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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE FISCAL YEAR ENDED JUNE 30, 1997,
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ------------ TO ------------ .
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COMMISSION FILE NUMBER 0-22293
IWL COMMUNICATIONS, INCORPORATED
(Exact name of registrant as specified in its charter)
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TEXAS 76-0043882
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
12000 AEROSPACE AVENUE, SUITE 200, HOUSTON, TEXAS 77034
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (281) 482-0289
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01
PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock (which consists solely of
shares of Common Stock) held by non-affiliates of the registrant as of September
15, 1997, computed by reference to the closing sales price of the registrant's
Common Stock on the Nasdaq National Market on such date, was approximately
$10,644,143.
The number of shares of the registrant's Common Stock outstanding as of
September 15, 1997 was 3,740,311.
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IWL COMMUNICATIONS, INCORPORATED
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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NO.
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PART I
Item 1. Business...................................................................................... 1
Item 2. Properties.................................................................................... 14
Item 3. Legal Proceedings............................................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders........................................... 14
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 15
Item 6. Selected Consolidated Financial Data.......................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................................... 22
Item 8. Financial Statements.......................................................................... 22
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.......... 22
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 23
Item 11. Executive Compensation........................................................................ 26
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 28
Item 13. Certain Relationships and Related Transactions................................................ 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 30
Signatures................................................................................................. 32
Index to Consolidated Financial Statements................................................................. F-1
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PART I
ITEM 1. BUSINESS
BUSINESS OVERVIEW
IWL Communications, Incorporated, a Texas corporation ("IWL" or the
"Company" or the "Registrant"), which commenced doing business as IWL
Communications in 1981 and was incorporated as a Texas corporation in 1983,
provides advanced communications solutions to customers with operations in
remote, difficult-access regions and in areas around the world where government
deregulation has created new market opportunities. The Company delivers
comprehensive communications services to its customers by utilizing a broad
range of analog and digital technologies, including satellite, microwave radio,
conventional two-way radio and fiber optic cable. The Company's core business to
date has focused on the provision of communications solutions for customers in
the oil and gas industry, such as AMOCO, British Gas, Chevron, Conoco, