AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1999
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.D. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended MARCH 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-21956
EVANS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1613155
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) (Identification number)
720 AVENUE F NORTH, BAY CITY, TEXAS 77414 (409) 245-2424
(Address including zip code and telephone number, including area code, of
registrant's principal executive offices)
JERRIEL L. EVANS, SR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mailing Address: P.O. Box 2480, Bay City, Texas 77404-2480 (409) 245-2424
Physical Address: 720 Avenue F North, Bay City, Texas 77414 (409) 245-2424
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
NONE
(Former name, former address and former fiscal year, if changed
since last report)
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 [ ]
Number of shares of common stock of registrant outstanding exclusive of Treasury
shares or shares held by subsidiaries of the registrant at May 24, 1999 was
3,959,440.
<PAGE>
EVANS SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page Number
Financial Statements (Unaudited)
Condensed Consolidated Unaudited Balance Sheet as of
March 31, 1999 and September 30, 1998 3
Condensed Consolidated Unaudited Statement of
Operations and Comprehensive Income (Loss) for the
Three Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Unaudited Statement of
Operations and Comprehensive Income (Loss) for the
Six Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Unaudited Statement of
Cash Flows for the Six Months Ended March 31, 1999
and 1998 6
Notes to the Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K
A. Exhibits Index 25
B. Reports on Form 8-K 25
Signatures 25
2
<PAGE>
PART I. FINANCIAL INFORMATION
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
----------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 1,060 $ 831
Trade receivables, net of allowance for doubtful
accounts of $308,000 and $264,000, respectively 3,239 2,796
Inventory .......................................... 3,364 3,714
Income taxes receivable ............................ 128 128
Prepaid expenses and other current assets .......... 582 775
Deferred income taxes .............................. 78 78
Current assets of ChemWay .......................... -- 1,658
-------- --------
Total current assets .......................... 8,451 9,980
Property and equipment, net .............................. 15,979 17,231
Investment in marketable securities ...................... 8,062 --
Other assets ............................................. 892 837
Deferred income taxes .................................... 1,585 1,750
Noncurrent assets of ChemWay ............................. -- 3,390
-------- --------
Total assets ............................. $ 34,969 $ 33,188
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .............. $ 6,662 $ 4,939
Current portion of long-term debt .................. 1,704 1,698
Current liabilities of ChemWay ..................... -- 2,100
-------- --------
Total current liabilities ..................... 8,366 8,737
Long-term debt ........................................... 10,733 11,151
-------- --------
Total liabilities ............................. 19,099 19,888
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 15,000,000 shares
authorized, 3,959,440 and 3,268,298 shares issued,
respectively ..................................... 39 33
Additional paid-in capital ......................... 15,247 13,811
Retained earnings (deficit) ........................ (1,440) (110)
Net unrealized gain on marketable securities ....... 2,458
Treasury stock, 72,589 shares, at cost ............. (434) (434)
-------- --------
Total stockholders' equity .................... 15,870 13,300
-------- --------
Total liabilities and stockholders' equity $ 34,969 $ 33,188
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 1998
-------- --------
Revenue:
Refined product sales ...................... $ 14,804 $ 19,684
Other sales and services ................... 4,384 4,916
-------- --------
Total revenue .............................. 19,188 24,600
Cost of sales .................................... 16,361 20,454
-------- --------
Gross profit ..................................... 2,827 4,146
-------- --------
Operating expenses:
Employment expenses ........................ 1,627 2,124
Other operating expenses ................... 907 831
General & administrative expenses .......... 410 612
Write-down of assets ....................... 1,259 --
Legal and professional fees arising due to
merger discussions ....................... 480 --
Depreciation and amortization .............. 415 497
-------- --------
Total operating expenses ................... 5,098 4,064
-------- --------
Operating loss ................................... (2,271) 82
Other income (expense)
Interest expense, net ...................... (490) (268)
Loss on sale of assets ..................... (24)
Loss on abandonment of assets .............. (338)
Other, net ................................. (11) 112
-------- --------
Loss before benefit from income taxes ............ (3,134) (74)
Benefit from income taxes ........................ 1,083 27
-------- --------
Loss from continuing operations .................. (2,051) (47)
Discontinued operations:
Loss from discontinued operations of
ChemWay, net of tax benefit of $215 ........ -- (1,148)
-------- --------
Net loss ......................................... $ (2,051) $ (1,195)
Increase in unrealized gain on marketable
securities, net of tax effect of $1,104 ........ 2,458 --
Basic and diluted earnings (loss) per share:
Continuing operations ...................... $ (.54) $ (.02)
Discontinued operations .................... -- (.37)
-------- --------
Net income (loss) .......................... $ (.54) $ (.39)
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands, except per share amounts)
SIX MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- --------
Revenue:
Refined product sales ................... $ 31,480 $ 43,066
Other sales and services ................ 8,706 10,303
-------- --------
Total revenue ........................... 40,186 53,369
Cost of sales ................................. 33,907 45,397
-------- --------
Gross profit .................................. 6,279 7,972
-------- --------
Operating expenses:
Employment expenses ..................... 3,682 4,361
Other operating expenses ................ 1,607 1,777
General & administrative expenses ....... 1,014 1,277
Write-down of assets .................... 1,259 --
Legal and professional fees arising due
to merger discussions ................. 480 --
Depreciation and amortization ........... 842 970
-------- --------
Total operating expenses ................ 8,884 8,385
-------- --------
Operating loss ................................ (2,605) (413)
Other income (expense):
Interest expense, net ................... (762) (606)
Gain on sale of assets .................. 302 --
Loss on abandonment of assets ........... (338) --
Other, net .............................. (11) 69
-------- --------
Loss before benefit from income taxes ......... (3,414) (950)
Benefit from income taxes ..................... 1,169 343
-------- --------
Loss from continuing operations ............... (2,245) (607)
Discontinued operations:
Loss from discontinued operations of
ChemWay, net of tax benefit ............. -- (1,533)
Gain on disposal of ChemWay, net of
taxes of $211 ........................... 915 --
-------- --------
Net income (loss) ............................. $ (1,330) $ (2,140)
Increase in unrealized gain on marketable
securities, net of tax effect of $1,104 ..... 2,458 --
Basic and diluted earnings (loss) per share:
Continuing operations ................... $ (.62) $ (.19)
Discontinued operations ................. .25 (.50)
-------- --------
Net income (loss) ....................... $ (.37) $ (.69)
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-----------------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $(1,330) $(2,140)
Adjustments:
Depreciation and amortization ....................... 842 970
Deferred income taxes ............................... (939) (343)
Loss from discontinued operations ................... -- 1,533
Loss on sale of fixed assets ........................ 36 --
Gain on disposal of discontinued operations ......... (1,126) --
Stock option compensation expense ................... 205 --
Changes in working capital:
Current assets ................................. (600) 1,122
Current liabilities ............................ 1,723 (2,976)
------- -------
Total adjustments ........................................ 141 306
------- -------
Net cash provided (used) by operating activities ............... (1,189) (1,834)
------- -------
Cash flows from investing activities:
Capital expenditures ..................................... (355) (956)
Proceeds from sale of property and equipment ............. 1,004 652
Other, net ............................................... (56) (75)
------- -------
Net cash provided (used) by investing activities ............... 593 (379)
------- -------
Cash flows from financing activities:
Borrowings (repayment) on notes payable, net ............ (412) 686
Net proceeds from exercise of stock options .............. 1,237 --
------- -------
Net cash used by financing activities .......................... 825 686
------- -------
Net cash provided (used) by continuing operations .............. 229 (1,527)
Net cash provided by discontinued operations ................... -- 1,293
------- -------
Net increase (decrease) in cash ................................ 229 (234)
Cash and cash equivalents, beginning of period ................. 831 1,297
------- -------
Cash and cash equivalents, end of period ....................... $ 1,060 $ 1,063
------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited 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 and Rule 10-01 of
Regulation S-X. They do not include all information and notes required by
generally accepted accounting principles for complete financial statements.
Except as disclosed herein, there has been no material change in the information
disclosed in the notes to the consolidated financial statements included in the
annual report on Form 10-K of Evans Systems, Inc. (the "Company") for the year
ended September 30, 1998. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month and six
month periods ended March 31, 1999 are not necessarily indicative of the results
which may be expected for the year ending September 30, 1999.
NOTE B - SEASONAL NATURE OF BUSINESS
The refined petroleum products market customarily experiences competitive
margins in the fall and winter months followed by increased demand during spring
and summer when construction, travel, and recreational activities increase.
NOTE C - LONG-TERM DEBT
At December 31, 1998, the Company was in default of certain financial covenants
contained within its loan agreements with two of its bank lenders. On March 31,
1999, the Company closed on an amendment to its credit agreement with one of its
bank lenders (the "Refinancing"), pursuant to which the bank (i) waived all
previous and continuing covenant defaults; (ii) extended the maturity of its
loan balance to January 31, 2001; and (iii) assumed the amounts outstanding
under the other bank lender's loans under their current terms and conditions.
Under the terms of the Refinancing, such bank lender received a first lien
position on certain assets of the Company, more specifically, inventories,
accounts receivable, convenience store real estate and equipment. The
Refinancing contains financial covenant obligations, including minimum net
worth, minimum earnings before interest, taxes and depreciation ("EBITDA"),
working capital ratio and fixed charge coverage ratio, all as defined within the
loan documents. The Company is presently in compliance with the proposed
financial covenants and management believes the Company will be able to comply
with the proposed financial covenants during the foreseeable future, however
there can be no assurance that the Company will be able to do so.
Furthermore, covenants in the Company's loan agreement (i) limit the Company's
ability to make capital expenditures to the greater of $1,000,000 or 25% of
EBITDA, (ii) prohibit the payment of cash dividends and (iii) limit the
Company's ability to incur additional indebtedness. Under the terms of the
Refinancing, interest is payable monthly at an annual rate of two percent above
the bank's established prime lending rate. In addition, the Company is obligated
to make a principal repayment of approximately $41,000 per month. Although the
final maturity date of the loan is January 31, 2001, in the event that the loan
is not repaid by June 30, 1999, the Company will be subject to a fee of
$250,000; furthermore, the Company could be obligated to pay additional fees of
$250,000 on August 31, 1999 and December 31, 1999 in the event that the loan
obligations are not repaid by those respective dates. Management intends to
replace the existing bank debt with new financing which would have the effect of
increasing the availability of working capital and avoid payment of the fees
discussed above, however there can be no assurance that it will be able to do
so.
7
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted earnings (loss) per share for the quarters ending March 31,
1999 and March 31, 1998 were computed using 3,789,437 and 3,090,984 weighted
average common shares outstanding, respectively. Basic and diluted loss per
share for the six months ended March 31, 1999 and March 31, 1998 were computed
using 3,090,984 and 3,058,468 average common shares outstanding, respectively.
NOTE E - SALE OF DISCONTINUED OPERATION
On December 30, 1998, the Company completed the sale of its subsidiary, ChemWay
Systems, Inc. ("ChemWay") to an unaffiliated third party, Affiliated Resources
Corporation ("Affiliated"). The Company received 1.5 million shares of common
stock of Affiliated in exchange for all of the common stock of ChemWay. The
Company recorded a gain on the disposition of ChemWay of $915,000, net of a
provision for income taxes of $211,000. The number of shares received and the
valuation thereof was determined through an arms-length negotiation.
NOTE F - MARKETABLE SECURITIES
Marketable equity securities available for sale are carried at market. The
number of shares of the Company's investment in Affiliated at March 31, 1999 was
1,500,000 shares, resulting in an unrealized gain of $2,458,000, net of tax of
$1,104.000.
NOTE G - PROPOSED MERGER AGREEMENT
On March 3, 1999, the Company announced that it had signed a letter of intent to
merge with Duke & Long Distributing Company, Inc., however such merger
discussions were terminated on April 16, 1999. In conjunction with the proposed
merger, the Company incurred legal and professional fees of $479,700, which are
included within the results of operations in the quarter ended March 31, 1999.
NOTE H - WRITE-DOWN OF CERTAIN ASSETS
In conjunction with a due diligence examination of the Company's books and
records, the Company determined that assets totaling $1,632,000 were impaired.
The Company has recorded these expenses as operating expenses during the quarter
ended March 31, 1999, of which $35,000 was included in the cost of fuel. The
remaining $1,597,000 in asset write-downs are as follows:
Uncollectible accounts receivable $1,168,000
Repairs and Maintenance Expense 91,000
----------
Write-down of assets 1,259,000
Loss on abandonment of fixed assets 338,000
NOTE I - STOCKHOLDERS' EQUITY
The Company received net proceeds of $1,078,000 from the exercise of 429,543
stock options by employees during the quarter ended March 31, 1999.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward- looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to successfully
implement its turnaround strategy, changes in costs of raw materials, labor, and
employee benefits, as well as general market conditions, competition and
pricing. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Annual Report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as representation by the Company or any other person that
the objectives and plans of the Company will be achieved. In assessing
forward-looking statements included herein, readers are urged to carefully read
those statements. When used in the Quarterly Report on Form 10-Q, the words
"estimate," "anticipate," "expect," "believe," and similar expressions are
intended to be forward- looking statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the condensed consolidated
unaudited financial statements and notes thereto appearing elsewhere in this
document.
THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table reflects the operating results of Evans Systems, Inc. ("ESI"
or the "Company") business segments for the three months ended March 31, 1999
and 1998. This is the second quarter of ESI's fiscal year which begins on
October 1 and ends on September 30.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
---------------- ----------------
(In thousands) (In thousands)
<S> <C> <C>
PETROLEUM MARKETING(1)
Revenue .......................................................... $ 11,873 $ 16,642
Refund of previously overpaid excise taxes ....................... -- 434
Gross profit, excluding excise tax refund ........................ 1,125 1,906
Write-down of assets ............................................. 1,160 --
Legal and professional fees arising from merger discussions ...... 480 --
Other operating expenses ......................................... 1,603 1,839
-------- --------
Operating loss ................................................... (2,118) 501
CONVENIENCE STORES
Revenue .......................................................... 6,795 7,714
Gross profit ..................................................... 1,371 1,666
Write-down of assets ............................................. 5 --
Other operating expenses ......................................... 1,600 2,013
-------- --------
Operating loss ................................................... (234) (347)
EDCO ENVIRONMENTAL
Revenue .......................................................... 520 244
Gross profit ..................................................... 331 140
Write-down of assets ............................................. 94 --
Other operating expenses ......................................... 156 212
-------- --------
Operating income (loss) .......................................... 81 (72)
TOTAL
Revenue .......................................................... $ 19,188 $ 24,600
Refund of previously overpaid excise taxes ....................... -- 434
Gross profit, excluding excise tax refund ........................ 2,827 3,712
Write-down of assets ............................................. 1,259 --
Legal and professional fees arising from merger discussions ...... 480 --
Other operating expenses ......................................... 3,359 4,064
-------- --------
Operating loss ................................................... (2,271) 82
</TABLE>
(1) Includes expenses of the parent company.
On March 3, 1999, the Company announced that it had signed a letter of intent to
merge with Duke & Long Distributing Company, Inc., however such merger
discussions were terminated on April 16, 1999. In conjunction with the proposed
merger, the Company incurred legal and professional fees of $479,700, which are
included within the results of operations in the quarter ended March 31, 1999.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Operating loss for the quarter ended March 31, 1999 also includes noncash
charges of $1,259,000 resulting from the Company's determination that certain
assets, principally accounts receivable, were impaired. See Note F to the
condensed consolidated unaudited financial statements included herein. For
further discussion, refer to the segment discussions below.
Gross profit in the comparable quarter ended March 31, 1998 included additional
gross profit of $434,000, resulting from the refund of excise taxes which had
previously been overpaid.
After sustaining losses during 1997, in early fiscal 1998 the management of ESI
developed and began to implement its turnaround strategy. Among other things,
the strategy included a decision to refocus the Company on its "core" business
segments: petroleum marketing and convenience store operations. Within these
"core" segments, the Company sold or closed lower-volume outlets. The Company
also took actions, including the elimination of nonessential corporate staff, to
reduce overhead expenses. After taking into consideration the effect of the
asset write-downs discussed above, the Company's general and administrative
expenses declined $202,000, or approximately 33% in the quarter ended March 31,
1999 as compared with the quarter ended March 31, 1998.
Furthermore, the Company sold its ChemWay subsidiary in December 1998.
On April 1999, the Company announced that it executed an exclusive marketing
agreement with For A Free Gift.Com, an internet marketing venture, owned by
Access Media and Marketing of Oak Brook, Illinois, pursuant to which the Company
will have exclusive rights to market the program within the convenience store
industry in the U.S. The program, which management intends to preview on July 1,
1999 in its company-operated convenience stores, will use promotional brochures
which will contain discount coupons and will feature manufacturing and retail
products. These flyers and brochures will be distributed to consumers, allowing
the consumer to receive free gifts and coupon discounts both in the store and by
logging on to the for-a-free-e-gift.com website and entering an identification
number contained on the flyer. The company plans to develop the
reverse-marketing concept to provide real-time store specific demographic data
on consumers to advertisers by generating site visits to a-free- gift.com. Each
distributed flyer will contain nine discount coupons that can be redeemed by the
consumer, and each free brochure will contain 60 coupon discounts and special
offers from advertisers and manufacturers. The Company anticipates that revenues
will be generated both from the placement of coupons through the selling of
advertising on the flyers/ brochures and sponsor revenues and cost-per-lead data
from the Web site. Under the terms of the agreement Evans will receive 33% of
the advertising and sponsor revenue generated by each participating convenience
store in the program. The company believes this program will add traffic and
value to the participating convenience stores, although there can be no
assurance that it will do so. Management intends to spend approximately $600,000
during the remainder of fiscal 1999 for development and advertising costs
relating to its marketing of the For-A-Free-Gift.Com venture.
On May 21, 1999 the company continued to implement it's re-positioning strategy
by closing its bulk storage facility and office in El Campo, Texas and
eliminated 35% of its staff in the Petroleum marketing segment. The company also
closed one underperforming store in Bay City, Texas bringing its total company
operated stores to 24. The company also sold its Bay City Tire Store on May 3,
1999. On May 14,1999, the Company executed an agreement to sell its Fuelman
fleet card franchise to a competitor. Management anticipates closing on the
transaction in mid July.
In May 1999, the Company announced that it had named Richard B. Dix as president
and chief operating officer, and further that it intended to relocate its
corporate offices to Houston, Texas from its present facility in Bay City,
Texas. The Company also announced the retirement of the Company's Director and
Secretary, Mrs. Maybell Evans. The
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Company intends to reposition itself as a e-commerce based value-added service
provider to the convenience store industry. Under this business model the
company intends to offer coupons and discounts to consumers through
internet-based cross-promotion with manufacturers and advertisers to drive
retail consumers to content-based web sites which offer promotional items and
services to the convenience consumer. Management believes the potential for the
Petroleum Marketing segment is limited, and intends to explore all strategic
alternatives that relate to that segment.
Consolidated sales revenues declined to $19,188,000 in the quarter ended March
31, 1999, from $24,600,000 in the comparable prior year quarter, a decline of
$5,412,000 or approximately 22%. The decline is primarily due to the lower fuel
prices which prevailed during the current year quarter. See segment discussions,
below.
Consolidated gross profit in the quarter ended March 31, 1999, excluding the
effect of the excise tax refund discussed above, was $2,827,000 as compared with
$3,712,000 in the quarter ended March 31, 1998, a decline of $885,000 or
approximately 24%. Gross profit expressed as a percentage of sales ("Gross
Margin"), decreased to approximately 14.8% of sales during the quarter ended
March 31, 1999 as compared with a approximately 15.1% of sales in the comparable
prior year quarter, after taking into consideration the effect of the excise tax
refund. The reduction in Gross Margin is principally attributable to the
competitive pricing of fuels which prevailed during the current year quarter.
See segment discussions, below.
Operating expenses, excluding the effect of the nonrecurring charges discussed
above, in the quarter ended March 31, 1999 were $3,359,000, as compared with
$4,064,000 in the quarter ended March 31, 1998, a decrease of $705,000 or
approximately 17%. The decline in operating expenses in the quarter ended March
31, 1999, as compared with the previous year quarter, is primarily due to the
closing of underperforming convenience stores, and to an overall staff
reduction.
Consolidated operating losses, after taking into consideration the effect of the
excise tax refund in the quarter ended March 31, 1998, and the nonrecurring
charges in the quarter ended March 31, 1999, increased $16,000, primarily as a
result of the competitive fuel pricing environment which prevailed during the
current year quarter.
PETROLEUM MARKETING SEGMENT
Petroleum Marketing segment's sales revenues declined $4,769,000 to $11,873,000
in the quarter ended March 31, 1999, as compared with $16,642,000 in the quarter
ended March 31, 1998, a decline of approximately 29%. The decline is primarily
due to the lower fuel prices which prevailed during the current year quarter,
and secondarily due to the reduced number of customers which the Company served
during the current year quarter. Fuel prices can be extremely volatile, and are
determined by factors beyond the Company's control. Overall fuel prices have
subsequently increased during May 1999, however there can be no assurance that
they will continue to increase. Fuel sales in gallons was 14,706,000 in the
quarter ended March 31, 1999, as compared with 15,966,000 gallons in the quarter
ended March 31, 1998, a decrease of approximately 8%; the Company's average
selling price for fuels was $0.81 and $1.04 in the quarters ended March 31, 1999
and 1999, respectively. The Petroleum Marketing segment distributes to its motor
fuel customers both directly from refinery racks, and through the Company's bulk
plant facilities. The Company, through its wholly-owned subsidiary Way Energy
Systems, Inc. ("Way Energy") also has a 110,000 barrel terminal facility,
located in Bay City, Texas, from which it has historically distributed motor
fuels to the southeast Texas market. During the quarter ended December 31, 1997,
the Company's supply agreement with the primary fuel supplier to the Bay City
terminal facility was terminated. The loss of the fuel supply agreement had an
adverse effect upon the Petroleum Marketing segment's performance during the
remainder of 1998 and into 1999: the Company was unable to sell fuels through
various racks with its exchange agreements with other oil companies. The Company
is continuing to seek a new supplier for its terminal operation, however there
can be no assurance that it
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
will be able to do so.
Under regulations issued by the U.S. Environmental Protection Agency ("EPA"),
all underground storage tanks in the State of Texas were required to meet
certain standards of protection as of December 22, 1998. During 1998, the
Company evaluated the revenues generated by its Special Purpose Lease accounts,
and determined that it could not justify further investment at approximately 46
of such locations. Accordingly, management decided to either sell or close those
identified lower-volume Special Purpose Lease facilities. As of March 31, 1999,
the Company sold its investment at 30 of the lower-volume Special Purpose Lease
accounts. Additionally, the Company has discontinued the delivery of motor
fuels, and has removed the underground storage tanks at 16 Special Purpose Lease
sites. The remaining net book value of fixed assets at these 16 locations is
included in the $338,000 loss on abandonment of fixed assets recorded in the
quarter ended March 31, 1999. Revenues at the 16 Special Purpose Lease sites
where the underground storage tanks were removed were immaterial to the
Petroleum Marketing Segment, and management believes the closing of these 16
locations will have an immaterial effect on the future operating results of the
segment. Nineteen of the Special Purpose Lease locations sold or closed by the
Company were registered as Leaking Petroleum Storage Tank ("LPST") sites with
the TNRCC. Additionally, the Company purchased insurance, effective December 22,
1998, indemnifying the Company for first party or third party responsibility up
to $1,000,000 per location, arising from future underground storage tank
environmental issues. As such, the Company's potential liability for cleanup is
limited to its deductible amount under either the TNRCC fund, or insurance
coverage carried by the Company. The Company's maximum potential liability for
such 19 locations is $97,500, the sum of the deductible amounts for each
location, however the actual liability could be less, and cannot be determined
at this time. The Special Purpose Lease locations where the Company sold its
investment in equipment are now served by the Company as Open Dealers.
The effect of the conversion of Special Purpose Lease customers into Open
Dealers is to reduce the Company's investment in working capital. Since the
Company's margins on Open Dealer accounts are contractually fixed, however, the
Petroleum Marketing Segment's gross margins may be less volatile in the future,
as a larger percentage of the segment's business will be at fixed margins.
Gross profit in the Petroleum Marketing Segment was $1,125,000 in the quarter
ended March 31, 1999, as compared with $2,340,000 in the quarter ended March 31,
1998, a decline of $1,215,000 or approximately 52%. Gross profit in the prior
year quarter, however, included additional gross profit of $434,000, resulting
from the refund of excise taxes which had previously been overpaid. After taking
into consideration the effect of the excise tax refund in the 1998 quarter,
gross profit declined $781,000 or approximately 41%. Gross Margin in the quarter
ended March 31, 1999 declined to approximately 9.5% of sales as compared with
approximately 11.5% in the quarter ended March 31, 1998, after taking into
consideration the effect of the excise tax refund. Gross profit per gallon sold
declined in the quarter ended March 31, 1999, to approximately $0.076, as
compared to $0.119 in the quarter ended March 31, 1998. The decline is
attributed to the conversion of Special Purpose Lease customers into Open
Dealers, and to the competitive retail environment for motor fuels which
prevailed during the quarter ended March 31, 1999.
Operating expenses in the Petroleum Marketing Segment included a non-recurring
non-cash charge of $1,160,000, resulting from the write-down of certain assets,
primarily accounts receivable. General and administrative expenses in the
Petroleum Marketing Segment also included $480,000 in legal and professional
fees, arising as a result of the Company's terminated merger discussions.
After taking into consideration the write-downs and one-time fees discussed
above, operating expenses in the Petroleum Marketing Segment were $1,603,000 in
the quarter ended March 31, 1999, as compared with $1,839,000 in the quarter
ended March 31, 1998, a decrease of $236,000 or approximately 13%. In October
1997, management
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
began a program to reduce the Company's operating expenses, including the
termination of nonessential staff. The effect of those staff reductions began to
take effect during the quarter ended December 31, 1997. The Company further
reduced its staff in February 1998. The effect of the cost reduction programs
has slightly exceeded management's expectations, as additional staff reductions
have occurred through attrition. Management expects to further reduce the
Company's operating expenses during 1999 as the Company continues to exit from
the Petroleum Marketing operations. On May 21, 1999, the Company closed its bulk
storage facility in El Campo, Texas and further reduced its operating and
administrative staff by approximately 35%. With these additional reductions in
personnel, management anticipates annualized reductions in operating expenses of
approximately $800,000. On May 3, 1999, the Company completed the sale of its
Bay City, Texas tire store. The Company also has entered into an agreement to
sell its Fuelman franchise to a competitor, and anticipates the closing of the
transaction in July 1999. Note that the operating expenses of the parent company
are included within the Petroleum Marketing segment results.
Operating loss of the Petroleum Marketing Segment increased to $2,118,000 in the
quarter ended March 31, 1999 as compared with an operating profit of $501,000 in
the quarter ended March 31, 1998. The variance is primarily due to the
non-recurring non-cash write-downs and legal and professional fees incurred
during the quarter ended March 31, 1999. After taking into consideration those
nonrecurring expenses of $1,640,000, and the $434,000 excise tax refund
discussed above, the comparable results for the Petroleum Marketing Segment
would be an operating loss of $478,000 in the quarter ended March 31, 1999 as
compared with an operating profit of $67,000 in the quarter ended March 31,
1998. The increased adjusted operating loss is primarily due to the competitive
environment with resultant reduced fuel pricing and gross margins which
prevailed during the current year quarter.
CONVENIENCE STORE SEGMENT
Sales in the Convenience Store segment were $6,795,000 in the quarter ended
March 31, 1999, as compared with $7,714,000 in the quarter ended March 31, 1998,
a decline of approximately 12%. During the quarter ended March 31, 1999 the
company operated 25 stores compared to 29 stores during the comparable quarter
ended March 31, 1998. The Company closed another nonperforming store in May
1999. Fuel sales in the quarter ended March 31, 1999 were $3,666,000 as compared
with $4,278,000 in the quarter ended March 31, 1998; the lower sales in the
current year is due to the lower retail fuel prices which prevailed during the
current year period. Fuel sales in gallons were comparable at during the two
comparative quarters, however average retail selling price per gallon declined
to approximately $0.93 in the quarter ended March 31, 1999 as compared with
$1.08 in the quarter ended March 31, 1998. The decline in selling prices for
fuel is primarily driven by external market forces beyond the Company's control,
however it also reflects Management's decision to price its fuels more
aggressively in order to increase customer traffic and resulting higher-margin
merchandise sales.
Merchandise sales decreased $107,000 to $3,129,000 as compared with $3,236,000
in the quarter ended March 31, 1998. The decline in merchandise sales is
primarily due to fewer operating stores during the current fiscal year. As a
percentage of total store sales, however, merchandise sales increased to
slightly over 45% as compared to approximately 42% in the quarters ended March
31, 1999 and 1998, respectively.
