SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
[MARK ONE]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
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 No. 1-11822
---------------------------------------
TRANSCOR WASTE SERVICES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0369288
(State of incorporation) (I.R.S. Employer Identification No.)
1501 SECOND AVENUE, EAST, TAMPA, FLORIDA 33605
(Address of registrant's principal
executive offices, including zip code)
---------------------------
(Registrant's telephone number, including area code): (813) 248-3878
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Exchange
Title of Each Class on Which Registered
- ------------------------------------- -----------------------------------
Common Stock, $.001 par value None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 17, 1999, there were 3,728,625 shares of Common Stock
outstanding. The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 17, 1999, was $1,847,000.
----------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
<PAGE>
TRANSCOR WASTE SERVICES, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated balance sheets at December 31, 1998 and
March 31, 1999 (unaudited) 3
Consolidated statements of operations for the three months ended
March 31, 1998 and 1999 (unaudited) 5
Consolidated statements of cash flows for the three months ended
March 31, 1998 and 1999 (unaudited) 8
Notes to consolidated financial statements 9
Item 2. Management's discussion and analysis of financial condition and
results of operations 16
Item 3. Quantitative and qualitative disclosures about market risk 22
PART II. OTHER INFORMATION
Item 1. Legal proceedings 23
Item 2. Changes in securities 23
Item 3. Defaults upon senior securities 23
Item 4. Submission of matters to a vote of security holders 23
Item 5. Other information 23
Item 6. Exhibits and reports on Form 8-K 23
Signatures 24
<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 884,541 $ 992,642
Marketable securities 22,022,296 21,489,879
Accounts receivable - trade, less allowance
for doubtful accounts of $709,233 and
$514,921 at December 31, 1998 and
March 31, 1999, respectively 1,136,774 669,146
Costs and estimated earnings in excess of
billings on uncompleted contracts 84,599 57,657
Income tax refund receivable -0- -0-
Deferred income taxes 499,246 607,777
Property held for sale 807,876 805,853
Net assets of discontinued solid waste operations -0- -0-
------------ -----------
Total current assets 25,435,332 24,622,954
------------ -----------
Property and equipment, net 609,596 603,853
Due from affiliates 5,376,295 11,054,538
Note receivable from Cumberland Technologies, Inc. 1,010,764 1,028,264
Deferred tax asset 30,800 30,800
------------ -----------
Total assets $ 32,462,787 $37,340,409
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ -------------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 570,126 $ 460,544
Accrued expenses 1,610,738 1,529,370
Billings in excess of costs and estimated earnings
on uncompleted contracts 430,849 476,611
Income tax payable 371,835 571,299
Current portion of long-term debt 4,268 5,004,750
------------ --------------
Total current liabilities 2,987,816 8,042,574
------------ --------------
Long-term debt, net of current 314,515 312,783
Deferred income taxes -0- -0-
Commitments and contingencies -0- -0-
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized; none
issued and outstanding -0- -0-
Common stock, $.001 par value; 10,000,000 shares authorized;
4,010,000 shares issued and 3,799,750 and 3,722,625 shares
outstanding at December 31, 1998 and March 31, 1999, respectively 4,010 4,010
Capital in excess of par value 11,868,814 11,868,814
Retained earnings (deficit) 18,096,873 18,408,856
------------ --------------
29,969,697 30,281,680
Unrealized gain on marketable securities, net of taxes of $126,974 and
$18,444 at December 31, 1998 and March 31, 1999, respectively 198,603 35,807
Less treasury stock at cost (210,250 shares and 287,375 shares at
December 31, 1998 and March 31, 1999, respectively (1,007,844) (1,332,435)
============ ==============
Total stockholders' equity 29,160,456 28,985,052
------------ --------------
Total liabilities & stockholders' equity $32,462,787 $ 37,340,409
============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
1998 1999
------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Revenue $ 1,868,409 417,136
Expenses:
Operating expenses 1,430,977 441,138
Selling, general and administrative expenses 200,213 116,312
------------- ------------
Operating income (loss) 237,219 (140,314)
Income from marketable securities -0- 562,841
Interest and dividend income, net of expense 88,109 88,921
------------- ------------
Income before provision for income taxes (benefit) 325,328 511,448
Provision for income taxes 91,878 199,465
------------- ------------
Income from continuing operations 233,450 311,983
Discontinued Operations:
Loss from discontinued solid waste division operations (less applicable
tax benefit of $49,437 in March 1998) (12,324) -0-
Net income (loss) $ 221,126 311,983
============= ============
Share data:
Basic income (loss) per share from continuing operations $ .06 .08
============= ============
Diluted income (loss) per share from continuing operations $ .06 .08
============= ============
Basic income (loss) per share from discontinued operations $ .00 .00
============= ============
Diluted income (loss) per share from discontinued operations $ .00 .00
============= ============
Total basic income (loss) per share $ .06 .08
============= ============
Total diluted income (loss) per share $ .06 .08
============= ============
Weighted average number of shares outstanding used in computations
Basic 4,000,000 3,757,403
============= ============
Diluted 4,014,820 3,808,812
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
1998 1999
------------- ---------------
<S> <C> <C>
Share data:
Basic and diluted income (loss) per share from continuing operations $ .06 $ .08
============= ===============
Basic and diluted income (loss) per share from discontinued operations $ .00 $ .00
============= ===============
Total basic and diluted income (loss) per share $ .06 $ .08
============= ===============
Weighted average number of shares outstanding used in computations:
Basic 4,000,000 3,757,403
============= ===============
Diluted 4,014,820 3,808,812
============= ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1998 1999
------------ -------------
<S> <C> <C>
Net income (loss) $ 221,126 $ 356,332
Unrealized loss on investments in marketable securities,
net of tax benefit of $108,530 $ -0- $ 162,796
------------ -------------
Comprehensive income $ 221,126 $ 193,536
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
1998 1999
-------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 221,126 $ 311,983
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by (used in)
operating activities:
Depreciation and amortization 19,799 7,766
Deferred income taxes -0- (108,530)
Accrued interest on Cumberland note -0- (17,500)
Gain on sale of marketable securities -0- (25,326)
Unrealized loss on marketable securities -0- 108,529
Changes in operating assets and liabilities:
Accounts receivable - trade 330,690 467,628
Costs and estimated earnings in excess of billings on
uncompleted contracts (82,101) 26,942
Income tax refund receivable 42,440 -0-
Other (43,494) -0-
Accounts payable - trade 497,475 (109,582)
Income taxes payable -0- 199,464
Accrued expenses (926,411) (81,368)
Billings in excess of costs and estimated earnings
on uncompleted contracts 11,814 45,762
-------------- ---------------
Total adjustments (149,788) 513,785
-------------- ---------------
Net cash provided by (used in) continuing operations 71,338 825,768
Net book value of net assets of discontinued operations disposed of 962,655 -0-
-------------- ---------------
Net cash provided by (used in) operating activities 962,655 -0-
Cash flows from investing activities:
Cash proceeds from sale of marketable securities -0- 498,593
Purchase of marketable securities -0- (212,175)
-------------- ---------------
Net cash provided by (used in) investing activities -0- 286,418
============== ===============
Cash flows from financing activities:
Proceeds from borrowings against marketable securities -0- 5,000,000
Repayment of long-term debt -0- (1,250)
Payments from (advances to) Kimmins 792,221 (5,678,243)
Purchase of treasury stock -0- (324,592)
-------------- ---------------
Net cash provided by (used in) financing activities 792,221 (1,004,085)
-------------- ---------------
Net increase (decrease) in cash 1,826,214 108,101
Cash and cash equivalents, beginning of period 2,115,510 884,541
-------------- ---------------
Cash and cash equivalents, end of period $ 3,941,724 $ 992,642
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - TransCor Waste Services, Inc. (the "Company") was formed on
November 6, 1992, as a subsidiary of Kimmins Corp. ("Kimmins"). At March 31,
1999, Kimmins owns approximately 87 percent of the outstanding common stock of
the Company. The Company provides demolition-contracting services to commercial,
industrial, and residential customers in the state of Florida. The Company
formerly provided solid waste management services (See Note 18).
BASIS OF PRESENTATION - The accompanying audited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements and notes thereto as of and for the year ended December 31,
1998, included in the Company's Form 10-K dated December 31, 1998, as filed with
the United States Securities and Exchange Commission.
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform to the 1999 presentation.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated in preparing the
financial statements.
NET DUE FROM AFFILIATE - As of December 31, 1998 and March 31, 1999, the
Company had working capital advances due from affiliates of approximately
$5,376,000 and $11,055,000, respectively. These advances are unsecured and
accrue interest at a rate of 10 percent per annum. The Company collected
$4,385,000 during 1997 and advanced $1,336,000 during 1998. The Company also
repaid a $2,003,000 subordinated convertible note to Kimmins during 1998.
INTANGIBLE ASSETS - Intangible assets consisted primarily of the excess of
cost over fair market value of the net assets of the acquired businesses, which
were being amortized on a straight-line basis over twenty years, and customer
contracts, which were being amortized on a straight-line basis over five years.
Amortization expense was $22,000 for the three months ended March 31, 1998. The
intangible assets were all related to the Company's solid waste management
services operations which were disposed of in 1998 (See Note 18). Consequently,
these assets were included in net assets of discontinued solid waste operations
and were written off in the sale of these operations.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARKETABLE SECURITIES - As a result of the sale of Kimmins Recycling Corp.
(KRC) to Eastern Environmental Services, Inc. (EESI), the Company received
555,329 shares of common stock of EESI. Subsequent to the sale of KRC to EESI,
EESI was purchased by Waste Management, Inc. On January 4, 1999, the Company
received 355,742 shares of Waste Management, Inc. common stock in exchange for
its 555,329 shares of EESI. Additionally, commencing in September 1998, the
Company began purchasing common stocks and other marketable securities with a
portion of the cash proceeds received from the sale of KRC. In accordance with
the Statement of Financial Accounting Standards No. 115, " Accounting for
Certain Investments in Debt and Equity Securities", the investments are
classified as available-for-sale securities. Such securities are carried at an
aggregate market value of approximately $21,490,000 as of March 31, 1999. The
Company's cost basis in these investments is approximately $21,436,000, and the
unrealized gain of approximately $54,000, net of deferred income taxes of
approximately $18,000, is reported as a separate component of stockholder's
equity.
REVENUE RECOGNITION - The Company recognizes revenue from demolition
contract earnings on the percentage-of-completion basis for financial statement
purposes. The estimated earnings for each contract reflected in the accompanying
consolidated financial statements represent the percentage of estimated total
earnings that costs incurred to date bear to estimate total costs. Contracts
generally range from one to six months in duration and earnings from contracting
operations are reported under the percentage of completion method for financial
statement purposes. With respect to contracts that extend over one or more
accounting periods, revisions in costs and earnings estimates are reflected in
the period the revisions become known. When current estimates of total contract
costs indicate a loss, provision is made for the entire estimated loss in the
period indications of a loss become known. The estimates can be affected by
uncertainties, such as weather related delays, and it is reasonably possible
that a change in estimate could occur in the near term.
Change orders are modifications to an original contract that effectively
change the scope and/or price of the contract. They may include changes in
specifications or design, method or manner of performances, facilities,
equipment, materials, site or period for completion of the work. Certain change
orders may be priced under the terms of the contract. Other change orders are
unpriced; that is, the work to be performed is defined; however, the adjustment
to the contract price is negotiated subsequent to performance. Finally, in some
cases, both scope and price of a change order may be unapproved or in dispute.
Accounting for change orders depends on the underlying circumstances, which may
differ for each change order depending on the customer, the contract, and the
nature of the change. The Company evaluates each change order according to its
characteristics and the circumstances in which they occur. Contract revenue and
associated profit are recognized for change orders that have been approved by
the customer and the contractor regarding both scope and price to the extent
performance related to the change order has occurred.
EARNINGS (LOSS) PER SHARE - In February 1997, the FASB issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"),
which establishes standards for computing and presenting earnings per share. The
Company adopted the provisions of SFAS No. 128 effective December 31, 1997 and
all earnings per share amounts for all periods presented, and where appropriate,
have been restated to conform to SFAS No. 128 requirements.
COMPREHENSIVE INCOME - In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 requires that total comprehensive income be displayed in a
financial statement with equal prominence as other financial statements.
Comprehensive income is defined as changes in stockholders' equity exclusive of
transactions with owners such as capital contributions and dividends. The
Company adopted the provisions of SFAS No. 130 effective January 1, 1998.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPOSED ACCOUNTING STANDARDS - In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in years beginning
after June 15, 1999. The Statement requires companies to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
are either offset against the change in fair value of assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the Statement to have a significant affect on
earnings or the financial position of the Company.
2. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
December 31 March 31,
1998 1999
-------------- --------------
<S> <C> <C>
Expenditures on uncompleted contracts $ 4,445,722 $ 4,624,721
Estimated earnings on uncompleted contracts (9,164) (93,576)
-------------- ---------------
4,436,558 4,531,145
Less actual and allowable billings on uncompleted contracts 4,782,808 4,950,099
-------------- ---------------
$ (346,250) $ (418,954)
============== ===============
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 84,599 $ 57,657
Billings in excess of costs and estimated earnings on
uncompleted contracts (430,849) (476,611)
-------------- ---------------
$ (346,250) $ (418,954)
============== ===============
</TABLE>
3. PROPERTY HELD FOR SALE
As a result of the Company's sale of its solid waste operations in 1998,
all of the Company's operating facilities were disposed of with the exception of
an idle facility in Ft. Myers, Lee County, Florida. At December 31, 1998,
property held for sale included this facility and certain land held for sale.
In accordance with SFAS No. 121, "Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" in 1997, the Company wrote down certain
assets held for sale that management believed had carrying amounts higher than
their fair market value. The impairment loss of $90,000 was determined by
comparing the carrying amount of impaired assets with recent offers on the
properties held for sale. The $90,000 impairment loss was included in selling,
general and administrative expenses on the consolidated statements of operations
for the year ended December 31, 1997. The land and buildings are listed for sale
and are expected to be sold during 1999. Accordingly, the carrying value of
these assets of approximately $806,000 is classified as a current asset under
the caption "Property Held for Sale" in this consolidated balance sheet.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
--------------------- ----------------
<S> <C> <C>
Land $ 400,000 400,000
Waste containers and equipment 501,211 501,211
Furniture and fixtures 4,003 4,003
--------------------- -----------------
Total fixed assets 905,214 905,214
Less accumulated depreciation (295,618) (301,361)
--------------------- -----------------
Net property and equipment $ 609,596 $ 603,853
===================== =================
</TABLE>
Property and equipment is recorded at cost. Depreciation is provided using
the straight-line method over estimated useful lives, which range from three to
thirty years. Depreciation expense was approximately $970,000, and $6,000 for
the quarters ended March 31, 1998 and 1999, respectively. Approximately $950,000
of depreciation expense for the quarter ended March 31, 1998, is attributable to
discontinued operations and the remaining depreciation is attributable to
continuing operations.
5. LONG TERM DEBT
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
-------------- -------------
<S> <C> <C>
Revolving securities - based loan, $6,000,000 maximum
Due July 7, 1999, interest payable monthly at lender's
base rate of 3 month LIBOR plus .75 percent. At March
31, the rate was 5.75%. -0- 5,000,000
Mortgage notes, principal and interest payable in
monthly installments through August 1, 2010 interest
at varying rates up to prime plus 1.5 percent,
collateralized by land and buildings $ 318,783 $ 317,533
-------------- -------------
318,783 5,317,533
Less current portion (4,268) (5,004,750)
-------------- -------------
$ 314,515 $ 312,783
============== =============
</TABLE>
Annual principal maturities for years subsequent to December 31, 1998 are
as follows:
1999 $ 5,004,750
2000 312,783
2001 -0-
2002 -0-
Thereafter -0-
--------------
$ 5,317,533
==============
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 1999, the Company is a co-borrower and has guaranteed a
loan agreement on behalf of Kimmins and other subsidiaries of Kimmins in
connection with the Kimmins Employee Stock Ownership Plan ("ESOP"), which had an
outstanding balance of approximately $689,000 that is recorded in the financial
statements of Kimmins.
The Company is a co-borrower with joint and several liability on
approximately $3,973,000, which includes the above $689,000 ESOP note, of
financial institution debt of Kimmins. The debt agreements contain certain
covenants, the most restrictive of which require, for Kimmins for 1999,
maintenance of a consolidated tangible net worth, as defined, of not less than
$11,000,000 and net income not less than $3,000,000. In addition, the covenants
prohibit the payment of dividends by the Company without lender approval. For
all periods presented, the Company believes that Kimmins had complied with or
obtained waivers for all loan covenants.
6. STOCKHOLDERS' EQUITY
The Company has authorized 1,000,000 shares of preferred stock with a par
value of $.001 per share, none of which has been issued. Such preferred stock
may be issued in series and will have such designations, rights, preferences,
and limitations as may be fixed by the Board of Directors.
Warrants to purchase 100,000 shares of the Company's common stock at $6.00
per share were issued in 1993 to the underwriters of the Company's initial
public offering. Warrants to purchase 10,000 shares of common stock were
exercised during March 1996. The remaining warrants to purchase 90,000 shares
expired on April 1, 1998.
Unrealized gains on marketable securities of approximately $326,000 and
$54,000 net of taxes of $127,000 and $18,000 are recorded as a reduction of
stockholders' equity as of December 31, 1998 and March 31, 1999, respectively.
The Company used part of the proceeds from the sale of KRC to repurchase
Company stock at prevailing market prices. There were 210,250 and 287,375 shares
of treasury stock with a cost of approximately $1,008,000 and $1,332,000 at
December 31, 1998 and March 31, 1999, respectively.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EARNINGS (LOSS) PER SHARE
As required by FASB Statement No. 128, the following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
-------------- --------------
<S> <C> <C>
Numerator:
- ---------
Income (loss) from continuing operations $ 233,450 $ 311,983
Adjustment for basic earnings per share -0- -0-
-------------- ---------------
Numerator for basic earnings per share - income (loss)
available to common stockholders from continuing operations 233,450 311,983
Effect of dilutive securities:
Interest on convertible subordinated term note -0- -0-
Numerator for diluted earnings per share:
Income (loss) from continuing operations 233,450 311,983
Income (loss) from discontinued operations (12,324) -0-
-------------- ---------------
Income (loss) applicable to common stockholders
after assumed conversions $ 221,126 $ 311,983
============== ===============
Denominator:
- -----------
Denominator for basic earnings per share - weighted-average
shares 4,000,000 3,757,403
Effect of dilutive securities:
Stock options 14,820 51,409
Warrants -0- -0-
Convertible subordinated term note -0- -0-
-------------- ---------------
Dilutive potential common shares -0- -0-
-------------- ---------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 4,014,820 3,808,812
============== ===============
Basic and diluted income (loss) per share from
continuing operations $ .06 $ .08
============== ===============
Basic and diluted income (loss) per share from
discontinued operations $ -0- $ -0-
============== ===============
Total basic and diluted income (loss) per share $ .06 $ .08
============== ===============
</TABLE>
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unexercised options to purchase shares of common stock for 1998 were not
included in the computations of diluted loss per share because the assumed
exercise would be antidilutive.
8. DISCONTINUED OPERATIONS
On May 31, 1998, the Company sold its Jacksonville area waste collection
and recycling operating assets and certain assets of the Miami front-end load
and rear-load commercial waste and recycling business to Eastern Environmental
Services of Florida, Inc., for approximately $11,600,000 in cash. The proceeds
exceeded the net book value of the underlying assets sold by approximately
$5,200,000. This gain was reported in the 1998 Consolidated Statements of
Operations as part of "gain on sale of discontinued operations."
On July 17, 1998, the Company adopted a formal plan to sell its solid waste
management services operations to EESI. On August 31, 1998 the Company completed
the sale of the solid waste management services (SWMS) operations. The assets
sold consisted primarily of accounts receivables, contracts and property and
equipment. The selling price was approximately $57,800,000 in the form of cash
and EESI common stock. The sale of the Company's SWMS operations resulted in a
gain of approximately $19,611,000 net of taxes approximately $11,861,000 in the
third quarter of 1998.
Revenues and expenses of the SWMS operations for the three months ended
March 31, 1998 are shown separately in the schedule below. The consolidated
statements of operations for the quarter ended March 31, 1998 have been restated
to show separately the operating results of the SWMS operations. These amounts
are included in the income or loss from discontinued operations portion of the
accompanying consolidated statements of operations. None of these net revenues
was received after the Company's adoption of the plan to sell the SWMS
operations. Information related to the discontinued SWMS operations of KRC for
the three months ended March 31, 1998, is as follows:
March 31,
1998
----------------
Net revenue $ 8,595,000
Operating expenses, including depreciation 7,089,000
Selling, general and administrative expenses 1,175,000
-----------------
Operating loss 331,000
Interest expense, net 393,000
-----------------
Loss before provision for income tax benefits (62,000)
Provision for income tax benefits (50,000)
-----------------
Loss from discontinued operations $ (12,000)
=================
For the quarter ended March 31, 1998, approximately $12,000 is shown as a
loss from discontinued operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Revenue for the three months ended March 31, 1999 was $417,000 representing
a decrease of $1,451,000 or approximately 77 percent, from $1,868,000 for the
three months ended March 31, 1998. The decrease in total revenue was
attributable to the Company's demolition operations, which are winding down. It
is anticipated that all remaining projects will be completed during the second
quarter.
Operating expenses for the three months ended March 31, 1999 were $441,000,
representing a decrease of $990,000, or approximately 69 percent, from
$1,431,000 for the three months ended March 31, 1998. Operating expenses include
equipment and labor costs. The decrease in operating expenses was attributable
primarily to a reduced level of operations resulting from management's decision
to wind down the demolition operations.
Selling, general and administrative expenses for the three months ended
March 31, 1999 were $116,000, representing a decrease of $84,000, or
approximately 42 percent, from $200,000 for the three months ended March 31,
1998. The dollar and percentage decrease in selling, general and administrative
expenses is primarily attributable to reduced overhead costs, such as
administrative, sales, marketing and labor costs that were associated with the
winding down of operations.
Investment income from marketable securities was approximately $563,000.
There was no comparable investment income in the prior year. The increase is
attributable to the Company's trading of covered options on Waste Management,
Inc. stock. During the three months ended March 31, 1999, the Company invested
approximately $509,000 in the covered options and recognized gains of
approximately $538,000 on proceeds of $1,047,000.
Interest income, for the three months ended March 31, 1999 was $89,000 as
compared to $88,000 for the three months ended March 31, 1998. The net average
amount of debt and receivables outstanding was consistent between periods.
The Company's income tax provision was calculated using a rate of
approximately 39 and 28 percent for the three month periods ended March 31, 1999
and 1998, respectively.
As a result of the foregoing, the Company recorded net income of $312,000
for the three months ended March 31, 1999, as compared to net income of $221,000
for the three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had working capital of $16,580,000 compared
to working capital of $22,448,000 at December 31, 1998. Working capital was
impacted primarily by increases in a short-term securities-based loan of
$5,000,000, the proceeds of which was used to fund advances to Kimmins. Current
financial resources, anticipated funds from operations, and repayment of
receivables from affiliate (if needed) are expected to be adequate to meet cash
requirements in the year ahead and the foreseeable future. At March 31, 1999,
the Company had cash of $993,000. In addition, the Company has $21,490,000 of
marketable securities.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash provided by operating activities during the three months ended
March 31, 1999 was approximately $826,000 compared to $71,000 for the three
months ended March 31, 1998. The increase in cash provided by operating
activities was due primarily to net income earned during 1999, net of changes in
certain operating assets and liabilities (primarily costs and estimated earnings
in excess of billings on uncompleted contracts and accounts payable, accounts
receivable and accrued expenses). Net cash provided by investing activities
during the three months ended March 31, 1999 was $286,000, as compared to $0
during the three months ended March 31, 1998. This was primarily due to net
proceeds from the sale of marketable securities in excess of purchases of
marketable securities during the first quarter of 1999. Net cash used in
financing activities during the three months ended March 31, 1999 was
$1,004,000, as compared to net cash provided by investing activities of $792,000
for the three months ended March 31, 1998. These fluctuations were primarily the
result of net cash payments received from Kimmins in 1998 as compared to net
cash advances made to Kimmins in 1999.
During the three months ended March 31, 1999 and 1998, the Company's
average trade receivables were outstanding for 331 and 85 days, respectively.
Both averages were based on first quarter revenue annualized and compared to the
trade receivable balances at quarter end. The large increase is primarily
attributable to decreased revenues. Credit is extended based on an evaluation of
the customer's financial condition. Credit losses are provided for in the
financial statements and have been within management's expectations.
As of March 31, 1999, the Company is a co-borrower with joint and several
liability on approximately $3,973,000 of financial institution debt of Kimmins.
The debt agreements contain certain covenants, the most restrictive of which
require, for Kimmins for 1999, maintenance of a consolidated tangible net worth,
as defined, of not less that $11,000,000 and net income not less than
$3,000,000. In addition, the covenants prohibit the payment of dividends by the
Company without lender approval. For all periods presented and for all of 1999,
the Company believes that Kimmins has complied with or obtained waivers for all
loan covenants.
The Company has no current material commitments for capital expenditures.
Historically, inflation has not had a material effect on the Company's
operations. If inflation increases, the Company will attempt to increase its
prices to offset its increased expenses. No assurance can be given, however that
the Company will be able to adequately increase its prices in response to
inflation.
FINANCING ARRANGEMENTS
As of December 31, 1998 and March 31, 1999, the Company had no outstanding
indebtedness to Kimmins. As of December 31, 1997, the amount of the Company's
total outstanding indebtedness to Kimmins was $2,003,258 that had been
consolidated into the Kimmins Note, which was due and payable on December 1,
2003, with interest accruing at 1 percent per annum in excess of the stated
prime rate established by NationsBank of Florida. This note was repaid in 1998
using proceeds from the sale of KRC.
