<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<TABLE>
<S> <C>
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
</TABLE>
OR
<TABLE>
<S> <C>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO____
</TABLE>
COMMISSION FILE NUMBER 1-12282
CORRPRO COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
OHIO 34-1422570
------------------------- ---------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1090 ENTERPRISE DRIVE, MEDINA, OHIO 44256
- -------------------------------------- ------------
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 723-5082
SECURITIES REGISTERED PURSUANT SECURITIES REGISTERED
TO SECTION 12(B) OF THE ACT: PURSUANT TO SECTION 12(G)
OF THE ACT:
COMMON SHARES WITHOUT PAR VALUE NONE
- -------------------------------------- -------------
(TITLE OF CLASS) (TITLE OF CLASS)
</TABLE>
NEW YORK STOCK EXCHANGE
------------------------------
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of common Stock held by nonaffiliates of the
Registrant was approximately $55,495,000 at June 10, 1996. (The aggregate market
value has been computed using the closing market price of the stock as reported
by the New York Stock Exchange on June 10, 1996.)
6,565,089
---------------
(Number of shares of common stock outstanding as of June 10, 1996.)
DOCUMENTS INCORPORATED BY REFERENCE
The Company intends to file with the Securities and Exchange Commission a
definitive Proxy Statement pursuant to Regulation 14A of the Securities Exchange
Act of 1934 within 120 days of the close of its fiscal year ended March 31,
1996, portions of which document shall be deemed to be incorporated by reference
in Part I and Part III of this Annual Report on Form 10-K from the date such
document is filed.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Corrpro Companies, Inc. was founded in 1984 and organized under the laws of
the State of Ohio. References herein to "Corrpro" or to the "Company" are to
Corrpro Companies, Inc. and its subsidiaries unless the context indicates
otherwise.
The Company operates in one industry segment which consists of providing
corrosion control engineering and monitoring services, systems and equipment to
the infrastructure, environmental and energy markets. Within the corrosion
control market, Corrpro has a specialty in the design, manufacture and
application of cathodic protection systems. Cathodic protection is an
electrochemical process which prevents corrosion in new structures and mitigates
the corrosion process in existing structures. Structures commonly protected
against corrosion by the cathodic protection process include above and
underground storage tanks, offshore platforms, ships, electric power plants,
bridges, oil and gas pipelines, parking garages, transit systems and water and
waste treatment equipment. Due to its ability to mitigate corrosion, cathodic
protection can provide a cost effective alternative to replacement of corroding
structures.
The Company has expanded its presence in the domestic and international
corrosion control markets through internal growth and the following
acquisitions: Corrosion Engineering and Research Company (CERCO) (fiscal 1987);
PSG Corrosion Engineering, Inc. (PSG) (fiscal 1988); Ocean City Research
Corporation (OCR) (fiscal 1988); Harco Technologies Corporation (Harco) (fiscal
1990); Commonwealth Seager Group (CSG) (fiscal 1994); the assets of Good-All
Electric, Inc. (Good-All) (fiscal 1994); UCC Corporation (UCC) (fiscal 1994);
The Wilson Walton Group Limited (WWGL) (fiscal 1994); Rohrback Cosasco Systems,
Inc. (RCS) (fiscal 1995); certain of the assets of Thermal Reduction Company
(TRC) (fiscal 1995); and the assets of American Corrosion Services, Inc. (ACS)
(fiscal 1995). During fiscal 1995, the operations of TRC and ACS were combined
to form Corrtherm, Inc. (Corrtherm).
The Company's operating units and a description of the products and
services they provide are described below:
Corrpro Services and Products. The Corrpro "core businesses" (which
includes all pre-fiscal 1994 acquisitions) offers services which include
contract research in various areas of corrosion control, cathodic protection
engineering services and general corrosion engineering services associated with
failure analysis, metallurgical problems and material selection. This operating
unit maintains advanced corrosion research and testing laboratories in order to
analyze the scope of a corrosion problem and to recommend appropriate methods of
corrosion control. The engineering services are provided to private sector
customers in the aerospace, defense, marine, chemicals, petroleum and utilities
industries and to governmental entities in connection with water treatment and
delivery systems, marine vessels, transit systems, weapons and infrastructure
assets. Engineering services accounted for approximately 53%, 44% and 51% of
this operating unit's revenues during fiscal 1996, 1995 and 1994, respectively.
This sector also sells material and equipment in conjunction with its services,
and often sells these products to other engineering and construction firms in
connection with corrosion control projects. Products sold include various
cathodic protection anodes, rectifier units and instrumentation, computer
hardware and software for monitoring corrosion, and accessory products. Sales of
material and equipment accounted for approximately 25%, 30% and 27% of this
operating unit's revenues during fiscal 1996, 1995, and 1994, respectively. An
additional service offered includes combining the design, manufacture,
installation and maintenance of cathodic protection systems to customers who
desire a "turnkey" response to their corrosion protection needs. Construction
services accounted for approximately 17%, 21% and 16% of this operating unit's
revenues during fiscal 1996, 1995 and 1994, respectively. This operating unit
also provides services for the prevention of corrosion on the internal surfaces
of water storage tanks and waste water treatment equipment. These services are
provided to municipal, state, and federal government agencies and industrial
customers. Water tank services accounted for approximately 5%, 5% and 6% of this
operating unit's revenues during fiscal 1996, 1995 and 1994, respectively. In
total, Corrpro services
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and products accounted for approximately 42%, 43% and 80% of the Company's
revenues during fiscal 1996, 1995 and 1994, respectively.
Corrpro Canada, Inc. (Corrpro Canada) Services and Products. This
operating unit resulted from the combination of CSG and UCC during fiscal 1995.
Corrpro Canada offers a combination of expertise in engineering, construction
and product supply in cathodic protection. In addition, this operating unit
provides material and equipment to customers in the oil and gas industry with
its primary focus on the needs of pipeline operators. Corrpro Canada also
specializes in pipeline integrity issues, and designs internal inspection
programs that are used to detect corrosion and pipe weld flaws, clean pipelines,
and confirm pipeline orientation. This operating unit accounted for
approximately 14%, 14% and 15% of the Company's revenues during fiscal 1996,
1995 and 1994, respectively.
Good-All Products. This operating unit designs and manufactures power
supplies (rectifiers) and junction, monitoring and control boxes for use in the
impressed current cathodic protection process. In addition, Good-All
manufactures a line of battery chargers for the utility (power,
telecommunication and gas) market. This operating unit accounted for
approximately 2%, 3% and 1% of the Company's revenues during fiscal 1996, 1995
and 1994, respectively.
WWGL Services and Products. This operating unit provides corrosion
engineering services and equipment supply primarily to the marine, offshore and
industrial markets. In the marine market, this operating unit manufactures and
supplies cathodic protection systems for hulls and ballast tanks on new ships
and those which are in need of repair. In the offshore market, it provides
cathodic protection equipment for new and existing subsea pipelines, offshore
drilling rigs and production platforms. Having manufacturing and distribution
centers in Europe, the Middle East and Asia enables it to serve many of the
world's major offshore oil production areas. WWGL offers electrolytic
antifouling systems for use on water inlets, electrolytic descaling systems for
marine vessel ballast tanks and corrosion control monitoring systems. In the
industrial market, it offers corrosion engineering, cathodic protection
equipment and installation services. WWGL is an ISO 9001 certified company. This
operating unit accounted for approximately 23%, 26% and 4% of the Company's
revenues during fiscal 1996, 1995 and 1994, respectively.
RCS Services and Products. This operating unit provides corrosion
engineering services and equipment supply for monitoring internal corrosion on
gas and liquid pipelines, storage vessels, well casings and refining and process
equipment. RCS's CORROSOMETER(R), CORRATER(R), and COSASCO(R) lines of
instruments, probes, fittings and accessories are the industry accepted
standards for internal corrosion monitoring. RCS also offers B-Scan ultrasonic
inspection services, utilizing the patented TMI-150 system, which provides
real-time, hard copy and electronically stored integrity analyses of underground
and aboveground storage tanks, pressure vessels, pulp and paper digesters,
pipelines, boiler tubing and other related assets. RCS is an ISO 9001 certified
company. This operating unit accounted for approximately 9% and 8% of the
Company's revenues in fiscal 1996 and 1995, respectively.
Corrtherm Products. This operating unit is the result of the fiscal 1995
combination of the TRC and ACS acquisitions. Corrtherm manufactures aluminum,
zinc and magnesium cathodic protection anodes for marine, offshore and
underground inland structures. This operating unit accounted for approximately
10% and 6% of the Company's revenues during fiscal 1996 and 1995, respectively.
The Company markets its products and services primarily through its sales
personnel. The technical nature of its products and services requires a highly
trained, professional sales force, and, as a result, many of the sales personnel
have engineering or technical expertise and experience. Because of the problem
solving experience of its engineering staff, advice from the technical personnel
is regularly sought out by potential and existing customers, resulting in
business opportunities on an ongoing basis.
The Company's products and services are marketed in the Middle East, Asia,
Europe and South America by sales personnel operating out of its Saudi Arabia,
Singapore, United Kingdom, Bahrain, UAE, Hong Kong, France, Portugal and two
U.S. offices. In addition, 26 independent, foreign sales representatives are
used to supplement the efforts of its direct sales force and to market its
services in other regions of the world. The
2
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independent sales representatives earn commissions on sales which vary by
product and service type. Certain products (e.g., Good-All rectifiers and RCS
and Corrtherm materials) are marketed through networks of both domestic and
international distributors.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company's Corrtherm and WWGL operations convert raw aluminum, zinc and
magnesium metals to anode castings. Corrtherm has various sources of supply for
its aluminum, zinc and magnesium materials. During the first half of fiscal
1996, there was an unforeseen worldwide shortage of magnesium; however, the
Company is currently able to obtain adequate quantities of this metal.
PATENTS AND LICENSES
The Company owns patents, patent applications and licenses relating to
certain of its products and processes. While the Company's rights under the
patents and licenses are of some importance to its operations, the Company's
businesses are not materially dependent on any one patent or license or on the
patents and licenses as a group.
SEASONAL TRENDS
The Company's business is somewhat seasonal as winter weather can adversely
impact its operations in the northern U.S., Canada and the United Kingdom.
Therefore, the Company's revenues during the fourth quarter of its fiscal year
(i.e. January through March) are typically lower than revenues during each of
the other three quarters.
CUSTOMERS
Sales are made to a broad range of customers. During the fiscal year ended
March 31, 1996 no one customer accounted for more than 10% of the Company's
sales. The Company does not believe that the loss of any one customer would have
a materially adverse effect on its business.
The Company sells products and services to the U.S. government and agencies
and instrumentalities thereof, including the U.S. Navy. Sales to these customers
accounted for approximately 5% of the Company's net sales during both fiscal
1996 and 1995. The Company's contracts with the U.S. government contain standard
provisions permitting the government to terminate such contracts without cause.
In the event of termination, the Company is entitled to receive reimbursement on
the basis of the work completed (cost plus a reasonable profit). These contracts
are also subject to renegotiation of profits. The Company has no knowledge of
any pending or threatened termination of any of its material government
contracts or subcontracts. In addition, government procurement programs are
subject to budget cutbacks and policy changes that could alter the demand for
the Company's products. Accordingly, the Company's future sales to the
government are subject to these budgetary and policy changes.
BACKLOG
The backlog of unshipped orders as of March 31, 1996, 1995 and 1994 was
approximately $85 million, $93 million and $61 million, respectively. Backlog is
generally represented by purchase orders that may be terminated under certain
conditions. The decrease in backlog between 1996 and 1995 is primarily the
result of the Company's focus on improving gross profit margins. The increase in
the backlog from 1994 to 1995 reflects $8 million from the three acquisitions
completed during fiscal 1994. The Company estimates that, based on recent
experience, approximately 70% of its backlog of orders at March 31, 1996 will be
filled during the fiscal year ending March 31, 1997.
COMPETITIVE CONDITIONS
The Company competes principally on the basis of quality, technical
expertise, customer service and product innovation. Because many different types
of businesses use one or more of the methods of corrosion
3
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protection, the corrosion control market includes many companies which could be
considered competitors, even though only a few of these companies offer the
broad range of corrosion control engineering services, systems and products
offered by the Company. Within the cathodic protection market, the Company faces
competition primarily from smaller domestic and international companies. The
Company believes that no other company currently offers the comprehensive
services that it provides, however, competition in all areas of the corrosion
control industry is likely to increase as the demand for corrosion control
products and services grows and more companies enter the market and expand the
range of their services. In that regard, the Company's competitors may in some
cases have substantially greater financial, technical and marketing resources
than those of the Company.
RESEARCH AND DEVELOPMENT
The Company's engineering and product development activities are directed
toward designing new products and services to meet customers' specific
requirements. Product development expenses that were charged to operations
amounted to approximately $718,000, $965,000, and $153,000 during fiscal years
1996, 1995 and 1994, respectively.
GOVERNMENT REGULATIONS
The Company believes that its current operations and its current uses of
property, plant and equipment conform in all material respects to applicable
laws and regulations. The Company has not experienced, nor does it anticipate,
any material claim or material capital expenditure in connection with
environmental laws and other regulations.
EMPLOYEES
As of March 31, 1996 the Company had 849 employees, 244 of whom were
located outside the United States.
FOREIGN OPERATIONS
The Company's foreign subsidiaries generally conduct business in local
currency. In addition, foreign sales activities are subject to other customary
risks of operating in a global environment, such as unstable political
situations, the effect of local laws and taxes, tariff increases and regulations
and requirements for export licenses, the potential imposition of trade or
foreign exchange restrictions and transportation delays.
ITEM 2. PROPERTIES
As of March 31, 1996, nine locations were owned by the Company and
approximately forty locations were leased from unrelated third parties. Certain
property locations may contain multiple operations, such as an office and
warehouse facility.
The real properties owned by the Company are: its corporate headquarters
located in Medina, Ohio (8,000 sq. ft.); an office and manufacturing facility
located in Medina, Ohio (64,000 sq. ft.); an office and warehouse facility
located in Schaumburg, Illinois (10,000 sq. ft.); an office, manufacturing and
warehouse facility located in Fort Collins, Colorado (52,000 sq. ft.); two
office and warehouse facilities located in Edmonton, Alberta (42,000 sq. ft.);
an office and warehouse facility located in Estevan, Saskatchewan (4,000 sq.
ft.); an office, manufacturing and warehouse facility located in
Stockton-on-Tees, UK (34,000 sq. ft.); and an office and assembly facility
located in Lafayette, Louisiana (12,000 sq. ft.). The principal real properties
(over 5,000 sq. ft. of floor space) leased by the Company from unrelated third
parties are: an office and warehouse facility located in Glendale, Arizona; an
office and warehouse facility located in Hayward, California; an office and
warehouse facility located in Decatur, Georgia; an office facility located in
Ocean City, New Jersey; an office and warehouse facility located in West Chester
Pennsylvania; an office and warehouse facility located in Houston, Texas; an
office, manufacturing and warehouse facility located in Santa Fe Springs,
California; an office, manufacturing and warehouse facility located in Belle
Chasse, Louisiana; an
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office and warehouse facility located in Billings, Montana; an office and
manufacturing facility located in Sharjah, UAE; and an office, manufacturing and
warehouse facility located in Singapore.
The Company considers the properties owned or leased by it to be generally
sufficient to meet its requirements for office, manufacturing and warehouse
space. With the exception of its manufacturing facilities in Belle Chasse, Santa
Fe Springs, Stockton-on-Tees and Singapore, the Company does not consider any
one of its properties to be material, since it believes that if it becomes
necessary or desirable to relocate any of its office, manufacturing and
warehouse facilities, other suitable properties could be found.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, in June 1995 the Company announced that its
earnings per share for fiscal 1995 were expected to be substantially below
analysts' expectations, and in August 1995 the Company restated its previously
reported results for the second and third quarters of fiscal 1995. Commencing in
June 1995, six class action lawsuits were filed against the Company and certain
of its current and former directors and officers, and a shareholder derivative
action was commenced naming the Company, its current and former directors and
certain of its current and former officers as defendants.
On September 7, 1995, five of the class actions were consolidated in the
U.S. District Court for the Northern District of Ohio and styled In re Corrpro
Companies, Inc. Securities Litigation. On September 14, 1995, the other class
action was voluntarily dismissed. On or about September 29, 1995, an amended and
consolidated class action complaint was filed in this consolidated proceeding on
behalf of a purported class consisting of investors who purchased the Company's
common shares between June 1, 1994 and June 19, 1995. The Company and Joseph W.
Rog, Robert M. Gossett and Ronald S. Langos, current or former directors and/or
officers of the Company, remain the named defendants. The amended complaint
alleges claims under ss.ss.10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5, and common law fraud and negligent misrepresentation. It
asserts, among other things, that defendants made false and misleading
statements during the class period in the Company's quarterly and annual reports
filed with the Securities and Exchange Commission ("SEC"), press releases and
periodic reports to shareholders which are claimed to have materially overstated
the Company's assets, net income and projected net income. The amended complaint
seeks, on behalf of the purported class, compensatory damages of tens of
millions of dollars based on the number of shares claimed to have been traded
during the class period and the decline in the price of the shares following the
Company's June 1995 announcement, as well as punitive damages, prejudgment
interest and costs.
On November 1, 1995, the Company and all other defendants filed motions to
dismiss the amended and consolidated class action complaint in its entirety, and
these motions are still pending.
In August 1995, the Company was served with a lawsuit captioned Lani
Rothstein, Trustee vs. Robert M. Gossett, Barry W. Schadeck, Joseph C. Overbeck,
Joseph W. Rog, David H. Kroon, C. Richard Lynham, Robert E. Hodge, Robert (sic)
S. Langos, Richard Harr, Does 1-100, and Corrpro Companies, Inc., Medina County
Common Pleas Court, Case No. 95 CIV 0522. This shareholder derivative action was
filed August 2, 1995 and served on or about August 4, 1995. On behalf of the
shareholders of Corrpro Companies, Inc., Plaintiff alleges derivative claims for
intentional breaches of fiduciary duties and aiding and abetting, abuse of
control and aiding and abetting, waste of corporate assets and aiding and
abetting, constructive fraud, and accounting, and disgorgement of insider
trading profits. Plaintiff requests a declaratory judgment, an accounting,
compensatory damages, a court order to implement certain policies, return of
remuneration, exemplary and punitive damages, attorneys' fees, prejudgment and
postjudgment interest, and litigation costs and expenses in unspecified amounts.
The Company's D&O liability insurers have been given notice of the filing of the
lawsuit and assertion of the claims against its directors and officers.
On or about October 16, 1995, the defendants filed a motion to dismiss the
shareholder derivative action referred to above in its entirety. On December 28,
1995, the motion to dismiss the shareholder derivative action was granted
without prejudice. An appeal is pending.
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In addition, the Company is cooperating in an investigation being conducted
by the SEC concerning certain matters, including those described above.
In May 1995, a contingent settlement was reached relating to a lawsuit
filed in July 1992 by the City and County of San Francisco against a
wholly-owned subsidiary of the Company and other co-defendants. The settlement
was contingent upon being awarded "good faith" settlement status by the court.
On December 20, 1995, the settlement was awarded "good faith" settlement status
by the court. The settlement amount of $850,000 has been paid by the Company's
insurers, without contribution by the Company.
The Company is not involved in any other material litigation; however, the
Company is involved in routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of all executive officers of the
Company and certain other information relating to their position held with the
Company and other business experience.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE RECENT BUSINESS EXPERIENCE
- ------------------------ ---- -------------------------------------------------------------
<S> <C> <C>
Joseph W. Rog 56 Chairman of the Board of Directors since June 1993 and Chief
Executive Officer since the Company's formation in 1984.
President of the Company since June 1995 and from January
1984 to June 1993.
Michael K. Baach 41 Executive Vice President since April 1993, Assistant
Secretary since June 1995 and Senior Vice President since
1992. Prior to that, Mr. Baach was Vice President of Sales
and Marketing since the Company's formation in 1984.
George A. Gehring, Jr. 52 Executive Vice President since April 1993 and Senior Vice
President since 1991. Prior to that, Mr. Gehring served as
President of Ocean City Research Corporation.
David H. Kroon 46 Executive Vice President since April 1993 and Senior Vice
President since the Company's formation in 1984.
Barry W. Schadeck 45 Executive Vice President and Assistant Secretary since June
1995 and President of Corrpro Canada, Inc., a wholly-owned
subsidiary of the Company, since its formation in May 1994.
Prior to that, Mr. Schadeck served as President of the
Company's Commonwealth Seager Group subsidiary since April
1993 and Chief Financial Officer since 1979.
David M. Hickey 50 Executive Vice President of Worldwide Manufacturing and
International Operations since June 1995 and President of
Rohrback Cosasco Systems, Inc., a wholly-owned subsidiary of
the Company since its acquisition in August, 1994. Prior to
that, Mr. Hickey was President of Rohrback Cosasco Systems,
Inc., a wholly-owned subsidiary of MascoTech, Inc.
Neal R. Restivo 36 Senior Vice President, Chief Financial Officer, Secretary and
Treasurer since October 1995. From November 1989 to September
1995, Mr. Restivo was with Waxman Industries, Inc., most
recently as Senior Vice President, Finance and Chief
Financial Officer. Prior to that, from August 1982 to
November 1989, Mr. Restivo was employed by Arthur Andersen
LLP, where he was an Audit Manager since 1988.
</TABLE>
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<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE RECENT BUSINESS EXPERIENCE
- ------------------------ ---- -------------------------------------------------------------
<S> <C> <C>
Michael R. Tighe 46 Senior Vice President since January 1994. Prior to that, Mr.
Tighe was President and General Manager of Elgard
Corporation, an anode manufacturer.
</TABLE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
PRICE RANGE OF COMMON SHARES
The Company's Common Shares have been listed on the New York Stock Exchange
("NYSE") since September 30, 1993 under the symbol "CO". The following table
sets forth the high and low closing sale prices for the Common Shares on the
NYSE for the fiscal periods indicated.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
---------------- -----------------
HIGH LOW HIGH LOW
------ ----- ------ ------
<S> <C> <C> <C> <C>
First Quarter.................................. $19.25 $5.63 $20.25 $12.75
Second Quarter................................. 7.38 5.88 16.88 11.63
Third Quarter.................................. 6.50 5.25 16.25 13.13
Fourth Quarter................................. 7.88 5.75 18.25 13.25
</TABLE>
HOLDERS OF RECORD
On June 10, 1996, there were 361 holders of record of the Company's Common
Shares.
DIVIDENDS
In recent years, the Company has not paid any cash dividends on its Common
Shares. The Company currently anticipates that it will retain all future
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future. Provisions within the Company's domestic
bank credit agreement restrict the Company's ability to pay cash dividends.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................ $140,521 $126,009 $ 69,536 $ 50,075 $ 45,998 $ 43,959
Cost of sales........................... 106,636 89,226 45,833 33,054 31,156 29,239
-------- -------- -------- -------- -------- --------
Gross profit............................ 33,885 36,783 23,703 17,021 14,842 14,720
Selling, general and administrative
expenses.............................. 33,905 30,390 16,206 12,493 12,928 14,038
Unusual charges......................... 4,368 -- 1,622 -- -- --
-------- -------- -------- -------- -------- --------
Operating income (loss)................. (4,388) 6,393 5,875 4,528 1,914 682
Interest expense........................ 2,633 1,112 887 1,328 1,847 2,056
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes,
extraordinary charge, and cumulative
effect of change in accounting
principle............................. (7,021) 5,281 4,988 3,200 67 (1,374)
Income tax expense (benefit)............ (1,879) 2,445 2,282 1,200 52 (267)
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
charge and cumulative effect of change
in accounting principle............... (5,142) 2,836 2,706 2,000 15 (1,107)
Extraordinary charge.................... (70) -- (102) -- -- --
Cumulative effect on prior years of
change in accounting principle........ -- -- 136 -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)....................... $ (5,212) $ 2,836 $ 2,740 $ 2,000 $ 15 $ (1,107)
========= ========= ========= ========= ========= =========
EARNINGS PER SHARE:
Income (loss) before the extraordinary
charge and cumulative effect of change
in accounting principle............... $ (.83) $ .43 $ .67 $ .81 $ .01 $ (.47)
Extraordinary charge.................... (.01) -- (.02) -- -- --
Cumulative effect of change in
accounting principle.................. -- -- .03 -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)....................... $ (.84) $ .43 $ .68 $ .81 $ .01 $ (.47)
========= ========= ========= ========= ========= =========
Weighted average number of Common Shares
outstanding........................... 6,212 6,667 4,027 2,468 2,576 2,368
OTHER DATA:
Revenue per employee.................... $ 166 $ 140 $ 164 $ 145 $ 114 $ 93
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 33,790 $ 37,266 $ 20,441 $ 8,526 $ 8,577 $ 8,037
Total assets............................ 108,198 110,322 67,858 21,880 21,418 22,901
Long-term debt, net of current
portion............................... 26,616 25,869 21,492 10,700 13,694 14,300
Minority interest....................... 502 4,067 4,022 -- -- --
Shareholders' equity.................... 54,281 56,060 24,301 2,814 361 346
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
During fiscal 1996, the Company implemented a number of actions designed to
reduce costs and improve profitability, productivity and cash flow. Cost and
pricing actions relating to both service and product sales were taken in order
to improve gross profit margins. Such actions included work force reductions,
consolidation of certain production facilities and pricing disciplines. In
addition, the Company implemented a number of measures to reduce its selling,
general and administrative ("S,G&A") expenses and allow the Company to realize
efficiencies of scale as it continued to integrate its acquired companies. The
Company also implemented measures to improve cash flow from operations and
placed significant emphasis on reducing working capital levels.
The Company began to realize the benefits of these actions during the
second half of fiscal 1996 through improved gross profit margins, reduced S,G&A
and improved cash flow. The Company, however, continues to take cost and pricing
actions to further improve gross margins and is actively pursuing opportunities
to further decrease its operating expenses. In addition, significant emphasis
continues to be placed on improving cash flow.
OPERATING RESULTS OF THE COMPANY
FISCAL 1996 VERSUS FISCAL 1995
REVENUES
Revenues for fiscal 1996 totaled $140.5 million, an increase of $14.5
million or 11.5% over fiscal 1995. Approximately $12.8 million of the increase
is attributable to the inclusion of sales relating to RCS and Corrtherm. The
Company acquired all the shares of RCS and certain assets of ACS and TRC
(collectively Corrtherm) in the second and third quarters of fiscal 1995,
respectively. Excluding the impact of the RCS and Corrtherm acquisitions,
revenues for fiscal 1996 increased approximately 1.4%.
During fiscal 1996, approximately 47% of the Company's revenues related to
services and 53% related to product sales. In fiscal 1995, service and product
sales each represented approximately 50% of the Company's revenues.
Revenues from services, excluding the impact of the RCS acquisition,
increased approximately $2.6 million or 4.2% over fiscal 1995. The increase is
attributable to growth in revenues in the Company's domestic market (historical
core businesses), at its operations in Canada and at Wilson Walton. Fiscal 1996
service revenues were negatively impacted during the fourth quarter by unusually
severe winter weather in parts of the U.S. and Canada, resulting in certain
engineering and construction projects being delayed to future periods.
Product revenues, excluding the impact of the RCS and Corrtherm
acquisitions, were down $.9 million or 1.5%. Product revenues relating to the
domestic operations and Canada actually increased during fiscal 1996; however,
such increases were offset by lower anode sales (primarily in the fourth
quarter) as well as decreased product revenues at the Company's Good-All and
Wilson Walton operations. Product revenues at Good-All were down approximately
$.9 million between years. The Company is currently in the process of
consolidating Good-All's manufacturing operations located in Colorado into an
existing Company manufacturing facility in Ohio. This consolidation is expected
to have a favorable impact on Good-All's operating results; however, such
improvements are not expected to be realized until the second half of fiscal
1997. Wilson Walton's product revenues were down approximately $.3 million
between years. The entire decrease, however, relates to the first half of fiscal
1996. Wilson Walton's product revenues increased by approximately $2.2 million
during the second half of fiscal year 1996 as compared to the prior year second
half results.
9
<PAGE> 11
GROSS PROFIT
The Company's gross profit for fiscal 1996 totaled $33.9 million (or 24.1%
of revenues) compared to $36.8 million (or 29.2% of revenues) for fiscal 1995, a
decrease in gross profit dollars of 7.9%.
Gross profit related to services totaled $17.6 million (or 26.7% of
revenues) for fiscal 1996 compared to $21.9 million (or 35.1% of revenues) for
fiscal 1995, a decrease in gross profit dollars of 19.8%. Gross profit margins
were negatively impacted during the first half of fiscal 1996 by the backlog of
lower margin jobs. During fiscal 1996, the Company completed a number of lower
margin jobs and orders which were in the backlog at the beginning of the fiscal
year. Service gross profit margins were also negatively impacted during the
first half of fiscal 1996 by increased use of third party contractors, as well
as higher labor and overhead costs. Service gross profit margins did, however,
begin to show improvement during the second half of fiscal 1996. Such margins
were 29.7% and 27.4% for the third and fourth quarter, respectively, compared to
24.7% during the first half of fiscal 1996. Fourth quarter service margins were
unfavorably impacted by sever winter weather in Canada which negatively impacted
the profitability of a large project completed during the quarter.
Gross profit related to product sales totaled $16.3 million (or 21.8% of
revenues) for fiscal 1996 compared to $14.9 million (or 23.4% of revenues) for
fiscal 1995, an increase in gross profit dollars of 9.7%. Excluding the impact
of the RCS acquisition, product gross profit dollars decreased 2.5%. The
decrease in product gross margins is the result of lower margins at the
Company's Good-All and Wilson Walton operations partially offset by improved
product margins at the Company's domestic operations. Product gross profit
margins did, however, begin to show improvement during the second half of fiscal
1996. Such margins were 24.3% and 25.8% for the third and fourth quarters,
respectively, compared to 18.9% during the first half of fiscal 1996. Gross
margins on product sales were negatively impacted throughout fiscal 1996 by
extremely low gross margins at the Company's Corrtherm foundry. Corrtherm's
margins were extremely weak as a result of start-up issues which resulted in
productivity problems, excess operating expenses and significant product rework
particularly during the first half of fiscal 1996. Corrtherm's margins did show
improvement during the second half of fiscal 1996, particularly in the fourth
quarter, however, the Company expects that Corrtherm's margins will continue to
be below those of its other operations.
The Company continues to take cost and pricing actions with respect to both
service and product sales in order to improve gross margins further. Such
actions include pricing disciplines, consolidation of certain production
facilities and work force reductions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
S,G&A expense for fiscal 1996 totaled $33.9 million (or 24.1% of revenues)
compared to $30.4 million (or 24.1% of revenues) for fiscal 1995, an increase of
11.6%. Approximately $3.5 million of the increase relates to the inclusion of
S,G&A expenses of RCS and Corrtherm. Excluding the impact of RCS and Corrtherm,
S,G&A expense was flat between years.
The Company has implemented a number of measures to reduce its S,G&A costs
and enable the Company to realize efficiencies of scale as it continues to
integrate its acquired companies. Such measures included work force reductions
and consolidation of facilities. During the second quarter of fiscal 1996, the
Company reduced its work force by approximately 7%, which resulted in annual
savings of approximately $2.0 million. The impact of the work force reduction
was realized beginning in the second half of fiscal 1996 through lower S,G&A
cost levels. The Company continues to review its S,G&A cost structure and pursue
opportunities to decrease these costs further.
UNUSUAL CHARGES
During fiscal 1996, the Company recorded unusual charges totaling
approximately $4.4 million. Such charges consisted primarily of
litigation-related legal expenses as well as costs associated with the
consolidation of facilities. See Liquidity and Capital Resources and Note 11 of
Notes to the Consolidated Financial Statements for further discussion regarding
litigation.
10
<PAGE> 12
OPERATING INCOME (LOSS)
The Company incurred an operating loss of $4.4 million during fiscal 1996
compared to operating income of $6.4 million during fiscal 1995. The decrease is
primarily attributable to lower gross profit and the unusual charges discussed
above.
INTEREST EXPENSE
Interest expense for fiscal 1996 totaled $2.6 million compared to $1.1
million for fiscal 1995. The increase is primarily attributable to the
additional interest cost associated with the RCS and Corrtherm acquisitions as
well as increased borrowings to meet working capital needs.
INCOME TAX PROVISION (BENEFIT)
The Company recorded a benefit for income taxes of $1.9 million for fiscal
1996 compared to a provision of $2.4 million for fiscal 1995. The effective tax
rate for the current year was (26.8)% compared to 46.3% for fiscal 1995. The
(26.8)% rate reflects a benefit derived from losses which will be carried back
to prior year tax returns. The fiscal 1995 effective tax rate was impacted by a
higher proportion of income generated in Canada, which is taxed at a higher
rate, and the impact of permanent tax basis differences in the United States.
See Note 6 to Notes to Consolidated Financial Statements for reconciliations of
the Company's effective tax rates.
NET INCOME (LOSS)
The Company incurred a net loss of $5.2 million for fiscal 1996 compared to
net income of $2.8 million for fiscal 1995. The fiscal 1996 net loss includes a
$.1 million extraordinary charge related to the early retirement of bank debt.
Excluding the impact of the unusual charges, the majority of the current year
loss was incurred during the first half of fiscal 1996. The Company began to
realize the impact of the actions instituted to improve margins and reduce costs
described above during the second half of fiscal 1996.
FISCAL 1995 VERSUS FISCAL 1994
REVENUES
Revenues for fiscal 1995 were $126.0 million, an increase of $56.5 million
or 81.2% over fiscal 1994. This growth is attributable to a full year of
operating results of the Canadian and United Kingdom subsidiaries acquired in
March 1994 as well as the impact of the Company's fiscal 1995 acquisition of RCS
in August 1994 and the domestic foundry acquisitions of ACS and TRC in November
1994. Revenues from services provided by the Company increased $14.2 million or
29.5% from fiscal 1994. Of this growth, approximately $2.7 million represented
growth in the domestic market, other than from acquisitions, with the balance
attributed to growth in Canada and the impact of the acquired companies. Product
sales increased $42.2 million to $63.6 million in fiscal 1995. This growth is
attributed to the impact of acquired businesses, principally the United Kingdom
subsidiary. WWGL reported an approximate $25.0 million increase in revenues as a
full year was reported in fiscal 1995 compared with one month in fiscal 1994.
Product sales account for approximately 50% of total sales in fiscal 1995
compared with only approximately 30% in fiscal 1994. With the expected sales
impact of the Company's newly acquired domestic foundries, the trend toward
lower margin product sales will continue in fiscal 1996. Product sales from the
Company's domestic and Saudi Arabian operations declined approximately $2.3
million during fiscal 1995.
GROSS PROFIT
The Company's gross profit for fiscal 1995 was $36.8 million which
represents an increase of $13.1 million or 55.2% over fiscal 1994. As a
percentage of revenues, gross profit was 29.2% in fiscal 1995 compared with
34.1% in fiscal 1994. Gross profit related to services was $21.9 million for
fiscal 1995 as compared to $18.5 million for fiscal 1994 which represents an
increase of $3.5 million or 18.9%. As a percentage of revenues, gross profit
from services was 35.1% in fiscal 1995 compared with 38.3% for fiscal 1994.
Service margins declined in fiscal 1995 due to an increased use of third party
subcontracting in the Company's
11
<PAGE> 13
domestic engineering business, which resulted in lower profit margins and the
write-off of certain costs due to the failure of one of the Company's
subcontractors to complete a domestic project. This decline is also attributed
in part to the results of the acquired businesses as these operations
collectively generate lower margins in their service business. Gross profit
related to product sales increased $9.6 million to $14.9 million in fiscal 1995.
As a percentage of revenues, gross profit related to product sales was 23.4% in
fiscal 1995 compared with 24.6% in fiscal 1994. This decline is due in part to
reduced volume in the domestic and Saudi Arabian product markets without a
corresponding reduction in fixed labor and overhead costs as well as increases
in raw material costs later in the year which were not fully recovered in
selling prices. Also, the Company's domestic foundry operations generated sales
of approximately $7.0 million with a gross margin of approximately 4.0% in
fiscal 1995 due primarily to start up inefficiencies and the impact of rising
material costs. Offsetting these reductions were improved margins in the
Canadian operations as well as the impact of the RCS acquisition which, due to
the nature of its products, generates a higher gross margin than the Company's
other products.
SELLING, GENERAL & ADMINISTRATIVE EXPENSE
S,G&A expense for fiscal 1995 was $30.4 million, which represents an 87.5%
increase over the $16.2 million for fiscal 1994. This increase is due primarily
to the impact of acquired businesses and approximately $3.0 million additional
S,G&A costs associated with the Company's corporate administration. Included in
the increase in corporate expenses are higher payroll costs, insurance costs,
professional fees, bad debt expense, and other costs associated with the recent
growth in the Company's business. Also, S,G&A includes $.8 million of goodwill
amortization in fiscal 1995 compared with $.2 million in fiscal 1994. As a
percentage of revenues, S,G&A was 24.1% in fiscal 1995 compared with 23.3% in
fiscal 1994.
UNUSUAL CHARGES
The unusual charge for stock appreciation rights in fiscal 1994 was the
result of a nonrecurring charge to earnings of $1.6 million to reflect an
obligation to a former shareholder.
OPERATING INCOME
Operating income was $6.4 million in fiscal 1995 compared with $5.9 million
in fiscal 1994. Operating income in fiscal 1994, excluding the unusual charge,
amounted to $7.5 million. Operating income as a percent of revenues, excluding
the unusual charge in fiscal 1994, amounted to 5.1% in fiscal 1995 compared with
10.8% in fiscal 1994. The decline in fiscal 1995 is primarily attributed to the
factors described above.
INTEREST EXPENSE
During fiscal 1995, interest expense was $1.1 million compared with $.9
million for fiscal 1994, representing an increase of $.2 million or 25.3%. The
increase in interest expense is primarily attributed to the interest cost
associated with the various fiscal 1995 acquisitions as well as the required
financing of working capital needs throughout fiscal 1995. Interest cost in
fiscal 1994 was favorably impacted due to the initial public offering in October
1994 and the resulting debt reduction.
INCOME TAX PROVISION
The provision for income taxes was $2.4 million for fiscal 1995 and $2.3
million for fiscal 1994. The effective tax rate in 1995 was 46.3% compared with
45.8% in 1994. The 1995 effective tax rate was impacted by a higher proportion
of income generated in Canada, which is taxed at a higher rate, and the impact
of permanent tax basis differences in the United States. The 1994 effective tax
rate was impacted by the unusual charge recognized during the period not being
tax deductible.
NET INCOME (LOSS)
The Company recorded net income of $2.8 million for fiscal 1995 compared to
$2.7 million for fiscal 1994. Fiscal 1994 net income included $1.6 million of
unusual charges relating to stock appreciation rights
12
<PAGE> 14
obligation to a former shareholder. Fiscal 1994 net income also included a $.1
million extraordinary charge related to the early retirement of debt and $.1
million of income relating to a cumulative effect of change in accounting
principle.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the Company placed significant emphasis on the
improvement of cash flow primarily through the reduction of working capital
levels. Particular emphasis was placed on the reduction of accounts receivable
levels through enhanced credit and collection efforts. Working capital at March
31, 1996 totaled $33.8 million compared to $37.3 million at March 31, 1995, a
decrease of $3.5 million or 9.3% The favorable impact of the reduction in
accounts receivable on cash flow from operations was $4.2 million. As a result
of the working capital reductions as well as the improved operating results
achieved during the second half of the year, the Company generated cash flow
from operations of $5.3 million during fiscal 1996. Approximately $10.3 million
of this amount was generated during the second half of the year. The Company
will continue to place significant emphasis on the further improvement of cash
flow during fiscal 1997.
Cash used for investing activities totaled $3.4 million during fiscal 1996.
This consisted primarily of $1.9 million of net capital expenditures and $.7
million relating to the purchase of certain technology rights. Cash used for
financing activities totaled $.2 million during fiscal 1996.
On March 29, 1996, the Company entered into a new $37.5 million domestic
bank credit facility which consists of a three-year $32.5 million revolver which
expires on March 31, 1999 and a four-year $5 million term loan which matures on
March 31, 2000. Borrowings under the credit facility are initially limited to
borrowing base amounts as defined in the credit agreement. The credit agreement,
however, provides for the elimination of borrowing base limitations upon the
Company's achievement of certain financial ratios. Initial borrowings under the
credit facility were used to repay all borrowings under the Company's $30
million secured revolving credit facility as well as a bank term note.
In addition to the domestic bank credit facility discussed above, the
Company has various smaller lines of credit with foreign banks which totaled
approximately $3 million. Total availability under the domestic and foreign
credit facilities at March 31, 1996 was approximately $9 million. The Company
was in compliance with all of its debt covenants at March 31, 1996.
The Company believes that cash generated by operations and amounts
available under its domestic bank credit facility and foreign lines of credit
will be sufficient to satisfy the Company's liquidity requirements through at
least fiscal 1997.