Gross profit declined $295,000 or approximately 18% to $1,371,000 in the quarter
ended March 31, 1999 as compared with $1,666,000 in the quarter ended March 31,
1998 primarily due to the lower gasoline margins which prevailed during the
current year period. Gross Margin in the Convenience Store segment was
approximately 20.2% of sales as compared with approximately 21.6% of sales
during the 1999 and 1998 periods, respectively.
Operating expenses during the quarter ended March 31, 1999 in the Convenience
Store segment were $1,605,000 as compared with $2,013,000 in the quarter ended
March 31, 1998, a decrease of $408,000 or approximately 20%. The
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
decline in operating expenses is principally attributable to the closing of
underperforming stores during 1998, and to an overall reduction in staff during
1998. On May 21, 1999 the Company further reduced its administrative staff
within the Convenience Store segment.
The Convenience Store segment incurred an operating loss of $234,000 in the
quarter ended March 31, 1999, as compared with a loss of $347,000 in the quarter
ended March 31, 1998. The reduced loss is due to reduced operating expenses
during the current year, partially offset by reduced sales and resulting gross
profits.
EDCO ENVIRONMENTAL
The Company determined that accounts receivable totaling $94,000 were probably
uncollectible, and recorded an increase in its bad debt reserve during the
quarter ended March 31, 1999. After taking this nonrecurring noncash charge into
consideration, operating expenses at EDCO Environmental decreased $56,000 in the
quarter ended March 31, 1999, to $156,000 as compared with $212,000 in the
quarter ended March 31, 1998, a decrease of approximately 26%. The decrease is
primarily attributable to the Company's reduction in staff.
EDCO Environmental earned an operating profit of $81,000 in the quarter ended
March 31, 1999, as compared with an operating loss of $72,000 in the quarter
ended March 31, 1998, primarily due to increased sales revenues and resultant
gross profits, and to reduced operating expenses in the current year quarter.
The work performed in conjunction with bringing sites into compliance with the
December 22, 1998 EPA requirements is substantially complete. EDCO Environmental
will continue to focus its attention on environmental remediation projects which
have been pre-approved for reimbursement by the Texas Natural Resource
Conservation Commissions' ("TNRCC") fund, or by private insurers. Management
believes that such opportunities will continue to exist, however there can be no
assurance that they will do so.
THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
SIX MONTHS ENDED MARCH 31, 1999 AND 1998
The following table reflects the operating results of the Company's business
segments for the six months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
---------------- ----------------
(In thousands) (In thousands)
<S> <C> <C>
PETROLEUM MARKETING(1)
Revenue ............................................................. $ 25,363 $ 36,702
Refund of previously overpaid excise taxes .......................... -- 434
Gross profit, excluding excise tax refund ........................... 2,961 3,785
Non-cash compensation expense, arising from the vesting
of stock options .............................................. 196 --
Write-down of assets ................................................ 1,160 --
Legal and professional fees arising from merger discussions ......... 480 --
Other operating expenses ............................................ 3,459 4,000
-------- --------
Operating loss ...................................................... (2,334) 219
CONVENIENCE STORES
Revenue ............................................................. 13,998 16,046
Gross profit ........................................................ 2,890 3,418
Write-down of assets ................................................ 5 --
Other operating expenses ............................................ 3,155 3,990
-------- --------
Operating loss ...................................................... (270) (572)
EDCO ENVIRONMENTAL
Revenue ............................................................. 825 621
Gross profit ........................................................ 428 335
Write-down of assets ................................................ 94 --
Other operating expenses ............................................ 335 395
-------- --------
Operating income (loss) ............................................. (1) (60)
TOTAL
Revenue ............................................................. 40,186 $ 53,369
Refund of previously overpaid excise taxes .......................... -- 434
Gross profit, excluding excise tax refund ........................... 6,279 7,538
Non-cash compensation expense, arising from the vesting
of stock options .............................................. 205 --
Write-down of assets ................................................ 1,259 --
Legal and professional fees arising from merger discussions ......... 480 --
Other operating expenses ............................................ 6,940 8,385
-------- --------
Operating loss ...................................................... (2,605) (413)
</TABLE>
(1) Includes expenses of the parent company.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
On March 3, 1999, the Company announced that it had signed a letter of intent to
merge with Duke & Long Distributing Company, Inc., however such merger
discussions were terminated on April 16, 1999. In conjunction with the proposed
merger, the Company incurred legal and professional fees of $479,700, which are
included within the results of operations in the results for the six months
ended March 31, 1999.
Operating loss for the six months ended March 31, 1999 also include noncash
charges of $1,259,000 resulting from the Company's determination that certain
assets, principally accounts receivable, were impaired. See Note F to the
condensed consolidated unaudited financial statements included herein. For
further discussion, refer to the segment discussions below.
Operating loss for the six months ended March 31, 1999 included a non-cash
charge of $205,000 to compensation expense, as a result of the application of
Accounting Principles Board Option No. 25, "Accounting for Stock Issued to
Employees," with respect to the vesting of certain incentive stock options which
had previously been awarded to employees. Gross profit in the results for the
six months ended March 31, 1998 included additional gross profit of $434,000,
resulting from the refund of excise taxes which had previously been overpaid.
After sustaining losses during 1997, in early fiscal 1998 the management of ESI
developed and began to implement its turnaround strategy. Among other things,
the strategy included a decision to refocus the Company on its "core" business
segments: petroleum marketing and convenience store operations. Within these
"core" segments, the Company sold or closed lower-volume outlets. The Company
also took actions, including the elimination of nonessential corporate staff, to
reduce overhead expenses. After taking into consideration the effect of the
asset write-downs discussed above, the Company's general and administrative
expenses declined $263,000, or approximately 21% in the six months ended March
31, 1999 as compared with the six months ended March 31, 1998.
In February 1998, ESI discontinued operations in the packaging and marketing of
automotive after-market chemical products, previously operated through its
wholly-owned subsidiary, ChemWay Systems, Inc. ("ChemWay"). On December 30,
1998, the Company sold ChemWay to Affiliated Resources Corporation
("Affiliated") in a stock-for- stock transaction. In exchange for the common
stock of ChemWay, the Company received 1,500,000 shares of Affiliated common
stock; the number of shares of Affiliated common stock could be subject to a
"make whole" provision whereby the Company could receive up to an additional
1,000,000 shares of Affiliated common stock should the market value of such
stock be below $6 million at the one year anniversary of the closing of the
transaction The Company recorded a gain of $915,000 (net of a provision for
income taxes of $211,000) on the disposition of ChemWay.
In April 1999, the Company announced that it is having discussions with For A
Free Gift.Com, an internet marketing venture, pursuant to which the Company
would have exclusive rights to market the program within the convenience store
industry in the U.S. The Company was named the master distributor for the
Convenience store industry, allowing Evans to target the approximately 90,000
convenience stores operating in the U.S. The program is designed to drive
customers to participating stores through the utilization of free gifts and cost
saving coupons. The store customers then have an opportunity to win additional
free gifts by logging on to the internet web-site and watching a brief message
from participating sponsors. Each participating convenience store acts a
sub-distributor for the program and is compensated, based upon redemption rates
of coupons. The company believes this program will add traffic and value to the
participating convenience stores, although there can be no assurance that it
will do so..
In May 1999, the Company announced that it had named Richard B. Dix as president
and chief operating officer, and further that it intended to relocate its
corporate offices to Houston, Texas from its present facility in Bay City,
Texas.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company intends to continue to reposition itself as a service provider to
the convenience store industry. Management believes the potential for the
Petroleum Marketing segment is limited, and intends to gradually exit from that
segment. The Company is presently negotiating with various potential strategic
partners with the intent of rapidly creating a significant presence on the
internet.
Consolidated sales revenues declined to $40,186,000 in the six months ended
March 31, 1999, from $53,369,000 in the comparable prior year period, a decline
of $13,183,000 or approximately 25%. The decline is primarily due to the lower
fuel prices which prevailed during the current year period, and to the fewer
number of operating store location. See segment discussions, below.
Consolidated gross profit in the six months ended March 31, 1999, excluding the
effect of the excise tax refund discussed above, was $6,279,000 as compared with
$7,538,000 in the six months ended March 31, 1998, a decline of $1,259,000 or
approximately 17%. Gross Margin, after taking into consideration the effect of
the excise tax refund recognized during the six months ended March 31, 1998,
increased to approximately 15.6% of sales during the six months ended March 31,
1999 as compared with a approximately 14.1% of sales in the comparable prior
year period. The improvement Gross Margin is due to the higher fuel prices and
margins which prevailed during the quarter ended December 31, 1998, as compared
with the quarter ended December 31, 1997, partially offset by the highly
competitive environment which prevailed during the quarter ended March 31, 1999.
See segment discussions, below.
Operating expenses, excluding the effect of the nonrecurring charges discussed
above, in the six month period ended March 31, 1999 were $6,940,000, as compared
with $8,385,000 in the six months ended March 31, 1998, a decrease of $1,445,000
or approximately 17%. The decline in operating expenses in the six months ended
March 31, 1999, as compared with the previous year quarter, is primarily due to
the closing of underperforming convenience stores, and to an overall staff
reduction.
Consolidated operating losses, after taking into consideration the effect of the
excise tax refund in the quarter ended March 31, 1998, and the nonrecurring
charges in the quarter ended March 31, 1999, declined $186,000 in the current
year period: adjusted operating loss was $661,000 in the six months ended March
31, 1999 as compared with an adjusted operating loss of $847,000 in the six
months ended March 31, 1998. The effect of the reduced adjusted operating
expenses during the current year six month period was partially offset by the
lower sales revenues and gross profits during the current year six month period.
By segment, improved results in the convenience store and EDCO Environmental
segments were offset by higher operating losses in the Petroleum Marketing
segment. See segment discussion, below.
PETROLEUM MARKETING SEGMENT
Petroleum Marketing segment's sales revenues declined $11,339,000 to $23,363,000
in the six months ended March 31, 1999, as compared with $36,702,000 in the six
months ended March 31, 1998, a decline of approximately 31%. The decline is
primarily due to the reduced number of customers which the Company served during
the current year, and secondarily due to the lower retail prices which prevailed
during the current year peirod. Fuel prices can be extremely volatile, and are
determined by factor's beyond the Company's control. Overall fuel prices have
subsequently increased during May 1999, however there can be no assurance that
they will continue to increase. Fuel sales in gallons was 27,969,000 in the six
months ended March 31, 1999, as compared with 35,583,000 gallons in the six
months ended March 31, 1998, a decrease of approximately 21%; the Company's
average selling price for fuels was $1.058 and $1.063 in the quarters ended
March 31, 1999 and 1999, respectively. The Petroleum Marketing segment
distributes to its motor fuel customers both directly from refinery racks, and
through the Company's bulk plant facilities. The Company, through its
wholly-owned subsidiary Way Energy also has a
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
110,000 barrel terminal facility, located in Bay City, Texas, from which it has
historically distributed motor fuels to the southeast Texas market. During the
quarter ended December 31, 1997, the Company's supply agreement with the primary
fuel supplier to the Bay City terminal facility was terminated. The loss of the
fuel supply agreement had an adverse effect upon the Petroleum Marketing
segment's performance during the remainder of 1998 and into 1999: the Company
was unable to sell fuels through various racks with its exchange agreements with
other oil companies. The Company is continuing to seek a new supplier for its
terminal operation, however there can be no assurance that it will be able to do
so.
Under regulations issued by the U.S. Environmental Protection Agency ("EPA"),
all underground storage tanks in the State of Texas were required to meet
certain standards of protection as of December 22, 1998. During 1998, the
Company evaluated the revenues generated by its Special Purpose Lease accounts,
and determined that it could not justify further investment at approximately 46
of such locations. Accordingly, management decided to either sell or close those
identified lower-volume Special Purpose Lease facilities. As of March 31, 1999,
the Company sold its investment at 30 of the lower-volume Special Purpose Lease
accounts. Additionally, the Company has discontinued the delivery of motor
fuels, and has removed the underground storage tanks at 16 Special Purpose Lease
sites. The remaining net book value of fixed assets at these 16 locations is
included in the $338,000 loss on abandonment of fixed assets recorded in the six
months ended March 31, 1999. Revenues at the 16 Special Purpose Lease sites
where the underground storage tanks were removed were immaterial to the
Petroleum Marketing Segment, and management believes the closing of these 16
locations will have an immaterial effect on the future operating results of the
segment. Nineteen of the Special Purpose Lease locations sold or closed by the
Company were registered as Leaking Petroleum Storage Tank ("LPST") sites with
the TNRCC. Additionally, the Company purchased insurance, effective December 22,
1998, indemnifying the Company for first party or third party responsibility up
to $1,000,000 per location, arising from future underground storage tank
environmental issues. As such, the Company's potential liability for cleanup is
limited to its deductible amount under either the TNRCC fund, or insurance
coverage carried by the Company. The Company's maximum potential liability for
such 19 locations is $97,500, the sum of the deductible amounts for each
location, however the actual liability could be less, and cannot be determined
at this time. The Special Purpose Lease locations where the Company sold its
investment in equipment are now served by the Company as Open Dealers.
The effect of the conversion of Special Purpose Lease customers into Open
Dealers is to reduce the Company's sales revenues, gross profits, and working
capital requirements. Since the Company's margins on Open Dealer accounts are
contractually fixed, however, the Petroleum Marketing Segment's gross margins
may be less volatile in the future, as a larger percentage of the segment's
business will be at fixed margins.
Gross profit in the Petroleum Marketing Segment was $2,961,000 in the six months
ended March 31, 1999, as compared with $3,785,000 in the six months ended March
31, 1998, after taking into consideration the effect of the excise tax refund, a
decline of $824,000 or approximately 222%. Gross Margin in the six months ended
March 31, 1999, however, increased to approximately 11.7% of sales as compared
with approximately 10.3% in the six months ended March 31, 1998, after taking
into consideration the effect of the excise tax refund. Gross profit per gallon
sold was comparable at approximately $0.106 per gallon, in the two comparable
six month periods. Gasoline gross profits are determined primarily by external
competitive factors which are beyond the Company's control, and can be highly
volatile. Gross Margins in the first quarter of 1999 were higher than those
achieved in the first quarter of 1998, however Gross Margins in the second
quarter of 1999 were significantly lower than either the first quarter of 1999,
or the comparable second quarter of 1998.
Operating expenses in the Petroleum Marketing Segment included a non-recurring
non-cash charge of $1,160,000, resulting from the write-down of certain assets,
primarily accounts receivable. General and administrative expenses
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
in the Petroleum Marketing Segment also included $480,000 in legal and
professional fees, arising as a result of the Company's merger discussions.
Compensation expense in the six months ended March 31, 1999 included a non-cash
charge to compensation expense of $196,000, resulting from the vesting of
employee stock options, discussed above.
After taking into consideration the write-downs and one-time fees discussed
above, operating expenses in the Petroleum Marketing Segment were $3,459,000 in
the six months ended March 31, 1999, as compared with $4,000,000 in the six
months ended March 31, 1998, a decrease of $541,000 or approximately 14%. In
October 1997, management began a program to reduce the Company's operating
expenses, including the termination of nonessential staff. The effect of those
staff reductions began to take effect during the six months ended December 31,
1997. The Company further reduced its staff in February 1998. The effect of the
cost reduction programs has slightly exceeded management's expectations, as
additional staff reductions have occurred through attrition. Management expects
to further reduce the Company's operating expenses during 1999 as the Company
continues to exit from the Petroleum Marketing operations. On May 21, 1999, the
Company closed its bulk storage facility in El Campo, Texas and further reduced
its operating and administrative staff. Note that the operating expenses of the
parent company are included within the Petroleum Marketing segment results.
Operating loss of the Petroleum Marketing Segment increased to $2,334,000 in the
six months ended March 31, 1999 as compared with an operating profit of $219,000
in the six months ended March 31, 1998. The variance is primarily due to the
non-recurring non-cash write-downs and legal and professional fees incurred
during the six months ended March 31, 1999. After taking into consideration
those nonrecurring expenses of $1,836,000, and the $434,000 excise tax refund
discussed above, the comparable results for the Petroleum Marketing Segment
would be an adjusted operating loss of $498,000 in the six months ended March
31, 1999 as compared with an adjusted operating loss of $215,000 in the six
months ended March 31, 1998. The increased adjusted operating loss is primarily
due to the competitive environment with resultant reduced fuel pricing and gross
margins which prevailed during the current year six months, partially offset by
reduced operating expenses during the current six month period
CONVENIENCE STORE SEGMENT
Sales in the Convenience Store segment were $13,998,000 in the quarter ended
March 31, 1999, as compared with $16,046,000 in the quarter ended March 31,
1998, a decline of approximately 13%. The Company operated 25 stores at the end
of the six month period ended March 31, 1999 as compared with compared with 34
stores during the comparable period ended March 31, 1998. The Company closed
another nonperforming store in May 1999. Fuel sales in the six months ended
March 31, 1999 were $7,641,000 as compared with $8,998,000 in the six months
ended March 31, 1998; the lower fuel sales in the current year is due to the
lower retail fuel prices which prevailed during the current year period. Fuel
sales in gallons increased to 8,032,000 in the six months ended March 31, 1999
as compared to 8,003,000 in the six months ended March 31, 1998, however average
retail selling price per gallon declined to approximately $0.95 in the six
months ended March 31, 1999 as compared with $1.12 in the six months ended March
31, 1998. The decline in selling prices for fuel is primarily driven by external
market forces beyond the Company's control, however it also reflects
Management's decision to price its fuels more aggressively in order to increase
customer traffic and resulting higher-margin merchandise sales.
Merchandise sales decreased $459,000 to $6,208,000 as compared with $6,667,000
in the six months ended March 31, 1998. The decline in merchandise sales is
primarily due to fewer operating stores during the current fiscal year. As a
percentage of total store sales, however, merchandise sales increased to
slightly over 44% as compared to approximately 42% in the six month periods
ended March 31, 1999 and 1998, respectively.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Gross profit declined $528,000 or approximately 15% to $2,890,000 in the six
months ended March 31, 1999 as compared with $3,418,000 in the six months ended
March 31, 1998 primarily due to the lower gasoline margins which prevailed
during the current year period. Gross Margin in the Convenience Store segment
was approximately 20.6% of sales as compared with approximately 21.3% of sales
during the 1999 and 1998 periods, respectively.
Operating expenses during the six months ended March 31, 1999 in the Convenience
Store segment were $3,160,000 as compared with $3,990,000 in the six months
ended March 31, 1998, a decrease of $830,000 or approximately 21%. The decline
in operating expenses is principally attributable to the closing of
underperforming stores during 1998, and to an overall reduction in staff during
1998. On May 21, 1999 the Company further reduced its administrative staff
within the Convenience Store segment.
The Convenience Store segment incurred an operating loss of $270,000 in the six
months ended March 31, 1999, as compared with a loss of $572,000 in the six
months ended March 31, 1998. The reduced loss is due to reduced operating
expenses during the current year, partially offset by reduced sales and
resulting gross profits.
EDCO ENVIRONMENTAL
The Company determined that accounts receivable totaling $94,000 were probably
uncollectible, and recorded an increase in its bad debt reserve during the six
months ended March 31, 1999. After taking this nonrecurring noncash charge into
consideration, operating expenses at EDCO Environmental decreased $60,000 in the
six months ended March 31, 1999, to $335,000 as compared with $395,000 in the
six months ended March 31, 1998, a decrease of approximately 15%. The decrease
is primarily attributable to the Company's reduction in staff.
EDCO Environmental reported an operating loss of $1,000 in the six months ended
March 31, 1999, as compared with an operating loss of $60,000 in the six months
ended March 31, 1998. After taking into consideration the effect of the
nonrecurring charge discussed above, EDCO Environmental adjusted operating
results would be an operating profit of $93,000 in the six months ended March
31, 1999, as compared with an operating loss of $60,000 in the six months ended
March 31, 1998, primarily due to increased sales revenues and resultant gross
profits. The work performed in conjunction with bringing sites into compliance
with the December 22, 1998 EPA requirements is substantially complete. EDCO
Environmental will continue to focus its attention on environmental remediation
projects which have been pre-approved for reimbursement by the Texas Natural
Resource Conservation Commissions' ("TNRCC") fund, or by private insurers.
Management believes that such opportunities will continue to exist, however
there can be no assurance that they will do so.
CAPITAL RESOURCES AND LIQUIDITY
At December 31, 1998, the Company was in default of certain financial covenants
contained within its loan agreements with two of its bank lenders. On March 31,
1999, the Company closed on an amendment to its credit agreement with one of its
bank lenders (the "Refinancing"), pursuant to which the bank would (i) waive all
previous and continuing covenant defaults; (ii) extend the maturity of its loan
balance to January 31, 2001; and (iii) assume the amounts outstanding under the
other bank lender's loans under their current terms and conditions. Under the
terms of the Refinancing, such bank lender received a first lien position on
certain assets of the Company, more specifically, inventories, accounts
receivable, convenience store real estate and equipment. The Refinancing
contains certain financial covenant obligations, including minimum net worth,
minimum earnings before interest, taxes and depreciation ("EBITDA"), working
capital ratio and fixed charge coverage ratio, all as defined within the loan
documents. The Company is presently in compliance with the proposed financial
covenants and management believes the Company will be able to comply with the
proposed financial covenants during the foreseeable future,
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
however there can be no assurance that the Company will be able to do so. The
effect of the Refinancing was to cure all outstanding defaults in the Company's
credit agreements, and to extend the final maturity to January 31, 2001, however
the Refinancing does not provide any additional borrowing capacity or liquidity
for the Company, and the Company has no available borrowing capacity at this
time. Management intends to replace the existing bank debt with new financing
which would have the effect of increasing the availability of working capital,
however there can be no assurance that it will be able to do so.
Furthermore, covenants in the Company's loan agreement (i) limit the Company's
ability to make capital expenditures to the greater of $1,000,000 or 25% of
EBITDA, (ii) prohibit the payment of cash dividends and (iii) limit the
Company's ability to incur additional indebtedness. Under the terms of the
Refinancing, interest is payable monthly at an annual rate of two percent above
the bank's established prime lending rate, in addition to which the Company is
obligated to make a principal repayment of approximately $41,000 per month.
Although the final maturity date of the loan is January 31, 2001, in the event
that the loan is not repaid by June 30, 1999, the Company will be subject to a
fee of $250,000; furthermore, the Company could be obligated to pay additional
fees of $250,000 on August 31, 1999 and December 31, 1999 in the event that the
loan obligations are not repaid by those respective dates. In conjunction with
the Refinancing, the Company paid a fee of $85,000 to the bank on March 31,
1999.
The Company presently plans to spend less than $1,000,000 in capital
expenditures during its fiscal year ended September 30, 1999, primarily to
upgrade existing facilities. The Company plans to finance such expenditures
through operating cash flows, proceeds from the sales of nonessential assets and
lease financing. In addition, the Company plans to spend approximately $600,000
during the remainder of fiscal 1999 for development and advertising costs
relating to its marketing of the For-A-Free-Gift.Com venture. Management intends
to finance these costs with the proceeds from the continued sales of assets
within its existing business units, and with additional debt or lease financing,
if necessary.
Cash and cash equivalents were $1,060,000 and $831,000 at March 31, 1999 and
September 30, 1998, respectively. The Company had net working capital of $85,000
at March 31, 1999, as compared with $1,243,000 at September 30, 1998. The
decline in net working capital is primarily due to the write-down of current
assets, primarily accounts receivable, of $1,160,000 during the quarter ended
March 31, 1999.
Cash used by operating activities was $1,189,000 in the quarter ended March 31,
1999, as compared with cash used by operating activities of $1,834,000 in the
comparable previous fiscal year period. The improvement in cash from operating
activities is primarily due to the improved working capital utilization during
the current fiscal year; the Company's investment in net working capital
declined $1,158,000 during the six months ended March 31, 1999, although such
decreased investment is due to the write-down of current assets discussed above.
Pre-tax loss on continuing operations, net of the noncash charges for stock
option compensation expense and write-downs of current assets, increased to
1,946,000 in the six months ended March 31, 1999 as compared with a pre-tax loss
of $607,000 in the six months ended March 31, 1998. The effect of the increased
pre-tax loss on cash utilization was mitigated by the increase in accounts
payable, primarily due to the legal and professional fees incurred during the
Company's merger discussions, discussed above. The Company expects to repay such
obligations through the utilization of the proceeds from the pending sales of
assets.
The Company identified certain nonessential assets which it sold during the six
months ended March 31, 1999; assets disposed of during the current fiscal year
period included the Company's investment in certain of its Special Purpose Lease
locations, and assets utilized in the Company's propane business. The Company
received cash proceeds of $1,004,000 and notes of $207,000 from the sale of such
assets during the six months ended March 31, 1999, and recorded a loss of
$36,000 on the sales of such assets. Cash provided by investing activities was
$593,000 in the six months ended March 31, 1999, as compared with cash used by
investing activities of $379,000 during the
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
six months ended March 31, 1998; the improvement is attributable to lower
capital expenditures and sales of assets during the six months ended March 31,
1999.
In December 1998, the Company completed the sale of its ChemWay subsidiary, in a
stock-for-stock exchange with Affiliated. Although the Company did not receive
any cash consideration in the transaction, Affiliated agreed to repay
outstanding trade credit liabilities of ChemWay of approximately $2,100,000.
On October 27, 1998, the Company issued 350,000 shares in a private placement to
private, accredited investors, pursuant to a purchase agreement dated June 1,
1998, for total consideration of $262,500.
During the six months ended March 31, 1999, the Company received proceeds of
$1,078,000, arising from the exercise of employee stock options.
YEAR 2000
As many computer systems and other equipment with embedded chips or processors
(collectively, "Business Systems") use only two digits to represent the year,
they may be unable to process accurately certain data before, during or after
the year 2000. As a result, business and governmental entities are at risk for
possible miscalculations or systems failures causing disruptions in their
business operations. This is commonly known as the Year 2000 ("Y2K") issue. The
Y2K issue can arise at any point in the Company's supply, processing,
distribution and financial systems.
The Company is in the process of implementing a Y2K readiness program with the
objective of having all of the Company's significant Business Systems
functioning properly with respect to the Y2K before January 1, 2000.
The first component of the Y2K readiness program is to identify the internal
Business Systems of the Company that are susceptible to system failures or
processing errors as a result of the Y2K issue. This effort is substantially
complete; management believes it has identified the Business Systems that may
require remediation or replacement. Management is presently assessing the
priority of each Business System remediation or replacement project.
The second component of the Y2K readiness program involves the actual
remediation and replacement of Business Systems. The Company is primarily
utilizing internal resources to complete this project. The Company's objective
is to complete substantially all remediation and replacement of internal
Business Systems by September 1999.
As part of the Y2K readiness program, significant service providers, vendors,
suppliers, customers and governmental entities ("Key Business Partners") that
are believed to be critical to business operations after January 1, 2000 are
being identified and the Company has made inquiries of its key business partners
in an attempt to reasonably ascertain their stage of Y2K readiness.
The Company utilizes a limited number of Business Systems in the conduct of its
operations, however due to the significant number of Key Business Partners, the
Company presently believes that it may experience some disruption in its
business due to the Y2K problem. More specifically, the Company could be
materially adversely affected if utilities, private businesses and governmental
entities with which it does business or that provide essential services are not
Y2K ready. The possible consequences of the Company or Key Business Partners not
being fully Y2K compliant by January 1, 2000 include, among other things, delays
in the delivery of products, delays in the receipt of supplies, invoice and
collection errors, and inventory and supply obsolescence. Consequently, the
business and results of operations of the Company could be materially adversely
affected by a temporary inability of the Company to conduct its business in the
ordinary course for a period of time after January 1, 2000. However, the Company
believes that its Y2K readiness program, including the contingency planning
discussed below, should significantly
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
reduce the adverse effect any such disruptions may have.
Concurrently with the Y2K readiness measures described above, the Company is
developing contingency plans intended to mitigate the possible disruption in
business operations that may result from the Y2K issue. Contingency plans may
include stockpiling supplies, increasing inventory levels, and securing
alternate sources of supply. Once developed, contingency plans and related cost
estimates will be continually refined as additional information becomes
available.
Since much of the Company's cost of its Y2K readiness program has been internal
resources, who are also involved in other duties related to the Company's
ongoing operations, the cost of the Y2K readiness program is not known, however
the Company does not believe that such costs are material. The costs are being
expressed as they are incurred, and are being funded through operating cash
flow. The costs associated with the replacement of computer systems, hardware or
equipment, if necessary, substantially all of which would be capitalized, is not
presently available.
The Company's Y2K readiness program is an ongoing process; the estimated
completion dates and costs of the Y2K readiness program is subject to change.
