Document:

exv10w7

 

Exhibit 10.7

FLOWSERVE CORPORATION

THIRD AMENDMENT TO CREDIT AGREEMENT

FIRST AMENDMENT TO PLEDGE AGREEMENT

          This THIRD AMENDMENT TO CREDIT AGREEMENT and FIRST AMENDMENT TO PLEDGE AGREEMENT (this
“Amendment”) is dated as of August 7, 2007 and entered into by and among Flowserve Corporation, a
New York corporation (“Company”), the financial institutions party hereto and Bank of America,
N.A., a national banking association, as administrative agent for Lenders (in such capacity,
“Administrative Agent”), and, solely for purposes of Sections 2 and 3 hereof, the Credit Support
Parties (as defined in Section 3 hereof), and is made with reference to (i) that certain Credit
Agreement dated as of August 12, 2005, as amended to the date hereof (as so amended, the “Credit
Agreement”), by and among Company, the financial institutions from time to time party thereto
(collectively, “Lenders” and individually, a “Lender”), Bank of America, N.A., as Swingline Lender,
Administrative Agent and Collateral Agent for Lenders, and Banc of America Securities, LLC, and
Merrill Lynch Capital Corporation, as Joint Lead Arrangers, and (ii) that certain Pledge Agreement
dated as of August 12, 2005, as amended or supplemented as of the date hereof (as so amended or
supplemented, the “Pledge Agreement”), by and among Company, each Subsidiary of Company party
thereto and Bank of America, N.A., as collateral agent for the Secured Parties. Capitalized terms
used herein without definition shall have the same meanings herein as set forth in the Credit
Agreement.

RECITALS

          WHEREAS, Company and Lenders desire to amend the Credit Agreement on, and subject to, the
terms, conditions and agreements set forth herein, to (i) reduce interest rates applicable to the
Revolving Loans, (ii) to extend the maturity of the Revolving Loans and (iii) make certain other
amendments as set forth below;

          WHEREAS, Company and the Credit Support Parties desire to amend the Pledge Agreement on, and
subject to, the terms, conditions and agreements set forth herein, to clarify that a pledge of
equity of a Foreign Subsidiary is not required to the extent that to do so would cause adverse tax
consequences to the Company; and

          NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants
herein contained, the parties hereto agree as follows:

Third Amendment to Credit Agreement

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          Section 1. AMENDMENTS TO THE CREDIT AGREEMENT

	1.1	 	Amendments to Article 1: Definitions

          A. Section 1.01 of the Credit Agreement is hereby amended by adding to Section 1.01 the
following definitions, which shall be inserted in proper alphabetical order:

     ”Third Amendment” means that certain Third Amendment to this Agreement dated as of
August 7, 2007.

     ”Third Amendment Effective Date” has the meaning assigned to that term in the Third
Amendment, provided that such date shall be no later than August 7, 2007.

          B. The definition of “Applicable Percentage” set forth in Section 1.01 of the Credit Agreement
is hereby amended by deleting the last four columns of the table contained therein under the
headings “Euro Rate Spread — Revolving Loans”, “Financial Letters of Credit”, “Performance Letters
of Credit” and “Commitment Fee”, and inserting the following additional table immediately
thereafter:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Euro Rate	 	 	 	 	 	 
	 	 	Spread –	 	Financial	 	Performance	 	 
	 	 	Revolving	 	Letters of	 	Letters of	 	Commitment
	Leverage Ratio	 	Loans	 	Credit	 	Credit	 	Fee
	Category 1
Greater than or
equal to 2.75 to
1.00
	 	 	1.50	%	 	 	1.50	%	 	 	0.75	%	 	 	0.35	%
	Category 2
Greater than or
equal to 2.00 to
1.00 but less than
2.75 to 1.00
	 	 	1.25	%	 	 	1.25	%	 	 	0.625	%	 	 	0.30	%
	Category 3
Greater than or
equal to 1.25 to
1.00 but less than
2.00 to 1.00
	 	 	1.00	%	 	 	1.00	%	 	 	0.50	%	 	 	0.25	%
	Category 4
Less than 1.25 to
1.00
	 	 	0.875	%	 	 	0.875	%	 	 	0.4375	%	 	 	0.20	%

          C. The definition of “Asset Sale” set forth in Section 1.01 of the Credit Agreement is
hereby amended by deleting the last sentence of such definition.

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          D. The definition of “Consolidated EBITDA” set forth in Section 1.01 of the Credit Agreement
is hereby amended by deleting the phrase “redemption of the Subordinated Notes” in clause (v)
thereof and substituting “repayment of Indebtedness” therefor.

          E. The definition of “Capital Expenditures” set forth in Section 1.01 of the Credit Agreement
is hereby amended by deleting clause (i) of the proviso contained therein and substituting the
following therefor: “(i) net cash proceeds of Asset Sales reinvested in productive assets of a
kind then used or usable in the business of the Company and its Subsidiaries and”.

          F. The definition of “Excess Cash Flow” set forth in Section 1.01 of the Credit Agreement is
hereby deleted in its entirety.

          G. The definition of “Incremental Receivables Program Indebtedness” set forth in Section 1.01
of the Credit Agreement is hereby deleted in its entirety.

          H. The definition of “Net Cash Proceeds” set forth in Section 1.01 of the Credit Agreement is
hereby deleted in its entirety.