As previously reported, in June 1995 the Company announced that earnings
per share for fiscal 1995 were expected to be substantially below analysts'
expectations, and in August the Company restated its previously reported results
for the second and third quarters of fiscal 1995. Class action litigation and
shareholder derivative litigation were commenced seeking substantial damages
from the Company and/or certain of its current and former directors and
officers. Motions to dismiss the consolidated class action lawsuit and the
shareholder derivative action were filed in November 1995 and October 1995,
respectively. On December 28, 1995, the motion to dismiss the shareholder
derivative action was granted without prejudice. An appeal is pending. The
Company intends to continue to defend itself vigorously in the class action
litigation. In addition, the Company is cooperating in an investigation being
conducted by the Securities and Exchange Commission. See Part II, Item 1, Legal
Proceedings. Management is unable to assess at this time the ultimate outcome of
this litigation and investigation. Other than an accrual for the cost of
defense, no provision for liability, if any, that may result has been made in
the Company's financial statements. The Company is a party to indemnification
agreements with the individual defendants in the class action and shareholder
derivative litigation. Also, the Company's directors and officers insurance
carriers have notified the Company that they are reserving their rights
concerning coverage with respect to the class action litigation. If resolved
unfavorably, the litigation and investigation could have a material adverse
effect on the Company's financial condition, results of operations and
liquidity. In addition, the Company has incurred, and will continue to incur,
significant legal fees in connection with these matters.
13
<PAGE> 15
CHANGES IN ACCOUNTING STANDARDS
See Notes 1 and 9 of Notes to Consolidated Financial Statements for a
discussion of the Company's plans for adopting SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
SFAS No. 123, "Accounting for Stock-Based Compensation".
EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSLATION
The Company does not believe that inflation has had a significant effect on
the Company's results of operations for the periods presented.
The Company has not been significantly affected by currency fluctuations or
foreign exchange restrictions. Management believes that these risks resulting
from the Company's increased foreign sales are manageable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Begins on following page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Corrpro Companies, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Corrpro Companies, Inc. and its subsidiaries (the Company) at March 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Cleveland, Ohio
May 28, 1996
15
<PAGE> 17
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 3,256 $ 1,385
Accounts receivable, net.............................................. 30,257 34,930
Inventories........................................................... 17,056 18,304
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................................. 2,145 2,333
Prepaid expenses and other............................................ 7,201 4,562
-------- --------
Total current assets............................................. 59,915 61,514
-------- --------
PROPERTY AND EQUIPMENT:
Land.................................................................. 782 779
Buildings............................................................. 5,886 5,779
Equipment, furniture and fixtures..................................... 19,849 18,784
Leasehold improvements................................................ 529 606
-------- --------
27,046 25,948
Less accumulated depreciation......................................... (6,431) (4,563)
-------- --------
Property and equipment, net........................................... 20,615 21,385
-------- --------
OTHER ASSETS:
Goodwill.............................................................. 24,291 25,166
Patents and other intangibles......................................... 1,865 1,206
Other................................................................. 1,512 1,051
-------- --------
Total other assets............................................... 27,668 27,423
-------- --------
$108,198 $110,322
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
16
<PAGE> 18
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
(In Thousands, Except per Share Data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings................................................. $ 40 $ 273
Current portion of long-term debt..................................... 1,487 2,322
Accounts payable...................................................... 16,836 15,449
Accrued liabilities and other......................................... 7,762 6,204
-------- --------
Total current liabilities........................................ 26,125 24,248
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION.................................. 26,616 25,869
DEFERRED INCOME TAXES................................................... 674 78
COMMITMENTS AND CONTINGENCIES........................................... -- --
MINORITY INTEREST....................................................... 502 4,067
SHAREHOLDERS' EQUITY:
Serial Preferred Shares, voting, no par value; 1,000 shares authorized
and unissued....................................................... -- --
Common Shares, voting, no par value, stated value $0.33 per share;
12,000 shares authorized; 6,584 and 5,966 shares issued in 1996 and
1995; 6,559 and 5,941 shares outstanding in 1996 and 1995.......... 2,196 1,989
Additional paid-in capital............................................ 50,043 46,333
Accumulated earnings.................................................. 1,963 7,175
-------- --------
54,202 55,497
Cumulative translation adjustment 131 615
Common Shares in treasury, at cost.................................... (52) (52)
-------- --------
Total shareholders' equity....................................... 54,281 56,060
-------- --------
$108,198 $110,322
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
17
<PAGE> 19
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In Thousands, Except per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Engineering and construction services..................... $ 65,916 $ 62,395 $ 48,166
Product sales............................................. 74,605 63,614 21,370
-------- -------- --------
140,521 126,009 69,536
-------- -------- --------
Cost of sales:
Engineering and construction services..................... 48,330 40,467 29,715
Product sales............................................. 58,306 48,759 16,118
-------- -------- --------
106,636 89,226 45,833
-------- -------- --------
Gross profit................................................ 33,885 36,783 23,703
Selling, general and administrative expenses................ 33,905 30,390 16,206
Unusual charges............................................. 4,368 -- 1,622
-------- -------- --------
Operating income (loss)..................................... (4,388) 6,393 5,875
Interest expense............................................ (2,633) (1,112) (887)
-------- -------- --------
Income (loss) before income taxes, extraordinary charge and
cumulative effect of change in accounting principle....... (7,021) 5,281 4,988
Provision (benefit) for income taxes........................ (1,879) 2,445 2,282
-------- -------- --------
Income (loss) before extraordinary charge and cumulative
effect of change in accounting principle.................. (5,142) 2,836 2,706
Extraordinary charge........................................ (70) -- (102)
Cumulative effect on prior years of change in accounting
principle................................................. -- -- 136
-------- -------- --------
Net income (loss)........................................... $ (5,212) $ 2,836 $ 2,740
======== ======== ========
Earnings per share:
Income (loss) before extraordinary charge and cumulative
effect of change in accounting principle............... $ (.83) $ 43 .67
Extraordinary charge...................................... (.01) -- (.02)
Cumulative effect of change in accounting principle....... -- -- .03
-------- -------- --------
Net income (loss)......................................... $ (.84) $ .43 $ .68
======== ======== ========
Number of Common and Common Share equivalents............... 6,212 6,667 4,027
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
18
<PAGE> 20
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In Thousands, Except per Share Data)
<TABLE>
<CAPTION>
COMMON COMMON
SERIAL SHARES ADDITIONAL CUMULATIVE SHARES
PREFERRED ($0.33 PAID-IN ACCUMULATED TRANSLATION IN
SHARES STATED VALUE) CAPITAL EARNINGS ADJUSTMENT TREASURY* TOTAL
--------- ------------- ---------- ----------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1993.................. $ -- $ 601 $ 666 $ 1,599 $ -- $ (52) $ 2,814
Net income.................... -- -- -- 2,740 -- -- 2,740
Issuance of 132 Common
Shares..................... -- 44 175 -- -- -- 219
Issuance of 1,862 Common
Shares in Initial Public
Offering................... -- 621 17,529 -- -- -- 18,150
Conversion of 150 CSG
shares..................... -- 50 943 -- -- -- 993
Cumulative translation
adjustment................. -- -- -- -- (615) -- (615)
--------- ------------- ---------- ----------- ---------- --------- -------
March 31, 1994.................. -- 1,316 19,313 4,339 (615) (52) 24,301
Net income.................... -- -- -- 2,836 -- -- 2,836
Issuance of 1,845 Common
Shares in Secondary Public
Offering................... -- 615 26,859 -- -- -- 27,474
Exercise of 30 stock
options.................... -- 10 209 -- -- -- 219
Exercise of 144 warrants...... -- 48 (48) -- -- -- --
Cumulative translation
adjustment................. -- -- -- -- 1,230 -- 1,230
--------- ------------- ---------- ----------- ---------- --------- -------
March 31, 1995.................. -- 1,989 46,333 7,175 615 (52) 56,060
Net income (loss)............. -- -- -- (5,212) -- -- (5,212)
Exercise of 89 stock
options.................... -- 30 391 -- -- -- 421
Conversion of 530 CSG
shares..................... -- 177 3,319 -- -- -- 3,496
Cumulative translation
adjustment................. -- -- -- -- (484) -- (484)
--------- ------------- ---------- ----------- ---------- --------- -------
March 31, 1996.................. $ -- $ 2,196 $ 50,043 $ 1,963 $ 131 $ (52) $54,281
======= ========== ======= ========= ======== ======= =======
<FN>
*Shares held in treasury totaled 25 for all periods presented.
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
19
<PAGE> 21
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (5,212) $ 2,836 $ 2,740
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization............................. 3,790 2,805 1,437
Deferred income taxes..................................... (900) 282 (155)
Cumulative effect of change in accounting principle....... -- -- (136)
Gain on sale of assets.................................... 94 (136) (34)
Minority interest......................................... (54) 181 --
Equity in net income of affiliated companies.............. -- -- (188)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable.................................. 4,163 (7,491) (3,317)
Inventories.......................................... 615 (1,131) (809)
Contracts in progress, net........................... 1,458 (708) (970)
Prepaid expenses and other........................... (363) (2,293) 59
Accounts payable and accrued expenses................ 2,275 (1,204) (533)
Other assets......................................... (557) (170) (82)
-------- -------- --------
Total adjustments................................. 10,521 (9,865) (4,728)
-------- -------- --------
Net cash provided by (used for) operating
activities...................................... 5,309 (7,029) (1,988)
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment................ (2,144) (3,085) (771)
Disposal of property, plant and equipment................. 224 238 117
Acquisitions, net of cash acquired........................ (700) (23,283) (21,651)
Other assets.............................................. (731) (59) 92
-------- -------- --------
Net cash used for investing activities............ (3,351) (26,189) (22,213)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 51,949 39,885 78,467
Repayment of long-term debt............................... (50,439) (34,084) (68,886)
Repayment of short-term debt.............................. (1,750) (766) --
Repayment of shareholder loans............................ (33) (132) (1,912)
Debt issue costs.......................................... (120) (15) (180)
Deferred public offering costs............................ -- 417 (417)
Net proceeds from issuance of Common Shares............... 207 27,693 18,368
-------- -------- --------
Net cash provided by (used for) financing
activities...................................... (186) 32,998 25,440
-------- -------- --------
Effect of changes in foreign currency exchange rates........ 99 (62) (5)
-------- -------- --------
Net increase (decrease) in cash............................. 1,871 (282) 1,234
Cash and cash equivalents at beginning of period............ 1,385 1,667 433
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 3,256 $ 1,385 $ 1,667
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
20
<PAGE> 22
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In Thousands, Except per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Consolidation and basis of presentation
The consolidated financial statements include the accounts of Corrpro
Companies, Inc. and its wholly-owned subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain fiscal 1995 and 1994 amounts have been reclassified to conform with the
fiscal 1996 presentation.
The Company operates in a single industry segment, which consists of
providing corrosion control engineering and monitoring services, systems and
equipment to the infrastructure, environmental and energy markets.
B. Cash and cash equivalents
The Company considers cash and all other highly liquid investments with
original maturities of three months or less to be cash equivalents.
C. Accounts receivable
Accounts receivable are presented net of allowances for doubtful accounts
of $1,198, $1,013, $1,007 and $367 at March 31, 1996, 1995, 1994 and 1993,
respectively. Bad debt expense totaled $654, $587 and $86 in fiscal 1996, 1995
and 1994, respectively. Approximately $620 of the increase in the allowance for
doubtful accounts between March 31, 1994 and 1993 resulted from the inclusion of
amounts related to acquisitions.
The Company performs ongoing credit evaluations of its customers' financial
condition. Corrosion control services are provided to a large number of
customers with no substantial concentration in a particular industry.
D. Inventories
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out method. Inventories are stated net of
reserves for excess, slow moving and potentially obsolete materials. Inventories
consist of the following at March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Component parts and raw materials.............................. $ 9,004 $ 7,281
Work in process................................................ 1,492 944
Finished goods................................................. 7,215 10,783
------- -------
17,711 19,008
Reserve for slow moving and potentially obsolete materials..... (655) (704)
------- -------
$17,056 $18,304
======= =======
</TABLE>
The reserve for slow moving and potentially obsolete materials totaled $555
and $150 at March 31, 1994 and 1993, respectively. Approximately $499 of the
increase between March 31, 1995 and 1994 and $666 of the increase between March
31, 1994 and 1993 resulted from the inclusion of amounts related to
acquisitions. Amounts expensed for slow moving and potentially obsolete
materials were not significant during fiscal years 1996, 1995 and 1994.
21
<PAGE> 23
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
E. Property, plant and equipment
Fixed assets are recorded at cost. Depreciation for the Company's domestic
and European subsidiaries is computed principally on the straight-line method
while depreciation for the Company's Canadian subsidiary is computed on the
declining balance method, all over the estimated useful lives of the assets for
financial reporting purposes, as follows:
<TABLE>
<S> <C>
Buildings................................................. 25 - 40 years
Equipment, furniture and fixtures......................... 4 - 10 years
Leasehold improvements.................................... Term of lease
</TABLE>
Depreciation is computed principally using accelerated methods for income
tax reporting purposes. Maintenance, repairs and minor renewals are charged to
operations as incurred. Major renewals and betterments which substantially
extend the useful life of the property are capitalized. Upon sale or other
disposition of assets, the cost and related accumulated depreciation and
amortization are removed from the accounts and the resulting gain or loss, if
any, is reflected in income.
Depreciation expense totaled $2,481, $1,745 and $938 in fiscal 1996, 1995
and 1994, respectively.
F. Goodwill, patents and other intangibles
Goodwill is being amortized on a straight-line basis, principally over 30
years. Goodwill amortization totaled $908, $783 and $175 in fiscal 1996, 1995
and 1994, respectively. Accumulated amortization was $1,862 and $954 at March
31, 1996 and 1995, respectively.
Included in patents and other intangibles are amortizable assets consisting
primarily of patents, trademarks and covenants not to compete. Such assets, with
a cost of $2,965 and $1,958 at March 31, 1996 and 1995, respectively, are
amortized on the straight-line method over their estimated useful lives ranging
from four to twenty years. Amortization expense for such assets totaled $401,
$276 and $325 in fiscal 1996, 1995 and 1994, respectively.
The Company uses an undiscounted cash flow method to periodically review
the net realizable value of goodwill and other intangible assets and believes
that such assets are realizable.
The Company will adopt SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" during the first
quarter of 1997. This statement requires that the Company measure its long-lived
assets for impairment utilizing undiscounted cash flows when events or changes
in circumstances suggest that the carrying value of an asset or group of assets
is not recoverable. Management does not anticipate that the effect of adoption
will be significant, as an approach similar to that required by SFAS No. 121 has
historically been utilized by the Company.
G. Fair value of financial instruments
The recorded value of cash and cash equivalents, receivables, payables and
short-term borrowings approximates fair value because of the short maturity of
these instruments. The recorded value of the Company's long-term debt is
considered to approximate fair value based on the borrowing rates currently
available to the Company for loans with similar terms and maturities.
H. Revenue recognition
The Company records income from construction and engineering contracts
under the percentage-of-completion method. Under this method, revenues are
recognized in proportion to the ratio of costs incurred to currently estimated
total contract costs. Estimated earnings and costs on contracts are subject to
revision throughout the terms of the contracts, and any required adjustments are
recorded in the periods in which
22
<PAGE> 24
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
revisions are made. Accounts receivable includes $754 and $800 at March 31, 1996
and 1995, respectively, of amounts billed but not paid by customers under
retainage provisions of contracts. The Company recognizes revenue from product
sales upon shipment.
I. Product development expenses
Expenditures for product development are charged to expense as incurred.
Research and development expenses, net of amounts funded by third parties,
totaled approximately $718, $965 and $153 in fiscal 1996, 1995 and 1994,
respectively.
J. Income taxes
As discussed in Note 6, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," effective April 1,
1993. This Statement required application of the asset and liability method of
accounting for income taxes.
K. Earnings per share
Earnings per share is computed by dividing net income (loss) by the
weighted average number of Common and Common Share equivalents outstanding
during the year. Common Shares, options and warrants issued or granted at prices
below the initial public offering price during the twelve month period prior to
the initial filing of the registration statement have been included in the
calculation of Common Share equivalents, using the treasury stock method, as if
they were outstanding for all periods presented. Common Share equivalents were
excluded from the net loss per share computation for fiscal 1996 as the effect
would be antidilutive.
L. Foreign currency translation
The functional currency for each of the Company's foreign operations is the
applicable local currency. Accordingly, assets and liabilities are translated
into U.S. dollars at the exchange rate in effect at the balance sheet date, and
income and expenses are translated at average exchange rates prevailing during
the year. Translation gains or losses are accumulated as a separate component of
shareholders' equity entitled cumulative translation adjustment. Foreign
currency transaction gains or losses are credited or charged to income, and such
amounts have been insignificant for the periods presented.
M. Financial statement estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. ACQUISITIONS:
A. Acquisition of Commonwealth Seager Group
Effective April 1, 1993, the Company completed the acquisition of the
Commonwealth Group of Companies ("CSG"), a Canadian group of corporations and a
partnership under common ownership. CSG is a specialty engineering firm which
provides corrosion engineering services and products to a variety of industries,
including pipeline companies, oil and gas producing entities, refinery and
petrochemical facilities, pulp and paper operations, utilities and
municipalities.
23
<PAGE> 25
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The acquisition was paid through the issuance to the sellers of preferred
stock of a Canadian corporation whose common stock is wholly owned by the
Company. Such preferred stock was exchangeable for a maximum of 680 Common
Shares of the Company at any time at the option of the holders until March 31,
1998. As of March 31, 1996, all such preferred stock had been exchanged for
Common Shares. See Note 8. The purchase price, including acquisition related
expenses of $657, aggregated $5,147 based on the estimated market value of the
Company's Common Shares at the date of acquisition. Such market value
approximated the initial public offering price discounted by 40%, as the
Company's Common Shares were not publicly traded at the date of consummation of
the acquisition. The acquisition has been accounted for as a purchase and the
net assets and results of operations have been included in the Company's
consolidated financial statements since April 1, 1993. The purchase price was
allocated to the net assets acquired on the basis of the estimated fair value of
the assets acquired and liabilities assumed at the effective date of
acquisition. The excess of purchase price over the fair value of net assets
acquired aggregated $4,057.
B. Acquisition of Good-All Electric, Inc.
On January 2, 1994, the Company purchased certain assets of Good-All
Electric, Inc. ("Good-All") of Ft. Collins, Colorado from Valmont Industries.
Good-All is a manufacturer of rectifiers, a key component in cathodic protection
systems which mitigate corrosion.
The purchase price of $3,093 was paid in cash. The purchase price was
allocated to the net assets acquired on the basis of the estimated fair value of
the assets acquired and liabilities assumed at the effective date of
acquisition. The Good-All results of operations have been included in the
Company's consolidated financial statements from the effective date of the
purchase.
C. Acquisition of UCC Corporation
On March 1, 1994, the Company acquired all of the issued and outstanding
shares of common stock of UCC Corporation ("UCC") of Edmonton, Alberta, Canada
for $4,181, including $179 of acquisition related expenses. The purchase price
was allocated to the net assets acquired on the basis of the estimated fair
value of the assets acquired and liabilities assumed at the effective date of
acquisition. The excess of purchase price over the fair value of net assets
acquired aggregated $3,402. UCC is a specialty engineering firm which provides a
broad range of corrosion engineering services and products including engineering
expertise in protective coatings to a variety of industries such as pipeline
companies, oil and gas producing entities, refinery and petrochemical
facilities, pulp and paper operations, utilities and municipalities. The UCC
results have been included in the Company's results since March 1, 1994. During
fiscal 1995, the operations of CSG and UCC were combined to form Corrpro Canada,
Inc.
D. Acquisition of The Wilson Walton Group Limited
Effective March 1, 1994, the Company acquired all of the issued and
outstanding shares of voting stock of The Wilson Walton Group Limited ("Wilson
Walton") of London, England for $15,220 in cash, including $592 of acquisition
related expenses. The purchase price was allocated to the net assets acquired on
the basis of the estimated fair value of the assets acquired and liabilities
assumed at the effective date of acquisition. The excess of purchase price over
the fair value of net assets acquired aggregated $11,607. Wilson Walton is a
provider of offshore and industrial cathodic protection products and services,
primarily to the marine market. The results of Wilson Walton have been included
in the Company's consolidated financial statements since March 1, 1994.
E. Acquisition of Rohrback Cosasco Systems, Inc.
Effective August 1, 1994, the Company purchased all of the shares of
Rohrback Cosasco Systems, Inc. ("RCS") of Santa Fe Springs, California from
MascoTech, Inc. for $8,439, including $161 of acquisition
24
<PAGE> 26
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
related expenses. The purchase price was allocated to the net assets acquired,
including acquired cash of $232, on the basis of the estimated fair value of the
assets acquired and liabilities assumed at the effective date of acquisition.
The excess of purchase price over the fair value of net assets acquired
aggregated $3,445. RCS is a supplier of corrosion monitoring equipment and
services for process systems and pipelines. The RCS results have been included
in the Company's consolidated financial statements since August 1, 1994.
F. Acquisition of Wayne Broyles Cathodic Services, Inc.
Effective October 1, 1994, the Company purchased substantially all of the
assets, rights and properties relating to Wayne Broyles Cathodic Systems, Inc.
("Wayne Broyles") of Houston, Texas for cash of $510 and a promissory note
aggregating $415. The purchase price was allocated to the net assets acquired,
including acquired cash of $45, on the basis of the estimated fair value of the
assets acquired and liabilities assumed at the effective date of acquisition.
Wayne Broyles is in the business of providing a broad range of corrosion control
services, systems and equipment to the infrastructure, environmental and energy
markets located throughout the world. The results of Wayne Broyles have been
included in the Company's results since October 1, 1994.
G. Acquisition of Thermal Reduction Company
On October 30, 1994, the Company purchased substantially all of the assets
of Thermal Reduction Company ("TRC") of Riverside, New Jersey for $9,309,
including $541 of acquisition related expenses. The purchase price was allocated
to the net assets acquired on the basis of the estimated fair value of the
assets acquired and liabilities assumed at the effective date of acquisition.
The excess of purchase price over the fair value of net assets acquired
initially aggregated $2,497. During the second quarter of fiscal 1996, the
Company refined the allocation of the purchase price which resulted in an
additional net $300 allocation to excess of purchase price over fair value of
assets acquired. TRC manufactures zinc, aluminum and magnesium anodes for
corrosion control systems. The results of TRC have been included in the
Company's consolidated financial statements since November 1, 1994.
H. Acquisition of American Corrosion Services, Inc.
Effective November 1, 1994, the Company purchased the foundry, anode
manufacturing and technical corrosion services business of American Corrosion
Services, Inc. ("ACS"), a subsidiary of American Oilfield Divers, Inc. of New
Orleans, Louisiana, for cash of $1,500 and promissory notes aggregating $3,387.
The purchase price was allocated to the net assets acquired on the basis of the
estimated fair value of the assets acquired and liabilities assumed at the
effective date of acquisition. The excess of purchase price over the fair value
of net assets acquired aggregated $356. The results of the ACS operations have
been included in the Company's results since November 1, 1994. Effective
November 1, 1994, the operations of TRC and ACS were combined to form Corrtherm,
Inc.
3. UNUSUAL AND EXTRAORDINARY CHARGES:
A. Unusual charges
During fiscal 1996, the Company recorded unusual charges totaling $4,368.
Such charges consisted primarily of litigation related legal and professional
expenses as well as costs associated with the consolidation of facilities and
the integration of acquisitions.
During fiscal 1994, the Company recorded an unusual charge totaling $1,622
which represented a stock appreciation rights obligation to a former
shareholder.
25
<PAGE> 27
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
B. Extraordinary charges
During fiscal 1996, the Company recorded a $70 extraordinary charge, net of
tax benefit, as a result of the refinancing of borrowings under its domestic
revolving credit facility. The extraordinary charge represented the write-off of
unamortized deferred financing costs.
During fiscal 1994, the Company recorded a $102 extraordinary charge, net
of tax benefit, as a result of the early extinguishment of certain debt. The
extraordinary charge consisted of the write-off of unamortized deferred
financing costs and debt discount as well as prepayment penalties.
4. LONG-TERM DEBT:
Long-term debt at March 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Domestic bank credit facility --
Revolver..................................................... $19,466 $ --
Term loan.................................................... 5,000 --
Revolving credit facility...................................... -- 20,900
Bank term loan................................................. -- 2,115
Other term notes payable....................................... 2,374 3,860
Mortgages payable.............................................. 1,263 1,316
------- -------
28,103 28,191
Less: current portion.......................................... 1,487 2,322
------- -------
$26,616 $25,869
======= =======
</TABLE>
On March 29, 1996, the Company entered into a new $37.5 million domestic
bank credit facility with a three-bank group. The credit facility consists of a
three-year $32.5 million revolver which matures on March 31, 1999 and a
four-year $5.0 million term loan which matures on March 31, 2000. The term loan
is payable in quarterly installments of $150 in fiscal 1997 and 1998 and $300 in
fiscal 1999 and 2000 with the balance due on maturity. Borrowings under the
credit facility are initially limited to borrowing base amounts as defined in
the credit agreement. Interest on revolver and term loan borrowings is based, at
the Company's option, on either (a) the prime rate, as defined in the credit
agreement or (b) LIBOR plus 1.5% to 2.5%. The spread over LIBOR varies based
upon a certain financial covenant. The interest rate on borrowings outstanding
at March 31, 1996 was 8.25%. The Company is required to pay a commitment fee of
.25% per annum on the unused revolver commitment. Borrowings under the credit
facility are secured by the Company's domestic accounts receivable, inventories,
certain intangibles, machinery and equipment and real estate owned by the
Company located in Colorado. The Company has also pledged slightly less than
two-thirds of the capital stock of its Wilson Walton and Corrpro Canada
subsidiaries. The credit agreement requires the Company to maintain certain
tangible net worth, leverage, debt service coverage and debt to operating cash
flow ratios. The Company was in compliance with all covenants at March 31, 1996.
The credit agreement provides for the elimination of borrowing base limitations
and the release of collateral upon the Company's achievement of certain
financial ratios.
Initial borrowings under the domestic bank credit facility were used to
repay all borrowings under its $30 million revolving credit facility as well as
its bank term note. The $30 million credit facility was terminated at the
Company's direction, in connection with the refinancing. The weighted average
interest rate on borrowings outstanding under the $30 million credit facility
was 9.0% during fiscal 1996.
26
<PAGE> 28
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Other term notes payable include certain other promissory notes. These
notes bear interest at various rates, which ranged from 6.75% to 11.0% at March
31, 1996. The obligations mature at various intervals between 1997 and 2002.
Mortgages payable, which bear interest from 8.25% to 11.25% and are due on
various dates between 1997 and 2010, are repayable in monthly installments and
are secured by the fixed assets of certain subsidiaries as well as personal
guarantees of certain shareholders.
The Company's long-term debt matures as follows: $1,487 in 1997, $1,169 in
1998, $21,369 in 1999, $2,867 in 2000, $181 in 2001 and $1,030 after 2001.
The Company also maintains available lines of credit from various foreign
banks approximating $3,001 at March 31, 1996, which are secured by the assets of
certain foreign subsidiaries. Short-term borrowings amounted to $40 and $240 at
March 31, 1996 and 1995, respectively, under these lines of credit. The interest
rates on such borrowings at March 31, 1996 ranged from 7.50% to 11.0%. In
addition, notes payable to former shareholders totaled $33 at March 31, 1995
(none at March 31, 1996).
Cash paid for interest totaled $2,006, $847 and $888 for fiscal years 1996,
1995 and 1994, respectively.
5. LEASES:
The Company leases certain office and warehouse space and equipment under
operating leases which expire at various dates through 2012. Future minimum
rental payments are as follows: $2,061 in 1997, $1,729 in 1998, $1,334 in 1999,
$806 in 2000, $640 in 2001 and $1,499 after 2001 with a cumulative total of
$8,069.
In addition, the Company rents other property on a month-to-month basis.
Total rental expense was $2,318, $2,061 and $1,419 for fiscal 1996, 1995 and
1994, respectively.
6. INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards No. 109,
("SFAS No. 109"), "Accounting for Income Taxes," effective April 1, 1993. SFAS
No. 109 required the Company to adopt the asset and liability method of
accounting for income taxes. The cumulative effect to April 1, 1993, of this
accounting change was to increase net income by $136 or $0.03 per share. The
adoption of SFAS No. 109 had no cash flow impact.
Components of income (loss) before income taxes, extraordinary charge and
cumulative effect of change in accounting principle follow:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
United States............................................ $(9,116) $ 1,022 $ 2,901
Foreign.................................................. 2,095 4,259 2,087
------- ------- -------
$(7,021) $ 5,281 $ 4,988
======= ======= =======
</TABLE>
27
<PAGE> 29
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Components of the provision (benefit) for income taxes by jurisdiction
follow:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C> <C>
Current -- Federal...................................... $(2,023) $ 220 $ 1,506
-- State and local.............................. 146 136 329
-- Foreign...................................... 863 1,807 602
------- ------- -------
(1,014) 2,163 2,437
------- ------- -------
Deferred -- Federal...................................... (533) 209 (179)
-- State and local.............................. (460) 7 --
-- Foreign...................................... 128 66 24
------- ------- -------
(865) 282 (155)
------- ------- -------
$(1,879) $ 2,445 $ 2,282
======= ======= =======
</TABLE>
Differences between the statutory United States federal income tax rate and
the effective income tax are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Federal income tax provision (benefit) at statutory
rate.................................................... $(2,387) $ 1,795 $ 1,696
State income taxes, net................................... (164) 95 242
Nondeductible charge for stock appreciation rights........ -- -- 552
Utilization of state operating loss carryforwards......... -- -- (102)
Foreign tax rate differential............................. 282 424 (131)
Meals and entertainment................................... 125 115 32
Other..................................................... 265 16 (7)
------- ------- -------
Effective income tax...................................... $(1,879) $ 2,445 $ 2,282
======= ======= =======
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities were comprised of the following at March 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
DEFERRED TAX ASSETS
Bad debts..................................................... $ 336 $ 206
Other reserves................................................ 432 562
Uniform cost capitalization................................... 141 131
Accrued expenses.............................................. 905 113
Pension and other benefit reserves............................ 242 275
Federal tax carryforward and other tax credit and
carryforwards.............................................. 1,195 471
State net operating loss carryforwards........................ 629 82
Other......................................................... 91 24
------- ------
3,971 1,864
Valuation reserve............................................. (111) (111)
------- ------
Total deferred tax assets............................. 3,860 1,753
DEFERRED TAX LIABILITIES
Fixed assets.................................................. (1,351) (601)
Other......................................................... (21) (10)
------- ------
Total deferred tax liabilities........................ (1,372) (611)
------- ------
Total net deferred taxes........................................ $ 2,488 $1,142
======= ======
</TABLE>
28
<PAGE> 30
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The valuation reserve has been established for certain state net operating
loss carryforwards and foreign tax carryforwards because management believes
that it is more likely than not that such benefits will not be realized.
No provision for United States income tax on approximately $5,124 of
undistributed earnings of international subsidiaries at March 31, 1996, has been
made, because the earnings are indefinitely reinvested in the subsidiaries.
Determination of the amount of the unrecognized deferred tax liability for
temporary differences related to investments in foreign subsidiaries is not
practicable.
At March 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $2,638 and $11,916, respectively and federal
credit carryforwards of $298. The foreign tax credit carryforward will expire in
the year 2000. The federal carryforward will expire in the year 2011 and the
state carryforwards expire in various future periods. There can be no assurance
that tax carryforwards will be utilized.
Cash paid for income taxes totaled $1,776, $4,276 and $3,275 for fiscal
1996, 1995 and 1994, respectively.
7. EMPLOYEE BENEFIT PLANS:
The Company maintains the Corrpro Companies, Inc. Profit Sharing Plan and
Trust for all eligible employees in the United States under Section 401(k) of
the Internal Revenue Code. The Company may, at its discretion, make
contributions to the plan. The Company currently matches 20% of the first 3% of
employees' contributions. The Company's matching contribution to this retirement
plan totaled $81, $72 and $56 in fiscal 1996, 1995 and 1994, respectively.
The Company has a Key Employee Incentive Bonus Plan, pursuant to which
bonuses are paid in cash or Common Shares. No bonuses were paid under this plan
for fiscal 1996 or 1995. The Company recorded expense of $360 during 1994
pursuant to this plan. Additionally, the Company from time to time pays bonuses
on a discretionary basis.
One of the Company's foreign subsidiaries has a contributory defined
benefit pension plan for certain salaried employees. The Company funds the plan
in accordance with recommendations from independent actuaries. Pension benefits
generally depend on length of service and job grade.
Pension expense for fiscal years 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Service cost................................................... $ 210 $ 177
Interest cost.................................................. 150 140
Actual return on plan assets................................... (133) (73)
Net amortization and deferrals................................. (6) (53)
------- -------
Net periodic pension cost...................................... $ 221 $ 191
======= =======
</TABLE>
The funded status of the plan at March 31, 1996 and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accumulated benefit obligation................................. $(1,512) $(1,329)
Effect of increase in compensation levels...................... (321) (292)
------- -------
Projected benefit obligation................................... (1,833) (1,621)
Plan assets at fair value...................................... 1,760 1,465
------- -------
Funded status.................................................. (73) (156)
Unrecognized gain.............................................. (81) (29)
------- -------
Accrued pension liability...................................... $ (154) $ (185)
======= =======
</TABLE>
29
<PAGE> 31
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Pension expense for the one month period (since date of acquisition) ending
March 31, 1994 was approximately $17. Significant actuarial assumptions include
both a discount rate and expected return on plan assets of 9.0% in both fiscal
1996 and 1995 and an assumed rate of increase in compensation levels of 7.0% in
1996 and 6.5% in 1995.
The Company has entered into an employment agreement with one of its
executives which provides, among other things, that such employee shall be
eligible at 63 1/2 to receive retirement income, with a lifetime survivor
benefit, in an amount equal to 50% of base salary. The Company is providing for
this deferred compensation benefit over the term of the agreement.
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," was issued in
December 1990. SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," was issued in November 1992. The implementation of these Statements
had no effect on the financial statements of the Company as the Company
currently provides no significant benefits, as defined by the Statements, to
retired, former or inactive employees.
8. SHAREHOLDERS' EQUITY:
Substantially all of the Common Shares outstanding prior to the initial
public offering were owned by Company employees, former employees or the
Company's 401(k) retirement plan and were subject to an agreement among
shareholders imposing certain restrictions upon the transferability of these
shares and granting first rights of repurchase to other shareholders and the
Company.
On June 11, 1993, the Board of Directors authorized a three-for-one stock
split of the Company's Common Shares which became effective in September 1993
immediately prior to the initial public offering. Retroactive effect has been
given to the stock split in all share and per share data in the accompanying
consolidated financial statements.
The Company completed its initial public offering of 1,862 Common Shares
during October 1993. Net proceeds from such offering totaled $18,150 and were
used to repay approximately $14,000 of debt as well as amounts due to a former
shareholder for stock appreciation rights. See Note 3 for discussion regarding
the unusual charge associated with the stock appreciation rights.
In May 1994, the Company received net proceeds of $28,114 from a secondary
offering of 1,845 Common Shares. The proceeds were used to repay indebtedness
incurred to finance the acquisitions of Good-All, UCC and Wilson Walton.
Conversion of CSG preferred stock
The Company's acquisition of CSG, effective April 1, 1993, was paid through
the issuance to the sellers of preferred stock of a Canadian corporation whose
common stock is wholly-owned by the Company. The preferred stock could be
exchanged for a maximum of 680 Common Shares of the Company at any time at the
option of the holders until March 31, 1998. Through March 31, 1995, 150 Common
Shares had been issued to holders of the preferred stock in connection with such
exchange rights. In November 1995, the remaining preferred shares were exchanged
for 530 Common Shares of the Company. The value assigned to the preferred stock
at the date of acquisition was $4,489. The preferred shares were presented as
minority interest in the Company's consolidated balance sheet at March 31, 1995,
and the conversion has been treated as a non-cash transaction in the
consolidated statement of cash flows.
Warrants
Certain indebtedness, which was retired in October 1993 using proceeds from
the initial public offering, provided for the granting of a stock purchase
warrant for the purchase of 183 Common Shares at $.000033 per
30
<PAGE> 32
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
share, subject to adjustment. As of March 31, 1995, all such warrants had been
exercised.
9. STOCK PLANS:
The Company established various employee stock option programs and, in
addition, awarded one-time stock options to key employees and directors of the
Company, as described below.
1994 Corrpro Stock Option Plan
During June 1993, the Board of Directors adopted the 1994 Corrpro Stock
Option Plan. This plan provides for the granting of options to certain key
employees and consultants to purchase an aggregate of 600 Common Shares, subject
to certain provisions set forth in the plan agreement. Such provisions
effectively limit the number of shares available for future grant to 168 at
March 31, 1996, based on the number of options outstanding at that date.
Options to purchase 270 and 189 Common Shares were awarded during 1996 and
1995, respectively, at an exercise price equal to 110% of fair market value at
the date of grant. These options are exercisable for ten years from the date of
grant, however, such options become exercisable at various dates during the ten
year period beginning with the first anniversary date of the date of grant.
During 1996 and 1995, 247 and 5 options previously granted were terminated in
accordance with the provisions of the plan.
1994 Corrpro Outside Directors' Stock Option Plan
During June 1993, the Board of Directors adopted the 1994 Corrpro Outside
Directors' Stock Option Plan. This plan provides for the granting of options to
purchase up to 30 Common Shares to those directors who are not employees or
consultants of the Company.
During 1996 and 1995, options to purchase 2 Common Shares were awarded to
each of three of the Company's outside directors. The options become
fifty-percent exercisable on each of the first and second anniversary of the
date of grant. During 1995, 2 options granted to one director in 1994 were
terminated.
1993 Incentive Stock Option Program
In April 1992, the Company established an Incentive Stock Option Program
and reserved 300 Common Shares for the granting of options to officers and other
key employees. The program provided for the granting of incentive stock options
during fiscal 1993 at an option price of not less than the fair market value at
the date of grant. On May 11, 1992, the Company granted options under this
program to certain employees for the purchase of 203 Common Shares. The options
are exercisable at $2.33 per share and expire in May 1997. These options became
exercisable upon the completion of the Company's initial public offering.
Other 1993 stock option awards and arrangements
On September 28, 1992, the Company awarded to a key executive, options at
$2.33 per share for the purchase of 30 Common Shares which became exercisable
upon the achievement of certain performance goals for the Company's fiscal year
ending March 31, 1993. The options were terminated in fiscal 1996.
On June 15, 1992, the Company awarded options to certain members of the
Board of Directors at an exercise price of $2.33 per share for the purchase of 6
Common Shares. The options became exercisable upon the completion of the
Company's initial public offering and will expire in June 1997.
On November 15, 1992, the Company awarded options at an exercise price of
$2.33 per share to certain members of senior management and to two members of
the Board of Directors for the purchase of 132
31
<PAGE> 33
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Common Shares. The options became exercisable upon the completion of the
Company's initial public offering and will expire in September 1998.
Under the terms of an employment agreement entered into during September
1992, the Company granted an employee the option to purchase 60 Common Shares at
$2.33 per share. The options are exercisable in annual installments of 12 shares
each, beginning on December 31, 1992 and ending on December 31, 1996, and
terminate five years subsequent to the date upon which they become exercisable.
No such options were exercised during fiscal 1996, 1995 or 1994.
In December 1992, the Company reserved 60 Common Shares for the awarding of
options during the negotiation of future employment arrangements. Such options
are intended to be exercised only upon the achievement of specified performance
goals. On March 1, 1993, the Company awarded options under this program to two
employees for the purchase of an aggregate 26 Common Shares at a price of $2.33
per share. These options, which expire five years from the date of grant, became
exercisable in thirds beginning on March 1, 1994.
The following table summarizes the changes in the number of Common Shares
under option for the various option arrangements:
<TABLE>
<CAPTION>
OPTION PRICE RANGE
------------------
<S> <C> <C>
Shares subject to option at March 31, 1993................... 507 $2.33 to $6.10
Options granted............................................ 16 $14.44 to $21.66
Options exercised.......................................... -- --
Options terminated......................................... -- --
----
Shares subject to option at March 31, 1994................... 523 $2.33 to $21.66
----
Options granted............................................ 194 $14.64 to $21.13
Options exercised.......................................... (30) $2.33
Options terminated......................................... (6) $14.63 to $17.88
----
Shares subject to option at March 31, 1995................... 681 $2.33 to $21.66
----
Options granted............................................ 274 $5.98 to $8.59
Options exercised.......................................... (89) $2.33
Options terminated......................................... (247) $2.33 to $18.70
----
Shares subject to option at March 31, 1996................... 619 $2.33 to $21.66
====
Exercisable options at March 31, 1996........................ 411 $2.33 to $21.66
====
</TABLE>
The Company will adopt SFAS No. 123, "Accounting for Stock-Based
Compensation," in fiscal year 1997. This statement encourages, but does not
require, the recording of compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation under the provisions of Account Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, the adoption of SFAS No. 123 will not affect the
Company's results of operations or financial position.
10. BUSINESS SEGMENTS:
The Company operates in a single industry segment domestically and through
subsidiaries headquartered in Canada, United Kingdom, Saudi Arabia and
Singapore, with various other locations in Europe, the Middle East and Asia.
Inventory transfers between geographic locations are recorded at cost plus a
mark up; intercompany revenues and profits are eliminated. Assets of geographic
areas are identified with the operations of each area. Assets used for general
corporate purposes are not considered significant and have therefore been
reflected in the United States segment information.