THE ESTIMATES AND CONCLUSIONS HEREIN CONTAIN FORWARD-LOOKING STATEMENTS AND ARE
BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS TO COMPLETING THE
PLAN INCLUDE THE AVAILABILITY OF RESOURCES, OUR ABILITY TO DISCOVER AND CORRECT
THE POTENTIAL YEAR 2000 SENSITIVE PROBLEMS WHICH COULD HAVE A MATERIAL ADVERSE
EFFECT ON SPECIFIC FACILITIES, AND THE ABILITY OF KEY BUSINESS PARTNERS TO BRING
THEIR SYSTEMS INTO YEAR 2000 COMPLIANCE.
24
<PAGE>
PART II. OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS INDEX
PAGE
27 Financial Data Schedule 26
10.1 Loan Agreement between the Company and Texas
Commerce Bank National Association, dated
as of August 30, 1996 28
10.2 Amendment to Loan Agreement dated August 4, 1997 80
10.3 Amendment to Loan Agreement dated December 24, 1997 93
10.4 Amendment to Loan Agreement dated April 23, 1998 107
10.5 Amendment to Loan Agreement dated March 31, 1999 114
B. REPORTS ON FORM 8-K
Report on Form 8-K dated March 10, 1999 announcing the proposed merger between
Evans Systems, Inc. and Duke and Long Distributing Company.
Report on Form 8-K dated April 16, 1999 announcing the termination of the
Company's merger discussions with Duke and Long Distribution Company
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EVANS SYSTEMS, INC.
(REGISTRANT)
Date: May 24, 1999 By: __________________________________________
J.L. Evans, Sr.
Chairman of the Board and
Chief Executive Officer
And authorized to sign on behalf of the
registrant
By: __________________________________________
Richard B. Dix
President and Chief Operating Officer
And authorized to sign on behalf of the
registrant
By: __________________________________________
Richard A. Goeggel
Vice president and Chief
Financial Officer And authorized
to sign on behalf of the
registrant.
25
EXHIBIT 10.1
LOAN AGREEMENT
This Loan Agreement ("AGREEMENT") is made as of August 30, 1996 by and
between EVANS SYSTEMS, INC. ("BORROWER"), a Texas corporation, and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION ("LENDER"), a national banking association.
Borrower has requested that Lender make loans to Borrower in the following
manner and subject to the following terms and conditions:
1. CERTAIN DEFINITIONS. Unless a particular word or phrase is otherwise
defined or the context otherwise requires, capitalized words and phrases used in
this Agreement shall have the following meanings (all definitions that are
defined in this Agreement in the singular to have the same meanings when used in
the plural and VICE VERSA):
ABOVEGROUND STORAGE TANK shall mean a nonvehicular device constructed of
nonearthen materials located above the ground surface (or above the floor of a
structure that is below the ground) and is designed to contain liquids.
ACCOUNTS, CHATTEL PAPER, EQUIPMENT, GENERAL INTANGIBLES, INSTRUMENTS and
INVENTORY shall have the respective meanings assigned to them in the Texas
Business and Commerce Code in force on the date hereof.
ACM shall mean asbestos or any material containing more than 1% asbestos
(as determined under Environmental Laws).
AFFILIATE means any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "CONTROL"
(including "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of any indicia of equity rights (whether issued and outstanding
capital stock, partnership interests or otherwise) or by any other means.
AGREEMENT means this Loan Agreement, as it may from time to time be
amended, modified, restated or supplemented.
ANNUAL FINANCIAL STATEMENTS means the annual financial statements of a
Person, including all notes thereto, which statements shall include a balance
sheet as of the end of such fiscal year and an income statement, retained
earnings statement and statement of cash flows for such fiscal year, all setting
forth in comparative form the corresponding figures from the previous fiscal
year, all prepared in conformity with GAAP, and without expressing any doubt as
to such Person's ability to continue as a going concern, and accompanied by a
report and opinion of independent certified public accountants of recognized
national standing satisfactory to Lender, which shall state that such financial
statements, in the opinion of such accountants, present fairly, in all material
respects, the financial position of such Person as of the date thereof and the
results of its operations for the period covered thereby in conformity with
GAAP. Such statements shall be accompanied by a certificate of such accountants
that in making the appropriate audit and/or investigation in connection with
such report and opinion, such accountants did not become aware of any Default
or, if in the opinion of such accountant any such Default exists,
<PAGE>
a description of the nature and status thereof. The Annual Financial Statements
for Borrower and its Subsidiaries shall be prepared on both a consolidated and a
consolidating basis (the parties recognizing that such consolidating statements
will be prepared in accordance with GAAP only to the extent normal and
customary).
APPLICATIONS shall have the meaning ascribed to such term in the Letter of
Credit Agreement.
BANKRUPTCY CODE means the United States Bankruptcy Code, as amended, and
any successor statute.
BASE CD RATE means, for any day, a rate per annum equal to the sum of (a)
the quotient, expressed as a percentage, of (1) the secondary market rate for
three-month certificates of deposit reported as being in effect on such day (or,
if such day is not a Business Day, the immediately preceding Business Day) by
the Federal Reserve Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Federal Reserve Board, be published in Federal Reserve Statistical
Release H.15[519] during the week following such day) or, if such rate is not so
reported on such day or such immediately preceding Business Day, the average of
the secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m.,
Houston, Texas time, on such day (or, if such day shall not be a Business Day,
on the next preceding Business Day) by Lender from three New York City
negotiable certificate of deposit dealers of recognized standing selected by
Lender in its sole and absolute discretion, divided by (2) 1.0000 minus the CD
Reserve Requirement in effect on such day plus (b) the FDIC Percentage in effect
for such day.
BASE RATE means for any day a rate per annum (rounded upwards to the
nearest 1/16 of 1%) equal to the lesser of (a) the Margin Percentage from time
to time in effect plus the greater of (1) the Prime Rate for that day, (2) the
Base CD Rate for that day plus 1 1/4% and (3) the Federal Funds Rate for that
day plus 1/2 of 1% or (b) the Ceiling Rate. If for any reason Lender shall have
determined (which determination shall be conclusive and binding, absent manifest
error) that it is unable to ascertain the Federal Funds Rate for any reason,
including, without limitation, the inability or failure of Lender to obtain
sufficient quotations in accordance with the terms hereof, the Base Rate shall,
until the circumstances giving rise to such inability no longer exist, be the
lesser of (a) the Prime Rate plus the Margin Percentage from time to time in
effect or (b) the Ceiling Rate.
BAY CITY PROPERTY means all of the real Property now or hereafter owned by
any Obligor at the Port of Bay City, including the leasehold estate created
under that certain Agreement of Lease dated June 22, 1972 executed by and
between Matagorda County Navigation District No. 2 and Clint C. Blackman, Jr. in
and to the real property described on EXHIBIT D hereto, and all improvements and
fixtures and other personal Property now or hereafter located on or used in
connection with such real Property.
BORROWED MONEY INDEBTEDNESS means, with respect to any Person, without
duplication, (i) all obligations of such Person for borrowed money, or with
respect to deposits or advances of any kind to such Person, (ii) all obligations
of such Person evidenced by bonds, debentures, notes or similar instruments,
(iii) all obligations of such Person upon which interest charges are customarily
paid, (iv)
2
<PAGE>
all obligations of such Person under conditional sale or other title retention
agreements relating to Property purchased by such Person, (v) all obligations of
such Person issued or assumed as the deferred purchase price of property or
services (excluding obligations of such Person to creditors for raw materials,
inventory, services and supplies incurred in the ordinary course of such
Person's business), (vi) all Capital Lease Obligations, (vii) all obligations of
others secured by any lien on property or assets owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed, (viii)
all outstanding letters of credit issued for the account of such Person and (ix)
all guarantees of such Person.
BORROWING AUTHORIZATION means (i) with respect to a corporation, a
certificate, in Proper Form, of the Secretary or an Assistant Secretary of a
corporation as to the resolutions of the Board of Directors of such corporation
authorizing the execution, delivery and performance of the documents to be
executed by such corporation; the incumbency and signature of the officer of
such corporation executing such documents on behalf of such corporation, and the
Organizational Documents of such corporation and (ii) with respect to a
partnership, joint venture or other non- individual Person, such written
instruments as shall be required by Lender, each in Proper Form, authorizing the
execution, delivery and performance of the documents to be executed by such
Person; the incumbency and signature of the representative of such Person
executing such documents on behalf of such Person, and the Organizational
Documents of such Person.
BORROWING BASE means, as at any date, the amount of the Borrowing Base
shown on the Borrowing Base Certificate then most recently delivered pursuant to
PARAGRAPH 6(B) hereof, determined by calculating the amount equal to:
(i) 75% of the sum of (A) the Eligible Accounts of Borrower and
(B) the Eligible Accounts of Borrower's Subsidiaries at said
date, PLUS
(ii) the sum of 50% of the Eligible Inventory of ChemWay PLUS 25%
of the Eligible Inventory of Borrower PLUS 25% of the Eligible
Inventory of Way Energy, in each case at said date (determined
at the lower of cost or market on a consistent basis).
In the absence of a current Borrowing Base Certificate, Lender shall determine
the Borrowing Base from time to time in its reasonable discretion, taking into
account all information reasonably available to it, and the Borrowing Base from
time to time so determined shall be the Borrowing Base for all purposes of this
Agreement until a current Borrowing Base Certificate, in Proper Form, is
furnished to and accepted by Lender.
BORROWING BASE CERTIFICATE means a certificate, duly executed by an
appropriate officer or other responsible party acceptable to Lender on behalf of
Borrower, appropriately completed and in substantially the form of EXHIBIT B
hereto. Each Borrowing Base Certificate shall be effective only as accepted by
Lender (and with such revisions, if any, as Lender may require as a condition to
such acceptance).
BUSINESS DAY means any day other than a day on which commercial banks are
authorized or required to close in Houston, Texas.
3
<PAGE>
CAPITAL EXPENDITURES means, as to any Person, expenditures in respect of
fixed or capital assets by such Person, including the capital portion of lease
payments made in respect of Capital Lease Obligations, but EXCLUDING
expenditures for the restoration, repair or replacement of any fixed or capital
asset which was destroyed or damaged, in whole or in part, to the extent
financed by the proceeds of an insurance policy maintained by such Person.
Expenditures in respect of replacements and maintenance consistent with the
business practices of a Person in respect of plant facilities, machinery,
fixtures and other like capital assets utilized in the ordinary course of
business are not Capital Expenditures to the extent such expenditures are not
capitalized in preparing a balance sheet of such Person in accordance with GAAP.
CAPITAL LEASE OBLIGATIONS means, as to any Person, the obligations of such
Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal Property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board, as amended) and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No. 13).
CASH INTEREST EXPENSE means, for any period, the cash interest payments by
a Person made or accrued in accordance with GAAP during such period in
connection with such Person's interest-bearing Indebtedness.
CD RESERVE REQUIREMENT means, on any day, that percentage (expressed as a
decimal fraction and rounded, if necessary, to the next highest one ten
thousandth .0001) which is in effect on such day for determining all reserve
requirements (including, without limitation, basic, supplemental, marginal and
emergency reserves) applicable to new, non-personal, negotiable certificates of
deposit issued by Lender, in amounts of $100,000 or more with three-month maturi
ties, all as specified by any governmental authority, including but not limited
to those imposed under Regulation D. The CD Reserve Requirement shall be
adjusted automatically on and as of the effective date of any change without
notice to Borrower or any other person or entity. Each determination of the CD
Reserve Requirement by Lender shall be conclusive and binding, absent manifest
error, and may be computed by using any reasonable averaging and attribution
method.
CEILING RATE means, on any day, the maximum nonusurious rate of interest
permitted for that day by whichever of applicable federal or Texas laws permits
the higher interest rate, stated as a rate per annum. On each day, if any, that
Chapter One establishes the Ceiling Rate, the Ceiling Rate shall be the
"indicated rate ceiling" (as defined in Chapter One) for that day. Lender may
from time to time, as to current and future balances, implement any other
ceiling under Chapter One by notice to Borrower, if and to the extent permitted
by Chapter One. Without notice to Borrower or any other person or entity, the
Ceiling Rate shall automatically fluctuate upward and downward as and in the
amount by which such maximum nonusurious rate of interest permitted by
applicable law fluctuates.
CHAPTER ONE means Chapter One of the Texas Credit Code, as in effect on
the date hereof.
CHEMWAY means Chem-Way Systems, Inc., a Texas corporation and a wholly
owned Subsidiary of Borrower.
4
<PAGE>
CODE means the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
COLLATERAL means all Property, tangible or intangible, real, personal or
mixed, now or hereafter subject to the Security Documents.
COMMITMENT means the obligation, if any, of Lender to make Loans and incur
Letter of Credit Liabilities in an aggregate principal amount at any one time
outstanding up to (but not exceeding) $6,700,000.
COMMITMENT FEE PERCENTAGE means (i) on any day prior to September 30,
1996, 0.375% and (ii) on and after October 1, 1997, the applicable per annum
percentage set forth at the appropriate intersection in the table shown below,
based on the Debt to EBITDA Ratio as of the last day of the most recently ended
fiscal quarter of Borrower calculated by Lender as soon as practicable after
receipt by Lender of all financial reports required under this Agreement with
respect to such fiscal quarter (including a Compliance Certificate) (provided,
however, that if the Commitment Fee Percentage is increased as a result of the
reported Debt to EBITDA Ratio, such increase shall be retroactive to the date
that Borrower was obligated to deliver such financial reports to Lender pursuant
to the terms of this Agreement and provided further, however, that if the
Commitment Fee Percentage is decreased as a result of the reported Debt to
EBITDA Ratio, and such financial reports are delivered to Lender not more than
ten (10) calendar days after the date required to be delivered pursuant to the
terms of this Agreement, such decrease shall be retroactive to the date that
Borrower was obligated to deliver such financial reports to Lender pursuant to
the terms of this Agreement):
DEBT TO COMMITMENT FEE
EBITDA RATIO MARGIN PERCENTAGE
------------ -----------------
Greater than or equal to
3.50 0.375
Less than 3.50 0.250
COMPLIANCE CERTIFICATE shall have the meaning given to it in PARAGRAPH
6(B) hereof.
CONTROLLED GROUP means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the applicable Person, are treated as a single employer
under Section 414 of the Code.
COSTS shall mean all liabilities, losses, costs, damages, punitive
damages, expenses, claims, loss of Lien priority, diminution in value,
attorneys' fees, experts' fees, consultants' fees, penalties, fines,
obligations, judgments and disbursements, as well as expenses of Remediation and
any other remedial, removal, response, abatement, cleanup, legal, investigative,
monitoring, or record keeping costs and all expenses related thereto.
5
<PAGE>
COVER shall have the meaning ascribed to such term in the Letter of Credit
Agreement.
CREDIT DOCUMENTS means any and all papers now or hereafter governing,
evidencing, guaranteeing or securing or otherwise relating to all or any part of
the Facility Debt, including the Note, this Agreement, Borrowing Authorizations
with respect to all such Persons as Lender may require, the Security Documents,
the Environmental Risk Agreement, the Letter of Credit Documents, the Perfection
Certificates, all instruments, certificates and agreements now or hereafter
executed or delivered to Lender pursuant to any of the foregoing or in
connection with the Loans or the Letters of Credit or any commitment regarding
the Loans or the Letters of Credit and all amendments, modifications, renewals,
extensions, increases and rearrangements of, and substitutions for, any of the
foregoing.
DEBT TO EBITDA RATIO means, as of any day, the ratio of (a) Borrowed Money
Indebtedness to (b) EBITDA for the 12 months ending on such date.
DEFAULT means an Event of Default or an event which with notice or lapse
of time or both would, unless cured or waived, become an Event of Default.
DISPOSAL (or DISPOSED) shall have the meaning specified in RCRA.
EBITDA means, without duplication, for any period, the consolidated
earnings of the Borrower and its Subsidiaries before depreciation, amortization,
other non-cash items, Cash Interest Expense, federal, state and municipal taxes
and extraordinary gains.
ELIGIBLE ACCOUNTS means, as at any date of determination thereof, each
Account (which is subject to a Security Document and on which Lender shall have
a first-priority perfected Lien) which is at said date payable to Borrower or
any of its Subsidiaries and which complies with the following requirements: (a)
the Account arose from performance of services which have been fully and
satisfactorily performed or from the sale of goods in which the account obligee
had the sole and complete ownership which have been sold to the account debtor
on an absolute sale basis on open account and not on consignment, on approval or
on a "sale or return" basis or subject to any other repurchase or return
agreement (evidencing which the account obligee or Lender has possession of
shipping and delivery receipts); (b) no part of any goods giving rise to the
Account has been returned, rejected, lost or damaged; (c) the Account arose in
the ordinary course of business of the obligee thereon, is stated to be payable
in lawful money of the United States and is not evidenced by Chattel Paper or an
Instrument of any kind and no notice of bankruptcy, insolvency or financial
embarrassment of the account debtor has been received by the account obligee or
Lender; (d) the applicable account debtor is not a foreign country or any
subdivision or agency or department thereof or located outside of the United
States and the Account is not subject to the Federal Assignment of Claims Act;
(e) the Account is a valid obligation of the account debtor thereunder and is
not subject to any offset, counterclaim, allowance, adjustment or other defense
on the part of such account debtor or to any claim, dispute, objection or
complaint on the part of such account debtor denying liability thereunder (other
than discounts for prompt payment shown on the applicable invoice and disclosed
to Lender in writing); (f) the Account is subject to no Lien whatsoever, except
for the Liens created pursuant to the Security Documents; (g) the Account is
evidenced by an invoice; (h) the Account is due not more than 30 days after the
date of invoice, has been billed within
6
<PAGE>
30 days after shipment of the applicable goods or performance of the applicable
services and has not remained unpaid for more than the Permitted Account Payment
Period; (i) the Account has not arisen out of transactions with any Obligor, any
Affiliate of an Obligor or an employee, officer, agent, director, stockholder,
partner, trustee or other owner or holder of any indicia of equity rights
(whether issued and outstanding capital stock, partnership interests or
otherwise) of any Obligor or any Affiliate of any Obligor; (j) each of the
representations and warranties set forth in the Security Documents with respect
to such Account is true and correct in all respects; (k) none of the other
Accounts of the other Accounts of the applicable account debtor or any of its
Affiliates fail to satisfy all of the requirements of an "Eligible Account", and
(l) Lender has not deemed such Account ineligible because of uncertainty about
the creditworthiness of the account debtor or because Lender otherwise
reasonably considers the collateral value thereof to be impaired or its ability
to realize such value to be insecure. In the event the aggregate Eligible
Accounts owed to Borrower or any of its Subsidiaries by a particular account
debtor or any Affiliate of such account debtor shall exceed 10% (the "MAXIMUM
SINGLE ACCOUNT DEBTOR PERCENTAGE") of the total Eligible Accounts of Borrower
and its Subsidiaries, unless otherwise agreed to in writing by Lender, that
portion of such Eligible Accounts in excess of the Maximum Single Account Debtor
Percentage shall be excluded from the term "Eligible Account". In the event of
any dispute under the foregoing criteria about whether an Account is or has
ceased to be an Eligible Account, the decision of Lender shall be conclusive and
binding, absent manifest error. Nothing in this definition of "ELIGIBLE
ACCOUNTS" shall be construed to limit or release any right of Lender to any
Collateral.
ELIGIBLE INVENTORY means, as at any date of determination thereof,
Inventory which is subject to the Security Documents and on which Lender shall
have a first-priority perfected Lien and which complies with the following
requirements: (a) the Inventory shall be valued in accordance with GAAP and
consist of finished goods, PROVIDED that all such Inventory shall be within the
United States of America; (b) the Inventory is in good condition, meets all
standards imposed by any Governmental Authority having regulatory authority over
it, its use and/or sale and is either currently usable or currently salable in
the normal course of business of the owner thereof; (c) the Inventory is in the
possession of the Party granting a Lien thereon, and not in the possession or
control of any warehouseman, bailee or any agent; PROVIDE, HOWEVER, that
Inventory held by third parties under consignment arrangements with an aggregate
value (determined at the lower of cost or market on a consistent basis) up to
but not exceeding $1,000,000 shall be included as "Eligible Inventory" under
this Agreement); (d) each of the representations and warranties set forth in the
Security Documents with respect to such Inventory is true and correct on such
date, and (e) Lender has not deemed such Inventory ineligible because Lender
reasonably considers the collateral value thereof to be impaired or its ability
to realize such value to be insecure. The term "ELIGIBLE INVENTORY" shall not
include any Inventory which has either been received by a customer, even if on a
consignment or "sale or return" basis, or as to which title has passed from the
owner thereof. In the event of any dispute under the foregoing criteria about
whether a portion of Inventory is or has ceased to be Eligible Inventory, the
decision of Lender shall be conclusive and binding, absent manifest error.
Nothing in this definition of "ELIGIBLE INVENTORY" shall be construed to limit
or release any right of Lender to any Collateral.
ENVIRONMENTAL CLAIM shall mean any claim; demand; action; cause of action;
suit; loss; cost; damage; punitive damage; fine, penalty, expense, liability,
criminal liability, judgment, governmental or private investigation relating to
Remediation or compliance with Requirements of Environmental
7
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Laws; proceeding; Lien; personal injury, or property damage, in each case
whether threatened, sought, brought or imposed, that is related to or that seeks
to recover Costs related to, or seeks to impose liability regarding Borrower or
any of its Subsidiaries, any portion of any Property owned, leased or operated
by Borrower or any of its Subsidiaries or operations conducted at any portion of
such Property, in each case under any Environmental Law.
ENVIRONMENTAL LAWS shall mean the Legal Requirements relating to
environmental matters in the jurisdictions where Borrower or any of its
Subsidiaries owns, leases or operates Property or under federal law.
ENVIRONMENTAL PERMITS shall mean any permit, license, registration, waste
identification number, approval or other authorization required by any
Environmental Law and relating to Borrower or any of its Subsidiaries or their
Property or their business or operations.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the U.S. Department
of Labor thereunder.
EVENT OF DEFAULT shall have the meaning assigned to it in PARAGRAPH 8
hereof.
FACILITY DEBT means the Indebtedness evidenced by the Note and other sums
now or hereafter payable to Lender under any of the Credit Documents, including
the Letter of Credit Liabilities.
FDIC PERCENTAGE means, on any day, the annual assessment rate in effect on
such day which is payable by a member of the Bank Insurance Fund classified as
well capitalized and within supervisory subgroup "B" (or a comparable risk
classification) within the meaning of 12 C.F.R. ss.372.3(d) (or any successor
provision) to the Federal Deposit Insurance Corporation (or any successor) for
its insuring time deposits at offices of such member in the United States. Each
determination of the FDIC Percentage by Lender shall be conclusive and binding,
absent manifest error, and may be computed by using any reasonable averaging and
attribution method.
FEDERAL FUNDS RATE means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by Lender from three Federal funds brokers of recognized
standing selected by Lender in its sole and absolute discretion.
FINANCING STATEMENTS means all such Uniform Commercial Code financing
statements as Lender shall require, in Proper Form, duly executed by Borrower or
others to give notice of and to perfect or continue perfection of Lender's Liens
in all Collateral.
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FIXED CHARGE COVERAGE RATIO means, as of any day, the ratio of (a) EBITDA
for the 12 month period ending on such day LESS federal, state and municipal
taxes actually paid for such 12- month period to (b) the Fixed Charges for such
12-month period.
FIXED CHARGES means (without duplication), for any period, (a) the amounts
of scheduled principal payments made or to be made during such period with
respect to Indebtedness, PLUS (b) payments made or required to be made during
such period with respect to the Capital Lease Obligations with unrelated third
parties, PLUS (c) Capital Expenditures made during such period (exclusive of
Capital Expenditures financed with proceeds of the Loans or other Borrowed Money
Indebtedness), PLUS (d) Cash Interest Expense for such period PLUS (d) any cash
dividends or distributions paid by Borrower (but not by a Subsidiary of Borrower
to Borrower) during such period.
GAAP means, as to a particular Person, such accounting practice as, in the
opinion of the independent certified public accountants of recognized national
standing regularly retained by such Person and acceptable to Lender, conforms at
the time to generally accepted accounting principles, consistently applied. GAAP
means those principles and practices (a) which are recognized as such by the
Financial Accounting Standards Board, (b) which are applied for all periods
after the date hereof in a manner consistent with the manner in which such
principles and practices were applied to the most recent audited financial
statements of the relevant Person furnished to Lender, and (c) which are
consistently applied for all periods after the date hereof so as to reflect
properly the financial condition, and results of operations and changes in
financial position, of such Person. If any change in any accounting principle or
practice is required by the Financial Accounting Standards Board in order for
such principle or practice to continue as a GAAP or practice, all reports and
financial statements required hereunder may be prepared in accordance with such
change only after written notice of such change is given to Lender.
GOVERNMENTAL AUTHORITY means any foreign governmental authority, the
United States of America, any State of the United States and any political
subdivision of any of the foregoing, and any central bank, agency, department,
commission, board, bureau, court or other tribunal having jurisdiction over
Lender, Borrower, any other Obligor or their respective Property.
GUARANTIES means collectively each Guaranty dated concurrently herewith
executed by the respective Guarantors in favor of Lender, as the same may be
amended, supplemented, modified and/or restated from time to time.
GUARANTORS means ChemWay and Way Energy.
HAZARDOUS SUBSTANCES shall mean (a) those substances included within the
statutory and/or regulatory definitions of "hazardous substance," "hazardous
waste," "extremely hazardous substance," "regulated substance," "contaminant,"
"hazardous chemical," "hazardous materials" or "toxic substances," under any
Environmental Law and (b) such other substances, materials, or that are or
become classified or regulated as hazardous or toxic under any Legal
Requirement.
INDEBTEDNESS means and includes (a) all items which in accordance with
GAAP would be included on the liability side of a balance sheet on the date as
of which Indebtedness is to be determined
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<PAGE>
(excluding capital stock, surplus, surplus reserves and deferred credits); (b)
all guar anties, letter of credit contingent reimbursement obligations,
endorsements and other contingent obligations in respect of, or any obligations
to purchase or otherwise acquire, Indebtedness of others, and (c) all
Indebtedness secured by any Lien existing on any interest of the Person with
respect to which Indebtedness is being determined in Property owned subject to
such Lien whether or not the Indebtedness secured thereby shall have been
assumed; PROVIDED, that such term shall not mean or include any Indebtedness in
respect of which monies sufficient to pay and discharge the same in full (either
on the expressed date of maturity thereof or on such earlier date as such
Indebtedness may be duly called for redemption and payment) shall be deposited
with a depository, agency or trustee acceptable to Lender in trust for the
payment thereof.
INTEREST COVERAGE RATIO means, as of any day, the ratio of (a) the amount
of the EBITDA for the 12-month period ending on such date to (b) Cash Interest
Expense for such period.
INVESTMENT means the purchase or other acquisition of any securities or
Indebtedness of, or the making of any loan, advance, transfer of Property or
capital contribution to, or the incurring of any liability, contingently or
otherwise, in respect of the Indebtedness of, any Person.
J.L. EVANS GROUP means J. L. Evans, members of his immediate family and
any trusts for the benefit of any of the foregoing.
KEY AGREEMENTS means all contracts, permits, licenses and other rights
acquired by a person or to which such Person is a party or by which such Person
is bound and from time to time material to the ownership of assets or the
operations of such Person.
LEGAL REQUIREMENT means any law, statute, ordinance, decree, requirement,
order, judgment, rule, or regulation (or interpretation of any of the foregoing)
of, and the terms of any license or permit issued by, any Governmental
Authority, whether presently existing or arising in the future. The term "Legal
Requirement" includes Requirements of Environmental Law.
LENDER INDEMNITEES shall mean Lender, any pledgee, assignee or subsequent
holder or owner of the Note or any interest in the Note, any Affiliate,
successor, assign or Subsidiary of Lender, and each of their respective
shareholders, members, directors, officers, employees, counsel, agents and
contractors, and any trustee under any Mortgage, as well as their respective
heirs, beneficiaries, administrators, executors, personal representatives,
trustees, receivers, successors and assigns.
LETTER OF CREDIT shall have the meaning ascribed to such term in the
Letter of Credit Agreement.
LETTER OF CREDIT AGREEMENT means the Letter of Credit Agreement dated
concurrently herewith executed by and between Borrower and Lender, as it may
from time to time be amended, modified, restated or supplemented.
LETTER OF CREDIT DOCUMENTS means the Letter of Credit Agreement, the
Letters of Credit and the Applications.
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<PAGE>
LETTER OF CREDIT LIABILITIES shall have the meaning ascribed to such term
in the Letter of Credit Agreement.
LIEN means any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional provision, statute or contract, and shall include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions.
LOAN AVAILABILITY PERIOD means the period from and including the date
hereof to (but not including) the Termination Date.