On January 7, 1999, the Company executed a revolving securities-based loan
with a maximum principal amount of $8,200,000. The initial disbursement was
$2,500,000 with another $2,500,000 being drawn during the quarter resulting in a
balance outstanding at March 31, 1999 of $5,000,000. The loan term is three
months and it was renewed on April 7, 1999. Interest is due monthly based on the
three month LIBOR rate plus .75 percent. The rate on April 7, 1999 was 5.75
percent. The loan is collateralized by a portion of the Company's stock
investment in Waste Management, Inc.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of December 31, 1998 and March 31, 1999, the Company had no outstanding
equipment loans with Associates Commercial Corporation ("Associates"). From
December 1992 to December 1998, the Company, in a series of separate equipment
loans, borrowed an aggregate of approximately $27,622,000 from Associates as a
sole borrower and as a co-borrower with Kimmins and other subsidiaries of
Kimmins. Of such indebtedness, approximately $24,260,000 represented the sum of
the Company's sole borrowings and allocable share of co-borrowings, of which
none was outstanding on March 31, 1999. Interest on such indebtedness ranged
from 7.4 percent to 9.7 percent, and payments on outstanding borrowings were
made according to specified payment schedules. The portion constituting the
Company's sole borrowings were guaranteed by Kimmins.
The Company also had outstanding equipment loan indebtedness pursuant to
various agreements with other financial institutions. During the years ended
December 31, 1995 through 1998, the Company borrowed an aggregate of $8,556,000
under such arrangements, all of which were paid off in conjunction with the sale
of KRC.
The Company has an outstanding mortgage note payable, which contains no
financial ratio covenants, with an outstanding balance of approximately $318,000
as of March 31, 1999. This amount is associated with amounts included on the
balance sheet under the caption "Property Held for Sale."
In addition to its own debt (either as an individual borrower or a
co-borrower), the Company has also guaranteed the indebtedness (an aggregate of
approximately $4,118,000 and $3,973,000 at December 31, 1998 and March 31, 1999,
respectively) of certain Kimmins financial institution debt. See Item 13,
"Certain Relationships and Related Transactions." These debt agreements contain
certain covenants, the most restrictive of which requires, for Kimmins,
maintenance of a consolidated tangible net worth, as defined, of not less than
$11,000,000 and net income not less than $3,000,000. In addition, the covenants
prohibit the payment of dividends by the Company without lender approval.
For all periods presented, the Company believes that Kimmins had complied
with or obtained waivers for all loan documents. (See Note 8 of Notes to
Consolidated Financial Statements.)
The Company believes it has sufficient liquidity for its continuing
operations.
EFFECT OF INFLATION
Historically, inflation has not had a material effect on the Company's
operations. If inflation increases, the Company will attempt to increase its
prices to offset its increased expenses. No assurance can be given, however,
that the Company will be able to adequately increase its prices in response to
inflation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
requires that total comprehensive income be displayed in a financial statement
with equal prominence as other financial statements. Comprehensive income is
defined as changes in stockholders' equity exclusive of transactions with owners
such as capital contributions and dividends. The Company adopted the provisions
of SFAS No. 130 effective January 1, 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which supersedes Financial Accounting Standards No. 14. SFAS
No. 131 uses a management approach to report financial and descriptive
information about a Company's operating segments. Operating segments are revenue
producing components of the enterprise for which separate financial information
is produced internally for the Company's management. During the fourth quarter
of 1998, the Company adopted the provisions of SFAS No. 131. The adoption of
SFAS No. 131 did not affect the results of operations or financial position of
the Company. Based on management's assessment, the Company operates one dominant
segment.
In June 1998, the Financial Accounting Standards Board Issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. The Statement
requires the companies to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the Statement
to have a significant effect on earnings or the financial position of the
Company.
Given the complexity of the new Standard and that the impact hinges on
market values at the date of adoption, it is extremely difficult to estimate the
impact of adoption unless adoption is imminent.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four digits to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total Year 2000
project is estimated to be $15,000. To date, the Company's incremental costs for
assessment of the Year 2000 issue, the development of a modification plan, and
the purchase of new software have been approximately $13,000.
The majority of software used by the Company is licensed from various
software providers who are currently updating our programs to be Year 2000
compliant. In-house developed programs comprise a small portion of the total
software utilized, and the majority of these programs are believed to be Year
2000 compliant.
The project is estimated to be completed not later than June 1999, which is
prior to any anticipated impact on its operating system. The Company believes
that with modifications to existing software and conversions to new software,
the Year 2000 issue will not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not made,
or are not completed timely, the Year 2000 Issue could have a material impact on
the operations of the Company. The Company's contingency plan if the above plan
is not timely implemented, would be to maintain the accounting system manually
and devote additional resources, staff and consultants to complete the project.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issues. There is no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted and would
not have an adverse effect on the Company's systems.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
INVESTMENT COMPANY ACT
As a result of the sale of KRC, the Company holds approximately 68 percent
of its assets in marketable securities. Notwithstanding this concentration in
marketable securities, the Company does not consider itself to be an "investment
Company" under the Investment Company Act of 1940, as amended (the "1940 Act")
and the regulations promulgated thereunder ("Investment Company Regulations")
because it is not "engaged in the business" of being an investment company
within the meaning of the 1940 Act. In addition, the Company is claiming status
as a "transient investment company" under Rule 3a-2 of the Investment Company
Regulations, which allows a company to hold a large percentage of its assets in
marketable securities for a period of up to one year after a major transaction
(like the sale of Kimmins Recycling Corp.) without registration under the
Investment Company Act. Absent an exemption, companies with more than 45% of
their assets in marketable securities are treated as investment companies and
required to register under the 1940 Act.
To qualify as a transient investment company, the Company must have a bona
fide intention to engage primarily, as soon as reasonably possible to (and in
any event within the one year limit) in a business other than that of investing,
reinvesting, owning, holding or trading in securities. Management intends to
comply with this requirement by the one-year deadline, i.e., August 1999.
The Company may also be exempt from the 1940 Act if there are not more than
100 beneficial owners (including those holding in street name) of the Company's
outstanding securities. The Company currently has more than 100 beneficial
owners of its Common Stock.
The Company currently does not qualify for registration under the 1940 Act.
Registration would require the Company to restructure its capital structure and
would be expensive and time consuming. Contracts of unregistered investment
companies are voidable and subject to rescission. In addition, unregistered
investment companies are subject to enforcement actions by the SEC. Failure of
the Company to continue to qualify for the exemptions under the 1940 Act and the
Investment Company Regulations could have a material adverse effect on the
Company's financial condition and results of operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that reflect management's current views with respect to future events and
financial performance. Such forward-looking statements include, without
limitation, statements regarding the Company's future capital expenditures,
facility closures, service demand and market growth, competitive position,
expected revenues from new contracts, ability to meet cash requirements, and
other statements regarding future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. Such statements involve risks and uncertainties, and there are certain
important factors that could cause actual results to differ materially from
those anticipated. Some of the important factors that could cause actual results
to differ materially from those anticipated include, but are not limited to,
economic conditions, competitive factors, increases in landfill charges, the
outcome of competitive bids, unanticipated costs in connection with facility
closures, and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of the Company. Due to such uncertainties
and risk, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of the date hereof.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During 1998, the Company did not enter into any transactions using
derivative financial instruments or derivative commodity instruments.
Accordingly, the Company believes its exposure to interest rate market risk is
not material. As of March 31, 1999, the Company held for other than trading
purposes marketable equity securities of publicly traded companies having a
value of approximately $21,490,000 ($15,784,000 related to Waste Management,
Inc.). These securities are subject to equity price risk.
Beginning in January 1999, the Company began trading covered options on
Waste Management, Inc. common stock. Management believes although there is
always price risk in this type of transaction, management is able to reduce this
risk due to its knowledge of the solid waste industry. During the three months
ended March 31, 1999, the Company invested approximately $509,000 in the covered
options and recognized gains of approximately $538,000 on proceeds of
$1,047,000. As of December 31, 1998 and March 31, 1999, the Company has debt of
approximately $319,000 and $318,000 with a fixed interest rate.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During June 1997, Kimmins Recycling Corp. ("KRC"), St. Lucie County, a
political subdivision of the State of Florida, and the City of Fort Pierce, a
municipality organized under the laws of the State of Florida, were notified of
a class action lawsuit filed in the Nineteenth Judicial Circuit Court of Florida
by three residents of St. Lucie County. This action challenged the propriety of
certain contract provisions included in KRC's solid waste and recyclable
materials collection service agreement with St. Lucie County, which allow KRC to
place liens on the property of delinquent service recipients. The court,
permitting KRC to file counterclaims against the class members, has with KRC's
consent certified the existence of a class. KRC, the county and the city have
filed motions for summary judgments against the class plaintiff's claim, which
was heard on May 26, 1998. On June 12, 1998, the Court granted Summary Judgment
if favor of KRC, the county and the city. The plaintiffs appealed the Summary
Judgment and Oral Arguments were held on February 16, 1999. To date, no opinion
has been received by the Appellate Court. At December 31, 1998, the total amount
of lien rights was approximately $426,000.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as exhibits to this Form 10-Q:
10.1 - Loan and Collateral Account Agreement between Merrill Lynch
International Private Finance Limited and TransCor Waste Services,
Inc.
27.1 - Financial Data Schedule - March 31, 1999 (for SEC use only)
27.2 - Financial Data Schedule - March 31, 1998 (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSCOR WASTE SERVICES, INC.
By: /S/ JOSEPH M. WILLIAMS
Joseph M. Williams
President
May 20, 1999
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on May 20, 1999.
Date: May 20, 1999 By: /S/ JOSEPH M. WILLIAMS
----------------------------
Joseph M. Williams
President
(Principal Executive Officer)
Date: May 20, 1999 By: /S/ NORMAN S. DOMINIAK
----------------------------
Norman S. Dominiak
Treasurer and Chief Financial Officer
(Principal Accounting and Financial Officer)
LOAN AND COLLATERAL ACCOUNT AGREEMENT
DEMAND LOAN
THIS LOAN AND COLLATERAL ACCOUNT AGREEMENT ("this Agreement") dated as of
the date of the Lender's acceptance set forth in the signature area below, among
Merrill Lynch International Private Finance Limited, a Delaware corporation (the
"Lender"), the Borrower or Borrowers identified in the signature area below and,
if applicable, the Guarantor or Guarantors and the Pledgor or Pledgors
identified in the signature area below, establishes the terms and conditions
that will govern the demand loan facility from the Lender to the Borrower. The
Borrower, any Guarantor and any Pledgor are sometimes referred to in this
Agreement as a "Loan Party" and collectively as the "Loan Parties". The Loan is
secured by a pledge of assets held in a special securities account established
and maintained with Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S") in accordance with this Agreement and MLPF&S is a party to this
Agreement only to the extent, and for the purposes, set forth in this Agreement.
Each Pledgor is a party to this Agreement only for the purpose of granting a
security interest in the Securities Account (as such term is hereinafter
defined) and for the other related purposes stated herein.
1. DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
meanings indicated. Unless the context otherwise requires, any of the following
terms may be used in the singular or the plural, depending on the reference:
"Advance" means an advance made by the Lender to the Borrower under this
Agreement or, as the case may be, the outstanding principal balance of any such
advance.
"Advance Requirement" means, at any date, a percentage of the Value of the
Collateral as the Lender may specify, expressed as a Dollar amount and
determined by the Lender in its discretion. The Lender reserves the right to
modify in its discretion from time to time the percentage of Value to be used in
determining the Advance Requirement and/or the type of Collateral which may be
included by the Lender in determining the Advance Requirement.
"Alternate Rate" means the floating rate of interest advised by the Lender
based on the United States federal funds rate, as determined by the Lender in
its discretion, plus an additional percentage rate deemed adequate by the Lender
to compensate it for funding the relevant Advance or other amount and for the
Lender's profit. The Alternate Rate shall change when and as the federal funds
rate changes. A written statement by the Lender of the Alternate Rate shall be
conclusive evidence of such rate.
"Borrower" means, individually and collectively, the one or more Persons
signing below as Borrower.
"Business Day" means a day on which most banks are open in New York City
and the Lender is open for business.
"Collateral" has the meaning given to that term in Section 3.2 of this
Agreement.
"Dollar(s)" means the lawful currency of the United States of America.
"Facility" has the meaning given to that term in Section 2.1 of this
Agreement.
"Facility Fee" has the meaning given to that term in Section 2.8.
"Facility Fee Percentage" means the percentage designated in the signature
area below as the Facility Fee Percentage.
"Guarantor" means, individually and collectively, the one or more Persons,
if any, signing below as Guarantor (or signing any other document identifying
the Person(s) as Guarantor and delivering that document to the Lender) and
guaranteeing the Obligations.
"Interest Period" means a period by reference to which interest is
calculated on an Advance.
"Interest Rate" means a per annum rate equal to LIBOR plus the Spread. In
no event shall the Interest Rate be in excess of the maximum interest rate
permitted by New York law.
"Letter" means the Lender's cover letter to this Agreement and includes any
renewal and/or amendment letter signed by the Lender. The Letter is deemed to be
part of this Agreement.