32
<PAGE> 34
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company's operations by geographic area are presented below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net revenues, including intercompany:
United States............................................. $ 87,932 $ 75,180 $ 53,603
Canada.................................................... 17,981 19,153 11,002
United Kingdom and Europe................................. 19,376 11,408 1,931
Middle East and Asia...................................... 24,236 26,108 7,242
Intercompany.............................................. (9,004) (5,840) (4,242)
-------- -------- --------
$140,521 $126,009 $ 69,536
======== ======== ========
Income before taxes:
United States............................................. $ (6,174) $ 2,561 $ 3,880
Canada.................................................... 1,810 2,728 990
United Kingdom and Europe................................. (78) 209 29
Middle East and Asia...................................... 54 895 939
Adjustments/eliminations.................................. -- -- 37
-------- -------- --------
Operating income (loss)................................ (4,388) 6,393 5,875
Interest expense.......................................... (2,633) (1,112) (887)
-------- -------- --------
Income (loss) before taxes............................. $ (7,021) $ 5,281 $ 4,988
======== ======== ========
Identifiable assets:
United States............................................. $ 60,305 $ 55,528 $ 26,054
Canada.................................................... 17,726 27,591 18,244
United Kingdom and Europe................................. 19,650 20,487 22,519
Middle East and Asia...................................... 10,172 7,898 6,982
Adjustments/eliminations.................................. 345 (1,182) (5,941)
-------- -------- --------
$108,198 $110,322 $ 67,858
======== ======== ========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES:
Legal matters
In June 1995, the Company announced that earnings per share for fiscal 1995
were expected to be substantially below analysts' expectations, and in August
the Company restated its previously reported unaudited results for the second
and third quarters of fiscal 1995. Class action litigation and shareholder
derivative litigation were commenced seeking substantial damages from the
Company and/or certain of its current and former directors and officers. During
September 1995, the class action litigation was consolidated and an amended and
consolidated class action complaint was filed on behalf of a purported class
consisting of inventors who purchased the Company's Common Shares between June
1, 1994 and June 19, 1995. The Company and its current or former directors
and/or officers remain the named defendants. The amended complaint alleges
claims under various sections of the Securities Exchange Act of 1934 and Rule
10b-5, and common law fraud and negligent misrepresentation. It asserts, among
other things, that defendants made false and misleading statements during the
class period in the Company's quarterly and annual reports filed with the
Securities and Exchange Commission ("SEC"), press releases and periodic reports
to shareholders which are claimed to have materially overstated the Company's
assets, net income and projected net income. The amended complaint seeks, on
behalf of the purported class, compensatory damages of tens of millions of
dollars, as well as punitive damages, prejudgment interest and costs. Motions to
dismiss the consolidated class action lawsuit and the shareholder derivative
action were filed in November 1995 and October 1995, respectively. On December
28, 1995, the motion to dismiss the shareholder derivative action was granted
33
<PAGE> 35
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
without prejudice. An appeal is pending. The motions to dismiss the consolidated
class action complaint are still pending. The Company intends to continue to
defend itself vigorously in the class action litigation; however, the ultimate
outcome of the litigation cannot be determined at present. As such, other than
an accrual for the cost of defense, no provision for liability, if any, that may
result has been made in the accompanying consolidated financial statements. In
addition, the Company is cooperating in an investigation being conducted by the
SEC. Management is unable to assess at this time whether the ultimate outcome of
this litigation and investigation will have a material adverse effect on the
Company's financial condition, results of operations and cash flows; however, it
is possible that events could occur in the coming year that could affect the
Company's ability to estimate the impact of the above matters.
In May 1995, a contingent settlement was reached relating to a lawsuit
filed in July 1992 by the City and County of San Francisco against a
wholly-owned subsidiary of the Company and other codefendants. The settlement
was contingent upon being awarded "good faith" settlement status by the court
which occurred on December 20, 1995. The settlement amount of $850 has been paid
by the Company's insurers, without contribution by the Company.
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to any such actions, except as otherwise
discussed above, will not materially affect future operations, the financial
position or cash flows of the Company.
34
<PAGE> 36
PART III
Part III, except for certain information relating to Executive Officers
included in Part I, Item 4A, is omitted inasmuch as the Company intends to file
with the Securities and Exchange Commission with 120 days of the close of its
fiscal year ended March 31, 1996 a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS ARE INCLUDED IN
PART II, ITEM 8:
Report of Independent Accountants
Consolidated Balance Sheets at March 31, 1996 and 1995
Consolidated Statements of Income for the years ended March 31,
1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended March 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(A) (2) FINANCIAL STATEMENT SCHEDULES:
The financial statement schedules have been omitted as they are not
required or not applicable, or as the information is furnished
elsewhere in the consolidated financial statements or the notes
thereto.
(A) (3) INDEX TO EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ----------- ----------------------------------------------------------------------
<S> <C> <C>
2.1 Stock Purchase Agreement dated May 3, 1993 by and among the Company
and R. David Webster, H. Joyce Webster, Richard B. Jones, Maureen
Jones, Donald G. Marr, Linda Marr, Barry W. Schadeck, Bonnie E.
Schadeck, Grant G. Firth, Maureen Firth, Ronald E. Ginther, Phyllis
Ginther, Ronald W. Bladon, Diane Wilkinson, Bruce J. Wiskel, Darlene
Wiskel, Lloyd Wiebe, Lynne Wiebe, Donald S. Demich, Ronald V. Maurier,
Aime Archer, James Hunter, Ronald Sherstan, Darlene Butlin, Art Gaber,
Don U. Young, Leonard Pederson, Barry Bilawey and Lindsay Blair
Stuparek, individually.(1)
2.2 Offer to Purchase all Outstanding Shares of Common Stock of Harco
Technologies Corporation dated April 29, 1989 by CORACQ, Inc., a
wholly owned subsidiary of the Company.(1)
2.3 Stock Purchase Agreement dated November 20, 1987 by and between the
Company and TWC Holdings, Inc.(1)
2.4 Asset Purchase Agreement dated February 18, 1987 by and among William
J. Ellis and Corrosion Engineering & Research Co. aka CERCO and the
Company.(1)
2.5 Asset Purchase Agreement dated January 2, 1994 by among Valmont
Industries, Inc., Good-All Electric, Inc., a Nebraska corporation, the
Company and Good-All Electric, Inc., an Ohio corporation.(4)
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ----------- ----------------------------------------------------------------------
<S> <C> <C>
2.6 Stock Purchase Agreement dated March 1, 1994 by and among the Company,
UCC, United Corrosion Consultants Ltd., and Tom Burke, Valerie Burke,
Pierre Crevolin, Sylvia Crevolin, John Chase, Jim Schell, Cliff
Willment, Ken Roth, Duane Luterbach, George Gebkenjans, Dwane Taylor,
Denis Trudeau, Kevin Vandewoestyne, Craig Prusakowski, Parker
Fjeldberg, Mark Tarnes, Don Martineau, Ole Peteherych, Doug Hill and
Jerry Beahm, individually.(4)
2.7 Share Sale Agreement dated March 15, 1994 by and among Christopher L.
Westcott, William N. Darley, Pang Kok Wah, Man Siu Ping, Stanley J.
Downes, Michael B. Thurman, Winston Shepherd, Gillian M. Shepherd,
Christopher J. G. Shepherd, Northern Investors Company PLC, Northern
Venture Partnership Fund and the Company.(4)
2.8 Share Purchase Agreement dated August 24, 1994 by and among MascoTech,
Inc., Rohrback Cosasco Systems, Inc. and the Company.(5)
2.9 Asset Purchase Agreement dated October 30, 1994 by and among Thermal
Reduction Company, W.B. Coleman Testing Laboratories Corporation,
Nicholas S. Schorsch, the Company and Corrtherm, Inc.(6)
2.10 Asset Purchase Agreement dated November 23, 1994 by and among American
Corrosion Services, Inc., American Oilfield Divers, Inc., Corrtherm,
Inc. and the Company.(8)
3.1 Amended and Restated Articles of Incorporation of the Company.(2)
3.2 Amended and Restated Code of Regulations of the Company.(3)
4.1 Specimen certificate for the Common Shares.(1)
4.2-4.4 Not used.
4.5 Amended and Restated Purchase Agreement by and between MLBC, Inc. and
the Company.(4)
4.6-4.9 Not used.
4.10 Credit Agreement dated as of March 29, 1996 by and among Corrpro
Companies, Inc., the Lenders Party Thereto and Bank One, Columbus, NA.
Other long term debt agreements of the Company are not filed pursuant
to Item 601(b)(4)(iii)(A) of Regulation S-K. The Company will furnish
copies of any such agreements to the Securities and Exchange
Commission upon its request.
10.1 Form of Indemnification Agreement for Officers and Directors of the
Company.(1)
10.2 Not used.
10.3 Consulting Agreement dated May 3, 1993 by and between Commonwealth
Seager Holdings Ltd. and Corrtech Consulting Group.(1)
10.4 Employment Agreement dated June 11, 1993, and effective April 1, 1993
by and between the Company and Michael K. Baach.(1)
10.5 Employment Agreement dated June 11, 1993, and effective April 1, 1993
by and between the Company and George A. Gehring, Jr.(1)
10.6 Not used.
10.7 Employment Agreement dated June 11, 1993, and effective April 1, 1993
by and between the Company and David H. Kroon.(1).
10.8 Employment Agreement dated June 11, 1993, and effective April 1, 1993
by and between the Company and Joseph W. Rog.(1)
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ----------- ----------------------------------------------------------------------
<S> <C> <C>
10.9-10.12 Not used.
10.13 Stock Option Agreement dated as of June 15, 1992 by and between the
Company and C. Richard Lynham, as amended.(1)
10.14 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and C. Richard Lynham.(1)
10.15-10.17 Not used.
10.18 Not used.
10.19 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and Michael K. Baach.(1)
10.20 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and George A. Gehring, Jr.(1)
10.21 Not used.
10.22 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and David H. Kroon.(1)
10.23 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and Joseph W. Rog.(1)
10.24 Not used.
10.25 Company Incentive Option Plan as amended.(1)
10.26 Not used.
10.27 1994 Corrpro Stock Option Plan.(1)
10.28 1994 Corrpro Outside Directors' Stock Option Plan.(1)
10.29 Not used.
10.30 Employment Agreement effective January 15, 1994 by and between the
Company and Michael R. Tighe.(4)
10.31 Employment Agreement dated as of August 24, 1994 by and between the
Company and David M. Hickey.(8)
11.1 Statement re Computation of Per Share Earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Experts.
27.1 Financial Data Schedule.
99.1 Director and Officer Liability Insurance Policy.(7) --
</TABLE>
- ---------------
(1) A copy of this exhibit filed as the same exhibit number of the Company's
Registration Statement on Form S-1 (Registration No. 33-64482) is
incorporated herein by reference.
(2) A copy of this exhibit filed as Exhibit 4.1 of the Company's Registration
Statement on Form S-8 (Registration No. 33-74814) is incorporated herein by
reference.
(3) A copy of this exhibit filed as Exhibit 4.2 of the Company's Registration
Statement on Form S-8 (Registration No. 33-74814) is incorporated herein by
reference.
(4) A copy of this exhibit filed as the same exhibit number of the Company's
Registration Statement on Form S-1 (Registration No. 33-76730) is
incorporated herein by reference.
(5) A copy of this exhibit filed as the exhibit to the Company's report on Form
8-K which report is dated August 24, 1994.
37
<PAGE> 39
(6) A copy of this exhibit filed as the exhibit to the Company's report on Form
8-K which report is dated October 30, 1994.
(7) A copy of this exhibit filed as Exhibit 99.2 of the Company's Registration
Statement on Form S-1 (Registration No. 33-64482) is incorporated herein by
reference.
(8) A copy of this exhibit filed as the exhibit to the Company's report on Form
10-K for the year ended March 31, 1995.
- ---------------
(B) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed during the three months ended
March 31, 1996.
(C) EXHIBITS
See "Index to Exhibits" at Item 14(a) above.
38
<PAGE> 40
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF 15(D) OF THE SECURITIES AN
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CORRPRO COMPANIES, INC.
June 14, 1996 By /s/ Joseph W. Rog
Joseph W. Rog
Chairman of the Board of Directors,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
June 14, 1996 /s/ Joseph W. Rog
-------------------------------------------
Joseph W. Rog
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
June 14, 1996 /s/ Neal R. Restivo
-------------------------------------------
Neal R. Restivo
Senior Vice President,
Chief Financial Officer, Secretary
and Treasurer
June 14, 1996 /s/ David H. Kroon
-------------------------------------------
David H. Kroon, Director
June 14, 1996 /s/ Barry W. Schadeck
-------------------------------------------
Barry W. Schadeck, Director
June 14, 1996 /s/ Robert E. Hodge
-------------------------------------------
Robert E. Hodge, Director
June 14, 1996 /s/ C. Richard Lynham
-------------------------------------------
C. Richard Lynham, Director
-------------------------------------------
Joseph C. Overbeck, Director
</TABLE>
39
<PAGE> 1
Exhibit 4.10
CREDIT AGREEMENT
dated as of March 29, 1996
by and among
CORRPRO COMPANIES, INC.
as Borrower,
THE LENDERS PARTY HERETO FROM TIME TO TIME,
as the LENDERS,
and
BANK ONE, COLUMBUS, NA,
as Agent and Issuing Bank
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------- ----- ----
ARTICLE 1
<S> <C> <C>
DEFINITIONS; CONSTRUCTION.......................................... 1
1.1 Certain Definitions........................................................................... 1
1.2 Construction.................................................................................. 20
1.3 Accounting Principles......................................................................... 20
ARTICLE 2
THE CREDITS................................................. 20
2.1 Revolving Credit Loans........................................................................ 20
2.2 Making of Revolving Credit Loans.............................................................. 22
2.3 Term Loans.................................................................................... 23
2.4 Interest Rates................................................................................ 23
2.6 Prepayments Generally......................................................................... 27
2.7 Optional Prepayments.......................................................................... 28
2.8 Mandatory Prepayments......................................................................... 28
2.9 Interest Payment Dates........................................................................ 29
2.10 Pro Rata Treatment; Payments Generally; Interest on Overdue Amounts........................... 29
2.11 Additional Compensation in Certain Circumstances.............................................. 30
2.12 Taxes......................................................................................... 32
ARTICLE 3
THE LETTER OF CREDIT SUBFACILITY....................................... 33
3.1 The Letter of Credit Subfacility.............................................................. 33
3.2 Procedure for Issuance and Amendment of Letters of Credit..................................... 35
3.3 Letter of Credit Participating Interests...................................................... 36
3.4 Letter of Credit Drawings and Reimbursements.................................................. 37
3.5 Obligations Absolute.......................................................................... 38
3.6 Additional Compensation in Certain Circumstances.............................................. 38
3.7 Further Assurances............................................................................ 39
3.8 Letter of Credit Applications................................................................. 39
3.9 Cash Collateral for Letters of Credit......................................................... 39
3.10 Indemnification of Issuing Bank............................................................... 40
3.11 The Issuing Bank and the Lenders.............................................................. 40
ARTICLE 4
REPRESENTATIONS AND WARRANTIES........................................ 42
4.1 Corporate Status.............................................................................. 42
4.2 Corporate Power and Authorization............................................................. 42
4.3 Execution and Binding Effect.................................................................. 42
4.4 Governmental Approvals and Filings............................................................ 42
4.5 Absence of Conflicts.......................................................................... 42
4.6 Financial Statements; No Material Changes; Projections........................................ 43
4.7 Accurate and Complete Disclosure.............................................................. 43
4.8 Solvency...................................................................................... 43
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------- ----- ----
<S> <C> <C>
4.9 Margin Regulations............................................................................ 43
4.10 Subsidiaries.................................................................................. 44
4.11 Partnerships, etc............................................................................. 44
4.12 Litigation.................................................................................... 44
4.13 Absence of Events of Default.................................................................. 44
4.14 Absence of Other Conflicts.................................................................... 44
4.15 Insurance..................................................................................... 44
4.16 Title to Property............................................................................. 44
4.17 Taxes......................................................................................... 45
4.18 Employee Benefits............................................................................. 45
4.19 Environmental Matters......................................................................... 46
4.20 Regulatory Restrictions....................................................................... 46
ARTICLE 5
CONDITIONS OF CREDIT EXTENSIONS....................................... 47
5.1 Conditions to Initial Credit Extension........................................................ 47
5.2 Conditions to All Credit Extensions........................................................... 49
ARTICLE 6
AFFIRMATIVE COVENANTS............................................ 50
6.1 Reporting Requirements........................................................................ 50
6.2 Visitation; Verification...................................................................... 52
6.3 Insurance..................................................................................... 52
6.4 Payment of Taxes and Other Potential Charges and Priority Claims.............................. 53
6.5 Preservation of Corporate Status.............................................................. 53
6.6 Maintenance of Properties, Franchises, Etc.................................................... 53
6.7 [INTENTIONALLY OMITTED]....................................................................... 53
6.8 Avoidance of Other Conflicts.................................................................. 53
6.9 Financial Accounting Practices................................................................ 53
6.10 Use of Proceeds............................................................................... 54
6.11 Continuation of or Change in Business......................................................... 54
6.12 Consolidated Tax Return....................................................................... 54
6.13 Subsidiary Guaranty........................................................................... 54
6.14 Solvency...................................................................................... 54
ARTICLE 7
NEGATIVE COVENANTS.............................................. 55
7.1 Financial Covenants........................................................................... 55
7.2 Liens......................................................................................... 56
7.3 Indebtedness.................................................................................. 57
7.4 Guaranties, Indemnities, etc.................................................................. 58
7.5 Loans, Advances and Investments............................................................... 59
7.6 Dividends and Related Distributions........................................................... 60
7.7 Sale-Leasebacks............................................................................... 60
7.8 Leases........................................................................................ 60
7.9 Mergers, Acquisitions, etc.................................................................... 61
7.10 Dispositions of Properties.................................................................... 62
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------- ----- ----
<S> <C> <C>
7.11 Issuance of Subsidiary Stock.................................................................. 62
7.12 Dealings with Affiliates...................................................................... 62
7.13 [INTENTIONALLY OMITTED]....................................................................... 63
7.14 Limitations on Plans.......................................................................... 63
7.15 Limitation on Other Restrictions on Dividends by Subsidiaries, etc............................ 63
7.16 Limitation on Other Restrictions on Liens..................................................... 64
ARTICLE 8
DEFAULTS................................................... 64
8.1 Events of Default............................................................................. 64
8.2 Consequences of an Event of Default........................................................... 66
ARTICLE 9
THE AGENT.................................................. 67
9.1 Appointment................................................................................... 67
9.2 Duties........................................................................................ 67
9.3 Exercise of Powers............................................................................ 68
9.4 General Exculpatory Provisions................................................................ 68
9.5 Administration................................................................................ 69
9.6 Lender Credit Decision........................................................................ 70
9.7 Indemnification............................................................................... 70
9.8 Individual Capacity........................................................................... 70
9.9 Holders of Notes.............................................................................. 70
9.10 Successor Agent............................................................................... 71
ARTICLE 10
MISCELLANEOUS................................................ 71
10.1 Holidays...................................................................................... 71
10.2 Records....................................................................................... 71
10.3 Amendments and Waivers........................................................................ 71
10.4 No Implied Waiver; Cumulative Remedies........................................................ 72
10.5 Notices....................................................................................... 73
10.6 Expenses; Taxes; Indemnity.................................................................... 73
10.7 Severability.................................................................................. 74
10.8 Prior Understandings.......................................................................... 74
10.9 Duration; Survival............................................................................ 74
10.10 Counterparts.................................................................................. 75
10.11 Limitation on Payments........................................................................ 75
10.12 Set-Off....................................................................................... 75
10.13 Sharing of Collections........................................................................ 75
10.14 Successors and Assigns; Participations; Assignments........................................... 76
10.15 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial; Limitation of Liability...... 78
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
Exhibit A-1 Form of Revolving Credit Note
Exhibit A-2 Form of Term Note
Exhibit B-1 Form of Standby Letter of Credit Application
Exhibit B-2 Form of Commercial Letter of Credit Application
Exhibit C-1 Form of Opinion of Counsel to the Borrower and the Subsidiary Guarantors
Exhibit C-2 Form of Opinion of Special Louisiana Counsel
Exhibit D Form of Lien Waiver
Exhibit E Form of Subsidiary Guaranty
Exhibit F Form of Compliance Certificate
Exhibit G Form of Borrowing Base Certificate
Exhibit H Form of Notice of Assignment
Exhibit I Form of Good-All Mortgage
Schedule 1.1(a) Approved Foreign Account Debtors
Schedule 4.1 Corporate Status
Schedule 4.5 Absence of Conflicts
Schedule 4.10 Subsidiaries
Schedule 4.11 Partnerships, etc.
Schedule 4.12 Litigation
Schedule 4.17 Taxes
Schedule 4.18 Employee Benefits
Schedule 6.8 Conflicts
Schedule 7.2 Permitted Liens
Schedule 7.3 Permitted Indebtedness
Schedule 7.4 Permitted Guaranties, Indemnities, etc.
Schedule 7.5 Permitted Loans, Advances and Investments
Schedule 7.12 Permitted Dealings with Affiliates
</TABLE>
-iv-
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of March 29, 1996, by and
among CORRPRO COMPANIES, INC., an Ohio corporation (the "Borrower"), the Lenders
party hereto from time to time and BANK ONE, COLUMBUS, NA, a national banking
association, as agent for the Lenders hereunder (in such capacity, together with
its successors in such capacity, the "Agent").
Recital:
The Borrower has requested the Agent and the Lenders to enter
into this Agreement and extend credit as provided herein and the Agent and the
Lenders are willing to provide such credit on the terms and subject to the
conditions herein contained.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS; CONSTRUCTION
-------------------------
1.1 CERTAIN DEFINITIONS. In addition to other words and terms
defined elsewhere in this Agreement, as used herein the following words and
terms shall have the following meanings, respectively, unless the context hereof
otherwise clearly requires:
"Account" or "account" means any and all accounts, contract
rights, documents and other forms of obligations owing to a Person for
the delivery of goods or services.
"Account Debtor" means any Person who is obligated on an
account and "Account Debtors" means all Persons who are obligated on
accounts.
"Acquisitions" shall have the meaning set forth in Section
7.9(a) hereof.
"Affected Lender" shall have the meaning set forth in Section
2.4(e) hereof.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such
Person. A Person shall be deemed to control another Person if the
controlling Person owns 5% or more of any class of voting securities
(or other ownership interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of
the management or policies of the controlled Person whether through
ownership of stock, by contract or otherwise.
"Agent" shall have the meaning set forth in the preamble
hereto.
"Agent's Administrative Office" shall mean the Agent's
administrative office located at 100 East Broad Street, Columbus, Ohio
43271, Attention: Commercial Loan Operations, or at such other office
or offices of the Agent or any branch, subsidiary or affiliate thereof
as may be designated in writing from time to time by the Agent to the
Borrower.
"Agent's Office" shall mean the Agent's office located at 600
Superior Avenue, Cleveland, Ohio 44114, Attention: Northern Ohio Large
Corporate Markets Group, internal zip
<PAGE> 7
code 0149, or at such other office or offices of the Agent or any
branch, subsidiary or affiliate thereof as may be designated in writing
from time to time by the Agent to the Borrower.
"Agreement" shall mean, on any date, this Credit Agreement as
originally in effect and as thereafter from time to time amended,
supplemented, amended and restated or otherwise modified and in effect
on such date.
"Applicable Margin" shall have the meaning set forth in
Section 2.4(b) hereof.
"Assured Obligations" shall have the meaning set forth in the
definition of "Guaranty Equivalent."
"Bank One" shall mean Bank One, Columbus, NA, a national
banking association.
"Base Rate" shall have the meaning set forth in Section 2.4(a)
hereof.
"Base Rate Option" shall have the meaning set forth in Section
2.4(a) hereof.
"Base Rate Portion" of any Loan or Loans shall mean at any
time the portion, including the whole, of such Loan or Loans bearing
interest at such time (i) under the Base Rate Option or (ii) in
accordance with Section 2.10(c)(ii) hereof. If no Loan or Loans is
specified, "Base Rate Portion" shall refer to the Base Rate Portion of
all Loans outstanding at such time.
"Borrower" shall have the meaning set forth in the preamble
hereto.
"Borrower Security Agreement" shall mean, on any date, the
Security Agreement, Pledge and Assignment between the Borrower, the
Agent, the Lenders and the Issuing Bank executed of even date herewith,
as thereafter from time to time amended, supplemented, amended and
restated or otherwise modified and in effect on such date.
"Borrowing Base" means at any time, with respect to the
Borrower and the Guarantor Subsidiaries, an amount equal to the
aggregate of (a) eighty-five percent (85%) of the amount of their
Eligible Receivables, PLUS (b) the lesser of (i) fifty percent (50%) of
their Eligible Inventory or (ii) an amount equal to fifty percent (50%)
of the sum of the amounts determined pursuant to clause (a), (c) and
(d) herein, PLUS (c) an amount equal to Ten Million Dollars
($10,000,000) from the Closing Date through and including September 30,
1996 or Eight Million Dollars ($8,000,000) on and after October 1,
1996, PLUS (d) after the Good-All Mortgage is duly recorded and prior
to the Good-All Sale and the release by the Agent of the Good-All
Mortgage, $1,575,000.
"Borrowing Base Reinstatement Event" means that, after the
Borrowing Base Suspension Event, (a) the ratio of Total Liabilities to
Adjusted Tangible Net Worth as of the end of any two consecutive fiscal
quarters of the Borrower is greater than 1.50 to 1.00 or the Debt
Service Coverage Ratio as at the end of the same two fiscal quarters,
for the respective twelve month periods then ending, is less than 1.50
to 1.00, all as evidenced by the financial statements delivered to the
Agent in accordance with Section 6.1(a) or (b) hereof, as the case may
be, and the certificate delivered by the Borrower in accordance with
Section 6.1(c) hereof, or (b) an Event of Default or Possible Default
has occurred.
"Borrowing Base Report" shall have the meaning set forth in
Section 6.1(e) hereof.
2
<PAGE> 8
"Borrowing Base Suspension Event" means that (a) as of the end
of any fiscal year of the Borrower, commencing with the fiscal year
ending March 31, 1997, the ratio of Total Liabilities to Adjusted
Tangible Net Worth as of that date is equal to or less than 1.50 to
1.00 and the Debt Service Coverage Ratio for the twelve month period
then ending is equal to or greater than 1.50 to 1.00, all as evidenced
by the financial statements delivered to the Agent in accordance with
Section 6.1(a) hereof and the certificate delivered by the Borrower in
accordance with Section 6.1(c) hereof, and (b) no Event of Default or
Possible Default has occurred and is continuing.
"Business Day" shall mean any day other than a Saturday,
Sunday, public holiday under the laws of the State of Ohio or other day
on which banking institutions are authorized or obligated to close in
the city in which the Agent's Administrative Office is located.
"Capital Expenditures" shall mean amounts expended by the
Borrower or any of its Subsidiaries, without regard to the manner in
which such amounts or the instrument pursuant to which they are made
are characterized by any Person, for the acquisition, construction or
installation of properties that are to be included as fixed assets on
its books, and other expenditures that, in accordance with GAAP, would
be classified as capital expenditures.
"Capitalized Lease" shall mean at any time any lease which is,
or is required under GAAP to be, capitalized on the balance sheet of
the lessee at such time, and "Capitalized Lease Obligation" of any
Person at any time shall mean the aggregate amount which is, or is
required under GAAP to be, reported as a liability on the balance sheet
of such Person at such time as lessee under a Capitalized Lease.
"Cash Equivalent Investments" shall mean any of the following,
to the extent acquired for investment and not with a view to achieving
trading profits: (a) obligations fully backed by the full faith and
credit of the United States of America maturing not in excess of three
(3) months from the date of acquisition, (b) commercial paper rated
"P-1" by Moody's Investors Service or "A-1" by Standard & Poor's
Corporation on the date of acquisition, (c) investments in money market
funds which funds are rated at least AAAm or AAAm G by Standard &
Poor's Corporation or Aaa by Moody's Investors Service, and (d) the
following obligations of any Affiliate of a Lender or any domestic
commercial bank having capital and surplus in excess of Five Hundred
Million Dollars ($500,000,000), which has, or the holding company of
which has, a commercial paper rating meeting the requirements specified
in clause (b) above: (i) time deposits, certificates of deposit and
acceptances maturing not in excess of nine (9) months from the date of
acquisition, or (ii) repurchase obligations with a term of not more
than seven (7) days for underlying securities of the type referred to
in clause (a) above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and any successor statute
of similar import, and regulations thereunder, in each case as in
effect from time to time.
"CERCLIS" shall mean the Comprehensive Environmental Response,
Compensation and Liability Information System List, as the same may be
amended from time to time.
"Change of Control" means any one or more of the following
events:
(a) the acquisition, by contract or otherwise
(including the entry into a contract or arrangement that upon
consummation will result in such acquisition), by any
3
<PAGE> 9
Person or group (as such term is defined for purposes of
Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations
pertaining thereto), of beneficial ownership (within the
meaning of Rule 13d-3, or any regulation or ruling promulgated
to replace or supplement Rule 13d-3, of the General Rules and
Regulations under the Exchange Act), directly or indirectly,
of securities of the Borrower representing 30% or more of the
voting power of all securities of the Borrower, or
(b) during any period of up to 24 consecutive months,
commencing before or after the date of this Agreement,
individuals who at the beginning of such period were directors
of the Borrower (together with any new directors whose
election by the Board of Directors or whose nomination for
election by the stockholders of the Borrower was approved by a
vote of at least 75% of the directors then in office who
either were directors at the beginning of such period or whose
election or nomination for election was previously so
approved) shall cease for any reason to constitute at least
75% of the Board of Directors of the Borrower.
"Closing Date" shall mean March 29, 1996.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute of similar import, and regulations
thereunder, in each case as in effect from time to time. References to
sections of the Code shall be construed also to refer to any successor
sections.
"Collateral" means all property of the Borrower and the
Guarantor Subsidiaries subject from time to time to the Liens granted
in any Security Document, together with any and all cash and non-cash
proceeds and products thereof.
"Collateral Release Event" means that (a) as of the end of any
fiscal quarter of the Borrower, commencing with the fiscal quarter
ending September 30, 1997, (i) a Borrowing Base Suspension Event
occurred at the end of a fiscal year of the Borrower that is at least
two fiscal quarters preceding the fiscal quarter in question and no
Borrowing Base Reinstatement Event has occurred, and (ii) the ratio of
Total Liabilities to Adjusted Tangible Net Worth as of that date is
equal to or less than 1.25 to 1.00 and the Debt Service Coverage Ratio
for the twelve month period then ending is equal to or greater than
2.00 to 1.00, all as evidenced by the financial statements delivered to
the Agent in accordance with Section 6.1(a) or (b) hereof, as the case
may be, and the certificate delivered by the Borrower in accordance
with Section 6.1(c) hereof and (b) no Event of Default or Possible
Default shall have occurred and be continuing.
"Collateral Reinstatement Event" means that, after the
Collateral Release Event, the (a) ratio of Total Liabilities to
Adjusted Tangible Net Worth as of the end of any two consecutive fiscal
quarters of the Borrower is greater than 1.25 to 1.00 or the Debt
Service Coverage Ratio as at the end of the same two fiscal quarters,
for the respective twelve month periods then ending, is less than 2.00
to 1.00, all as evidenced by the financial statements delivered to the
Agent in accordance with Section 6.1(a) or (b) hereof, as the case may
be, and the certificate delivered by the Borrower in accordance with
Section 6.1(c) hereof.
"Commercial Letter of Credit" shall have the meaning set forth
in Section 3.1(a) hereof.
4
<PAGE> 10
"Commercial Letter of Credit Application" shall have the
meaning set forth in Section 3.2(a)(ii) hereof.
"Commitments" of a Lender shall mean the Revolving Credit
Commitment and the Term Loan Commitment of such Lender.
"Commitment Percentage" of a Lender at any time shall mean the
Commitment Percentage for such Lender set forth below its name on the
signature page hereof, subject to transfer to another Lender as
provided in Section 10.14 hereof.
"Compliance Certificate" shall have the meaning set forth in
Section 6.1(c) hereof.
"Consolidated" shall mean the resultant consolidation of the
financial statements of the Borrower and the Subsidiaries of the
Borrower, in accordance with GAAP, including principles of
consolidation consistent with those applied in preparation of the
consolidated financial statements referred to in Section 4.6 hereof.
"Credit Extension" shall mean: (a) the making of any Loan by
any Lender or (b) the issuance, or extension of the expiration date of,
any Letter of Credit by the Issuing Bank.
"Debt Service Coverage Ratio" shall have the meaning set forth
in Section 7.1(e) hereof.
"Deemed Obligor" shall have the meaning set forth in the
definition of "Guaranty Equivalent."
"Dollar," "Dollars" and the symbol "$" shall mean lawful money
of the United States of America.
"Domestic Subsidiary" shall mean any Subsidiary of the
Borrower that is organized or incorporated under the laws of any state
or commonwealth in the United States of America.
"EBIT" for any period, with respect to the Borrower and its
Subsidiaries, shall mean the sum of (a) Net Income for such period PLUS
(b) Interest Expense for such period PLUS (c) with respect to the
Borrower and its Subsidiaries, the charges against income for foreign,
federal, state and local taxes for such period, all as determined on a
Consolidated basis in accordance with GAAP.
"EBITDA" for any period, with respect to the Borrower and its
Subsidiaries, shall mean the sum of (a) EBIT PLUS (b) with respect to
the Borrower and its Subsidiaries, the charges against income for
depreciation for such period PLUS (c) with respect to the Borrower and
its Subsidiaries, the charges against income for amortization for such
period, all as determined on a Consolidated basis in accordance with
GAAP.
"Eltech Acquisition" shall mean the acquisition of certain
technology by the Borrower pursuant to the License Agreement between
Eltech Systems Corporation and the Borrower dated March 27, 1995.
"Eligible Inventory" means the collective reference to the raw
materials and finished goods inventory of the Borrower and the
Guarantor Subsidiaries held by each of them for sale in the
5
<PAGE> 11
ordinary course of business, valued at the lowest of (a) its net
purchase cost or net manufacturing cost (on an average cost method), or
(b) its prevailing market value, excluding, however, any such inventory
which consists of (i) work-in-process, spare parts, property used in
packaging or shipping of inventory, inventory used in research or
development or inventory of a like use or character to the foregoing,
or any goods located outside of the United States of America, (ii) any
goods located outside of a state or other jurisdiction in which the
Agent has properly perfected the security interests of the Agent and
the Lenders by filing in that state or other jurisdiction, free and
clear of all other Liens except Permitted Liens, (iii) any goods not in
the actual possession of, or in transit to, or from, the Borrower or
any Guarantor Subsidiary, (iv) any goods in the possession of a bailee,
warehouseman, consignee or similar third party, or which are located on
premises otherwise leased from another Person, unless that party or
Person has signed such lien waivers and other agreements as the Lenders
may require, which waiver shall be in substantially the form attached
to this Agreement as Exhibit D, PROVIDED that no such waiver from a
landlord is necessary (A) with respect to the leased premises of the
Borrower located in Atlanta, Georgia, Hayward, California, and Houston,
Texas and of Rohrback Cosasco Systems, Inc., a California corporation,
in Santa Fe Springs, California for the thirty (30) day period
immediately succeeding the Closing Date, or (B) with respect to any
leased premises where the inventory located thereon has a value less
than $250,000 and PROVIDED FURTHER that Eligible Inventory shall not at
any time include inventory with an aggregate value greater than
$1,000,000 that is located on leased premises in respect of which the
landlords have not signed and delivered to the Agent such waivers, (v)
any goods the sale or other disposition of which has given rise to a
Receivable, (vi) any inventory that has been discontinued and any
inventory as to which the Agent determines in the exercise of its
discretion at any time and in good faith is defective, unmerchantable,
postseasonal, slow moving (not having been sold for at least twelve
months), in excess supply or obsolete, and (vii) any inventory which
the Agent in the good faith exercise of its discretion has deemed to be
ineligible because the Agent otherwise considers the collateral value
thereof to the Agent and the Lenders to be impaired or its ability to
realize such value to be insecure.
"Eligible Receivable" means, at any time of determination
thereof, the collective reference to each Account of the Borrower and
the Guarantor Subsidiaries that conforms and continues to conform to
the following criteria to the satisfaction of the Agent: (a) the
Account arose in the ordinary course of business of the Borrower or a
Guarantor Subsidiary from a bona fide absolute sale of goods by it, or
from services performed by it, excluding any service or finance charge
and like charges, and was not sold on consignment, on approval or on a
sale or return basis or like arrangement, and (i) such goods have been
shipped and delivered to the appropriate Account Debtors or their
respective designees, the Borrower or the Guarantor Subsidiary, as the
case may be, has in its possession shipping and delivery receipts
evidencing such shipment and delivery, and no return, rejection or
repossession has occurred or (ii) such services have been completed in
a manner consistent with the agreement with the Account Debtor; (b) the
Account is based upon an enforceable order or contract, written or
oral; (c) the title of the Borrower or the Guarantor Subsidiary to the
Account and, except as to the Account Debtor and any creditor which
finances the Account Debtor's purchase of such goods, to any goods is
absolute and is not subject to any prior assignment, claim, or Lien,
except Permitted Liens and Liens created by the Account Debtors in
connection with their interests in the goods, and the Borrower or the
Guarantor Subsidiary, as the case may be, otherwise has the full and
unqualified right and power to assign and grant a security interest in
it to the Agent for the ratable benefit of the Lenders, as security and
collateral for the payment of the Obligations; (d) the amount shown on
the books of the Borrower or the Guarantor Subsidiary, as the case may
be, and on any invoice, certificate, schedule or statement delivered to
the Agent is owing to the Borrower or the Guarantor
6
<PAGE> 12
Subsidiary, as the case may be, and no partial payment has been
received unless reflected with that delivery; (e) the Account is not
subject to any claim of reduction, counterclaim, setoff, recoupment, or
other defense in law or equity, or any claim for credits, allowances,
or adjustments by the Account Debtor because of returned, inferior, or
damaged goods or unsatisfactory services, or for any other reason; (f)
the Account Debtor has not returned or refused to retain, or otherwise
notified the Borrower or the Guarantor Subsidiary, as the case may be,
of any dispute concerning, or claimed nonconformity of, any of the
goods or services from the sale of which the Account arose; (g) the
Account is not outstanding more than ninety (90) days from its due date
or more than one hundred twenty (120) days from the date of the invoice
therefor; (h) the Account is not owing by any Account Debtor for which
fifteen percent (15%) or more of all of such Account Debtor's other
Accounts (or any portion thereof) due to the Borrower and the Guarantor
Subsidiaries to be non-Eligible Receivables (other than with respect to
Receivables of such Account Debtor originally subject to terms of
payment in excess of those permitted by clause (g) above); (i) the
Account does not arise out of a contract with, or order from, an
Account Debtor that, by its terms, forbids or makes void or
unenforceable the assignment by the Borrower or a Guarantor Subsidiary,
as the case may be, to the Agent for the ratable benefit of the Lenders
of the Account arising with respect thereto; (j) the Account Debtor is
not a Subsidiary or other Affiliate of the Borrower or any Guarantor
Subsidiary; (k) except for those Account Debtors identified on Schedule
1.1(a) as that schedule may be amended by the Agent and the Borrower
from time to time, the Account Debtor is not incorporated in or
primarily conducting business in any jurisdiction located outside of
the United States of America unless the applicable Account is secured
by a letter of credit or credit insurance which is in form and
substance, and at the Agent's request is assigned to the Agent for the
ratable benefit of the Lenders in a manner, satisfactory to the Agent
in the exercise of its discretion; (l) the Account Debtor is not a
governmental authority or agency, domestic or foreign, unless (1) the
aggregate amount of all such Accounts to be included as Eligible
Receivables does not exceed One Million Five Hundred Thousand Dollars
($1,500,000) or (2) the Borrower or the Guarantor Subsidiary, as the
case may be, has complied with the Federal Assignment of Claims Act
with respect to such federal authority or agency; (m) the Borrower or
the Guarantor Subsidiary, as the case may be, is not indebted in any
manner to the Account Debtor, with the exception of customary credits,
adjustments and/or discounts given to an Account Debtor in the ordinary
course of business of the Borrower or the Guarantor Subsidiary PROVIDED
that any such Account shall constitute an Eligible Receivable to the
extent that it is not subject to any such counterclaim; (n) the Account
Debtor is Solvent and is not the subject of any bankruptcy or
insolvency proceeding of any kind, has not made an assignment for the
benefit of its creditors, has not had any of its assets transferred to
a receiver or trustee, and has not dissolved or otherwise discontinued
its business; (o) if the Account Debtor owing on such Account is
located in the State of Indiana, New Jersey or Minnesota, the Borrower
or the Guarantor Subsidiary, as the case may be, has filed a Business
Activities Report with the appropriate Governmental Authority for the
then current year if necessary in order to permit actions to collect
such Account, or the Borrower or the Guarantor Subsidiary, as the case
may be, has the legal right to sue the Account Debtor in that Account
Debtor's home state; (p) the Account is not evidenced by a promissory
note or other instrument or chattel paper; and (q) the Agent in good
faith has not deemed the account ineligible because of uncertainty as
to the creditworthiness of the Account Debtor or because the Agent
otherwise considers the collateral value thereof to the Lenders to be
impaired or its ability to realize such value to be insecure.
"Environmental Approvals" shall mean any Governmental Action
pursuant to or required under any Environmental Law.
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<PAGE> 13
"Environmental Claim" shall mean, with respect to any Person,
any action, suit, proceeding, investigation, notice, claim, complaint,
demand, request for information or other communication (written or
oral) by any other Person (including but not limited to any
Governmental Authority, citizens' group or present or former employee
of such Person) alleging, asserting or claiming any actual or potential
(a) violation of any Environmental Law, (b) liability under any
Environmental Law or (c) liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries, fines or penalties arising out of, based on
or resulting from the presence, or release into the environment, of any
Hazardous Materials at any location, whether or not owned by such
Person.
