1
EXHIBIT 10.2
SIXTH AMENDMENT TO
SECOND AMENDED AND RESTATED
FINANCING AGREEMENT
AND CONSENT AND WAIVER
THIS SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED FINANCING AGREEMENT
AND CONSENT AND WAIVER (the "Amendment") dated as of June 24, 1999, is by and
among ENCORE WIRE CORPORATION, a Delaware corporation ("Borrower"), NATIONSBANK,
N.A., dba BANK OF AMERICA, NATIONAL ASSOCIATION (successor by merger to
NationsBank of Texas, N.A.), a national banking association, and COMERICA
BANK-TEXAS ("Comerica Bank"), a state banking association, in their individual
capacities as "Lenders" (as such term is defined herein), and NATIONSBANK, N.A.,
dba BANK OF AMERICA, NATIONAL ASSOCIATION (successor by merger to NationsBank of
Texas, N.A.), a national banking association, as agent for itself and the other
Lenders (in such capacity, together with its successors in such capacity, the
"Agent").
WITNESSETH:
WHEREAS, the Borrower, the Agent, and the Lenders are parties to the
Second Amended and Restated Financing Agreement, dated as of June 9, 1997, as
amended by the First Amendment to Second Amended and Restated Financing
Agreement, dated as of February 20, 1998 (the "First Amendment"), by the Second
Amendment to Second Amended and Restated Financing Agreement, dated as of June
15, 1998 (the "Second Amendment"), by the Third Amendment to Second Amended
and Restated Financing Agreement, dated as of August 28, 1998 (the "Third
Amendment"), by the Fourth Amendment to Second Amended and Restated Financing
Agreement, dated as of October 28, 1998 (the "Fourth Amendment") and by the
Fifth Amendment to Second Amended and Restated Financing Agreement, dated as of
May 10, 1999 (the "Fifth Amendment") (as so amended, the "Original Financing
Agreement") relating to a $65,000,000 revolving credit facility ("Facility"),
pursuant to which, inter alia, the Lenders agreed to make certain loans
available to the Borrower upon the terms and conditions contained in the
Original Financing Agreement;
WHEREAS, Borrower desires to effect a corporate reorganization
("Reorganization") pursuant to which Borrower shall contribute all of its
operating assets to GP and to LP, which corporations may, in turn, contribute
all of such operating assets to the Partnership (as such terms are defined below
in Section 2 of this Amendment);
WHEREAS, Agent and the Lenders are willing to consent to such
reorganization on the terms and conditions contained herein and, accordingly,
desire to amend the Original Financing Agreement in accordance with the terms
and provisions of this Amendment;
2
NOW, THEREFORE, for and in consideration of these premises and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower, the Agent and the Lenders hereby agree as follows:
1. Terms. All capitalized terms defined in the Original Financing
Agreement and not otherwise defined herein shall have the same definitions when
used herein as set forth in the Original Financing Agreement as amended by this
Sixth Amendment.
2. Amendment of ARTICLE I. ARTICLE I of the Original Agreement as
amended by deleting paragraph 1.19, paragraph 1.26, paragraph 1.28, paragraph
1.49, paragraph 1.77, paragraph 1.81, paragraph 1.83, in their entireties and
replacing them with the corresponding revised paragraph set forth below, by
renumbering the paragraph defining "Comerica Bank" as paragraph 1.88 instead of
paragraph 1.87, and by adding the following paragraphs 1.89 through 1.93 as new
paragraphs at the end of such ARTICLE I:
1.19 "Contract Term" means the effective date specified in the
preamble of this Agreement and continuing through May 31, 2001.
1.26 "Eligible Accounts" means the net amount of the accounts of
Borrower and its Subsidiaries which own accounts which meet each of the
following criteria: (a) payment terms are within Borrower's or such
Subsidiary's ordinary course of business, and the account is aged less
than one hundred twenty (120) days from the date of invoice and arose
in the ordinary course of business from the bona fide sale of Inventory
under an enforceable agreement, and such Inventory has been fully
delivered thereunder; (b) the title of Borrower or such Subsidiary to
the account is absolute and is not subject to any assignment, claim,
lien or security interest; (c) the full amount shown on the books of
Borrower or such Subsidiary and on the invoice evidencing the account,
and on the Borrowing Base Report delivered to Agent, is owing to
Borrower or such Subsidiary, as appropriate, and no partial payment has
been made thereon, except as otherwise may be shown on such invoice and
disclosed to Agent; (d) the account is not subject to any dispute,
claim of reduction, counterclaim, set-off, recoupment or any claim for
credits, allowances or adjustments by the account debtor, except for
customary discounts allowed for prompt payment as may be noted on the
invoice evidencing such account, or as has been disclosed to and
approved by Agent; (e) the account is not an account that Agent in its
sole discretion determines to be an unacceptable credit risk at the
time of such determination; (f) the account debtor has not rejected,
returned or refused to accept any Inventory relating to the transaction
from which the account arose; (g) the account does not arise out of a
contract or purchase order that, by its terms, forbids assignment,
conditions assignment on consent by the account debtor or otherwise
purports to make an assignment thereof conditional, void or
unenforceable; (h) neither Borrower nor such Subsidiary has received
any notice and has no knowledge of the dissolution or termination of
existence of any corporate account debtor, or the insolvency, business
failure or the filing of a petition in bankruptcy by or against any
account debtor. Notwithstanding the
2
3
foregoing, the total amount at any time includable in Eligible Accounts
with respect to any account debtor shall not exceed an amount equal to
ten percent (10.0%) of the aggregate amount of all accounts of Borrower
its such Subsidiaries which otherwise meet all criteria for being
Eligible Accounts (including those of such account debtor). Eligible
Accounts shall not include any of the following: "contra accounts;"
accounts subject to credit memos or accounts in connection with
"C.0.D." sales, "xxxx and hold " sales, guaranteed sales, consignment
sales or other special billing arrangements; amounts, if any,
excludable in respect of returned inventory; amounts owing by any
Affiliate; all amounts owing by any account debtor with respect to
which more than twenty-five percent (25.0%) of its aggregate amount of
accounts owing to Borrower and such Subsidiary is aged one hundred
twenty (120) or more days from the date of invoice; all amounts owing
by the United States or any state or local government (unless
otherwise expressly agreed by Agent); amounts owing by any account
debtor whose principal place of business is located outside the United
States.