"LIBOR" means, with regard to a particular Advance and Interest Period, the
rate per annum equal to the rate (as determined by the Lender on the date of
that Advance) at which deposits in Dollars are offered to MLIB to leading banks
in the London Interbank Market in an amount comparable to that Advance and for
that Interest Period, it being understood and agreed that a written statement by
the Lender of LIBOR shall be conclusive evidence of such rate.
"LIBOR Business Day" means a day on which deposits in Dollars and any other
relevant currency may be dealt in on the London Interbank Market and most banks
in London, England and the Lender are open fur business.
"Loan Party" and "Loan Parties" have the respective meanings given to those
terms in the introductory paragraph of this Agreement.
"Maintenance Requirement" means the Value of Collateral which must be
maintained in the Securities Account, as determined by the Lender from time to
time in its discretion.
"Maximum Amount" means the amount designated in the signature area below as
the Maximum Amount.
"Merrill Lynch Group" means Merrill Lynch & Co., Inc. ("MLD"), together
with any company (whether now existing or hereafter formed) of which MLC is or
becomes a Subsidiary and all companies (whether now existing or hereafter formed
or acquired) including, but not limited to, MLPF&S, and any partnership,
association, firm or other organization (whether now existing or hereafter
formed or acquired) during the period it is directly or indirectly owned or
controlled by MLC and/or any such company and/or one or more of their
Subsidiaries.
"Minimum Advance Amount" means the amount designated in the signature area
below as the Minimum Advance Amount.
"MLIB" means Merrill Lynch International Bank Limited, a bank organized
under the laws of England.
"MLPF&S" has the meaning given to that term in the introductory paragraph
of this Agreement.
"Obligations" means collectively, all of the indebtedness, liabilities and
obligations of the Borrower, whether now existing or hereafter arising and
whether or not currently contemplated, to the Lender, including, without
limitation, the indebtedness, liabilities, and obligations arising under this
Agreement (as amended, modified and renewed from time to time) and the
transactions contemplated hereby, including, without limitation, any Advances,
interest, Facility Fees, and other fees, costs and expenses now or hereafter
payable by the Borrower to the Lender.
"Person" means any individual, company, corporation, firm, partnership,
joint venture, association, organization, trust, state or agency of a state (in
each case, whether or not having separate legal personality).
"Pledgor" means individually and collectively, the one or more Persons, if
any, signing below as Pledgor (or signing any other document identifying the
Person(s) as Pledgor).
"Remedy Event" has the meaning given to that term in Section 8.1 of this
Agreement.
"Securities" has the meaning given to that term in Section 3.2 of this
Agreement.
"Securities Account" means, individually and collectively, the one or more
securities accounts established pursuant to Section 3.1 of this Agreement.
"Security Interest" has the meaning given to that term in Section 3.2 of
this Agreement.
"Spread" means the percentage amount indicated in the signature page area
below.
"Subsidiary" means, at any time, in relation to a company, any other
company which is directly or indirectly controlled, or more than 50% of whose
issued or outstanding shares of stock having general voting power in ordinary
circumstances is beneficially owned, directly or indirectly, by that first
company.
"Value" means the value assigned to the Collateral by the Lender from time
to time in the Lender's discretion.
2. THE FACILITY
2.1. Advances
(a) The Lender agrees, upon the terms and subject to the conditions set
forth in this Agreement, to make available to the Borrower an uncommitted
facility (the "Facility") in an amount up to the Maximum Amount. The Borrower
acknowledges that the Lender has no obligation to make any Advances to the
Borrower. All Advances which the Lender in its discretion agrees to make to the
Borrower shall be in an amount not less than the Minimum Amount indicated in the
signature area below and in integral multiples of $100,000.00 in excess thereof.
Any Advances which the Lender makes to the Borrower and which the Borrower
repays may be reborrowed up to the foregoing Maximum Amount, subject to the
Lender's discretion. The Borrower agrees to provide prior written notice to the
Lender if the purpose of any Advance differs from that previously disclosed in
writing to the Lender.
(b) The Borrower shall request an Advance from the Lender as provided in
Section 10.15, which request must be received not later than 11:00 a.m. (New
York City time) three LIBOR Business Days prior to the date of such Advance and
shall specify: (I) the date of such Advance; (ii)the amount of such Advance
(which shall not be less than the Minimum Amount and in integral multiples of
$100,000.00 in excess thereof); and (iii) the duration of the Interest Period to
be applicable to such Advance. All requests made under this Section 2.1(b) shall
be irrevocable.
2.2. Interest
(a) Interest shall be calculated and payable on each Advance by reference
to successive Interest Periods. In the case of each Advance, its first Interest
Period shall begin on the proposed date of that Advance and each subsequent
Interest Period shall begin on the last day of the previous Interest Period. The
Borrower may select an Interest Period of 1, 3, 6 or 12 months duration (or such
other period as the Lender may agree to) in the notice provided by the Borrower
to the Lender pursuant to Section 2.1(b) or Section 2.2(b); provided, however,
that the Borrower may select an Interest Period of 12 months or longer only if
the Lender (in its discretion) agrees.
(b) Subject to the Lender's discretion, the Borrower may elect from time to
time to renew the Interest Period for all or part of an outstanding Advance by
requesting such renewal from the Lender as provided in Section 10.15, which
request must be received not later than 11:00 a.m. (New York City time) three
LIBOR Business Days prior tot he last day of the Interest Period for such
Advance and shall specify: (i) the renewal date for such Advance (which shall be
the last day of the Interest Period for such Advance); (ii) the amount of the
Advance to be renewed (which shall not be less than the Minimum Amount and
integral multiples of $100,000.00 in excess thereof); and (iii) the duration of
the Interest Period to be applicable thereto. All requests made under this
Section 2.2(b) shall be irrevocable. If the Borrower shall fail to request the
renewal of any Interest Period for any Advance by the required time, the
Interest Period for such Advance shall be renewed after the last day of the
Interest Period for such Advance for successive 30 day Interest Periods or such
other Interest Periods as the Lender deems appropriate, subject to the Lender's
right to demand payment at any time, and interest shall accrue and be payable on
such Advance at the Interest Rate determined by the Lender for such Interest
Periods for amounts comparable to the unpaid balance of such Advance, subject to
the provisions of this Agreement.
(c) Interest shall be due and payable on the last day of each Interest
period in an amount equal to the unpaid interest accrued during that Interest
Period on the Advance to which it relates at the Interest Rate applicable for
that Interest Period. In the case of an Interest Period of 12 months or more,
interest shall be due and payable every six months from the date of the relevant
Advance. If the Alternate Rate shall be applicable to any Advance at any time,
interest accrued thereon shall be due and payable on the last Business Day of
each month. In addition, accrued interest shall be due and payable in full at
any time upon demand.
(d) If the Lender determines that for any reason deposits in Dollars are
not offered by MLIB to leading banks in the London Interbank Market in an amount
comparable to a proposed Advance or an unpaid advance for which renewal of the
Interest Period has been requested and for a period equal to the requested
Interest Period for such Advance, or that LIBOR applicable for any requested
Interest Period with respect to a proposed Advance does not adequately and
fairly reflect the cost to the Lender of funding such Advance, the Lender shall
so notify the Borrower and the requested Advance shall not be made or renewed,
as the case may be. Upon receipt of such notice, the Borrower may: (i) revoke
any notice given to the Lender pursuant to Section 2.1(b) with respect to a new
Advance; or (ii) revoke any notice given to the Lender pursuant to Section
2.2(b) with respect to an unpaid Advance, which Advance shall remain outstanding
after the last day of the Interest Period for such Advance, subject tot he
Lender's right to demand payment at any time, and interest shall accrue and be
payable on such Advance at the Alternate Rate, subject to the provisions of this
Agreement. If, after receipt of such notice from the Lender, the Borrower does
not revoke any notice given to the Lender pursuant to: (i) Section 2.1(b) with
respect to a new Advance, such Advance shall not be made; or (ii) Section 2.2(b)
with respect to an unpaid Advance, the Advance shall remain outstanding after
the last day of the Interest Period for such Advance, subject to the Lender's
right to demand payment at any time, and shall accrue and be payable on such
Advance at the Alternate Rate, subject to the provisions of this Agreement.
(e) If the Lender (in its discretion) so determines, any due but unpaid
interest may be added to the amount of the Advance to which it relates (or, at
the Lender's option, may be treated as a separate Advance) and interest
calculated as provided for above shall thereafter be paid thereon.
(f) Interest shall be calculated on the basis of actual days elapsed over a
year of 360 days. Interest shall accrue on the principal of each Advance from
and including the date of the Advance to but excluding the date of the
principal's payment.
2.3. Payments; Prepayments
(a) For value received, the Borrower (jointly and severally, if more than
one) hereby promises to pay to the Lender or the Lender's order, upon demand, an
amount equal to the aggregate unpaid principal amount of all Advances made by
the Lender to the Borrower together with interest calculated pursuant to Section
2.2 and all other Obligations outstanding under this Agreement.
(b) Upon at least three LIBOR Business Days' prior written notice to the
Lender, the Borrower shall have the right, from time to time on the last day of
any Interest Period for a particular Advance, to pay the outstanding principal
amount of that Advance, in whole or in part, in an amount of not less than
$100,000 plus the amount of any accrued but unpaid interest to the date of such
payment on the principal amount paid. Each notice of payment shall specify the
payment date, the principal amount of the Advance to be paid, shall be
irrevocable and shall commit the Borrower to pay the Advance in the amount and
on the date stated therein.
(c) Upon at least three LIBOR Business Days' prior written notice to the
Lender and subject to the indemnification provisions of Section 2.3(d), the
Borrower shall have the right, from time to time on any LIBOR Business day other
than the last day of any Interest Period for a particular Advance, to pay the
outstanding principal amount of that Advance, in whole or in part, in an amount
of not less than $100,000.00 plus the amount of any accrued but unpaid interest
to the date of such payment on the principal amount so paid and any Interest
Differential (as such term is hereinafter defined). Each such notice of payment
shall specify the payment date, the principal amount of the Advance to be paid,
shall be irrevocable and shall commit the Borrower to pay the Advance in the
amount and on the date stated therein.
(d) The Borrower shall pay to the Lender, upon the request of the Lender,
such amount as the Lender shall determine will compensate it for any loss
(including loss of profit), cost or expense incurred by the Lender (as
reasonably determined by the Lender) as a result of any payment of Advance, in
whole or in part, on a date other than the last day of the Interest Period for
such Advance, whether such payment is made by the Borrower pursuant to Section
2.3(c) or is effected by the Lender liquidating all or a portion of Securities
Account upon the occurrence of a Remedy Event. Notice by the Lender to the
Borrower of the amount of any such compensation to be paid by the Borrower shall
be conclusive. The foregoing liability of the Borrower, if any, shall constitute
an Obligation and shall be secured by the Collateral.
(e) For purposes of determining the last day of an Interest Period, each
Interest Period which would otherwise end on a day which is not a LIBOR Business
Day shall end on the next succeeding LIBOR Business Day, except that, if the
next succeeding LIBOR Business Day falls in the next succeeding calendar month,
the Interest Period shall end on the next preceding LIBOR Business Day.
2.4. Default Interest
In the event the Borrower does not make any payment of principal or
interest to the Lender when due, the Interest Rate payable with respect to all
Advances (both before and after judgment) will increase, effective as of the
date when such payment was due, by two percent (2.00%) until all payments due
hereunder (including any late payments and any amounts accelerated) are paid to
the Lender in full. Any default interest payable hereunder: (i) which is not
paid when due may be added to the overdue sum and itself bear interest
accordingly; and (ii) shall constitute an Obligation and be secured by the
Collateral.
2.5. Manner of Payments
All payments due from the Borrower hereunder may be debited by the Lender
at its discretion from the Borrower's or any Guarantor's Securities Account or
from any other account maintained by the Borrower or any Guarantor with MLPF&S
or any member of the Merrill Lynch Group. The Borrower and each Guarantor hereby
authorize the Lender and each other member of the Merrill Lynch Group to
initiate debit entries and, if necessary, credit entries, to any such account.
All members of the Merrill Lynch Group shall be fully protected in relying on
this authorization. In the event the Borrower or any Guarantor fails to maintain
sufficient funds or credit availability in any such account, the Borrower shall
make such payments on the date when due without offset or counterclaim in
Dollars in federal or other immediately available funds to the account of the
Lender in accordance with the wire transfer instructions provided by the Lender
from time to time. Any such payment received after 11:00 a.m. New York City time
on a particular day shall be deemed received on the following Business day.
2.6. Taxes
All payments by the Borrower and any Guarantor under this Agreement shall
be made free and clear of any restrictions or conditions, without set off or
counterclaim, and free and clear of, and (subject as hereinafter provided)
without any deduction or withholding whether for or on account of tax or
otherwise. If any such deduction or withholding is required by law to be made by
the Borrower, any Guarantor or any other Person (whether or not a party to, or
on behalf of a party to, this Agreement) from any sum paid or payable by, or
received or receivable from, the Borrower or any Guarantor, the Borrower or, as
the case may be, such Guarantor shall pay in the same manner and at the same
time such additional amounts as will result in the Lender's receiving and
retaining (free from any liability other than tax on its overall net income)
such net amount as would have been received by it had no such deduction or
withholding been required to be made.
