end of
the relevant Interest Period, the Borrower shall reimburse National Bank, the
Agent and the Lenders for and indemnify and save each of them harmless from and
against all losses, costs and expenses actually incurred as a result of the
early termination of the Interest Period in question, including, without
limitation, any breakage costs. If National Bank, the Agent or any Lender is
entitled to receive payment under this Section, it will deliver a certificate to
the Borrower certifying as to the amount and calculation of such losses, costs
and expenses and such certificate shall be prima facie evidence of the matters
stated therein, absent manifest error.
3.10 Changes in Circumstances
In the event that on any date National Bank or any Lender reasonably
determines (which determination shall be conclusive in the absence of manifest
error) that its ability to maintain any outstanding Accommodation, whether by
way of Canadian Prime Rate Loan, Bankers' Acceptance or otherwise, has become
unlawful or impossible at law, then in any such case National Bank or the Agent
shall give notice thereof to the Borrower and the Borrower shall forthwith repay
to National Bank or to the Agent for the account of the applicable Lender all
amounts outstanding with respect to such Accommodation together with all unpaid
interest accrued thereon to the date of repayment and all other reasonable
expenses incurred in connection with the termination, including without
limitation any expenses resulting from the termination of any Interest Period
relating thereto in accordance with Section 3.09. After any such repayment, and
concurrently with such repayment, the Borrower may re-borrow the entire amount
repaid by way of some other type of Accommodation upon compliance with the
applicable drawdown requirements.
3.11 Capital Adequacy
If with respect to all or any portion of any Accommodation, any future
law, rule, regulation or guideline regarding capital adequacy or compliance by
National Bank or any Lender with any request, directive, or requirement now
existing or hereafter imposed by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof and
applicable generally to Canadian chartered banks, regarding capital adequacy
(whether or not having the force of law) shall result in a reduction in the rate
of return on that party's capital as a
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consequence of that party's obligations under this Agreement to a level below
that which such party otherwise could have achieved by an amount reasonably
determined thereby to be material (and such party may, in determining such
amount, utilize reasonable assumptions and allocations of costs and expenses
and may use any reasonable averaging or attribution method), then (unless the
effect of such event is already reflected in the rate of interest then
applicable hereunder) National Bank or the Agent as applicable shall notify the
Borrower and deliver to the Borrower a certificate setting forth in reasonable
detail the calculation of the amount necessary, on a quarterly basis, to
compensate therefor, and the Borrower shall pay such amount to National Bank
and/or the Agent for the account of the applicable Lender on the last day of
each calendar quarter thereafter.
3.12 Interest Periods
In selecting the length of any Interest Period relating to a Bankers'
Acceptance, the Borrower and National Bank shall ensure that such Interest
Period expires on a Business Day and on or before the Working Capital Credit
Maturity Date or the Acquisition Credit Maturity Date as applicable and at a
time which permits the repayment of the amounts outstanding hereunder in
accordance with the terms hereof.
3.13 Payment Generally
All payments to be made hereunder shall be made to National Bank and the
Agent without set-off or counterclaim at the branch of National Bank where the
accounts referred to in Section 5.03 are maintained or to such location as
National Bank or the Agent may specify from time to time by notice given in
accordance with Section 12.05. All such payments received at such branch or
other location after 11:00 a.m. Toronto time on any particular date shall be
deemed to have been made on the next following Business Day. If any payment is
due hereunder on a day which is not a Business Day, such payment shall be due on
the first Business Day following the date on which it would otherwise have been
due, and interest shall accrue to such Business Day.
3.14 National Bank's and Agent's Records
National Bank's and the Agent's records from time to time as to the amount
owing from time to time by the Borrower shall be prima facie evidence thereof,
and none of National Bank, the Agent or any Lender need obtain or maintain any
promissory note in order to evidence any amount owing by the Borrower hereunder.
3.15 Allocation
If an Event of Default shall have occurred and be continuing unremedied by
the Borrower and not waived by National Bank and the Agent, National Bank, the
Agent and the Lenders may allocate and apply payments received from the Borrower
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or from any other Person or from the Security or any of it on account of any
part of the outstanding indebtedness and liability of the Borrower hereunder or
under any other Document in such order and against such amounts owing as
National Bank and the Agent may in their sole discretion determine.
ARTICLE FOUR
GENERAL PROVISIONS RELATING TO BANKERS' ACCEPTANCES
4.01 Bankers' Acceptances
(1) Each draft tendered by the Borrower for acceptance under any Credit shall
be denominated in Canadian dollars, shall be payable in Canada, and shall have a
term of 30, 60 or 90 days. Notwithstanding any other provision herein to the
contrary, neither National Bank nor any Lender shall have any obligation to
accept any draft having a term which expires subsequent to the Working Capital
Credit Maturity Date or the Acquisition Credit Maturity Date as applicable or
subsequent to any other relevant date or contrary to any condition or other
agreement herein.
(2) Upon presentation of a draft for acceptance, the Borrower shall pay to
National Bank, or to the Agent for the account of the relevant Lender, a
stamping fee in Canadian dollars, calculated as provided in Section 3.02.
(3) The Borrower shall provide for each accepted draft at its maturity (without
any days of grace) at National Bank's main branch in Toronto, either by payment
of the full principal amount thereof or through utilization of the applicable
Credit in accordance with this Agreement or through a combination thereof. In
particular, but without limitation, for purposes of determining the amount
available under any Credit at any time, the face amount of each Bankers'
Acceptance shall be utilized, and the Borrower may not at any time request that
any Bankers' Acceptance be issued (whether by way of a borrowing, rollover or
conversion) if the face amount of such requested Bankers' Acceptance together
with the aggregate outstanding principal amount under the applicable Credit
(including the undrawn amounts of all then outstanding Letters of Credit and the
face amount of all then outstanding Bankers' Acceptances) would exceed the
Working Capital Credit Limit or the aggregate Acquisition Credit Commitments (as
applicable) as set out in Section 2.01 and Section 2.02. Any amount owing by the
Borrower in respect of any Bankers' Acceptance which is not paid or provided for
in accordance with the foregoing shall be deemed to be a Canadian Prime Rate
Loan owing by the Borrower and shall be subject to all of the provisions of this
Agreement applicable to a Canadian Prime Rate Loan (until the same is converted
to another type of Accommodation pursuant to the provisions hereof), including,
without limitation, Section 3.01 pertaining to the payment of interest, from and
after the date of maturity of such Bankers' Acceptance.
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(4) If an Event of Default shall have occurred and be continuing unremedied
by the Borrower and not waived by National Bank and the Agent (whether or not
demand is made), the Borrower shall forthwith pay to National Bank and the Agent
an amount equal to National Bank's and the Lenders' (respectively) maximum
potential liability under all outstanding Bankers' Acceptances. Such amount
shall be held by National Bank and the Lenders for set-off against the
indebtedness and liability of the Borrower in respect of such Bankers'
Acceptances.
(5) To facilitate the acceptance of Bankers' Acceptances as contemplated
hereby, the Borrower shall, on or prior to the Initial Drawdown Date and from
time to time thereafter as requested by National Bank or the Agent, provide
National Bank and each Lender with drafts duly endorsed in blank by the Borrower
in quantities sufficient so as to allow National Bank and each Lender to accept
Bankers' Acceptances as contemplated hereby. In case any authorized signatory of
the Borrower whose signature shall appear on any draft shall cease to have such
authority before the issuance of and acceptance with respect to such draft, such
signature shall nevertheless be valid and sufficient for all purposes as if such
authority had remained in force at the time of such issuance. National Bank, the
Agent and the Lenders shall be responsible for any failure to accept a Bankers'
Acceptance as required hereunder if the cause of such failure is, in whole or in
part, due to the failure of the Borrower to comply with the foregoing on a
timely basis.
ARTICLE FIVE
REPAYMENT AND ACCOUNTS 5.01 Repayment of Working Capital Accommodations
Subject to Article Nine, all Working Capital Accommodations, all unpaid
interest thereon and all other amounts owing to National Bank under or in
respect of the Working Capital Credit not otherwise due and payable before the
Working Capital Maturity Date shall become due and be paid to National Bank on
the Working Capital Maturity Date.
5.02 Repayment of Acquisition Accommodations
Subject to Article Nine, each Acquisition Accommodation (other than
Letters of Credit) shall be repaid to the Agent in quarterly instalments of
principal made at the end of each calendar quarter, commencing in each case 61
days after the 30th of April next following the original extension thereof.
Such instalments (except for the last in each case) in respect of each
Acquisition Accommodation shall be in substantially equal amounts calculated to
fully amortize the principal amount of such Accommodation assuming 24 equal
quarterly payments with the last and final instalment occurring on the
Acquisition Credit Maturity Date and being in the amount
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of the then outstanding principal balance thereof. All accrued and unpaid
interest and all other amounts owing under or in respect of the Acquisition
Credit not otherwise due and payable before the Acquisition Credit Maturity Date
shall become due and be paid to the Agent on the Acquisition Credit Maturity
Date.
5.03 Repayment of Accommodations Generally
Subject to Articles Nine and Ten, unpaid principal amounts of the
Accommodations:
(a) may be repaid and reborrowed by the Borrower from time to time, so
long as the maximum available amounts set out herein are not exceeded
and subject to the other provisions hereof regarding prepayments,
borrowings and reborrowing; and
(b) shall be repaid forthwith, without the need for any notice, request or
demand by or on behalf of National Bank, the Agent or any Lender to
the extent that the outstanding principal obligations under any Credit
exceed the maximum aggregate principal amount which may be utilized
and outstanding in respect of such Credit pursuant to this Agreement.
5.04 Prepayments
The Borrower may prepay any Canadian Prime Rate Loan without bonus or
penalty on not less than three Business Days' prior written notice to National
Bank or the Agent as applicable. The amount of any such prepayment shall,
except as National Bank or the Agent as applicable may otherwise agree, not be
less than $500,000 and in integral multiples of $100,000 unless the then
outstanding principal amount of such loan shall be less than $500,000, in which
case such amount shall be such full amount outstanding. Once given, any such
notice shall
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be irrevocable and binding upon the Borrower. The Agent shall promptly notify
each Lender of the amount of any proposed prepayment and the portion applicable
to it. Any such prepayment shall be applied to required repayments in inverse
order of maturity and shall not otherwise change the amount or timing of any
repayment required. At its option, the Borrower may from time to time
permanently reduce the then applicable amount under Section 1.01(ba)(i) upon not
less than 15 Business Days prior written notice to National Bank and upon
payment to National Bank of the amount, if any, necessary to reduce the Canadian
Prime Rate Loans then outstanding under the Working Capital Credit to an amount
such that outstanding Working Capital Accommodations do not exceed such reduced
amount. Amounts specified to be paid in such notice, together with accrued
interest on such amounts, shall be due and payable on the date specified
therein.
5.05 Maintenance of Accounts
Provided that the fees and charges of National Bank in respect of such
accounts are reasonably competitive with those of other major banks in respect
of similar accounts, the Borrower shall, and shall cause all of the Guarantors
to, hold all deposit and collection accounts within Canada and the United States
of America with National Bank, in the case of accounts in Canada, at its main
branch in Toronto, into which the proceeds of any Accommodation made available
to the Borrower and receipts in the ordinary course of business shall, unless
otherwise agreed to by the Borrower and National Bank, be deposited as
appropriate. Under no circumstances shall the Borrower suffer or permit any of
the aforesaid accounts in the aggregate to be overdrawn or otherwise fall into
debit or negative balance.
ARTICLE SIX
SECURITY
6.01 Security
As security for all present and future indebtedness, liability and
obligations of the Borrower under or in respect of this Agreement and each of
the other Documents, the Borrower shall cause to be executed and delivered to
National Bank and the Agent, in form and substance satisfactory thereto, the
following (collectively, the "Security"):
(a) guarantees by each of the Guarantors of all present and future
indebtedness of the Borrower to National Bank and to the Agent and the
Lenders under or in respect of this Agreement and each of the other
Documents; and
(b) the RailTex Guarantee.
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ARTICLE SEVEN
REPRESENTATIONS AND WARRANTIES
7.01 The Borrower represents and warrants to National Bank, the Agent and
each of the Lenders and shall be deemed to so represent and warrant on each day
on which any Accommodation is made or any rollover or conversion of any
Accommodation is made, as follows:
(a) it and each of the Guarantors has been duly incorporated and is
validly subsisting as a corporation under the laws of its jurisdiction
of incorporation, is duly qualified to carry on its business in each
jurisdiction in which it carries on business and has the power and
authority to enter into and perform its obligations under each
Document to which it is a party, to own and operate its business as
contemplated herein and to carry on its business as currently
conducted;
(b) the Borrower carries on no business other than the holding of shares
of each Guarantor, and inter company business with RailTex and each of
the Guarantors. Each Guarantor has obtained all material licences,
permits and approvals from all governments, governmental commissions,
boards and other agencies required in respect of its operations and is
not in violation of any material law or regulation applicable to it
(including those relating to environmental matters).
(c) the execution, delivery and performance by it and each of the
Guarantors of each Document to which it is a party has been duly
authorized by all requisite corporate action and each such Document
has been duly executed and delivered and constitutes a legal, valid
and binding obligation enforceable in accordance with its terms,
subject to (i) the extent that enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, and (ii) the
extent that equitable principles may limit the availability of certain
remedies including, but not limited to, the remedies of specific
performance and injunctive relief, which equitable remedies may in any
event only be granted in the discretion of a court;
(d) except as described in Schedule D hereto there are no actions, suits
or proceedings (including without limitation those relating to
environmental matters) pending or, to its knowledge threatened,
against or affecting the Borrower or any of the Guarantors at law or
in equity or before or by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind
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which in the aggregate exceed $200,000 in claims, and it is not aware
of any existing grounds on which any such actions, suits or
proceedings might be commenced with any reasonable likelihood of
success; and neither the Borrower nor or any of the Guarantors is in
default with respect to any judgment, order, writ, injunction, decree,
award, rule or regulation of any court, arbitrator or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which default could have a material adverse
effect on the business, assets or prospects of the Borrower or the
applicable Guarantor;
(e) neither the Borrower nor any of the Guarantors is a party to any
agreement or instrument or subject to any judgment, order, writ,
injunction, or to the knowledge of the Borrower, any decree,
restriction, award, rule or regulation, which adversely affects, or in
the future may adversely affect, the ability of the Borrower to
perform its obligations under the Documents or its business,
operations, properties, assets or condition, financial or otherwise;
(f) neither the Borrower nor any of the Guarantors is in default under any
guarantee, bond, debenture, note or other instrument evidencing any
indebtedness or under the terms of any instrument pursuant to which
any of the foregoing has been issued or made and delivered, or under
the terms of any other material agreement and there exists no state of
facts which after notice or lapse of time or both or otherwise would
constitute such a default;
(g) the Borrower and each of the Guarantors has furnished National Bank
and the Agent with its most recent annual and quarterly financial
statements; all such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during such period,
except as stated therein or in the notes thereto; and the balance
sheets as therein contained present accurately the financial position
of the respective Guarantors as at the date thereof; and the
statements of profit and loss as therein contained present accurately
the results of the respective Guarantors' operations for the periods
indicated;
(h) since the date of the financial statements referred to in the
preceding paragraph, (i) there has been no material adverse change in
the financial condition of the any of the Guarantors as shown on its
balance sheet as at that date, except as disclosed to National Bank
and the Agent in writing, and (ii) the business, operations and assets
of the Guarantors have not been materially adversely affected as a
result of any act or event including, without limitation, fire,
explosion, casualty, flood, drought,
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riot, storm, condemnation, act of God, accident, labour trouble,
expropriation or act of any government;
(i) neither the financial statements referred to above nor any other
statement or report furnished to National Bank or the Agent by or on
behalf of the Borrower or any of the Guarantors in connection with the
negotiation of this Agreement or any of the other Documents or any of
the transactions contemplated herein contain, as at the time such
statements were furnished, any untrue statement of a material fact or
any omission of a material fact necessary to make the statements
contained therein not misleading, and all such statements and reports,
taken as a whole together with this Agreement and the other Documents,
do not contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained herein or
therein not misleading;
(j) there is no fact which the Borrower and the Guarantors have not
disclosed to National Bank and the Agent in writing which materially
adversely affects, or, so far as can now be reasonably foreseen, will
materially adversely affect, the assets, liabilities, affairs,
business, prospects, operations or condition, financial or otherwise,
of the Borrower or any of the Guarantors or their ability to perform
their obligations under any of the Documents;
(k) neither the execution or delivery of any of the Documents, the
consummation of any of the transactions therein contemplated, nor
compliance with any of the terms, conditions and provisions thereof,
conflicts with or will conflict with, or results or will result in any
breach of, or constitutes a default under, any of the provisions of
the articles or by-laws of the Borrower or any of the Guarantors or
any provisions of any agreements or instruments to which the Borrower
or any of the Guarantors is a party or by which the Borrower or any of
the Guarantors or any of their property and assets are bound, or
results or will result in the creation or imposition of any Lien upon
any of their properties or assets (other than the Liens constituted by
the Security) or in the contravention of any applicable law, rule or
regulation of any jurisdiction applicable to any of them or to any of
their property or assets, or will cause the repayment of any
governmental assistance heretofore received or to be received in the
future;
(l) the Borrower and each of the Guarantors have good and marketable title
to all of their respective assets, property and undertaking free from
all Liens other than Permitted Encumbrances;
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(m) no event has occurred which constitutes a Default or an Event of
Default; and
(n) the Borrower is the registered and beneficial owner of all shares in
the capital of GERC and 9,995 common shares in the capital of CBNS.
ARTICLE EIGHT
COVENANTS
8.01 Affirmative Covenants
The Borrower covenants and agrees with National Bank, the Agent and
each Lender that, so long as this Agreement is in effect, it will:
(a) pay all amounts due and owing hereunder as and when required hereunder
and comply with and perform, and cause each Guarantor to comply with
and perform all its covenants or other obligations contained herein or
in any Document in accordance with the terms and conditions of this
Agreement and the other Documents;
(b) cause each of the Guarantors to maintain insurance of such types, in
such amounts and against such risks as is customary in the case of
companies engaged in a similar business with insurers and in form,
substance, amount and type satisfactory to National Bank and the
Agent, acting reasonably, from time to time. All such policies shall
be non-cancellable without 30 days prior written notice to National
Bank and the Agent.
The Borrower shall, on request, provide certificates of insurance with
respect to the above-mentioned insurance policies to National Bank and
the Agent, in form and substance satisfactory to them, acting
reasonably, and provide or cause to be provided to them, on request,
evidence of the payment of all insurance premiums when due. The
Borrower shall promptly give written notice to National Bank and the
Agent of any occurrence which results in notice to or submission of a
claim to any insurers of any Guarantor;
(c) pay or cause to be paid all taxes, government fees and dues levied,
assessed or imposed upon the Borrower or any Guarantor or their
respective property or any part thereof, and all other indebtedness,
liabilities and obligations of the Borrower and each of the
Guarantors, as and when the same become due and payable, save and
except for any such taxes, government fees, dues and indebtedness
which are being
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contested by or on behalf of the Borrower or the relevant Guarantor in
good faith and by appropriate proceedings and for which the Borrower
or the relevant Guarantor has set aside reserves or contingency funds
satisfactory to National Bank and the Agent, acting reasonably;
(d) deliver or cause to be delivered to National Bank and the Agent such
information relating to the conduct of the business and affairs or the
financial position of the Borrower, RailTex and each of the Guarantors
as National Bank or the Agent may request from time to time, including
without limitation, the following in form satisfactory to National
Bank and the Agent:
(i) monthly, within 45 days after the end of each month, financial
statements prepared by each of the Borrower, RailTex and each of
the Guarantors respectively in respect of such month;
(ii) annually, within 120 days after each fiscal year end, (A)
unaudited, consolidated and consolidating financial statements
(including balance sheets and statements of profit and loss and
changes in financial position) of the Borrower and each of the
Guarantors for such fiscal year; (B) audited, consolidated
financial statements (including balance sheet and statement of
income and loss and changes in financial position) of RailTex for
such fiscal year, together with the opinion thereon of
independent certified public accountants satisfactory to National
Bank and the Agent acting reasonably; and (C) a copy of the
financial projections for the Borrower and each of the Guarantors
on a quarterly basis during the then current fiscal year,
including without limitation, income statements, balance sheets,
sources and uses statements and capital expenditure budgets, such
projections to be accompanied by a certificate of the chief
financial officer of the Borrower to the effect that such
projections have been prepared on the basis of sound financial
planning practice and setting forth the principal assumptions
upon which such projections are based;
(e) maintain and cause each of the Guarantors to maintain, all such
records in connection with its business or affairs as may be desirable
in accordance with prudent business practice, and make all such
records available for inspection at its premises, to National Bank and
the Agent from time to time as reasonably requested, provided that, so
long as there is no Default or Event of Default then continuing, such
inspection shall not unduly interfere with the carrying on by the
Borrower or such Guarantors of its business or affairs in the ordinary
course;
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(f) forthwith notify in writing National Bank and the Agent of the
occurrence of any Default or Event of Default;
(g) as soon as available, but in any event within 45 days after the end of
each month during the term hereof, deliver or cause to be delivered to
National Bank and the Agent a Borrowing Base Certificate and an EBITDA
Certificate, certified by the chief financial officer of the Borrower,
and a certificate (a "COMPLIANCE CERTIFICATE") of the chief financial
officer of the Borrower, RailTex and each Guarantor for such month
stating that a review of the activities of the Borrower, RailTex and
each Guarantor during the period covered by such certificate has been
made under his or her supervision with a view to determining whether
the Borrower, RailTex and each Guarantor has kept, observed, performed
and fulfilled all of its obligations under this Agreement, the other
Documents and the RailTex Credit Agreement, and that, to the best of
his or her knowledge, during such period, it has kept, observed,
performed and fulfilled each and every covenant applicable to it in
this Agreement, the other Documents and the RailTex Credit Agreement,
and is not at the time in default under any of the same, or if it
shall have been or shall be in default, specifying the same; and
(h) deliver or cause to be delivered to National Bank and the Agent,
forthwith upon the filing or receipt of same, a copy of any material
filings pertaining to the Borrower or any Guarantor, or any properties
or assets thereof, with the National Transportation Agency of Canada.
8.02 Negative Covenants
The Borrower covenants and agrees with National Bank, the Agent and
the Lenders that it will not (and will not permit the Guarantors to) without the
prior written consent of National Bank and the Agent, which consent shall not be
unreasonably withheld:
(a) consolidate, amalgamate or merge with any other entity or enter into
any other corporate reorganization or change its name or fiscal year
end;
(b) declare or pay any dividend (other than dividends payable solely in
shares) or make any other distribution or payment on account of, or
purchase, acquire, retire or redeem any of its shares (whether now
owned or hereafter outstanding), repay principal or pay interest on
any loan or advance from any affiliate or related party, make any loan
or advance, or make any other payment (except for reasonable
management, administrative and overhead reimbursement payments by a
Guarantor or the Borrower to RailTex on a basis consistent with now
existing practices) to any affiliate or related party until such time
(the "BASE DATE") as the
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Borrower has, on a consolidated basis, a ratio of Funded Debt on the
last day of the month to EBITDA for the preceding 12 months of 4.50 to
1.0 or less; thereafter the Borrower and the Guarantor may do any or
all of the foregoing to the extent of an aggregate amount not
exceeding 25% of the Borrower's consolidated Net Income on a
cumulative basis from the Base Date, provided that such action does
not result in a Default or Event of Default hereunder; Borrower shall,
from and after the Base Date, maintain the said ratio at the said
level of 4.50 to 1.0 or less;
(c) create, incur, assume or permit to exist any indebtedness or
liabilities (including without limitation guarantee liabilities) other
than Permitted Indebtedness;
(d) create any subsidiary or invest in or hold the shares of any
corporation unless such corporation is a Guarantor formed for the
purpose of acquiring shortline railroad assets in Canada using the
proceeds of an Acquisition Accommodation borrowed from the Borrower;
(e) create or permit to exist any Lien on any of its assets, property or
undertaking other than Permitted Encumbrances or sell, transfer,
assign, lease or otherwise dispose of any of its property or assets
except in the ordinary course of business; provided that each of the
Guarantors may sell out of the ordinary course of its business to non
arms-length parties at fair market value assets not used in its
business operations having a fair market value not exceeding $250,000
in the aggregate during any one fiscal year, to an aggregate maximum
of $500,000 in the case of each Guarantor;
(f) issue or purchase any shares in the capital of any Guarantor; or
(g) request, use or permit any Accommodation to be used for any purpose
other than those set forth in Section 2.04.