1.28 "Eligible Inventory" means copper raw material inventory and
finished goods inventory owned by Borrower or any of its Subsidiaries
which is wire and cable inventory but unless otherwise agreed by Agent,
does not in any event include (a) Inventory which is subject to any
security interest, lien, encumbrance or claim by any Person, (b)
Inventory acquired by Borrower or such Subsidiary other than in the
ordinary course of business (except pursuant to the Reorganization),
and (c) Inventory which is damaged or obsolete or which otherwise is
not in good saleable condition. Eligible Inventory shall be valued at
the lesser of its cost or current market value, in a manner acceptable
to Agent.
1.49 "Inventory" means all of Borrower's or any Subsidiary's inventory
now or hereafter owned or acquired, including raw materials, work in process,
finished goods and all other goods held for sale or lease, wherever located.
"Inventory" also includes returned inventory.
1.77 "Receivables" means all present and future accounts, chattel
paper, contract rights, documents, instruments, deposit accounts, and general
intangibles now or hereafter owned, held, or acquired by Borrower or any
Subsidiary and includes, without limitation, all of the following: all of
Borrower's or any Subsidiary's accounts receivable, including all rights to
payment for goods sold or leased or for services rendered, whether or not earned
by performance (and in any case where an account arises from the sale of goods,
the interest of Borrower or such Subsidiary in such goods); lease receivables;
license receivables; notes receivable; all other rights to receive payments of
money from any Person; documents of title; warehouse receipts; Borrower's or any
Subsidiary's right, title and interest under equipment leases; Borrower's or any
Subsidiary's rights under any service, lease rental, consulting or similar
agreements; trademarks, trade names and service marks; rights or claims under
contracts; all tax refunds or claims for tax refunds; books of account, customer
lists and other records relating in any way to any of the foregoing.
3
4
1.81 "Required Lenders" means, at any date of determination, Lenders
having in the aggregate at least 80% (in Dollar amount) of the
aggregate amount of the outstanding Commitments (or, if such
Commitments have terminated or expired, the aggregate outstanding
principal amount of the Loans and the aggregate Letter of Credit
Liabilities).
1.83 "Revolving Credit Limit" means the amount of Sixty-Five Million
Dollars ($65,000,000) for the period commencing August 28, 1998 until
the last day of the Contract Term.
1.88 "Comerica Bank" means Comerica Bank-Texas in its individual
capacity as a Lender.
1.89 "GP" means EWC GP Corp., a Delaware corporation, and a
wholly-owned Subsidiary of Borrower which is the sole general partner
of the Partnership.
1.90 "LP" means EWC LP Corp., a Delaware corporation and a wholly-owned
Subsidiary of Borrower which is the sole limited partner of the
Partnership.
1.91 "Partnership" means Encore Wire Limited, a Texas limited
partnership organized to succeed to the business of Borrower and which
is owned entirely by GP as general partner and LP as limited partner."
1.92 "Reorganization" has the meaning set forth in paragraph 7.24.
1.93. "EWC Aviation" " means EWC Aviation, Inc., a Delaware corporation
and a wholly-owned Subsidiary of Borrower.
3. Amendment of ARTICLE VII. ARTICLE VII of the Original Financing
Agreement is amended by deleting ARTICLE VII, as amended, in its entirety and
replacing it with the following:
"ARTICLE VII. COVENANTS
Throughout the Contract Term and until payment and performance in full
of the Obligations, Borrower agrees that it will comply, and will cause its
Subsidiaries to comply, with the following covenants (unless otherwise allowed
by prior written consent of Agent):
7.1 Compliance Certificate. Within forty-five (45) days following the
end of each fiscal quarter, Borrower shall deliver to Agent a certificate signed
by the president or chief financial officer of Borrower certifying to Agent that
no event or condition that would be the subject of a required notice under
paragraph 7.12 or paragraph 7.13 is in existence as of the date of such
certificate. Such certificate shall be deemed to be a continuing representation
and warranty pending any subsequent certification or notification by Borrower
respecting its
4
5
compliance or non-compliance with this Agreement, and Borrower acknowledges
that Agent shall rely upon the same in making loans under the Facility.
7.2 Authority. Immediately following any effective change thereof (and
at such other times, from time to time, at the request of Agent) Borrower shall
certify to Agent the names and signatures of all Persons authorized to execute
and deliver Borrowing Base Reports to Agent and any other documentation
contemplated by or relating to any of the Loan Documents.
7.3 Books and Records. Inspection.
7.3.1 Books and Records. Borrower and each Subsidiary shall keep and
maintain proper, complete and consistent books of record and account
respecting its affairs and financial condition in accordance with GAAP.
7.3.2 Inspection. . Agent shall have the right without hindrance or
delay to conduct field examinations to inspect, audit and copy
Borrower's and each Subsidiary's books, records, journals,
correspondence and other records and data relating to its business and
its properties. During normal business hours, Agent is authorized to
discuss Borrower's and each Subsidiary's affairs with any Person,
including without limitation employees of Borrower and such Subsidiary,
as Agent may deem necessary in relation to Borrower's and such
Subsidiary's financial condition or Agent's rights under the Loan
Documents. To the extent not prohibited under the terms of Borrower's
or any Subsidiary's agreement with any credit reporting service, bureau
or similar service, Agent shall have full access to all records
available to Borrower and such Subsidiary from such credit reporting
service, bureau or similar service and shall have the right to examine
and make copies of any such records. Agent may exhibit a copy of this
Agreement to such service and such service shall be entitled to rely on
the provisions hereof in providing access to Agent as provided herein.