          I. The definition of “Net Insurance/Condemnation Proceeds” set forth in Section 1.01 of the
Credit Agreement is hereby amended by (i) substituting “$50,000,000” for “$5,000,000” therein, and
(ii) substituting “360” for “270” in clauses (x) and (y) thereof.

          J. The definition of “New Unsecured Debt” set for in Section 1.01 of the Credit Agreement is
hereby amended by deleting clause (iv) thereof in its entirety and renumbering the remaining
clauses set forth therein.

          K. The definition of “Revolving Credit Maturity Date” set forth in Section 1.01 of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:

          ”Revolving Credit Maturity Date” shall mean August 12, 2012.

	1.2	 	Amendments to Article 2: The Credits

          A. Section 2.13 of the Credit Agreement is hereby amended by (i) deleting the text in clauses
(b), (c), (d) and (e) in its entirety, and inserting therefor after each such subsection
"[Reserved]”.

          B. Section 2.21(a) (iv) of the Credit Agreement is hereby amended by deleting the following
language in clause (z) thereof: “(z) in the case of a Non-Consenting Lender, the assignee shall
provide the applicable consent at the time of the assignment and the Company shall require all
other Non-Consenting Lenders to assign their interests, rights and obligations under this
Agreement;” to the first proviso of such clause and inserting the following therefor:

“(z) in the case of a Non-Consenting Lender, the assignee shall provide the applicable
consent at the time of the assignment pursuant to an assignment agreement that may be
executed by the Administrative Agent on behalf of such Non-Consenting Lender and the

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Company shall require all other Non-Consenting Lenders to assign their interests, rights and
obligations under this Agreement;”.

	1.3	 	Amendments to Article 5: Company’s Affirmative Covenants

          A. Section 5.04(c) of the Credit Agreement is hereby amended by deleting the following text “,
and, in the case of a certificate delivered with the financial statements required by paragraph (a)
above, setting forth the Company’s calculation of Excess Cash Flow”.

          B. Section 5.09 of the Credit Agreement is hereby amended by inserting the following sentence
after the third sentence of such Section:

“Notwithstanding the provisions above in this Section 5.09, no Foreign Subsidiary shall be
required to execute and deliver the Guarantee Agreement or the Security Documents, and (ii)
no capital stock or other equity interests of a Foreign Subsidiary shall be required to be
pledged pursuant to the Pledge Agreement, in each case to the extent material adverse Tax
consequences to the Company could reasonably be expected to result therefrom, it being
understood and agreed that a pledge by the Company or a Domestic Subsidiary of 65% of the
capital stock or other equity interests of a Foreign Subsidiary will not cause material
adverse Tax consequences to the Company.”.

          C. Section 5.10 of the Credit Agreement is hereby amended by deleting the text of such Section
and substituting “[Reserved]” therefor.

	1.4	 	Amendments to Article 6: Company’s Negative Covenants

          A. Section 6.04(a) of the Credit Agreement is hereby amended by deleting clause (ii)(B)
thereof in its entirety and substituting the following therefor:

“(B) the aggregate amount of equity investments made after the Closing Date pursuant to this
clause (ii) by Loan Parties in Subsidiaries that are not Loan Parties shall not exceed
$50,000,000 at any time outstanding;”.

          B. Section 6.04(d) of the Credit Agreement is hereby amended by substituting “$125,000,000”
for “$75,000,000” in clause (ii) thereof.

          C. Section 6.04(g) of the Credit Agreement is hereby amended by deleting clause (i) thereof.

          D. Section 6.04(h) of the Credit Agreement is hereby amended by in inserting “and”
immediately after “(C)” and deleting the following text contained therein:

“; and (D) the aggregate of the consideration paid in connection with all such acquisitions
(including any Indebtedness of the Acquired Entity that is assumed by the Company or any
Subsidiary following such acquisition) shall not exceed (w) if the Company’s Leverage Ratio
calculated as provided under clause (iii) (B) above is greater than 3.0 to

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1.0, $50,000,000 in any fiscal year of the Company, (x) if the Company’s Leverage Ratio
calculated as provided under clause (iii) (B) above is equal to or less than 3.0 to 1.0 but
greater than 2.0 to 1.0, $100,000,000 in any fiscal year of the Company, (y) if the
Company’s Leverage Ratio calculated as provided under clause (iii) (B) above is equal to or
less than 2.0 to 1.0, $150,000,000 in any fiscal year of Company, and (z) $500,000,000 for
all such acquisitions, provided, that the amounts may be increased by the amount of
consideration for any such acquisition consisting solely of, or paid with the Net Cash
Proceeds from the issuance of, common stock of the Company”.

          E. Section 6.05(b) of the Credit Agreement is hereby amended by substituting “$30,000,000” for
“$20,000,000” in clause (ii) thereof.