8.03 RailTex Credit Agreement Covenants
The Borrower acknowledges that National Bank, the Lenders and the
Agent are relying on the covenants and agreements of RailTex in the RailTex
Credit Agreement as they relate to the Borrower as a Subsidiary of RailTex. The
Borrower hereby agrees that, except to the extent they conflict with any
covenant or agreement in this Agreement, such covenants and agreements shall, in
the event the RailTex Credit Agreement is at any time not in effect, continue
mutatis mutandis for the benefit of National Bank, the Lenders and the Agent as
if made by the Borrower directly in their favour.
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ARTICLE NINE
EVENTS OF DEFAULT
9.01 Events of Default
Each of the following events shall constitute an Event of Default
hereunder:
(a) Default in Principal - If the Borrower or any Guarantor or RailTex
shall fail to pay any amount due and owing hereunder or under any
other Document within 5 days after the due date thereof;
(b) Other Defaults - If the Borrower or any Guarantor defaults in the
observance or performance of any covenant or other obligation
contained herein or in any other Document and such default shall
continue for a period of 10 days or more from the date such observance
or performance was due (except with respect to the failure to observe
or perform the covenants covered by Section 9.01(a) above, or any of
the covenants in Sections 2.04, 8.01(b), (f) and (g) and Section 8.02
hereof, as to which there shall be no grace period);
(c) Defaults Under Other Borrowings - If any present or future
indebtedness of the Borrower or any Guarantor for borrowed money (i)
becomes due and payable prior to its stated maturity by reason of the
occurrence of default thereunder, or (ii) is not paid when demanded or
due or within any applicable grace period originally provided therefor
or reasonable period of time for demand loan repayments (as may be
applicable), or if any Guarantor defaults in payment of any amount
owing to the Borrower;
(d) Representations and Warranties - If any representation, warranty or
statement made in this Agreement or any other Document, or any
certificate or other instrument delivered pursuant to this Agreement
or any other Document, is untrue or incorrect in any material respect
when made or deemed to be made;
(e) Insolvency - If an Event of Insolvency occurs in respect of the
Borrower or any Guarantor;
(f) Encumbrancers - If an encumbrancer takes possession of any property or
assets of the Borrower or any Guarantor, or if a distress or execution
or any similar process is levied or enforced against any property or
assets of the Borrower or any Guarantor and remains unsatisfied for
such period as would permit such property, assets or any part thereof
to be sold thereunder, provided that such possession or process has
not been stayed
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and is not being contested in good faith by the Borrower or the
Guarantor or is not effectively set aside within 10 days;
(g) Cease to carry on Business, etc. - If the Borrower or any Guarantor
ceases or threatens to cease to carry on in the ordinary course its
business or a substantial part thereof;
(h) RailTex Credit Agreement - If an Event of Default (as defined in the
RailTex Credit Agreement) occurs and is continuing and has not been
waived in accordance with the provisions of the RailTex Credit
Agreement; and
(i) Qualified Auditor's Report - If any report of or opinion by the
auditors of the Borrower or any Guarantor in respect of any financial
statements of the Borrower or any Guarantor contains any qualification
which, in the reasonable opinion of National Bank or the Agent,
relates to a matter which materially adversely affects the
creditworthiness of the Borrower or such Guarantor as the case may be.
9.02 Acceleration
If any one or more of the Events of Default has occurred and provided
any such Event of Default is continuing, all indebtedness and liability of the
Borrower hereunder or in connection herewith shall, at the option of National
Bank and the Agent (except upon the occurrence of an Event of Default described
in Section 9.01(e), in which case acceleration of such indebtedness and
liabilities shall occur automatically), immediately become due and payable
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived by the Borrower, and any collateral and securities,
including the Security, shall thereupon become enforceable by National Bank or
its duly authorized agent, by the Agent and by each of the Lenders.
9.03 Remedies Cumulative
The rights and remedies of National Bank, the Agent and the Lenders
hereunder are cumulative and in addition to and not in substitution for any
rights or remedies provided by law.
9.04 Availability of Accommodation After Default and
Appropriation of Monies Received
When a Default or an Event of Default has occurred, and so long as it
is continuing, the Borrower has no right to any further Accommodation or to any
rollovers or conversions thereunder, except as National Bank and the Agent may
otherwise agree in writing; provided that upon the occurrence of an Event of
Default described in Section 9.01(e), and upon any acceleration under Section
9.02, any
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obligation of the Lenders to make available any Accommodation, or to
permit any rollover or conversion of an Accommodation, shall automatically
terminate.
9.05 Non-Merger
The taking of a judgment or judgments or any other action or dealing
whatsoever in respect of any Security shall not operate as a merger of any
indebtedness or liability of the Borrower or in any way suspend payment or
affect or prejudice the rights, remedies and powers, legal or equitable, which
National Bank, the Agent or any Lender may have in connection with such
liabilities and the surrender, cancellation or any other dealings with any
Security for such liabilities shall not release or affect the liability of the
Borrower hereunder or any Security held.
ARTICLE TEN
CONDITIONS PRECEDENT TO ACCOMMODATION
10.01 Initial Drawdown
The obligation of National Bank and the Lenders to make any
Accommodation available hereunder on the Initial Drawdown Date shall be subject
to each of the following conditions precedent, which conditions precedent are
inserted for the sole and exclusive benefit of National Bank, the Lenders and
the Agent and may be waived by them in writing:
(a) the representations and warranties set out herein shall be true and
correct on the Initial Drawdown Date as if made on such date;
(b) no Default or Event of Default shall have occurred and be continuing
nor shall there be any Default or Event of Default after giving effect
to the proposed utilization of the Accommodation;
(c) the Borrower shall have provided a Notice of Borrowing in accordance
with Section 2.05;
(d) National Bank and the Agent shall have received the following in form
and substance satisfactory to them:
(i) certified copies of the articles and by-laws of the Borrower and
of each Guarantor;
(ii) a certified copy of the resolution of the boards of directors of
the Borrower and each Guarantor authorizing this Agreement and
each
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of the Documents to which the Borrower and each Guarantor is
a party respectively;
(iii) an incumbency certificate, non-restriction certificate and
certificate of status/good standing for the Borrower and each
Guarantor;
(iv) the original Security referred to in Section 6.01, and all
related documents required by National Bank or the Agent;
(v) favourable opinions from counsel acceptable to National Bank and
the Agent addressing, among other things, the enforceability of
this Agreement and each of the other Documents, the results of
searches for Liens and such other matters as National Bank or
the Agent may reasonably require;
(vi) insurance certificates with respect to or certified copies of
all applicable insurance policies, or such other evidence as
National Bank or the Agent may require as to the compliance by
each of the Guarantors with the insurance obligations set out
herein;
(vii) discharges, covenants, confirmations and/or consents in form
acceptable to National Bank and the Agent in respect of all
Liens other than Permitted Encumbrances;
(viii)evidence of the receipt of all necessary approvals of any
regulatory agency or other competent authority relating to the
business and operations of the Guarantors;
(ix) a promissory note in respect of the Accommodation if required by
National Bank or the Agent;
(x) applications and/or indemnity agreements with respect to
Bankers' Acceptances, Letters of Credit, environmental matters
and other matters;
(xi) the most recently completed fiscal year end unaudited
consolidated financial statements of the Borrower, the most
recently completed audited consolidated financial statements of
RailTex, and the most recently completed unaudited interim
financial statements of the Borrower, together with evidence
that no material adverse change shall have occurred in the
financial condition of the Borrower or any Guarantor since the
date of those statements;
(xii) such other documents as National Bank or the Agent may
reasonably request; and
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(e) the amount of the requested Accommodation shall not exceed any
applicable limit hereunder.
10.02 Conditions Precedent to Subsequent Drawdowns Under Credits
The obligation of National Bank and the Lenders to make any
Accommodation available on any Drawdown Date after the Initial Drawdown Date, or
to permit any rollover or conversion of an Accommodation, is subject to each of
the following conditions precedent, which conditions precedent are inserted for
the sole and exclusive benefit of National Bank, the Lenders and the Agent and
may be waived by them in writing:
(a) the representations and warranties set out herein shall be true and
correct on such Drawdown Date or conversion/rollover date (as
applicable) as if made on such date;
(b) no Default or Event of Default shall have occurred and be continuing,
nor shall there be any Default or Event of Default after giving effect
to the proposed utilization of the Credit;
(c) the Borrower shall have provided (as applicable) a Notice of Borrowing
in accordance with Section 2.05 or a Notice of Rollover/Conversion in
accordance with Section 2.07;
(d) National Bank and the Agent shall be satisfied that the outstanding
principal obligations under the applicable Credit will not, after
providing such Accommodation, exceed any applicable limit hereunder;
and
(e) all conditions precedent described in Section 10.01 shall have been
met, including without limitation those relating to the proposed
Accommodation and the proposed Guarantor.
10.03 Drawdowns Under the Acquisition Credit
The obligations of the Lenders to make any Accommodation available on
any Drawdown Date under the Acquisition Credit is subject to each of the
following conditions precedent, which conditions precedent are in addition to
all of the foregoing conditions precedent, are inserted for the sole and
exclusive benefit of the Lenders and the Agent and may be waived by them in
writing:
(a) the proceeds of each such Accommodation may be used only to finance
(or refinance in the case of a locomotive and/or railcars), in one advance, up
to the respective Lender's Commitment Percentage of 100% of the cost, including
Eligible Acquisition Costs, of subsequent shortline railroad acquisitions or
acquisitions of locomotives and/or railcars by the Borrower or one of the
Guarantors;
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(b) no such Accommodation shall be available or used for costs and expenses
related to rail lines and/or locomotives and/or railcars leased by the
Borrower or any Guarantor (provided however that locomotives and/or
railcars purchased or refinanced by the Borrower with the proceeds of such
an Accommodation may subsequently be leased by the Borrower to one or more
of the Guarantors);
(c) the Borrower shall have delivered to the Agent evidence satisfactory to the
Agent that each shortline railroad to be acquired by the Borrower or one of
the Guarantors with such proceeds shall meet all of the criteria listed on
Schedule "E" hereto;
(d) no litigation, investigation or proceeding before or by any arbitrator or
Governmental Authority shall be continuing or threatened against the
shortline railroad to be acquired or any of its Subsidiaries or any of the
officers or directors of any thereof;
(e) the Agent shall have received each additional document, instrument, legal
opinion or item of information reasonably requested by the Agent and the
Lenders including, without limitation, the following, each in form and
substance satisfactory to the Agent and the Lenders:
(i) a promissory note in respect of the Accommodation, if requested;
(ii) opinions of counsel;
(iii) upon the request of any Lender, copies of all acquisition documents;
(iv) corporate resolutions, charter documents and by-laws certified by the
president or any vice-president and the secretary or any assistant
secretary of the Borrower or the Guarantor making the acquisition, as
applicable, together with certificates of good standing, existence
and authority to do business;
(v) if the acquisition is being made by newly formed Guarantor, the
Guarantor shall have complied with all requirements imposed on new
Guarantors in the covenants set forth herein, and shall have provided
its guarantees, an environmental indemnity and all related
documentation in form and substance satisfactory to National Bank,
the Agent and the Lenders;
(vi) the results of any searches required by the Agent or any Lender;
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(vii) the pro forma consolidated balance sheets of the Borrower and
its Subsidiaries, at the date of such Accommodation (after
giving effect to the acquisition and the transactions
contemplated by this Agreement and the other Documents),
prepared in accordance with GAAP on a basis consistent with the
financial statements previously delivered to the Agent and the
Lenders and certified by the chief financial officer of the
Borrower; and
(f) all corporate and other proceedings, and all documents, instruments
and other legal matters in connection with each acquisition shall be
satisfactory in form and substance to the Agent and the Lenders and
the Agent shall have received such other Documents, legal opinions
and other opinions in respect of any aspect or consequence of the
transactions contemplated hereby as it and the Lenders shall
reasonably request.
10.04 Income Tax Notice
In addition to the foregoing conditions precedent, if National Bank,
the Agent or any Lender receives a notice under Section 224(1.1) (or any
successor section) of the Income Tax Act (Canada) with respect to the Borrower,
then so long as such notice is effective neither National Bank nor any Lender
shall be obligated to provide any Accommodation.
ARTICLE ELEVEN
THE AGENT AND THE LENDERS
11.01 Authorization and Action
Each Lender hereby appoints and authorizes the Agent to take such
action as Agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Agent by the terms hereof, together with such powers as
are reasonably incidental thereto. As to any matters not expressly provided for
by this Agreement, the Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Lenders provided, however, that the Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or applicable law. Neither the Borrower nor
any other Person shall be concerned to inquire whether the powers which the
Agent is purporting to exercise have become exercisable or otherwise as to the
propriety or regularity of any other action on the part of the Agent hereunder,
the exercise of such power or the taking of such action by the Agent
constituting per se conclusive and binding evidence as to the Agent's authority
to exercise such power or take such action on behalf of the Lenders.
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11.02 Duties and Obligations
Notwithstanding any provision to the contrary contained elsewhere in
this Agreement or in any other Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liability shall be read into this
Agreement or any other Document or otherwise exist against the Agent. Neither
the Agent nor any of its directors, officers, agents or employees shall be
liable to the Lenders for any action taken or omitted to be taken by it or them
under or in connection with this Agreement except for its or their own gross
negligence or wilful misconduct. Without limiting the generality of the
foregoing, the Agent (a) may treat any Lender as the payee of amounts
attributable to such Lender hereunder unless and until the Agent receives
written notice of the assignment thereof signed by such Lender and the Agent
receives the written agreement of the assignee that such assignee is bound
hereby as if it had been an original Lender party hereto, in each case in form
satisfactory to the Agent, (b) may consult with legal counsel (including counsel
for the Borrower), independent public accountants and other experts selected by
it and shall not be liable to the Lenders for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, and (c) shall incur no liability under or in respect of
this Agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telegram, cable or telex) believed by it
to be genuine and signed or sent by the proper party or parties or by acting
upon any representation or warranty of the Borrower made or deemed to be made
hereunder. Further, the Agent (i) does not make any warranty or representation
to any Lender and shall not be responsible to any Lender for the accuracy or
completeness of the documents, information or financial data made available to
the Lenders in connection with the negotiation of this Agreement, or for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement, (ii) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement or any of the other Documents on the part of the
Borrower or to inspect the property (including the books and records) of the
Borrower or any of its Subsidiaries, and (iii) shall not be responsible to any
Lender for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, the Security or any other Document or
any instrument or document furnished pursuant hereto or thereto. The Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Document unless it shall first receive such advice or
concurrence of the Majority Lenders as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this Agreement
or any other Document in accordance with a request or consent of the Majority
Lenders and such request and any action taken or failure to
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act pursuant thereto shall be binding upon all the Lenders and all their
successors and assigns.
11.03 National Bank as Lender
With respect to its commitments to provide credit facilities hereunder
and the advances and other credit facilities made and to be made available by
it, National Bank, which is also a Lender, shall have the same rights and powers
under this Agreement as any other Lender and may exercise the same as though it
were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include National Bank in its capacity as Lender. National
Bank may accept deposits from, lend money to and generally engage in any kind of
business with the Borrower and its affiliates, or any corporation or other
entity owned or controlled by the Borrower or any of its affiliates, or any
corporation or other entity owned or controlled by the Borrower and any Person
which may do business with the Borrower or any of its affiliates, all as if
National Bank were not the Agent hereunder and without any duty to account
therefor to the Lenders, provided, however, that nothing in this Section 11.03
shall affect in any manner whatsoever any covenant or other obligation on the
part of the Borrower to be observed or performed under this Agreement.
11.04 Lender Credit Decision
It is understood and agreed by each Lender that it has itself been,
and will continue to be, solely responsible for making its own independent
appraisal of and investigations into the financial condition, creditworthiness,
condition, affairs, status, and nature of the Borrower, each of its Subsidiaries
and their respective affiliates. Accordingly, each Lender confirms to the Agent
and each other Lender that it has not relied, and will not hereafter rely, on
the Agent or any other Lender (a) to check or inquire on its behalf into the
adequacy, accuracy or completeness of any information provided by the Borrower
under or in connection with this Agreement or the transactions herein
contemplated (whether or not such information has been or is hereafter
distributed to such Lender by the Agent), or (b) to assess or keep under review
on its behalf the financial condition, creditworthiness, condition, affairs,
status or nature of the Borrower or any of its Subsidiaries or affiliates.
11.05 Indemnifications
The Lenders agree to indemnify the Agent, each affiliate thereof, and
each director, officer, and employee of the Agent and of each such affiliate (to
the extent not reimbursed by the Borrower), ratably according to their
respective Credit Commitments in relation to the aggregate of all Credit
Commitments, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent or any such affiliate, director, officer or employee
in any way relating to or arising out of this Agreement or any other Document or
any action taken or omitted by the Agent or any such affiliate, director,
officer or employee under this Agreement or any other
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Document, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or wilful
misconduct of the Agent or of any such affiliate, director, officer or employee.
Without limiting the generality of the foregoing, each Lender agrees to
reimburse the Agent and each such affiliate, director, officer or employee
promptly upon demand for its share (determined ratably as aforesaid) of any out-
of-pocket expenses (including counsel fees) incurred by it or them in connection
with the preservation of any rights of the Agent or the Lenders under, or the
enforcement of, or legal advice in respect of rights or responsibilities under,
this Agreement or any other Document, to the extent that the Agent or such
affiliate, director, officer or employee is not reimbursed for such expenses by
the Borrower.
11.06 Successor Agent
The Agent may, as hereinafter provided, resign at any time by giving
written notice thereof to the Lenders and the Borrower and may be removed at any
time with or without cause by the Majority Lenders. Upon any such resignation
or removal, the Majority Lenders, after consultation with the Borrower, shall
have the right to appoint a successor Agent who shall be a Lender or one of the
chartered banks of Canada reasonably acceptable to the Borrower. If no
successor Agent shall have been so appointed by the Majority Lenders and shall
have accepted such appointment within 30 days after the retiring Agent's giving
of notice of resignation or the Majority Lenders' removal of the retiring Agent
then the retiring Agent may, on behalf of the Majority Lenders, appoint a
successor Agent, which shall be one of the chartered banks of Canada. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from any further duties and obligations under this
Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article Eleven shall enure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement.
11.07 Sub-Agent or Co-Agent
At any time or times, in order to comply with any legal requirement in
any province, state or other jurisdiction, or to facilitate the taking by the
Agent of any action provided for in any Document, the Agent may appoint one or
more trust companies, chartered banks or other Persons (any of whom may, but
need not be, a Lender) to act either as co-agent or sub-agent, jointly with the
Agent or as a separate agent or agents on behalf of the Lenders, with such power
and authority as the Agent deems necessary for the effective operation of the
provisions of any Document. In the discretion of the Agent, any instrument or
agreement appointing any such co-agent or sub-agent may include
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provisions for the protection of such co-agent or sub-agent similar to but no
broader than the provisions of this Article Eleven. Upon the appointment of any
such co-agent or sub-agent by the Agent, all references in this Agreement to the
Agent shall thereafter be construed as references to such co-agent or sub-agent
to the extent necessary in order to give effect to its powers, authority and
obligations.
11.08 Assignment of Security
Upon the resignation or removal of the Agent pursuant to Section 11.06
or upon the appointment by the Agent of a sub-agent or co-agent to hold any
Security, the Agent shall assign and transfer to the successor Agent, sub-agent
or co-agent, as the case may be, all of its right, title and interest in and to
the Security. The successor Agent, sub-agent or co-agent, as the case may be,
shall ensure that all required notices, registrations and filings in connection
with such assignment are given or made, as the case may be. In the event that
the Borrower has requested or otherwise initiated the resignation or removal of
the Agent or the appointment of a sub-agent or co-agent, the Borrower shall
reimburse the successor Agent, sub-agent or co-agent, as the case may be, for
and in respect of all of its reasonable costs and expenses in connection
therewith.
11.09 Payments from Borrower
The Agent shall distribute any payments received for the benefit of or
the account of the Lenders generally in respect of the Acquisition Credit, in
like funds as received, on a timely basis pro rata to each Lender in accordance
with such Lender's Commitment Percentage of such payment, whether for principal,
interest, fees or other amounts.
11.10 Payments by the Lenders to the Agent
(1) Each Lender shall make available to the Agent not later than 12:00 noon on
each requested Drawdown Date in immediately available funds for the account
of the Borrower the amount represented by its Commitment Percentage of any
Acquisition Accommodation. Notwithstanding the foregoing, the Agent shall
be entitled to assume that each Lender has made available to the Agent on
each Drawdown Date the proceeds of any Acquisition Accommodation to be made
available by such Lender on such Drawdown Date, and the Agent may (but
shall not be obliged to), in reliance upon such assumption, make available
to the Borrower a corresponding amount. If such proceeds are in fact made
available by a Lender to the Agent on a date after such Drawdown Date, then
interest shall accrue on such amount at the rate then applicable to
Canadian Prime Rate Loans from and including such Drawdown Date to but not
including the date such amount is actually received by the Agent, payable
upon demand to the Agent by such Lender. If such proceeds are not in fact
made available by such Lender to the Agent after such Drawdown Date, the
Agent shall be entitled to recover from the Borrower, on demand, the amount
thereof together with interest thereon at the rate per annum then
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applicable to such proceeds hereunder, and the Borrower shall be entitled
to recover from the failing Lender, on demand, the same amount.
(2) The failure of any Lender to make any Accommodation available on any
date required shall not relieve any other Lender of its obligation, if any,
hereunder to make an Accommodation available on such date pursuant to the
provisions contained herein.