7.4 Corporate Existence. Borrower and each Subsidiary shall preserve
and maintain its corporate or partnership existence, good standing and authority
to transact business in all jurisdictions where necessary for the proper conduct
of its business, and shall maintain all of its properties, rights, privileges
and franchises necessary or desirable in the normal conduct of its business.
7.5 Annual Financial Statements. Borrower shall deliver to Agent, as
soon as practicable after the end of each fiscal year, and in any event within
one hundred forty-five (145) days thereafter, its unqualified audited
consolidated and consolidating balance sheet as of the end of such fiscal year,
and its audited consolidated and consolidating statement of income and retained
earnings and consolidated and consolidating statements of cash flow, in
reasonable detail, prepared in accordance with GAAP and certified by an
independent certified public accounting firm acceptable to Agent as fairly
presenting Borrower's financial condition and results of operations. Such
financial statements shall be accompanied by a copy of the report to
5
6
management delivered to Borrower by such accountants and also by a statement
signed by Borrower's president or chief financial officer representing to Agent
that such financial statements are true and complete and fairly present
Borrower's and its Subsidiaries' financial condition and results of operation,
and that no event or condition that would be the subject of a required notice
under paragraph 7.12 or paragraph 7.13 is in existence as of the date of
delivery of such statements.
7.6 Interim Financial Statements. Borrower shall deliver to Agent, as
soon as practicable after the end of each fiscal Quarter and in any event within
forty-five (45) days thereafter, a consolidated and consolidating balance sheet
as of the end of such quarter, and consolidated and consolidating income
statement for such quarter and for the period from the beginning of the current
fiscal year to the end of such quarter, in reasonable detail and prepared in
accordance with GAAP. Such financial statements shall be accompanied by a
statement signed by Borrower's president or chief financial officer representing
to Agent that such financial statements are true and complete and fairly present
Borrower's and its Subsidiaries' financial condition and results of operations,
and that no event or condition that would be the subject of a required notice
under paragraph 7.12 or paragraph 7.13 is in existence as of the date of
delivery of such statements.
7.7 SEC Filings. Borrower shall deliver to Agent a correct and complete
copy of (i) each Form 10-K Report filed with the Securities and Exchange
Commission, which shall be delivered to Agent as soon as possible upon filing
thereof and in any event within one hundred forty-five (145) days after the end
of each fiscal year of Borrower, (ii) each Form 10-Q Report filed with the
Securities and Exchange Commission, which shall be delivered to Agent as soon as
possible upon filing thereof and in any event within forty-five (45) days after
the end of each fiscal quarter of Borrower and (iii) each other filing from time
to time made with the Securities and Exchange Commission, which shall be
delivered to Agent as soon as possible upon filing thereof.
7.8 Borrowing Base Reports. On or before the thirtieth (30th) day of
each calendar quarter, and at such other times as Agent may request, Borrower
shall execute and deliver to Agent, in form satisfactory to Agent and Borrower,
a Borrowing Base Report setting forth a certification of Eligible Accounts and
Eligible Inventory as of the last day of the preceding calendar quarter and such
other date as may be specified in such other Borrowing Base reports Borrower may
deliver to Agent, and calculation of the Borrowing Base. Each Borrowing Base
Report shall include a reconciliation of the calculation of the Borrowing Base
as certified in the most recent Borrowing Base Report delivered to Agent, and be
accompanied by such documents and supporting information relating to Eligible
Accounts and Eligible Inventory as Agent may request. Borrower and each
Subsidiary owning Eligible Accounts or Eligible Inventory shall maintain, and
shall furnish to Agent at Agent's request, such supporting documents or copies
as Agent may require including, but not limited to: a schedule of Eligible
Accounts created, and Eligible Inventory purchased and received, since the
previous Borrowing Base Report delivered to Agent; copies of invoices and
supporting delivery or service records in connection therewith; a schedule of
collections received; copies of credit memos or other advices of credit or
reductions
6
7
against amounts previously billed; and such other reports as Agent may request
from time to time. If any of such records or reports are prepared by an
accounting service or other agent, Borrower and each Subsidiary owning Eligible
Accounts or Eligible Inventory hereby authorizes such service or agent to
deliver such records, reports and related documents to Agent. Agent may exhibit
a copy of this Agreement to any such service or agent and such service or
agent shall be entitled to rely on the provisions hereof in providing such
documentation to Agent. Each Borrowing Base Report shall bear a signed statement
by an authorized officer of Borrower and each Subsidiary owning Eligible
Accounts or Eligible Inventory certifying the accuracy and completeness of all
information included therein and shall incorporate therein by reference, as if
fully set forth therein, all the terms and provisions hereof. The execution and
delivery of a Borrowing Base Report shall in each instance constitute an
agreement, representation and warranty by Borrower to Agent that: Borrower or
its Subsidiaries purporting to own Eligible Accounts or Eligible Inventory, as
appropriate, is the sole owner of the Receivables and Inventory included therein
free from any lien, security interest or encumbrance; each account included
therein is in existence, unconditional and valid, and arose from a bona fide
outright sale of Inventory by Borrower and each Subsidiary owning Eligible
Accounts or Eligible Inventory, in the ordinary course of business, for
liquidated amounts as set forth in the Borrowing Base Report, and such Inventory
has been delivered or provided to the respective account debtors; no account
included therein arose in connection with a contract or assignment which
purports to make an assignment or security interest therein void or conditions
such assignment or security interest on consent of the account debtor; no
account is subject to any sale, assignment, claim or security interest of any
character, and neither Borrower nor any Subsidiary owning Eligible Accounts or
Eligible Inventory will make any sale or other assignment thereof or create any
other security interest therein; no account is subject to any claim for credit,
deduction, allowance, extension or adjustment, defense, dispute, setoff or
counterclaim, except for discounts for early payment and volume purchases and
credits for returns of merchandise, as allowed by Borrower and each Subsidiary
owning Eligible Accounts or Eligible Inventory in the ordinary course of
business as previously disclosed to Agent and with respect to early payment
discounts, as reflected on the face of the invoice evidencing such account; all
Inventory reflected in such Borrowing Base Report is held for sale in the
ordinary course of the business of Borrower and each Subsidiary owning Eligible
Accounts or Eligible Inventory, and no such Inventory is located at any location
in breach of the requirements of this Agreement and no negotiable documents have
been issued in respect of any such Inventory; no Inventory reflected in such
Borrowing Base Report is returned Inventory subject to the restrictions of
paragraph 7.22 unless otherwise disclosed to Agent in writing.