2.7. Purpose
The Borrower shall use the proceeds of any Advance made hereunder to
finance the purchase of securities or for such other lawful purposes as have
been disclosed to the Lender in writing.
2.8. Facility Fee
The Borrower shall pay an arrangement fee (the "Facility Fee"):
(a) prior to each Advance, in an amount equal to the product determined by
multiplying (i) the Facility Fee Percentage, by (ii) the amount of such Advance
and by (iii) a fraction equal to the quotient determined by dividing the number
of days between the date of such Advance and the next annual anniversary date of
this Agreement by 365; and
(b) on the annual anniversary date of this Agreement during each year this
Agreement is in effect, in an amount equal to the product determined by
multiplying (i) the Facility Fee Percentage, by (ii) the aggregate unpaid
principal amount of all Advances outstanding on such anniversary date.
Notwithstanding the foregoing, the total amount of all Facility Fees
payable during any 12-month period after the date of this Agreement shall not
exceed an amount equal to the product determined by multiplying (a) the Facility
Fee Percentage by (b) the Maximum Amount.
3. ESTABLISHMENT OF SECURITIES ACCOUNT; PLEDGE OF COLLATERAL; BORROWING OF
SECURITIES
3.1. Establishment of the Securities Account
Each Loan Party hereby directs MLPF&S and MLPF&S hereby agrees, to
establish the Securities Account, which shall be known as the "Merrill Lynch
International Private Finance, (Name of Borrower) Pledged Collateral Account" or
such other title (including abbreviations) acceptable to the Lender to reflect
the Lender's interest therein. Each of the Loan Parties, as a condition to the
Lender's considering making any Advances, agrees to place the Collateral in the
Securities Account. Each Borrower and each Guarantor jointly and severally agree
at all times to maintain Collateral in the Securities Account with an aggregate
Value sufficient to satisfy the Maintenance Requirement, until the Obligations
under this Agreement have been paid indefeasibly in full and this Agreement has
been terminated. Each of the Loan Parties acknowledges that in establishing and
maintaining the Securities Account, MLPF&S is acting as the Lender's agent for
purposes of perfecting the Lender's Security Interest.
3.2. Grant of Security Interest
(a) As security for the full payment and performance of the Obligations,
and the Obligations, whether now existing or hereafter arising, of each
Guarantor pursuant to Section 9, each Loan Party hereby assigns, pledges, grants
and conveys to the Lender a continuing first priority lien and security interest
(the "Security Interest") on and in the following (collectively, the
"Collateral"):
(i) the Securities Account and all stocks, bonds, securities entitlements,
financial assets or other securities or property now or hereafter in the
Securities Account (the "Securities");
(ii) all credit balances, accounts, contract rights, general intangibles,
instruments, documents, money, certificates of deposit and all other
property of whatever kind or description now or hereafter held in the
Securities Account;
(iii)any securities described in confirmations and other reports delivered by
MLPF&S to any Loan Party or the Lender in connection with the Securities
Account, which securities are deemed to be Securities in the Securities
Account for purposes of this Agreement (for purposes of this Agreement,
"securities" shall include options, including call option contracts);
(iv) all dividends, interest and proceeds of any of the property described in
clauses (a), (b) or (c) above, including without limitation, proceeds of
proceeds; and
(v) all of its right, title and interest in and to all monies, debts, claims,
securities and other property deposited with or owed or owing by the Lender
and/or any other member of the Merrill Lynch Group.
(b) Each Loan Party shall take all action which the Lender requests or
which is reasonably necessary to ensure that the Lender has a continuing
perfected first priority Security Interest while this Agreement is in effect.
Upon the Lender's request, each Loan Party shall execute and deliver tot he
Lender a financing statement conforming to the Uniform Commercial Code in effect
in any state or jurisdiction deemed appropriate by the Lender, and such other
documents as may be required in the Lender's judgment, in order to perfect or
maintain the perfection of the Security Interest, all in a form the Lender
considers acceptable. Upon the Lender's request, each Loan Party shall also
execute and deliver a continuation statement conforming to the Uniform
Commercial Code in effect in any state or jurisdiction deemed appropriate by the
Lender and in a form the Lender deems to be acceptable. If any Loan Party fails
to deliver to the Lender financing statements, continuation statements or other
documents the Lender requests, the Lender may, to the extent permitted by law
and without limiting its other rights under this Agreement, execute and file in
such Loan Party's name, as such Loan Party's attorney-in-fact, such documents.
Upon the Lender's request, each Loan Party shall execute and deliver to the
Lender such documents and shall take such other action as the Lender may request
in order to continue or maintain the Security Interest under any amendments to
the Uniform Commercial Code in effect in any state or jurisdiction deemed
appropriate by the Lender from time to time after the date of this Agreement.
(c) The location of each Loan Party's primary residence, if such Loan Party
is an individual (natural person), or, if such Loan Party is not an individual
(natural person), such Loan Party's chief executive office and, if different,
the location of such Loan Party's principal place of business are set forth in
the signature area below, and each Loan Party agrees to provide the Lender with
not less than 30 days' prior written notice of any change of those locations.
3.3. Certain Lender Rights in the Securities Account
The Lender may give instructions of any kind or character to MLPF&S in
regard to the Securities Account, either oral or written. The Lender's
instructions may include instructions to liquidate Collateral and other property
in the Securities Account, to pay credit balance from the Securities Account to
the Lender or its designees, or to move the Collateral from the Securities
Account to the Lender or into an account in the Lender's name or the name of its
designees. MLPF&S shall comply with the Lender's entitlement orders and other
instructions in regard to the Securities Account without further consent by any
Loan Party. In following the Lender's instructions, MLPF&S is under no duty to
any Loan Party to determine whether a Remedy Event has occurred or is
continuing. MLPF&S shall neither accept nor comply with any instructions from
any Loan Party in regard to the Securities Account.
3.4. Transactions in the Securities Account
(a) Loan Party may ask the Lender to request that MLPF&S release Collateral
from the Securities Account if (but only if) the Lender consents (in its
discretion) and the Value of the Collateral remaining in the Securities Account
after such withdrawal continues to satisfy the Maintenance Requirement. Each
Loan Party understands that (i) releases of Collateral from the Securities
Account will not be considered by the Lender if, following such transaction, the
Value of the Collateral in the Securities Account would not satisfy the
Maintenance Requirement and (ii) transactions made in the Securities Account may
be reversed by the Lender if the transaction would result in a breach of this
Agreement.
(b) In addition, each Loan Party may ask the Lender to consent, in its
discretion, to, and request that MLPF&S arrange for, the sale of call options
with respect to Securities in the Securities Account and the purchase of call
options in order to close out short call option positions in the Securities
Account. Each Loan Party agrees that all such call option contracts will be
purchased or sold over-the-counter or on or through an exchange or clearing
house and will be executed pursuant to the terms of MLPF&S's Standard Option
Agreement(s). Each Loan Party acknowledges that all such call option contracts
are considered "securities" for purposes of the definition of "Collateral"
contained in this Agreement. In the event of the exercise of any call option in
the Securities Account (or any other event resulting in "cash" proceeds being
paid into the Securities Account), each Loan Party acknowledges and agrees that
the "cash" proceeds paid with respect to such call option (or otherwise paid
into the Securities Account) will be applied by the Lender against the
Obligations on the fifteenth Business Day following such exercise (or, if
earlier, the receipt of the "cash" proceeds in the Securities Account), unless
prior to such fifteenth Business Day such Loan Party has replaced such proceeds
in the Securities Account with Securities acceptable to the Lender (in the
Lender's discretion).
(c) Without limiting any other right or remedy available to the Lender under
this Agreement or at law or in equity, including, without limitation, the
rights and remedies contemplated by Section 8.2 of this Agreement, the
Lender may (i) buy or sell any or all Securities or other property which
may be short in the Securities Account; (ii) cancel any open orders; and
(iii) exercise or refrain from exercising, terminate, liquidate or close,
modify, extend, obtain or reestablish, any or all outstanding contracts or
options and any or all hedges, related or associated positions, securities
or transactions.
(d) Each Loan Party acknowledges and agrees that, notwithstanding any other
provision of this Agreement or any agreement between any Loan Party and
MLPF&S, only the Lender will be entitled to give entitlement orders,
instructions or directions to MLPFS&S with respect to the Securities
Account and no Loan Party will be entitled to give entitlement orders,
instructions or directions to MLPF&S with respect to the Securities Account
at any time.
3.5. Other Account Provisions
Each Loan Party acknowledges that no trading, VISA card, funds transfer
service or wire transfer, check writing or margin capabilities exist or will be
permitted with respect to the Securities Account. This Agreement does not create
any obligations or duties on MLPF&S to any Loan Party greater than or in
addition to the customary and usual obligations and duties which MLPF&S has as a
stockbroker and custodian of securities, except to the extent expressly provided
in this Agreement.. All transactions in the Securities Account are subject to
the constitution, rules, regulations, customs and usages of the exchange or
market and its clearing house, if any, on which MLPF&S or its agents (including
MLPF&S' subsidiaries and affiliates) execute such transactions. Each Loan Party
agrees to pay customary brokerage fees in connection with any transactions in a
Securities Account made in accordance with this Agreement.
3.6. Borrowing of Securities
Each Loan Party hereby authorizes the Lender from time to time to lend to
itself, as principal or otherwise, or to others, any securities in the
Securities Account irrespective of the Obligations outstanding at the relevant
time. Each Loan Party agrees to execute and deliver to the Lender such
agreements and other documents as the Lender may reasonably request in order to
give effect to this Section 3.6.
3.7. Authorization
Each Loan Party authorizes MLPF&S and/or the Lender, as appropriate, to (a)
deduct from and transfer to the Lender any free credit balance in the Securities
Account (which amount is due to such Loan Party) in order to make payment of any
amount then due to the Lender in connection with the Loan and (b) liquidate any
Securities in the Securities Account in order to make payment of any amount then
due to the Lender in connection with the Obligations.
4. REPRESENTATIONS AND WARRANTIES
On a continuing basis, each Loan Party represents, warrants and covenants
to the Lender that:
4.1. Collateral
Except for the Lender's rights established under this Agreement and the
security interest of MLPF&S in any call option contract contemplated by Section
3.4(b), such Loan Party, to the extent of its rights in the Collateral, owns the
Collateral free of any security interest, lien or other encumbrance in favor of
any Person (other than any subordinated interest which MLPF&S may have in the
Securities Account). The Security Interest is and shall remain a perfected and
valid first priority lien on and security interest in the Collateral.
4.2. Due Organization
If such Loan Party is a legal Person, such Loan Party is duly organized and
validly existing under the jurisdiction of its organization and has the power
and authority to own its assets and to conduct the business which it conducts;
such Loan Party is in good standing under the laws of the jurisdiction of its
organization or formation and is duly qualified to do business in all
jurisdictions in which the nature of its activities requires such qualification.
4.3. Power and Authority; Binding Agreements
Such Loan Party has the full right, power and authority to make, execute,
deliver, and perform its obligations under, this Agreement and the execution,
delivery and performance of the documents contemplated by this Agreement and
consummation of the transactions contemplated by this Agreement have been duly
authorized by all necessary action on its part. This Agreement constitutes the
legal, valid and binding obligation of such Loan Party, enforceable in
accordance with its terms.
4.4. No Violation
The execution, delivery or performance by them of this Agreement and the
related documents, the consummation of the transactions contemplated by this
Agreement, and compliance with the provisions of this Agreement will not (i)
violate any law, regulation, order, judgment or decree binding on such Loan
Party, (ii) if such Loan Party is a legal person, violate or conflict with, as
applicable, its articles or certificate of incorporation, by-laws, or other
organizational or governing agreements or documents, or (iii) conflict with,
cause a breach of, constitute a default under, be cause for the acceleration of
the maturity of, or create or result in the creation or imposition of any lien,
charge or encumbrance (other than in favor of the Lender) on any of its property
under, any agreement, notice, indenture, instrument or other undertaking to
which it is a party.
4.5. No Consents
No order, consent, license, authorization, recording or registration is
required to authorize or is required in connection with the execution, delivery
and performance or the legality, validity, binding effect or enforceability of
this Agreement, any documents executed in connection with this Agreement or any
transactions contemplated by this Agreement.
4.6. No Litigation
There are no actions, suits, litigation, arbitration, administrative
proceedings or investigations, pending or threatened, against such Loan Party or
any of the Collateral in which such Loan Party has rights that could (i) have a
material adverse effect on the business or affairs, condition (financial or
otherwise), obligations, operations, performance, properties or prospects of
such Loan Party or (ii) affect is ability to enter into and perform its
obligations under this Agreement or any of the transactions contemplated by this
Agreement.
4.7. Compliance with Laws
The activities and operations of such Loan Party are and have been in
compliance in all respects with all applicable federal, state, local and foreign
laws and regulations, including, without limitation, tax, environmental and
health and safety laws and regulations.
