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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File No. 0-23242
WEBCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1097133
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9101 West 21st Street
Sand Springs, Oklahoma 74063
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (918) 241-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, par value $.01 AMEX
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 (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of September 30, 1997, the aggregate market value of the voting stock
held by nonaffiliates of the registrant was $22,466,000.
DOCUMENTS INCORPORATED BY REFERENCE: Part III, Items 10 through 13.
Portions of the Company's definitive Proxy Statement in connection with its
Annual Meeting.
WEBCO INDUSTRIES, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 38
PART III
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners
and Management 38
Item 13. Certain Relationships and Related Transactions 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 39
WEBCO INDUSTRIES, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Webco Industries, Inc. ("Webco" or the "Company"), an Oklahoma corporation
founded in 1969 by F. William Weber, chairman of the board and chief executive
officer, is a specialty manufacturer of high-quality carbon steel tubing and
stainless steel tubing and pipe designed to industry and customer
specifications. Based on the Company's knowledge of the specialty tube
industry, management believes that Webco is the domestic market leader in the
manufacture of welded carbon heat exchanger tubing and welded carbon boiler
tubing, and the leading supplier of stainless tubing for the high efficiency
furnace market. Commencing in fiscal 1996, the Company manufactures and
markets, through its QuikWater division, a patented direct contact water heater
with unique environmental and energy saving advantages for a wide variety of
end use markets. The Company's products are delivered from its three
production facilities in Oklahoma and Pennsylvania and from two distribution
facilities in Oklahoma and Texas to more than 800 customers located primarily
in the continental United States, southern Canada, and northern Mexico.
INDUSTRY OVERVIEW
Specialty tubing producers occupy a niche between the primary steel
producers and customers who utilize precision tubing in the manufacture of
products primarily for the capital goods and consumer durables industries.
As contrasted with commodity pipe producers, specialty tube mills manufacture
products which are engineered and tailored for more specialized and critical
end-use applications.
The specialty tubing industry was once dominated by the major integrated
steel producers. Over time, these integrated producers lost their competitive
advantage and have largely withdrawn from this segment. In addition, over the
past decade the industry has undergone substantial consolidation, as well as
rationalization of less efficient producers. The industry, however, continues
to be highly fragmented and is currently comprised of approximately 125
third-party producers that generally occupy relatively focused market niches.
The specialty tubing industry has been affected by certain trends that are
expected to continue over the next several years. First, customers' increasing
emphasis on just-in-time inventory methods has required tube producers to
increase operating efficiencies to accommodate more frequent, but smaller sized
orders and has caused tube producers to place greater emphasis on inventory
management and control. Second, customers' desires to cut operating costs
through the outsourcing of specific processing functions, such as specialty
tube manufacturing, has created the opportunity for third-party tube producers
to replace production from captive mills. Finally, the technological evolution
of thin-slab casting, higher levels of union activities among various steel
producers and the impacts of foreign steel producers on the U.S. markets has
caused volatility in the cost for sheet coil.
MANUFACTURING PROCESSES
Electric Resistance Carbon Steel Weld Process. The Company maintains
inventories of steel sheet coils from which it manufactures electric resistance
welded tubing. This steel is in the form of a continuous sheet, typically 48
to 60 inches wide, between .049 and .425 inches thick, and rolled into 15 to 20
ton coils. Steel coils over .180 inches thick used at the Sand Springs
facility are slit to pre-designated widths by outside vendors. Steel coils
less than .180 inches in wall thickness in Sand Springs and substantially all
coils in Oil City are slit in each facility using Company equipment.
All customer orders for manufactured products are entered into a
computerized order entry system, and appropriate coiled steel inventory is
then selected and scheduled for processing in accordance with the customer's
delivery date and product specifications. The Company attempts to maximize
efficiency by combining orders for optimum size runs.
The manufacturing cycle begins with the slitting of wide coils into narrow
bands. The outside diameter of the tube to be produced determines the width of
the slit band. Conversion from slit band to carbon and alloy tubes is
accomplished by (i) continuously roll forming into the desired tubular
diameter; (ii) continuously welding the edges using the high frequency welding
process; and (iii) cutting to approximate finished length or multiples thereof.
After the tube has been welded and depending upon product specifications, it
may be moved to three further processing stations for annealing (heat treatment
through an atmospherically controlled roller hearth furnace), straightening
through rotary straighteners, and finishing (i.e., cut-to-length,
non-destructive test, stencil, oil coat and package).
This process produces heat exchanger tubing, boiler tubing, mechanical
tubing and raw material for the cold drawing process (which does not go through
the finishing process). This tubing is primarily made-to-order, with smaller
amounts produced for inventory.
In fiscal 1995 the Company placed into service a highly automated high
frequency welded carbon tube mill ("Mill 3") at the Sand Springs, Oklahoma
facility. In North America, the Company is aware of only one similar mill
operating in the United States and one duplicate installed in Toronto, Canada.
Prior to the third quarter of fiscal 1997 the Company was not able to fully
utilize the manufacturing capabilities of Mill 3 because certain cut-off
equipment would not perform to vendor specifications. A new cut-off machine was
installed on Mill 3 during the third quarter of fiscal 1997 to replace the
original cut-off equipment. The correction of this cut-off problem now
provides the Company the ability to manufacture tubes with diameters and wall
thickness more consistent with original expectations, thereby creating the
opportunity for the Company to further penetrate the mechanical tube markets,
as discussed below.
Carbon Steel Cold Drawing Process. The Company maintains inventories of
tubing which is raw material for the cold drawing process. Most of this tubing
is manufactured by the Company's own high frequency welded tube mills. The
Company currently offers cold drawn products from .250 inch to .375 inch in
wall thickness. Cold drawing permits greater flexibility and precision
(as compared to the high frequency weld process) in meeting customer
specifications of tube diameters, wall thickness and other characteristics.
Customer orders are entered into a computerized order entry system. The
software selects the starting raw material from inventory that will optimize
yields and efficiency and meet the customer's specifications and required
delivery schedule. After the proper material has been selected for each
specific order, it is cut to the desired piece weight. The tube is then
(i) pickled and lubricated through a series of tanks, (ii) cold reduced to
point the tube ends, and (iii) cold drawn (cold reduction of outside diameter
and inside diameter and elongation of tube). After the cold drawn tube has been
manufactured to finished size, it is moved to three further processing stations
for annealing, straightening and finishing.
This process provides precision tubular products for mechanical tubing and
a limited amount of heat exchanger tubing, primarily made-to-order.
Welded Stainless Tube Processing. The manufacturing cycle for the
stainless steel weld mill operations begins with the receipt by the Company
of stainless steel coils slit to a pre-designated width by their supplier.
Customer orders are entered into the computerized order entry system.
The proper slit coils are selected and fed into the stainless weld mills to be
formed into a tubular shape and welded by a tungsten inert gas process. After
welding, the tube is annealed, cooled, straightened, stenciled,
non-destructively tested, cut to length and packaged for shipment. For some
special customer requirements, the tubing is coiled to various lengths. All of
this processing is performed in a continuous operation.
This process provides air-cooled heat exchanger tubing for residential
furnaces, instrumentation tubing and small diameter stainless pipe. A majority
of the stainless products are made to order.
MANUFACTURING FACILITIES
The Company has three steel tubing manufacturing facilities where it produces
it's carbon or stainless steel products. The largest facility is located in
Sand Springs, Oklahoma and produces a wide range of carbon steel tubing
products. This facility has been in operation since the Company began in 1969.
The Company also has a facility in Oil City, Pennsylvania at which it also
produces carbon steel tubing products, primarily boiler and as-welded
mechanical tubing. The third facility in Mannford, Oklahoma produces stainless
steel tubing products.
The following table sets forth the processing and other techniques performed
at Webco's facilities:
Manufacturing Distribution
Sand Sand
Springs, Oil City, Mannford, Springs, Nederland,
Oklahoma Penn. Oklahoma Oklahoma Texas
Cold Drawing X
Slitting X X
Welding X X X
Annealing X X X X X
Straightening X X X
Cut-to-Length X X X X X
Electronic Non-Destructive
Testing:
Eddy Current X X X
Flux Leakage X
Ultra-Sonic X X
Hydro Static Testing X X X
Stenciling X X X
Bending X X
Bar Coding X X X X X
Computerized Shop Floor
Control X X
Metallurgical Lab &
Spectrometer X
Statistical Process Control X X X
PRODUCTS
The Company produces tubing for a wide variety of markets and end use
applications. The Company seeks to identify niche markets and customers that
have been serviced by high cost and low service competitors. The heat
exchanger and boiler tube markets are examples of the Company achieving
significant penetration following this strategy. Based on the Company's
knowledge of the specialty tube industry, management believes that Webco is
the domestic market leader in the manufacture of welded carbon heat exchanger
tubing and welded carbon boiler tubing, and that it is the leading supplier of
stainless steel tubing for the high efficiency furnace market. The Company is
currently targeting the carbon mechanical tube market for future growth. The
Company is building its market share for mechanical tubing through its low cost
structure and high product quality, together with the Company's commitment to
customer service. A detailed description of the Company's products by the four
major end-use markets follows:
Carbon Heat Exchanger Tubing. Most of the tubing the Company manufactures
for this application comes directly from the weld mill process. The Company
believes it is currently the market leader in the manufacture of welded carbon
heat exchanger tubing in the United States. Due to the Company's leading market
position, the Company expects growth to come from growth in the total market.
Heat exchangers generally fall into two broad categories, shell and tube,
and air cooled. Shell and tube heat exchangers are used to control
temperatures or to recover waste heat in, among other things, power stations,
petrochemical plants, and refineries. Air cooled heat exchangers are used to
dissipate heat generated by industrial processes in, among other things, gas
compressor stations and petrochemical plants. The Company manufactures carbon
tubing suitable for both shell and tube and air cooled heat exchangers.
Boiler Tubing. The Company produces welded boiler tubing from both the
Sand Springs, Oklahoma, and Oil City, Pennsylvania, facilities. This
capability enables the Company to cost-effectively serve this market throughout
the continental United States and eastern Canada. Since the opening of the Oil
City facility in fiscal 1990, the Company believes it has significantly
expanded its market share.
The Company's products are used for the manufacture and maintenance of
boiler systems for utilities, waste-heat recovery units, industrial and
commercial facilities, and co-generation plants. While maintenance is an
ongoing requirement, new boiler manufacturing generally depends on industrial
plant expansion and construction of new energy production facilities.
Stainless Products. The Company serves four sub-markets within the small
welded stainless product category: furnace tubing, instrumentation tubing, pipe,
and mechanical tubing. The end uses for these products include appliances,
industrial plant piping systems, instruments for the petrochemical industry,
and a variety of other capital goods applications. The Company is a small,
niche producer, due to both product and size and capacity constraints. Over
the past 18 months, the Company has doubled its stainless capacity and expects
to continue expansion into the future.
The Company has targeted the high efficiency furnace market and believes
it is currently the leading supplier of stainless tubing to this market. To
achieve this position, the Company worked closely with both its customers and
suppliers to develop what at the time was the only as-welded (i.e., produced
directly from the weld mill) tubing product in the industry which meets this
market's strict tolerance specifications.
Mechanical Tubing. Mechanical tubing includes both as-welded and cold
drawn tubing. Most of the products the Company manufactures from its cold draw
processes are for mechanical tube applications. The end-uses for these
products are very diverse and include hydraulic cylinders, automotive
components, appliances, farm equipment, and a wide variety of consumer durables
(such as bicycles and lawnmowers) and capital goods. The Company is currently
a relatively small producer in this market.
In conjunction with the increased capabilities of Mill 3, the Company has
targeted the mechanical tubing market as a growth area over the next several
years. This market continues to undergo a major structural change in which
final assembly manufacturers (automotive, appliance, etc.) outsource component
parts and emphasize just-in-time inventory management to reduce production
costs. Webco believes that this market, which is largely comprised of original
equipment manufacturers ("OEMs"), provides an opportunity for the Company to
gain market share by utilizing its technological capabilities to offer superior
quality, customer service, and customized products at competitive prices.
COMPETITION
Specialty steel tube manufacturing is a highly competitive market in which
companies compete on the basis of price, quality, service and ability to fill
orders on a timely basis. Public data concerning the size of the markets in
which the Company participates is not available. Based on the Company's
knowledge of the specialty tube industry, the Company believes that it is the
domestic market share leader in welded carbon heat exchanger tubing, stainless
steel high efficiency furnace tubing and welded carbon boiler tubing. Although
the Company has a small share of the mechanical tubing market, management
believes that it is well positioned to increase its market share over the next
several years.
The Company's major competitors include Quanex Corporation for carbon heat
exchanger tubing, Plymouth Tube Company for carbon boiler tubing,
Damascus/Bishop Tube, Inc. and Gibson Tube, Inc. for stainless products, and
Copperweld Corporation, John Roberts Industries, Pittsburgh Tube Company and
Lone Star Steel Company for mechanical tubing. Certain of these competitors
are larger and have access to greater financial resources than the Company.
Most of these competitors are unionized.
The Company believes that its non-union status, geographic balance, focused
niche strategy, product quality, customer service and continued emphasis on
technical innovations position it to compete effectively within each of its
niche markets.
BACKLOG
The Company's firm backlog of orders at July 31, 1997 and 1996 were $29.0
million and $19.8 million, respectively. Orders, including a portion of the
orders considered firm, are generally cancelable by the customer until work has
commenced and the Company has committed resources; thereafter, orders are
generally cancelable by the customer only upon payment of a cancellation
penalty.
QUALITY CONTROL
The supply of quality products and service is critical to the Company's
success. To help foster continuous improvements in quality and service, the
Company, through its corporate quality management department, instituted a
total quality management system based upon ISO 9000 quality system standards.
In early 1994, the Company achieved ISO 9002 certification at its Sand Springs,
Oklahoma manufacturing facility. ISO 9002 certification at its Oil City,
Pennsylvania manufacturing facility followed in early 1995. In support of the
total quality management system, the Company has created an environment that
emphasizes and utilizes teamwork to support continuous improvement of quality
and service. The Company is currently in the process of trying to obtain
QS-9000 certification and expects to have such certification complete by the
third quarter of fiscal 1998.
Fundamental to the Company's quality system is the control of the product
and process, from raw material procurement to the ultimate delivery of finished
goods to the Company's customers. On a test basis, physical and chemical
analyses are performed on raw materials to verify that their mechanical and
dimensional properties, cleanliness and surface characteristics meet the
Company's requirements. The Company has also developed stringent process
controls, including Statistical Process Control, non-destructive testing
methods, and standardized operating and inspection procedures, to provide
assurance of quality, and to ensure that the customer's requirements are met,
throughout the manufacturing process.
SUPPLIERS
The Company purchases steel sheet coil produced by a number of primary
steel producers, including but not limited to Wheeling-Pittsburgh Steel Corp.
and Nucor for carbon steel and J & L Specialty Products Corporation, and
Allegheny Teledyne Inc., for stainless steel. In addition, Webco purchases
from intermediate steel processors and brokers in order to benefit from their
continued purchasing power or for their specialized processing capabilities.
Webco monitors and purchases raw material periodically from foreign sources, as
conditions dictate, to obtain a competitive landed cost. The Company orders
steel to specified physical characteristics and chemistry. By purchasing in
large quantities at consistent predetermined intervals, Webco is able to
obtain quality raw materials at lower competitive prices. All increments of
the cost of purchasing and landing steel are continually monitored, reviewed
and acted upon. Webco believes that it is not dependent on any one of its
suppliers for raw materials, although as demonstrated by the
Wheeling-Pittsburgh strike during much of fiscal year 1997, interruptions
in supply from its suppliers may impact the landed cost of new purchases.
Webco understands that the supplier base is critical to its economic
health. Consistent effort is made to develop long-term partners who provide
material at acceptable quality, cost and delivery and are, themselves,
economically stable. Many of Webco's suppliers have been supplying product to
the Company for 15 to 20 years.
MARKETING AND CUSTOMER SERVICE
The Company's products and services are sold primarily by the Company's
direct sales personnel and its network of manufacturers' representatives
throughout the United States. The Company's product line represents over 50%
of most of these representative organization's total sales. The Company's
representative network does not sell products which compete with the Company's
products. Sales made through one manufacturers' representative organization
accounted for approximately 52% of the Company's annual sales. The Company
does not believe that loss of this or any other representative organization
would have a material adverse effect on the Company.
The Company's sales and marketing efforts are directed by a vice president
of sales and marketing and its product sales managers. These efforts are
supported by its distribution organization, internal sales staff and technical
services group. The Company also emphasizes the use of its technical and
engineering support staff in its product development and marketing efforts.
The Company's technical services, operating, engineering, quality, sales,
product planning and purchasing staffs work closely with its customers and
suppliers to develop products that meet specific customer applications.
Variables in the product development process include the steel's micro
structure, chemistry, mechanical properties, surface finish, machinability,
and product consistency. The Company believes this process is integral to
its sales effort and provides the Company with a competitive advantage.
CUSTOMERS AND DISTRIBUTION
The Company manufactures and distributes specialty steel tubular product
for sale to a diverse group of more than 800 customers. No single customer
represents in excess of 4% of the Company's net sales. In addition, no one
end-use sector represents more than 14% of net sales. The Company's ten
largest customers represent approximately 26% of net sales. Approximately 80%
of the Company's sales are directly to industrial customers, including
manufacturers of heat exchangers, high efficiency home heating furnaces,
appliances, automotive components, power generation equipment, waste heat
recovery systems, industrial and commercial boilers, and other consumer
durables. The remaining 20% of the Company's tubing sales are made to steel
service centers and distributors, one of the largest customer categories of the
steel industry.
While the Company ships product throughout North America, many of its
markets and customers are located within a 500-mile radius of its manufacturing
and distribution locations. As it concerns these markets and customers, this
geographic advantage places the Company in a more cost competitive position
relative to most of its competitors. The Company transports product for local
delivery via Company-owned or leased vehicles. Longer distance deliveries are
generally made via independent trucking firms.
The Company offers its finished product for shipment directly from its
three manufacturing locations. In addition, the Company also inventories
finished goods and functions as its own distributor in some of its markets.
Such markets and customers are served on a just-in-time basis from the
Company's Oklahoma and Texas distribution locations. Finished goods
inventories for distribution generally are suitable for sale to many customers
and generally are not unique to a specific customer's needs.
The Company believes that its long-term relationships with many of its
customers are a significant factor in its business and that pricing, quality,
service and the ability to fill orders on a timely basis are the most
critical factors in maintaining these relationships. Certain Company executive
officers actively participate in the Company's marketing efforts and have
developed strong business relationships with senior management of many of
the Company's principal customers.
GOVERNMENT REGULATION
The Company's distribution and manufacturing facilities are subject to
many federal, state, and local requirements relating to the protection of the
environment. The Company continually examines ways to reduce emissions and
waste and to effect cost savings relating to environmental compliance. The
Company has its own in-house environmental engineer who leads the Company's
environmental program. Management's philosophy is to implement environmental
controls that meet or exceed current and foreseeable legal requirements.
Management believes that it is in material compliance with all environmental
laws, does not anticipate any material expenditures to meet environmental
requirements, and generally believes that its processes and products do not
present any unusual environmental concerns. See "Item 3. Legal Proceedings."
The Company's operations are also governed by laws and regulations
relating to workplace safety and worker health, principally the Occupational
Safety and Health Act and regulations thereunder which, among other
requirements, establish noise and dust standards. Management believes that it
is in material compliance with these laws and regulations and does not believe
that future compliance with such laws and regulations will have a material
adverse effect on its results of operations or financial condition.
EMPLOYEES
As of September 30, 1997, the Company employed 647 people. None of the
Company's employees are covered by collective bargaining agreements. The
Company has never experienced a significant work stoppage and considers its
employee relations to be good.
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-K constitute "forward looking"
statements within the Company's interpretation of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other important factors that could cause
the actual results, performance or achievements of the Company, or industry
results, to differ materially from any future results, performance or
achievements expressed or implied herein. Such risks, uncertainties and
factors include, among others: general economic and business conditions,
interest rate fluctuations, the Company's ability to access capital markets,
industry capacity, industry trends, competition, raw material costs and
availability, the loss of any significant customers, the successful
implementation of business strategies, availability of qualified personnel,
and changes in, or the failure or inability to comply with government
regulations.
ITEM 2. PROPERTIES
The Company's principal properties presently consist of three manufacturing
plants and two distribution facilities. The following sets forth the location,
area and whether the property is owned or leased for each existing facility:
Location Area Owned or Leased
Sand Springs, Oklahoma 250,000 square feet Owned
Manufacturing Facility 26 acres
Sand Springs, Oklahoma 50,000 square feet Owned
Distribution Facility 18 acres
Sand Springs, Oklahoma 19,850 square feet Owned
Cutoff Facility 4 acres
Mannford, Oklahoma 50,000 square feet Owned
Manufacturing Facility 13 acres
Nederland, Texas 20,000 square feet Long-term lease
(1 year remaining)
with a purchase
option of $500,000
Oil City, Pennsylvania 192,000 square feet Owned
Manufacturing Facility 8 acres
Tulsa, Oklahoma 24,400 square feet Long-term lease with a
Corporate Offices purchase option of
$750,000
ITEM 3. LEGAL PROCEEDINGS
In April 1995, the Company reached an agreement in principle with
plaintiffs to settle previously reported securities litigation, pursuant to
which the portion of the settlement paid by the Company was $2,400,000. The
litigation settlement and related litigation costs have been reported as an
unusual item in the statement of operations for the period ended July 31, 1995.
The Company has been identified as a potentially responsible party at the Sand
Springs Petrochemical Complex Superfund Site (the "Sand Springs Site") and the
Hardage-Criner Superfund Site (the "Hardage Site"). The Company became a
potentially responsible party with respect to the Sand Springs Site as a result
of a licensed waste hauler delivering non-hazardous cutting fluids generated by
the Company to the Sand Springs Site ostensibly for recycling. Cutting fluids
and acids generated by the Company were properly disposed at the Hardage Site,
the only permitted hazardous waste disposal site in the State of Oklahoma. At
the time of disposal, both the Sand Springs Site and the Hardage Site had all
permits and met all statutory requirements required to receive and manage such
wastes. Under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, each responsible party is jointly and
severally liable for all cleanup and remedial costs at a site. However,
potentially responsible parties generally apportion liability based on the
relative volumes of waste disposed by them. Webco's percentages of the
liabilities have been established at approximately 2.2% and 1.0% at the Sand
Springs Site and the Hardage Site, respectively. The potential legal and
cleanup costs allocated to the Company are affected by the complexity of
environmental laws and regulations, the uncertainty of the total legal and
remediation costs for the sites, and insurance policies in effect at the time
the waste disposal occurred. Substantially all required remedial work has been
completed at the Sand Springs Site. Furthermore, the Oklahoma Department of
Environmental Quality (ODEQ) has petitioned Federal EPA to remove (i.e. delist)
the Sand Springs Petrochemical Complex Superfund Site from the National
Priorities List (NPL.) The remedy at Hardage is also complete and proven
effective, and the cleanup is in its third year of a 30 year operation and
maintenance (O&M) phase. At July 31, 1997, the Company estimated its remaining
potential liability for both waste disposal sites in the aggregate to be
approximately $227,000 (primarily Hardage operation and maintenance) which
has been recorded as an accrued liability.
In August 1997, the Company filed an action, Webco Industries, Inc. vs.
Thermatool Corporation and Alpha Industries, Inc., relating to certain cut-off
equipment sold to the Company and installed on Mill 3, which did not perform to
manufacturer specifications. The case, filed in the United States District
Court for the Northern District of Oklahoma (Case No. 97-CV-708H(W)), seeks
recoveries including, but not limited to, the cost of the equipment, lost
profits, lost market share and other damages suffered by the Company. There
can be no assurance that the Company will prevail in all or in part of its
action, or that if successful, any recoveries will be commensurate with the
damages suffered by the Company.
From time to time, the Company is named as a defendant in legal actions
arising out of the normal course of business. Except as described above, the
Company is not a party to any pending legal proceeding other than routine
litigation incidental to its business. Management believes the resolution of
such matters will not have a material adverse effect on the Company's results
of operations or financial condition. The Company maintains liability
insurance against risks arising out of the normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to Webco security holders during the
fourth quarter of fiscal year 1997.
PART II
ITEM 5. MARKET FOR WEBCO'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
Webco's common stock is traded on the American Stock Exchange ("AMEX")
under the symbol "WEB." Prior to March 17, 1995, the Company's common stock
was traded on the NASDAQ/NNS. At the close of business on September 23, 1997,
there were 330 holders of record of Webco's common stock. The quarterly prices
of Webco's common stock were as follows:
Fiscal Year 1997: High Low
Fourth Quarter 7 5 1/2
Third Quarter 6 5/8 5 1/2
Second Quarter 5 5/8 4 7/8
First Quarter 6 1/8 4 13/16
Fiscal Year 1996:
Fourth Quarter 8 3/4 5 1/8
Third Quarter 8 3/16 5 13/16
Second Quarter 6 11/16 5 3/8
First Quarter 8 1/8 5 3/4
DIVIDENDS
The Company currently intends to retain earnings to support its growth strategy
and does not anticipate paying dividends in the foreseeable future. The Board
of Directors may reconsider or revise this policy from time to time based upon
conditions then existing, including the Company's results of operations,
financial condition, and capital requirements, as well as other factors the
Board of Directors may deem relevant. Under the Company's loan agreement,
the Company may not pay dividends without the lenders consent.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial information for the Company as
of the end of and for each of the five years in the period ended July 31, 1997,
which has been derived from the Financial Statements of the Company, audited by
Coopers & Lybrand L.L.P., independent accountants. In the fourth quarter of
fiscal 1997 the Company changed its method of accounting for its inventories
from the last-in, first-out method to the weighted average cost method.
Financial results for all periods presented have been restated to reflect the
new method of accounting for inventories.
The selected financial data should be read in conjunction with the Financial
Statements of the Company and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
For the Years Ended July 31,
(Dollars in thousands except per share data)
Restated (1)
1997 1996 1995 1994 1993
Income Statement Data:
Net sales $117,739 $101,867 $ 97,724 $ 80,142 $ 67,561
Gross profit 16,466 13,545 11,809 6,499 9,434
Income from operations 5,131 (2) 4,950 4,662 151 4,606
Income (loss) before income
taxes and extraordinary item 3,148 2779 (38) (3) (968) 2,106
Income (loss) before
extraordinary item 1,952 1,723 (677) (3,651) 2,106
Net income (loss) (4) 1,952 1,723 (677) (4,024) 2,106
Income (loss) per
common share:
Before extraordinary item . 31 .27 (.11) (.74) .58
Net income (loss) .31 .27 (.11) (.82) .58
Pro forma income (loss) (5):
Before extraordinary item (600) 1,306
Net income (loss) (973) 1,306
Pro forma income (loss) per
common share (5):
Before extraordinary item (.12) .36
Net income (loss) (.20) .36
Balance Sheet Data:
Working capital $ 31,150 $ 19,444 $ 17,530 $ 11,285 $ 5,368
Total assets 98,184 82,912 79,956 68,886 56,255
Long-term debt (net of
current portion) 34,108 19,413 17,985 6,594 27,912
Stockholders' equity 42,127 40,175 37,920 38,597 10,163
(1) In the fourth quarter of fiscal 1997 the Company changed the method of accounting for
its inventories from the last-in, first-out method to the weighted average cost method.
Financial results for all periods presented have been restated to reflect the new
method of accounting for inventories.
(2) Includes an $884,000 charge related to the replacement and write-off of faulty
equipment on the Company's Mill 3.
(3) Includes a $3.5 million charge related to the settlement of securities litigation.
(4) The Company was an S-Corporation for federal and state income tax purposes through
January 31, 1994 and accordingly did not incur any federal or state income taxes prior
to that date.
(5) Net income for fiscal 1994 and 1993 has been adjusted, on a pro forma basis, for
assumed federal and state income taxes based on the statutory (federal and state) tax
rate of 38% and for fiscal 1994 excludes income taxes of $3.8 million attributable to
the change in tax status.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Financial Statements of the Company and notes thereto.
Overview
During the fourth quarter of fiscal 1997, the Company changed its method
of accounting for its inventories from the last-in, first-out method to the
weighted average cost method, which the Company believes provides a more
accurate presentation of underlying operating performance. Financial results
for all periods presented in this report have been restated to reflect the new
method of accounting for inventories.
Raw material costs averaged approximately 63% of cost of sales (54% of
net sales) for carbon and stainless steel products combined during the
three-year period ended July 31, 1997. The Company's manufacturing expenses
are a substantially smaller percentage of total costs than raw material costs
and do not increase proportionately with volume.
During the three year period ended July 31, 1997, the Company spent $21.6
million on capital expenditures. This included several major projects, such
as the installation of Mill 3, a doubling of the capacity of the stainless
facility, purchase and installation of a slitter and a new finish floor at
Oil City, improvements to the Company's new corporate headquarters and the
commencement of the Sand Springs facility shipping bay expansion. These
projects are consistent with the Company's growth strategy and it is
anticipated that the Company will continue with such growth and capital
improvement strategy.
While the Company was in the process of expanding its operations in the
early 1990's, its business was affected by the recessionary environment in
general and weak demand for consumer durables and industrial capital goods.
Due to improving market conditions beginning in fiscal 1994, the Company was
able to increase the tonnage of steel tubing sold by an aggregate of 67.4% from
1993 to 1997. In addition, as a direct result of its capital addition program,
the Company lowered its manufacturing cost structure while diversifying its
customer base and product offerings.
In fiscal 1996 the Company purchased certain assets of QuikWater, a Tulsa,
Oklahoma based company which manufactured a patented direct contact,
high-efficiency water heater. The initial purchase commitment was
approximately $685,000. Dependent upon sales of this licensed design through
the year 2000, the Company may be required to pay an additional amount of up to
$750,000. The water heater has both commercial and industrial applications.
The assets acquired consisted primarily of intangible assets, which include
rights to the name "QuikWater" and product designs, etc. as well as an
exclusive license of the patent to manufacture the QuikWater product through
the end of the life of the original patent, fiscal year 2004. The Company has
supplementally filed for and has a patent pending for certain technological
enhancements of the QuikWater design.
Assuming that the present economic conditions remain stable in the market
sectors served by the Company, Webco believes that in fiscal 1998 it will
continue to experience increases in shipment volumes. These incremental volume
increases will be primarily from stainless steel tubing and lesser value added,
lower margin as-welded carbon mechanical tubing.
Results of Operations
The following table sets forth certain income statement data for each of
the three years in the period ended July 31, 1997 (certain amounts may not
calculate due to rounding):
1997 1996 1995
Dollar % of Dollar % of Dollar % of
Amount Net Sales Amount Net Sales Amount Net Sales
(Dollars in Millions)
Net sales $117.7 100.0% $101.9 100.0% $ 97.7 100.0%
Gross profit 16.5 14.0 13.5 13.3 11.8 12.1
Selling, general
and administrative
expenses 10.5 8.9 8.6 8.4 7.1 7.3
Income from operations 5.1 4.3 5.0 4.9 4.7 4.8
Fiscal 1997 Compared to Fiscal 1996
Net sales increased $15.9 million, or 15.6%, to $117.7 million in 1997
from $101.9 million in 1996. The increase in net sales reflects a 21.2%
increase in the tonnage of steel tubing sold in 1997, which was partially
offset by a 4.9% decrease in the average net selling price of tubes. This
decrease in selling prices resulted primarily from downward market pressure
in the heat exchanger and stainless markets, as well as increased volumes of
as-welded mechanical tubing. The volume increase in 1997 versus 1996 reflects
increased market penetration of the mechanical and heat exchanger markets and
higher utilization of the Company's Oil City facilities.
Total gross profit increased $2.9 million, or 21.6%, to $16.5 million in
1997 from $13.5 million in 1996. Expressed as a percentage of net sales, gross
profit increased from 13.3% to 14.0%. The decrease in the total cost per ton of
5.8% was the result of decreases in both the average cost per ton of steel
sheet coil of 5.5% and the average manufacturing cost per ton of 6.4%. This
was partially offset by a 4.9% decrease in the average selling price per ton of
steel tubing.
Selling, general and administrative expenses increased $1.9 million to
$10.5 million in 1997 from $8.6 million in 1996. The $1.9 million increase is
primarily the result of $1.6 million in development and marketing associated
with QuikWater in the current year versus $626,000 in 1996. SG&A for the year
also included $229,000 in profit sharing (none in 1996) with the employees and
generally reflect higher overall activity for the Company.
During the second quarter of fiscal 1997 the Company recorded a special
charge of $884,000. This charge relates to the replacement and write-off of
faulty cutoff equipment on the Company's Mill 3 and is reflected in income
from operations.
Interest expense decreased slightly to $2.0 million in fiscal 1997 from $2.2
million in fiscal 1996. This decrease is a result of lower average interest
rates and a $265,000 increase, compared to 1996, in interest capitalization
from the expansion of its stainless facility and other major capital projects.
Fiscal 1996 Compared to Fiscal 1995
Net sales increased $4.1 million, or 4.2%, to $101.9 million in 1996 from
$97.7 million in 1995. The increase in net sales reflects a 6.4% increase in
the tonnage of steel tubing sold in 1996, which was partially offset by a
decrease in the average net selling price of 2.7%. The volume increase in 1996
versus 1995 reflects higher utilization at all facilities due to improving
market conditions and increased market penetration of the boiler tube and heat
exchanger markets. The decrease in the average net selling price resulted
primarily from downward market pressure in the heat exchanger and stainless
markets.
Total gross profit increased $1.7 million to $13.5 million in 1996 from
$11.8 million in 1995, which is an increase of 14.7%. Gross profit improvement
resulted from the volume driven higher net sales combined with a lower average
cost per ton. Decreases in the average cost of materials per ton for both
carbon and stainless sheet coil coupled with improved efficiencies resulted in
a 3.4% decrease in the manufactured cost per ton.
Selling, general and administrative expenses increased to $8.6 million or
20.3% in fiscal 1996 from $7.1 million in fiscal 1995. Factors contributing to
the increase include $626,000 of new product development and marketing costs
associated with QuikWater, a patented direct contact water heater for
commercial and industrial applications that was introduced during 1996, and
higher costs associated with employee recruitment and training.
Interest expense for fiscal 1996 increased to $2.2 million from $1.2
million in fiscal 1995. This increase is due primarily to higher average
borrowing levels and a $448,000 reduction of interest capitalization, due in
part to Mill 3, which commenced production in February 1995.
Liquidity and Capital Resources
Net cash provided by (used in) operations was $(4.3) million, $2.0
million, and $(0.3) million in fiscal 1997, 1996 and 1995, respectively.
During each of the three fiscal years, accounts receivable and inventories
have increased (with the exception of a slight decrease in inventories in
fiscal 1996). The increases are primarily the result of the increase in sales
during the same periods and the working capital required to finance such
growth. In addition, a major supplier of steel coil to the Company, whose
steel coils were the subject of a consignment program, was unable to
consistently deliver significant quantities of steel to the Company as a result
of a strike by the supplier's employees for much of fiscal 1997. This
consignment program, with a party independent of the supplier, effectively
financed a portion of the Company's inventory. The absence of the consignment
program required the Company to fund current purchases of inventory with
working capital. The supplier has announced a contract agreement with its
employees' union and it is anticipated that production from this supplier will
be available before the end of the calendar year. The Company believes it will
be able to continue the consignment relationship on future production from this
supplier, thereby decreasing the working capital investment in inventories.
Excluding the effects of inventory on consignment, over the past three years
the Company has turned its steel tube manufacturing inventories an average of
approximately 4.1 times per year.
Net cash used in investing activities was $9.6 million, $5.9 million and $8.0
million in fiscal 1997, 1996 and 1995, respectively. During fiscal 1997, the
Company expanded its stainless plant, including the addition of two new
stainless mills, began an expansion of its shipping facility at the Sand
Springs location and renovated the building it is leasing to house its
corporate headquarters. Significant projects in fiscal 1996 included expansion
of the stainless facility and the additions of a slitter and a new finish floor
at the Oil City facility. Investing activities in 1995 consisted primarily
of capital expenditures made by the Company for Mill 3 at the Sand Springs
facility and for production expansion at the stainless facility.
The Company's capital requirements are primarily to fund equipment purchases
and for general working capital needs resulting from the growth that the
Company is experiencing. The Company has historically followed an aggressive
capital expenditure plan as part of its growth strategy and to enable it to
continue to be a leader in the use of new tubular manufacturing technologies.
The Company foresees a continuance of this strategy in the future.
On July 15, 1997, the Company refinanced the term loan and a revolving
line of credit with its primary lender to facilitate its capital growth plan.
The new debt agreement increased the term loan to $25 million and the line of
credit to $20 million. As of July 31, 1997, the Company had $25 million
outstanding on the term loan, and $8.3 million under the revolving line of
credit. The revolving credit loan and term loans bear interest at the prime
rate and prime rate plus .25%, respectively. At the Company's option, borrowing
under either facility can bear interest at LIBOR plus 2.25% in the case of the
term loan borrowing or plus 2.0% in the case of revolving loan advances. Prior
to the refinancing, interest on the Company's debt was, at the Company's
election, prime plus 1.25% or LIBOR plus 3.5%. These loans mature on
August 31, 2002 and are collateralized by substantially all of the Company's
assets other than the Sand Springs and Oil City real estate. The Company may
have borrowings and outstanding letters of credit ($550,000 at July 31, 1997)
under the revolving credit facility up to the lesser of $20.0 million or an
amount determined by a formula based on the amount of eligible inventories and
accounts receivable. The Company pays a commitment fee of 0.25% per annum on
any unused and available line of credit. At July 31, 1997, $11.2 million was
available for borrowing under the line of credit
Pursuant to the terms of the term loan and revolving credit loan, the
Company is subject to various restrictive covenants, including requirements to
maintain a minimum debt coverage ratio and to not exceed a ratio of
indebtedness to net worth. The covenants also limit capital expenditures and
dividends. In addition, the loan agreement provides for acceleration of the
loans, at the option of the lender, if F. William Weber and Dana S. Weber fail
to possess the power to direct or cause the direction of management and
policies of the Company, or the Weber Family ceases to own at least 35% of the
outstanding voting stock, or upon the occurrence of a material adverse change
in the business. The loan agreement also contains a pre-payment penalty
ranging from 1% to 2% of amounts outstanding under the term loan plus the
revolving commitment if the debts are prepaid prior to July 15, 2000. The
Company does not believe these provisions will have a material adverse affect
on the Company or its ability to finance its operations.
Over the next two years, the Company will be acquiring, developing and
installing significant financial and operational computer systems. These
new systems are currently expected to replace substantially all of the
Company's existing systems and will be designed to be year 2000 complaint.
The Company expects cash flow from operations to fund a portion of its
capital growth expenditures in fiscal 1998, with the remainder being financed
with debt. Long-term needs have been, and the Company expects they will
continue to be, satisfied through borrowings from commercial lenders or, in the
case of acquisitions, the possible issuance of additional common stock or other
securities. Management believes that credit line availability and cash flow
from operations will provide the Company with adequate capital to fund its
currently anticipated operations and future growth for at least the next two
years.
Inflation
The Company's operations have not been, nor are they expected to be,
materially affected by inflation. However, the Company's operations are
affected by changes in the price of steel charged by the primary producers,
which are not considered to be inflation-sensitive, but rather sensitive to
changes in steel demand as the primary producers use pricing policy to attempt
to control their order levels and backlog.
Quarterly Effects and Seasonality
Order rates generally tend to be lower during late summer as many of the
Company's customers schedule plant shutdowns for vacations. This, in
conjunction with one of the annealing furnaces being down for routine
maintenance, may reduce net sales and net income in the first quarter.
The Company currently anticipates that one of its carbon steel mills in Sand
Springs will be down during the second quarter for maintenance purposes. In
addition, the Company experiences some seasonality in stainless during its
third fiscal quarter, which may result in reduced net sales and income for that
period. Assuming a strong economy, volumes are expected to increase, though
possibly not at growth rates as high as in fiscal 1997.
Impact of New Accounting Pronouncements
See Note 1 of the Notes to Financial Statements regarding newly issued
accounting pronouncements.
Forward Looking Statements
Certain statements in this Annual Report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company, or industry results, to differ
materially from any future results, performance or achievements expressed or
implied herein. Such risks, uncertainties and factors include, among others:
general economic and business conditions, interest rate fluctuations, the
Company's ability to access capital markets, industry capacity, industry
trends, competition, raw material costs and availability, the loss of any
significant customers, the successful implementation of business strategies,
availability of qualified personnel, and changes in, or the failure or
inability to comply with government regulation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Webco Industries, Inc.
We have audited the balance sheets of Webco Industries, Inc. as of July
31, 1997 and 1996, and the related statements of operations, stockholders'
equity and cash flows and financial statement schedule for each of the three
years in the period ended July 31, 1997. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Webco Industries, Inc. as
of July 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended July 31, 1997, in conformity
with generally accepted accounting principles. In addition, in our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 2, during 1997 the Company changed its method of
accounting for inventories from the Last-In, First-Out method to the weighted
average cost method. Accordingly, previously reported amounts have been
restated to reflect this change in accounting.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
September 18, 1997
/AUDIT-REPORT
WEBCO INDUSTRIES, INC.
BALANCE SHEETS
July 31, 1997 and 1996
(Dollars in thousands, except share amounts and par value)
1997 1996
ASSETS (Restated -
Note 2)
Current assets:
Cash $ 466 $ 508
Accounts receivable, net 17,159 13,106
Inventories 26,982 21,239
Prepaid expenses 268 235
Notes receivable from related parties - 420
Deferred income tax asset 1,460 1,576
Total current assets 46,335 37,084
Property, plant and equipment:
Land 1,436 1,436
Buildings and improvements 11,448 8,630
Machinery and equipment 53,305 50,403
Furniture and fixtures 2,628 1,989
Construction in progress 4,896 3,883
Less accumulated depreciation and amortization (24,972) (22,174)
Net property, plant and equipment 48,741 44,167
Notes receivable from related parties 1,582 -
Other assets, net 1,526 1,661
Total assets $ 98,184 $ 82,912
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,264 $ 12,419
Accrued liabilities 3,800 3,523
Current portion of long-term debt 121 1,698
Total current liabilities 15,185 17,640
Long-term debt 34,108 19,413
Deferred income tax liability 6,764 5,684
Commitments and contingencies (Note 5) - -
Stockholders' equity (Note 7):
Common stock, $.01 par value, 12,000,000 shares
authorized, 6,339,000 shares issued and outstanding 63 63
Additional paid-in capital 35,944 35,944
Retained earnings 6,120 4,168
42,127 40,175
Total liabilities and stockholders' equity $ 98,184 $ 82,912
The accompanying notes are an integral
part of the financial statements.
WEBCO INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
For the Years Ended July 31, 1997, 1996 and 1995
(Dollars and shares in thousands, except per share amounts)
1997 1996 1995
(Restated - Note 2)
Net sales $ 117,739 $ 101,867 $ 97,724
Cost of sales 101,273 88,322 85,915
Gross profit 16,466 13,545 11,809
Selling, general and administrative expenses 10,451 8,595 7,147
Special item: Write-off of Mill 3 cut-off equipment 884 - -
Income from operations 5,131 4,950 4,662
Interest expense 1,983 2,171 1,245
Unusual item: Shareholder litigation settlement and
related litigation costs (Note 5) - - 3,455
Income (loss) before income taxes 3,148 2,779 (38)
Provision for income taxes:
Current - (326) -
Deferred (1,196) (730) (639)
Net income (loss) $ 1,952 $ 1,723 $ (677)
Net income (loss) per common share $ .31 $ .27 $ (.11)
Weighted average common shares
outstanding 6,339 6,339 6,339
The accompanying notes are an integral
part of the financial statements.
WEBCO INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended July 31, 1997, 1996 and 1995
(Dollars in thousands)
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
Balances, July 31, 1994, as
previously reported $ 63 $ 35,412 $ 2,277 $ 37,752
Effect of change in accounting for
inventories (Note 2) - - 845 845
Balances, July 31, 1994, as
restated 63 35,412 3,122 38,597
Net loss - - (677) (677)
Balances, July 31, 1995 63 35,412 2,445 37,920
Deferred tax benefit (Note 4) - 532 - 532
Net income - - 1,723 1,723
Balances, July 31, 1996 63 35,944 4,168 40,175
Net income - - 1,952 1,952
Balances, July 31, 1997 $ 63 $ 35,944 $ 6,120 $ 42,127
The accompanying notes are an integral
part of the financial statements.
WEBCO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended July 31, 1997, 1996 and 1995
(Dollars in thousands)
1997 1996 1995
(Restated - Note 2)
Cash flows from operating activities:
Net income (loss) $ 1,952 $ 1,723 $ (677)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,099 2,726 2,217
(Gain) loss on write-off and disposition
of property, plant and equipment 928 (56) 1
Deferred tax expense 1,196 730 639
(Increase) decrease in:
Accounts receivable (4,053) (809) (1,776)
Inventories (5,743) 410 (2,659)
Prepaid expenses (33) 275 378
Increase (decrease) in:
Accounts payable (1,910) (1,713) (1,394)
Accrued liabilities 277 (1,280) 2,992
Net cash provided by (used in) operating activities (4,287) 2,006 (279)
Cash flows from investing activities:
Capital expenditures (8,409) (5,230) (7,994)
Proceeds from sale of property, plant and equipment 12 56 38
Advances to stockholder (1,286) (5,092) (3,437)
Repayments of stockholder advances 124 5,092 3,437
Other (36) (746) (63)
Net cash used in investing activities (9,595) (5,920) (8,019)
Cash flows from financing activities:
Proceeds from long-term debt 154,847 106,615 113,200
Principal payments on long-term debt (141,729) (104,561) (102,309)
Increase (decrease) in book overdrafts 722 709 (1,445)
Net cash provided by financing activities 13,840 2,763 9,446
Net change in cash (42) (1,151) 1,148
Cash, beginning of year 508 1,659 511
Cash, end of year $ 466 $ 508 $ 1,659
Supplemental disclosure of cash flow information:
Cash paid during the year for interest, net of
amount capitalized of $433, $168 and $616 in
1997, 1996 and 1995, respectively $ 1,963 $ 2,037 $ 1,104
Income taxes $ 202 $ - $ -
The accompanying notes are an integral
part of the financial statements.
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS - Webco Industries, Inc. (the "Company") is a specialty manufacturer
of high-quality carbon and stainless steel tubing and pipe. The Company has
manufacturing facilities in Sand Springs and Mannford, Oklahoma, and in Oil
City, Pennsylvania, as well as distribution facilities in Sand Springs,
Oklahoma and Nederland, Texas. The Company provides carbon steel tubing
products to the industrial boiler, heat exchanger and mechanical tubing
markets and stainless steel tubing products to the high-efficiency residential
furnace, stainless pipe and general service instrumentation tubing markets.
In fiscal 1996 the Company purchased a license to use the patent for a
high-efficiency water heater, under the name "QuikWater," and has begun
production and marketing of this product.
CONCENTRATIONS - The Company maintains its cash in bank deposit accounts, which
at times may exceed the federal insurance limits. As of July 31, 1997 and
1996, the Company had cash in banks totaling $407,000 and $404,000 in excess
of federal depository insurance limits, respectively. The Company has not
experienced any losses on such accounts in the past.
ACCOUNTS RECEIVABLE - Accounts receivable represent short-term credit granted
to the Company's customers for which collateral is generally not required.
Accounts receivable at July 31, 1997 and 1996 are net of an allowance for
uncollectible amounts of $49,000 and $110,000, respectively. Credit risk on
receivables is considered by management to be limited due to the variety of
industries served and geographic dispersion of customers.
INVENTORIES - The Company values its inventories at the lower of cost or
market. In fiscal 1997 the Company changed its method of determining cost
for raw materials, work-in-process, and finished goods inventories from the
last-in, first-out ("LIFO") method to the weighted average cost method. The
change was made to improve interim financial reporting and to achieve a better
presentation and comparability of period to period operating and financial
results. Maintenance parts and supplies and structural steel inventories are
valued at the lower of cost (first-in, first-out ("FIFO")) or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment, including
tooling, is stated at cost and includes interest capitalized on major
construction projects. Sales and retirements of depreciable property are
recorded by removing the related cost and accumulated depreciation from the
accounts. Gains or losses on sales and retirements of property are reflected
in operations. Depreciation and amortization are provided using the
straight-line method over the following estimated useful lives: buildings and
improvements - 10 to 40 years, machinery and equipment - 5 to 25 years, and
furniture and fixtures - 3 to 10 years.
Depreciation expense for the years ended July 31, 1997, 1996 and 1995
amounted to $2,926,000, $2,625,000 and $2,098,000, respectively. Fully
depreciated assets still in use at July 31, 1997 and 1996 amounted to
$7,378,000 and $7,285,000, respectively.
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
BOOK OVERDRAFTS - Included in accounts payable at July 31, 1997 and 1996 are
outstanding checks in excess of bank deposits totaling $1,882,000 and
$1,160,000, respectively.
SPECIAL ITEM - The special item reflected in the statement of operations for
fiscal year 1997 relates to the write-off of certain Mill 3 cut-off equipment,
which did not work to manufacturer specifications. The replacement equipment
was capitalized as new equipment upon its purchase and installation during 1997.
ACCOUNTING 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 and disclosure of contingent 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.
EARNINGS PER SHARE - Earnings per share are calculated based on the number of
weighted average common shares outstanding, including the effect of dilutive
options, when applicable.
INCOME TAXES - The Company is subject to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS No. 109"). The
provisions of FAS No. 109 require the recording of deferred tax assets and
liabilities to reflect the expected tax consequences in future years, of
differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year end.
IMPACT OF FINANCIAL ACCOUNTING PRONOUNCEMENTS - In February 1997 the Financial
Accounting Standards Board issued Statement No. 128, "Earnings Per Share" and
No. 129, "Disclosure of Information About Capital Structure". Statement
No. 128 specifies the computation, presentation, and disclosure requirements
for earnings per share and is substantially similar to the standard recently
issued by the International Accounting Standards Committee. Statement
No. 129 consolidates the existing requirements to disclose certain information
about an entity's capital structure. Both statements are effective for
financial statements issued for periods ending after December 15, 1997.