          F. Section 6.06(a)(v) of the Credit Agreement is hereby amended by deleting the following text
contained therein:

“(v) the Company and its Subsidiaries may make Restricted Payments in an amount not to
exceed in the aggregate the sum of (a) $50,000,000 plus (b) 50% of the Consolidated Net
Income accrued during the period (treated as one accounting period) from October 31, 2005 to
the end of the most recent fiscal quarter for which financial statements have been delivered
to the Lenders pursuant to Section 5.04(a) or Section 5.04(b) prior to the date of such
Restricted Payment plus (c) 100% of the Net Cash Proceeds of any Equity Issuance of Company
common stock after the Closing Date not required to be used to prepay the Loans pursuant to
Section 2.13(c) or used to finance a Permitted Acquisition.”;

and substituting the following text therefor:

“(v) the Company and its Subsidiaries may make Restricted Payments so long as (i) no Event
of Default or Default shall have occurred and be continuing or would result therefrom, and
(ii) the Company is and would be in compliance with the maximum Leverage Ratio covenant set
forth in Section 6.12 as of the most recently completed period of four consecutive fiscal
quarters ending prior to such transaction for which the financial statements and
certificates required by Section 5.04(a) or Section 5.04(b) have been delivered or for which
comparable financial statements have been filed with the Securities and Exchange Commission,
after giving pro forma effect to such transaction and to any other event occurring after
such period as to which pro forma recalculation is appropriate as if such transaction had
occurred as of the first day of such period.”.

          G. Section 6.10 of the Credit Agreement is hereby amended by deleting the text of such Section
and substituting “[Reserved]” therefor.

          H. Section 6.12 of the Credit Agreement is hereby amended by deleting it in its entirety and
substituting the following therefor:

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     “Section 6.12. Maximum Leverage Ratio. Permit the Leverage Ratio as of the end of
any fiscal quarter to be greater than 3.25:1.00.”.

          Section 2. AMENDMENT TO THE PLEDGE AGREEMENT

	2.1	 	Amendment to Section 1: Pledge

          A. Section 1 of the Pledge Agreement is hereby amended by inserting the following paragraph
after the first paragraph thereof:

          “Notwithstanding anything herein to the contrary, no Foreign Subsidiary shall be
required to execute and deliver this Agreement, and (ii) no Equity Interests of a Foreign
Subsidiary shall be required to be pledged pursuant to this Agreement, in each case to the
extent material adverse Tax consequences to the Company could reasonably be expected to
result therefrom; it being understood and agreed that a pledge by the Company or a Domestic
Subsidiary of 65% of the Equity Interests of a Foreign Subsidiary will not cause material
adverse Tax consequences to the Company.”.

          Section 3. ACKNOWLEDGEMENT AND CONSENT

     Each of Company and each Guarantor (each individually a “Credit Support Party” and
collectively, the “Credit Support Parties”) has read this Amendment and consents to the terms
hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this
Amendment, the guarantees and other obligations of such Credit Support Party under, and the Liens
granted by such Credit Support Party as collateral security for the indebtedness, obligations and
liabilities evidenced by the Credit Agreement and the other Loan Documents pursuant to, each of the
Loan Documents to which such Credit Support Party is a party shall not be impaired by this
Amendment and each of the Loan Documents to which such Credit Support Party is a party is, and
shall continue to be, in full force and effect and is hereby confirmed and ratified in all
respects.

     Each Guarantor acknowledges and agrees that (i) notwithstanding the conditions to
effectiveness set forth in this Amendment, such Guarantor is not required by the terms of the
Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any
other Loan Document shall be deemed to require the consent of such Guarantor to any future
amendments to the Credit Agreement.

          Section 4. CONDITIONS TO EFFECTIVENESS

          This Amendment shall become effective only upon the satisfaction of all of the following
conditions precedent (the date of satisfaction of such conditions being referred to herein as the
“Amendment Effective Date”):

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          A. Corporate Documents. On or before the Amendment Effective Date, Company shall, and shall
cause each other Loan Party to, deliver to Lenders (or to Administrative Agent for Lenders with
sufficient originally executed copies, where appropriate, for each Lender), with respect to Company
or such other Loan Party, as the case may be, the following:

          1. A good standing certificate from the Secretary of State of such Loan Party’s
jurisdiction of organization, dated a recent date prior to the Amendment Effective Date;

          2. An officer’s certificate from the corporate secretary or assistant secretary of each
Loan Party, in form and substance reasonably satisfactory to Administrative Agent and dated
the Amendment Effective Date, certifying that (1) the organizational documents, (2) the
resolutions of the board of directors or other governing body and (3) the signature and
incumbency certificate of such Loan Party, in each case as delivered or reaffirmed to
Administrative Agent on the Closing Date, are in full force and effect and have not been
amended or modified in any respect since the Closing Date; and

          B. Amendment. Administrative Agent shall have received from (i) the Required Lenders; (ii)
each Lender having Revolving Credit Commitments; and (iii) the Company and the other Credit Support
Parties, (1) a counterpart of this Amendment signed on behalf of such party or (2) written evidence
satisfactory to Administrative Agent (which may include an electronic PDF of a signed signature
page of this Amendment) that such party has signed a counterpart of this Amendment.

          C. Pledge Supplement. Administrative Agent shall have received a fully executed Supplement
No. 1 to the Pledge Agreement, in form and substance satisfactory to the Administrative Agent, and
Company shall have delivered to Agent any stock certificates and stock powers required under the
Loan Documents in connection therewith.

          D. Intercompany Note. Administrative Agent shall have received a fully executed amendment to
or amendment and restatement of the Global Intercompany Note issued by Company on August 12, 2005,
in form satisfactory to the Administrative Agent.