LOANS means the loans described in and provided for by PARAGRAPH 2 hereof.
MARGIN PERCENTAGE means (i) on any day prior to September 30, 1996, 0.25%
and (ii) on and after October 1, 1996, the applicable per annum percentage set
forth at the appropriate intersection in the table shown below, based on the
Debt to EBITDA Ratio as of the last day of the most recently ended fiscal
quarter of Borrower calculated by Lender as soon as practicable after receipt by
Lender of all financial reports required under this Agreement with respect to
such fiscal quarter (including a Compliance Certificate) (provided, however,
that if the Margin Percentage is increased as a result of the reported Debt to
EBITDA Ratio, such increase shall be retroactive to the date that Borrower was
obligated to deliver such financial reports to Lender pursuant to the terms of
this Agreement and provided further, however, that if the Margin Percentage is
decreased as a result of the reported Debt to EBITDA Ratio, and such financial
reports are delivered to Lender not more than ten (10) calendar days after the
date required to be delivered pursuant to the terms of this Agreement, such
decrease shall be retroactive to the date that Borrower was obligated to deliver
such financial reports to Lender pursuant to the terms of this Agreement):
DEBT TO
EBITDA RATIO MARGIN PERCENTAGE
------------ -----------------
Greater than or equal to
3.50 0.25
Greater than or equal to
2.50 but less than 3.50 0.00
Greater than or equal to
2.00 but less than 2.50 (0.25)
Less than 2.00 (0.50)
MATERIAL ADVERSE EFFECT shall mean a material and adverse effect on (a)
the financial condition of Borrower or any of its Subsidiaries or (b) the
ability of Borrower or any of its Subsidiaries to pay all of the Facility Debt
in a timely manner.
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MATURITY DATE means the maturity of the Note, August 31, 1999, as the same
may hereafter be accelerated pursuant to the provisions of any of the Credit
Documents.
MAXIMUM CREDIT AVAILABLE AMOUNT means, at any date, an amount equal to the
lesser of (i) $6,700,000 or (ii) the Borrowing Base.
MORTGAGED PROPERTIES shall mean all Property of any Obligor, whether now
existing or hereafter acquired, which is subject to the Lien of a Mortgage.
MORTGAGES shall mean, collectively, the deeds of trust, mortgages,
security agreements, pledges, assignments of rents, financing statements and
assignments of leases and proceeds, each in Proper Form, executed or to be
executed by the Borrower or any of its Subsidiaries in favor of Lender, and all
improvements, appurtenances and personal property related thereto, as any of the
foregoing may from time to time be amended, modified, restated or supplemented.
NON-MATERIAL SUBSIDIARIES means Evans Oil of Louisiana, a Louisiana
corporation, In & Out Mini Mart, Inc., a Texas corporation, Diamond Mini Mart,
Inc., a Texas corporation, EDCO Environmental, Inc., a Texas corporation, and
Distributor Informational Systems Corporation, a Texas corporation.
NOTE means the promissory note dated concurrently herewith executed by
Borrower payable to the order of Lender in the face amount of $5,200,000, and
any and all renewals, extensions, modifications, rearrangements and/or
replacements thereof.
OBLIGORS means any Person now or hereafter primarily or secondarily
obligated to pay all or any part of the Facility Debt, including Borrower and
Guarantors.
ORGANIZATIONAL DOCUMENTS means, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture, and with respect to a trust,
the instrument establishing such trust; in each case including any and all
modifications thereof as of the date of the Credit Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by Lender.
PARTIES means all Persons other than Lender executing any Credit Document.
PAST DUE RATE means, on any day, a rate per annum equal to the Ceiling
Rate for that day, or only if applicable law imposes no maximum nonusurious rate
of interest for that day, then the Past Due Rate for that day shall be a rate
per annum equal to the Stated Rate (as defined in the Note) PLUS five percent
(5%) per annum.
PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
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<PAGE>
PERMITTED ACCOUNT PAYMENT PERIOD means the shorter of (i) the period
beginning on the date of invoice and ending on the date 90 calendar days
thereafter or (ii) the period beginning on the date of invoice and ending on the
date which is three (3) times the period provided for in the applicable invoice
for payment of the applicable Account without penalty.
PERMITTED INVESTMENTS means: (a) readily marketable securities issued or
fully guaranteed by the United States of America with maturities of not more
than one year, (b) commercial paper rated "Prime 1" by Moody's Investors
Service, Inc. or "A-1" by Standard and Poor's Ratings Services with maturities
of not more than 180 days, and (c) certificates of deposit or repurchase
obligations issued by any U.S. domestic bank having capital surplus of at least
$100,000,000 or by any other financial institution acceptable to Lender, all of
the foregoing not having a maturity of more than one year from the date of
issuance thereof.
PERSON means any individual, corporation, partnership, joint venture,
joint stock association, business or other trust, unincorporated organization,
Governmental Authority or any other form of entity.
PLAN means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code and is either (a) maintained by Borrower, any other Obligor or any member
of a Controlled Group for employees of Borrower or any other Obligor or (b)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
Borrower, any other Obligor or any member of a Controlled Group for employees of
Borrower or any other Obligor is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
PRIME RATE means, on any day, the rate determined by Lender as being its
prime rate for that day. Without notice to Borrower or any other Person, the
Prime Rate shall automatically fluctuate upward and downward as and in the
amount by which said prime rate fluctuates, with each change to be effective as
of the date of each change in said prime rate. THE PRIME RATE IS A REFERENCE
RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED
TO ANY CUSTOMER, AND LENDER DISCLAIMS ANY STATEMENT, REPRESENTATION OR WARRANTY
TO THE CONTRARY. LENDER MAY MAKE COMMERCIAL LOANS OR OTHER LOANS AT RATES OF
INTEREST AT, ABOVE OR BELOW THE PRIME RATE.
PROPER FORM means in form and substance satisfactory to Lender.
PROPERTY means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
QUARTERLY FINANCIAL STATEMENTS means the quarterly financial statements of
a Person, including all notes thereto, which statements shall include a balance
sheet as of the end of such calendar quarter and an income statement and a
statement of cash flows for such calendar quarter, and for the fiscal year to
date, subject to normal year-end adjustments, all setting forth in comparative
form the corresponding
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<PAGE>
figures for the corresponding calendar quarter of the preceding year, prepared
in accordance with GAAP and certified as true and correct by an appropriate
officer or other acceptable party acceptable to Lender on behalf of such Person.
The Quarterly Financial Statements for Borrower and its Subsidiaries shall be
prepared on both a consolidated and a consolidating basis (the parties
recognizing that such consolidating statements will be prepared in accordance
with GAAP only to the extent normal and customary).
RCRA shall mean the Resource Conservation and Recovery Act, 42
U.S.C.ss.ss.6901 ET SEQ.
RELEASE (or RELEASED) shall have the meaning specified in the federal
Comprehensive Environmental Response, Compensation and Liability Act.
REMEDIATION shall mean any action necessary to ensure compliance with the
requirements of Environmental Law including (a) the removal and Disposal or
containment (if containment is practical under the circumstances and is
permissible within requirements of Environmental Law) or monitoring of any and
all Hazardous Substances; (b) the taking of reasonably necessary precautions to
protect against the Release or threatened Release of Hazardous Substances at,
on, in, about, under, within or near the air, soil, surface water, groundwater
or soil vapor; (c) any action necessary to mitigate (1) a Release or threatened
Release of Hazardous Substances; (2) the usurpation of wetlands, pinelands or
other protected land or reclaim the same, or (3) to protect and preserve
wildlife species; (d) any action necessary to meet the requirements of an
Environmental Permit, and (e) any other action reasonably required to satisfy
requirements of Environmental Law.
REQUEST FOR CREDIT means a request for credit duly executed by an
appropriate officer or other responsible party acceptable to Lender on behalf of
Borrower, appropriately completed and substantially in the form of EXHIBIT A
attached hereto.
RETAINED EARNINGS shall have the meaning ascribed to such term under GAAP.
SECURITY AGREEMENTS means, collectively, the security agreements dated
concurrently herewith executed by Borrower and Guarantors, respectively, in
favor of Lender, together with any and all security agreements hereafter
executed in favor of Lender in connection with, or as security for the payment
or performance of, any Credit Document, as any of them may from time to time be
amended, modified, restated or supplemented.
SECURITY DOCUMENTS means, collectively, this Agreement, the Security
Agreements, the Guaranties, the Financing Statements and any and all other
agreements, deeds of trust, mortgages, chattel mortgages, security agreements,
pledges, guaranties, assignments of production or proceeds of production,
assignments of income, assignments of contract rights, assignments of
partnership interests, assignments of royalty interests, assignments of
performance, completion or surety bonds, standby agreements, subordination
agreements, undertakings and other instruments and Financing Statements now or
hereafter executed and delivered in connection with, or as security for the
payment or performance of, any Credit Document, as any of them may from time to
time be amended, modified, restated or supplemented.
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<PAGE>
STORAGE TANK FUNDS means all funds, programs and trust monies directly or
indirectly established, maintained or administered by any Governmental Authority
or any other Person which is designed to or has the effect of providing funds
(whether directly or indirectly or as reimbursement) for the repair or
replacement of any Storage Tank heretofore, now or hereafter located on any part
of the Mortgaged Property, or the remediation or cleanup of any spill, leakage
or contamination from any such Storage Tank or resulting from the ownership, use
or maintenance of any such Storage Tank or to compensate third parties for any
personal injury or property damage resulting from any such spill, leakage or
contamination.
STORAGE TANKS shall mean Aboveground Storage Tanks and Underground Storage
Tanks.
SUBSIDIARY means, as to a particular parent Person, any other Person of
which 50% or more of the indicia of equity rights (whether outstanding capital
stock, partnership interests or otherwise) is at the time directly or indirectly
owned or held by such parent Person, or by one or more of its Affiliates. As of
the date hereof, Borrower's only Subsidiaries are ChemWay, Way Energy and the
Non-Material Subsidiaries.
SUPPLEMENTAL ENVIRONMENTAL ASSESSMENT shall mean a comprehensive analysis
prepared by consultants approved by Lender and in Proper Form of (a) the
compliance by Borrower and each of its Subsidiaries with Environmental Laws and
(b) the activities conducted at any portion of the Mortgaged Property for the
purpose of determining whether there exists any condition that could give rise
to any Environmental Claim against Borrower, any of its Subsidiaries, any
portion of the Mortgaged Property or any operator thereof.
TANGIBLE NET WORTH means total assets (valued at cost less normal
depreciation), LESS (a) all intangibles and (b) all liabilities including
contingent and indirect liabilities), all determined in accordance with GAAP.
The term "INTANGIBLES" shall include, without limitation, (1) deferred charges;
(2) the amount of any write-up in the book value of any assets contained in any
balance sheet resulting from revaluation thereof or any write-up in excess of
the cost of such assets acquired, and (3) the aggregate of all amounts appearing
on the assets side of any such balance sheet for franchises, licenses, permits,
patents, patent applications, copyrights, trademarks, trade names, goodwill,
treasury stock, experimental or organizational expenses and other like
intangibles. The term "LIABILITIES" shall include, without limitation, (1)
Indebtedness secured by Liens on Property of the Person with respect to which
Tangible Net Worth is being computed, whether or not such Person is liable for
the payment thereof; (2) deferred liabilities, and (3) Capital Lease
Obligations. Tangible Net Worth shall be determined on a consolidated basis.
TERMINATION DATE means the earlier of (a) the Maturity Date or (b) the
date of termination of the Commitment pursuant to PARAGRAPH 8 hereof.
TEXAS CREDIT CODE means Title 79, Texas Revised Civil Statutes, 1925, as
amended.
UNDERGROUND STORAGE TANK shall have the meaning ascribed to it in RCRA.
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<PAGE>
UNFUNDED LIABILITIES means, with respect to any Plan, at any time, the
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent actuarial valuation report for such
Plan, but only to the extent that such excess represents a potential liability
of any member of the applicable Controlled Group to the PBGC or a Plan under
Title IV of ERISA. With respect to multiemployer Plans, the term "Unfunded
Liabilities" shall also include contingent liability for withdrawal liability
under Section 4201 of ERISA to all multiemployer Plans to which Borrower, any
other Obligor or any member of a Controlled Group for employees of Borrower or
any other Obligor contribute in the event of complete withdrawal from such
Plans.
WAY ENERGY means Way Energy Systems, Inc., a Delaware corporation and a
wholly owned Subsidiary of Borrower.
The words "HEREOF," "HEREIN," and "HEREUNDER" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement.
2. LOANS; FEES.
(a) Lender agrees, subject to all of the terms and conditions of this
Agreement (including PARAGRAPH 4 hereof), to make Loans during the Loan
Availability Period under this Paragraph to Borrower in an aggregate principal
amount at any one time outstanding up to but not exceeding $5,200,000. Without
limiting the foregoing, Borrower and Lender agree that (i) the aggregate unpaid
principal amount of all Loans used for the benefit of Borrower will not exceed
$2,200,000, (ii) the aggregate unpaid principal amount of all Loans used for the
benefit of ChemWay will not exceed $2,500,000 and (iii) the aggregate unpaid
principal amount of all Loans used for the benefit of Way Energy will not exceed
$500,000. Subject to the conditions in this Agreement, any such Loan repaid
during the Loan Availability Period may be reborrowed during the Loan
Availability Period pursuant to the terms of this Agreement. Borrower and Lender
agree that Chapter 15 of the Texas Credit Code shall not apply to this
Agreement, the Note or any Loan obligation. The Loans shall be evidenced by the
Note. Lender shall in no event be obligated to fund more than one (1) Loan in
any period of 5 days. Each Loan shall be in a principal amount equal to $100,000
or an integral multiple of $50,000 in excess thereof or the amount by which the
Commitment exceeds the sum of the Letter of Credit Liabilities plus the unpaid
principal balance of the Note, whichever is less. Loan proceeds shall be made
available to Borrower by depositing them in an account designated by Borrower
and maintained with Lender.
(b) Borrower shall pay to Lender the commitment fee for the period from
the date of this Agreement to and including the Termination Date at a rate per
annum equal to the Commitment Fee Percentage from time to time in effect,
payable in arrears. Such commitment fees shall be computed (on the basis of the
actual number of days elapsed in a year composed of 360 days) on each day and
shall be based on the excess of (x) the aggregate amount of the Commitment for
such day over (y) the sum of (i) the unpaid principal balance of the Note on
such day PLUS (ii) the aggregate Letter of Credit Liabilities for such day.
Accrued commitment fees shall be payable on the last day of each November,
February, May and August prior to the Termination Date and on the Termination
Date. All past due fees payable under this Paragraph shall bear interest at the
Past Due Rate. Borrower may, upon three
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<PAGE>
(3) Business Days' written notice to Lender, permanently reduce the Commitment
in increments equal to $100,000 or an integral multiple of $50,000 in excess
thereof. In addition to such commitment fee, Borrower shall pay to Lender (i) an
advisory fee in the amount of $100,000 which shall be due and payable on January
1, 1997 and (ii) an annual administration fee in the amount of $5,000, payable
concurrently with the execution of this Agreement and on each anniversary of the
execution hereof.
3. MANDATORY PREPAYMENTS. Borrower shall from time to time on demand by
Lender prepay the Loans (or provide Cover for Letter of Credit Liabilities) in
such amounts as shall be necessary so that at all times the aggregate
outstanding amount of (x) the sum of the aggregate principal amount of all Loans
outstanding plus the aggregate amount of the Letter of Credit Liabilities shall
be less than or equal to the Maximum Credit Available Amount.
4. CONDITIONS PRECEDENT.
(a) The obligation of Lender to make any Loan or to issue any Letter of
Credit is subject to the accuracy of all representations and warranties of
Borrower or any other Obligor in this Agreement or any other Credit Document on
the date thereof (and Lender's receipt of evidence of such accuracy), to the
performance by Borrower and the other Obligors of their respective obligations
under the Credit Documents (and Lender's receipt of evidence of such
performance) and to the satisfaction of the following conditions: (i) Lender
shall have received, no later than 11:00 a.m. Houston, Texas time on the day one
(1) Business Day preceding the date of the requested Loan in the case of a Loan,
and no later than 11:00 a.m. Houston, Texas time on the day five (5) Business
Days preceding the date of the requested issuance, in the case of a Letter of
Credit, a duly completed and executed Request for Credit, accompanied by a duly
executed Borrowing Base Certificate dated as of the last day of the calendar
month immediately preceding such Request for Credit; (ii) prior to the date
thereof, there shall have occurred, in the sole opinion of Lender, no material
adverse change in the assets, liabilities, financial condition, business or
affairs of any Obligor; (iii) no Default or Event of Default shall have occurred
and be continuing or will occur as a result of the requested Loan or issuance;
(iv) the making of the Loan or the issuance of such Letter of Credit shall not
be prohibited by, or subject Lender to any penalty or onerous condition under,
any applicable Legal Requirement; (v) all of the Credit Documents have been
executed and delivered, and shall be valid, enforceable and in full force and
effect; (vi) all fees and expenses owed to Lender under any of the Credit
Documents as of the date thereof shall have been paid in full; (vii) Lender
shall have received evidence reasonably satisfactory to Lender as to the
perfection and priority of the Liens created by the Security Documents; and
(viii) Lender shall have received such other documents as it may reasonably
require. Each such Loan and Letter of Credit shall be subject to the further
condition that, at the time thereof, all legal matters incident to the
transactions herein contemplated shall be satisfactory to Lender's legal
counsel. Delivery of any Request for Credit to Lender shall constitute a
representation by Borrower that the representations and warranties made by
Borrower under this Agreement and the other Credit Documents are true and
correct as of the date of delivery of such Request for Credit.
(b) In addition to the conditions described in PARAGRAPH 4(A)
hereof, the obligation of Lender to make the initial Loan or to issue the
initial Letter of Credit (whichever shall first occur) is subject to the receipt
by Lender of each of the following, in Proper Form: (1) the Note and the other
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Credit Documents; (2) a duly executed Borrowing Authorization with respect to
each applicable Obligor; (3) a current certificate from the Secretary of State
or other appropriate official of the State of Texas as to the continued
existence and good standing of each applicable Obligor; (4) a current
certificate from the appropriate public official of each jurisdiction other than
the State of Texas as to the due qualification to do business and good standing
of each Obligor where such qualification is necessary to conduct such Obligor's
business in such jurisdiction; (5) a legal opinion from independent counsel for
Borrower and the other Obligors acceptable to Lender; and (6) insurance policies
addressed to Lender reflecting the insurance required by the Credit Documents.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:
(a) If any Obligor is not a natural person, (i) such Obligor is duly
organized, validly existing and in good standing under the laws of the state of
its organization and has full legal right, power and authority to carry on its
business as presently conducted and to execute, deliver and perform its
obligations under the Credit Documents executed by it, (ii) such Obligor is duly
qualified to do business and in good standing in each jurisdiction in which the
nature of the business it conducts makes such qualification necessary or
desirable and (iii) such Obligor's execution, delivery and performance of the
Credit Documents executed by it have been duly authorized by all necessary
action under such Obligor's organizational documents and otherwise.
(b) Each Obligor's execution, delivery and performance of the Credit
Documents do not and will not require (i) any consent of any other Person or
(ii) any consent, li cense, permit, authorization or other approval (including
foreign exchange approvals) of any court, arbitrator, administrative agency or
other Governmental Authority, or any notice to, exemption by, any registration,
declaration or filing with or the taking of any other action in respect of, any
such court, arbitrator, administrative agency or other Governmental Authority.
(c) Neither execution or delivery of any Credit Document, nor the
fulfillment of or compliance with its terms and provisions will (i) violate any
Legal Requirement or the Organizational Documents of Obligors or (ii) conflict
with or result in a breach of the terms, conditions or provisions of, or cause a
default under, any agreement, instrument, franchise, license or concession to
which any Obligor is a party or bound.
(d) Each Credit Document has been duly and validly executed, issued
and delivered by the applicable Obligor. They are in proper legal form for
prompt enforcement and they are the respective Obligors' valid and legally
binding obligations, enforceable in accordance with their terms. Obligors'
obligations under them rank and will rank at least equal in priority of payment
with all of Obligors' other Indebtedness (except only for Indebtedness preferred
by operation of law or Indebtedness disclosed in writing to Lender before
execution and delivery of this Agreement).
(e) All information supplied to Lender, and all statements made to
Lender by or on behalf of Obligors before, concurrently with or after execution
of this Agreement are and will be true, correct, complete, valid and genuine in
all material respects. Each of Obligors' financial statements furnished to
Lender fairly present the financial condition of the applicable Obligor as of
its date and for the period then ended. No material adverse change has occurred
in the financial conditions reflected in any
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such statements since their dates, and all assets listed on such statements are
subject to the applicable Obligor's management, control and disposition and--
except as shown therein--are available to satisfy any claims rightfully made
pursuant to the Credit Documents.
(f) Obligors have filed all tax returns required to be filed and
paid all taxes shown thereon to be due, including interest and penalties, except
for taxes which are being dili gently contested in good faith and for payment of
which adequate reserves have been set aside.
(g) There is no condemnation or other action, suit or proceeding
pending--or, to the best of Borrower's knowledge, threatened--against or
affecting any Obligor or the Collateral, at law or in equity, or before or by
any Governmental Authority, which might result in any material adverse change in
any Obligor's business or financial condition or in the Collateral or in other
Property of any Obligor or any interest in it.
(h) Obligors are not in default with respect to any order, writ,
injunction, decree or demand of any court or other Governmental Authority, in
the payment of any Indebtedness for borrowed money or under any agreement or
other papers evidencing or securing any such Indebtedness.
(i) Obligors are not a party to any contract or agreement which
materially and adversely affects any of their businesses, Properties or
financial conditions.
(j) Obligors are now solvent, and no bankruptcy or insolvency
proceedings are pending or contemplated by or--to Borrower's knowledge--against
any Obligor. Each Obligor's liabilities and obligations under the Credit
Documents to which it is a party do not and will not render such Obligor
insolvent, cause such Obligor's liabilities to exceed such Obligor's assets or
leave such Obligor with too little capital to properly conduct all of its
business as now conducted or contemplated to be conducted.
(k) No representation or warranty contained in any Credit Document
and no statement contained in any certificate, schedule, list, financial
statement or other papers furnished to Lender by or on behalf of any Obligor
contains--or will contain--any untrue statement of material fact, or omits--or
will omit--to state a material fact necessary to make the statements contained
therein not misleading.
(l) Except as disclosed to Lender in writing prior to the date of
this Agreement, none of the proceeds of the Note will be used for the purpose of
purchasing or carrying, directly or indirectly, any margin stock or for any
other purpose which would make such credit a "purpose credit" within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System.
(m) Obligors possess all permits, licenses, patents, trademarks,
tradenames and copyrights required to conduct their respective businesses.
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(n) Obligors and the Collateral are in compliance with all
applicable Legal Requirements and Obligors manage and operate (and will continue
to manage and operate) their businesses in accordance with good industry
practices.
(o) With respect to each Plan, Borrower, each other Obligor and each
member of a Controlled Group for the employees of Borrower or any other Obligor
have fulfilled their obligations, including obligations under the minimum
funding standards of ERISA and the Code and are in compliance in all material
respects with the provisions of ERISA and the Code. No event has occurred which
could result in a liability of Borrower, any other Obligor or any member of a
Controlled Group for the employees of Borrower or any other Obligor to the PBGC
or a Plan (other than to make contributions in the ordinary course). Since the
effective date of Title IV of ERISA, there have not been any nor are there now
existing any events or conditions that would cause the Lien provided under
Section 4068 of ERISA to attach to any Property of Borrower, any other Obligor
or any member of a Controlled Group for the employees of Borrower or any other
Obligor. There are no Unfunded Liabilities with respect to any Plan. No
"prohibited transaction" has occurred with respect to any Plan.
(p) Neither Borrower nor any other Obligor is an investment company
within the meaning of the Investment Company Act of 1940, as amended, or,
directly or indirectly, controlled by or acting on behalf of any Person which is
an investment company, within the meaning of said Act.
(q) Neither Borrower nor any other Obligor is an "affiliate" or a
"subsidiary company" of a "public utility company," or a "holding company," or
an "affiliate" or a "subsidiary company" of a "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended ("PUHC
ACT"). Further, none of the transactions contemplated under this Agreement shall
cause or constitute a violation of any of the provisions, rules, regulations or
orders of or under the PUHC Act and the PUHC Act does not in any manner impair
the legality, validity or enforceability of the Note, the liabilities of any
Obligor under any of the Credit Documents or any Liens created under the
Security Documents.
(r) Borrower's principal place of business and chief executive
office is 720 Avenue F North, Bay City, Texas 77414. Borrower's fiscal year is
October 1 to September 30 of each calendar year.
(s) Borrower has no Subsidiaries other than the Subsidiaries listed
in the definition of "SUBSIDIARIES."
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(t) All statements made by or on behalf of any Obligor in connection
with this Agreement or any other Credit Document shall constitute the joint and
several representations and warranties of the Person making the statement and of
Borrower.
(u) Retained Earnings of the Non-Material Subsidiaries as of the
date hereof does not exceed $3,000,000 in the aggregate or $2,000,000 as to any
particular Non-Material Subsidiary.
6. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that prior to
termination of this Agreement:
(a) Borrower shall (and shall cause each other Obligor to) at all
times (i) pay when due all taxes and governmental charges of every kind upon it
or against its income, profits or Property, unless and only to the extent that
the same shall be contested diligently in good faith and reserves deemed
adequate by Lender have been established therefor; (ii) to the extent
applicable, do all things necessary to preserve its existence, qualifications,
rights and franchises in all states where such qualification is necessary or
desirable; (iii) comply with all applicable Legal Requirements in respect of the
conduct of its business and the ownership of its Property; (iv) cause its
Property to be protected, maintained and kept in good repair and make all
replacements and additions to its Property as may be reasonably necessary to
conduct its business properly and efficiently, and (v) pay punctually and
discharge when due, or renew or extend, any Indebtedness incurred by it and
discharge, perform and observe the covenants, provisions and conditions to be
performed, discharged and observed on its part in connection therewith, or in
connection with any agreement or other instrument relating thereto or in
connection with any mortgage, pledge or lien existing at any time upon any of
its Property; provided, however, that nothing contained in this SUBPARAGRAPH (V)
shall require payment, discharge, renewal or extension of any such Indebtedness
or discharge, performance or observance of any such covenants, provisions and
conditions so long as any claims which may be asserted against with respect to
any such Indebtedness or any such covenants, provisions and conditions shall be
contested diligently and in good faith and reserves with respect thereto deemed
adequate by Lender shall be established.
(b) Borrower shall furnish or cause to be furnished to Lender three
copies of each of the following: (1) as soon as available and in any event
within 90 days after the end of each fiscal year of each Obligor that is not an
individual, Annual Financial Statements of such
Obligor; (2) as soon as available and in any event within 45 days after the end
of each calendar quarter of each fiscal year of each Obligor that is not an
individual, Quarterly Financial Statements of such Obligor; (3) concurrently
with the financial statements provided for in SUBSECTIONS (1) and (2) of this
PARAGRAPH 6(B), beginning with the Quarterly Financial Statements as of December
31, 1996, such schedules, computations and other information, in reasonable
detail, as may be required by Lender to demonstrate compliance with the
covenants set forth herein or reflecting any non-compliance therewith as of the
applicable date, all certified and signed by an appropriate officer or other
responsible party acceptable to Lender on behalf of Borrower and a compliance
certificate ("COMPLIANCE CERTIFICATE") in the form of EXHIBIT C hereto, duly
executed by such officer or other responsible party; (4)(A) on the date hereof
and (B) within 45 days after (i) the end of each calendar month or (ii) receipt
of a request therefor (which may be given from time to time) from Lender, a
Borrowing Base Certificate as at the date hereof or the last day of such
calendar month or the date of such receipt, as the case may be, together with
such supporting information as Lender may reasonably request; (5) on or before
30 days after the end of each
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calendar month, (A) a listing and aging of the Accounts of each Obligor which
has executed a Security Agreement covering its Accounts as of the end of such
calendar month, prepared in reasonable detail and containing such information as
Lender may request and (B) a summary of the Inventory of each Obligor which has
executed a Security Agreement covering its Inventory as of the end of such
calendar month, prepared in reasonable detail and containing such other
information as Lender may request; (6) from time to time, at any time upon the
request of Lender, but at the cost of Borrower, a report of an independent
collateral field examiner (which may be, or be affiliated with, Lender) with
respect to the Accounts and Inventory components included in the Borrowing Base
(PROVIDED, HOWEVER, that so long as no Event of Default has occurred and is
continuing, Lender shall not require such a report more than once per calendar
year); (7) promptly upon their becoming publicly available, one copy of each
financial statement, report, notice or definitive proxy statement sent by any
Obligor to shareholders generally, and of each regular or periodic report and
any registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by any Obligor with, or received
by any Obligor in connection therewith from, any securities exchange or the
Securities and Exchange Commission or any successor agency; and (8) such other
information relating to the financial condition, operations, prospects or
business of any Obligor as from time to time may be reasonably requested by
Lender. Each delivery of a financial statement pursuant to this Paragraph shall
constitute a republication of the representations and warranties contained in
PARAGRAPH 5.