Based on the Company's present capital structure and common stock equivalents
(stock options), the Company does not believe that the implementation of these
new standards will have a material impact on its financial statements.
2. INVENTORIES
In the fourth quarter of fiscal 1997 the Company changed its method of
valuation for raw materials, work-in-process, and finished goods inventories
from the last-in, first-out ("LIFO") to the weighted average cost method.
The financial statements for fiscal 1997, 1996 and 1995 have been restated
to reflect the change. Accordingly, the value of steel tubing inventories
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
2. INVENTORIES, Continued
was decreased by $956,000 and $2,000 for fiscal 1997 and 1996 respectively.
The effect of the change in accounting for inventories was to decrease net
income by $594,000 ($0.09 per share), $598,000 (0.10 per share) and $247,000
($0.04 per share) for fiscal 1997, 1996, and 1995, respectively. Structural
inventories and maintenance, parts and supplies inventories, which are valued
using the FIFO method, amounted to $1,385,000 and $1,372,000 at July 31, 1997
and 1996, respectively.
Inventory at July 31, 1997 and 1996, consisted of the following:
July 31,
1997 1996
(Dollars in Thousands)
Raw materials $ 18,666 $ 12,597
Work-in-process 2,159 1,883
Finished goods 4,947 5,742
Maintenance parts and supplies 1,210 1,017
Total inventories $ 26,982 $ 21,239
The impact of this change in accounting upon each of the quarters in fiscal
years 1997 and 1996 is as follows (Dollars in thousands, except per share
amounts.):
Three-Month Periods Ended
(Unaudited)
Year
Ended
October 31, January 31, April 30, July 31, July 31,
1996 1997 1997 1997 1997
Net income:
As previously reported $ 634 $ 131 $ 498 $ 1,283 $ 2,546
Effect of change (37) (31) 9 (535) (594)
As restated $ 597 $ 100 $ 507 $ 748 $ 1,952
Earnings per share:
As previously reported $ 0.10 $ 0.02 $ 0.08 $ 0.20 $ 0.40
Effect of change (0.01) - - (0.08) (0.09)
As restated $ 0.09 $ 0.02 $ 0.08 $ 0.12 $ 0.31
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
2. INVENTORIES, Continued
Three-Month Periods Ended
(Unaudited)
Year
Ended
October 31, January 31, April 30, July 31, July 31,
1995 1996 1996 1996 1996
Net income:
As previously reported $ 117 $ 617 $ 621 $ 966 $ 2,321
Effect of change (73) (139) (65) (321) (598)
As restated $ 44 $ 478 $ 556 $ 645 $ 1,723
Earnings per share:
As previously reported $ 0.02 $ 0.10 $ 0.10 $ 0.15 $ 0.37
Effect of change (0.01) (0.03) (0.01) (0.05) (0.10)
As restated $ 0.01 $ 0.07 $ 0.09 $ 0.10 $ 0.27
3. LONG-TERM DEBT
Long-term debt at July 31, 1997 and 1996, consisted of the following:
1997 1996
(Dollars In Thousands)
Term loan (A) $ 25,000 $ 13,126
Revolving loan (A) 8,281 6,905
Real estate and equipment term loans (B) 611 687
Other 337 393
34,229 21,111
Less current maturities 121 1,698
Long-term debt $ 34,108 $ 19,413
Based upon the borrowing rates currently available to the Company for bank
borrowings with similar terms and average maturities, the Company believes that
the carrying amount of these borrowings approximate their fair value.
(A) On July 15, 1997, the Company refinanced the term loan and a revolving
line of credit with its primary lender to facilitate its capital growth
plan. The new debt agreement increased the term loan to $25 million and
the revolving line of credit to $20 million. The revolving credit loan
and term loan bear interest at the prime rate (8.5% at July 31, 1997) and
prime rate plus .25%, respectively. At the Company's option, borrowings
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
3. LONG-TERM DEBT, Continued
under either facility can bear interest at LIBOR (5.44% at July 31, 1997)
plus 2.25% in the case of the term loan borrowing or plus 2.0% in the case
of revolving loan advances. Prior to the refinancing, interest on the
Company's debt was, at the Company's election, prime plus 1.25% or LIBOR
plus 3.25%. These loans mature on August 31, 2002 and are collateralized
by substantially all of the Company's assets other than the Sand Springs
and Oil City real estate. Principal payments on the term loan commence on
August 1, 2000, at which time monthly payments of $208,000 plus interest
are required. The Company may have borrowings and outstanding letters of
credit ($550,000 at July 31, 1997) under the revolving credit facility up
to the lesser of $20.0 million or an amount determined by a formula based
on the amount of eligible inventories and accounts receivable. The
Company pays a commitment fee of 0.25% per annum on any unused and
available line of credit. At July 31, 1997, $11.2 million was available
for borrowing under the line of credit.
Pursuant to the terms of the loan agreement, the Company is subject to
various restrictive covenants, including requirements to maintain a
minimum debt coverage ratio and to not exceed a ratio of indebtedness to
net worth. The covenants also limit capital expenditures and dividends. In
addition, the loan agreement provides for acceleration of the loans, at
the option of the lender, if F. William Weber and Dana S. Weber fail to
possess the power to direct or cause the direction of management and
policies of the Company, or the Weber Family ceases to own at least 35%
of the outstanding voting stock, or upon the occurrence of a material
adverse change in the business. The loan agreement also contains a
pre-payment penalty ranging from 1% to 2% of amounts outstanding under
the term loan plus the revolving commitment if the debts are prepaid
prior to July 15, 2000.
(B) These loans were entered into with various public agencies and are
payable in monthly installments aggregating approximately $8,000 including
interest at 3%. The various notes are collateralized by the underlying
real estate and/or equipment and the guarantee of the principal
stockholder/officer.
At July 31, 1997, the aggregate future maturities of long-term debt are
as follows: 1998 - $121,000; 1999 - $110,000; 2000 - $113,000; 2001 -
$1,154,000; 2002 - $2,617,000; and thereafter $30,114,000.
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
4. INCOME TAXES
The provision for income taxes for fiscal 1997, 1996 and 1995 consists
of the following:
1997 1996 1995
(Dollars in Thousands)
Current federal $ - $ 326 $ -
Deferred:
Federal 1,071 632 543
State 125 98 96
Total income tax expense $ 1,196 $ 1,056 $ 639
The actual income tax expense for fiscal 1997, 1996 and 1995 differs from
income tax based on the federal statutory rate due to the following:
1997 1996 1995
(Dollars in Thousands)
Expected tax expense (benefit) $ 1,070 $ 945 $ (13)
State income taxes, net of federal 125 111 63
Nondeductible costs related to settlement
of litigation - 3 540
Other 1 (3) 49
Total income tax expense $ 1,196 $ 1,056 $ 639
At July 31, 1997 and 1996, deferred tax assets and deferred tax liabilities
consisted of the following:
1997 1996
(Dollars in Thousands)
Net current deferred tax assets (liabilities):
Accounts receivable $ 24 $ 47
Inventories 540 184
Accrued liabilities 896 855
Operating loss carry forwards, expiring in 2009 - 490
Net current deferred tax asset $ 1,460 $ 1,576
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
4. INCOME TAXES, Continued
1997 1996
(Dollars in Thousands)
Net noncurrent deferred tax assets (liabilities):
Property plant and equipment $ (9,631) $ (6,286)
Operating loss carry forwards, expiring in 2012 2,632 -
General business credit carry forward 189 217
Alternative minimum tax credit carry forward 321 357
Other (275) 28
Net noncurrent deferred tax liability $ (6,764) $ (5,684)
During fiscal 1996 the Company recorded $532,000 as additional paid-in
capital for the tax benefit related to a stock gift in 1994 by the majority
shareholder to substantially all non-executive employees and the tax benefit
resulting from a "step-up" for tax purposes in the basis of certain property,
plant and equipment sold to the Company in 1994 by an affiliated entity owned
by the majority shareholders. For financial reporting purposes these assets
were recorded at the affiliated entities' basis and no compensation cost was
recorded for the stock gift.
5. COMMITMENTS AND CONTINGENCIES
LITIGATION - The Company has been identified as a potentially responsible
party in the cleanup of certain EPA Superfund cleanup sites. The potential
legal and cleanup costs allocated to the Company are impacted by the complexity
of environmental laws and regulations, the uncertainty of the total legal and
remediation costs for the site, and insurance policies in effect at the time
the waste disposal occurred. At July 31, 1997, the Company estimated its
remaining potential liability for remediation of the waste disposal sites and
legal costs to be approximately $227,000, which has been recorded as an accrued
liability.
In April 1995, the Company settled certain previously reported shareholder
securities litigation. Pursuant to the settlement agreement, the Company's
$2,400,000 portion of the settlement was paid into escrow on August 8, 1995.
The litigation settlement and related litigation costs totaling $3,455,000 have
been reported as an unusual item in the statement of operations for the period
ended July 31, 1995.
In addition, the Company is a party to various other lawsuits and claims
arising out of the ordinary course of its business. Management, after review
and consultation with legal counsel, considers that any liability resulting
from these matters would not materially affect the results of operations or
the financial position of the Company.
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES, Continued
LEASES - The Company leases certain buildings and machinery and equipment under
noncancelable operating leases. Under certain of these leases the Company is
required to pay property taxes, insurance, repairs and other costs related to
the leased property. At July 31, 1997, future minimum payments under
noncancelable leases accounted for as operating leases are $408,000 in 1998;
$258,000 in 1999; $198,000 in 2000; $154,000 in 2001 and $128,000 in 2002.
Total rent expense for all operating leases was $1,589,000, $1,350,000 and
$1,153,000 in 1997, 1996 and 1995, respectively.
SELF-INSURANCE - The Company maintains an unfunded hospitalization and medical
coverage program for its employees. Claims under this program are limited to
annual losses of $60,000 per participant and aggregate annual claims of up to
approximately $1,455,000 through the use of a stop-loss insurance policy.
Additionally, the Company self-insures Oklahoma workers' compensation claims in
excess of $225,000 per occurrence and retains a maximum aggregate liability of
$2,100,000 per two-year policy term with respect to all occurrences. The
Company has a letter of credit in the amount of $550,000 on file with the
State of Oklahoma Workers' Compensation Court, as required by self-insurance
regulations. Provisions for claims under both programs are accrued based upon
the Company's estimate of the aggregate liability for claims (including claims
incurred, but not yet reported).
PURCHASE COMMITMENTS - At July 31, 1997 and 1996, the Company was committed on
outstanding purchase orders for inventory approximating $18.9 million and $25.9
million, respectively. Additionally, the Company had on its premises at
July 31, 1997 and 1996 raw material on consignment from certain vendors valued
at approximately $2.6 million and $3.0 million, respectively.
6. EMPLOYEE BENEFIT PLAN
The Company maintains a 401-K benefit plan covering all employees who have
completed one year of service. Participants are fully vested in Company
contributions after two years of service. The plan includes a cash or deferred
compensation arrangement permitting elective contributions to be made by the
participants. Company contributions are made at the discretion of the Board
of Directors. Company contributions were $117,000 and $63,000 in fiscal
1997 and 1996, respectively. No contributions were made to the plan in fiscal
1995.
7. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
In January 1994, the Company's stockholders approved the 1994 Stock
Incentive Plan (the "Plan"), in which directors, employees, and consultants
are eligible to participate. Four types of benefits may be granted, in any
combination under the Plan: incentive stock options, non-qualified stock
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY AND STOCK OPTIONS, Continued
options, restricted stock, and stock appreciation rights. The Plan also
provides for certain automatic grants to outside directors. All options expire
ten years from the date of grant (except the vice-chairman's options, which
expire five years from the date of grant) and are exercisable at a price which
is at least equal to fair market value on the date of grant (110% of fair
market value in the case of the vice-chairman). The employee options vest
evenly over periods of two to five years from date of grant. The maximum
number of shares of common stock with respect to which incentive stock options,
non-qualified stock options, restricted stock, and stock appreciation rights
may be issued under the Plan is 550,000.
Activity under the Plan was as follows:
Number of Weighted Average
Shares Exercise Price
Balance, July 31, 1995 234,100 $ 13.11
Granted 200,300 6.43
Forfeited (161,600) 13.77
Balance, July 31, 1996 272,800 7.89
Granted 194,900 6.05
Forfeited (111,800) 9.36
Balance, July 31, 1997 355,900 6.42
Exercisable, July 31, 1997 43,000 6.90
The weighted average exercise price of options granted to the
vice-chairman during 1997, which were at a price above the market value per
share at that date, was $6.74. For options outstanding as of July 31, 1997,
the range of exercise prices and weighted average remaining contractual life
were $6.13 to $15.75 and 8.75 years, respectively.
On September 7, 1995, the Compensation Committee of the Board of
Directors authorized the cancellation of 157,200 incentive options (excluding
the directors' and vice-chairman's options) granted in fiscal 1994 at $14.00
per share and the reissuance of the same number of new options at a price of
$6.50 per share, which was the market value per share at that date.
The Company has elected to follow APB Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for its employee stock options rather
than the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, because the
exercise price of the Company's stock options is at least equal to the market
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY AND STOCK OPTIONS, Continued
price of the underlying stock on the date of grant, no compensation expense is
recognized in the Company's financial statements.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. This information is required to be determined as
if the Company had accounted for its employee stock options granted subsequent
to July 31, 1995 under the fair value method of that statement. The fair value
of options granted in fiscal years 1997 and 1996 reported below has been
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions:
1997 1996
Weighted average Life 4.1 years 4.9 years
Risk-free interest rate 6.19% 5.41%
Expected volatility 61% 61%
Expected dividend yield None None
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the opinion
of management, the existing models do not necessarily provide a reliable single
measure of fair value of its options. The weighted average estimated fair
value of employee stock options granted during 1997 and 1996 was $3.18 and
$3.62 per share, respectively. The weighted average estimated fair value of
employee stock options granted during 1997 to the Company's vice-chairman,
which were at a price above the market value per share at that date, was
$2.93.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows:
1997 1996
Pro forma net income $ 1,838,000 $ 1,563,000
Pro forma earnings per share $ 0.29 $ 0.25
The above SFAS No. 123 pro forma disclosures are not necessarily
representative of the effect SFAS No. 123 will have on the pro forma disclosure
of future years.
WEBCO INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS
In October 1995 the Company entered into an agreement with an entity
owned by the majority stockholders to subcontract certain manufacturing
services. Payments made by the Company under the contract totaled $316,000 and
$130,000 in fiscal 1997 and 1996. In addition, the Company had a receivable
balance of $367,000 and $247,000 at July 31, 1997 and 1996, respectively, for
amounts paid on behalf of this entity.
The Company purchases certain specialty packaging and shipping materials
from an entity owned by the principal stockholder. Payments made by the
Company totaled $200,000 in fiscal 1997 and $181,000 in fiscal 1996.
Advances were made from time to time during fiscal 1997 and 1996 to the
principal stockholder with the highest amounts outstanding being $1,200,000 and
$1,389,000 in 1997 and 1996, respectively. The balance outstanding at July 31,
1997 was $1,162,000 and there was no outstanding balance at July 31, 1996. The
advances are subject to a three-year note from the principal stockholder
collateralized by certain assets having a current market value at least double
the highest outstanding balance advanced pursuant to the note. The note bears
interest at the prevailing rate under the Company's loan agreement with its
primary lender and is payable at maturity of the note on August 15, 1999.
During 1994, in the course of purchasing stock from the principal
stockholder, certain executives executed promissory notes payable to the
principal stockholder in the amount of $420,000 which, as amended, bear
interest at 4.1%. The notes are collateralized by the underlying shares
of common stock. The principal stockholder subsequently assigned the
executives' notes receivable to the Company in order to liquidate certain
advances and other amounts owed by him to the Company.
A director of the Company is Chairman of the Board of a customer of the
Company. Annual sales to this company were approximately $3,865,000 in 1997,
$1,565,000 in 1996, and $3,672,000 in 1995 with outstanding receivable balances
of approximately $892,000 and $216,000 at July 31, 1997 and 1996, respectively.
WEBCO INDUSTRIES, INC.
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(UNAUDITED)
(Dollars in thousands, except per share data)
Year Ended July 31, 1997
Quarters Ended
October 31, January 31, April 30, July 31, Total
1996 (1) 1997 (1) 1997 (1) 1997 Year
Net sales $28,444 $28,678 $28,993 $31,624 $117,739
Gross profit 3,776 4,007 3,767 4,916 16,466
Operating income 1,468 627 (2) 1,271 1,765 5,131(2)
Net income 597 100 507 748 1,952
Net income per
common share $ .09 $ .02 $ .08 $ .12 $ .31
Weighted average
shares outstanding 6,339 6,339 6,339 6,339 6,339
Year Ended July 31, 1996 (1)
Quarters Ended
October 31, January 31, April 30, July 31, Total
1995 1996 1996 1996 Year
Net sales $22,581 $25,086 $26,338 $27,862 $101,867
Gross profit 2,431 3,435 3,846 3,833 13,545
Operating income 611 1,346 1,444 1,549 4,950
Net income 44 478 556 645 1,723
Net income per
common share $ .01 $ .07 $ .09 $ .10 $ .27
Weighted average
shares outstanding 6,339 6,339 6,339 6,339 6,339
(1) Restated to reflect change in accounting to weighted average cost method for inventories.
(2) Includes an $884,000 charge related to the replacement and write-off of faulty equipment on the Company's Mill 3.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements between the Company and its
independent auditors.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated by reference
from the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission (the
"Commission") within 120 days of the end of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
from the Company's definitive proxy statement for the annual Meeting of
Stockholders to be filed with the Commission within 120 days of the end of the
Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference
from the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be filed with the Commission within 120 days of the end of the
Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference
from the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be filed with the Commission within 120 days of the end of the
Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements of Webco Industries, Inc. which are included
in Part II, Item 8:
Page
Report of Independent Accountants 21
Balance Sheets as of July 31, 1997 and 1996 22
Statements of Operations for each of the three
years in the period ended July 31, 1997 23
Statements of Changes in Stockholders' Equity
for each of the three years in the period
ended July 31, 1997 24
Statements of Cash Flows for each of the three
years in the period ended July 31, 1997 25
Notes to Consolidated Financial Statements 26
Supplemental Quarterly Financial Data
(Unaudited) 37
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying
Accounts 41
(3) Exhibits:
Exhibit
Number Description
3 (i) Form of Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3(i) to the Company's
Registration Statement on Form S-1, No. 33-72994).
3 (ii) By-Laws (incorporated by reference to Exhibit 3(ii) to the Company's
Registration Statement on Form S-1, No. 33-72994).
10.1 Form of 1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-1,
No. 33-72994).
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K - Continued
Exhibit
Number Description
10.2 Loan and Security Agreement, dated as of July 15, 1997, between
American National Bank and Trust Company of Chicago, as agent,
certain financial institutions as lender, and the Company.
10.3 Lease, dated October 22, 1996, between the Company and Baker
Performance Chemicals Incorporated.
10.4 Employment Agreement dated December 31, 1996, between the Company and
F. William Weber.
10.5 Employment Agreement dated December 31, 1996, between the Company and
Dana S. Weber.
10.6 Promissory note effective August 15, 1994, between the Company and F.
William Weber.
10.7 Lease, dated March 29, 1993, between the Company and Crest, Inc.
(incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1, No. 33-72994).
18.1 Letter re: Change in Accounting Principles
23.1 Consent of Coopers & Lybrand, LLP
27.1 Financial Data Schedule
Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months
ended July 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WEBCO INDUSTRIES, INC.
October 28, 1997 By: /s/F. William Weber
F. William Weber
Chairman, Chief Executive
Officer and Director
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.
October 28, 1997 By: /s/F. William Weber
F. William Weber
Chairman, Chief Executive
Officer and Director
October 28, 1997 By: /s/Dana S. Weber
Dana S. Weber
President, Chief Operating
Officer, and Director
October 28, 1997 By: /s/Michael P. Howard
Michael P. Howard
Chief Financial Officer
October 28, 1997 By: /s/Frederick C. Ermel
Frederick C. Ermel
Director
October 28, 1997 By: /s/Neven C. Hulsey
Neven C. Hulsey
Director
October 28, 1997 By: /s/Kenneth E. Case
Kenneth E. Case
Director
WEBCO INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended July 31, 1997
(Dollars in Thousands)
Additions
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
Allowance for bad debts:
1995 3 173 - (50)(1) 126
1996 126 (30) - 14 (1) 110
1997 110 (2) - (59)(1) 49
(1) Amounts represent write-offs, net of recoveries.
Exhibit 10.2
LOAN AND SECURITY AGREEMENT
Dated as of July 15, 1997
among
AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO,
as Agent
Certain Financial Institutions,
as Lender
and
WEBCO INDUSTRIES, INC.
TABLE OF CONTENTS
1. DEFINITIONS 1
1.1 General Terms 1
1.2 Accounting Terms 16
1.3 Other Terms Defined in Illinois Uniform Commercial Code 16
1.4 Other Definitional Provisions; Construction 16
2. CREDIT 17
2.1 Term Loan Facility 17
2.2 Revolving Loan Facility 18
2.3 Determination of Current Asset Base 18
2.4 Borrowing Mechanics 19
2.5 Settlements Among Agent and Lenders. 21
2.6 Mandatory Payments; Reduction of Commitments. 23
2.7 Payments and Computations. 24
2.8 Borrower's Loan Account 24
2.9 Statements 25
2.10 Taxes. 25
2.11 Affected Lenders. 28
2.12 Sharing of Payments. 29
2.13 Defaulting Lenders 29
2.14 Term of this Agreement 30
2.15 Additional Costs, Etc. With Respect to LIBOR Rate Advances 31
2.16 Indemnification for Losses 32
2.17 Capital Adequacy 33
2.18 Certificate 33
2.19 Letters of Credit 34
(A) Issuance of Letters of Credit 34
(B) Terms of Letters of Credit 34
(C) Lenders' Participation. 34
(D) Notice of Issuance 35
(E) Payment of Amounts Drawn Under Letters of Credit 35
(F) Payment by Lenders 36
(G) Obligations Absolute 36
2.20 Interest, Fees and Expenses 36
(A) Interest 36
(B) Facility Fees 37
(C) Prepayment Fee; Commitment Reduction Fee 37
(D) Maximum Lawful Rate 38
(E) Early Termination Charge 38
(F) Reimbursement of Expenses 39
(G) Letter of Credit Fees 39
(H) Additional Fees 40
(I) Authorization to Charge Loan Account 40
(J) Indemnification in Certain Events 40
(K) Audit Fees 41
3. REPORTING AND ELIGIBILITY REQUIREMENTS 41
3.1 Monthly Reports and Intra-Monthly Reports 41
3.2 Eligible Accounts 43
3.3 Account Warranties 44
3.4 Verification of Accounts 45
3.5 Account Covenants 45
3.6 Collection of Accounts and Payments 45
3.7 Appointment of Agent as Borrower's Attorney-in-Fact 46
3.8 Instruments and Chattel Paper 47
3.9 Notice to Account Debtors 47
3.10 Eligible Inventory; Valuation of Eligible Inventory 47
3.11 Inventory Warranties 48
3.12 Inventory Records 48
3.13 Safekeeping of Inventory and Inventory Covenants 48
3.14 Equipment Warranties 49
3.15 Equipment Records 49
3.16 Safekeeping of Equipment 49
3.17 Third Party Goods 50
4. CONDITIONS OF LOANS, ADVANCES AND LETTER OF CREDIT 50
4.1 Conditions to Initial Loans and Letters of Credit 50
4.2 Conditions to Each Term Loan, Revolving Loan, Advance and
Letter of Credit 50
5. COLLATERAL 51
5.1 Security Interest 51
5.2. Preservation of Collateral and Perfection of Security
Interests Therein 52
5.3 Loss of Value of Collateral 52
5.4 Set off 52
5.5 Cash Collateral 53
6. WARRANTIES, ETC 54
6.1 Corporate Existence 54
6.2 Corporate Authority 54
6.3 Binding Effect 54
6.4 Financial Data 54
6.5 Collateral 55
6.6 Solvency 55
6.7 Chief Place of Business 55
6.8 Other Corporate Names 56
6.9 Tax Liabilities 56
6.10 Loans 56
6.11 Margin Security 56
6.12 Survival of Warranties 56
6.13 Subsidiaries 56
6.14 Litigation and Proceedings 56
6.15 Other Agreements 57
6.16 Employee Controversies 57
6.17 Compliance with Laws and Regulations 57
6.18 Patents, Trademarks, Licenses, etc 58
6.19 ERISA 58
6.20 Financial Condition 59
7. AFFIRMATIVE COVENANTS 60
7.1 Financial Statements 60
7.2 Inspection 63
7.3 Conduct of Business; Locations of Collateral and Third
Party Goods 63
7.4 Claims and Taxes 64
7.5 Agent's Costs and Expenses as Additional Liabilities 64
7.6 Borrower's Liability Insurance 65
7.7 Borrower's Property Insurance and Business Interruption
Insurance 65
7.8 ERISA 65
7.9 Notice of Suit or Adverse Change in Business 67
7.10 Supervening Illegality 67
7.11 Environmental Laws 68
7.12 Landlord Consents and Waivers 68
7.13 Key Man Life Insurance 68
8. NEGATIVE COVENANTS 69
8.1 Encumbrances 69
8.2 Indebtedness 69
8.3 Consolidations, Mergers or Acquisitions 70
8.4 Investments or Loans 70
8.5 Guarantees 71
8.6 Capital Investment Limitations; Lease Limitations 71
8.7 [Intentionally Omitted] 71
8.8 Dividends and Stock Redemptions 71
8.9 [Intentionally Omitted] 72
8.10 Amendment of Certificate of Incorporation or By-Laws;
Corporate Name; Places of Business 72
8.11 Transactions with Subsidiaries and Affiliates 72
8.12 ERISA Violations 72
8.13 Fiscal Year 73
8.14 Subsidiaries 73
8.15 Financial Covenants 73
8.16 Environmental 74
8.17 Disposal of Property 75
8.18 Inventory Covenants 76
9. DEFAULT, RIGHTS AND REMEDIES OF LENDERS AND AGENT. 76
9.1 Defaults 76
9.2 Rights and Remedies Generally 80
9.3 Entry Upon Premises and Access to Information 81
9.4 Sale or Other Disposition of Collateral by Agent 81
9.5 Waiver of Demand 82
9.6 Waiver of Notice 82
10. AGENT 82
10.1 Appointment of Agent 82
10.2 Nature of Duties of Agent 83
10.3 Lack of Reliance on Agent 83
10.4 Certain Rights of Agent 83
10.5 Reliance by Agent 84
10.6 Indemnification of Agent 84
10.7 Agent in its Individual Capacity 84
10.8 Holders of Revolving Notes 84
10.9 Successor Agent 85
10.10 Collateral Matters 86
10.11 Actions with Respect to Defaults 87
10.12 Delivery of Information 87
10.13 Loans by Lenders. 87
10.14 Allocation of Payments 87
11. MISCELLANEOUS 88
11.1 Waiver, Amendments 88
11.2 Costs and Attorneys' Fees 89
11.3 Expenditures 89
11.4 Custody and Preservation of Collateral 89
11.5 Reliance by Lenders 90
11.6 Parties; Assignability 90
11.7 CHOICE OF LAW 93
11.8 CONSENT TO JURISDICTION 93
(A) EXCLUSIVE JURISDICTION 93
(B) OTHER JURISDICTIONS 93
11.9 SERVICE OF PROCESS 94
11.10 WAIVER OF JURY TRIAL AND BOND 94
(A) WAIVER OF JURY TRIAL 94
(B) WAIVER OF BOND 94
11.11 ADVICE OF COUNSEL 95
11.12 SEVERABILITY 95
11.13 Application of Payments 95
11.14 Marshalling; Payments Set Aside 95
11.15 Section and Subsection Titles 95
11.16 Continuing Effect 95
11.17 Notices 96
11.18 Equitable Relief 96
11.19 Indemnification 97
11.20 Nonliability of Agent and Lenders 98
11.21 Independent Nature of Lenders' Rights 98
11.22 Effectiveness 98
11.23 Counterparts 98
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement"), entered into as of
the 15th day of July, 1997, by and among Webco Industries, Inc., an Oklahoma
corporation with its principal place of business and chief executive office at
201 South Woodland Drive, Sand Springs, Oklahoma 74063 ("Borrower"), the
financial institutions identified on Schedule 1 hereto (together with each of
their successors and assigns, referred to individually as a "Lender" and
collectively as the "Lenders"), and AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO, a national banking association with its chief executive office in
Chicago, Illinois acting as agent for Lenders.
W I T N E S S E T H:
WHEREAS, Borrowers desire to borrow from Lenders up to Forty-Five Million
Dollars ($45,000,000) and Lenders are willing to make certain loans and extend
credit to Borrower of up to such amount on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any loans or extensions of credit heretofore, now or hereafter
made to or for the benefit of Borrower by any Lender or Agent, the parties
hereto hereby agree as follows:
1. DEFINITIONS.
1.1 General Terms. When used herein, the following terms shall have
the following meanings:
"Acceptance Date" shall have the meaning given such term set forth in
Subsection 11.6(C).
"Accounts" shall mean all present and future rights of Borrower to payment
for goods sold or leased or for services rendered, which are not evidenced by
instruments or chattel paper, and whether or not they have been earned by
performance.
"Account Debtor" shall mean the party who is obligated on or under an
Account.
"Advance" shall mean a borrowing hereunder consisting of the aggregate
amount of all or a portion of the several Revolving Loans or Term Loans made by
Lenders to Borrower of the same type and, in the case of LIBOR Rate Advances,
for the same Interest Period.
"Affiliate" shall mean any Person (a) that directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under common
control with Borrower, (b) that directly or beneficially owns or holds 5% or
more of any class of the voting stock of Borrower, or (c) 5% or more of the
voting stock (or in the case of a Person which is not a corporation, 5% or more
of the equity interest) of which is owned directly or beneficially or held by
Borrower. Notwithstanding the foregoing, neither any Lender nor any parent or
subsidiary of any Lender shall be deemed to be an Affiliate of Borrower.
"Agent" shall mean American National Bank and Trust Company of Chicago in
its capacity as Agent for Lenders, and not in its individual capacity as a
Lender, and any successor Agent appointed pursuant to Subsection 10.9.
"Agreement" shall have the meaning given such term set forth in the
preamble hereto.
"ANB" shall mean American National Bank and Trust Company of Chicago, in
its individual capacity.
"Applicable LIBOR Margin" shall mean (i) as to any Advance consisting of
all or any portion of any Revolving Loans, one and three-quarters of one
percent (1.75%), and (ii) as to any Advance consisting of all or any portion
of any Term Loans, two percent (2.0%); provided, however, effective 30 days
after Lenders' receipt of the audited financial statements required to be
provided by Borrower pursuant to Subsection 7.1(B) for any Fiscal Year
(commencing with Borrower's Fiscal Year ending July 31, 1998), if no Default
or Event of Default has occurred and is then continuing and (a) Borrower's
EBIDA for such Fiscal Year is at least $12,000,000 and Borrower's Leverage
Ratio is not more than .8 to 1.0, then the Applicable LIBOR Margin shall be one
and one-quarter of one percent (1.25%) as to any Advance consisting of all or
any portion of any Revolving Loans, and one and one-half of one percent (1.50%)
as to any Advance consisting of all or any portion of any Term Loans, or (b) if
Borrower's EBIDA for such Fiscal Year is at least $10,000,000 and Borrower's
Leverage Ratio is not more than .82 to 1.0, but Borrower's EBIDA and Leverage
Ratio are not at a level sufficient to cause the application of clause (a)
hereof, then the Applicable LIBOR Margin shall be one and one-half of one
percent (1.50%) as to any Advance consisting of all or any portion of any
Revolving Loans and one and three-quarters of one percent (1.75%) as to any
Advance consisting of all or any portion of any Term Loans; otherwise the
Applicable LIBOR Margin shall be equal to the Applicable LIBOR Margin before
giving effect to this proviso.
"Assignment and Assumption Agreement" shall mean an assignment and
assumption agreement entered into by an assigning Lender and an assignee
Lender, and accepted by Agent, in accordance with Subsection 11.6
substantially in the form of Exhibit D.
"Authorized Officer" shall mean, at any time, an individual whose
signature has been certified to Agent on behalf of Borrower pursuant to a
Signature Authorization Certificate actually received by Agent at such time
and whose authority has not been revoked prior to such time in the manner
prescribed in such Signature Authorization Certificate.
"Base Rate" shall mean the per annum rate of interest announced or
published from time to time by ANB at its principal place of business in
Chicago, Illinois as its base or equivalent rate of interest, which rate is
not necessarily the lowest rate of interest charged by ANB with respect to
commercial loans. Any change in the Base Rate shall be effective as of the
effective date stated in the announcement by ANB of such change.
"Base Rate Advance" shall mean an Advance bearing interest calculated by
reference to the Base Rate.
"Borrower" shall have the meaning given such term set forth in the
preamble hereto.
"Business Day" shall mean a day, other than a Saturday or Sunday, on
which banks in Chicago, Illinois are open for the transaction of banking
business and, in the case of borrowing, continuation, payment or interest
rate selection of a LIBOR Rate Advance, on which dealings in Dollars are
carried on in the London interbank market.
"Capital Expenditure" shall mean as to any Person any and all expenditures
of such Person for fixed or capital assets, including, without limitation, the
incurrence of capitalized lease obligations, all as determined in accordance
with GAAP, except that capital expenditures shall not include expenditures for
fixed or capital assets to the extent such expenditures are paid or reimbursed
from the proceeds of insurance.
"Capitalized Lease" shall mean as to any Person at any time any lease
which, in accordance with GAAP, is required to be capitalized on the balance
sheet of such Person at such time, and "capitalized lease obligations" of such
Person at any time shall mean the aggregate amount which, in accordance with
GAAP, is required to be reported as a liability on the balance sheet of such
Person at such time as lessee under Capitalized Leases; provided, however, the
Headquarters Lease shall not be deemed to be a Capitalized Lease.
"Closing Date" shall mean the date on which the Initial Credit Event
occurs.
"Code" shall mean the Uniform Commercial Code of the State of Illinois as
in effect on the date hereof.
"Collateral" shall mean all property and interests in property now owned
or hereafter acquired by Borrower in or upon which a Lien is granted to Agent
or any one or more of Lenders by Borrower whether under this Agreement, the
other Financing Agreements, or under any other documents, instruments or
writings executed by Borrower and delivered to Agent or any one or more of
Lenders.
"Collateral Documents" shall mean all contracts, instruments and other
documents now or hereafter executed and delivered in connection with this
Agreement, pursuant to which Liens are granted to Agent or any one or more
of Lenders in the Collateral for the benefit of Agent and/or Lenders and/or
the Issuing Bank.
"Collecting Banks" shall have the meaning given such term set forth in
Subsection 3.6.
"Commitment Reduction Fee" shall have the meaning given such term set
forth in Subsection 2.20(C).
"Covered Taxes" shall have the meaning given such term set forth in
Subsection 2.10(A).
"Current Asset Base" shall have the meaning given such term set forth in
Subsection 2.3.
"Default" shall mean the occurrence or existence of any one or more of the
events described in Subsection 9.1.
"Defaulting Lender" shall have the meaning given such term set forth in
Subsection 2.13(A).
"Dollars" and the sign "$" shall mean freely transferable lawful money of
the United States.
"EBIDA" shall mean, as to any period, an amount equal to the sum of the
following for Borrower for such period: (i) earnings after income tax expense
(determined based on the valuation of inventory on an average cost basis); plus
(ii) interest expense subtracted in determining earnings; plus (iii)
depreciation, amortization, and other non-cash charges deducted in determining
earnings.
"Environmental Laws" shall mean the common law and all federal, state,
local and foreign laws or regulations, codes, orders, decrees, judgments or
injunctions issued, promulgated, approved or entered thereunder, now or
hereafter in effect, relating to pollution or protection of public or employee
health and safety or the environment, including, without limitation, laws
relating to (i) emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
constituent substances or wastes, including, without limitation, asbestos, or
asbestos containing materials, polychlorinated biphenyls, petroleum, including
crude oil or any fraction thereof, or any petroleum product (collectively
referred to as "Hazardous Materials"), into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), (ii) the manufacture, processing, distribution, use,
generation, treatment, storage, disposal, transport or handling of Hazardous
Materials, and (iii) underground storage tanks, and related piping, and
emissions, discharges, releases or threatened releases therefrom.
"Environmental Lien" shall mean a lien in favor of any governmental entity
for (a) any liability under federal or state environmental laws or regulations,
or (b) damages arising from costs incurred by such governmental entity in
response to a release of a hazardous or toxic waste, substance or constituent,
or other substance into the environment.
"Equipment" shall mean, collectively, all of the equipment and fixtures
(as such terms are defined in the Code) of Borrower, together with any and all
accessions, parts and appurtenances thereto, whether presently owned or
hereafter acquired by Borrower.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA Affiliate" shall mean with respect to Borrower (i) any corporation
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Internal Revenue Code) as Borrower; (ii) a
trade or business under common control (within the meaning of Section 414(c) of
the Internal Revenue Code) with Borrower; or (iii) a member of the same
affiliated service group (within the meaning of Section 414(m) of the Internal
Revenue Code) as Borrower.
"Event of Default" shall mean an event which through the passage of time
or the giving of notice or both would mature into a Default.
"Excess Availability" shall mean for any day, the amount available to
Borrower to borrow at the end of such day (or if such day is not a Business
Day, on the next preceding Business Day) as Revolving Loans after giving effect
to all conditions applicable thereto (including the amount of the Current Asset
Base and the amount of any outstanding Letters of Credit and other Letter of
Credit Obligations).
"Expenses" shall mean all present and future expenses incurred by or on
behalf of Agent in connection with this Agreement, any other Financing
Agreement or otherwise, whether incurred heretofore or hereafter, which
expenses shall include, without being limited to, the cost of record searches,
the reasonable fees and expenses of attorneys (including the allocated cost of
internal counsel) and paralegals, all costs and out-of-pocket expenses incurred
by Agent in opening bank accounts, depositing checks, receiving and
transferring funds, and any charges imposed on Agent due to insufficient funds
of deposited checks and Agent's standard fee relating thereto, collateral
examination fees and expenses, reasonable fees and out-of-pocket expenses of
accountants, appraisers or other consultants, experts or advisors employed or
retained by Agent, fees and taxes relative to the filing or recording of
financing statements, mortgages and other Financing Agreements, costs of
preparing financing statements, mortgages and other Financing Agreements, all
expenses, costs and fees set forth in Section 2 of this Agreement, all other
fees and expenses required to be paid pursuant to the Fee Letter and all fees
and out-of-pocket expenses incurred in connection with releasing Collateral and
the amendment or termination of any of the Financing Agreements.
"Facility Fee" shall have the meaning given such term set forth in
Subsection 2.20(B).
"Federal Funds Rate" shall mean, for any period, a fluctuating interest
rate per annum equal, for each day during such period, to the weighted average
of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business
Day) by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average of the quotations
for such day on such transactions received by Agent from three Federal Funds
brokers of recognized standing selected by it.
"Fee Letter" shall mean that certain letter agreement captioned "Fee
Letter," dated as of July 15, 1997, between Agent and Borrower.
"Fees" shall mean, collectively, the Facility Fees, the L/C Fee, Issuing
Bank Fees, the Commitment Reduction Fee, the Prepayment Fee, the Termination
Charge, and the other fees provided for herein or in the Fee Letter.
"Financials" shall have the meaning set forth in Subsection 6.4.
"Financing Agreements" shall mean, collectively, all agreements,
instruments and documents, including, without limitation, this Agreement and
any security agreements, loan agreements, notes, letter of credit applications,
guarantees, mortgages, deeds of trust, leasehold mortgages, leasehold deeds of
trust, subordination agreements, pledges, powers of attorney, consents,
assignments, intercreditor agreements, mortgagee waivers, reimbursement
agreements, contracts, notices, leases, financing statements and all other
written matter whether heretofore, now or hereafter executed by or on behalf of
Borrower and delivered to any one or more of Agent, the Issuing Bank and
Lenders, together with all agreements, documents and instruments referred to
therein or contemplated thereby, and further including without limitation the
Mortgages and any other Collateral Documents.
"FIRREA" shall mean the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, as amended from time to time.
"Fiscal Year" shall mean the fiscal year of Borrower ending on July 31 of
each year.
"GAAP" shall mean generally accepted accounting principles as in effect on
the date hereof in accordance with the rules, regulations, pronouncements and
opinions of the Financial Accounting Standards Board and the American Institute
of Certified Public Accountants (or their successors), and as applied in
preparation of the Financials, subject to the provisions of Subsection 1.2.
"General Intangibles" shall mean all choses in action, causes of action
and all other intangible personal property of Borrower of every kind and
nature (other than Accounts) now owned or hereafter acquired by Borrower,
including, without limitation, corporate or other business records, inventions,
designs, patents, patent applications, service marks, trademarks, trademark
applications, trade names, trade styles, trade secrets, goodwill,
registrations, computer software, operational manuals, product formulas,
blueprints, drawings, copyrights, copyright applications, licenses, franchises,
customer lists, rights and claims against carriers and shippers, rights to
indemnification and the like, wherever located, proceeds of insurance covering
the lives of key employees on which Borrower is beneficiary, tax refunds, tax
refund claims, and any letter of credit, guarantee, security interest, lien
rights or other security held by or granted to Borrower to secure payment by an
Account Debtor and the like, wherever located.
"Good Faith" shall have the meaning set forth for that term in Section
1-201(19) of the Code as it is in effect on the date hereof, provided that
Good Faith shall also mean the absence of malice or capriciousness.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranteed Indebtedness" of any Person means all Indebtedness referred to
in clauses (a), (b), (c) or (d) of the definition of "Indebtedness" in this
Section guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person (or secured by any
assets of such Person) regardless of whether the liability of such Person is
limited to such assets or otherwise non-recourse through an agreement (i) to
pay or purchase such Indebtedness or to advance or supply funds for the payment
or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services irrespective of whether such property is received or such services
are rendered) or (iv) otherwise to assure a creditor against loss or to grant a
security interest in property for the benefit of any such creditor.
"Hazardous Materials" shall have the meaning set forth for such term in
the definition of "Environmental Laws" above.
"Headquarters Lease" shall mean that certain Lease Agreement dated
October 22, 1996 between Baker Performance Chemicals Incorporated and Borrower,
as amended by First Amendment to Lease Agreement dated October 22, 1996,
relating to the facilities located at 9101 West 21st Street, Sand Springs,
Oklahoma.
"Indebtedness" of any Person means (without duplication), as of any
specified date, the aggregate amount outstanding or owing under (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (including, without limitation, all obligations
in respect of principal, and premium, if any, payable on such indebtedness and
all other obligations, contingent or otherwise, of such Person in connection
with letter of credit facilities, acceptance facilities or other similar
facilities and in connection with any agreement to purchase, redeem, exchange,
convert or otherwise acquire for value any capital stock of, or other equity
interest in, such Person or any other Person), but excluding current
liabilities for trade payables and other current liabilities other than for
money borrowed, entered into in the ordinary course of business, (b) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though 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), (d) all obligations of such Person under Capitalized
Leases, (e) all Indebtedness referred to in clauses (a), (b), (c) or (d) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any lien, security interest or other
charge or encumbrance upon or in property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (f) all
Guaranteed Indebtedness of such Person, (g) all liabilities incurred by such
Person or any ERISA Affiliate to the PBGC upon the termination under Section
4041 or Section 4042 of ERISA of any Pension Plan, (h) all Withdrawal
Liabilities of such Person or any of its ERISA Affiliates and (i) all increase
in the amount of contributions required to be made by such Person and its ERISA
Affiliates in each Fiscal Year of such Person to Multiemployer Plans, due to
the reorganization or termination of any such Multiemployer Plan within the
meaning of Title IV of ERISA, over the average annual amount of such
contributions required to be made during the last three years preceding such
reorganization or termination.
"Indemnified Matters" shall have the meaning given such term set forth in
Subsection 11.19.
"Indemnitees" shall have the meaning given such term set forth in
Subsection 11.19.
"Initial Credit Event" shall mean the making of the Term Loans.
"Interest Period" shall mean with respect to any LIBOR Rate Advance, a
period of one, two, three or six months commencing on a Business Day selected
by Borrower pursuant to Subsection 2.4 of this Agreement. Each such Interest
Period shall end on (but exclude) the date which numerically corresponds to
such date one, two, three or six months thereafter, provided, however, that if
there is no such numerically corresponding day in such next, second, third or
sixth succeeding month, such Interest Period shall end on the last Business Day
of such next, second, third or sixth succeeding month. If any Interest Period
would otherwise end on a day which is not a Business Day, such Interest Period
shall end on the next succeeding Business Day, provided, however, that if said
next succeeding Business Day falls in a new calendar month, such Interest
Period shall end on the immediately preceding Business Day.
"Interest Rate Obligations" all obligations, liabilities and indebtedness
of Borrower to ANB in connection with interest rate swaps, caps, collars or
similar interest rate protection or risk limiting devices or agreements,
whether now existing or hereafter arising, and howsoever evidenced.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute.
"Interim Revolving Loan Period" shall have the meaning given such term set
forth in Subsection 2.4(B).
"Interim Revolving Loans" shall have the meaning given such term set forth
in Subsection 2.4(B).
"Inventory" shall mean any and all goods, including, without limitation,
goods in transit, wheresoever located, whether now owned or hereafter acquired
by Borrower, which are held for sale or lease, furnished under any contract of
service or held as raw materials, work-in-process or supplies, and all
materials used or consumed in Borrower's business, and shall include such
property the sale or other disposition of which has given rise to Accounts and
which has been returned to or repossessed or stopped in transit by Borrower.
"Issuing Bank" shall mean ANB and any other Lender that may be designated
by Agent from time to time as an Issuing Bank.
"Issuing Bank Fees" shall have the meaning given such term set forth in
Subsection 2.20(G)(ii).
"L/C Fee" shall have the meaning given such term set forth in
Subsection 2.20(G)(i).
"Lender" shall have the meaning given that term in the preamble hereto
and, in the case of any Lender, shall include such Lender's successors and
permitted assigns.
"Lending Affiliate" shall mean, as to any Lender, (a) each office and
branch of such Lender, and (b) each entity which, directly or indirectly, is
controlled by or under common control with such Lender or which controls such
Lender and each office and branch thereof.
"Letter of Credit Obligations" shall mean, at any time, the sum of (i) the
aggregate undrawn face amount of all Letters of Credit outstanding at such
time,plus (ii) the aggregate amount of all drawings under Letters of Credit for
which the Issuing Bank has not at such time been reimbursed (either by
Borrower, or by a Revolving Loan made by Agent or Lenders), plus (iii) the
aggregate amount of all payments made by each Lender to the Issuing Bank with
respect to such Lender's participation in Letters of Credit as provided in
Subsection 2.19(C) hereof for which Borrower has not at such time reimbursed
Lenders, whether by way of the Revolving Loans or otherwise.
"Letter of Credit Request" shall have the meaning given such term set
forth in Subsection 2.19(D).
"Letters of Credit" shall mean all letters of credit issued (or deemed to
be issued) for the account of Borrower pursuant to Subsection 2.19 hereof and
all amendments, renewals, extensions or replacements thereof.
"Leverage Ratio" shall have the meaning given such term set forth in
Subsection 8.15.
"Liabilities" shall mean all of Borrower's liabilities, obligations and
indebtedness to any one or more of Agent, Lenders and the Issuing Bank of any
and every kind and nature, whether heretofore, now or hereafter owing, arising,
due or payable and howsoever evidenced, created, incurred, acquired or owing,
whether primary, secondary, direct, contingent, fixed or otherwise (including
obligations of performance) and whether arising or existing under written
agreement, oral agreement or operation of law, including, without limitation,
all of Borrower's contingent reimbursement obligations with respect to Interest
Rate Obligations, Letters of Credit, all other Letter of Credit Obligations and
all of Borrower's other indebtedness and obligations to any one or more of
Agent, any Lender and the Issuing Bank under this Agreement and the other
Financing Agreements.
"LIBOR Base Rate" shall mean, with respect to a LIBOR Rate Advance for the
relevant Interest Period, the rate determined by Agent to be the rate at which
deposits in Dollars are offered by The First National Bank of Chicago (or, if
no such deposits are so offered by such bank, then by such other national bank
as Agent may reasonably select) to prime banks in the London interbank market
at approximately 11:00 a.m. London time two (2) Business Days prior to the
first day of such Interest Period, in the approximate amount of the relevant
LIBOR Rate Advance and having a maturity approximately equal to such Interest
Period.
"LIBOR Rate Advance" shall mean an Advance bearing interest calculated by
reference to the LIBOR Rate.
"LIBOR Rate" shall mean the annual rate of interest, rounded upward to the
nearest 1/16th of 1% determined by Agent with respect to an Interest Period, in
accordance with the following formula:
LIBOR Rate = LIBOR Base Rate
(1 - Reserve Rate)
"Lien(s)" shall mean any lien, claim, charge, pledge, security interest,
deed of trust, mortgage, other encumbrance or other arrangement having the
practical effect of the foregoing or other preferential arrangement of any
other kind and shall include the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Loan Account" shall have the meaning given such term set forth in
Subsection 2.8.
"Loans" shall mean, collectively, the Revolving Loans and the Term Loans,
and "Loan" shall mean any thereof.
"Maximum Facility Amount" shall mean $45,000,000.
"Mortgages" shall mean that certain Term Loan and Revolving Credit
Mortgage, Assignment of Leases, Security Agreement and Fixture Filing dated as
of July 15, 1997 and any other mortgage, deed of trust, leasehold mortgage and
similar instrument or agreement executed by Borrower in favor of Agent in
connection herewith, in each case, as amended, supplemented or otherwise
modified from time to time.
"Mortgaged Property" shall have the meaning, collectively, set forth for
such term in the Mortgages.