7.9 Aging Reports. Contemporaneously with delivery of each Borrowing
Base Report, and in any event within thirty (30) days after the end of each
calendar quarter, Borrower shall furnish to Agent an analysis of amounts owing
on all accounts included within the Receivables, showing an aging as follows:
(i) those aged 60 days or less from date of invoice, (ii) those aged over 60
days, but less than 91 days, from date of invoice, (ii) those aged over 90 days,
but less than 121 days, from date of invoice, and (iii) those aged over 120 days
from date of invoice. Such analysis shall include a listing of the name and
complete address of each account debtor and such other information as Agent may
request.
7
8
7.10 This Paragraph Is Intentionally Deleted.
7.11 Notification of Contingent Liabilities. Promptly upon receiving
notice or otherwise becoming aware thereof, Borrower shall notify Agent of any
pending or threatened lawsuit, claim, action, liability, investigation or
proceeding against it or any of its Subsidiaries that would be treated as a
contingent liability under GAAP and is in an amount in excess of $100,000.00.
7.12 Notification of Material Changes. Borrower will notify Agent in
writing at least thirty (30) days prior to the occurrence of any of the
following: (i) change of Borrower's or any Subsidiary's name, (ii) change of
Borrower's or any Subsidiary's address or principal place of business, (iii)
change of the location of Borrower's or any Subsidiary's books and records, (iv)
the opening of any new place of business or the closing of any existing place of
business (excluding any such places of business that result solely from
arrangements made by Borrower or any Subsidiary with its sales
representatives) in the ordinary course of business, or (v) use of any trade
name, fictitious name or other assumed name. Borrower shall promptly notify
Agent of any change in any other material fact or circumstance represented or
warranted in any of the Loan Documents.
7.13 Notification Regarding Default. Borrower shall immediately notify
Agent in writing upon becoming aware of the existence of any condition or event
which constitutes an Event of Default or any condition or event which, after
notice or lapse of time, or both, would constitute an Event of Default, therein
specifying the nature and period of existence thereof and what action Borrower
is taking or proposes to take with respect to such condition or event. Borrower
shall immediately notify Agent in writing, if it knows, or reasonably expects,
that an Event of Default will occur, therein specifying the nature of the
anticipated Event of Default. Without limiting the foregoing, Borrower will also
immediately notify Agent of any of the following: (i) Borrower's or any
Subsidiary's board of directors has authorized the filing by such Person of a
petition in bankruptcy, (ii) Borrower is aware that any covenant under this
Agreement has been breached, or reasonably expects that any such covenant will
be breached, (iii) Borrower or any Subsidiary owning Eligible Receivables is
aware that any account debtor obligated on any Receivables is in bankruptcy
(provided, that no such notice shall be required with respect to any such
account debtor (a) from whom the aggregate account balance owing to Borrower or
any Subsidiary owning Eligible Receivables is less than ten percent (10%) of the
total aggregate amount of the sum or all accounts owned by Borrower and all
Subsidiaries owning Eligible Receivables, and (b) to whom the aggregate sales of
Borrower and all Subsidiaries owning Eligible Receivables during the preceding
twelve (12) calendar months was less than ten percent (10%) of the total
aggregate of all of such sales during such period), and (iv) repossession or
attempted repossession by any Person of any Inventory.
7.14 Payment of Taxes. Borrower and each Subsidiary shall promptly
pay, or cause to be paid, when due, any and all taxes except such taxes as may
be contested in good faith by appropriate proceedings, provided, that adequate
reserves shall be maintained as are appropriate according to GAAP. At Agent's
request pending resolution of any such contest and prior to the
8
9
delinquency of such tax, Borrower or the affected Subsidiary shall furnish to
Agent a cash reserve in the amount of the tax, together with a reasonable
additional sum to pay all projected costs, interest and penalties in connection
therewith, conditioned that such tax, together with applicable interest, cost,
and penalties, if any, be timely paid to the extent required upon resolution of
such contest. Borrower agrees that it shall immediately notify Agent of the
initiation of any such contest and advise Agent from time to time of the status
thereof. Borrower or the affected Subsidiary shall promptly pay any amounts
adjudged to be due pursuant to any such contest, with all costs, penalties, and
interest thereon, before such judgment becomes final or any writ or order is
issued under which Borrower's or the affected Subsidiary's property, or any
portion thereof, may become subject to any lien or encumbrance.
7.15 Compliance with Laws. Borrower and each Subsidiary shall comply
with all applicable laws, regulations and orders applicable to it or its
property, a violation of which would reasonably be expected to result in a
Material Adverse Effect. At Agent's request, Borrower will provide Agent with
evidence of Borrower's and each Subsidiary's compliance with Environmental
Requirements.