4.8. No Material Adverse Change
Since the date of their most recent financial statements or representations
delivered to the Lender, there has been no material adverse change in the
business, condition (financial or otherwise), obligations, operations,
performance, properties or prospects of such Loan Party.
4.9. Solvency
After giving effect to each Advance made from time to time and such Loan
Party's obligations (including contingent obligations) under this Agreement, (i)
the present fair value of its assets exceeds the total amount of its liabilities
(including, without limitation, contingent liabilities), (ii) it has capital and
assets sufficient to carry on its business, (iii) it is not engaged and is not
about to engage in a business or a transaction for which its remaining assets
are unreasonably small in relation to such business or transaction and (iv) it
does not intend to incur, or believe that it will incur, debts beyond its
ability to pay as they become due. Such Loan Party will not be rendered
insolvent by the execution, delivery and performance of documents relating to
this Agreement or by the consummation of the transactions contemplated under
this Agreement.
4.10. Place of Business
The location of such Loan Party's primary residence, if such Loan Party is
a natural person, or, if such Loan Party is not a natural person, such Loan
Party's chief executive office and, if different, the location of such Loan
Party's principal place of business are accurately set forth in the signature
area below.
4.11. No Default
Such Loan Party is not in default under any agreement to which it is a
party or by which it or its assets may be bound, which default is material in
the context of this Agreement.
4.12. Full Disclosure
All information disclosed to the Lender in connection with this Agreement
and the making of each Advance hereunder is true, complete and accurate in all
respects and does not omit any material facts or circumstances which could make
any of such information misleading in any respect.
Each of the representations and warranties in this Agreement shall be
correct and complied with at all times and in all respects during the
continuance of this Agreement, and until all Obligations have been indefeasibly
paid in full, as if repeated then by reference to the then existing
circumstances.
5. AFFIRMATIVE COVENANTS
Until this Agreement has terminated and all sums and obligations
outstanding hereunder, or under any other documents executed in connection
therewith, have been indefeasibly paid in full, each Loan Party (except as
otherwise provided with respect to a Pledgor) shall:
5.1. Maintenance of Existence
Preserve and maintain its existence, rights and franchises, if it is a
legal Person.
5.2. Compliance with Laws
Comply in all material respects, with all applicable laws, statutes, codes,
ordinances, regulations, rules, orders, awards, judgments, decrees, injunctions,
approvals and permits applicable to it.
5.3. Payment of Taxes
Pay all taxes, assessments and governmental charges imposed upon it or upon
its property and all claims (including, without limitation, claims for labor,
materials, supplies or services) which might, if unpaid, become a lien upon its
property, unless, in each case, the validity or amount thereof is being
contested in good faith by appropriate proceedings and such Loan Party has
maintained adequate reserves with respect thereto.
5.4. Books and Records
Keep proper books of record and account, containing complete and accurate
entries of all financial and business transactions.
5.5. Audit Rights
Permit any representative of the Lender to examine its books and records
and to make copies and take extracts therefrom, and to discuss its affairs,
finances and accounts with its officers, partners and employees and its
independent accountants, all at such places in the United States and at such
reasonable times and as often as the Lender may reasonably request, provided
that such actions do not unreasonably interfere with its day-to-day business and
operations.
5.6. Maintenance of Collateral (the first sentence of this Section 5.6 shall not
apply to any Pledgor)
Maintain the Collateral in the Securities Account as the Lender may require
from time to time in accordance with the Maintenance Requirement. Each Loan
Party shall, within 48 hours after demand, duly pay all calls, subscription
monies and/or other monies payable on or with respect to any of the Securities
included in the Collateral provided by it or, if the Lender pays the same (which
it shall not be obliged to do), shall on demand indemnify the Lender against
such payment. If at any time the Value of the Collateral is less than the
Maintenance Requirement and no Loan Party has within 48 hours after demand
reduced the outstanding principal balance of the Obligations or deposited in the
Securities Account additional funds and/or securities acceptable to the Lender
to be held as Collateral with a Value sufficient to increase the Value of the
Collateral to at least 105% of the Maintenance Requirement, then the Lender may,
at its option from time to time, and without any obligation on its part to give
notice, (i) instruct MLPF&S to cancel any open orders and close any or all
outstanding contracts, liquidate any or all Collateral, withdraw and/or sell any
or all Collateral and reduce in whole or in part the Obligations and (ii) take
any other actions to which it is entitled, whether pursuant to Section 8.2 or
otherwise. Notwithstanding the provisions of this Section 5.6, the Lender may at
any time pursuant to Section 8.3 demand payment of the aggregate unpaid
principal amount of the Advances and all other Obligations.
5.7. Bankruptcy
Notify the Lender in writing before filing any petition seeking the
protection of any bankruptcy, insolvency or any similar statutes. In addition,
no Loan Party shall take any action (or fail to take any necessary action) which
may cause a petition in bankruptcy, insolvency or any similar law or procedure
to be filed against such Loan Party.
5.8. Financial and Credit Information
(a) Notify the Lender immediately, in writing, of any change in its
financial condition or prospects which would adversely affect its ability to
repay or perform any obligation(s) to the Lender according to the terms of this
Agreement.
(b) Supply to the Lender such current financial information or other
information as the Lender may reasonably request from time to time.
(c) Permit the Lender and MLPF&S to share with one another and any
affiliated companies, or any person authorized by any of them, for legitimate
business purposes, any information about it which each may currently possess or
obtain in the future, unless such Loan Party has notified the Lender at the time
of application for the Facility that such Loan Party objects to the sharing of
such information.
(d) Permit the Lender, or anyone authorized by it, to obtain third party
credit or investigative reports with respect to such Loan Party, and to answer
any questions about its credit experience with such Loan Party.
(e) Comply with any requests from the Lender for additional documentation
required to be filed or executed by such Loan Party from time to time by
applicable law or the policies and procedures of MLPF&S or the Lender.
6. NEGATIVE COVENANTS
Until this Agreement has terminated and all of the Obligations outstanding
hereunder or any other documents executed in connection therewith, have been
indefeasibly paid in full, no Loan Party will create, incur, assume or suffer to
exist any security interest lien or other encumbrance on the Collateral, other
than security interests, liens and other encumbrances created in favor of the
Lender.
7. CONDITIONS PRECEDENT
7.1. Conditions Precedent to the Initial Advance
It shall be a condition precedent to the Lender's considering making the
initial Advance that the Lender shall have received:
(a) evidence that a Securities Account has been established and that the
Value of the Collateral meets the Advance Requirement; and
(b) such other documents, opinions, certificates and other items as the
Lender may reasonably request.
7.2. Conditions Precedent to All Advances
It shall be a condition precedent to the Lender's considering making any
Advance or renewing any Interest Period that on the date of each such Advance or
the renewal of such Interest Period, as the case may be, the following
statements shall be true (and each request for an Advance shall constitute a
representation and warranty by the Borrower that on the date of making or
renewing such Advance such statements are true):
(a) The Borrower has paid the Facility Fee payable in connection with this
Agreement;
(b) The representations and warranties contained in Section 4 are true and
correct on and as of the date of such Advance;
(c) No event has occurred or is continuing or would result from the making
of such Advance which would constitute a Remedy Event or an event, act or
condition which with the passage of time or notice, or both, would constitute a
Remedy Event; and
(d) The Borrower has made a request in accordance with, and has otherwise
complied with other provisions of, Section 2.1(b) or 2.2(b), as the case may be.
8. REMEDY EVENTS; REMEDIES
8.1. Remedy Events.
If any of the following events (each, a "Remedy Event") shall occur, the
Lender, in its discretion, may take any or all of the actions outlined in
Section 8.2.:
(a) the Borrower fails to make any payment when it is due as required by
this Agreement;
(b) a Loan Party breaches any provisions of this Agreement;
(c) the Value of the Collateral in the Securities Account falls below the
applicable Maintenance Requirement, and no Loan Party has deposited additional
Collateral or reduced the outstanding principal balance of the Obligations as
required under Section 5.6;
(d) a Loan Party breaches any provisions of this Agreement;
(e) any step is taken or legal proceeding started by any Person in the
Bankruptcy of any Loan Party or for the appointment of a receiver,
administrator, trustee or similar officer of any Loan Party or of any or all of
the revenues and assets of the any Loan Party or the winding-up, administration,
dissolution or reorganization of any Loan Party;
(f) any Loan Party is insolvent, is unable to pay its debts as they fall
due, stops, suspends or threatens to stop or suspend payment of all or a
material part of its debts, begins negotiations or takes any proceeding or other
step with a view to readjustment, rescheduling or deferral of all of its
indebtedness or any part of its indebtedness which it would or might otherwise
be unable to pay when due or proposes or makes a general assignment or an
arrangement or composition with or for the benefit of the creditors of such Loan
Party;
(g) an attachment or garnishment writ or the like is levied against all or
any portion of the Securities Account or the Collateral;
(h) any indebtedness of a Loan Party to any member of the Merrill Lynch
Group or any other Person(s) in respect of monies borrowed or raised (1) is not
paid when due nor within any applicable grace period in any agreement relating
to such indebtedness, or (2) becomes due and payable before its normal maturity
by reason of a default or event of default, however, described;
(i) final judgment for the payment of money is rendered against any Loan
Party and within thirty (30) days from the entry of judgment has not been
discharged or stayed pending appeal or has not been discharged within thirty
(30) days from the entry of a final order of affirmance on appeal;
(j) if a Loan Party is acting in the capacity of trustee of a trust for the
purposes hereof, it or they cease to be appropriately authorized or such trust
comes or is brought to an end;
(k) if a Loan Party is a natural Person, such Loan Party dies or becomes or
is declared (by appropriate authority) incompetent of or unsound mind; or
(l) the Lender otherwise deems itself or its security interest in any of
the Collateral insecure or the Lender believes in good faith that the prospect
of payment or other performance by any Loan Party is impaired.
8.2. Remedies.
(a) Upon the occurrence of a Remedy Event, the Lender may, at its option:
(i) instruct MLPF&S to cancel any open orders and close any and all outstanding
contracts; (ii) liquidate any or all of the Collateral ; (iii) withdraw and/or
sell any or all of the Collateral; and (iv) supply any or all of the Collateral
as well as the proceeds of any such Collateral to the Obligations. The Borrower
and each Guarantor shall be responsible for any decrease in the Value of the
Collateral occurring prior to or during liquidation. Upon the occurrence of a
Remedy Event, the Lender may also set-off any or all of the Obligations against
any securities, cash or other property of such Borrower or Guarantor in the
possession of the Lender (directly or through MLPF&S as the Lender's agent) or
any other member of the Merrill Lynch Group and against any obligations owed to
the Borrower or any Guarantor by the Lender or any other member of the Merrill
Lynch Group.
(b) The Lender may exercise any or all of its rights under this Section
without further demand for additional Collateral, or notice of sale or purchase,
or other notice or advertisement. Any sales or purchases made pursuant to this
Section may be made at the Lender's discretion on any exchange or other market
where such business is usually transacted, or at public auction or private sale,
and the Lender or its agent may be the purchase for the Lender or its agent's
own account. It is understood that the giving of any prior demand or call or
prior notice of the time and place of such sale or purchase by the Lender or its
agent will not be considered a waiver of the Lender's right to sell or buy
without any such demand, call or notice as provided in this Agreement.
(c) In addition to the Lender's rights and remedies described in this
Agreement, the Lender has the right to exercise any one or more of the rights
and remedies of a secured creditor under the Uniform Commercial Code as now or
hereafter in effect of the State of New York. All the rights and remedies which
are available to the Lender under this Agreement are cumulative and are in
addition to any and all other rights and remedies which are otherwise available
to the Lender either at law, equity or otherwise. The Lender may exercise any
one or more of such rights and remedies simultaneously or successively.
8.3. Demand.
Each of the Loan Parties hereby acknowledges that the principal amount of
the Advances and all other Obligations are payable on the Lender's demand by the
Lender and that the Lender may make demand on the Borrower and/or any Guarantor
regardless of whether or not a Remedy Event has occurred. In the event that the
Lender makes such demand and the Obligations are not paid in full, the Lender
shall have the right, at its option, to exercise any or all of the remedies
described in Section 8.2.
9. ADDITIONAL GUARANTOR/PLEDGOR COVENANTS
9.1. Guarantor Covenants.
Each and any Guarantor hereby unconditionally and irrevocably agrees with
the Lender (for itself and as trustee of the benefit of these agreements for
each other member of Merrill Lynch Group) as follows:
(a) Each Guarantor hereby irrevocably, unconditionally and absolutely
guarantees, jointly and severally with each of the other Guarantors, to the
Lender the full and punctual payment of the Obligations in accordance with this
Agreement. The foregoing guaranty is a guaranty of payment and not of
collection, and is the primary obligation of such Guarantor.