(c) Borrower shall have and maintain:
(1) a Fixed Charge Coverage Ratio for Borrower and its
Subsidiaries of not less than 1.20 to 1.00 at all times from and
after October 1, 1997.
(2) a Tangible Net Worth for Borrower and its Subsidiaries of
not less than (i) $18,090,000, for the period commencing on the date
hereof through and including September 30, 1996 and (ii) for each
fiscal year thereafter, 80% of the Tangible Net Worth as of the end
of the preceding fiscal year.
(3) an Interest Coverage Ratio for Borrower and its
Subsidiaries of not less than 2.50 to 1.00 at all times from and
after October 1, 1996.
(4) a Debt to EBITDA Ratio for Borrower and its Subsidiaries
of not greater than 4.00 at all times at all times from and after
October 1, 1996.
(d) Borrower shall (and shall cause each other Obligor to) permit
Lender to inspect its Property, to examine its files, books and records and make
and take away copies thereof, and to discuss its affairs with its officers and
accountants, all at such times and intervals and to such extent as Lender may
reasonably desire.
(e) Borrower shall promptly execute and deliver (or cause to be
executed and delivered), at Borrower's expense, any and all other and further
instruments which may be requested by Lender to cure any defect in the execution
and delivery of any Credit Document or more fully to describe particular aspects
of the agreements and undertakings set forth in the Credit Documents.
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<PAGE>
(f) Borrower shall (and shall cause each other Obligor to) maintain
books and records in accordance with GAAP.
(g) Borrower shall (and shall cause each of its Subsidiaries and
each other Obligor to) maintain insurance with such insurers, on such of its
Property, in such amounts and against such risks as is reasonably satisfactory
to Lender, and furnish Lender satisfactory evidence thereof promptly upon
request. These insurance provisions are cumulative of the insurance provisions
of the Security Documents. Lender shall be named as loss payee and a beneficiary
of such insurance and shall be provided with copies of the policies of insurance
and a certificate of the insurer that the insurance required by this Paragraph
may not be canceled, reduced or affected in any manner without thirty (30) days'
prior written notice to Lender. Wherever applicable, such insurance shall name
Lender as loss payee and/or mortgagee insured.
(h) Borrower shall notify Lender immediately upon acquiring
knowledge of the occurrence of, or if Borrower or any other Obligor causes or
intends to cause, as the case may be: (1) the institution of any lawsuit or
administrative proceeding affecting any Obligor, the adverse determination under
which could have a material adverse effect on the business, condition (financial
or otherwise), operations, Property or prospects of such Obligor or on its
ability to perform its respective obligations under any Credit Document to which
it is a party; (2) any material adverse change, either in any case or in the
aggregate, in the assets, liabilities, business, condition (financial or
otherwise), operations, Property or prospects of any Obligor; (3) any Event of
Default or any Default, together with a detailed statement by an appropriate
officer or other responsible party acceptable to Lender on behalf of Borrower of
the steps being taken to cure the effect of such Event of Default or Default;
(4) the receipt of any notice from, or the taking of any other action by, the
holder of any Indebtedness of any Obligor with respect to a claimed default,
together with a detailed statement by an appropriate officer or other
responsible party acceptable to Lender on behalf of Borrower specifying the
notice given or other action taken by such holder and the nature of the claimed
default and what action such Obligor is taking or proposed to take with respect
thereto; (5) the occurrence of a default or event of default by any Obligor
under any agreement to which it is a party, which default or event of default
could reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise), operations, Property or prospects of such
Obligor; (6) any change in the accuracy of the representations and warranties of
any Obligor in this Agreement or any other Credit Document, and (7) any material
adverse change in the accuracy of the matters certified to in any Perfection
Certificate. Borrower will notify Lender in writing at least 30 days prior to
the date that any Obligor changes its name or the location of its chief
executive office or principal place of business (or residence, if such Obligor
is an individual) or the place where it keeps its books and records.
(i) Borrower shall promptly furnish to Lender (and cause each other
Obligor to furnish to Lender) (1) immediately upon receipt, a copy of any notice
of complete or partial withdrawal liability under Title IV of ERISA and any
notice from the PBGC under Title IV of ERISA of an intent to terminate or
appoint a trustee to administer any Plan, (2) if requested by Lender, promptly
after the filing thereof with the United States Secretary of Labor or the PBGC
or the Internal Revenue Service, copies of each annual and other report with
respect to each Plan or any trust created thereunder, (3) immediately upon
becoming aware of the occurrence of any "reportable event," as such term is
defined in Section 4043 of ERISA, for which the disclosure requirements of
Regulation Section 2615.3
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promulgated by the PBGC have not been waived, or of any "prohibited
transaction," as such term is defined in Section 4975 of the Code, in connection
with any Plan or any trust created thereunder, a written notice signed by an
appropriate officer or other responsible party acceptable to Lender on behalf of
the applicable Obligor or the applicable member of a Controlled Group for the
employees of such Obligor specifying the nature thereof, what action such
Obligor or the applicable member of such Controlled Group is taking or proposes
to take with respect thereto, and, when known, any action taken by the PBGC, the
Internal Revenue Service or the Department of Labor with respect thereto, (4)
promptly after the filing or receiving thereof by any Obligor or any member of a
Controlled Group for the employees of such Obligor of any notice of the
institution of any proceedings or other actions which may result in the
termination of any Plan, and (5) each request for waiver of the funding
standards or extension of the amortization periods required by Sections 303 and
304 of ERISA or Section 412 of the Code promptly after the request is submitted
by any Obligor or any member of a Controlled Group for the employees of such
Obligor to the Secretary of the Treasury, the Department of Labor or the
Internal Revenue Service, as the case may be. To the extent required under
applicable statutory funding requirements, Borrower will fund, and will cause
each other Obligor to fund, all current service pension liabilities as they are
incurred under the provisions of all Plans from time to time in effect, and
comply with all applicable provisions of ERISA. Borrower covenants that it shall
and shall cause each other Obligor and each other member of a Controlled Group
for the employees of Borrower and each other Obligor to (a) make contributions
to each Plan in a timely manner and in an amount sufficient to comply with the
contribution obligations under such Plan and the minimum funding standards
requirements of ERISA; (b) prepare and file in a timely manner all notices and
reports required under the terms of ERISA including annual reports; and (c) pay
in a timely manner all required PBGC premiums.
(j) If, after the date of this Agreement, Lender shall have
determined that the adoption or effectiveness of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on Lender's capital (or on the capital of
any person or entity owning or holding a participation interest in the Facility
Debt (each a "PARTICIPANT")) as a consequence of its obligations to Borrower
with respect to the Loans to a level below that which could have been achieved
but for such adoption, effectiveness, change or compliance (taking into
consideration Lender's policies (or the policies of any applicable Participant)
with respect to capital adequacy) by an amount deemed by Lender to be material,
then from time to time, Borrower shall pay to Lender such additional amount or
amounts as will compensate Lender (and each applicable Participant) for such
reduction. A certificate of Lender setting forth such amount or amounts as shall
be necessary to compensate Lender (and each applicable Participant) as specified
in this Paragraph shall be delivered as soon as practicable to Borrower and
shall be conclusive and binding, absent manifest error. Borrower shall pay
Lender the amount shown as due on any such certificate within fifteen (15) days
after Lender delivers such certificate. In preparing such certificate, Lender
may employ such assumptions and allocations of costs and expenses as it shall in
good faith deem reasonable and may use any reasonable averaging and attribution
method.
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(k) The proceeds of the Loans will be used to provide funds for
general corporate purposes and working capital for Borrower and its
Subsidiaries. The issuance of Letters of Credit may be used from time to time
for Inventory suppliers in which Borrower or its applicable Subsidiary does not
already have established credit.
7. NEGATIVE COVENANTS. Borrower further covenants and agrees that prior to
termination of this Agreement:
(a) Borrower will not (and will not permit any of its Subsidiaries
to) create, incur, suffer or permit to exist, or assume or guarantee, directly
or indirectly, or become or remain liable with respect to any Indebtedness,
whether direct, indirect, absolute, contingent or otherwise, except the
following: (1) Indebtedness to Lender; (2) Indebtedness secured by Liens
permitted by PARAGRAPH 7(B) hereof; (3) other liabilities existing on the date
of this Agreement and disclosed in the financial statements delivered on or
prior to the date hereof pursuant to PARAGRAPH 6(B) hereof, and subject to
PARAGRAPH 7(J) hereof, all renewals and extensions (but not increases) thereof;
(4) purchase money Indebtedness to acquire Property not exceeding, in the
aggregate, $500,000 in any 12-month period or an amount at any one time
outstanding equal to 20% of EBITDA of the Borrower (on a consolidated basis) for
the 12-month period ending on such day; and (5) current accounts payable and
unsecured current liabilities, not the result of borrowing, to vendors,
suppliers and persons providing services, for expenditures for goods and
services normally required by it in the ordinary course of business and on
ordinary trade terms.
(b) Borrower will not (and will not permit any of its Subsidiaries
to) create or suffer to exist any Lien upon any of the Bay City Property or any
Collateral now owned or hereafter acquired, or acquire any Bay City Property or
any Collateral upon any conditional sale or other title retention device or
arrangement or any purchase money security agreement; or in any manner directly
or indirectly sell, assign, pledge or otherwise transfer any of its Accounts or
contract rights; PROVIDED, HOWEVER, that Borrower or any of its Subsidiaries may
create or suffer to exist: (1) artisans' or mechanics' Liens arising in the
ordinary course of business, and Liens for taxes, but only to the extent that
payment of the foregoing shall not at the time be due; (2) Liens in effect on
the date hereof and disclosed to Lender in the financial statements delivered on
or prior to the date hereof pursuant to PARAGRAPH 6(B) hereof, provided that
neither the Indebtedness secured thereby nor the Property covered thereby shall
increase; and (3) Liens in favor of Lender.
(c) Borrower will not (and will not permit any other Obligor to), in
any single transaction or series of transactions, directly or indirectly: (1)
consolidate, terminate, liquidate or dissolve; (2) be a party to any
consolidation, termination, merger or consolidation; (3) modify or amend any of
its Organizational Documents; or (4) sell, convey or lease all or any
substantial part of its assets, except for sale of Inventory in the ordinary
course of business and except for sales to unrelated third parties of Property
other than the Bay City Property and the Collateral. Borrower will not (and will
not permit any of its Subsidiaries to) (1) pledge, transfer or otherwise dispose
of any of the indicia of equity rights (whether issued and outstanding capital
stock, partnership interests or otherwise) of a Subsidiary or any Indebtedness
of a Subsidiary, or permit any Subsidiary of any such Person to issue any
additional indicia of equity rights (whether issued and outstanding capital
stock, partnership interests or otherwise) other than to its parent or (2)
acquire all or substantially all of the assets of any Person, or (except as
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<PAGE>
expressly permitted by PARAGRAPH 7(G) hereof) any indicia of equity rights
(whether issued and outstanding capital stock, partnership interests or
otherwise) of any other Person.
(d) Borrower will not (and will not permit any other Obligor or any
of its Subsidiaries to): (1) redeem, retire or otherwise acquire, directly or
indirectly, any shares of its capital stock; (2) pay any dividend except stock
dividends and dividends paid to Borrower; or (3) make any other distribution of
any Property or cash to stockholders as such.
(e) Borrower will not (and will not permit any of its Subsidiaries
to) change the nature of its business or enter into any business which is
substantially different from the business in which it is presently engaged or
permit any material change in its management.
(f) Borrower will not (and will not permit any other Obligor to)
enter into any transaction or agreement with any officer, director, partner,
trustee or owner or holder of any indicia of equity rights (whether issued and
outstanding capital stock, partnership interests or otherwise) of Borrower or
any other Obligor (or any Affiliate or Subsidiary of any such Person) unless the
same is upon terms substantially similar to those obtainable from wholly
unrelated sources.
(g) Borrower will not (and will not permit any of its Subsidiaries
to) make any loan, advance, extension of credit or capital contribution to, or
make any Investment in, any Person, or make any commitment to make any such
extension of credit or Investment, except indicia of equity rights of permitted
Subsidiaries, Permitted Investments and normal and reasonable travel advances in
the ordinary course of business to employees.
(h) Borrower will not (and will not permit any of its Subsidiaries
to) form, create or acquire any Subsidiary except for Borrower's Subsidiaries
specifically listed in the definition of "SUBSIDIARIES".
(i) Borrower will not incur (or permit any other Obligor to incur)
any Unfunded Liabilities or allow any Unfunded Liabilities to arise or exist.
(j) Borrower will not (and will not permit any other Obligor to)
amend, modify or grant a waiver of any provision of any of the Key Agreements if
such amendment, modification or waiver could have a material adverse effect, in
Lender's sole opinion, on Lender, any Collateral, any Loan or Letter of Credit
or on the ability of any Party to perform its respective obligations under any
Credit Document unless the same is consented to in writing by Lender.
(k) Borrower will not (and will not permit any of its Subsidiaries
to) make or incur Capital Expenditures exceeding (i) $1,250,000, in the
aggregate, during the fiscal 1997 year and (ii) for each fiscal year thereafter,
the greater of $1,000,000 or 25% of EBITDA for Borrower and its Subsidiaries (on
a consolidated basis) for the prior fiscal year.
(l) Borrower will not (and will not permit any of its Subsidiaries
to) incur any liabilities or obligations or other exposure with respect to
arbitrage investments (i) for speculation or
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for any purpose other than merger and acquisition transactions or (ii) in an
aggregate amount at any one time outstanding in excess of $400,000 (exclusive of
treasury stock).
(m) Without the prior written consent of Lender, Borrower will not
permit Retained Earnings of the Non-Material Subsidiaries to exceed $5,000,000
in the aggregate or to exceed $3,000,000 as to any particular Non-Material
Subsidiary. The consent by Lender may be conditioned upon, among other
requirements, execution and delivery by the applicable Non- Material Subsidiary
of a guaranty and security documents substantially the same as the Guaranties
and the Security Documents executed by Guarantors concurrently herewith and the
amendment of this Agreement to remove the applicable Person from the definition
of "Non-Material Subsidiary" and to add the applicable Person to the definition
of "Guarantor".
8. DEFAULT. The occurrence of any of the following events shall constitute
an EVENT OF DEFAULT (herein so called) under this Agreement:
(a) any part of the Facility Debt is not paid when due, whether by
lapse of time or acceleration or otherwise.
(b) any Obligor fails to perform, observe or comply with--or
defaults under--any of the terms, covenants, conditions or provisions of any
Credit Document.
(c) any representation or warranty made in any Credit Document or in
any other report or other paper now or hereafter provided to Lender pursuant or
incident to any Credit Document or the Facility Debt proves to have been untrue
or misleading in any material respect as of the date made or deemed made.
(d) any Obligor: (i) voluntarily suspends transaction of business;
(ii) becomes insolvent or unable to pay its Indebtedness as it matures; (iii)
commences a voluntary case in bankruptcy or a voluntary petition seeking
reorganization or to effect a plan or other arrangement with creditors; (iv)
makes an assignment for the benefit of creditors; (v) applies for or consents to
the appointment of a receiver or trustee for any such person or entity or for
any substantial portion of its Property; or (vi) makes an assignment to an agent
authorized to liquidate any substantial part of its assets.
(e) in respect of any Obligor: (i) an involuntary case shall be
commenced with any court or other authority seeking liquidation, reorganization
or a creditor's arrangement of any such person or entity; (ii) an order of any
court or other authority shall be entered appointing any receiver or trustee for
any such person or entity or for any substantial portion of its Property; or
(iii) a writ or warrant of attachment or any similar process shall be issued by
any court or other authority against any substantial portion of the Property of
any such person or entity and such petition seeking liquidation, reorganization
or a creditor's arrangement or such order appointing a receiver or trustee is
not vacated or stayed, or such writ, warrant of attachment or similar process is
not vacated, released or bonded off within thirty (30) days after its entry or
levy.
(f) the death, legal incompetency, dissolution, liquidation or
termination of any Obligor.
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(g) any action, suit or proceeding shall be commenced against or
affecting any Obligor or involving the validity or enforceability of any Credit
Document, at law or in equity, or before any Governmental Authority, which in
Lender's judgment, impairs or would impair Lender's ability to collect the
Facility Debt when due or the enforceability of any Credit Document.
(h) any one or more final judgments for the payment of money shall
be rendered against any Obligor and the same shall remain unstayed or
undischarged for a period of thirty (30) days.
(i) any Obligor shall be prevented or relieved by any Governmental
Authority from performing or observing any material term, covenant or condition
of any Credit Document.
(j) any material adverse change shall occur in the Property,
financial condition, business, operations, affairs or circumstances of any
Obligor.
(k) any Obligor shall fail to pay when due any principal of or
interest on any borrowed money obligation or the holder of such other obligation
declares--or has the right to declare--such obligation due before its stated
maturity because of default.
(l) any Obligor shall be in default under or in violation of any
Legal Requirement of any Governmental Authority having jurisdiction over any
such party or any such party's Property.
(m) any Obligor shall claim--or any court shall find or rule--that
Lender does not have a valid Lien on any of the Collateral.
(n) the sale, encumbrance or abandonment (except as otherwise
expressly agreed to in writing by Lender) of any of the Collateral, the making
of any levy, seizure or attachment of or on any of the Collateral or the loss,
theft, substantial damage or destruction of any of the Collateral.
(o) any Obligor shall have concealed, removed, or permitted to be
concealed or removed, any part of its Property, with intent to hinder, delay or
defraud any of its creditors, or made or suffered a transfer of any of its
Property which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law, or shall have made any transfer of its Property to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid, or, while insolvent, shall have suffered or permitted any creditor to
obtain a lien upon any of its Property through legal proceedings or distraint
which is not vacated within thirty (30) days from its date.
(p) any Obligor fails to pay when due any amount which he or it is
liable to pay to the PBGC or its successor or to a Plan, or notice of intent to
terminate any Plan is filed under ERISA, or PBGC commences proceedings under
ERISA to terminate any Plan or to cause a trustee to be appointed to administer
any Plan, or a proceeding is commenced by any fiduciary of any Plan to enforce
Section 515 or Section 4219(c)(5) of ERISA, or PBGC becomes entitled to obtain a
decree adjudicating that any Plan must be terminated.
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(q) Borrower shall cease to own all of the equity interests in each
of its Subsidiaries or the J.L. Evans Group shall cease to own, directly or
indirectly, at least 34.6% of the equity interests in Borrower.
(r) a default, an event of default or a similar event (however
denominated) shall occur under any Credit Document, unless Lender declares such
default, event of default or similar event fully cured to Lender's satisfaction
within any applicable cure period agreed to in writing by Lender.
Upon the occurrence of any Event of Default, and at any time thereafter, the
obligation, if any, to make Loans or to issue Letters of Credit shall cease and
terminate, and Lender shall have the right, at its option, (1) to declare the
Commitment terminated (whereupon the Commitment shall be terminated) and to
declare the unpaid balance of the Indebtedness evidenced by the Note to be
immediately due and payable without further notice (including notice of intent
to accelerate and notice of acceleration), protest or demand or presentment for
payment, all of which are hereby expressly waived by Borrower, (2) to require
Borrower to pay to Lender, in immediately available funds, an amount equal to
the then aggregate amount available for drawings under all Letters of Credit
(which funds shall be held by Lender as Cover) and (3) to enforce or avail
itself of any and all powers, rights and remedies available at law or provided
in this Agreement, the Note, the other Credit Documents or any other document
executed pursuant hereto or in connection herewith. Notwithstanding any
provision in this Paragraph to the contrary, upon the occurrence of any Event of
Default, Lender shall have the right, immediately and without notice, to take
possession of and exercise possessory rights with regard to any Collateral. All
powers, rights and remedies of Lender set forth in this Paragraph shall be
cumulative and not exclusive of any other power, right or remedy available to
Lender under the law or under this Agreement, the Note, the other Credit
Documents or any other document executed pursuant hereto or in connection
herewith to enforce the performance or observance of the covenants and
agreements contained in this Agreement, and no delay or omission of Lender to
exercise any power, right or remedy accruing to Lender shall impair any such
power, right or remedy, or shall be construed to be a waiver of the right to
exercise any such power, right or remedy. Every power, right or remedy of Lender
set forth in this Agreement, the Note, the other Credit Documents or any other
document executed pursuant hereto or in connection herewith, or afforded by law
may be exercised from time to time, and as often as may be deemed expedient by
Lender. In the event that Borrower or any other Obligor is the subject of any
insolvency, bankruptcy, receivership, dissolution, reorganization or similar
proceeding, federal or state, voluntary or involuntary, under any present or
future law or act, Lender is entitled to the automatic and absolute lifting of
any automatic stay as to the enforcement of its remedies under the Credit
Documents against the security for the Indebtedness evidenced by the Note and
other sums due and payable to Lender under any of the Credit Documents,
including specifically the stay imposed by Section 362 of the United States
Federal Bankruptcy Code, as amended. Borrower hereby consents to the immediate
lifting of any such automatic stay, and will not contest any motion by Lender to
lift such stay. Borrower expressly acknowledges that the security for such
Indebtedness is not now and will never be necessary to any plan of
reorganization of any type.
9. LENDER'S RIGHT TO CURE. If Obligors should fail to comply with any of
their agreements, covenants or obligations under any Credit Document, then
Lender (in the applicable Obligor's name or in Lender's own name) may perform
them or cause them to be performed for Borrower's account and at Borrower's
expense, but shall have no obligation to perform any of them or
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cause them to be performed. Any and all expenses thus incurred or paid by Lender
shall be Borrower's obligations to Lender due and payable on demand, or if no
demand is sooner made, then they shall be due on or before four (4) years after
the respective dates on which they were incurred, and each shall bear interest
from the date Lender pays it until the date Borrower repays it to Lender, at the
Past Due Rate. Upon making any such payment or incurring any such expense,
Lender shall be fully and automatically subrogated to all of the rights of the
person, corporation or body politic receiving such payment. Any amounts owing by
Borrower to Lender pursuant to this or any other provision of this Agreement
shall be secured by all instruments securing the Note. The amount and nature of
any such expense and the time when it was paid shall be fully established by the
affidavit of Lender or any of Lender's officers or agents. The exercise of the
privileges granted to Lender in this Paragraph shall in no event be considered
or constitute a cure of the default or a waiver of Lender's right at any time
after an Event of Default to declare the Note to be at once due and payable, but
is cumulative of such right and of all other rights given by this Agreement, the
Note and the Credit Documents and of all rights given Lender by law.
10. USURY NOT INTENDED; SAVINGS PROVISIONS. Notwithstanding any provision
to the contrary contained in any Credit Document, it is expressly provided that
in no case or event shall the aggregate of any amounts accrued or paid pursuant
to this Agreement which under applicable laws are or may be deemed to constitute
interest ever exceed the maximum nonusurious interest rate permitted by
applicable Texas or federal laws, whichever permit the higher rate. In this
connection, Borrower and Lender stipulate and agree that it is their common and
overriding intent to contract in strict compliance with applicable usury laws.
In furtherance thereof, none of the terms of this Agreement shall ever be
construed to create a contract to pay, as consideration for the use, forbearance
or detention of money, interest at a rate in excess of the maximum rate
permitted by applicable laws. Borrower shall never be liable for interest in
excess of the maximum rate permitted by applicable laws. If, for any reason
whatever, such interest paid or received during the full term of the applicable
Indebtedness produces a rate which exceeds the maximum rate permitted by
applicable laws, Lender shall credit against the principal of such Indebtedness
(or, if such Indebtedness shall have been paid in full, shall refund to the
payor of such interest) such portion of said interest as shall be necessary to
cause the interest paid to produce a rate equal to the maximum rate permitted by
applicable laws. All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of money shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread in equal parts throughout the
full term of the applicable Indebtedness, so that the interest rate is uniform
throughout the full term of such Indebtedness. The provisions of this Paragraph
shall control all agreements, whether now or hereafter existing and whether
written or oral, between Borrower and Lender.
11. DOCUMENTATION REQUIREMENTS. Each written instrument required by this
Agreement, the Note or the other Credit Documents to be furnished to Lender
shall be duly executed by the person or persons specified (or where no
particular person is specified, by such person as Lender shall require), duly
acknowledged where reasonably required by Lender and, in the case of affidavits
and similar sworn instruments, duly sworn to and subscribed before a notary
public duly authorized to act by governmental authority; shall be furnished to
Lender in one or more copies as required by Lender; and shall in all respects be
in form and substance satisfactory to Lender and to its legal counsel.
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12. CREDIT DOCUMENTS CUMULATIVE. The benefits, rights and remedies of
Lender and the security contained herein or provided for in the Note, the other
Credit Documents or any other document executed pursuant hereto or in connection
herewith are cumulative; provided, however, that to the extent of any conflict
between any provision of this Agreement and any provision contained in the Note,
the other Credit Documents or any other document executed pursuant hereto or in
connection herewith, the provisions of this Agreement shall control.
13. SATISFACTION OF CONDITIONS. Where evidence of the existence or
nonexistence of any circumstance or condition is required by this Agreement, the
Note, the other Credit Documents or any other document executed pursuant hereto
or in connection herewith to be furnished to Lender, such evidence shall in all
respects be in form and substance satisfactory to Lender, and the duty to
furnish such evidence shall not be considered satisfied until Lender shall have
acknowledged that it is satisfied therewith.
14. SURVIVAL. All covenants, agreements, representations and warranties
made by Borrower in this Agreement, the Note, the other Credit Documents and any
other document executed pursuant hereto or in connection herewith, and in any
certificates or other documents or instruments delivered pursuant to this
Agreement, the Note, the other Credit Documents or any other document executed
pursuant hereto or in connection herewith shall survive the execution and
delivery of this Agreement, the Note, the other Credit Documents and the other
documents executed pursuant hereto or in connection herewith, and shall continue
in full force and effect until full payment of the Indebtedness evidenced by the
Note and/or secured by the Credit Documents, complete performance of all of the
obligations of the Obligors under the Credit Documents and final termination of
Lender's obligations--if any--to make any further advances under the Note or to
provide any other financial accommodation to any Obligor (PROVIDED, HOWEVER,
that all reimbursement obligations, indemnification and hold harmless
obligations and other similar obligations of Borrower under any of the Credit
Documents shall survive such payment, performance and termination). All such
covenants, agreements, representations and warranties shall be binding upon any
successors and assigns of Borrower, but any attempted assignment of any rights
of Borrower hereunder without the prior written consent of Lender shall be null
and void. No Person other than Borrower shall have any right or action hereon or
any rights to Loans at any time, the Loans shall not constitute a trust fund for
the benefit of any third parties and no third party shall under any
circumstances have or be entitled to any Lien or any trust impressed on any
undisbursed Loans.
15. BORROWER AGREES TO PAY OR REIMBURSE LENDER'S EXPENSES. To the
extent not prohibited by applicable law, Borrower will pay all costs and
expenses and reimburse Lender for any and all expenditures of every character
incurred or expended from time to time, regardless of whether an Event of
Default shall have occurred, in connection with:
(a) the preparation, negotiation, documentation, closing, renewal,
revision, modification, increase, review or restructuring of any loan or credit
facility secured by the Credit Documents, including legal, accounting, auditing,
architectural, engineering and inspection services and disbursements, or in
connection with collecting or attempting to enforce or collect any Credit
Document.
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(b) Lender's evaluating, monitoring, administering and protecting
the Collateral.
