BANKAMERICA BUSINESS CREDIT LETTERHEAD EXHIBIT 10.2
Joyce White
Senior Vice President
Group Executive Officer
November 3, 1994
Tony M. Shelby
Senior Vice President - Chief Financial Officer
LSB Industries, Inc.
16 South Pennsylvania
Oklahoma City, Oklahoma 73107
Re: COMMITMENT LETTER
Dear Mr. Shelby:
You have requested that we consider extending six separate financing
arrangements with LSB Industries, Inc. ("LSB") and certain of its subsidiaries
(hereinafter referred to individually as "Borrower" and collectively as
"Borrowers") in order to provide for their on-going working capital needs and
for repayment of their existing credit facilities. Subject to and upon the
terms and conditions hereinafter set forth, BankAmerica Business Credit, Inc.
("Lender") is pleased to provide to the Borrowers a total revolving credit
facility of up to $75,000,000 ("Total Credit Facility") on the following terms
and conditions:
1. REVOLVING CREDIT FACILITY:
(a) CREDIT FACILITIES AND BORROWERS: There shall be six
separate revolving credit facilities (each hereinafter referred to
as a "Facility" and collectively as the "Facilities") in the
following amounts to the following Borrowers:
FACILITY FACILITY AMOUNT BORROWERS
Facility One $ 7,000,000 LSB (and Affiliate Guarantors
as listed on Exhibit "A")
Facility Two $ 15,000,000 L&S Bearing Co.
Facility Three $ 8,000,000 Climate Master, Inc.
Facility Four $ 7,000,000 International Environmental
Corporation
Facility Five $ 8,000,000 Summit Machine Tool
Manufacturing Corp. ("Summit")
Facility Six $ 15,000,000 El Dorado Chemical Company
("EDC") and Slurry Explosive
Corporation ("Slurry")
LSB Industries, Inc.
November 3, 1994
Page 2
Notwithstanding the amounts set forth under the heading "Facility
Amount", and except as otherwise provided with respect to LSB,
Borrowers are not limited to the specific Facility Amount if they
would otherwise have sufficient Availability to exceed such
Facility Amounts, but in no event will the Loans outstanding to
all Borrowers exceed $75,000,000 in the aggregate. With respect
to LSB, the Facility Amount shall never be more than $8,400,000.
(b) AMOUNT OF REVOLVING CREDIT FACILITY: Each Facility shall
provide for advances of up to (i) eighty-five percent (85%)
of the net amount of eligible accounts receivable of the
applicable Borrowers and (ii) sixty percent (60%) of eligible
inventory of the applicable Borrower, valued at the lower of cost
(on a FIFO basis) or market value. Collections of accounts (other
than proceeds from the sale or other disposition of Borrowers'
fixed assets, i.e. equipment and real estate) would be transferred
daily to Lender from one or more restricted or lock box accounts
and would be credited to the loan balances of the appropriate
Borrower one (1) business day after receipt of good funds by
Lender. Advances to all Borrowers with respect to eligible
accounts receivables that are more than 180 days from the invoice
date shall not exceed the lesser of (i) $1,500,000 or (ii) five
percent (5%) of the gross eligible accounts receivable
availability under the Total Credit Facility. Advances made under
each Facility with respect to eligible inventory shall not exceed
the following amounts:
INVENTORY
FACILITY ADVANCE AMOUNT
Facility One $ 3,500,000
Facility Two $ 7,000,000
Facility Three $ 3,500,000
Facility Four $ 3,500,000
Facility Five $ 3,500,000
Facility Six $ 15,000,000
LSB Industries, Inc.
November 3, 1994
Page 3
Notwithstanding the amounts set forth under the heading "Inventory
Advance Amount", Borrowers are not limited to the specific
Inventory Advance Amount if they would otherwise have sufficient
Availability based on Eligible Inventory to exceed such Inventory
Advance Amount, but in no event will the Loans outstanding to all
Borrowers based on Eligible Inventory exceed $37,500,000 in the
aggregate.