"Multiemployer Plan" shall mean, with respect to any Person, an employee
benefit plan defined in Section 4001(a) (3) of ERISA which is, or within the
immediately preceding six (6) years was, contributed to by such Person or an
ERISA Affiliate of such Person.
"Notes" shall mean, collectively, the Revolving Notes and the Term Notes,
and "Note" shall mean any thereof.
"Notice of Borrowing" shall have the meaning given that term in
Subsection 2.4(A)(i).
"Notice of Conversion" shall have the meaning given that term in
Subsection 2.4(A)(i).
"Other Taxes" shall have the meaning given such term set forth in
Subsection 2.10(B).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any employee benefit plan as defined in
Section 3(3) of ERISA in respect of which Borrower or any ERISA Affiliate is,
or at any time during the immediately preceding five years, was an "employer"
as defined in Section 3(5) of ERISA.
"Percentage" shall mean, with respect to each Lender, collectively, such
Lender's Proportionate Share, Term Proportionate Share and Revolving
Proportionate Share.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated organization,
association, corporation, institution, entity, party, or government (whether
national, federal, state, provincial, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Post-Default Rate" shall have the meaning given such term set forth in
Subsection 2.20(A).
"Prepayment Fee" shall have the meaning given such term set forth in
Subsection 2.20(C).
"Property" shall mean any real property owned, leased or operated by
Borrower or in which Borrower otherwise holds any rights or interests,
including, without limitation, the Mortgaged Property.
"Proportionate Share" shall mean, as to each Lender at any time, the
percentage obtained by dividing (i) the sum of (a) the outstanding principal
amount of the Term Loan owed to such Lender at such time, plus (b) the amount
of the Revolving Credit Commitment of such Lender in effect at such time (or,
if the Total Revolving Commitments have been terminated, the sum of the
outstanding principal amount of the Revolving Loans owed to such Lender at such
time (after giving effect to Subsection 2.5) plus such Lender's Revolving
Proportionate Share of Letter of Credit Obligations existing at such time), by
(ii) the aggregate amount of each of the foregoing items for all Lenders in
effect at such time.
"Reduced Rate" shall have the meaning given such term set forth in
Subsection 2.10(E).
"Register" shall have the meaning given such term set forth in
Subsection 11.6(E).
"Required Lenders" shall mean, at any time, one or more Lenders whose
Proportionate Share, in the aggregate, exceeds sixty-six and two-thirds of
one percent (66-2/3%).
"Requirement of Law" shall mean, as to any Person, the organizational
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority,
in each case applicable to or binding upon such Person or any of its property
or to which such Person or any of its property is subject.
"Reserve Rate" shall mean the maximum reserve rate (including, without
limitation, basic, supplemental, marginal and emergency reserve requirements),
expressed as a decimal, determined by Agent to be the rate which would be
applicable to the relevant Interest Period under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor or similar regulation
relating to such reserve requirements) with respect to eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D) of a
member of the Federal Reserve System, whether or not such fundings were
outstanding. The Reserve Rate on the Closing Date is zero, but may change
thereafter.
"Revolving Credit Commitment" of any Lender shall mean the amount set
forth opposite such Lender's name on Schedule 1, as such schedule may be
amended from time to time, under the heading "Revolving Credit Commitment,"
as such Revolving Credit Commitment may be adjusted from time to time
pursuant to the terms of this Agreement.
"Revolving Loans" shall have the meaning given such term in
Subsection 2.2(A) hereof, and "Revolving Loan" shall mean any thereof.
"Revolving Notes" shall have the meaning given such term in
Subsection 2.2(A) hereof, and "Revolving Note" shall mean any thereof.
"Revolving Proportionate Share" shall mean, as to each Lender at any
time, the percentage obtained by dividing (i) the amount of the Revolving
Credit Commitment of such Lender in effect at such time (or, if the Total
Revolving Commitments have been terminated, the sum of the outstanding
principal amount of the Revolving Loans owed to such Lender at such time
(after giving effect to Subsection 2.5) plus such Lender's ratable share of
Letter of Credit Obligations existing at such time), by (ii) the amount of the
Total Revolving Commitments in effect at such time (or, if the Total Revolving
Commitments have been terminated, the amount of the Total Revolving Commitments
immediately prior to such termination).
"Settlement Date" shall have the meaning given such term set forth in
Subsection 2.5(B).
"Signature Authorization Certificate" shall mean a certificate
substantially in the form attached hereto as Exhibit E now or hereafter
executed on behalf of Borrower and delivered to Agent.
"SP Agent" shall have the meaning given such term set forth in
Subsection 11.9.
"Subsidiary" shall mean, with respect to any Person (i) any corporation of
which more than fifty percent (50%) of the outstanding securities having
ordinary voting power (determined without giving effect to any class of
securities that does not possess ordinary voting power but may have ordinary
voting power by reason of the happening of any contingency) shall be owned or
controlled, directly or indirectly by such Person or by one or more of its
Subsidiaries, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization of which more than fifty percent
(50%) of the ownership interests having ordinary voting power (determined
without giving effect to any class of securities that does not possess
ordinary voting power but may have ordinary voting power by reason of the
happening of any contingency) shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of Borrower.
"Tax Transferee" shall have the meaning given such term set forth in
Subsection 2.10(A).
"Taxes" shall have the meaning given such term set forth in
Subsection 2.10(A).
"Term" shall have the meaning given that term in Subsection 2.14(A).
"Term Loans" shall have the meaning given such term in Subsection 2.1(A)
hereof, and "Term Loan" shall mean any thereof.
"Term Notes" shall have the meaning given such term in Subsection 2.1(A)
hereof, and "Term Note" shall mean any thereof.
"Term Proportionate Share" shall mean, as to each Lender at any time, the
percentage obtained by dividing (i) the outstanding principal amount of the
Term Loan owed to such Lender at such time, by (ii) the aggregate outstanding
principal amount of the Term Loans owed to all Lenders at such time.
"Termination Charge" shall have the meaning given such term set forth in
Subsection 2.20(E).
"Termination Date" shall mean August 31, 2002 or such other date as may be
the end of the Term that is in effect pursuant to Subsection 2.14.
"Termination Event" shall mean (i) with respect to any Pension Plan, the
occurrence of a reportable event described in Section 4043 of ERISA and the
regulations issued thereunder, or (ii) the withdrawal of Borrower or any ERISA
Affiliate from a Pension Plan during a plan year in which it is a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the occurrence of
an obligation of Borrower or any ERISA Affiliate arising under Section 4041 of
ERISA to provide participants in a Pension Plan and other affected parties with
a written notice of intent to terminate the Pension Plan, or (iv) the
institution of proceedings to terminate a Pension Plan by PBGC, or (v) any
other event or condition which might constitute grounds under Section 4041(A)
or 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan, or (vi) the partial or complete withdrawal of
Borrower or any ERISA Affiliate from a Multiemployer Plan.
"Third Party Goods" shall mean all raw materials, work-in-process and
finished goods owned by Persons other than Borrower and in Borrower's
possession.
"Total Revolving Commitments" shall mean the aggregate of the Revolving
Credit Commitments of all Lenders, which in the aggregate shall not exceed
$20,000,000.
"Type of Advance" shall have the meaning given such term set forth in
Subsection 2.1(B).
"Withdrawal Liability" shall have the meaning given to such term under
Part I of the Subtitle E of Title IV of ERISA.
1.2 Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meanings customarily
given them in accordance with GAAP. Calculations and determinations of
financial and accounting terms used and not otherwise specifically defined
hereunder and the preparation of financial statements to be furnished to
Lenders pursuant hereto shall be made and prepared, both as to classification
of items and as to amount, in accordance with GAAP as used in the preparation
of the Financials on the date of this Agreement. If any changes in accounting
principles or practices from those used in the preparation of the Financials
are hereafter occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants
(or any successor thereto or agencies with similar functions), which results
in a material change in the method of accounting in the financial statements
required to be furnished to Lenders hereunder or in the calculation of
financial covenants, standards or terms contained in this Agreement or any
other Financing Agreement, the parties hereto agree to enter into negotiations
in Good Faith to amend such provisions so as equitably to reflect such changes
to the end that the criteria for evaluating the financial condition and
performance of Borrower will be the same after such changes as they were before
such changes; and if the parties fail to agree on the amendment of such
provisions, Borrower and its Subsidiaries will furnish financial statements in
accordance with such changes but shall provide calculations for all financial
covenants, perform all financial covenants and otherwise observe all financial
standards and terms in accordance with applicable accounting principles and
practices in effect immediately prior to such changes. Calculations with
respect to financial covenants required to be stated in accordance with
applicable accounting principles and practices in effect immediately prior to
such changes shall be reviewed and certified by Borrower's accountants.
1.3 Other Terms Defined in Illinois Uniform Commercial Code. All other
terms contained in this Agreement (and which are not otherwise specifically
defined herein) shall have the meanings provided in Article 9 of the Code on
the date hereof to the extent the same are used or defined therein.
1.4 Other Definitional Provisions; Construction. Whenever the context
so requires, the neuter gender includes the masculine and feminine,the singular
number includes the plural, and vice versa. The words "hereof," "herein" and
hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and references to Article, Section, Subsection, Annex, Schedule,
Exhibit and like references are references to this Agreement unless otherwise
specified. A Default shall "continue" or be "continuing" until such Default
has been waived in accordance with Subsection 11.1 hereof. References in this
Agreement to any Person shall include such Person's successors and permitted
assigns. References to any "Subsection" shall be a reference to such
Subsection of this Agreement unless otherwise stated.
2. CREDIT.
2.1 Term Loan Facility.
(A) Subject to the terms and conditions set forth in this Agreement
(including, without limitation, the conditions precedent set forth in
Subsections 4.1 and 4.2), on the Closing Date, upon the request of Borrower,
each Lender shall, severally in proportion to its Proportionate Share of
$25,000,000, make a term loan to Borrower (collectively, the "Term Loans").
The Term Loans advanced by each Lender shall be evidenced, in part, by a
promissory note made by Borrower in favor of such Lender (each, a "Term Note")
in the form attached hereto as Exhibit A-1 with the blanks appropriately filled
and, the provisions of any Term Note notwithstanding, shall become immediately
due and payable as provided in Subsection 9.1 hereof, and, without notice or
demand, upon the termination of this Agreement pursuant to Subsections 2.14 or
2.20(E) hereof.
(B) Each of the Term Loans shall consist of one or more Base Rate
Advances or LIBOR Rate Advances (the "Type of Advance"), as duly requested by
Borrower pursuant to this Agreement. Borrower shall maintain a sufficient
amount of Base Rate Advances so that the making of payments on the Term Loans
in accordance with the terms of this Agreement will not necessitate a payment
of a LIBOR Rate Advance on a day other than the last day of the Interest
Period applicable thereto.
(C) Subject to Subsections 9.1, 2.14 and 2.20(E), the Term Loans shall
mature and be due and payable on August 31, 2002. Borrower shall prepay the
Term Loans as set forth in Subsections 2.6(D) and (E) and, subject to
Subsections 2.4(E) and 2.20(C), Borrower may prepay the Term Loans, in whole or
in part, together with payment of all accrued interest on the principal amount
to be prepaid upon five (5) Business Days prior written notice to Agent and
Lenders; provided, however, that each such optional prepayment if in part shall
be in an aggregate principal amount of not less than $1,000,000 or an integral
multiple thereof. All payments on the Term Loans shall be made on a pro rata
basis for the account of Lenders pursuant to their respective Term
Proportionate Shares. No portion of any Term Loan that has been repaid may be
reborrowed.
2.2 Revolving Loan Facility.
(A) Subject to the terms and conditions set forth in this Agreement,
on and after the Closing Date and to and excluding the Termination Date, upon
the request of Borrower pursuant to Subsection 2.4, each Lender shall,
severally in proportion to its Revolving Proportionate Share, make loans and
advances to Borrower (including Interim Revolving Loans (as defined below)) on
a revolving credit basis (the "Revolving Loans"). The Revolving Loans advanced
by each Lender shall be evidenced, in part, by a promissory note made by
Borrower in favor of such Lender (each, a "Revolving Note") in the form
attached hereto as Exhibit A-2 with the blanks appropriately filled and, the
provisions of any Revolving Note notwithstanding, shall become immediately due
and payable as provided in Subsection 9.1 hereof, and, without notice or
demand, upon the termination of this Agreement pursuant to Subsections 2.14 or
2.20(E) hereof.
(B) The Revolving Loans shall consist of either Base Rate Advances or
LIBOR Rate Advances, as duly requested by Borrower pursuant to this Agreement.
Borrower shall maintain a sufficient amount of Base Rate Advances so that
application of the proceeds of Collateral in accordance with Subsections 2.7
and 3.6 will not necessitate a payment of a LIBOR Rate Advance on a day other
than the last day of the Interest Period applicable thereto.
2.3 Determination of Current Asset Base. Subject to Subsection
2.4(B), the aggregate unpaid principal amount of the Revolving Loans shall not
in the aggregate exceed at any time the lesser of (A) the Total Revolving
Commitments then in effect minus the aggregate amount of all Letter of Credit
Obligations or (B) the "Current Asset Base" (as defined below). As used
herein, "Current Asset Base" shall mean (i) up to eighty-five percent (85%) of
the face amount (less maximum discounts, credits and allowances which may be
taken by or granted to Account Debtors in connection therewith) then
outstanding under existing "Eligible Accounts" (as defined in Subsection 3.2
hereof), less such reserves as Agent in its sole discretion and in Good Faith
elects to establish; plus (ii) an amount equal to up to sixty percent (60%) of
Borrower's existing "Eligible Inventory" (as defined in Subsection 3.10
hereof), of raw material, work-in-process and finished goods, valued at the
lower of cost, determined on an average cost basis, or market, less such
reserves as Agent in its sole discretion and in Good Faith elects to establish,
minus (iii) the Letter of Credit Obligations. Notwithstanding the foregoing
or anything in Subsection 3.10 to the contrary, the aggregate amount of
Inventory deemed to be Eligible Inventory shall not at any time exceed an
amount equal to the quotient (the "Inventory Sublimit") determined by dividing
(a)200% of Borrower's cost of goods sold, on an average cost basis, for the
most recent six (6) months for which Lenders have received the financial
statements required to be furnished by Borrower pursuant to Subsection 7.1(A)
hereof, by (b) 5.
2.4 Borrowing Mechanics.
(A) Base Rate Advances shall be made on irrevocable telephonic or
written notice given to Agent not later than 12:00 noon, Chicago time, on the
Business Day on which the proposed Base Rate Advance is requested to be made.
At any time prior to the occurrence of a Default or an Event of Default,
Borrower may request the continuation of a LIBOR Rate Advance or the conversion
of any Advance from one Type of Advance to another pursuant to this Agreement;
provided that (i) conversions of all or any portion of a LIBOR Rate Advance may
be made only as of the last date of the Interest Period applicable thereto;
(ii) such continuation or conversion would not violate any other provisions of
this Agreement; and (iii) without limiting Subsections 9.1 or 9.2 or any other
rights and remedies of Agent and each Lender, after the occurrence of a Default
or Event of Default, such a continuation or conversion may only be made with
the consent of Agent. LIBOR Rate Advances, and any continuations of, or
conversions to LIBOR Rate Advances, shall be in an aggregate principal amount
of $1,000,000 or an integral multiple thereof. LIBOR Rate Advances, or
continuation of any LIBOR Rate Advance, or conversion of any Base Rate Advance
to a LIBOR Rate Advance, may be made upon irrevocable written notice given to
Agent by Borrower no later than 12:00 noon, Chicago time, three Business Days
prior to the commencement of the Interest Period applicable thereto. In each
such notice, Borrower shall specify, as to continuations and conversions, the
amount of the Advance to be so continued or converted, as to new LIBOR Rate
Advances, the requested principal amount thereof, and in any case the
applicable Interest Period, and the first and last day of the Interest Period,
each of which shall be a Business Day. LIBOR Rate Advances shall automatically
convert to Base Rate Advances at the end of the applicable Interest Period
unless Borrower gives the requisite notice in accordance with the procedures
set forth above to continue the same as LIBOR Rate Advances. Borrower shall
not be entitled to elect any Interest Period with respect to a LIBOR Rate
Advance if the provisions of this Agreement would require Borrower to repay or
prepay any portion of such LIBOR Rate Advance prior to the end of such Interest
Period.
(i) Each notice described in this Subsection 2.4(A) shall be given by
an Authorized Officer of Borrower either by telephone, telecopy, telex, or
cable, and, if such notice (other than an irrevocable notice of borrowing of a
Base Rate Advance) is by telephone, confirmed in writing, substantially in the
form of Exhibit B in the case of a request for an Advance (the "Notice of
Borrowing") and in the form of Exhibit C (the "Notice of Conversion") in the
case of a conversion or continuation of an Advance; provided, however, that
subject to Subsection 2.4(D), telephonic notices requesting a Base Rate Advance
need not be confirmed in writing unless requested by Agent. Each Notice of
Borrowing and Notice of Conversion shall be irrevocable by and binding on
Borrower.
(ii) Agent shall be entitled to rely conclusively on each Authorized
Officer's authority to request, convert or continue Advances on behalf of
Borrower. Agent shall have no duty to verify the authenticity of the signature
appearing on any Notice of Borrowing, Notice of Conversion or other writing
delivered pursuant to this Subsection 2.4(A) and, with respect to an oral
request for an Advance or the conversion or continuation thereof, Agent shall
have no duty to verify the identity of any individual representing himself as
an Authorized Officer. Neither Agent nor any Lender shall incur any liability
to Borrower as a result of acting upon any telephonic notice referred to in
this Subsection 2.4(A) which notice Agent believes in Good Faith to have been
given by an Authorized Officer or other individual authorized to request an
Advance or convert or continue an Advance on behalf of Borrower or for
otherwise acting in Good Faith under this Subsection 2.4(A) and, upon the
funding, conversion or continuation of an Advance by Lenders in accordance with
this Agreement, pursuant to any such telephonic notice, Borrower shall be
deemed to have borrowed or converted or continued such Advance hereunder.
(iii) Borrower may request one or two (but not more than two (2))
Advances, conversions of Advances and continuations of Advances on a single day.
By giving notice as set forth above with respect to a LIBOR Rate Advance or
with respect to a conversion into or continuation of a LIBOR Rate Advance,
Borrower shall, subject to the other provisions of this Section 2, specify
the applicable Interest Period. The determination of the Interest Period
shall be subject to the following provisions:
(i) the initial Interest Period for any LIBOR Rate Advance shall
commence on the date of such LIBOR Rate Advance which shall be a Business Day
and each Interest Period (if any) occurring thereafter for such LIBOR Rate
Advance shall commence on the day on which the next preceding Interest Period
for such LIBOR Rate Advance expires;
(ii) there shall be no more than two (2) Interest Periods in the
aggregate in effect at any one time; and
(iii) no Interest Period may be selected which extends beyond the
last day of the Term.
(B) In the event Borrower is unable to comply with (i) the Current
Asset Base limitations set forth in Subsection 2.3 or (ii) the conditions
precedent to the making of a Revolving Loan, Lenders authorize Agent, in its
sole discretion, to make Revolving Loans (and Lenders shall fund their
Revolving Proportionate Share of such Revolving Loans upon the request of
Agent) ("Interim Revolving Loans"), but not in excess of the Total Revolving
Commitments, for a period commencing on the date Agent first receives a
Notice of Borrowing requesting an Interim Revolving Loan until the earlier of
(i) the 90th Business Day after such date, or (ii) the date Borrower is again
able to comply with the Current Asset Base limitations and the conditions
precedent to the making of Revolving Loans set forth in Subsections 2.3 and 4.2
hereof, or obtains an amendment or waiver with respect thereto (in each case,
the "Interim Revolving Loan Period"). Agent shall not, in any event, make any
Interim Revolving Loan if at such time the amount of such Interim Revolving
Loan when added to the then aggregate outstanding principal amount of other
Interim Revolving Loans would exceed $2,500,000; provided that, notwithstanding
any of the foregoing limitations in this Subsection 2.4(B), Agent may make
Revolving Loans (and Lenders shall fund their Revolving Proportionate Share of
such Revolving Loans upon the request of Agent) intended to preserve, protect
or enhance the liquidation value of the Collateral. All Interim Revolving
Loans shall be Base Rate Advances. An Interim Revolving Loan shall cease to
be an Interim Revolving Loan (and shall be deemed to be an Advance consisting
of Revolving Loans) if the unsatisfied conditions giving rise to such Interim
Revolving Loan shall thereafter be satisfied or the events which cause such
Advance to be an Interim Revolving Loan shall thereafter cease to exist.
(C) Each Lender shall be entitled to earn interest at the then
applicable rate of interest, calculated in accordance with Subsection 2.20
hereof, on outstanding Loans which it has funded to Agent.
(D) Notwithstanding the obligation of Borrower to send written
confirmation of a Notice of Borrowing or Notice of Conversion made by
telephone, in the event that Agent acts upon a Notice of Borrowing or Notice of
Conversion made by telephone, such telephonic notice of borrowing or notice of
conversion shall be binding on Borrower whether or not written confirmation is
sent by Borrower or subsequently requested by Agent. Agent may act prior to
the receipt of any written confirmation, without any liability whatsoever,
based upon telephonic notice believed by Agent in Good Faith to be from
Borrower or its Authorized Officer. Agent's records of the terms of any
telephonic Notices of Borrowing or Notice of Conversion shall be conclusive
on Borrower and Lenders in the absence of gross negligence or willful
misconduct on the part of Agent in connection therewith.
(E) Without limiting Subsection 2.16, or any other provision of this
Agreement, Borrower may not voluntary prepay any LIBOR Rate Advance prior to
the last day of the Interest Period applicable thereto.
2.5 Settlements Among Agent and Lenders.
(A) Except as provided in Subsection 2.5(B) (which provides for the
settlement by Agent of Revolving Loans made, and payments thereon on a weekly
basis at Agent's discretion to avoid daily settlements between Lenders), Agent
shall give to each Lender prompt notice of each Notice of Borrowing or Notice
of Conversion by telecopy, telex or cable. Except for Advances made as
provided pursuant to Subsection 2.5(B), no later than 2:00 p.m. Chicago time on
the date of each Advance to be made hereunder, each Lender will make available
to Agent at its principal office in Chicago, Illinois in immediately available
funds, its Term Proportionate Share of each Advance constituting Term Loans and
its Revolving Proportionate Share of each Advance constituting Revolving Loans,
whereupon Agent shall make such funds available to Borrower at the account of
Borrower, account number 4256778 , at ANB's offices in Chicago, Illinois.
Unless Agent shall have been notified by any Lender prior to the date of the
Advance that such Lender does not intend to make available to Agent its portion
of the Advance to be made on such date, Agent may assume that such Lender will
make such amount available to Agent on the Settlement Date (as defined below)
and Agent, in reliance upon such assumption, may but shall not be obligated to
make available the amount of the Advance to be provided by such Lender.
Except as provided in Subsection 2.5(B) and subject to Subsection 2.13(C),
promptly after its receipt of payments from or on behalf of Borrower (other
than amounts payable to Agent to reimburse Agent and the Issuing Bank for fees
and expenses payable solely to them), Agent will cause such payments to be
distributed ratably to Lenders. Lenders will apply such payments in accordance
with Subsection 2.7(B).
(B) Agent on behalf of Lenders may (but shall not be obligated to)
make Revolving Loans and receive and retain payments on the Revolving Loans in
accordance with this Subsection 2.5(B) without notice to, or settlement with,
Lenders; provided, Agent shall settle the amount of the Revolving Loans with
Lenders at least once a week as follows:
The amount of each Lender's Revolving Proportionate Share of outstanding
Revolving Loans shall be computed weekly (or more frequently in Agent's
discretion) and shall be adjusted upward or downward on the basis of the
amount of outstanding Revolving Loans as of 3:00 P.M. Chicago time on the
last Business Day of the period specified by Agent (such date being
referred to as the "Settlement Date"). Agent shall deliver to each Lender
promptly after any Settlement Date a summary statement of the amount of
outstanding Revolving Loans for such period. Lenders shall transfer to
Agent, or, subject to Subsection 2.13(C), Agent shall transfer to Lenders,
such amounts as are necessary so that (after giving effect to all such
transfers) the amount of the Revolving Loans made by each Lender shall be
equal to such Lender's Revolving Proportionate Share of the aggregate
amount of the Revolving Loans outstanding as of such Settlement Date. If
the summary statement is received by Lenders prior to 10:00 A.M. Chicago
time on any Business Day, each Lender shall make the transfers described
above in immediately available funds no later than 12:00 noon Chicago time
on the day such summary statement was received; and if such summary
statement is received by Lenders after 10:00 A.M. Chicago time on such
day, each Lender shall make such transfers no later than 12:00 noon
Chicago time on the next succeeding Business Day. The obligation of
each Lender to transfer such funds shall be irrevocable and unconditional
and without recourse to or warranty by Agent. Each of Agent and Lenders
agree to mark their respective books and records on the Settlement Date
to show at all times the dollar amount of their respective Revolving
Proportionate Shares of the outstanding Revolving Loans. To the extent
that the settlement described above shall not yet have occurred, upon
repayment of any part of the Revolving Loans by Borrower, Agent may first
apply such amounts repaid directly to the amounts made available by Agent
pursuant to this Subsection 2.5(B).
Because Agent on behalf of Lenders may be advancing and/or may be repaid all or
a portion of the Revolving Loans prior to the time when Lenders will actually
advance and/or be repaid all or a portion of Revolving Loans, interest with
respect to the Revolving Loans shall be allocated by Agent to each Lender and
Agent in accordance with the amount of the Revolving Loans actually advanced by
and repaid to each Lender and Agent and shall accrue from and including the
date such Revolving Loans are so advanced to but excluding the date such
Revolving Loans are either repaid by Borrower in accordance with Subsection 2.6
or actually settled by the applicable Lender as described in this
Subsection 2.5(B).
2.6 Mandatory Payments; Reduction of Commitments.
(A) The sum of the aggregate outstanding principal balance of the
Revolving Loans and the aggregate outstanding amount of the Letter of Credit
Obligations may not at any time exceed the Total Revolving Commitments. In
addition, subject to Subsection 2.4(B), the aggregate balance of the unpaid
principal amount of the Revolving Loans plus the aggregate amount of all Letter
of Credit Obligations outstanding at any time in excess of the Current Asset
Base, and the aggregate balance of the Revolving Loans based on Inventory in
excess of the Inventory Sublimit, shall be immediately due and payable without
the necessity of any demand. Any amounts paid in excess of the outstanding
balance of the Revolving Loans and Letter of Credit Obligations otherwise then
due and owing shall be held by Agent as cash collateral for the Letter of
Credit Obligations not then due.
(B) On the Termination Date, the Revolving Credit Commitment of each
Lender shall automatically reduce to zero and may not be reinstated.
(C) Borrower may not reduce the Total Revolving Commitments in full
or in part except in whole or in part, and, if in part, in integral multiples
of $1,000,000, upon thirty (30) days' prior written notice to Lenders and upon
payment of a Commitment Reduction Fee as provided in Subsection 2.20(C). Any
such reduction shall be applied ratably to the Lenders' respective Revolving
Credit Commitments.
(D) To the extent that the "value" (as such term is defined in
Subsection 8.17) of Equipment sold in any Fiscal Year plus the amount of "Net
Proceeds" and "Net Awards" (as such terms are defined in the Mortgage) in such
Fiscal Year (the "Aggregate Value") exceeds $500,000 and such excess is greater
than the aggregate amount of Capital Expenditures incurred within 180 days of
the date of such excess (or such longer period to which Agent consents in its
sole discretion) (the "Unreinvested Amount"), then Borrower shall cause the
Loans to be immediately prepaid in an aggregate amount equal to the
Unreinvested Amount; provided, that prepayments made pursuant to this
Subsection 2.6(D) shall (i) first be applied against the outstanding balance
of Term Loans; (ii) second, be applied against the outstanding balance of
Revolving Loans, and (iii) be applied against any other outstanding Liabilities
or, at Agent's discretion, be held by Agent as cash collateral for Letter of
Credit Obligations or other Liabilities.
(E) Borrower shall make a prepayment on the aggregate outstanding
principal amount of the Term Loans on August 1, 2000 and on the first day of
each month thereafter to and including August 1, 2002 in the aggregate monthly
amount of $208,333 and (subject to subsections 9.1, 2.14 and 2.20 (E) ) shall
pay the remaining outstanding principal balance of the Term Loans on August 31,
2002.
2.7 Payments and Computations.
(A) Borrower shall make each payment hereunder and under the Notes not
later than 12:00 noon Chicago time on the day when due in Dollars to Agent at
its address referred to in Subsection 11.17 hereof in immediately available
funds.
(B) All amounts received by Agent from or for the account of Borrower
for distribution to Agent, Lenders or the Issuing Bank hereunder or otherwise
shall be distributed and applied as soon as practicable in the following order:
first, to the payment of any Fees, Expenses or other Liabilities due and
payable to Agent under any of the Financing Agreements, including amounts
advanced by Agent on behalf of Lenders pursuant to Subsection 2.5(B); second,
to the payment of any Fees, Expenses or other Liabilities due and payable to
the Issuing Bank under any of the Financing Agreements; third, to the ratable
payment of any Fees, Expenses or other Liabilities due and payable to Lenders
under any of the Financing Agreements other than those Liabilities
specifically referred to below in this Subsection 2.7(B); fourth, to the
ratable payment of interest due on the Loans; and, fifth, to the ratable
payment of principal due on the Loans. Application on account of the
Liabilities constituting Loans shall be made by Agent (i) first to all Base
Rate Advances and (ii) only when no Base Rate Advances are outstanding to
LIBOR Rate Advances; provided, however, prior to expiration of the Interest
Period applicable thereto in lieu of applying amounts to LIBOR Rate Advances,
Agent may in its discretion retain such balances as cash collateral for the
Liabilities until applied to such LIBOR Rate Advances at the expiration of the
Interest Period applicable thereto. Any payment received hereunder as a
distribution in any proceeding referred to in Subsection 9.1(H) or (I) shall,
unless paid with respect to amounts specifically owing to Agent or the Issuing
Bank, be distributed and applied to the payment of the amounts due hereunder
and under the Notes ratably in accordance with such amounts (or, if a court of
competent jurisdiction shall otherwise specify, as specified by such court).
2.8 Borrower's Loan Account. Agent shall maintain a loan account
(the "Loan Account") on its internal data control systems in which shall be
recorded (i) all loans and advances made by Agent or Lenders to Borrower or for
Borrower's account pursuant to this Agreement, including without limitation all
Letter of Credit Obligations, (ii) all payments made by Borrower or for
Borrower's account on all such loans and advances and Letter of Credit
Obligations, and (iii) all other appropriate debits and credits as provided in
this Agreement, including, without limitation, all interest, Fees, Expenses,
and other charges, expenses and fees. All entries in Borrower's Loan Account
shall be made in accordance with Agent's customary accounting practices as in
effect from time to time. Borrower will be credited, in accordance with
Subsection 2.7 above, with all amounts received by or on behalf of Agent,
Lenders or the Issuing Bank from Borrower or from others for Borrower's
account, including, as set forth above, all amounts received by Agent as set
forth in Subsection 2.7(B). In no event shall prior recourse to any Accounts
or other Collateral be a prerequisite to Agent's right to demand payment of any
of the Liabilities upon its maturity. Further, Agent shall have no obligation
whatsoever to perform in any respect any of Borrower's contracts or obligations
relating to the Accounts. Borrower promises to pay to Agent and Lenders the
amount reflected as owing by it under its Loan Account and all of its other
obligations hereunder and under any of the other Financing Agreements as such
amounts become due or are declared due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) pursuant to the terms of this
Agreement and the other Financing Agreements. Unless otherwise agreed in
writing from time to time hereafter, all payments which Borrower is required to
make to Lenders and Agent under this Agreement or under any of the other
Financing Agreements shall be made by appropriate debits to Borrower's Loan
Account. Agent may in its sole discretion elect to bill Borrower for such
amounts in which case the amount shall be immediately due and payable with
interest thereon as provided herein.
2.9 Statements. All Loans, Advances and other financial
accommodations to Borrower, and all other debits and credits provided for in
this Agreement, may be evidenced by Agent in its internal data control systems
showing the date, amount and reason for each such debit or credit. Until such
time as Agent shall have rendered to Borrower written statements of account as
provided herein, the balance in Borrower's Loan Account, as set forth on
Agent's most recent printout, shall be rebuttably presumptive evidence of the
amounts due and owing to Agent and Lenders by Borrower. Not more than twenty
(20) days after the last day of each calendar month, Agent shall render to
Borrower a statement setting forth the balance of Borrower's Loan Account,
including principal, interest, Expenses, Fees and any other expenses, fees and
charges. Each such statement shall be subject to subsequent adjustment by
Agent but shall, absent manifest errors or omissions, be presumed correct and
binding upon Borrower and shall constitute an account stated unless, within
sixty (60) days after receipt of any statement from Agent, Borrower shall
deliver to Agent written objection thereto specifying the error or errors, if
any, contained in such statement.
2.10 Taxes.
(A) Any and all payments by Borrower hereunder, under the Notes or in
respect of the Letters of Credit which are made to or for the benefit of any
Lender, the Issuing Bank or Agent shall be made, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings and penalties, interests and all other liabilities with
respect thereto ("Taxes"), excluding, (i) in the case of each such Lender, the
Issuing Bank or Agent, taxes imposed on its net income (including, without
limitation, any taxes imposed on branch profits) or capital and franchise taxes
imposed on it by the jurisdiction under the laws of which such Lender, the
Issuing Bank or Agent (as the case may be) is organized or any political
subdivision thereof, (ii) in the case of each such Lender, the Issuing Bank and
Agent, any Taxes that are in effect and that would apply to a payment to such
Lender, the Issuing Bank or Agent, as applicable, as of the date of this
Agreement, and (iii) if any Person acquires any interest in this Agreement, any
Note or Letter of Credit Obligations pursuant to the provisions hereof, or
Agent or any Lender changes the office in which any Loan is made, accounted for
or booked (any such Person or Agent or such Lender in that event being referred
to as a "Tax Transferee"), any Taxes to the extent that they are in effect and
would apply to a payment to such Tax Transferee as of the date of the
acquisition of such interest or change in office, as the case may be (all such
nonexcluded Taxes being hereinafter referred to as "Covered Taxes"). If
Borrower shall be required by law to deduct any Covered Taxes from or in
respect of any sum payable hereunder, under any Note or in respect of any
Letter of Credit Obligations to or for the benefit of any Lender, the Issuing
Bank, Agent or any Tax Transferee, (A) the sum payable shall be increased as
may be necessary so that after making all required deductions of Covered Taxes
(including deductions of Covered Taxes applicable to additional sums payable
under this Subsection 2.10) such Lender, the Issuing Bank, Agent or such Tax
Transferee, as the case may be, receives an amount equal to the sum it would
have received had no such deductions been made, (B) Borrower shall make such
deductions and (C) Borrower shall pay the full amount so deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(B) In addition, Borrower agrees to pay any present or future stamp,
documentary, excise, privilege, intangible or similar levies that arise at any
time or from time to time (other than the Oklahoma Mortgage Registration Tax
pursuant to 68 Oklahoma Stat. Sections 1901 et seq.) (i) from any payment made
under any and all Financing Agreements, (ii) from the transfer of the rights of
any Lender under any Financing Agreements to any transferee, or (iii) from the
execution or delivery by Borrower of, or from the filing or recording or
maintenance of, or otherwise with respect to the exercise by Agent or Lenders
of their rights under, any and all Financing Agreements (hereinafter referred
to as "Other Taxes").
(C) Borrower will indemnify each Lender, the Issuing Bank, Agent, and
any Tax Transferee for the full amount of (i) Covered Taxes imposed on or with
respect to amounts payable hereunder, and (ii) Other Taxes, and any liability
(including penalties, interest and expenses) arising solely therefrom or with
respect thereto. Payment of this indemnification shall be made within thirty
(30) days from the date such Lender, the Issuing Bank, Agent or such Tax
Transferee provides Borrower with a certificate, certifying and setting forth
in reasonable detail the calculation thereof as to the amount and type of such
Taxes. Any such certificate submitted by such Lender, the Issuing Bank, Agent
or such Tax Transferee in Good Faith to Borrower shall, absent manifest error,
be final, conclusive and binding on all parties. The obligations of Borrower
under this Subsection 2.10 shall survive payment of the Liabilities and
termination of this Agreement.
(D) Within 30 days after having received a receipt for payment of
Covered Taxes or Other Taxes, Borrower will furnish to Agent, at its address
referred to in Subsection 11.17, the original or a certified copy of a receipt
evidencing payment thereof.
(E) If a Tax Transferee that is organized under the laws of a
jurisdiction outside of the United States acquires an interest in this
Agreement or any Note or Letter of Credit Obligation, the transferor
shall cause such Tax Transferee to agree that on or prior to the effective date
of such acquisition, it will deliver to Borrower and Agent (i) two valid, duly
completed copies of IRS Form 1001 or 4224 or successor applicable form, as the
case may be, and any other required form, certifying in each case that such Tax
Transferee is entitled to receive payments under this Agreement and the Notes
payable to it without deduction or withholding of United States federal income
tax or with such withholding imposed at a reduced rate other than the maximum
rate otherwise required under the Internal Revenue Code (the "Reduced Rate");
and (ii) a valid, duly completed IRS 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 Tax Transferee that delivers to Borrower and Agent a
Form 1001 or 4224, and Form W-8 or W-9 and any other required form, pursuant
to the next preceding sentence, further undertakes to deliver two further
copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor
applicable forms, or other manner of required 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 a required withholding of United States federal income tax or
entitlement to having such withholding imposed at the Reduced Rate or after the
occurrence of any event requiring a change in the most recent form previously
delivered by it to Borrower and Agent, and such extensions or renewals thereof
as may reasonably be requested by Borrower and Agent, certifying (i) in the
case of a Form 1001 or 4224 that such Tax Transferee is entitled to receive
payments under this Agreement or the Notes payable to it without deduction or
withholding of any United States federal income taxes or with such withholding
imposed at the Reduced Rate, unless any change in treaty, law or regulation or
official interpretation thereof has occurred after the effective date of such
acquisition or change and prior to the date on which any such delivery would
otherwise be required that renders all such forms inapplicable or that would
prevent such Tax Transferee from duly completing and delivering any such form
with respect to it, and such Tax Transferee advises Borrower and Agent that it
is not capable of receiving payments (a) without any deduction or withholding
of United States federal income tax or (b) with such withholding at the Reduced
Rate, as the case may be, or (ii) in the case of a Form W-8 or W-9,
establishing an exemption from United States backup withholding tax.
(F) If any Taxes for which Borrower would be required to make payment
under this Subsection 2.10 are imposed, the applicable Lender, the Issuing
Bank, Agent or Tax Transferee, as the case may be, shall use its reasonable
efforts to avoid or reduce such Taxes by taking any appropriate action
(including, without limitation, assigning its rights hereunder to a related
entity or a different office) which would not, in the sole opinion of such
Lender, the Issuing Bank, Agent or Tax Transferee exercised in Good Faith be
otherwise disadvantageous to such Lender, the Issuing Bank, Agent or Tax
Transferee, as the case may be.
(G) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in
this Subsection 2.10 shall survive the payment in full of the Liabilities and
termination of this Agreement.
2.11 Affected Lenders. If Borrower is obligated to pay to any Lender
any amount under Subsections 2.10, 2.15, 2.17 or 2.20(J) hereof, or if any
Lender is a Defaulting Lender, Borrower may, if no Default or Event of Default
then exists, replace such Lender with another lender acceptable to Agent, and
such Lender hereby agrees to be so replaced subject to the following:
(A) The obligations of Borrower hereunder to such Lender to be
replaced (including such increased or additional costs incurred from the date
of notice to Borrower of such increase or additional costs through the date
such Lender is replaced hereunder) shall be paid in full to such Lender
concurrently with such replacement;
(B) If such replacement is a result of increased costs under
Subsections 2.10, 2.15, 2.17 or 2.20(J), the replacement Lender shall be a bank
or other financial institution that is not subject to such increased costs
which caused Borrower's election to replace any Lender hereunder, and each
such replacement Lender shall execute and deliver to Agent such documentation
satisfactory to Agent pursuant to which such replacement lender is to become a
party hereto, conforming to the provisions of Subsection 11.6 hereof, with a
Revolving Credit Commitment equal to that of Lender being replaced and shall
make Loans in the aggregate principal amount equal to the aggregate outstanding
principal amount of the Loans of Lender being replaced;
(C) Upon such execution of such documents referred to in clause (B)
and repayment of the amounts referred to in clause (A), the replacement lender
shall be a "Lender" with a Revolving Credit Commitment as specified hereinabove
and Lender being replaced shall cease to be a "Lender" hereunder, except with
respect to indemnification provisions under this Agreement, which shall survive
as to such replaced Lender;
(D) Agent shall reasonably cooperate in effectuating the replacement
of any Lender under this Subsection 2.11, but at no time shall Agent be
obligated to initiate any such replacement;
(E) Any Lender replaced under this Subsection 2.11 shall be replaced
at Borrower's sole cost and expense and at no cost or expense to Agent or any
Lender; and
(F) If Borrower proposes to replace any Lender pursuant to this
Subsection 2.11 because Lender seeks reimbursement under either Subsections
2.10, 2.15, 2.17 or 2.20(J), then it must also replace any other Lender who
seeks similar levels of reimbursement (as a percentage of such Lender's
Revolving Credit Commitment) under such Subsections.
2.12 Sharing of Payments. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off
or otherwise) on account of the Loans made by it or its participation in the
Letter of Credit Obligations in excess of its allocable share pursuant to
Subsection 10.14, of payments on account of the Loans or Letter of Credit
Obligations obtained by all Lenders, such Lender shall forthwith purchase from
the other Lenders such participations in the Loans made by them or in their
participation in Letters of Credit as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each
Lender shall be rescinded and each such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an
amount equal to such Lender's ratable share (according to the proportion of (i)
the amount of such Lender's required repayment to (ii) the total amount so
recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect to the total amount so recovered.
Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Subsection 2.12 may, to the fullest extent permitted by
law, exercise all of its rights of payment (including the right of set-off)
with respect to such participation as fully as if such Lender were the direct
creditor of Borrower in the amount of such participation.
2.13 Defaulting Lenders.
(A) If any amount described in Subsection 2.4, Subsection 2.5 or in
Subsection 2.19(F) hereof is not made available to Agent by a Lender (such
Lender being hereinafter referred to as a "Defaulting Lender") and Agent has
made such amount available to Borrower or the Issuing Bank, as applicable,
Agent shall be entitled to recover such amount on demand from such Defaulting
Lender together with interest as hereinafter provided. If such Defaulting
Lender does not pay such amount forthwith upon Agent's demand therefor, Agent
shall promptly notify Borrower and Borrower shall immediately (but in no event
later than five Business Days after such demand) pay such amount to Agent
together with the amounts provided for in the immediately succeeding sentence.
Agent shall also be entitled to recover from such Defaulting Lender and/or
Borrower, as the case may be, (x) interest on such amount in respect of each
day from the date such corresponding amount was made available by Agent to
Borrower to the date such amount is recovered by Agent, at a rate per annum
equal to either (i) if paid by such Defaulting Lender, the overnight Federal
Funds Rate or (ii) if paid by Borrower, the then applicable rate of interest,
calculated in accordance with Subsection 2.20(A) hereof, plus (y) in each case,
an amount equal to any costs (including legal expenses) and losses incurred as
a result of the failure of such Defaulting Lender to provide such amount as
provided in this Agreement. Nothing herein shall be deemed to relieve any
Lender from its duty to fulfill its obligations hereunder or to prejudice any
rights which Borrower may have against any Lender as a result of any default by
such Lender hereunder, including, without limitation, the right of Borrower to
seek reimbursement from any Defaulting Lender for any amounts paid by Borrower
under clause (y) above on account of such Defaulting Lender's default.
(B) The failure of any Lender to make the Loans to be made by it as
part of any Advance or fund its participation in any drawing under a Letter of
Credit shall not relieve any other Lender of its obligation, if any, hereunder
to make its Loans on the date of such Advance or fund its participation in any
drawing under any Letter of Credit, but no Lender shall be responsible for the
failure of any other Lender to make its Loans to be made by such other Lender
on the date of any Advance or to fund any Lender's participation in any drawing
under a Letter of Credit.
(C) Notwithstanding anything contained herein to the contrary, so long
as any Lender is a Defaulting Lender or has rejected its Revolving Credit
Commitment, Agent shall not be obligated to transfer to such Lender any
payments made by Borrower to Agent for the benefit of such Lender; and, such
Lender shall not be entitled to the sharing of any payments pursuant to
Subsection 2.12. Amounts payable to such Lender under Subsection 2.12 shall
instead be paid to Agent. Agent may hold and, in its discretion, re-lend to
Borrower for the account of such Lender the amount of all such payments
received by it for the account of such Lender. For purposes of voting or
consenting to matters with respect to the Financing Agreements and determining
Percentages, such Defaulting Lender shall be deemed not to be a "Lender" and
such Lender's Percentages shall be deemed to be zero (O) and each other
Lender's Percentage shall be deemed to be increased pro rata based on its
Percentages theretofore existing. This Subsection 2.13(C) shall remain
effective with respect to such Lender until (x) the Liabilities under this
Agreement shall have been declared or shall have become immediately due and
payable or (y) the Required Lenders, Agent and Borrower shall have waived such
Lender's default in writing. No Revolving Credit Commitment of any Lender
shall be increased or otherwise affected, and performance by Borrower shall not
be excused, by the operation of this Subsection 2.13(C). Any payments of
principal or interest which would, but for this Subsection 2.13, be paid to
any Lender, shall be paid to Lenders who shall not be in default under their
respective Revolving Credit Commitments and who shall not have rejected any
Revolving Credit Commitment, for application to the Revolving Loans, or to
provide cash collateral in such manner and order as shall be determined by
Agent.
2.14 Term of this Agreement. This Agreement shall be effective until
the Termination Date (the period during which this Agreement is effective being
the "Term") and shall terminate on the Termination Date; provided, however,
that the Required Lenders shall retain the right to terminate this Agreement at
any time upon the occurrence and during the continuance of a Default; and
further provided, however, that (i) all of Agent's and each Lender's rights and
remedies under this Agreement and the other Financing Agreements and (ii) all
of Agent's and each Lender's security interests shall survive such termination
until all of the Liabilities have been fully paid and satisfied and all Letters
of Credit have expired, been canceled or terminated. Upon the effective date
of termination of this Agreement (including without limitation any termination
pursuant to Subsection 2.20(E)), all of the Liabilities shall become
immediately due and payable without notice or demand. Notwithstanding any
termination, until all of the Liabilities shall have been fully paid, performed
and satisfied, all financing arrangements between Borrower and Agent and
Lenders shall have been terminated and all Letters of Credit shall have
expired, been cancelled or terminated, all of Agent's and each Lender's
rights and remedies under this Agreement and the other Financing Agreements
shall survive, Agent shall be entitled to retain its security interest in and
to all existing and future Collateral, and Borrower shall continue to remit
collections of Accounts and proceeds as provided herein.
2.15 Additional Costs, Etc. With Respect to LIBOR Rate Advances.
(A) If, in the reasonable determination of any Lender, any applicable
"law," which expression, as used in this Section 2, includes statutes, rules
and regulations thereunder and interpretations thereof by any competent court
or by any Governmental Authority or other regulatory body or official charged
with the administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon
or otherwise issued to such Lender or any Lending Affiliate by any central
bank or other fiscal, monetary or other authority (whether or not having the
force of law) adopted or becoming effective, or any change in the
interpretation or administration thereof, or compliance by such Lender or any
Lending Affiliate maintaining any LIBOR Rate Advance, in each case after the
date hereof, shall :
(i) subject such Lender or any Lending Affiliate to any tax, levy,
impost, duty, charge, fee, deduction or withholding of any nature with respect
to LIBOR Rate Advances (other than taxes imposed on or measured by the overall
net income of such Lender), or
(ii) change the taxation of payments to such Lender or any Lending
Affiliate of principal or interest on or any other amount relating to any LIBOR
Rate Advances (other than taxes imposed on or measured by the overall net
income of such Lender), or
(iii) impose or increase or render applicable any special deposit,
assessment, insurance charge, reserve or liquidity or other similar requirement
(whether or not having the force of law) against assets held by, or deposits in
or for the account of, or loans by such Lender or any Lending Affiliate, or
(iv) impose on such Lender or any Lending Affiliate any other
conditions or requirements with respect to LIBOR Rate Advances, and the result
of any of the foregoing is:
(I) to increase the cost to such Lender of making, funding or
maintaining its LIBOR Rate Advances, or
(II) to reduce the amount of principal, interest or other amount
payable to such Lender hereunder on account of LIBOR Rate Advances, or
(III) to require such Lender to make any payment or to forego any
interest or other sum payable under this Agreement,
then, and in each such case, Borrower will, upon demand made by such Lender at
any time and from time to time and as often as the occasion therefor may arise,
pay to such Lender such additional amounts as will be sufficient to compensate
such Lender for such additional cost, reduction, payment or foregone interest
or other sum. The foregoing shall not be deemed to apply to any change in the
Reserve Rate applied in the calculation of the LIBOR Rate.
(B) Neither Agent nor any Lender shall in any event be responsible to
Borrower in any way if Agent is not able for any reason beyond its control to
quote a LIBOR Rate with respect to any proposed Interest Period. If, on any
proposed date of determination of a LIBOR Rate, Agent shall determine (which
determination shall be conclusive and binding on Borrower) that it is unable
to determine the LIBOR Rate with respect to any proposed Interest Period, Agent
shall promptly notify Borrower and Lenders of such determination. In such
event, any then pending notice by Borrower requesting the making of a LIBOR
Rate Advance, or conversion of any Base Rate Advance to a LIBOR Rate Advance,
or continuation of any LIBOR Rate Advance shall be deemed and shall constitute
a request for the making of a Base Rate Advance or a conversion to a Base Rate
Advance, as the case may be.