(c) Lender's creating, perfecting and realizing upon Lender's
security interest in and liens on the Collateral, and all costs and expenses
relating to Lender's exercising any of its rights and remedies under any Credit
Document or at law, including all appraisal fees, consulting fees, filing fees,
taxes, brokerage fees and commissions, title review and abstract fees,
litigation report fees, UCC search fees, other fees and expenses incident to
title searches, reports and security interests, escrow fees, attorneys' fees,
legal expenses, court costs, other fees and expenses incurred in connection with
any complete or partial liquidation of the Collateral, and all fees and expenses
for any professional services relating to the Collateral or any operations
conducted in connection therewith. PROVIDED, that no right or option granted by
Borrower to Lender or otherwise arising pursuant to any provision of any Credit
Document shall be deemed to impose or admit a duty on Lender to supervise,
monitor or control any aspect of the character or condition of the Collateral or
any operations conducted in connection therewith for the benefit of Borrower or
any person or entity other than Lender. Borrower agrees to indemnify, defend and
hold Lender, its shareholders, directors, officers, agents, attorneys, advisors
and employees (collective ly "INDEMNIFIED PARTIES") harmless from and against
any and all Environmental Liabilities and any and all other loss, liability,
obligation, damage, penalty, judgment, claim, deficiency, expense, action, suit,
cost and disbursement of any kind or nature whatsoever (including interest,
penalties, attorneys' fees and amounts paid in settlement), REGARDLESS OF
WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED
PARTIES, imposed on, incurred by or asserted against the Indemnified Parties
growing out of or resulting from any Credit Document or any transaction or event
contemplated therein (except that such indemnity shall not be paid to any
Indemnified Party to the extent that such loss, etc. directly results from the
gross negligence or willful misconduct of that Indemnified Party). If any person
or entity (including Borrower or any of its affiliates) ever alleges gross
negligence or willful misconduct by an Indemnified Party, the full amount of
indemnification provided for in this Paragraph shall nonetheless be paid upon
demand, subject to later adjustment or reimbursement at such time--if any--as a
court of competent jurisdiction enters a final judgment as to the extent and
effect of the alleged gross negligence or willful misconduct. Any amount to be
paid under this Paragraph by Borrower to Lender shall be a demand obligation
owing by Borrower to Lender and shall bear interest from the date of expenditure
until paid at the Past Due Rate.
16. AMENDMENTS IN WRITING. This Agreement shall not be changed orally but
shall be changed only by agreement in writing signed by Borrower and Lender. Any
waiver or consent with respect to this Agreement shall be effective only in the
specific instance and for the specific purpose for which given. No course of
dealing between the parties, no usage of trade and no parol or extrinsic
evidence of any nature shall be used to supplement or modify any of the terms or
provisions of this Agreement.
17. NOTICES. Any notice, request or other communication required or
permitted to be given hereunder shall be given in writing by delivering it
against receipt for it, by depositing it with an overnight delivery service or
by depositing it in a receptacle maintained by the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the respective parties at the addresses shown herein (and if so
given, shall be deemed given on the second
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Business Day after mailing). Borrower's address for notice may be changed at any
time and from time to time, but only after thirty (30) days' advance written
notice to Lender and shall be the most recent such address furnished in writing
by Borrower to Lender. Lender's address for notice may be changed at any time
and from time to time, but only after ten (10) days' advance written notice to
Borrower and shall be the most recent such address furnished in writing by
Lender to Borrower. Actual notice, however and from whomever given or received,
shall always be effective when received. Whenever (and if) notice by telecopy by
Borrower is permitted hereunder, it is intended for the convenience of Borrower,
and Lender may rely on, and shall not be liable for acting (or refraining from
acting) upon, any notice, instruction or request purporting to have been signed
or presented by the proper party unless such action (or refraint from action)
constitutes gross negligence or willful misconduct.
18. GENDER; "INCLUDING" IS NOT LIMITING; SECTION HEADINGS. The masculine
and neuter genders used in this Agreement each includes the masculine, feminine
and neuter genders, and whenever the singular number is used, the same shall
include the plural where appropriate, and VICE VERSA. Wherever the term
"including" or a similar term is used in this Agreement, it shall be read as if
it were written "including by way of example only and without in any way
limiting the generality of the clause or concept referred to." The headings used
is this Agreement are included for reference only and shall not be considered in
interpreting, applying or enforcing this Agreement.
19. LENDER'S OFFSET RIGHTS. Lender is hereby authorized at any time and
from time to time, without notice to any person or entity (and Borrower hereby
WAIVES any such notice) to the fullest extent permitted by law, to set-off and
apply any and all monies, securities and other Properties of Borrower now or in
the future in the possession, custody or control of Lender, or on deposit with
or otherwise owed to Borrower by Lender--including all such monies, securities
and other Properties held in general, special, time, demand, provisional or
final accounts or for safekeeping or as collateral or otherwise (but excluding
those accounts clearly designated as escrow or trust accounts held by Borrower
for others unaffiliated with Borrower)--against any and all of Borrower's
obligations to Lender now or hereafter existing under this Agreement,
irrespective of whether Lender shall have made any demand under this Agreement.
Lender agrees to use reasonable efforts to promptly notify Borrower after any
such set-off and application, PROVIDED that failure to give--or delay in
giving--any such notice shall not affect the validity of such set-off and
application or impose any liability on Lender. Lender's rights under this
Paragraph are in addition to other rights and remedies (including other rights
of set-off) which Lender may have.
20. VENUE. This Agreement is performable in Harris County, Texas, which
shall be a proper place of venue for suit on or in respect of this Agreement.
Borrower irrevocably agrees that any legal proceeding in respect of this
Agreement shall be brought in the district courts of Harris County, Texas or the
United States District Court for the Southern District of Texas, Houston
Division (collectively, the "SPECIFIED COURTS"). Borrower hereby irrevocably
submits to the nonexclusive jurisdiction of the state and federal courts of the
State of Texas. Borrower hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to any
Credit Document brought in any Specified Court, and hereby further irrevocably
waives any claims that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Borrower further
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irrevocably consents to the service of process out of any of the Specified
Courts in any such suit, action or proceeding by the mailing of copies thereof
by certified mail, return receipt requested, postage prepaid, to Borrower at its
address as provided in this Agreement or as otherwise provided by Texas law.
Nothing herein shall affect the right of Lender to commence legal proceedings or
otherwise proceed against Borrower in any jurisdiction or to serve process in
any manner permitted by applicable law. Borrower agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME
TO TIME IN EFFECT.
21. RIGHTS CUMULATIVE; DELAY NOT WAIVER. Lender's exercise of any right,
benefit or privilege under any of the Credit Documents or any other papers or at
law or in equity shall not preclude the concurrent or subsequent exercise of
Lender's other present or future rights, benefits or privileges. The remedies
provided in this Agreement are cumulative and not exclusive of any remedies
provided by law, the Credit Documents or any other papers. No failure by Lender
to exercise, and no delay in exercising, any right under any Credit Document or
any other papers shall operate as a waiver thereof.
22. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this Agreement shall
not be affected thereby, and this Agreement shall be liberally construed so as
to carry out the intent of the parties to it. Each waiver in this Agreement is
subject to the overriding and controlling rule that it shall be effective only
if and to the extent that (a) it is not prohibited by applicable law and (b)
applicable law neither provides for nor allows any material sanctions to be
imposed against Lender for having bargained for and obtained it.
23. RELEASE OF CLAIMS. BORROWER HEREBY RELEASES, DISCHARGES AND ACQUITS
FOREVER LENDER AND ITS OFFICERS, DIRECTORS, TRUSTEES, AGENTS, EMPLOYEES AND
COUNSEL (IN EACH CASE, PAST, PRESENT OR FUTURE) FROM ANY AND ALL CLAIMS EXISTING
AS OF THE DATE HEREOF (OR THE DATE OF ACTUAL EXECUTION HEREOF BY BORROWER, IF
LATER). AS USED HEREIN, THE TERM "CLAIM" SHALL MEAN ANY AND ALL LIABILITIES,
CLAIMS, DEFENSES, DEMANDS, ACTIONS, CAUSES OF ACTION, JUDGMENTS, DEFICIENCIES,
INTEREST, LIENS, COSTS OR EXPENSES (INCLUDING COURT COSTS, PENALTIES, ATTORNEYS'
FEES AND DISBURSEMENTS, AND AMOUNTS PAID IN SETTLEMENT) OF ANY KIND AND
CHARACTER WHATSOEVER, INCLUDING CLAIMS FOR USURY, BREACH OF CONTRACT, BREACH OF
COMMITMENT, NEGLIGENT MISREPRESENTATION OR FAILURE TO ACT IN GOOD FAITH, IN EACH
CASE WHETHER NOW KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, ASSERTED OR
UNASSERTED OR PRIMARY OR CONTINGENT, AND WHETHER ARISING OUT OF WRITTEN
DOCUMENTS, UNWRITTEN UNDERTAKINGS, COURSE OF CONDUCT, TORT, VIOLATIONS OF LAWS
OR REGULATIONS OR OTHERWISE.
24. ENTIRE AGREEMENT. This Agreement, the Note and the other Credit
Documents together embody the entire agreement and understanding between
Borrower and Lender with respect to the subject matter hereof and supersede all
prior conflicting or inconsistent agreements, consents and understandings
relating to such subject matter. Borrower acknowledges and agrees that
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there is no oral agreement between Borrower and Lender which has not been
incorporated in this Agreement, the Note and the other Credit Documents.
25. COUNTERPARTS. This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
26. SALE AND ASSIGNMENT. Lender reserves the right, in its sole
discretion, without notice to Borrower or any other Person, to sell
participations or assign its interest, or both, in all or any part of this
Agreement, the Note, any of the other Credit Documents or any Loan. Without
limiting the foregoing, and notwithstanding anything contained in any Credit
Document to the contrary, Lender may at any time assign all or any portion of
its rights under this Agreement, the Note and the other Credit Documents as
collateral to a Federal Reserve Bank.
27. ENVIRONMENTAL MATTERS.
(a) Notwithstanding the definitions set forth in PARAGRAPH 1 hereof, if
any Environmental Law is amended so as to broaden the meaning of any term
defined in it, such broader meaning shall apply subsequent to the effective date
of such amendment. Where a defined term used in this PARAGRAPH 26 derives its
meaning from a statutory reference, for the purposes of this PARAGRAPH 26 any
regulatory definition promulgated pursuant to the applicable statute shall be
deemed to be applicable to the extent its definition is broader than the
statutory reference and any reference or citation to a statute or regulation
shall be deemed to include any amendments to that statute or regulation and
judicial and administrative interpretations of it. Any specific references to a
law shall include any amendments to it promulgated from time to time.
(b) Borrower agrees as follows:
(i) Within 20 days after discovery by any Obligor of any Release of
any Hazardous Substance at any portion of any Property owned by such
Obligor which must be reported to any Governmental Authority and which
could reasonably be expected to have a Material Adverse Effect, Borrower
shall (or shall cause such Obligor to) give Lender a notice substantially
in the form of EXHIBIT D and a copy of the report and any additional
documents sent to such Governmental Authority.
(ii) If any Release of Hazardous Substances should exist or occur at
any portion of any Property owned by any Obligor (other than a Release of
ACM in connection with the repair or replacement of motor vehicle parts
used in the ordinary course of such Obligor's business, but only if such
Release does not violate any Requirement of Environmental Law) or if any
Governmental Authority or any other Person should order or direct Borrower
to undertake Remediation of any Hazardous Substances at any portion of any
Property owned by any Obligor or take any other action to satisfy
Requirements of Environmental Law with respect to any Property owned by
any Obligor or the operations thereon, Borrower, at no cost to Lender
35
<PAGE>
Indemnitees, shall (or shall cause the applicable Obligor to) comply with
all such Environmental Law, conduct and complete all required actions and
undertake such Remediation promptly upon discovery or notice thereof and
thereafter diligently pursue such Remediation, completing each part of it
within each applicable period established by the relevant Governmental
Authority (or if no such period or schedule is established, in accordance
with a reasonable schedule consistent with prudent business practice
taking into account potentially adverse effects to the environment and
individuals' health and safety), but in any case before any Lien is
created on any portion of the applicable Property. If any Obligor
undertakes any Remediation with respect to any Property owned by such
Obligor, or causes it to be undertaken, such Remediation shall be
conducted and completed in accordance with (1) Requirements of
Environmental Law; (2) the directives and orders of all appropriate
Governmental Authorities, and (3) sound business practices taking into
account potentially adverse effects to the environment and individuals'
health and safety.
(iii) Borrower will (and will cause each Obligor to) obtain, comply
with and properly maintain all Environmental Permits and evidence of
financial responsibility required by Environmental Laws, for any portion
of any Property owned by any Obligor and for any operations conducted
thereon.
(iv) Upon Lender's request, Borrower will (and will cause each
Obligor to) provide, at no cost or expense to Lender Indemnitees, a
Supplemental Environmental Assessment of each site comprising part of the
Mortgaged Property; however, unless required by any Governmental Authority
or during the continuation of an Event of Default, Lender may not request
more than one Supplemental Environmental Assessment in any 24 calendar
month period. If Borrower (or the applicable Obligor) fails to provide a
Supple mental Environmental Assessment within 120 days after Lender's
request therefor, Lender may order one, and Borrower and each Obligor
grants to Lender and its agents, employees, contractors and consultants
access to the Mortgaged Property and a license to perform such inspections
and tests as are reasonable under the circumstances. The cost of such
inspections and tests actually incurred by Lender shall become part of the
Facility Debt. Borrower or the applicable Obligor shall be named as the
generator of any wastes generated in connection with investigations,
analyses or sampling performed in relation to a Supplemental Environmental
Assessment, EXCEPT to the extent that such waste was generated as a result
of a contractor's or consultant's gross negligence or willful misconduct.
(v) Each Obligor shall (1) become a party to and enroll and register
with all Storage Tank Funds (whether now existing or hereafter created)
available to cover any of Borrower's Storage Tanks located on any portion
of any Property owned by such Obligor and (2) make all reports and
payments to all such Storage Tank Funds on a timely basis, all to the end
that such Obligor shall have the maximum rights available to such Obligor
under such Storage Tank Funds to directly or indirectly receive monies
from such Storage Tank Funds and to have such Storage Tank Funds make
payments with respect to any portion of the applicable Property. Borrower
shall (or shall cause the applicable Obligor to) provide evidence to
Lender of compliance with this provision promptly upon Lender's request
therefor.
36
<PAGE>
(c) The following provisions shall apply with respect to indemnification
under this PARAGRAPH 26:
(i) Borrower hereby agrees, unconditionally, absolutely and
irrevocably, to indemnify, defend and hold harmless each Lender Indemnitee
from and against any Costs which at any time or from time to time may be
claimed, suffered or incurred by such Lender Indemnitee in connection with
any Environmental Claim, the violation of any requirements of
Environmental Law, the breach of any representation, warranty, covenant or
agreement of any Obligor relating to Environmental Laws or Hazardous
Substances or the failure of any Obligor to perform any obligation
relating to Environmental Laws or Hazardous Substances required to be
performed by it, except to the extent limited by the provisions of
PARAGRAPH 26(C)(VI) below.
(ii) Borrower's liability under the indemnification provisions
contained in this PARAGRAPH 26 shall accrue upon the earlier of an
Environmental Claim being asserted against any Lender Indemnitee or upon a
Lender Indemnitee's receipt of notice or acquiring knowledge of any of the
events specified in PARAGRAPH 26(C)(I). In no event shall any Lender
Indemnitee be required to make any expenditure or bring any cause of
action to enforce Borrower's obligations and liability under and pursuant
to the indemnifications set forth in this PARAGRAPH 26. In addition,
actual or threatened action by Governmental Authority is not a condition
or prerequisite to Borrower's obligations under this PARAGRAPH 26. Within
15 days after notification from Lender supported by reasonable
documentation setting forth the nature of the Environmental Claim,
Borrower, at no cost or expense to any Lender Indemnitee, shall diligently
commence resolution of the Environmental Claim in a manner reasonably
acceptable to Lender and shall diligently and timely prosecute such
resolution to completion. PROVIDED that with respect to those claims which
may be satisfied by payment of a liquidated sum of money, Borrower shall
promptly pay the amount so claimed (to the extent supported by reasonable
documentation). If Remediation is required, the provisions of PARAGRAPH
26(B)(II) shall control and if litigation or any administrative proceeding
is commenced the provisions of PARAGRAPH 26(C)(IV) shall control.
(iii) If at any time any Lender Indemnitee employs counsel for
advice or other representation (1) with respect to this PARAGRAPH 26; (2)
to represent such Lender Indem nitee in any litigation, contest, dispute,
suit or proceeding (whether instituted by a Lender Indemnitee, Borrower or
any other Person) in any way or respect relating to this PARAGRAPH 26; (3)
to evaluate the existence of an Environmental Claim hereunder; (4) to
defend an Environmental Claim, or (5) to enforce Borrower's obligations
under this PARAGRAPH 26, then and in any of such events, all of such
Lender Indemnitee's reasonable attorneys' fees and expenses arising from
such services and all expenses, costs and charges in any way or respect
arising in connection therewith or relating thereto shall be paid by
Borrower to Lender, for the account of such Lender Indemnitee, on demand
and shall become part of the Facility Debt.
(iv) If any Environmental Claim shall be brought against any Lender
Indemnitee, then after notification to Borrower thereof as provided in
PARAGRAPH 26(C)(II), Borrower shall be entitled to participate in all
related proceedings and negotiations and to assume the defense thereof at
the expense of Borrower with counsel reasonably acceptable to such Lender
37
<PAGE>
Indemnitee and to settle and compromise any such claim or action; PROVIDED
that such Lender Indemnitee may, if there is a reasonable likelihood of a
conflict between the interests of Borrower and the interests of such
Lender Indemnitee, elect to be represented by separate counsel, at
Borrower's expense, and if such Lender Indemnitee so elects, any
settlement or compromise shall be effected only with the consent of such
Lender Indemnitee, which consent shall not be unreasonably withheld.
Borrower's right to participate in the defense or response to any
Environmental Claim should not be deemed to limit or otherwise modify its
obligations under this PARAGRAPH 26.
(v) Lender shall be subrogated to any rights any Obligor may have
under any indemnifications from any present, future or former owners,
tenants or other occupants or users of any portion of any Property owned
by any Obligor or any other Person relating to the matters covered by this
PARAGRAPH 26.
(vi) BORROWER SHALL INDEMNIFY LENDER INDEMNITEES REGARDLESS OF
WHETHER THE ACT, OMISSION, FACTS, CIRCUMSTANCES OR CONDITIONS GIVING RISE
TO SUCH INDEMNIFICATION WERE CAUSED IN WHOLE OR IN PART BY ANY LENDER
INDEMNITEE'S NEGLIGENCE; PROVIDED, HOWEVER, ANY SUCH INDEMNIFICATION,
DEFENSE AND HOLD HARMLESS OBLIGATION SHALL NOT COVER ANY LENDER INDEMNITEE
TO THE EXTENT THAT SUCH LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY,
JUDGMENT, CLAIM, DEFICIENCY AND EXPENSE (INCLUDING INTEREST, PENALTIES,
ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT) DIRECTLY RESULTS FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT LENDER INDEMNITEE.
(e) The representations, warranties, covenants, agreements and indemnities
of Borrower set forth in this PARAGRAPH 26 shall continue in effect and, to the
extent not prohibited by applicable Legal Requirements, shall survive the
repayment of the Facility Debt or the transfer of all or any portion of any
Property owned by any Obligor pursuant to foreclosure proceedings (whether
judicial or nonjudicial), by transfer in lieu of foreclosure or otherwise.
Borrower acknowledges and agrees that its covenants and obligations hereunder
are separate and distinct from its obligations under the other provisions of
this Agreement and its obligations (and the obligations of other applicable
parties) under the other Credit Documents.
28. REFINANCING OTHER DEBT. Lender will have a right of first refusal to
refinance existing Borrowed Money Indebtedness of Borrower and its Subsidiaries
not refinanced from Loan proceeds, subject to terms and conditions satisfactory
to both Lender and Borrower.
38
<PAGE>
EXECUTED as of the date first set forth above.
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ MARK S. MCCULLOUGH
Mark S. McCullough, Vice President
Lender's Address:
712 Main Street
Houston, Texas 77002
Attention: Manager, Franchise and Trademark
Finance Division
39
<PAGE>
EVANS SYSTEMS, INC.,
a Texas corporation
By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT
Borrower's Address:
720 Avenue F. North
Bay City, Texas 77414
EXHIBITS:
A - Request for Credit
B - Borrowing Base Certificate
C - Compliance Certificate
D - Current Bay City Real Property
40
<PAGE>
REQUEST FOR CREDIT
______________, 199___
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Franchise and Trademark
Finance Division
Gentlemen:
The undersigned hereby certifies that [HE] [SHE] is the
_________________________________ of EVANS SYSTEMS, INC., a Texas corporation
("BORROWER"), and that as such is authorized to execute this Request for Credit
(the "REQUEST") on behalf of Borrower pursuant to the Loan Agreement (as it may
be amended, supplemented or restated from time to time, the "LOAN AGREEMENT")
dated as of August ____, 1996, by and between Borrower and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION. The (check one) Loan Letter of Credit being requested
hereby is to be in the amount set forth in (b) below and is requested to be made
or issued, as the case may be on __________, 199___, which is a Business Day. On
behalf of Borrower, the undersigned further certifies, represents and warrants
as follows (each capitalized term used herein having the same meaning given to
it in the Loan Agreement unless otherwise specified herein):
a. As of the date hereof:
(1) The current Borrowing Base is: $__________
(2) Aggregate outstanding amount
of Loans is: $__________
(3) Aggregate face amount of all outstanding
Letters of Credit $__________
(4) The available Commitment [the amount by which
the lesser of (x) the amount in (a)(1) above
or (y) $6,700,000 EXCEEDS the sum of the
amounts in (a)(2) and (a)(3) above],
if positive, is: $__________
EXHIBIT A
<PAGE>
b. If and only if the available Commitment is positive, Borrower hereby
requests under this Request a (check one) ____ Loan ____ Letter of
Credit in the amount of $____________ (which is no more than the
available Commitment).
c. The representations and warranties made in each Credit Document are
true and correct in all respects on and as of the time of delivery
hereof, with the same force and effect as if made on and as of the
time of delivery hereof.
d. No Default has occurred and is continuing or will occur as a result
of the requested Loan or Letter of Credit, as the case may be.
e. If a Loan is being requested, it is to be used for the benefit of
(check one) ____ Borrower ____ ChemWay _____ Way Energy. After
giving effect to the requested Loan, (i) the aggregate unpaid
principal amount of all Loans will not exceed $5,200,000, (ii) the
aggregate unpaid principal amount of all Loans used for the benefit
of Borrower will not exceed $2,200,000, (iii) the aggregate unpaid
principal amount of all Loans used for the benefit of ChemWay will
not exceed $2,500,000 and (iv) the aggregate unpaid principal amount
of all Loans used for the benefit of Way Energy will not exceed
$500,000.
f. If a Letter of Credit is being requested, attached hereto is all
pertinent information relating to the issuance of the requested
Letter of Credit, including the name of the beneficiary to be
designated, the proposed expiration date and any special conditions
to drawings to be included in the Letter of Credit. After giving
effect to the requested Letter of Credit, the aggregate undrawn
amount under all Letters of Credit will not exceed $1,500,000.
Thank you for your attention to this matter.
Very truly yours,
[ADD SIGNATURE LINE FOR
INDIVIDUAL EXECUTING REQUEST]
EXHIBIT A
<PAGE>
BORROWING BASE CERTIFICATE
The undersigned hereby certifies that [HE] [SHE] is the
__________________________________ of EVANS SYSTEMS, INC., a Texas corporation
("BORROWER"), and that as such is authorized to execute this Borrowing Base
Certificate on behalf of Borrower pursuant to the Loan Agreement (as it may be
amended, supplemented or restated from time to time, the "LOAN AGREEMENT") dated
August _____, 1996 by and between Borrower and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION. On behalf of Borrower, the undersigned further certifies,
represents and warrants as follows (each capitalized term used herein having the
same meaning given to it in the Loan Agreement unless otherwise specified
herein):
(1) As of ____________, 199___, the components of the Borrowing Base are
as follows:
(a) Eligible Accounts of Borrower: $____________
(b) Eligible Accounts of ChemWay: $____________
(c) Eligible Accounts of Way Energy: $____________
(d) Eligible Inventory of Borrower: $____________
(e) Eligible Inventory of ChemWay: $____________
(f) Eligible Inventory of Way Energy: $____________
(2) The Borrowing Base determined on the basis of the above information is
equal to the sum of 75%% of LINE (A) above plus 75% of LINE (B) above plus
75% of LINE (C) above plus 25% of LINE (D) above plus 50% of LINE (E)
above plus 25% of LINE (F) above; or $_______________.
(3) The Eligible Accounts and the Eligible Inventory of Borrower and
Borrower's Subsidiaries are calculated in accordance with the Loan
Agreement and the schedule(s), if any, attached hereto.
Dated ____________, 199___.
[ADD SIGNATURE LINE FOR
INDIVIDUAL EXECUTING
CERTIFICATE]
EXHIBIT B
<PAGE>
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that [HE] [SHE] is the
______________________________ of EVANS SYSTEMS, INC., a Texas corporation
("BORROWER"), and that as such is authorized to execute this certificate on
behalf of Borrower pursuant to the Loan Agreement (the "LOAN AGREEMENT") dated
as of August ____, 1996 by and between Borrower and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION; and that a review of Borrower and its Subsidiaries has been made
under [his] [her] supervision with a view to determining whether Borrower and
its Subsidiaries have fulfilled all of their respective obligations under the
Loan Agreement and the other Credit Documents; and on behalf of Borrower further
certifies, represents and warrants as follows (each capitalized term used herein
having the same meaning given to it in the Loan Agreement unless otherwise
specified):
(a) Each Obligor has fulfilled its respective obligations under the
Credit Documents.
(b) The representations and warranties made in each Credit Document
are true and correct in all respects on and as of the time of delivery
hereof, with the same force and effect as if made on and as of the time of
delivery hereof.
(c) The financial statements delivered to Lender concurrently with
this Compliance Certificate have been prepared in accordance with GAAP
consistently followed throughout the period indicated and fairly present
the financial condition and results of operations of the applicable
Persons as at the end of, and for, the period indicated.
(d) No Default has occurred and is continuing. In this regard, the
compliance with the provisions of SECTION 6(C) of the Loan Agreement is as
follows:
SECTION 6(C)(1) -- FIXED CHARGE RATIO (applicable only on or after October
1, 1997)
actual Fixed Charge Ratio for Borrower and its Subsidiaries as of
the date hereof:
__.____ : 1.00
required Fixed Charge Ratio for Borrower and its Subsidiaries as of
the date hereof:
1.20 : 1.00
SECTION 6(C)(2) -- TANGIBLE NET WORTH
actual Tangible Net Worth for Borrower and its Subsidiaries as of
the date hereof:
$_________________
required Tangible Net Worth for Borrower and its Subsidiaries as of
the date hereof:
$_________________
EXHIBIT C
<PAGE>
SECTION 6(C)(3) -- INTEREST COVERAGE RATIO
actual Interest Coverage Ratio for Borrower and its Subsidiaries as
of the date hereof:
__.____ : 1.00
required Interest Coverage Ratio for Borrower and its Subsidiaries
as of the date hereof:
2.50 : 1.00
SECTION 6(C)(4) -- DEBT TO EBITDA RATIO
actual Debt to EBITDA Ratio for Borrower and its Subsidiaries as of
the date hereof:
__.____ : 1.00
required Debt to EBITDA Ratio for Borrower and its Subsidiaries as
of the date hereof:
4.00 : 1.00
(e) There has occurred no material adverse change in the assets,
liabilities, financial condition, business or affairs of any Obligor since
the date of the Loan Agreement.
DATED as of ____________, 199____.
[ADD SIGNATURE LINE FOR
INDIVIDUAL EXECUTING
CERTIFICATE]
EXHIBIT C
<PAGE>
[LEGAL DESCRIPTION OF CURRENT BAY CITY REAL PROPERTY]
EXHIBIT C
EXHIBIT 10.2
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT ("AMENDMENT") dated as of August 4,
1997 (the "AMENDMENT EFFECTIVE DATE") is made and entered into by and between
EVANS SYSTEMS, INC., a Texas corporation (the "BORROWER") and TEXAS COMMERCE
BANK NATIONAL ASSOCIATION ("LENDER"), a national banking association.
RECITALS:
WHEREAS, the Borrower and the Lender are parties to a Loan Agreement dated
as of August 30, 1996, as amended by document dated as of November 29, 1996 (the
"LOAN AGREEMENT"); and
WHEREAS, the Borrower and the Lender have agreed, on the terms and
conditions herein set forth, that the Loan Agreement be amended in certain
respects;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, IT IS AGREED:
SECTION 1. DEFINITIONS. Terms used herein which are defined in the Loan
Agreement shall have the same meanings when used herein unless otherwise
provided herein.
SECTION 2. AMENDMENT TO THE LOAN AGREEMENT. On and after the Amendment
Effective Date:
(a) The definition of "GUARANTORS" set forth in PARAGRAPH 1 of the Loan
Agreement is hereby amended to read in its entirety as follows:
GUARANTORS means ChemWay, Way Energy and Diamond.
(b) The definition of "NON-MATERIAL SUBSIDIARIES" set forth in PARAGRAPH 1
of the Loan Agreement is hereby amended to read in its entirety as follows:
NON-MATERIAL SUBSIDIARIES means Evans Oil of Louisiana, a
corporation, In & Out Mini Mart, Inc., a corporation, EDCO Environmental,
Inc., a corporation, and Distributor Informational Systems Corporation, a
corporation.