(c) ELIGIBLE COLLATERAL: Collateral eligibility and the
establishment of reasonable reserves against borrowing
availability shall be determined by Lender in its reasonable
discretion, provided, however, that the following accounts shall
in any event be ineligible: (i) accounts past due for more than
90 days if their terms are 90 days or less, (ii) accounts past due
for more than 30 days if their terms are between 91 and 360 days,
(iii) intercompany accounts, (iv) note receivables (other than as
part of chattel paper in which Lender has a perfected security
interest), (v) foreign accounts that would otherwise be eligible
but which are in excess of five percent (5%) of the gross eligible
account receivables, without consideration of the foreign
accounts, and (vi) non-trade receivables and, provided further
that the following inventory shall be ineligible: i) slow moving,
(ii) work-in-progress, (iii) fifty percent (50%) of inventory
classified as "components" other than the "components" at Climate
Master, Inc. and International Environmental Corp., (iv) inventory
in transit (unless such inventory is covered by insurance and is
owned by Borrower and in which Lender has a perfected security
interest), (v) service parts, (vi) used parts, (vii) returns,
(viii) defective, (ix) off-site, (x) finished goods reserves as
shown on the books of the Borrowers, (xi) containers, and (xii)
"trade-in inventory" except that the trade-in equipment inventory
of Summit may be eligible provided, however, that Lender will only
advance 25% against such inventory with all such advances not to
exceed $500,000 in the aggregate at any one time.
(d) LETTERS OF CREDIT: Lender shall upon the Borrowers'
request, and subject to the existence of sufficient Availability
with respect to the requesting Borrower, cause to be issued for
the Borrowers' account, merchandise/documentary letters of credit
and standby letters of credit. The aggregate undrawn face amount
of the letters of credit issued under all Facilities to all
Borrowers shall not exceed at any one time outstanding $11,000,000
in the aggregate. One hundred percent (100%) of the aggregate
undrawn face amount of outstanding letters of credit will be
reserved against availability.
LSB Industries, Inc.
November 3, 1994
Page 4
The expiration date of the documentary letters of credit issued
under each Facility shall not exceed 180 days, but in no event
extend beyond the Maturity Date. The Expiration date of the
standby letters of credit may exceed 180 days.
2. MATURITY DATE: The Facilities shall mature three years from the
closing date ("Maturity Date") and all obligations shall then be
due and payable, provided however, that the Loan Agreement may be
automatically renewed and the Maturity Date extended for
successive 13-month terms if no event of default has occurred and
is continuing and as long as neither party has given the other
party notice of termination at least 60 days prior to the end of
the then current term.
3. INTEREST RATES:
(a) INTEREST RATE: The unpaid balance on the revolving loans
outstanding under each Facility shall bear interest at a
rate equal to:
(i) a fluctuating per annum rate equal to one-half percent
(.50%) in excess of the Reference Rate as quoted from
time to time by Bank of America NT & SA, San
Francisco, California ("Bank of America") ("Reference
Rate Loans"); or
(ii) at Borrower's option, 2.875 percent (2.875%) plus the
LIBOR rate for 90-day loans as quoted from time to
time by Bank of America ("LIBOR Loans"). Each LIBOR
Loan shall be for a $5,000,000 minimum amount, and
shall be subject to certain restrictions relating to
terms and incremental amounts.
All interest shall be calculated on the basis of a 360 day
year for actual days elapsed. Interest on all loans shall
be payable monthly on the first day of each month.
(b) DEFAULT RATE: If any such default occurs under any
Facility, then, from the date such event of default occurs
until it is cured, the Borrowers under each Facility shall
pay interest on the unpaid balance of the revolving loans at
a per annum rate two percent (2%) greater than the rate of
interest specified above and the letter of credit fee shall
be increased by two percent (2%).
LSB Industries, Inc.