"Environmental Cleanup Site" shall mean any location which is
listed or proposed for listing on the National Priorities List, on
CERCLIS or on any similar state list of sites requiring investigation
or cleanup, or which is the subject of any pending or threatened
action, suit, proceeding or investigation related to or arising from
any alleged violation of any Environmental Law.
"Environmental Law" shall mean any Law, whether now existing
or subsequently enacted or amended, relating to (a) pollution or
protection of the environment, including natural resources, (b)
exposure of Persons, including but not limited to employees, to
Hazardous Materials, (c) protection of the public health or welfare
from the effects of products, by-products, wastes, emissions,
discharges or releases of Hazardous Materials or (d) regulation of the
manufacture, use or introduction into commerce of Hazardous Materials
including their manufacture, formulation, packaging, labeling,
distribution, transportation, handling, storage or disposal. Without
limitation, "Environmental Law" shall also include any Environmental
Approval and the terms and conditions thereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor statute of similar import, and
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which together with the Borrower or any Subsidiary
of the Borrower is treated as a single employer under Sections
4001(a)(14) or 4001(b)(1) of ERISA or Sections 414(b), (c), (m) or (o)
of the Code.
"Euro-Rate" shall have the meaning set forth in Section 2.4(a)
hereof.
"Euro-Rate Base" shall have the meaning set forth in Section
2.4(a) hereto.
"Euro-Rate Funding Period" shall have the meaning set forth in
Section 2.4(c) hereof.
"Euro-Rate Option" shall have the meaning set forth in Section
2.4(a) hereof.
"Euro-Rate Portion" of any Loan or Loans shall mean at any
time the portion, including the whole, of such Loan or Loans bearing
interest at any time (i) under the Euro-Rate Option or (ii) in
accordance with Section 2.10(c)(i) hereof. If no Loan or Loans is
specified, "Euro-Rate Portion" shall refer to the Euro-Rate Portion of
all Loans outstanding at such time.
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"Euro-Rate Reserve Percentage" for any day shall mean the
percentage (expressed as a decimal, rounded upward to the nearest one
sixteenth of one percent (1/16 of 1%)) (which determination shall be
conclusive), which is in effect on such day as prescribed by the Board
of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, supplemental, marginal and other reserves and taking into
account any transitional adjustments or other scheduled changes in
reserve requirements) for a member bank of the Federal Reserve System
in Cleveland, Ohio in respect of "Eurocurrency liabilities."
"Event of Default" shall mean any of the Events of Default
described in Section 8.1 hereof.
"Excess Cash Flow" means for any fiscal year of determination
thereof, an amount equal to fifty percent (50%) of the following for
that fiscal year, as those amounts are shown on the annual financial
statements of the Borrower and its Subsidiaries for such fiscal year
furnished to the Agent in accordance with Section 6.1(a) hereof: EBITDA
(excluding any gain or loss in respect of the Good-All Sale) minus
Interest Expense during that period minus cash payments of taxes during
that period minus the principal portion of Capitalized Lease
Obligations during that period minus all principal payments on Funded
Debt during that period minus Capital Expenditures (excluding
Capitalized Lease Obligations) during that period minus Restricted
Payments of the Borrower during that period minus the changes in
working capital during that period determined in accordance with GAAP.
In the event that the Borrower fails to deliver such financial
statements to the Agent as and when required, the Agent shall estimate,
in its reasonable discretion the amount of Excess Cash Flow for such
period, subject to appropriate adjustment upon receipt of the required
financial statements.
"Existing Credit Facility" shall mean the Credit Agreement,
dated February 9, 1994, as amended, by and between the Borrower and
National City Bank, and all notes, mortgages, security agreements and
other documents, agreements and instruments relating thereto or
executed in connection therewith or as security therefor or evidencing
Indebtedness thereunder.
"Federal Funds Effective Rate" for any day shall mean the rate
per annum (rounded upward to the nearest one-one hundredth (1/100) of
one percent (1%)) determined by the Agent (which determination shall be
conclusive) to be the rate per annum announced by the Federal Reserve
Bank of New York (or any successor) on such day as being the weighted
average of the rates on overnight federal funds transactions arranged
by federal funds brokers on the previous trading day, as computed and
announced by such Federal Reserve Bank (or any successor) in
substantially the same manner as such Federal Reserve Bank computes and
announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; PROVIDED, HOWEVER,
that if such Federal Reserve Bank (or its successor) does not announce
such rate on any day, the "Federal Funds Effective Rate" for such day
shall be the Federal Funds Effective Rate for the last day on which
such rate was announced.
"Foreign Subsidiary" shall mean any Subsidiary of the Borrower
that is not a Domestic Subsidiary.
"Fiscal year" or "fiscal year" shall mean a fiscal year ending
March 31.
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<PAGE> 15
"Funded Debt" at any time shall mean Indebtedness (including
the current portion thereof) of the Borrower and its Subsidiaries which
would as of such time be classified in whole or in part (a) as a
long-term liability in accordance with GAAP, and in any event includes
(i) any Indebtedness having a final maturity later than one (1) year
after the date of incurrence of such Indebtedness and (ii) any
Indebtedness which is renewable or extendable pursuant to its terms by
the obligor in its sole discretion to a date later than one (1) year
after the date of incurrence of such Indebtedness, all on a
Consolidated basis, and (b) otherwise as Indebtedness for borrowed
money regardless of the maturity date.
"Funding Breakage Date" shall have the meaning set forth in
Section 2.11(b) hereof.
"Funding Breakage Indemnity" shall have the meaning set forth
in Section 2.11(b) hereof.
"Funding Segment" of the Euro-Rate Portion of the Loans at any
time shall mean the entire principal amount of such Portion to which,
at the time in question, there is applicable a particular Euro-Rate
Funding Period beginning on a particular day and ending on a particular
day. (By definition, the Euro-Rate Portion is at all times composed of
an integral number of discrete Funding Segments and the sum of the
principal amounts of all Funding Segments of each EuroRate Portion at
any time equals the principal amount of such Euro-Rate Portion at such
time.)
"GAAP" shall have the meaning set forth in Section 1.3 hereof.
"Good-All Mortgage" shall mean the Deed of Trust from Good-All
Electric, Inc., an Ohio corporation, in favor of the Public Trustee of
the County of Larimer, Colorado in substantially in the form of Exhibit
I attached hereto.
"Good-All Real Property" shall mean the real property
described in the Good-All Mortgage.
"Good-All Sale" shall mean the sale of all or any portion of
the assets or voting stock of Good-All Electric, Inc., an Ohio
corporation.
"Governmental Action" shall have the meaning set forth in
Section 4.4 hereof.
"Governmental Authority" shall mean any government or
political subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.
"Guarantor" shall mean any Person that now or may hereafter
guarantee the payment and performance of the Obligations, including the
Guarantor Subsidiaries.
"Guarantor Subsidiary" means PSG Corrosion Engineering Co., a
Delaware corporation, Good-All Electric, Inc., an Ohio corporation,
Corrtherm, Inc., an Ohio corporation, Rohrback Cosasco Systems, Inc., a
California corporation, Ocean City Research Corp., a New Jersey
corporation, and CCFC, Inc., a Nevada corporation, and any other
Domestic Subsidiary of the Borrower organized and acquired in
accordance with this Agreement that executes and delivers to the Agent
a Subsidiary Guaranty.
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<PAGE> 16
"Guaranty Equivalent": a Person (the "Deemed Guarantor") shall
be deemed to be subject to a Guaranty Equivalent in respect of any
indebtedness, obligation or liability (the "Assured Obligation") of
another Person (the "Deemed Obligor") if the Deemed Guarantor directly
or indirectly guarantees, becomes surety for, endorses, assumes, agrees
to indemnify the Deemed Obligor against, or otherwise agrees, becomes
or remains liable (contingently or otherwise) for, such Assured
Obligation. Without limitation, a Guaranty Equivalent shall be deemed
to exist if a Deemed Guarantor agrees, becomes or remains liable
(contingently or otherwise), directly or indirectly: (a) to purchase or
assume, or to supply funds for the payment, purchase or satisfaction,
of, an Assured Obligation, (b) to make any loan, advance, capital
contribution or other investment in, or to purchase or lease any
property or services from, a Deemed Obligor (i) to maintain the
solvency of the Deemed Obligor, (ii) to enable the Deemed Obligor to
meet any other financial condition, (iii) to enable the Deemed Obligor
to satisfy any Assured Obligation or to make any Stock Payment or any
other payment, or (iv) to assure the holder of such Assured Obligation
against loss, (c) to purchase or lease property or services from the
Deemed Obligor regardless of the non-delivery of or failure to furnish
of such property or services, (d) in a transaction having the
characteristics of a take-or-pay or throughput contract or as described
in paragraph 6 of FASB Statement of Financial Accounting Standards No.
47, or (e) in respect of any other transaction the effect of which is
to assure the payment or performance (or payment of damages or other
remedy in the event of nonpayment or nonperformance) of any Assured
Obligation.
"Hazardous Materials" shall mean (a) any flammable substance,
explosive, radioactive material, hazardous material, hazardous waste,
toxic substance, solid waste, pollutant, contaminant or any related
material, raw material, substance, product or by-product of any
substance specified in or regulated or otherwise affected by any
Environmental Law (including but not limited to any "hazardous
substance" as defined in CERCLA or any similar state Law), (b) any
toxic chemical or other substance from or related to industrial,
commercial or institutional activities, and (c) asbestos, gasoline,
diesel fuel, motor oil, waste and used oil, heating oil and other
petroleum products or compounds, polychlorinated biphenyls, radon and
urea formaldehyde.
"Indebtedness" of a Person shall mean, without duplication:
(a) all obligations of such Person for borrowed money
or for the deferred purchase price of property or services
(including, without limitation, all obligations contingent or
otherwise of such Person in connection with acceptance, letter
of credit or similar facilities and in connection with any
agreement to purchase, redeem or otherwise acquire for value
any capital stock of such Person, or agreement to purchase,
redeem or otherwise acquire for value any rights or options to
acquire such capital stock, now or hereafter outstanding);
(b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments or
securities;
(c) all indebtedness created or arising under any
sale and leaseback arrangement, conditional sale or other
title retention agreement with respect to property owned or
acquired by such Person (whether or not the rights and
remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such
property);
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<PAGE> 17
(d) All obligations of such Person for the deferred
purchase price of property or services and all obligations of
such Person under Capitalized Leases;
(e) all contingent reimbursement obligations under
undrawn letters of credit;
(f) All obligations secured by a Lien on property
owned by such Person (whether or not assumed); (without regard
to any limitation of the rights and remedies of the holder of
such Lien or the lessor under such Capitalized Lease to
repossession or sale of such property), it being understood
that obligations of such Person under operating leases shall
not be considered Indebtedness for purposes hereof;
(g) All obligations of such Person in respect of
acceptances or similar obligations issued for the account of
such Person; and
(h) All obligations of such Person under a product
financing or similar arrangement described in paragraph 8 of
FASB Statement of Accounting Standards No. 49 or any similar
requirement of GAAP.
"Indemnified Parties" shall mean the Agent, the Lenders, their
respective Affiliates, and the directors, officer, employees, attorneys
and agents of each of the foregoing.
"Initial Revolving Credit Committed Amount" shall have the
meaning set forth in Section 2.1(a) hereof.
"Initial Term Loan Committed Amount" shall have the meaning
set forth in Section 2.3(a) hereof.
"Interest Expense" for any period shall mean the total
interest expense of the Borrower and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Issuing Bank" shall mean Bank One and such Affiliates of Bank
One which are financial institutions, as Bank One may in its discretion
from time to time elect to cause to issue Letters of Credit.
"Law" shall mean any law (including common law), constitution,
statute, treaty, convention, regulation, rule, ordinance, order,
injunction, writ, decree or award of any Governmental Authority.
"LC Collateral Account" shall have the meaning set forth in
Section 3.9(b)(i) hereof.
"LC Indemnified Parties" shall have the meaning set forth in
Section 3.10 hereof.
"Lease Expense" for any period shall mean the aggregate rental
expense with respect to all leases of the Borrower and its Subsidiaries
for that period, determined on a Consolidated basis, in accordance with
GAAP, but in any case including taxes, insurance, maintenance and
similar expenses which the lessee paid under the terms thereof during
such period.
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<PAGE> 18
"Lender" shall mean any of the Lenders listed on the signature
pages hereof, subject to the provisions of Section 10.14 hereof
pertaining to Persons becoming or ceasing to be Lenders.
"Lender" shall in any event include the Issuing Bank.
"Letters of Credit" shall have the meaning set forth in
Section 3.1(a) hereof.
"Letter of Credit Applications" shall have the meaning set
forth in Section 3.2(a)(ii) hereof.
"Letter of Credit Exposure" at any time shall mean the sum at
such time of (a) the aggregate amount of all Unreimbursed Draws under
Letters of Credit (whether or not the Letter of Credit under which any
such Unreimbursed Draw arose is then outstanding) and (b) the aggregate
Undrawn Availability under all outstanding Letters of Credit.
"Letter of Credit Fee" shall have the meaning set forth in
Section 3.1(d) hereof.
"Letter of Credit Participating Interest" shall have the
meaning set forth in Section 3.3(a) hereof.
"Leverage Ratio" shall have the meaning set forth in Section
7.1(b) hereof.
"Lien" shall mean any mortgage, deed of trust, pledge, lien,
security interest, charge or other encumbrance or security arrangement
of any nature whatsoever, including but not limited to any conditional
sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security.
"Loan" shall mean any Revolving Credit Loan or Term Loan by a
Lender to the Borrower under this Agreement, and "Loans" shall mean all
Revolving Credit Loans and the Term Loan made by the Lenders under this
Agreement.
"Loan Documents" shall mean this Agreement, the Notes, the
Notice of Assignments, the Letters of Credit, the Letter of Credit
Applications, any Subsidiary Guaranties, the Security Documents and all
other agreements, letter agreements, instruments and certificates
executed and delivered in connection with any of the foregoing,
together with all agreements and instruments extending, renewing,
refinancing or refunding any indebtedness, obligation or liability
arising under any of the foregoing, in each case as the same may be
amended, modified or supplemented from time to time hereafter.
"London Business Day" shall mean a day for dealing in deposits
in Dollars by and among banks in the London interbank market and which
is a Business Day.
"Material Adverse Effect" shall mean: (a) a material adverse
effect on the business, operations or financial condition of the
Borrower and its Subsidiaries taken as a whole, (b) a material adverse
effect on the ability of the Borrower or any of its Subsidiaries to
perform or comply with any of the terms and conditions of any Loan
Document to which it is a party, or (c) material adverse effect on the
legality, validity, binding effect or enforceability of any Loan
Document, or the ability of the Agent or any Lender to enforce any
rights or remedies under or in connection with any Loan Document.
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<PAGE> 19
"Merger Documents" shall mean (i) the Agreement of Merger and
Certificate of Ownership by and between the Borrower and Corrosion
Engineering & Research Company, dated the 28th day of March, 1996, (ii)
the Agreement of Merger by and among the Borrower, Harco Technologies
Corporation, Harco Tank Corporation, Butler Leasing, Inc., Mumsy
International Corp., and Durichlor 51 Anode Company, dated the 28th day
of March, 1996, and (iii) the Agreement of Merger by and between the
Borrower and Environmental Strategies, Inc., dated the 28th day of
March, 1996, and all corporate resolutions (whether by shareholders,
directors or otherwise) adopted in connection with the Mergers and all
other documents relating to any Governmental Action taken in connection
with the Mergers.
"Mergers" shall mean, collectively, the mergers described in
the Merger Documents.
"Multiemployer Plan" shall mean any employee benefit plan
which is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA and to which the Borrower or any ERISA Affiliate
has or had an obligation to contribute.
"NCB Term Loan" shall mean that indebtedness described in
item A.2. of Schedule 7.3 hereto.
"Net Income" for any period shall mean the net earnings (or
loss) after taxes of the Borrower and its Subsidiaries for such period,
determined on a Consolidated basis in accordance with GAAP, but not
including any extraordinary items determined in accordance with GAAP
and before any Restricted Payments by the Borrower.
"Note" or "Notes" shall mean the Revolving Credit Note(s) and
the Term Note(s) of the Borrower executed and delivered under this
Agreement, together with all extensions, renewals, refinancings or
refundings of any thereof in whole or part.
"Notice of Assignment" shall have the meaning set forth in
Section 10.14(c) hereof.
"Obligations" shall mean all indebtedness, obligations and
liabilities of the Borrower to any Lender, the Issuing Bank or the
Agent from time to time arising under or in connection with or related
to or evidenced by or secured by or under color of this Agreement or
any other Loan Document, and all extensions, renewals or refinancings
thereof, whether such indebtedness, obligations or liabilities are
direct or indirect, otherwise secured or unsecured, joint or several,
absolute or contingent, due or to become due, whether for payment or
performance, now existing or hereafter arising. Without limitation of
the foregoing, such indebtedness, obligations and liabilities include
(a) the principal amount of Loans, interest, fees, indemnities or
expenses under or in connection with this Agreement or any other Loan
Document, and all extensions, renewals, refinancings and refundings
thereof, whether or not such Loans were made in compliance with the
terms and conditions of this Agreement or in excess of the obligation
of the Lenders to lend and (b) interest and other obligations arising
or accruing after the commencement of any bankruptcy, insolvency,
reorganization, dissolution or similar proceeding with respect to the
Borrower, any Subsidiary of the Borrower or any other Person, or which
would have arisen or accrued but for the commencement of such
proceeding, even if such obligation or the claim thereof is not
enforceable or allowable in such proceeding. Obligations shall remain
Obligations notwithstanding any assignment or transfer or any
subsequent assignment or transfer of any of the Obligations or any
interest therein.
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<PAGE> 20
"Option" shall mean the Base Rate Option or the Euro-Rate
Option, as the case may be.
"Participant" shall have the meaning set forth in Section
10.14(b) hereof.
"PBGC" means the Pension Benefit Guaranty Corporation
established under Title IV of ERISA or any other governmental agency,
department or instrumentality succeeding to the functions of said
corporation.
"Pension Event" shall mean any of the following events or
conditions:
(a) Any action is taken by any Person (i) to
terminate, or which would result in the termination of, a
Plan, either pursuant to its terms or by operation of law
(including, without limitation, any amendment of a Plan which
would result in a termination under Section 4041(e) of ERISA),
or (ii) to have a trustee appointed for a Plan pursuant to
Section 4042 of ERISA;
(b) PBGC notifies any Person of its determination
that an event described in Section 4042 of ERISA has occurred
with respect to a Plan, that a Plan should be terminated, or
that a trustee should be appointed for a Plan;
(c) Any Reportable Event occurs with respect to a
Plan;
(d) (i) There occurs any failure to meet the minimum
funding standard under Section 302 of ERISA or Section 412 of
the Code with respect to a Plan, or any tax return is filed
showing any tax payable under Section 4971(a) of the Code with
respect to any such failure, or the Borrower, any Subsidiary
of the Borrower or any ERISA Affiliate receives a notice of
deficiency from the Internal Revenue Service with respect to
any alleged or asserted such failure, or (ii) any request is
made by any Person for a variance from the minimum funding
standard, or an extension of the period for amortizing
unfunded liabilities, with respect to a Plan;
(e) Any action occurs or is taken which could result
in the Borrower or any Subsidiary of the Borrower becoming
subject to liability for a complete or partial withdrawal by
any Person from a Multiemployer Plan (including, without
limitation, seller liability incurred under Section 4204(a)(2)
of ERISA), or the Borrower, any Subsidiary of the Borrower or
any ERISA Affiliate receives from any Person a notice or
demand for payment on account of any such alleged or asserted
liability; or
(f) Any prohibited transaction (as that term is
defined in Section 4975(c) of the Code or Section 406 of
ERISA), for which as a statutory exemption under Code Section
4975(d) of the Code or Section 408 of ERISA is unavailable,
occurs with respect to a Plan.
"Permitted Liens" shall have the meaning set forth in Section
7.2 hereof, but shall in no event include any Lien imposed by, or
required to be granted pursuant to, ERISA or any Environmental Law.
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<PAGE> 21
"Person" shall mean an individual, corporation, partnership,
limited liability company, trust, unincorporated association, joint
venture, joint-stock company, Governmental Authority or any other
entity.
"Plan" means any employee pension benefit plan within the
meaning of Section 3(2) of ERISA (other than a Multiemployer Plan), or
any employee welfare benefit plan within the meaning of Section 3(1) of
ERISA, of which the Borrower or any Subsidiary of the Borrower or any
ERISA Affiliate is or has been within the preceding five years a
"contributing sponsor" within the meaning of Section 4001(a)(13) of
ERISA, or which is or has been within the preceding five years
maintained for employees of the Borrower or any Subsidiary of the
Borrower or any ERISA Affiliate.
"Portion" shall mean the Base Rate Portion or the Euro-Rate
Portion, as the case may be.
"Postretirement Benefits" shall mean any benefits, other than
retirement income, provided by the Borrower or any Subsidiary of the
Borrower or ERISA Affiliate to retired employees, or to their spouses,
dependents or beneficiaries, including, without limitation, group
medical insurance or benefits, or group life insurance or death
benefits.
"Postretirement Benefit Obligation" shall mean that portion of
the actuarial present value of all Postretirement Benefits expected to
be provided by the Borrower or any Subsidiary of the Borrower which is
attributable to employees' service rendered to the date of
determination (assuming that such liability accrues ratably over an
employee's working life to the earlier of his date of retirement or the
date on which the employee would first become eligible for full
benefits), reduced by the fair market value as of the date of
determination of any assets which are segregated from the assets of the
Borrower or such Subsidiary and which have been restricted so that they
cannot be used for any purpose other than to provide Postretirement
Benefits or to defray related expenses.
"Possible Default" shall mean any event or condition which
with notice, passage of time or a determination by the Lender, or any
combination of the foregoing, would constitute an Event of Default.
"Prime Rate" as used herein, shall mean the fluctuating
interest rate per annum announced from time to time by Bank One as its
"prime rate" thereafter in effect, it being specifically acknowledged
that the Prime Rate is not necessarily the lowest rate of interest then
available from Bank One on fluctuating-rate loans.
"Pro Rata" shall mean from or to each Lender in proportion to
its Commitment Percentage.
"Purchase Allowance" shall have the meaning set forth in
Section 7.9(b) hereof.
"Purchasing Lender" shall have the meaning set forth in
Section 10.14(c) hereof.
"Regular Payment Date" shall mean the last day of each March,
June, September and December, commencing June 30, 1996.
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<PAGE> 22
"Reimbursement Obligation" with respect to a Letter of Credit
means the obligation of the Borrower to reimburse the Issuing Bank for
Unreimbursed Draws, together with interest thereon.
"Reportable Event" means (i) a reportable event described in
Section 4043 of ERISA and regulations thereunder, (ii) a withdrawal by
a substantial employer from a Plan to which more than one employer
contributes, as referred to in Section 4063(b) of ERISA, (iii) a
cessation of operations at a facility causing any Plan participants to
be separated from employment, as referred to in Section 4062(e) of
ERISA, or (iv) a failure to make a required installment or other
payment with respect to a Plan when due in accordance with Section 412
of the Code or Section 302 of ERISA.
"Required Lenders" shall mean, as of any date, Lenders which
have made Loans constituting, in the aggregate, sixty-six and
two-thirds (66-2/3%) in principal amount of Loans outstanding on such
date or, if no Loans are outstanding on such date, Lenders which have
Commitments constituting, in the aggregate, sixty-six and two-thirds
percent (66-2/3%) of the total Commitments of all the Lenders,
excluding in any event any Purchasing Lender and the Loans made by or
the Commitments of any Purchasing Lender.
"Restricted Payment" by any Person shall mean any dividend,
distribution or payment of any nature (whether in cash, securities, or
other property) on account of or in respect of any shares of the
capital stock (or warrants, options or rights therefor) of such Person,
including but not limited to any payment on account of the purchase,
redemption, retirement, defeasance or acquisition of any shares of the
capital stock (or warrants, options or rights therefor) of such Person,
in each case regardless of whether required by the terms of such
capital stock (or warrants, options or rights) or any other agreement
or instrument.
"Revolving Credit Commitment" shall have the meaning set forth
in Section 2.1(a) hereof.
"Revolving Credit Commitment Fee" shall have the meaning set
forth in Section 2.2 hereof.
"Revolving Credit Committed Amount" shall have the meaning set
forth in Section 2.1(a) hereof.
"Revolving Credit Exposure" of any Lender at any time shall
mean the sum at such time of the outstanding principal amount of such
Lender's Revolving Credit Loans PLUS such Lender's Pro Rata share of
the sum of the aggregate Letter of Credit Exposure.
"Revolving Credit Loans" shall have the meaning set forth in
Section 2.1(a) hereof.
"Revolving Credit Maturity Date" shall mean March 31, 1999.
"Revolving Credit Note" shall mean the promissory note of the
Borrower executed and delivered under Section 2.1(c) hereof, any
promissory note issued in substitution therefor pursuant to Sections
2.11(b) or 10.14(c) hereof, together with all extensions, renewals,
refinancings or refundings thereof in whole or part.
"Security Documents" means the Borrower Security Agreement,
each Subsidiary Guaranty executed and delivered by each Guarantor
Subsidiary, each Subsidiary Security Agreement, the
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<PAGE> 23
Good-All Mortgage, and any other agreements or instruments granting a
Lien to the Agent or any Lender on any property of the Borrower or any
Subsidiary of the Borrower, whether now or hereafter executed and
delivered to the Agent or any Lender.
"Solvent" means, with respect to any Person at any time, that
at such time (a) the sum of the debts and liabilities (including,
without limitation, contingent liabilities) of such Person is not
greater than all of the assets of such Person at a fair valuation, (b)
the present fair salable value of the assets of such Person is not less
than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (c) such
Person has not incurred, will not incur, does not intend to incur, and
does not believe that it will incur, debts or liabilities (including,
without limitation, contingent liabilities) beyond such Person's
ability to pay as such debts and liabilities mature, (d) such Person is
not engaged in, and is not about to engage in, a business or a
transaction for which such Person's property constitutes or would
constitute unreasonably small capital, and (e) such Person is not
otherwise insolvent as defined in, or otherwise in a condition which
could in any circumstances then or subsequently render any transfer,
conveyance, obligation or act then made, incurred or performed by it
avoidable or fraudulent pursuant to, any Law that may be applicable to
such Person pertaining to bankruptcy, insolvency or creditors' rights
(including but not limited to the Bankruptcy Code of 1978, as amended,
and, to the extent applicable to such Person, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act, or any other
applicable law pertaining to fraudulent conveyances or fraudulent
transfers or preferences).
"Standard Notice" shall mean an irrevocable notice (which may
be by telephone confirmed in writing) provided to the Agent on a
Business Day which is
(a) The same Business Day in the case of selection
of, conversion to or renewal of the Base Rate Option or
prepayment of any Base Rate Portion; and
(b) At least two (2) London Business Days in advance
in the case of selection of, conversion to or renewal of the
Euro-Rate Option or prepayment of any Euro-Rate Portion.
Standard Notice must be provided no later than 12:00 noon,
Columbus, Ohio time, on the last day permitted for such notice.
"Standby Letter of Credit" shall have the meaning set forth in
Section 3.1(a) hereof.
"Standby Letter of Credit Application" shall have the meaning
set forth in Section 3.2(b)(ii) hereof.
"Stated Amount" of a Letter of Credit shall mean the face
amount thereof, drawn or undrawn, regardless of the existence or
satisfaction of any conditions or limitations on drawing.
"Subsidiary" as to any Person shall mean any corporation of
which a majority (by number of shares or number of votes) of any class
of outstanding capital stock normally entitled to vote for the election
of one or more directors (regardless of any contingency which does or
may suspend or dilute the voting rights of such class) is at such time
owned directly or indirectly, beneficially or of record, by that Person
or one or more Subsidiaries of such Person, and any trust
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<PAGE> 24
of which a majority of the beneficial interest is at such time owned
directly or indirectly, beneficially or of record, by such Person or
one or more Subsidiaries of such Person.
"Subsidiary Guaranty" shall mean a Guaranty Agreement
substantially in the form of Exhibit E attached hereto.
"Subsidiary Security Agreement" shall mean, on any date, each
Security Agreement, Pledge and Assignment, executed and delivered by
each Guarantor Subsidiary, to the Agent of even date herewith, as
thereafter from time to time amended, supplemented, amended and
restated or otherwise modified and in effect on such date.
"Tangible Net Worth" means the total assets of the Borrower
and its Subsidiaries less (i) the Total Liabilities of the Borrower and
its Subsidiaries less (ii) the aggregate amount of all intangible
assets determined in accordance with GAAP (including, without
limitation, good will and organizational costs of Borrower or any of
its Subsidiaries), plus (iii) charges relating to litigation reserves
in respect of the litigation described on Schedule 4.12 hereto, in
accordance with GAAP in an amount not to exceed $1,000,000, all
determined on a Consolidated basis.
"Taxes" shall have the meaning set forth in Section 2.12
hereof.
"Term Loan Commitment" shall have the meaning set forth in
Section 2.3(a) hereof.
"Term Loan Committed Amount" shall have the meaning set forth
in Section 2.3(a) hereof.
"Term Loan" shall have the meaning set forth in Section 2.3(a)
hereof.
"Term Loan Maturity Date" shall mean March 31, 2000.
"Term Loan Mandatory Prepayment" shall have the meaning set
forth in Section 2.8(b) hereof.
"Term Note" shall mean each promissory note of the Borrower
executed and delivered under Section 2.3(b) hereof, any promissory note
issued in substitution therefor pursuant to Sections 2.11(b) or
10.14(c) hereof, together with all extensions, renewals, refinancings
or refundings thereof in whole or part.
"Total Liabilities" at any time shall mean the total
liabilities of the Borrower and its Subsidiaries for such period,
determined on a Consolidated basis in accordance with GAAP.
"Treasury Rate" as of any Funding Breakage Date shall mean the
rate per annum determined by the applicable Lender (which determination
shall be conclusive absent manifest error) to be the semiannual
equivalent yield to maturity (expressed as a semiannual equivalent and
decimal and, in the case of United States Treasury bills, converted to
a bond equivalent yield) for United States Treasury securities maturing
on the last day of the corresponding Euro-Rate Funding Period and
trading in the secondary market in reasonable volume (or if no such
securities mature on such date, the rate determined by standard
securities interpolation methods as applied to the series of securities
maturing as close as possible to, but earlier than, such date, and the
series of such securities maturing as close as possible to, but later
than, such date).
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<PAGE> 25
"Undrawn Availability" with respect to a Letter of Credit at
any time shall mean the maximum amount available to be drawn under such
Letter of Credit at such time, regardless of the existence or
satisfaction of any conditions or limitations on drawing.
"Unreimbursed Draws" with respect to a Letter of Credit at
such time shall mean the aggregate amount at such time of all payments
made by the Issuing Bank under such Letter of Credit, to the extent not
repaid by the Borrower on the date when due.
1.2 CONSTRUCTION. Unless the context of this Agreement
otherwise clearly requires, references to the plural include the singular, the
singular the plural and the part the whole; "or" has the inclusive meaning
represented by the phrase "and/or"; and "property" includes all properties and
assets of any kind or nature, tangible or intangible, real, personal or mixed.
References in this Agreement to "determination" (and similar terms) by the Agent
or by any Lender or the Issuing Bank include good faith estimates by that Person
(in the case of quantitative determinations) and good faith beliefs by that
Person (in the case of qualitative determinations). The words "hereof,"
"herein," "hereunder" and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
References herein to "out-of-pocket expenses" of a Person (and similar terms)
include, but are not limited to, the fees of in-house counsel and other in-house
professionals of such Person to the extent that such fees are routinely
identified and specifically charged under such Person's normal cost accounting
system. The section and other headings contained in this Agreement and the Table
of Contents preceding this Agreement are for reference purposes only and shall
not control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection and exhibit references are to this
Agreement unless otherwise specified.
1.3 ACCOUNTING PRINCIPLES.
(a) As used herein, "GAAP" shall mean generally accepted
accounting principles in the United States, applied on a basis consistent with
the principles used in preparing the Borrower's financial statements as of March
31, 1995, and for the fiscal year then ended.
(b) Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters shall be
made, and all financial statements to be delivered pursuant to this Agreement
shall be prepared, in accordance with GAAP (including principles of
consolidation where appropriate), and all accounting or financial terms shall
have the meanings ascribed to such terms by GAAP.
ARTICLE 2
THE CREDITS
-----------
2.1 REVOLVING CREDIT LOANS.
(a) REVOLVING CREDIT COMMITMENTS. Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Lender, severally and not jointly, agrees (such agreement being herein
called such Lender's "Revolving Credit Commitment") to make loans (the
"Revolving Credit Loans") to the Borrower at any time or from time to time on or
after the date hereof and to but not including the Revolving Credit Maturity
Date. A Lender shall have no obligation to make any Revolving Credit Loan to the
extent that the aggregate principal amount of such Lender's Revolving Credit
Loans at any time outstanding, together with such Lender's Pro Rata share of any
requested
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<PAGE> 26
Revolving Credit Loan and such Lender's Pro Rata share of the Stated Amount of
any Letter of Credit requested by the Borrower, PLUS such Lender's Pro Rata
share of the aggregate Letter of Credit Exposure PLUS such Lender's Pro Rata
share of the outstanding principal of the Term Loan, would exceed the lesser of
(i) such Lender's Revolving Committed Amount at such time PLUS such Lender's Pro
Rata share of the outstanding principal of the Term Loan or (ii) such Lender's
Pro Rata share of the Borrowing Base. Each Lender's "Revolving Credit Committed
Amount" at any time shall be equal to the amount set forth as its "Initial
Revolving Credit Committed Amount" below its name on the signature pages hereof,
and subject to transfer to another Lender as provided in Section 10.14 hereof.
In no event shall the sum of the Revolving Credit Committed Amounts of the
Lenders exceed Thirty Two Million Five Hundred Thousand Dollars ($32,500,000) at
any time.
(b) NATURE OF CREDIT. Within the limits of time and amount set
forth in this Section 2.1, and subject to the provisions of this Agreement, the
Borrower may borrow, repay and reborrow Revolving Credit Loans hereunder.
(c) REVOLVING CREDIT NOTES. The obligation of the Borrower to
repay the unpaid principal amount of the Revolving Credit Loans made to it by
each Lender and to pay interest thereon shall be evidenced in part by promissory
notes of the Borrower, one to each Lender, dated the Closing Date (the
"Revolving Credit Notes") in substantially the form attached hereto as Exhibit
A-1, with the blanks appropriately filled, payable to the order of such Lender
in a face amount equal to such Lender's Initial Revolving Credit Committed
Amount.
(d) MATURITY. To the extent not due and payable earlier, the
Revolving Credit Loans shall be due and payable on the Revolving Credit Maturity
Date.
(e) REVOLVING CREDIT COMMITMENT FEE. The Borrower shall pay to
the Agent for the account of each Lender a commitment fee (the "Revolving Credit
Commitment Fee") equal to 0.25% per annum (based on a year of three hundred
sixty (360) days and actual days elapsed), for each day from and including the
date hereof to but not including the Revolving Credit Maturity Date, on the
amount (not less than zero (0)) equal to (a) such Lender's Revolving Credit
Committed Amount on each such day MINUS (b) the sum of (i) the aggregate
principal amount of such Lender's Revolving Credit Loans outstanding on each
such day PLUS (ii) such Lender's Pro Rata share of the aggregate Letter of
Credit Exposure in respect of Standby Letters of Credit on each such day. Such
Revolving Credit Commitment Fee shall be due and payable for the preceding
period for which such fee has not been paid on each Regular Payment Date and on
the Revolving Credit Maturity Date.
(f) BORROWING BASE. The Borrowing Base shall be computed based
on the Borrowing Base Report most recently delivered in conformity with this
Agreement. The Borrowing Base shall be subject to reduction by the amount of any
Account or any inventory which was included in the Borrowing Base but which
fails to meet the respective criteria applicable from time to time for Eligible
Receivables or Eligible Inventory. The Borrowing Base, and any one or more of
the percentages and amounts set forth in the definition of the Borrowing Base,
may be changed by the Agent at the direction of all of the Lenders in their
reasonable discretion, at any time upon at least fifteen (15) days' prior
written notice to the Borrower.
Notwithstanding any provision herein to the contrary, upon the
occurrence of a Borrowing Base Suspension Event, all references in this
Agreement to the Borrowing Base and to Borrowing Base Reports shall not be
applicable to the Revolving Credit Loans or the Borrower and shall be of no
force and effect, unless and until there shall have occurred a Borrowing Base
Reinstatement Event.
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<PAGE> 27
Furthermore, notwithstanding any provision herein to the contrary, upon
the occurrence of a Collateral Release Event and promptly upon the written
request of the Borrower to the Agent, the Agent and the Lenders agree to execute
and deliver to the Borrower, at the Borrower's expense, such agreements and
documents as the Borrower shall reasonably request to release and terminate the
Liens of the Lenders and the Agent in and to the Collateral; PROVIDED that upon
the occurrence of a Collateral Reinstatement Event, the Borrower and its
Subsidiaries shall immediately execute and deliver to the Agent, at the
Borrower's expense, such agreements and documents as the Agent and the Lenders
shall reasonably request to grant and reinstate the Liens of the Lenders and the
Agent in and to the Collateral.
2.2 MAKING OF REVOLVING CREDIT LOANS. Whenever the Borrower
desires that the Lenders make Revolving Credit Loans, the Borrower shall provide
Standard Notice to the Agent setting forth the following information (a separate
notice being required for each such type of Loan):
(a) The date, which shall be a Business Day, on which such
proposed Revolving Credit Loans are to be made;
(b) The aggregate principal amount of such proposed Revolving
Credit Loans, which shall be the sum of the principal amounts selected
pursuant to clause (c) of this Section 2.2;
(c) The interest rate Option or Options selected in accordance
with Section 2.4(a) hereof and the principal amounts selected in
accordance with Section 2.4(d) hereof of the Base Rate Portion and each
Funding Segment of the Euro-Rate Portion of such proposed Revolving
Credit Loans; and
(d) With respect to each such Funding Segment thereof, the
Euro-Rate Funding Period to apply to such Funding Segment, selected in
accordance with Section 2.4(c) hereof.
Standard Notice having been so provided, the Agent shall promptly notify each
Lender of the information contained therein and of the amount of such Lender's
Revolving Credit Loan. Unless any applicable condition specified in Article 5
hereof has not been satisfied, on the date specified in such Standard Notice
each Lender shall make the proceeds of its Revolving Credit Loan available to
the Agent at the Agent's Administrative Office, no later than 3:00 p.m.,
Columbus, Ohio time, in funds immediately available at the Agent's
Administrative Office. The Agent will make the funds so received available to
the Borrower in funds immediately available at the Agent's Administrative
Office. The Agent shall notify the Borrower as soon as practicable if for any
reason a proposed Revolving Credit Loan is or will not be made on the date
requested by the Borrower.
Unless the Agent shall have been notified in writing by any Lender not later
than the close of business on the day before the day on which Revolving Credit
Loans are requested by the Borrower to be made that such Lender will not make
its Pro Rata share of such Loans, the Agent may assume that such Lender will
make its Pro Rata share of the Revolving Credit Loans, and in reliance upon such
assumption the Agent may (but in no circumstances shall be required to) make
available to the Borrower a corresponding amount. If and to the extent that any
Lender fails to make such payment to the Agent on such date, such Lender shall
pay such amount on demand (or, if such Lender fails to pay such amount on
demand, the Borrower shall pay such amount on demand), together with interest,
for the Agent's own account, for each day from and including the date of the
Agent's payment to and excluding the date of repayment to the Agent (before and
after judgment) at the rate or rates per annum applicable to such Loans. All
payments to the Agent under this Section shall be made to the Agent at the
Agent's Administrative Office in Dollars
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<PAGE> 28
in funds immediately available at such Agent's Administrative Office, without
set-off, withholding, counterclaim or other deduction of any nature.
2.3 TERM LOANS.
(a) TERM LOAN COMMITMENTS. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each
Lender, severally and not jointly, agrees (such agreement being herein called
such Lender's "Term Loan Commitment") to make loans (the "Term Loan") to the
Borrower on the Closing Date. Each Lender's "Term Loan Committed Amount" at any
time shall be equal to the amount set forth as its "Initial Term Loan Committed
Amount" below its name on the signature pages hereof, and subject to transfer to
another Lender as provided in Section 10.14 hereof. The sum of the Term Loan
Committed Amounts of the Lenders equals Five Million Dollars ($5,000,000).
(b) TERM NOTES. The obligation of the Borrower to repay the
unpaid principal amount of the Term Loan made to it by each Lender and to pay
interest thereon shall be evidenced in part by promissory notes of the Borrower,
one to each Lender, dated the Closing Date (the "Term Notes") in substantially
the form attached hereto as Exhibit A-2, with the blanks appropriately filled,
payable to the order of such Lender in a face amount equal to such Lender's
Initial Term Loan Committed Amount.
(c) PAYMENTS AND MATURITY. The Borrower shall repay the
aggregate outstanding principal of the Term Notes to the Lenders quarterly on
the last day of each fiscal quarter of the Borrower as follows: eight (8)
quarterly installments of One Hundred Fifty Thousand Dollars ($150,000)
commencing on June 30, 1996 through and including March 31, 1998; seven (7)
quarterly installments of Three Hundred Thirty Thousand Dollars ($330,000)
commencing on June 30, 1998 through and including December 31, 1999; and the
remaining balance on the Term Note shall be due and payable on March 31, 2000
(the "Term Loan Maturity Date").