11.11 Allocation of Payments
All payments received hereunder before the occurrence of an Event of
Default shall be applied as designated by the Borrower, provided that all
payments in respect of Acquisition Accommodations (whether for principal,
interest, fees or otherwise) shall be distributed to each Lender pro rata based
on such Lender's Commitment Percentage. Notwithstanding any other provision
hereof, upon and following the occurrence of an Event of Default, and so long as
it shall continue, all payments received from the Borrower, any Guarantor,
RailTex, or otherwise, with respect to any Credit or with respect to any net
amount owing on early termination of any Treasury Agreement shall be distributed
to each Lender pro rata based on (a) the principal amount of Accommodations then
owing to such Lender plus the amount which would (by reason of the Borrower's
default) then be owing, and/or is then owing, to such Lender on early
termination of all then outstanding Treasury Agreements of the Borrower with
such Lender in accordance with their provisions, in relation to (b) the amount
of all then outstanding Accommodations plus all amounts which would (by reason
of the Borrower's default) then be owing, and/or are then owing, by the Borrower
on early termination of all then outstanding Treasury Agreements between the
Borrower and any of National Bank and the Lenders in accordance with their
provisions. Each Lender (a "SURPLUS LENDER") that receives any payment or
recovery in respect of any obligation of the Borrower to such Lender hereunder
(whether by voluntary payment, by realization of any security, by set-off,
counter-claim or cross action, by the enforcement of this Agreement or any
Document, by reason of any priority afforded in any insolvency proceeding
affecting the Borrower or otherwise) in an amount which, relative to the
corresponding amounts received by the other Lenders (the "DEFICIENT LENDERS"),
is a greater proportion than is permitted hereunder, shall purchase for cash
without recourse from the Deficient Lenders an interest in the obligations of
the Borrower to the Deficient Lenders hereunder in such amount as shall result
in a proportionate participation by all of the Lenders in the obligations of the
Company in accordance with the provisions hereof; provided however, that if the
Surplus Lender is thereafter required to relinquish all or any portion of such
excess payment or recovery to any Person (other than to the Deficient Lenders as
provided herein), such purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. The Agent shall
have the power to settle any documentation required to evidence such purchase or
restoration and, if so required by the Agent, execute any document as attorney
for any Lender in order to minimize any tax or other expense or legal impediment
applicable to and to
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otherwise facilitate such purchase or restoration. The Borrower and the lenders
acknowledge that the foregoing arrangements are to be settled by the Lenders
among themselves, and the Borrower expressly consents to the foregoing
arrangements among the Lenders and agrees that each Lender may exercise any of
such rights with respect to any and all obligations of the Borrower to such
Lender hereunder.
11.12 Notice of Default
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default, except with respect to Defaults
in the payment of principal, interest and fees payable to the Agent for the
account of the Lenders, unless the Agent shall have received written notice from
a Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default, and stating that such notice is a "notice of a default". In
the event that the Agent receives such a notice, the Agent shall give notice
thereof promptly to the Lenders. The Agent shall take such action with respect
to such Default or Event of Default as shall be requested by the Majority
Lenders in accordance with Article Nine hereof; provided that unless and until
the Agent shall have received any such request, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
11.13 Approval
Any approval, instruction or other expression of the Lenders hereunder
may be obtained by an instrument in writing signed in one or more counterparts
by the Majority Lenders. Any action taken by the Agent in connection with such
approval, instruction or other expression, or upon any occasion requiring or
permitting an approval, consent, waiver, election or other action on the part of
the Majority Lenders hereunder, shall be taken by the Agent for and on behalf
of, or for the benefit of, all Lenders, upon the direction of the Majority
Lenders, and any such action shall be binding on all Lenders. Unless all
Lenders agree in writing, no amendment, modification, consent or waiver shall be
effective which:
(a) increases the amount of any Credit available hereunder or increases
the Commitment Percentage of any Lender;
(b) reduces interest, principal or fees payable hereunder or under any
other Document;
(c) extends the fixed date on which any sum is due hereunder or under any
other Document;
(d) waives an Event of Default arising from a failure to pay principal or
interest within the applicable days of grace;
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(e) changes the provisions of this Section 11.13 and Section 12.02 hereof;
(f) releases any of the Security; or
(g) adjusts or revises any payment amortization schedule hereunder or
under any other Document.
11.14 Collateral Matters
The Agent and the Lenders each agree to execute any further documents
or amendments as may be necessary to effect the purposes of this Article Eleven.
Each Lender agrees that it will not take or cause to be taken any action to
accelerate the maturity of any Accommodation outstanding hereunder or to
intentionally waive any Default thereunder unless the Majority Lenders shall
have agreed in writing to accelerate all Accommodations outstanding hereunder or
to waive such Default. Any agreement of the Majority Lenders not to accelerate
all the Accommodations outstanding hereunder or to waive such Default shall be
binding on the Lenders with respect to acceleration and waiver of Defaults under
this Agreement.
11.15 Agent's Exclusive Authority
Except as otherwise specified in this Agreement, no Lender shall have
authority to exercise directly any of the rights, powers and discretions
permitted or required by this Agreement to be exercised by the Agent.
11.16 Notices and Communications
Promptly upon receipt by the Agent of any notice, certificate or
material communication from the Borrower concerning the Lenders and the
Acquisition Credit, the Agent shall provide a copy thereof to each of the
Lenders.
11.17 Third Party Rights
With the exception of those contained in the last sentence of each of
Sections 11.01 and 11.10(1), the agreements and covenants contained in this
Article Eleven are solely for the benefit of the Lenders and their respective
successors and assigns, and no other Person shall have any right, benefit,
priority or interest under, or because of the existence of, this Article Eleven.
ARTICLE TWELVE
MISCELLANEOUS
-------------
12.01 Fees and Expenses
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Whether or not the Borrower receives any Accommodation, the Borrower
shall pay, on demand, all reasonable costs and expenses of National Bank and the
Agent, including, without limitation, all reasonable fees and expenses of
counsel to National Bank or the Agent or agents to its or their counsel on a
solicitor and his own client basis, incurred in connection with (i) the
preparation, review and registration as applicable of this Agreement and each of
the other Documents, and all transactions contemplated hereby and thereby from
time to time (other than the routine administration of the Credits), (ii) any
actual or proposed amendment or modification hereof or thereof or any waiver
hereunder or thereunder, (iii) establishing and consulting with respect to the
validity and enforceability and the enforcement or proposed enforcement of this
Agreement and any such other agreements, or (iv) defending, protecting and/or
enforcing any of the rights and remedies of National Bank, the Agent or the
Lenders hereunder and thereunder.
12.02 Amendments and Waivers
No amendment, modification or waiver of any provision of this
Agreement or any other Document and no consent with respect to any departure by
the Borrower, any Guarantor or RailTex therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Majority Lenders
and then such waiver shall be effective only in the specific instance and for
the specific purpose for which given; provided that no such waiver, amendment,
modification or consent that requires the written consent of all Lenders
pursuant to Section 11.13 shall be effective unless the written consent of all
Lenders is so obtained and provided further that no amendment, waiver or consent
shall, unless in writing and signed by the Agent in addition to the Majority
Lenders, affect the rights or duties of the Agent under this Agreement.
12.03 Further Assurances
The Borrower shall from time to time forthwith on the request of
National Bank or the Agent do, make and execute all such financing statements,
further assignments, documents, acts, matters and things as may be reasonably
required with respect to this Agreement or the Documents or any part hereof or
thereof or as may be required to give effect thereto. Without limiting this
Section 12.03, any Manager or Acting Manager or other officer for the time being
at the office or branch of the Agent referred to in Section 12.05 shall be and
is hereby constituted and appointed by the Borrower the true and lawful attorney
of the Borrower irrevocable with full power of substitution to, at any time when
a Default or Event of Default is continuing, do, make and execute all such
statements, assignments, documents, acts, matters or things with the right to
use the name of the Borrower whenever and wherever it may be deemed necessary or
expedient.
12.04 Dealings by Lenders
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National Bank, the Agent and any Lender may grant extensions of time
and other indulgences, take and give up securities, accept compositions, grant
releases and discharges and otherwise deal with the Borrower, the Guarantors,
debtors of the Borrower or the Guarantors, sureties and others and with the
Security and other securities as it may see fit without prejudice to the
liability of the Borrower hereunder or the right of any such party to hold and
enforce the Security.
12.05 Notices
Any notice or other communication permitted or required to be given
hereunder must be given in writing and may be effectively given by delivering
the same at the addresses hereinafter set forth or by sending the same by
telecopy or by prepaid registered mail to the parties at such addresses. Any
notice or other communication so given by personal delivery or by telecopy on a
Business Day shall be deemed to have been given, received and made on such
Business Day so long as it is actually received prior to 5:00 p.m. (Toronto
time) on such Business Day, and otherwise, shall be deemed to have been given,
made and received on the next following Business Day, and any notice or other
communication so mailed shall be deemed to have been given, made and received on
the fifth Business Day following the mailing thereof, provided that no such
notice or other communication shall be mailed during any actual or apprehended
disruption of postal services. The addresses of the parties for the purposes
hereof shall respectively be:
(a) in the case of National Bank and the Agent, addressed as follows:
National Bank of Canada
150 York Street, 2nd Floor
Toronto, Ontario M5H 3A9
Attention: Douglas Richmond
Telecopy No.: 416-864-7682
(with a copy to)
National Bank of Canada
2121 San Jacinto, Ste. 1850
Dallas, Texas 75201
Attention: Douglas Clark
Telecopy No.: 214-871-2015
(b) in the case of the Borrower, addressed as follows:
RailTex Canada, Inc.
c/o RailTex, Inc.
4040 Broadway, Ste. 200
San Antonio, Texas 78209
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<PAGE>
Attention: Laura Davies
Telecopy No. 210-841-7629
Either party may from time to time notify the other party hereto, in
accordance with the provisions hereof, of any change of address which
thereafter, until changed by like notice, shall be the address of such party for
all purposes of this Agreement.
12.06 Maximum Rate of Return
Notwithstanding any provision to the contrary contained herein, in no
event shall the aggregate "interest" (as defined in Section 347 of the Criminal
Code, Revised Statutes of Canada, 1985, c.46 as the same may be amended,
replaced or re-enacted from time to time) payable hereunder exceed the effective
annual rate of interest on the "credit advanced" (as defined in that section)
hereunder lawfully permitted under that section and, if any payment, collection
or demand pursuant to this Agreement in respect of "interest" (as defined in
that section) is determined to be contrary to the provisions of that section,
such payment, collection or demand shall be deemed to have been made by mutual
mistake of the Borrower, National Bank, the Agent and the Lenders and the amount
of such payment or collection shall be refunded to the Borrower; for purposes
hereof the effective annual rate of interest shall be determined in accordance
with generally accepted actuarial practices and principles over the term of the
Credits on the basis of annual compounding of the lawfully permitted rate of
interest and, in the event of dispute, a certificate of a Fellow of the Canadian
Institute of Actuaries appointed by the Agent will be conclusive for the
purposes of such determination.
12.07 Participation and Assignment
(1) Any rights, benefits and obligations of National Bank and the Lenders under
or in respect of this Agreement (referred to in this Section as the
"RIGHTS") may, with the prior written consent of the Borrower and the Agent
(such consent of the Borrower not to be unreasonably withheld) in whole or
in part be sold or assigned in amounts not less than $5,000,000 on each
occasion. The Rights may, without notice or consent, be participated by
National Bank or any Lender (referred to in this Section as
"PARTICIPATION") from time to time to one or more Persons. For the
foregoing purposes, National Bank, the Agent and the Lenders may disclose,
on a confidential basis (under the terms of a confidentiality agreement in
favour of and in form and substance satisfactory to the Borrower acting
reasonably, National Bank, the Agent or the Lenders as applicable), to a
potential participant, purchaser, transferee or assignee (referred to in
this section as a "PARTICIPANT") such information about the Borrower, the
Guarantors and this Agreement as it may see fit. The parties hereto
confirm that any such confidentiality agreement substantially in the form
of Schedule F hereto will be satisfactory. The terms of any Participation
shall stipulate that no consent shall be required to be obtained by the
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Borrower in respect of this Agreement from any Participant other than
National Bank, the Agent or a Lender, except in respect of:
(a) any change in the Working Capital Credit Maturity Date or the
Acquisition Credit Maturity Date or in the repayment schedule or
amounts set out in Article 5;
(b) any change in the rate or amount of interest, fees or other
amounts payable under this Agreement;
(c) any increase in the amounts of the Credits available hereunder; or
(d) any waiver, amendment, release or other change in respect of the
Security.
(2) If the Rights are the subject of a sale, assignment, transfer or
Participation, the Borrower agrees that it will, upon National Bank's or the
Agent's request and at National Bank's or the applicable Lender's expense, enter
or cause to be entered into such documentation, including without limitation
replacement security and forms of bankers' acceptances, as such party may
reasonably consider necessary for such purposes and all references in this
Agreement to National Bank or the Lenders shall thereafter be construed as a
reference to such party and such purchaser, assignee, transferee or Participant;
provided, however, that such additional documentation shall not adversely modify
any of the rights of the Borrower hereunder, or increase its obligations
hereunder. For greater certainty, the Borrower shall not be required to pay any
additional transaction fees as a result of compliance with this paragraph. Each
of National Bank, the Agent and each Lender as applicable is entitled, in its
own name, to enforce for the benefit of, or as agent for, any Participant,
purchaser, assignee or transferee of any Rights, any and all rights, claims and
interests of such party, in respect of the Rights subject to the Participation,
sale, assignment or transfer.
12.08 Survival
This Agreement shall continue in full force and effect so long as the
Borrower is entitled to Accommodations or any indebtedness or liability is due
and payable in respect of any Credit. All agreements, representations,
warranties and covenants of the Borrower made herein or in any document
delivered by or on behalf of the Borrower pursuant to the provisions hereof or
otherwise, shall be deemed to have been relied on by National Bank, the Agent
and the Lenders notwithstanding any investigation heretofore or hereafter made
by any of them, their solicitors or representatives and shall survive the
execution of this Agreement and the granting of any Accommodation under the
Credits until repayment in full of all amounts owing hereunder.
12.09 Successors and Assigns
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This Agreement shall be binding upon and shall enure to the benefit of
the Borrower, National Bank, the Agent, the Lenders and their respective
successors and assigns, provided that the Borrower shall not assign any of its
rights or obligations hereunder without the prior written consent of National
Bank and the Agent.
12.10 Governing Law
This Agreement and each of the other Documents, and all certificates
and other instruments and agreements delivered in connection herewith, unless
specified otherwise therein, shall be construed and interpreted in accordance
with the laws of Ontario and of Canada applicable therein.
12.11 Inconsistency
If there is any inconsistency between this Agreement and any other
Document, the terms of this Agreement shall prevail. This Agreement shall
supersede all prior agreements with respect to the subject matter hereof,
including without limitation the loan agreement made as of August 2, 1994 (as
amended) between National Bank and the Borrower, and the proposal letter dated
March 31, 1996 addressed to the Borrower from National Bank.
12.12 Performance
The Borrower hereby authorizes National Bank, the Agent and the
Lenders, upon and during the continuance of an Event of Default, to perform
covenants of the Borrower under this Agreement on behalf and at the expense of
the Borrower, and shall fully indemnify and hold harmless each such party should
such party elect to do so, provided that no such party shall have any obligation
to do so.
12.13 Time
Time is of the essence hereof.
12.14 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original and which together shall constitute one
and the same agreement.
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12.15 Captions
The captions and headings used in this Agreement are for convenience
only and do not in any way affect, limit, amplify or modify any provision
hereof.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
NATIONAL BANK OF CANADA RAILTEX CANADA, INC.
(as Agent)
By:________________________ By:___________________________
Name: Name:
Title: Title:
By:________________________
Name:
Title:
ABN AMRO BANK CANADA NATIONAL BANK OF CANADA
(as Lender) (as Lender)
By:________________________ By:___________________________
Name: Name:
Title: Title:
By:________________________ BY:___________________________
Name: Name:
Title: Title:
55
<PAGE>
The undersigned Guarantors acknowledge the foregoing Agreement and
consent to the provisions thereof relating to the undersigned.
GODERICH-EXETER RAILWAY CAPE BRETON & CENTRAL NOVA
COMPANY LIMITED SCOTIA RAILWAY LIMITED
By:______________________ By:_________________________
Name: Name:
Title: Title:
RAILTEX, INC.
By:______________________
Name:
Title:
56
<PAGE>
SCHEDULE A
NOTICE OF BORROWING
TO: NATIONAL BANK OF CANADA
1. This Notice of Borrowing is delivered to you pursuant to Section 2.05 of
the loan agreement (the "Loan Agreement") made as of June 21, 1996 between
Railtex Canada, Inc. as borrower, National Bank of Canada and ABN AMRO Bank
Canada as lenders and National Bank of Canada as agent. All capitalized terms
set forth in this Notice of Borrowing have the respective meanings specified in
the Loan Agreement.
2. We certify that as at the date hereof all representations and warranties
contained in the Loan Agreement are true and correct as if made on the date
hereof.
3. We certify that as at the date hereof, no Default or Event of Default
has occurred.
4. We hereby give you notice that on __________, 1996 we wish to obtain the
following Accommodation under the [WORKING CAPITAL/ACQUISITION] Credit:
Canadian Prime Rate Loan
Principal Amount $____________________________;
Bankers' Acceptances:
Aggregate Principal Amount $____________________________;
Term _________________________days
Denominations * X$___________________; * X$
Letter of Credit See attached application
Dated this [*] day of [*], 199[*].
RAILTEX CANADA, INC.
BY: __________________________
Authorized Signing Officer
(*) provide details of outstanding Accommodation to be rolled/converted
including the amount, term and type of Accommodation.
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<PAGE>
SCHEDULE B
TO: NATIONAL BANK OF CANADA [AS AGENT, IF APPLICABLE]
1. This Notice of Rollover/Conversion is delivered to you pursuant to
Section 2.07 of the loan agreement (the "Loan Agreement") made as of June 21,
1996 between RailTex Canada, Inc. as borrower, National Bank of Canada and ABN
AMRO Bank Canada as lenders and National Bank of Canada as agent. All
capitalized terms set forth in this Notice of Rollover/Conversion shall have the
respective meanings specified in the Loan Agreement.
2. We certify that as at the date hereof all representations and
warranties contained in the Loan Agreement are true and correct as if made on
the date hereof.
3. We certify that as at the date hereof no Default or Event of Default
has occurred.
4. We hereby give you notice that on , 19 , we wish to undertake a
Rollover/Conversion of the following Accommodation outstanding under the
[WORKING CAPITAL/ACQUISITION] Credit:
(*)_____________________________________________________________________________
________________________________________________________________________________
into the following Accommodations:
Canadian Prime Rate Loan
Principal Amount $_________________________;
Bankers' Acceptances:
Aggregate Principal Amount $_________________________;
Term ______________________days
Denominations *X$___________;*X$
Dated this * day of * , 199
RAILTEX CANADA, INC.
By: _________________________
(*) provided details of outstanding Accommodation to be rolled/converted
including the amount, term and type of Accommodation.
Authorized Signing Officer
58
<PAGE>
SCHEDULE C
PERMITTED ENCUMBRANCES
"PERMITTED ENCUMBRANCES" means the following Liens:
(i) any Lien consented to in writing by the Lenders, including Liens in
favour of the Lenders;
(ii) Liens for taxes, assessments and other governmental charges not yet
payable, or the validity of which is being contested in good faith
by appropriate proceedings and as to which adequate reserves have
been set aside on the books of the Borrower or the applicable
Guarantor;
(iii) deposits or pledges to secure the payment of workmen's compensation,
unemployment insurance or other social security benefits or
obligations, public or statutory obligations, surety or appeal bonds
or other obligations of a like nature incurred in the ordinary
course of business;
(iv) mechanics', materialmen's, warehousemen's, carriers', vendors' or
other like Liens arising by operation of law in the ordinary course
of business, securing obligations which are not overdue, or which
are being contested in good faith by appropriate proceedings and
against which the Borrower or the applicable Guarantor has provided
adequate reserves in accordance with GAAP;
(v) zoning restrictions, easements, licenses, restrictions on the use of
real property or minor irregularities in title thereto which do not
materially impair the use of such property in the operation of the
business of the Borrower or the applicable Guarantor or the value of
such property and would not affect adversely a subsequent owner's
use of such property for a similar purpose;
(vi) purchase money Liens or purchase money security interests on any
asset acquired or held by the Borrower or the applicable Guarantor
in the ordinary course of business securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of
acquiring such asset; provided that any such lien attaches to such
asset concurrently with or within 30 days after the acquisition
thereof and provided that the principal amount of the Indebtedness
secured by any such purchase money Lien or purchase money security
interest shall not exceed the amounts permitted under the RailTex
Credit Agreement.
59
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SCHEDULE D
LITIGATION
NONE
60
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SCHEDULE E
61
<PAGE>
SCHEDULE F
CONFIDENTIALITY AGREEMENT
62
<PAGE>
SCHEDULE G
63
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EXHIBIT 10.30
RAILTEX, INC.
1993 STOCK PLAN
1. Purpose. This 1993 Stock Plan, as amended, (the "Plan") is intended to
provide incentives (a) to the officers and other employees of RailTex, Inc. (the
"Company"), its parent (if any) and any present or future subsidiaries of the
Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422A(b) of
the Internal Revenue Code of 1986 (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations, or any other person or entity, by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"); (c) to directors, officers, employees and consultants of the Company
and Related Corporations, or any other person or entity, by providing them with
awards of stock in the Company ("Awards"); (d) to directors, officers, employees
and consultants of the Company and Related Corporations, or any other person or
entity, by providing them with Stock Appreciation Rights ("SAR" or "SARs") in
tandem with, or independently of, options granted hereunder; (e) to directors,
officers, employees and consultants of the Company and Related Corporations, or
any other person or entity, by providing them with performance awards in the
form of units ("Units") representing phantom shares of stock ("phantom share" or
"phantom shares"), each Unit representing one phantom share; (f) to directors,
officers, employees and consultants of the Company and Related Corporations, or
any other person or entity, by providing them with opportunities to make direct
purchases of stock in the Company ("Purchases"); and (g) to outside directors by
providing each of them with annual grants of ten-year options to purchase 3,000
shares of Common Stock ("Outside Directors' Options"). Anything in this Plan to
the contrary notwithstanding, Stock Rights (as defined below) shall not be
granted or awarded hereunder to any administrator or administrators if such
grant, award or purchase would cause such administrator or administrators not to
satisfy the "disinterested person" requirements of Rule 16b-3, or any successor
or amended rule ("Rule 16b-3"), promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act").
ISOs, Non-Qualified Options and Outside Directors' Options are referred to
hereafter individually as an "Option" and collectively as "Options." Options,
Awards, SARs, Units and authorizations to make Purchases are referred to
hereafter collectively as "Stock Rights." Recipients of such Stock Rights are
hereafter referred to individually as an "Optionee" and collectively as
"Optionees." As used herein, the terms "parent" and "subsidiary" mean "parent
corporation" and "subsidiary corporation" respectively, as those terms are
defined in Section 425 of the Code.
