Loan and Security Agreement [Amendment] - CIT Group Equipment Financing Inc. and DNS Corp.
AMENDMENT TO LOAN AND SECURITY AGREEMENT
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This Amendment to Loan and Security Agreement ("Amendment") is made as of
November 21, 1997, by and between THE CIT GROUP/EQUIPMENT FINANCING, INC.
("Lender") and DSN CORPORATION ("Borrower").
WHEREAS, Lender and Borrower entered into a Loan and Security Agreement
dated as of October 31, 1994, as amended, a Loan and Security Agreement dated as
of April 5, 1995, as amended, and a Loan and Security Agreement dated as of
November 15, 1995, as amended (collectively, "Loan Agreements") pursuant to
which Lender made certain loans and advances (collectively, "Loans") to Borrower
upon the terms and conditions set forth in the Loan Agreements and the related
Loan Documents; and
WHEREAS, LSB Industries, Inc. ("LSB") is in the process of completing a
$100,00,000 Rule 144A Offering ("Offering") by ClimaChem, Inc. ("ClimaChem"), a
newly formed Subsidiary of LSB; and
WHEREAS, in connection with the Offering, LSB will transfer to ClimaChem,
prior to the Offering, various wholly-owned subsidiaries of LSB, including
Borrower; and
WHEREAS, LSB has requested Lender to release LSB from its Guaranty
concurrent with the delivery by ClimaChem of its Guaranty; and
WHEREAS, in connection therewith, Lender and Borrower have also agreed to
certain other modifications and amendments to the Loan Agreements and Loan
Documents as set forth in this Amendment.
NOW, THEREFORE, in consideration of the terms and conditions herein, and of
any loans or other credit facilities heretofore, now or hereafter made to or for
the benefit of Borrower by Lender, the parties hereto agree to the following
amendments and modifications to each of the Loan Agreements:
1. Tangible Net Worth. Section 6.10 of each of the Loan Agreements is
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amended and restated in its entirety to read as follows:
"Tangible Net Worth. ClimaChem shall maintain at all times, on a
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consolidated basis, a minimum Adjusted Tangible Net Worth and shall not
exceed a Debt to Worth Ratio as provided in Exhibit "A" attached hereto.
Such financial covenant shall be measured as of the dates provided in
Exhibit "A". The term "Tangible Net Worth" is defined as total stockholder
equity after deducting any treasury stock plus deferred income tax
liability less all assets that are considered intangible assets under
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GAAP."
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2. Amendments to Definitions. The following defined terms are amended as
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follows:
(a) The term "Affiliate" is amended to add ClimaChem.
(b) The term "Guarantor" is amended to delete LSB as a Guarantor and
to add ClimaChem as a Guarantor.
(c) The term "Guaranty" is amended to delete LSB and to add
ClimaChem.
3. Dividends, etc. Section 7.2 of each of the Loan Agreements is, as of
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the date hereof, amended to read as follows:
"Dividends, Distributions, Redemptions. Declare or pay any dividends
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or other distributions upon any stock or make any distribution of
Borrower's property or assets or redeem, retire, purchase or otherwise
acquire, directly or indirectly, Borrower's stock; provided, however, that
Borrower may, provided no Event of Default shall exist that is containing
or exist as a result of such payment, pay in any fiscal year, an aggregate
of dividends and distributions in an amount not to exceed fifty percent
(50%) of Borrower's annual net income. The term "net income" is defined as
the sum of Borrower's income remaining after expenses (including income
taxes) as determined by GAAP."
4. Guaranties. Section 7.5 of each of the Loan Agreements is, as of the
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date hereof, amended to read as follows:
"Guaranties. Borrower shall not guaranty or otherwise, in any way, become
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liable with respect to the Indebtedness or liabilities of any Person
provided, however, that Borrower may guaranty ClimaChem's obligations in
connection with the Offering, on a joint and several basis with the
following ClimaChem Subsidiaries: The Environmental Group, Inc.,
International Environmental Corporation, Climate Master, Inc., CHP Corp.,
KOAX Corp., APR Corporation, Climate Mate, Inc., The Environmental Group
International Limited, LSB Chemical Corp., El Dorado Chemical Company,
Slurry Explosive Corporation, Total Energy Systems, Ltd., Total Energy
Systems (NZ) Ltd., T.E.S. Mining Services Pty. Ltd. and Northwest Financial
Corporation."
5. Ownership. Section 6.11 of each of the Loan Agreements is, as of the
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date hereof, amended to read as follows:
"Change of Ownership. LSB shall, at all times, hold not less than ninety-
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five percent (95%) of each class of stock of ClimaChem and, at all times,
ClimaChem shall hold not less than one hundred percent (100%) of each class
of stock of LSBC
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and, at all times, LSB shall hold not less than one hundred percent (100%)
of each class of stock of Borrower."
