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EXHIBIT 10.7
AMENDMENT NO. 2
This Amendment No. 2 dated as of January 18, 1999 (this "Agreement"),
is among Integrated Electrical Services, Inc., a Delaware corporation (the
"Borrower"), the undersigned financial institutions parties to the Credit
Agreement referred to below (the "Banks"), and NationsBank, N.A., as agent (the
"Agent") for the financial institutions that are parties to the Credit
Agreement.
INTRODUCTION
Reference is made to the Credit Agreement dated as of July 30, 1998 (as
modified, the "Credit Agreement"), among the Borrower, the Banks, and the Agent,
the defined terms of which are used herein unless otherwise defined herein. The
Borrower, the Banks, and the Agent have agreed to modify the restrictive
covenants to permit the Borrower to issue certain subordinated notes and to
modify certain financial covenants and make other amendments to the Credit
Agreement as set forth herein in connection therewith.
THEREFORE, in connection with the foregoing and for other good and
valuable consideration, the Borrower, the Banks, and the Agent hereby agree as
follows:
Section 1 Amendment.
1.1 The following definitions are replaced or inserted, as
applicable, into Section 1.1 of the Credit Agreement in the appropriate
alphabetical order as set forth below:
"Applicable Margin" means, with respect to interest rates,
unused commitment fees, and letter of credit fees and as of any date of
its determination, an amount equal to the percentage amount set forth
in the table below opposite the applicable ratio of (a) the
consolidated Total Debt of the Borrower as of the end of the fiscal
quarter then most recently ended to (b) the consolidated EBITDA of the
Borrower for the four fiscal quarters then most recently ended:
Total Debt Applicable Margin Applicable Margin Applicable Margin
to EBITDA LIBOR Tranches and Prime Rate Tranche Commitment Fee
--------- Letter of Credit Fee ------------------ --------------
--------------------
<=1.50 1.00% 0.00% 0.250%
>1.50 but <=2.00 1.25% 0.00% 0.250%
>2.00 but <=2.50 1.50% 0.00% 0.300%
>2.50 but <=3.00 1.75% 0.25% 0.375%
>3.00 2.00% 0.50% 0.375%
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The foregoing ratio and resulting Applicable Margin shall be based upon
Schedule C of the most recent Compliance Certificate delivered to the
Agent pursuant to Section 5.2(a) or Section 5.2(b) (provided that for
the period from the determination of the Applicable Margin based on the
first Compliance Certificate until the date when the Applicable Margin
is reset based upon the Compliance Certificate for the period ending
December 31, 1998, the ratio shall be deemed to be the greater of the
ratio as so determined or 1.51 and the Applicable Margin shall be set
accordingly).
Any adjustments to the Applicable Margin shall become effective on the
45th day following the last day of each fiscal quarter or on the 90th
day following the last day of each fiscal year as applicable; provided,
however, that if any such Compliance Certificate is not delivered when
required hereunder, the Applicable Margin shall be deemed to be the
maximum percentage amount in each table from such 45th or 90th day
until such Compliance Certificate is received by the Agent.
Upon any change in the Applicable Margin, the Agent shall promptly
notify the Borrower and the Banks of the new Applicable Margin.
"EBIT" means, with respect to any Person and for any period of
its determination, the consolidated net income of such Person for such
period, plus the consolidated interest expense and income taxes of such
Person for such period, minus all extraordinary gains and all other
non-cash income added to the consolidated net income of such Person for
such period, and further, excluding the $17,036,000 non-cash,
non-recurring compensation charge in connection with the Acquisition
disclosed in the Borrower's March 31, 1998, Form 10-Q.