2.4 INTEREST RATES.
(a) OPTIONAL BASES OF BORROWING. The unpaid principal amount
of the Loans shall bear interest for each day until due on one or more bases
selected by the Borrower from among the interest rate Options set forth below.
Subject to the provisions of this Agreement, the Borrower may select different
Options to apply simultaneously to different Portions of the Loans and may
select different Funding Segments to apply simultaneously to different parts of
the Euro-Rate Portion of the Loans.
(i) "BASE RATE OPTION": A rate per annum (computed on the
basis of a year of three hundred sixty (360) days and actual days
elapsed) for each day equal to the Base Rate for such day PLUS the
Applicable Margin for such day. The "Base Rate" for any day shall mean
the Prime Rate for such day, such interest rate to change automatically
from time to time effective as of the effective date of each change in
the Prime Rate.
(ii) "EURO-RATE OPTION": A rate per annum (based on a year of
three hundred sixty (360) days and actual days elapsed) for each day
equal to the Euro-Rate for such day PLUS the Applicable Margin in
effect for such day. "Euro-Rate" for any day shall mean, for each
Funding Segment of the Euro-Rate Portion corresponding to a proposed or
existing Euro-Rate Funding Period, the rate per annum determined by the
Agent by dividing (A) the rate of interest per annum (rounded upward to
the nearest one sixteenth of one percent (1/16 of 1%) determined by the
Agent in accordance with its usual procedures (which determination
shall be conclusive) to be the average of the rates per annum for
deposits in Dollars offered by prime banks in any eurodollar
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<PAGE> 29
market reasonably selected by the Agent and determined as of
approximately 11:00 a.m., London time, two (2) London Business Days
prior to the first day of such Euro-Rate Funding Period for delivery on
the first day of such Euro-Rate Funding Period in amounts comparable to
such Funding Segment and having maturities comparable to such Euro-Rate
Funding Period (the "Euro-Rate Base") by (B) a number equal to one (1)
MINUS the Euro-Rate Reserve Percentage for such day. The Euro-Rate
shall be adjusted automatically as of the effective date of each change
in the Euro-Rate Reserve Percentage. The Euro-Rate Option shall be
calculated in accordance with the foregoing whether or not any Lender
is actually required to hold reserves in connection with its
eurocurrency funding or, if required to hold such reserves, is required
to hold reserves at the Euro-Rate Reserve Percentage.
The "Euro-Rate" may also be expressed by the following
formula:
Euro-Rate = THE EURO-RATE BASE
---------------------------------------
[1.00 - Euro-Rate Reserve Percentage]
The Agent shall give prompt notice to the Borrower and to the
Lenders of the EuroRate determined or adjusted in accordance with the definition
of the Euro-Rate Reserve Percentage, which determination or adjustment shall be
conclusive. Each Lender shall have the right from time to time, but not the
obligation, to make Loans on the Euro-Rate Option with funds obtained from
outside the United States of America.
(b) APPLICABLE MARGINS. The Applicable Margin for each
applicable interest rate Option shall mean the Applicable Margin set forth below
for that interest rate Option that corresponds to the Leverage Ratio as of the
last day of the preceding fiscal quarter of the Borrower as reflected on the
financial statements delivered to the Agent for that quarter, and in the case of
the quarter ending March 31 for the fiscal year end, pursuant to Section 6.1(a)
or 6.1(b), as the case may be, and in the applicable Compliance Certificate,
which Applicable Margin shall be effective for the period commencing on the
third Business Day following the date that such financial statements and
applicable Compliance Certificate are delivered to the Agent through and
including the second Business Day following the date that the Borrower next
delivers to the Agent financial statements pursuant to Section 6.1(a) or 6.1(b),
as the case may be, hereof and the Compliance Certificate relating thereto.
Notwithstanding any provision herein to the contrary, the Applicable Margin on
the Base Rate Option and the Euro-Rate Option from the Closing Date hereof
through and including June 30, 1996 shall be 0% and 2.375%, respectively.
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<TABLE>
<CAPTION>
==========================================================================================================================
EURO-RATE BASE RATE
APPLICABLE APPLICABLE
LEVERAGE RATIO MARGIN MARGIN
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
less than or equal to 1.25 to 1.00 1.375% 0%
- --------------------------------------------------------------------------------------------------------------------------
greater than 1.25 to 1.00, but less than or 1.875% 0%
equal to 1.50 to 1.00
- --------------------------------------------------------------------------------------------------------------------------
greater than 1.50 to 1.00, but less than or 2.125% 0%
equal to 1.75 to 1.00
- --------------------------------------------------------------------------------------------------------------------------
greater than 1.75 to 1.00, but less than to 2.375% 0%
equal to 2.50 to 1.00
==========================================================================================================================
</TABLE>
(c) EURO-RATE FUNDING PERIODS. At any time when the Borrower
shall select, convert to or renew the Euro-Rate Option to apply to any part of
the Loans, the Borrower shall specify one (1) or more periods (the "Euro-Rate
Funding Periods") during which each such Option shall apply. Such Euro-Rate
Funding Periods shall be one (1), two (2), three (3) or six (6) months;
PROVIDED, HOWEVER, that:
(i) Each Euro-Rate Funding Period shall begin on a
London Business Day, and the term "month," when used in connection with
a Euro-Rate Funding Period, shall be construed in accordance with
prevailing practices in the applicable eurodollar market at the
commencement of such Euro-Rate Funding Period, as determined by the
Agent (which determination shall be conclusive absent manifest error);
(ii) The Borrower may not select a Euro-Rate Funding
Period that would end after the Revolving Credit Maturity Date in the
case of Revolving Credit Loans or that would end after the Term Loan
Maturity Date in the case of the Term Loan; and
(iii) The Borrower shall, in selecting any Euro-Rate
Funding Period for any portion of the Term Loan, allow for scheduled
principal payments thereon and foreseeable mandatory prepayments.
(d) TRANSACTIONAL AMOUNTS. Every selection of, conversion
from, conversion to or renewal of an interest rate Option and every payment or
prepayment of any Loans shall be in a principal amount such that after giving
effect thereto the aggregate principal amount of the Base Rate Portion of the
Loans or the aggregate principal amount of each Funding Segment of the Euro-Rate
Portion of the Loans shall be as set forth below:
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<PAGE> 31
<TABLE>
<CAPTION>
PORTION OR FUNDING SEGMENT ALLOWABLE AGGREGATE PRINCIPAL AMOUNTS
-------------------------- -------------------------------------
<S> <C>
Base Rate Portion Fifty Thousand Dollars ($50,000) or any
amount in excess thereof; and
Each Funding Segment of the Euro- One Million Dollars ($1,000,000) or an
Rate Portion integral multiple of One Hundred Thousand
Dollars ($100,000) in excess thereof
</TABLE>
(e) EURO-RATE UNASCERTAINABLE; IMPRACTICABILITY. If
(i) on any date on which a Euro-Rate would
otherwise be set, the Agent, or any Lender (in the case of clause (B)
below), shall have determined (which determination shall be conclusive
absent manifest error) that:
(A) adequate and reasonable means do not exist for
ascertaining such Euro-Rate, or
(B) a contingency has occurred which materially and
adversely affects the interbank eurodollar market; or
(ii) at any time any Lender shall have determined
(which determination shall be conclusive) that the making, maintenance
or funding of any part of the Euro-Rate Portion has been made
impracticable or unlawful by compliance by such Lender with any Law or
guideline or interpretation or administration thereof by any
Governmental Authority charged with the interpretation or
administration thereof or with any request or directive of any such
Governmental Authority (whether or not having the force of law);
then, and in any such event, the Agent or such Lender, as the case may be, may
notify the Borrower of such determination (and any Lender giving such notice
shall notify the Agent). Upon such date as shall be specified in such notice
(which shall not be earlier than the date such notice is given), the obligation
of each of the Lenders to allow the Borrower to select, convert to or renew the
Euro-Rate Option shall be suspended until the Agent or such Lender, as the case
may be, shall have later notified the Borrower (and any Lender giving such
notice shall notify the Agent) of the Agent's or such Lender's determination
(which determination shall be conclusive) that the circumstance giving rise to
such previous determination no longer exist.
If any Lender notifies the Borrower of a determination under
subsection (ii) of this Section 2.4(e), the Euro-Rate Portion of the Loans of
such Lender (the "Affected Lender") shall automatically be converted to the Base
Rate Option as of the date specified in such notice (and accrued interest
thereon shall be due and payable on such date).
If, at the time the Agent or a Lender makes a determination
under subsection (i) or (ii) of this Section 2.4(e), the Borrower previously has
notified the Agent that it wishes to select, convert to or renew the Euro-Rate
Option with respect to any proposed Loans but such Loans have not yet
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<PAGE> 32
been made, such notification shall be deemed to provide for selection of,
conversion to or renewal of the Base Rate Option instead of the Euro-Rate Option
with respect to such Loans or, in the case of a determination by a Lender, such
Loans of such Lender.
2.5 CONVERSION OR RENEWAL OF INTEREST RATE OPTIONS.
(a) CONVERSION OR RENEWAL. Subject to the provisions of
Section 2.11(b) hereof and the other provisions of this Agreement, and if no
Event of Default shall have occurred and be continuing or shall exist, the
Borrower may (i) convert any part of its Loans from an interest rate Option to
another interest rate Option at any time, and (ii) renew the Euro-Rate Option as
to any Funding Segment of the Euro-Rate Portion at the expiration of the
Euro-Rate Funding Period for such Funding Segment of the Euro-Rate Portion.
Whenever the Borrower desires to convert or renew any interest rate Option, the
Borrower shall provide to the Agent Standard Notice setting forth the following
information:
(w) The date, which shall be a Business Day, on which
the proposed conversion or renewal is to be made;
(x) The principal amounts selected in accordance with
Section 2.4(d) hereof of the Base Rate Portion and each Funding Segment
of the Euro-Rate Portion to be converted from or renewed;
(y) The interest rate Option or Options selected in
accordance with Section 2.4(a) hereof and the principal amounts
selected in accordance with Section 2.4(d) hereof of the Base Rate
Portion and each Funding Segment of the Euro-Rate Portion; and
(z) With respect to each Funding Segment to be
converted to or renewed, the Euro-Rate Funding Period selected in
accordance with Section 2.4(c) hereof to apply to such Funding Segment.
Standard Notice having been so provided, after the date
specified in such Standard Notice, interest shall be calculated upon the
principal amount of the Loans as so converted or renewed. Interest on the
principal amount of the Euro-Rate Portion of the Loans converted or renewed
(automatically or otherwise) shall be due and payable on the conversion or
renewal date (unless otherwise due earlier hereunder) and interest on the
principal amount of the Base Rate Portion of the Loans converted or renewed
(automatically or otherwise) shall be due and payable on the earlier of the
first day of the fiscal quarter immediately succeeding the date on which such
conversion or renewal occurred or the Revolving Credit Maturity Date, in the
case of Revolving Credit Loans, or the Term Loan Maturity Date in the case of
the Term Loan (unless otherwise due earlier hereunder).
(b) FAILURE TO RENEW. Absent due notice from the Borrower of
renewal in the circumstances described in Section 2.5(a) hereof, any part of the
Euro-Rate Portion for which such notice is not received shall be converted
automatically to the Base Rate Option on the last day of the expiring Euro-Rate
Funding Period.
2.6 PREPAYMENTS GENERALLY. Subject to Section 2.8 hereof with
respect to mandatory prepayments, whenever the Borrower desires or is required
to prepay any part of its Loans bearing interest at the Euro-Rate Option, it
shall provide at least two (2) Business Days' prior written or oral notice to
the Agent setting forth the following information:
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<PAGE> 33
(a) The date, which shall be a Business Day, on which the
proposed prepayment is to be made;
(b) The total principal amount of such prepayment, which shall
be the sum of the principal amounts selected pursuant to clause (c) of
this Section 2.6; and
(c) The principal amounts selected in accordance with Section
2.4(d) hereof of each part of the Funding Segment of the Euro-Rate
Portion to be prepaid.
Notice having been so provided, on the date specified in such notice, the
principal amounts of each part of the Euro-Rate Portion specified in such
notice, together with interest on each such principal amount to such date, shall
be due and payable. Any prepayment of the Base Rate Portion shall be subject to
Section 2.4(d) hereof.
2.7 OPTIONAL PREPAYMENTS. The Borrower shall have the right at
its option at any time and from time to time to prepay its Loans in whole or
part without premium or penalty (subject, however, to Section 2.11(b) hereof).
Any such prepayment shall be made in accordance with Section 2.6 hereof.
2.8 MANDATORY PREPAYMENTS.
(a) REVOLVING CREDIT COMMITTED AMOUNTS; BORROWING BASE
DEFICIENCY.
(i) If at any time the aggregate Revolving Credit Exposure of
the Lenders exceeds the aggregate Revolving Credit Committed Amounts, the
Borrower shall immediately prepay the Revolving Credit Loans (and then, to the
extent of undrawn Letters of Credit, provide cash collateralization thereof in
accordance with the terms hereof) in an aggregate principal amount not less than
the amount of such excess together with interest on such principal amount.
(ii) If at any time the aggregate Revolving Credit Exposure of
the Lenders PLUS the outstanding principal amount of the Term Loan exceeds the
Borrowing Base, a borrowing base deficiency ("Borrowing Base Deficiency") shall
exist, and the Borrower shall immediately prepay the Revolving Credit Loans (and
then, to the extent of undrawn Letters of Credit, provide cash collateralization
thereof in accordance with the terms hereof) and prepay the Term Loan in an
aggregate principal amount not less than the amount of such Borrowing Base
Deficiency, together with interest on such principal amount.
(iii) Prepayments of the Revolving Credit Loans under this
Section 2.8(a) shall be applied (i) first, to interest on the principal amount
of each Revolving Credit Loan being prepaid, (ii) second, to the principal
amount of the Base Rate Portion of the Revolving Credit Loans then outstanding,
(iii) third, to the principal amount of the Euro-Rate Portion of the Revolving
Credit Loans then outstanding, (iv) fourth, to the cash collateralization of
undrawn Letters of Credit then issued in accordance with the terms of this
Agreement, and (v) fifth, in the case of a Borrowing Base Deficiency, in the
same order as clauses (i) through (iii) above substituting the phrase "Term
Loan" in lieu of "Revolving Credit Loans".
(b) EXCESS CASH FLOW PREPAYMENTS. The Borrower shall
make mandatory prepayments (each a "Term Loan Mandatory Prepayment") of the Term
Loan to the Agent for the ratable benefit of the Lenders annually in the amount
of the "Excess Cash Flow" for the then
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preceding fiscal year of the Borrower, commencing with the fiscal year ending
March 31, 1997, but in any event not greater than an amount equal to the
principal payments scheduled to be made in the then current fiscal year of the
Borrower. Each Term Loan Mandatory Prepayment shall be payable on the date the
Borrower furnishes to the Agent the annual financial statements referred to in
Section 6.1(a) of this Agreement. The Borrower shall pay to the Agent on the
date of each Term Loan Mandatory Prepayment accrued and unpaid interest to such
date on the amount prepaid. Each Term Loan Mandatory Prepayment shall be applied
to the balloon payment due on the Term Loan Maturity Date and then to the
principal installments of the Term Loan in the inverse order of their maturity.
(c) PREPAYMENTS FROM PROCEEDS OF SALE OF GOOD-ALL REAL
PROPERTY. The proceeds of the Good-All Sale that are attributable to the
Good-All Real Property shall be immediately applied as follows: (i) first, to
interest on the principal amount of each Revolving Credit Loan being prepaid,
(ii) second, to the principal amount of the Base Rate Portion of the Revolving
Credit Loans then outstanding, (iii) third, to the principal amount of the
Euro-Rate Portion of the Revolving Credit Loans then outstanding (iv) fourth, in
the same order as clauses (i) through (iii) above substituting the phrase "Term
Loan" in lieu of "Revolving Credit Loans", and (v) fifth, to the cash
collateralization of undrawn Letters of Credit then issued in accordance with
terms of this Agreement.
(d) APPLICABILITY OF CERTAIN PROVISIONS. Prepayments required
by this Section 2.8 are subject to all of the terms and conditions applicable to
prepayments generally pursuant to Section 2.6 hereof and Section 2.11(b) hereof,
except that Section 2.6(c) hereof shall not apply to such prepayments to the
extent necessary to comply with this Section 2.8. If the Borrower is required to
give notice of a prepayment but for any reason fails to give a notice in
accordance with the provisions of this Agreement, the amount as to which the
Borrower is required to have given notice of prepayment shall nevertheless be
deemed due and payable as of the date required to have been prepaid (for
purposes of calculating interest on such amounts pursuant to Section 2.10(c)
hereof and otherwise); PROVIDED, HOWEVER, that failure to give notice of a
prepayment in accordance with the terms of this Agreement shall not be deemed to
be an Event of Default if the Borrower prepays when due all amounts required to
be prepaid hereunder.
2.9 INTEREST PAYMENT DATES. Except to the extent expressly
provided otherwise herein, interest on the Base Rate Portion shall be due and
payable quarterly in arrears on the last day of each fiscal quarter of the
Borrower, commencing on June 30, 1996, and on the Revolving Credit Maturity Date
and the Term Loan Maturity Date. Except to the extent expressly provided
otherwise herein, interest on each Funding Segment of the Euro-Rate Portion
shall be due and payable in arrears on the last day of the corresponding
Euro-Rate Funding Period and, if such Euro-Rate Funding Period is longer than
three (3) months, also every third (3rd) month anniversary of the first day of
such Funding Period during such Euro-Rate Funding Period. After maturity of any
part of the Loans (by acceleration or otherwise), interest on such part of the
Loans shall be due and payable on demand.
2.10 PRO RATA TREATMENT; PAYMENTS GENERALLY; INTEREST ON
OVERDUE AMOUNTS.
(a) PRO RATA TREATMENT. Each borrowing and conversion
and renewal of interest rate Options hereunder shall be made, and all payments
made in respect of principal, interest and Revolving Credit Commitment Fees and
Letter of Credit Fees due from the Borrower hereunder or under the Notes shall
be applied, Pro Rata from and to each Lender, except for (i) payments of
interest involving an Affected Lender as provided in Section 2.4(e) hereof, and
(ii) payments to a Lender subject to a withholding deduction under Section
2.12(c) hereof, in which case such borrowings and conversions shall be made, and
such payments shall be applied, solely from and to Bank One. The
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failure of any Lender to make a Loan shall not relieve any other Lender of its
obligation to lend hereunder, but neither the Agent nor any Lender shall be
responsible for the failure of any other Lender to make a Loan.
(b) PAYMENTS GENERALLY. All payments and prepayments to be
made by the Borrower in respect of principal, interest, fees, indemnity,
expenses or other amounts due from the Borrower hereunder or under any Loan
Document shall be payable in Dollars at 12:00 noon, Columbus, Ohio time, on the
day when due without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, and an action therefor shall immediately
accrue, without setoff, counterclaim, withholding or other deduction of any kind
or nature, except for payments to a Lender subject to a withholding deduction
under Section 2.12(c) hereof. Except for payments under Sections 2.11 and 10.6
hereof, such payments shall be made to the Agent at the Agent's Administrative
Office in Dollars in funds immediately available at such Agent's Administrative
Office, and payments under Sections 2.11 and 10.6 hereof shall be made to the
applicable Lender at such domestic account as it shall specify to the Borrower
from time to time in funds immediately available at such account. Any payment or
prepayment received by the Agent or such Lender after 12:00 noon, Columbus, Ohio
time, on any day shall be deemed to have been received on the next succeeding
Business Day. The Agent shall distribute to the Lenders all such payments
received by it from the Borrower on the same day as such payments are deemed to
have been received hereunder.
(c) INTEREST ON OVERDUE AMOUNTS. To the extent permitted by
law, after there shall have become due (by acceleration or otherwise) principal,
interest, fees, indemnity, expenses or any other amounts due from the Borrower
hereunder or under any other Loan Document, such amounts shall bear interest for
each day until paid (before and after judgment), payable on demand, at a rate
per annum (in each case based on a year of three hundred sixty (360) days and
actual days elapsed) which for each day shall be equal to the following:
(i) In the case of any part of the Euro-Rate Portion
of any Loans, (A) until the end of the applicable then-current
Euro-Rate Funding Period at a rate per annum two percent (2%) above the
rate otherwise applicable to such part, and (B) thereafter in
accordance with the following clause (ii); and
(ii) In the case of any other amount due from the
Borrower hereunder or under any Loan Document, two percent (2%) above
the then-current Base Rate Option.
2.11 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
(a) INCREASED COSTS OR REDUCED RETURN RESULTING FROM TAXES,
RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES, ETC. If any Law or guideline
or interpretation or application thereof by any Governmental Authority charged
with the interpretation or administration thereof or compliance with any request
or directive of any Governmental Authority (whether or not having the force of
law) now existing or hereafter adopted:
(i) subjects any Lender to any tax or changes the
basis of taxation with respect to this Agreement, the Notes, the Loans
or payments by the Borrower of principal, interest, commitment fee or
other amounts due from the Borrower hereunder or under the Notes
(except for taxes on the overall net income or overall gross receipts
of such Lender imposed by the jurisdictions (federal, state and local)
in which the Lender's principal office),
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(ii) imposes, modifies or deems applicable any
reserve, special deposit or similar requirement against credits or
commitments to extend credit extended by, assets (funded or contingent)
of, deposits with or for the account of, other acquisitions of funds
by, such Lender (other than requirements expressly included herein in
the determination of the Euro-Rate hereunder),
(iii) imposes, modifies or deems applicable any
capital adequacy or similar requirement (A) against assets (funded or
contingent) of, or credits or commitments to extend credit extended by,
any Lender, or (B) otherwise applicable to the obligations of any
Lender under this Agreement, or
(iv) imposes upon any Lender any other condition
or expense with respect to this Agreement, the Notes or its making,
maintenance or funding of any Loan,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Lender or, in the case of clause (iii) hereof, any Person controlling a Lender,
with respect to this Agreement, the Notes or the making, maintenance or funding
of any Loan (or, in the case of any capital adequacy or similar requirement, to
have the effect of reducing the rate of return on such Lender's or controlling
Person's capital, taking into consideration such Lender's or controlling
Person's policies with respect to capital adequacy) by an amount which such
Lender deems to be material, such Lender may from time to time notify the
Borrower of the amount determined in good faith (using any averaging and
attribution methods) by such Lender (which determination shall be conclusive
absent manifest error) to be necessary to compensate such Lender for such
increase, reduction or imposition. Such amount shall be due and payable by the
Borrower to such Lender ten (10) Business Days after such notice is given,
together with an amount equal to interest on such amount from the date two (2)
Business Days after the date of such notice until such due date at the Base Rate
Option. A certificate by such Lender as to the amount due and payable under this
Section 2.11(a) from time to time and the method of calculating such amount,
together with a brief explanation thereof, shall be conclusive absent manifest
error. Each Lender agrees that it will use good faith efforts to notify the
Borrower of the occurrence of any event that would give rise to a payment under
this Section 2.11(a); PROVIDED, HOWEVER, that any failure of such Lender to give
any such notice shall have no effect on the Borrower's obligations hereunder
(other than by virtue of the fact that such amount is not due and payable
hereunder until ten (10) Business Days after such Lender gives such notice).
(b) FUNDING BREAKAGE. In addition to all other amounts payable
hereunder, if and to the extent for any reason any part of any Funding Segment
of any Euro-Rate Portion of the Loans becomes due (by acceleration or
otherwise), or is paid, prepaid or converted to another interest rate Option
(whether or not such payment, prepayment or conversion is mandatory or automatic
and whether or not such payment or prepayment is then due), on a day other than
the last day of the corresponding Euro-Rate Funding Period (the date such amount
so becomes due, or is so paid, prepaid or converted, being referred to as the
"Funding Breakage Date"), the Borrower shall pay each Lender an amount ("Funding
Breakage Indemnity"), determined by such Lender, equal to the present value as
of the Funding Breakage Date (discounted at the Treasury Rate as of such Funding
Breakage Date, and calculated on the basis of a year of three hundred sixty-five
(365) or three hundred sixty-six (366) days, as the case may be, and actual days
elapsed) of (A) the principal amount of such Funding Segment of the Loans owing
to such Lender which so became due, or which was so paid, prepaid or converted,
TIMES (B) the greater of (x) zero (0) or (y) the rate of interest applicable to
such principal amount on the Funding Breakage Date MINUS the Treasury Rate as of
the Funding Breakage Date,
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TIMES (C) the quotient of the number of days from and including the Funding
Breakage Date to but not including the last day of such Euro-Rate Funding Period
divided by 360. The amount described in the preceding sentence shall be assumed
for purposes of such present value calculation to be payable on the last day of
the corresponding Euro-Rate Funding Period. Such Funding Breakage Indemnity
shall be due and payable on demand, and each Lender shall, upon making such
demand, notify the Agent of the amount so demanded. In addition, the Borrower
shall, on the due date for payment of any Funding Breakage Indemnity, pay to
such Lender an additional amount equal to interest on such Funding Breakage
Indemnity from the Funding Breakage Date to but not including such due date at
the Base Rate Option (calculated on the basis of a year of three hundred sixty
(360) days and actual days elapsed). The amount payable to each Lender under
this Section 2.11(b) shall be determined in good faith by such Lender, and such
determination shall be conclusive absent manifest error.
2.12 TAXES.
(a) PAYMENTS NET OF TAXES. All payments made by the Borrower
under this Agreement or any other Loan Document shall be made free and clear of,
and without reduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, and all liabilities with respect
thereto, EXCLUDING
(i) in the case of the Agent and each Lender, income
or franchise taxes imposed on the Agent or such Lender by the
jurisdiction under the laws of which the Agent or such Lender is
organized or any political subdivision or taxing authority thereof or
therein or as a result of a connection between such Lender and any
jurisdiction other than a connection resulting solely from this
Agreement and the transactions contemplated hereby, and
(ii) in the case of each Lender, income or franchise
taxes imposed by any jurisdiction in which such Lender's lending
offices which make or book Loans are located or any political
subdivision or taxing authority thereof or therein
(all such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter called "Taxes"). If any Taxes are required to be
withheld or deducted from any amounts payable to the Agent or any Lender under
this Agreement or any other Loan Document, the Borrower shall pay the relevant
amount of such Taxes and the amounts so payable to the Agent or such Lender
shall be increased to the extent necessary to yield to the Agent or such Lender
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
other Loan Documents. Whenever any Taxes are paid by the Borrower with respect
to payments made in connection with this Agreement or any other Loan Document,
as promptly as possible thereafter, the Borrower shall send to the Agent for its
own account or for the account of such Lender, as the case may be, a certified
copy of an original official receipt received by the Borrower showing payment
thereof.
(b) INDEMNITY. The Borrower hereby indemnifies the Agent and
each of the Lenders for the full amount of all Taxes attributable to payments by
or on behalf of the Borrower to the Agent or such Lender hereunder or under any
of the other Loan Documents, any non-refunded Taxes paid by the Agent or such
Lender, as the case may be, and any present or future claims, liabilities or
losses with respect to or resulting from any omission to pay or delay in paying
any Taxes (including any incremental Taxes, interest or penalties that may
become payable by the Agent or such Lender as a result of any failure to pay
such Taxes), whether or not such Taxes were correctly or
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legally asserted, other than claims, liabilities or losses incurred by the Agent
or such Lender as a result of its gross negligence or willful misconduct. Such
indemnification shall be made within thirty (30) days from the date such Lender
or the Agent, as the case may be, makes written demand therefor.
(c) WITHHOLDING AND BACKUP WITHHOLDING. Each Lender that is
incorporated or organized under the laws of any jurisdiction other than the
United States or any State thereof agrees that, on or prior to the date any
payment is due to be made to it hereunder or under any other Loan Document, it
will furnish to the Borrower and the Agent
(i) two (2) valid, duly completed copies of United
States Internal Revenue Service Form 4224 or United States Internal
Revenue Form 1001 or successor applicable form, as the case may be,
certifying in each case that such Lender is entitled to receive
payments under this Agreement and the other Loan Documents without
deduction or withholding of any United States federal income taxes, and
(ii) a valid, duly completed Internal Revenue
Service Form W-8 or W-9 or successor applicable form, as the case may
be, to establish an exemption from United States backup withholding
tax.
Each Lender which so delivers to the Borrower and the Agent a Form 1001 or 4224
and Form W-8 or W-9, or successor applicable forms, agrees to deliver to the
Borrower and the Agent two (2) further copies of the said Form 1001 or 4224 and
Form W-8 or W-9, or successor applicable forms, or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or otherwise is required to be resubmitted as a
condition to obtaining an exemption from withholding tax, or after the
occurrence of any event requiring a change in the most recent form previously
delivered by it, and such extensions or renewals thereof as may reasonably be
requested by the Borrower and the Agent, certifying in the case of a Form 1001
or Form 4224 that such Lender is entitled to receive payments under this
Agreement or any other Loan Document without deduction or withholding of any
United States federal income taxes, unless in any such cases an event (including
any changes in Law) has occurred prior to the date on which any such delivery
would otherwise be required which renders all such forms inapplicable or which
would prevent such Lender from duly completing and delivering any such letter or
form with respect to it and such Lender advises the Borrower and the Agent that
it is not capable of receiving payments without any deduction or withholding of
United States federal income tax, and in the case of a Form W-8 or W-9,
establishing an exemption from United States backup withholding tax.
ARTICLE 3
THE LETTER OF CREDIT SUBFACILITY
--------------------------------
3.1 THE LETTER OF CREDIT SUBFACILITY.
(a) GENERAL. Subject to the terms and conditions of this
Agreement, and relying upon the representations and warranties herein and
therein set forth and upon the agreements of the Lenders set forth in Sections
3.3 and 3.4 hereof, the Issuing Bank may issue for the account of the Borrower
standby letters of credit (each, as amended, modified or supplemented from time
to time, a "Standby Letter of Credit") and merchandise letters of credit (each,
as amended, modified, or supplemented from time to time, a "Commercial Letter of
Credit") (Standby Letters of Credit and Commercial Letters of Credit being
collectively referred to as "Letters of Credit") at any time or from
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time to time on or after the date hereof. The Borrower shall not request any
Letter of Credit to be issued except within the following limitations: (i) no
Letter of Credit shall be issued later than thirty (30) days before the
Revolving Credit Maturity Date, (ii) at the time any Letter of Credit is issued,
the aggregate Revolving Credit Exposures of the Lenders (after giving effect to
issuance of the requested Letter of Credit) shall not exceed the sum of the
Revolving Credit Committed Amounts of the Lenders at such time, and (iii) on the
date of issuance of any Letter of Credit (and after giving effect to such
issuance) the aggregate Letter of Credit Exposure shall not exceed Three Million
Dollars ($3,000,000).
(b) TERMS OF LETTERS OF CREDIT. The Borrower shall not request
any Letter of Credit to be issued except within the following limitations. Each
Letter of Credit (i) shall have an expiration date no later than the earlier of
(A) twelve (12) months after the date of issuance thereof or (B) twenty (20)
days prior to the Revolving Credit Maturity Date, (ii) shall be denominated in
Dollars, and (iii) shall be payable only against sight drafts, unless otherwise
approved by the Issuing Bank.
(c) PURPOSES OF LETTERS OF CREDIT. Each Letter of Credit shall
be satisfactory in form, substance and beneficiary to the Issuing Bank in its
sole discretion. Each Standby Letter of Credit shall be used by the Borrower as
a standby letter of credit to provide credit enhancement for commercial
transactions on a standby basis, workers' compensation obligations, contract
performance guarantees, leasing arrangements and like bonding requirements, all
in the ordinary course of business of the Borrower. Each Commercial Letter of
Credit shall be used by the Borrower as a means of the direct payment for goods
to be used by the Borrower, all in the ordinary course of business of the
Borrower. The provisions of this Section 3.1(c) represent only an obligation of
the Borrower to the Issuing Bank and the Lenders; the Issuing Bank shall have no
obligation to the Lenders to ascertain the purpose of any Letter of Credit, and
the rights and obligations of the Lenders and the Issuing Bank among themselves
shall not be impaired or affected by a breach of this Section 3.1(c).
(d) LETTER OF CREDIT FEE. The Borrower shall pay to the Agent
for the Pro Rata account of each Lender a fee (the "Letter of Credit Fee") equal
to one percent (1.00%) per annum (based on a year of three hundred sixty (360)
days and actual days elapsed) of the Stated Amount of each Standby Letter of
Credit for each day from and including the date of issuance thereof to and
including the date of expiration or termination set forth therein. Such Letter
of Credit Fee shall be due and payable on the date of issuance of each Standby
Letter of Credit and on the date of any extension thereof.
(e) [INTENTIONALLY OMITTED]
(f) ADMINISTRATION FEES. In addition, the Borrower shall pay
to the Agent, for the sole account of the Issuing Bank, such other
administration, maintenance, amendment, drawing, issuance fee and negotiation
fees as may be customarily charged by the Issuing Bank from time to time in
connection with letters of credit.
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3.2 PROCEDURE FOR ISSUANCE AND AMENDMENT OF LETTERS OF CREDIT.
(a) REQUEST FOR ISSUANCE. The Borrower may from time to time
request, upon notice delivered at least three (3) Business Days' prior to the
proposed date of issuance, that the Issuing Bank issue (or cause another
Affiliate of the Issuing Bank selected by the Issuing Bank to issue) a Letter of
Credit by:
(i) delivering to the Issuing Bank (or such
Affiliate as the Issuing Bank may from time to time designate) and the
Agent a written request to such effect, specifying the proposed date on
which such Letter of Credit is to be issued, the expiration date
thereof, and the Stated Amount thereof, and
(ii) delivering to the Issuing Bank an application,
in the form attached as Exhibit B-1 for Standby Letters of Credit (the
"Standby Letter of Credit Application") or Exhibit B-2 for Commercial
Letters of Credit (the "Commercial Letter of Credit Application" and,
together with the Standby Letter of Credit Application, the "Letter of
Credit Applications"), completed to the satisfaction of the Issuing
Bank, together with such other certificates, documents and other papers
and information as the Issuing Bank may request.
Upon receipt of the foregoing, the Issuing Bank shall promptly notify the Agent
(by telephone or otherwise), and the Issuing Bank shall furnish the Agent with
the proposed form of Letter of Credit to be issued. The Agent shall, promptly
upon receiving such notice, notify the Lenders of such proposed Letter of Credit
(which notice shall specify the Stated Amount and term of such proposed Letter
of Credit), and shall determine, as of the close of business on the Business Day
before such proposed issuance, whether such proposed Letter of Credit complies
with the limitations set forth in Sections 3.1(a), 3.1(b) and 3.1(c) hereof.
Unless (A) such limitations are not satisfied, or (B) the Required Lenders shall
have given notice to the Agent to cease issuing Letters of Credit pursuant to
Section 3.2(c)(iii) hereof, the Agent shall notify the Issuing Bank (in writing
or by telephone promptly confirmed in writing) that the Issuing Bank is
authorized to issue such Letter of Credit and, unless any other applicable
condition specified in this Article 3 or the Letter of Credit Application has
not been satisfied or unless any applicable condition set forth in Article 5
hereof has not been satisfied, the Issuing Bank shall issue the Letter of Credit
on the date requested by the Borrower pursuant to Section 3.2(a)(i) hereof. The
Issuing Bank shall deliver the original of such Letter of Credit to the
beneficiary thereof or as the Borrower shall otherwise direct, and shall
promptly notify the Agent thereof and furnish a copy thereof to the Agent.
(b) REQUEST FOR EXTENSION OR INCREASE. The Borrower may from
time to time request the Issuing Bank to extend the expiration date of an
outstanding Letter of Credit or increase the Undrawn Availability of such Letter
of Credit. Such extension or increase shall for all purposes hereunder be
treated as though the Borrower had requested issuance of a Letter of Credit
hereunder (except only that the Issuing Bank may, if it elects, issue a notice
of extension or increase in lieu of issuing a new Letter of Credit in
substitution for the outstanding Letter of Credit).
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(c) LIMITATIONS ON ISSUANCE, EXTENSION AND AMENDMENT.
(i) Except as otherwise set forth herein, as
between the Borrower, on the one hand, and the Issuing Bank, the Agent
and the Lenders, on the other hand, issuance or extension of any Letter
of Credit is within the discretion of the Issuing Bank.
(ii) As between the Issuing Bank, on the one hand,
and the Agent and the Lenders, on the other hand, the Issuing Bank
shall be justified and fully protected in issuing a Letter of Credit
after receiving authorization from the Agent as provided in Section
3.2(a) hereof, notwithstanding any subsequent notices to the Issuing
Bank, any knowledge of an Event of Default or Possible Default, any
knowledge of failure of any condition specified in Section 5.2 hereof
to be satisfied, any other knowledge of the Issuing Bank, or any other
event, condition or circumstance whatever. Upon the request of Borrower
in writing, with the consent of the beneficiary thereof, the Issuing
Bank may amend, modify or supplement Letters of Credit or Letter of
Credit Applications, or waive compliance with any condition of issuance
or payment, without the consent of, and without liability to, the Agent
or any Lender, provided that any such amendment, modification or
supplement that extends the expiration date or increases the Letter of
Credit Undrawn Availability of an outstanding Letter of Credit shall be
subject to Section 3.2(b) hereof.
(iii) As between the Agent, on the one hand, and the
Lenders, on the other hand, the Agent shall not authorize issuance of
any Letter of Credit if the Agent shall have received, at least two (2)
Business Days before authorizing such issuance, from the Required
Lenders an unrevoked written notice that any condition precedent set
forth in Section 5.2 will not be satisfied and expressly requesting
that the Agent direct the Issuing Bank to cease to issue Letters of
Credit. Absent any such notice, or unless the Agent determines that the
applicable limitations set forth in Sections 3.1(a), 3.1(b) and 3.1(c)
hereof are not satisfied or if the Agent has actual knowledge of an
Event of Default or Possible Default or any knowledge of failure of any
condition specified in Section 5.2 hereof to be satisfied, the Agent
shall be justified and fully protected, as against the Lenders, in
authorizing the Issuing Bank to issue such Letter of Credit,
notwithstanding any subsequent notices to the Agent, any other
knowledge of the Agent, or any other event, condition or circumstance
whatever.
3.3 LETTER OF CREDIT PARTICIPATING INTERESTS.
(a) GENERALLY. Concurrently with the issuance of each Letter
of Credit, the Issuing Bank automatically shall be deemed, irrevocably and
unconditionally, to have sold, assigned, transferred and conveyed to each other
Lender, and each other Lender automatically shall be deemed, irrevocably and
unconditionally, severally to have purchased, acquired, accepted and assumed
from the Issuing Bank, without recourse to, or representation or warranty by,
the Issuing Bank, an undivided interest, in a proportion equal to such Lender's
Pro Rata share, in all of the Issuing Bank's rights and obligations in, to or
under such Letter of Credit, the related Letter of Credit Application, the
Reimbursement Obligations and all collateral, guarantees and other rights from
time to time directly or indirectly securing the foregoing (such interest of
each Lender being referred to herein as a "Letter of Credit Participating
Interest"). Amounts other than Letter of Credit Reimbursement Obligations and
Letter of Credit Fees payable from time to time under or in connection with a
Letter of Credit or Letter of Credit Application shall be for the sole account
of the Issuing Bank. On the date that any Purchasing Lender becomes a party to
this Agreement in accordance with Section 10.14 hereof, Letter of Credit
Participating Interests in any outstanding Letters of Credit held by the Lender
from which
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such Purchasing Lender acquired its interest hereunder shall be proportionately
reallotted between such Purchasing Lender and such transferor Lender.
(b) OBLIGATIONS ABSOLUTE. Notwithstanding any other provision
hereof, each Lender hereby agrees that its obligation to participate in each
Letter of Credit issued in accordance herewith, its obligation to make the
payments specified in Section 3.4 hereof, and the right of the Issuing Bank to
receive such payments in the manner specified therein, are each absolute,
irrevocable and unconditional and shall not be affected by any event, condition
or circumstance whatever. The failure of any Lender to make any such payment
shall not relieve any other Lender of its funding obligation hereunder on the
date due, but no Lender shall be responsible for the failure of any other Lender
to meet its funding obligations hereunder.
3.4 LETTER OF CREDIT DRAWINGS AND REIMBURSEMENTS.
(a) BORROWER'S REIMBURSEMENT OBLIGATION. If the Issuing Bank
makes a payment under any Letter of Credit, the Issuing Bank shall promptly
notify the Agent (which notice may be by telephone) and the Agent shall promptly
notify the Borrower (which notice may be by telephone) of such payment. The
Borrower hereby agrees to reimburse the Issuing Bank, by making payment to the
Agent for the account of the Issuing Bank in accordance with Section 2.10(b)
hereof, on the day of such notice of such payment made by the Issuing Bank under
any Letter of Credit, without further notice, protest or demand, all of which
are hereby waived, and an action therefor shall immediately accrue. To the
extent such payment is not timely made, the Borrower hereby agrees to pay to the
Agent, for the account of the Issuing Bank, on demand, interest on any
Unreimbursed Draws for each day from and including the date of such payment by
the Issuing Bank until paid (before and after judgment) in accordance with
Section 2.10(c) hereof, at the rate per annum set forth in Section 2.10(c)(ii)
hereof.