(b) As between such Guarantor and the Lender but without affecting the
Borrower's obligations, such Guarantor shall be liable under (a) above as if it
were the sole principal debtor and not merely a guarantor. Accordingly, it shall
not be discharged, nor shall its liability be affected, by reason of:
(i) any time, indulgence, waiver or consent at any time given to any Loan Party
or any other Person;
(ii) any amendment to any other provision of this Agreement or to any security
or other agreement, guaranty or indemnity;
(iii)the making or absence of, or delay in, any demand on any Loan Party or any
other Person for payment;
(iv) the enforcement or the absence of, or delay in, enforcement of this
Agreement or of any security or other agreement, guaranty or indemnity or
any failure to perfect the Security Interest in any Collateral;
(v) the release of any such agreement, security, guaranty or indemnity;
(vi) the death, incapacity, bankruptcy, insolvency, winding-up, liquidation,
dissolution, merger, reorganization or similar event of or with respect to
any Loan Party or any other Person;
(vii)the illegality, invalidity or unenforceability of or any defect in any
provision of this Agreement or any other agreement or any of the
obligations or of any other obligations of any l to the Lender or any other
circumstance which might otherwise constitute a legal or equitable
discharge of or defense to it; or
(viii) the disallowance of all or a portion of the Lender's claim for repayment
of any obligation of the Borrower or any Guarantor hereunder any provision
of the United States Bankruptcy Code, any successor statute, or any other
law, rule or regulation.
(c) The obligation of each Guarantor under (a) above are and shall remain
in full force and effect by way of continuing security until this Agreement has
terminated and the Obligations have been indefeasibly paid in full. Furthermore,
those obligations are additional to, and not instead of, any security or other
agreement, guaranty or indemnity at anytime existing in favor of the Lender,
whether from the Borrower, a Guarantor or otherwise. Each Guarantor irrevocably
waives all notices and demands whatsoever.
9.2. Additional Provisions
(a) Each Guarantor unconditionally and irrevocabaly further agrees as
follows:
(i) any sum expressed to be payable by the Borrower under this Agreement which
is for any reason (whether or not now existing an whether or not now known
or becoming known to any party in this Agreement) not recoverable from such
Guarantor shall nevertheless be recoverable from it as if it were the sole
principal debtor and shall be paid by it to the Lender on demand (such
Guarantor's liability under this Agreement being liability for payment, and
not collection); and
(ii) as a primary obligation to indemnify the Lender against any loss suffered
by it as a result of any Obligation not being paid by the time and on the
date specified in this Agreement and otherwise in the manner specified in
this Agreement or any Obligation being or becoming void, voidable or
unenforceable for any reason (whether or not now existing and whether or
not now known or becoming known to any party to this Agreement), the amount
of that loss being the amount of the Obligation not paid.
(b) Each Guarantor acknowledges that the Lender is entering into this
Agreement, and that all transactions by the Lender under this Agreement are
done, in reliance on the guaranty, indemnities and other undertakings on the
part of such Guarantor in this Agreement, and that the Lender would not, in the
absence of such guaranty, indemnities and other undertakings on the part of such
Guarantor in this Agreement, enter into this Agreement with the Borrower or do
any transactions with or for the Borrower under this Agreement.
(c) The Lender hereby gives notice to each Guarantor:
(i) that by becoming party to Agreement as a Guarantor, and in particular by
giving the guaranty and indemnities in this Section 9 and/or by providing
Collateral , such Guarantor may become liable instead of or as well as the
Borrower;
(ii) that such Guarantor's obligations, and in particular is obligations under
such guaranty and indemnities and in respect of such Collateral , will be
unlimited as to amount; and
(iii)that such Guarantor should in its own interests seek independent legal
advice before signing this Agreement as a Guarantor.
9.3. Pledgor
Each Pledgor hereby unconditionally and irrevocably agrees:
(a) The assignment of, and the grant of a security interest in, the
Collateral shall not be affected by reason of:
(i) any time, indulgence, waiver or consent at any time given to any Loan
Party or any other person;
(ii) any amendment to any other provision of this Agreement or any security
or other agreement, guaranty, or any security or other agreement,
guaranty or indemnity
(iii)the making or absence of, or delay in, any demand on any Loan Party
or any other Person for payment;
(iv) the enforcement or the absence of, or delay in, enforcement of this
Agreement or of any security or other agreement, guaranty or indemnity
or any failure to perfect the Security Interest in any Collateral ;
(v) the release of any security or other agreement, guaranty or indemnity;
(vi) the death, incapacity, Bankruptcy, insolvency, winding-up,
liquidation, dissolution, merger, reorganization or other similar
event of or with respect to any Loan Party or any other Person;
(vii)the illegality, invalidity or unenforceability of or any defect in
any provision of this Agreement or any security or other agreement or
any of the Obligations or any other obligations of any Loan Party or
any other circumstance which might otherwise constitute a legal or
equitable discharge of or defense to any Person; or
(viii) the disallowance of all or a portion of the Lender's claim for
repayment of any Obligation of the Borrower or any obligation of any
Guarantor hereunder under any provision of the United States
Bankruptcy Code, any successor statute, or any other law, rule or
regulation.
(b) The Security Interest in the Collateral is and shall remain in full
force and effect by way of continuity security until this Agreement has
terminated and the Obligations have been indefeasibility paid in full.
Furthermore, the Obligations are in addition to, and not instead of, any
security or other agreement, guaranty or indemnity at any time existing in favor
of the Lender, whether from the Borrower, any Loan Party or otherwise. Each
Pledgor irrevocably waives all notices and demands whatsoever.
(c) Each Pledgor acknowledges that the Lender is entering into this
Agreement, and that all transactions by the Lender under this Agreement are
done, in reliance on the agreements of the Pledgor in this Agreement, and that
the Lender would not, in the absence of such agreements, enter into this
Agreement with the Borrower or do any transactions with or for the Borrower
under this Agreement.
(d) The Lender hereby gives notice to each Pledgor:
(i) That the Obligations under this Agreement are unlimited and,
accordingly, an unlimited amount of the Collateral may be applied in
respect of such Obligations; and
(ii) That much Pledgor should in its own interest seek independent legal
advice before signing this Agreement as a Pledgor.
10. MISCELLANEOUS
10.1. Cost of Collection
If the Borrower or any Guarantor fails to make any payment under this
Agreement as and when required, the Borrower and each Guarantor must pay,
jointly and severally and to the extent permitted by applicable law, the
Lender's court and collection costs, including reasonable fees (at all levels
and in any Bankruptcy proceeding), any cost incurred in the disposition of the
Collateral, including reasonable legal fees, and, if the Obligations are
referred for collection to any attorney who is not an employee of the Lender or
one of its affiliates, the Lender's reasonable legal fees (at all levels and in
any Bankruptcy proceeding). 10.2. Delay in Enforcement; No Waiver
The Lender can choose to delay or not to enforce any of its rights under
this Agreement without losing such rights. If the Lender chooses not to exercise
or enforce any of its rights, each Loan Party, agrees that the Lender is not
waiving the right to enforce such rights at a later time or any of its other
rights. Any waiver of the Lender's rights under this Agreement must be in
writing.
10.3. Waivers
To the extent permitted by applicable law, each Loan Party waives its
rights to require the Lender (a) to demand payments of amounts due (known as
"presentment"); (b) to give notice that amounts due have not been paid (known as
"notice of dishonor"); and (c) to obtain an official certification of
non-payment (known as "protest").
10.4. Miscellaneous Indemnities
The Borrower and each Guarantor shall on demand jointly and severally
indemnify the Lender against:
(a) any cost or increased cost in maintaining the Facility, the Securities
Account, the Obligations, all or any part of any Advance, or any other
amount outstanding under this Agreement or any reduction in the
effective return to the Lender under this Agreement or in the rate of
overall return on its capital below that which it would have been able
to achieve but for its entering into or giving effect to this
Agreement, in each case, which, in the Lender's determination, is
sustained or incurred directly or indirectly as a consequence of, or
of compliance, with, any present or future law or regulation or any
directive or the like (whether or not having the force of law) of any
government or other regulatory body or authority including law,
regulation, directive or the like relating to reserve assets,
liquidity or monetary control or affecting the manner in which the
Lender allocates capital resources to its obligations under this
Agreement;
(b) any funding and any other cost, expense or liability (including loss
of profit, reasonable legal fees (at all levels and in any Bankruptcy
proceeding, and taxes) sustained or incurred the Lender (1) to render
this Agreement (including the Security Interest) enforceable and
admissible in connection with this Agreement, (2) in connection with
the administration of, or in protecting or enforcing the Lender's
rights under, this Agreement and/or any amendment thereto, including
any Bankruptcy proceeding, (3) as a result of the occurrence or
continuance of any Remedy Event (whether in connection with any act or
thing done as set out in Section 8 or otherwise), or (4) as a result
of the receipt or recovery by the Lender of all or any part of an
Advance (other than an Advance interest on which is calculated by
reference in Alternate Rate) or an overdue sum otherwise than on the
last day of an Interest Period applicable to an Advance or, as the
case may be, a period selected by the Lender and applicable to that
overdue sum; and
(c) any stamp, documentary, registration or submit tax payable in
connection with this Agreement, any Advance or the entry into,
registration, performance, enforcement or admissibility in evidence of
this Agreement and/or any such amendment, supplement or waiver,
promptly and in any event before any interest or penalty becomes
payable, together with any liability with respect to or resulting from
any delay in paying or omission to pay any such tax.
10.5. Interpretation, etc.
Whenever it appears herein, the phrase "in the Lender's discretion" or "in
its discretion" shall be read as "in the Lender's sole and absolute discretion".
Whenever the context may require, the terms used in this agreement shall include
the singular or the plural and the feminine, masculine or neuter gender shall
include each gender.
10.6. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the
heirs, successors and assigns of the parties to this Agreement. The Lender may
assign at its sole option all or part of its rights, obligations and remedies
under this Agreement. Any assignee of Lender's rights and obligations shall be
entitled to the full benefit of this Agreement to the same extent as if it were
an original party in respect of the rights or obligations assigned or
transferred to it. No Loan Party may assign its rights or obligations under this
Agreement.
(b) The Lender may at any time change the office through which it is acting
for the purpose of this Agreement and may at any time act for this purpose
through more than one office.
(c) The Lender may disclose to a potential assignee or transferee or any
other Person who has entered or proposes to enter into contractual arrangements
with the Lender in relation to or concerning this Agreement such information
about any Loan Party and this Agreement as it may deem appropriate.
10.7. Amendments
No amendment or waiver of any provision of this Agreement shall be
effective unless the same shall be in writing and signed by the Lender and the
Borrower; provided, however, any amendment to the provisions of Section 9 of
this Agreement requires the signature of the guarantors or the Pledgors, as the
case my be. Any waiver shall be effective only in the specific instance and for
the specific purpose for which given.
10.8. Headings
The heading of each provision of this Agreement is for descriptive purposes
only and shall not be deemed to modify or qualify any of the rights or
obligations described in each such provision.
10.9. Joint and Several Liability
If the Borrower consists of more than one Person (each a "Co-Borrower"),
references herein to "the Borrower" shall be read as "each Co-Borrower", "all
Co-Borrowers", or "any or all Co-Borrowers", jointly and severally, whichever
reading maximizes the Lender's rights and the Co-Borrower's obligations under
this Agreement. Al Co-Borrowers and, if more than one, all Guarantors'
Obligations hereunder shall be joint and several.
10.10. Severability
If any provisions of this Agreement is held to be invalid, illegal; void or
unenforceable, by reason of any law, rule, administrative order or judicial or
arbitral decision, such determination shall not affect the validity of the
remaining provisions of this Agreement.
10.11. Entire Agreement
This Agreement constitutes the entire agreement among the Loan Parties, the
lender and MLPF&S regarding the matters contemplated by this Agreement, and
supersedes any and all prior agreements (whether written or oral).
10.12. Acknowledgment Regarding Perfection
MLPF&S, by its signature below, acknowledges the Security Interest of the
lender in the Securities Account and agrees to take any action required to
maintain the Security Interest and perfection thereof.
10.13. Returned Payment
To the extent the Lender or MLPF&S receives any payment with respect to the
Obligations, the facility or this Agreement, and all or any part of such payment
is subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid by the Lender or MLPF&S or paid over to a
trustee, receiver or any other entity, whether under any Bankruptcy law or
otherwise (any such payment is hereinafter, referred to as a "Returned
Payment"), then this Agreement shall continue to be effective or shall be
reinstated, as the case may be, to the extent of such payment or repayment by
the Lender o MLPF&S, and, the indebtedness or part thereof intended to be
satisfied by such Returned Payment shall be revived and continued in full force
and effect as if said Returned Payment had not been made.
10.14. Effectiveness Upon Acceptance by Lender and MLPF&S
This Agreement will become effective only after each Loan Party has signed
this Agreement in the space provided below and the Lender and MLPF&S have signed
this Agreement in the spaces provided below indicating their acceptance of this
Agreement.
10.15. Notices
Except as otherwise provided in this Section 10.15, all communications
hereunder shall be in writing and delivered or mailed by registered or certified
mail or overnight carrier or by telecopy. Statements, notices and all other
communications to the Borrower or other guarantor will be sent to the address
set forth on the signature page below or to such other address as may be
designated in a written notice delivered in the manner provided herein. Each
Loan Party, agrees to send correspondence to the Lender at such address as is
provided by the Lender from time to time. Unless the Lender shall require
requests under Section 2.1(b) or 2.2(b) to be in writing, such requests shall be
given by the Borrower to the Lender verbally. The Lender shall send to the
Borrower written confirmation of any such notice. If the Bank has not received
written notice from the Borrower of any exception or objection to any such
confirmation within fifteen (15) days of the Borrower's receipt of such
confirmation, the Borrower shall be deemed to have approved such confirmation
and such confirmation shall be presumed conclusively to be correct with respect
to all matters set forth therein.