<PAGE>
2. Administration of the Plan. The Plan shall be administered (i) to the
extent required by Rule 16b-3, by an administrator or administrators in
compliance with Rule 16b-3, and (ii) in all other cases, by such administrator
or administrators as the Board of Directors (the "Board") may designate
(collectively, the "Administrators"). Subject to terms of the Plan, the
applicable Administrator shall have the authority to (i) determine the employees
of the Company and Related Corporations (from among the class of employees
eligible under paragraph 1 to receive ISOs) to whom ISOs may be granted and to
determine (from among the class of individuals and entities eligible under
paragraph 1 to receive Non-Qualified Options, Awards, SARs and Units and to make
Purchases) to whom Non-Qualified Options, Awards, SARs, Units and authorizations
to make Purchases may be granted; (ii) determine the time or times at which
Options, Awards, SARs or Units may be granted or Purchases made; (iii) determine
the option price of shares subject to each Option (subject to the requirements
of paragraph 4 with respect to ISOs and paragraph 5 with respect to Non-
Qualified Options); (iv) determine the purchase price of shares subject to each
Purchase; (v) determine whether each Option granted shall be an ISO or a Non-
Qualified Option; (vi) determine the time or times when each Option shall become
exercisable and the duration of the exercise period (subject to paragraph 4 with
respect to ISOs and paragraph 5 with respect to Non-Qualified Options); (vii)
determine whether restrictions such as repurchase options are to be imposed on
shares subject to Stock Rights and the nature of such restrictions, if any; and
(viii) interpret the Plan and prescribe and rescind rules and regulations
relating to it; however, neither the Board nor the applicable Administrator
shall have any authority to determine whether or when an outside director shall
receive or exercise Outside Directors' Options (or to determine the exercise
price of such Outside Directors' Options) other than to ensure compliance with
the terms of the Plan with respect to Outside Directors' Options. With respect
to persons subject to Section 16 of the 1934 Act, transactions under the Plan
are intended to comply with all applicable conditions of Rule 16b-3. To the
extent any provision of the Plan or action by the applicable Administrator fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the applicable Administrator. The interpretation and
construction by the applicable Administrator of any provisions of the Plan or of
any Stock Right granted under it shall be final unless otherwise determined by
the Board. Administrators or the Board may from time to time adopt such rules
and regulations for carrying out the Plan as they may deem best. No member of
the Board, any Administrator nor the Company shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Right
granted under it.
3. Stock. The stock subject to the Stock Rights shall be authorized but
unissued shares of the Company's Common Stock, par value $.10 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares of Common Stock which may be issued
pursuant to the Plan is 1,250,000; provided, however, that in no event shall the
number of shares of Common Stock subject to, and issued upon the exercise of,
ISOs exceed 1,250,000 in the aggregate; provided, further that the aggregate
number of shares of Common Stock subject to, and issuable or issued under, the
Plan and the shares of Common Stock subject to the Company's outstanding options
to purchase 306,168 shares of Common Stock that were granted outside of the Plan
shall not exceed 1,250,000; and provided further, that the maximum number of
shares of Common Stock issuable under the Plan to any employee in any
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<PAGE>
calendar year shall not exceed 1,250,000. The number of shares authorized for
the grant of Stock Rights under the Plan shall be subject to adjustment as
provided in paragraph 10. If any Option or any other Stock Right granted under
the Plan shall expire or terminate for any reason without having been exercised
in full or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to any Stock
Right the unpurchased shares subject to such Options or Stock Rights and any
unvested shares so reacquired by the Company shall again be available for grants
of Stock Rights under the Plan to the extent permitted by Rule 16b-3.
4. ISO Provisions. Any of the following provisions shall have no force or
effect if its inclusion in the Plan is not necessary for Options issued as ISOs
to qualify as ISOs pursuant to the Code and the regulations issued thereunder.
A. Grant of ISO. All ISOs shall be granted under the Plan within ten (10)
years of the date of the Plan's adoption by the Board or the date the Plan
receives the requisite shareholder approval, whichever is earlier.
B. Minimum Option Price for ISOs.
(i) The price per share specified in the agreement relating to each
ISO granted under the Plan shall not be less than the fair market
value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock
representing more than ten percent of the total combined voting
power of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than 110 percent of the
fair market value per share of Common Stock on the date of grant.
(ii) In no event shall the aggregate fair market value (determined at
the time an ISO is granted) of Common Stock for which ISOs
granted to any employee are exercisable for the first time by
such employee during any calendar year (under all stock option
plans of the Company and any Related Corporation) exceed
$100,000.
(iii) If, at the time an ISO is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined
as of the last business day for which the prices or quotes discussed in
this sentence are available prior to the date such Option is granted and
shall mean (a) the last reported sales price of the Common Stock on the
principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities
exchange; or (b) the last reported sale price (on that date) of the Common
Stock on the NASDAQ National Market List, if the Common Stock is not
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<PAGE>
then traded on a national securities exchange; or (c) the closing bid
price (or the average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the
Common Stock is not reported on the NASDAQ National Market List. However,
if the Common Stock is not publicly traded at the time an ISO is granted
under the Plan, "fair market value" shall be deemed to be the fair market
value of the Common Stock as determined by the applicable Administrator
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arm's length.
C. Duration of ISOs. Subject to earlier termination as provided in
subparagraphs F and G hereunder, each ISO shall expire on the date specified by
the applicable Administrator, but not more than (i) ten years from the date of
grant in the case of ISOs generally, and (ii) five years from the date of grant
in the case of ISOs granted to an employee owning stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company or any Related Corporation. Subject to the foregoing provisions and
such earlier termination as provided in said subparagraphs E and F, the term of
each ISO shall be the term set forth in the original instrument granting such
ISO, except with respect to any part of such ISO that is converted into a Non-
Qualified Option pursuant to subparagraph K below.
D. Eligible Employees. ISOs may be granted to any employee of the Company or
any Related Corporation. Those offices and directors of the Company who are not
employees may not be granted ISOs under the Plan.
E. Acceleration of Exercise of ISOs. The Administrator shall not, without the
consent of the Optionee, accelerate the exercise date of any installment of any
ISO granted to any employee (and not previously converted into a Non-Qualified
Option pursuant to subparagraph K below) if such acceleration would violate the
annual vesting limitation contained in Section 422A(d) of the Code, as described
in subparagraph B(ii) hereinabove.
F. Effect of Termination of Employment on ISOs. If an ISO Optionee ceases to
be employed by the Company or any Related Corporation other than by reason of
death or disability (as such term is defined in subparagraph I hereunder), any
ISO granted to such Optionee within the six-month period immediately preceding
such termination shall be cancelled forthwith. With respect to any ISOs granted
to such Optionee more than six months prior to such termination, no further
installments of such ISOs shall become exercisable and his ISOs shall terminate
after the passage of 60 days from the date of termination of his employment, but
in no event later than on their specified expiration dates, except to the extent
that such ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to subparagraph K below. Leave of absence with
the written approval of the applicable Administrator shall not be considered an
interruption of employment under the Plan, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the employee
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<PAGE>
after the approved period of absence. Employment shall also be considered as
continuing uninterrupted during any other bona fide leave of absence (such as
those attributable to illness, military obligations or governmental service)
provided that the period of such leave does not exceed 90 days or, if longer,
any period during which such Optionee's right to reemployment is guaranteed by
statute. ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations, so long as the
Optionee continues to be an employee of the Company or any Related Corporation.
G. Effect of Death or Disability on ISOs. If an Optionee ceases to be employed
by the Company or any Related Corporation by reason of his death, any ISO of his
may be exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the earlier of the date specified
in the ISO agreement, the ISO's specified expiration date or one year of the
death of the Optionee.
If an Optionee ceases to be employed by the Company and all Related
Corporations by reason of his disability, he shall have the right to exercise
any ISO held by him on the date of termination of employment, to the extent of
the number of shares with respect to which he could have exercised it on that
date, at any time prior to the earlier of the date specified in the ISO
agreement, the ISO's specified expiration date or one year from the date of the
termination of the Optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in Section
22(e)(3) of the Code or successor statute.
H. Adjustments. Any adjustment made pursuant to paragraphs 10(A) or (B) with
respect to ISOs shall be made only after the applicable Administrator, after
consulting with counsel for the Company, determines whether such adjustments
would constitute a "modification" of such ISOs (as that term is defined in
Section 425 of the Code) or would cause any adverse tax consequences for the
holders of such ISOs. If the applicable Administrator determines that such
adjustments made with respect to ISOs would constitute a modification of such
ISOs, it may refrain from making such adjustments.
I. Notice to Company of Disqualifying Dispositions. Each employee who receives
an ISO must agree to notify the Company in writing immediately after the
employee makes a "disqualifying disposition" of any Common Stock acquired
pursuant to the exercise of an ISO. A "disqualifying disposition" is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
J. Other Requirements. ISOs shall be issued subject to such additional
requirements as may be imposed from time to time by the Code or the regulations
issued
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<PAGE>
thereunder.
K. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The
applicable Administrator, at the written request of any Optionee, may in its
discretion take such actions as may be necessary to convert such Optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the Optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such Options.
At the time of such conversion, the applicable Administrator (with the consent
of the Optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the applicable Administrator in its discretion may
determine, provided that such conditions shall not be inconsistent with the
provisions of paragraph 5 or any other paragraph of the Plan. Nothing in the
Plan shall be deemed to give any Optionee the right to have such Optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Administrator takes appropriate action. The applicable
Administrator, with the consent of the Optionee, may also terminate any portion
of any ISO that has not been exercised at the time of such termination.
5. Non-Qualified Options.
A. Minimum Option Price. The price per share specified in the agreement
relating to each Non-Qualified Option granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such grant.
If, at the time a Non-Qualified Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Non-Qualified Option is granted and shall
mean (i) the last reported sales price of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if the Common
Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the NASDAQ National
Market List, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or the average of bid prices) last
quoted (on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ National Market
List. However, if the Common Stock is not publicly traded at the time a Non-
Qualified Option is granted under the Plan, "fair market value" shall be deemed
to be the fair market value of the Common Stock as determined by the applicable
Administrator after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arm's length.
B. Duration of Non-Qualified Options. Each Non-Qualified Option shall
expire on the date specified by the applicable Administrator, but not more than
ten (10) years from the date of grant.
6
<PAGE>
C. Vesting of Non-Qualified Options. Subject to any longer or shorter
vesting period and any termination provisions which the applicable Administrator
may impose, a Non-Qualified Option shall be exercisable as follows: (i) 20% of
the shares under the Non-Qualified Option shall be exercisable one calendar year
after the date of its grant, (ii) an additional 20% of the shares under the Non-
Qualified Option shall be exercisable two calendar years after the date of its
grant, (iii) an additional 20% of the shares under the Non-Qualified Option
shall be exercisable three calendar years after the date of its grant, (iv) an
additional 20% of the shares under the Non-Qualified Option shall be exercisable
four calendar years after the date of its grant, and (v) the last 20% of the
shares under the Non-Qualified Option shall be exercisable five calendar years
after the date of its grant.
D. Maintain Non-ISO Status. If the applicable Administrator determines to
issue a Non-Qualified Option, it shall take whatever actions it deems necessary,
under Section 422A of the Code and the regulations promulgated thereunder, to
ensure that such Non-Qualified Option is not treated as an ISO.
6. Stock Appreciation Rights. At the discretion of the applicable
Administrator, Options granted under this Plan may be granted in tandem with
SARs ("tandem SARS"), or SARs may be granted independently of and not in tandem
with any Option ("naked SARs"). SARs will become exercisable at such time or
times, and on such conditions, as the applicable Administrator may specify; the
applicable Administrator may impose conditions upon the grant or exercise of any
SAR, which conditions may include a condition that the SAR may only be exercised
in accordance with rules and regulations adopted by the applicable Administrator
from time to time. Such rules and regulations may govern the right to exercise
the SAR granted prior to the adoption or amendment of such rules and regulations
as well as SAR rights granted thereafter.
A. Tandem SARs.
(i) Any tandem SAR granted with an ISO may be granted only at the
date of grant of such ISO. Any tandem SAR granted with a Non-Qualified
Option may be granted either at or after the time such Option is
granted. A tandem SAR is the right of an Optionee, without payment to
the Company (except for applicable withholding taxes), to receive the
excess of the fair market value (as defined in subparagraph 4(B)(iii))
per share on the date on which such SAR is exercised over the option
price per share as provided in the relating underlying Option. A
tandem SAR granted with an ISO may be exercised only when the fair
market value (as defined in subparagraph 4(B)(iii)) per share of the
Common Stock subject to the ISO exceeds the per share exercise price
of the ISO. A tandem SAR granted with an Option shall pertain to, and
be granted only in conjunction with, the related underlying Option
granted under this Plan and shall be exercisable and exercised only to
the extent that the underlying Option is exercisable. The number of
shares of Common Stock subject to such tandem SAR shall
7
<PAGE>
be all or part of the shares subject to such Option as determined by
the applicable Administrator. The tandem SAR shall either become fully
or partially non-exercisable and shall then be fully or partially
forfeited if the exercisable portion, or any part thereof, of the
underlying Option is exercised and vice versa.
(ii) Subject to any restrictions or conditions imposed by the
applicable Administrator, a tandem SAR may be exercised by the
Optionee as to a number of shares of Common Stock under its related
Option only upon the surrender of the then-exercisable portion of the
related Option covering a like number of shares of Common Stock. Upon
the exercise of a tandem SAR and the surrender of the exercisable
portion of the related Option, the Optionee shall be awarded cash,
shares of Common Stock or a combination of shares and cash at the
discretion of the applicable Administrator. The award shall have a
total value equal to the product obtained by multiplying (1) the
excess of the fair market value per share on the date on which such
tandem SAR is exercised over the Option price per share by (2) the
number of shares subject to the exercisable portion of the related
Option so surrendered.
B. Naked SARs.
(i) A naked SAR may be granted irrespective of whether the
recipient holds, is being granted, or has been granted any options
under any stock plan of the Company. A naked SAR may be granted
irrespective of whether the recipient holds, is being granted, or has
been granted any tandem SARs. A naked SAR may be made exercisable
without regard to the exercisability of any option.
(ii) With respect to the exercise of any naked SAR, the term
"Spread" as used in this paragraph 6 shall mean an amount equal to the
product computed by multiplying (1) the excess of (A) the fair market
value per share of Common Stock of the Company on the date such naked
SAR is exercised over (B) the price designated by the applicable
Administrator (the "Award Price") by (2) the number of shares with
respect to which such naked SAR is being exercised.
C. General Provisions.
(i) The applicable Administrator may specify that a SAR shall
be exercisable for cash, for shares, for a combination of cash or
shares, or in cash or shares at the holder's option. On the exercise
of a SAR, the holder
8
<PAGE>
thereof, except as provided in subparagraphs (ii)
and (iii) of this paragraph 6(C), shall be entitled to receive either:
(a) if the exercise is for shares, a number of shares equal
to the quotient computed by dividing the Spread by the fair
market value per share on the date of exercise of the SAR,
provided, however, that in lieu of fractional shares the
Company shall pay cash equal to the same fraction of the
fair market value per share on the date of exercise of the
SAR; or
(b) if the exercise is for cash, an amount in cash equal to
the Spread; or
(c) if the exercise is partly for cash and partly for
shares, a combination of cash in the amount specified in
such SAR holder's notice of exercise, and a number of shares
calculated as provided in clause (a) of this subparagraph
(i), after reducing the Spread by such cash amount, plus
cash in lieu of any fractional share as provided above.
(ii) Notwithstanding the provisions of subparagraph (i) of
this paragraph 6(C) the applicable Administrator shall have sole
discretion to consent to or disapprove, in whole or in part, any
permitted election or the right without election of a holder of a
SAR to receive cash upon the exercise of a SAR ("Cash Election").
Such consent or disapproval may be given at any time after the
Cash Election to which it relates. If the applicable
Administrator shall disapprove a Cash Election, in lieu of paying
the cash (or any portion thereof) specified in such Cash
Election, the Administrator shall determine the amount of cash,
if any, to be paid pursuant to such Cash Election and shall issue
a number of shares calculated as provided in clause (a) of
subparagraph (i) of this paragraph 6(C), after reducing the
Spread by such cash to be paid plus cash in lieu of any
fractional share.
(iii) SARs granted or to be granted to officers or
directors of the Company under the Plan shall be subject to the
following additional provisions: (a) no grant shall be made
unless and until the Company has been subject to the reporting
requirements of Section 13(a) of the 1934 Act for at least a year
and has filed all reports and statements required to be filed
pursuant to such Section for that year; (b) a Cash Election may
be made only during the period beginning on the third business
day following the date of release for publication of the
quarterly and annual summary statements of sales and earnings of
the Company and ending on the twelfth business day following such
date; and (c) no Cash Election may be made (and no related
9
<PAGE>
Option exercised) during the six months after grant, except in
the event of the death or disability of the holder. The Company
intends that this subparagraph (iii) shall comply with the
requirements of Rule 16b-3. Should any provision of this
subparagraph (iii) be unnecessary to comply with the requirements
of the said Rule 16b-3, the Board may amend this Plan to add to
or modify the provisions of this Plan accordingly.
(iv) No SAR shall be transferable except by will or by the laws
of descent and distribution. During the life of a holder of a
SAR, the SAR shall be exercisable only by him or his guardian or
legal representative.
(v) A person exercising a SAR for shares shall not be treated
as having become the registered owner of any shares issued on
such exercise until such shares are delivered to him.
(vi) Each SAR shall be on such terms and conditions (including
additional terms and conditions) not inconsistent with this Plan
as the applicable Administrator may determine.
(vii) To exercise a SAR, the holder shall (i) give written
notice thereof to the Company addressed to the Secretary of the
Company by delivery to RailTex, Inc. at 4040 Broadway, Suite 200,
San Antonio, Texas 78209, and by specifying therein the amount he
elects (if such election is permitted under the terms of the SAR)
to receive in cash, if any, and the amount he elects (if such
election is permitted under the terms of the SAR) to receive in
shares and (ii) deliver to the Company such written
representations, warranties and covenants as may be required by
the Company or Company counsel. The date of exercise of a SAR
shall be the date on which the Company shall have received the
notice referred to in the first sentence of this subparagraph
(vii).
(viii) The number of shares awardable to an Optionee with
respect to the noncash portion of a SAR shall be determined by
dividing such noncash portion by the fair market value per share
(as determined in accordance with subparagraph 4(B)(iii)) on the
exercise date. No fractional shares shall be issued. Any
fractional shares which, but for this subparagraph (viii), would
have been issued to an Optionee pursuant to a SAR, shall be
deemed to have been issued and immediately sold to the Company
for their fair market value, and the Optionee shall receive from
the Company cash in lieu of such fractional shares.
10
<PAGE>
7. Units. At the discretion of the applicable Administrator, performance
awards in the form of Units may be granted either independently of or in tandem
with a Stock Right granted hereunder, to such extent as determined by the
applicable Administrator, except that such Units shall not be granted in tandem
with ISOs granted under the Plan. Units granted hereunder may be based on such
factors as changes in the market price for shares of Common Stock of the
Company, personal performance of the recipient of such Units or of his division
or department, the performance of the Related Corporation by which he is
employed, or any other factors or criteria set by the applicable Administrator.
Units shall have such other terms and conditions as the applicable Administrator
shall determine and shall be payable in such form as such Administrator may
determine including, for example, payment in shares of the Company's Common
Stock.
8. Outside Directors' Options.
A. Grant. On January 1 of each calendar year after the date the Plan is
approved by the shareholders of the Company, each outside director then serving
shall receive an option to purchase 3,000 shares of Common Stock (individually,
an "Outside Director's Option," and collectively, "Outside Directors' Options").
B. Minimum Purchase Price. The exercise price per share of the Outside
Directors' Options shall not be less than the fair market value per share of
Common Stock on the date of such grant. If, at the time an Outside Director's
Option is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for which
the prices or quotes discussed in this sentence are available prior to the date
such Outside Director's Option is granted and shall mean (i) the last reported
sales price of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market List, if the Common
Stock is not then traded on a national securities exchange; or (iii) the closing
bid price (or the average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ National Market List. However, if the
Common Stock is not publicly traded at the time an Outside Director's Option is
granted under the Plan, "fair market value" shall be the average of the three
most recent sale and offer prices of the Common Stock in private transactions
negotiated at arm's length.
C. Duration of Outside Directors' Options. Each Outside Director's Option
shall expire ten (10) years from the date of grant; otherwise, an Outside
Director's Option shall not be subject to forfeiture or termination.
D. Exercise. An outside director may exercise an Outside Director's
Option, if exercisable, by providing written notice to the Company addressed to
the Secretary of the Company at 4040 Broadway, Suite 200, San Antonio, Texas
78209. The written notice shall specify the number of options being exercised,
and by paying the full exercise price. The written notice shall also include
such written representations, warranties and covenants as may be required by the
11
<PAGE>
Company, Company counsel or the applicable Administrator.
E. Maintain Non-ISO Status. The applicable Administrator shall take
whatever actions it deems necessary, under Section 422A of the Code and the
regulations promulgated thereunder, to ensure that any such Outside Director's
Option is not treated as an ISO.
F. Holding Period and Termination. An outside director may not dispose of
any shares acquired as a result of the exercise of an Outside Director's Option
until six months after the date of the "grant" of the Outside Director's Option,
as determined in accordance with Rule 16(b)-3. Upon the termination of the Plan
or the unavailability of shares of Common Stock for issuance under the Plan, no
additional Outside Directors' Options shall be granted.
9. Written Agreements. Stock Rights shall be evidenced by instruments (which
need not be identical) in such forms as the applicable Administrator may from
time to time approve. Such instruments shall conform to such terms, conditions
and provisions as are applicable hereunder and may contain such other terms and
conditions and provisions as the applicable Administrator deems advisable which
are not inconsistent with the Plan, including restrictions applicable to shares
of Common Stock issuable upon exercise of Stock Rights and the payment, if
applicable, of any legal form of consideration (including, without limitation,
whether payment must be in cash or by tendering shares of Common Stock). A
Stock Right may provide for acceleration of exercise in the event of a change in
control of the Company, in the discretion of and as defined by the applicable
Administrator. The applicable Administrator may from time to time confer
authority and responsibility on one or more of its own members and/or one or
more officers of the Company to execute and deliver such instruments. The
proper officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of such
instruments.
10. Adjustments. Upon the happening of any of the following described events,
an Optionee's rights with respect to Options granted to him hereunder, and the
recipient's rights with respect to Common Stock to be acquired (or used for
measurement purposes) pursuant to the exercise of SARs or Units, or to be
acquired pursuant to a Purchase or Award hereunder, shall be adjusted as
hereinafter provided, unless otherwise specifically provided, in addition or to
the contrary, in the written agreement between the recipient and the Company
relating to such Stock Right.
12
<PAGE>
A. Certain Corporate Events. In the event shares of Common Stock shall be
subdivided or combined into a greater or smaller number of shares or if, upon a
merger, consolidation, reorganization, split-up, liquidation, combination,
recapitalization or the like of the Company, the shares of Common Stock shall be
exchanged for other securities of the Company or of another corporation, each
grantee of a Stock Right shall be entitled, subject to the conditions herein
stated, to purchase (or have used for measurement purposes) such number of
shares of Common Stock or amount of other securities of the Company or such
other corporation as were exchangeable for the number of shares of Common Stock
which such grantee would have been entitled to purchase (or have used for
measurement purposes) except for such action, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision, combination
or exchange.
B. Stock Dividends. In the event the Company shall issue any of its shares as
a stock dividend upon or with respect to the shares of stock of the class which
at the time shall be subject to a Stock Right hereunder, each grantee upon
exercising a Stock Right shall be entitled to receive (for the purchase price
paid upon such exercise) (or have used for measurement purposes) the shares or
other consideration as to which he is exercising his Stock Right and, in
addition thereto (at no additional cost), such number of shares of the class or
classes in which such stock dividend or dividends were declared or paid, and
such amount of cash in lieu of fractional shares, or other consideration as he
would have received if he had been the holder of the shares as to which he is
exercising (or which are used for measurement in connection with) his Stock
Right at all times between the date of grant of such Stock Right and the date of
its exercise.
C. New Securities. If any person or entity owning restricted Common Stock
obtained by exercise of a Stock Right made hereunder receives new or additional
or different shares or securities ("New Securities") in connection with a
corporate transaction described in subparagraph A above or a stock dividend
described in subparagraph B above as a result of owning such restricted Common
Stock, such New Securities shall be subject to all of the conditions and
restrictions applicable to the restricted Common Stock with respect to which
such New Securities were issued.