6. Financial and Other Information. Subsections (e), (f) and (h) of
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Section 6.1 of each of the Loan Agreements are, as of the date hereof, is
amended to read as follows:
"(e) Not later than 120 days after the close of each Fiscal Year of
LSB and of ClimaChem, LSB's and ClimaChem's 10K Report filed with the
Securities and Exchange Commission, the audited consolidated and unaudited
consolidating balance sheets of LSB and of ClimaChem and their consolidated
Affiliates as at the end of such Fiscal Year and related audited
consolidated and unaudited consolidating statements of income, expense and
retained earnings and audited statements of cash flow of LSB and of
ClimaChem and their consolidated Affiliates for such year, setting forth in
each case in comparative form figures for the previous Fiscal Year, all in
reasonable detail, fairly presenting the financial position of LSB and of
ClimaChem and their consolidated Affiliates and the results of operations
of LSB and of ClimaChem and their consolidated Affiliates for the Fiscal
Year then ended, and prepared in accordance with GAAP. Such statements
required hereunder shall be examined and accompanied by a report of
independent certified public accountants which shall not contain any
qualifications as to scope; and such report shall also be accompanied by a
certificate of such accountants stating that in the course of performing
their examination such accountants did not become aware of the existence of
any default under this Agreement, except for those, if any, described in
such certificate in reasonable detail. In addition, the chief financial
officer or accounting officer of LSB and of ClimaChem shall provide a
certificate which shall also include a statement by such officer that no
breach, default or event of default has occurred and is continuing under
any document to which LSB or ClimaChem or any consolidated Affiliate is a
party that evidences any Indebtedness of LSB or ClimaChem or any such
Affiliate which exceeds, individually or together with any related
Indebtedness, $5,000,000, or if any such breach, default or event of
default and the status thereof. Such certificate shall also include a
statement from such officer that LSB or ClimaChem, as applicable, is in
compliance with all covenants contained in this Agreement relating to the
financial condition of LSB or ClimaChem, as applicable, and such statement
shall be accompanied by the calculations of such financial covenants.
(f) Not later than 90 days after the close of each fiscal quarter of
LSB and of ClimaChem, LSB's and ClimaChem's 10Q Report filed with the
Securities and Exchange Commission and the unaudited consolidated balance
sheets of LSB and of
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ClimaChem and each of their consolidated Affiliates as at the end of such
period, and unaudited consolidated statements of income and expense from
the beginning of the fiscal year to the end of each such period, for LSB
and for ClimaChem and each of their consolidated Affiliates, all in
reasonable detail, fairly presenting in all material respects the
consolidated financial position and results of operations of LSB and of
ClimaChem and each of their Affiliates, in each case, prepared in
accordance with GAAP and consistent with the audited financial statements
required pursuant to Section 6.1(a) above. Such statements shall be
accompanied by a certificate of the chief financial officer or the chief
accounting officer of LSB and of ClimaChem stating that, based upon such
examination or investigation as such officer shall have deemed necessary to
enable him to render an informed opinion in respect thereof, to the best of
his knowledge and belief, such financial statements are materially correct
and no Default under this Agreement exists and is continuing except for
those, if any, described in such certificate in reasonable detail. Such
certificate shall also include a statement from such officer that LSB or
ClimaChem, as applicable, is in compliance with all financial covenants
contained in this Agreement relating to the financial condition of LSB or
ClimaChem, as applicable, and such statement shall be accompanied by the
actual calculations of such financial covenants.
(g) Promptly after their preparation, copies of any and all proxy
statements, financial statements, and reports which the Borrower, or LSB or
ClimaChem or EDC sends to its shareholders or holders of its Indebtedness,
and copies of any and all periodic special reports, as well as registration
statements, filed by the Borrower, LSB or EDC with the Securities and
Exchange Commission or similar State authority."
7. Termination and Substitution of Guaranties. Concurrent with the
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execution and effectiveness of this Amendment, the LSB Guaranty will be
terminated and ClimaChem shall deliver to render its Guaranty.
8. Events of Default. Subsection 8.1(b) of the Events of Default as
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provided in each of the Loan Agreement is, as of the date hereof, amended and
restated in its entirety to read as follows:
"(h) Any uncured default beyond any applicable grace period by ClimaChem
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or any of its Subsidiaries under any agreement or instrument evidencing any
loan, extension of credit or other indebtedness of ClimaChem or any of its
Subsidiaries in an amount equal to or greater than $5,000,000;"
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9. Representations and Warranties. Borrower represents and warrants as
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follows:
(a) Each of the representations and warranties contained in each of
the Loan Agreements is hereby reaffirmed as of the date hereof, each as if
set forth herein;
(b) The execution, delivery and performance of this Amendment are
within Borrower's powers, have been duly authorized by all necessary
action, have received all necessary approvals, if any, and do not
contravene any law or any contractual restrictions binding on Borrower;
(c) This Amendment is a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms; and
(d) No event has occurred and is continuing or would result from this
Amendment which constitutes a Default or Event of Default under the Loan
Agreements, as amended and modified hereby.