November 3, 1994
Page 5
(c) REFERENCE RATE: "Reference Rate" means the rate of interest
publicly announced from time to time by Bank of America as
its reference rate. It is a rate set by Bank of America
based upon various factors, including Bank of America's
costs and desired return, general economic conditions, and
other factors, and it is used as a reference point for
pricing some loans. However, Bank of America may price
loans at, above, or below the reference rate.
4. FEES: Borrowers shall pay to Lender the following fees:
(a) CLOSING FEE: A one time closing fee ("Closing Fee") for
each Facility equal to .50 percent of the applicable
Facility Amount ($375,000 in the aggregate) which shall be
fully earned and payable at closing.
(b) UNUSED LINE FEE: An unused line fee, payable monthly, for
each Facility at the rate per annum equal to half percent
(.5%), on the difference between (a) the Facility Amount for
each Facility and (b) the sum of (i) the average daily
unpaid balance of the revolving loans outstanding under such
Facility during the month with the unpaid balance calculated
by applying payments immediately upon receipt, and (ii) the
average daily balance of the letters of credit outstanding
during the month.
(c) LETTER OF CREDIT FEES: The Borrowers under each Facility
shall pay monthly to Lender a fee equal to one percent
(1.0%) per annum of the face amount of all outstanding
letters of credit. Borrowers shall also pay to Lender all
commissions and processing fees incurred by Lender on the
Borrowers' behalf in arranging for the opening and
maintenance of the letters of credit, including all charges
of the issuing bank.
(d) EARLY TERMINATION FEE: In the event that any Facility is
for any reason whatsoever terminated prior to the initial
term, the Borrowers under each Facility shall pay Lender an
early termination fee in the amounts set forth below, in
order to compensate Lender for its reasonable expenses and
its loss of anticipated profits. If the effective date of
the termination of the Facilities occurs in the first year
of the term, then the early termination fee for each
Facility shall be three percent (3.0%) of the average daily
balance of the loans and letters of credit outstanding
during the 180 days (or any portion thereof) preceding the
effective date of termination; in the second year, the early
termination fee shall be two percent (2.0%) of the average
LSB Industries, Inc.
November 3, 1994
Page 6
daily balance of the loans and letters of credit outstanding
during the 180 days preceding the effective date of
termination; and in the third year, the early termination
fee shall be one percent (1.0%) of the loans and letters of
credit outstanding during the 180 days preceding the
effective date of termination. If at the time of prepayment
any LIBOR Loans are outstanding, then the Borrowers shall
pay to Lender additional sums to compensate for the
cancellation of part or all of the LIBOR financing. Prior
to an Event of Default which is continuing, the Borrower may
prepay at any time all outstanding Obligations due hereunder
without penalty or premium if (i) Lender under any condition
or for any reason changes the advance rates relating to
Eligible Accounts or Eligible Inventory from that set forth
in the definition of Availability, or (ii) as a result of or
in connection with or arising out of a public offering by
LSB of its securities (equity or debt) after the closing
date, the Borrower desires to prepay any of the Obligations
or terminate the Loan Agreement.
5. COLLATERAL: All loans, advances, obligations, liabilities and
indebtedness of the Borrowers to Lender shall be secured by valid,
perfected and enforceable, first priority liens upon and security
interests in all of the Borrowers' present and future accounts,
contract rights, instruments, documents, chattel paper, general
intangibles, patents, trademarks, trade names, inventory, and all
capital stock of the Borrowers (other than LSB, EDC and Slurry)
and certain affiliates and guarantors, including, but not limited
to, the Affiliate Guarantors. The parties agree that the capital
stock of DSN Corporation, Prime Financial Corporation and its
subsidiaries, and LSB Holdings, Inc. and its subsidiaries other
than the subsidiaries who are Affiliate Guarantors) will not be
pledged to Lender. In addition, Lender shall have the right to
take possession of all chattel paper but regardless of whether
Lender exercises such right, no Borrower will pledge or deliver
such chattel paper to other third parties without Lender's prior
written consent thereto. All of the Facilities shall be
coterminous, cross-collateralized and cross-guaranteed with each
other, except that the Borrowers under Facility Six shall not
guarantee and the collateral thereunder shall not secure the other
Facilities. In addition, it is agreed and understood by Lender
that certain general intangibles have previously been pledged by
EDC and Slurry to Household Commercial Financial Services, Inc.