(c) The definition of "PERMITTED ACCOUNT PAYMENT PERIOD" set forth in
PARAGRAPH 1 of the Loan Agreement is hereby amended to read in its entirety as
follows:
PERMITTED ACCOUNT PAYMENT PERIOD means 60 calendar days after the
due date of the applicable Account.
<PAGE>
(d) The definition of "SUBSIDIARY" set forth in PARAGRAPH 1 of the Loan
Agreement is hereby amended to read in its entirety as follows:
SUBSIDIARY means, as to a particular parent Person, any other Person
of which 50% or more of the indicia of equity rights (whether outstanding
capital stock, partnership interests or otherwise) is at the time directly
or indirectly owned or held by such parent Person, or by one or more of
its Affiliates. As of the date hereof, Borrower's only Subsidiaries are
ChemWay, Way Energy, Diamond and the Non-Material Subsidiaries..
(e) The definition of "MARGIN PERCENTAGE" set forth in PARAGRAPH 1 of the
Loan Agreement is hereby amended to read in its entirety as follows:
MARGIN PERCENTAGE means (i) on any day prior to receipt of June 30,
1997 financial statements, 0.25% and (ii) on and after such receipt, the
applicable per annum percentage set forth at the appropriate intersection
in the table shown below, based on the Debt to EBITDA Ratio as of the last
day of the most recently ended fiscal quarter of Borrower calculated by
Lender as soon as practicable after receipt by Lender of all financial
reports required under this Agreement with respect to such fiscal quarter
(including a Compliance Certificate) (provided, however, that if the
Margin Percentage is increased as a result of the reported Debt to EBITDA
Ratio, such increase shall be retroactive to the date that Borrower was
obligated to deliver such financial reports to Lender pursuant to the
terms of this Agreement and provided further, however, that if the Margin
Percentage is decreased as a result of the reported Debt to EBITDA Ratio,
and such financial reports are delivered to Lender not more than ten (10)
calendar days after the date required to be delivered pursuant to the
terms of this Agreement, such decrease shall be retroactive to the date
that Borrower was obligated to deliver such financial reports to Lender
pursuant to the terms of this Agreement):
2
<PAGE>
DEBT TO
EBITDA RATIO MARGIN PERCENTAGE
-------------- --------------------
Greater than or equal to
4.00 0.50
Greater than or equal to
3.50 but less than 4.00 0.25
Greater than or equal to
2.50 but less than 3.50 0.00
Greater than or equal to
2.00 but less than 2.50 (0.25)
Less than 2.00 (0.50)
(f) A new definition of "DIAMOND" is hereby added to PARAGRAPH 1 of the
Loan Agreement, such new definition to read in its entirety as follows:
DIAMOND means Diamond Mini Mart, Inc., a Texas corporation.
(g) A new definition of "MONTHLY FINANCIAL STATEMENTS" is hereby added to
PARAGRAPH 1 of the Loan Agreement, such new definition to read in its entirety
as follows:
MONTHLY FINANCIAL STATEMENTS means the monthly financial statements
of a Person, including all notes thereto, which statements shall include a
balance sheet as of the end of such calendar month and an income statement
and a statement of cash flows for such calendar month, and for the fiscal
year to date, subject to normal year-end adjustments, all setting forth in
comparative form the corresponding figures for the corresponding calendar
month of the preceding year, prepared in accordance with GAAP and
certified as true and correct by an appropriate officer or other
acceptable party acceptable to Lender on behalf of such Person. The
Monthly Financial Statements for Borrower and its Subsidiaries shall be
prepared on both a consolidated and a consolidating basis (the parties
recognizing that such consolidating statements will be prepared in
accordance with GAAP only to the extent normal and customary).
(h) PARAGRAPH 2(A) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(a) Lender agrees, subject to all of the terms and conditions of
this Agreement (including PARAGRAPH 4 hereof), to make Loans during the
Loan Availability Period under this Paragraph to Borrower in an aggregate
principal amount at any one time outstanding up to but not exceeding
$8,700,000. Without limiting the foregoing, Borrower and Lender agree that
(i)
3
<PAGE>
the aggregate unpaid principal amount of all Loans used for the benefit of
Borrower will not exceed $2,200,000, (ii) the aggregate unpaid principal
amount of all Loans used for the benefit of ChemWay will not exceed
$6,000,000 and (iii) the aggregate unpaid principal amount of all Loans
used for the benefit of Way Energy will not exceed $500,000. Subject to
the conditions in this Agreement, any such Loan repaid during the Loan
Availability Period may be reborrowed during the Loan Availability Period
pursuant to the terms of this Agreement. Borrower and Lender agree that
Chapter 15 of the Texas Credit Code shall not apply to this Agreement, the
Note or any Loan obligation. The Loans shall be evidenced by the Note.
Lender shall in no event be obligated to fund more than one (1) Loan in
any period of 5 days. Each Loan shall be in a principal amount equal to
$100,000 or an integral multiple of $50,000 in excess thereof or the
amount by which the Commitment exceeds the sum of the Letter of Credit
Liabilities plus the unpaid principal balance of the Note, whichever is
less. Loan proceeds shall be made available to Borrower by depositing them
in an account designated by Borrower and maintained with Lender.
(i) PARAGRAPH 6(B) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(b) Borrower shall furnish or cause to be furnished to Lender three
copies of each of the following: (1) as soon as available and in any event
within 90 days after the end of each fiscal year of each Obligor that is
not an individual, Annual Financial Statements of such Obligor; (2) as
soon as available and in any event within 45 days after the end of each
calendar quarter of each fiscal year of each Obligor that is not an
individual, Quarterly Financial Statements of such Obligor; (3) Monthly
Financial Statements of Borrower, ChemWay and Way Energy, to be delivered
as soon as available and in any event within (x) 45 days after the end of
each calendar month as to Borrower and (y) 30 days after the end of each
calendar month as to ChemWay and Way Energy; (4) concurrently with the
financial statements provided for in SUBSECTIONS (1), (2) and (3) of this
PARAGRAPH 6(B), beginning with the Quarterly Financial Statements as of
December 31, 1996, such schedules, computations and other information, in
reasonable detail, as may be required by Lender to demonstrate compliance
with the covenants set forth herein or reflecting any non-compliance
therewith as of the applicable date, all certified and signed by an
appropriate officer or other responsible party acceptable to Lender on
behalf of Borrower and a compliance certificate ("COMPLIANCE CERTIFICATE")
in the form of EXHIBIT C hereto, duly executed by such officer or other
responsible party; (5)(A) on the date hereof and (B) within 5 days after
(i) the fifteenth and the last day of each calendar month or (ii) receipt
of a request therefor (which may be given from time to time) from Lender,
a Borrowing Base Certificate as at the date hereof or the fifteenth or the
last day of such calendar month or the date of such request, as the case
may be, together with such
supporting information as Lender may reasonably request; (6) on or before
15 days after the end of each calendar month, (A) a listing and aging of
the Accounts of each Obligor which has executed a Security Agreement
covering its Accounts as of the end of such calendar month, prepared in
reasonable detail and containing such information as Lender may request
and (B) a summary of the Inventory of each Obligor which has executed a
Security Agreement covering its Inventory as of the end of such calendar
month, prepared in reasonable detail and containing such other information
as Lender may
4
<PAGE>
request; (7) from time to time, at any time upon the request of Lender,
but at the cost of Borrower, a report of an independent collateral field
examiner (which may be, or be affiliated with, Lender) with respect to the
Accounts and Inventory components included in the Borrowing Base
(PROVIDED, HOWEVER, that so long as no Event of Default has occurred and
is continuing, Lender shall not require such a report more than twice per
calendar year); (8) promptly upon their becoming publicly available, one
copy of each financial statement, report, notice or definitive proxy
statement sent by any Obligor to shareholders generally, and of each
regular or periodic report and any registration statement, prospectus or
written communication (other than transmittal letters) in respect thereof
filed by any Obligor with, or received by any Obligor in connection
therewith from, any securities exchange or the Securities and Exchange
Commission or any successor agency; and (9) such other information
relating to the financial condition, operations, prospects or business of
any Obligor as from time to time may be reasonably requested by Lender.
Each delivery of a financial statement pursuant to this Paragraph shall
constitute a republication of the representations and warranties contained
in PARAGRAPH 5.
(j) A new PARAGRAPH 6(L) is hereby added to the Loan Agreement, such new
paragraph to read in its entirety as follows:
(l) Upon request by Lender, Borrower shall promptly establish a
lockbox account with Lender or another financial institution acceptable to
Lender (in its sole discretion), upon terms and conditions acceptable to
Lender (in its sole discretion), and shall thereafter direct all Account
debtors and other obligors of Borrower and its Subsidiaries to make
payments directly to such lockbox account. Disbursements from such lockbox
account shall be made only in accordance with criteria established by
Lender (in its sole discretion).
(k) PARAGRAPH 7(D) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(d) Borrower will not (and will not permit any other Obligor or any
of its Subsidiaries to): (1) redeem, retire or otherwise acquire, directly
or indirectly, any shares of its capital stock; (2) pay any dividend
except stock dividends and dividends paid to Borrower; or (3) make any
other distribution of any Property or cash to stockholders as such.
Notwithstanding the foregoing, Borrower may make contributions of its
capital stock into a 401(k) program for its employees established to
replace its existing ESOP program in order to meet matching requirements
on employee contributions so long the value of the capital stock so
contributed does not exceed $175,000, in the aggregate, and does not
exceed 5% of employee contributions. The terms and conditions of any such
401(k) program shall be subject to the prior written approval of Lender.
(l) EXHIBITS A and B to the Loan Agreement are hereby amended to be
identical to EXHIBITS A and B attached hereto.
5
<PAGE>
SECTION 3. LIMITATIONS. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Loan Agreement or any of
the other Credit Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Lender may now have or may have in the
future under or in connection with the Loan Agreement, the Credit Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Loan Agreement, the Notes, and any other Credit Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this
Amendment and any of the foregoing documents, the terms of this Amendment shall
be controlling. The representations and warranties made in each Credit Document
are true and correct in all material respects on and as of the Amendment
Effective Date.
SECTION 4. PAYMENT OF EXPENSES. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Lender harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in connection with the
preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Lender, and all stamp taxes (including interest and
penalties, if any), recording taxes and fees, filing taxes and fees, and other
charges which may be payable in respect of, or in respect of any modification
of, the Loan Agreement and the other Credit Documents. The provisions of this
Section shall survive the termination of the Loan Agreement and the repayment of
the Loans.
SECTION 5. GOVERNING LAW. This Amendment and the rights and obligations of
the parties hereunder and under the Loan Agreement shall be construed in
accordance with and be governed by the laws of the State of Texas and the United
States of America.
SECTION 6. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the
several Sections of this Amendment are inserted for convenience only and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.
SECTION 7. ENTIRE AGREEMENT. This Amendment and the documents referred to
herein represent the entire understanding of the parties hereto regarding the
subject matter hereof and supersede all prior and contemporaneous oral and
written agreements of the parties hereto with respect to the subject matter
hereof, including, without limitation, any commitment letters regarding the
transactions contemplated by this Amendment.
SECTION 8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts and all of such
counterparts shall together constitute one and the same instrument.
SECTION 9. AMENDED DEFINITIONS. As used in the Loan Agreement (including
all Exhibits thereto) and all other instruments and documents executed in
connection therewith, on and subsequent to the Amendment Effective Date the term
(i) "Agreement" shall mean the Loan Agreement as amended
6
<PAGE>
by this Amendment, and (ii) references to any and all other Credit Documents
shall mean such documents as amended as contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized offices as of
the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SS.26.02
THIS AMENDMENT AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Exhibit A - Request for Credit
Exhibit B - Borrowing Base Certificate
EVANS SYSTEMS, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
7
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking
association
By: _______________________________
Name: _____________________________
Title: ____________________________
8
<PAGE>
The undersigned hereby join in the execution of this Amendment to evidence
their consent hereto and its acknowledgment that the Credit Documents executed
by the undersigned shall continue to apply to the Loan Agreement, as amended
hereby.
CHEM-WAY SYSTEMS, INC.,
a Texas corporation
By: _________________________________
Name: _______________________________
Title: ______________________________
WAY ENERGY SYSTEMS, INC.,
a Delaware corporation
By: _________________________________
Name: _______________________________
Title: ______________________________
9
<PAGE>
REQUEST FOR CREDIT
______________, 199___
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Franchise and Trademark
Finance Division
Gentlemen:
The undersigned hereby certifies that [he] [she] is the
_________________________________ of EVANS SYSTEMS, INC., a Texas corporation
("BORROWER"), and that as such is authorized to execute this Request for Credit
(the "REQUEST") on behalf of Borrower pursuant to the Loan Agreement (as it may
be amended, supplemented or restated from time to time, the "LOAN AGREEMENT")
dated as of August ____, 1996, by and between Borrower and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION. The (check one) Loan Letter of Credit being requested
hereby is to be in the amount set forth in (b) below and is requested to be made
or issued, as the case may be on __________, 199___, which is a Business Day. On
behalf of Borrower, the undersigned further certifies, represents and warrants
as follows (each capitalized term used herein having the same meaning given to
it in the Loan Agreement unless otherwise specified herein):
a. As of the date hereof:
(1) The current Borrowing Base is: $__________
(2) Aggregate outstanding amount
of Loans is: $__________
(3) Aggregate face amount of all outstanding
Letters of Credit $__________
(4) The available Commitment [the amount by which
the lesser of (x) the amount in (a)(1) above
or (y) $10,200,000 EXCEEDS the sum of the
amounts in (a)(2) and (a)(3) above],
if positive, is: $__________
EXHIBIT A
<PAGE>
b. If and only if the available Commitment is positive, Borrower hereby
requests under this Request a (check one) ____ Loan ____ Letter of
Credit in the amount of $____________ (which is no more than the
available Commitment).
c. The representations and warranties made in each Credit Document are
true and correct in all respects on and as of the time of delivery
hereof, with the same force and effect as if made on and as of the
time of delivery hereof.
d. No Default has occurred and is continuing or will occur as a result
of the requested Loan or Letter of Credit, as the case may be.
e. If a Loan is being requested, it is to be used for the benefit of
(check one) ____ Borrower ____ ChemWay _____ Way Energy. After
giving effect to the requested Loan, (i) the aggregate unpaid
principal amount of all Loans will not exceed $8,700,000, (ii) the
aggregate unpaid principal amount of all Loans used for the benefit
of Borrower will not exceed $2,200,000, (iii) the aggregate unpaid
principal amount of all Loans used for the benefit of ChemWay will
not exceed $6,000,000 and (iv) the aggregate unpaid principal amount
of all Loans used for the benefit of Way Energy will not exceed
$500,000.
f. If a Letter of Credit is being requested, attached hereto is all
pertinent information relating to the issuance of the requested
Letter of Credit, including the name of the beneficiary to be
designated, the proposed expiration date and any special conditions
to drawings to be included in the Letter of Credit. After giving
effect to the requested Letter of Credit, the aggregate undrawn
amount under all Letters of Credit will not exceed $1,500,000.
Thank you for your attention to this matter.
Very truly yours,
[ADD SIGNATURE LINE FOR
INDIVIDUAL EXECUTING REQUEST]
EXHIBIT A
<PAGE>
BORROWING BASE CERTIFICATE
The undersigned hereby certifies that [he] [she] is the
__________________________________ of EVANS SYSTEMS, INC., a Texas corporation
("BORROWER"), and that as such is authorized to execute this Borrowing Base
Certificate on behalf of Borrower pursuant to the Loan Agreement (as it may be
amended, supplemented or restated from time to time, the "LOAN AGREEMENT") dated
August _____, 1996 by and between Borrower and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION. On behalf of Borrower, the undersigned further certifies,
represents and warrants as follows (each capitalized term used herein having the
same meaning given to it in the Loan Agreement unless otherwise specified
herein):
(1) As of ____________, 199___, the components of the Borrowing Base are
as follows:
(a) Eligible Accounts of Borrower: $____________
(b) Eligible Accounts of ChemWay: $____________
(c) Eligible Accounts of Way Energy: $____________
(d) Eligible Inventory of Borrower: $____________
(e) Eligible Inventory of ChemWay: $____________
(f) Eligible Inventory of Way Energy: $____________
(2) The Borrowing Base determined on the basis of the above information is
equal to the sum of 75%% of LINE (A) above plus 75% of LINE (B) above plus
75% of LINE (C) above plus 25% of LINE (D) above plus 50% of LINE (E)
above plus 25% of LINE (F) above; or $________________.
(3) The Eligible Accounts and the Eligible Inventory of Borrower and
Borrower's Subsidiaries are calculated in accordance with the Loan
Agreement and the schedule(s), if any, attached hereto.
(4) The current aggregate outstanding amount of Loans is $______________
and the aggregate face amount of all outstanding Letters of Credit is
$_______________ (the sum of the foregoing is $______________). IF THE
AMOUNT BY WHICH THE LESSER OF (X) THE CURRENT BORROWING BASE OR (Y)
$10,200,000 EXCEEDS THE SUM OF THE CURRENT AGGREGATE OUTSTANDING AMOUNT OF
LOANS AND THE AGGREGATE FACE AMOUNT OF ALL OUTSTANDING LETTERS OF CREDIT,
BORROWER MUST MAKE A PREPAYMENT ON THE LOANS (OR PROVIDE COVER FOR LETTER
OF CREDIT LIABILITIES) IN THE AMOUNT OF THE DIFFERENCE.
EXHIBIT B
<PAGE>
Dated ____________, 199___.
[ADD SIGNATURE LINE FOR
INDIVIDUAL EXECUTING
CERTIFICATE]
EXHIBIT B
EXHIBIT 10.3
AMENDMENT TO LOAN AGREEMENT
AND LETTER OF CREDIT AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT AND LETTER OF CREDIT
AGREEMENT ("AMENDMENT") dated on February 10, 1998 effective as of December 24,
1997 (the "AMENDMENT EFFECTIVE DATE") is made and entered into by and between
EVANS SYSTEMS, INC., a Texas corporation (the "BORROWER") and CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION ("LENDER"), a national banking association.
RECITALS:
WHEREAS, the Borrower and the Lender are parties to a Loan Agreement dated
as of August 30, 1996, as amended by documents dated as of November 29, 1996 and
August 4, 1997 (the "LOAN AGREEMENT"); and
WHEREAS, the Borrower and the Lender are parties to a Letter of Credit
Agreement dated as of August 30, 1996 (the "LETTER OF CREDIT AGREEMENT"); and
WHEREAS, the Borrower and the Lender have agreed, on the terms and
conditions herein set forth, that the Loan Agreement and the Letter of Credit
Agreement be amended in certain respects;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, IT IS AGREED:
SECTION 1. DEFINITIONS. Terms used herein which are defined in the Loan
Agreement shall have the same meanings when used herein unless otherwise
provided herein.
SECTION 2. AMENDMENTS TO THE LOAN AGREEMENT. On and after the Amendment
Effective Date:
(a) The definition of "BORROWING BASE" set forth in PARAGRAPH 1 of the
Loan Agreement is hereby amended to read in its entirety as follows:
BORROWING BASE means, as at any date, the amount of the Borrowing
Base shown on the Borrowing Base Certificate then most recently delivered
pursuant to PARAGRAPH 6(B) hereof, determined by calculating the amount
equal to the amount by which (A) the sum of (i) 80% of the Eligible
Accounts of Borrower and Borrower's Subsidiaries at said date, PLUS (ii)
the sum of 50% of the Eligible Inventory (exclusive of fuel) of Borrower
and Borrower's Subsidiaries at said date (determined at the lower of cost
or market on a consistent basis), PLUS (iii) 25% of the Inventory of
Borrower and Borrower's Subsidiaries consisting of fuel at said date
(determined at the lower of cost or market on a consistent basis) EXCEEDS
(B) the aggregate outstanding face amount of all Letters of Credit. In the
absence of a current Borrowing Base
<PAGE>
Certificate, Lender shall determine the Borrowing Base from time to time
in its reasonable discretion, taking into account all information
reasonably available to it, and the Borrowing Base from time to time so
determined shall be the Borrowing Base for all purposes of this Agreement
until a current Borrowing Base Certificate, in Proper Form, is furnished
to and accepted by Lender.
(b) The definition of "COMMITMENT" set forth in PARAGRAPH 1 of the Loan
Agreement is hereby amended to read in its entirety as follows:
COMMITMENT means the obligation, if any, of Lender to make Loans and
incur Letter of Credit Liabilities in an aggregate principal amount at any
one time outstanding up to (but not exceeding) $8,700,000.
(c) The definition of "GUARANTORS" set forth in PARAGRAPH 1 of the Loan
Agreement is hereby amended to read in its entirety as follows:
GUARANTORS means ChemWay, Way Energy, Diamond and Edco.
(d) The definition of "NON-MATERIAL SUBSIDIARIES" set forth in PARAGRAPH 1
of the Loan Agreement is hereby amended to read in its entirety as follows:
NON-MATERIAL SUBSIDIARIES means Evans Oil of Louisiana, a
corporation and Distributor Informational Systems Corporation, a
corporation.
(e) The definition of "MARGIN PERCENTAGE" set forth in PARAGRAPH 1 of the
Loan Agreement is hereby amended to read in its entirety as follows:
MARGIN PERCENTAGE means (i) on any day prior to January 1, 1998,
1.00% and (ii) on and after January 1, 1998, 2.00%.
(f) A new definition of "BORROWING BASE DEFICIENCY" is hereby added to
PARAGRAPH 1 of the Loan Agreement, such new definition to read in its entirety
as follows:
BORROWING BASE DEFICIENCY means the amount, if any, by which (x) the
sum of the aggregate principal amount of all Loans outstanding plus the
aggregate amount of the Letter of Credit Liabilities exceeds (y) the
Maximum Credit Available Amount
(g) A new definition of "EDCO" is hereby added to PARAGRAPH 1 of the Loan
Agreement, such new definition to read in its entirety as follows:
EDCO means EDCO Environmental, Inc., a Texas corporation.
(h) A new definition of "NON-PRODUCING ASSETS" is hereby added to
PARAGRAPH 1 of the Loan Agreement, such new definition to read in its entirety
as follows:
2
<PAGE>
NON-PRODUCING ASSETS means the Property described and referred to on
EXHIBIT E hereto.
(i) A new PARAGRAPH 2(C) is hereby added to the Loan Agreement, such new
paragraph to read in its entirety as follows:
(c) On the earlier of April 30, 1998 or the payment in full of the
Facility Debt, Borrower shall pay to Lender, in consideration of the
execution by Lender of that certain Amendment to Loan Agreement and Letter
of Credit Agreement dated as of December 24, 1997, a fee in the amount of
$75,000.00.
(j) PARAGRAPH 3 of the Loan Agreement is hereby amended to read in its
entirety as follows:
3. MANDATORY PREPAYMENTS; PROCEEDS REALIZED FROM NON-PRODUCING
ASSETS.
(a) Borrower shall from time to time on demand by Lender prepay the
Loans (or provide Cover for Letter of Credit Liabilities) in such amounts
as shall be necessary so that at all times the aggregate outstanding
amount of (x) the sum of the aggregate principal amount of all Loans
outstanding plus the aggregate amount of the Letter of Credit Liabilities
shall be less than or equal to (y) the Maximum Credit Available Amount;
PROVIDED, HOWEVER, that so long as no Event of Default has occurred which
is continuing, the payments required under this PARAGRAPH 3(A) shall be
limited to (i) $50,000 on January 31, 1998 and on February 28, 1998 and
(ii) $100,000 on March 31, 1998.
(b) Promptly upon receipt thereof, Borrower will apply (or cause its
applicable Subsidiary to apply) to the Facility Debt a portion of the
proceeds realized from the sale, transfer or other disposition of any of
the Non-Producing Assets (net of the reasonable costs and expenses payable
to unaffiliated third parties in connection with the applicable sale,
transfer or other disposition) in an amount equal to the lesser of (i) the
Borrowing Base Deficiency or (ii) the sum of two (2) times the next
scheduled payment required under PARAGRAPH 3(A) hereof PLUS fifty percent
(50%) of the balance of such proceeds. Payments under this PARAGRAPH 3(B)
shall be applied to the installments due under PARAGRAPH 3(A) hereof in
their order of maturity.
(k) PARAGRAPH 6(B) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(b) Borrower shall furnish or cause to be furnished to Lender three
copies of each of the following: (1) as soon as available and in any event
within 90 days after the end of each fiscal year of each Obligor that is
not an individual, Annual Financial Statements of such Obligor; (2) as
soon as available and in any event within 45 days after the end of each
calendar quarter of each fiscal year of each Obligor that is not an
individual, Quarterly Financial Statements of such Obligor; (3) Monthly
Financial Statements of Borrower, ChemWay, Way Energy, Diamond and Edco,
to be delivered as soon as available and in any event within (x) 45 days
after the end of each calendar month as to Borrower and (y) 30 days after
the end of each
3
<PAGE>
calendar month as to ChemWay, Way Energy, Diamond and Edco; (4)
concurrently with the financial statements provided for in SUBSECTIONS
(1), (2) and (3) of this PARAGRAPH 6(B), beginning with the Quarterly
Financial Statements as of December 31, 1996, such schedules, computations
and other information, in reasonable detail, as may be required by Lender
to demonstrate compliance with the covenants set forth herein or
reflecting any non-compliance therewith as of the applicable date, all
certified and signed by an appropriate officer or other responsible party
acceptable to Lender on behalf of Borrower and a compliance certificate
("COMPLIANCE CERTIFICATE") in the form of EXHIBIT C hereto, duly executed
by such officer or other responsible party; (5) on or before Tuesday of
each calendar week, a Borrowing Base Certificate as at the last day of the
preceding calendar week, together with such supporting information as
Lender may reasonably request; (6)on or before Tuesday of each calendar
week, (A) a listing and aging of the Accounts of each Obligor which has
executed a Security Agreement covering its Accounts as of the end of the
preceding calendar week, prepared in reasonable detail and containing such
information as Lender may request and (B) a summary of the Inventory of
each Obligor which has executed a Security Agreement covering its
Inventory as of the end of the preceding calendar week, prepared in
reasonable detail and containing such other information as Lender may
request; (7) from time to time, at any time upon the request of Lender,
but at the cost of Borrower, a report of an independent collateral field
examiner (which may be, or be affiliated with, Lender) with respect to the
Accounts and Inventory components included in the Borrowing Base
(PROVIDED, HOWEVER, that so long as no Event of Default has occurred and
is continuing, Lender shall not require such a report more than twice per
calendar year); (8) promptly upon their becoming publicly available, one
copy of each financial statement, report, notice or definitive proxy
statement sent by any Obligor to shareholders generally, and of each
regular or periodic report and any registration statement, prospectus or
written communication (other than transmittal letters) in respect thereof
filed by any Obligor with, or received by any Obligor in connection
therewith from, any securities exchange or the Securities and Exchange
Commission or any successor agency; and (9) such other information
relating to the financial condition, operations, prospects or business of
any Obligor as from time to time may be reasonably requested by Lender.
Each delivery of a financial statement pursuant to this Paragraph shall
constitute a republication of the representations and warranties contained
in PARAGRAPH 5.
(l) PARAGRAPH 6(C)(2) of the Loan Agreement is hereby amended to read in
its entirety as follows:
(2) a Tangible Net Worth for Borrower and its Subsidiaries of
not less than $15,000,000 at all times.
(m) EXHIBITS A and B to the Loan Agreement are hereby amended to be
identical to EXHIBITS A and B attached hereto.
(n) A new EXHIBIT E is hereby added to the Loan Agreement, such new
exhibit to be identical to EXHIBIT C attached hereto.
4
<PAGE>
SECTION 3. AMENDMENT TO THE LETTER OF CREDIT AGREEMENT. Borrower hereby
acknowledges and agrees that Lender shall have no further obligation to issue
any additional Letters of Credit under the Letter of Credit Agreement after the
Amendment Effective Date.
SECTION 4. WAIVER OF CERTAIN DEFAULTS. Lender hereby waives the defaults
under SECTION 6(C) of the Loan Agreement existing as of June 30, 1997 and
September 30, 1997. This waiver shall not extend to any other defaults existing
as of June 30, 1997 or as of September 30, 1997 or to any defaults existing
after September 30, 1997.
SECTION 5. LIMITATIONS. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Loan Agreement or any of
the other Credit Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Lender may now have or may have in the
future under or in connection with the Loan Agreement, the Credit Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Loan Agreement, the Notes, and any other Credit Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this
Amendment and any of the foregoing documents, the terms of this Amendment shall
be controlling. The representations and warranties made in each Credit Document
are true and correct in all material respects on and as of the Amendment
Effective Date.