"Permitted Debt" means all of the following Debt:
(a) Debt in the form of the Credit Obligations;
(b) Debt in the form of indebtedness for borrowed money and
letters of credit owed by any Subsidiary of the Borrower prior to the
acquisition of such Subsidiary by the Borrower in an Acquisition
transaction, or owed by any Person that is the subject of any
Acquisition assumed by the Borrower or any Subsidiary of the Borrower
in connection with such Acquisition, provided that with respect to any
such indebtedness, arrangements satisfactory to the Agent for the
repayment of such indebtedness within 90 days following the closing of
the Acquisition are made prior to the closing of the Acquisition and
such arrangements are executed;
(c) Debt in the form of (i) purchase money indebtedness and
Capital Leases, (ii) indebtedness for borrowed money and letters of
credit owed by any
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Subsidiary of the Borrower prior to the acquisition of such Subsidiary
by the Borrower in an Acquisition transaction, or owed by any Person
that is the subject of any Acquisition assumed by the Borrower or any
Subsidiary of the Borrower in connection with such Acquisition, and
(iii) other indebtedness, which Debt under clauses (i), (ii), and (iii)
together are in an aggregate outstanding amount not to exceed the
greater of (A) $7,500,000 or (B) 4% of the consolidated Net Worth of
the Borrower as of the last day of the fiscal quarter of the Borrower
most recently ended;
(d) Debt in the form of Subordinated Debt and the Senior
Subordinated Notes;
(e) Debt in the form of Qualified Preferred Stock; and
(f) Debt in the form of reimbursement obligations for
performance bonds issued in the ordinary course of business.
"Senior Debt" means all Debt of the Borrower and the
Subsidiaries of the Borrower other than Debt in the form of
Subordinated Debt and the Senior Subordinated Notes.
"Senior Subordinated Notes" means the Senior Subordinated
Notes due 2009 to be issued by the Borrower during January of 1999
pursuant to an Indenture among the Borrower, the Guarantors signatories
thereto, and the trustee named therein in an aggregate principal amount
of at least $100,000,000, but not to exceed $200,000,000 (together with
the Guarantees (as therein defined)); provided that the same are issued
substantially on the terms and conditions (with the uncompleted terms
and conditions relating to interest rates and redemption prices and
premiums to be completed by the Borrower in its sole discretion)
described in the "Description of the Notes" contained in the
preliminary Offering Memorandum dated January 8, 1999, and attached
hereto as Exhibit A, together with such changes thereto as the Agent
shall approve.
"Subordinated Debt" means, with respect to the Borrower and as
of any date of its issuance, any unsecured indebtedness for borrowed
money, other than the Senior Subordinated Notes, for which the Borrower
is directly and primarily obligated that (a) arises after the date of
this Agreement, (b) does not have any stated maturity before the latest
maturity of any of the Credit Obligations at the time incurred, (c) has
terms that are no more restrictive than the terms of the Credit
Documents, and (d) is expressly subordinated to the Credit Obligations
(i) on the terms and conditions set forth on Schedule III, or (ii) on
terms approved by the Agent and the Majority Banks in their sole
discretion, including payment
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subordination, remedy subordination, and related terms satisfactory to
the Agent and the Majority Banks in their sole discretion.
"Total Debt" means all Debt of the Borrower and the
Subsidiaries of the Borrower.
1.2 Section 5.5(a) of the Credit Agreement is amended by replacing
such Section in its entirety with the following:
(a) Net Worth. The Borrower shall not permit the consolidated
Net Worth of the Borrower as of the last day of each fiscal quarter to
be less than the difference of (i) the sum of (A) $187,500,000, plus
(B) 90% of the cumulative quarterly consolidated net income of the
Borrower after March 31, 1998, for each fiscal quarter of the Borrower
during which the Borrower has positive consolidated net earnings; plus
(C) 100% of the net proceeds received by Borrower after March 31, 1998,
from any sale or issuance of any equity securities of, or any other
additions to capital by, the Borrower or its Subsidiaries; plus (D) to
the extent that the required consolidated Net Worth under this Section
5.5(a) was not increased in clauses (A) through (C) above as a result
of any Acquisition, 100% of any increase in the consolidated Net Worth
of the Borrower resulting from any Acquisition minus (ii) the aggregate
amount of the consideration paid by the Restricted Entities in
connection with the repurchase by the Borrower of its capital stock.
Compliance with this paragraph (a) shall be determined based upon
Schedule C of the applicable Compliance Certificate.
1.3 Section 5.5(b) of the Credit Agreement is amended by replacing
such Section in its entirety with the following:
(b) Maximum Leverage Ratios.