7.16 Compliance with Agreements. Borrower and each Subsidiary shall
comply in all material respects with all agreements, indentures, mortgages, or
documents binding upon or affecting its property or business.
7.17 Fees, Costs and Expenses. Borrower agrees to promptly pay upon
demand all costs, fees and expenses as provided in paragraph 11.11.
7.18 Subordination Agreements. At Agent's request, all present and
future obligations due by Borrower to Affiliates (excluding ordinary course
items such as travel and expense reimbursements and other similar ordinary
course items determined by agreement) shall be subordinate in right of payment
and claim to the Obligations, pursuant to definitive subordination agreements
executed by Borrower and such Affiliates in form satisfactory to Agent.
7.19 Change of Fiscal Year. Borrower shall notify Agent at least ninety
(90) days prior to the effective date of any change in its fiscal year.
7.20 Employee Benefit Plans. Borrower shall timely deliver the
following to Agent: (a) a copy of any notice of noncompliance received from the
PBGC under Section 4041(b)(2)(c), within three (3) days after receipt of such
notice; (b) a copy of any notice received by Borrower or any ERISA Affiliate, or
the administrator of any Plan, that the PBGC has instituted proceedings to
terminate such Plan or to appoint a trustee to administer such Plan, promptly
upon receipt and in no event more than three (3) days after the receipt of such
notice; (c) a copy of any notice received by Borrower or any ERISA Affiliate
concerning the imposition of any withdrawal liability under Section 4202 of
ERISA, within ten (10) days after receipt thereof by Borrower or such ERISA
Affiliate; (d) a copy of any notification of intention to impose or assert
withdrawal liability under ERISA against Borrower or any ERISA Affiliate,
promptly upon receipt thereof
9
10
and in any event within three (days) of receipt thereof; and (e) a copy of any
notice from the Internal Revenue Service regarding revocation or investigation
of possible revocation of the qualified status of any Plan under the IRC,
promptly upon receipt thereof and in any event within three (3) days after
receipt thereof. If requested by Agent, Borrower shall timely deliver the
following to Agent: (f) a copy of all materials required to be filed with the
PGBC with respect to any Reportable Event, within ten (10) days after the
earlier of the filing or the occurrence thereof; (g) a copy of any notice sent
by Borrower to participants of a Plan of Borrower's intent to terminate such
Plan, no later than the date such notice is required to be provided to
participants under Section 4041(a)(2) of ERISA; (h) a copy of each annual and
other report with respect to each Plan or any trustee created thereunder,
promptly after the filing thereof with the United States Secretary of Labor or
the PBGC; and (i) such additional information concerning any of Borrower's
Employee Benefit Plans as may be requested by Agent. Borrower shall make prompt
payment of all contributions required under all Plans to the extent required to
meet the minimum funding standard set forth in ERISA with respect to such Plans,
but shall reduce contributions or benefits if and to the extent necessary to
avoid an Event of Default hereunder to the extent such reduction is not
prohibited by applicable provisions of ERISA.
7.21 Financial Covenants.
(a) Borrower agrees that the following financial covenants must be
maintained as set forth herein. Borrower's compliance shall be measured
as of the end of each Fiscal Quarter, unless the context provides
otherwise.
1. Fixed Charge Ratio. Fixed Charge Ratio shall not at any
time be less than 2.5 to 1.
2. Funded Debt to EBITDA. Funded Debt to EBITDA shall not at
any time be more than 3.0 to 1.0.
3. Capital Expenditures. Capital Expenditures shall not
exceed in any one fiscal year the amount of $7,500,000;
provided, however, solely with respect to Borrower's
fiscal year ending in 1998, Capital Expenditures may not
exceed $35,000,000.
(b) For purposes of measuring the financial covenants under this
paragraph, the following definitions shall apply, each determined on
a consolidated basis for Borrower and the Subsidiaries according to
GAAP:
1. "Capital Expenditures" means all expenditures which are
classified as capital expenditures according to GAAP.
2. "EBITDA" means an amount equal to the sum of the
following, determined for the preceding four (4)
completed Fiscal Quarters:
10
11
(i) income before provision for income taxes plus (ii)
all interest charges paid or accrued plus (iii)
depreciation and amortization.
3. "Fixed Charge Ratio" means the ratio of the following,
determined for the preceding four (4) Fiscal Quarters:
(a) the sum of income before provision for income taxes
plus Lease Expense plus Interest Expense, (b) divided by
the sum of Lease Expense plus Interest Expense.
As used herein "Lease Expense" means all operating lease
expenses and "Interest Expense" means all interest
charges paid or accrued, excluding capitalized interest,
if any.
4. "Funded Debt" at any time means an amount equal to the
aggregate principal amount outstanding at such time under
the Facility.