("Household Bank") and may not be pledged to Lender so long as
loans are outstanding by Household Bank to EDC and Slurry.
LSB Industries, Inc.
November 3, 1994
Page 7
6. GUARANTEES. The Borrowers under each Facility, other than the
Borrowers under Facility Six, shall guarantee the obligations of
the Borrowers under the other Facilities. The obligations of LSB
and the other Borrowers to Lender shall be secured by secured
guarantees (the "Affiliate Guarantees") from the entities listed
on Exhibit A (the "Affiliate Guarantors"). The Affiliate
Guarantees shall contain grants of security interests in the same
type of collateral as is described in Section 5 of this letter.
In addition, each Affiliate Guarantor shall execute a note and
security agreement in favor of LSB (the "Guarantor Chattel Paper")
and LSB shall pledge and deliver to Lender all such Guarantor
Chattel Paper.
7. CONDITIONS PRECEDENT: The extension of the aforementioned
financing arrangement by Lender would necessarily be subject to
the fulfillment of a number of conditions, including, but not
limited to, the following:
(a) The execution and delivery, in form and substance acceptable
to Lender and its counsel, of Lender's customary agreements,
documents, guarantees, instruments, financing statements,
landlords' waivers, consents, documents indicating
compliance with all applicable federal and state
environmental laws and regulations, evidences of corporate
authority, certificates, insurance certificates evidencing
that Borrower has obtained insurance in amounts satisfactory
to Lender, opinions of counsel and such other writings to
confirm and effectuate the financing arrangements as may be
required by Lender and its counsel.
(b) The loan and security agreement for each Facility shall
contain financial covenants, acceptable to Lender, with
respect to leverage ratio, minimum tangible net worth, and
maximum capital expenditures, together with such other
representations, warranties, and covenants deemed
appropriate by Lender for this transaction, including
restrictions on certain distributions, loans, advances,
management fees, and similar transfers of funds or other
assets by Borrowers and an agreement by Borrowers to pay all
legal fees and audit and appraisal expenses incurred by
Lender together with an allocated charge of $500 per day per
auditor, with audits no more that three times per year prior
to an Event of Default to be charged to Borrower's account.
Any additional audits prior to an Event of Default will be
at Lender's expense. The loan agreement shall, without
limitation, (i) permit transfer of funds by and among the
Borrowers and Affiliate Guarantors, but advances and
LSB Industries, Inc.
November 3, 1994
Page 8
distributions, excluding lease payments by Borrowers to
Prime Financial Corporation ("Prime") and DSN Corporation,
by Borrowers to affiliates of LSB (other than Borrowers and
Affiliate Guarantors) shall not exceed $200,000 in the
aggregate during any one year, (ii) prohibit the Borrowers
from making acquisitions having a cost in excess of
$2,000,000 per transaction or in excess of $10,000,000 in
the aggregate during any one year period without the consent
of Lender, and (iii) prohibit the Borrowers from financing
any acquisition without the consent of Lender. In addition,
as long as no event of default has occurred and has not been
cured or otherwise waived to Lender's satisfaction LSB may
make the currently-scheduled dividends relating to or in
connection with or arising out of any and all series of
LSB's preferred stock issued and outstanding as of the date
hereof and the payments by LSB of an annual cash dividend on
its Common Stock in an amount equal to $.06 a share payable
on a semi-annual basis. The Loan Agreement between Lender,
EDC and Slurry shall contain additional financial covenants
which will be the same as those set forth in the Amended and
Restated Secured Credit Agreement dated as of January 21,
1992 among El Dorado, Slurry, Connecticut Mutual Life
Insurance Company, C.M. Life Insurance Company and Household
Bank.