10.16. Counterparts
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each which when so executed
and delivered shall be an original, but all of which shall together constitute
one and the same instrument.
10.17. Arbitration with MLPF&S
EACH LOAN PARTY UNDERSTAND AND EACH LOAN PARTY AND MLPF&S AGREE THAT:
(A) ARBITRATION S FINAL AND BINDING ON THE PARTIES.
(B) EACH LOAN PARTY, EACH PLEDGOR AND MLPF&S ARE WAIVING THEIR RIGHT TO
SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY TRIAL.
(C) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT
FROM COURT PROCEEDINGS.
(D) THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR
LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODFICATION OF
RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
(E) THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
EACH LOAN PARTY HEREBY AGREES TO HOLD HARMLESS MLPF&S, ITS AFFILIATES
(EXCLUDING THE LENDER), AND ITS EMPLOYEES FROM ANY AND ALL CLAIMS, LIABILITIES,
AND/OR DAMAGES, IN ANY WAY RELATED TO, OR ARISING OUT OF, OR IN CONNECTION WITH,
EACH LOAN PARTY'S AND EACH PLEDGOR'S GRANTING OF THE SECURITY INTEREST OR THE
LENDER'S EXERCISE OF RIGHTS UNDER THIS AGREEMENT, INCLUDING ANY ACTION OR
INACTION BY MLPF&S IN FOLLOWING THE LENDER'S INSTRUCTIONS REGARDING THE
SECURITIES ACCOUNT IN ACCORDANCE WITH THIS AGREEMENT.
EACH LOAN PARTY AGREES THAT ALL CONTROVERSIES WHCH MAY ARISE BETWEEN MLPF&S
AND SUCH LOAN PARTY CONCERNING THE SECURITIES ACCOUNT, INCLUDING BUT NOT LIMITED
TO THOSE INVOLVING ANY TRANSACTION OR THE CONSTRUCTION, PERFORMANCE, OR BREACH
OF THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN MLPF&S AND SUCH LOAN PARTY
WHETHER ENTERED INTO PRIOR TO, ON OR SUBSEQUENT TO THE DATE HEREOF SHALL BE
DETERMINED BY ARBITRATION. ANY ARBITRATION UNDER THIS AGREEMENT SHALL BE
CONDUCTED ONLY BEFORE THE NEW YORK STOCK EXCHANGE, INC., THE AMERICAN STORCK
EXCHANGE, INC., OR AN ARBITRATION FACILITY PROVIDED BY ANY OTHER EXCHANGE, THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., OR THE MUNICIPAL SECURITIES
RULEMAKING BOARD, AND IN ACCORDANCE WITH ITS ARBITRATION RULES THEN IN FORCE.
EACH LOAN PARTY MAY ELECT IN THE FIRST INSTANCE WHETHER ARBITRATION SHALL BE
CONDUCTED BEFORE THE NEW YORK STOCK EXCHANGE, INC., THE AMERICAN STOCK EXCHANGE,
INC., OTHER EXCHANGES THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, IN.C, OR
THE MUNICIPAL SECURITIES RULEMAKING BOARD, BUT IF SUCH LOAN PARTY FAILS TO MAKE
SUCH ELECTION, BY REGISTERED LETTER OR TELEGRAM ADDRESSED TO MLPF&S IN CARE OF
THE LENDER, BEFORE THE EXPIRATION OF FIVE DAYS AFTER RECEIPT OF A WRITTEN
REQUEST FROM MLPF&S TO MAKE SUCH ELECTION, THEN MLPF&S MAY MAKE SUCH ELECTION.
JUDGMENT UPON THE AWARD OF THE ARBITRATORS MAY BE ENTERED IN ANY COURT, STATE OR
FEDERAL, HAVING JURISDICTION.
NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO ARBITRATION,
NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREMENT AGAINST ANY PERSON WHO
HAS INITIATED IN COURT A PUTATIVE CLASS ACTION; OR WHO IS A MEMBER OF A PUTATIVE
CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY CLAIMS ENCOMPASSED
BY THE PUTATIVE CLASS ACTION UNTIL:
(I) THE CLASS CERTIFICATION IS DENIED;
(II) THE CLASS IS DECERTIFIED; OR
(III) THE CUSTOMER IS EXCLUDED FROM THE CLASS BY THE COURT.
SUCH FORBEARANCE TO ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE
A WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
EACH LOAN PARTY HEREBY ACKNOWLEDGES THAT THIS SECTION 10.17 APPLIES SOLELY
TO TRANSACTIONS BETWEEN MLPF&S AND THE LOAN PARTIES IN CONNECTIN WITH THE
SECURITIES ACCOUNT AND THAT THIS SECTION 10.17 DOES NOT OTHERWISE PERTAIN TO THE
FACILITY, THE LOAN OR THE ADVANCES MADE HEREUNDER.
10.18. GOVERNING LAW
THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERENED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT REGARD TO ANY CONFLICT OF LAW
PROVIDION THEREOF THAT MIGHT PREVENT THE OEPRATION OF THIS SECTION 10.18.
10.19. WAIVER OF JURY TRIAL
EXCEPT TO THE EXTENT PROHOBITETD BY APPLICABLE LAW WHICH CANNOT BE WAIVED,
EACH LOAN PARTY HEREBY WAIVES AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHWERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN
RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHEHTER NOW
EXISTING OR HEREAFTER ARISING OR HETHER IN CONTRACT OR TORT O OTHERWISE. EACH
LOAN PARTY ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE LENDER THAT THE
PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE
LENDER HAS RELIED, IS RELYING AND WILL RELY IN ENTERING INTO THIS AGREMENT AND
ANY DOCUMENT RELATED THERETO. THE LENDER MAY FILE AN ORIGINAL COUNTERPART OF
THIS SECTION WITH ANY COURT AS WRITTEN EIVDENE OF THE CONSENT OF ANY LOAN PARTY,
AS THE CASE MAY BE, TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
10.20. SUBMISSION TO JURISDICITION
EACH LOAN PARTY (EACH, A "SUBMITTING PARTY") HEREBY IRREVOCABLY SUBMITS
ITSELF TOT HE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW YORK IN NEW
YORIK COUNTY AND TO THE JURISDICTION OF THE UNED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER
PROCEEIDNG ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF BROGHT BY THE LENDER OR ITS SUCCESSORS OR ASSIGNS. EACH SUBMITTING PARTY,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, (A) HEREBY WAIVES AND AGREES NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY CUSH SUIT, ACTION OR
PROCEEDING, ANY CLAIM THAT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE
ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR
EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS
AGREMENT OR THE SUBJECT MATTER HEREOF MAYNOT BE ENFORCED IN OR BY SUCH COURT,
AND (B) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH SUIT, ACTION OR PROCEEDING
ANY OFFSET OR COUNTERCLAIM, EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY. EACH
SUBMITTING PARTY AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO
SERVICE OR PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE LENDER. FINAL
JUDGMENT AGAINST A SUBMITTING PARTY IN ANY SUCH SUIT, ACTION OR PROCEEDING SHALL
BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (X) BY SUIT, ACTION
OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE
CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF THE INDEBTEDNESS OR
LIABILITYOF SUCH SUBMITTING PARTY OR (Y) IN ANY OTHER MANNER PROVIDED BY OR
PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED HOWEVER, THAT THE
LENDER MAY AT ITS OPTION BRING SUIT OR INSTITUTE OTHER JUDICIAL PROCEEDINGS
AGAINST A SUBMITTING PARTY OR ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF
THE UNIED STATES OR OF ANY COUNTRY OR PLACE WHERE SUCH SUBMITTING PARTY OR SUCH
ASSETS MAY BE FOUND.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
This Agreement contains a pre-dispute arbitration provision regarding
disputes with MLPF&S in Section 10.17, hereof.
MAXIMUM AMOUNT : $8,200,000
MINIMUM ADVANCE AMOUNT : $ 100,000
FACILITY FEE PERCENTAGE : 0%
SPREAD : Libor = 0.75%
[Reminder of page intentionally left blank)
<PAGE>
Borrower
a. Name (if entity, please provide legal name as it appears in organizational
documents, e.g., certificate of incorporation, partnership agreement);
TransCor Waste Services, Inc.
b. Trade name (if different);
c. Print address of primary residence (if individual), or principal place of
business and, if different, chief executive offices (if entity):
1502 East 2nd Avenue, Tampa, FL 33605-5006
d. Signature /s/ JOSEPH M. WILLIAMS
-----------------------------
Joseph M. Williams
Date: 2/22/99
-----------------------------
Witness /s/ JEAN C. BURNS
-----------------------------
Jean C. Burns
Print Name 2/22/99
-----------------------------
Date
-----------------------------
Borrower
a. Name (if entity, please provide legal name as it appears in organizational
documents, e.g., certificate of incorporation, partnership agreement);
b. Trade name (if different): N/A
c. Print address of primary residence (if individual), or principal place of
business and, if different, chief executive offices (if entity):
d. Signature
-----------------------------
Date:
-----------------------------
Witness
-----------------------------
Print Name
-----------------------------
Date
-----------------------------
<PAGE>
NOTICE TO GUARANTORS WHO ARE NOT ALSO BORROWERS
You are being asked to guarantee the Borrower's debt. Think carefully before you
do. If the Borrower does not pay the debt, you will have to. Be sure you can
afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the Borrower does not
pay. You may also have to pay late fees or collection costs, which increase this
amount. The Lender can collect this debt from you without first trying to
collect from the Borrower. The Lender can use the same collection methods
against you that can be used against the Borrower, such as suing you, garnishing
your wages, liquidating your Collateral, etc. If this debt is ever in default,
that fact may become a part of your credit record.
GUARANTOR
a. Name (if entity, please provide legal name as it appears in organizational
documents, e.g., certificate of incorporation, partnership agreement):
b. Trade name (if different):
c. Print address of primary residence (if individual), or principal place of
business and, if different, chief executive offices (if entity);
d. Signature
-----------------------------
Date:
-----------------------------
Witness
-----------------------------
Print Name
-----------------------------
Date
-----------------------------
GUARANTOR
a. Name (if entity, please provide legal name as it appears in organizational
documents, e.g., certificate of incorporation, partnership agreement):
b. Trade name (if different);
c. Print address of primary residence (if individual), or principal place of
business and, if different, chief executive offices (if entity):
d. Signature
-----------------------------
Date:
-----------------------------
Witness
-----------------------------
Print Name
-----------------------------
Date
-----------------------------
[Remainder of page intentionally left blank.]
<PAGE>
PLEDGOR
a. Name (if entity, please provide legal name as it appears in organizational
documents, e.g., certificate of incorporation, partnership agreement):
b. Trade name (if different);
c. Print address of primary residence (if individual), or principal place of
business and, if different, chief executive offices (if entity);
d. Signature
-----------------------------
Date:
-----------------------------
Witness
-----------------------------
Print Name
-----------------------------
Date
-----------------------------
PLEDGOR
a. Name (if entity, please provide legal name as it appears in organizational
documents, e.g., certificate of incorporation, partnership agreement):
b. Trade name (if different);
c. Print address of primary residence (if individual), or principal place of
business and, if different, chief executive offices (if entity);
d. Signature
-----------------------------
Date:
-----------------------------
Witness
-----------------------------
Print Name
-----------------------------
Date
-----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000894096
<NAME> TRANSCOR WASTE SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 992,642
<SECURITIES> 21,489,879
<RECEIVABLES> 669,146
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,622,954
<PP&E> 603,853
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,340,409
<CURRENT-LIABILITIES> 8,042,574
<BONDS> 0
0
0
<COMMON> 4,010
<OTHER-SE> 28,981,042
<TOTAL-LIABILITY-AND-EQUITY> 37,340,409
<SALES> 417,136
<TOTAL-REVENUES> 417,136
<CGS> 441,138
<TOTAL-COSTS> 557,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (88,921)
<INCOME-PRETAX> 511,448
<INCOME-TAX> 199,465
<INCOME-CONTINUING> 311,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 311,983
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000894096
<NAME> TRANSCOR WASTE SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,941,724
<SECURITIES> 0
<RECEIVABLES> 1,167,404
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,010,957
<PP&E> 706,075
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,964,921
<CURRENT-LIABILITIES> 1,094,392
<BONDS> 0
0
0
<COMMON> 4,010
<OTHER-SE> 11,272,070
<TOTAL-LIABILITY-AND-EQUITY> 16,964,921
<SALES> 1,868,409
<TOTAL-REVENUES> 1,868,409
<CGS> 1,430,977
<TOTAL-COSTS> 1,631,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (88,109)
<INCOME-PRETAX> 325,328
<INCOME-TAX> 91,878
<INCOME-CONTINUING> 233,450
<DISCONTINUED> (12,324)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221,126
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