          E. Opinion of Counsel. Lenders shall have received copies of a favorable written opinion of
John M. Nanos, Vice President — Strategic Transactions Counsel of the Company, in form and
substance reasonably satisfactory to Administrative Agent and its counsel, dated as of the
Amendment Effective Date, with respect to the due authorization, execution, delivery and
enforceability of the Amendment, and the Credit Agreement and Pledge Agreement, as amended by this
Amendment (collectively, the “Amendment Documents”) and no conflict with organizational documents,
law, governmental orders and material agreements.

          F. Litigation. No action, suit, investigation, litigation or proceeding by any entity
(private or governmental) before any court, arbitration or governmental authority shall be pending
or, to the knowledge of Company, threatened with respect to this Amendment, any other

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Loan Document or any other documentation executed in connection herewith or with respect to
the transactions contemplated hereby, or which could reasonably be expected to have a Material
Adverse Effect.

          G. Fees and Expenses. Administrative Agent shall have received all of Administrative Agent’s
reasonable costs and expenses as described in Section 9.05 of the Credit Agreement incurred by
Administrative Agent (including, without limitation, the reasonable fees and disbursements of
O’Melveny & Myers LLP) in connection with this Amendment, the Amendment Documents and the documents
and transactions related hereto, and any fees separately agreed upon between Company and
Administrative Agent.

          H. Completion of Proceedings. On or before the Amendment Effective Date, all corporate and
other proceedings taken or to be taken in connection with the transactions contemplated hereby and
all documents incidental thereto not previously found acceptable by Administrative Agent, acting on
behalf of Lenders, and its counsel shall be satisfactory in form and substance to Administrative
Agent and such counsel, and Administrative Agent and such counsel shall have received all such
counterpart originals or certified copies of such documents as Administrative Agent may reasonably
request.

          Section 5. COMPANY’S REPRESENTATIONS AND WARRANTIES

          In order to induce Lenders and the Agents to enter into this Amendment and to amend the Credit
Agreement and Pledge Agreement in the manner provided herein, Company represents and warrants to
each Lender that the following statements are true, correct and complete:

          A. Authorization; Binding Obligations. Each Loan Party has all requisite organizational power
and authority to enter into the Amendment Documents to which it is party. The execution, delivery
and performance of the Amendment Documents to which its is party have been duly authorized by all
necessary corporate action by each Loan Party. The Amendment Documents have been duly executed and
delivered by each Loan Party party thereto and are the legally valid and binding obligations of
such Loan Party, enforceable against such Loan Party in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors’ rights generally and by equitable principles relating to
enforceability.

          B. No Conflict. The execution and delivery by the Loan Parties of the Amendment Documents
will not (i) violate any provision of any law or any governmental rule or regulation applicable to
the Loan Documents, the organizational documents of the Loan Parties or any order, judgment or
decree of any court or other agency of government binding on the Loan Parties, (ii) conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a default under any
contractual obligation of any Loan Party, (iii) result in or require the creation or imposition of
any Lien upon any of the properties or assets of any Loan Party (other than Liens created under any
of the Loan Documents in favor of the Collateral Agent on behalf

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of Lenders), or (iv) require any approval of stockholders or any approval or consent of any
Person under any contractual obligation of any Loan Party, except for such approvals or consents
which will be obtained on or before the Amendment Effective Date and disclosed in writing to
Lenders.

          C. Governmental Consents. The execution and delivery the Loan Parties of the Amendment
Documents do not and will not require any registration with, consent or approval of, or notice to,
or other action to, with or by, any federal, state or other Governmental Authority or regulatory
body.

          D. Incorporation of Representations and Warranties From Credit Agreement. The representations
and warranties contained in Article III of the Credit Agreement and Section 3 of the Pledge
Agreement are and will be true, correct and complete in all material respects on and as of the
Amendment Effective Date to the same extent as though made on and as of that date, except to the
extent such representations and warranties specifically relate to an earlier date, in which case
they were true, correct and complete in all material respects on and as of such earlier date.

          E. Absence of Default. No event has occurred and is continuing or will result from the
consummation of the transactions contemplated by this Amendment that would constitute an Event of
Default or a Default after giving effect to this Amendment.

          Section 6. MISCELLANEOUS

          A. Reference to and Effect on the Credit Agreement and the Other Loan Documents.

     (i) On and after the Amendment Effective Date, each reference in the Credit Agreement
to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to
the Credit Agreement, and each reference in the other Loan Documents to the “Credit
Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement, as amended by this
Amendment.

     (ii) On and after the Amendment Effective Date, each reference in the Pledge Agreement
to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to
the Pledge Agreement, and each reference in the other Loan Documents to the “Pledge
Agreement”, “thereunder”, “thereof” or words of like import referring to the Pledge
Agreement shall mean and be a reference to the Pledge Agreement, as amended by this
Amendment.

     (iii) Except as specifically amended by this Amendment, the Credit Agreement, the
Pledge Agreement and the other Loan Documents shall remain in full force and effect and are
hereby ratified and confirmed.

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     (iv) The execution, delivery and performance of this Amendment shall not, except as
expressly provided herein, constitute a waiver of any provision of, or operate as a waiver
of any right, power or remedy of Administrative Agent or any Lender under, the Credit
Agreement, the Pledge Agreement or any of the other Loan Documents.