(c) Except as disclosed in that Special Report to LSB
Shareholders dated September 15, 1994, no material adverse
change shall have occurred, as determined by Lender in its
sole discretion, in the business, operations, or profits of
any of the Borrowers since the financial statements dated
June 30, 1994.
(d) There shall exist no action, suit, investigation,
litigation, or proceeding pending or threatened in any court
or before any arbitrator or governmental instrumentality by
Borrower, and no material breach under any material
agreement or contract to which any Borrower or Affiliate
Guarantor is a party that (i) would have a material adverse
effect on the business, condition (financial or otherwise),
operations, performance, or properties of the Borrowers and
Affiliate Guarantors taken as a whole or which could impair
the ability of the Borrowers and Affiliate Guarantors taken
as a whole to perform satisfactorily under the proposed
financing arrangement, or (ii) in Lender's judgment, would
materially affect the transaction.
LSB Industries, Inc.
November 3, 1994
Page 9
(e) Lender and its counsel shall have received satisfactory
opinions of counsel to the Borrowers, as to the transactions
contemplated hereby (including, without limitation, the
opinions of such local counsel as lender may reasonably
require with respect to the Collateral and the perfection of
Lender's Lien thereupon and security interest therein).
(f) Receipt by Lender of policies of insurance, with terms of
coverage and endorsements as may be required by Lender and
its counsel.
(g) The Borrowers under each Facility shall have agreed to
deposit all funds relating to the Collateral collected by it
into one or more blocked accounts controlled by Lender and
to wire transfer all funds so deposited to Lender each day
for application to the outstanding loans.
(h) Execution by Lender of inter-creditor agreements with
Household Bank the terms of which shall be satisfactory to
Lender in its sole discretion.
(i) Prime shall lend to the Borrowers, simultaneously upon
receipt, an amount equal to all lease payments made by the
Borrowers to such entities. The loans shall be subject to
such terms as are acceptable to Lender and such loans may
not be repaid while the Facilities are outstanding.
(j) Receipt by Lender from Prime, in favor of Lender, of an
agreement in recordable form not to pledge the mortgage and
note that it holds relating to the real property commonly
known as the Equity Tower located in Oklahoma City, Oklahoma
unless the funds are turned over to LSB.
(k) Lender's satisfaction with the indemnities given by LSB to
Bank IV in connection with the sale by LSB to Bank IV of
Equity Bank.
(l) Receipt by Lender of all indemnity agreements between any of
the Borrowers and third parties for the benefit of the
Borrowers with respect to any environmental contamination of
any of the premises occupied or operated by any of the
Borrowers or any subsidiary of LSB, including all indemnity
agreements given by Monsanto Corporation in favor of the
Borrowers, and the terms of such indemnities shall be
satisfactory to Lender.
LSB Industries, Inc.
November 3, 1994
Page 10
(m) Receipt by Borrowers of part of the initial proceeds from a
$12,750,000 loan which is part of a $15,000,000 Capax
facility to be provided to Borrowers by CIT, on terms and
conditions acceptable to Lender.
(n) Review, to the satisfaction of Lender, of Borrowers'
potential liability relating to environmental matters at the
CERCLIS-listed site located at El Dorado, Arkansas.
(o) As of the Closing Date and after taking into account all
loans made to Borrowers by Lender and letters of credit
issued for the benefit of Borrowers and subject to
Borrowers' accounts payable being substantially current,
Borrowers collectively shall have remaining availability of
at least ten percent (10%) of the initial Availability that
existed prior to the making of such loans and the issuing of
such letters of credit.