SECTION 6. PAYMENT OF EXPENSES. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Lender harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in connection with the
preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Lender, and all stamp taxes (including interest and
penalties, if any), recording taxes and fees, filing taxes and fees, and other
charges which may be payable in respect of, or in respect of any modification
of, the Loan Agreement and the other Credit Documents. The provisions of this
Section shall survive the termination of the Loan Agreement and the repayment of
the Loans.
SECTION 7. GOVERNING LAW. This Amendment and the rights and obligations of
the parties hereunder and under the Loan Agreement shall be construed in
accordance with and be governed by the laws of the State of Texas and the United
States of America.
SECTION 8. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the
several Sections of this Amendment are inserted for convenience only and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.
SECTION 9. ENTIRE AGREEMENT. This Amendment and the documents referred to
herein represent the entire understanding of the parties hereto regarding the
subject matter hereof and supersede all prior and contemporaneous oral and
written agreements of the parties hereto with respect to the subject matter
5
<PAGE>
hereof, including, without limitation, any commitment letters regarding the
transactions contemplated by this Amendment.
SECTION 10. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts and all of such
counterparts shall together constitute one and the same instrument.
SECTION 11. AMENDED DEFINITIONS. As used in the Loan Agreement (including
all Exhibits thereto) and all other instruments and documents executed in
connection therewith, on and subsequent to the Amendment Effective Date the term
(i) "Agreement" shall mean the Loan Agreement as amended by this Amendment, and
(ii) references to any and all other Credit Documents shall mean such documents
as amended as contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized offices as of
the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SS.26.02
THIS AMENDMENT AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Exhibit A - Request for Credit
Exhibit B - Borrowing Base Certificate
EVANS SYSTEMS, INC.,
a Texas corporation
By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT
6
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking
association
By: /s/ JAMES A. FLYNN
Name: JAMES A. FLYNN
Title: VICE PRESIDENT
7
<PAGE>
The undersigned hereby join in the execution of this Amendment to evidence
their consent hereto and its acknowledgment that the Credit Documents executed
by the undersigned shall continue to apply to the Loan Agreement, as amended
hereby.
CHEM-WAY SYSTEMS, INC.,
a Texas corporation
By: /s/ J. L. EVANS, SR.
Name: J. L. EVANS, SR.
Title: VICE PRESIDENT
WAY ENERGY SYSTEMS, INC.,
a Delaware corporation
By: /s/ J. L. EVANS, SR.
Name: J. L. EVANS, SR.
Title: PRESIDENT
DIAMOND MINI MART, INC.,
a Texas corporation
By: /s/ J. L. EVANS, SR.
Name J. L. EVANS, SR.
Title: PRESIDENT
8
<PAGE>
REQUEST FOR CREDIT
______________, 199___
Chase Bank of Texas, National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Franchise and Trademark
Finance Division
Gentlemen:
The undersigned hereby certifies that [he] [she] is the
_________________________________ of EVANS SYSTEMS, INC., a Texas corporation
("BORROWER"), and that as such is authorized to execute this Request for Credit
(the "REQUEST") on behalf of Borrower pursuant to the Loan Agreement (as it may
be amended, supplemented or restated from time to time, the "LOAN AGREEMENT")
dated as of August 30, 1996, by and between Borrower and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION. The Loan being requested hereby is to be in the amount set
forth in (b) below and is requested to be made or issued, as the case may be on
__________, 199___, which is a Business Day. On behalf of Borrower, the
undersigned further certifies, represents and warrants as follows (each
capitalized term used herein having the same meaning given to it in the Loan
Agreement unless otherwise specified herein):
a. As of the date hereof:
(1) The current Borrowing Base is: $__________
(2) Aggregate outstanding amount
of Loans is: $__________
(3) Aggregate face amount of all outstanding
Letters of Credit $__________
(4) The available Commitment [the amount by which
the lesser of (x) the amount in (a)(1) above
or (y) $8,700,000 EXCEEDS the sum of the
amounts in (a)(2) and (a)(3) above],
if positive, is: $__________
EXHIBIT A
<PAGE>
b. If and only if the available Commitment is positive, Borrower hereby
requests under this Request a Loan in the amount of $____________
(which is no more than the available Commitment).
c. The representations and warranties made in each Credit Document are
true and correct in all respects on and as of the time of delivery
hereof, with the same force and effect as if made on and as of the
time of delivery hereof.
d. No Default has occurred and is continuing or will occur as a result
of the requested Loan or Letter of Credit, as the case may be.
e. The requested Loan is to be used for the benefit of (check one) ____
Borrower ____ ChemWay _____ Way Energy. After giving effect to the
requested Loan, (i) the aggregate unpaid principal amount of all
Loans will not exceed $8,700,000, (ii) the aggregate unpaid
principal amount of all Loans used for the benefit of Borrower will
not exceed $2,200,000, (iii) the aggregate unpaid principal amount
of all Loans used for the benefit of ChemWay will not exceed
$6,000,000 and (iv) the aggregate unpaid principal amount of all
Loans used for the benefit of Way Energy will not exceed $500,000.
Thank you for your attention to this matter.
Very truly yours,
[ADD SIGNATURE LINE FOR
INDIVIDUAL EXECUTING REQUEST]
EXHIBIT A
<PAGE>
BORROWING BASE CERTIFICATE
The undersigned hereby certifies that [he] [she] is the
____________________________ of EVANS SYSTEMS, INC., a Texas corporation
("BORROWER"), and that as such is authorized to execute this Borrowing Base
Certificate on behalf of Borrower pursuant to the Loan Agreement (as it may be
amended, supplemented or restated from time to time, the "LOAN AGREEMENT") dated
August 30, 1996 by and between Borrower and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION. On behalf of Borrower, the undersigned further certifies,
represents and warrants as follows (each capitalized term used herein having the
same meaning given to it in the Loan Agreement unless otherwise specified
herein):
(1) As of ____________, 199___, the components of the Borrowing Base are
as follows:
(a) Eligible Accounts of Borrower: $____________
(b) Eligible Accounts of ChemWay: $____________
(c) Eligible Accounts of Way Energy: $____________
(d) Eligible Accounts of Diamond: $____________
(e) Eligible Accounts of Edco: $____________
(f) Eligible Inventory (other than fuel) of Borrower: $____________
(g) Eligible Inventory (other than fuel) of ChemWay: $____________
(h) Eligible Inventory (other than fuel) of Way Energy: $____________
(i) Eligible Inventory (other than fuel) of Diamond: $____________
(j) Eligible Inventory (other than fuel) of Edco: $____________
(k) Eligible Inventory of Borrower consisting of fuel: $____________
(l) Eligible Inventory of ChemWay consisting of fuel: $____________
(m) Eligible Inventory of Way Energy consisting of fuel: $____________
(n) Eligible Inventory of Diamond consisting of fuel: $____________
(o) Eligible Inventory of Edco consisting of fuel: $____________
EXHIBIT B
<PAGE>
(2) The Borrowing Base determined on the basis of the above information
is equal to the sum of 80% of LINES (A), (B), (C), (D) and (E) above
plus 50% of LINES (F). (G), (H), (I) and (J) above plus 25% of LINES
(K), (L), (M), (N) and (O) above; or $___________.
(3) The Eligible Accounts and the Eligible Inventory of Borrower and
Borrower's Subsidiaries are calculated in accordance with the Loan
Agreement and the schedule(s), if any, attached hereto.
(4) The current aggregate outstanding amount of Loans is $______________
and the aggregate face amount of all outstanding Letters of Credit
is $_______________ (the sum of the foregoing is $______________).
Dated ____________, 199___.
[ADD SIGNATURE LINE FOR
INDIVIDUAL EXECUTING
CERTIFICATE]
EXHIBIT B
<PAGE>
LISTING OF NON-PRODUCING ASSETS SET FORTH
ON THE FOLLOWING PAGES
Kincers #6 Sweeny Texaco
2114 Houston Hwy. 601 Main Street
Victoria, Texas Sweeny, Texas
Bulk Plant Auto Zone
301 East Main 2217 7th St.
Edna, Texas Bay City, Texas
B.P. Approx. 15 acres Magobar Warehouse
Excess Property
Hwy. 59 & 71 Yeamens Property
El Campo, Texas
Matagorda-River Property
Bulk Plant
1705 Matthews Alta Loma Ricks
Bay City, Texas
Station
2815 Avenue F
Bay City, Texas
Closed Station
1508 7th & Ave. E
Bay City, Texas
Vacant Site
1710 SW Moody
Victoria, Texas
Vacant Site
Hwy. 71 North @ Webb
El Campo, Texas
Vacant Site
Hwy. 332 & Loganberry
Lake Jackson, Texas
EXHIBIT C
EXHIBIT 10.4
AMENDMENT TO LOAN AGREEMENT
AND MODIFICATION OF NOTES
THIS AMENDMENT TO LOAN AGREEMENTAND MODIFICATION OF NOTES
("AMENDMENT") dated as of April 23, 1998 (the "AMENDMENT EFFECTIVE DATE") is
made and entered into by and between EVANS SYSTEMS, INC., a Texas corporation
(the "BORROWER") and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("LENDER"), a
national banking association.
RECITALS:
WHEREAS, the Borrower and the Lender are parties to a Loan Agreement dated
as of August 30, 1996, as amended by documents dated as of November 29, 1996,
August 4, 1997 and December 24, 1997 (the "LOAN AGREEMENT"); and
WHEREAS, the Borrower executed and delivered to the Lender (i) the Note
(as defined in the Loan Agreement), (ii) that certain promissory note dated
August 4, 1997 in the original principal amount of $600,000 (the "$600,000
NOTE") and (iii) that certain promissory note dated November 29, 1996 in the
original principal amount of $300,000 (the "$300,000 NOTE"); and
WHEREAS, the Borrower and the Lender have agreed, on the terms and
conditions herein set forth, that the Loan Agreement, the Note, the $600,000
Note and the $300,000 Note be amended in certain respects;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, IT IS AGREED:
SECTION 1. DEFINITIONS. Terms used herein which are defined in the Loan
Agreement shall have the same meanings when used herein unless otherwise
provided herein.
SECTION 2. AMENDMENTS TO THE LOAN AGREEMENT. On and after the Amendment
Effective Date:
(a) PARAGRAPH 2(C) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(c) On the earlier of June 30, 1998 or the payment in full of the
Facility Debt, Borrower shall pay to Lender, in consideration of the
execution by Lender of that certain Amendment to Loan Agreement and Letter
of Credit Agreement dated as of December 24, 1997, a fee in the amount of
$75,000.00.
(b) PARAGRAPH 3 of the Loan Agreement is hereby amended to read in its
entirety as follows:
<PAGE>
3. MANDATORY PREPAYMENTS; PROCEEDS REALIZED FROM NON- PRODUCING
ASSETS.
(a) Borrower shall from time to time on demand by Lender made
at any time on after June 30, 1998 prepay the Loans (or provide
Cover for Letter of Credit Liabilities) in such amounts as shall be
necessary so that at all times the aggregate outstanding amount of
(x) the sum of the aggregate principal amount of all Loans
outstanding plus the aggregate amount of the Letter of Credit
Liabilities shall be less than or equal to (y) the Maximum Credit
Available Amount.
(b) Promptly upon receipt thereof, Borrower will apply (or
cause its applicable Subsidiary to apply) to the Facility Debt a
portion of the proceeds realized from the sale, transfer or other
disposition of any of the Non-Producing Assets (net of the
reasonable costs and expenses payable to unaffiliated third parties
in connection with the applicable sale, transfer or other
disposition) in an amount equal to the lesser of (i) the Borrowing
Base Deficiency or (ii) the sum of two (2) times the next scheduled
payment required under PARAGRAPH 3(A) hereof PLUS fifty percent
(50%) of the balance of such proceeds.
SECTION 3. MODIFICATION OF NOTES.
(a) PARAGRAPH 3(A) of the Note is hereby amended to read in its entirety
as follows:
(a) Accrued and unpaid interest on the unpaid principal balance of
this note shall be due and payable (i) on May 1, 1998 and (ii) on the
first (1st) day of each succeeding calendar month thereafter before the
Maturity Date. In addition, all accrued and unpaid interest on the unpaid
principal balance of this note shall be due and payable at the Maturity
Date.
(a) PARAGRAPH 3(A) of the $600,000 Note is hereby amended to read in its
entirety as follows:
(a) Accrued and unpaid interest on the unpaid principal balance of
this note shall be due and payable (i) on May 1, 1998 and (ii) on the
first (1st) day of each succeeding calendar month thereafter before
December 31, 2004. In addition, all accrued and unpaid interest on the
unpaid principal balance of this note shall be due and payable at December
31, 2004.
(a) PARAGRAPH 3(A) of the $300,000 Note is hereby amended to read in its
entirety as follows:
(a) Accrued and unpaid interest on the unpaid principal balance of
this note shall be due and payable (i) on May 1, 1998 and (ii) on the
first (1st) day of each succeeding calendar month thereafter before
November 30, 2003. In addition, all accrued and unpaid interest on the
unpaid principal balance of this note shall be due and payable at November
30, 2003.
2
<PAGE>
SECTION 4. LIMITATIONS. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Loan Agreement or any of
the other Credit Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Lender may now have or may have in the
future under or in connection with the Loan Agreement, the Credit Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Loan Agreement, the Notes, and any other Credit Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this
Amendment and any of the foregoing documents, the terms of this Amendment shall
be controlling. The representations and warranties made in each Credit Document
are true and correct in all material respects on and as of the Amendment
Effective Date.
SECTION 5. PAYMENT OF EXPENSES. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Lender harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in connection with the
preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Lender, and all stamp taxes (including interest and
penalties, if any), recording taxes and fees, filing taxes and fees, and other
charges which may be payable in respect of, or in respect of any modification
of, the Loan Agreement and the other Credit Documents. The provisions of this
Section shall survive the termination of the Loan Agreement and the repayment of
the Loans.
SECTION 6. GOVERNING LAW. This Amendment and the rights and obligations of
the parties hereunder and under the Loan Agreement shall be construed in
accordance with and be governed by the laws of the State of Texas and the United
States of America.
SECTION 7. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the
several Sections of this Amendment are inserted for convenience only and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.
SECTION 8. ENTIRE AGREEMENT. This Amendment and the documents referred to
herein represent the entire understanding of the parties hereto regarding the
subject matter hereof and supersede all prior and contemporaneous oral and
written agreements of the parties hereto with respect to the subject matter
hereof, including, without limitation, any commitment letters regarding the
transactions contemplated by this Amendment.
SECTION 9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts and all of such
counterparts shall together constitute one and the same instrument.
SECTION 10. AMENDED DEFINITIONS. As used in the Loan Agreement (including
all Exhibits thereto) and all other instruments and documents executed in
connection therewith, on and subsequent to the Amendment Effective Date the term
(i) "Agreement" shall mean the Loan Agreement as amended
3
<PAGE>
by this Amendment, and (ii) references to any and all other Credit Documents
shall mean such documents as amended as contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized offices as of
the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SS.26.02
THIS AMENDMENT AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EVANS SYSTEMS, INC.,
a Texas corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
4
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking
association
By: ______________________________
Name: ____________________________
Title: ___________________________
5
<PAGE>
The undersigned hereby join in the execution of this Amendment to evidence
their consent hereto and its acknowledgment that the Credit Documents executed
by the undersigned shall continue to apply to the Loan Agreement, as amended
hereby.
CHEM-WAY SYSTEMS, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
WAY ENERGY SYSTEMS, INC.,
a Delaware corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
DIAMOND MINI MART, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
EDCO, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
6
<PAGE>
EVANS OIL COMPANY, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
EDCO ENVIRONMENTAL SYSTEMS, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
IN & OUT MINI MART, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
7
EXHIBIT 10.5
AMENDMENT TO LOAN AGREEMENT
AND MODIFICATION OF NOTE
THIS AMENDMENT TO LOAN AGREEMENT ("AMENDMENT") dated as of March 31, 1999
(the "AMENDMENT EFFECTIVE DATE") is made and entered into by and between EVANS
SYSTEMS, INC., a Texas corporation (the "BORROWER") and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION ("LENDER"), a national banking association.
RECITALS:
WHEREAS, the Borrower and the Lender are parties to a Loan Agreement dated
as of August 30, 1996, as heretofore amended (the "LOAN AGREEMENT"); and
WHEREAS, the Borrower executed and delivered to the Lender the Note (as
defined in the Loan Agreement); and
WHEREAS, the Borrower and the Lender have agreed, on the terms and
conditions herein set forth, that the Loan Agreement and the Note be amended in
certain respects;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, IT IS AGREED:
SECTION 1. DEFINITIONS. Terms used herein which are defined in the Loan
Agreement shall have the same meanings when used herein unless otherwise
provided herein.
SECTION 2. AMENDMENTS TO THE LOAN AGREEMENT. From and after the Amendment
Effective Date, the Lender shall have no further obligation to make any advance
under the Loan Agreement or the Note. In addition, on and after the Amendment
Effective Date:
(a) The definition of "EBITDA" set forth in PARAGRAPH 1.1 of the Loan
Agreement is hereby amended to read in its entirety as follows:
EBITDA means, without duplication, for any period, the consolidated
earnings of the Borrower and its Subsidiaries before depreciation,
amortization, other non-cash items, Cash Interest Expense, federal, state
and municipal taxes and extraordinary gains, PLUS proceeds received by
Borrower through additional capital contributions to Borrower.
(b) PARAGRAPH 2(C) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(c) On the earlier of February 15, 1999 or the payment in full of
the Facility Debt, Borrower shall, subject to the provisions of PARAGRAPH
10 hereof, pay to Lender a fee in the amount of $75,000.00.
<PAGE>
(c) PARAGRAPH 2(D) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(d) On each of June 30, 1999, August 31, 1999 and December 31, 1999
(unless the Facility Debt shall have been paid in full on or prior to the
applicable payment date), pay to Lender a fee in the amount of
$250,000.00.
(d) PARAGRAPH 3 of the Loan Agreement is hereby amended to read in its
entirety as follows:
3. PROCEEDS REALIZED FROM SALE OF ASSETS OF EVANS OIL OF LOUISIANA,
INC.. Promptly upon receipt thereof by Borrower or any of its
Subsidiaries, Borrower will apply (or cause to be applied) to the Facility
Debt all of the proceeds realized from the sale, transfer or other
disposition of any of the assets of Evans Oil of Louisiana, Inc. (net of
the reasonable costs and expenses payable to unaffiliated third parties in
connection with the applicable sale, transfer or other disposition).
(e) PARAGRAPH 6(B) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(b) Borrower shall furnish or cause to be furnished to Lender three
copies of each of the following: (1) as soon as available and in any event
within 90 days after the end of each fiscal year of each Obligor that is
not an individual, Annual Financial Statements of such Obligor; (2) as
soon as available and in any event within 45 days after the end of each
calendar quarter of each fiscal year of each Obligor that is not an
individual, Quarterly Financial Statements of such Obligor; (3)
concurrently with the financial statements provided for in SUBSECTIONS (1)
and (2) of this PARAGRAPH 6(B), beginning with the Quarterly Financial
Statements as of March 31, 1999, such schedules, computations and other
information, in reasonable detail, as may be required by Lender to
demonstrate compliance with the covenants set forth herein or reflecting
any non-compliance therewith as of the applicable date, all certified and
signed by an appropriate officer or other responsible party acceptable to
Lender on behalf of Borrower and a compliance certificate ("COMPLIANCE
CERTIFICATE") in the form of EXHIBIT C hereto, duly executed by such
officer or other responsible party; (4) on or before the 20th day of each
calendar month, (A) a listing and aging of the Accounts of each Obligor
which has executed a Security Agreement covering its Accounts as of the
end of the preceding calendar month, prepared in reasonable detail and
containing such information as Lender may request and (B) a summary of the
Inventory of each Obligor which has executed a Security Agreement covering
its Inventory as of the end of the preceding calendar month, prepared in
reasonable detail and containing such other information as Lender may
request; (5) from time to time, at any time upon the request of Lender,
but at the cost of Borrower, a report of an independent collateral field
examiner (which may be, or be affiliated with, Lender) with respect to the
Accounts and Inventory components included in the Borrowing Base
(PROVIDED, HOWEVER, that so long as no Event of Default has occurred and
is continuing, Lender shall not require such a report more than twice per
calendar year); (6) promptly upon their becoming publicly available,
2
<PAGE>
one copy of each financial statement, report, notice or definitive proxy
statement sent by any Obligor to shareholders generally, and of each
regular or periodic report and any registration statement, prospectus or
written communication (other than transmittal letters) in respect thereof
filed by any Obligor with, or received by any Obligor in connection
therewith from, any securities exchange or the Securities and Exchange
Commission or any successor agency; and (7) such other information
relating to the financial condition, operations, prospects or business of
any Obligor as from time to time may be reasonably requested by Lender.
Each delivery of a financial statement pursuant to this Paragraph shall
constitute a republication of the representations and warranties contained
in PARAGRAPH 5.
(f) PARAGRAPH 6(C) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(c) Borrower shall have and maintain:
(1) a Fixed Charge Coverage Ratio for Borrower and its
Subsidiaries of not less than 1.10 to 1.00 at all times.
(2) a Tangible Net Worth for Borrower and its Subsidiaries of
not less than $11,500,000 at all times.
(3) a ratio of current assets to current liabilities for
Borrower and its Subsidiaries of not less than 1.25 to 1.00 at all
times.
(4) EBITDA for Borrower and its Subsidiaries (i) for the six
(6) calendar month period ending on March 31, 1999, of not less than
$250,000, (ii) for the nine (9) calendar month period ending on June
30, 1999, of not less than$550,000, (iii) for the twelve (12)
calendar month period ending on September 30, 1999 and for each
twelve (12) calendar month period ending on any calculation date
thereafter, of not less than $1,000,000.
(g) EXHIBIT C to the Loan Agreement is hereby amended to be identical to
EXHIBIT A attached hereto.
SECTION 3. MODIFICATION OF NOTE. On and after the Amendment Effective
Date:
(a) PARAGRAPH 3(B) of the Note is hereby amended to read in its entirety
as follows:
(b) The principal of this note shall be due and payable (i) in equal
monthly installments, each in the amount of $41,070.00, the first such
installment to be due and payable on March 1, 1999 and a like installment
to be due and payable on the last day of each calendar month thereafter
before January 31, 2001 and (ii) on January 31, 2001, when the entire
unpaid principal balance of this note, together with all accrued and
unpaid interest hereon, shall be finally due and payable.
3
<PAGE>
(b) PARAGRAPH 13 of the Note is hereby deleted in its entirety.
SECTION 4. LIMITATIONS. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Loan Agreement or any of
the other Credit Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Lender may now have or may have in the
future under or in connection with the Loan Agreement, the Credit Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Loan Agreement, the Notes, and any other Credit Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this
Amendment and any of the foregoing documents, the terms of this Amendment shall
be controlling. The representations and warranties made in each Credit Document
are true and correct in all material respects on and as of the Amendment
Effective Date.
SECTION 5. PAYMENT OF EXPENSES. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Lender harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in connection with the
preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Lender, and all stamp taxes (including interest and
penalties, if any), recording taxes and fees, filing taxes and fees, and other
charges which may be payable in respect of, or in respect of any modification
of, the Loan Agreement and the other Credit Documents. The provisions of this
Section shall survive the termination of the Loan Agreement and the repayment of
the Loans.
SECTION 6. GOVERNING LAW. This Amendment and the rights and obligations of
the parties hereunder and under the Loan Agreement shall be construed in
accordance with and be governed by the laws of the State of Texas and the United
States of America.
SECTION 7. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the
several Sections of this Amendment are inserted for convenience only and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.
SECTION 8. ENTIRE AGREEMENT. This Amendment and the documents referred to
herein represent the entire understanding of the parties hereto regarding the
subject matter hereof and supersede all prior and contemporaneous oral and
written agreements of the parties hereto with respect to the subject matter
hereof, including, without limitation, any commitment letters regarding the
transactions contemplated by this Amendment.
4
<PAGE>
SECTION 9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts and all of such
counterparts shall together constitute one and the same instrument.
SECTION 10. AMENDED DEFINITIONS. As used in the Loan Agreement (including
all Exhibits thereto) and all other instruments and documents executed in
connection therewith, on and subsequent to the Amendment Effective Date the term
(i) "Agreement" shall mean the Loan Agreement as amended by this Amendment, and
(ii) references to any and all other Credit Documents shall mean such documents
as amended as contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized offices as of
the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SS.26.02
THIS AMENDMENT AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EVANS SYSTEMS, INC.,
a Texas corporation
By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT
5
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking
association
By: /s/ JAMES A. FLYNN
Name: JAMES A. FLYNN
Title: VICE PRESIDENT
6
<PAGE>
The undersigned hereby join in the execution of this Amendment to evidence
their consent hereto and their acknowledgment that the Credit Documents executed
by the undersigned shall continue to apply to the Loan Agreement, as amended
hereby.
CHEM-WAY SYSTEMS, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
WAY ENERGY SYSTEMS, INC.,
a Delaware corporation
By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT
DIAMOND MINI MART, INC.,
a Texas corporation
By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT
EDCO, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
7
<PAGE>
EVANS OIL COMPANY, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
EDCO ENVIRONMENTAL SYSTEMS, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
IN & OUT MINI MART, INC.,
a Texas corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
8
<PAGE>
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that [he] [she] is the
______________________________ of EVANS SYSTEMS, INC., a Texas corporation
("BORROWER"), and that as such is authorized to execute this certificate on
behalf of Borrower pursuant to the Loan Agreement (the "LOAN AGREEMENT") dated
as of August 30, 1996 by and between Borrower and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION; and that a review of Borrower and its Subsidiaries has been made
under [his] [her] supervision with a view to determining whether Borrower and
its Subsidiaries have fulfilled all of their respective obligations under the
Loan Agreement and the other Credit Documents; and on behalf of Borrower further
certifies, represents and warrants as follows (each capitalized term used herein
having the same meaning given to it in the Loan Agreement unless otherwise
specified):
(a) Each Obligor has fulfilled its respective obligations under the
Credit Documents.
(b) The representations and warranties made in each Credit Document
are true and correct in all respects on and as of the time of delivery
hereof, with the same force and effect as if made on and as of the time of
delivery hereof.
(c) The financial statements delivered to Lender concurrently with
this Compliance Certificate have been prepared in accordance with GAAP
consistently followed throughout the period indicated and fairly present
the financial condition and results of operations of the applicable
Persons as at the end of, and for, the period indicated.
(d) No Default has occurred and is continuing. In this regard, the
compliance with the provisions of SECTION 6(C) of the Loan Agreement is as
follows:
SECTION 6(C)(1) -- FIXED CHARGE RATIO (applicable only on or after October
1, 1997)
actual Fixed Charge Ratio for Borrower and its Subsidiaries as of
the date hereof:
__.____ : 1.00
required Fixed Charge Ratio for Borrower and its Subsidiaries as of
the date hereof:
1.10 : 1.00
SECTION 6(C)(2) -- TANGIBLE NET WORTH
actual Tangible Net Worth for Borrower and its Subsidiaries as of
the date hereof:
$_______________
EXHIBIT A
<PAGE>
required Tangible Net Worth for Borrower and its Subsidiaries as of
the date hereof:
$11,500,000
SECTION 6(C)(3) -- WORKING CAPITAL RATIO
actual ratio of current assets to current liabilities for Borrower
and its Subsidiaries as of the date hereof:
__.____ : 1.00
required ratio of current assets to current liabilities for
Borrower and its Subsidiaries as of the date hereof:
1.25 : 1.00
SECTION 6(C)(4) -- EBITDA
actual EBITDA for Borrower and its Subsidiaries for the twelve
calendar month period ending on the date hereof:
$__________________
required EBITDA for Borrower and its Subsidiaries for the twelve
calendar month period ending on the date hereof:
$1,000,000
(e) There has occurred no material adverse change in the assets,
liabilities, financial condition, business or affairs of any Obligor since
the date of the Loan Agreement.
EXHIBIT A
2
<PAGE>
DATED as of ____________, 199____.
[ADD SIGNATURE LINE FOR
INDIVIDUAL EXECUTING
CERTIFICATE]
EXHIBIT A
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,060
<SECURITIES> 0
<RECEIVABLES> 3,239
<ALLOWANCES> 308
<INVENTORY> 3,364
<CURRENT-ASSETS> 8,451
<PP&E> 28,633
<DEPRECIATION> 12,654
<TOTAL-ASSETS> 34,969
<CURRENT-LIABILITIES> 8,366
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 15,831
<TOTAL-LIABILITY-AND-EQUITY> 34,969
<SALES> 40,186
<TOTAL-REVENUES> 40,186
<CGS> 33,907
<TOTAL-COSTS> 8,884
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 762
<INCOME-PRETAX> (3,414)
<INCOME-TAX> (1,169)
<INCOME-CONTINUING> (2,245)
<DISCONTINUED> 915
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,330)
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.62
</TABLE>