          B. Fees and Expenses. Company acknowledges that all costs, fees and expenses as described in
subsection 9.05 of the Credit Agreement incurred by Administrative Agent and its counsel with
respect to this Amendment and the documents and transactions contemplated hereby shall be for the
account of Company.

          C. Headings. Section and subsection headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment for any other
purpose or be given any substantive effect.

          D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

          E. Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall constitute but one
and the same instrument; signature pages may be detached from multiple separate counterparts and
attached to a single counterpart so that all signature pages are physically attached to the same
document.

[Remainder of page intentionally left blank]

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          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and
delivered by their respective officers thereunto duly authorized as of the date first written
above.

	 	 	 	 	 
	 	BANK OF AMERICA, N.A.,

as the Administrative Agent, Collateral

Agent, Swingline Lender, Issuing Bank and 

Lender

 	 
	 	By:  	/s/ Colleen M. Briscoe
 	 
	 	Name: 	Colleen M. Briscoe 	 
	 	Title:	Senior Vice President 	 
	 
	 	FLOWSERVE CORPORATION

 	 
	 	By:  	/s/ Paul W. Fehlman
 	 
	 	Name:	Paul W. Fehlman 	 
	 	Title:	Vice President and Treasurer 	 
	 

CREDIT SUPPORT PARTIES

(for purposes of Sections 2 and 3):

	 	 	 	 	 
	 	FLOWSERVE US INC.

FLOWSERVE INTERNATIONAL, INC.

FLOWSERVE MANAGEMENT COMPANY

BW/IP-NEW MEXICO, INC.

FLOWSERVE HOLDINGS, INC.

PMV-USA, INC.

 	 
	 	By:  	/s/ John M. Nanos
 	 
	 	Name: 	John M. Nanos 	 
	 	Title:	Vice President 	 
	 

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ADDITIONAL CREDIT SUPPORT PARTY

(for purposes of Sections 2 and 3):

	 	 	 	 	 
	 	FLOWSERVE HOLDINGS II LLC

 	 
	 	By:  	/s/ John M. Nanos
 	 
	 	Name: 	John M. Nanos 	 
	 	Title:	Vice President 	 
	 

Third Amendment to Credit Agreement

 

	 	 	 	 	 
	 	                                        , as Lender

 	 
	 	By:  	/s/ Required Lenders
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Third Amendment to Credit Agreementexv10w6

 

Exhibit 10.6

 

 

THIRD AMENDMENT

TO

CREDIT AGREEMENT

Dated as of June 29, 2007

among

ENCORE WIRE CORPORATION,

as the Borrower

BANK OF AMERICA, N.A.,

as Administrative Agent and a Lender,

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Syndication Agent and a Lender

and

The Other Lenders Party Thereto

 

 

BANK OF AMERICA, N.A.,

as Sole Lead Arranger and Sole Book Manager

 

 

THIRD AMENDMENT TO CREDIT AGREEMENT

     THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this “Third Amendment”), dated as of June
29, 2007, is entered into among ENCORE WIRE CORPORATION, a Delaware corporation (the
“Borrower”), BANK OF AMERICA, N.A. (“Bank of America”) and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Wells Fargo”), in their individual capacities as “Lenders”
(as such term is defined herein), and BANK OF AMERICA, N.A., as Administrative Agent.

BACKGROUND

     A. Encore Wire Limited, a Texas limited partnership (“Encore Limited”), the Lenders
and the Administrative Agent have entered into to that certain Credit Agreement, dated as of August
27, 2004, as amended by that certain First Amendment to Credit Agreement, dated as of May 16, 2006,
and that certain Second Amendment to Credit Agreement, dated as of August 31, 2006 (said Credit
Agreement, as amended, the “Credit Agreement”). The terms defined in the Credit Agreement
and not otherwise defined herein shall be used herein as defined in the Credit Agreement.

     B. Pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”),
dated as of June 25, 2007, Encore Limited, together with EWC GP and EWC LP, merged with and into
the Borrower, with the Borrower being the surviving Person (the “Merger”).

     C. Pursuant to the Merger, the Borrower assumed all of the rights and obligations of Encore
Limited, EWC GP and EWC LP under the Credit Agreement and the other Loan Documents.

     D. The Borrower has requested that the Lenders (i) consent to the Merger and the assumption by
the Borrower of all of the rights and obligations of Encore Limited, EWC GP and EWC LP under the
Credit Agreement and the other Loan Documents and (ii) make such amendments and modifications to
the Credit Agreement and the other Loan Documents as the Administrative Agent and the Lenders
determine are necessary or advisable as a result of the Merger.

     E. The Lenders and the Administrative Agent hereby agree to amend the Credit Agreement,
subject to the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set
forth, and for other good and valuable consideration, the receipt and adequacy of which are all
hereby acknowledged, the Borrower, the Lenders and the Administrative Agent covenant and agree as
follows:

     1. AMENDMENTS.

     (a) The definition of “Borrower” set forth at 1.18 of the Credit Agreement is hereby
amended to read as follows:

1

 

     1.18 “Borrower” means Encore Wire Corporation, a corporation organized under
the laws of the State of Delaware, whose chief executive office is located at 1410 Millwood
Road, P.O. Box 1149, McKinney, Texas 75069-0545.