(C) If Agent determines that either maintenance of a LIBOR Rate
Advance would violate any applicable law, or that deposits of a type and
maturity appropriate to match fund any LIBOR Rate Advance does not accurately
reflect the cost of making or maintaining such a LIBOR Rate Advance, then
Agent shall suspend the availability of LIBOR Rate Advances so long as any
such condition exists, and all affected LIBOR Rate Advances outstanding shall
be immediately repaid upon notice to Borrower from Agent to do so; provided,
however, that if otherwise permitted under this Agreement Borrower may
reborrow, as a Base Rate Advance, an amount equal to the principal amount of
all such affected LIBOR Rate Advances so repaid.
2.16 Indemnification for Losses. Without limiting any of the other
provisions of this Agreement, Borrower will, on demand by any Lender, at any
time and from time to time and as often as the occasion therefor may arise,
indemnify each Lender against any losses, costs or expenses which such Lender
may at any time or from time to time sustain or incur with respect to LIBOR
Rate Advances as a consequence of:
(A) the failure by Borrower to borrow or continue any LIBOR Rate
Advance on the date of borrowing, conversion or continuation designated by
Borrower, or
(B) the failure by Borrower to pay, punctually on the due date
thereof, any amount payable by Borrower under this Agreement, or
(C) the accelerated payment of Borrower's obligations under this
Agreement as a result of a Default, or
(D) any voluntary repayment or prepayment of any principal of any
LIBOR Rate Advance on a date other than the last day of the Interest Period
relating to the principal so repaid or prepaid or so converted.
Such losses, costs or expenses will include, but will not be limited to, the
reimbursement for any loss, expense or cost in liquidating or employing
deposits acquired to fund any affected LIBOR Rate Advance.
2.17 Capital Adequacy. If, after the date hereof, either (A) the
introduction of or any change in or in the interpretation of any law or (B)
compliance by any Lender or any Lending Affiliate with any guideline or
request from any central bank or Governmental Authority (whether or not having
the force of law) (i) affects or would affect the amount of capital required or
expected to be maintained by any Lender or any of its Lending Affiliates and
the respective Lender reasonably determines that the amount of such capital is
increased by or based upon the existence of the LIBOR Rate Advances then, upon
demand by such Lender, Borrower shall immediately pay to such Lender, from time
to time as specified by such Lender, additional amounts sufficient to
compensate such Lender in light of such circumstances, to the extent that such
Lender reasonably determines such increase in capital to be allocable to the
existence of LIBOR Rate Advances or (ii) has or would have the effect of
reducing the rate of return on the capital or assets of such Lender or any
Person controlling such Lender as a consequence of, as determined by Lender in
its sole discretion and in Good Faith, the existence of such Lender's
commitments or obligations under this Agreement or any of the other Financing
Agreements, then, upon demand by such Lender, Borrower immediately shall pay to
Lender, from time to time as specified by Lender, additional amounts sufficient
to compensate such Lender in light of such circumstances. The obligations of
Borrower under this Subsection 2.17 shall survive payment of the Liabilities
and termination of this Agreement.
2.18 Certificate. A certificate signed by an officer of a Lender,
setting forth any additional amount required to be paid by Borrower to Lender
under any provision of Subsections 2.15 through 2.17 and the computations made
by such Lender to determine such additional amount, shall be submitted by such
Lender to Borrower in connection with each demand made at any time by such
Lender upon Borrower under any of such provisions. Such certificate, in the
absence of manifest error, shall be conclusive as to the additional amount
owed.
2.19 Letters of Credit.
(A) Issuance of Letters of Credit. Subject to the terms and
conditions of this Agreement (including, without limitation, the conditions
precedent set forth in Subsections 4.1 and 4.2) on and after the Closing Date
and to and excluding the Termination Date, Agent shall request the Issuing Bank
to issue, and the Issuing Bank shall issue, standby Letters of Credit hereunder
at the request of Borrower and for its account, as more specifically described
below; provided, however, that Agent shall not be obligated to request the
Issuing Bank to issue, and the Issuing Bank shall not be obligated to issue,
any Letter of Credit for the account of Borrower if at the time of such
requested issuance (i) the face amount of such requested Letter of Credit, when
added to the aggregate outstanding principal amount of the Revolving Loans and
all Letter of Credit Obligations then outstanding would cause the sum of the
Revolving Loans and Letter of Credit Obligations to exceed (a) the Total
Revolving Commitments then in effect or (b) the Current Asset Base then in
effect; (ii) the face amount of such Letter of Credit when added to the Letter
of Credit Obligations then outstanding, would exceed $2,000,000; or (iii) any
order, judgment or decree of any Governmental Authority shall purport by its
terms to enjoin or restrain the Issuing Bank from issuing such Letter of
Credit, or any law or governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over the Issuing Bank shall prohibit, or request
that the Issuing Bank refrain from, the issuance of Letters of Credit in
particular or shall impose upon the Issuing Bank with respect to any Letter of
Credit any restriction or reserve or capital requirement (for which the Issuing
Bank is not otherwise compensated) or any unreimbursed loss, cost or expense
which was not in effect as of the date of this Agreement and which the Issuing
Bank in Good Faith deems material to it.
(B) Terms of Letters of Credit. Each Letter of Credit shall be in a
form and substance acceptable to Agent and the Issuing Bank. Borrower shall
execute the Issuing Bank's standard form of application and reimbursement
agreement for each Letter of Credit. In no event may the term of any Letter of
Credit issued hereunder exceed twenty four (24) months or such greater period
as may be acceptable to the Issuing Bank in its sole discretion, and all
Letters of Credit issued hereunder shall expire no later than the date that is
five (5) Business Days prior to the last day of the Term. Any Letter of Credit
containing an automatic renewal provision shall also contain a provision
pursuant to which, notwithstanding any other provisions thereof, it shall
expire no later than the date that is five (5) Business Days prior to the last
day of the Term.
(C) Lenders' Participation. Immediately upon issuance or amendment by
the Issuing Bank of any Letter of Credit in accordance with the procedures set
forth in Subsection 2.19(A), each Lender shall be deemed to have irrevocably
and unconditionally purchased and received from the Issuing Bank, without
recourse or warranty, an undivided interest and participation to the extent of
such Lender's Revolving Proportionate Share in the liability with respect to
such Letter of Credit (including, without limitation, all obligations of
Borrower with respect thereto, other than amounts owing to the Issuing Bank
consisting of Issuing Bank Fees) and any security therefor or guaranty
pertaining thereto.
(D) Notice of Issuance. Whenever Borrower desires the issuance of a
Letter of Credit, Borrower shall give Agent a fully completed and duly executed
letter of credit application and agreement in such form as the Issuing Bank and
Agent may require and in accordance with the Issuing Bank's customary practices
for letters of credit of the type requested (a "Letter of Credit Request") no
later than 12:00 noon Chicago time at least four (4) Business Days in advance
of the proposed date of issuance of any Letter of Credit (or, in each case,
such shorter period as may be agreed to by the Issuing Bank). The transmittal
by Borrower of each Letter of Credit Request shall be deemed to be a
representation and warranty by Borrower that the Letter of Credit may be issued
in accordance with and will not violate any of the requirements of Subsection
2.19(A). No Letter of Credit shall require payment against a conforming draft
to be made thereunder prior to the second business day (under the laws of the
jurisdiction of the Issuing Bank) after the date on which such draft is
presented, together with all documents and/or certificates required to be
presented in connection therewith under the terms of the applicable Letter of
Credit. A Letter of Credit Request may be given to Agent telephonically and,
if requested by Agent, with prompt confirmation in writing.
(E) Payment of Amounts Drawn Under Letters of Credit. In the event of
any drawing under any Letter of Credit by the beneficiary thereof, the Issuing
Bank shall notify Agent, which shall notify Borrower of such draw, not later
than 12:00 Noon, Chicago time, on the Business Day immediately prior to the
date on which the Issuing Bank intends to honor such drawing. Borrower shall
give notice to be received by Agent and the Issuing Bank not later than
2:00 P.M., Chicago time, on such Business Day if it intends to reimburse the
Issuing Bank for the amount of such drawing with funds other than the proceeds
of Revolving Loans. Such notice from Borrower shall be irrevocable and, if
given, Borrower shall reimburse the Issuing Bank not later than the close of
business Chicago time on the day on which such drawing is honored in an amount
in immediately available funds equal to the amount of such drawing. If Agent
shall not have timely received such notice (i) Borrower shall be deemed to
have timely given a Notice of Borrowing to Agent to make a Base Rate Advance
on the date on which such drawing is honored in an amount equal to the amount
of such drawing and (ii) subject to satisfaction or waiver of the conditions
specified in Section 2 hereof and the other terms and conditions of Advances
contained herein, Lenders shall, on the date of such drawing, make Revolving
Loans in the amount of such drawing, the proceeds of which shall be applied
directly by Agent to reimburse the Issuing Bank for the amount of such drawing
or payment. If for any reason, proceeds of such Revolving Loans are not
received by the Issuing Bank on such date in an amount equal to the amount of
such drawing, Borrower shall be obligated to and shall reimburse the Issuing
Bank, on the business day (under the laws of the jurisdiction of the Issuing
Bank) immediately following the date of such drawing, in an amount in
immediately available funds equal to the excess of the amount of such drawing
over the amount of such Revolving Loans, if any, which are so received, plus
accrued interest on such amount at the rate set forth in Subsection 2.20(A)
hereof for Base Rate Advances on the Revolving Loans.
(F) Payment by Lenders. In the event that Borrower does not reimburse
the Issuing Bank for the full amount of any drawing pursuant to
Subsection 2.19(E), unless Agent shall elect to make a Revolving Loan in
accordance with Subsection 2.5(B), Agent shall promptly notify each Lender of
the unreimbursed amount of such drawing and of such Lender's respective
participation therein. Unless Agent shall have so elected, each Lender shall
make available to Agent for the benefit of the Issuing Bank an amount equal to
such Lender's respective participation in immediately available funds, not
later than 2:00 P.M. Chicago time on the business day (under the laws of the
jurisdiction of the Issuing Bank) after the date notified by Agent. In
addition, in the event that any Lender fails to make available to Agent the
amount of any such Lender's participation in such Letter of Credit Obligations
as provided in this Subsection 2.19(F), Agent may, but shall not be obligated
to, fund the amount of such Defaulting Lender's participation in such Letter of
Credit and recover such amount on demand from such Defaulting Lender in
accordance with Subsection 2.13(A). In the event that any Lender fails to
make available to Agent the amount of such Lender's participation in such
Letter of Credit as provided in this Subsection 2.19(F), and Agent does not
elect to fund to the Issuing Bank such Defaulting Lender's participation in
such Letter of Credit as provided in the immediately preceding sentence, the
Issuing Bank shall be entitled to recover such amount on demand from such
Lender together with interest at the Federal Funds Rate for the first three
Business Days while such amount remains unpaid and thereafter at the Base Rate
Agent shall distribute to each Lender which has paid all amounts payable by it
under this Subsection 2.19(F) with respect to any Letter of Credit issued by
the Issuing Bank such Lender's Revolving Proportionate Share of all payments
subsequently received by Agent from Borrower in reimbursement of drawings
honored by the Issuing Bank under such Letter of Credit when such payments are
received.
(G) Obligations Absolute. The obligations of Lenders under Subsection
2.19(F) hereof shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all
circumstances, provided, however, that Lenders shall have no obligation under
Subsection 2.19(F) in the event of the Issuing Bank's willful misconduct or
gross negligence in determining whether documents presented under the Letter of
Credit comply with the terms of such Letter of Credit.
2.20 Interest, Fees and Expenses.
(A) Interest. Borrower shall pay to Agent for the account of Lenders
interest on the outstanding principal balance of the Revolving Loans and Term
Loans and the other Liabilities, other than the outstanding principal amount of
LIBOR Rate Advances, at a per annum rate equal to the from time to time Base
Rate; provided that the outstanding principal balance of the Revolving Loans
shall bear interest at a per annum rate equal to the from time to time Base
Rate minus one-quarter of one percent (0.25%). Borrower shall pay to Agent for
the account of Lenders interest on the outstanding principal balance of each
LIBOR Rate Advance at a per annum rate equal to the LIBOR Rate for the Interest
Period applicable to such LIBOR Rate Advance plus (i) the Applicable LIBOR
Margin for the Revolving Loans, if such LIBOR Rate Advance comprises a portion
of the Revolving Loans, or (ii) the Applicable LIBOR Margin for Term Loans if
such LIBOR Rate Advance comprises a portion of the Term Loans, it being
expressly understood and agreed that interest shall be computed by charging for
the first day in each Interest Period but not for the last day in such Interest
Period. Interest in respect of Base Rate Advances shall be payable monthly in
arrears not later than the first Business Day of each following month.
Interest in respect of LIBOR Rate Advances shall be payable at the end of the
applicable Interest Period, and if the applicable Interest Period is greater
than three months at the end of each three-month period following commencement
of the Interest Period. All interest and fees provided for hereunder shall be
computed on the basis of a 360-day year for the actual number of days elapsed.
Following the occurrence of a Default and during the continuance thereof,
Borrower shall pay to Agent for the account of Lenders interest from the date
of such Default (or, in the event of a Default other than as described in
Subsections 9.1(A), (H) or (I) of this Agreement, from the date of notice to
such effect to Borrower from Agent) at a rate (the "Post-Default Rate") equal
to the rate set forth above for each of the Liabilities or, if higher, the from
time to time Base Rate, plus two and one-quarter of one percent (2.25%) per
annum on the outstanding principal balance of all of the Liabilities and such
interest shall be payable as provided above or, if sooner, on demand.
(B) Facility Fees. Borrower shall pay to Agent for the account of
each Lender a facility fee (the "Facility Fee") on the average daily unused
portion of each Lender's Revolving Credit Commitment for each quarter (or
portion thereof) from the date of the execution of this Agreement at the rate
of one-quarter of one percent (0.25%) per annum, payable quarterly in arrears
on the first Business Day of each January, April, July and October, and on the
termination of this Agreement, the first such payment to be made on October 1,
1997. The fees provided for in this Subsection 2.20(B) shall be computed on
the basis of a 360-day year for the actual number of days elapsed.
(C) Prepayment Fee; Commitment Reduction Fee. In the event of any
payment of any Term Loan prior to the time due under the Notes or hereunder
(other than pursuant to Subsection 2.6(D)), then Borrower shall pay to Agent
for the account of Lenders, in addition to any other amounts required to be
paid under this Agreement, a prepayment fee ("Prepayment Fee") equal to the
following percentage of the amount of such payment (except for any portion to
be prepaid as a result of the application of Subsection 7.10 or 2.20 (D) ),
such fee to be due and payable on the date of the initial application thereof
to the Liabilities:
Applicable
Period Prepayment Fee
Prior to the second anniversary of 2.00%
the Closing Date (the "Second Anniversary")
On or after the Second Anniversary 1.00%
but prior to the third anniversary of the
Closing Date (the "Third Anniversary")
In the event of any partial or full reduction or termination in the Total
Revolving Commitments, then Borrower shall pay to the Agent for the account
of the Lenders, in addition to any other amounts required to be paid under this
Agreement, a commitment reduction fee ("Commitment Reduction Fee") equal to
the following percentage of such reduction, such fee to be due and payable on
the effective date of such reduction:
Applicable
Period Prepayment Fee
Prior to the Second Anniversary 2.00%
On or after the Second Anniversary 1.00%
but prior to the Third Anniversary
(D) Maximum Lawful Rate. This Agreement and the Revolving Notes are
hereby limited by this Subsection 2.20(D). In no contingency, whether by
reason of acceleration of the maturity of the amounts due hereunder or
otherwise, shall interest and fees contracted for, charged, received, paid or
agreed to be paid to Agent or any Lender exceed the maximum amount permissible
under applicable law. If, from any circumstance whatsoever, interest and fees
would otherwise be payable to Agent or any Lender in excess of the maximum
amount permissible under applicable law, the interest and fees shall be reduced
to the maximum amount permitted under applicable law. If from any
circumstance, Agent or any Lender shall have received anything of value deemed
interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excess of interest shall be applied to the reduction of the
principal amount of the Liabilities and not to the payment of fees or interest,
or if such excessive interest exceeds the unpaid balance of the principal
amount of Liabilities, such excess shall be refunded to Borrower.
(E) Early Termination Charge. Subject to the provisions contained in
Subsection 2.14, Borrower may terminate this Agreement at any time other than
at the end of the Term upon the payment by Borrower to Agent for the account of
Lenders (based on their respective Proportionate Shares), in addition to
payment of the then outstanding principal and accrued interest and payment and
performance of all other Liabilities (including without limitation any fees due
under Section 2 hereof and any other fees owed to Agent or Lenders), of a
termination charge (the "Termination Charge") in an amount equal to two percent
(2.00%) if such termination is made before the Second Anniversary and one
percent (1.00%) if such termination occurs on or after the Second Anniversary
but prior to the Third Anniversary of the Maximum Facility Amount minus (i) the
amount of any payment of the Liabilities on which Borrower has paid a
Prepayment Fee, and (ii) the amount of any reduction in the Total Revolving
Commitments on which Borrower has paid a Commitment Reduction Fee.
(F) Reimbursement of Expenses. From and after the Closing Date,
Borrower shall promptly reimburse Agent for all reasonable Expenses of Agent as
the same are incurred by Agent and upon receipt of invoices therefor and, if
requested by Borrower, such reasonable backup materials and information as
Borrower shall reasonably request.
(G) Letter of Credit Fees.
(i) Agent, for the ratable benefit of Lenders, shall be entitled to
charge to the account of Borrower on the last day of each month, a fee (the
"L/C Fee"), in an amount equal to one and one-half of one percent (1.50%) per
annum of the average daily outstanding Letter of Credit Obligations for each
month (or portion thereof) from the date of the execution of this Agreement,
payable monthly in arrears on the first Business Day of each following month.
Notwithstanding the foregoing, following the occurrence and during the
continuance of a Default (or, in the event of a Default other than as
described in Subsections 9.1(A), (H) or (I) of this Agreement, from the date of
notice to such effect to Borrower from Agent) shall be payable at a rate equal
to the rate at which the L/C Fees are charged pursuant to the immediately
preceding sentence, plus two and one-quarter of one percent (2.25%) per annum
and shall be payable as provided above or, if sooner, on demand. The L/C Fee
shall be computed on the basis of a 360-day year for actual days elapsed.
(ii) Borrower shall pay the Issuing Bank all of the Issuing Bank's
customary charges for out-of-pocket and administrative expenses upon the
issuance of any Letter of Credit and for any other out-of-pocket costs, fees
and expenses incurred by the Issuing Bank in connection with the application
for, issuance of or amendment to any Letter of Credit. Agent shall be entitled
to charge to the account of Borrower therefor, together with, as and when
incurred by Agent or any Lender, any other charges, fees, costs and expenses
charged to Agent or any Lender for Borrower's account by the Issuing Bank
(other than any fees charged to Agent or any Lender which would be duplicative
of the L/C Fee paid to Agent for the benefit of Lenders) (collectively,
including the amounts described in the first sentence of this Subsection
2.20(G)(ii), the "Issuing Bank Fees") in connection with the issuance of any
Letters of Credit by the Issuing Bank. Each determination by Agent of L/C
Fees, Issuing Bank Fees and other fees under this Subsection 2.20(G) shall be
conclusive and binding for all purposes, absent manifest error.
(H) Additional Fees. In addition, Borrower shall pay to Agent, for
its own benefit, the other fees required to be paid in the Fee Letter.
(I) Authorization to Charge Loan Account. Borrower hereby authorizes
Agent to charge Borrower's Loan Account with the amount of all Fees, Expenses
and other payments to be paid hereunder, under the Fee Letter and under the
other Financing Agreements as and when such payments become due. Borrower
confirms that any charges which Agent may so make to Borrower's Loan Account as
herein provided will be made as an accommodation to Borrower and solely at
Agent's discretion. Agent may in its sole discretion elect to bill Borrower
for such amounts in which case such amounts shall be immediately due and
payable with interest as provided herein.
(J) Indemnification in Certain Events. If after the date of this
Agreement, either (i) any change in or in the interpretation of any law or
regulation is introduced, including, without limitation, with respect to
reserve requirements, applicable to Agent, any Lender, the Issuing Bank or
any Lending Affiliate or (ii) Agent, any Lender, the Issuing Bank or any
Lending Affiliate complies with any future guideline or request from any
central bank or other Governmental Authority or (iii) Agent, any Lender, the
Issuing Bank or any Lending Affiliate determines that the adoption after the
date of this Agreement of any applicable law, rule or regulation regarding
capital adequacy, or any change therein after the date of this Agreement, or
any change after the date of this Agreement in the interpretation or
administration thereof by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof
has or would have the effect described below, or Agent, any Lender, the
Issuing Bank or any Lending Affiliate complies with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, and in the case of any event set
forth in this clause (iii), such adoption, change or compliance has or would
have the direct or indirect effect of reducing the rate of return on Agent's,
any Lender's, the Issuing Bank's or any Lending Affiliate's capital as a
consequence of its obligations hereunder to a level below that which Agent,
such Lender, the Issuing Bank, or any Lending Affiliate could have achieved but
for such adoption, change or compliance (taking into consideration Agent's,
such Lender's, the Issuing Bank's or the Lending Affiliate's policies as the
case may be with respect to capital adequacy) by an amount deemed by Agent,
such Lender, the Issuing Bank or the Lending Affiliate to be material, and any
of the foregoing events described in clauses (i), (ii) or (iii) increases the
cost to Agent, the Issuing Bank, any Lender or any Lending Affiliate of (A)
funding or maintaining any of the Total Revolving Commitments, or (B) issuing,
making or maintaining any Letter of Credit or of purchasing or maintaining any
participation therein, or reduces the amount receivable in respect thereof by
Agent, the Issuing Bank, any Lender or any Lending Affiliate, then Borrower
shall upon demand by Agent, pay to Agent, for the account of Agent, each
applicable Lender or, as applicable, the Issuing Bank or Lending Affiliate,
additional amounts sufficient to indemnify Agent, Lenders, the Issuing Bank or
the Lending Affiliate against such increase in cost or reduction in amount
receivable. A certificate as to the amount of such increased cost and setting
forth in reasonable detail the calculation thereof shall be submitted to
Borrower by Agent, or the applicable Lender, Issuing Bank or Lending Affiliate,
and shall be conclusive absent manifest error. The obligations of Borrower
under this Subsection 2.20(J) shall survive payment of the Liabilities and
termination of this Agreement.
(K) Audit Fees. Borrower shall pay to Agent, on the last day of each
calendar month during which an audit, inventory analysis or other business
analysis is performed by or for the benefit of Agent, or, if earlier, upon the
completion of such audit or analysis, an audit fee in an amount equal to
$500.00 per day for each Person employed to perform such audit or analysis,
which Person may be an employee of Agent or an independent contractor; plus all
reasonable out-of-pocket costs or expenses incurred by Agent in the performance
of such audit or analysis; provided that Borrower shall not be obligated to
reimburse Agent for more than one such audit per calendar year per location of
Borrower (the "Annual Field Examination"), except that such provision shall not
apply to audits performed at any time when a Default or Event of Default has
occurred and is continuing or when the most recent Collateral Report received
by Agent shows Excess Availability to be less than $10,000,000, which shall be
subject to reimbursement in addition to the Annual Field Examination.
3. REPORTING AND ELIGIBILITY REQUIREMENTS.
3.1 Monthly Reports and Intra-Monthly Reports.
(a) Monthly Reports. Borrower shall submit to Agent, not later than
the twentieth (20th) day of each fiscal month, a monthly report (the "Monthly
Report"), accompanied by a certificate in the form attached hereto as Exhibit
G, which shall be signed by an Authorized Officer. The Monthly Report shall
include, as of the last Business Day of the preceding fiscal month:
(i) an aged trial balance of Borrower's Accounts ("Accounts Trial
Balance") prepared in a manner reasonably acceptable to Agent and separately
identifying each Account Debtor on a bill-and-hold basis;
(ii) a schedule of Inventory owned by Borrower and in Borrower's
possession or otherwise, by location, valued at the lesser of cost, determined
on an average cost basis, or market, and adjusted for such reserves as Agent
has previously indicated to Borrower are deemed by Agent to be appropriate in
its sole determination made in Good Faith;
(iii) an aged trial balance of Borrower's accounts payable prepared
in a manner reasonably acceptable to Agent and showing the name of each party
to whom a payable is due and the amounts, including an aging thereof, in such
form as Agent may reasonably request;
(iv) a reconciliation of Borrower's Accounts and Inventory between the
amount shown on Borrower's books and Borrower's collateral reports delivered to
Agent in the form of Exhibit H and Exhibit I attached hereto, respectively;
(v) the outstanding principal balance of the Liabilities (other than
the Term Loan and Borrower's reimbursement obligations with respect to then
outstanding Letters of Credit) and the aggregate undrawn face amount of all
Letters of Credit outstanding;
(vi) a statement that there exists no Default or Event of Default, or,
if any Default or Event of Default exists, a specific description of the nature
and the period of existence thereof and the action Borrower has taken and
proposes to take with respect thereto;
(vii) a statement that no Equipment has been sold, damaged, destroyed,
abandoned, become obsolete or has otherwise diminished in value (except for (a)
ordinary depreciation and wear and tear and (b) damage to, or the destruction,
retirement or sale of, Equipment to the extent permitted to be made without
Lenders' consent pursuant to Subsection 8.17 hereof), since the later of the
date of the last Monthly Report or the schedule of Equipment most recently
delivered to Agent by Borrower or, if any such events have occurred, describing
the same with such specificity as is satisfactory to Agent; and
(viii) such other information Agent shall reasonably require.
(b) Collateral Reports.
In addition, Borrower shall provide Agent with a written report (the
"Collateral Report") within five (5) Business Days of the end of each month
(provided that, at any time when Excess Availability is less than $10,000,000
(as shown on the most recent Monthly Report or Collateral Report), Borrower
shall, if requested by the Agent, furnish a Collateral Report on a weekly
basis) substantially in the form attached hereto as Schedule 3.1(b), describing
or including, in a form and with such specificity as is reasonably satisfactory
to Agent:
(i) all Eligible Accounts created or acquired by Borrower subsequent
to the immediately preceding Collateral Report and specifically identifying
those Accounts and Account Debtors on a bill-and-hold basis and describing
agreements of Borrower with such Account Debtors (using, for purposes of
determining whether an Account is an Eligible Account, the criteria set forth
in Subsection 3.2 hereof and such other criteria as Agent has previously
indicated to Borrower are deemed by Agent to be appropriate in its sole
determination made in Good Faith); together with copies of any other reports
or information, in a form and with such specificity as is reasonably
satisfactory to Agent, concerning Accounts included, described or referred to
in the Collateral Reports and any other documents in connection therewith
requested by Agent, including, without limitation, but only if specifically
requested by Agent, copies of all invoices and bills of lading prepared in
connection with such Accounts;
(ii) if requested by Agent, information in connection with (a) any
Account which has ceased to be an Eligible Account since the most recent
Collateral Report and (b) any other Account with respect to which any setoff,
counterclaim or dispute has been asserted by any Account Debtor or any
allegation of delayed performance or nonperformance has been made by any
Account Debtor accompanied by a statement of any modification, adjustment or
compromise with respect to any such Account which affects the amount due or
the time when payment of such Account is to be made;
(iii) information on all amounts collected by Borrower on Accounts
subsequent to the immediately preceding Collateral Report;
(iv) a calculation of Borrower's Current Asset Base, including
information on all material claims against Borrower; and
(v) such additional information as Agent shall reasonably require,
including, if requested by Agent, an itemized statement of the amount of Third
Party Goods.
Borrower shall furnish each Lender with a copy of each Collateral Report, but
without exhibits.
3.2 Eligible Accounts. Agent shall have the sole right, in its
discretion exercised in Good Faith, to determine which Accounts are eligible
(the "Eligible Accounts"). Without limiting Agent's discretion, the following
Accounts shall not be Eligible Accounts: (i) Accounts which remain unpaid (X)
ninety (90) days after the original date of the applicable invoice, provided
that this clause (X) shall only apply to Accounts which are initially provided
to be due in 59 or fewer days from the date of invoice, and (Y) the earlier of
(I) one hundred and twenty (120) days after the original date of the applicable
invoice or (II) thirty-one (31) days after the original date on which any such
Account was due and payable, provided that this clause (Y) shall only apply to
Accounts which are initially provided to be due by their terms in 60 or more
days from the date of invoice; (ii) all Accounts owing by a single Account
Debtor, including a currently scheduled Account, if twenty-five percent (25%)
or more of the balance owing by such Account Debtor to Borrower is not an
Eligible Account as a result of the application of the provisions of the
preceding clause (i); (iii) Accounts with respect to which the Account Debtor
is a director, officer, employee, Subsidiary or Affiliate of Borrower; (iv)
Accounts with respect to which the Account Debtor is the United States of
America or any department, agency or instrumentality thereof, unless with
respect to any such Account, Borrower has complied to Agent's satisfaction with
the provisions of the Federal Assignment of Claims Act of 1940, including,
without limitation, executing and delivering to Agent all statements of
assignment and/or notification which are in form and substance acceptable to
Agent and which are deemed necessary by Agent to effectuate the assignment to
Agent of such Accounts; (v) Accounts with respect to which the Account Debtor
is not a resident of the United States or the provinces of Canada that, on the
date hereof, have adopted the Personal Property Security Act, unless the
Account Debtor has supplied Borrower with an irrevocable letter of credit,
issued by a financial institution satisfactory to Agent, sufficient to cover
such Account and in form and substance satisfactory to Agent, or unless Agent
shall otherwise consent to the inclusion of such Account as an Eligible
Account; (vi) Accounts with respect to which the Account Debtor has asserted a
counterclaim or has a right of setoff; (vii) Accounts for which the prospect of
payment or performance by the Account Debtor is or may be impaired as
determined by Agent in its sole discretion exercised in Good Faith; (viii)
Accounts with respect to which Agent does not have a first and valid fully
perfected security interest; (ix) Accounts with respect to which the Account
Debtor is the subject of bankruptcy or a similar insolvency proceeding or has
made an assignment for the benefit of creditors or whose assets have been
conveyed to a receiver or trustee; (x) Accounts with respect to which the
Account Debtor's obligation to pay the Account is conditional upon the Account
Debtor's approval or is otherwise subject to any repurchase obligation or
return right, as with sales made on a bill-and-hold (except to the extent the
provisions of Subsection 3.13 are fully complied with, but only to the extent
that the aggregate amount of Accounts arising from sales on a bill-and-hold
basis does not at any time exceed $500,000, or such greater amount to which
Agent may consent in its sole discretion), guaranteed sale, sale-or-return,
sale on approval or consignment basis; (xi) Accounts to the extent that the
Account Debtor's indebtedness to Borrower exceeds a credit limit determined by
Agent in Agent's sole discretion exercised in Good Faith; (xii) Accounts with
respect to which the Account Debtor is located in Indiana, Minnesota, New
Jersey or Tennessee unless at the time the Account was created Borrower (A)
was qualified to do business in such state as a foreign corporation and is in
good standing as a foreign corporation in each such state or (B) has filed a
notice of business activities report or comparable required report with the
appropriate state authorities of such state. In the event that a previously
scheduled Eligible Account ceases to be an Eligible Account under the above
described criteria, Borrower shall notify Agent thereof immediately after
Borrower has obtained knowledge thereof.
3.3 Account Warranties. With respect to Accounts scheduled, listed
or referred to on Borrower's initial Accounts Trial Balance or on any
subsequent Accounts Trial Balance, Borrower warrants and represents to
Agent and Lenders that: (i) they are genuine, are in all respects what they
purport to be, and are not evidenced by a judgment; (ii) they represent
undisputed, bona fide transactions the performance of which has been completed
by Borrower in accordance with the terms and provisions contained in the
documents delivered to Agent and Lenders with respect thereto; (iii) the
amounts shown on the respective Accounts Trial Balance, Borrower's books and
records and all invoices and statements which may be delivered to Agent with
respect thereto are actually and absolutely owing to Borrower and are not in
any way contingent; (iv) no payments have been or shall be made thereon except
payments immediately delivered to Agent pursuant to this Agreement; (v) to the
best of Borrower's knowledge, there are no setoffs, counterclaims or disputes
and Borrower has not made any agreement with any Account Debtor for any
deduction therefrom except a discount or allowance allowed by Borrower in the
ordinary course of its business for prompt payment; (vi) to the best of
Borrower's knowledge, there are no facts, events or occurrences known to
Borrower which in any way impair the validity or enforcement thereof or tend to
reduce the amount payable thereunder as shown on the Accounts Trial Balance,
Borrower's books and records and all invoices and statements delivered to Agent
with respect thereto; (vii) to Borrower's knowledge, all Account Debtors have
the capacity to contract and are solvent; (viii) the services furnished and/or
goods sold giving rise thereto are not subject to any lien, claim, encumbrance
or security interest except that of Agent and except as specifically permitted
below; (ix) Borrower has no knowledge of any fact or circumstance which would
tend to impair the validity or collectibility thereof; and (x) to Borrower's
knowledge, there are no proceedings or actions which are threatened or pending
against any Account Debtor which might result in any material adverse change in
such Account Debtor's financial condition. Borrower agrees to notify Agent
with respect to any Accounts scheduled on Borrower's Account Trial Balance
with respect to which the warranties in this Subsection 3.3 are not true.
3.4 Verification of Accounts. Agent shall have the right, at any
time or times hereafter, in Agent's name or in the name of a nominee of Agent,
to verify the validity, amount or any other matter relating to any Accounts,
by mail, telephone, telegraph or otherwise.
3.5 Account Covenants. Borrower shall promptly upon Borrower's
learning thereof: (i) inform Agent in writing of any material delay in
Borrower's performance of any of its obligations to any Account Debtor or
of any assertion of any claims, setoff or counterclaims by any Account
Debtor (provided, however, that Borrower shall not be deemed to be in breach
of this clause (i) unless the aggregate amount of Accounts as to which Borrower
has failed to inform Agent as required above exceeds $100,000); (ii) furnish
to and inform Agent of all material adverse information of which Borrower
obtains knowledge relating to the financial condition of any Person who is
then an Account Debtor as to open Accounts with a face amount, in the
aggregate, in excess of $100,000; and (iii) notify Agent in writing if any of
its then existing Accounts previously scheduled to Agent with respect to which
Agent or any Lender has made an advance are no longer Eligible Accounts.
3.6 Collection of Accounts and Payments. Borrower shall establish
lock box accounts ("Lock Box Accounts") in, and blocked accounts (the "Blocked
Accounts") with, ANB or such banks as are acceptable to Agent (collectively,
the "Collecting Banks") to which all Account Debtors shall directly remit all
payments on Accounts and in which Borrower will immediately deposit all cash
and other payments made for Inventory and other payments constituting proceeds
of its Collateral in the identical form in which such payment was made, whether
by cash or check. The Collecting Banks shall acknowledge and agree, in a
manner satisfactory to Agent, that all payments made to the Blocked Accounts
are the sole and exclusive property of Agent, that the Collecting Banks have
no right to setoff against the Blocked Accounts and that the Collecting Banks
will transfer (i) by wire transfer of immediately available funds, (ii) by
acceptance of an Automated Clearing House ("ACH") debit or (iii) by any other
method of transfer of immediately available funds in a manner satisfactory to
Agent, funds deposited into the Blocked Accounts to Agent on a daily basis or,
in the case of ACH debits, as presented for acceptance. Borrower hereby
agrees that all payments made to its respective Lock Box Accounts, the Blocked
Accounts or otherwise received by the Collecting Banks or Agent, whether on
the Accounts or as proceeds of other Collateral or otherwise will be the sole
and exclusive property of Agent and will be applied on account of Borrower's
Liabilities as follows: (i) when collected, for collection of checks and other
instruments (including automatic clearing house electronic funds transfers and
depository transfer checks) received by Agent at its offices in Chicago,
Illinois, Agent will credit (conditional upon final collection) all such
payments to Borrower's Loan Account and (ii) all cash payments received by
Agent at its offices in Chicago, Illinois, including, without limitation,
payments made by wire transfer of immediately available funds received by Agent
in time for posting to the account of Agent on the date received, will be
credited to Borrower's Loan Account immediately upon receipt. Application on
account of the Liabilities constituting the Term Loan or the Revolving Loan
shall be made by Agent (i) first to all Base Rate Advances and (ii) only when
no Base Rate Advances are outstanding to LIBOR Rate Advances; provided,
however, in lieu of applying amounts to LIBOR Rate Advances, Agent may in its
discretion release the available balances in Borrower's Blocked Account to
Borrower or if deemed necessary by Agent retain such balances as cash
collateral for the Liabilities. Borrower and all of its Affiliates,
Subsidiaries, shareholders, directors, officers, employees, agents or those
Persons acting for or in concert with Borrower shall, acting as trustee for
Agent, receive, as the sole and exclusive property of Agent, any monies,
checks, notes, drafts or any other payment relating to and/or proceeds of
Borrower's Accounts or the other Collateral which come into the possession or
under the control of Borrower or any of its Affiliates, Subsidiaries,
shareholders, directors, officers, employees, agents or those Persons acting
for or in concert with Borrower and immediately upon receipt thereof, Borrower
shall remit the same or cause the same to be remitted, in kind, to Agent, at
Agent's address set forth below. Borrower agrees to pay to Agent any and all
reasonable fees, costs and expenses which Agent incurs in connection with
opening and maintaining Borrower's Lock Box Accounts and Blocked Accounts and
depositing for collection by Agent any check or item of payment received and/or
delivered to any Collecting Bank or Agent, respectively, on account of the
Liabilities and Borrower further agrees to reimburse Agent for (i) any claims
asserted by the Collecting Banks in connection with Borrower's Lock Box
Accounts and Blocked Accounts or any returned or uncollected checks received by
the Collecting Banks and (ii) any amounts paid to any Collecting Bank arising
out of Agent's indemnification of such Collecting Bank against damages incurred
by the Collecting Bank in the operation of Borrower's Lock Box Accounts and
Blocked Accounts.
3.7 Appointment of Agent as Borrower's Attorney-in-Fact. Borrower
hereby irrevocably designates, makes, constitutes and appoints Agent (and all
persons designated by Agent) as Borrower's true and lawful attorney-in-fact,
and authorizes Agent, in Borrower's or Agent's name, at any time and from time
to time to: (i) demand payment of Borrower's Accounts; (ii) enforce payment of
such Accounts by legal proceedings or otherwise; (iii) exercise all of
Borrower's rights and remedies with respect to proceedings brought to collect
any Account; (iv) sell or assign any of Borrower's Accounts upon such terms,
for such amount and at such time or times as Agent deems advisable; (v) settle,
adjust, compromise, extend or renew any of Borrower's Accounts; (vi) discharge
and release any of Borrower's Accounts; (vii) take control in any manner of any
item of payment or proceeds thereof; (viii) prepare, file and sign Borrower's
name on any proof of claim in bankruptcy or other similar document against an
Account Debtor of Borrower; (ix) endorse Borrower's name upon any items of
payment or proceeds thereof and deposit the same in Agent's account for
application by Agent to such Liabilities; (x) endorse Borrower's name upon any
chattel paper, document, instrument, invoice, or similar document or agreement
relating to any of Borrower's Accounts or any goods pertaining thereto; (xi)
sign Borrower's name on any verification of its Accounts and notices thereof to
Borrower's Account Debtors; (xii) notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Agent,
have access to any lock box or postal box into which any of the Borrower's
mail is deposited, and open and deal with all mail addressed to Borrower; and
(xiii) do all acts and things which are necessary, in Agent's sole discretion,
to fulfill Borrower's obligations under this Agreement; provided, however,
that Agent shall not be authorized to take any such action described in clauses
(i)-(vi), (viii), (x), (xi), (xii) or (xiii) until after the occurrence of a
Default (provided that in the case of clause (xiii) Agent may take such action
after the occurrence of an Event of Default).
3.8 Instruments and Chattel Paper. Immediately upon Borrower's
receipt thereof, Borrower shall deliver or cause to be delivered to Agent, with
appropriate endorsement and assignment to vest title and possession in Agent,
with full recourse to Borrower, all chattel paper and instruments which
Borrower now owns or may at any time or times hereafter acquire.
3.9 Notice to Account Debtors. Agent may, in its sole discretion, at
any time or times following the occurrence of a Default, and without prior
notice to Borrower, notify any or all Account Debtors that the Accounts have
been assigned to Agent and that Agent has a security interest therein. Agent
may direct any or all Account Debtors to make all payments upon the Accounts
directly to Agent. Agent shall furnish Borrower with a copy of such notice.
3.10 Eligible Inventory; Valuation of Eligible Inventory. Agent shall
have the sole right in its discretion exercised in Good Faith to determine
which Inventory is eligible (the "Eligible Inventory"). Without limiting
Agent's discretion, the following Inventory shall not be Eligible Inventory:
(i) Inventory which is obsolete, not in good condition, or not either currently
usable or currently salable in the ordinary course of Borrower's business; (ii)
Inventory which Agent determines, in Agent's sole discretion exercised in Good
Faith and in accordance with Agent's customary business practices, to be
unacceptable due to age, type, category and/or quantity and such Inventory
shall include, but not be limited to, supplies; (iii) Inventory which is not
subject to internal control and management procedures acceptable to Agent
substantially similar to the controls now in place, in Agent's sole discretion
exercised in Good Faith; (iv) Inventory with respect to which Agent does not
have a first and valid fully perfected security interest; (v) Inventory which
is stored or placed with a bailee, consignee, warehouseman, supplier, lessor,
processor or similar party except as to Inventory at any time stored with
warehousemen or in the possession of processors who have entered into an
agreement with Agent in form and substance satisfactory to Agent ("Inventory
Letters"); (vi) Inventory delivered to Borrower on consignment; (vii) any
goods sold or subject to a sale on a bill-and-hold basis; and (viii) Inventory
which is not located at one of the locations designated on Schedule 6.5 hereto.
Notwithstanding the foregoing or anything in Subsection 2.3 to the contrary,
the aggregate amount of Inventory deemed to be Eligible Inventory shall not at
any time exceed an amount equal to the quotient determined by dividing (a) 200%
of Borrower's cost of goods sold, on an average cost basis, for the most recent
six (6) months for which Lenders have received the financial statements
required to be furnished by Borrower pursuant to Subsection 7.1(A) hereof, by
(b) 5. In the event that previously scheduled Inventory ceases to be Eligible
Inventory under the above-described criteria, Borrower shall notify Agent
thereof immediately after Borrower has obtained knowledge thereof.
3.11 Inventory Warranties. With respect to Inventory scheduled,
listed or referred to in any Monthly Report or Collateral Report, Borrower
warrants that (i) it is located at one of the premises listed on Schedule
6.5 and is not in transit; (ii) it is located at the location shown thereon
for it; (iii) it is not subject to any lien or security interest whatsoever
except for the security interest granted to Agent hereunder and except as
specifically permitted in Subsection 8.1 below; and (iv) to the best of
Borrower's knowledge, it is of good and merchantable quality, free from any
defects which would affect the market value of such Inventory. Borrower
agrees to notify Agent with respect to any of its Inventory with respect
to which the warranties in this Subsection 3.11 are not true and which
Borrower, therefore, does not want Agent to consider as Eligible Inventory.
3.12 Inventory Records. Borrower shall at all times hereafter
maintain a perpetual inventory of items included in Inventory (adjusted as of
the end of each month to include costs), keeping correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory,
Eligible Inventory, and Borrower's cost therefor and daily withdrawals
therefrom and additions thereto, all of which records shall be available during
Borrower's usual business hours at the request of any of Agent's officers,
employees or agents. Borrower shall continue to make cycle counts and other
physical counts of Inventory substantially in accordance with its current
practices and as may be required by its independent public accountants and by
good accounting practices (and, following the occurrence of an Event of Default
or a Default, Borrower shall make such additional counts as may be reasonably
requested by Agent) and, upon Agent's request, promptly following any such
counts of Inventory shall supply Agent with a report in a form and with such
specificity as may be reasonably satisfactory to Agent concerning such physical
count of the Inventory.
3.13 Safekeeping of Inventory and Inventory Covenants. Neither Agent
nor any Lender shall be responsible for: (i) the safekeeping of the Inventory;
(ii) any loss of or damage to the Inventory; (iii) any diminution in the value
of the Inventory; or (iv) any act or default of any carrier, warehouseman,
bailee, forwarding agency or any other Person. All risk of loss, damage,
destruction or diminution in value of the Inventory shall be borne by Borrower.
Except as expressly set forth in this Agreement, no Inventory shall, without
Agent's prior written consent, be at any time or times hereafter stored with a
bailee, warehouseman, consignee or similar third party. Borrower shall not
sell any of its Inventory on a bill-and-hold, guaranteed sale, sale-or-return,
sale on approval or consignment basis or any other basis subject to a
repurchase obligation or return right, except that Borrower may sell
Inventory on a bill-and-hold basis to the Persons set forth on Schedule 3.13
and such additional Persons as Borrower may advise Agent of in the Weekly
Report (provided that Borrower shall have provided Agent an accurate
description of the arrangements and agreements (if not reduced to writing) and
true, correct and complete copies of all written agreements, instruments and
documents with respect to its bill-and-hold arrangements with such Persons).
If Borrower sells any of its Inventory on a bill-and-hold basis such that it
would cause the aggregate outstanding amount of all Accounts arising therefrom
to exceed at any time $500,000 with respect to all such Account Debtors, such
amounts in excess of $500,000 shall not constitute Eligible Accounts unless
otherwise consented to by Agent. No Inventory shall be at any time or times
hereafter stored with a bailee, warehouseman, consignee or similar third party
unless Borrower first (i) obtains Agent's written consent as to the identity of
such third party, and (ii) furnishes to Agent such agreements, instruments and
documents as Agent shall in its sole discretion specify with respect to such
stored Inventory, except as specifically described on Schedule 3.13 (B) with
respect to Inventory maintained with processors.
3.14 Equipment Warranties. With respect to all Equipment listed,
scheduled or described by Borrower in a report to Agent as Equipment of
Borrower or in any equipment listing or inventory of Borrower provided to
Agent, Borrower warrants that (i) it is owned by Borrower, Borrower has the
right to subject the same to a security interest in favor of Agent, and it is
located on premises listed on Schedule 6.5; (ii) it is not subject to any lien
or security interest whatsoever except for the security interest granted to
Agent hereunder and except as specifically permitted by Subsection 8.1 below;
and (iii) it is in good condition and repair and is currently used or usable
in Borrower's business.
3.15 Equipment Records. Borrower shall at all times hereafter keep
correct and accurate records itemizing and describing the kind, type, age and
condition of Equipment, Borrower's cost therefor and accumulated depreciation
thereof; and retirements, sales or other dispositions thereof, all of which
records shall be available during Borrower's usual business hours on demand to
any of the officers, employees or agents of Agent. All Equipment is and shall
be kept at the locations specified on Schedule 6.5.
3.16 Safekeeping of Equipment. Neither Agent nor any Lender shall be
responsible for: (i) the safekeeping of the Equipment; (ii) any loss or damage
to the Equipment; (iii) any diminution in the value of the Equipment; or (iv)
any act or default of any repairmen, bailee or any other Person with respect to
the Equipment. All risk of loss, damage, destruction or diminution in value of
the Equipment shall be borne by Borrower.
3.17 Third Party Goods. Borrower shall not hold or accept any Third
Party Goods, whether on a consignment basis or otherwise, except (a) from a
Person listed on Schedule 3.17 attached hereto or such other Person consented
to by Agent, provided that, with respect to any such Person, Agent has (i) been
furnished with an accurate description of the arrangements and agreements (if
not reduced to writing) with respect to such Third Party Goods, together with
true, correct and complete copies of any written instruments, documents or
agreements with respect thereto and (ii) received an executed intercreditor
agreement from such Person in form and substance satisfactory to Agent, (b) for
tolling of Third Party Goods to the extent permitted by Subsection 8.18 hereof
and (c) bill-and-hold arrangements permitted by Subsection 3.13 hereof. If any
of the arrangements or instruments, documents or agreements referred to in this
Subsection 3.17 are amended, modified or supplemented, Borrower promptly shall
provide Agent with notice thereof and copies of such amendment, modification or
supplement. Schedule 3.17 attached hereto sets forth a complete listing of all
Persons now having an interest in any Third Party Goods. Borrower shall take
such action as Agent may from time to time require to assure Agent that no
Person storing any Third Party Goods with Borrower has any interest in the
Collateral. The aggregate value of all Third Party Goods, other than goods
subject to bill-and-hold arrangements to the extent permitted hereby, shall not
at any time exceed $10,000,000 without Agent's consent.
4. CONDITIONS OF LOANS, ADVANCES AND LETTER OF CREDIT .
4.1 Conditions to Initial Loans and Letters of Credit.
Notwithstanding any other provision of this Agreement, the obligation of each
Lender to make the initial Loans on the Closing Date, the obligation of Agent
to request the Issuing Bank to issue Letters of Credit hereunder on the Closing
Date and the obligation of the Issuing Bank to issue any Letter of Credit on
the Closing Date are subject to the satisfaction of, or waiver of, immediately
prior to or concurrently with the making of such Loans or issuance of such
Letters of Credit on the Closing Date, the conditions precedent set forth on
Exhibit F.
4.2 Conditions to Each Term Loan, Revolving Loan, Advance and Letter
of Credit. Notwithstanding any other provision contained in this Agreement,
the making of any Term Loan and Revolving Loan and the issuance of any Letter
of Credit under this Agreement, including without limitation the continuation
of any LIBOR Rate Advance from one Interest Period to another or conversion of
one Type of Advance to another Type of Advance, shall be conditioned upon
receipt by Agent of all notices and other communications required under
Subsection 2.4 and upon the satisfaction of the following, in each case to the
satisfaction of Agent, both before and after giving effect thereto and to the
application of the proceeds therefrom (and each request for the borrowing of a
Term Loan or Revolving Loan or request for a Letter of Credit, as the case may
be, and the continuation of any LIBOR Rate Advance from one Interest Period to
another or conversion of one Type of Advance to another Type of Advance, and
the acceptance by Borrower of the proceeds of such Term Loan, Revolving Loan or
Advance or issuance of such Letter of Credit, shall constitute a representation
and warranty by Borrower that on the date of such Loan or Advance or issuance
of such Letter of Credit before and after giving effect thereto and to the
application of the proceeds therefrom, the following such statements are true);
provided, however, that the following shall not apply to a conversion of a
LIBOR Rate Advance to a Base Rate Advance:
(A) Letters of Credit. With respect to the issuance of any Letter of
Credit, none of the events set forth in Subsection 2.19(A) hereof which would
prohibit Agent from requesting the Issuing Bank to issue a Letter of Credit has
occurred and is continuing or would result from the issuance of such Letter of
Credit.