D. Cash Dividends. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company, unless specified to the
contrary by the applicable Administrator in the instrument evidencing such Stock
Right.
E. Fractional Shares. No fractional shares shall actually be issued under the
Plan. Any fractional shares which, but for this subparagraph E, would have been
issued to a grantee pursuant to a Stock Right shall be deemed to have been
issued and immediately sold to the Company for their fair market value, and the
grantee shall receive from the Company cash in lieu of such fractional shares.
F. Adjustments. Upon the happening of any of the foregoing events described in
subparagraphs A or B above, the class and aggregate number of shares set forth
in paragraph 3
13
<PAGE>
hereof that are subject to Stock Rights which previously have been or
subsequently may be granted under the Plan shall also be appropriately adjusted
to reflect the events described in such subparagraphs. The Board shall determine
the specific adjustments to be made under this paragraph 10 and, subject to
paragraph 4(H), its determination shall be conclusive.
11. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised as specified in the written instrument
granting such Stock Right, which instrument may specify any legal method of
exercise and any method of payment of the exercise price, including, without
limitation, the payment of the exercise price by tendering outstanding shares of
Common Stock or shares of Common Stock received upon exercise of a Stock Right.
The holder of a Stock Right exercisable for shares shall not have the rights of
a shareholder with respect to the shares covered by his Stock Right until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 10 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
12. Transferability of Stock Rights. Except as otherwise provided in the Plan,
no Stock Right granted under the Plan shall be transferrable by an Optionee
other than by (i) will or the laws of descent and distribution, or (ii) pursuant
to a qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder.
13. Term of the Plan. This Plan was adopted by the Board on September 13,
1993, effective September 13, 1993, subject to approval of the Plan by the
holders of a majority of the outstanding shares of the Company at the next
meeting of shareholders present in person or by proxy at the next meeting of
shareholders. Stock Rights may be granted under the Plan at any time after
September 13, 1993, even if prior to the date of shareholder approval of the
Plan; provided, however, that such date shall not be prior to the date on which
the applicable Administrators acts to approve the grant or award. If the
requisite shareholder approval is not obtained by September 13, 1994, any grants
of ISOs under the Plan and any grants of Stock Rights to officers and directors,
as the case may be, made prior to that date will be automatically rescinded.
14. Termination; Amendment. The Board may terminate or amend the Plan in any
respect at any time, except that (i) no amendment requiring shareholder approval
under provisions of the Code and related regulations relating to ISOs or under
Rule 16b-3 will be effective without approval of shareholders as required and
within the times set by such rules, and (ii) no amendment may be made more than
once every six (6) months to the provisions of the Plan dealing with, related
to, affecting or governing Outside Directors' Options (other than those required
to comport with changes in the Code, the Employee Retirement Income Security
Act, or the rules thereunder, or Rule 16b-3).
15. Application of Funds. The proceeds received by the Company from the sale
of shares pursuant to Stock Rights authorized under the Plan shall be used for
general corporate purposes.
14
<PAGE>
16. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
17. Withholding of Additional Income Taxes. Upon the exercise of a Non-
Qualified Option, an Outside Director's Option, the grant of an Award, the
making of a Purchase of Common Stock for less than its fair market value, the
making of a Disqualifying Disposition (as defined in paragraph 4(I)), the
vesting of restricted Common Stock acquired on the exercise of a Stock Right
hereunder, or any other event in connection with a Stock Right, the Company, in
accordance with Section 3402(a) of the Code, may require the Optionee, Award
recipient, purchaser, or holder or exerciser of a Stock Right to pay additional
withholding taxes in respect of the amount that is considered compensation
includable in such person's gross income.
18. Governing Law; Construction. The validity and construction of the Plan and
the instruments evidencing Stock Rights shall be governed by the laws of the
State of Texas. In construing this Plan, the singular shall include the plural
and the masculine gender shall include the feminine and neuter, unless the
context otherwise requires.
15
<PAGE>
EXHIBIT 10.51
AGREEMENT OF SALE
AMONG
RAILTEX, INC.
a Texas corporation,
AND
INDIANA & OHIO RAIL CORP.
an Ohio corporation
AND
ALL OF THE SHAREHOLDERS OF
INDIANA & OHIO RAIL CORP.
DATED: May ___, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. DEFINITIONS.................................................... 1
2. REPRESENTATIONS AND WARRANTIES OF SELLERS...................... 3
2.1. POWER AND AUTHORITY OF SELLERS........................... 3
2.2. ORGANIZATION AND CAPITALIZATION OF I&O AND THE
SUBSIDIARIES............................................ 3
2.3. SUBSIDIARIES............................................. 4
2.4. QUALIFICATIONS........................................... 4
2.5. OTHER BUSINESS NAMES..................................... 4
2.6. EQUIPMENT LEASES......................................... 5
2.7. EQUIPMENT AND OTHER TANGIBLE PROPERTY.................... 5
2.8. CONDITION OF PERSONAL PROPERTY OTHER THAN TRACKS......... 6
2.9. CONDITION OF TRACK AND BRIDGES........................... 6
2.10. ACCOUNTS RECEIVABLE AND PAYABLE.......................... 7
2.11. REAL ESTATE OWNED........................................ 7
2.12. REAL ESTATE LEASED....................................... 8
2.13. OPERATING AGREEMENTS..................................... 10
2.14. INTANGIBLE PERSONAL PROPERTY............................. 10
2.15. GOOD TITLE TO STOCK...................................... 11
2.16. MATERIAL CONTRACTS....................................... 12
2.17. TAXES.................................................... 13
2.18. LITIGATION............................................... 15
2.19. LABOR, BENEFIT AND EMPLOYMENT............................ 15
2.20. CURRENT EMPLOYEES AND EMPLOYMENT CONDITIONS.............. 16
2.21. EMPLOYMENT PRACTICES..................................... 16
2.22. INSURANCE................................................ 16
2.23. ADVERSE BUSINESS CHANGES................................. 17
2.24. COMPLIANCE WITH APPLICABLE LAWS.......................... 18
2.25. VIOLATION OF OTHER INSTRUMENTS........................... 19
2.26. FINANCIAL STATEMENTS..................................... 19
2.27. BROKERAGE................................................ 21
2.28. BANKS.................................................... 21
2.29. NO DIVIDENDS OR DISTRIBUTIONS............................ 21
2.30. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES............. 21
2.31. ILLEGAL PAYMENTS......................................... 24
2.32. IMPROPER OR ILLEGAL PAYMENTS TO CUSTOMERS OR
SUPPLIERS............................................... 24
2.33. CONFLICTS OF INTEREST.................................... 24
2.34. ACQUISITIONS IN COMPLIANCE WITH LAW...................... 25
</TABLE>
ii
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<TABLE>
<S> <C>
2.35. SCHEDULES................................................. 25
2.36. FULL DISCLOSURE........................................... 25
3. REPRESENTATIONS AND WARRANTIES OF THE BUYER..................... 26
3.1. ORGANIZATION............................................... 26
3.2. AUTHORIZATION.............................................. 26
3.3. NO THIRD PARTY CONSENT REQUIRED; VIOLATION OF OTHER
INSTRUMENTS............................................... 26
3.4. INVESTMENT INTENT.......................................... 27
3.5. BARGAINED FOR TRANSACTION.................................. 27
4. SALE PROVISIONS................................................. 27
4.1. TRANSFER OF I&O STOCK...................................... 27
4.2. TRANSFER OF OFFICE BUILDING................................ 27
4.3. PURCHASE PRICE............................................. 28
4.4. BROKERAGE.................................................. 28
5. ADDITIONAL COVENANTS AND AGREEMENTS OF BUYER AND SELLERS........ 28
5.1. ACCESS TO PREMISES AND INFORMATION......................... 28
5.2. CONDUCT OF BUSINESS PENDING CLOSING........................ 30
5.3. CONSENT TO TRANSFER OF MATERIAL CONTRACTS.................. 32
5.4. TRANSITIONAL PROVISIONS.................................... 32
5.5. REGULATORY FILINGS......................................... 32
5.6. CERTAIN AGREEMENTS OF SELLERS REGARDING TAX
TREATMENT OF TRANSACTION.................................. 33
5.7. TRANSFER AND AGREEMENTS RELATED TO IORP AND CERTAIN
REAL ESTATE............................................... 34
5.8. SALE OF "BLUE ASH LINE".................................... 35
5.9. NON-COMPETITION............................................ 37
6. THE CLOSING..................................................... 37
6.1. THE CLOSING................................................ 37
6.2. TRANSFER OF TITLE OF STOCK................................. 37
6.3. TRANSFER OF TITLE TO REAL ESTATE........................... 37
7. CONDITIONS OF BUYER'S OBLIGATION TO CLOSE....................... 37
7.1. REPRESENTATIONS, WARRANTIES AND COVENANTS.................. 38
7.2. OPINION OF COUNSEL......................................... 39
7.3. NO MATERIAL ADVERSE CHANGE................................. 40
7.4. GOVERNMENTAL REQUIREMENTS.................................. 41
7.5. ABSENCE OF LITIGATION...................................... 41
7.6. CONSENTS................................................... 41
7.7. RESIGNATIONS............................................... 42
7.8. RELEASES................................................... 42
</TABLE>
iii
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<TABLE>
<S> <C>
7.9. RECORDS.................................................... 42
7.10. SECTION 5.7................................................ 42
7.11. APPROVAL OF DOCUMENTATION.................................. 42
7.12. BOARD APPROVAL............................................. 42
8. CONDITIONS OF SELLERS' OBLIGATION TO CLOSE........................ 43
8.1. REPRESENTATIONS, WARRANTIES AND COVENANTS.................. 43
8.2. OPINION OF COUNSEL......................................... 44
8.3. SECTION 5.7................................................ 44
8.4. APPROVAL OF DOCUMENTATION.................................. 44
8.5. RECEIPT OF PURCHASE PRICE.................................. 44
8.6. EMPLOYEE ARRANGEMENTS...................................... 44
9. POST CLOSING COVENANTS............................................ 45
10. SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATION................... 45
10.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES................. 45
10.2. INDEMNIFICATION BY SELLERS................................. 46
10.3. INDEMNIFICATION BY BUYER................................... 48
11. NOTICES........................................................... 48
12. GOVERNING LAW..................................................... 49
13. MISCELLANEOUS..................................................... 49
13.1. ENTIRE AGREEMENT........................................... 49
13.2. HEADINGS................................................... 49
13.3. AMENDMENT OR MODIFICATION.................................. 49
13.4. SCHEDULES AND EXHIBITS..................................... 49
13.5. COUNTERPARTS............................................... 50
13.6. CONSTRUCTION............................................... 50
13.7. PARTIES BOUND.............................................. 50
13.8. SCHEDULE UPDATES........................................... 50
13.9. SHARE TRANSFERS BY SELLERS................................. 50
13.10. IORP WITHDRAWAL PROCEDURE.................................. 51
13.11. EFFECT OF BUYER BOARD APPROVAL [OR DISAPPROVAL]............ 51
13.12. COUNTERPARTS............................................... 51
</TABLE>
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THIS AGREEMENT OF SALE ("Agreement") has been made and entered into this
_____ day of May, 1996, among RAILTEX, INC., a Texas corporation ("Buyer"),
INDIANA & OHIO RAIL CORP., an Ohio corporation ("I&O") and all of the
shareholders of I&O, all of whom are listed on Schedule 2.15 (hereinafter
referred to individually as "Seller" and collectively as "Sellers").
W I T N E S S E T H:
WHEREAS, Sellers own all of the outstanding capital stock of I&O, an Ohio
corporation; and
WHEREAS, the Buyer desires to acquire all the issued and outstanding
capital stock of I&O upon the terms and conditions hereinafter set forth; and
WHEREAS, Sellers desire to sell all of the outstanding capital stock of
I&O;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties represent, warrant, covenant, and agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the meanings ascribed to them in this Section 1.
1.1. "Best Knowledge of the Sellers" or any similar phrase shall mean (i)
information within the actual knowledge of the person/entity representing same,
after reasonable inquiry for purposes of the transactions contemplated in this
Agreement, and (ii) if such person/entity does not conduct a reasonable inquiry
for purposes of the transactions contemplated in this Agreement, such
information which such person/entity would have had actual knowledge of had such
person/entity conducted a reasonable inquiry for purposes of the transactions
contemplated by this Agreement.
1.2. "Closing Date" shall mean June 4, 1996, subject to the provisions of
Sections 7 and 8 of this Agreement.
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1.3. "Closing" shall mean the events which take place on the Closing Date
for the purpose of consummating this Agreement.
1.4. "ERISA" shall mean Employee Retirement Income Security Act.
1.5. "Annual Financial Statements" shall mean the audited annual financial
statements for the years ended and as at December 31, 1992 through 1995,
described in Schedule 1.5 hereto, prepared in accordance with generally accepted
accounting principles.
1.6. "Interim Financial Statements" shall mean the unaudited financial
statements for the quarter ended March 31, 1996, attached as Schedule 1.5
hereto, prepared in accordance with generally accepted accounting principles,
except that the Interim Financial Statements are presented in a manner
consistent with the manner of presentation of the I&O's interim financials on a
historical basis, and except that the Interim Financial Statements do not
include passenger operations.
1.7. "IRC" shall mean the Internal Revenue Code of 1986, as amended.
1.8. "IRS" shall mean Internal Revenue Service.
1.9. "Stock" shall mean the no par value Common Stock of I&O.
1.10. "Subsidiaries" or "Subsidiary" shall mean one or more of the
subsidiaries of I&O indicated on Schedule 2.3 attached hereto.
1.11. "Tax Liabilities" shall have the meaning set forth in Section 2.17
hereof.
1.12. "Track" shall include all rails, ties, tie plates, spikes, angle
bars, bolts, other fasteners, switches, switch control devices, ballast, signals
and other support structures considered necessary to operate a railroad.
2. REPRESENTATIONS AND WARRANTIES OF SELLERS. Each of the Sellers for
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himself/herself and not jointly and severally (except that Nancy and Tom McOwen
on the one hand and Patricia and John Richter on the other hand jointly and
severally) represents and warrants to the Buyer as follows:
2.1. POWER AND AUTHORITY OF SELLERS. This Agreement constitutes the legal,
valid and binding obligation of each Seller, enforceable against such Seller in
accordance with its terms. To the Best Knowledge of the Sellers, except as
indicated on Schedule 2.1 attached hereto, neither the execution nor the
performance of this Agreement by any Seller requires the consent of any third
party nor will such execution or performance violate or result in a material
breach or constitute a material default under any provision of any charter,
bylaw, indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, decree, statute, ordinance, regulation or any other restriction to
which any Seller is subject or by which it is bound.
2.2. ORGANIZATION AND CAPITALIZATION OF I&O AND THE SUBSIDIARIES. I&O and
each of the Subsidiaries is a corporation, duly organized, validly existing, and
in good standing as a corporation under the laws of the States of Ohio or
Indiana, and has all requisite corporate power, franchises, and licenses to own
its property and conduct the business in which it is engaged. I&O has authorized
capital stock consisting of the following: 500 shares of no par common stock,
100 shares of which are outstanding. Sellers hold all of the outstanding capital
stock of I&O. I&O owns all of the outstanding capital stock of each of the
Subsidiaries. All of the shares of capital stock issued by I&O and each of the
Subsidiaries have been fully paid, are validly issued, and are nonassessable.
Except as described on Schedule 2.2 attached hereto, I&O and each of the
Subsidiaries has no outstanding options or warrants to purchase, or contracts to
issue, or contracts or any other rights entitling anyone to acquire shares of
its capital stock of any class or
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kind, or securities convertible thereto and any such options, warrants,
contracts or other rights shall be exercised or cancelled prior to Closing.
2.3. SUBSIDIARIES. Except as otherwise indicated on Schedule 2.3 attached
hereto, I&O owns no subsidiaries. Also included on Schedule 2.3 is a complete
list of the capital assets of I&O's wholly owned subsidiary, Indiana & Ohio Rail
Passenger Corp. ("IORP"). IORP owns or controls no assets or rights necessary
to I&O in the operation of its business or which are used in the operation of
the business of I&O. Except as indicated on Schedule 2.3, there are no inter-
company debts or other obligations between I&O and IORP and I&O is neither
directly nor contingently liable for, nor obligated under, any of the debts or
obligations of IORP. Except as otherwise indicated on Schedule 2.3, none of the
proceeds of the outstanding indebtedness of the I&O or any of the Subsidiaries
other than IORP have been used to purchase any of the assets of IORP or any of
the assets contemplated to be transferred to IORP under the terms of this
Agreement.
2.4. QUALIFICATIONS. I&O and each of the Subsidiaries is qualified in each
state in which the character of its properties or the nature of the business
conducted by it makes qualification as a foreign corporation necessary.
2.5. OTHER BUSINESS NAMES. Schedule 2.5 attached hereto and made a part
hereof is a complete list of the business names used by I&O and each of the
Subsidiaries, and by any companies acquired by or merged into I&O or any of its
Subsidiaries. After the Closing Sellers shall cause the IORP to refrain from
using any of the business names included in Schedule 2.5 except for "IORP",
"IOSX", "The Indiana & Ohio Rail Passenger Corp.", and any derivation of the
names indicated on Schedule 2.5 so long as the words "passenger" or "scenic" are
also included.
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Provided, however, nothing in this Section 2.5 is intended to restrict the sale
by IORP of any of its current inventory of goods held for sale to passengers.
2.6. EQUIPMENT LEASES. Schedule 2.6 attached hereto contains an accurate
and complete list and description of all equipment or other tangible personal
property leased by I&O or any of its Subsidiaries, including the name of the
lessor, the expiration date of the lease, and the rent payable under each such
lease. Unless otherwise indicated on said Schedule, each such lease may be
cancelled by I&O or a Subsidiary of I&O on not more than 90 days' notice. Copies
of all such leases have been furnished to the Buyer. A list of all leases for
locomotives, railcars and any equipment or other tangible personal property are
included in Schedule 2.6. To the Best Knowledge of the Sellers, neither I&O or
any Subsidiary is in material default under any railcar or locomotive leases,
and there is no fact which, with notice and/or passage of time would constitute
such a material default, including, without limitation, the consummation of the
transactions contemplated by this Agreement. To the Best Knowledge of the
Sellers, except as described in Schedule 2.6, none of the parties contracting
with I&O or a Subsidiary is in default under any material provision of such
leases.
2.7. EQUIPMENT AND OTHER TANGIBLE PROPERTY. To the Best Knowledge of the
Sellers, except as set forth in Schedule 2.6 relating to leased equipment and
other tangible personal property, I&O and each of its Subsidiaries has good and
merchantable title to all of the locomotives, railcars, vehicles, Track and
railcar repair equipment, radios, fixtures, equipment and other tangible
personal property which I&O or any of the Subsidiaries uses in connection with
its business and/or purports to own as reflected on its financial books and
records and which is material to the value or operation of I&O or any of its
Subsidiaries, including those reflected on the
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Annual Financial Statements and the Interim Financial Statements, or acquired
after such date, (other than personal property sold or otherwise disposed of in
the ordinary and usual course of business subsequent to March 31, 1996), free
and clear of all mortgages, liens, security interests and encumbrances of any
nature whatsoever except as described on Schedule 2.7 attached hereto. I&O and
each of its Subsidiaries shall at Closing have an inventory of expendable
material and supplies (not including rails and ties) in amounts routinely
maintained by them, including diesel fuel, to allow for continued operation
after Closing until such expendable materials and supplies can be obtained in
the ordinary course of business.
2.8. CONDITION OF PERSONAL PROPERTY OTHER THAN TRACKS. All tangible
personal property owned by I&O or any of its Subsidiaries or used by I&O or any
of its Subsidiaries in its business is in good condition, normal wear and tear
excepted, and is in good operating order, except as otherwise described on
Schedule 2.8 attached hereto. The condition of Tracks owned or operated by I&O
or any of its Subsidiaries is as indicated in Section 2.9. All of the equipment
owned or operated by I&O or any of its Subsidiaries is maintained and operated
in order to conform in all material respects to federal, state and local laws
and regulations.
2.9. CONDITION OF TRACK AND BRIDGES. True copies of all periodic track and
bridge inspections and exemption reports in the possession or under the control
of I&O or any of its Subsidiaries or any of its or their agents describing the
condition of all of the Track and bridges owned or operated by I&O or any of its
Subsidiaries have been provided to the Buyer. To the Best Knowledge of the
Sellers, all of such Track and bridges are in good, safe operating order, except
as otherwise indicated on Schedule 2.9 attached hereto (specified by mile
posts). All of the Track and bridges owned or operated by I&O or any of its
Subsidiaries are maintained and operated in order
6
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to conform in all material respects to federal, state and local laws and
regulations, requirements of grants, loan documents or any other agreements with
third parties.
2.10. ACCOUNTS RECEIVABLE AND PAYABLE.
2.10.1. All trade and interline accounts receivable of I&O or any of its
Subsidiaries have originated in the ordinary course of business; to the Best
Knowledge of the Sellers, all of such accounts receivable are collectible in the
ordinary course of business except to the extent of the allowance for doubtful
accounts shown on the Interim Financial Statements or as shown on Schedule 2.10
attached hereto. Schedule 2.10 includes an aged account receivable list of all
accounts of I&O and its Subsidiaries as at April 12, 1996. Except as also
indicated on such Schedule, no accounts receivable of I&O or any of its
Subsidiaries have been factored and all such accounts receivable are owned by
I&O or a Subsidiary free and clear of any lien or encumbrance. Except for
interline accounts receivable, none of such receivables by their terms are due
more than 30 days after the date of service or sale giving rise to such
receivables.
2.10.2. All trade and interline accounts payable of I&O or any of its
Subsidiaries have originated in the ordinary course of business. Schedule 2.10
includes an aged account payable list of all accounts of I&O and its
Subsidiaries as at April 12, 1996.
2.11. REAL ESTATE OWNED. Schedule 2.11 attached hereto describes current
owner's title policies covering and describing all real estate owned by I&O or a
Subsidiary and which shall be conveyed to I&O by Sellers on the Closing Date
under the provisions of Section 4.2, and a summary description of all other real
estate assets, including easements, held by I&O or a Subsidiary (the "Real
Estate"). Schedule 2.11 does not include a description of trackage rights held
by I&O or any Subsidiary which are described in Schedule 2.13 hereof. To the
Best Knowledge of
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the Sellers, except as set forth on Schedule 2.11, I&O or a Subsidiary (or
Sellers in the case of Real Estate to be conveyed to I&O on the Closing Date
pursuant to Section 4.2 hereof) holds sufficient rights in and to all easements
or other rights necessary for perpetual access thereto, and owns outright all
buildings and other structures, improvements and fixtures thereon, free and
clear of all mortgages, liens or other encumbrances whatsoever. To the Best
Knowledge of the Sellers, all structures, improvements, fixtures and equipment
on the Real Estate conform in all material respects to any applicable state,
federal and local laws, regulations, zoning and building ordinances and health
and safety ordinances. The Real Estate is zoned for the various purposes for
which such real estate is currently being used. Except as set forth on Schedule
2.11, no notice from any governmental body has been served upon, or received by,
I&O, any Subsidiary or Sellers claiming any violation of any such law,
regulation, code or ordinance, or requiring any substantial work, repairs,
construction, alterations or installation on or in connection with the Real
Estate which has not been complied with.