7.22 No Liens; Inventory. Borrower covenants and agrees that (i)
neither Borrower nor any Subsidiary will grant, or suffer to exist, any security
interest, lien or other encumbrance on any of its assets other than (A) liens
with respect to indebtedness permitted by paragraph 7.26(c) and (d), (B)
Permitted Encumbrances, and (C) the lien and security interest of Agent in all
of the issued and outstanding capital stock of GP and LP and all of the general
partner and limited partner interests in the Partnership, and (ii) all such
assets shall at all times be and remain free and clear of security interests,
liens or other encumbrances other than Permitted Encumbrances. Borrower
represents and warrants to Agent that all Inventory owned by Borrower or any
Subsidiary shall be held for sale in the ordinary course of its business, and is
and will be fit for such purpose. Borrower and each Subsidiary will keep the
Inventory owned by it in good and marketable condition, at its own expense. All
sales of Inventory shall be in accordance with applicable law. Borrower and each
Subsidiary will maintain a perpetual inventory system for finished goods at all
times. Borrower and each Subsidiary will conduct a physical count of the
Inventory at least once per calendar year and at Agent's request shall promptly
supply Agent with a copy of such count. No negotiable documents have been issued
in respect of any Inventory, and none shall be issued without prior written
notice to Agent. No Inventory is held by Borrower or any Subsidiary on
consignment or approval, or on a sale or return, xxxx-and-hold, guaranteed sale,
repurchase or similar basis and, no Inventory has been sold or delivered to any
Person on consignment or approval, or on a sale or return, xxxx-and-hold,
guaranteed sale, repurchase or similar basis. Neither Borrower nor any
Subsidiary will acquire or accept any Inventory on consignment or approval, or
on a sale or return, xxxx-and-hold, guaranteed sale, repurchase or similar basis
without the prior written consent of Agent, and neither Borrower nor any
Subsidiary will sell any Inventory on consignment or approval, or on a sale or
return, xxxx-and-hold, guaranteed sale, repurchase or similar basis without the
prior written consent of Agent, provided that, this shall not preclude Borrower
or any Subsidiary from holding at its facilities raw materials and other goods
owned by suppliers and other third parties (separately identified and segregated
from the Inventory), in exchange for such consideration as Borrower deems to be
adequate.
11
12
Unless Agent agrees otherwise, all returned Inventory shall be segregated from
all other Inventory, and shall not be reported as Eligible Inventory, unless and
until Borrower or the Subsidiary owning Eligible Inventory demonstrates to
Agent's satisfaction that such returned Inventory is in saleable condition and
meets all criteria for Eligible Inventory. Unless otherwise agreed by Agent, the
amount of such accounts owned by Borrower or any Subsidiary relating to all
returned Inventory shall be deemed excluded from Eligible Accounts. Except for
sales in the ordinary course of business, neither Borrower nor any Subsidiary
will deliver possession or control of any Inventory held at its chief executive
office to any Person without Agent's prior written consent. At Agent's request,
Borrower and each Subsidiary owning Inventory will cause the landlord to execute
and deliver to Agent a landlord's waiver with respect to any leased locations
where any such Inventory will be located, thereby waiving any right to claim a
landlord's lien therein. Borrower or the affected Subsidiary shall immediately
notify Agent upon receipt of any notice from any Person claiming past due rent,
fees or other charges in respect of any Inventory.
7.23 Insurance. Borrower and each Subsidiary shall keep and maintain
adequate insurance with respect to its business and property, written by
insurers acceptable to Agent (or, as to workers' compensation or similar
insurance, self-insurance authorized by the jurisdiction in which it operates).
Such insurance shall be with respect to loss, damages, and liability of amounts
not less than reasonably requested by Agent, and shall include, at minimum,
extended coverage insurance, insurance against business interruption, insurance
for workers compensation, and insurance for general premises liability, fire,
theft, burglary, pilferage, loss in transit, casualty and all risk. Borrower and
each Subsidiary will make timely payment of all premiums required to maintain
such insurance in force. Borrower and each Subsidiary shall deliver copies of
each insurance policy to Agent upon request. If Borrower or any Subsidiary fails
to procure such insurance or to pay the premiums therefor when due, Agent shall
have the right (but with no obligation) to make such payment, which amount
Borrower shall pay to Agent on demand or, at Agent's option (but with no
obligation to do so) Agent may add such amount to the unpaid principal due by
Borrower under the Facility, in which event such amount will be deemed paid and
the aggregate amount thereof shall be treated as a loan under the Facility.
7.24 Sale of Assets. Neither Borrower nor any Subsidiary will sell or
dispose of any assets other than the sale of Inventory, or disposal or
replacement of equipment, in the ordinary course of business; provided, however,
Borrower may contribute all of its operating assets to GP and to LP, which
corporations may, in turn, contribute all of such operating assets to the
Partnership, to effect a corporate reorganization (the "Reorganization") of
Borrower if such transaction is completed by July 31, 1999.
7.25 Dissolution. Liquidation, Merger. Neither Borrower nor any
Subsidiary shall dissolve or liquidate, or become a party to any merger or
consolidation with any Person, provided, EWC Leasing Corp. may be dissolved and
liquidated into Borrower or merged into Borrower or any other Subsidiary.
12
13
7.26 Limitation on Indebtedness. Except as provided below in this
paragraph 7.26, neither Borrower nor any Subsidiary will be obligated, directly
or indirectly, for borrowed money or otherwise under any promissory note,
bond, indenture or similar instrument, other than (a) in favor of Agent and the
Lenders hereunder, (b) trade indebtedness incurred in the normal and ordinary
course of Borrower's or any Subsidiary's business and not more than ninety (90)
days past due, (c) other indebtedness of Borrower or any Subsidiary, provided
that the payments required in respect of such indebtedness do not exceed
$2,100,000.00 in the aggregate during any 12-month period and the Agent gives
its consent to such other indebtedness, which shall not be unreasonably
withheld, and (d) the loans from Borrower to EWC Aviation permitted by
paragraph 7.36; provided, however, following completion of the Reorganization,
the Partnership may borrow from and repay to Borrower and Borrower may make
intercompany loans or advances from time to time to the Partnership in such
amounts as the Borrower deems appropriate, which loans and advances may be used
and expended by the Partnership solely in compliance with the terms and
conditions of this Agreement.
7.27 Limitation on Contingent Liabilities. Neither Borrower nor any
Subsidiary will be directly or indirectly liable in connection with the
obligations of any Person, whether by guarantee, surety, endorsement (other than
endorsement of negotiable instruments for collection in the ordinary course of
business), agreement to purchase or repurchase, agreement to make investments,
agreement to provide funds or maintain working capital, or any agreement to
assure a creditor against loss, other than (a) those in favor of Agent and the
Lenders hereunder, and (b) indemnities by Borrower and its Subsidiaries of
liabilities of directors and officers pursuant to provisions contained in such
Person's articles of incorporation, bylaws, or partnership agreement or
otherwise permitted by applicable law and other contractual indemnities (such as
contractual indemnifications in favor of customers) typically entered into in
the normal course of business or in the course of the issuance and sale of
securities.