(b) PAYMENT BY LENDERS ON ACCOUNT OF UNREIMBURSED DRAWS. If
the Issuing Bank makes a payment under any Letter of Credit and is not
reimbursed in full therefor on the date when due in accordance with Section
3.4(a) hereof, the Issuing Bank will promptly notify the Agent thereof (which
notice may be by telephone), and the Agent shall forthwith notify each Lender
(which notice may be by telephone) thereof. No later than the Agent's close of
business on the date such notice is given if such notice is given before 12:00
noon, Columbus, Ohio time, or the next Business Day, if such notice is given
after 12:00 noon, Columbus, Ohio time, each such Lender will pay to the Agent,
for the account of the Issuing Bank, in immediately available funds, an amount
equal to such Lender's Pro Rata share of the unreimbursed portion of such
payment by the Issuing Bank. If and to the extent that any Lender fails to make
such payment to the Agent for the account of the Issuing Bank on such date, such
Lender shall pay such amount on demand, together with interest, for the Issuing
Bank's own account, for each day from and including the date such payment is due
to and including the date of repayment to the Issuing Bank (before and after
judgment) at the following rates per annum: (x) for each day from and including
the date of such payment by the Issuing Bank to and including the second (2nd)
Business Day thereafter, at the Federal Funds Effective Rate plus one-half of
one percent (0.50%) for each such day, and (y) for each day thereafter, at the
rate applicable to Unreimbursed Draws for each such day.
(c) DISTRIBUTIONS TO PARTICIPANTS. If, at any time, after the
Issuing Bank has made an Unreimbursed Draw and has received from any Lender such
Lender's share of such Letter of Credit Unreimbursed Draw, and the Issuing Bank
receives any payment or makes any application of funds on
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account of the Reimbursement Obligation arising from such Unreimbursed Draw, the
Issuing Bank will pay to the Agent, for the account of such Lender, such
Lender's Pro Rata share of such payment.
(d) RESCISSION. If any amount received by the Issuing Bank on
account of any Reimbursement Obligation shall be avoided, rescinded or otherwise
returned or paid over by the Issuing Bank for any reason at any time, whether
before or after the termination of this Agreement (or the Issuing Bank believes
that such avoidance, rescission, return or payment is required, whether or not
such matter has been adjudicated), each such Lender will, promptly upon notice
from the Agent or the Issuing Bank, pay over to the Agent for the account of the
Issuing Bank its Pro Rata share of such amount, together with its Pro Rata share
of any interest or penalties payable with respect thereto.
(e) EQUALIZATION. If any Lender receives any payment or makes
any application on account of its Letter of Credit Participating Interest, such
Lender shall forthwith pay over to the Issuing Bank, in Dollars and in like kind
of funds received or applied by it the amount in excess of such Lender's Pro
Rata share of the amount so received or applied.
3.5 OBLIGATIONS ABSOLUTE. The payment obligations of the
Borrower under Section 3.4 shall be unconditional and irrevocable and shall be
paid strictly in accordance with the terms of this Agreement under all
circumstances, including, without limitation, the following circumstances:
(a) any lack of validity or enforceability of this Agreement,
any Letter of Credit, any Letter of Credit Application or any other
Loan Document;
(b) the existence of any claim, set-off, defense or other
right which the Borrower or any other Person may have at any time
against any beneficiary or transferee of any Letter of Credit (or any
Persons for whom any such beneficiary or transferee may be acting), the
Issuing Bank, any Lender, or any other Person, whether in connection
with this Agreement, the transactions contemplated hereby or any
unrelated transaction;
(c) any draft, certificate, statement or other document
presented under any Letter of Credit proving to be forged, fraudulent
or invalid in any respect or any statement therein being untrue or
inaccurate in any respect; PROVIDED, HOWEVER, that payment by the
Issuing Bank under such Letter of Credit against presentation of such
draft, certificate, statement or other document shall not have
constituted gross negligence or willful misconduct; or
(d) any other event, condition or circumstance whatever,
whether or not similar to any of the foregoing; PROVIDED, HOWEVER, that
payment by the Issuing Bank of any Letter of Credit in light of such
event, condition or circumstance shall not have constituted gross
negligence or willful misconduct.
The Borrower bears the risk of, and none of the Agent, the Lenders or the
Issuing Bank, nor any of their respective directors, officers, employees,
attorneys or agents, shall be liable or responsible for any of the foregoing
matters, the use which may be made of any Letter of Credit, or acts or omissions
of the beneficiary or any transferee in connection therewith.
3.6 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
Without limitation of any provision of Section 2.11(a) hereof, each Issuing Bank
and each Lender shall be entitled to the benefit of Section 2.11(a) hereof, and
the Borrower shall pay additional compensation to each Issuing Bank
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and each Lender in accordance with such Section 2.11(a) in respect of this
Agreement, the Letters of Credit and Letter of Credit Participating Interests,
to the same extent and in the same manner as if the word "Lender," in each place
in which it occurs in such Section 2.11(a), were replaced with "Lender or
Issuing Bank," and the word "Loan," in each place in which it occurs in such
Section 2.11(a), were replaced with "Loan," "Letter of Credit" or "Letter of
Credit Participating Interest."
3.7 FURTHER ASSURANCES. The Borrower hereby agrees, from time
to time, to do and perform any and all acts and to execute any and all further
instruments reasonably requested by the Issuing Bank more fully to effect the
purposes of this Agreement, the Letter of Credit Applications and the issuance
of the Letters of Credit hereunder.
3.8 LETTER OF CREDIT APPLICATIONS. The representations,
warranties and covenants by the Borrower, and the rights and remedies of the
Issuing Bank, under a Letter of Credit Application relating to any Letter of
Credit are in addition to, and not in limitation or derogation of,
representations, warranties and covenants by the Borrower, and the rights and
remedies of the Issuing Bank and the Lenders, under this Agreement, the other
Loan Documents and applicable Law. The Borrower acknowledges and agrees that all
rights of the Issuing Bank under any Letter of Credit Application shall inure to
the benefit of each Lender to the extent of its Commitment Percentage as fully
as if such Lender was a party to such Letter of Credit Application. In the event
of any inconsistency between the terms of this Agreement and any Letter of
Credit Application, this Agreement shall prevail.
3.9 CASH COLLATERAL FOR LETTERS OF CREDIT.
(a) The Borrower agrees that without limitation of other
rights and remedies under this Agreement or any other Loan Document or at law or
in equity, following the occurrence and during the continuance of any Event of
Default, it shall, immediately upon request from time to time by the Agent
delivered at the request of the Required Lenders (or, in case of an Event of
Default referred to in Section 8.1(m) or (n) hereof, automatically upon the
occurrence of such Event of Default without any such notice under this Section
3.9(a)) pay to the Agent in Dollars and in immediately available funds an amount
equal to the excess of the aggregate Letter of Credit Exposure at such time over
the balance in the LC Collateral Account. Any amounts so received by the Agent
shall be deposited by the Agent into the LC Collateral Account. In addition, all
amounts referred to in Section 3.1(b) shall be deposited into the LC Collateral
Account in accordance with the terms thereof.
(b) LC COLLATERAL ACCOUNT.
(i) The Agent shall maintain in its own name (in
its capacity as Agent) an interest bearing deposit account (the "LC
Collateral Account") over which the Agent shall have sole dominion and
control, and the Borrower shall have no right to withdraw or to cause
the Agent to withdraw early, funds deposited therein. The Agent shall
deposit into the LC Collateral Account such funds as this Agreement
requires or permits to be paid therein pursuant to Section 3.9(a).
(ii) The Agent shall apply funds in the LC
Collateral Account: (A) on account of Reimbursement Obligations as and
when the same become due and payable if and to the extent that the
Borrower fails directly to pay the same, and (B) if no Reimbursement
Obligations are due and payable and the balance of the LC Collateral
Account exceeds the aggregate Letter of Credit Exposure, the excess
shall be applied on account of the Obligations
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as the same become due and payable in accordance with Section 8.2
hereof. In the event that the Event of Default which triggered the
Borrower's obligation to deposit funds in the LC Collateral Account
shall have been waived in accordance with the terms hereof, the Agent
shall release to the Borrower all remaining funds in the LC Collateral
Account promptly following demand by the Borrower. In addition, if all
Obligations have been paid in full, all Commitments have been
terminated and all Letters of Credit have expired, promptly following
demand by the Borrower the Agent shall release to the Borrower all
remaining funds in the LC Collateral Account.
(iii) The provisions of this Section 3.9 shall
survive the payment of the Loans, termination of this Agreement and all
other events whatever and shall continue in effect until all Letters of
Credit shall have expired and all Reimbursement Obligations in respect
of all Letters of Credit (and all fees and interest thereon) shall have
been paid in full.
3.10 INDEMNIFICATION OF ISSUING BANK. The Borrower hereby
agrees to indemnify and hold the Issuing Bank and its officers, directors,
employees, attorneys and agents ("LC Indemnified Parties") harmless from and
against any and all claims, damages, losses, liabilities, costs or expenses of
any nature whatsoever (including without limitation reasonable attorneys' fees)
which at any time may be imposed upon, incurred by, or asserted against such LC
Indemnified Party in any way arising from or relating to the execution, delivery
or use or transfer of, or payment of, or failure to pay under, or use of
proceeds of, any Letter of Credit, except for any claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, caused by
the Issuing Bank's gross negligence or willful misconduct in connection with the
matters referred to in Sections 3.5(c) and (d) hereof. Without limiting the
foregoing obligation, each Lender agrees to reimburse and indemnify the Issuing
Bank, Pro Rata, for and against any and all amounts required to be reimbursed by
the Borrower pursuant to the preceding sentence but not so reimbursed. The
agreements in this Section 3.10 shall survive the payment of the Loans,
termination of this Agreement and all other events whatever.
3.11 THE ISSUING BANK AND THE LENDERS.
(a) The Issuing Bank may consult with legal counsel (including
counsel for the Borrower or for any other party in interest), independent public
accountants and any other experts selected by it and shall not be liable to the
Lenders for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts.
(b) The Issuing Bank shall have no duties or responsibilities
except those expressly set forth in this Agreement and in the other Loan
Documents. The duties of the Issuing Bank shall be mechanical and administrative
in nature; the Issuing Bank shall not by reason of this Agreement or the other
Loan Documents have a fiduciary relationship in respect of any Lender; and
nothing in this Agreement or any of the other Loan Documents, expressed or
implied, is intended to or shall be so construed as to impose upon the Issuing
Bank any obligations in respect of this Agreement or any other Loan Document
(including but not limited to any Letter of Credit or Letter of Credit
Application) except as expressly set forth herein and therein. Each Lender
expressly acknowledges: (i) that the Issuing Bank has not made any
representations or warranties to it and that no act by the Issuing Bank
hereafter taken, including any review of the affairs of the Borrower, shall be
deemed to constitute any representation or warranty by the Issuing Bank to any
Lender; (ii) that it has made and will make its own independent investigation of
the financial condition and affairs, and its own appraisal of the
creditworthiness, of the Borrower, and its own evaluation of this Agreement and
the
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other Loan Documents; and (iii) that the Issuing Bank shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Lender
with any credit or other information except as otherwise provided herein,
whether coming into its possession before the issuance of any Letter of Credit
hereunder or at any time or times thereafter, except for notices, reports or
other documents which this Agreement or another Loan Document expressly requires
to be furnished to the Lenders by the Issuing Bank hereunder or thereunder.
Without limitation, each Lender hereby acknowledges that the Issuing Bank has
not made, will not make and hereby expressly excludes any representations or
warranties concerning the execution, delivery, legality, validity or
enforceability of this Agreement or any of the other Loan Documents, or any
recital, representation, warranty, document, certificate, report or statement
made herein or in any of the other Loan Documents or made or furnished under or
in connection with this Agreement or any of the other Loan Documents.
(c) The Issuing Bank shall handle all matters concerning the
Letters of Credit in accordance with its usual practice in managing its own
affairs in the ordinary course of its business; but notwithstanding any other
provision of this Agreement, neither the Issuing Bank nor any of its directors,
officers, employees, attorneys or agents shall be liable to any Lender for any
action taken or omitted to be taken by it or them hereunder or under any of the
other Loan Documents (including but not limited to the Letters of Credit and
Letter of Credit Applications) or in connection herewith or therewith, unless
caused by its own gross negligence or willful misconduct. The Issuing Bank shall
not in any circumstances (i) be responsible in any manner to any of the Lenders
for the execution, delivery, legality, validity or enforceability of this
Agreement or any of the other Loan Documents, or for any recital,
representation, warranty, document, certificate, report or statement made herein
or in any of the other Loan Documents or made or furnished under or in
connection with this Agreement or any of the other Loan Documents, (ii) be under
any obligation to any of the Lenders to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions in this
Agreement or any of the other Loan Documents on the part of the Borrower, or the
financial condition of the Borrower, or the existence or possible existence of
any Event of Default or Possible Default.
(d) The Issuing Bank shall not be under any obligation to any
of the Lenders to ascertain or to inquire as to the existence or possible
existence of any Event of Default or Possible Default, or to give notice of any
such of which it is aware.
(e) The Issuing Bank shall be entitled to rely upon any
writing, telegram, telex or teletype message, resolution, notice, consent,
certificate, letter, cablegram, statement, order or other document or
conversation by telephone or otherwise believed by it to be genuine and correct
and to have been signed, sent or made by the proper party or parties, and upon
opinions of counsel and other professional advisers selected by the Issuing
Bank. The Issuing Bank shall be fully justified in failing or refusing to take
any action hereunder unless it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.
(f) The Issuing Bank shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
the Issuing Bank, and the terms "Lenders" or "holders of Notes" shall include
the Issuing Bank in its individual capacity. The Issuing Bank and its affiliates
may, without liability to account, make loans to, accept deposits from, act as
trustee under indentures of, and generally engage in any kind of banking or
trust business with, the Borrower and its Subsidiaries and their respective
stockholders and affiliates as though it were not acting as Issuing Bank
hereunder. The parties hereto intend that the Letter of Credit Participating
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Interests represent commercial transactions, and not investments or securities
for purposes of any securities law.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower hereby represents and warrants to the Agent and
each Lender as follows:
4.1 CORPORATE STATUS. The Borrower and each Subsidiary of the
Borrower is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation. The Borrower and each
Subsidiary of the Borrower has corporate power and authority to own its property
and to transact the business in which it is engaged or presently proposes to
engage. The Borrower and each Subsidiary of the Borrower is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
in which the ownership of its properties or the nature of its activities or both
makes such qualification necessary or advisable or where the failure to be so
qualified could reasonably be expected to have a Material Adverse Effect.
Schedule 4.1 hereto states as of the date hereof the jurisdiction of
incorporation of the Borrower and each Subsidiary of the Borrower, and the
jurisdictions in which the Borrower and each Subsidiary of the Borrower is
qualified to do business as a foreign corporation.
4.2 CORPORATE POWER AND AUTHORIZATION. The Borrower and each
Subsidiary of the Borrower has corporate power and authority to execute, deliver
and perform each Loan Document to which it is a party, and all such action has
been duly and validly authorized by all necessary corporate proceedings on its
part.
4.3 EXECUTION AND BINDING EFFECT. This Agreement and each
other Loan Document to which the Borrower or any Subsidiary of the Borrower is a
party and which is required to be delivered on or before the Closing Date
pursuant to Section 5.1 hereof has been duly and validly executed and delivered
by the Borrower or such Subsidiary, as the case may be. This Agreement and each
such other Loan Document constitutes, and each other Loan Document when executed
and delivered by the Borrower and each applicable Subsidiary will constitute,
the legal, valid and binding obligation of the Borrower and each Subsidiary of
the Borrower which is a party thereto, as the case may be, enforceable against
the Borrower or such Subsidiary of the Borrower in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditor's rights generally and by general equitable principles (whether
enforcement thereof is sought by proceedings at law or in equity).
4.4 GOVERNMENTAL APPROVALS AND FILINGS. No approval, order,
consent, authorization, license or permit or other action by, or filing or
registration with, or notice to, any Governmental Authority (a "Governmental
Action") is or will be necessary in connection with execution, delivery and
performance of any Loan Document, consummation of the transactions herein or
therein contemplated, or to ensure the legality, validity, binding effect, or
enforceability hereof or thereof.
4.5 ABSENCE OF CONFLICTS. Except as described on Schedule 4.5
hereto, neither the execution, delivery and performance of any Loan Document,
nor consummation of the transactions herein or therein contemplated, does or
will (a) violate or conflict with any Law, or (b) violate or
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conflict with or result in a breach of any term or condition of, or constitute a
default under, or result in any Lien upon any of property of the Borrower or any
Subsidiary of the Borrower pursuant to, under or in connection with (i) the
articles of incorporation or by-laws (or other constituent documents) of the
Borrower or any Subsidiary of the Borrower, or (ii) any agreement or instrument
creating, evidencing or securing any Indebtedness or any other agreement or
instrument to which the Borrower or any Subsidiary of the Borrower is a party or
by which any of them or any of their respective properties (now owned or
hereafter acquired) may be subject or bound, the violation of or breach of or
default under which would have a Material Adverse Effect.
4.6 FINANCIAL STATEMENTS; NO MATERIAL CHANGES; PROJECTIONS.
The Borrower has furnished to the Lenders consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as of the last day of fiscal year
ended March 31, 1995 and the related statements of income, cash flows and
changes in stockholders' equity for such fiscal year then ended, as examined and
audited by Price Waterhouse LLP, independent certified public accountants for
the Borrower, who delivered an unqualified opinion in respect thereof. Such
financial statements (including the notes thereto) present fairly the financial
condition of the Borrower and its Subsidiaries as of the end of that fiscal year
and the results of their operations and their cash flows for that fiscal years,
all in conformity with GAAP. The Borrower has also furnished to the Lenders
interim unaudited consolidated and consolidating balance sheets of the Borrower
and its Subsidiaries as of the end of the fiscal quarter ended December 31,
1995, together with the related statements of income and cash flows for that
fiscal period. Such financial statements present fairly the financial condition
of the Borrower and its Subsidiaries as of the end of that fiscal quarter and
the results of their operations and their cash flows for that fiscal quarter,
all in conformity with GAAP, subject to normal and recurring year-end audit
adjustments. Since December 31, 1995, there has been no event, circumstance or
condition which amounts to or could cause a Material Adverse Effect.
4.7 ACCURATE AND COMPLETE DISCLOSURE. All information
heretofore, contemporaneously or hereafter provided by or on behalf of the
Borrower or any Subsidiary of the Borrower to the Agent or any Lender pursuant
to or in connection with any Loan Document or any transaction contemplated
hereby or thereby is or will be (as the case may be) true and accurate in all
material respects on the date as of which such information is dated (or, if not
dated, when received by the Agent or such Lender, as the case may be) and does
not or will not (as the case may be) omit to state any material fact necessary
to make such information not misleading at such time in light of the
circumstances in which it was provided.
4.8 SOLVENCY. On and as of the Closing Date, after giving
effect to all Loans and other obligations and liabilities being incurred on such
date in connection therewith, and on the date of each subsequent Loan hereunder
and after giving effect to application of the proceeds thereof in accordance
with the terms of the Loan Documents, the Borrower and each Subsidiary of the
Borrower is and will be Solvent.
4.9 MARGIN REGULATIONS. No part of the proceeds of any Loan
hereunder will be used for the purpose of buying or carrying any "margin stock,"
as such term is used in Regulations G and U of the Board of Governors of the
Federal Reserve System, as amended from time to time, or to extend credit to
others for the purpose of buying or carrying any "margin stock." Neither the
Borrower nor any Subsidiary of the Borrower is engaged in the business of
extending credit to others for the purpose of buying or carrying "margin stock."
Neither the Borrower nor any Subsidiary of the Borrower owns any "margin stock."
Neither the making of any Loan nor any use of proceeds of any
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such Loan will violate or conflict with the provisions of Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System, as amended from time
to time.
4.10 SUBSIDIARIES. Schedule 4.10 hereto states as of the date
of this Agreement the authorized capitalization of each Subsidiary of the
Borrower, the number of shares of each class of capital stock issued and
outstanding of each such Subsidiary, and the number and percentage of
outstanding shares of each such class of capital stock owned by the Borrower and
by each such Subsidiary. The outstanding shares of each Subsidiary have been
duly authorized and validly issued and are fully paid and nonassessable. The
Borrower and each Subsidiary of the Borrower owns beneficially and of record and
has good title to all of the shares it is listed as owning in such Schedule
4.10, free and clear of any Lien. There are no options, warrants, calls,
subscriptions, conversion rights, exchange rights, preemptive rights or other
rights, agreements or arrangements (contingent or otherwise) which may in any
circumstances now or hereafter obligate any Subsidiary of the Borrower to issue
any shares of its capital stock or any other securities.
4.11 PARTNERSHIPS, ETC. Neither the Borrower nor any
Subsidiary of the Borrower is a partner (general or limited) of any partnership,
is a party to any joint venture or owns (beneficially or of record) any equity
or similar interest in any Person, except for (a) capital stock of Subsidiaries
referred to in Section 4.10 hereof and (b) matters set forth in Schedule 4.11
hereto.
4.12 LITIGATION. There is no pending or (to the best knowledge
of the Borrower after due inquiry) threatened action, suit, proceeding or
investigation by or before any Governmental Authority or other Person against or
affecting the Borrower or any Subsidiary of the Borrower, except for (x) matters
set forth in Schedule 4.12 hereto, which matters individually or in the
aggregate are not likely to have a Material Adverse Effect, (y) matters
described in the financial statements referred to in Section 4.6 hereof and (z)
matters that if adversely decided, individually or in the aggregate, could not
have a Material Adverse Effect.
4.13 ABSENCE OF EVENTS OF DEFAULT. No event has occurred
and is continuing and no condition exists which constitutes an Event of Default
or Possible Default.
4.14 ABSENCE OF OTHER CONFLICTS. Neither the Borrower nor any
Subsidiary of the Borrower is in violation of or conflict with: (a) any Law
(other than Environmental Laws), (b) its articles of incorporation or by-laws
(or other constituent documents), or (c) any agreement or instrument to which it
is party or by which it or any of its properties (now owned or hereafter
acquired) may be subject or bound, except for matters that, individually or in
the aggregate, could not have a Material Adverse Effect.
4.15 INSURANCE. The Borrower and each Subsidiary of the
Borrower maintains with financially sound and reputable insurers not related to
or affiliated with the Borrower or any Subsidiary of the Borrower insurance with
respect to its properties and business and against at least such liabilities,
casualties and hazards and in at least such types and amounts as is customary in
the case of corporations engaged in the same or a similar business.
4.16 TITLE TO PROPERTY. The Borrower and each Subsidiary of
the Borrower has good and marketable title in fee simple to all real property
owned or purported to be owned by it and good title to all other property of
whatever nature owned or purported to be owned by it, including but not limited
to all property reflected in the most recent audited balance sheet referred to
in Section 4.6
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hereof or submitted pursuant to Section 6.1(a) hereof, as the case may be
(except as sold or otherwise disposed of in the ordinary course of business and
as permitted by this Agreement after the date of such balance sheet), in each
case free and clear of all Liens, except for the Permitted Liens. The Borrower
and each Subsidiary of the Borrower owns, or is licensed or otherwise has the
right to use, all the patents, trademarks, service marks, names (trade, service,
fictitious or otherwise), copyrights, technology (including but not limited to
computer programs and software), processes, data bases and other rights, free
from unduly burdensome restrictions, necessary to own and operate its properties
and to carry on its business as presently conducted and presently planned to be
conducted without conflict with the rights of others, except for such conflicts
that, individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
4.17 TAXES. All tax and information returns required to be
filed by or on behalf of the Borrower or each Subsidiary of the Borrower have
been properly prepared, executed and filed. All taxes, assessments and other
governmental charges upon the Borrower or each Subsidiary of the Borrower or
upon any of their respective properties, incomes, sales or franchises which are
due and payable have been paid other than those not yet delinquent and payable
without premium or penalty, and except for those being diligently contested in
good faith by appropriate proceedings, and in each case adequate reserves and
provisions for those taxes, as determined in accordance with GAAP, have been
made on the books of the Borrower and each Subsidiary of the Borrower. The
reserves and provisions for taxes on the books of the Borrower and each
Subsidiary of the Borrower are adequate. Neither the Borrower nor any Subsidiary
of the Borrower knows of any proposed additional assessment or basis for any
material assessment for additional taxes (whether or not reserved against). The
federal income tax liabilities of the Borrower and each of its Subsidiaries have
been finally determined by the Internal Revenue Service and other relevant
taxing authorities, or the time for audit has expired, for all fiscal periods
ending on or prior to the last day of fiscal year ended March 31, 1993 and all
such liabilities (including all deficiencies assessed following audit) have been
satisfied. Schedule 4.17 hereto describes all tax sharing arrangements or
agreements to which the Borrower or any Subsidiary of the Borrower is subject or
bound.
4.18 EMPLOYEE BENEFITS. With respect to any Plan, which plan
is now or previously has been maintained or contributed to by the Borrower or
any ERISA Affiliate: (a) no "accumulated funding deficiency" as defined in Code
sec. 412 or ERISA sec. 302 has occurred, whether or not that accumulated funding
deficiency has been waived; (b) no Reportable Event has occurred; (c) no
termination of any plan subject to Title IV of ERISA has occurred; (d) neither
the Borrower nor any ERISA Affiliate has incurred a "complete withdrawal" within
the meaning of ERISA sec. 4203 from any Multiemployer Plan; (e) neither the
Borrower nor any ERISA Affiliate has incurred a "partial withdrawal" within the
meaning of ERISA sec. 4205 with respect to any Multiemployer Plan; (f) no
Multiemployer Plan to which the Borrower or any ERISA Affiliate has an
obligation to contribute is in "reorganization" within the meaning of ERISA sec.
4241 nor has notice been received by the Borrower or any ERISA Affiliate that
such a Multiemployer Plan will be placed in "reorganization"; (g) no Pension
Event has or is about to occur; and (h) Borrower is in material compliance with
the Code and ERISA. None of the properties of the Borrower or any Subsidiary of
the Borrower is subject to a Lien as a result of any Pension Event or the
violation by the Borrower or any Subsidiary of the Borrower of the Code or
ERISA, nor has the PBGC threatened any such Lien. Neither the Borrower nor any
Subsidiary of the Borrower has any liability (contingent or otherwise) for or in
connection with, any Postretirement Benefits. Schedule 4.18 sets forth all of
the Plans as of the Closing Date.
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4.19 ENVIRONMENTAL MATTERS.
(a) The Borrower and each Subsidiary of the Borrower is and
has been in substantial compliance with all applicable Environmental Laws,
including, without limitation, all Environmental Laws in all jurisdictions in
which any Borrower or Subsidiary of the Borrower owns or operates, or has owned
or operated, a facility or site, arranges or has arranged for disposal or
treatment of any Hazardous Material accepts or has accepted for transport any
Hazardous Material or holds or has held any interest in real property or
otherwise. No litigation or proceeding arising under, relating to or in
connection with any Environmental Law is pending or, to the best knowledge of
the Borrower after due inquiry, threatened against the Borrower or any
Subsidiary of the Borrower, any real property in which the Borrower or any
Subsidiary of the Borrower holds or has held an interest or any of its past or
present operations. No release, threatened release or disposal by the Borrower
or any Subsidiary of the Borrower, nor to the best knowledge of the Borrower
after due inquiry, by any other Person of Hazardous Material is occurring, or
has occurred, on, under or to any real property in which the Borrower or any
Subsidiary of the Borrower holds any interest or performs any of its operations,
in violation of any Environmental Law. As used in this subsection, "litigation
or proceeding" means any demand, claim, notice, suit, suit in equity, action,
administrative action, investigation or inquiry whether brought by any
Governmental Authority or any Person or otherwise.
(b) No facility or property now or previously owned, operated
or leased by the Borrower or any Subsidiary of the Borrower is listed or
proposed for listing on the National Priorities List, on CERCLIS or on any
similar state list of sites requiring investigation or cleanup, or which is the
subject of any pending or threatened action, suit, proceeding or investigation
related to or arising from any alleged violation of any Environmental Law (an
"Environmental Cleanup Site"). Neither the Borrower nor any Subsidiary of the
Borrower has directly transported or directly arranged for the transportation of
any Hazardous Materials to any Environmental Cleanup Site. No Lien exists, and
no condition exists which is reasonably likely to result in the filing of a
Lien, against any property of the Borrower or any Subsidiary of the Borrower
under any Environmental Law.
4.20 REGULATORY RESTRICTIONS. Neither the Borrower nor any
Subsidiary of the Borrower is (a) an "investment company" or a company
"controlled" by an investment company within the meaning of the Investment
Company Act of 1940, as amended, (b) a "holding company" or a "subsidiary
company" of a "holding Company" or an "affiliate" of either a "holding company"
or a "subsidiary company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, (c) subject to regulation under the Federal
Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940,
as amended, or (d) subject to any other Law which purports to restrict or
regulate its ability to borrow money or obtain credit.
4.21 CONSUMMATION OF MERGERS. The Mergers and the other
transactions contemplated by the Merger Documents have been consummated in
accordance with the respective terms thereof, without any amendment, waiver,
modification or termination of any provision thereof and in accordance with all
applicable laws. Each party to the respective Mergers has performed all
obligations and conditions required of it prior to or as a condition to the
consummation of the Mergers and the other transactions contemplated by the
Merger Documents.
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ARTICLE 5
CONDITIONS OF CREDIT EXTENSIONS
-------------------------------
5.1 CONDITIONS TO INITIAL CREDIT EXTENSION. The obligation of
each Lender to make Loans on the Closing Date and the willingness of the Issuing
Bank to issue any Letter of Credit on the Closing Date is subject to the
satisfaction, immediately prior to or concurrently with the making of such Loan
or issuance of such Letter of Credit, of the following conditions precedent. In
addition to the conditions precedent set forth in Section 5.2 hereof:
(a) AGREEMENT; NOTES; SCHEDULES. The Agent shall have received
an executed counterpart of this Agreement (and executed Notes
conforming to the requirements hereof) for each Lender, duly executed
by the Borrower. The Schedules attached hereto shall be approved by the
Agent and each of the Lenders.
(b) SECURITY DOCUMENTS. The Agent shall have received executed
counterparts of the Borrower Security Agreement, a Subsidiary Guaranty
from each of the Subsidiary Guarantors, a Subsidiary Security Agreement
from each of the Subsidiary Guarantors and such other Security
Documents as reasonably required by the Lenders. In addition, the
Borrower shall have delivered original Chattel Paper, Instruments,
Securities, and related collateral and all other documents contemplated
by the Borrower Security Agreement, all the foregoing to be in form and
substance satisfactory to the Agent.
(c) OTHER CONFLICTS. The Agent shall have received, with
copies for each Lender, true and correct copies (in each case certified
as to authenticity on such date on behalf of the Borrower) of all items
referred to in Schedule 4.5 hereto and such items shall be satisfactory
in form and substance to the Agent and each Lender and shall be in full
force and effect.
(d) CORPORATE PROCEEDINGS. The Agent shall have received, with
a counterpart for each Lender, certificates by the Secretary of each of
the Borrower and the Guarantor Subsidiaries, dated as of the Closing
Date as to (i) true copies of the articles of incorporation and by-laws
(or other constituent documents) of that corporation in effect on such
date (which, in the case of articles of incorporation or other
constituent documents filed or required to be filed with the Secretary
of State or other Governmental Authority in its jurisdiction of
incorporation, shall be certified to be true, correct and complete by
such Secretary of State or other Governmental Authority not more than
thirty (30) days before the Closing Date or as of such other date
satisfactory to the Lenders), (ii) true copies of all corporate action
taken by that corporation relative to this Agreement and the other Loan
Documents to which it is a party and (iii) the incumbency and signature
of the officers of that corporation executing this Agreement and the
other Loan Documents to which it is a party, as the case may be,
together with satisfactory evidence of the incumbency of such
Secretary. The Agent shall have received, with a copy for each Lender,
certificates from the appropriate Secretaries of State or other
applicable Governmental Authorities dated not more than thirty (30)
days before the Closing Date, or as of such other date satisfactory to
the Lenders, showing the good standing of each of the Borrower and the
Guarantor Subsidiaries in its state or other jurisdiction of
incorporation and each state or other jurisdiction in which the
Borrower is qualified to do business as described in Schedule 4.1.
(e) FINANCIAL STATEMENTS. The Agent shall have received, with
a counterpart for each Lender, copies of the consolidated financial
statements referred to in Section 4.6 hereof.
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(f) LEGAL OPINIONS OF COUNSEL TO THE BORROWER. The Agent shall
have received with an executed counterpart for each Lender, opinions
addressed to the Agent and each Lender, dated the Closing Date, of
McDonald, Hopkins, Burke & Haber Co. LPA, counsel to the Borrower and
the Guarantor Subsidiaries, in substantially the form attached hereto
as Exhibit C-1, and of Phelps Dunbar, L.L.P., special Louisiana counsel
to the Borrower, in substantially the form attached hereto as Exhibit
C-2.
(g) OFFICERS' CERTIFICATES. The Agent shall have received,
with an executed counterpart for each Lender, certificates from such
officers of the Borrower and any Guarantor Subsidiary as to such
matters as the Agent or any Lender may request.
(h) FEES, EXPENSES, ETC. All fees and other compensation
required to be paid to the Agent or the Lenders pursuant hereto or
pursuant to any other written agreement on or prior to the Closing Date
shall have been paid or received.
(i) TERMINATION AND REPAYMENT OF EXISTING CREDIT FACILITY AND
RELEASE OF LIENS RELATING THERETO. The Existing Credit Facility shall
have been terminated and all liens and security interests in respect
thereof shall have been released and be of no further force and effect,
all to the satisfaction of the Lenders.
(j) LIEN SEARCHES. The Agent shall have received
contemporaneous "UCC-11 All Lien" searches, which shall have revealed
no filings or recordings evidencing or relating to any Liens with
respect to any property of the Borrower or any of its Subsidiaries
other than with respect to Permitted Liens.
(k) NO LITIGATION. There shall not be pending or (to the best
knowledge of the Borrower after due inquiry) threatened any action,
suit, proceeding or investigation by or before any Governmental
Authority or other Person seeking to challenge, prevent, enjoin or
declare illegal the transactions contemplated hereby.
(l) NO MATERIAL ADVERSE EFFECT. There shall not have occurred,
or be threatened, any event, circumstance or condition which amounts
to, entails, causes or constitutes a Material Adverse Effect since
December 31, 1995.
(m) MERGER DOCUMENTS. The Agent shall have received true and
correct copies (in each case certified as to authenticity as of the
Closing Date on behalf of the Borrower) of all Merger Documents, and
such Merger Documents shall be reasonably satisfactory in form and
substance to the Agent and each Lender.
(n) RECORDINGS AND FILINGS. The Borrower shall have: (a)
executed and delivered all Security Documents (including, without
limitation, UCC-1 and UCC-3 statements) required to be filed,
registered or recorded in order to create, in favor of the Agent, for
the ratable benefit of the Lenders, a perfected Lien in the Collateral
(subject only to the Permitted Liens) in form and in sufficient number
for filing, registration, and recording in each office in each
jurisdiction in which such filings, registrations and recordations are
required, and (b) delivered such evidence as the Agent may deem
satisfactory that all necessary filing fees and all recording and other
similar fees, and all Taxes and other expenses related to such filings,
registrations and recordings will be or have been paid in full.
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(o) INSURANCE CERTIFICATE. The Agent shall have received an
insurance certificate or certificates in accordance with the provisions
of Section 6.3 hereof and Section 10 of each of the Borrower Security
Agreement and each Subsidiary Security Agreement.
(p) LANDLORD'S WAIVERS. The Agent shall have received a
landlord's waiver from Baker Hughes Oilfield Operations, Inc. in
respect of Corrtherm, Inc. and such other landlord's waivers requested
by the Lenders, which landlords' waiver must be reasonably acceptable
to the Agent and its counsel in their sole and absolute discretion.
(q) ADDITIONAL MATTERS. The Agent shall have received such
other certificates, opinions, documents and instruments as may be
reasonably requested by any Lender. All corporate and other
proceedings, and all documents, instruments and other matters in
connection with the transactions contemplated by this Agreement and the
other Loan Documents shall be satisfactory in form and substance to the
Agent and each Lender.
5.2 CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of
each Lender to make any Loan and the willingness of the Issuing Bank to issue
any Letter of Credit is subject to performance by each of the Borrower and the
Guarantor Subsidiaries of their respective obligations to be performed hereunder
or under the other Loan Documents on or before the date of such Loan or issuance
of such Letter of Credit, satisfaction of the conditions precedent set forth
herein and in the other Loan Documents and to satisfaction of the following
further conditions precedent:
(a) NOTICE. Appropriate notice of such Loan or Letter of
Credit shall have been given by the Borrower as provided in Article 2
or Article 3 hereof, as the case may be.
(b) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Borrower in Article 4 hereof
shall be true and correct in all material respects on and as of such
date as if made on and as of such date, both before and after giving
effect to the Loans requested to be made and Letters of Credit
requested to be issued on such date.
(c) NO DEFAULTS. No Event of Default or Possible Default shall
have occurred and be continuing on such date or after giving effect to
the Loans requested to be made or the Letters of Credit requested to be
issued on such date.
(d) NO VIOLATIONS OF LAW, ETC. All legal matters incident to
the making or use of the Loans or the Letters of Credit shall be
satisfactory to the Lenders and their counsel.
(e) NO MATERIAL ADVERSE EFFECT. There shall not have occurred,
or be threatened, any event, circumstance or condition which amounts
to, entails, causes or constitutes a Material Adverse Effect.
Each request by the Borrower for any Loan or Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions set forth in
this Section 5.2 have been satisfied as of the date of such request. Failure of
the Agent to receive notice from the Borrower to the contrary before such Loan
is made or such Letter of Credit is issued shall constitute a further
representation and warranty by the Borrower that the conditions referred to in
this Section 5.2 have been satisfied as of the date such Loan is made or such
Letter of Credit is issued.
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ARTICLE 6
AFFIRMATIVE COVENANTS
---------------------
The Borrower hereby covenants to the Agent and the Lenders as
follows:
6.1 REPORTING REQUIREMENTS.
(a) ANNUAL AUDIT REPORTS. As soon as practicable, and in any
event within one hundred twenty (120) days after the close of each fiscal year
of the Borrower, the Borrower shall furnish to the Agent, with a copy for each
Lender, a consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries as of the close of such fiscal year and consolidated and
consolidating statements of income, cash flows and changes in stockholders'
equity of the Borrower and its Subsidiaries for such Fiscal Year, and notes to
each, all in reasonable detail, setting forth in comparative form the
corresponding figures for the preceding fiscal year. The consolidated financial
statements shall be accompanied by an opinion of (i) Price Waterhouse, LLP or
(ii) such other independent certified public accountants of recognized national
standing selected by the Borrower and satisfactory to the Agent. Such opinion
shall be free of exceptions or qualifications not acceptable to the Agent and in
any event shall be free of any exception or qualification which is of "going
concern" or like nature. Such opinion in any event shall contain a written
statement of such accountants substantially to the effect that (i) such
accountants examined such financial statements in accordance with generally
accepted auditing standards and accordingly made such tests of accounting
records and such other auditing procedures as such accountants considered
necessary in the circumstances and (ii) in the opinion of such accountants such
financial statements present fairly the financial position of the Borrower and
its Subsidiaries as of the end of such Fiscal Year and the results of their
operations and their cash flows and changes in stockholders' equity for such
Fiscal Year, in conformity with GAAP.
(b) QUARTERLY REPORTS. As soon as practicable, and in any
event within forty-five (45) days after the close of each of the first three (3)
fiscal quarters of each fiscal year of the Borrower, the Borrower shall furnish
to the Agent, with a copy for each Lender, an unaudited consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries as of the close
of such fiscal quarter and unaudited consolidated and consolidating statements
of income and cash flows of the Borrower and its Subsidiaries for such fiscal
quarter and for the period from the beginning of such Fiscal Year to the end of
such fiscal quarter, and notes to each, all in reasonable detail, setting forth
in comparative form the corresponding figures for the same periods or as of the
same date during the preceding fiscal year. Such financial statements shall be
certified by the chief financial officer of the Borrower as presenting fairly
the financial position of the Borrower and its Subsidiaries as of the end of
such fiscal quarter and the results of their operations and their cash flows for
such fiscal quarter, in conformity with GAAP, subject to normal and recurring
year-end audit adjustments.
(c) COMPLIANCE CERTIFICATES. The Borrower shall deliver to the
Agent, with a copy for each Lender, a Compliance Certificate in substantially
the form set forth as Exhibit F attached hereto ("Compliance Certificate"), duly
completed and signed by the chief financial officer of the Borrower concurrently
with the delivery of the financial statements referred to in subsections (a) and
(b) of this Section 6.1 and stating whether or not there exists any Event of
Default or Possible Default, specifying the nature and period of existence
thereof and what action, if any, is being taken or is proposed to be taken with
respect thereto.
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(d) ACCOUNTANTS' CERTIFICATE. Each set of financial statements
delivered pursuant to Section 6.1(a) hereof shall be accompanied by a
certificate or report dated in accordance with standard practice by the
independent certified public accountants who opined on such financial statements
stating in substance that they have reviewed this Agreement, and any other
documents necessary to enable them to make the certificate or report, and that
in making the examination necessary for their certification of such statements
and balance sheet they did not become aware of any Event of Default or Possible
Default, or if they did become so aware, such certificate or report shall state
the nature and period of existence thereof.
(e) BORROWING BASE CERTIFICATE. Within twenty-five (25) days
after the end of each month, the Borrower shall deliver to the Agent, with a
copy for each Lender, a report of the Borrowing Base (each a "Borrowing Base
Report"; collectively, the "Borrowing Base Reports") in the form of Exhibit G
attached hereto or in such form as otherwise may be reasonably required from
time to time by the Agent, appropriately completed and duly signed by the chief
financial officer of the Borrower. The Borrowing Base Report shall contain the
amount and payments on the Accounts, the value of inventory, and the
calculations of the Borrowing Base, all in such detail, and accompanied by such
supporting and other information, as the Agent may reasonably from time to time
request. Upon the Agent's request, the Borrower will provide the Agent with: (a)
copies of Account Debtor invoices; (b) evidence of shipment or delivery; and (c)
such further schedules, documents and/or information regarding the Accounts and
the inventory as the Agent may reasonably require.