     (b) The definition of “Change of Control” set forth at 1.24 of the Credit Agreement is
hereby amended to read as follows:

     1.24 “Change of Control” means (a) the direct or indirect sale, transfer,
conveyance or other disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the properties or assets of
the Borrower and its Subsidiaries, taken as a whole, to any “person” or “group” (as such
terms are used for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act,
whether or not applicable), (b) any “person” or “group” (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Securities Exchange Act, whether or not applicable) is or
becomes the “beneficial owner”, directly or indirectly, of more than 50% of the total voting
power in the aggregate of all classes of equity interests of the Borrower then outstanding
normally entitled to vote in elections of directors, (c) during any period of 24 consecutive
months, individuals who at the beginning of such 24-month period constituted the board of
directors of the Borrower (together with any new directors whose election by such board of
directors or whose nomination for election by the shareholders of the Borrower was approved
by a vote of a majority of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of directors of the
Borrower then in office, or (d) any “Change of Control” as defined in the Note Purchase
Agreements shall occur in respect thereof.

     (c) The defined terms “EWC GP” and “EWC LP” set forth at 1.51 and 1.52 of the
Credit Agreement are hereby deleted and all references to such terms in the Credit Agreement and
the other Loan Documents are hereby deleted.

     (d) The defined term “Parent” is hereby deleted from 1.95 of the Credit Agreement and
all references to “Parent” set forth in the Credit Agreement and the other Loan Documents
are hereby deleted or are otherwise revised to refer to the “Borrower”, as the context may require.

     (e) Paragraph 2.6 of the Credit Agreement is hereby amended to read as follows:

     2.6 Purpose and Use of Funds. All amounts borrowed under the Facility shall be
used by Borrower for (i) working capital and other general corporate purposes, (ii) the
acquisition of equipment, in the ordinary course of Borrower’s business, and (iii) dividend
of amounts to the Borrower for the purposes provided in paragraph 7.30.

     (f) Paragraph 6.3 of the Credit Agreement is hereby amended to read as follows:

     6.3 Corporate Existence. Borrower is a corporation, validly existing under the
laws of the State of Delaware, and is duly qualified or licensed to transact business in all
jurisdictions the laws of which require it to be so qualified or licensed. Each Guarantor
is

2

 

a corporation, duly incorporated, validly existing, and in good standing under the laws
of the State of Delaware, and is duly qualified or licensed to transact business in all
jurisdictions the laws of which require it to be so qualified or licensed.

     (g) Paragraph 6.4 of the Credit Agreement is hereby amended to read as follows:

     6.4 Corporate Power and Authority; Validity. Borrower possesses all requisite
corporate power and authority to own, lease and operate its properties and to carry on its
business and to execute, deliver, and comply with the Loan Documents to which it is a party.
Each Guarantor possesses all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business and to execute, deliver, and comply with
the Loan Documents to which it is a party. Each of the Loan Documents has been duly
authorized by all necessary corporate action and has been duly executed and delivered by
Borrower and each Guarantor, as appropriate, and evidences valid and binding obligations of
Borrower and each Guarantor, as appropriate, enforceable such Persons in accordance with its
respective terms.

     (h) Paragraph 6.5 of the Credit Agreement is hereby amended to read as follows:

     6.5 No Conflicting Agreements; No Consents. The execution, delivery and
performance of the Loan Documents will not violate its certificate of incorporation or the
articles or certificate of incorporation or bylaws of any Guarantor, nor constitute a
default under, or result in a breach of, any contract, agreement, or other instrument to
which any such Person is a party or which is applicable to any such Person’s property. No
consents, licenses or approvals not already obtained are required in connection with the
execution, delivery and performance by Borrower or any Guarantor, or the validity against
Borrower or any Guarantor, of the Loan Documents to which it is a party.

     (i) Paragraph 6.7 of the Credit Agreement is hereby amended to read as follows:

     6.7 Aviation. Schedule 6.7 is a true and correct copy of the following with
respect to Aviation: (i) jurisdiction of incorporation, (ii) number of shares of stock of
each class authorized, (iii) the number of shares of each class of stock outstanding and
(iv) the ownership, the number, and the percentage, of each such class of outstanding shares
owned. Borrower has no Subsidiaries other than Aviation. All outstanding shares of stock
of Aviation have been validly issued and are fully paid and non-assessable, and all such
shares are owned by Parent free and clear of any lien, pledge, security interest or other
encumbrance.

     (j) Paragraph 6.8 of the Credit Agreement is hereby amended to read as follows:

[Intentionally Omitted.]

     (k) Paragraph 7.1 of the Credit Agreement is hereby amended to read as follows:

     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 its president
or

3

 

chief financial officer 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 compliance or non-compliance with this Agreement, and Borrower acknowledges
that Agent shall rely upon the same in making loans under the Facility.

     (l) Paragraph 7.5 of the Credit Agreement is hereby amended to read as follows:

     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 management delivered to Borrower
by such accountants and also by a statement signed by its president or chief financial
officer representing to Agent that such financial statements are true and complete and
fairly present Borrower’s 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.

     (m) Paragraph 7.6 of the Credit Agreement is hereby amended to read as follows:

     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 its president or chief financial officer representing
to Agent that such financial statements are true and complete and fairly present Borrower’s
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.