(B) Material Adverse Change. No material adverse change, as
determined by Agent in its sole discretion exercised in Good Faith, in the
business, operations, condition (financial or otherwise), properties or
prospects of Borrower shall have occurred (i) at any time or times subsequent
to the most recent annual financial statements provided pursuant to
Subsection 7.1(B) hereof, and (ii) prior to the receipt of the first of such
statements, at any time subsequent to July 31, 1996.
(C) No Default. There shall not have occurred any Default or Event
of Default which is then continuing, nor shall any such Default or Event of
Default occur after giving effect to the Loan, Advance or Letter of Credit as
the case may be.
(D) Representations and Warranties True and Correct. The
representations and warranties of Borrower contained in this Agreement and the
other Financing Agreements shall be true and correct in all material respects
on and as of the date of any Loan, Advance or Letter of Credit as though made
on and as of such date other than any such representations or warranties that
by their terms, refer to a specific date.
(E) Other Requirements. Agent shall have received, in form and
substance reasonably satisfactory to Agent, all drafts, certificates, orders,
authorities, consents, opinions, affidavits, applications, schedules,
instruments, security agreements, financing statements, mortgages and other
documents which are provided for hereunder or under the other Financing
Agreements, or which Agent may at any time reasonably request, including
without limitation all documents required to be delivered to Agent under
Subsections 5.2 and 7.1, and all Monthly Reports and Collateral Reports
required as set forth in Subsection 3.1 hereof.
5. COLLATERAL.
5.1 Security Interest. To secure payment and performance of the
Liabilities, Borrower hereby grants to Agent, for the benefit of Agent, Lenders
and the Issuing Bank, a right of setoff against and a continuing security
interest in and to all of the personal property and fixtures, and interests in
personal property and fixtures, of Borrower, whether now owned or hereafter
acquired by Borrower and wheresoever located, including without limitation: (i)
Accounts, contract rights, General Intangibles, investment property, tax
refunds, chattel paper, instruments, notes, letters of credit, documents, and
documents of title; (ii) Inventory; (iii) Equipment; (iv) Borrower's deposit
accounts (general or special) with and credits and other claims against Agent
or any Lender, or any other financial institution with which Borrower maintains
deposits; (v) Borrower's monies, and any and all other property and interests
in property of Borrower now or hereafter coming into the actual possession,
custody or control of Agent or any Lender or any agent or affiliate of Agent or
any Lender in any way or for any purpose (whether for safekeeping, deposit,
custody, pledge, transmission, collection or otherwise); (vi) insurance
proceeds of or relating to any of the foregoing; (vii) insurance proceeds
relating to any key man life insurance policy covering the life of any
director, officer, employee or former director, officer or employee of
Borrower; (viii) insurance proceeds relating to business interruption
insurance; (ix) books and records relating to any of the foregoing; and (x)
all accessions and additions to, substitutions for, and replacements, products
and proceeds, of any of the foregoing.
5.2 Preservation of Collateral and Perfection of Security
Interests Therein. Borrower shall execute and deliver to Agent, concurrently
with the execution of this Agreement, and at any time or times hereafter at the
request of Agent, all financing statements, instruments or other documents
(and pay the cost of filing or recording the same in all public offices
reasonably deemed necessary by Agent), as Agent may request, in a form
reasonably satisfactory to Agent, to perfect and keep perfected the security
interest and Liens in the Collateral granted by Borrower to Agent for the
benefit of Agent, Lenders and the Issuing Bank, or to otherwise protect and
preserve the Collateral and Agent's security interest and Liens therein or to
enforce Agent's security interests and Liens in the Collateral. Should
Borrower fail to do so, Agent is authorized to sign any such financing
statements as Borrower's agent. Borrower further agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
5.3 Loss of Value of Collateral. Borrower shall immediately notify
Agent of any loss or damage or destruction (other than ordinary wear and tear),
in excess of $100,000 in the aggregate in the value of the Collateral in any
Fiscal Year, other than loss or depreciation occurring in the ordinary course
of business.
5.4 Setoff. Borrower agrees that Agent, each Lender and the Issuing
Bank has all rights of setoff and banker's lien provided by applicable law and,
in addition thereto, Borrower agrees that (in addition to Agent's rights with
respect to proceeds of Collateral) at any time (a) any amount owing by it under
this Agreement or any other Financing Agreement is then due or (b) any Default
exists, Agent, each Lender and the Issuing Bank may apply to the payment of the
Liabilities, any and all balances, credits, deposits, accounts or moneys of
Borrower then or thereafter with Agent, such Lenders or Issuing Bank. Without
limitation of the foregoing and in addition to Agent's rights with respect to
the proceeds of the Collateral, Borrower agrees that upon and after the
occurrence of a Default, Agent, each Lender and the Issuing Bank and each of
their respective branches and offices is hereby authorized, at any time and
from time to time, without notice, (i) to setoff against, and to appropriate
and apply to the payment of, the Liabilities (whether matured or unmatured,
fixed or contingent or liquidated or unliquidated) any and all amounts owing by
Agent, any such Lender or Issuing Bank or any such office or branch to Borrower
(whether matured or unmatured, and, in the case of deposits, whether general
or special, time or demand and however evidenced) and (ii) pending any such
action, to the extent necessary, to hold such amounts as collateral to secure
such Liabilities and to return as unpaid for insufficient funds any and all
checks and other items drawn against any deposits so held as Agent, such
Lender or Issuing Bank may elect in its sole discretion. Each Lender or Issuing
Bank exercising such rights shall notify Agent thereof and any amount received
as a result of the exercise of such rights shall be reallocated among Agent,
Lenders, and the Issuing Bank as set forth in Subsection 2.12 hereof.
5.5 Cash Collateral. In the event that the Issuing Bank has issued
any Letter of Credit, at any time after (i) the occurrence of a Default, (ii)
demand by Agent for payment of the Liabilities as provided in Subsection 9.1
hereof, (iii) there exists no unpaid principal balance of the Liabilities, (iv)
this Agreement shall terminate for any reason pursuant to Subsection 2.14
hereof, (v) the amount of (a) the aggregate outstanding principal balance of
the Revolving Loan plus the aggregate undrawn face amount of Letters of Credit
outstanding shall exceed the amount of (b) the Current Asset Base plus the sum
of the undrawn face amount of any Letters of Credit outstanding, or (vi)
termination of the Revolving Credit Commitments, Agent may request of Borrower,
and Borrower thereupon shall deliver to Agent, cash collateral for any Letter
of Credit. If Borrower fails to deliver such cash collateral to Agent promptly
upon Agent's request therefor, Agent may, without limiting Agent's rights or
remedies arising from such failure to deliver cash, retain, as cash collateral,
cash proceeds of the Collateral in an amount equal to the aggregate undrawn
face amount of all Letters of Credit then outstanding. Agent may at any time
apply any or all of such cash and cash collateral to the payment of any or all
of the Liabilities, including, without limitation, to the payment of any or all
of Borrower's reimbursement obligations with respect to any Letter of Credit or
any other Letter of Credit Obligations. Pending such application, Agent may
(but shall not be obligated to) (i) invest the same in a savings account, under
which deposits are available for immediate withdrawal, with ANB or such other
bank as Agent may, in its sole discretion select, or (ii) hold the same as a
credit balance in an account with ANB in Borrower's name. Interest payable on
any such savings account described in the foregoing sentence shall be collected
by Agent and shall be paid to Borrower as it is received by Agent less any fees
or other amounts owing by Borrower to the Issuing Bank, Agent and any Lender
with respect to any Letter of Credit and less any amounts necessary to pay any
of the Liabilities which may be due and payable at such time. Agent shall have
no obligation to pay interest on any credit balances in any account opened for
Borrower pursuant to this Agreement.
6. WARRANTIES, ETC.
Borrower represents, warrants and agrees that as of the date hereof and each
day thereafter, continuing so long as Borrower's Liabilities remain
outstanding, and (even if there shall be no Liabilities of Borrower
outstanding) so long as this Agreement remains in effect:
6.1 Corporate Existence. Borrower is a corporation duly organized and in
good standing under the laws of the state of its incorporation as set forth in
the preamble hereto, and is duly qualified as a foreign corporation and in
good standing in all other states where the nature and extent of the business
transacted by it or the ownership of its assets makes such qualification
necessary, except for those jurisdictions in which the failure so to qualify
would not, in the aggregate, have a material adverse effect on Borrower's
financial condition, results of operations or business or the ability of
Borrower to perform its obligations hereunder.
6.2 Corporate Authority. The execution and delivery by Borrower of this
Agreement and all of the other Financing Agreements executed by it and the
performance of Borrower's obligations hereunder and thereunder: (i) are within
Borrower's corporate powers; (ii) are duly authorized by Borrower's Board of
Directors and, if necessary, Borrower's stockholders; (iii) are not in
contravention of the terms of Borrower's Articles or Certificate of
Incorporation or By-Laws or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower or any of its property is bound
or any judgment, decree or order applicable to Borrower; (iv) do not, as of the
execution hereof, require Borrower or any guarantor of the Liabilities to
obtain any governmental consent, registration or approval; (v) do not
contravene any contractual or governmental restriction binding upon Borrower;
and (vi) will not, except as contemplated herein, result in the imposition of
any lien, charge, security interest or encumbrance upon any property of
Borrower under any existing indenture, mortgage, deed of trust, loan or credit
agreement or other material agreement or instrument to which Borrower is a
party or by which it or any of its property may be bound or affected
6.3 Binding Effect. This Agreement and all of the other Financing
Agreements to which Borrower is a party are the legal, valid and binding
obligations of Borrower and are enforceable against Borrower in accordance
with their terms.
6.4 Financial Data. Borrower has furnished to each Lender the financial
statements listed on Schedule 6.4 attached hereto (the "Financials"). The
Financials are, and all financial statements to be furnished to Lender in
accordance with Subsection 7.1 below will be, in accordance with the books and
records of Borrower and fairly present, and, as to all financial statements to
be furnished to Lender in accordance with Subsection 7.1 below, will fairly
present, the financial condition of Borrower at the dates thereof and the
results of operations for the periods indicated (subject, in the case of
unaudited financial statements, to normal year-end adjustments), and such
financial statements have been and will be prepared in conformity with
generally accepted accounting principles consistently applied throughout the
periods involved. Since the date of the Financials to the date hereof, there
have been no changes in the condition, financial or otherwise, of Borrower as
shown on such Financials, except (a) as expressly contemplated herein, and (b)
for changes in the ordinary course of business (none of which individually or
in the aggregate has been materially adverse). All information, reports and
other papers and data to be furnished to Agent or any Lender are or will be,
at the time the same are so furnished to Agent or any Lender, accurate and
correct in all material respects and complete insofar as completeness may be
necessary to give Agent and Lenders a true and accurate knowledge of the
subject matter thereof.
6.5 Collateral. Except as expressly permitted by Subsection 8.1 and 8.17,
all of Borrower's Collateral is and will continue to be owned by Borrower
(except for Inventory sold in the ordinary course of business), has been or
will (in the ordinary course of Borrower's business) be fully paid for and is
free and clear of all security interests, liens, claims and encumbrances. As
of the date hereof, the Collateral is located at the locations set forth on
Schedule 6.5 attached hereto, except for Inventory in transit or at processors
as permitted hereby.
6.6 Solvency. Borrower (i) is not "insolvent" as that term is defined in
Section 101(32) of the Federal Bankruptcy Code (the "Bankruptcy Code")
(11 U.S.C. 101(32)), Section 2 of the Uniform Fraudulent Transfer Act
("UFTA") or Section 2 of the Uniform Fraudulent Conveyance Act ("UFCA"), (ii)
does not have "unreasonably small capital," as that term is used in Section
548 (a)(2)(B)(ii) of the Bankruptcy Code or Section 5 of the UFCA, (iii) is
not engaged or about to engage in a business or a transaction for which its
remaining property is "unreasonably small" in relation to the business or
transaction as that term is used in Section 4 of the UFTA, (iv) is able to pay
its debts as they mature or become due, within the meaning of Section
548(a)(2)(B) (iii) of the Bankruptcy Code, Section 4 of the UFTA and Section
6 of the UFCA, and (v) now owns assets having a value both at "fair valuation"
and at "present fair salable value" greater than the amount required to pay
Borrower's "debts" as such terms are used in Section 2 of the UFTA and Section
2 of the UFCA. Borrower shall not be rendered insolvent (as defined above)
by the execution and delivery of this Agreement or any of the other Financing
Agreements or by the transactions contemplated hereunder or thereunder.
6.7 Chief Place of Business. As of the execution hereof, the principal
place of business and chief executive office of Borrower is located at the
address set forth above in the preamble to this Agreement. If any change in
such location occurs, Borrower shall promptly notify Agent thereof in
accordance with Subsection 8.10 hereof. As of the execution hereof, the
books and records of Borrower and chattel paper and all records of account are
located at the principal place of business and chief executive office of
Borrower, and if any change in such location occurs, Borrower shall promptly
notify Lender thereof in accordance with Subsection 8.10 hereof.
6.8 Other Corporate Names. Except as disclosed on Schedule 6.8 attached
hereto, during the five (5) year period preceding the date hereof Borrower has
not used any corporate or fictitious name other than the name shown for
Borrower in the preamble to this Agreement.
6.9 Tax Liabilities. Borrower has filed all federal, state and local tax
reports and returns required by any law or regulation to be filed by it except
for extensions duly obtained. Borrower has either duly paid all taxes, duties
and charges indicated due on the basis of such returns and reports, or has made
adequate provision for the payment thereof, and the assessment of any material
amount of additional taxes in excess of those paid and reported is not
reasonably expected. As of the date hereof, no federal income tax returns of
Borrower have been audited by the Internal Revenue Service other than the
federal income tax return for the 1988 Fiscal Year of Borrower, which audit has
been closed. The reserves for taxes reflected on the Financials constitute,
and the balance sheets of Borrower submitted to Lenders in accordance with the
terms of Subsection 7.1 below will constitute, reasonable estimations of the
amount necessary for the payment of all liabilities for all federal, state and
local taxes (whether or not disputed) of Borrower accrued through the date of
such balance sheets. There are no material unresolved questions or claims
concerning any tax liability of Borrower.
6.10 Loans. Except as disclosed on the Financials and as permitted under
Subsection 8.2 and Subsection 8.5 below, Borrower currently has no loans or
other Indebtedness for borrowed money and no Guaranteed Indebtedness.
6.11 Margin Security. Borrower does not own any margin securities and
none of the Loans advanced hereunder will be used for the purpose of
purchasing or carrying any margin securities or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase any margin
securities or for any other purpose not permitted by Regulation U of the Board
of Governors of the Federal Reserve System.
6.12 Survival of Warranties. All representations and warranties contained
in this Agreement or any of the other Financing Agreements shall survive the
execution and delivery of this Agreement.
6.13 Subsidiaries. Borrower has no Subsidiaries.
6.14 Litigation and Proceedings. Except as disclosed on Schedule 6.14
attached hereto, no judgments are outstanding against Borrower nor is there
now pending or, to the best of Borrower's knowledge after reasonably diligent
inquiry, threatened any litigation, contested claim, or governmental proceeding
by or against Borrower, except judgments and pending or threatened litigation,
contested claims and governmental proceedings which are not, in the aggregate,
material and adverse to Borrower's financial condition, results of operations
or business or the ability of Borrower to perform its obligations hereunder.
To the best of Borrower's knowledge, the amount of liability set forth on
Schedule 6.14 as to each suit listed thereon is the maximum amount of
Borrower's potential liability under such suit.
6.15 Other Agreements. Borrower is not in default under any material
contract, lease, or commitment to which it is a party or by which it is bound.
Borrower knows of no dispute regarding any contract, lease, or commitment
which is material to the continued financial success and well-being of Borrower
6.16 Employee Controversies. There are no controversies pending or, to
the best of Borrower's knowledge after reasonably diligent inquiry, threatened
or anticipated, between Borrower and any of its employees, other than employee
grievances arising in the ordinary course of business which are not, in the
aggregate, material to the continued financial success and well-being of
Borrower. Borrower has no accrued and unpaid liability to any of its
employees arising under the Fair Labor Standards Act, as amended.
6.17 Compliance with Laws and Regulations.
(a) General Compliance. The execution and delivery by Borrower of this
Agreement and all of the other Financing Agreements to which it is a party and
the performance of Borrower's obligations hereunder and thereunder are not in
contravention of any law or laws. Borrower is in compliance with all laws,
orders, regulations and ordinances of all federal, foreign, state and local
governmental authorities relating to the business operations and the assets of
Borrower, except for laws, orders, regulations and ordinances the violation of
which would not, in the aggregate, have a material adverse effect on Borrower's
financial condition, results of operations or business or the ability of
Borrower to perform its obligations hereunder.
(b) Environmental Compliance. (i) Borrower has obtained all permits, licenses
and other authorizations which are required with respect to the ownership and
operation of its business and the Property under any and all applicable
Environmental Laws, (ii) unless and to the extent contested by Borrower in
accordance with the provisions of Subsection 8.16(B) hereof, Borrower is in
compliance with all terms and conditions of all such required permits, licenses
and authorizations, and is also in compliance with all Environmental Laws,
including, without limitation, all limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws, (iii) there is no civil, criminal or
administrative action, request for information, suit, demand, claim, hearing,
notice of violation, investigation, proceeding, notice of demand letter
pending or threatened against Borrower or any Subsidiary of Borrower under the
Environmental Laws which could result in a material fine, penalty or other cost
or expense, (iv) there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans which
Borrower reasonably expects may interfere with or prevent compliance with the
Environmental Laws, or which Borrower reasonably expects may give rise to any
common law or legal liability, including, without limitation, liability under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, or any other Environmental Law or related common law theory
or which otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing or notice of violation, study or investigation, based on
or related to the manufacture, processing, distribution, use, generation,
treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release into the environment, of any Hazardous
Materials which could result in a fine, penalty or other cost or expense, (v)
except as expressly set forth on Schedule 6.17(b) hereto, Borrower has not
filed any notice under any federal or state law indicating past or present
treatment, storage or disposal of a hazardous waste or reporting a spill or
release of a hazardous or toxic waste, substance or constituent, or other
substance into the environment, and (vi) except as expressly set forth on
Schedule 6.17(b) hereto, Borrower has no contingent liability of which Borrower
has knowledge or reasonably should have knowledge in connection with any
release of any hazardous or toxic waste, substance or constituent, or other
substance into the environment.
6.18 Patents, Trademarks, Licenses, etc. Borrower possesses adequate
assets, licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark applications, trade styles and trade names, governmental
approvals or other authorizations and other rights that are necessary for
Borrower to continue to conduct its business as heretofore conducted by it.
Except as disclosed on Schedule 6.18 hereto, Borrower possesses no licenses,
patents, patent applications, copyrights, service marks, trademarks, trademark
applications, trade styles or trade names and, except as disclosed on Schedule
6.18, no such items are necessary for Borrower to continue to conduct its
business as heretofore conducted by it.
6.19 ERISA. Neither Borrower nor any ERISA Affiliate of Borrower maintains
or contributes to any Pension Plan other than those listed on Schedule 6.19
attached hereto. Each Pension Plan which is intended to be a qualified plan
under Section 401(a) of the Internal Revenue Code has been determined by the
Internal Revenue Service to be so qualified and each trust related to any such
Pension Plan has been determined to be exempt from federal income tax under
Subsection 501(a) of the Internal Revenue Code. Except as otherwise disclosed
on Schedule 6.19 attached hereto, neither Borrower nor any ERISA Affiliate of
Borrower maintains or contributes to any employee welfare benefit plan within
the meaning of Subsection 3(1) of ERISA which provides lifetime medical
benefits to retirees. Each Pension Plan has been administered in all material
respects in accordance with its terms and the terms of ERISA, the Internal
Revenue Code and all other statutes and regulations applicable thereto.
Neither Borrower nor any ERISA Affiliate of Borrower has breached in any
material respect any of the responsibilities, obligations or duties imposed on
it by ERISA or regulations promulgated thereunder with respect to any Pension
Plan. No accumulated funding deficiency (as defined in Subsection 302(a)(2) of
ERISA and Section 412(a) of the Internal Revenue Code) exists in respect to any
Pension Plan. Neither Borrower nor any ERISA Affiliate of Borrower nor any
fiduciary of any Pension Plan which is not a Multiemployer Plan (i) has engaged
in a nonexempt "prohibited transaction" described in Section 406 of ERISA or
Section 4975 of the Internal Revenue Code which could result in any liability
to Borrower, or (ii) has taken any action which would constitute or result in
a Termination Event with respect to any Pension Plan which could result in any
liability to Borrower. Schedule B, if any, to the most recent annual report
filed with the Internal Revenue Service with respect to each Pension Plan has
been furnished to Lender and is complete and accurate; since the date of each
such Schedule B, there has been no material adverse change in the funding
status or financial condition of the Pension Plan relating to such Schedule B.
Neither Borrower nor any ERISA Affiliate of Borrower has incurred any liability
to the PBGC which remains outstanding. Neither Borrower nor any ERISA
Affiliate of Borrower has (i) failed to make a required contribution or payment
to a Multiemployer Plan, or (ii) made or expects to make a complete or partial
withdrawal under Subsections 4203 or 4205 of ERISA from a Multiemployer Plan
for which Borrower or any ERISA Affiliate of Borrower has any liability which
as not been satisfied. Neither Borrower nor any ERISA Affiliate of Borrower
has failed to make a required installment under Subsection (m) of Section 412
of the Internal Revenue Code or any other payment required under Section 412 of
the Internal Revenue Code on or before the due date for such installment or
other payment. Neither Borrower nor any ERISA Affiliate of Borrower is
required to provide security to a Pension Plan under Section 401(a) (29) of the
Internal Revenue Code due to a Pension Plan amendment that results in an
increase in current liability for the plan year. The present value of the
benefits of each Pension Plan of Borrower and each ERISA Affiliate of Borrower
as of the last day of the year for such Plan, as determined by such Pension
Plan's independent actuaries, does not exceed the aggregate value, as
determined by such actuaries, of all assets under such Pension Plan. Borrower
is not required to contribute to any Multiemployer Plan. No matter is pending
relating to any Pension Plan before any court or governmental agency. Borrower
has given to Lender all of the following: copies, if any, of each Pension Plan
and related trust agreement (including all amendments to such Plan and trust)
in existence or committed to as of the date hereof and the most recent summary
plan description, actuarial report, determination letter issued by the Internal
Revenue Service and Form 5500 filed in respect of each such Pension Plan; a
listing of all of the Multiemployer Plans with the aggregate amount of the most
recent annual contributions required to be made by Borrower and all ERISA
Affiliates of Borrower to each such Multiemployer Plan; copies of any
information which has been provided to Borrower or any ERISA Affiliate of
Borrower regarding withdrawal liability under any Multiemployer Plan and all
collective bargaining agreements pursuant to which such contributions are
required to be made; and copies of each employee welfare benefit plan within
the meaning of Subsection 3(1) of ERISA which provides lifetime medical
benefits to employees, the most recent summary plan description for such plan
and the aggregate amount of the most recent annual payments made to terminated
employees under each such plan.
6.20 Financial Condition. Since July 31, 1996, (or, if later, the date of
the most recent annual financial statements of Borrower provided pursuant to
Subsection 7.1(B) hereof) there has been no material adverse change in
Borrower's financial condition, results of operations or business or in the
value of Borrower's Collateral.
7. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any of the Liabilities remain
outstanding, and (even if there shall be no Liabilities outstanding) so long as
this Agreement remains in effect:
7.1 Financial Statements. Borrower shall keep proper books of record and
account in which full and true entries will be made of all dealings or
transactions of or in relation to the business and affairs of Borrower, in
accordance with GAAP, and Borrower shall cause to be furnished to each Lender:
(A) Monthly. As soon as practicable, and in any event within thirty (30)
days (such period shall be forty-five (45) days in the case of the first two
fiscal months following the end of the Fiscal Year) after the end of each
fiscal month (including each fiscal month occurring during the 90-day delivery
period applicable to the delivery of annual financial statements of Borrower
furnished to Lenders pursuant to Subsection 7.1(B) hereof):
(i) statements of income and cash flow of Borrower for such fiscal month
and for the period from the beginning of the then current Fiscal Year to the
end of such fiscal month and a balance sheet of Borrower as of the end of such
fiscal month, setting forth in each case, in comparative form, figures (1) in
the case of statements, for the corresponding periods in the preceding Fiscal
Year and (2) in the case of balance sheets, as of a date one year earlier, all
in reasonable detail and certified as accurate by an Authorized Officer
pursuant to a certificate in the form of Exhibit L attached hereto, subject to
changes resulting from normal year-end adjustments;
(ii) statements in which the actual cash flow and income for such
fiscal month and for the period from the start of the then current Fiscal
Year to theend of such fiscal month, and the actual balance sheets at the
end of such fiscal month (in each case as required to be delivered
pursuant to Subsection 7.1(A)(i) hereof) are compared with the
corresponding projected statements of income and cash flow and balance
sheets for such periods and time furnished to Lenders pursuant to
Subsection 7.1(C) below, in each case in the same format asthe audited
statements of income and cash flow and the audited balance sheet;
(iii) (a) as requested by Agent or any Lender, copies of operating
statements for such fiscal month prepared by Borrower for internal use,
including, without limitation, statements of cash flow, purchases and sales of
inventory and other similar data, and (b) a comparison of actual cash flow and
Capital Expenditures with amounts budgeted for such fiscal month;
(iv) calculations setting forth the compliance with the financial covenants
set forth in Subsection 8.15 hereof for the most recently completed
fiscal quarter; and
(v) in the event that any of the foregoing statements indicate that
Borrower has varied in any material respect from any financial projections
provided by Borrower to Lenders, a statement of explanation of such deviation
from an Authorized Officer;
(B) Annual. As soon as practicable and in any event within ninety (90)
days after the end of each Fiscal Year of Borrower, statements of income,
stockholders' equity and cash flow of Borrower for such Fiscal Year, and a
balance sheet of Borrower as of the end of such Fiscal Year, setting forth in
each case, in comparative form, corresponding figures for the period covered
by the preceding annual audit (in the case of statements) and as of the end of
the preceding Fiscal Year (in the case of balance sheets), all in reasonable
detail and satisfactory in scope to Lender and audited by independent certified
public accountants selected by Borrower and reasonably satisfactory to Agent,
whose opinion shall be in scope and substance satisfactory to Agent;
(c) Budget. As soon as practicable, and in any event, before the start of
each Fiscal Year of Borrower, an annual budget of Borrower for the next Fiscal
Year, and within the next 90 days, a budget for the succeeding two Fiscal
Years, in reasonable detail (on a fiscal month basis for the immediately
succeeding Fiscal Year), including statements of anticipated income and cash
flow and balance sheets of Borrower for the succeeding three (3) Fiscal Years
(on a fiscal month basis for the immediately succeeding Fiscal Year) in
reasonable detail, and a detailed statement of the methods and assumptions used
in the preparation of such budget;
(D) Letters from Accountants and Consultants. As soon as practicable and
in any event within ten (10) days of delivery to Borrower, a copy of (i) each
"Management Letter" prepared by Borrower's independent certified public
accountants in connection with the financial statements referred to in
Subsection 7.1(B) hereof and (ii) to the extent that such letters may from time
to time be issued by Borrower's independent certified public accountants or
other management consultants (collectively, "Accounting Systems Letters"), any
letter issued by Borrower's independent certified public accountants or other
management consultants with respect to recommendations relating to Borrower's
financial or accounting systems or controls;
(E) Default Notices. As soon as practicable (but in any event not more
than five (5) days after any officer of Borrower obtains knowledge of the
occurrence of an event or the existence of a circumstance giving rise to an
Event of Default or a Default), notice of any and all Events of Default or
Defaults hereunder;
(F) List of Account Debtors. At the request of Agent, names, addresses
and phone numbers of Borrower's Account Debtors;
(G) Information Provided to Shareholders and Other Information. Promptly
upon transmission thereof, copies of all such financial statements, proxy
statements, notices and reports as it shall send to its public stockholders and
copies of all registration statements and all reports and filings which it
files with the Securities and Exchange Commission (or any governmental body or
agency succeeding to the functions of the Securities and Exchange Commission)
and with reasonable promptness, such other business or financial data as Agent
may reasonably request; and
(H) Other Information. With reasonable promptness, such other business or
financial data as Agent or any Lender may reasonably request.
Borrower further agrees that upon Borrower's receipt of any Accounting Systems
Letters wherein such accountants or consultants have made recommendations for
improvements to Borrower's financial or accounting systems or controls,
Borrower promptly shall commence actions to correct any material defects in or
make improvements to such financial or accounting systems or controls unless
Agent otherwise consents or Borrower reasonably disagrees with the need for
such actions.
All financial statements delivered to Lenders pursuant to the requirements of
this Subsection 7.1 (except where otherwise expressly indicated) shall be
prepared in accordance with GAAP (subject in the case of interim financial
statements to the lack of footnotes and normal year-end adjustments)
consistently applied, except for changes therein with which the independent
certified public accountants issuing the opinion on the financial statements
delivered pursuant to Subsection 7.1(B) hereof have previously concurred in
writing. Together with each delivery of financial statements required by
Subsections 7.1(A) and 7.1(B) hereof, Borrower shall deliver to Lenders a
certificate of an Authorized Officer of Borrower in the form attached hereto as
Exhibit L setting forth in such detail as is reasonably acceptable to Agent
calculations with respect to Borrower's compliance with each of the financial
covenants contained in this Agreement and stating that there exists no Default
or Event of Default, or, if any Default or Event of Default exists, specifying
the nature and the period of existence thereof and what action Borrower
proposes to take with respect thereto. Together with each delivery of
financial statements required by Subsection 7.1(B) hereof, Borrower shall
deliver to Lenders a certificate of the independent certified public
accountants who performed the audit in connection with such statements stating
that in making the audit necessary to the issuance of a report on such
financial statements, they have obtained no knowledge of any Default or Event
of Default, or, if such accountants have obtained knowledge of a Default or
Event of Default, specifying the nature and period of existence thereof. Such
accountants shall not be liable by reason of any failure to obtain knowledge of
any Default or Event of Default which would not be disclosed in the ordinary
course of an audit.
Each Lender shall exercise reasonable efforts to keep such information, and all
information acquired as a result of any inspection conducted in accordance with
Subsection 7.2 hereof, confidential, provided that each Lender may communicate
such information (a) to any other Person in accordance with the customary
practices of commercial banks relating to routine trade inquiries, (b) to any
regulatory authority having jurisdiction over Lenders, (c) to any other Person
in connection with any Lender's sale of any participations in the Liabilities
or assignment of any rights and obligations of any Lender under this Agreement
and the other Financing Agreements, (d) to any other Person in connection with
the exercise of Agent's or any Lender's rights hereunder or under any of the
other Financing Agreements, (e) to any Person in any litigation in which Agent
or any Lender is a party, (f) to any other Lender, or (g) any other Person if
Agent or any Lender believes in Good Faith that disclosure is necessary or
appropriate to comply with any applicable law, rule or regulation or in
response to a subpoena, order or other legal process or informal investigative
demand, whether issued by a court, judicial or administrative or legislative
body or committee or other governmental authority. Notwithstanding the
foregoing, information shall not be deemed to be confidential to the extent
such information (i) was already lawfully in the possession of any Lender or
Agent prior to December 31, 1996, (ii) is available in the public domain, (iii)
becomes available in the public domain other than as a result of unauthorized
disclosure by Agent or a Lender or (iv) is acquired from a Person not known by
a Lender or Agent to be in breach of an obligation of secrecy to Borrower.
Borrower authorizes Agent and each Lender to discuss the financial condition of
Borrower with Borrower's independent certified public accountants and agrees
that such discussion or communication shall be without liability to Agent,
such Lender or Borrower's independent certified public accountants.
7.2 Inspection. Agent or any Person designated by Agent in writing and,
with respect to clause (i) below, each Lender, shall have the right, from time
to time hereafter, to call at Borrower's place or places of business (or any
other place where the Collateral or any information relating thereto is kept
or located) during reasonable business hours, and, without hindrance or delay,
to inspect, audit, check and make copies of and extracts from Borrower's
books, records, journals, orders, receipts and any correspondence and other
data relating to Borrower's business or to any transactions between the
parties hereto, (ii) to make such verification concerning the Collateral as
Agent may consider reasonable under the circumstances, and (iii) to discuss
the affairs, finances and business of Borrower with any officers, employees or
directors of Borrower. Borrower shall pay on demand all photocopying expenses
incurred by Agent or Lenders under this Subsection 7.2. Agent may in its sole
discretion (i) once a year, and (ii) in addition, at any time and from time to
time after the occurrence and during the continuance of a Default, order and
obtain, at Borrower's expense (and Borrower shall reimburse Agent on demand
for its expenses incurred in connection therewith), appraisals (from
appraisers selected by Agent) of Borrower's Equipment, real property and
leaseholds, and Borrower shall cooperate in the conduct thereof.
7.3 Conduct of Business; Locations of Collateral and Third Party Goods.
(a) Borrower shall maintain its corporate existence, shall maintain in full
force and effect all material licenses, permits, authorizations, bonds,
franchises, leases, patents, contracts and other rights necessary for the
profitable conduct of its business, shall continue in, and limit its operations
to, the same general line of business as that presently conducted by it and
shall comply with all applicable laws and regulations of any federal, foreign,
state or local governmental authority, except for such laws and regulations
the violation of which would not, in the aggregate, have a material adverse
effect on Borrower's financial condition, results of operations or business or
Borrower's ability to perform its obligations.
(b) Borrower shall pay promptly all liabilities to all of its employees
arising under the minimum wage and maximum hour provisions of the Fair Labor
Standards Act, as the same may be amended from time to time.
(c) Borrower shall maintain (i) all Collateral at the locations listed on
Schedule 6.5 and (ii) all Third Party Goods which are the subject of
consignment arrangements clearly marked and separately identified as consigned,
unslit and uncommingled.
7.4 Claims and Taxes. Borrower agrees to indemnify and hold Agent, each
Lender, the Issuing Bank and each of their respective officers, directors,
employees, attorneys and agents harmless from and against any and all claims,
demands, liabilities, losses, damages, penalties, costs, and expenses
(including without limitation reasonable attorneys' and consultants' fees)
relating to or in any way arising out of the possession, use, operation or
control of any of Borrower's assets. Borrower shall pay or cause to be paid
all license fees, bonding premiums and related taxes and charges, and shall
pay or cause to be paid all of Borrower's real and personal property taxes,
assessments and charges and all of Borrower's franchise, income, unemployment,
use, excise, old age benefit, withholding, sales and other taxes and other
governmental charges assessed against Borrower, or payable by Borrower, at such
times and in such manner as to prevent any penalty from accruing or any lien or
charge from attaching to its property, provided that Borrower shall have the
right to contest in good faith, by an appropriate proceeding promptly initiated
and diligently conducted, the validity, amount or imposition of any such tax, a
ssessment or charge, and during the pendency of such good faith contest to
delay or refuse payment thereof, if (i) Borrower establishes adequate reserves
in accordance with GAAP to cover such contested taxes, assessments or charges,
and (ii) such contest does not have a material adverse effect on Borrower's
financial condition, results of operations or business, the ability of Borrower
to pay any of the Liabilities, or the priority or value of Agent's security
interest in the Collateral or any collateralunder any other Financing Agreement
7.5 Agent's Costs and Expenses as Additional Liabilities. Borrower shall
reimburse Agent on demand for all allocated costs and reasonable expenses and
fees of Agent's in-house attorneys and paralegals and all reasonable out- of-
pocket expenses and fees paid or incurred in connection with the analysis,
documentation, negotiation and closing of the Loans and other extensions of
credit described herein, including, without limitation, lien search, filing and
recording fees and taxes and the reasonable fees and expenses of Agent's
attorneys and paralegals and consultants (whether such attorneys and paralegals
are employees of Agent or are separately engaged by Agent), whether such
expenses and fees are incurred prior to or after the date hereof. All costs
and expenses incurred by Agent with respect to the negotiation, documentation
and closing of the Loans and other extensions of credit described herein and
the enforcement, collection and protection of Agent's interests in the
Collateral shall be additional Liabilities of Borrower to Agent, payable on
demand, repaid as provided in Subsection 2.8 hereof and secured by the
Collateral.
7.6 Borrower's Liability Insurance. Borrower shall maintain, at its
expense, such public liability and third party property damage insurance in
such amounts and with such deductibles as is acceptable to Agent in its
discretion exercised in Good Faith.
7.7 Borrower's Property Insurance and Business Interruption Insurance.
Borrower shall, at its expense, maintain business interruption insurance (in
amounts reasonably satisfactory to Agent) and keep and maintain its assets
insured against loss or damage by fire, theft, burglary, pilferage, loss in
transit, explosion, spoilage and all other hazards and risks ordinarily insured
against by other owners or users of such properties in similar businesses, in
anamount at least equal to the greater of the full insurable value of all such
property or the amount which is necessary to avoid the application of co-
insurance provisions, and in any event insurance on Equipment and Inventory in
amounts greater than the respective amounts of the Term Loan and the portion of
the Current Asset Base attributable to Inventory. All such policies of
insurance shall be in form and substance satisfactory to Agent and Borrower
shall not amend or otherwise change any such policies in any way which may
adversely affect Agent or the Lenders without the prior written consent of
Agent. Borrower shall deliver to Agent the original (or a certified) copy of
each policy of insurance and evidence of payment of all premiums therefor.
Such policies of insurance shall contain an endorsement, in substantially the
form of Exhibit K hereto, showing all loss payable to Agent as provided below
in this Subsection 7.7. Borrower hereby directs all insurers under such
policies of insurance to pay all proceeds of insurance policies directly to
Agent. Borrower irrevocably makes, constitutes and appoints Agent (and all
officers, employees or agents designated by Agent) as Borrower's true and
lawful attorney-in-fact for the purpose of making, settling and adjusting
claims as to the Collateral under all such policies of insurance, endorsing the
name of Borrower on any check, draft, instrument or other item of payment
pertaining to the Collateral received by Borrower or Agent pursuant to any such
policies of insurance and for making all determinations and decisions with
respect to such policies of insurance as they relate to the Collateral. If
Borrower, at any time or times hereafter, shall fail to obtain or maintain any
of the policies of insurance required above or to pay any premium in whole or
in part relating thereto, then Agent, without waiving or releasing any
obligation or default by Borrower hereunder, may at any time or times
thereafter (but shall be under no obligation to do so) obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect thereto which Agent deems advisable. If Agent receives proceeds of
insurance or is holding proceeds of insurance theretofore received by Agent,
Agent may apply the same to the Liabilities at any time and from time to time
as it may determine.
7.8 ERISA. Borrower shall deliver to Agent and Lenders, at Borrower's
expense, the following information as and when provided below:
(i) as soon as possible, and in any event within twenty (20) days after
Borrower or an ERISA Affiliate of Borrower knows or has reason to know that a
Termination Event has occurred, a written statement from an Authorized Officer
of Borrower describing such Termination Event and the action, if any, which
Borrower or such ERISA Affiliate of Borrower has taken, is taking or proposes
to take with respect thereto, and when known, any action taken or threatened by
the Internal Revenue Service ("IRS"), the Department of Labor ("DOL") or PBGC
with respect thereto;
(ii) as soon as possible, and in any event within thirty (30) days, after
Borrower or an ERISA Affiliate of Borrower knows or has reason to know that a
prohibited transaction (defined in Section 406 of ERISA and Section 4975 of the
Internal Revenue Code) has occurred, a statement from an Authorized Officer of
Borrower describing such transaction;
(iii) promptly after the filing thereof with the DOL, IRS or PBGC, copies
ofeach annual report, including schedule B thereto, filed with respect to each
Pension Plan;
(iv) promptly after the filing thereof with the IRS, a copy of each funding
waiver request filed with respect to any Pension Plan and all communications
received by Borrower or any ERISA Affiliate of Borrower with respect to such
request;
(v) promptly upon the occurrence thereof, notification of any increases in
the benefits of any existing Pension Plan or the establishment of any new
Pension Plan or the commencement of contributions to any Pension Plan to which
Borrower or any ERISA Affiliate of Borrower was not previously contributing;
(vi) promptly upon, and in any event within ten (10) Business Days after,
receipt by Borrower or an ERISA Affiliate of Borrower of the PBGC's intention
to terminate a Pension Plan or to have a trustee appointed to administer a
Pension Plan, copies of each such notice;
(vii) promptly upon, and in any event within ten (10) Business Days after,
receipt by Borrower or an ERISA Affiliate of Borrower of an unfavorable
determination letter from the IRS regarding the qualification of a Pension Plan
under Section 401(a) of the Internal Revenue Code, copies of such letter;
(viii) promptly upon, and in any event within ten (10) Business Days after,
receipt by Borrower or an ERISA Affiliate of Borrower of a notice from a
Multiemployer Plan regarding the imposition of withdrawal liability, copies of
such notice; and
(ix) promptly upon, and in any event within twenty (20) Business Days after
either Borrower or an ERISA Affiliate of Borrower fails to make a required
installment under Subsection (m) of Section 412 of the Code or any other
payment required under Section 412 on or before the due date for such
installment or payment, a notification of such failure.
Borrower shall, and shall cause each of its ERISA Affiliates to, (a) keep in
full force and affect any Pension Plans that are presently in existence or may,
from time to time, come into existence, (b) make contributions to all Pension
Plans in a timely manner and in a sufficient amount to comply with the
requirements of the Pension Plans, the Code and ERISA, (c) comply with all
requirements of ERISA and the Code which relate to all Pension Plans and (d)
notify each Lender immediately upon receipt by Borrower or any of its ERISA
Affiliates of any notice of the institution of any proceeding or other action
which may result in the termination of any Pension Plan or where there may
constitute a Termination Event. Borrower shall, and shall cause each of its
ERISA Affiliates to, make any and all payments to any Multiemployer Plan that
Borrower or any ERISA Affiliate thereof may be required to make under any
agreement relating to any Multiemployer Plan or any law pertaining thereto,
except for any such payments being contested in Good Faith by appropriate
proceedings.
7.9 Notice of Suit or Adverse Change in Business. Borrower shall, as soon
as possible, and in any event within five (5) days after any officer of
Borrower learns of the following, give written notice to each Lender of (i) any
material proceeding(s) (including, without limitation, litigation, arbitration
or governmental proceedings) being instituted or threatened to be instituted by
or against Borrower in any federal, state, local or foreign court or before any
commission or other regulatory body (federal, state, local or foreign), (ii)
notice that Borrower's operations are in material noncompliance with
requirements of applicable federal, state or local environmental, health and
safety statutes and regulations, (iii) notice that Borrower or any guarantor is
subject to federal or state investigation evaluating whether any material
remedial action is needed to respond to the release of any hazardous or toxic
waste, substance or constituent, or other substance into the environment, (iv)
notice that any material portion of the properties or assets of Borrower or any
guarantor are subject to an Environmental Lien, (v) any material adverse change
in the business, assets or condition, financial or otherwise, of Borrower, and
(vi)any changes in the locations of any Collateral from the locations listed
on Schedule 3.15.
7.10 Supervening Illegality. If, at any time or times hereafter, there
shall become effective any amendment to, deletion from or revision,
modification or other change in any provision of any statute, or any rule,
regulation or interpretation thereunder or any similar law or regulation,
affecting, in Agent's reasonable determination, Lenders' or the Issuing Bank's
extension of credit described in this Agreement or the selling of
participations therein, Borrower shall, at Borrower's option, either (i) pay to
Lenders the then outstanding balance of the Liabilities, and hold Lenders
harmless from and against any and all obligations, fees, liabilities, losses,
penalties, costs, expenses and damages, of every kind and nature, imposed upon
or incurred by Borrower by reason of Agent's, any Lender's or the Issuing
Bank's failure or inability to comply with the terms of this Agreement or any
of the other Financing Agreements, or (ii) indemnify and hold Agent, Lenders
and the Issuing Bank harmless from and against any and all obligations, fees,
liabilities, losses, penalties, costs, expenses and damages, of every kind and
nature, imposed upon or incurred by Agent, any Lender or the Issuing Bank by
reason of such amendment, deletion, revision, modification, or other change.
The obligations of Borrower under this Subsection 7.10 shall survive payment of
the Liabilities and termination of this Agreement.
7.11 Environmental Laws. If Borrower shall (a) receive notice that any
violation of any federal, state or local environmental law or regulation may
have been committed or is about to be committed by Borrower, (b) receive notice
that any administrative or judicial complaint or order has been filed or is
about to be filed against Borrower alleging a violation of any federal, state
or local environmental law or regulation or requiring Borrower to take any
action in connection with the release of toxic or hazardous substances into the
environment or (c) receive any notice from a federal, state, or local
governmental agency or private party alleging that Borrower may be liable or
responsible for any material amount of costs associated with a response to or
cleanup of a release of a toxic or hazardous substance into the environment or
any damages caused thereby, Borrower shall provide Agent with a copy of such
notice within fifteen (15) days after Borrower's receipt thereof. Within
fifteen (15) days after Borrower has learned of the enactment or promulgation
of any federal, state or local environmental law or regulation which may result
in any material adverse change in the condition, financial or otherwise, of
Borrower, Borrower shall provide Agent with notice thereof.
7.12 Landlord Consents and Waivers. Borrower shall, upon the execution of
this Agreement with respect to each lease of premises then in effect on the
date hereof and on or before the date of execution of any lease of premises to
Borrower with respect to any lease in effect thereafter, deliver to Agent a
landlord's waiver (including, upon Agent's request therefor, a consent to a
leasehold mortgage) executed by the lessor of each location leased to Borrower.
Each landlord's waiver so delivered shall be in form and substance satisfactory
to Agent. Borrower shall pay all of its obligations under such leases of real
property when due and promptly shall notify Agent of any breach of, or default
under, any such lease.
7.13 Key Man Life Insurance. Borrower shall at all times maintain in
effect a life insurance policy insuring the life of F. William Weber in the
amount of $500,000 under a policy or policies of insurance in form and
substance reasonably satisfactory to Agent. Borrower shall deliver to Agent
the original of each of such policies of insurance and evidence of payment of
all premiums therefor. Borrower shall assign each such policy to Agent and
shall take such other action with respect thereto as Agent shall require. Each
such policy of insurance shall name Borrower as the sole named beneficiary
thereof and shall contain endorsements providing that (i) such policy may not
be canceled except after 30 days' prior written notice to Agent, and (ii) the
beneficiary of such policy may not be changed, or additional beneficiaries
named, without Agent's prior written consent. If Borrower at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium in whole or in part relating thereto, then
Agent, without waiving or releasing any obligation or default by Borrower
hereunder, may at any time or times thereafter (but shall be under no
obligation to do so) obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect thereto which Agent deems
advisable.
8. NEGATIVE COVENANTS.
Borrower covenants and agrees that so long as any of the Liabilities remain
outstanding, and (even if there shall be no Liabilities outstanding) so long as
this Agreement remains in effect:
8.1 Encumbrances. Except as set forth on Schedule 8.1 hereto, or
contemplated herein, Borrower will not create, incur, assume or suffer to exist
any security interest, mortgage, pledge, lien or other encumbrance of any
nature whatsoever on any of its assets, including, without limitation, the
Collateral, other than: (i) involuntary liens on real property (and not
personal property of Borrower), either not yet due or the validity of which is
being contested in good faith by appropriate proceedings, and as to which
Borrower shall, if appropriate under GAAP, have set aside on its books and
records adequate reserves; (ii) deposits under workmen's compensation,
unemployment insurance, social security and other similar laws, or to secure
the performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure indemnity, performance or other similar bonds for
the performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure statutory obligations or surety or appeal bonds,
or to secure indemnity, performance or other similar bonds in the ordinary
course of business; (iii) the liens and security interests in favor of Agent;
(iv) liens which arise by operation of law, other than Environmental Liens; (v)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property; (vi) liens securing purchase money
security interests permitted under Subsection 8.2(iii) hereof; (vii)
consignments of goods to Borrower provided such consignment arrangement is
permitted by Subsection 3.17; and (viii) other liens and encumbrances on
property which are not in the aggregate in excess of $150,000 or, which do not,
in Agent's sole determination, (a) materially impair the use of such property,
or (b) materially lessen the value of such property for the purposes for which
the same is held by Borrower. Borrower shall promptly give Lender notice of
any liens of a type referred to in clause (i) above (other than liens for taxes
not yet due).
8.2 Indebtedness. Except as set forth on Schedule 8.2 attached hereto,
Borrower shall not incur, create, assume, become or be liable in any manner
with respect to, or permit to exist, any Indebtedness, except (i) the
Liabilities, (ii) unsecured indebtedness not to exceed $250,000 in the
aggregate at any time outstanding incurred on terms reasonably acceptable to
Agent, and (iii) indebtedness not to exceed $500,000 in the aggregate
outstanding at any time incurred in connection with the purchase of any
hereafter acquired Equipment constituting office or data processing equipment
not attached to production equipment so long as such indebtedness is used to
finance not more than 100% of the purchase price of such property and provided
that, after giving effect to the incurrence of such indebtedness, no Default or
Event of Default has occurred and is continuing.