(i) Maximum Senior Debt to EBITDA Ratio. As of the
last day of each fiscal quarter of the Borrower, the Borrower shall not
permit the ratio of (i) the consolidated Senior Debt of the Borrower as
of end of such fiscal quarter to (ii) the consolidated EBITDA of the
Borrower for the preceding four fiscal quarters then ended, to be
greater than 2.50 to 1.00.
(ii) Maximum Total Debt to EBITDA Ratio. As of the
last day of each fiscal quarter of the Borrower, the Borrower shall not
permit the ratio of (i) the consolidated Total Debt of the Borrower as
of end of such fiscal quarter to (ii) the consolidated EBITDA of the
Borrower for the preceding four fiscal quarters then ended, to be
greater than 3.50 to 1.00.
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Compliance with this paragraph (b) shall be determined based upon
Schedule C of the applicable Compliance Certificate.
1.4 Section 5.5(c) of the Credit Agreement is amended by
replacing such Section in its entirety with the following:
(c) Minimum Fixed Charge Coverage Ratio. As of the last day of
each fiscal quarter, the Borrower shall not permit the ratio of (i) (A)
the consolidated EBITDA of the Borrower for the preceding four fiscal
quarters then ended minus (B) consolidated Cash Taxes paid by the
Borrower during such period minus (C) the consolidated Capital
Expenditures (other than Capital Expenditures that are deemed to occur
solely because of the making of an Acquisition) of the Borrower during
such period to (ii) (A) the consolidated Interest Expense of the
Borrower for the preceding four fiscal quarters then ended (excluding,
however, Interest Expense paid by Persons prior to the respective dates
on which such Persons became Restricted Entities) plus (B) the
aggregate amount of Restricted Payments declared or paid by the
Borrower during such period (excluding, however, Restricted Payments
permitted pursuant to the proviso to Section 5.10) plus (C) the
consolidated current maturities of the Borrower (including Capital
Leases) plus (D) the greater of (1) 20% of the outstanding amount of
the Revolving Loan as of the last day of such fiscal quarter or (2)
$4,000,000, to be less than 1.25 to 1.00; provided, that with respect
to a determination for which any component of such determination
involves Persons which were not Restricted Entities for the entire
applicable period of determination, the Cash Taxes paid by each such
Person during such period may, at the election of the Borrower, be
deemed to be equal to the product of (a) the actual historical EBIT of
such Person for the applicable period multiplied by (b) 39%. Compliance
with this paragraph (c) shall be determined based upon Schedule C of
the applicable Compliance Certificate.
1.5 Section 5.10 of the Credit Agreement is amended by
replacing such Section in its entirety with the following:
5.10 Distributions. The Borrower shall not (a) declare or pay
any dividends; (b) purchase, redeem, retire, or otherwise acquire for
value any of its capital stock now or hereafter outstanding; or make
any distribution of assets to its stockholders as such, whether in
cash, assets, or in obligations of it; (c) allocate or otherwise set
apart any sum for the payment of any dividend or distribution on, or
for the purchase, redemption, or retirement of, any shares of its
capital stock; or (d) make any other distribution by reduction of
capital or otherwise in respect of any shares of its capital stock,
except that the Borrower may make payments of dividends on Qualified
Preferred Stock; provided, however, that the Borrower
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may expend up to an aggregate amount of $35,000,000 to repurchase from
the holders thereof capital stock of the Borrower.
1.6 Section 6.1 of the Credit Agreement is amended by adding
thereto the following paragraph (j):
(j) Senior Subordinated Notes Default. (i) There shall
occur any default or event of default (and such event or condition is
not cured within the applicable grace period, if any), however
denominated, under the Senior Subordinated Notes or the Indenture
governing the same; (ii) any modification shall be made to the
subordination provisions or economic terms of the Subordinated Notes or
the Indenture governing the same without the prior written consent of
the Majority Banks; or (iii) any "Change of Control Offer" (as defined
in such Indenture) shall occur.
Section 2 Amendment Fee. The Borrower shall pay to the Agent for
the benefit of the Banks an amendment fee in the amount of
$131,250, to be distributed ratably to each Bank in accordance
with its respective Revolving Loan Commitment.