2.12. REAL ESTATE LEASED. Schedule 2.12 attached hereto sets forth a list
and summary description of all real estate leased by I&O or a Subsidiary (except
for right of way leases and similar right of access documents which are
scheduled in Schedule 2.12.1 attached hereto) ("Leased Real Estate") and all
leases, subleases and other agreements by which the Leased Real Estate was
leased to or by the I&O or a Subsidiary ("Leases") including the name of the
landlord, the name of the tenant, the location of the Leased Real Estate, the
lease term, the kind of space leased (office space, garage space, warehouse,
etc.), the approximate area, the tenant's annual charges for rent, taxes and
other expenses, a statement of term-end restoration obligations and a list of
consents needed to an assignment of the lease or sublease. Accurate and
complete copies of all
8
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leases of Leased Real Estate have been furnished to Buyer. To the Best Knowledge
of the Sellers, all Leases are in full force and effect and constitute legal,
valid and binding obligations of the respective parties thereto enforceable in
accordance with their terms and grant the leasehold estates they purport to
grant free and clear of all mortgages, liens or other encumbrances whatsoever,
except as stated on Schedule 2.12. To the Best Knowledge of the Sellers, there
is not under any of such instruments any existing or claimed default, event of
default or event which with notice or lapse of time or both would constitute an
event of default, including the consummation of the transactions contemplated by
this Agreement.
2.12.1. Schedule 2.12.1 attached hereto includes a schedule of all right-
of-way leases, licenses, crossing right agreements and other agreements
providing access rights to I&O or any of the Subsidiaries or providing access
rights to others from I&O or any of the Subsidiaries. To the Best Knowledge of
the Sellers, the rights included in the agreements scheduled in Schedule 2.12.1
are sufficient to provide the I&O and the Subsidiaries right-of-way or other
access as is necessary for the continuation of their business as currently
conducted and, to the Best Knowledge of the Sellers, there is not under any such
agreements any existing or claimed default, event of default or event which with
notice or lapse of time or both would constitute an event of default, including
the consummation of the transactions contemplated by this Agreement.
2.13. OPERATING AGREEMENTS. Schedule 2.13 attached hereto contains an
accurate and complete list of all operating agreements between I&O or a
Subsidiary and any third party. Such operating agreements include, without
limitation, trackage rights agreements, interchange agreements, car hire
agreements, contract switching agreements and marketing agreements. Schedule
2.13 includes a summary description of each agreement including the name of the
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contracting parties, the location of the operating rights granted, the term of
the agreement. All of such agreements are in full force and effect and, to the
Best Knowledge of the Sellers, constitute legal, valid and binding obligations
of the respective parties thereto enforceable in accordance with their terms,
and, to the Best Knowledge of the Sellers, there is not under any of such
instruments any existing or claimed default or event which with notice or lapse
of time or both would constitute an event of default, including the consummation
of the transactions contemplated by this Agreement. Accurate complete copies of
all agreements referred to in Schedule 2.13 have been furnished to Buyer.
2.14. INTANGIBLE PERSONAL PROPERTY. Schedule 2.14 attached hereto contains
an accurate and complete list of all material intangible personal property owned
or used by I&O or any Subsidiary not described in other Schedules attached
hereto including all computer software, distributorship, franchise, or license
agreements, (whether I&O or a Subsidiary is the grantor or grantee of such
distributorship, franchise or license), and of patents, patent applications,
inventions, trademarks, trademark applications, copyrights, trade names, and
securities. Copies of all written instruments which evidence such intangible
personal property have been delivered to the Buyer. Except as indicated in said
Schedule, I&O or a Subsidiary is the sole and exclusive owner of each of said
items of intangible personal property; and to the Best Knowledge of the Sellers,
there are no claims or demands against I&O or any Subsidiary with respect to any
of such items of intangible personal property, and no proceedings have been
instituted, are pending, or, to the Best Knowledge of the Sellers, have been
threatened to terminate or cancel any such agreements or which challenge the
right of I&O or any Subsidiary with respect to any of such assets; and, to the
Best Knowledge of the Sellers, there are no facts which make it likely that any
such agreements will not be renewed
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at their next expiration date or which might reasonably be expected to serve as
the basis, in whole or in part, of any claim that any part of the business
carried on by I&O or any Subsidiary infringes the patent, trademark, trade name,
copyright, or other rights of any other person. Said Schedule also indicates the
name and address of any person who owns any patent, patent application,
trademark, trademark application, trade name, or copyright used by I&O or any
Subsidiary and specifies the date of the agreement authorizing such use. I&O and
each Subsidiary has the unrestricted right to use, free from any rights or
claims of others, all trade secrets and customer lists which it has used or
which it is now using in connection with its business.
2.15. GOOD TITLE TO STOCK. Except as otherwise indicated on Schedule 2.15
attached hereto, each Seller owns all of his/her issued and outstanding shares
of capital stock of I&O indicated on Schedule 2.15 free and clear of any
security interests, encumbrances or claims, and has the right to transfer such
capital stock to Buyer without the consent of any person. There is no
outstanding capital stock of I&O except as indicated on Schedule 2.15 and no
rights to acquire shares of its capital stock that are not described in Schedule
2.2.
2.16. MATERIAL CONTRACTS.
2.16.1. Schedule 2.16.1 attached hereto lists or describes all outstanding
material contracts to which I&O or a Subsidiary is a party other than those
which are listed on any other Schedule to this Agreement.
2.16.2. No purchase commitment is substantially in excess of the normal,
ordinary, and usual requirements of I&O's or a Subsidiary's business or was made
at any price substantially in excess of the then-current market price, or
contains terms and conditions significantly more onerous than those which are
usual and customary in the railroad industry.
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2.16.3. Neither I&O nor any Subsidiary has any outstanding bids, sale
proposals, contracts, or unfilled orders quoting prices which do not include a
mark-up over estimated cost (based upon current actual cost experience)
consistent with past mark-up on similar business. Attached hereto as Schedule
2.16.3 is a description of all outstanding bids of I&O or a Subsidiary
concerning the providing of industrial switching services, grade crossing
warning systems, or otherwise. Buyer has been provided complete copies of all
bid proposals and any underlying work papers. Also included in Schedule 2.16.3
is a description of all current negotiations regarding the providing of future
industrial switching services and grade crossing warning systems by I&O or any
Subsidiary.
2.16.4. To the Best Knowledge of the Sellers, neither I&O nor any
Subsidiary is a party to or otherwise bound by any material contract, agreement,
plan, lease, license, commitment, or undertaking which is not described in
2.16.1 or elsewhere in this Agreement.
2.16.5. To the Best Knowledge of the Sellers, all of the contracts recited
or referred to in any Schedule attached hereto are valid and binding obligations
of I&O or a Subsidiary and are valid and binding obligations of the other
parties thereto, and are enforceable in accordance with their respective terms.
All car hire agreements are in accordance with AAR Code of Car Hire Rules.
2.16.6. To the Best Knowledge of the Sellers, except as described on
Schedule 2.16.1 attached hereto, neither I&O, any Subsidiary, nor any other
party is in default under any material contract to which I&O or a Subsidiary is
a party and, to the Best Knowledge of the Sellers, there is not under any such
contracts any existing or claimed default, event of default or event which with
notice or lapse of time or both would constitute an event of default, including
the consummation of the transactions contemplated by this Agreement.
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2.16.7. Copies of the contracts or agreements listed or referred to on
every Schedule attached hereto have been made available to the Buyer.
2.17. TAXES.
2.17.1. To the Best Knowledge of the Sellers, I&O and each of its
Subsidiaries has filed all returns and paid in full all federal, state and local
taxes, fees, charges, assessments, penalties and interest, including, without
limitation, franchise, sales, use and ad valorem taxes ("Tax Liabilities") of
I&O and the Subsidiaries to the extent such filings and payments are required
prior to the date hereof. To the Best Knowledge of the Sellers, the returns were
correct in all material respects and included all income and deductions of I&O
and the Subsidiaries allocable to the periods for which the returns were filed.
No assessments or additional Tax Liabilities have been proposed or, to the Best
Knowledge of the Sellers, threatened against I&O, any of its Subsidiaries or any
of its or their assets, and neither I&O nor any of its Subsidiaries has executed
a waiver of the statute of limitations on the assessment or collection of any
Tax Liabilities, except as described in Schedule 2.17.1 attached hereto. The
Annual Financial Statements and Interim Financial Statements of I&O include
adequate provision for Tax Liabilities including provisions for current and
deferred taxes of I&O and each of its subsidiaries. Attached hereto as Schedule
2.17.1 is a presentation of the detail supporting provisions for Tax Liabilities
included in the Annual Financial Statements of I&O and its Subsidiaries as at
December 31, 1995 and the Interim Financial Statements of I&O and certain of its
Subsidiaries as at March 31, 1996.
2.17.2. Except as shown on Schedule 2.17.2 attached hereto, to the Best
Knowledge of the Sellers, the federal income tax returns of I&O have not been
audited or examined by IRS.
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2.17.3. To the Best Knowledge of the Sellers, there are no pending
investigations of I&O or its tax returns by any federal, state or local taxing
authority, except as described in Schedule 2.17.3 attached hereto.
2.17.4. Attached hereto as Schedule 2.17.4 is a list of the federal, state
and local tax returns (including, without limitation, sales tax returns) filed
for the last five (5) tax years of I&O and each of its Subsidiaries, copies of
which have been provided to Buyer. The supporting work papers for such returns
have been made available to the Buyer. Schedule 2.17.4 also includes schedules
supporting the tax basis of depreciable assets, real property and other assets
with a tax basis which differs from the book value reflected on the Annual
Financial Statements as at December 31, 1995 and the Interim Financial
Statements as at March 31, 1996. Schedule 2.17.4 also includes schedules of all
tax attribute carry-over items (including, without limitation, net operating
losses and investment tax credits) and years of expiration for such tax
attributes.
2.17.5. There is no tax sharing agreement among I&O and any of its
Subsidiaries, except as mandated by the IRC.
2.18. LITIGATION. To the Best Knowledge of the Sellers, except as disclosed
on Schedule 2.18 attached hereto and made a part hereof, there are no suits,
governmental proceedings or litigation or claims pending or threatened against
I&O or any Subsidiary or any facts which may reasonably be expected to result in
a claim or threat of claim against I&O or any Subsidiary, nor, to the Best
Knowledge of the Sellers, is I&O nor any Subsidiary subject to any existing
judgment which might affect the financial condition, business or property of I&O
or any Subsidiary nor to the Best Knowledge of the Sellers has I&O nor any
Subsidiary received any inquiry from an agency of the federal or of any state or
local government about the transaction contemplated hereby, or about
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any violation or possible violation of any law or regulation affecting its
business or assets. To the Best Knowledge of the Sellers, I&O and each
Subsidiary has complied in all material respects with all laws, regulations,
rules and ordinances applicable to its business and assets.
2.19. LABOR, BENEFIT AND EMPLOYMENT. Except as disclosed on Schedule 2.19
attached hereto and made a part hereof, there are no contracts with any labor
union claiming to represent any of the employees of I&O or any Subsidiary nor
any written employment contracts, deferred compensation, pension, profit
sharing, bonus, savings, retainer, consultant, retirement, welfare, vacation,
sick leave, personal leave, severance or other plans or programs for the benefit
of their employees. No attempt to unionize or organize into or as a part of a
labor union, any employees of I&O or a Subsidiary has been made, except as
otherwise described on Schedule 2.19. To the Best Knowledge of the Sellers,
neither I&O nor any Subsidiary is in material default with respect to any such
contract, plan or program. Copies of all written versions of such plans are
included in Schedule 2.19.
2.20. CURRENT EMPLOYEES AND EMPLOYMENT CONDITIONS. Attached hereto as
Schedule 2.20 is a list, as of the date of this Agreement, showing the names of
all employees of I&O and each of the Subsidiaries, their original dates of
employment, job titles and salary rates of pay for salaried employees and hourly
rates for hourly compensation employees. Except as listed on Schedule 2.20,
neither I&O nor any Subsidiary is indebted to nor a creditor of any Seller,
IORP, or employees of I&O or IORP, except, for accrued wages and salaries
payable by their employer.
2.21. EMPLOYMENT PRACTICES. To the Best Knowledge of the Sellers, I&O and
each of the Subsidiaries is in material compliance with all federal and state
laws respecting employment, wages and hours. To the Best Knowledge of the
Sellers, neither I&O nor any
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Subsidiary is engaged in any discriminatory hiring or employment practices or
any unfair labor practices nor have any employment discrimination or unfair
labor practice complaints against I&O or any Subsidiary been filed or, to the
Best Knowledge of the Sellers, threatened to be filed with any federal or state
agency having jurisdiction over their labor matters. Sellers reasonably believe
that the relationship of I&O and each Subsidiary with its employees to be
satisfactory, and no employee, to the Best Knowledge of the Sellers, has
asserted or threatened to assert that I&O or any such Subsidiary is liable for
any arrears of wages, benefits, damages or any taxes or penalties for failure to
comply with any of the foregoing.
2.22. INSURANCE. I&O and each of its Subsidiaries have in full force and
effect insurance policies of the types and in the amounts set forth described in
Schedule 2.22 attached hereto and, to the Best Knowledge of the Sellers, no
additional premiums or other amounts are owed or shall become payable thereunder
by I&O or such Subsidiaries in respect of insurance coverage through the Closing
Date.
2.23. ADVERSE BUSINESS CHANGES. To the Best Knowledge of the Sellers,
except as noted on Schedule 2.23 attached hereto or as reflected in the Interim
Financial Statements, since December 31, 1995, there has not been:
2.23.1. Any adverse change in the financial condition, assets, liabilities,
business, or results of operations of I&O or any Subsidiary other than changes
in the ordinary course of business, none of which has (either when taken by
itself or in conjunction with all other such changes) been materially adverse;
2.23.2. Any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the business of I&O or any
Subsidiary;
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2.23.3. Any increase or decrease in the rates of compensation payable to or
to become payable by I&O or any of its Subsidiaries to any of their officers,
employees or agents over or under the rates in effect during the six months
ended December 31, 1995;
2.23.4. Any amendment or termination of any contract, agreement, plan,
lease, or license to which I&O or a Subsidiary is a party or by which it may be
bound, otherwise than in the ordinary course of business;
2.23.5. Any disposition, mortgage, pledge, or subjection to any lien,
claim, charge, option, or encumbrance of any property or asset of I&O or any
Subsidiary material to the value or operations of I&O or any Subsidiary, any
commitment made or liability incurred by I&O or any Subsidiary, or any
cancellation or compromise of any debt or claim of I&O or any Subsidiary
otherwise than in the ordinary course of business;
2.23.6. Any labor dispute or any threat of a labor dispute or any attempt
or threat of an attempt by a labor union to organize the employees of I&O or any
Subsidiary;
2.23.7. Any material change in the sources of supply or method of doing
business of I&O or any Subsidiary;
2.23.8. Any acquisition by I&O or any Subsidiary of the assets or capital
stock of another business entity;
2.23.9. Any acquisition, distribution or disposition of any assets of I&O
or any Subsidiary other than in the ordinary course of business involving value
in excess of $20,000.00;
2.23.10. Any event such as but not limited to fire, explosion, earthquake,
accident, flood, strike, work stoppage, cancellation or threatened cancellation
of distribution agreements or insurance policies, or any condemnation, act of
God or public enemy, riot or civil disturbance (with
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respect to I&O, any Subsidiary, or any shipper which materially affects the
business of I&O or any Subsidiary); or
2.23.11. Any loss or threatened loss of a customer or group of customers of
I&O or any Subsidiary which accounted for more than 10% of I&O's and its
Subsidiaries' consolidated freight car loadings during the six (6) months ended
March 31, 1996 .
2.24. COMPLIANCE WITH APPLICABLE LAWS. To the Best Knowledge of the
Sellers, I&O and its Subsidiaries are in material compliance with all federal,
state, county, and municipal laws, ordinances, and regulations applicable to the
conduct of their businesses or to the assets owned, used, or occupied by them,
and I&O and the Subsidiaries have received no notice or advice to the contrary.
2.25. VIOLATION OF OTHER INSTRUMENTS. To the Best Knowledge of the Sellers,
except as indicated on Schedule 2.25, neither the execution of, nor the
consummation of the transactions contemplated by, this Agreement will result in
a material breach or constitute a material default under any provision of any
charter, bylaw, indenture, mortgage, lien, lease, agreement, contract,
instrument, order, judgment, decree, ordinance, regulation or any other
restriction to which I&O or any Subsidiary is subject or bound, including,
without limitation, any equipment lease listed or required to be listed on
Schedule 2.6, any Lease listed or required to be listed on Schedule 2.12, any
agreement listed or required to be listed on Schedule 2.12.1, any operating
agreement listed or required to be listed on Schedule 2.13 and any material
contract listed or required to be listed on Schedule 2.16.1.
2.26. FINANCIAL STATEMENTS.
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2.26.1. I&O has delivered to Buyer the Annual Financial Statements
containing the audited consolidated balance sheets of I&O and its Subsidiaries
as at December 31, 1991, 1992, 1993, 1994 and 1995, and related audited
statements of net income and retained earnings and changes in financial position
for the five years then ended. Sellers have also delivered the Interim Financial
Statements containing the balance sheets of I&O as of March 31, 1996, and the
related statement of net income and retained earnings.
2.26.2. Except as indicated on Schedule 2.26.2 attached hereto, (i) the
Annual Financial Statements, fairly and accurately present the financial
position of I&O consolidated with its Subsidiaries and the results of its
operations as at the dates and for the periods to which they apply, and such
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved and
(ii) the Interim Financial Statements fairly and accurately present the
financial position of I&O consolidated with its Subsidiaries and the results of
operations as at the dates and for the periods to which they apply, and such
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis, except that (a) the Interim Financial
Statements are presented in a manner consistent with the manner of presentation
of the I&O's interim financials on a historical basis and (b) the Interim
Financial Statements do not include passenger operations.
2.26.3. Except as otherwise indicated on Schedule 2.26.3, no value has been
or will be assigned by I&O in any of said balance sheets to (a) good will,
trademarks, trade names, contract rights, customer lists, books and records,
restrictive covenants, deferred charges, or prepaid expenses for any item other
than rent or insurance; (b) office supplies or advertising or promotional
material; (c) any asset previously charged to expense; or (d) any other asset
regarding which it has
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been the practice to write off as an expense.
2.26.4. To the Best Knowledge of the Sellers, I&O and its Subsidiaries had
no material liabilities as at March 31, 1996, not reflected in and disclosed on
the aforesaid Interim Financial Statements. To the Best Knowledge of the
Sellers, neither I&O nor its Subsidiaries have incurred any liabilities
whatsoever in addition to those reflected in or disclosed on such Interim
Financial Statements, except liabilities incurred in the ordinary course of
business subsequent to the date of such balance sheets included therein. To the
Best Knowledge of the Sellers, attached hereto as Schedule 2.26.4 is a list of
every contractual document underlying or documenting a security interest
relating to each liability in excess of $20,000 reflected on the Interim
Financial Statements as at March 31, 1996. Copies of each documents have been
made available to the Buyer. To the Best Knowledge of the Sellers, except as
indicated on Schedule 2.25, the transaction contemplated by this Agreement shall
not constitute a default under any of such liabilities or result in any
acceleration of amounts due thereunder.
2.26.5. Inventory and accounts payable have been valued at gross invoice
amounts without deducting any available discounts.
2.27. BROKERAGE. No broker or finder has rendered services in connection
with this Agreement.
2.28. BANKS. Schedule 2.28 attached hereto contains a complete list of the
names and addresses of each bank in which I&O or any Subsidiary maintains an
account and/or safe deposit box, the bank account numbers assigned to I&O or any
Subsidiary, and the persons authorized to sign checks on behalf of I&O or any
Subsidiary and to deposit assets in such safety deposit boxes.
2.29. NO DIVIDENDS OR DISTRIBUTIONS. Except as indicated on Schedule 2.29
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attached hereto, since March 31, 1996, I&O has not set aside or declared any
dividend or paid or distributed cash or any other assets in respect of capital
stock or incident to any redemption of capital stock or otherwise to any Seller
or any affiliate of a Seller except for salaries paid to regularly employed
employees in the ordinary course of business. Nor have the Board of Directors
or shareholders of I&O taken any action in respect of any of the foregoing.
2.30. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES
2.30.1. Except as indicated on Schedule 2.30.1 attached hereto, to the Best
Knowledge of the Sellers, I&O and its Subsidiaries and the officers, employees,
and agents of all such corporations have at all times been, are currently, and
will continue until Closing to be, in material compliance with all applicable
federal, state and local health, environmental, natural resources, hazardous,
toxic and controlled waste orders, regulations and laws.
2.30.2. To the Best Knowledge of the Sellers, except as described on
Schedule 2.30.2 attached hereto, prior to Closing there has not been and will
not be any storage, production, disposal, treatment or release, on, in, upon or
under any real or personal property owned, operated, leased, controlled by or
otherwise related to I&O or its Subsidiaries (such real or personal property
referred to in this agreement as "the Real and Personal Property") of (i) any
solid or hazardous waste, as those terms are defined by the Resource
Conservation and Recovery Act as amended, (42 U.S.C. (S)6901 et seq.) ("Waste");
(ii) any hazardous substance or any waste containing a hazardous substance that
is subject to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA Waste"); or (iii) any other waste or
pollutants as such terms are defined under any other local, state or federal law
pertaining to the environment or natural resources (collectively, the
"Pollutants"). In addition, Schedule 2.30.2 describes all wastes,
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or pollutants, including but not limited to fuel, lubricating oil and such other
substances used in the ordinary course of business by I&O and how and where all
such materials are transported, and stored prior to their actual use in the
ordinary course of business. Except as set forth in Sechdule 2.30.2, to the Best
Knowledge of the Sellers, prior to Closing, there has not been any releases of
any Waste, Hazardous Waste or any Pollutants on adjacent or neighboring
properties to the Real and Personal Property which through soil, water or any
other migration could have come to be located on the Real and Personal Property.
2.30.4. The Real and Personal Property has been used by the Sellers for the
following purposes only: The operation of a railroad and activities related to
the railroad business and as property leased to third parties.
2.30.5. Except as indicated on Schedule 2.30.1 attached hereto, to the Best
Knowledge of the Sellers, I&O and the Subsidiaries currently possess and
materially comply with, and have at all times possessed and materially complied
with, all necessary state, federal and local environmental and natural resources
permits, all of which are listed on Schedule 2.30.5 attached hereto.
2.30.6. To the Best Knowledge of the Sellers, (i) there are no actual or
contingent environmental or natural resource liabilities concerning the Real and
Personal Property, and (ii) no environmental liens or superliens of any type
exist on the Real and Personal Property.
2.30.7. To the Best Knowledge of the Sellers, except as listed on Schedule
2.30.7 attached hereto, (i) neither I&O nor any of its Subsidiaries have been in
the past nor currently involved, as a party or otherwise, in any pending or
threatened litigation, including response or cost recovery action by government
or private parties, concerning environmental or natural resource matters of any
type relating to the Real and Personal Property and I&O and (ii) there are no
facts or
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circumstances that may give rise to any such future litigation under
any state, federal or local environmental or natural resource laws.
2.30.8. To the Best Knowledge of the Sellers, except as listed on Schedule
2.30.8 attached hereto, there are no PCB's or asbestos integral to or contained
within equipment and buildings on the Real and Personal Property.
2.30.9. To the Best Knowledge of the Sellers, there are no wells, above
ground storage tanks, underground storage tanks, covered-over surface
impoundments or other common sources of environmental problems on the Real and
Personal Property, except as described on Schedule 2.30.9 attached hereto.