     (n) Paragraph 7.13 of the Credit Agreement is hereby amended to read as follows:

     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

4

 

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) its board of directors has
authorized the filing by Borrower 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 is aware that any account debtor obligated on any
Receivables pledge to Agent 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 is less than ten percent (10%) of the total aggregate amount of Borrower’s
accounts and (b) to whom Borrower’s aggregate sales during the preceding twelve (12)
calendar months was less than ten percent (10%) of the total aggregate of all of Borrower’s
sales during such period), and (iv) repossession or attempted repossession by any Person of
any Inventory.

     (o) Paragraph 7.26 of the Credit Agreement is hereby amended to read as follows:

     7.26 Limitation on Indebtedness. Neither Borrower nor any Guarantor 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 such Guarantor’s business and not more than ninety (90) days past due, (c)(i)
indebtedness of Borrower or any Guarantor under capitalized leases and (ii) purchase money
indebtedness in connection with the purchase of equipment, if the payments required in
respect of such capitalized leases and purchase money indebtedness do not exceed
$2,100,000.00 in the aggregate during any 12-month period, (d) the Private Placement Debt,
so long as (i) there is no Default or Event of Default immediately before and, on a pro
forma basis, after incurrence of such indebtedness and (ii) the aggregate amount of such
indebtedness, including the amount to be issued, does not exceed 75% of net consolidated
fixed assets of Borrower at time of the incurrence of such indebtedness, and (f) obligations
(contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any
Swap Contract with any Lender or any Affiliate of any Lender, provided that (i) such
obligations are (or were) entered into by such Person in the ordinary course of business for
the purpose of directly mitigating risks associated with liabilities, commitments,
investments, assets, or property held or reasonably anticipated by such Person, or changes
in the value of securities issued by such Person, and not for purposes of speculation or
taking a “market view;” and (ii) such Swap Contract does not contain any provision
exonerating the non-defaulting party from its obligation to make payments on outstanding
transactions to the defaulting party;

     (p) Paragraph 7.30 of the Credit Agreement is hereby amended to read as follows:

     7.30 Dividends, Distributions, Redemptions. Borrower will not (i) declare, pay
or issue any dividends or other distributions in respect of its equity interests, (ii)
distribute, reserve, secure or otherwise commit distributions in respect of its equity
interests or (iii) make any payment (whether in cash, securities or other property),

5

 

including any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination in respect of its equity interests;
provided, however, that if no Default or Event of Default exists or will result therefrom
Borrower may make distributions to its shareholders in an aggregate amount during any period
of four (4) Fiscal Quarters not to exceed 25% of net income of Borrower during such period;
provided, that the proceeds of the distributions permitted above shall be used solely for
dividends to the shareholders of the Borrower and/or for repurchasing shares of Borrower to
be held as treasury shares.

     2. ASSUMPTION OF RIGHTS AND LIABILITIES. The Borrower hereby assumes all rights and
obligations of Encore Limited, EWC GP and EWC LP under the Credit Agreement and the other Loan
Documents.

     3. CONSENT. The Administrative Agent and the Lenders hereby (a) consent to the Merger
and (b) agree that the Merger will not result in a Default under the Credit Agreement or any other
Loan Document.

     4. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution and
delivery hereof, the Borrower represents and warrants that, as of the date hereof and after giving
effect to this Third Amendment:

     (a) the representations and warranties contained in the Credit Agreement and the other Loan
Documents are true and correct on and as of the date hereof as made on and as of such date, except
to the extent that such representations and warranties specifically refer to an earlier date, in
which case they shall be true and correct as of such earlier date, and except to the extent such
representations and warranties have been supplemented pursuant to paragraph 7.12 of the Credit
Agreement;

     (b) no event has occurred and is continuing which constitutes a Default or an Event of
Default;

     (c) (i) the Borrower has full power and authority to execute and deliver this Third Amendment
and each replacement Revolving Loan Note payable to the order of each Lender (collectively, the
“Replacement Notes”), (ii) this Third Amendment and the Replacement Notes have been duly
executed and delivered by the Borrower, and (iii) this Third Amendment, the Replacement Notes and
the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as enforceability may be
limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be
limited by federal or state securities laws;

     (d) neither the execution, delivery and performance of this Third Amendment, the Replacement
Notes or the Credit Agreement, as amended hereby, nor the consummation of any transactions
contemplated herein or therein, will conflict with (i) the certificate or articles of incorporation
or the applicable constituent documents or bylaws of the Borrower or the Guarantor, (ii) any Law
applicable to the Borrower or the Guarantor or (iii) any indenture,

6

 

agreement or other instrument to which the Borrower, the Guarantor or any of their respective
properties are subject; and

     (e) no authorization, approval, consent, or other action by, notice to, or filing with, any
Governmental Authority or other Person not previously obtained is required for (i) the execution,
delivery or performance by the Borrower of this Third Amendment or the Replacement Notes or (ii)
the acknowledgement by the Guarantor of this Third Amendment.