7.28 Change in Business. Neither Borrower nor any Subsidiary shall
discontinue, or make any material change in, its business as currently
established, or enter any new or different line of business not directly related
to Borrower's existing line of business; provided, however, the sole and
exclusive business of each of GP and LP shall be to own its respective interest
in the Partnership.
7.29 Change in Management. There will be no change of the personnel
performing the functions of Borrower's Chairman of the Board and President and
Chief Executive Officer as such positions are presently constituted.
7.30 Dividends, Distributions. Borrower will not declare, pay or issue
any dividends or other distributions in respect of its capital stock (other than
distributions declared or paid wholly in shares of capital stock), or
distribute, reserve, secure or otherwise make or commit distributions in respect
of its capital stock. Each of the Partnership, GP and LP may declare and make
dividend or other distributions to their respective parents.
13
14
7.31 Redemptions and Acquisition of Shares. Borrower will not make any
payment on account of the purchase, redemption or other acquisition or
retirement of any shares of capital stock, provided, that notwithstanding the
foregoing, for so long as no Event of Default shall have occurred and be
continuing, and no other event or condition which is reasonably expected to
result in a Material Adverse Effect or would be the subject of a required notice
under paragraph 7.13 is in existence, Borrower shall not be prohibited from
repurchasing shares to be held as treasury shares, provided further that (i) the
aggregate number of such shares purchased after May 1, 1999, shall not exceed
1,635,000 and the aggregate purchase price paid by Borrower for all such shares
shall not exceed the maximum amount of $23,700,000.00, and (ii) no Event of
Default shall result from, or exist immediately following, any such repurchase.
7.32 Bonuses, Consulting Fees to Shareholders and Directors. Neither
Borrower nor any Subsidiary will declare or pay any bonus compensation, or pay
any consulting fees, to any Affiliates in the aggregate for any calendar year in
excess of ten percent (10%) of its prior year's after-tax income.
7.33 Loans to Officers, Directors, Shareholder and Others. Except for
usual and customary extensions of credit to customers of Borrower and its
Subsidiaries made in the ordinary course of its business, Borrower and the
Subsidiaries will not make, in the aggregate, any loans or advances to or for
the benefit of (i) any officer, director or shareholder, other than usual
expense allowances for employees in the ordinary course of business, or (ii) any
officer, director, shareholder or other person or entity in excess of an
aggregate amount of $200,000 at any one time outstanding.
7.34 Transactions with Affiliates. Other than EWC Equipment Loans, the
loans from Borrower to EWC Aviation permitted by paragraph 7.36 and the loans
and advances provided for in the proviso of paragraph 7.26, Borrower will not
make any loans, advances or extensions of credit to or for the benefit of any
Affiliate. Borrower will not make any payment on any obligation owing to any
Affiliate (excluding reasonable expense reimbursements in the ordinary course of
business) unless specifically allowed under any Affiliate Subordination
Agreement or otherwise allowed by Agent. Except for effecting the
Reorganization, Borrower will not enter into any transaction with an Affiliate
except in the ordinary course of business on terms no less favorable to
Borrower, nor more favorable to such Affiliate, than would be obtainable in a
comparable arm's length transaction with a Person who is not an Affiliate.
Except for the Reorganization, Borrower will not enter into any transaction with
an Affiliate unless such transaction is specifically approved by Borrower's
board of directors as being an arm's length transaction on terms no less
favorable to Borrower, nor more favorable to such Affiliate, than would be
obtainable in a comparable arm's length transaction with a Person who is not an
Affiliate.
7.35 Acquisitions. Neither Borrower nor any Subsidiary shall purchase
or otherwise acquire assets from any Person outside the ordinary course of its
business, except for purchases
14
15
or acquisitions of equipment in an aggregate amount which when added to all
other capital expenditures for such year do not exceed $7,500,000 in any
calendar year.
7.36 Limitation on Investments. Borrower shall not invest in or
otherwise purchase or acquire the securities of any Person, except for (i) the
organization of GP, LP and the Partnership to effect the Reorganization, (ii)
the organization of EWC Aviation, which has a capitalization consisting of (A)
$100,000 in the form of common stock and (B) loans from Borrower not to exceed
$1,000,000 at any one time outstanding, and (iii) ordinary course investments in
securities of the United States and certificates of deposit issued by commercial
banks organized in the United States which have assets in excess of
$1,000,000,000.
7.37 Key Man Life Insurance. Borrower shall keep and maintain "key man"
life insurance on the life of Xxxxxxx Xxxx, the Chairman and Chief Executive-,
Officer of Borrower, in an amount not less than $2,000,000.00 (the "Key Man Life
Insurance"). The Key Man Life Insurance shall be written by financially
responsible companies selected by Borrower and having an A.M. Best rating of
"A-" or better and being in a financial size category of XI or larger, or by
other companies acceptable to Agent. The Key Man Life Insurance policy shall
provide that it will not be canceled or reduced, or allowed to lapse without
renewal. Borrower will advise Agent promptly of any policy cancellation,
reduction or amendment relating to the Key Man Life Insurance.
7.38 Ownership of GP, LP and the Partnership. For as long as any
amounts are outstanding under this Agreement, Borrower shall at all times own
one hundred percent (100%) of the issued and outstanding capital stock of each
of GP and LP, and each of GP and LP shall own one hundred percent (100%) of the
general partner and limited partner interests, respectively, in the Partnership.
7.39 Covenants Cumulative. The covenants contained in this Article VII
are in addition to all other covenants provided in the Loan Documents.