2.31. ILLEGAL PAYMENTS. To the Best Knowledge of the Sellers, there has not
been any illegal payment by I&O or any Subsidiary or any affiliate of I&O or any
Subsidiary related to the business of I&O or any Subsidiary to quasi-
governmental or union officials.
2.32. IMPROPER OR ILLEGAL PAYMENTS TO CUSTOMERS OR SUPPLIERS. To the Best
Knowledge of the Sellers, there has not been any illegal or improper payment by
I&O or any Subsidiary or any affiliate, employee or agent of I&O or any
Subsidiary related to the business of I&O or any Subsidiary to customers for the
sharing of fees or to customers or suppliers for the rebating of charges, or
other reciprocal practices which are either illegal or which are made to obtain
improper influence with an employee or agent of a customer or supplier contrary
to the best interests of such customer or supplier.
2.33. CONFLICTS OF INTEREST. Except as set forth on Schedule 2.33 attached
hereto, no officer or director or, to the Best Knowledge of the Sellers,
employee of I&O or any Subsidiary nor, to the Best Knowledge of the Sellers, any
relative of any such officer, director or employee:
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(i) Owns, directly or indirectly, any interest in (excepting not more
than 5% stock holdings for investment purposes in securities of publicly held
and traded companies), or is an employee of, any corporation, firm, association
or other business entity or organization which is, or is engaged in business as,
a competitor, lessor, lessee, customer or supplier of I&O or any Subsidiary;
(ii) Owns, directly or indirectly, in whole or in part, any machinery,
equipment, structures, real estate, intangible property, invention, permit,
license or secret or confidential information which I&O or any Subsidiary is
using and the use of which is necessary or desirable for the conduct of its
business; or
(iii) Has any cause of action or other claims whatsoever against, or owes
any amount to, any Seller or I&O or any Subsidiary.
2.34. ACQUISITIONS IN COMPLIANCE WITH LAW. To the Best Knowledge of the
Sellers, I&O and all of the Subsidiaries have materially complied with all
applicable state and federal laws and regulations incident to all past
acquisitions or abandonment of railroad operations or properties including,
without limitation, the United States Interstate Commerce Act and all
regulations of the Interstate Commerce Commission ("ICC") and the Surface
Transportation Board. Buyer has been provided with all material ICC Financing
Dockets and Certificates of Public Convenience and Necessity related to any
acquisitions by I&O or any Subsidiary.
2.35. SCHEDULES. All the facts recited in Schedules shall be deemed to be
representations of fact as though recited in this Section 2.
2.36. FULL DISCLOSURE. To the Best Knowledge of the Sellers, no
representation or warranty made by Sellers or I&O in this Agreement or a
Schedule to this Agreement, and no
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certification furnished or to be furnished to the Buyer pursuant to this
Agreement, contains or will contain any untrue statement of a material fact or
omits, or will omit, to state a material fact necessary to make the statements
contained herein or therein not misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE BUYER. Buyer hereby represents and
warrants to Sellers that:
3.1. ORGANIZATION. Buyer is duly organized, validly existing, and in good
standing under the laws of the State of Texas and has the corporate power to
execute, deliver, and perform this Agreement.
3.2. AUTHORIZATION. Upon the approval by the Board of Directors of Buyer of
the execution and delivery of this Agreement and the transactions contemplated
hereby, which approval the Board of Directors of Buyer may decline to give in
the exercise of its unfettered business judgment and fiduciary duties, (i) the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will have been duly authorized by the Board of
Directors of Buyer, and (ii) this Agreement will constitute the legal, valid and
binding obligation of the Buyer, enforceable against it in accordance with its
terms.
3.3. NO THIRD PARTY CONSENT REQUIRED; VIOLATION OF OTHER INSTRUMENTS.
Except for Buyer's bank, First Interstate Bank of Texas, N.A., the consent of
which Buyer will obtain on or before any approval of this Agreement by the Board
of Directors of Buyer upon which the obligations of Buyer hereunder are
conditioned, neither the execution nor the performance of this Agreement by
Buyer requires the consent of any third party nor will it violate or result in a
material breach of or constitute a material default under any provision of any
charter, bylaw, indenture, mortgage, lien, lease, agreement, contract,
instrument, order, judgment, decree,
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statute, ordinance, regulation or any other restriction of any kind or character
to which Buyer is subject or by which it is bound.
3.4. INVESTMENT INTENT. Buyer will acquire the Stock for its own account
and not with a view to the distribution thereof in violation of applicable
securities laws.
3.5. BARGAINED FOR TRANSACTION. Buyer represents that it has bargained for
this transaction with Sellers and that (i) it has had access to such
information, in addition to the information provided by the Sellers in this
Agreement and the Schedules attached hereto, as it has deemed relevant to make a
decision to enter into this Agreement, and (ii) it is an "accredited investor"
as such term is defined in the United States Securities Act of 1933, as amended.
Buyer acknowledges that it has made its own assessment and evaluation of such
information available about the I&O and its Subsidiaries for purposes of this
transaction and has relied principally upon such assessment and evaluation, as
well as the representations and warranties provided by Sellers in this
Agreement, in deciding to enter into this Agreement.
4. SALE PROVISIONS.
4.1. TRANSFER OF I&O STOCK. At the Closing, the Sellers shall transfer and
deliver to Buyer certificates representing all the issued and outstanding shares
of Stock, free and clear of any and all security interests, encumbrances or
claims with transfer taxes, if any, prepaid by Sellers and with duly endorsed
stock powers or other instruments of transfer and with signatures duly
guaranteed by a bank, if required by Buyer. In addition, Sellers shall deliver
documentation satisfactory to Buyer's counsel evidencing that any outstanding
warrant or option to purchase any of the Stock or any other right with respect
to the Stock has been cancelled or exercised prior to Closing.
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4.2. TRANSFER OF OFFICE BUILDING. At the Closing, Sellers shall convey to
Buyer good and marketable title to the office building and real estate described
on Schedule 4.2 attached hereto, free and clear of all mortgages, liens or other
encumbrances whatsoever except those described on Schedule 4.2. The Buyer may
withhold any of the purchase price at Closing sufficient to pay any indebtedness
necessary to release any lien then encumbering the title to such office
building. Buyer and Sellers will mutually agree to an allocation of a portion of
the Purchase Price to the office building and real estate described on Schedule
4.2.0
4.3. PURCHASE PRICE.
4.3.1. Buyer shall pay the Sellers an aggregate of $9,025,000.00 (the
"Purchase Price") for 100% of the issued and outstanding Stock and for the
office building referred to in Section 4.2.
4.3.2. The Buyer shall pay the Purchase Price at the Closing by delivering
to the Sellers $9,025,000.00 in cash (less all amounts due to I&O or any of the
Subsidiaries (other than IORP) from IORP aggregating in excess of $2,000.00),
pro rata in accordance with their ownership interests set forth on Schedule
2.15.
4.4. BROKERAGE. Each party to this Agreement agrees to indemnify and save
the other party harmless from any claim or demand for commission or other
compensation by any broker, finder, financial consultant or similar agent
claiming to have been employed by or on behalf of such party and to bear the
cost of legal expenses incurred in defending against any such claim.
5. ADDITIONAL COVENANTS AND AGREEMENTS OF BUYER AND SELLERS.
5.1. ACCESS TO PREMISES AND INFORMATION.
5.1.1. Sellers will cause I&O to permit Buyer and its authorized
representatives (including, without limitation, consultants and representatives
of Buyer's lenders) to have full access to the
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premises, books, and records of I&O and to furnish Buyer with such financial and
operating data and other information with respect to the business and properties
of I&O as Buyer shall reasonably request.
5.1.2. Until the transaction contemplated by this Agreement is consummated,
Buyer will hold in strict confidence and not use (and will be responsible for
causing its agents, employees, and advisors to be bound) for its own benefit the
documents and information furnished concerning I&O unless readily ascertainable
from public or published information, or trade sources, or already known or
subsequently developed by Buyer independently of any investigation of I&O or
received from a third party not under an obligation to I&O to keep such
information confidential. If the transactions contemplated by this Agreement
should not be consummated, all such documents obtained from I&O and all copies
thereof shall be returned to I&O, and any proprietary information not
retrievable shall be held in continued confidence for a period of two (2) years
after return of such documents.
5.1.3. I&O shall furnish Buyer with copies of all engineering, soil,
environmental, feasibility or similar studies of any real estate owned or leased
by I&O or any Subsidiary which any Seller or I&O or any Subsidiary may have in
their possession or control or may have access as the result of relationships
with the Southwest Ohio Regional Transit Authority ("SORTA").
5.1.4. Buyer and its representatives shall be entitled to enter upon any
real estate owned or leased by I&O to investigate all aspects of such real
estate including, without limitation, soil and sub-soil analysis (including core
samples and other related tests), environmental testing and site assessment,
engineering studies, land use and planning feasibility studies, a study of the
availability of utilities, drainage, access, sewer, fire and police protection,
and such other investigations as
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Buyer may desire, but Buyer shall commit no waste and leave no damage.
5.1.5. No investigation or inquiry made by Buyer pursuant to this Agreement
shall in any way affect or lessen the representations and warranties made herein
by Sellers or the obligations of the Sellers under the indemnity provisions of
Section 10; provided, however, that in the event Buyer shall acquire actual
knowledge prior to the Closing of any fact which is contrary to any
representation or warranty made by Sellers herein, the Buyer shall notify the
Sellers in writing of any such fact and may elect not to close pursuant to
Section 7.1.1 below, but if, after acquiring actual knowledge of any such fact,
Buyer participates in the Closing, Buyer shall have thereby waived any claim
(but only such claim or claims) Buyer may have otherwise had against any Seller
based solely upon such fact.
5.2. CONDUCT OF BUSINESS PENDING CLOSING. Except as otherwise indicated on
Schedule 5.2, Sellers covenant and agree that from and after the date hereof and
until the Closing it will cause I&O and each of the Subsidiaries:
5.2.1. To carry on its business diligently and in the ordinary course of
business as it has done in the past;
5.2.2. Not to issue or agree to issue any shares of its capital stock or
right to acquire any such capital stock in the future, whether such right be
conditional or unconditional, including, without limitation, any warrants,
options or convertible debt;
5.2.3. Not to incur voluntarily any liability or obligation, make any
commitment or disbursement, acquire, dispose of or remove any property or asset,
make any contract or agreement, or engage in any transaction, except in the
ordinary course of its business and of a value no greater than $20,000.00;
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5.2.4. Not to subject any of its properties or assets (other than assets to
be retained by IORP under this Agreement) to any lien, claim, charge, option or
encumbrance except in the ordinary course of its business consistent with past
practices;
5.2.5. Except as set forth in Schedule 5.2, not to increase or decrease the
rate of compensation of or pay any unusual compensation to any officer or
employee, or enter into any agreement to increase or decrease the rate of
compensation of or to pay any unusual compensation to any officer or employee;
5.2.6. Not to lend money to any employee, shareholder or other party except
for inter-company transfers among I&O and any of its subsidiaries other than
IORP;
5.2.7. Not to enter into any collective bargaining agreement, or create or
modify any pension or profit sharing plan, bonus, deferred compensation, death
benefit, or retirement plan, or the level of benefits under any such plan nor
will it increase or decrease any severance or termination pay benefit or any
other fringe benefit;
5.2.8. To continue in effect its present insurance coverage on all
properties, assets, business and personnel;
5.2.9. To use its best efforts to preserve its business organization
intact, to keep available its present employees, and to preserve its present
relationship with suppliers, franchisors, and customers and others having
business dealings with it ;
5.2.10. Not to do anything or fail to do anything which will cause a breach
of or default in any material contract, agreement, commitment, or obligation to
which it is a party or by which it may be bound;
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5.2.11. Not to pay or distribute any cash or other asset in respect of its
common stock or otherwise to Sellers or any affiliate of Sellers except for the
payment of salaries to regularly employed employees in the ordinary course of
business.
5.3. CONSENT TO TRANSFER OF MATERIAL CONTRACTS. To the extent that any
material contract, agreement or commitment listed in Schedules 2.6, 2.11, 2.12,
2.12.1, 2.13, 2.16.1 or elsewhere in this Agreement or which are annexed hereto
should require the consent of the other party thereto as a result of the change
of ownership or control of I&O contemplated by this Agreement, Sellers and I&O
shall use their best efforts to obtain such consent. If the consent can not be
obtained, Sellers shall cooperate with Buyer in any reasonable arrangement
designed to preserve for I&O the benefits under such contract or commitment;
provided, however, that obtaining such consent shall be a condition of Buyer's
obligation to Close under Section 7 below, unless waived in writing by Buyer.
5.4. TRANSITIONAL PROVISIONS. In order to facilitate a smooth transfer of
control of I&O to Buyer, Sellers shall cause I&O, promptly following execution
of this Agreement, to furnish the Buyer with such data relevant to the shippers
and employees of I&O and each of the Subsidiaries, subject to the provisions of
Section 5.1 hereof, as the Buyer may reasonably require, and to introduce
representatives of Buyer to as many of such shippers and employees, public
officials or representatives of connecting railroads as they may reasonably wish
to visit.
5.5. REGULATORY FILINGS. Sellers and I&O, either directly or through I&O,
shall promptly take all actions necessary to make each filing it is required to
make with any governmental agency, if any, as a condition to or consequence of
the consummation of the sale of Stock to Buyer, and shall each use its best
efforts to assist Buyer in making such required filings.
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Sellers and I&O shall (i) use its best efforts to comply as expeditiously as
possible with all lawful requests or requirements of any governmental agencies,
including, without limitation, the Surface Transportation Board and the
Securities and Exchange Commission, for additional information and documents
with respect to the transactions contemplated by this Agreement, (ii) not extend
any waiting period or enter into any agreement with any governmental agency not
to consummate the transactions contemplated by this Agreement, except with the
prior consent of Buyer, and (iii) cooperate with Buyer and use its best efforts
to cause the lifting or removal of any temporary restraining order or
preliminary injunction which may be entered in connection with the transactions
contemplated by this Agreement.
5.6. CERTAIN AGREEMENTS OF SELLERS REGARDING TAX TREATMENT OF TRANSACTION.
5.6.1. Sellers will be responsible for filing all federal, state or local
tax returns for I&O and its Subsidiaries for the year-ended December 31, 1995.
Sellers will accrue the current and deferred federal, state and local tax due
for the period ended March 31, 1996 and provide an estimate thereof to Buyer on
or before May 31, 1996. The I&O shall provide Sellers with all information
necessary for Sellers to satisfy their obligations under this Section 5.6.1.
5.6.2. Any future payments arising from indemnification or breach of
contract pursuant to this Agreement between Buyer and Sellers will be treated as
an adjustment to the purchase price of the Stock purchased by Buyer from Sellers
hereunder.
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5.7. TRANSFER AND AGREEMENTS RELATED TO IORP AND CERTAIN REAL ESTATE.
5.7.1. Notwithstanding any other provision to this Agreement, at the
Closing, I&O shall sell and deliver to Seller, Thomas B. McOwen, for a purchase
price of $25,000.00 certificate(s) representing all of the issued and
outstanding shares of capital stock of IORP with duly endorsed stock powers or
other instruments of transfer and with signatures duly guaranteed by a bank, if
required by the Sellers. Further, on or before the transfer of capital stock
referred to in the previous sentence I&O shall cause the two parcels of real
estate described in Schedule 5.7.1 to be transferred to IORP from I&O in a
manner resulting in no recourse or expense to I&O except for real estate taxes
accrued but not paid.
5.7.2. On or before the Closing, I&O and Buyer shall grant to IORP the
exclusive right, subject to (i) prior existing rights of other passenger
operators, (ii) rights of Amtrak, (iii) rights granted to commuter or (iv)
rights required by law, to operate all passenger business on tracks owned or
controlled (now or in the future to the extent that rights acquired in the
future include the right to grant such exclusive right or such other rights as
I&O or Buyer or its affiliates may be entitled to extend to IORP, after good
faith negotiation,) by I&O or Buyer or its affiliates (to the extent only of
tracks which are contiguous to tracks owned or controlled by the I&O). Such
right shall be granted by that certain Interchange, Service and Trackage Right
Agreement, the form of which is attached as Exhibit A, pursuant to which IORP is
transferee and each of the following are transferors: a) Cincinnati Terminal
Railway; b) Indiana and Ohio Railroad, Inc.; c) Indiana & Ohio Railway Co.; and
d) Indiana & Ohio Central Railroad, Inc. Exhibit A also includes agreements
between I&O and IORP relating to the storage, use, and pick-up and delivery
of cars to interchange
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points, insurance requirements, and other agreements related to the operation of
IORP.
5.7.3. At the Closing the I&O and the IORP will execute a lease in a form
satisfactory to Buyer and Mr. Thomas McOwen regarding the use and access to
McCullough Engine House and the exclusive use of the third track therein.
5.7.4. At the Closing the I&O and IORP shall execute a lease in the form
attached hereto as Exhibit B under which the I&O will lease to the IORP suitable
locomotives for passenger moves.
5.7.5. To the extent I&O's compliance with the provisions of this Section
5.7 would otherwise constitute a violation of the covenants of I&O and/or the
Sellers under this Agreement, or of any other provision of this Agreement, all
such violations are hereby waived by Buyer.
5.8. SALE OF "BLUE ASH LINE".
5.8.1. After Closing, I&O shall use its best efforts to sell to SORTA, or
its successor in interest or any similarly situated public authority, the
property described on Schedule 5.8.1 (the "Blue Ash Line"). If the Blue Ash Line
is sold on or prior to December 31, 2003, the Sellers shall be entitled to 70%
of Net Proceeds from the sale (payable to Sellers in the same form received by
the I&O), pro-rata among them according to their percentage ownership of Stock
as described on Schedule 2.15; however, notwithstanding the foregoing, the
Sellers shall not receive an amount in excess of an aggregate of $2,450,000 in
cash or other value. "Net Proceeds" shall mean the amount of consideration
actually received by the I&O incident to the sale of the Blue Ash Line, net of
any expenses or costs of sale, including, without limitation, attorneys and
brokerage fees, taxes, and title insurance, received in exchange for the Blue
Ash Line. If the sale of the Blue Ash Line occurs after December 31, 2003, no
amount shall be payable to Sellers. The parties recognize that the ability of
I&O to sell the Blue Ash Line may be subject to the terms of that certain
Agreement and Option to
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Purchase effective as of the 15th day of December, 1986, between the City of
Blue Ash, Ohio, and the I&O (the "Option Agreement"). All else in this Section
5.8 notwithstanding, any amounts otherwise due the Sellers pursuant to this
Section 5.8 shall be reduced by the amount (the "Option Waiver Amount") of any
costs incurred by the I&O or any purchaser of the Blue Ash Line from the I&O
incident to the removal, modification or waiver of any of the rights of the City
of Blue Ash under the Option Agreement, including, but not limited to,
attorneys' fees, and the value of any consideration provided to the City of Blue
Ash. In the event the Option Waiver Amount shall exceed 10% of the Net
Proceeds, amounts due Sellers under this Section 5.8 shall only be reduced by
70% of any amount of the Option Waiver Amount in excess of such 10%. Sellers
acknowledge that because of the Option Agreement, the I & O may grant rights to
use the Blue Ash Line instead of selling the line, in which case no amounts
shall be due Sellers under this Section 5.8 in respect of payments based upon
usage of the line, but any payments not based upon usage of the line shall be
treated under this Section 5.8.1 as Net Proceeds from a sale.
5.8.2. All else in Section 5.8.1 notwithstanding, I&O shall be under no
obligation to negotiate for the sale or to sell the Blue Ash Line to SORTA other
than for cash at closing or for a purchase price of less than $3,500,000.
Furthermore, no sale of the Blue Ash Line shall be required unless the terms of
such sale include the transferable right of the I&O or any of its Subsidiaries
to conduct freight operations on the Blue Ash Line under terms and conditions
satisfactory to the I&O determined at its sole discretion, but considering
SORTA's intended use to the extent such use does not substantially and
negatively affect such freight operations.
5.9. NON-COMPETITION. On or before the Closing, each Seller shall execute a
three-year non-competition agreement in form and substance substantially similar
to the non-competition
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<PAGE>
agreement attached as Exhibit C hereto.
6. THE CLOSING.
6.1. THE CLOSING. The Closing shall take place at the offices of Dinsmore &
Shohl, 1900 Chemed Center, Cincinnati, Ohio commencing at 9:00 a.m. on the
Closing Date, provided that all conditions precedent to the obligations of Buyer
and Sellers to close have then been met or waived.
6.2. TRANSFER OF TITLE OF STOCK. On the Closing Date and as a condition to
Buyer's obligation to close, Sellers shall transfer all the issued and
outstanding Stock to Buyer by assignment which, in the reasonable opinion of
Buyer, shall be sufficient to vest in Buyer good and marketable title to said
Stock free and clear of any security interests, encumbrances, and claims
whatsoever.
6.3. TRANSFER OF TITLE TO REAL ESTATE. On the Closing Date and as a
condition to Buyer's obligations to close, the transfer of the office building
required by Section 4.2 shall have been consummated in a manner which, in the
reasonable opinion of Buyer, satisfies the requirements of Section 4.2.
7. CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligations of Buyer
hereunder are subject to the satisfaction, on or prior to the Closing Date, of
all the following conditions set forth in this Section 7, in addition to the
requirements of Section 5.3, compliance with which or the occurrence of which
may be waived in whole or in part by the Buyer in writing.
7.1. REPRESENTATIONS, WARRANTIES AND COVENANTS.
7.1.1. All representations and warranties of Sellers and I&O contained in
this Agreement and the Schedules annexed hereto shall be true as of the Closing
Date.
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<PAGE>
7.1.2. Each of the Sellers shall have performed or tendered performance of
all covenants, and satisfied or tendered satisfaction of all conditions to be
performed or satisfied by each of them at or prior to the Closing Date.
7.1.3. On the Closing Date, Sellers shall furnish to Buyer a certificate
dated the Closing Date executed by each of them and by the Chief Executive
Officer and Chief Financial Officer of I&O to the effect that all of Sellers'
and I&O's representations and warranties contained in this Agreement and the
attached Schedules are in all material respects correct and true as of the
Closing Date, and that all covenants and conditions to be performed or met by
each of the Sellers or I&O prior to Closing have been so performed or met. The
delivery of such certificate shall in no way diminish the warranties and
representations of Sellers or I&O made in this Agreement.
7.1.4. Buyer shall not have discovered any reasonable basis to believe that
there is any material error, misstatement, or omission in any of the Schedules,
representations, or warranties or any material failure to perform or satisfy any
such covenants or conditions.
7.1.5. Notwithstanding the foregoing, to the extent that compliance by I&O
and/or Sellers with any requirements of this Agreement for Closing would cause a
violation of any other representation, warranty, covenant or provision of this
Agreement, then all such violations are hereby waived by Buyer.
7.2. OPINION OF COUNSEL. Sellers shall have furnished Buyer with a
favorable opinion dated the Closing Date, of Dinsmore & Shohl, counsel to
Sellers, in form and substance satisfactory to the Buyer and its counsel, to the
effect that:
7.2.1. The authorized capital stock of I&O is 500 shares of no par value
Common Stock, of which 100 shares are outstanding; all of the outstanding
capital stock of I&O and each of its
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Subsidiaries is validly issued and nonassessable; Sellers have good and
marketable title to the Stock and the I&O has good and marketable title to all
of the outstanding capital stock of each of its Subsidiaries free of any
security interests, encumbrances, or claims; to the Best of such counsel's
Knowledge, there is no existing option, warrant, call, preemptive right,
commitment or obligation obligating I&O or any Subsidiary to issue any
authorized and unissued shares of its capital stock or to reissue shares held in
its treasury.