Section 3 Representations and Warranties. The Borrower represents
and warrants that (a) the execution, delivery, and performance
of this Agreement are within the corporate power and authority
of the Borrower and have been duly authorized by appropriate
proceedings, (b) this Agreement constitutes legal, valid, and
binding obligations of the Borrower enforceable in accordance
with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws
affecting the rights of creditors generally and general
principles of equity, and (c) upon the effectiveness of this
Agreement and the amendment of the Credit Documents as
provided for herein, the representations and warranties
contained in each Credit Document are true and correct in all
material respects, no Event of Default exists under the Credit
Documents, and there shall have occurred no event which with
notice or lapse of time would become an Event of Default under
the Credit Documents.
Section 4 Effect on Credit Documents. As amended herein, the Credit
Documents remain in full force and effect. Except as
specifically set forth herein, nothing herein shall act as a
waiver of any of the Agent's or the Banks' rights under the
Credit Documents as amended, including the waiver of any
default or event of default, however denominated. The Borrower
must continue to comply with the terms of the Credit
Documents, as amended. This Agreement is a Credit Document for
the
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purposes of the provisions of the other Credit Documents.
Without limiting the foregoing, any breach of representations,
warranties, and covenants under this Agreement may be a
default or event of default under other Credit Documents.
Section 5 Effectiveness. This Agreement shall be effective as of
the date hereof when the Agent shall have received duly
executed counterparts hereof signed by the Borrower, the
Agent, and the Majority Banks.
Section 6 Miscellaneous. The miscellaneous provisions of the Credit
Agreement apply to this Agreement. This Agreement shall be
governed by and construed and enforced in accordance with the
laws of the State of Texas. This Agreement may be signed in
any number of counterparts, each of which shall be an
original, and may be executed and delivered by telecopier.
[Signatures begin on following page.]
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THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS
REPRESENT THE FINAL 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 AMONG THE PARTIES.
EXECUTED as of the date first above written.
BORROWER:
INTEGRATED ELECTRICAL SERVICES, INC.
By: /s/ XXX X. XXXX
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Xxx X. Xxxx
Senior Vice President and
Chief Financial Officer
AGENT:
NATIONSBANK, N.A., as Agent
By: /s/ XXXXXX X. XXXXX
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Xxxxxx X. Xxxxx
Vice President
BANKS:
NATIONSBANK, N.A.
By: /s/ XXXXXX X. XXXXX
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Xxxxxx X. Xxxxx
Vice President
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BANK OF SCOTLAND
By: /s/ XXXXX XXXXX
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Xxxxx Xxxxx
Assistant Vice President
COMERICA BANK - TEXAS
By: /s/ XXXX XXXXXXX
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Xxxx Xxxxxxx
Vice President
NATIONAL CITY BANK OF KENTUCKY
By: /s/ XXXXX XXXXXXXX
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Xxxxx Xxxxxxxx
Vice President
PARIBAS
By: /s/ XXXXXX X. XXXXXXXX
--------------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Vice President
By: /s/ XXXXX XXXXXXXX
--------------------------------------
Name: Xxxxx Xxxxxxxx
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ M. D. XXXXX
--------------------------------------
Name: M. D. Xxxxx
Title: Agent Operations
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CENTURA BANK
By: /s/ XXXXX X. XXXXX
--------------------------------------
Name: Xxxxx X. Xxxxx
Title: Bank Officer
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ XXXXXX XXXXXXXXX
--------------------------------------
Name: Xxxxxx Xxxxxxxxx
Title: Senior Vice President
FIRST AMERICAN NATIONAL BANK
By: /s/ XXXXXXX XXXXXX
--------------------------------------
Name: Xxxxxxx Xxxxxx
Title: A.V.P.
SUNTRUST BANK, ATLANTA
By: /s/ ILLEGIBLE
--------------------------------------
Name: Illegible
Title: Illegible
By: /s/ XXXXXX X. [ILLEGIBLE]
--------------------------------------
Name: Xxxxxx X. [Illegible]
Title: Corporate Banking Officer
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