8.3 Consolidations, Mergers or Acquisitions. Borrower shall not
recapitalize or consolidate or merge with, or otherwise acquire all or
substantially all of the assets or properties of, any other Person; provided,
however, Borrower may acquire the assets of any Person that constitute a
business in the same general line of business as that presently conducted by
Borrower (each such acquisition by Borrower of such assets that is permitted by
this Agreement is referred to herein as a "Permitted Acquisition"), provided:
(A) The aggregate Acquisition Purchase Price (as defined herein) of all
Permitted Acquisitions in any Fiscal Year shall not exceed $3,000,000 (for
purposes of this Subsection 8.3, "Acquisition Purchase Price" shall mean the
total purchase price of any single acquisition of assets permitted by this
Subsection 8.3, calculated as the sum of (i) the amount of cash (or capital
stock of Borrower) paid or payable by Borrower in connection with the Permitted
Acquisition, including, without limitation, amounts paid or payable as the
deferred purchase price or under noncompete agreements, plus (ii) the aggregate
amount of all liabilities and obligations assumed by Borrower in connection
with such acquisition of assets;
(B) The Acquisition Purchase Price is paid solely in cash or capital stock
of the Borrower, or by an assumption of liabilities by Borrower;
(c) Borrower shall have provided to each Lender not less than thirty (30)
days prior to the consummation of any Permitted Acquisition, written notice
thereof together with all agreements and other documents to be executed in
connection therewith and all other information related to such Permitted
Acquisition requested by any Lender;
(D) Borrower shall have executed and delivered to Agent all financing
statements or other documents as Agent may request, in form and substance
satisfactory to Agent, to perfect and keep perfected a first priority security
interest in the assets to be purchased pursuant to any Permitted Acquisition;
(E) After giving effect to the Permitted Acquisition and the payment of the
Acquisition Purchase Price, Borrower shall have Excess Availability of at least
$5,000,000; and
(F) Both before and after giving effect to the Permitted Acquisition, no
Default or Event of Default shall exist.
8.4 Investments or Loans. Borrower shall not make or permit to exist
investments or loans in or to any other Person, except (i) investments in
short-term direct obligations of the United States Government, (ii)
investments in negotiable certificates of deposit issued by any Lender or an
affiliate of a Lender or by any other bank satisfactory to Agent, in its
reasonable discretion, and payable to the order of Borrower or to bearer and
delivered to Agent, (iii) investments in commercial paper rated A1 or P1, (iv)
advances and reimbursements for travel, entertainment and other reasonable and
customary out-of-pocket expenses to Borrower's officers, directors or employees
incurred in the ordinary course of Borrower's business, and (v) the
existing loan by Borrower to F. William Weber described on Schedule 8.11
hereto.
8.5 Guarantees. Except as contemplated herein, Borrower shall not
guarantee, endorse or otherwise in any way become or be responsible for
obligations of any other Person, whether by agreement to purchase the
indebtedness of any other Person or through the purchase of goods, supplies or
services, or maintenance of working capital or other balance sheet covenants or
conditions, or by way of stock purchase, capital contribution, advance or loan
for the purpose of paying or discharging any indebtedness or obligation of such
other Person or otherwise, except endorsements of negotiable instruments for
collection in the ordinary course of business.
8.6 Capital Investment Limitations; Lease Limitations. Borrower shall not
incur Capital Expenditures in any Fiscal Year in an amount in excess of the sum
of (i) the net proceeds received by Borrower in such Fiscal Year from the sale
of Equipment and (ii) the amount set forth below opposite such Fiscal Year:
Fiscal Year Ending: Amount
July 31, 1997 $ 7,750,000
July 31, 1998 $12,000,000
July 31, 1999 $10,000,000
July 31, 2000 and thereafter $ 5,000,000
[Intentionally Omitted]
8.8 Dividends and Stock Redemptions. Borrower shall not, without the
prior written consent of the Required Lenders, directly or indirectly, (i)
redeem, purchase or otherwise retire any of its shares of capital stock, or
enter into any agreement to redeem, purchase or otherwise retire any of its
shares of capital stock, (ii) declare or pay any dividends in any Fiscal Year
on any class or classes of capital stock, (iii) return capital of Borrower to
its stockholders, or (iv) make any other distribution on or in respect of any
shares of any class of capital stock of Borrower, including without limitation
any distribution or payment on or in respect of any stock appreciation rights,
or enter into any agreement to make any such distribution or payment (clauses
through (iv) are hereinafter collectively referred to as "Dividends and
Distributions"); provided, however, that if no Default or Event of Default has
occurred and is continuing or would occur as a result thereof, then Borrower
may make cash payments for the redemption or repurchase of capital stock of
Borrower, provided that all such cash payments do not exceed $500,000 in the
aggregate in any Fiscal Year and Borrower may otherwise redeem or repurchase
capital stock of Borrower with other capital stock of the Borrower.
[Intentionally Omitted].
8.10 Amendment of Certificate of Incorporation or By-Laws; Corporate Name;
Places of Business. Borrower shall not amend its Certificate of Incorporation
or By-Laws, except that Borrower may amend its Certificate of Incorporation to
effect a change in its corporate name, provided that Borrower furnishes to
Agent such financing statements executed by Borrower which Agent may request
prior to the filing of such amendment and furnishes to Agent a copy of such
amendment, certified by the Secretary of State of Oklahoma within ten (10)
days of the date such amendment is filed with such Secretary of State.
Borrower shall not make any change to the location of its principal place of
business or chief executive office unless prior to the effective date of such
change in location, Borrower delivers to Agent such financing statements
executed by Borrower which Agent may request to reflect such change in
location. Lenders shall not unreasonably withhold their consent to any
requested change in Borrower's By-Laws. Borrower shall deliver such other
documents and instruments as Agent may request in connection with such change
in name or location within ten (10) days of the effectiveness of such change
or Agent's request therefor.
8.11 Transactions with Subsidiaries and Affiliates. Borrower will not
enter into any transaction with any Affiliate, including, without limitation:
(a) the making of any loans to, or the payment of any bonuses, fees or other
money to, any Affiliate, and (b) the purchase, sale or exchange of property or
the rendering of any service to any Subsidiary or Affiliate, except for (i)
salaries and bonuses paid to officers of Borrower and (ii) the transactions
listed on Schedule 8.11, in each case with respect to clauses (i) and (ii)
above, to the extent the same are in the ordinary course of and pursuant to
the reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to Borrower than Borrower would obtain in a comparable
arm's-length transaction with an unaffiliated person or corporation. The term
"Affiliate" as used in this Subsection 8.11 only shall have the meaning in
Subsection 1.1 and shall also include (i) any officer, director, employee or
stockholder of any Affiliate of Borrower, and (ii) any Person related to any
such Person described in clause (i) of this Subsection within the third degree
of consanguinity.
8.12 ERISA Violations. Borrower shall not:
(A) engage, or permit an ERISA Affiliate of Borrower to engage, in any
prohibited transaction described in Section 406 of ERISA or Section 4975 of the
Internal Revenue Code for which a class exemption is not available or a private
exemption has not been previously obtained from the DOL;
(B) permit to exist any accumulated funding deficiency for any Pension Plan
(as defined in Subsection 302 of ERISA and Section 412 of the Internal Revenue
Code), whether or not waived;
(C) fail, or permit an ERISA Affiliate of Borrower to fail, to pay timely
required contributions or annual installments due with respect to any Plan
including without limitation any installments due with respect to any waived
funding deficiency to any Pension Plan;
(D) terminate, or permit an ERISA Affiliate of Borrower to terminate, any
Pension Plan which would result in any liability of Borrower or an ERISA
Affiliate of Borrower under Title IV of ERISA;
(E) fail, or permit an ERISA Affiliate of Borrower to fail, to pay to any
Pension Plan any required installment under section (m) of Section 412 of the
Internal Revenue Code or any other payment required under Section 412 of the
Internal Revenue Code on or before the due date for such installment or other
payment;
(F) amend, or permit an ERISA Affiliate of Borrower to amend, a Pension
Plan resulting in an increase in current liability for the plan year such that
either Borrower or an ERISA Affiliate of Borrower is required to provide
security to such Plan under Section 401(a) (29) of the Internal Revenue Code;
permit any reportable event (as defined in Section 4043 of ERISA) to occur;
(G) withdraw, or permit any ERISA Affiliate to withdraw, from any Pension
Plan during a plan year for which Borrower or any ERISA Affiliate of Borrower is
a substantial employer with respect to such plan if Borrower or such ERISA
Affiliate of Borrower would incur liability to the PBGC with respect to such
plan under Sections 4063 or 4064 of ERISA; or
withdraw, or permit any ERISA Affiliate of Borrower to withdraw, from
anyMultiemployer Plan if a withdrawal liability would result to Borrower or any
ERISA Affiliate of Borrower pursuant to Section 4201 of ERISA.
Fiscal Year. Borrower shall not change its Fiscal Year.
Subsidiaries. Borrower shall not form or acquire any Subsidiaries.
Financial Covenants. Borrower shall not:
(A) Debt Coverage Ratio. Permit its Debt Coverage Ratio for any twelve
month period ending with the last day of a fiscal quarter ending on or after
July 31, 1997 to be less than 2.5 to 1.0. As used herein the term "Debt
Coverage Ratio" shall mean for any period, without duplication, Borrower's
ratio of (A) EBIDA to (B) an amount equal to the sum of the following for such
period: (i) the sum of interest expense; plus (ii) the sum of all principal
payments on Indebtedness, other than required principal payments on the
Revolving Loan; plus (iii) the aggregate amount of all Dividends and
Distributions (except to the extent the same are payable solely in capital
stock of Borrower).
Leverage Ratio. Permit its Leverage Ratio to at any time exceed .875
toAs used herein the term "Leverage Ratio" shall mean, at any time,
Borrower's ratio of Indebtedness to net worth at such time.
Environmental.
(A) Borrower shall not (i) fail to comply with any and all present and
future Environmental Laws unless and to the extent contested by Borrower in
accordance with the provisions of Subsection 8.16 (B) below, (ii) release,
store, treat, handle, generate, discharge or dispose of any Hazardous Materials
on, under or from any Property in violation of or in a manner that Borrower
reasonably expects could result in any liability under any Environmental Law,
and (iii) fail to take any necessary steps to initiate and expeditiously
complete all remedial, corrective and other action to eliminate any such
effect. Agent shall have the right at any time that the Liabilities are
outstanding but not more than once every year, at the sole cost and expense of
Agent and each Lender, to conduct an environmental audit of the Mortgaged
Property by such Persons appointed by Agent, and Borrower shall cooperate in
all respects in the conduct of such environmental audit, including, without
limitation, by providing access to the Mortgaged Property and to all records
relating thereto; provided, however, that if (1) such audit reveals any non-
compliance by Borrower with the terms of this Subsection 8.16 or (2) there
exists at the time of such audit any Event of Default, then all costs and
expenses incurred by Agent or the Lenders in connection such environmental
audit shall be immediately due and payable by Borrower to Agent upon Agent's
demand therefor and if not then paid shall accrue interest at the Post-Default
Rate. To the extent that any environmental audit identifies conditions which
do not satisfy the covenants of this Subsection 8.16, Borrower agrees, within
thirty (30) days after receipt of the Non-Compliance Notice, to initiate and
thereafter continue with due diligence all reasonable steps to correct any
failure to comply with such covenants. Borrower shall indemnify and hold Agent
and each Lender harmless from and against all loss, cost, damage or expense
(including, without limitation, reasonable attorneys' fees and disbursements
and the allocated costs of staff counsel) that Borrower or such Lender may
sustain by reason of the assertion against Agent or such Lender by any party of
any claim relating to any Hazardous Materials on, under or from any Property or
actions taken with respect thereto as authorized hereunder. The foregoing
indemnification shall survive repayment of all Liabilities and any release or
assignment of any Financing Agreement.
(B) Borrower may at its own expense contest the amount or applicability of
any of the obligations described in Subsection 8.16(A) by appropriate legal
proceedings, prosecution of which operates to prevent the collection or
enforcement thereof and the sale or forfeiture of any Property or any part
thereof to satisfy such obligations; provided, however, that in connection with
such contest, Borrower shall have made provision for the payment or performance
of such contested obligation on Borrower's books if and to the extent required
by GAAP or, at the option of Agent, deposited with Agent to hold for the
benefit of Borrower a sum sufficient to pay and discharge such obligation and
Agent's estimate of all interest and penalties related thereto. Any such
deposit (and any income earned thereon) not otherwise needed or used to pay
such obligation, interest or penalties after the same shall be finally
determined shall be promptly returned to Borrower. Notwithstanding the
foregoing provisions of this Subsection 8.16(B), (i) no contest of any such
obligations may be pursued by Borrower if such contest would expose Agent or
any Lender to any possible criminal liability or, unless Borrower shall have
furnished a bond or other security therefor satisfactory to Agent or such
Lender, as the case may be, any civil liability for failure to comply with such
obligations and (ii) if at any time payment or performance of any obligation
contested by Borrower pursuant to this Subsection 8.16(B) shall become
necessary to prevent the delivery of a tax or similar deed conveying any
Property or any portion thereof or the forfeiture of, or termination of
Borrower's interest in, any Property or any portion thereof because of
nonpayment or nonperformance, Borrower shall pay or perform the same, in
sufficient time to prevent the delivery of such tax or similar deed or such
termination or forfeiture.
8.17 Disposal of Property. Borrower shall not sell, lease, transfer or
otherwise dispose of any of the Collateral or any of its other properties,
assets and rights to any Person, except for (i) sales of Inventory to customers
in the ordinary course of business and (ii) the sale of Equipment in the
ordinary course of Borrower's business at any time when no Default or Event of
Default has occurred and is continuing; provided that Borrower shall not sell
Equipment with an aggregate value greater than $500,000 during any Fiscal Year
without the consent of the Required Lenders (provided that no Lender shall
unreasonably withhold its consent to such a sale). The term "value" as used in
this Subsection 8.17 shall mean, as to any item of Equipment, the greater of
(a) the proceeds received for such items of Equipment upon disposition (net of
taxes and reasonable expenses incurred by Borrower in connection with such
disposition) or (b)(i) if such item is listed on the equipment appraisal
delivered to Agent in June, 1997 (the "Appraisal"), the appraised "orderly
liquidation value" set forth for such item thereon, or (ii) if such item is not
listed on the Appraisal, Borrower's net book value for such item.
8.18 Inventory Covenants. Except as permitted by Subsection 3.13, Borrower
shall not sell any of the Inventory on a bill-and-hold, guaranteed sale, sale-
or-return, sale on approval or consignment basis or any other basis subject to
a repurchase obligation or return right (other than Borrower's customary
practice of accepting returns of Inventory within stated time periods as such
practice is now in effect as heretofore described to Agent). Except as
permitted by Subsection 3.17, Borrower shall not hold any inventory of others,
whether on a consignment basis or otherwise, except that Borrower may from time
to time accept inventory of third parties for tolling provided that (i) it is
performed by Borrower on a sporadic, exceptional basis, and (ii) the goods are
not included in Borrower's Inventory.
DEFAULT, RIGHTS AND REMEDIES OF LENDERS AND AGENT.
Defaults. If any of the following events ("Defaults") shall occur:
(A) Borrower fails to pay (i) any of its Liabilities (other than interest
or fees) when such Liabilities are due or are declared due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) or
any of its Liabilities constituting interest or fees within two days of
the date such Liabilities are due or declared due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise);
(B) Borrower fails or neglects to perform, keep or observe any of its
covenants, conditions or agreements contained in any of the other Financing
Agreements or Borrower fails or neglects to perform, keep or observe any of
its covenants, conditions or agreements contained in:
(i) Subsection 7.2 above and such failure shall continue for more than 24
hours after notice of such failure by Agent to Borrower;
(ii) Subsection 3.1 above and such failure shall continue for three (3)
Business Days; provided that such grace period shall not apply, and a Default
shall be deemed to have occurred promptly upon such breach, if such breach
may not, in Agent's reasonable determination, be cured during such grace
period;
Subsections 7.1 (other than clause (E) thereof), 7.3 (other than clause
thereof), or 7.8 above and such failure shall continue for five (5) days;
provided that such grace period shall not apply, and a Default shall be deemed
to have occurred promptly upon such breach, if such breach may not, in Agent's
reasonable determination, be cured during such grace period;
(iv) Subsection 7.6 above and such failure shall continue for 14 days after
Borrower knew or should have known thereof; provided that such grace period
shall not apply, and a Default shall be deemed to have occurred promptly upon
such breach, if such breach may not, in Agent's reasonable determination, be
cured during such grace period;
(v) Subsections 7.4, 7.5, 7.10 or 7.12 and such failure shall continue for
thirty (30) days (such 30 days to begin solely for the purposes of a failure to
comply with Subsection 7.4, when Borrower knew or should have known of such
failure); provided that such grace period shall not apply, and a Default shall
be deemed to have occurred promptly upon such breach, if such breach may not,
in Agent's reasonable determination, be cured during such grace period; and
(vi) any other covenant, condition or agreement contained in this Agreement;
(C) any warranty or representation now or hereafter made by Borrower is
untrue or incorrect in any material respect when made, or any schedule,
certificate, statement, report, financial data, notice, or writing furnished at
any time by Borrower to Agent or any Lender is untrue or incorrect in any
material respect on the date as of which the facts set forth therein are stated
or certified or any of the foregoing omits to state a fact necessary to make
the statements therein contained not misleading in any material respect;
(D) a judgment or order requiring payment in excess of $250,000 (except for
judgments which are not a lien on personal property and which are being
contested by Borrower in good faith) shall be rendered against Borrower and
such judgment or order shall remain unsatisfied or undischarged and in effect
for thirty (30) consecutive days without a stay of enforcement or execution,
provided that this Subsection 9.1(D) shall not apply to any judgment for which
Borrower is fully insured (except for normal deductibles in connection
therewith) and with respect to which the insurer has assumed the defense and
is not defending under reservation of right and with respect to which Agent
reasonably believes the insurer will pay the full amount thereof (except for
normal deductibles in connection therewith);
(E) a notice of lien, levy or assessment is filed or recorded with respect
to all or a substantial part of the assets of Borrower by the United States,
or any department, agency or instrumentality thereof, or by any state, county,
municipality or other governmental agency or any taxes or debts owing at any
time or times hereafter to any one or more of them become a lien upon all or a
substantial part of Borrower's Collateral, and (i) such lien, levy or
assessment is not discharged or released or the enforcement thereof is not
stayed within thirty (30) days of the notice or attachment thereof, or (ii) if
the enforcement thereof is stayed, such stay shall cease to be in effect,
provided that this Subsection 9.1(E) shall not apply to any liens, levies or
assessments which relate to current taxes not yet due and payable;
(F) there shall occur any loss, theft, substantial damage or destruction of
any item or items of Borrower's Collateral for which Borrower is not fully
insured as required by this Agreement, the other Financing Agreements or any
guarantee (a "Loss"), if the amount of such Loss not fully covered by insurance
(including any deductible in connection therewith), together with the amount of
all other Losses not fully covered by insurance (including any deductibles in
connection therewith) occurring in the same Fiscal Year, exceeds $250,000;
(G) all or any part of Borrower's Collateral is attached, seized, subjected
to a writ or distress warrant, or is levied upon, or comes within the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors and on or before the thirtieth (30th) day thereafter such assets are
not returned to Borrower and/or such writ, distress warrant or levy is not
dismissed, stayed or lifted if the amount of such Collateral or assets or
collateral, together with any other such Collateral, assets and collateral that
is so attached, seized, subjected to writ or distress warrant or levied upon,
exceeds $250,000 at any time;
(H) a proceeding under any bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt or receivership law or statute is filed (i)
against Borrower and an adjudication or appointment is made or order for relief
is entered, or such proceeding remains undismissed for a period in excess of
sixty (60) days, or (ii) by Borrower or Borrower makes an assignment for the
benefit of creditors or Borrower takes any corporate action to authorize any of
the foregoing;
(I) Borrower voluntarily or involuntarily dissolves or is dissolved,
terminates or is terminated;
(J) Borrower becomes insolvent or fails generally to pay its debts as they
become due;
(K) Borrower is enjoined, restrained, or in any way prevented by the order
of any court or any administrative or regulatory agency from conducting all or
any part of its business affairs;
(L) a breach by Borrower shall occur under any material agreement, document
or instrument (other than an agreement, document or instrument evidencing the
lending of money), whether heretofore, now or hereafter existing between
Borrower and any other Person, and such breach continues unwaived for more
than thirty (30) days after such breach first occurs, provided that such grace
period shall not apply, and a Default shall be deemed to have occurred promptly
upon such breach, if such breach may not, in Agent's reasonable determination,
be cured by Borrower during such thirty (30) day grace period;
(M) as to more than $250,000 in Indebtedness in the aggregate at any time (i)
Borrower shall fail to make any payment due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) on any other obligation
for borrowed money and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Indebtedness; or (ii) any such Indebtedness shall be declared to be due and
payable or required to be prepaid (other than by a regularly scheduled required
prepayment) or accelerated prior to the stated maturity thereof;
a material and adverse change shall occur (i) in the present or reasonably
foreseeable prospective operations or financial condition of Borrower
or in the value of any material portion of the Collateral, or (ii) which
materially impairs the ability of Borrower to perform Borrower's obligations
under this Agreement and the other Financing Agreements, in each case as
determined by the Required Lenders in its sole discretion exercised in Good
Faith;
(O) (i) F. William Weber and Dana S. Weber shall fail to possess the power to
direct or cause the direction of the management and policies of Borrower, (ii)
F. William Weber, Martha A. Weber, Dana S. Weber, Kimberly A.W. Frank, Ashley
Roye Weber or any of their lineal descendants shall cease to own beneficially
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) 35% of the combined voting power of all classes of capital stock of
Borrower having the power to elect directors of Borrower or (iii) any Change of
Control (as defined in the Officer Employment Contracts, dated as of December
31, 1996, between Borrower and each of F. William Weber and Dana S. Weber, as
such agreements are in effect on January 1, 1997) shall occur;
(P) the plan administrator of any Pension Plan applies under Section 412(d)
of the Internal Revenue Code for a waiver of the minimum funding standards of
Section 412(a) of the Internal Revenue Code and Agent in good faith believes
that the approval of such waiver could subject either Borrower or an ERISA
Affiliate of Borrower to liability in excess of $100,000;
(Q) an accumulated funding deficiency (as defined in Section 203 of ERISA and
Section 412 of the Code) exists with respect to any Pension Plan as of the last
day of any plan year;
(R) as of the last day of any plan year, the present value of the benefits
under any Pension Plan, as determined by such Plan's independent actuaries,
exceeds the value as of such date, as determined by such actuaries, of all
assets of such Plan by $100,000;
the aggregate present value of the benefits under all Pension Plans that
do not satisfy clause (R) above, as of the end of each Plan's plan year, as
determined by such Plans' independent actuaries, exceeds the aggregate value
as of such date, as determined by such actuaries, of all assets of all such
Pension Plans by $100,000; or
a Termination Event occurs which Agent in Good Faith believes could
individually, or together with any other Termination Event subject either
Borrower or an ERISA Affiliate of Borrower to liability in excess of $100,000;
then Agent shall, upon the written, telecopied or telex request of the Required
Lenders, upon notice to Borrower take any or all of the following actions,
without prejudice to the rights of Agent, any Lender or the holder of any
Revolving Note or Term Note to enforce its claim against Borrower, (i)
terminate Lenders' obligations to make Revolving Loans to Borrower pursuant to
Subsection 2.2 and the obligation of Agent to request the Issuing Bank to issue
any Letters of Credit and the obligation of the Issuing Bank to issue any
Letter of Credit pursuant to Subsection 2.19, and/or (ii) declare all of the
Liabilities to be immediately due and payable, whereupon all of the Liabilities
shall become immediately due and payable, except that in the event a Default
described in Subsection 9.1(H) or 9.1(I) hereof shall exist or occur, all of
the Liabilities shall automatically, without notice of any kind, be immediately
due and payable.
If at any time after acceleration of the maturity of the Liabilities, Borrower
shall pay all arrears of interest and all payments on account of principal of
the Liabilities which shall have become due otherwise than by acceleration
(with interest on principal and, to the extent permitted by law, on overdue
interest, at the rates specified in this Agreement) and all Events of Default
and Defaults (other than nonpayment of principal of and accrued interest on the
Liabilities due and payable solely by virtue of acceleration) shall be remedied
or waived, then by written notice to Borrower, the Required Lenders may elect,
in the sole discretion of such Required Lenders, to rescind and annul the
acceleration of its consequences and return any cash collateral; but such
action shall not affect any subsequent Default or Event of Default or impair
any right or remedy consequent thereon. The provisions of the preceding
sentence are intended merely to bind Lenders to a decision which may be made at
the election of the Required Lenders; they are not intended to benefit Borrower
and do not give Borrower the right to require Lenders to rescind or annul any
acceleration hereunder or to return any cash collateral, even if the conditions
set forth herein are met.
9.2 Rights and Remedies Generally. In the event of a Default, Agent shall
have, in addition to any other rights and remedies contained in this Agreement
or in any of the other Financing Agreements, all of the rights and remedies of
a secured party under the Code or other applicable laws. All of the rights and
remedies of Agent and each Lender, whether under this Agreement, the other
Financing Agreements, the Code or other applicable laws or otherwise, shall be
cumulative, and non-exclusive, to the extent permitted by law. In addition to
all such rights and remedies, the sale, lease or other disposition of the
Collateral, or any part thereof, by Agent after Default may be for cash, credit
or any combination thereof, and Agent or any Lender may purchase all or any
part of the Collateral at public or, if permitted by law, private sale, and in
lieu of actual payment of such purchase price, may set-off the amount of such
purchase price against the Liabilities then owing. Any sales of the Collateral
may be adjourned from time to time with or without notice. Agent may, in its
sole discretion, cause the Collateral to remain on the premises of Borrower, at
Borrower's expense, pending sale or other disposition of the Collateral. Agent
shall have the right to conduct such sales on such premises, at Borrower's
expense, or elsewhere, on such occasion or occasions as Agent may see fit.
9.3 Entry Upon Premises and Access to Information. In the event of a
Default, Agent shall have the right to enter upon the premises of Borrower
where the Collateral is located (or is believed to be located) without any
obligation to pay rent to Borrower, or any other place or places where the
Collateral is believed to be located and kept, and render the Collateral
unusable or remove the Collateral therefrom to the premises of Agent, any
Lender or any agent of Agent or any Lender, for such time as Agent may desire,
in order effectively to collect or liquidate the Collateral, and/or Agent may
require Borrower to assemble the Collateral and make it available to Agent or
any Lender at a place or places to be designated by Agent. In the event of a
Default, Agent shall have the right to obtain access to data processing
equipment, computer hardware and software of Borrower relating to the
Collateral and to use all of the foregoing and the information contained
therein in any manner Agent deems appropriate; and Agent shall have the right
to notify post office authorities to change the address for delivery of mail
of Borrower to an address designated by Agent and to receive, open and deal
with all mail addressed to Borrower.
9.4 Sale or Other Disposition of Collateral by Agent. Any notice required
to be given by Agent of a sale, lease or other disposition or other intended
action by Agent with respect to any of the Collateral which is deposited in the
United States mails, postage prepaid and duly addressed to Borrower at the
address specified in Subsection 11.17 hereof, at least ten (10) Business Days
prior to such proposed action shall constitute fair and reasonable notice of
any such action. The net proceeds realized by Agent upon any such sale or
other disposition, after deduction for the expense of retaking, holding,
preparing for sale, selling or the like and the reasonable attorneys' fees and
legal expenses incurred by Agent in connection therewith, shall be applied as
provided herein toward satisfaction of the Liabilities, including, without
limitation, the Liabilities described in Subsections 7.5 and 11.2 hereof.
Agent and Lenders shall account to Borrower for any surplus realized upon such
sale or other disposition, and Borrower shall remain liable to Agent and each
Lender for any deficiency. The commencement of any action, legal or equitable,
or the rendering of any judgment or decree for any deficiency shall not affect
Agent's security interest in the Collateral until the Liabilities are fully
paid. Borrower agrees that neither Agent nor any Lender has obligation to
preserve rights to the Collateral against any other parties. Agent is hereby
granted a license or other right to use, without charge, labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks and advertising matter, or any property of a similar nature of
Borrower, as it pertains to the Collateral, in completing production of,
advertising for sale and selling any Collateral and rights under all licenses
and all franchise agreements of Borrower shall inure to Agent's benefit until
the Liabilities are paid.
9.5 Waiver of Demand. Demand, presentment, protest and notice of
nonpayment are hereby waived by Borrower. Borrower also waives the benefit of
all valuation, appraisal and exemption laws.
9.6 Waiver of Notice. UPON THE OCCURRENCE AND DURING THE CONTINUANCE
OF A DEFAULT, BORROWER (PURSUANT TO AUTHORITY GRANTED BY ITS BOARD OF
DIRECTORS) HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO
THE EXERCISE BY AGENT OR ANY LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL
WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL
WITHOUT PRIOR NOTICE OR HEARING. BORROWER ACKNOWLEDGES THAT IT HAS BEEN
ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS
AGREEMENT.
AGENT
Appointment of Agent.
(A) Each Lender hereby designates ANB as Agent to act as herein specified.
Each Lender hereby irrevocably authorizes, and each holder of any Note or
participation in any Letter of Credit by the acceptance of a Note or
participation shall be deemed irrevocably to authorize, Agent to take such
action on its behalf under the provisions of this Agreement and the Notes and
any other instruments and agreements referred to herein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. Agent shall hold all
Collateral and all payments of principal, interest, Fees, charges and Expenses
received pursuant to this Agreement or any other Financing Agreements for the
benefit of Lenders and the Issuing Bank to be distributed as provided herein.
Agent may perform any of its duties hereunder by or through its agents or
employees.
(B) The provisions of this Section 10 are solely for the benefit of Agent,
Lenders and the Issuing Bank, and Borrower shall not have any rights as a
third party beneficiary of any of the provisions hereof (other than Subsection
10.9) nor shall Borrower have any obligations under this Section 10. In
performing its functions and duties under this Agreement, Agent shall act
solely as agent of Lenders and does not assume and shall not be deemed to have
assumed any obligation toward or relationship of agency or trust with or for
Borrower.
102. Nature of Duties of Agent. Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
other Financing Agreements. Neither Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted by it as
such hereunder or in connection herewith, unless caused by its or their own
gross negligence or willful misconduct. The duties of Agent shall be
mechanical and administrative in nature; Agent shall not have by reason of
this Agreement or the other Financing Agreements a fiduciary relationship in
respect of any Lender; and nothing in this Agreement or the other Financing
Agreements, expressed or implied, is intended to or shall be so construed as
to impose upon Agent any obligations in respect of this Agreement or the other
Financing Agreements except as expressly set forth herein or therein.
Lack of Reliance on Agent.
(A) Independently and without reliance upon Agent, each Lender, to the
extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial or other condition and affairs of
Borrower in connection with the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of
Borrower, and, except as expressly provided in this Agreement, Agent shall
have no duty or responsibility, either initially or on a continuing basis, to
provide any Lender with any credit or other information with respect thereto,
whether coming into its possession before the making of any Loan, Advance or
issuance of any Letter of Credit or at any time or times thereafter.
(B) Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability,
collectibility, priority or sufficiency of this Agreement, the Notes or the
other Financing Agreements or the financial or other condition of Borrower.
Agent shall not be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of
this Agreement, the Notes or any of the other Financing Agreements, or the
financial condition of Borrower, or the existence or possible existence of any
Default or Event of Default, unless specifically requested to do so in writing
by any Lender.
10.4 Certain Rights of Agent. Agent shall have the right to request
instructions from the Required Lenders at any time. If Agent shall request
instructions from the Required Lenders with respect to any act or action
(including the failure to act) in connection with this Agreement or any of the
other Financing Agreements, Agent shall be entitled to refrain from such act
or taking such action unless and until Agent shall have received instructions
from the Required Lenders, and Agent shall not incur liability to any Person
by reason of so refraining. Without limiting the foregoing, no Lender shall
have any right of action whatsoever against Agent as a result of Agent acting
or refraining from acting hereunder in accordance with the instructions of the
Required Lenders.
Reliance by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram,
order or other documentary, teletransmission or telephone message believed by
it to be genuine and correct and to have been signed, sent or made by the
proper person. Agent may consult with legal counsel (including counsel for
Borrower with respect to matters concerning Borrower and any of its
Subsidiaries), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken by it in
Good Faith in accordance with the advice of such counsel, accountants or
experts.
10.6 Indemnification of Agent. To the extent Agent is not reimbursed and
indemnified by Borrower, each Lender will reimburse and indemnify Agent, in
proportion to its Proportionate Share, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including counsel fees and disbursements) or
disbursements of any kind or nature whatsoever (including all Expenses) which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, in any way relating to or arising out of this Agreement,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from Agent's gross negligence or willful
misconduct.
10.7 Agent in its Individual Capacity. With respect to its obligation to
lend under this Agreement, any Loans made by it and the Notes issued to it,
and its participation in Letters of Credit issued hereunder, or its issuance
as the Issuing Bank of any Letter of Credit, Agent in its individual capacity
shall have the same rights and powers hereunder as any other Lender or holder
of a Note or participation interests or the Issuing Bank, as the case may be
and may exercise the same as though it was not performing the duties specified
herein; and the terms "Lenders," "Required Lenders," "Holders of Notes," or
"Issuing Bank" or any similar terms shall, unless the context clearly
otherwise indicates, include Agent in its individual capacity. Subject to
Subsection 10.13 hereof, Agent in its individual capacity may accept deposits
from, lend money to, acquire equity interests in, and generally engage in any
kind of banking, trust, financial advisory or other business with Borrower or
any Affiliate of Borrower as if it were not performing the duties specified
herein, and may accept fees and other consideration from Borrower for services
in connection with this Agreement and otherwise without having to account for
the same to Lenders.
10.8 Holders of Revolving Notes. Agent may deem and treat the original
named payee of any Note as the owner thereof for all purposes hereof unless and
until a written notice of the assignment or transfer thereof shall have been
filed with Agent. Any request, authority or consent of any Person who, at the
time of making such request or giving such authority or consent, is the holder
of any Note, shall be conclusive and binding on any subsequent holder,
transferee or assignee of such Note or of any Note or Notes issued in exchange
therefor.
Successor Agent.
(A) Agent may, upon five (5) Business Days' notice to Lenders and
Borrower, resign at any time (effective upon the appointment of a successor
Agent pursuant to the provisions of this Subsection 10.9) by giving written
notice thereof to Lenders and Borrower. Upon any such resignation, the
Required Lenders shall have the right, upon five (5) days' notice and approval
by Borrower (which approval shall not be unreasonably withheld), to appoint a
successor Agent. If no successor Agent (i) shall have been so appointed by
the Required Lenders, and (ii) shall have accepted such appointment, within
thirty (30) days after the retiring Agent's giving of notice of resignation,
then, upon five (5) days' notice, the retiring Agent may, on behalf of
Lenders, appoint a successor Agent. In the event that Agent ceases to be, in
its individual capacity, a Lender whose aggregate holding of outstanding Term
Loans and Revolving Loans plus the amount of its Revolving Loan Commitment
(net of the principal amount of its outstanding Revolving Loans) plus the
amount of its Revolving Proportionate Share of Letter of Credit Obligations
equals or exceeds $10,000,000 then such Agent may be removed by the Required
Lenders (other than Agent in its capacity as a Lender or as the Issuing Bank
and without giving effect to any portion of the Loans or Revolving Credit
Commitment made by Agent in its capacity as a Lender or Letter of Credit
issued by Agent in its capacity as the Issuing Bank) provided that the
Required Lenders concurrently appoint a successor Agent to which Borrower
consents (which consent shall not be unreasonably withheld).
(B) Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
(C) In the event of a material breach by Agent of its duties hereunder,
Agent may be removed by the Required Lenders (other than Agent in its capacity
as a Lender or as the Issuing Bank and without giving effect to any portion of
the Loans or Revolving Credit Commitment made by Agent in its capacity as a
Lender or Letters of Credit issued by Agent in its capacity as the Issuing
Bank) for cause and the provisions of this Subsection 10.9 shall apply to the
appointment of a successor Agent.
(D) If ANB is removed or resigns as Agent, ANB shall no longer be required
to act as the Issuing Bank with respect to Letters of Credit issued after the
effective date of its removal or resignation.
Collateral Matters.
(A) Each Lender authorizes and directs Agent to enter into the Financing
Agreements for the benefit of Lenders. Each Lender hereby agrees, and each
holder of any Note by the acceptance thereof will be deemed to agree, that,
except as otherwise set forth herein, any action taken by the Required Lenders
in accordance with the provisions of this Agreement or the Financing
Agreements and the exercise by the Required Lenders of the powers set forth
herein or therein, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of Lenders. Agent
is hereby authorized on behalf of all of Lenders, without the necessity of any
notice to or further consent from any Lender, from time to time prior to a
Default, to take any action with respect to any Collateral or Financing
Agreements which may be necessary to perfect and maintain perfected the
security interest in and Liens upon the Collateral granted pursuant to any of
the Financing Agreements.
(B) Lenders hereby authorize Agent to release any Lien granted to or held
by Agent upon any Collateral upon termination of this Agreement and the
Revolving Credit Commitments and payment and satisfaction of all of the
Liabilities at any time arising under or in respect of this Agreement and the
other Financing Agreements or the transactions contemplated hereby or thereby.
In addition, Lenders hereby authorize Agent to release any Lien granted to or
held by Agent upon any Collateral (i) constituting property being sold or
disposed of upon receipt of the proceeds of such sale by Agent if Borrower
certifies to Agent that the sale or disposition is made in compliance with
Subsection 8.17 hereof (and Agent may rely conclusively on any such
certificate, without further inquiry), or (ii) constituting Collateral with a
value as certified to Agent by Borrower of less than $1,000,000 in the
aggregate in any Fiscal Year (and Agent may rely conclusively on any such
certificate, without further inquiry). Upon request by Agent at any time,
Lenders will confirm in writing Agent's authority to release particular types
or items of Collateral pursuant to this Subsection 10.10.
(C) Upon the release of any Lien in accordance with Subsection 10.10(B),
and upon at least five (5) Business Days' prior written request by Borrower,
Agent shall (and is hereby irrevocably authorized by Lenders to) execute such
documents as may be necessary to evidence the release of such Liens; provided
that (i) Agent shall not be required to execute any such document on terms
which, in Agent's reasonable opinion, would expose Agent to liability or
create any obligation or entail any consequence other than the release of such
Liens without recourse or warranty and (ii) such release shall not in any
manner discharge, affect or impair the Liabilities or any Liens upon (or
obligations of Borrower in respect of) all interests retained by Borrower,
including (without limitation) the proceeds of the sale, all of which shall
continue to constitute part of the Collateral. In the event of any sale or
transfer of Collateral, or any foreclosure with respect to any of the
Collateral, Agent shall be authorized to deduct all of the Expenses reasonably
incurred by Agent from the proceeds of any such sale, transfer or foreclosure.
(D) Agent shall have no obligation whatsoever to Lenders or to any other
Person to assure that the Collateral exists or is owned by Borrower or any
other Person or is cared for, protected or insured or that the Liens granted
to Agent herein or pursuant hereto have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise or to continue exercising at all or in any
manner or under any duty of care, disclosure or fidelity any of the rights,
authorities and powers granted or available to Agent in this Subsection 10.10
or in any of the Financing Agreements it being understood and agreed that in
respect of the Collateral, or any act, omission or event related thereto,
Agent may act in any manner it may deem appropriate, in its sole discretion,
given Agent's own interest in the Collateral as one of Lenders and that Agent
shall have no duty or liability whatsoever to Lenders, except for its gross
negligence or willful misconduct.
10.11 Actions with Respect to Defaults. In addition to Agent's right to take
actions on its own accord as permitted under this Agreement, Agent shall take
such action with respect to a Default or Event of Default as shall be directed
by the Required Lenders; provided that until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable.
10.12 Delivery of Information. Agent shall not be required to deliver to
any Lender originals or copies of any documents, instruments, notices,
communications or other information received by Agent from Borrower, the
Required Lenders, any Lender or any other Person under or in connection with
this Agreement or any other Financing Agreement except (i) as specifically
provided in this Agreement or any other Financing Agreement and (ii) as
specifically requested from time to time in writing by any Lender with respect
to a specific document, instrument, notice or other written communication
received by and in the possession of Agent at the time of receipt of such
request and then only in accordance with such specific request.
10.13 Loans by Lenders. Without the prior written consent of the Required
Lenders, no Lender shall extend credit to Borrower or any of its Subsidiaries
(other than credit that is incidental to the maintenance of deposit accounts)
except pursuant to this Agreement.
10.14 Allocation of Payments. Prior to the occurrence of a Default
described in Subsection 9.1 (H), or acceleration of the maturity of the
Liabilities, payments on the Liabilities shall be allocated to Lenders as
follow: (i) payments of principal of, and interest on, the Term Loans and
Prepayment Fees relating to the prepayment of Term Loans shall be allocated to
Lenders based on their respective Term Proportionate Share, and (ii) payments
of principal of, and interest on, the Revolving Loans, the Facility Fees, the
L/C Fees and the Commitment Reduction Fees relating to any reduction in the
Total Revolving Commitments shall be based on their respective Revolving
Proportionate Share, subject to Subsection 2.5. Subject to Subsections 2.5
and 2.7, after the occurrence and during the continuance of a Default described
in Subsection 9.1(H) or after the acceleration of the maturity of the
Liabilities, payments of principal of, and interest on, all Loans shall be
allocated to Lenders based on their respective Proportionate Share; provided
that Liabilities with respect to the Interest Rate Obligations shall be secured
and paid pro rata with all other Liabilities.
MISCELLANEOUS.
11.1 Waiver, Amendments. Any failure by Agent, the Issuing Bank or any
Lender, at any time or times hereafter, to require strict performance by
Borrower of any provision of this Agreement or any of the other Financing
Agreements shall not waive, affect or diminish any right of Agent, the Issuing
Bank or any Lender thereafter to demand strict compliance and performance
therewith. Any suspension or waiver of a Default by Borrower under this
Agreement or any of the other Financing Agreements shall not suspend, waive or
affect any other Default by Borrower under this Agreement or any of the other
Financing Agreements, whether the same is prior or subsequent thereto and
whether of the same or of a different kind or character. No amendment or
waiver of any provision of this Agreement or any other Financing Agreement,
nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Required
Lenders (or by Agent on their behalf), or if Lenders shall not be parties
thereto, by the parties thereto and consented to by the Required Lenders (or
by Agent on their behalf), and each such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided that no amendment, waiver or consent shall, unless in writing
and signed by all Lenders, do any of the following: (i) increase the Total
Revolving Commitments of Lenders or subject Lenders to any additional
obligations, (ii) except as otherwise expressly provided in this Agreement,
reduce the principal of, or interest on, the Notes, any Letter of Credit
reimbursement obligations or any fees hereunder, (iii) postpone any date fixed
for any payment in respect of principal of, or interest on, the Notes, any
Letter of Credit reimbursement obligations or any fees hereunder, (iv) change
the percentage of the Revolving Credit Commitments, or any minimum
requirement, necessary for Lenders or the Required Lenders to take any action
hereunder, (v) amend or waive this Subsection 11.1, or change the definition
of Required Lenders, (vi) extend the Termination Date, or (vii) except as
otherwise expressly provided in this Agreement (including without limitation
as provided in Subsection 10.10(B) hereof), and other than in connection with
the financing, refinancing, sale or other disposition of any asset of Borrower
permitted under this Agreement, release any Liens in favor of Agent on all or
any substantial portion of the Collateral; provided, further, that no
amendment, waiver or consent affecting the rights or duties of Agent or the
Issuing Bank under any Financing Agreements shall in any event be effective,
unless in writing and signed by Agent or the Issuing Bank, in addition to
Lenders required hereinabove to take such action. Notwithstanding any of the
foregoing to the contrary, the consent of Borrower shall not be required for
any amendment, modification or waiver of the provisions of Section 10 (other
than the provisions of Subsection 10.9). In addition, Borrower and Lenders
hereby authorize Agent to modify this Agreement by unilaterally amending or
supplementing Schedule 1 from time to time in the manner requested by
Borrower, Agent or any Lender in order to reflect any assignments or transfers
of the Loans, and reductions in the Total Revolving Commitment as provided for
hereunder; provided, however, that Agent shall promptly deliver a copy of any
such modification to Borrower and each Lender. All Defaults shall continue
until the same are waived in accordance with this Subsection 11.1.
11.2 Costs and Attorneys' Fees. If at any time or times hereafter Agent
employs counsel in connection with protecting or perfecting Agent's security
interest in the Collateral or in connection with any matters contemplated by
or arising out of this Agreement or any of the other Financing Agreements,
whether (a) to prepare, negotiate or execute (i) any amendment to or
modification or extension of this Agreement, any other Financing Agreements or
any instrument, document or agreement executed by any Person in connection
with the transactions contemplated by this Agreement, (ii) any new or
supplemental Financing Agreements, or any instrument, document or agreement to
be executed by any Person in connection with the transactions contemplated by
this Agreement, or (iii) any instrument, document or agreement in connection
with any sale or attempted sale of any interest herein to any Person,
including any participant, (b) to commence, defend, or intervene in any
litigation or to file a petition, complaint, answer, motion or other
pleadings, (c) to take any other action in or with respect to any suit or
proceeding (bankruptcy or otherwise), (d) to consult with officers of Agent or
to advise Agent, (e) to protect, collect, lease, sell, take possession of,
release or liquidate any of the Collateral, or (f) to attempt to enforce or to
enforce any security interest in any of the Collateral, or to enforce any
rights of Agent or any Lender, including, without limitation, Agent's or any
Lender's rights to collect any of the Liabilities, then in any of such events,
all of the reasonable attorneys' fees arising from such services, and any
expenses, costs and charges relating thereto, including, without limitation,
all reasonable fees of all paralegals and other staff employed by such
attorneys, together with interest following demand for payment thereof at the
from time to time rate applicable to Base Rate Advances, shall be part of the
Liabilities, payable on demand and secured by the Collateral.
11.3 Expenditures. In the event Borrower shall fail to pay taxes,
insurance, assessments, costs or expenses which Borrower is, under any of the
terms hereof, required to pay, or fail to keep the Collateral free from other
Liens, except as permitted herein, Agent or the Required Lenders may, in its or
their sole discretion, make expenditures for any or all of such purposes, and
the amount so expended, together with interest thereon at the rate applicable
to
Base Rate Advances, shall be part of the Liabilities, payable on demand and
secured by the Collateral.
11.4 Custody and Preservation of Collateral. Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as
Borrower shall request in writing, but failure by Agent to comply with any
such request shall not of itself be deemed a failure to exercise reasonable
care, and no failure by Agent to preserve or protect any right with respect to
such Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by Borrower shall of itself
be deemed a failure to exercise reasonable care in the custody or preservation
of such Collateral.
11.5 Reliance by Lenders. All covenants, agreements, representations and
warranties made herein by Borrower shall, notwithstanding any investigation by
Agent or any Lender, be deemed to be material to and to have been relied upon
by Agent and each Lender.
Parties; Assignability.
(A) Whenever in this Agreement there is reference made to Borrower, Agent,
the Issuing Bank or any Lender, such reference shall be deemed to include,
wherever applicable, a reference to the successors and permitted assigns of
Borrower and the successors and permitted assigns of Agent, the Issuing Bank
and such Lender, and the provisions of this Agreement shall be binding upon
and shall inure to the benefit of said successors and permitted assigns.
Notwithstanding anything herein to the contrary, Borrower may not assign or
otherwise transfer its rights or obligations under this Agreement without the
prior written consent of Lenders.
(B) Any Lender may make, carry or transfer Loans at, to or for the account
of, any of its Lending Affiliates.
(C) Upon 90 days' prior written notice to Agent, each Lender may, with the
consent of Agent (which consent shall not be unreasonably withheld), but
without the consent of any other Lender, assign to one or more banks or other
financial institutions all or a portion of its rights and obligations under
this Agreement and the Notes; provided that (i) such Lender has first offered
to assign such portion of its rights and obligations under this Agreement and
the Notes, at par, to Agent, (ii) for each such assignment, the parties
thereto shall execute and deliver to Agent, for its acceptance and recording
in the Register (as defined below), an Assignment and Assumption Agreement,
together with any Notes subject to such assignment, (iii) the aggregate
outstanding Loans and unused Total Revolving Commitments so assigned shall not
be less than $5,000,000, unless such assignment is to a then-current holder of
a Note or consented to by Agent in writing, and (iv) each assignment shall be
of a constant, and not a varying, percentage interest of the assigning
Lender's rights and obligations and such assignment shall be of the same
proportionate amount of the assigning Lender's rights and obligations with
respect to each type of Loan hereunder, the Total Revolving Commitments and
the Letter of Credit Obligations. Upon such execution and delivery of the
Assignment and Assumption Agreement to Agent, from and after the date
specified as the effective date in the Assignment and Assumption Agreement
(the "Acceptance Date"), (x) the assignee thereunder shall be a party hereto,
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Assumption Agreement, such assignee shall
have the rights and obligations of a Lender hereunder and (y) the assignor
thereunder shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment and Assumption Agreement,
relinquish its rights (other than any rights it may have pursuant to
Subsections 2.10, 2.15, 2.16, 2.17, 2.20(J), 7.4, 7.10, 11.2, and 11.19 hereof
which will survive) and be released from its obligations under this Agreement
(and, in the case of an Assignment and Assumption Agreement covering all or
the remaining portion of an assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto).