10. Further Assurances. Borrower shall, at its expense, do, execute and
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deliver to Lender such further acts and documents as the Lender shall, from time
to time, require for assuring and confirming to Lender the rights created or
intended to be created in connection with this Amendment or for carrying out the
intention or facilitating the performance of the terms of any Loan Document or
for assuring the validity, perfection, priority or enforceability of any Lien
under any Loan Document.
11. Miscellaneous. This Amendment shall be part of each of the Loan
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Agreements, the terms of which are incorporated herein, and the breach of any
representation, warranty or covenant contained herein or the failure to observe
or comply with any term or agreement contained herein, shall constitute an Event
of Default under each of the Loan Agreements and Lender shall be entitled to
exercise all rights and remedies it may have under the Loan Agreements and
applicable law. Borrower agrees to pay all costs, expenses and attorneys' fees
incurred by Lender in connection with the negotiation and preparation of this
Amendment and any other documents in connection herewith and in carrying out or
enforcing the terms of this Amendment. Lender is not waiving any rights under
any of the Loan Agreements and, except as expressly provided herein or as
previously modified in a writing signed by Lender, all of the terms, covenants,
and conditions of each of the Loan Agreements remain unmodified and in full
force and effect. Capitalized terms used herein and not otherwise defined shall
have the same meaning as set forth in the Loan Agreements. This Amendment may
be executed in counterparts, which counterparts, when so executed and delivered,
shall together constitute but one original.
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12. Effective Date. This Amendment shall be effective upon execution by
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the parties hereto, delivery of the ClimaChem Guaranty and the final closing of
the Offering.
IN WITNESS WHEREOF, the parties hereto have executed this ________
Amendment to be effective as of the first date above written.
"Borrower" "Lender"
DSN CORPORATION THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ David R. Goss By: /s/ Anthony
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Its: Vice President Its: Vice President
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In order to induce CIT to execute the above Amendment, the undersigned
hereby represents, warrants and agrees that the undersigned has reviewed and
approved the Amendment and agrees that nothing contained therein shall diminish,
alter, amend or otherwise affect the undersigned's obligations under its
Guaranty dated as of October 31, 1994 ("Guaranty"). The undersigned further
confirms that such Guaranty shall continue in full force and affect and agrees
that it continues to be liable under such Guaranty in accordance with the tenor
and effect thereof. The undersigned consents to the transactions contemplated
in connection with the Amendment. The undersigned further confirms that it has
no defense, counterclaim or offset right whatsoever with respect to its
obligations under the Guaranty.
LSB CHEMICAL CORP.
an Oklahoma corporation
By: /s/ David R. Goss
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Its: Vice President
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ClimaChem, Inc.
Calculation of Financial Covenants
12/97 3/98 6/98
Tangible Net Worth
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Consolidated total assets 179,982 194,000 190,000
Less:
Goodwill (2,997) (2,911) (2,825)
Patents & Licenses (1,367) (1,298) (1,225)
Deferred loan costs:
New debt offering (4,000) (3,900) (3,800)
BankAmerica (100) (92) (84)
CIT (190) (180) (170)
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Adjustable tangible assets 171,328 185,621 181,895
Less consolidated total
liabilities (140,309) (152,000) (144,000)
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Tangible Net Worth 31,019 33,621 37,896
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Adjusted Tangible Net Worth 31,000 32,000 34,000
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Debt to Worth Ratio
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Total consolidated
liabilities 140,308 152,000 144,000
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Adjusted Tangible Net Worth 31,000 32,000 34,000
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Debt to Worth Ratio 4,528 4,750 4,235
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9/98 12/98 12/99
Tangible Net Worth
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Consolidated total assets 189,000 185,085 193,194
Less:
Goodwill (2,739) (2,583) (2,309)
Patents & Licenses (1,154) (1,083) (799)
Deferred loan costs:
New debt offering (3,700) (3,600) (3,200)
BankAmerica (78) (68) (35)
CIT (160) (150) (110)
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Adjustable tangible assets 181,171 177,541 186,740
Less consolidated total
liabilities (142,000) (183,753) (135,006)
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Tangible Net Worth 39,171 38,788 51,734
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Adjusted Tangible net Worth 35,000 34,600 45,000
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Debt to Worth Ratio
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Total consolidated
liabilities 142,000 138,753 135,008
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Adjusted Tangible Net Worth 35,000 34,600 45,000
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Debt to Worth Ratio 4,057 4,010 3,000
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The covenant as calculated based on operations does not consider any cash
dividends to LSB as permitted by the Senior Notes to be issued by ClimaChem.
Under the Senior Notes ClimaChem will be permitted to dividend up to 50% of its
annual net income (absent a default, etc.). ClimaChem's projected Net Income
for 1998 and 1999 is $7.7 million and $11.8 million, respectively. The
suggested covenant assumes LSB will receive the full dividend it is entitled to.