4. Conditions to Amendment. As a condition to the effectiveness of
their respective agreements contained herein, Agent and the Lenders require that
each of the following conditions be satisfied on or before the execution and
delivery of this Amendment:
A. Pledge of Stock and Partnership Interests. Borrower shall have
executed and delivered to Agent, for the ratable benefit of the
Lenders, a Stock Pledge Agreement ("Stock Pledge Agreement") in form
and substance satisfactory to Agent pledging one hundred percent (100%)
of the issued and outstanding capital stock of each of GP and LP as
security for the Obligations. Each of GP and LP shall have executed and
delivered to Agent, for the ratable benefit of the Lenders, a
non-recourse Pledge Agreement ("Pledge Agreement") in form and
substance satisfactory to Agent pledging one hundred percent (100%) of
their respective general partner and limited partner interests in the
Partnership as security for the Obligations.
15
16
B. Guaranty by EWC Aviation. EWC Aviation shall have executed and
delivered to Agent, for the ratable benefit of the Lenders, a guaranty
of the Obligations substantially the same as the Guaranty of EWC.
C. Legal Opinion. Borrower shall have delivered to Agent a legal
opinion from Xxxxxxxx & Knight, in form and substance satisfactory to
Agent, dealing with such matters as Agent may reasonably request.
D. Related Certificates. Borrower shall have delivered to Agent such
certificates of existence, good standing, qualification, certified
resolutions of Boards of Directors and certified copies of articles of
incorporation and partnership certificates with respect to Borrower,
GP, LP and the Partnership as Agent may reasonably request.
5. Costs. The Borrower shall pay all reasonable out-of-pocket costs and
expenses incurred by the Agent or any Lender in connection with the negotiation,
preparation, execution and consummation of this Amendment and the transactions
contemplated by this Amendment, including, without limitation, the reasonable
fees and expenses of counsel to the Agent and the Lenders.
6. Consent and Waiver. Subject to the satisfaction of the conditions
contained in Section 4. hereof, Agent and the Lenders hereby (a) waive (i) the
application of paragraph 7.24 and paragraph 7.34 under the Original Financing
Agreement solely as such paragraphs relate to effecting the Reorganization and
(ii) the application of paragraph 7.26, paragraph 7.34 and paragraph 7.36 under
the Original Financing Agreement solely as such paragraphs relate to the
formation of EWC Aviation, its capitalization and Borrower's loans to it, and
(b) consent (i) to the Reorganization and (ii) to formation and capitalization
of EWC Aviation as provided in such paragraph 7.26, paragraph 7.34 and paragraph
7.36 . This waiver and consent shall apply only to the Reorganization and the
formation and capitalization of EWC Aviation and not to any other transaction or
series of transactions which are prohibited by such paragraphs.
7. Miscellaneous.
7.1 Headings. Section headings are for reference only and shall not
affect the interpretation or meanings of any provision of this Amendment.
7.2 Effect of this Amendment. The Original Financing Agreement, as
amended by this Amendment, shall remain in full force and effect except that any
reference therein, or in any other Loan Document referring to the Original
Financing Agreement, shall be deemed to refer to the Original Financing
Agreement as amended by this Amendment. It is the intent of the parties hereto
that all prior amendments to the Second Amended and Restated Financing
Agreement, dated as of June 15, 1998, which have not been expressly incorporated
into the text of this Amendment and which have not otherwise expressly been
superseded or terminated in writing remain a part of the Agreement.
16
17
7.3 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW.
7.4 Counterparts. This Amendment may be executed by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but one and the
same Amendment.
7.5 NO ORAL AGREEMENTS. THE ORIGINAL FINANCING AGREEMENT, AS AMENDED BY
THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE ENTIRE
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES.
7.6 No Defaults. Borrower hereby represents and warrants to Agent and
the Lenders that no Default and no Event of Default currently exist with respect
to the Agreement and that no such Default or Event of Default shall exist after
giving effect to the Reorganization and other transactions contemplated by this
Amendment.
REST OF PAGE INTENTIONALLY LEFT BLANK
17
18
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective duly authorized officers as of the date first above
written.
BORROWER:
ENCORE WIRE CORPORATION
By:
----------------------------
Xxxxx Xxxxxx, Vice President
LENDERS AND AGENT:
NATIONSBANK, N.A.,
dba BANK OF AMERICA,
NATIONAL ASSOCIATION,
Individually and as Agent
By:
-----------------------------
Xxxx X. Xxxxx, Vice President
COMERICA BANK-TEXAS
By:
-----------------------------
Xxxxxxx X. Xxxxxx, Vice President
18
19
CONFIRMATION OF GUARANTY
EWC Leasing Corp. ("Guarantor"), a wholly-owned subsidiary of Encore
Wire Corporation, hereby acknowledges the matters covered by the Sixth Amendment
to Second Amended and Restated Financing Agreement to which this Confirmation of
Guaranty is attached and confirms that, notwithstanding such matters, the
Guaranty By Corporation dated as of June 9, 1997 issued by Guarantor to and in
favor of NationsBank of Texas, N.A.,(and now in favor of NationsBank, N.A., dba
Bank of America, National Association as a result of the merger of NationsBank
of Texas, N.A. with and into NationsBank, N.A.) and the Guaranty By Corporation
dated as of June 9, 1997 issued by Guarantor to and in favor of Bank of America,
Texas, N.A., assigned to Comerica Bank, National Association, remain in full
force and effect as continuing obligations of Guarantor, enforceable against
Guarantor in accordance with their respective terms.
In Witness Whereof, this Confirmation of Guaranty is executed and
delivered as of the ____ day of June, 1999.
EWC LEASING CORP.
By:
------------------------
Xxxxx X. Xxxxxx
Vice President
19