(D) By executing and delivering an Assignment and Assumption Agreement,
the assignee thereunder confirms and agrees as follows: (i) other than as
provided in such Assignment and Assumption Agreement, the assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, the Notes or any other
instrument or document furnished pursuant hereto, (ii) such assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of Borrower or the performance or observance by
Borrower of any of its obligations under this Agreement or any other
instrument or document furnished pursuant hereto, (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in Subsection 7.1 hereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Assumption Agreement,
such assignee will, independently and without reliance upon Agent, such
assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement, (v) such
assignee appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto and (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(E) Agent shall maintain at its address referred to in Subsection 11.17
hereof a copy of each Assignment and Assumption Agreement delivered to and
accepted by it and a register for the recordation of the names, addresses and
Percentages of Lenders and the Revolving Credit Commitments of each Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes absent manifest error, and Borrower,
Agent and Lenders may treat each Person whose name is recorded in the Register
as a Lender hereunder for all purposes of this Agreement. The Register and
copies of each Assignment and Assumption shall be available for inspection by
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(F) Upon its receipt of an Assignment and Assumption Agreement executed by
an assigning Lender, together with the Notes subject to such assignment, Agent
shall, if such Assignment and Assumption Agreement has been completed and is
in substantially the form of Exhibit D hereto and Agent consents thereto, (i)
accept such Assignment and Assumption Agreement, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to
Borrower. Within five (5) Business Days after its receipt of such notice,
Borrower shall execute and deliver to Agent, in exchange for the surrendered
Notes, new Notes to the order of the assignee in an amount equal to the
Revolving Credit Commitment, and Term Loans assumed by it pursuant to such
Assignment and Assumption Agreement and, if the assigning Lender has retained
a Revolving Credit Commitment or Term Loan hereunder, new Notes to the order
of the assigning Lender in an amount equal to the Revolving Credit Commitment
and Term Loan retained by it hereunder. Such new Notes shall re-evidence the
Liabilities outstanding under the old Notes and shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Notes, shall be dated the closing date and shall otherwise be in substantially
the form of the Notes subject to such assignments.
(G) Upon 90 days' prior written notice to Agent, each Lender may (provided
such Lender shall have first offered to resell to Agent at par its interest in
the Liabilities) sell participations (without the consent of Agent, Borrower
or any other Lender) to one or more parties in or to all or a portion of its
rights and obligations under this Agreement (including, without limitation,
all or a portion of its Revolving Credit Commitment, the Loans owing to it and
the Notes held by it); provided that (i) such Lender's obligations under this
Agreement (including, without limitation, its Revolving Credit Commitment to
Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any such Note for
all purposes of this Agreement, (iv) Borrower, Agent, and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and (v) such Lender
shall not transfer, grant, assign or sell any participation under which the
participant shall have rights to approve any amendment or waiver of this
Agreement except to the extent such amendment or waiver would (A) extend the
final maturity date or the date for the payments of any installment of fees or
principal or interest of any Loans or Letter of Credit Obligations in which
such participant is participating, (B) reduce the amount of any installment of
principal of the Loans or Letter of Credit Obligations in which such
participant is participating, (C) except as otherwise expressly provided in
this Agreement, reduce the interest rate applicable to the Loans or Letter of
Credit reimbursement obligations in which such participant is participating,
or (D) except as otherwise expressly provided in this Agreement, reduce any
Fees payable to Lenders hereunder.
(H)Each Lender agrees that, without the prior written consent of Borrower
and Agent, it will not make any assignment hereunder in any manner or under
any circumstances that would require registration or qualification of, or
filings in respect of, any Loan, Note or other Liabilities under the
securities laws of the United States of America or of any jurisdiction.
(I) In connection with the efforts of any Lender to assign its rights or
obligations or to participate interests, such Lender may disclose any
information in its possession regarding Borrower, subject to Subsection 7.1.
11.7 CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED TO BE EXECUTED AND HAS
BEEN DELIVERED AND ACCEPTED IN CHICAGO, ILLINOIS BY SIGNING AND DELIVERING IT
THERE. ANY DISPUTE BETWEEN THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY,
OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS AND NOT
THE CONFLICTS OF LAW PROVISIONS OF THE STATE OF ILLINOIS.
11.8 11.8 CONSENT TO JURISDICTION.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION 11.8(B)
HEREOF, EACH OF THE PARTIES HERETO AGREE THAT ALL DISPUTES BETWEEN THEM
ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY
STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, ILLINOIS, BUT THE PARTIES
HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY BE HEARD BY A COURT
LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS. BORROWER WAIVES IN ALL DISPUTES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE
DISPUTE.
(B) OTHER JURISDICTIONS. BORROWER AGREES THAT AGENT AND ANY LENDER SHALL
HAVE THE RIGHT TO PROCEED AGAINST BORROWER OR ITS PROPERTY ("PROPERTY") IN A
COURT IN ANY LOCATION TO ENABLE AGENT OR ANY LENDER TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE LIABILITIES, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER ENTERED IN FAVOR OF AGENT OR ANY LENDER. BORROWER AGREES
THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIM IN ANY PROCEEDING BROUGHT
BY AGENT OR ANY LENDER TO REALIZE ON PROPERTY, COLLATERAL OR ANY OTHER
SECURITY FOR THE LIABILITIES, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT OR ANY LENDER. BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE
TO THE LOCATION OF THE COURT IN WHICH AGENT OR ANY LENDER HAS COMMENCED A
PROCEEDING DESCRIBED IN THIS SUBSECTION 11.8(B).
11.9 SERVICE OF PROCESS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND IRREVOCABLY APPOINTS PRENTICE-HALL CORPORATION SYSTEM,
INC., BORROWER'S REGISTERED AGENT, AS BORROWER'S AGENT FOR THE PURPOSE OF
ACCEPTING SERVICE OF PROCESS WITHIN THE STATE OF ILLINOIS (THE "SP AGENT").
AGENT AND EACH LENDER AGREES TO PROMPTLY FORWARD BY REGISTERED MAIL (NO RETURN
RECEIPT REQUIRED) A COPY OF ANY PROCESS SO SERVED BY IT UPON THE SP AGENT TO
BORROWER AT ITS ADDRESS SET FORTH IN SUBSECTION 11.17 HEREOF. BORROWER HEREBY
CONSENTS TO SERVICE OF PROCESS AS AFORESAID. BORROWER FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF THE COURTS REFERRED TO IN SUBSECTION
HEREOF IN ANY SUCH ACTION OR PROCEEDING BY MAILING COPIES OF SUCH SERVICE BY
REGISTERED MAIL, POSTAGE PREPAID TO BORROWER AT SAID ADDRESS. NOTHING IN THIS
AGREEMENT SHALL AFFECT THE RIGHT OF AGENT OR ANY LENDER TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW BUT ANY FAILURE TO RECEIVE SUCH COPY SHALL
NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS.
WAIVER OF JURY TRIAL AND BOND.
(A) WAIVER OF JURY TRIAL. BORROWER, AGENT AND LENDERS EACH WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN ANY OF THEM ARISING OUT OF, CONNECTED
WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED
THERETO. BORROWER, AGENT AND LENDERS HEREBY AGREE AND CONSENT THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY
OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(B) WAIVER OF BOND. BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF AGENT OR ANY LENDER IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON COLLATERAL OR
ANY OTHER SECURITY FOR THE LIABILITIES, TO ENFORCE ANY JUDGMENT OR OTHER COURT
ORDER ENTERED IN FAVOR OF AGENT OR ANY LENDER, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION,
THIS AGREEMENT, OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN AGENT OR ANY LENDER
AND BORROWER.
11.11 ADVICE OF COUNSEL. BORROWER ACKNOWLEDGES AND REPRESENTS TO AGENT AND
LENDERS THAT BORROWER HAS DISCUSSED THIS AGREEMENT AND THE OTHER FINANCING
AGREEMENTS WITH ITS LAWYERS AND ANY AND ALL ISSUES WITH RESPECT TO THIS
AGREEMENT AND THE OTHER FINANCING AGREEMENTS HAVE BEEN RESOLVED TO BORROWER'S
SATISFACTION.
11.12 SEVERABILITY. WHEREVER POSSIBLE, EACH PROVISION OF THIS AGREEMENT
SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER
APPLICABLE LAW, BUT IF ANY PROVISION OF THIS AGREEMENT SHALL BE PROHIBITED BY
OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE ONLY TO
THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE
REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS AGREEMENT.
11.13 Application of Payments. Notwithstanding any contrary provision
contained in this Agreement or in any of the other Financing Agreements,
Borrower irrevocably waives the right to direct the application of any and all
payments at any time or times hereafter received by Agent or any Lender from
Borrower or with respect to any of the Collateral, and Borrower does hereby
irrevocably agree that Agent and each Lender shall have the continuing
exclusive right to apply and reapply any and all payments received at any time
or times hereafter, whether with respect to the Collateral or otherwise,
against the Liabilities in such manner as Agent or such Lender may deem
advisable, notwithstanding any entry by Agent or any Lender upon any of its
books and records.
11.14 Marshalling; Payments Set Aside. Neither Agent nor any Lender shall
be under any obligation to marshall any assets in favor of Borrower or any other
party or against or in payment of any or all of the Liabilities. To the
extent that Borrower makes a payment or payments to Agent or any Lender or
Agent or any Lender enforces its security interests or exercises its rights of
setoff, and such payment or payments or the proceeds of such enforcement or
setoff or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then, to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
11.15 Section and Subsection Titles. The section and subsection titles
contained in this Agreement shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties.
11.16 Continuing Effect. This Agreement, Agent's security interests in the
Collateral, and all of the other Financing Agreements shall continue in full
force and effect so long as any Liabilities shall be owed to Agent or any
Lender, and (even if there shall be no Liabilities outstanding) so long as
this Agreement has not been terminated as provided herein.
11.17 Notices. Except as otherwise expressly provided herein, any
notice
required or desired to be served, given or delivered hereunder shall be in
writing, and shall be deemed to have been validly served, given or delivered
(i) three (3) Business Days after deposit in the United States mails, with
proper postage prepaid, (ii) when sent after receipt of confirmation or
answerback if sent by telecopy, or other similar facsimile transmission, (iii)
one (1) Business Day after deposited with a reputable overnight courier with
all charges prepaid, or (iv) when delivered, if hand-delivered by messenger,
all of which shall be properly addressed to the party to be notified and sent
to the address or number indicated as follows:
(i) If to Agent at:
American National Bank and
Trust Company of Chicago
33 North LaSalle Street
Chicago, Illinois 60690
Attention: Dennis Harrison
Senior Vice President
Telecopy: 312/661-6929
Confirmation: 312/661-5728
(ii) If to any Lender to the address set forth for such
Lender on Schedule 1 hereto.
(iii) If to Borrower at:
Webco Industries, Inc.
201 South Woodland Drive
Sand Springs, Oklahoma 74063
Attention: Michael P. Howard, Vice President
Telecopy: 918/245-0306
Confirmation: 918/251-1033
or to such other address or number as each party designates to the other in
the manner herein prescribed.
11.18 Equitable Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy at law may prove to be inadequate relief to
Agent or any Lender; therefore, Borrower agrees that Agent or any Lender, if
Agent or such Lender so requests, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages and the granting of any such relief shall not preclude Agent or any
Lender from pursuing any other relief or remedies for such breach.
11.19 Indemnification. Borrower agrees to defend, protect, indemnify and
hold harmless Agent, the Issuing Bank and each Lender and each of their
respective officers, directors, employees, attorneys, consultants and agents
(collectively, the "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for and
consultants of such Indemnitees in connection with any investigative,
administrative or judicial proceeding, whether or not such Indemnitees shall
be designated a party thereto), which may be imposed on, incurred by, or
asserted against such Indemnitees (whether direct, indirect, or consequential
and whether based on any federal or state laws or other statutory regulations,
including, without limitation, securities, environmental and commercial laws
and regulations, under common law or at equitable cause or on contract or
otherwise) in any manner relating to or arising out of this Agreement or the
other Financing Agreements, or any act, event or transaction related or
attendant thereto, the agreements of Agent, the Issuing Bank and each Lender
contained herein, the making of any Loans or any other advances, the issuance
of any Letter of Credit, the management of such Loans, advances or Letters of
Credit or the Collateral (including any liability under federal, state or
local environmental laws or regulations) or the use or intended use of the
proceeds of such Loans, advances or Letters of Credit (collectively, the
"Indemnified Matters"); provided that Borrower shall have no obligation to any
Indemnitee hereunder with respect to Indemnified Matters finally judicially
determined in a proceeding which is binding upon such Indemnitee to have been
caused by or resulting from the willful misconduct or gross negligence of such
Indemnitee or to reimburse any Lender (other than ANB in its capacity as
Agent) for its legal fees and expenses incurred prior to the occurrence of a
Default or Event of Default in connection with the documentation and closing
of the matters contemplated by this Agreement. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Subsection
may be unenforceable because it is violative of any law or public
policy, Borrower shall contribute the maximum portion which it is permitted to
pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnitees. In addition, Borrower shall,
upon demand, pay to Agent, any Lender and the Issuing Bank all costs and
expenses (including the reasonable fees and disbursements of counsel and other
professionals) paid or incurred by Agent, the Issuing Bank or such Lender in
(i)enforcing or defending its rights under or in respect of this Agreement,
the other Financing Agreements or any other document or instrument now or
hereafter executed and delivered in connection herewith, (ii) in collecting
the Loans, (iii) in foreclosing or otherwise collecting upon the Collateral or
any part thereof and (iv) obtaining any legal, accounting or other advice in
connection with any of the foregoing after the occurrence of a Default or
Event of Default. Borrower's obligations hereunder shall survive any
termination of this Agreement and the other Financing Agreements and the
payment in full of the Liabilities, and are in addition to, and not in
substitution of, any other of their obligations set forth in this Agreement.
11.20 Nonliability of Agent and Lenders. The relationship between Borrower
and each Lender and Agent shall be solely that of borrower and lender.
Neither Agent nor any Lender shall have any fiduciary responsibilities to
Borrower. Neither Agent nor any Lender undertakes any responsibility to
Borrower to review or inform Borrower of any matter in connection with any
phase of Borrower's business or operations.
11.21 Independent Nature of Lenders' Rights. The amounts payable at any
time hereunder to each Lender under such Lender's Notes shall be a separate and
independent debt.
11.22 Effectiveness. This Agreement shall become effective on the date on
which all of the parties hereto shall have signed a copy hereof (whether the
same or different copies) and shall have delivered the same to Agent pursuant
to Subsection 11.17 or, in the case of any Lenders which have not executed and
delivered the same as provided above, shall have given to Agent written,
telecopied or telex notice (actually received) at such office that the same
has been signed and mailed to it.
11.23 Counterparts. This Agreement may be executed and accepted in any
number of counterparts, each of which shall be an original with the same
effect as if the signatures were on the same instrument. The delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed counterpart of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
WEBCO INDUSTRIES, INC.
By:
Title:
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO,
individually and as Agent
By:
Title:
SCHEDULE 1
Name of Lender
Revolving
Credit
Commitment
Original Term
Loan Balance
Address for
Notices
American National Bank and Trust Company of Chicago
$20,000,000
$25,000,000
American National Bank
and Trust Company of
Chicago
One N. LaSalle Street
Chicago, Illinois 60690
Attn: Elizabeth J. Limpert
Tel: 312/661-5655
Fax: 312/661-6929
Exhibit 10.3
LEASE AGREEMENT
BY AND BETWEEN
BAKER PERFORMANCE CHEMICALS INCORPORATED
and
WEBCO INDUSTRIES, INC.
COVERING AND DESCRIBING
THE BUILDING LOCATED AT
9101 WEST 21ST STREET, SAND SPRINGS, OKLAHOMA
Dated October 22, 1996
TABLE OF CONTENTS
Page No.
1. PREMISES 4
2. LANDLORD'S PRE-POSSESSION DELIVERY OBLIGATIONS 4
3. POSSESSION DATE 7
4. AUTHORIZED USE 8
5. TERM 8
6. RENT 8
7. ENVIRONMENTAL 9
8. UTILITIES 10
9. MAINTENANCE AND REPAIRS 10
10. PROHIBITED USE 11
11. ALTERATIONS AND ADDITIONS 11
12. TENANT'S PROPERTY 14
13. TAXES 14
14. LANDLORD'S ACCESS 15
15. INSURANCE 16
16. FIRE OR OTHER CASUALTY 16
17. WAIVER OF CLAIMS 18
18. INDEMNITY 19
19. WAIVER OF SUBROGATION 20
20. NON-WAIVER 21
21. NOTICES 21
22. FAILURE TO PERFORM 22
23. ACT OF DEFAULT 23
24. RIGHTS UPON DEFAULT 23
25. SURRENDER 24
26. HOLDING OVER 24
27. INTEREST 24
28. ASSIGNMENT AND SUBLETTING 24
29. MORTGAGE OF LEASEHOLD INTEREST 25
30. CONDEMNATION 25
31. LEGAL INTERPRETATION 26
32. WHOLE AGREEMENT 26
33. OPTION TO PURCHASE 26
34. OPTION TO EXTEND 29
35. SIGNAGE 30
36. SECURITY DEPOSIT 30
37. FINANCIAL STATEMENTS 31
38. MEMORANDUM OF LEASE 31
39. MORTGAGES 31
LEASE AGREEMENT
This LEASE AGREEMENT (this "Lease") is made and entered into on the 22nd day
of October, 1996, by and between BAKER PERFORMANCE CHEMICALS INCORPORATED, a
California corporation ("Landlord"), and WEBCO INDUSTRIES, INC., an Oklahoma
corporation ("Tenant").
In consideration of the mutual covenants set forth herein, Landlord and Tenant
hereby agree as follows:
1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord those certain premises consisting of that certain building
(the "Building") containing approximately 24,400 square feet of space located
at 9101 West 21st Street, Sand Springs, Oklahoma, together with the surrounding
real property more particularly described on Exhibit A, attached hereto and
made a part hereof for all purposes (the "Premises").
2. LANDLORD'S PRE-POSSESSION DELIVERY OBLIGATIONS.
A. Prior to the Possession Date (hereinafter defined),
Landlord will, at Landlord's expense, remove the items designated on Exhibit B,
attached hereto and made a part hereof for all purposes, from the improvements
on the Premises (the "Improvements") and leave the Premises in a "broom clean"
condition, and will repair and restore in a good and workmanlike manner any
damage to the Improvements resulting from the removal of the items designated
on Exhibit B (collectively, "Landlord's Work").
B. Tenant acknowledges that prior to the execution of this
Lease, Landlord has delivered to Tenant copies of (i) that certain letter dated
December 22, 1992, from the Oklahoma State Department of Health to Landlord,
(ii) that certain letter dated July 29, 1993, from the State of Oklahoma
Department of Environmental Quality to Landlord, and (iii) any environmental
reports regarding the underground storage tanks described in such letters which
Landlord has in its possession. Tenant shall have the right to conduct, at
Tenant's sole cost and expense, a, Phase I audit on the Premises(the "Phase I
Audit"). IN the event that the Phase I Audit reflects any environmental
condition that has a material and adverse effect on the Premises, Tenant shall
promptly deliver a copy of the Phase I Audit report and written notification
of the conclusions of the Phase I Audit to Landlord. Upon receipt of such
Phase I Audit report and written notification, Landlord shall promptly provide
Tenant with written notification ("Landlord's Phase I Notification") stating
whether or not Landlord will remediate the environmental conditions reflected
in the Phase I Audit report. If Landlord's Phase I Notification states that
Landlord will not remediate such environmental conditions, Tenant shall have
the option to terminate this Lease (the "Phase I Termination Option");
provided, that the Phase I Termination Option shall be exercised by providing
Landlord with written notification within ten (10) days after receiving
Landlord's Phase I Notification; provided, further, that notwithstanding
anything to the contrary contained herein, in the event Tenant exercises the
Phase I Termination Option, Landlord shall reimburse Tenant fora the cost of
the Phase I Audit up to an amount not to exceed $2,500.00.
If the Phase I Audit indicates the likelihood of any environmental
condition that might have a material and adverse effect on the Premises, Tenant
shall have the right to conduct, at Tenant's sole cost and expense, a Phase II
Audit on the Premises (the "Phase II Audit"). In the event that the Phase II
Audit reflects any environmental condition that has a material and adverse
effect on the Premises, Tenant shall promptly deliver a copy of the Phase II
Audit report and written notification of the conclusions of the Phase II Audit
to Landlord. Upon receipt of such Phase II Audit report and written
notification, Landlord shall promptly provide Tenant with written notification
("Landlord's Phase II Notification") stating whether or not Landlord will
remediate the environmental conditions reflected in the Phase II Audit report.
If Landlord's Notification states that Landlord will not remediate such
environmental conditions, Tenant shall have the option to terminate this Lease
(the "Phase II Termination Option"); provided, that the Phase II Termination
Option shall be exercised by providing Landlord with written notification
within ten (10) days after receiving Landlord's Phase II Notification. Under
no circumstances shall Landlord be required or obligated to pay all or any
portion of the costs incurred in connection with the Phase II Audit.
Notwithstanding anything to the contrary contained herein, bot the Phase
I Audit and the Phase II Audit (collectively, the "Audits") shall be conducted
in the presence of Landlord or Landlord's designated representative upon the
request of Landlord. Tenant agrees to (i) promptly repair any damage done to
the Premises in connection with the Audits, and (ii) indemnify, defend, and
hold Landlord harmless from any against any and all loss, liability, cost,
damage or expense (including, without limitation, attorneys' fees, accountants'
fees, consultants' fees, court costs, and interest) resulting from the Audits.
TENANT HAS WAIVED ALL CLAIMS AGAINST LANDLORD UNDER THIS SUBSECTION, EVEN IN
THE CASE OF LANDLORD'S OWN NEGLIGENCE.
C. Tenant, at Tenant's sole cost and expense, will have the
right at any time prior to the Possession Date to have the Improvements and the
HVAC, plumbing, mechanical and electrical systems (the "Facilities") in the
Improvements inspected by an engineer selected by Tenant and reasonably
approved by Landlord. Tenant will promptly deliver a copy of its inspection
report (the "Inspection Report") to Landlord. In the event the Inspection
Report reflects any structural defects in the Improvements or that any of the
Facilities are not in working order and those conditions are unacceptable to
the Tenant according to Tenant's statement which will accompany Tenant's
delivery of the report to Landlord, Tenant will have the right to terminate
this Lease unless Landlord promptly agrees in writing to remediate the defects
at Landlord's expense and such agreement is delivered to Tenant prior to the
Possession Date. Landlord will give Tenant and Tenant's independent inspectors
reasonable access to the Premises at Tenant's expense and risk. Landlord will
also give Tenant and Tenant's agents and representatives access at Tenant's
risk to the Premises at reasonable times subsequent to the execution of this
Lease for the purpose of planning for the Tenant Improvements (hereinafter
defined). Tenant agrees to indemnify, defend, and hold Landlord harmless from
and against any and all loss, liability, cost, damage or expense (including,
without limitation, attorneys' fees, accountants' fees, consultants' fees,
court costs, and interest) resulting from the inspections and assessments
permitted in this Section, and TENANT HAS WAIVED ALL CLAIMS AGAINST LANDLORD
UNDER THIS SUBSECTION, EVEN IN THE CASE OF LANDLORD'S OWN NEGLIGENCE.
3. POSSESSION DATE. Landlord will deliver possession of the
Premises to Tenant with Landlord's work completed on or before January 15,
1997; provided, however, that Tenant will not be obligated to take possession
of the Premises prior to January 15, 1997. The date that Tenant occupies the
Premises will be the "Possession Date." Landlord will notify Tenant in writing
that the Premises are ready for Tenant's possession. In the event the
Possession Date is a date other than January 15, 1997, the parties will
exchange a letter rectifying the Possession Date. Tenant's incidental use of
the Premises will not constitute Tenant's occupancy of the Premises. Tenant's
occupancy of the Premises will constitute substantial staffing of the Premises
by Tenant's employees.
4. AUTHORIZED USE.
A. Tenant shall have the right to occupy and use the Premises
only for administrative and engineering offices, all in accordance with
applicable law. Provided Tenant performs all of its obligations under this
Lease, Tenant shall peaceably and quietly hold and enjoy the Premises for the
Term (hereinafter defined), subject to the provisions and conditions set forth
in this Lease.
5. TERM. Subject to and upon the terms and conditions set forth in
this Lease, this Lease shall commence on the date of this Lease (the
"Commencement Date") and shall end on the last day of the 96th month following
the Rental Abatement Period (hereinafter defined).
6. RENT.
A. Without notice or demand and subject to the provisions
contained in Section 33 hereof and the Rental Abatement Period (hereinafter
defined), Tenant shall pay to Landlord as rent (the "Rent") for the Premises
for the Term, the following sums:
PERIOD MONTHLY
Months Following Rental INSTALLMENT
Abatement Period)
1-24 $9,902.33
25-48 $10,166.67
49-96 $10,675.00
Notwithstanding anything to the contrary contained herein, if the Possession
Date is on or before January 15, 1997, the Rent will abated through March 16,
1997. If the Possession Date is after January 15, 1997, the Rent will be
abated up to, but not including, the first day of the month following 60 days
from the Possession Date. The time period during which the Rent shall be
abated under this Lease is herein referred to as the "Rental Abatement Period."
The date on which the Rent commences is herein referred to as the "Rent
Commencement Date".
B. Subject to subsection A above, the Rent shall be due and
payable without demand on or before the first day of each calendar month
throughout the Term commencing on the first day of the Term. All such payments
shall be paid to Landlord in lawful money of the United States of America at
the following address:
Baker Hughes Incorporated Real Estate
P.O. Box 201741
Houston, Texas 77216-1741
If this Lease commences or ends on any day other than the first or last day of
a calendar month, the first or last installment of Rent (whichever is
applicable) shall be prorated.
7. ENVIRONMENTAL.
Tenant shall not allow or create any Hazardous Materials
(hereinafter defined) on the Premises except in such minute quantities are as
found in everyday cleaning supplies in compliance with Environmental Laws and
shall notify Landlord within twenty-four (24) hours after discovering or being
informed of the presence of any Hazardous Materials on the Premises either in
violation of Environmental Laws or in greater than minute quantities.
(i) "Environmental Laws" means any federal state, or local
statute, law, rule, regulation, ordinance, code, policy or rule of common law
now in effect and in each case as amended to date and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent, decree, or judgment, relating to the environment, human health
or Hazardous Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. 9601, et seq.; The Hazardous Materials Transportation Act, as
amended, 49 U.S.C. 1801, et seq.; the Resource Conversation and Recovery Act
of 1976, as amended, 42 U.S.C. 6901, et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. 1201, et seq.; the Toxic Substances
Control Act, 15 U.S.C. 2601, et seq.; the Clean Air Act, 42 U.S.C. 7401,
et seq.; the Safe Drinking Water Act, 42 U.S.C. 3808, et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, F.U.S.C. 136, et seq. and any
other similar federal, state or local laws.
(ii) "Hazardous Materials" means (a) any petroleum or
petroleum products, radioactive materials, asbestos, urea formaldehyde foam
insulation, transformers or other equipment that contains dielectric fluid
containing levels of polychlorinated biphenyls (PCBs), and radon gas; (b) any
chemicals, materials, or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "contaminants," or "pollutants," or words of similar import, under
any applicable Environmental Laws; and (c) any other chemical, material or
substance which is in any way regulated by any federal, state or local
governmental authority, agency, or instrumentality.
8. UTILITIES. Commencing from and after the Possession Date and
during the Term, Tenant shall be responsible for all utilities consumed at the
Premises, including, but not limited to, electricity, gas, telephone, water,
sewer and trash pickup and disposal. Landlord shall not be responsible for
bringing utilities to the Premises, and Tenant agrees to pay necessary utility
connection charges. Landlord shall not be responsible for any interruption in
utility services. If any such interruption is caused by a break or other
damage to any utility line located on the Property and controlled by
governmental, private or public utilities, Landlord will cooperate with such
utility so that the interrupted service is restored t o the Premises as soon as
reasonably possible.
9. MAINTENANCE AND REPAIRS.
A. Landlord shall repair and maintain the roof, foundation,
and structural elements of the Building to at least the condition the same are
in now, but Tenant shall repair and pay for any damage to the Premises caused
by negligence of Tenant or Tenant's employees, agents, or invitees that is not
covered by insurance. Except as provided herein, Landlord shall have no
obligation to clean, maintain, repair, or replace any portion of the Premises
or any alterations made by Tenant, and Tenant accepts the Premises in its
"AS IS" condition, with all faults and without any warranty or representation
(express or implied) by Landlord as to the condition of the Premises or its
fitness or suitability for any purpose.
B. Except for maintenance and repairs to be performed by
Landlord as provided above, Tenant, at its sole cost, shall clean, maintain,
replace and repair the entire Premises, including, but not limited to, windows,
glass doors, interior walls, floors and floor coverings, heating and air
conditioning systems, paving, plumbing and fixtures, parking areas and regular
maintenance for improvements.
10. PROHIBITED USE. Tenant shall not use per permit any other party
to use all or any part of the Premises for any purpose not authorized in
Section 2 of this Lease. Tenant shall not do or permit anything to be done in
or about the Premises, or bring or keep or permit anything to be brought or
kept therein, which is prohibited by or which will in any way conflict with any
law, statute, ordinance or governmental rule or regulation now in force or
hereafter enacted or promulgated or Landlord's insurance. Tenant shall not
cause, maintain, or permit any nuisance in, on or about the Premises or commit
or suffer to be committed any waste to, in, or about the Premises.
11. ALTERATIONS AND ADDITIONS.
A. Except for the Tenant Improvements, Tenant shall not make
any alterations in or additions to the Premises which materially or adversely
affect the structure or the mechanical, electrical, and plumbing facilities and
operations of improvements to the Premises, or alter the exterior appearance
of the Building or cause a decrease in the value of the Premises, without
Landlord's prior written consent; provided, however, that Landlord's consent
shall not be required with respect to any alterations in or additions to the
Premises which do not affect the structure of the Premises or the Building or
any of the Building's mechanical, electrical, and plumbing facilities provided
that Tenant provides Landlord with (i) prior written notice regarding such
alterations and additions and (ii) copies of all plans, drawings and
specifications done in connection with the alterations and additions, no later
than seven (7) business days prior to the date of the anticipated commencement
of such alterations and additions, and removes such alterations and additions,
and repairs any damages or injuries to the Premises which are caused by such
removal, at Tenant's sole cost and expense, prior to the expiration or
termination of the Term. Any work performed hereunder by or at the direction
of Tenant shall be at its sole cost and expense and shall be performed promptly
and diligently prosecuted to completion in a good and workmanlike manner in
accordance with all applicable laws, permits and this Lease and without the
creation of any liens on the Premises. Except as otherwise provided herein,
all such improvements shall become a part of the Premises and surrendered with
the same upon termination of this Lease. Tenant may, at its expense, from time
to time install its trade fixtures in the Premises. all of said trade
fixtures shall be removed from the Premises by Tenant upon the termination of
this Lease and Tenant shall promptly repair all damage or injury to the
Premises caused by such installation or removal.
B. Landlord has agreed to spend in the aggregate $256,200.00
(the "Allowance") for the construction of certain improvements to the Premises
(the "Tenant Improvements"). In connection with the Tenant Improvements,
Landlord and Tenant agree to execute the Work Agreement attached hereto as
Exhibit D and made a part hereof for all purposes simultaneously with the
execution of this Lease. Tenant covenants and agrees that all alterations,
improvements, and additions to the Premises constructed by Tenant, whether
prior to or after the Possession Date, shall be constructed in accordance with
the Americans with Disabilities Act (the "Act"). In the event that, subsequent
to the Possession Date, Tenant requests Landlord to perform any alterations,
improvements or additions to the Premises, whether by virtue of expansion,
extension or otherwise, Tenant agrees to and shall be responsible for all costs
and expenses incurred in connection with any alterations, improvements and
additions necessary to ensure compliance with the Act; provided, however, that
the cost of any such alterations, improvements or additions which are performed
in connection with the Tenant Improvements shall be payable out of the
Allowance. It is the intent of this Section that (i) any additional
alterations, improvements or additions required by the Act with regard to the
Premises after the Possession Date, whether resulting from amendments to the
Act or otherwise and (ii) any alterations, improvements or additions required
by the Act in connection with any existing improvements to the Premises shall
be the sole responsibility of Tenant. Tenant covenants and agrees to and does
hereby indemnify, defend and hold Landlord harmless from and against all
liability (including, without limitation, attorneys' fees and court costs) that
Landlord may actually sustain by reason of Tenant's breach of its obligations
under this Section 11.B. In the event that Tenant fails to comply with its
obligations under this Section 11.B. for a period of ten (10) business days
after written notice from Landlord to Tenant specifying the action required to
be taken, Landlord shall have the right, but not the obligation, to enter into
the Premises and perform such actions on behalf of Tenant. In such event,
Landlord shall not be liable for and Tenant hereby waives any and a ll claims
against Landlord arising out of any damage or injury to the Premises or any
property situated therein and Landlord shall have no liability to Tenant for
any interruption of Tenant's operations conducted in or about the Premises,
except to the extent caused by Landlord's gross negligence or willful
misconduct. Any and all costs and expenses incurred by Landlord in performing
such action on behalf of Tenant shall be reimbursed by Tenant to Landlord upon
demand and the failure to do so shall, at the option of Landlord, constitute an
Act of Default under this Lease. EXCEPT AS PROVIDE FOR LANDLORD'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, TENANT HAS WAIVED ALL CLAIMS AGAINST LANDLORD
UNDER THIS SECTION, EVEN IN THE CASE OF LANDLORD'S OWN NEGLIGENCE.
C. At any time during the Term of this Lease, Tenant shall
have the right, at Tenant's sole cost and expense, to construct additional
parking areas (the "Additional Parking Areas") on any portion of the real
property surrounding the Building which is adjacent to the current parking
areas. Notwithstanding anything to the contrary contained herein, no portion of
the Allowance shall be used to pay for such Additional Parking Areas.
12. TENANT'S PROPERTY. Tenant, at Tenant's sole cost and expense,
shall have no right at any time during the term of this Lease to erect or
install upon or in the Premises such improvements, fixtures, signs, machinery
and equipment as Tenant deems appropriate for the conduct of its business
("Tenant's Property"), subject to the provisions of Section 11 hereof. At the
termination of this Lease, Tenant will have the right to remove Tenant's
Property which has not been permanently affixed to the Premises so as to have
been incorporated in and to have become a part of the Premises. Tenant shall,
at the sole cost and expense of Tenant, repair all damages or injuries to the
Premises resulting from the removal of Tenant's Property.
13. TAXES. Landlord shall pay all ad valorem and similar taxes or
assessments (collectively, the "Taxes") levied upon or applicable to the
Premises and on the Landlord's buildings, equipment, and fixtures thereon
during the Term; provided that so long as Landlord has the option to pay the
Taxes in installments without penalty, Landlord shall pay the Taxes in
installments. Landlord will promptly send copies of all tax notices received
by Landlord to Tenant. Within seven (7) business days after receipt of notice
from Landlord, Tenant shall reimburse Landlord for all such payments made by
Landlord. Prior to the commencement of the Term, Landlord agrees to provide
Tenant an estimate of the amount of 1996 Taxes assessed with respect to the
Premises. Tenant shall have the right, but not the obligation, to protest, at
Tenant's sole cost and expense, any appraised valuation placed on the Property
by any taxing authority. Landlord agrees to cooperate with Tenant in filing
such a protest, but this shall not require any financial obligation on the part
of Landlord. Taxes for the tax year in which the Term commences shall be
prorated on a daily basis with Tenant being responsible for a prorated portion
of the Taxes for the tax period from the Commencement Date to the end of the
tax period. Taxes for the year in which the Lease terminates shall be prorated
in a similar manner unless Tenant exercises its Purchase Option. Tenant shall
pay when due all taxes, license, and other fees or charges imposed on the
business conducted by Tenant on or from the Premises. Tenant shall pay all
taxes and assessments on Tenant's Property in or on the Premises.
14. LANDLORD'S ACCESS. Landlord shall have the right, at all
reasonable times during the Term, after reasonable notice to Tenant, not to be
less than 48 hours unless Tenant has committed an Act of Default under this
Lease, to enter the Premises to inspect the condition thereof, to show the
Premises to prospective new tenants, to determine if Tenant is performing its
obligations under this Lease, to cure any Act of Default of Tenant hereunder
that Landlord elects to cure, and to remove from the Premises any improvements
thereto or property placed therein or thereon in violation of this Lease.
15. INSURANCE. At its expense, Tenant shall maintain, during the
Term of this Lease, fie and extended coverage insurance insuring Landlord's
interest in the insurable portion of the improvements constituting a part of
the Premises, in an amount which is not less than fair market value thereof.
In addition, Tenant shall be responsible for providing, at Tenant's own
expense, all insurance coverage necessary for the protection against loss or
damage from fire or other casualty of Tenant's good, furniture or property.
for the purpose of this Section, the term "fair market value" shall mean an
amount not to exceed $750,000, less the value of the Premises land, with an 80%
co-insurance clause.
16. FIRE OR OTHER CASUALTY.
A. If the improvements constituting part of the Premises are
damaged or destroyed, in whole or in part, by fire or other casualty at any
time during the Term and if, after such damage or destruction, Tenant is not
able to use the portion of the Premises not damaged or destroyed to
substantially the same extent and for substantially the same purposes as Tenant
used the Premises prior thereto, within thirty (30) calendar days after
delivery to Landlord by Tenant of a written notice describing in reasonable
detail such damage or destruction, Landlord will give Tenant a written notice
setting forth Landlord's intent to either (a) terminate this Lease or (b)
restore or replace the damaged or destroyed portion to substantially the same
condition that existed immediately prior to such damage or destruction;
provided, however, that under such circumstances and notwithstanding anything
to the contrary contained herein, Tenant may, at Tenant's option, exercise
Tenant's Purchase Option, in which event the casualty insurance proceeds shall
belong to Tenant. If, and only if, the repairs are expected to take ninety
(90) or more days to complete, Tenant shall, within fifteen (15) calendar days
thereafter, give Landlord written notice of Tenant's acceptance or rejection of
Landlord's proposal to repair the Premises, and if Tenant rejects, this Lease
shall immediately terminate. If such damage or destruction occurs and this
Lease is not terminated, then, unless such damage or destruction is the result
of the gross negligence or willful misconduct of Tenant or its employees or
agents, the Rent shall be proportionately abated for the period and
proportionately to the extent that after such damage or destruction Tenant is
not able to use the portion of the Premises damaged or destroyed to
substantially the same extent and for substantially the same purposes as Tenant
used the Premises prior thereto. In the event the Premises are damaged by
fire or other casualty and the extent of the damage is such that Tenant can
reasonably continue to occupy the undamaged portion of the Premises for
Tenant's business purpose, Landlord shall promptly proceed to repair and
restore the damaged portion; provided, however that Landlord shall have no
obligation to repair damage to or replace Tenant's Property and any
alterations, additions and improvements made by Tenant. If the decision is
made to restore or replace the damaged or destroyed portions of the Premises,
this Lease shall continue in full force and effect in accordance with the terms
hereof, except for the Rent abatement referred to above (if applicable), and
except that all other obligations of Tenant hereunder shall likewise be abated
and that the Term shall be extended by a length of time equal to the period
beginning on the date of such damage or destruction and ending upon completion
of such restoration or replacement. In no event shall the restoration or
replacement take longer than ninety (90) calendar days from the date Landlord
commences its work to replace or restore the Premises. If such replacement or
restoration is not completed within said ninety (90) day period, Tenant may
terminate this Lease. If Landlord or Tenant desires to restore or replace the
damaged or destroyed portions of the Premises, such restoration or replacement.
In no event shall the restoration or replacement take longer than ninety (90)
calendar days from the date Landlord commences its work to replace or restore
the Premises. If such replacement or restoration is not completed within said
ninety (90) day period, Tenant may terminate this Lease. If Landlord or Tenant
desires to restore or replace the damaged or destroyed portions of the
Premises, such restoration or replacement shall be made within a reasonable
time, subject to delays arising from acts of God, shortages of labor or
materials, was, or other similar or dissimilar conditions or events beyond the
reasonable control of Landlord. If Landlord desires to terminate this Lease as
provided above, this Lease shall terminate on the last day of the month next
following the end of the thirty (30) calendar day period referred to above.
Landlord's repair and restoration obligations hereunder shall be limited to
insurance proceeds made available for such purpose and to returning the damaged
portion of the Premises to the condition existing immediately prior to such
damage and subject to all required local, state and federal governmental
authorizations being received. Landlord shall have no obligation to repair or
replace any Tenant Improvements not installed by Landlord.
17. WAIVER OF CLAIMS.
A. Neither Landlord nor any officer, director, agent or
employee of Landlord shall be liable to Tenant, and Tenant hereby waives all
claims against Landlord and its respective directors, officers, employees and
agents for any damage or loss of any kind, direct or consequential, that may
occur to any insurable items or structures located within or on the Premises or
any other property of Tenant, or any related loss of profits or business
interruption including, without limitation damages from acts of other tenants,
business invitees or other third parties, vandalism, theft, force majeure,
loss of trad secrets or other confidential information, any damage, loss or
injury caused by a defect in the Premises, pipes, air conditioning, heating,
plumbing or by water leakage of any kind from the roof, walls, windows or
other portions of the building, or caused by electricity, gas, oil, fire or
any other cause in, on or about the Building or any part thereof defects in the
Building or Building systems, unless caused solely by the willful misconduct
of Landlord, Landlord's officers, directors, agents or employees. Tenant shall
promptly repair, replace and restore utility lines or services damaged or
interrupted by the acts or omissions of Tenant, its agents, employees or
contractors.
B. Neither Tenant nor any officer, director, agent or
employee of Tenant shall be liable to Landlord, and Landlord hereby waives all
claims against Tenant and its respective directors, officers, employees, and
agents for any damage or loss of any kind, direct or consequential, that may
occur to the Premises, other portions of the Building or any other property of
Landlord, or any related loss of profits or business interruption, including,
without limitation damages from acts of other tenants, business invitees or
other third parties, vandalism, theft, force majeure, defects in the Premises
or Building systems, unless caused solely by the willful misconduct to Tenant,
Tenant's officers, directors, agents or employees. Landlord shall promptly
repair, replace and restore utility lines or services damaged or interrupted by
the acts or omissions of Landlord, its agents, employees or contractors.
C. EACH OF LANDLORD AND TENANT RECOGNIZES AND AGREES THAT
THIS SECTION 17 WAIVES CLAIMS AGAINST THE OTHER EVEN IF CAUSED BY THE
NEGLIGENCE OF THE OTHER PARTY. This Section 17 is subject to the terms of
Section 19 hereto.
18. INDEMNITY.
A. Except for the claims, rights of recovery and causes of
action that Landlord has released and waived pursuant to Section 17 hereof and
to the extent it may lawfully do so, Tenant shall indemnify and hold harmless
Landlord and Landlord's agents, directors, officers, employees, invitees and
contractors from all claims, demands, liabilities, losses, costs, damages, or
expenses (including but not limited to attorney's fees) resulting or arising
from (i) any breach by Tenant of Section 5 of this Lease and (ii) any third
party claim relating to an incident occurring in the Premises or any portion of
the areas surrounding the Premises and controlled by Tenant including, without
limitation, entry areas and dumpster areas, and that results in personal
injury, death or property damage, EVEN IF RESULTING FROM THE NEGLIGENT ACTS OR
OMISSIONS OF LANDLORD, ITS OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS, but
excluding any claims caused by the gross negligence or willful misconduct of
Landlord.
B. Except for the claims, rights of recovery and causes of
action that Tenant has released and waived pursuant to Section 17 hereof and to
the extent it may lawfully do so, Landlord shall indemnify and hold harmless
Tenant and Tenant's agents, directors, officers, employees, invitees and
contractors from all claims, demands, liabilities, losses, costs, damages, or
expenses (including but not limited to attorney's fees) resulting or arising
from any third party claim arising from any willful misconduct or gross
negligence of Landlord or its officers, directors, employees or agents and
relating to an incident occurring in the Premises or any portion of the areas
surrounding the Premises, including, without limitation, entry areas and
dumpster areas, that results in personal injury, death or property damage.
19. WAIVER OR SUBROGATION. Anything to the contrary in this Lease
not withstanding, neither party nor its officers, directors, employees, agents
or invitees shall be liable to the other party or to any insurance company (by
way of subrogation or otherwise) insuring the other party for any loss or
damage to any building, structure or other tangible property, when such loss is
caused buy any of the perils that are or could be insured against under a
standard policy of full replacement cost insurance for fire, theft and all risk
coverage, or losses under workers' compensation laws and benefits, even though
such loss or damage might have been occasioned by the negligence of such
party, its agents or employees.
20. NON-WAIVER. Neither the acceptance by Landlord of any Rent or
other payment hereunder, whether or not any Act of Default hereunder by Tenant
is then known to Landlord, or any custom or practice followed in connection
with this Lease shall constitute a consent or waiver of any right or obligation
by either party. Failure by either party to complain of any action or
non-action on the part of the other or to declare the other in default,
irrespective of how long such failure may continue, shall not be deemed to be a
waiver of any rights hereunder. Time is of the essence with respect to the
performance of every obligation under this Lease in which time of performance
is a factor. Except for the execution and delivery of a written agreement
expressly accepting surrender of the Premises, no act taken or failed to be
taken by either party shall be deemed an acceptance or surrender of the
Premises.
21. NOTICES. Each notice required or permitted to be given
hereunder by one party to the other shall be in writing with a statement
therein to the effect that notice is give pursuant to this Lease, and the same
shall be given and shall be deemed to have been delivered, served and given (a)
three (3) business days after being placed in the United States mail, postage
prepaid, by United States registered or certified mail, return receipt
requested, and (b) one (1) business day after being sent by overnight mail or
confirmed telecopy. All such notices shall be addressed to such party at the
address sand/or facsimile number provided for such party herein. Any notices
to Landlord shall be addressed and given to Landlord as follows:
Baker Performance Chemicals Incorporated
3900 Essex Lanes, Suite 1200
Houston, Texas 77027
Attn: Director of Real Estate
Facsimile (713) 439-8558
Any notices to Tenant shall be addressed and given to Tenant as follows:
Webco Industries, Inc.
P.O. Box 100
Sand Springs, Oklahoma 74603
Attn: Harry G. Dandelles, CFO
Facsimile (918) 245-1305
The addresses stated above shall be effective for all notices to the respective
parties until written notice of a change in address is given pursuant to the
provisions hereof.
22. FAILURE TO PERFORM. Subject to the foregoing, if either party
fails to perform any one or more of its obligations hereunder, in addition to
the other rights hereunder, each party shall have the right, but not the
obligation, to perform all or any part of the other party's obligations. Upon
receipt of a demand therefor from the other party, the defaulting party shall
reimburse the other on demand for the cost of performing such obligations.
23. ACT OF DEFAULT. The term "Act of Default" refers to the
occurrence of any one or more of the following: (i) failure of Tenant to pay
within ten (10) calendar days of due date any Rent; (ii) failure of Tenant to
pay after ten (10) calendar days' written notice of default any amount other
than Rent required to be paid under this Lease; (iii) failure of Tenant after
thirty (30) calendar days' written notice of default in the performance of
Tenant's other obligations, covenants or agreements under this Lease; or (iv)
the adjudication of Tenant to be a bankrupt; or (v) the filing by Tenant of a
voluntary petition in bankruptcy, reorganization, receivership, or other
related or similar proceedings; or (vi) the making by Tenant of a general
assignment for the benefit of its creditors; or (vii) the appointment of a
receiver of Tenant's interest in the Premises in any action, suit, or
proceeding against that Tenant's interest in the Premises or by or against
Tenant; or (viii) any other voluntary or involuntary proceedings instituted by
or against Tenant under any bankruptcy or similar laws, unless the occurrence
of any such involuntary receivership or proceedings is cured by the same being
dismissed or stayed within sixty (60) calendar days thereafter; or (ix) the
sale or attempted sale under execution or other legal process of Tenant's
interest in the Premises; or (x) abandonment of the Premises by Tenant for any
period of time consisting of thirty (30) consecutive calendar days.
24. RIGHTS UPON DEFAULT. If an Act of Default occurs, at any time
thereafter prior to the curing of such Act of Default and without waiving any
other rights herein available at law or in equity, Landlord may terminate this
Lease. If Landlord elects to terminate this Lease, it may treat the Act of
Default as an entire breach of this Lease, and Tenant immediately shall become
liable for damages as allowed by law. If Landlord lawfully elects to terminate
the Lease, Landlord may rent the Premises or any part thereof to any person or
persons for the best price of consideration as is available, and agrees to use
its best efforts in good faith with due diligence to mitigate its damages.
Tenant shall be liable to Landlord for the amount, if any, by which the total
Rent and all other payments herein provided for the unexpired balance of the
Term exceed the net income, if any, received by Landlord from such re-renting.
In the event of an Act of Default, Tenant shall have ten (10) days from the
date of such Act of Default in which to exercise the Purchase Option set forth
in Section 33 hereof; provided, however, that upon the exercise of such Option,
Tenant shall proceed to close the purchase of the Premises in accordance with
this Lease and shall cure any monetary defaults prior to closing.
25. SURRENDER. On the last day of the Term, or upon earlier
termination of this Lease, Tenant shall peaceably and quietly surrender the
Premises to Landlord, broom clean, in good order, repair and condition at least
equal to the condition when delivered to Tenant, excepting only wear and tear
resulting from normal use and damage by fire or other casualty covered by the
insurance provided by Tenant. If Tenant fails to do any of the foregoing,
Landlord, in addition to other remedies available to it at law or in equity,
may, enter upon, reenter, possess and repossess itself thereof, without breach
of the peace, and may dispossess and remove Tenant and all persons and property
from the Premises, as is allowed by law. Such dispossession and removal of
Tenant shall not constitute a waiver by Landlord of any claims by Landlord
against Tenant, or by Tenant against Landlord.
26. HOLDING OVER. If Tenant does not surrender possession of the
premises at the end of the Term or upon earlier termination of this Lease, upon
the lawful request of Landlord, then at the election of Landlord, Tenant shall
be a tenant-at-sufferance of Landlord, and the rental for each day during the
period of such holdover shall be one and one-half times the Rent prevailing
hereunder (determined on a daily basis) immediately prior to such termination.
27. INTEREST. All amounts of money payable by Tenant to landlord
under this Lease, if not paid when due, shall bear interest from the dat due
until paid at the rate of New York prime, plus two percent (2%).