(f) CERTAIN OTHER REPORTS AND INFORMATION. Promptly upon their
becoming available to the Borrower, the Borrower shall deliver to the Agent,
with a copy for each Lender, a copy of (i) all regular or special reports,
registration statements and amendments to the foregoing which the Borrower or
any Subsidiary of the Borrower shall file with the Securities and Exchange
Commission (or any successor thereto) or any securities exchange, (ii) all
reports, proxy statements, financial statements and other information
distributed by the Borrower to its stockholders, bondholders or the financial
community generally and (iii) all accountants' management letters (if any)
pertaining to, all other reports submitted by accountants in connection with any
audit of, and all other reports from outside accountants with respect to, the
Borrower or any of its Subsidiaries.
(g) FURTHER INFORMATION. The Borrower will promptly furnish to
the Agent, with a copy for the Lenders, such other information and in such form
as the Agent or any Lender may reasonably request from time to time.
(h) NOTICE OF CERTAIN EVENTS. Promptly upon becoming aware of
any of the following, the Borrower shall give the Agent notice thereof, together
with a written statement of the chief executive officer or the chief financial
officer of the Borrower setting forth the details thereof and any action with
respect thereto taken or proposed to be taken by the Borrower:
(i) Any Event of Default or Possible Default.
(ii) Any event, circumstance or condition which amounts to,
entails, causes or constitutes a Material Adverse Effect.
(iii) Any pending or threatened action, suit, proceeding or
investigation by or before any Governmental Authority against or
affecting the Borrower or any Subsidiary of the
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Borrower, except for matters that if adversely decided, individually or
in the aggregate, could not have a Material Adverse Effect.
(iv) Any violation, breach or default by the Borrower or any
Subsidiary of the Borrower or by any other Person of or under any
agreement or instrument that could have a Material Adverse Effect on
the business, operations, financial condition or prospects of the
Borrower or any Subsidiaries.
(v) Any claim by any Governmental Authority or any other
Person (including without limitation the Internal Revenue Service, and
any Environmental Claim) that the Borrower or any Subsidiary of the
Borrower has violated or may have violated, or is otherwise liable or
may be liable for any violation of, any Environmental Law.
(vi) Any Pension Event. Such notice shall be accompanied by:
(A) a copy of any notice, request, return, petition or other document
received by the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate from any Person, or which has been or is to be filed with or
provided to any Person (including without limitation the Internal
Revenue Service, PBGC or any Plan participant, beneficiary, alternate
payee or employer representative), in connection with such Pension
Event, and (B) in the case of any Pension Event with respect to a Plan,
the most recent Annual Report (5500 Series), with attachments thereto,
and the most recent actuarial valuation report, for such Plan.
6.2 VISITATION; VERIFICATION. The Borrower shall permit such
Persons as the Agent or any Lender may designate from time to time to visit and
inspect any of the properties of the Borrower and of any Subsidiary of the
Borrower, to examine their respective books and records and take copies and
extracts therefrom and to discuss their respective affairs with their respective
directors, officers, employees and independent accountants, upon at least
twenty-four hours prior notice (unless an Event of Default or Possible Default
shall have occurred and be continuing, in which case no prior notice shall be
necessary) and all at such reasonable times and as often as the Agent or any
Lender may request. The Borrower hereby authorizes such officers, employees and
independent accountants to discuss with the Agent or any Lender the affairs of
the Borrower and its Subsidiaries. The Agent and the Lenders shall have the
right to examine and verify accounts, inventory and other properties and
liabilities of the Borrower and its Subsidiaries from time to time, and the
Borrower shall cooperate, and shall cause each such Subsidiary to cooperate,
with the Agent and the Lenders in such verification.
6.3 INSURANCE. The Borrower shall, and shall cause each
Subsidiary of the Borrower to, (a) maintain with financially sound and reputable
insurers insurance with respect to its properties and business and against such
liabilities, casualties and hazards and of such types and in such amounts as is
satisfactory from time to time to the Required Lenders, which insurance shall in
any event not provide for a materially lower level of coverage than the
insurance referred to in Section 4.15 hereof, (b) provide that such insurance
cannot terminate, expire, be cancelled or amended in an material respect without
thirty (30) days' prior notice to the Agent, (c) furnish to each Lender from
time to time upon request the policies under which such insurance is issued,
certificates of insurance and such other information relating to such insurance
as such Lender may reasonably request, which information shall be prepared in
form and detail satisfactory to such Lender or Agent and certified by the chief
financial officer of the Borrower, and (d) provide such other insurance and
endorsements as are required by this Agreement and the other Loan Documents.
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6.4 PAYMENT OF TAXES AND OTHER POTENTIAL CHARGES AND PRIORITY
CLAIMS. The Borrower shall, and shall cause each Subsidiary of the Borrower to,
pay or discharge: (a) on or prior to the date on which penalties attach thereto,
all taxes, assessments and other governmental charges imposed upon it or any of
its properties; (b) on or prior to the date when due, all lawful claims of
materialmen, mechanics, carriers, warehousemen, landlords and other like Persons
which, if unpaid, might result in the creation of a Lien upon any such property;
and (c) on or prior to the date when due, all Indebtedness and other lawful
claims which, if unpaid, might result in the creation of a Lien upon any such
property; PROVIDED, HOWEVER, that unless and until foreclosure, levy, sale or
similar proceedings shall have been commenced, the Borrower or such Subsidiary
of the Borrower need not pay or discharge any such tax, assessment, charge or
claim so long as (x) the validity thereof is contested in good faith and by
appropriate proceedings diligently conducted and (y) such reserves or other
appropriate provisions as may be required by GAAP shall have been made therefor
or appropriate indemnities or bonds shall have been obtained with respect
thereto. Notwithstanding any provision herein to the contrary, the Borrower
shall, and shall cause each Subsidiary of the Borrower to, pay or discharge all
of its wage obligations to its employees in compliance with the Fair Labor
Standards Act (29 U.S.C. sec. 206-207) or any comparable provisions.
6.5 PRESERVATION OF CORPORATE STATUS. The Borrower shall, and
shall cause each of its Subsidiaries to, maintain its status as a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and to be duly qualified to do business as a
foreign corporation and in good standing in all jurisdictions in which the
ownership of its properties or the nature of its business or both make such
qualification necessary or advisable, except for (i) matters that, individually
or in the aggregate, could not have a Material Adverse Effect and (ii) matters
permitted by Section 7.9 hereof.
6.6 MAINTENANCE OF PROPERTIES, FRANCHISES, ETC. The Borrower
shall, and shall cause each Subsidiary of the Borrower to, (a) maintain or cause
to be maintained in good repair, working order and condition the properties now
or hereafter owned, leased or otherwise possessed by it (ordinary wear and tear
excepted) and shall make or cause to be made all needful and proper repairs,
renewals, replacements and improvements thereto so that the business carried on
in connection therewith may be properly and advantageously conducted at all
times, except where a failure to do so could not have a Material Adverse Effect,
and (b) maintain and hold in full force and effect all franchises, licenses,
permits, certificates, authorizations, qualifications, accreditations and other
rights, consents and approvals (whether issued, made or given by a Governmental
Authority or otherwise) necessary to own and operate its properties and to carry
on its business as presently conducted and as presently planned to be conducted.
6.7 [INTENTIONALLY OMITTED]
6.8 AVOIDANCE OF OTHER CONFLICTS. The Borrower shall not, and
shall not permit any of its Subsidiaries to, violate or conflict with, be in
violation of or conflict with (a) any Law, including, without limitation, any
Environmental Law, (b) its articles of incorporation or by-laws (or other
constituent documents), or (c) any agreement or instrument to which it is party
or by which any of them is a party or by which any of them or any of their
respective properties (now owned or hereafter acquired) may be subject or bound,
except for (i) matters set forth in Schedule 6.8 hereto and (ii) matters that
could not, individually or in the aggregate, have a Material Adverse Effect.
6.9 FINANCIAL ACCOUNTING PRACTICES. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, make and keep (a) a standard
system of accounting and true and
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correct books, records and accounts, in reasonable detail and all in accordance
with GAAP, including, without limitation, maintaining appropriate reserves for
possible losses and liabilities, applied on a basis not inconsistent with its
present accounting procedures, and (b) proper books of record and account in
which full, true and correct entries are made of all dealings and transactions
in relation to its properties, business and activities. The Borrower shall cause
each of its Subsidiaries to make and keep books, records and accounts which, in
reasonable detail, permit the Borrower to prepare consolidated financial
statements in conformity with GAAP. The Borrower will not change its fiscal year
from a year ending on March 31.
6.10 USE OF PROCEEDS. The Borrower shall apply the proceeds of
all Loans hereunder only for the following purposes: (a) the Term Loan incurred
on the Closing Date shall be applied to repay in full all amounts outstanding
under the Existing Credit Facility and (b) after the Closing Date, Loans shall
be used to pay the NCB Term Loan, provide working capital financing, acquisition
financing, to provide for the issuance of Letters of Credit and for other
general corporate purposes of the Borrower. The Borrower shall not use the
proceeds of any Loans hereunder directly or indirectly for any unlawful purpose,
in any manner inconsistent with Section 4.9 hereof, or inconsistent with any
other provision of any Loan Document. All Letters of Credit shall be used for
the purposes permitted by Section 3.1(c) hereof.
6.11 CONTINUATION OF OR CHANGE IN BUSINESS. The Borrower and
each of its Subsidiaries shall continue to engage in its business substantially
as conducted and operated during the present and preceding fiscal year, and the
Borrower shall not, and shall not permit any Subsidiary of the Borrower to,
engage in any unrelated business.
6.12 CONSOLIDATED TAX RETURN. The Borrower shall not, and
shall not suffer any of its Subsidiaries to, file or consent to the filing of
any consolidated income tax return with any Person other than the Borrower and
its Subsidiaries, except with respect to (i) the transactions permitted by
Section 7.9 hereof and (ii) matters disclosed on Schedule 4.17 hereto.
6.13 SUBSIDIARY GUARANTY. Promptly upon any Person being or
becoming a Subsidiary of the Borrower, as permitted by the provisions of this
Agreement, that is a Domestic Subsidiary, the Borrower shall forthwith cause
such Subsidiary to execute and deliver to the Agent counterparts of a Subsidiary
Guaranty and Subsidiary Security Agreement, together with a certificate by the
Secretary or an Assistant Secretary of such Subsidiary dated the date of such
Subsidiary Guaranty and Subsidiary Security Agreement as to (i) a true copy of
the articles of incorporation and by-laws (or other constituent document) of
such Subsidiary in effect on such date, (ii) a true copy of all corporate action
taken by such Subsidiary relative to the execution, delivery and performance of
such Subsidiary Guaranty and Subsidiary Security Agreement and (iii) the
incumbency and signature of the officers of such Subsidiary executing such
Subsidiary Guaranty and Subsidiary Security Agreement, together with
satisfactory evidence of the incumbency of such Secretary or Assistant
Secretary.
6.14 SOLVENCY. Borrower shall continue to be, and will cause
each of its Subsidiaries to continue to be, Solvent. Borrower shall at all time
have, and will cause each of its Guarantor Subsidiaries at all times to have, a
positive tangible net worth.
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6.15 POST CLOSING DATE ACTIONS.
(a) Within forty-five (45) days after the Closing Date, the
Borrower shall use reasonable efforts to cause Softech Financial, a division of
Bankers Leasing Association, Inc., or any assignee thereof, to terminate the
financing statement filed in the office of the Ohio Secretary of State on June
26, 1995 as number AL95892 and the financing statement filed in the office of
the Medina County Recorder on June 26, 1995 as number 203269, or partially
release all of the property described therein except for the specific goods sold
or leased to the Borrower by Softech Financial and proceeds thereof.
(b) Within thirty (30) days after the Closing Date, the
Borrower shall cause the NCB Term Loan to be paid in full, and (A) shall execute
and deliver to the Agent the Good-All Mortgage, (B) deliver to the Agent an
appraisal of the real property described therein, (C) deliver to the Agent a
mortgagee's title policy in an aggregate amount not less than $1,575,000, all in
form and substance satisfactory to the Agent and the Lenders, and (D) deliver,
or caused to be delivered, to the Agent such other documents and information as
the Agent or any Lender may reasonably request. Within forty-five (45) days
after the Closing Date, the Borrower shall deliver to the Agent a share
certificate or certificates evidencing at least two-thirds (2/3) of the issued
and outstanding capital stock of Wilson Walton Group Limited owned by the
Borrower and to be pledged under the Borrower Security Agreement.
ARTICLE 7
NEGATIVE COVENANTS
------------------
The Borrower hereby covenants to the Agent and each Lender as
follows:
7.1 FINANCIAL COVENANTS.
(a) TANGIBLE NET WORTH. The Borrower shall not permit its
Tangible Net Worth at any time to be less than the Required Minimum (as
hereinafter defined). As used herein, the "Required Minimum" shall mean the
following: (i) from the Closing Date through and including March 30, 1997,
$29,000,000 plus all of the net proceeds, if any, from the sale of any capital
stock of the Borrower after the Closing Date; and (ii) from March 31, 1997 and
thereafter, $32,000,000 plus all of the net proceeds, if any, from the sale of
any capital stock of the Borrower after the Closing Date plus fifty percent
(50%) of all Net Income during each fiscal year, if positive (each such Net
Income calculated separately for each fiscal year and determined at the end of
each fiscal year), commencing with the fiscal year ending March 31, 1998.
(b) RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH. The
Borrower shall not permit the ratio of Total Liabilities to Tangible Net Worth
(the "Leverage Ratio") at any time to be more than 2.50 to 1.00.
(c) RATIO OF FUNDED DEBT TO EBITDA. The Borrower shall not
permit, as of the last day of each fiscal quarter of the Borrower, the ratio of
Funded Debt as of the end of such fiscal quarter to EBITDA for the respective
periods (with periods of less than twelve months being annualized) set forth
below, each considered as a single accounting period, to be more than the amount
indicated for that period:
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<PAGE> 61
<TABLE>
<CAPTION>
PERIOD RATIO NOT TO EXCEED
------ -------------------
<S> <C>
Three months ended June 30, 1996 3.20 to 1.00
Six months ended September 30, 1996 3.20 to 1.00
Nine months ended December 31, 1996 3.20 to 1.00
Twelve months ended March 31, 1997 3.15 to 1.00
Twelve months ended June 30, 1997 3.10 to 1.00
Twelve months ended September 30, 1997 2.95 to 1.00
Twelve months ended December 31, 1997 2.95 to 1.00
Twelve months ended March 31, 1998 2.75 to 1.00
and each fiscal quarter thereafter
</TABLE>
(d) DEBT SERVICE COVERAGE RATIO. The Borrower shall not
permit, as of the last day of each fiscal quarter of the Borrower, the ratio
(the "Debt Service Coverage Ratio") of (a) the sum of the following as of the
end of such fiscal quarter for the respective periods set forth below, each
considered as a single accounting period: EBITDA plus Lease Expense minus
Capital Expenditures (excluding Capitalized Lease Obligations), to (b) the sum
of the following as of the end of such fiscal quarter for the respective periods
set forth below, each considered as a single accounting period: Lease Expense
plus Interest Expense plus the aggregate amount of all principal payments on
Funded Debt and all payments on Capitalized Lease Obligations in respect of
principal, to be less than the amount indicated for that period:
<TABLE>
<CAPTION>
PERIOD RATIO NOT TO BE LESS THAN
------ -------------------------
<S> <C>
One month ended April 30, 1996* 0.85 to 1.00
One month ended May 31, 1996** 1.35 to 1.00
One month ended June 30, 1996*** 1.50 to 1.00
Three months ended June 30, 1996 1.50 to 1.00
Six months ended September 30, 1996 1.50 to 1.00
Nine months ended December 31, 1996 1.50 to 1.00
Twelve months ended March 31, 1997 1.50 to 1.00
and each fiscal quarter thereafter
<FN>
* The Borrower shall deliver to the Agent a Compliance Certificate that sets
forth the Debt Service Coverage Ratio for this period on or before May 30, 1996.
** The Borrower shall deliver to the Agent a Compliance Certificate that sets
forth the Debt Service Coverage Ratio for this period on or before June 25,
1996.
*** The Borrower shall deliver to the Agent a Compliance Certificate that sets
forth the Debt Service Coverage Ratio for this period on or before July 25,
1996.
</TABLE>
7.2 LIENS. The Borrower shall not, and shall not permit any
Subsidiary of the Borrower to, at any time create, incur, assume or suffer to
exist any Lien on any of its property (now owned or hereafter acquired), or
agree, become or remain liable (contingently or otherwise) to do any of the
foregoing, except for the following ("Permitted Liens"):
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<PAGE> 62
(a) Liens arising from taxes, assessments, charges or claims
described in Section 6.4 hereof that are not yet due or that remain
payable without penalty or to the extent permitted to remain unpaid
under the proviso to such Section 6.4;
(b) Deposits or pledges of cash in the ordinary course of
business to secure (i) worker's compensation, unemployment insurance or
other social security obligations, (ii) performance of bids, tenders,
trade contracts (other than for payment of money) or leases, (iii)
stay, surety or appeal bonds, or (iv) other obligations of a like
nature incurred in the ordinary course of business;
(c) Liens by a Borrower or Subsidiary of the Borrower on
property securing all or part of the purchase price thereof, PROVIDED
that:
(i) such Lien is created before or substantially
simultaneously with the purchase of such property by the Borrower or
such Subsidiary,
(ii) such Lien is confined solely to the property so
purchased, improvements thereto and proceeds thereof,
(iii) the aggregate amount secured by all such Liens on any
particular property at the time purchased by the Borrower or such
Subsidiary, as the case may be, shall not exceed the lesser of the
purchase price of such property or the fair market value of such
property at the time of purchase thereof ("purchase price" for this
purpose including the amount secured by each such Lien thereon whether
or not assumed), and
(iv) the aggregate amount secured by all Liens described in
this Section 7.2(c), PLUS the aggregate amount of Capitalized Lease
Obligations described in Section 7.3(d) hereof, shall not at any time
exceed One Million Dollars ($1,000,000);
(d) Zoning restrictions, easements, minor restrictions on the
use of real property, minor irregularities in title thereto and other
minor Liens that do not secure the payment of money or the performance
of an obligation and that do not in the aggregate materially detract
from the value of a property or asset to, or materially impair its use
in the business of, the Borrower or such Subsidiary;
(e) Liens in favor of the Agent and the Lenders; and
(f) Liens existing on the Closing Date and approved by the
Required Lenders, which Liens are listed on Schedule 7.2 hereto, but
excluding any extension, renewal or replacement of such Liens, unless
(i) such Liens that are extended, renewed or replaced relate to any
Indebtedness with an outstanding principal amount less than Two Hundred
Fifty Thousand Dollars ($250,000), or (ii) such extension, renewal or
replacement is substantially on the same terms, but in no event on
terms that are materially less favorable in the determination of the
Required Lenders.
7.3 INDEBTEDNESS. The Borrower shall not, and shall not permit
any Subsidiary of the Borrower to, at any time create, incur, assume or suffer
to exist any Indebtedness, or agree, become or remain liable (contingently or
otherwise) to do any of the foregoing, except:
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<PAGE> 63
(a) Indebtedness to the Lenders, the Issuing Bank and the
Agent pursuant to this Agreement and the other Loan Documents;
(b) Indebtedness constituting intercompany loans and advances
permitted by subsection (d) of Section 7.5 hereof;
(c) Indebtedness secured by a Lien permitted by Section 7.2(c)
hereof and any Indebtedness constituting Capitalized Lease Obligations
of the Borrower or any Subsidiary of the Borrower incurred in the
ordinary course of business from time to time, provided the aggregate
amount of all Indebtedness secured by Liens described in Section 7.2(c)
hereof PLUS the aggregate amount of all Capitalized Lease Obligations
described in this Section 7.3(c) shall not at any time exceed One
Million Dollars ($1,000,000);
(d) [INTENTIONALLY OMITTED]
(e) Accounts payable to trade creditors arising out of
purchases of goods or services in the ordinary course of business, so
long as not more than Two Million Dollars ($2,000,000) in the aggregate
of such accounts payable are more than ninety (90) days overdue;
(f) Indebtedness of the type described in clause (e) of the
definition of Indebtedness to National City Bank, Cleveland, Ohio, in
respect of the letters of credit issued under the Existing Credit
Facility and listed on Schedule 7.3 hereto;
(g) Indebtedness of the Borrower in respect of the Eltech
Acquisition in a principal amount not to exceed Six Hundred Thousand
Dollars ($600,000) PROVIDED such Indebtedness is paid in full on or
before March 31, 1997;
(h) Any Indebtedness under an interest rate cap agreement or
interest rate collar agreement entered into by Borrower or any of its
Subsidiaries with any Lender as the counterparty; and
(i) Indebtedness of the Borrower and any Subsidiary of the
Borrower existing on the Closing Date and approved by the Required
Lenders, which Indebtedness is listed on Schedule 7.3 hereto, but
excluding any extension, renewal or refinancing of such Indebtedness,
unless (i) such extension, renewal or refinancing relates to any
Indebtedness with an outstanding principal amount less than Two Hundred
Fifty Thousand Dollars ($250,000), or (ii) such extension, renewal or
refinancing is substantially on the same terms, but in no event on
terms that are materially less favorable in the determination of the
Required Lenders.
7.4 GUARANTIES, INDEMNITIES, ETC. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, be or become subject to or
bound by any Guaranty Equivalent, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, except:
(a) Any Subsidiary Guaranties;
(b) Guaranty Equivalents from time to time entered into by the
Borrower, provided that (i) in each case the Deemed Obligor is a
Subsidiary of the Borrower and (ii) the Assured Obligations of the
Deemed Obligors are (x) fully funded and constitute liabilities on
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<PAGE> 64
the consolidated balance sheet of the Borrower or (y) operating leases
or Capitalized Leases or other agreements entered into by a Subsidiary
of the Borrower which, if entered into by the Borrower, would have been
permitted under this Agreement;
(c) Contingent liabilities arising from the endorsement of
negotiable or other instruments for deposit or collection or similar
transactions in the ordinary course of business;
(d) Indemnities by the Borrower or any such Subsidiary of the
liabilities of its directors or officers in their capacities as such as
permitted by Law; and
(e) Guaranty Equivalents of the Borrower existing on the
Closing Date and approved by the Required Lenders, which Guaranty
Equivalents are listed on Schedule 7.4 hereto, but excluding any
extension or renewal of such Guaranty Equivalents unless (i) such
Guaranty Equivalents that are extended or renewed relate to
Indebtedness with an outstanding principal amount less than Two Hundred
Fifty Thousand Dollars ($250,000), or (ii) such extension or renewal is
substantially on the same terms, but in no event on terms that are
materially less favorable in the determination of the Required Lenders.
7.5 LOANS, ADVANCES AND INVESTMENTS. The Borrower shall not,
and shall not permit any Subsidiary of the Borrower to, at any time make or
suffer to exist or remain outstanding any loan or advance to, OR purchase,
acquire or own (beneficially or of record) any stock, bonds, notes or securities
of, or any partnership interest (whether general or limited) in, or any other
interest in, OR make any capital contribution to or other investment in, any
other Person, or agree, become or remain liable (contingently or otherwise) to
do any of the foregoing, except:
(a) Receivables owing to the Borrower or any such Subsidiary
arising from sales of inventory or services under usual and customary
terms in the ordinary course of business;
(b) Loans and advances to officers and employees of the
Borrower and its Subsidiaries and in amounts at any time outstanding
not exceeding Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate;
(c) Loans and advances by the Borrower to any Domestic
Subsidiary of the Borrower, by any Domestic Subsidiary to the Borrower
or to any other Domestic Subsidiary, and by any Foreign Subsidiary to
any Foreign Subsidiary, to any Domestic Subsidiary or to the Borrower,
and loans and advances by the Borrower to Foreign Subsidiaries of the
Borrower PROVIDED that the aggregate principal amount of all such loans
at any time by the Borrower or any Domestic Subsidiary to Foreign
Subsidiaries shall not exceed Five Hundred Thousand Dollars ($500,000);
(d) The capital stock of a Subsidiary of the Borrower owned on
the date hereof and listed on Schedule 4.10 hereto and capital stock
obtained in a transaction permitted by Section 7.9 hereof;
(e) Cash Equivalent Investments; and
(f) Loans and investments existing on the date hereof and
listed in Schedule 7.5 hereto (and extensions, renewals and
refinancings thereof on terms no less favorable than those existing
immediately before such extension, renewal or refinancing).
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<PAGE> 65
The loans permitted under Section 7.5(d) above may be further limited by the
Required Lenders from time to time based on ordinary and customary credit
standards, including, without limitation, the limitation of such loans if the
amount thereof loaned to a Domestic Subsidiary referred to therein would cause
such Subsidiary to have a negative tangible net worth, as determined by the
Required Lenders.
7.6 DIVIDENDS AND RELATED DISTRIBUTIONS. The Borrower shall
not, and shall not permit any Subsidiary of the Borrower to, declare or make any
Restricted Payment, or agree, become or remain liable (contingently or
otherwise) to do any of the foregoing, except as follows:
(a) A Subsidiary of the Borrower may declare and make
Restricted Payments if (i) all of the capital stock of such Subsidiary
is owned by the Borrower or by a direct or indirect wholly-owned
Domestic Subsidiary or (ii) such Subsidiary is a Foreign Subsidiary;
(b) The Borrower may from time to time declare and make
Restricted Payments if such Restricted Payments are payable solely in
shares of capital stock (or options, warrants or rights therefor) of
the Borrower; and
(c) So long as no Possible Default or Event of Default has
occurred and is continuing or would be caused by or exist immediately
after such Restricted Payment, the Borrower may from time to time
declare and make quarterly or annual Restricted Payments (in cash) in
an aggregate amount not to exceed an amount equal to fifty percent
(50%) of the Borrower's Net Income for the fiscal year immediately
preceding the year in which such annual Restricted Payment (the
"Restricted Payment Allowance") is proposed to be made, determined with
reference to the financial statements required to be delivered under
Section 6.1(a) hereof for such immediately preceding fiscal year,
PROVIDED that if and to the extent the Restricted Payments in any
fiscal year of the Borrower are less than the Restricted Payment
Allowance for that fiscal year (the difference between the Restricted
Payment Allowance and such actual Restricted Payments made in any
fiscal year of the Borrower being the "Unused Annual Restricted Payment
Allowance"), such Unused Annual Restricted Payment Allowance may be
carried forward and applied to Restricted Payments in future fiscal
years, subject to the restrictions set forth in this Section 7.6(c),
but in no event may the aggregate of all Unused Annual Restricted
Payment Allowances at any time exceed Five Million Dollars
($5,000,000).
7.7 SALE-LEASEBACKS. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, at any time enter into or suffer to
remain in effect any transaction to which the Borrower or such Subsidiary is a
party involving the sale, transfer or other disposition by the Borrower or any
Subsidiary of any property (now owned or hereafter acquired), with a view
directly or indirectly to the leasing back of any part of the same property or
any other property used for the same or a similar purpose or purposes, or agree,
become or remain liable (contingently or otherwise) to do any of the foregoing,
except to the extent otherwise permitted by this Agreement.
7.8 LEASES. The Borrower shall not, and shall not permit any
Subsidiary of the Borrower to, at any time enter into or suffer to remain in
effect any lease, as lessee, of any property, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, except:
(a) Operating leases of real or personal property, provided
that (i) as of March 31, 1997, the Lease Expense on account of such
leases for the fiscal year then ending shall not exceed Two Million
Three Hundred Thousand Dollars ($2,300,000), (ii) as of March 31, 1998,
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<PAGE> 66
the Lease Expense on account of such leases for the fiscal year then
ending shall not exceed Two Million Five Hundred Thousand Dollars
($2,500,000), (iii) as of March 31, 1999 and each March 31 thereafter,
the Lease Expense on account of such leases for the fiscal year then
ending shall not exceed Two Million Seven Hundred Thousand Dollars
($2,700,000), and (iv) such leases are not cancelable by any party
thereto;
(b) Capitalized Leases permitted under Section 7.3(d) hereof;
and
(c) Operating leases of real or personal property, provided
that such leases are cancelable by the Borrower or one (1) of its
Subsidiaries without penalty on not more than thirty (30) days prior
notice.
7.9 MERGERS, ACQUISITIONS, ETC. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to (v) merge with or into or
consolidate with any other Person, (w) liquidate, wind up, dissolve or divide,
(x) acquire all or any substantial portion of the properties or assets of any
going concern or going line of business, (y) acquire all or any substantial
portion of the properties, assets, capital stock or other equity interests in or
of any other Person other than in the ordinary course of business, or (z) agree,
become or remain liable (contingently or otherwise) to do any of the foregoing,
except:
(a) The Borrower may (i) acquire all or substantially all of
the properties or assets of any other Person, (ii) acquire all or
substantially all of the capital stock or other equity interests in or
of any other Person, or (z) agree, become or remain liable
(contingently or otherwise) to do any of the foregoing (collectively,
"Acquisitions") PROVIDED that (i) no Event of Default or Possible
Default shall occur and be continuing or shall exist at such time or
after giving effect to such transaction, (ii) the business or
properties so acquired shall be within the Borrower's line of business
or a related line of business or shall use production or manufacturing
technology used in the Borrower's line of business, (iii) as of the
date of the consummation of such Acquisition, the aggregate
consideration (determined in accordance with GAAP) paid by the Borrower
in connection with all Acquisitions for any fiscal year of the Borrower
(including the consideration paid, whether in cash or by the issuance
of Indebtedness or the assumption of existing Indebtedness, with
respect to the Acquisition in question), shall not exceed One Million
Five Hundred Thousand Dollars ($1,500,000) (the "Purchase Allowance"),
and (iv) the Person acquired by the Borrower in connection with such
Acquisition shall have executed and delivered a Subsidiary Guaranty and
a Subsidiary Security Agreement each in form and substance satisfactory
to the Agent and the Lenders; PROVIDED FURTHER that if and to the
extent the aggregate consideration paid in connection with actual
Acquisitions in any fiscal year of the Borrower is less than the
Purchase Allowance for that fiscal year (the difference between the
Purchase Allowance and such actual consideration paid being the "Unused
Annual Purchase Allowance"), such Unused Annual Purchase Allowance may
be carried forward and applied to Acquisitions in future fiscal years,
but in no event may the aggregate of all Unused Annual Purchase
Allowances at any time exceed One Million Five Hundred Thousand Dollars
($1,500,000).
(b) A wholly-owned Subsidiary of the Borrower or any of its
Subsidiaries may merge with or into or consolidate with any other
wholly-owned Subsidiary of the Borrower or any of its Subsidiaries,
PROVIDED that no Event of Default or Possible Default shall occur and
be continuing or shall exist at such time or after giving effect to
such transaction; and
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<PAGE> 67
(c) A wholly-owned Subsidiary of the Borrower or any of its
Subsidiaries may merge with the Borrower, PROVIDED that (i) the
Borrower shall be the surviving corporation, and (ii) no Event of
Default or Possible Default shall occur and be continuing or shall
exist at such time or after giving effect to such transaction.
7.10 DISPOSITIONS OF PROPERTIES. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, sell, convey, assign, lease,
transfer, abandon or otherwise dispose of, voluntarily or involuntarily, any of
its properties, or agree, become or remain liable (contingently or otherwise) to
do any of the foregoing, except:
(a) The Borrower and each Subsidiary of the Borrower may sell
inventory in the ordinary course of business;
(b) The Good-All Sale (the Lenders agreeing that with respect
to any assets of Good-All Electric, Inc. sold in any Good-All Sale the
Agent will release any Lien in its favor on those assets);
(c) The Borrower and each Subsidiary of the Borrower may
dispose of equipment which is obsolete or no longer useful in the
business of the Borrower or such Subsidiary, as determined by the Board
of Directors or senior management of the Borrower PROVIDED such
equipment is disposed of for full and adequate consideration and is
replaced (as necessary to the business of the Borrower or such
Subsidiary, as the case may be) and
(d) The Borrower and each Subsidiary of the Borrower may sell
or otherwise dispose of plant, property and equipment ("Sales") for
cash consideration, PROVIDED that the aggregate consideration received
by the Borrower and its Subsidiaries in connection with such sale or
disposition during any fiscal year of the Borrower does not exceed One
Million Five Hundred Thousand Dollars ($1,500,000).
7.11 ISSUANCE OF SUBSIDIARY STOCK. The Borrower shall not
suffer any of its Subsidiaries to issue, sell, otherwise dispose or suffer to
remain outstanding, voluntarily or involuntarily, any shares of such
Subsidiary's capital stock, or any options, warrants, calls, subscriptions,
conversion rights, exchange rights, preemptive rights or other rights,
agreements or arrangements (contingent or otherwise) which may in any
circumstances now or hereafter obligate any Subsidiary of the Borrower to issue
any shares of its capital stock, except shares of capital stock outstanding on
the date of this Agreement and set forth on Schedule 4.10 hereto.
7.12 DEALINGS WITH AFFILIATES. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, enter into or carry out any
transaction with (including, without limitation, purchase or lease property or
services from, sell or lease property or services to, loan or advance to, or
enter into, suffer to remain in existence or amend (other than automatic
renewals or extensions pursuant to the terms thereof any contract, agreement or
arrangement with) any Affiliate of the Borrower, directly or indirectly, or
agree, become or remain liable (contingently or otherwise) to do any of the
foregoing, except:
(a) The existence and performance of contracts, agreements and
arrangements in existence as of the date of this Agreement and approved
by the Required Lenders, which contracts, agreements and arrangements
are set forth in Schedule 7.12 hereto;
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(b) Directors and officers of the Borrower and its
Subsidiaries may be reasonably compensated for services rendered in
such capacity to the Borrower or such Subsidiary (which compensation
may be fixed pursuant to the terms of a written or oral agreement with
such directors or officers or an amendment thereto);
(c) Transactions in the ordinary course of business and
consistent with past practices between a Subsidiary of the Borrower, on
the one hand, and the Borrower or another Subsidiary of the Borrower,
on the other hand, in good faith and on terms no less favorable to the
Borrower or other Subsidiary than those that could have been obtained
in a comparable transaction on an arm's-length basis from an unrelated
Person; and
(d) Loans and advances permitted by Section 7.5(c) hereof.
7.13 [INTENTIONALLY OMITTED]
7.14 LIMITATIONS ON PLANS. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, permit any Plan to be amended if,
as a result of such amendment, the current liability under that Plan would be
increased to such an extent that security is required pursuant to section 307 of
ERISA. As used herein, "current liability" means current liability as defined in
section 307 of ERISA. Neither the Borrower nor any Subsidiary of the Borrower or
ERISA Affiliate of the Borrower shall: (a) engage in or permit any "prohibited
transaction" (as defined in ERISA) which would result in any material liability
to the Borrower or any Subsidiary of the Borrower or ERISA Affiliate thereof;
(b) cause any "accumulated funding deficiency" as defined in ERISA and/or the
Code which would result in any material liability to the Borrower or any
Subsidiary of the Borrower or ERISA Affiliate thereof; (c) terminate any Plan in
a manner which could result in the imposition of a Lien on the property of the
Borrower or any Subsidiary of the Borrower pursuant to ERISA; (d) terminate or
consent to the termination of any Multiemployer Plan; or (e) incur a complete or
partial withdrawal with respect to any Multiemployer Plan.
7.15 LIMITATION ON OTHER RESTRICTIONS ON DIVIDENDS BY
SUBSIDIARIES, ETC. The Borrower shall not permit any Subsidiary of the Borrower
to be or become subject to any restriction of any nature (whether arising by
operation of Law, by agreement, by its articles of incorporation, by its bylaws
or other constituent documents of such Subsidiary, or otherwise) on the right of
such Subsidiary from time to time to (w) declare and pay Restricted Payments
with respect to capital stock owned by the Borrower or any Subsidiary of the
Borrower, (x) pay any indebtedness, obligations or liabilities from time to time
owed to the Borrower or any Subsidiary of the Borrower, (y) make loans or
advances to the Borrower or any Subsidiary of the Borrower, or (z) transfer any
of its properties or assets to the Borrower or any Subsidiary of the Borrower,
except:
(a) Restrictions pursuant to the Loan Documents;
(b) Legal restrictions of general applicability under the
corporation law under which such Subsidiary is incorporated, and
fraudulent transfer or similar laws or general applicability for the
benefit of creditors of such Subsidiary generally; and
(c) With respect to clause (z) above: (i) non-assignment
provisions of any contract or of any lease by the Borrower or such
Subsidiary as lessee, and (ii) restrictions on transfer of property
subject to a Permitted Lien under Sections 7.2(c) and 7.3(d) hereof for
the benefit of the holder of such Permitted Lien.
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7.16 LIMITATION ON OTHER RESTRICTIONS ON LIENS. The Borrower
shall not, and shall not permit any Subsidiary of the Borrower to, enter into,
become or remain subject to any agreement or instrument to which the Borrower or
such Subsidiary is a party or by which either of them or any of their respective
properties (now owned or hereafter acquired) may be subject or bound that would
prohibit the grant of any Lien upon any of its properties (now owed or hereafter
acquired), except:
(a) The Loan Documents; and
(b) Restrictions pursuant to nonassignment provisions of any
contract or of any lease (other than in respect of Indebtedness for
borrowed money) by the Borrower or such Subsidiary as lessee.
ARTICLE 8
DEFAULTS
--------
8.1 EVENTS OF DEFAULT. An "Event of Default" shall mean the
occurrence or existence of any one or more of the following events or conditions
(for any reason, whether voluntary, involuntary or effected or required by Law):
(a) The Borrower shall fail to pay when due principal of any
Loans, any Reimbursement Obligation or any required cash
collateralization of outstanding Letters of Credit.
(b) The Borrower or any Subsidiary of the Borrower, as the
case may be, shall fail to pay when due interest on any Loan, any fees,
indemnity or expenses, or any other amount due hereunder or under any
other Loan Document, and such failure shall have continued for a period
of three (3) Business Days after written notice to the Borrower.
(c) Any representation or warranty made or deemed made by the
Borrower or any Subsidiary of the Borrower in or pursuant to or in
connection with any Loan Document, or any statement made by the
Borrower or any Subsidiary of the Borrower in any financial statement,
certificate, report, exhibit or document furnished by the Borrower or
any Subsidiary of the Borrower to the Agent, the Issuing Bank or any
Lender pursuant to or in connection with any Loan Document, shall prove
to have been false or misleading in any material respect as of the time
when made or deemed made.
(d) The Borrower shall default in the performance or
observance of any covenant, agreement or obligation under this
Agreement or any other Loan Document, other than the covenants
described in Section 8.1(e), or an Event of Default as defined in any
Security Document shall have occurred and be continuing.
(e) The Borrower or any Subsidiary of the Borrower shall
default in the performance or observance of any covenant, agreement or
duty under this Agreement or any other Loan Document described in the
following Sections: 6.1 (excluding 6.1(h)(i)), 6.2, 6.4, 6.5, 6.6, 6.8
and 6.13 of this Agreement and such default shall have continued for a
period of ten (10) Business Days.
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(f) There shall occur (a) any default, event or condition
which causes or which would permit any Person or Persons to cause or
which would, with the giving of notice or the passage of time or both,
permit any Person or Persons to cause all or any part of any
Indebtedness or Guaranty Equivalent of the Borrower or any Subsidiary
of the Borrower material in amount, or any agreement or instrument
creating, evidencing or securing such Indebtedness or Guaranty
Equivalent to become due (by acceleration, mandatory prepayment or
repurchase, or otherwise) before its otherwise stated maturity, or (b)
any failure to pay all or any part of any Indebtedness or Guaranty
Equivalent of the Borrower or any Subsidiary of the Borrower material
in amount at its stated maturity and any failure to pay any monetary
obligation thereunder when due. As used in this subsection 8.1(f),
"material in amount" shall mean any Indebtedness or Guaranty Equivalent
in excess of Five Hundred Thousand Dollars ($500,000) individually or
in excess of Five Hundred Thousand Dollars ($500,000) in the aggregate.
(g) One or more judgments for the payment of money shall have
been entered against the Borrower or any Subsidiary of the Borrower,
which judgment or judgments exceed Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate, and such judgment or judgments shall have
remained undischarged and unstayed for a period of thirty (30)
consecutive days.
(h) One or more writs or warrants of attachment, garnishment,
execution, distraint or similar process exceeding in value the
aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) shall
have been issued against the Borrower or any Subsidiary of the Borrower
or any of their respective properties and shall have remained
undischarged and unstayed for a period of thirty (30) consecutive days.
(i) Any Loan Document or term or provision thereof shall cease
to be in full force and effect (except in accordance with the express
terms of such Loan Document), or the Borrower or any Subsidiary of the
Borrower shall, or shall purport to, terminate (except in accordance
with the terms of such Loan Document), repudiate, declare voidable or
void or otherwise contest, any Loan Document or term or provision
thereof or any obligation or liability of the Borrower or any such
Subsidiary thereunder.
(j) The Required Lenders shall have determined (which
determination shall be conclusive) that an event, circumstance or
condition has occurred which amounts to, entails, causes or constitutes
a Material Adverse Effect.
(k) Any one or more Pension Events referred to in subsection
(a), (b), (d) or (e) of the definition of "Pension Event" shall have
occurred; or any one or more other Pension Events shall have occurred
and the Required Lenders shall determine in good faith (which
determination shall be conclusive) that such other Pension Events,
individually or in the aggregate, could have a Material Adverse Effect.