8. EXPENSES: All out-of-pocket fees and expenses incurred by Lender
in connection with its review, and its due diligence, such as
reasonable legal, audit and appraisal expenses, together with an
allocated charge of $500 per day per auditor, shall be paid by the
Borrowers whether or not the transaction herein contemplated is
consummated. The Borrowers are obligated to make continuing
deposits to reimburse out of pocket costs upon the request of
Lender.
9. DISCLOSURE: Unless approved by Lender in advance, this letter may
not be delivered or disclosed to any third party except those who
are in a confidential relationship to the Borrowers such as
Borrowers' legal counsel, accountants, or financial advisors.
10. TERMINATION FEE: In the event that the transaction is not
consummated for any reason whatsoever, Lender shall be entitled to
retain the full amount of all deposits as compensation for
administrative costs incurred and damages sustained. In addition,
if Borrowers decline for any reason to borrow from Lender in
accordance with the terms of this letter, Borrowers shall pay
Lender $50,000 as a termination fee.
LSB Industries, Inc.
November 3, 1994
Page 11
11. INDEMNIFICATION: By acceptance of this letter, the Borrowers
jointly and severally agree to indemnify and hold Lender, its
affiliates and Lender's and such affiliates' directors, officers,
employees, agents, attorneys and consultants, harmless from and
against any and all losses, claims, damages, liabilities and
expenses (including fees and disbursements of counsel) that may be
incurred by or asserted against any such indemnities in connection
with or arising out of any documentation, investigation,
litigation or proceeding, and whether or not such financing
transaction is consummated or any future documentation executed;
PROVIDED HOWEVER, that no person shall have the right to be so
indemnified hereunder for matters arising solely from its own
willful misconduct or bad faith or gross negligence.
12. ARBITRATION: If this letter or any of the matters relating hereto
should become the subject of a dispute between us, any such
dispute, including any claim based on or arising from an alleged
tort, shall at the request of any party, be determined by
arbitration conducted in accordance with the United States
Arbitration Act under the commercial Rules of the American
Arbitration Association and shall be conducted within the Los
Angeles County, California. Judgment upon the arbitration award
may be entered in any court having jurisdiction.
13. DAMAGES AND AMENDMENTS: The Borrowers waive any claim for
consequential damages. This letter may not be modified or amended
except in writing executed by all parties hereto.
14. THIRD PARTIES: This letter is solely for the benefit of Borrowers
and may not be relied on by any other party without the prior
written consent of Lender.
15. GOVERNING LAW: This letter agreement shall be governed by
California law.
This letter supersedes and replaces all previous communications between
the parties, written or oral. This letter must be executed and returned to
Lender by no later than 5 p.m. Pasadena, California time, November 3, 1994, or
Lender's commitment in accordance with the foregoing shall automatically
terminate.
LSB Industries, Inc.
November 3, 1994
Page 12
This letter, unless previously terminated as above provided, shall
expire at 5 p.m. Pasadena, California time, November 30, 1994, unless extended
in writing by Lender in its sole discretion.
We look forward to working with you in the weeks ahead.
Sincerely,
BankAmerica Business Credit, Inc.
By:
Joyce White, Senior Vice President
ACCEPTED this 3rd day of November, 1994
LSB Industries, Inc. for itself and the other Borrowers
By:
Tony M. Shelby,
Senior Vice President - Chief Financial Officer
EXHIBIT "A"
Guaranty and Security Agreements
a. Universal Tech Corporation
b. L&S Automotive Products, Co.
c. Climatex, Inc.
d. Total Energy Systems, Ltd.
e. LSB Chemical Corp.
f. LSB Bearing Corp.
g. International Bearing, Inc.
h. LSB Extrusion Co.
i. Rotex Corporation
j. Tribonetics Corporation
k Summit Machine Tool Systems, Inc.
l. Hercules Energy Manufacturing Corporation
m. Morey Machinery Manufacturing Corporation
n. CHP Corporation
o. Koax Corp.
p. APR Corporation
q. Summit Machine Tool, Inc. Corporation
all collectively referred to as the "Affiliate Guarantors".