28. ASSIGNMENT AND SUBLETTING. Landlord shall have the right to
transfer and assign, in whole or in part, by operation of law or otherwise, its
rights and obligations hereunder. Tenant shall not assign or otherwise
transfer, mortgage, pledge, hypothecate or otherwise encumber this Lease, or
any interest herein, and shall not sublet the Premises or any part thereof, or
any right or privilege appurtenant thereto, or permit any other party to occupy
or use the Premises, or any portion thereof, without the express prior written
consent of Landlord, which consent to an assignment or a sublease shall not be
unreasonably withheld provided the proposed assignee or sublessee reasonably
demonstrates to Landlord its ability to perform Tenant's financial obligations
hereunder. Any such consent by Landlord shall not release Tenant from any of
Tenant's obligations hereunder or be deemed to b a consent to any subsequent
assignment, subletting, occupancy, or use by another person. Subject to the
foregoing, the rights and obligations of the parties hereunder shall inure to
the benefit of and be binding on the parties hereto and their respective
successors, assigns and legal representatives.
29. MORTGAGE OF LEASEHOLD INTEREST. Tenant shall not have the
right to mortgage the leasehold interest created pursuant to this Lease except
with Landlord's prior written consent, which consent shall not be unreasonably
withheld, delayed, or denied, and on terms which are reasonably satisfactory to
Landlord.
30. CONDEMNATION. If any improved portion of the Premises or its
street access or more than fifty percent (50%) of its parking shall be taken as
a result of the power of eminent domain, this Lease shall terminate at
Tenant's election, made within thirty (30) days after taking if the Premises
are no longer suitable for Tenant's use. If this Lease is not so terminated,
the Rent shall be equitably adjusted by Landlord to take into account such
taking. Except as provided above, if unimproved portions of the Property are
so taken and Tenant's access to the Premises is not adversely affected, Tenant
may not terminate this Lease by reason of such taking. All condemnation
proceeds for the taking of Landlord's property shall belong to Landlord.
Notwithstanding anything to the contrary contained herein, Tenant shall be
entitled to claim in the condemnation proceedings such awards as may be allowed
for its relocation expense, the interruption of Tenant's business, the taking
of Tenant's leasehold estate, and the taking of Tenant's improvements to the
Premises.
31. LEGAL INTERPRETATION. This Lease and the rights and
obligations of the parties hereto shall be interpreted, construed, and enforced
in accordance with the laws of the State of Oklahoma. The determination that
nay provision of this Lease is invalid, void, illegal or unenforceable shall
not affect or invalidate the other provisions hereof. All obligations of
either party requiring any performance after the expiration of the Term shall
survive the expiration of the Term and shall be fully enforceable in accordance
with those provisions pertaining thereto. Section titles are for convenient
reference only and shall not be used to interpret or limit the meaning of any
provision of this Lease.
32. WHOLE AGREEMENT. No oral statements or prior written material
not specifically incorporated herein shall be of any force or effect. Each
party agrees that in entering into and taking this Lease, it relies solely upon
the representations and agreements contained in this Lease and no others.
This Lease, including Exhibits A, B, C and D attached hereto and made a part
hereof for all purposes, constitutes the whole agreement of the parties and
shall in no way be constituted, modified or supplemented, except by a written
agreement executed by each party and delivered to the other party.
33. OPTIONS TO PURCHASE.
A. Subject to the terms and provisions contained elsewhere
in this Lease, Landlord hereby grants to Tenant an irrevocable and exclusive
option to purchase (the "Purchase Options") the Premises at the end of each
year in the Term and, if the Option to Extend is exercised by Tenant, at the
end of each year of each Option Term of this Lease and as provided herein in
Section 16 and Section 34. Each Purchase Option, if exercised by Tenant, shall
be exercised by giving written notice of exercise to Landlord of not less than
sixty (60) days prior to the expiration of the then current year of the Term.
B. If Tenant exercises a Purchase Option, Tenant shall
purchase the Premises from Landlord, and Landlord shall sell and convey the
Premises to Tenant, by Special Warranty Deed, with all necessary documentary
stamps affixed thereto, subject only to such restrictive covenants, right-of-
way, zoning regulations and easements of record as presently exist or matters
created or caused by Tenant.
C. The purchase price for the Premises shall be $750,000.00.
D. Within twenty (20) days after Tenant delivers notice of
exercise of the Purchase Option to Landlord, Landlord shall deliver the
following:
(i) A survey of the Premises, which survey shall
satisfy the requirements for an ALTA survey;
(ii) A title commitment issued by Lawyers Title
Insurance Company to issue an Owner's title Policy (ALTA current form) in the
amount of the purchase price and containing no exceptions other than the
standard printed exceptions and the items referred to in subsection B above.
(iii) All topographic maps, studies, engineering work,
plans and specifications for the Improvements, drawings, aerial photographs,
surveys, zoning information, plats, drawings and flood-plain information with
reference to the Premises that Landlord has in its possession.
E. Tenant shall not be obligated to close this transaction
and purchase the Premises until all of the following conditions have been
satisfied:
(i) Landlord has furnished the title commitment.
(ii) There will be no agreement, mortgage, indenture or
other instrument which adversely affects the Premises, except such municipal
ordinances, zoning regulations and other local, state and federal laws which
may now or hereafter become applicable to the Premises, and except for liens
which can be, and are, paid at the closing from the purchase price. There will
be no pending or threatened litigation, condemnation, eminent domain or other
type of legal proceedings with regard to the Premises.
F. At the closing, Landlord shall:
(i) Deliver to Tenant a fully executed and
acknowledged Special Warranty Deed conveying the Premises to Tenant as provided
herein, which deed shall be in form reasonably acceptable to Tenant's counsel.
(ii) Furnish Oklahoma documentary stamps in the amount
required by law for the above Special Warranty Deed, and Landlord will execute
and deliver the customary non-lien and non-foreign affidavits.
(ii) Deliver any other documents or instruments
required of Landlord hereunder.
At the closing, and concurrently with the delivery by Landlord of
the instruments required to be delivered hereunder, Tenant shall pay to
Landlord the purchase price, by cashier's check or by wire transfer. The
closing of the transaction shall take place not less than thirty (30) nor more
than sixty (60) days (the "Closing Date") following Tenant's delivery of its
notice of exercise of its Purchase Option. The closing shall take place a
Tenant's offices in Sand Springs, Oklahoma. The Rent for the month in which
the closing takes place shall be prorated to the Closing Date. Notwithstanding
anything to the contrary contained herein, Tenant shall pay all Taxes for the
year of closing.
34. OPTIONS TO EXTEND. Landlord grants Tenant the option to
extend the Term for two (2) additional terms of three (3) years
("Option Terms") commencing at the end of the Term. To exercise each option
extend, Tenant must notify Landlord in writing of the exercise at least ninety
(90) days prior to the end of the Term. If such extension option is exercised,
all references in this Lease to Term shall thereafter refer to such original
Term as extended for the Option Term. The Rent for each Option Term shall be
fixed at an amount equal to the prevailing fair market rental value of the
Premises based upon prevailing rental in Sand Springs, Oklahoma, for similar
properties, but not to exceed the rental value of similar premises having a
fair market value of $750,000.00 as of the date of this Lease. In the event
Landlord and Tenant are unable to agree upon the Rent for an Option Term within
thirty (30) days after the date of Tenant's notice to exercise the Option
Term, the Rental for such Option Term shall established by arbitration pursuant
to the provisions of the Oklahoma Arbitration Act. If the Rent for an Option
Term is not established prior to the commencement of the Option Term, Tenant
shall pay the monthly Rent amount for the prior term. When the Rent for such
Option Term is established, the amount paid by Tenant subsequent to the
beginning of the Option Term shall be adjusted to conform to the established
Option Term Rent amount. Notwithstanding the foregoing, if the Rent amount
established by arbitration is unacceptable to Tenant, Tenant may withdraw its
Option Term exercise notice or, if the Option Term has commenced, Tenant may
terminate the Lease upon thirty (30) days' written notice to landlord within
fifteen (15) days after Tenant is notified of the arbitration decision. All
other terms and conditions of this Lease shall be applicable to each Option
Term, except Tenant shall have no option to extend this lease beyond the end of
the Option Terms set forth herein, and Tenant shall have no option to purchase
the Premises as set forth in Section 33 above.
35. SIGNAGE. To the extent not prohibited by applicable law,
ordinance or restrictive covenant and with Landlord's prior approval which
shall not be unreasonably withheld or denied, Tenant may install in a
reasonable location on the property of Landlord one (1) sign of reasonable
dimensions advertising Tenant's business at the Premises. Such sign shall be
erected and maintained at Tenant's expense and removed at Tenant's expense upon
termination of this Lease. Such sign shall comply with all applicable laws,
ordinances and restrictive covenants and Tenant will obtain, at its expense,
all permits and insurance for the same.
36. SECURITY DEPOSIT. Tenant shall pay to Landlord a security
deposit (the "Security Deposit") of $10,000.00 on the date this Lease is
executed by Tenant. Upon the occurrence of any Act of Default, Landlord may,
from time to time, without prejudice to any other remedy, use the Security
Deposit to the extent necessary to pay or satisfy any damage, injury, expense
or liability caused to Landlord by any Act of Default hereunder; however, the
Security Deposit shall not be considered a measure of Landlord's damages for
any Act of Default then exists hereunder (or following the cure by Tenant of
any Act of Default), the amount of the Security Deposit then held by Landlord
shall be returned to Tenant at the end of the Term.
37. FINANCIAL STATEMENTS. Upon the execution of this Lease and
annually thereafter during the Term, Tenant shall deliver to Landlord a copy of
Tenant's annual report to its stockholders as long as Tenant is a publicly-
owned company, then annually thereafter during the Term, Tenant shall deliver
to Landlord a copy of Tenant's fiscal year end financial statements as prepared
by Tenant's regular accounting firm, provided that Landlord will furnish a
confidentiality agreement reasonably acceptable to Tenant. Similar reports and
statements shall be furnished to Landlord by any permitted assignee or
sublessee upon the execution of such assignment or sublease and annually
thereafter during the Term or the term of the sublease.
38. MEMORANDUM OF LEASE. This Lease shall not be recorded by
Tenant; provided, however, that upon the request of either party to this Lease,
Landlord and Tenant shall execute and deliver a memorandum of the options set
forth in this Lease, in substantially the form attached hereto as Exhibit C,
for recording in the real property records of Tulsa County, Oklahoma.
39. MORTGAGES.
A. This Lease and the estate granted hereby shall be subject
and subordinate to the lien of any mortgage which may at any time constitute a
lien on the Premises and to any agreements at any time made modifying,
supplementing, extending or renewing any such mortgage. The subordination
shall be upon the condition that so long as Tenant shall not be in default,
this Lease shall not be terminated and Tenant's possession of the Premises
shall not be interfered with in any foreclosure or other action or proceeding
instituted under or in connection with such mortgage. Subordination of this
Lease shall be self-operative and no further instrument shall be required to
effect such subordination, but Tenant agrees to execute and deliver all
instruments that may be reasonably necessary or proper to effect or confirm
such subordination.
B. Tenant and Landlord agree upon request in writing from the
other, to execute, acknowledge, and deliver to the requesting party a
statement in writing certifying that this Lease is unmodified and in full force
and effect, or, if there have been modifications, that it is in full force and
effect as modified, and the dates to which the Rent and other charges have
been paid, and specifying whether or not the other party claims that the
requesting party has defaulted in any of its obligations.
IN WITNESS WHEREOF, this Lease is hereby executed as of the date first
above set forth.
BAKER PERFORMANCE CHEMICALS
INCORPORATED, a California corporation
By:
Name:
Title:
"Landlord"
WEBCO INDUSTRIES, INC.,
an Oklahoma corporation
By:
Name:
Title:
"Tenant"
EXHIBIT A
A tract or parcel of land located within the South Half of the Southwest
Quarter (S/2 SW/4) of Section Twelve (12), Township Nineteen (19) North, Range
Eleven (11) East of the Indian Base and Meridian, Tulsa County, State of
Oklahoma, according to the U.S. Government Survey thereof, more particularly
described as follows:
Beginning at a point on the section line 296.0 feet East of the
Southwest corner of Section Twelve (12); thence on a bearing of
North 89 29'30" East along the mentioned section line a distance
of 1092.3 feet to a point; thence North 0 42'15" West partially
along the center of an existing concrete drainage ditch a
distance of 500.0 feet to a point; thence South 89 29'30" West a
distance of 718.68 feet to a point; thence South 69 06'00" West
a distance of 304.09 feet to a point; thence South 89 36'00" West
a distance of 85.0 feet to a point; thence South 0 14'00" East a
distance of 394.2 feet to a point of beginning.
EXHIBIT B
East Wing Lab Area
All lab cabinetry, acid tops, and counter tops
All testing equipment and associated gas and fluids piping to
source
All wiring associated with equipment to panels disconnects
including conduits
All flow hoods and exhaust fans and systems including ductwork,
piping, motors,wiring and conduit to source and/or roof
penetrations. Seal all abandoned roof penetrations
All electrical panels shall be marked to indicate which
electrical circuits and breakers have been changed to
reflect the disconnects of this aforementioned equipment
All sinks and associated plumbing shall be removed including
risers, vents, and water piping. Terminations shall be
made and capped below slab and patched to provide a
smooth floor
EXHIBIT C
MEMORANDUM OF OPTIONS
THE STATE OF OKLAHOMA
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF TULSA
THIS MEMORANDUM OF OPTIONS (this "Memorandum") is made by and between Baker
Performance Chemicals Incorporated ("Landlord") and Webco Industries, Inc.
("Tenant").
WITNESSETH
1. Agreement. Landlord and Tenant are parties to that certain Lease
Agreement dated as of October ______, 1996 (the "Lease"), which provides that
pursuant to Sections 33 and 34 of the Lease, Tenant has the option to extend
the term of the Lease and to purchase the property described on Exhibit A
attached hereto and made a part hereof for all purposes (the "Property").
2. Purpose of Memorandum. This Memorandum is entered into for the
purpose of recording and giving notice of the provisions of Sections 33 and 34
of the Lease.
3. Termination. Upon termination of the Lease or assignment of the
Lease to any party other than the original Tenant, this Memorandum shall be of
no further force and effect. In such event, Landlord shall have the right to
record an affidavit stating that this Memorandum shall be of no further force
or effect and, thereafter, any purchaser of the Property, or title company
issuing any policy or report regarding the Property, shall have the right to
rely thereon.
4. Interpretation. The provisions in this Memorandum shall not be
used in interpreting the Lease. In the event of a conflict between the Lease
and this Memorandum, the Lease shall control.
EXECUTED as of ___________ ______, 1996.
BAKER PERFORMANCE CHEMICALS
INCORPORATED, a California corporation
By:
Name:
Title:
"Landlord"
WEBCO INDUSTRIES, INC., an Oklahoma
corporation
By:
Name:
Title:
"Tenant"
EXHIBIT D
WORK AGREEMENT
THIS WORK AGREEMENT (this "Agreement") is being executed simultaneously with
that certain Lease Agreement dated October 22, 1996 (the "Lease"), by and
between Baker Performance Chemicals Incorporated, a California corporation
("Landlord"), and Webco Industries, Inc., an Oklahoma corporation ("Tenant").
All capitalized terms used in this Agreement but not defined herein shall have
the same meaning ascribed to such terms in the Lease.
1. Landlord and Tenant agree that Landlord will execute a written
agreement with Trammell Crow Construction Company (the "General Contractor") as
general contractor to construct the Tenant Improvements. Such agreement will
be subject to Tenant's prior review and approval, not to be unreasonably
withheld, conditioned or delayed.
2. In the event that the General Contractor does not provide the
plans and specifications for the Tenant Improvements (the 'Plans and
Specifications'), Tenant agrees to provide, by Tenant's designated architect
and/or engineer ("Tenant's Architect/Engineer"), at Tenant's sole cost and
expense, which shall be payable out of the Allowance, the Plans and
Specifications. The Plans and Specifications and Tenant's Architect/Engineer
are subject to Landlord's review and written approval, not to be unreasonably
withheld, conditioned or delayed.
3. Landlord agreed to spend in the aggregate $256,200.00 (the
"Allowance") for the construction of the Tenant Improvements. In the event the
actual cost of the Tenant Improvements, including, without limitation, any
change orders or extra work, exceeds the Allowance, Tenant shall pay such
excess amounts to Landlord within seven (7) business days after receipt of an
invoice therefor from Landlord. In the event the actual cost of the Tenant
Improvements is less than the Allowance, Tenant shall have no rights to the
remainder of the Allowance.
4. Landlord shall make advances of the Allowance to Tenant's
Architect/Engineer or the General Contractor within thirty (30) days following
receipt of (i) invoices specifying the amounts due, (ii) a waiver and release
of mechanic's and materialmen's lien from Tenant's Architect/Engineer, the
General Contractor, and each subcontractor or supplier of materials, (iii) a
written authorization from Tenant to pay the amount requested, and (iv) in the
case of payments to the General Contractor only, the General Contractor's
application for payment, which shall include Tenant's Architect/Engineer's or
the General Contractor's certification on the applicable form published by The
American Institute of Architects. If such conditions have been performed to
the reasonable satisfaction of Landlord, Landlord shall make the requested
disbursement from the Allowance by issuing a check payable directly to Tenant's
Architect/Engineer or the General Contractor, as the case may be.
5. Upon approval of the Plans and Specifications by Landlord and
Tenant as provided above, Landlord shall not have the right to order any change
orders or extra work in connection with the Tenant Improvements without the
prior written consent of Tenant, which shall not be unreasonably withheld,
conditioned or delayed.
6. The General Contractor shall assign to Tenant all manufacturer's
warranties for equipment installed in the Premises and Landlord shall assign to
Tenant the General Contractor's warranty. TENANT ACKNOWLEDGES THAT LANDLORD
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, IN
CONNECTION WITH THE TENANT IMPROVEMENTS.
7. Prior to making the final payment to the General Contractor,
Landlord and Tenant shall walk through the Premises and shall agree upon a
punch list of items to be completed by the General Contractor. Upon
completion of such punch list items to the reasonable satisfaction of Tenant,
Tenant shall provide Landlord with written notification that the Tenant
Improvements are substantially complete and that the Tenant Improvements are
satisfactory, setting forth the date of substantial completion of the Tenant
Improvements (the "Substantial Completion Date").
8. Landlord shall use reasonable efforts to substantially complete
the Tenant Improvements within sixty (60) days after the Possession Date.
However, Landlord shall in no event be liable for or subject to any claim for
failure to substantially complete the Tenant Improvements by such date.
9. Tenant and Tenant's employees, agents, contractors, invitees, and
licensees shall not interfere with the construction of the Tenant
Improvements, and Landlord shall have the right to deny entry to the Premises
to any person who continues to interfere with the construction of the Tenant
Improvements after being provided with twenty-four (24) hours written notice by
Landlord or Landlord's agent to cease such interference. If the Substantial
Completion Date is delayed as a result of such interference or Tenant's failure
to provide consents or any information required under this Agreement on a
timely basis, then solely for the purposes of determining the commencement date
of Tenant's liability for Rent and other charges under the Lease, such delay
shall not postpone the Rent Commencement Date. Landlord shall not be liable
for any injury, loss or damage which may occur to Tenant or Tenant's employees,
agents, contractors, invitees, or licensees or any of Tenant's property,
fixtures, and installations in the Premises prior to the Substantial Completion
Date. Tenant agrees to indemnify, defend, and hold harmless Landlord from and
against any and all loss, liability, cost, damage or expense (including,
without limitation, attorneys' fees, accountants', fees, consultants' fees,
court costs, and interest) arising out of or in connection with the entry of
Tenant, Tenant's employees, agents, contractors, invitees, and licensees onto
the Premises prior to the Substantial Completion Date.
EXECUTED as of the date of the Lease.
BAKER PERFORMANCE CHEMICALS
INCORPORATED
By:
Name:
Title:
WEBCO INDUSTRIES, INC.
By:
Name:
Title:
WORK AGREEMENT
THIS WORK AGREEMENT ("this Agreement") is being executed simultaneously with
that certain Lease Agreement dated October 22, 1996 (the "Lease"), by and
between Baker Performance Chemicals Incorporated, a California corporation
("Landlord"), and Webco Industries, Inc., an Oklahoma corporation ("Tenant").
All capitalized terms used in this Agreement but not defined herein shall have
the same meaning ascribed to such terms in the Lease.
1. Landlord and Tenant agree that Landlord will execute a written
agreement with Trammell Crow Construction Company (the "General Contractor") as
general contractor to construct the Tenant Improvements. Such agreement will
be subject to Tenant's prior review and approval, not to be unreasonably
withheld, conditioned or delayed.
2. In the event that the General Contractor does not provide the
plans and specifications for the Tenant Improvements (the "Plans and
Specifications"), Tenant agrees to provide, by Tenant's designated architect
and/or engineer ("Tenant's Architect/Engineer"), at Tenant's sole cost and
expense, which shall be payable out of the Allowance, the Plans and
Specifications. The Plans and Specifications and Tenant's Architect/Engineer
are subject to Landlord's review and written approval, not to be unreasonably
withheld, conditioned or delayed.
3. Landlord has agreed to spend in the aggregate $256,200.00
(the "Allowance") for the construction of the Tenant Improvements. In the
event the actual cost of the Tenant Improvements, including, without
limitation, any change orders or extra work, exceeds the Allowance, Tenant
shall pay such excess amounts to Landlord within seven (7) business days after
receipt of an invoice therefor from Landlord. In the event the actual cost of
the Tenant Improvements is less than the Allowance, Tenant shall have no rights
to the remainder of the Allowance.
4. Landlord shall make advances of the Allowance to Tenant's
Architect/Engineer or the General Contractor within thirty (30) days following
receipt of (i) invoices specifying the amounts due, (ii) a waiver and release
of mechanic's and materialmen's lien from Tenant's Architect/Engineer, the
General Contractor, and each subcontractor or supplier of materials, (iii) a
written authorization from Tenant to pay the amount requested, and (iv) in the
case of payments to the General Contractor only, the General Contractor's
application for payment, which shall include Tenant's Architect/Engineer's or
the General Contractor's certification on the applicable form published by The
American Institute of Architects. If such conditions have been performed to
the reasonable satisfaction of Landlord, Landlord shall make the requested
disbursement from the Allowance by issuing a check payable directly to Tenant's
Architect/Engineer or the General Contractor, as the case may be.
5. Upon approval of the Plans and Specifications by Landlord and
Tenant as provided above, Landlord shall not have the right to order any change
orders or extra work in connection with the Tenant Improvements without the
prior written consent of Tenant, which shall not be unreasonably withheld,
conditioned or delayed.
6. The General Contractor shall assign to Tenant all manufacturer's
warranties for equipment installed in the Premises and Landlord shall assign to
Tenant the General Contractor's warranty. TENANT ACKNOWLEDGES THAT LANDLORD
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, IN
CONNECTION WITH THE TENANT IMPROVEMENTS.
7. Prior to making the final payment to the General Contractor,
Landlord and Tenant shall walk through the Premises and shall agree upon a
punch list of items to be completed by the General Contractor. Upon completion
of such punch list items to the reasonable satisfaction of Tenant, Tenant
shall provide Landlord with written notification that the Tenant Improvements
are substantially complete and that the Tenant Improvements are satisfactory,
setting forth the date of substantial completion of the Tenant Improvements
(the "Substantial Completion Date").
8. Landlord shall use reasonable efforts to substantially complete
the Tenant Improvements within sixty (60) days after the Possession Date.
However, Landlord shall in no event be liable for or subject to any claim for
failure to substantially complete the Tenant Improvements by such date.
9. Tenant and Tenant's employees, agents, contractors, invitees, and
licensees shall not interfere with the construction of the Tenant
Improvements, and Landlord shall have the right to deny entry to the Premises
to any person who continues to interfere with the construction of the Tenant
Improvements after being provided with twenty-four (24) hours written notice by
Landlord or Landlord's agent to cease such interference. If the Substantial
Completion Date is delayed as a result of such interference or Tenant's failure
to provide consents or any information required under this Agreement on a
timely basis, then solely for the purposes of determining the commencement date
of Tenant's liability for Rent and other charges under the Lease, such delay
shall not postpone the Rent Commencement Date. Landlord shall not be liable
for any injury, loss or damage which may occur to Tenant or Tenant's employees,
agents, contractors, invitees or licensees or any of Tenant's property,
fixtures, and installations in the Premises prior to the Substantial Completion
Date. Tenant agrees to indemnify, defend, and hold harmless Landlord from and
against any and all loss, liability, cost, damage or expense (including,
without limitation, attorneys' fees, accountants' fees, consultants' fees,
court costs, and interest) arising out of or in connection with the entry of
Tenant, Tenant's employees, agents, contractors, invitees, and licensees onto
the Premises prior to the Substantial Completion Date.
EXECUTED as of the date of the Lease.
BAKER PERFORMANCE CHEMICALS
INCORPORATED
By:
Name:
Title:
WEBCO INDUSTRIES, INC.
By:
Name:
Title:
FIRST AMENDMENT TO LEASE AGREEMENT
This FIRST AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and
entered into as of the 22nd day of October, 1996 (the "Effective Date"), by and
between BAKER PERFORMANCE CHEMICALS INCORPORATED, a California corporation
("Landlord"), and WEBCO INDUSTRIES, INC., an Oklahoma corporation ("Tenant").
Any capitalized terms used herein but not defined shall have the same meanings
ascribed to such terms in the Lease (hereinafter defined).
WITNESSETH:
WHEREAS, Landlord and Tenant executed that certain Lease Agreement dated
as of the Effective Date (the "Lease"), covering and describing that certain
building containing approximately 24,400 square feet of space located at 9101
West 21st Street, Sand Springs, Oklahoma, together with the surrounding real
property more particularly described on Exhibit A, attached hereto and made a
part hereof for all purposes;
WHEREAS, Section 33 of the Lease sets forth the terms and conditions of
certain options to purchase (the "Options to Purchase") granted by Landlord to
Tenant under the Lease;
WHEREAS, the purchase price under the Options to Purchase does not
provide that the purchase price under the Options to Purchase will be
$750,000.00 plus any unamortized portion of the Allowance paid by Landlord for
the Tenant Improvements, as agreed upon by Landlord and Tenant;
WHEREAS, Landlord and Tenant desire to amend the Lease to correct such
error and to add certain other provisions to the Lease;
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant do hereby
agree as follows:
1. The following shall be inserted after the first sentence of
Section 2.B. of the Lease:
In addition, Landlord represents that it has notified Tenant of
all environmental problems or conditions associated with the
Premises which are actually known to Halina Caravello, Director
of Environmental, Regulatory Affairs and Safety for Landlord,
except for any environmental problems or conditions which are
being studied by Caldwell Environmental Associates, Inc.
("Caldwell"); provided, however, that Landlord agrees to deliver
a copy of the report prepared by Caldwell in connection with such
study within five (5) business days after receipt of same by
Landlord. This representation shall survive for a period of one
(1)year after either (x) the Closing Date, if Tenant exercises a
Purchase Option, or (y) the termination or expiration of this
Lease.
2. The following shall be inserted at the end of Section 7 of the
Lease:
Notwithstanding Section 17 of this Lease, if Tenant discovers an
environmental problem or condition on the Premises which existed
prior to the date of this Lease and which was not disclosed by
either the Phase I Audit or the Phase II Audit, Tenant shall
notify Landlord within three (3) business days after discovering
such problem or condition, and Landlord shall have the option to
either (i) investigate and remediate said problem or condition at
Landlord's sole cost and expense, or (ii) to reimburse Tenant
for all reasonable costs of investigating and remediating said
problem or condition; provided, however, that Tenant shall be
responsible for any costs and expenses which are attributable to
the exacerbation of the problem or condition by Tenant.
Landlord's obligations under this paragraph shall survive for a
period of one (1) year after either (x) the Closing Date, if
Tenant exercise a Purchase Option, or (y) the termination or
expiration of this Lease.
3. Section 33. C. of the Lease shall be deleted in its entirety and
replaced with the following:
33.C. The purchase price for the Premises shall be $750,000.00
plus any unamortized portion of the Allowance paid by Landlord
for the Tenant Improvements. For purposes of this subsection,
the Allowance paid by Landlord for the Tenant Improvements shall
be amortized on a straight line basis over the Term of this
Lease, and Landlord and Tenant acknowledge and agree that each
monthly installment of Rent includes an amortized portion of the
Allowance.
4. Landlord and Tenant do hereby agree that the Possession Date is
January 15, 1997, and the Rent Commencement Date is March 15,
1997.
EXECUTED as of the Effective Date.
BAKER PERFORMANCE CHEMICALS
INCORPORATED, a California corporation
By:
Name:
Title:
"Landlord"
WEBCO INDUSTRIES, INC., an Oklahoma
corporation
By:
Name:
Title:
"Tenant"
Exhibit 10.4
OFFICER EMPLOYMENT CONTRACT
This Officer Employment Contract (the "Contract") is made and entered
into this 31st day of DECEMBER, 1996, by and between WEBCO INDUSTRIES, INC.,
an Oklahoma corporation (hereinafter called "Company"), and F. WILLIAM WEBER
(hereinafter called "Officer").
Recitals:
(1) Officer has served as Company's Chief Executive Officer since the
inception of Company's business. Officer and Company desire to enter
into this Contract to state the terms and conditions of Officer's
employment by the Company.
NOW THEREFORE, in consideration of the mutual covenants and promises
herein and intending to be legally bound, Officer and Company agree as follows:
1. EMPLOYMENT OF OFFICER. Company employs Officer to serve in
the capacities of Company's Chairman of the Board and Chief Executive Officer.
Officer accepts his employment by Company in the capacities stated.
2. DUTIES. Company and Officer recognize that it is not feasible
to specify in detail all of the duties of Officer in his capacities as
Chairman of the Board, and Chief Executive Officer of the Company. In general
terms, Officer will perform those duties which are consistent with the
positions of Chairman of the Board and Chief Executive Officer of the Company
and such duties as are reasonably assigned to him by the Board of Directors of
the Company in those capacities. Without limiting the generality of the
foregoing, Officer shall attend and preside at all meetings of the Company
Board of Directors and stockholders.
3. TERM. The term of this Contract shall commence on its date
and shall terminate on December 31, 1999, unless this Contract is terminated at
an earlier date by any of the following ("Termination Events"):
(a) Mutual agreement of the parties;
(b) Officer's resignation;
(c) Officer's death;
(d) Termination for Officer's disability as provided herein;
and
(e) Termination for cause as provided herein.
4. COMPENSATION. Company agrees to pay Officer a base
compensation ("Base Compensation") of $422,706 per year, payable in biweekly
installments of $16,257.69 per period commencing January 1, 1997, subject to
federal and state withholding deductions required by law. Officer's Base
Compensation may be increased from time to time by action of the Company's
Compensation Committee, if such exists, or the Board of Directors, but
Officer's Base Compensation shall not be decreased below Officer's then current
Base Compensation without Officer's consent. this paragraph shall not exclude
Officer from receiving bonus compensation provided by the Company's
compensation Committee or Board of Directors, either for Officer individually
or as a participant in a bonus pool. Additionally, this paragraph shall not
exclude Officer from receiving stock grants, stock options or participating in
other employee benefit plan involving Company stock, as determined by the
Company's Compensation Committee or Board of Directors.
5. EXPENSE REIMBURSEMENT. Company will reimburse Officer for all
out-of-pocket expenses incurred by Officer in the performance of Officer's
service for the Company. Company recognizes that Officer's participation in
professional societies and civic organizations will enhance Officer's
capabilities and the image of Company in the local community,. Accordingly, as
a part of Officer's duties, Company expects Officer to participate in
professional society activities and civic club activities. Company will
reimburse Officer for professional society and civic club dues. Further,
company will provide Officer with reasonable time off with pay to attend
professional and civic club meetings.
6. FRINGE BENEFITS. Company will provide Officer with the following
"fringe benefits":
(a) Life Insurance. Company will reimburse Officer for: (i)
the premium cost of the life insurance policies (or substitute
policies with no premium increase) listed on SCHEDULE A
hereto; plus (ii) an additional amount representing the state
and federal income taxes resulting from the inclusion of the
premium payment in Officer's taxable income.
(b) Vacation. Thirty (30) days per calendar year with full
salary.
(c) Physical Examination. An annual complete physical
examination by a physician of Officer's selection; and
(d) Medical Insurance. Medical insurance for Officers and
Officer's dependents with deductible and co-payment provisions
not in excess of Officer's present medical coverage.
(e) Club Dues. Reimbursement for country club and Summit
Club dues.
(f) Automobile. The use of an automobile appropriate to
Officer's position.
The foregoing shall not be exclusive and Officer shall be entitled to
participate in other employee benefits which Company extends to executive
officer employees of the Company generally or to Officer individually.
7. TERMINATION FOR CAUSE. The Company may terminate the Officer's
employment for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Officer's employment only on the basis of:
(a) The Officer's willful and continued failure substantially
to perform his duties with the Company (other than any such failure
substantial performance is delivered to the Officer by the Company's Board of
Directors which specifically identifies the manner in which such Board of
Directors believes that the Officer has not substantially performed his duties;
or
(b) The Officer's willful engagement in conduct materially
and demonstrably injurious to the Company.
For purposes of this subsection, no act or failure to act on the Officer's part
shall be considered "willful" unless done, or omitted to be done, by the
Officer not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. The Officer shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Officer a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the entire membership
(excluding Officer) of the Company's Board of Directors, at a meeting of the
Board of Directors called and held for the purpose, finding that in the good
faith opinion of the Board of Directors the Officer was guilty of conduct set
forth in subsection (a) or (b) of this Section and specifying the particulars
thereof in detail. If Officer believes that Company does not have Cause to
terminate Officer's employment, Officer may request, by written notice to
Company, that the question of Cause to terminate Officer's employment be
submitted to final and binding arbitration under the Oklahoma Arbitration Act.
Pending the arbitration decision, Officer shall be entitled to receive all of
Officer's benefits under this Contract.
8. TERMINATION IN THE EVENT OF DEATH. This Contract will terminate
upon Officer's death. All accrued benefits to the date of Officer's death
will be paid to Officer's estate or Officer's designated beneficiary.
9. DISABILITY. In the event Officer becomes physically or mentally
disabled to the extent that Officer is unable to perform the duties of
Officer's employment, Officer's salary and other benefits under this contract
will continue for the first six (6) months of such disability. If Officer is
unable to resume Officer's duties by the end of the six (6) months' period,
Officer shall be paid one-half of Officer's Base Salary during the next six (6)
months. If Officer is unable to resume Officer's services at the end of
twelve (12) months from the inception of the disability, Company may terminate
this Contract.
10. CHANGE IN CONTROL. The provisions of this paragraph will be
"triggered" by a "Change in Control" of the Company. For the purpose of this
paragraph, a "Change in Control" shall be deemed to have occurred if:
(a) There shall be consummated: (i) any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
common stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders
of the Company's common stock immediately prior to the merger have
substantially the same proportionate ownership of common stock of
the surviving corporation immediately after the merger; or (ii) any
sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the
assets of the Company; or
(b) The shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company; or
(c) Any person (as such term is used in Sections 13(d) and 14
(d)(2) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company or any employee benefit
plan sponsored by the Company, shall become the beneficial owner
directly or indirectly (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of the Company representing either (i)
51% of the Company's common stock or (ii) a greater percentage of
the Company's common stock than the aggregate percentage held or
controlled by the F. William Weber Family (and apart from rights
accruing in special circumstances) having the right to vote in the
election of directors, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise;
or
(d) At any time during a period of two (2) consecutive years,
individuals who, at the beginning of such period constituted the
Board of Directors of the Company, shall cease for any reason to
constitute at least a majority thereof, unless the election or the
nomination for election by the Company's shareholders of each new
director during such (2) year period was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
were directors at the beginning of such two (2) year period. For
the purpose of this paragraph, the term, "F. William Weber Family"
shall mean, collectively, F. William Weber, Martha A. Weber, Dana
S. Weber, Kimberly Weber Frank, Ashley Weber, and the lineal
descendants of the persons above named.
In the event of a Change of Control, as above defined, the Company shall
pay Officer a lump sum payment equal to: (1) three (3) times the Officer's
annual cash compensation by the Company; plus (2) such amount as is necessary
so that such payment is received net of any special or excise taxes imposed on
the payment or on Officer under the Internal Revenue Code of 1986, as amended,
or any similar provision of a subsequent revenue law. The term "annual cash
compensation" shall mean the sum of: (x) Officer's annual Base Salary in
effect at the time of the Change of Control; and (y) an amount equal to the
highest annual bonus paid Officer in the three (3) calendar years preceding the
Change of Control. The Change of Control payment shall be made within thirty
(30) days after the Change of Control takes place, except that if Officer so
elects by notice to the Company within fifteen (15) days after the Change of
Control event, in lieu of the lump sum compensation payment, for a period of
thirty-six (36) months from the date of Change of Control, Company shall pay
Officer monthly an amount equal to one-thirty-sixth (1/36) of the total amount
which, payable over such period in installments, would have compounded future
value equal to the amount of the lump sum compensation payment, based on the
prime interest rate, plus four (4) percentage points, of the Company's primary
banking source at the date of the Change of Control.
11. SUCCESSOR TO THE COMPANY. Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all substantially all the business and / or assets of the Company, by
agreement in form and substance satisfactory to the Officer, expressly,
absolutely and unconditionally to assume and agree to perform this Contract in
the same manner and to the same extent that Company would be required to
perform it if no such succession or assignment had taken place. Any failure of
the Company to obtain such agreement prior to effectiveness of any such
succession or assignment shall be a material breach of this Contract and shall
be deemed to be a Change of Control event.
12. NOTICE. All notices and other communications under this Contract
shall be in writing and shall be deemed to have been duly given when delivered
or (5) days after posting by U.S. Mail, certified, return receipt requested,
postage prepaid as follows:
IF TO COMPANY:
WEBCO INDUSTRIES, INC.
Attn: President
P.O. Box 100
Sand Springs, OK. 74063
IF TO OFFICER:
F. WILLIAM WEBER
7449 S. INDIANAPOLIS
TULSA, OK. 74136
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Officer and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
14. VALIDITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
16. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees
and expenses which the Officer may incur as a result of the Company's
contesting the validity, enforceability or the Officer's interpretation of, or
determinations under, this Agreement.
17. LAWS GOVERNING. This Agreement has been entered into in the
State of Oklahoma, and shall be construed, interpreted and governed in
accordance with the laws of the State of Oklahoma.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"OFFICER": "COMPANY":
WEBCO INDUSTRIES, INC.
____________________________ By_________________________
F. WILLIAM WEBER
Print Name:
___________________________
Title: Title:
Chairman, and Chief Executive Officer ___________________________
Exhibit 10.5
OFFICER EMPLOYMENT CONTRACT
This Officer Employment Contract (the "Contract") is made and entered
into this 31st day of DECEMBER, 1996, by and between WEBCO INDUSTRIES, INC.,
an Oklahoma corporation (hereinafter called "Company"), and DANA S. WEBER
(hereinafter called "Officer").
Recitals:
(1) Officer has served as Company's President and Chief Operating Officer
since 1995. Officer and Company desire to enter into this Contract to state
the terms and conditions of Officer's employment by the Company.
NOW THEREFORE, in consideration of the mutual covenants and promises herein
and intending to be legally bound, Officer and Company agree as follows:
1. EMPLOYMENT OF OFFICER. Company employs Officer to serve in
the capacities of Company's Vice Chairman of the Board and Chief Operating
Officer. Officer accepts her employment by Company in the capacities stated.
2. DUTIES. Company and Officer recognize that it is not feasible
to specify in detail all of the duties of Officer in his capacities as Vice
Chairman of the Board, and Chief Operating Officer of the Company. In general
terms, Officer will perform those duties which are consistent with the
positions of Vice Chairman of the Board and Chief Operating Officer of the
Company and such duties as are reasonably assigned to her by the Board of
Directors of the Company in those capacities. Without limiting the generality
of the foregoing, Officer shall attend and preside at all meetings of the
Company Board of Directors and stockholders.
3. TERM. The term of this Contract shall commence on its date
and shall terminate on December 31, 1999, unless this Contract is terminated at
an earlier date by any of the following ("Termination Events"):
(a) Mutual agreement of the parties;
(b) Officer's resignation;
(c) Officer's death;
(d) Termination for Officer's disability as provided herein;
and
(e) Termination for cause as provided herein.
4. COMPENSATION. Company agrees to pay Officer a base
compensation ("Base Compensation") of $225,000 per year, payable in biweekly
installments of $8,653.85 per period commencing January 1, 1997, subject to
federal and state withholding deductions required by law. Officer's Base
Compensation may be increased from time to time by action of the Company's
Compensation Committee, if such exists, or the Board of Directors, but
Officer's Base Compensation shall not be decreased below Officer's then current
Base Compensation without Officer's consent. this paragraph shall not exclude
Officer from receiving bonus compensation provided by the Company's
compensation Committee or Board of Directors, either for Officer individually
or as a participant in a bonus pool. Additionally, this paragraph shall not
exclude Officer from receiving stock grants, stock options or participating in
other employee benefit plan involving Company stock, as determined by the
Company's Compensation Committee or Board of Directors.
5. EXPENSE REIMBURSEMENT. Company will reimburse Officer for all
out-of-pocket expenses incurred by Officer in the performance of Officer's
service for the Company. Company recognizes that Officer's participation in
professional societies and civic organizations will enhance Officer's
capabilities and the image of Company in the local community,. Accordingly, as
a part of Officer's duties, Company expects Officer to participate in
professional society activities and civic club activities. Company will
reimburse Officer for professional society and civic club dues. Further,
company will provide Officer with reasonable time off with pay to attend
professional and civic club meetings.
6. FRINGE BENEFITS. Company will provide Officer with the
following "fringe benefits":
(a) Life Insurance. Company will pay: (i) the premium cost
of the life insurance policies (or substitute policies with no
premium increase) listed on SCHEDULE A hereto; plus (ii) an
additional amount representing the state and federal income taxes
resulting from the inclusion of the premium payment in Officer's
taxable income.
(b) Vacation. Thirty (30) days per calendar year with full
salary.
(c) Physical Examination. An annual complete physical
examination by a physician of Officer's selection; and
(d) Medical Insurance. Medical insurance for Officers and
Officer's dependents with deductible and co-payment provisions
not in excess of Officer's present medical coverage.
(e) Club Dues. Reimbursement for country club and Summit
Club dues.
(f) Automobile. The use of an automobile appropriate to
Officer's position. The foregoing shall not be exclusive and
Officer shall be entitled to participate in other employee
benefits which Company extends to executive officer employees of
the Company generally or to Officer individually.
7. TERMINATION FOR CAUSE. The Company may terminate the Officer's
employment for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Officer's employment only on the basis of:
(a) The Officer's willful and continued failure substantially
to perform her duties with the Company (other than any such
failure substantial performance is delivered to the Officer by
the Company's Board of Directors which specifically identifies
the manner in which such Board of Directors believes that the
Officer has not substantially performed his duties; or
(b) The Officer's willful engagement in conduct materially
and demonstrably injurious to the Company.
For purposes of this subsection, no act or failure to act on the Officer's part
shall be considered "willful" unless done, or omitted to be done, by the
Officer not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. The Officer shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Officer a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the entire membership
(excluding Officer) of the Company's Board of Directors, at a meeting of the
Board of Directors called and held for the purpose, finding that in the good
faith opinion of the Board of Directors the Officer was guilty of conduct set
forth in subsection (a) or (b) of this Section and specifying the particulars
thereof in detail. If Officer believes that Company does not have Cause to
terminate Officer's employment, Officer may request, by written notice to
Company, that the question of Cause to terminate Officer's employment be
submitted to final and binding arbitration under the Oklahoma Arbitration Act.
Pending the arbitration decision, Officer shall be entitled to receive all of
Officer's benefits under this Contract.
8. TERMINATION IN THE EVENT OF DEATH. This Contract will terminate
upon Officer's death. All accrued benefits to the date of Officer's death
will be paid to Officer's estate or Officer's designated beneficiary.
9. DISABILITY. In the event Officer becomes physically or mentally
disabled to the extent that Officer is unable to perform the duties of
Officer's employment, Officer's salary and other benefits under this contract
will continue for the first six (6) months of such disability. If Officer is
unable to resume Officer's duties by the end of the six (6) months' period,
Officer shall be paid one-half of Officer's Base Salary during the next six (6)
months. If Officer is unable to resume Officer's services at the end of
twelve (12) months from the inception of the disability, Company may terminate
this Contract.
10. CHANGE IN CONTROL. The provisions of this paragraph will
be "triggered" by a "Change in Control" of the Company. For the purpose of
this paragraph, a "Change in Control" shall be deemed to have occurred if:
(a)There shall be consummated: (i) any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's common
stock would be converted into cash, securities or other property, other than a
merger of the Company in which the holders of the Company's common stock
immediately prior to the merger have substantially the same proportionate
ownership of common stock of the surviving corporation immediately after the
merger; or (ii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the assets
of the Company; or
(b)The shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company; or
(c)Any person (as such term is used in Sections 13(d) and 14
(d)(2) of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), other than the Company or any employee benefit plan sponsored by the
Company, shall become the beneficial owner directly or indirectly (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the Company
representing either (i) 51% of the Company's common stock or (ii) a greater
percentage of the Company's common stock than the aggregate percentage held or
controlled by the F. William Weber Family (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise; or
(d)At any time during a period of two (2) consecutive years,
individuals who, at the beginning of such period constituted the Board of
Directors of the Company, shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination for election by the
Company's shareholders of each new director during such (2) year period was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of such two (2) year period.
For the purpose of this paragraph, the term, "F. William Weber Family"
shall mean, collectively, F. William Weber, Martha A. Weber, Dana S. Weber,
Kimberly Weber Frank, Ashley Weber, and the lineal descendants of the persons
above named.
In the event of a Change of Control, as above defined, the Company shall
pay Officer a lump sum payment equal to: (1) three (3) times the Officer's
annual cash compensation by the Company; plus (2) such amount as is necessary
so that such payment is received net of any special or excise taxes imposed on
the payment or on Officer under the Internal Revenue Code of 1986, as amended,
or any similar provision of a subsequent revenue law. The term "annual cash
compensation" shall mean the sum of: (x) Officer's annual Base Salary in
effect at the time of the Change of Control; and (y) an amount equal to the
highest annual bonus paid Officer in the three (3) calendar years preceding the
Change of Control. The Change of Control payment shall be made within thirty
(30) days after the Change of Control takes place, except that if Officer so
elects by notice to the Company within fifteen (15) days after the Change of
Control event, in lieu of the lump sum compensation payment, for a period of
thirty-six (36) months from the date of Change of Control, Company shall pay
Officer monthly an amount equal to one-thirty-sixth (1/36) of the total amount
which, payable over such period in installments, would have compounded future
value equal to the amount of the lump sum compensation payment, based on the
prime interest rate, plus four (4) percentage points, of the Company's primary
banking source at the date of the Change of Control.
11. SUCCESSOR TO THE COMPANY. Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all substantially all the business and / or assets of the Company, by
agreement in form and substance satisfactory to the Officer, expressly,
absolutely and unconditionally to assume and agree to perform this Contract in
the same manner and to the same extent that Company would be required to
perform it if no such succession or assignment had taken place. Any failure of
the Company to obtain such agreement prior to effectiveness of any such
succession or assignment shall be a material breach of this Contract and shall
be deemed to be a Change of Control event.
12. NOTICE. All notices and other communications under this Contract
shall be in writing and shall be deemed to have been duly given when delivered
or (5) days after posting by U.S. Mail, certified, return receipt requested,
postage prepaid as follows:
IF TO COMPANY:
WEBCO INDUSTRIES, INC.
Attn: President
P.O. Box 100
Sand Springs, OK. 74063
IF TO OFFICER:
DANA S. WEBER
3606 E. 99TH ST.
TULSA, OK. 74137
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing signed by the Officer and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
14. VALIDITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
16. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees
and expenses which the Officer may incur as a result of the Company's
contesting the validity, enforceability or the Officer's interpretation of, or
determinations under, this Agreement.
17. LAWS GOVERNING. This Agreement has been entered into in the
State of Oklahoma, and shall be construed, interpreted and governed in
accordance with the laws of the State of Oklahoma.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"OFFICER": "COMPANY":
WEBCO INDUSTRIES, INC.
____________________________ By_________________________
DANA S. WEBER
Print Name:
___________________________
Title: Title:
Vice Chairman, and Chief Operating Officer ___________________________
SCHEDULE A:
AMOUNT
MID-CONTINENT LIFE INSURANCE CO. $100,000
P.O. BOX 60389
OKLAHOMA CITY, OK. 73146-0389
ANNUAL PREMIUM $207.90
STANDARD LIFE INSURANCE CO. $100,000
1100 S.W. SIXTH AVENUE
PORTLAND, OREGON 97204-1093
ANNUAL PREMIUM $363.00
Exhibit 18.1
September 18, 1997
Webco Industries, Inc.
201 S. Woodland Drive
Sand Springs, OK 74063
We are providing this letter to you for inclusion as an exhibit in the Webco
Industries, Inc. (the "Company") filing on Form 10-K, pursuant to item 601 of
Regulation S-K.
We have read management's justification for the change in accounting from the
Last-in First-out method of inventory measurement to the weighted average cost
method of inventory measurement contained in the Company's Form 10-K for the
year ended July 31, 1997. Based on our reading of the data and discussions
with Company officials of the business judgment and business planning factors
relating to the change, we believe management's justification to be reasonable.
Accordingly, in reliance on management's determination as regards elements of
business judgment and business planning, we concur that the newly adopted
accounting principle described above is preferable in the Company's
circumstances to the method previously applied.
Coopers & Lybrand L.L.P.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (File No.
333 - 22779) of our reports, which includes an explanatory paragraph relating
to the Company's change in accounting for its inventories, dated September 18,
1997, on our audits of the consolidated financial statements and financial
statement schedule of Webco Industries, Inc. (the "Company") as of July 31,
1997 and 1996 and for the years ended July 31, 1997, 1996, and 1995, which
report is included in this Annual Report on Form 10-K for the year ended July
31, 1997.
As discussed in Note 2, during 1997 the Company changed its method of
accounting for inventories from the Last-in, First-out method to the weighted
average cost method. Accordingly, previously reported amounts have been
restated to reflect this change in accounting.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
October 27, 1997