     5. CONDITIONS TO EFFECTIVENESS. This Third Amendment shall be effective immediately
following consummation of the Merger, upon satisfaction or completion of the following:

     (a) the Administrative Agent shall have received counterparts of this Third Amendment executed
by each Lender;

     (b) the Administrative Agent shall have received an executed Replacement Note for each Lender;

     (c) the Administrative Agent shall have received counterparts of this Third Amendment executed
by the Borrower and acknowledged by the Guarantor;

     (d) the Administrative Agent shall have received a certified resolution of the Board of
Directors of the Borrower authorizing the execution, delivery and performance of this Third
Amendment and the Replacement Notes;

     (e) the Administrative Agent shall have received a copy of the Merger Agreement (together with
all Exhibits and Schedules thereto) executed by all parties thereto, certified by an authorized
officer of the Borrower as being a true, complete and correct copy of such agreement;

     (f) the Administrative Agent shall have received evidence satisfactory to it that the
requisite purchasers under the Note Purchase Agreements shall have consented to the Merger; and

     (g) the Administrative Agent shall have received, in form and substance satisfactory to the
Administrative Agent and its counsel, such other documents, certificates and instruments as the
Administrative Agent shall require.

     6. LEGAL OPINION. No later than July 10, 2007, the Administrative Agent shall have
received an opinion of the Borrower’s counsel, in form and substance satisfactory to the
Administrative Agent and its counsel, with respect to the matters set forth in clauses (c), (d) and
(e) of Section 4 of this Third Amendment and with respect to such other matters as the
Administrative Agent and its counsel shall reasonably request. Failure of the Administrative Agent
to receive such an opinion by such date shall be an Event of Default under the Credit Agreement.

7

 

     7. REFERENCE TO THE CREDIT AGREEMENT.

     (a) Upon the effectiveness of this Third Amendment, each reference in the Credit Agreement to
“this Agreement”, “hereunder”, or words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended hereby.

     (b) The Credit Agreement, as amended by the amendments referred to above, shall remain in full
force and effect and is hereby ratified and confirmed.

     8. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all costs and
expenses of the Administrative Agent in connection with the preparation, reproduction, execution
and delivery of this Third Amendment and the other instruments and documents to be delivered
hereunder (including the reasonable fees and out-of-pocket expenses of counsel for the
Administrative Agent with respect thereto).

     9. GUARANTOR’S ACKNOWLEDGMENT. By signing below, the Guarantor (a) acknowledges,
consents and agrees to the execution, delivery and performance by the Borrower of this Third
Amendment, (b) acknowledges and agrees that its obligations in respect of its Guaranty (i) are not
released, diminished, waived, modified, impaired or affected in any manner by this Third Amendment
or any of the provisions contemplated herein, and (ii) includes all Obligations as assumed by the
Borrower, (c) ratifies and confirms its obligations under its Guaranty, and (d) acknowledges and
agrees that it has no claims or offsets against, or defenses or counterclaims to, its Guaranty.

     10. EXECUTION IN COUNTERPARTS. This Third Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which when taken together shall
constitute but one and the same instrument. For purposes of this Third Amendment, a counterpart
hereof (or signature page thereto) signed and transmitted by any Person party hereto to the
Administrative Agent (or its counsel) by facsimile machine, telecopier or electronic mail is to be
treated as an original. The signature of such Person thereon, for purposes hereof, is to be
considered as an original signature, and the counterpart (or signature page thereto) so transmitted
is to be considered to have the same binding effect as an original signature on an original
document.

     11. GOVERNING LAW; BINDING EFFECT. This Third Amendment shall be governed by and
construed in accordance with the laws of the State of Texas, provided that the Administrative Agent
and each Lender shall retain all rights arising under federal law, and shall be binding upon the
parties hereto and their respective successors and assigns.

     12. HEADINGS. Section headings in this Third Amendment are included herein for
convenience of reference only and shall not constitute a part of this Third Amendment for any other
purpose.

     13. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS THIRD AMENDMENT, AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED

8

 

BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

REMAINDER OF PAGE LEFT INTENTIONALLY BLANK

 

9

 

     IN WITNESS WHEREOF, this Third Amendment is executed as of the date first set forth above.

	 	 	 	 	 
	 	BORROWER:

ENCORE WIRE CORPORATION

 	 
	 	By:  	/s/ Frank J. Bilban
 	 
	 	 	Name:  	Frank J. Bilban 	 
	 	 	Title:  	Vice President & Chief Financial
Officer 	 

1

 

	 	 	 	 	 

	 	 	 	 	 
	 	ADMINISTRATIVE AGENT:

BANK OF AMERICA, N.A.

 	 
	 	By:  	/s/ Suzanne M. Paul
 	 
	 	 	Name:  	Suzanne M. Paul 	 
	 	 	Title:  	Vice President 	 
	 
	 	BANK OF AMERICA, N.A., as a Lender

 	 
	 	By:  	/s/ Steven A. Mackenzie
 	 
	 	 	Name:  	Steven A. Mackenzie 	 
	 	 	Title:  	Senior Vice President 	 

2

 

	 	 	 	 	 

	 	 	 	 	 
	 	WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender

 	 
	 	By:  	/s/ Jay W. Denny
 	 
	 	 	Name:  	Jay W. Denny 	 
	 	 	Title:  	Senior Vice President 	 

3

 

	 	 	 	 	 

	 	 	 	 	 
	ACKNOWLEDGED AND AGREED:

EWC AVIATION CORP.

 	 	 
	By:  	/s/ Frank J. Bilban
 	 	 
	 	Name:  	Frank J. Bilban 	 	 
	 	Title:  	Vice President & Chief Financial Officer 	 	 
	 

          (a)

4

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