(l) A Change of Control shall have occurred.
(m) A proceeding shall have been instituted in respect of the
Borrower or any Subsidiary of the Borrower
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(i) seeking to have an order for relief entered in
respect of such Person, or seeking a declaration or entailing
a finding that such Person is insolvent or a similar
declaration or finding, or seeking dissolution, winding-up,
charter revocation or forfeiture, liquidation, reorganization,
arrangement, adjustment, composition or other similar relief
with respect to such Person, its assets or its debts under any
Law relating to bankruptcy, insolvency, relief of debtors or
protection of creditors, termination of legal entities or any
other similar Law now or hereafter in effect, or
(ii) seeking appointment of a receiver, trustee,
liquidator, assignee, sequestrator or other custodian for such
Person or for all or any substantial part of its property.
(n) The Borrower or any Subsidiary of the Borrower shall cease
to be Solvent; shall fail to pay, become unable to pay, or state that
it is or will be unable to pay, its debts as they become due; shall
voluntarily suspend transaction of its business; shall make a general
assignment for the benefit of creditors; shall institute (or fail to
controvert within sixty days after the involuntary filing thereof) a
proceeding described in Section 8.1(m)(i) hereof, or (whether or not
any such proceeding has been instituted) shall consent to or acquiesce
in any such order for relief, declaration, finding or relief described
therein; shall institute (or fail to controvert within sixty days after
the involuntary filing thereof) a proceeding described in Section
8.1(m)(ii) hereof, or (whether or not any such proceeding has been
instituted) shall consent to or acquiesce in any such appointment or to
the taking of possession by any such custodian of all or any
substantial part of its property; shall dissolve, windup, revoke or
forfeit its charter (or other constituent documents) or liquidate
itself or any substantial part of its property (except to the extent
expressly permitted by Section 7.10 hereof); or shall take any action
in furtherance of any of the foregoing.
(o) Any material uninsured damage to, or loss, theft or
destruction of, any of the property or assets of the Borrower or any of
its Subsidiaries material to its business or operations shall occur.
(p) The Borrower or any of its Subsidiaries shall be enjoined,
restrained, or in any way prevented by the order of any Governmental
Authority, the effect of which restricts the Borrower or any of its
Subsidiaries from conducting all or any part of its business.
(q) Any Governmental Action now or hereafter made by or with
any Governmental Authority in connection with any Loan Document is not
obtained or shall have ceased to be in full force and effect or shall
have been modified or amended or shall have been held to be illegal or
invalid, and the Required Lenders shall have determined in good faith
(which determination shall be conclusive) that such event or condition
could reasonably be expected to have a Material Adverse Effect.
8.2 CONSEQUENCES OF AN EVENT OF DEFAULT.
(a) If an Event of Default specified in subsections (a)
through (l) of Section 8.1 hereof or subsections (o) or (p) of Section 8.1
hereof shall occur and be continuing or shall exist, then, in addition to all
other rights and remedies which the Agent or any Lender may have, at law, in
equity or otherwise, the Lenders shall be under no further obligation to make
Loans hereunder, and the Agent
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may, and upon the written request of the Required Lenders shall, by notice to
the Borrower, from time to time do any or all of the following:
(i) Declare the Commitments terminated, whereupon the
Commitments will terminate and any fees hereunder shall be immediately
due and payable without presentment, demand, protest or further notice
of any kind, all of which are hereby waived, and an action therefor
shall immediately accrue; and/or
(ii) Declare the unpaid principal amount of the Loans,
interest accrued thereon and all other Obligations (including, but not
limited to, the obligation to cash collateralize outstanding Letters of
Credit) to be immediately due and payable without presentment, demand,
protest or further notice of any kind, all of which are hereby waived,
and an action therefor shall immediately accrue; and/or
(iii) Exercise any one or more of the remedies set forth in
any Loan Document.
(b) If an Event of Default specified in subsection (m) or (n)
of Section 8.1 hereof shall occur or exist, then, in addition to all other
rights and remedies which the Agent or any Lender may have, at law, in equity or
otherwise, the Commitments shall automatically terminate and the Lenders shall
be under no further obligation to make Loans, and the unpaid principal amount of
the Loans, interest accrued thereon and all other Obligations (including, but
not limited to, the obligation to cash collateralize outstanding Letters of
Credit) shall become immediately due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby waived, and an action
therefor shall immediately accrue.
ARTICLE 9
THE AGENT
---------
9.1 APPOINTMENT. Each Lender hereby irrevocably appoints Bank
One to act as Agent for such Lender under this Agreement and the other Loan
Documents. Each Lender hereby irrevocably authorizes the Agent to take such
action on behalf of such Lender under the provisions of this Agreement and the
other Loan Documents, and to exercise such powers and to perform such duties, as
are expressly delegated to or required of the Agent by the terms hereof or
thereof, together with such powers as are incidental thereto. Bank One hereby
agrees to act as Agent on behalf of the Lenders on the terms and conditions set
forth in this Agreement and the other Loan Documents, subject to its right to
resign as provided in Section 9.10 hereof. Each Lender hereby irrevocably
authorizes the Agent to execute and deliver each of the Loan Documents and to
accept delivery of such of the other Loan Documents as may not require execution
by the Agent. Each Lender agrees that the rights and remedies granted to the
Agent under the Loan Documents shall be exercised exclusively by the Agent, and
that no Lender shall have any right individually to exercise any such right or
remedy, except to the extent expressly provided herein or therein.
9.2 DUTIES. Notwithstanding anything to the contrary elsewhere
in this Agreement or in any other Loan Document:
(a) The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and the other Loan
Documents, and no implied duties or
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responsibilities on the part of the Agent shall be read into this
Agreement or any Loan Document or shall otherwise exist;
(b) The Agent shall not have a fiduciary relationship in
respect of any Lender;
(c) The Agent is and shall be solely the agent of the Lenders,
and the Agent does not assume, and shall not at any time be deemed to
have, any relationship of agency or trust with or for, or any other
duty or responsibility to, the Borrower, any of its Subsidiaries or any
other Person (except only for its relationship as agent for, and its
express duties and responsibilities to, the Lenders as provided in this
Agreement and the other Loan Documents); and
(d) The Agent shall be under no obligation to take any action
hereunder or under any other Loan Document if the Agent believes in
good faith that taking such action may conflict with any Law or any
provision of this Agreement or any other Loan Document, or may require
the Agent to qualify to do business in any jurisdiction where it is not
then so qualified.
9.3 EXERCISE OF POWERS. The Agent shall take any action of the
type specified in this Agreement or any other Loan Document as being within the
Agent's rights, powers or discretion in accordance with directions from the
Required Lenders. In the absence of such directions, the Agent shall have the
authority (but under no circumstances shall be obligated), in its sole
discretion, to take any such action, except to the extent this Agreement or such
Loan Document expressly requires the direction or consent of the Required
Lenders, in which case the Agent shall not take such action absent such
direction or consent. Any action or inaction pursuant to such direction,
discretion or consent shall be binding on all the Lenders. The Agent shall not
have any liability to any Person as a result of (i) the Agent acting or
refraining from acting in accordance with the directions of the Required Lenders
(or other applicable Person or set of Persons), (ii) the Agent refraining from
acting in the absence of instructions to act from the Required Lenders, whether
or not the Agent has discretionary power to take such action, or (iii) the Agent
taking discretionary action it is authorized to take under this Section
(subject, in the case of this clause (iii), to the provisions of Section 9.4(a)
hereof).
9.4 GENERAL EXCULPATORY PROVISIONS. Notwithstanding anything
to the contrary elsewhere in this Agreement or any other Loan Document:
(a) The Agent shall not be liable for any action taken or
omitted to be taken by it under or in connection with this Agreement or
any other Loan Document, unless caused by its own gross negligence or
willful misconduct;
(b) The Agent shall not be responsible for (i) the execution,
delivery, effectiveness, enforceability, genuineness, validity or
adequacy of this Agreement or any other Loan Document, (ii) any
recital, representation, warranty, document, certificate, report or
statement in, provided for in, or received under or in correction with,
this Agreement or any other Loan Document or (iii) any failure of the
Borrower or any Subsidiary of the Borrower or Lender to perform any of
their respective obligations under this Agreement or any other Loan
Document;
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(c) The Agent shall not be under any obligation to ascertain,
inquire or give any notice relating to (i) the performance or
observance of any of the terms or conditions of this Agreement or any
other Loan Document on the part of the Borrower or any Subsidiary of
the Borrower, (ii) the business, operations, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries,
individually and taken as a whole, or any other Person, or (iii) except
to the extent set forth in Section 9.5(f) hereof, the existence of any
Event of Default or Possible Default;
(d) The Agent shall not be under any obligation, either
initially or on a continuing basis to provide any Lender with any
notices, reports or information of any nature, whether in its
possession presently or hereafter, except for such notices, reports and
other information expressly required by this Agreement or any other
Loan Document to be furnished by the Agent to such Lender; and
(e) The Agent shall not be liable for any calculation,
apportionment or distribution of payments made by it in good faith.
9.5 ADMINISTRATION.
(a) The Agent may rely upon any notice or other communication
of any nature (written or oral, including but not limited to telephone
conversations, whether or not such notice or other communication is made in a
manner permitted or required by this Agreement or any Loan Document) purportedly
made by or on behalf of the proper party or parties, and the Agent shall not
have any duty to verify the identity or authority of any Person giving such
notice or other communication.
(b) The Agent may consult with legal counsel (including,
without limitation, in-house counsel for the Agent or in-house or other counsel
for the Borrower or any Subsidiary of the Borrower), independent public
accountants and any other experts selected by it from time to time, and the
Agent shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts.
(c) The Agent may conclusively rely upon the truth of the
statements and the correctness of the opinions expressed in any certificates or
opinions furnished to the Agent in accordance with the requirements of this
Agreement or any other Loan Document or as otherwise requested by the Agent in
connection therewith.
(d) The Agent may fail or refuse to take any action unless it
shall be indemnified to its satisfaction from time to time against any and all
amounts, liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature which
may be imposed on, incurred by or asserted against the Agent by reason of taking
or continuing to take any such action.
(e) The Agent may perform any of its duties under this
Agreement or any other Loan Document by or through agents or attorneys-in-fact.
The Agent shall not be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care; PROVIDED,
HOWEVER, that the Agent shall pursue on behalf of the Lenders any rights or
remedies which the Lenders may have against such agents or attorneys-in-fact as
a result of the negligence or misconduct of such agents or attorneys-in-fact.
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(f) The Agent shall not be deemed to have any knowledge or
notice of the occurrence of any Event of Default or Possible Default unless the
Agent has received notice from a Lender, the Borrower or any Subsidiary of the
Borrower referring to this Agreement, describing such Event of Default or
Possible Default, and stating that such notice is a "notice of default". If the
Agent receives such a notice, the Agent shall give prompt notice thereof to each
Lender.
9.6 LENDER CREDIT DECISION. Each Lender acknowledges as
follows: (a) Neither the Agent nor any other Lender has made any representations
or warranties to it, and no act taken hereafter by the Agent or any other Lender
shall be deemed to constitute any representation or warranty by the Agent or
such other Lender to it; (b) It has, independently and without reliance upon the
Agent or any other Lender, and based upon such documents and information as it
has deemed appropriate, made its own credit and legal analysis and decision to
enter into this Agreement and the other Loan Documents; and (c) It will,
independently and without reliance upon the Agent or any other Lender, and based
upon such documents and information as it shall deem appropriate at the time,
make its own decisions to take or not take action under or in connection with
this Agreement and the other Loan Documents.
9.7 INDEMNIFICATION. Each Lender agrees to reimburse and
indemnify the Agent and its directors, officers, employees, attorneys and agents
(to the extent not reimbursed by the Borrower or any Subsidiary of the Borrower
and without limitation of the obligations of the Borrower and such Subsidiaries
to do so), Pro Rata, from and against any and all amounts, losses, liabilities,
claims, damages, reasonable expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements of any kind or nature (including,
without limitation, the reasonable fees and disbursements of counsel for the
Agent or such other Person in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not the Agent or such
other Person shall be designated a party thereto) that may at any time be
imposed on, incurred by or asserted against the Agent or such other Person as a
result of, or arising out of, or in any way related to or by reason of, this
Agreement, any other Loan Document, any transaction from time to time
contemplated hereby or thereby, or any transaction financed in whole or in part
or directly or indirectly with the proceeds of any Loan or Letter of Credit,
PROVIDED that no Lender shall be liable for any portion of such amounts, losses,
liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements to the extent resulting from the gross
negligence or willful misconduct of the Agent or such other Person, as finally
determined by a court of competent jurisdiction. Payments under this Section
shall be due and payable on demand.
9.8 INDIVIDUAL CAPACITY. With respect to its Commitments and
the Obligations owing to it, the Agent shall have the same rights and powers
under this Agreement and each other Loan Document as any other Lender and may
exercise the same as though it were not the Agent, and the terms "Lenders,"
"holders of Notes," "Issuing Bank" and like terms shall include the Agent in its
individual capacity as such. The Agent and its Affiliates may, without liability
to account but subject to the terms of this Agreement, make loans to, accept
deposits from, acquire debt or equity interests in, act as trustee under
indentures of, and engage in any other business with, the Borrower and any
stockholder, Subsidiary or Affiliate of the Borrower, as though the Agent were
not the Agent hereunder.
9.9 HOLDERS OF NOTES. The Agent may deem and treat the Lender
which is payee of a Note as the owner and holder of such Note for all purposes
hereof unless and until a signed written notice of transfer or assignment in
form and substance satisfactory to the Agent with respect to the assignment or
transfer thereof shall have been filed with the Agent in accordance with this
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Agreement. Any authority, direction or consent of any Person who at the time of
giving such authority, direction or consent is shown in the Register as being a
Lender shall be conclusive and binding on each present and subsequent holder,
transferee or assignee of any Note or Notes payable to such Lender or of any
Note or Notes issued in exchange therefor.
9.10 SUCCESSOR AGENT. The Agent may resign at any time by
giving thirty (30) days' prior written notice thereof to the Lenders and the
Borrower. Upon any such resignation, the Required Lenders shall have the right
to appoint a successor Agent, with the prior written consent of the Borrower,
unless an Event of Default shall have occurred and be continuing, in which case
the prior written consent of the Borrower shall not be required. If no successor
Agent shall have been so appointed and consented to, and shall have accepted
such appointment, within thirty (30) days after such notice of resignation, then
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent.
Each successor Agent shall be a commercial bank or trust company organized under
the laws of the United States of America or any State thereof and having a
combined capital and surplus of at least $500,000,000. Upon the acceptance by a
successor Agent of its appointment as Agent hereunder, such successor Agent
shall thereupon succeed to and become vested with all the properties, rights,
powers, privileges and duties of the former Agent, without further act, deed or
conveyance. Upon the effective date of resignation of a retiring Agent, such
Agent shall be discharged from its duties under this Agreement and the other
Loan Documents, but the provisions of this Agreement shall inure to its benefit
as to any actions taken or omitted by it while it was Agent under this
Agreement.
ARTICLE 10
MISCELLANEOUS
-------------
10.1 HOLIDAYS. Whenever any payment or action to be made or
taken hereunder or under any other Loan Document shall be stated to be due on a
day which is not a Business Day, such payment or action shall be made or taken
on the next following Business Day and such extension of time shall be included
in computing interest or fees, if any, in connection with such payment or
action.
10.2 RECORDS. The unpaid principal amount of the Loans owing
to each Lender, the unpaid interest accrued thereon, the interest rate or rates
applicable to such unpaid principal amount, the duration of such applicability,
each Lender's Committed Amount and the accrued and unpaid fees owing to each
Lender and the Issuing Bank shall at all times be ascertained from the records
of the Agent, which shall be conclusive absent manifest error. The unpaid
Reimbursement Obligations, the unpaid interest accrued thereon and the interest
rate on rates applicable thereto shall at all times be ascertained from the
records of the Issuing Bank, which shall be conclusive absent manifest error.
10.3 AMENDMENTS AND WAIVERS. Neither this Agreement nor any
Loan Document may be amended, modified or supplemented except in accordance with
the provisions of this Section. Subject to the fourth sentence of this Section
10.3, the Agent (acting at the direction of the Required Lenders) and the
Borrower may from time to time amend, modify or supplement the provisions of
this Agreement or any other Loan Document for the purpose of amending, adding
to, or waiving any provisions or changing in any manner the rights and duties of
the Borrower or any Subsidiary of the Borrower, as the case may be, the Agent or
any Lender. Any such amendment, modification or supplement made by the Borrower
and the Agent in accordance with the provisions of this Section shall be binding
upon the Borrower, each Lender and the Agent. The Agent shall enter into such
amendments, modifications or supplements from time to time as directed by the
Required Lenders, and
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only as so directed, PROVIDED, that no such amendment, modification or
supplement may be made which will
(a) Increase the Revolving Credit Committed Amount of any
Lender over the amount thereof then in effect, or extend the Revolving
Credit Maturity Date or the Term Loan Maturity Date, without the
written consent of each Lender affected thereby;
(b) Reduce the principal amount of or extend the time for any
payment of principal of any Loan, or reduce the rate of interest or
extend the time for payment of interest borne by any Loan or
Reimbursement Obligation (other than as a result of waiving the
applicability of any increase in interest rates applicable to overdue
amounts), or extend the time for payment of or reduce the amount of any
Revolving Credit Commitment Fee or Letter of Credit Fee, or reduce or
postpone the date for payment of any other fees, expenses, indemnities
or amounts payable under any Loan Document, without the written consent
of each Lender affected thereby;
(c) Change the definition of "Required Lenders", "Borrowing
Base Suspension Event", "Borrowing Base Reinstatement Event",
"Collateral Release Event", or "Collateral Reinstatement Event" or
amend this Section 10.3, without the written consent of all the
Lenders;
(d) Amend or waive any of the provisions of Article 10 hereof,
or impose additional duties upon the Agent or otherwise adversely
affect the rights, interests or obligations of the Agent, without the
written consent of the Agent;
(e) Amend or waive any of the provisions of Article 3, or
impose additional duties on the Issuing Bank or otherwise adversely
affect the rights, interests or obligations of the Issuing Bank without
the consent of Bank One; or
(f) Release any Collateral or Subsidiary Guaranty, other than
upon the occurrence of a Collateral Release Event and other than Liens
on Collateral, the disposition of which is expressly permitted under
any section of the Loan Documents and Liens on after-acquired property
to the extent such property is the subject of a purchase money security
interest permitted under Section 7.2 hereof, or waive any Borrowing
Base Reinstatement Event or any Collateral Reinstatement Event, without
the written consent of all the Lenders.
Any such amendment, modification or supplement must be in writing and shall be
effective only to the extent set forth in such writing. Any Event of Default or
Possible Default waived or consented to in any such amendment, modification or
supplement shall be deemed to be cured and not continuing to the extent and for
the period set forth in such waiver or consent, but no such waiver or consent
shall extend to any other or subsequent Event of Default or Possible Default or
impair any right consequent thereto.
10.4 NO IMPLIED WAIVER; CUMULATIVE REMEDIES. No course of
dealing and no delay or failure of the Agent or any Lender in exercising any
right, power or privilege under this Agreement or any other Loan Document shall
affect any other or future exercise thereof or exercise of any other right,
power or privilege; nor shall any single or partial exercise of any such right,
power or privilege or any abandonment or discontinuance of steps to enforce such
a right. power or privilege preclude any further exercise thereof or of any
other right, power or privilege. The rights and remedies of the
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Agent and the Lenders under this Agreement and any other Loan Document are
cumulative and not exclusive of any rights or remedies which the Agent or any
Lender would otherwise have hereunder or thereunder, at law, in equity or
otherwise.
10.5 NOTICES.
(a) Except to the extent otherwise expressly permitted
hereunder or thereunder, all notices, requests, demands, directions and other
communications (collectively "notices") under this Agreement or any Loan
Document shall be in writing (including telexed and telecopied communication)
and shall be sent by first-class mail, or by nationally-recognized next-day
courier, or by telex or telecopier (with confirmation in writing mailed
first-class or sent by such an overnight courier), or by personal delivery. All
notices shall be sent to the applicable party at the address stated on the
signature pages hereof or in accordance with the last unrevoked written
direction from such party to the other parties hereto, in all cases with postage
or other charges prepaid. Any such properly given notice to the Borrower, the
Agent or any Lender shall be effective on the earliest to occur of receipt,
telephone confirmation of receipt of telex or telecopy communication, one
Business Day after delivery to a nationally-recognized next-day courier, or
three (3) Business Days after deposit in the mail.
(b) Any Lender giving any notice to the Borrower or any other
party to a Loan Document shall simultaneously send a copy thereof to the Agent,
and the Agent shall promptly notify the other Lenders of the receipt by it of
any such notice.
(c) The Agent and each Lender may rely on any notice (whether
or not such notice is made in a manner permitted or required by this Agreement
or any Loan Document) purportedly made by or on behalf of the Borrower or any
Subsidiary of the Borrower, and neither the Agent nor any Lender shall have any
duty to verify the identity or authority of any Person giving such notice.
10.6 EXPENSES; TAXES; INDEMNITY.
(a) Except to the extent otherwise agreed to in writing
between the Agent and the Borrower prior to the date of this Agreement, the
Borrower agrees to pay or cause to be paid and to save the Agent and each of the
Lenders harmless against liability for the payment of all out-of-pocket costs
and expenses (including but not limited to fees and expenses of counsel,
including local counsel, auditors, consulting engineers, appraisers, and all
other professional, accounting, evaluation and consulting costs) incurred by the
Agent or any Lender from time to time arising from or relating to (i) the
negotiation, preparation, execution, delivery, administration and performance of
this Agreement and the other Loan Documents, (ii) any requested amendments,
modifications, supplements, waivers or consents (whether or not ultimately
entered into or granted) to this Agreement or any Loan Document, and (iii) the
enforcement or preservation of rights under this Agreement or any Loan Document
(including but not limited to any such costs or expenses arising from or
relating to (A) collection or enforcement of an outstanding Loan or any other
amount owing hereunder or thereunder by the Agent or any Lender and (B) any
litigation, proceeding, dispute, workout, restructuring or rescheduling related
in any way to this Agreement or the Loan Documents).
(b) The Borrower hereby agrees to pay all stamp, document,
transfer, recording, filing, registration, search, sales and excise fees and
taxes and all similar impositions now or hereafter determined by the Agent or
any Lenders to be payable in connection with this Agreement or any other
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<PAGE> 79
Loan Documents or any other documents, instruments or transactions pursuant to
or in connection herewith or therewith, and the Borrower agrees to save the
Agent and each Lender harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such fees, taxes or impositions.
(c) The Borrower hereby agrees to reimburse and indemnify each
of the Indemnified Parties from and against any and all losses, liabilities,
claims, damages, expenses, obligations, penalties, actions, judgments, suits,
costs or disbursements of any kind or nature whatsoever (including, without
limitation, the fees and disbursements of counsel for such Indemnified Party in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnified Party shall be
designated a party thereto) that may at any time be imposed on, asserted against
or incurred by such Indemnified Party as a result of, or arising out of, or in
any way related to or by reason of, this Agreement or any other Loan Document,
any transaction from time to time contemplated hereby or thereby, or any
transaction financed in whole or in part or directly or indirectly with the
proceeds of any Loan (and without in any way limiting the generality of the
foregoing, including any violation or breach of any Environmental Law or any
other Law by the Borrower or any Subsidiary of the Borrower or any or that
otherwise subjects the Borrower or any Subsidiary to liability therefor; any
Environmental Claim arising out of the management, use, control, ownership or
operation of property by any of such Persons, including all on-site and off-site
activities involving Hazardous Materials; or any exercise by the Agent or any
Lender of any of its rights or remedies under this Agreement or any other Loan
Document); but excluding any such losses, liabilities, claims, damages,
expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements resulting solely from the gross negligence or willful misconduct
of such Indemnified Party, as finally determined by a court of competent
jurisdiction. If and to the extent that the foregoing obligations of the
Borrower under this subsection (c), or any other indemnification obligation of
the Borrower hereunder or under any other Loan Document, are unenforceable for
any reason, the Borrower hereby agrees to make the maximum contribution to the
payment and satisfaction of such obligations which is permissible under
applicable Law.
10.7 SEVERABILITY. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
10.8 PRIOR UNDERSTANDINGS. This Agreement and the other Loan
Documents supersede all prior and contemporaneous understandings and agreements,
whether written or oral, among the parties hereto relating to the transactions
provided for herein and therein, except for the obligation of the Borrower to
pay the Agent fees in accordance with separate written agreements between the
Borrower and the Agent.
10.9 DURATION; SURVIVAL. All representations and warranties of
each of the Borrower and its Subsidiaries contained herein or in any other in
the Loan Document or made in connection herewith or therewith shall survive the
making of, and shall not be waived by the execution and delivery, of this
Agreement or any other Loan Document, any investigation by or knowledge of the
Agent or any Lender, the making of any Loan, the issuance of any Letter of
Credit or any other event or condition whatever. All covenants and agreements of
the Borrower and its Subsidiaries contained herein or in any other Loan Document
shall continue in full force and effect from and after the date hereof so long
as the Borrower may borrow hereunder and until payment in full of all
Obligations.
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<PAGE> 80
Without limitation, all obligations of the Borrower hereunder or under any other
Loan Document to make payments to or indemnify the Agent or any Lender shall
survive the payment in full of all other Obligations, termination of the
Borrower's right to borrow hereunder, and all other events and conditions
whatever. In addition, all obligations of each Lender to make payments to or
indemnify the Agent shall survive the payment in full by the Borrower of all
Obligations, termination of the Borrower's right to borrow hereunder, and all
other events or conditions whatever.
10.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
10.11 LIMITATION ON PAYMENTS. The parties hereto intend to
conform to all applicable Laws in effect from time to time limiting the maximum
rate of interest that may be charged or collected. Accordingly, notwithstanding
any other provision hereof or of any other Loan Document, the Borrower shall not
be required to make any payment to or for the account of any Lender, and each
Lender shall refund any payment made by the Borrower, to the extent that such
requirement or such failure to refund would violate or conflict with nonwaivable
provisions of applicable Laws limiting the maximum amount of interest which may
be charged or collected by such Lender.
10.12 SET-OFF. The Borrower hereby agrees that if any
Obligation of the Borrower shall be due and payable (by acceleration or
otherwise), each Lender shall have the right, without notice to the Borrower, to
set-off against and to appropriate and apply to such Obligation any
indebtedness, liability or obligation of any nature owing to the Borrower by
such Lender, including but not limited to all deposits (whether time or demand,
general or special, provisionally credited or finally credited, whether or not
evidenced by a certificate of deposit) now or hereafter maintained by the
Borrower with such Lender. Such right shall be absolute and unconditional in all
circumstances and, without limitation, shall exist whether or not such Lender or
any other Person shall have given notice or made any demand to the Borrower or
any other Person, whether such indebtedness, obligation or liability owed to the
Borrower is contingent, absolute, matured or unmatured (it being agreed that
such Lender may deem such indebtedness, obligation or liability to be then due
and payable at the time of such set-off), and regardless of the existence or
adequacy of any collateral, guaranty or any other security, right or remedy
available to any Lender or any other Person. The Borrower hereby agrees that any
Participant and any branch, subsidiary or affiliate of any Lender or Participant
shall have the same rights of set-off as a Lender as provided in this Section
10.12 (regardless of whether such Participant, branch, subsidiary or affiliate
would otherwise be deemed in privity with or a direct creditor of the Borrower).
The rights provided by this Section 10.12 are in addition to all other rights of
set-off and banker's lien and all other rights and remedies which any Lender (or
any such Participant, branch, subsidiary or affiliate) may otherwise have under
this Agreement, any other Loan Document, at law or in equity, or otherwise, and
nothing in this Agreement or any Loan Document shall be deemed a waiver or
prohibition of or restriction on the rights of set-off or bankers' lien of any
such Person. After any such set-off or bankers' lien is exercised, the Agent
agrees to use reasonable efforts to provide written notice to the Borrower of
any set-off herein, but the failure to provide such notice shall not affect the
validity thereof.
10.13 SHARING OF COLLECTIONS. The Lenders hereby agree among
themselves that if any Lender shall receive (by voluntary payment, realization
upon security, set-off or from any other source) any amount on account of the
Loans, interest thereon, or any other Obligation contemplated by this Agreement
or the other Loan Documents to be made by the Borrower Pro Rata to all Lenders
in greater proportion than any such amount received by any other Lender, then
the Lender receiving such
75
<PAGE> 81
proportionately greater payment shall notify each other Lender and the Agent of
such receipt, and equitable adjustment will be made in the manner stated in this
Section 10.13 so that, in effect, all such excess amounts will be shared ratably
among all of the Lenders. The Lender receiving such excess amount shall purchase
(which it shall be deemed to have done simultaneously upon the receipt of such
excess amount) for cash from the other Lenders a participation in the applicable
Obligations owed to such other Lenders in such amount as shall result in a
ratable sharing by all Lenders of such excess amount (and to such extent the
receiving Lender shall be a Participant). If all or any portion of such excess
amount is thereafter recovered from the Lender making such purchase, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, together with interest or other amounts, if any, required by Law
to be paid by the Lender making such purchase. The Borrower hereby consents to
and confirms the foregoing arrangements. Each Participant shall be bound by this
Section as fully as if it were a Lender hereunder.
10.14 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; ASSIGNMENTS.
(a) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Borrower, the Lenders, all future holders
of the Notes, the Agent and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights hereunder or interests
herein without the prior written consent of all the Lenders and the Agent, and
any purported assignment without such consent shall be void.
(b) PARTICIPATIONS. Any Lender may, in the ordinary course of
its commercial banking business and in accordance with applicable Law, at any
time sell participations to one (1) or more commercial banks or other Persons
(each a "Participant") in all or a portion of its rights and obligations under
this Agreement and the other Loan Documents (including, without limitation, all
or a portion of its Commitments and the Loans owing to it and any Note held by
it); PROVIDED, that:
(i) any such Lender's obligations under this Agreement and the
other Loan Documents shall remain unchanged;
(ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(iii) the parties hereto shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and each of the other Loan Documents;
(iv) such Participant shall be bound by the provisions of
Section 10.13 hereof, and the Lender selling such participation shall
obtain from such Participant a written confirmation of its agreement to
be so bound; and
(v) no Participant (unless such Participant is an affiliate
of such Lender) shall be entitled to require such Lender to take or
refrain from taking action under this Agreement or under any other Loan
Document, except that such Lender may agree with such Participant that
such Lender will not, without such Participant's consent, take action
of the type described in subsections (a), (b) or (c) of Section 10.3
hereof.
The Borrower agrees that any such Participant shall be entitled to the benefits
of Sections 2.11, 2.12 and 10.6 hereof with respect to its participation in the
Commitments and the Loans outstanding from
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<PAGE> 82
time to time; PROVIDED, that no such Participant shall be entitled to receive
any greater amount pursuant to such Sections than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred to such Participant had no such transfer occurred.
(c) ASSIGNMENTS. Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable Law, at any time
assign all or a portion of its rights and obligations under this Agreement and
the other Loan Documents (including, without limitation, all or any portion of
its Commitments and Loans owing to it and any Note held by it) to any Lender,
any affiliate of a Lender or to one or more additional commercial banks,
financial institutions, pension funds or other Persons (each a "Purchasing
Lender") with the prior written consent of the Borrower and the Agent, which
consent shall not be unreasonably withheld; PROVIDED, that:
(i) the aggregate amount of the Commitment of the transferor
Lender subject to each such assignment to any Purchasing Lender shall
not be less than Three Million Seven Hundred Fifty Thousand Dollars
($3,750,000) and in increments of One Hundred Thousand Dollars
($100,000);
(ii) each such assignment shall be of a constant, and not a
varying, percentage of each Commitment of the transferor Lender and of
all of the transferor Lender's rights and obligations under this
Agreement and the other Loan Documents;
(iii) each such assignment shall be made pursuant to an
instrument substantially in the form of Exhibit H to this Agreement,
duly completed (a "Notice of Assignment"); and
(iv) no Lender may assign more than fifty percent (50%) of
its initial Commitments.
In order to effect any such assignment, the transferor Lender and the Purchasing
Lender shall execute and deliver to the Agent a duly completed Notice of
Assignment with respect to such assignment, together with any Note or Notes
subject to such assignment and a processing and recording fee of Five Thousand
Dollars ($5,000) plus out-of-pocket expenses; and, upon receipt thereof, the
Agent shall accept such Notice of Assignment. Such assignment shall become
effective on the effective date specified in such Notice of Assignment. The
Notice of Assignment shall contain a representation by the Purchasing Lender to
the effect that none of the consideration used to make the purchase of the
Commitment and Loans under the applicable assignment agreement are "plan assets"
as defined under ERISA and that the rights and interests of the Purchasing
Lender in and under the Loan Documents will not be "plan assets" under ERISA. On
and after the effective date of such assignment, such Purchasing Lender shall
for all purposes be a Lender party to this Agreement and any other Loan Document
executed by Lenders and shall have all the rights and obligations of a Lender
under the Loan Documents, to the same extent as if it were an original party
hereto, and no further consent or action by the Borrower, the Lenders or Agent
shall be required to release the transferor Lender with respect to the
percentage of the Commitment and Loans assigned to such Purchaser. Upon the
consummation of any assignment to a Purchaser pursuant to this Section 10.14(c)
the transferor Lender, the Agent and the Borrower shall make appropriate
arrangements so that replacement Notes are issued to such transferor Lender and
new Notes or, as appropriate, replacement Notes, are issued to such Purchasing
Lender, in each case in principal amounts reflecting their Commitment and Loans,
as adjusted pursuant to such assignment.
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<PAGE> 83
(d) FINANCIAL AND OTHER INFORMATION. The Borrower authorizes
each Lender to disclose to any Participant or Purchasing Lender or any other
Person acquiring an interest in the Loan Documents by operation of law (each a
"TRANSFEREE") and any prospective Transferee any and all information in such
Lender's possession concerning the creditworthiness of the Borrower and its
Subsidiaries, subject to such Transferee agreeing to be bound to follow its
customary procedures for handling nonpublic confidential information of the
nature provided by such Lender.
10.15 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; LIMITATION OF LIABILITY.
(a) GOVERNING LAW. THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS
(EXCEPT TO THE EXTENT, IF ANY, OTHERWISE EXPRESSLY STATED IN SUCH OTHER LOAN
DOCUMENTS) SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO CHOICE OF LAW PRINCIPLES.
(b) CERTAIN WAIVERS. EACH OF THE BORROWER, THE LENDERS, THE
ISSUING BANK AND THE AGENT HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR OHIO STATE
COURT SITTING IN CUYAHOGA COUNTY IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR
THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL IMPAIR
THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL
PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY
AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY
LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CUYAHOGA COUNTY,
OHIO.
(ii) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER LEGAL PROCESS BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE
PREPAID, TO THE PARTIES IN ACCORDANCE WITH SECTION 10.5 HEREOF, AND
CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT
VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER
PERMITTED BY LAW); AND
(iii) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED
LITIGATION.
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<PAGE> 84
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this Agreement as of the
date first above written.
CORRPRO COMPANIES, INC.
By:
--------------------------------------
Title:________________________________
Address for Notices:
1090 Enterprise Drive
Medina, Ohio 44256
Attn: Neal R. Restivo
Telephone: (330) 723-5082
Telecopier: (330) 723-0244
BANK ONE, COLUMBUS, NA, individually and
as Agent
By:
--------------------------------------
Title:________________________________
Initial Revolving Credit
Committed Amount: $19,500,000
Term Loan
Committed Amount: $3,000,000
Commitment Percentage: 60%
Address for Notices:
600 Superior Avenue
Cleveland, Ohio 44114
Attn: Northern Ohio Large Corporate Markets
Group, Code 0149
Telephone: (216) 781-2226
Telecopier: (216) 348-6642
79
<PAGE> 85
NATIONAL CITY BANK
By:
-------------------------------------------
Title:_____________________________________
Initial Revolving Credit
Committed Amount: $6,500,000
Term Loan
Committed Amount: $1,000,000
Commitment Percentage: 20%
Address for Notices:
1900 East 9th Street
Cleveland, Ohio 44114
Attn: Sean Richardson
Telephone: (216) 575-2488
Telecopier: (216) 575-9396
PNC BANK, NATIONAL ASSOCIATION
By:
-------------------------------------------
Title:_____________________________________
Initial Revolving Credit
Committed Amount: $6,500,000
Term Loan
Committed Amount: $1,000,000
Commitment Percentage: 20%
Address for Notices:
One Cleveland Center
1375 East 9th Street, Suite 1250
Cleveland, Ohio 44114
Attn: David Williams
Telephone: (216) 348-8562
Telecopier: (216) 348-8594
80
<PAGE> 1
EXHIBIT 11.1
CORRPRO COMPANIES, INC.
COMPUTATION OF EARNINGS PER SHARE(1)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Common Shares outstanding
(adjusted for 3 for 1 split),
beginning of period 5,940,604 3,921,203 1,776,603
Common Shares issued in initial
public offering and Underwriters'
over-allotment on October 7 and
October 15, 1993, respectively ---- ---- 1,861,658
Common Shares issued in
secondary public offering
on May 2, 1994 ---- 1,845,000 ----
Warrant conversion ---- 144,324 ----
Actual conversion of CSG
Preferred Stock 529,685 ---- 150,485
Other Common Shares issued 88,800 30,077 132,457
---------- --------- ---------
Common Shares outstanding,
end of period 6,559,089 5,940,604 3,921,203
Weighted average shares adjustment
(timing of transactions) (347,562) (209,161) (976,755)
----------- ---------- ----------
Pure weighted average shares
outstanding 6,211,527 5,731,443 2,944,448
Common Share equivalents:(2)
Warrant conversion ---- ---- 144,325
Options granted during 1995 ---- 348 ----
Options granted during 1994 ---- 235 486
Options granted during 1993 ---- 367,807 372,464
Options granted prior to 1993 ---- 37,832 35,802
Assumed conversion of CSG
Preferred Stock ---- 529,685 529,685
---------- --------- ---------
Weighted average number of shares 6,211,527 6,667,350 4,027,210
========== ========= =========
Net income (loss) $ (5,212,000) $ 2,836,000 $ 2,740,000
========== ========= =========
Net income (loss) per share $ (0.84) $ 0.43 $ 0.68
========== ========= =========
<FN>
(1) Fully diluted earnings per share does not differ significantly from primary
earnings per share.
(2) Options were calculated using the treasury stock method. For the fiscal
year ended March 31, 1996, Common Share Equivalents are not used in the
calculation as the effect would be antidilutive.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Subsidiary State/Country of Incorporation
---------- ------------------------------
<S> <C>
Corrpro Canada, Inc. Canada
418012 Alberta Ltd. Canada
Alcoke Distributors Ltd. Canada
Commonwealth Pipeline Services (U.S.A.) Inc. Delaware
Commonwealth Seager Holdings Ltd. Canada
D. Foley Pipeline Services Ltd. Canada
Corrtherm, Inc. Ohio
CCI Trading, Inc. Barbados
Good-All Electric, Inc. Ohio
Harco Arabia Cathodic Protection Co. Ltd. Saudi Arabia
Harco Arabia Ground Electrode Manufacturing Co. Ltd. Saudi Arabia
Harco Pacific Technologies Pte, Ltd. Singapore
Harcotec de Mexico, S.A. de C.V. Mexico
Ocean City Research Corporation New Jersey
PSG Corrosion Engineering, Inc. Delaware
Rohrback Cosasco Systems, Inc. California
Rohrback Cosasco Systems Ltd. United Kingdom
Wilson Walton Group Ltd. United Kingdom
Wilson Walton (Gulf) Ltd. Jersey
Wilson Walton (Portugal) Anti-Corrosivos Lda Portugal
Wilson Walton Eastern Pte Ltd. Singapore
Wilson Walton Europe sa Belgium
Wilson Walton Far East Ltd Hong Kong
Wilson Walton Indoensia Indonesia
Wilson Walton Industrial (CP) Ltd. United Kingdom
Wilson Walton International (UK) Ltd. United Kingdom
Wilson Walton Investments Ltd. United Kingdom
Wilson Walton Malaysia Malaysia
Wilson Walton Middle East Ltd. Jersey
Wilson Walton Overseas (Holdings) Ltd. United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF EXPERTS
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-74814) of Corrpro Companies, Inc. of our report
dated May 28, 1996, appearing on page 15 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Cleveland, Ohio
June 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000907072
<NAME> CORRPRO COMPANIES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,256
<SECURITIES> 0
<RECEIVABLES> 31,455
<ALLOWANCES> (1,198)
<INVENTORY> 17,056
<CURRENT-ASSETS> 59,915
<PP&E> 20,615
<DEPRECIATION> 2,481
<TOTAL-ASSETS> 108,198
<CURRENT-LIABILITIES> 26,125
<BONDS> 26,616
<COMMON> 2,196
0
0
<OTHER-SE> 52,085
<TOTAL-LIABILITY-AND-EQUITY> 108,198
<SALES> 140,521
<TOTAL-REVENUES> 140,521
<CGS> 106,636
<TOTAL-COSTS> 33,905
<OTHER-EXPENSES> 4,368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,633
<INCOME-PRETAX> (7,021)
<INCOME-TAX> (1,879)
<INCOME-CONTINUING> (5,142)
<DISCONTINUED> 0
<EXTRAORDINARY> (70)
<CHANGES> 0
<NET-INCOME> (5,212)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> (.84)
</TABLE>