7.2.2. I&O and each of the Subsidiaries is a corporation, duly organized,
validly existing, and in good standing as a corporation under the laws of the
States of Ohio and Indiana, and has all requisite corporate power, franchises,
and licenses to own its property and conduct the business in which it is
engaged, including, without limitation, the conducting of a railroad business in
the States of Indiana and Ohio.
7.2.3. I&O and each of its Subsidiaries is qualified to do business as a
foreign corporation in each state in which the nature of its assets or business
therein conducted requires them to be so qualified.
7.2.4. To the Best Knowledge of such counsel, no consent or other agreement
of any person is required for the transfer and assignment of the Stock pursuant
to this Agreement, or, if required, all such consents and agreements have been
duly obtained by Sellers; and the instruments of transfer, assignment, and
deliver to Buyer at the Closing are in all material respects in compliance with
this Agreement and are sufficient to vest Buyer with good title to all the Stock
to be transferred in accordance with this Agreement.
7.2.5. No consent, approval, authorization, or order of any governmental
agency or body (or, to the Best Knowledge of counsel, of any court), not
obtained and in effect on the Closing Date,
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<PAGE>
is required for the consummation by Sellers of the transactions contemplated by
this Agreement.
7.2.6. This Agreement has been duly and validly authorized, executed, and
delivered by Sellers and is a valid and binding agreement of Sellers and is
enforceable in accordance with its terms, subject, however, to applicable
bankruptcy, moratorium, reorganization and other laws generally affecting the
rights of creditors and to applicable equity principles.
7.2.7. To the Best Knowledge of such counsel, no lawsuits or proceedings
have been instituted and are pending against I&O or any Subsidiary other than
those disclosed on Schedule 2.18 attached hereto, and neither I&O nor any
Subsidiary has received any inquiry nor is any investigation or lawsuit pending
or threatened with respect to the acquisition contemplated by this Agreement.
7.3. NO MATERIAL ADVERSE CHANGE. Except as may be contemplated by this
Agreement, during the period from December 31, 1995 to the Closing Date, there
shall not have been any material adverse change in the financial condition,
assets, liabilities, business or results of operations of I&O or any Subsidiary
and neither I&O nor any Subsidiary shall have sustained any material loss or
damage to its properties, whether or not insured, which materially affects its
ability to conduct its business or which results in loss or damage in an amount
in excess of $20,000.00; none of the events described in Section 2.23 shall have
occurred; and Buyer shall have received a certificate dated the Closing Date
from the Sellers and the Chief Executive Officer and the Chief Financial Officer
of I&O to the foregoing effect based upon their Best Knowledge and to the
further effect that any liabilities of I&O or any Subsidiary which exist at the
Closing Date which were not reflected on the consolidated balance sheet of I&O
as at March 31, 1996 are only liabilities incurred in the ordinary course of
business subsequent to the date of said balance sheet or
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<PAGE>
as otherwise contemplated by this Agreement or the Schedules attached hereto.
The delivery of such certificate shall in no way diminish the warranties and
representations of Sellers made in this Agreement.
7.4. GOVERNMENTAL REQUIREMENTS. All notices, reviews, exceptions,
exemptions and approvals required by U.S. federal or other law or regulations
shall have been complied with in full. There has been no onerous ruling or
condition imposed by any governmental agency which is determined by Buyer in its
reasonable discretion may substantially and negatively affect the operations of
the I&O or any of its Subsidiaries after the Closing, with respect to any
approval or exemption necessary to complete this transaction, which onerous
ruling or condition shall include, without limitation, the imposition of labor
protection expense or competitive access requirements.
7.5. ABSENCE OF LITIGATION. No inquiry or investigation by any U.S. federal
or state regulatory agency having jurisdiction over any Seller or I&O shall have
been threatened or instituted and no action or proceeding shall have been
threatened or instituted prior to or at the Closing before any court or
governmental body or authority with respect to the transaction contemplated
hereby.
7.6. CONSENTS. On or prior to the Closing Date, Sellers shall furnish Buyer
with such consents as are described in Section 5.3 and as Buyer shall determine
to be required to enable Buyer to enjoy the benefit of I&O's leases, operations
agreements, material contracts, bids, or proposals.
7.7. RESIGNATIONS. Buyer will have received resignations of all of the
directors of I&O and those persons listed on Schedule 7.7 attached hereto
immediately prior to the Closing.
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<PAGE>
7.8. RELEASES. Buyer will have received general releases in favor of I&O
and the Subsidiaries executed by Sellers, and such employees of I&O or any
Subsidiary as Buyer has designated on Schedule 7.8 attached hereto. Those
releases will not relate to rights or obligations arising under this Agreement.
7.9. RECORDS. Buyer shall have received possession of all existing
corporate, accounting and business records of I&O and the Subsidiaries.
7.10. SECTION 5.7. All of the requirements of Section 5.7 shall have been
accomplished.
7.11. APPROVAL OF DOCUMENTATION. The form and substance of all opinions,
certificates, instruments of transfer, and other documents hereunder, shall be
satisfactory in all reasonable respects to Buyer and its counsel, Matthews &
Branscomb, A Professional Corporation.
7.12. BOARD APPROVAL. The Board of Directors of Buyer shall have approved
and authorized the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby. The Sellers agree and acknowledge that,
notwithstanding this Agreement or any other fact or circumstance involving the
Sellers or Buyer, the Board of Directors shall exercise their discretion to
approve and authorize the execution and delivery of this Agreement or not to
approve and authorize the execution and delivery of this Agreement unfettered by
any obligation to Sellers hereunder or otherwise except for the obligations of
Buyers under Section 5.1.2.
8. CONDITIONS OF SELLERS' OBLIGATION TO CLOSE. The obligations of Sellers
hereunder are subject to the satisfaction, on or prior to the Closing Date, of
the following conditions, compliance with which, or the occurrence of which may
be waived in whole or in part in writing by Sellers.
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8.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations,
warranties, and covenants of Buyer contained in this Agreement shall be true as
of the Closing Date, and Buyer shall have performed or tendered performance of
all covenants and satisfied or tendered satisfaction of all conditions of this
Agreement to be performed or satisfied by Buyer at or prior to the Closing Date.
8.2. OPINION OF COUNSEL. Buyer shall have furnished Sellers with an
opinion, dated the Closing Date, of Matthews & Branscomb, A Professional
Corporation, general counsel for Buyer, in form and substance satisfactory to
Sellers and its counsel, to the effect that:
8.2.1. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas, and has the requisite power to
perform its obligations pursuant to this Agreement.
8.2.2. The Board of Directors of Buyer has authorized and approved the
execution and delivery of this Agreement, and all corporate action necessary or
proper to effectuate the fulfillment of its obligations hereunder has been taken
by Buyer and no other corporate action is required.
8.2.3. This Agreement has been duly and validly authorized, executed, and
delivered by Buyer and is a valid and binding agreement of Buyer and is
enforceable in accordance with its terms, subject, however, to applicable
bankruptcy, moratorium, reorganization and other laws generally affecting the
rights of creditors and to applicable equity principles.
8.2.4. No consent, approval, authorization, or order of any governmental
agency or body (or, to the Best Knowledge of counsel, any court) not obtained
and in effect on the Closing Date is required for the consummation by Buyer of
the transactions contemplated by this Agreement.
8.3. SECTION 5.7. All of the requirements of Section 5.7 shall have been
accomplished.
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8.4. APPROVAL OF DOCUMENTATION. The form and substance of all opinions,
certificates and other documents to be delivered to Sellers hereunder, shall be
satisfactory in all reasonable respects to Sellers and its counsel, Dinsmore &
Shohl.
8.5. RECEIPT OF PURCHASE PRICE. Sellers shall have received good funds in
the amount of the Purchase Price specified in Section 4.3.
8.6. EMPLOYEE ARRANGEMENTS. Buyer shall have made arrangements for the I&O
and its Subsidiaries, as the case may be, to retain the employees currently
employed as follows: a) Mr. Bob Hines will be retained until retirement age in
December, 1998; b) Mr. Edmund Kiernan will be retained for one (1) year
subsequent Closing; c) all other employees referred to in Schedule 2.20 will
retain employment for a minimum period of six (6) months subsequent to Closing;
d) if terminated from and after six months but within one year of the date of
Closing, any person released will be given at least sixty (60) days advance
notice of termination or in the alternative, sixty (60) days severance pay. The
employment required by this Section shall be subject to termination for cause,
such cause to be determined consistent with the general practices of Buyer
regarding the termination of employees for cause. In the event of termination
for cause, no severance shall be due.
8.6.1. RELEASE OF GUARANTEES. Seller shall have been released from personal
guarantees for debts of the I&O and its Subsidiaries to Fifth Third Bank.
9. POST CLOSING COVENANTS. Sellers shall take such action and deliver such
documents as Buyer may reasonably request from time to time to perfect Buyer's
title to the Stock to be acquired from Sellers pursuant to this Agreement and to
perfect I&O's title to the office building as required by Section 4.2.
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10. SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATION.
10.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements contained
in any Schedule or certificate or other instrument delivered or to be delivered
by or on behalf of the parties hereto, or in connection with the transactions
contemplated hereby, shall be deemed representations and warranties hereunder.
All such representations, warranties, and agreements shall survive the Closing
and any audit or investigation made by or on behalf of the parties for a period
of one calendar year immediately following the Closing Date, but shall
thereafter terminate and be of no further force or effect except to the extent
they relate to claims made in writing to the Sellers or the Buyer, as the case
may be, prior to or on such date; provided, however, that (i) the
representations and warranties set forth in Sections 2.1, 2.2, 2.15, 2.17, 2.19
(last sentence only), 2.30, 2.36 (as it applies to the Sections or part thereof
previously listed in this item (i) of this proviso only) and 3.2, and (ii) any
intentional fraud shall survive until the expiration of the applicable statute
of limitations, but in no event to exceed four years immediately following the
Closing Date. The covenants and agreements set forth in Sections 4.4, 5.1.2,
5.8, 9, 10.2, 10.3 and 13 shall survive in accordance with their terms and any
applicable statute of limitations. Subject to the provisions of 5.1.5 hereof,
consummation of the transactions contemplated hereby shall not be deemed or
construed to be a waiver of any right or remedy possessed by any party hereto,
notwithstanding that such party knew or should have known at the time of Closing
that such right or remedy existed.
10.2. INDEMNIFICATION BY SELLERS. Subject to the time limitations imposed
by Section 10.1 hereof, each of the Sellers for himself/herself and not jointly
and severally (except that Nancy and Tom McOwen on the one hand and Patricia and
John Richter on the other hand jointly
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and severally) agree to and do hereby indemnify and hold Buyer, the I&O and any
Subsidiary harmless against any claims, damages, losses, expenses, obligations,
deficiencies, liabilities, and lawsuits (including reasonable attorneys' fees)
which arise or result from or are related to or arise out of (a) any breach or
failure of a Seller to perform any of its covenants or agreements set forth
herein, or (b) any material fact which is contrary to any representation or
warranty made by Sellers herein, or (c) any obligation, liability, potential
liability, acts, circumstances, facts or other matters relating to IORP before
the Closing, whether or not arising in the ordinary course of IORP's business.
Notwithstanding anything in this Agreement to the contrary, Sellers'
indemnification obligations relating to or arising out of Sellers'
representations contained in Section 2.30 above shall not exceed, in the
aggregate $1,000,000.
10.2.1. If a Seller should dispute the right of Buyer, I&O or any
Subsidiary to indemnification hereunder, such Seller shall give Buyer written
notice of such dispute, specifying in detail the basis of the dispute, not later
than 20 days after receipt of demand for indemnification.
10.2.2. In determining the amount of any loss, damage, liability, cost or
expense for which either party is entitled to indemnification hereunder, (a)
proceeds of insurance received by the party seeking indemnification shall reduce
the loss, but (b) tax benefits, if any, derived from such loss by the party
seeking indemnification shall not reduce the loss.
10.2.3. Sellers or their duly authorized agents shall, at the sole and
exclusive cost and expense of Sellers: (i) have the right to reasonable access
to all records of I&O relating to any liability, claim or tax which is the
subject of an indemnification demand by Buyer; (ii) have the reasonable right to
participate in any negotiation with any taxing agency with respect to any tax
liabilities or tax items; (iii) have the right to contest any such alleged
liability, claim, or tax;
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(iv) have the right (with respect to taxes) to file a petition with the tax
court of the United States and all appellate courts, or to file a claim for
refund and to sue for refund in any federal district court or Court of Claims
and all appellate courts and to pursue other remedies with respect to any
federal, state or local tax in connection with any asserted tax liability
attributable to I&O for all tax years of I&O ending prior to and on the Closing
Date, and (v) to defend I&O against any other liability or claim which is the
subject of an indemnification demand by Buyer in any court of proper
jurisdiction and in any appellate court, to negotiate and settle any such
liability or claim, to pursue all other remedies with respect to any other such
liability or claim asserted with respect to I&O for all tax years of I&O ending
prior to and on the Closing Date.
10.2.4. Buyer shall notify Sellers promptly of any claim made or suit filed
against I&O or Buyer (with respect to I&O or this Agreement) for which Buyer
intends to seek indemnification hereunder. A Seller shall notify Buyer promptly
if, for any reason, it does not intend to defend any such claim or suit.
10.3. INDEMNIFICATION BY BUYER. Buyer shall indemnify and hold Sellers
harmless against and in respect of any and all claims, losses, expenses,
obligations and liabilities (including costs of litigation and attorneys' fees)
which arise or result from or are related to (a) any breach of or failure by
Buyer to perform any of its warranties, guarantees, commitments, covenants or
conditions under this Agreement (including costs of litigation and attorneys'
fees required to enforce such representations, warranties, guarantees,
commitments, conditions and covenants), and (b) any misrepresentation by Buyer.
11. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing, and shall be deemed to have been given, if placed
in the mail, registered or certified,
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postage paid, or if delivered by facsimile or personally delivered, addressed as
follows:
Buyer: RailTex, Inc.
4040 Broadway, Suite 200
San Antonio, Texas 78209
Attention: Vice President-Acquisitions
and Coordinator, Acquisitions
Sellers: C/O Paul R. Mattingly, Esq.
Dinsmore & Shohl
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Each of the foregoing shall be entitled to specify a different address by giving
notice in writing thereof to the other of them.
12. GOVERNING LAW. The parties hereby agree that this Agreement shall be
governed by the laws of the State of Texas, without reference to conflict of law
principles.
13. MISCELLANEOUS.
13.1. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto pertaining to the subject matter hereof and supersedes
all prior and contemporaneous agreements, understandings, negotiations, and
discussions, whether oral or written, of the parties (including, without
limitation, any letter of intent between the parties) and there are no
warranties, representations, or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed to or shall constitute a waiver
of any other provisions hereof (whether or not similar), nor shall such waiver
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constitute a continuing waiver unless otherwise expressly provided.
13.2. HEADINGS. Section, paragraph, and subparagraph headings are not to be
considered part of this Agreement and are included solely for convenience and
are not intended to be full or accurate descriptions of the contents thereof.
13.3. AMENDMENT OR MODIFICATION. The parties hereto may amend or modify
this Agreement in such manner as may be agreed upon by a written instrument
executed by such parties.
13.4. SCHEDULES AND EXHIBITS. Schedules and Exhibits to this Agreement are
an integral part of this Agreement.
13.5. COUNTERPARTS. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.6. CONSTRUCTION. The Buyer and each Seller acknowledges that each of
them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by the parties hereto.
13.7. PARTIES BOUND. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto, their respective heirs, administrators,
personal representatives, successors and assigns.
13.8. SCHEDULE UPDATES. Notwithstanding anything to the contrary herein
contained, Buyer and Sellers acknowledge and agree that the Schedules to this
Agreement may in certain instances be incomplete at the date of execution hereof
and may be updated by Sellers at any time
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prior to a date which is seven (7) business days prior to the approval of this
Agreement by Buyer's Board of Directors as provided in Section 7.12. The fact
that Sellers update any Schedules shall not mean that Sellers have
misrepresented any fact or breached any representation and/or warranty herein
contained as of the execution date.
13.9. SHARE TRANSFERS BY SELLERS. Buyers acknowledge that prior to Closing,
Sellers may transfer certain shares of I&O stock as shown on Schedule 2.15 to
family members or certain trusts. Buyer agrees that Sellers shall be entitled to
make such transfers, so long as Sellers duly inform Buyer, update any Schedule
as required, and assure delivery to Buyer at Closing of 100% of the issued and
outstanding shares of the I&O free, clear, and unencumbered in accordance with
the requirements of this Agreement. Any such donee of any Seller shall not be
obligated as a Seller under this Agreement but shall provide Buyer with any
representation of title to Stock reasonably requested by Buyer at Closing.
13.10. IORP WITHDRAWAL PROCEDURE. Notwithstanding the provisions of this
Agreement, Buyer and Seller acknowledge that the mechanism for transfer of
control of IORP to Tom McOwen may be modified prior to Closing in a manner
acceptable to Buyer and Seller. In such event, Buyers and Sellers shall execute
an amendment hereto specifying the arrangements pursuant to which such transfer
of control shall occur.
13.11. EFFECT OF BUYER BOARD APPROVAL [OR DISAPPROVAL]. The parties hereto
agree that upon the approval of this Agreement by Buyer's Board of Directors as
provided in Section 7.12 hereof, this Agreement shall become fully binding on
and enforceable against Buyer and Buyer shall be obligated to close the
transactions herein described in accordance with the terms of this Agreement on
June 4, 1996. In the event the approval of this Agreement by Buyer's Board
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of Directors does not occur for any reason whatsoever, and the Closing does not
occur on June 4, 1996, for that or any other reason whatsoever, whether through
fault or cause of Buyers and/Sellers, as the case may be, then this Agreement
shall be deemed null, void, and of no further force and effect, and the parties
hereto shall be released from any and all obligations which may exist hereunder
except for the provisions of Section 5.1.2 regarding Buyer's obligation of
confidentiality.
13.12. COUNTERPARTS. This Agreement is being executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
RAILTEX, INC.
By:
____________________________
_________________,__________
INDIANA & OHIO RAIL CORP.
By:
____________________________
Thomas B. McOwen, President
_______________________________
Thomas B. McOwen, Seller
_______________________________
Nancy M. McOwen, Seller
_______________________________
Patricia K. Richter, Seller
_______________________________
John G. Richter, Seller
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LIST OF SCHEDULES
-----------------
<TABLE>
<CAPTION>
Schedule
--------
<C> <S>
1.5 Financial Statements
2.1 Third Party Consents Required
2.2 Options, Warrants, Contracts or Other Rights
2.3 Subsidiaries of I&O
2.5 Other Business Names
2.6 Equipment Leases
2.7 Liens and Encumbrances Covering Equipment and
Other Tangible Property
2.8 Reports of Condition of Personal Property Other
Than Tracks
2.9 Reports of Condition of Track and Bridges
2.10 Detailed Aging Accounts Receivable and Accounts
Payable
2.11 Real Estate Owned and Title Policy
2.12 Real Estate Leased
2.12.1 Rights of Way
2.13 Operating Agreements including Trackage Rights
2.14 Intangible Personal Property
2.15 Exceptions to Good Title to Stock
2.16.1 Material Contracts
2.16.3 Outstanding Bids and Negotiations
2.17.1 Detail Supporting Provisions for Tax Liabilities
2.17.2 Tax Audits
2.17.3 Tax Investigations
2.17.4 Tax Returns and Workpapers
2.18 Litigation and Claims
2.19 Labor, Benefit and Employment
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Schedule
--------
<C> <S>
2.20 Current Employees and Employment Conditions
2.22 Insurance Policies
2.23 Adverse Business Changes
2.25 Violation of Other Instruments
2.26.2 Exceptions to Financial Statements
2.26.3 Balance Sheet Valuation
2.26.4 Liability Documents
2.28 Bank Accounts
2.29 Dividends and Distributions
2.30.1 Material Compliance
2.30.2 Hazardous Materials, etc.
2.30.5 Natural Resources Permits
2.30.7 Environmental or Natural Resource Litigation or
Claims
2.30.8 PCB's and Asbestos
2.30.9 Wells, Storage Tanks
2.33 Conflicts of Interest
4.2 Transfer of Office Building
5.2 Exceptions to Conduct of Business Pending Closing
5.7.1 Real Estate to be Conveyed to IORP
5.8.1 Blue Ash Line Property
7.7 Resignations
7.8 Releases
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
RAILTEX, INC. AND SUBSIDIARIES EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- -----------------------
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE CALCULATION:
- --------------------------------------
Net income.............................. $ 645 $ 2,621 $ 2,373 $ 4,804
========== ======= ========== =======
Weighted average number of common stock
and common stock equivalents
outstanding:
Weighted average number of shares of
common stock outstanding.............. 9,090 9,111 8,306 9,111
Common stock equivalents applicable
to convertible senior subordinated
notes (1)............................. -- -- 88 --
Weighted average number of common
stock equivalents applicable to stock
options............................... 124 124 193 119
Common stock and common stock ---------- ------- ---------- -------
equivalents........................... 9,214 9,235 8,587 9,230
========== ======= ========== =======
Earnings per share - primary........... $ 0.07 $ 0.28 $ 0.28 $ 0.52
========== ======= ========== =======
FULLY DILUTED EARNINGS PER SHARE
CALCULATION:
- ----------------------------------------
Net income.............................. $ 645 $ 2,621 $ 2,373 $ 4,804
========== ======= ========== =======
Weighted average number of common stock
and common stock equivalents
outstanding:
Weighted average number of shares of
common stock outstanding.............. 9,090 9,111 8,306 9,111
Common stock equivalents applicable
to convertible senior subordinated
notes (1)............................. -- -- 88 --
Weighted average number of common
stock equivalents applicable to stock
options............................... 124 132 193 130
---------- ------- ---------- -------
Common stock assuming full dilution.... 9,214 9,243 8,587 9,241
========== ======= ========== =======
Earnings per share - fully diluted (2). $ 0.07 $ 0.28 $ 0.28 $ 0.52
========== ======= ========== =======
- -----------------------------
(1) Convertible debt issued within one year prior to an initial public offering
with a conversion price below the estimated initial public offering price
has been included as outstanding for all periods specified by SAB No. 83
(Topic 4-D).
(2) This calculation is submitted in accordance with item 601(b)11 of
regulation S-K although it is not required by APB Opinion No. 15 because it
results in dilution of less than 3%.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,574
<SECURITIES> 0
<RECEIVABLES> 20,821
<ALLOWANCES> 747
<INVENTORY> 0
<CURRENT-ASSETS> 29,432
<PP&E> 222,585
<DEPRECIATION> 25,140
<TOTAL-ASSETS> 239,558
<CURRENT-LIABILITIES> 25,474
<BONDS> 0
0
0
<COMMON> 911
<OTHER-SE> 116,515
<TOTAL-LIABILITY-AND-EQUITY> 239,558
<SALES> 58,757
<TOTAL-REVENUES> 58,757
<CGS> 0
<TOTAL-COSTS> 47,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 301
<INTEREST-EXPENSE> 3,020
<INCOME-PRETAX> 8,008
<INCOME-TAX> 3,204
<INCOME-CONTINUING> 4,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,804
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
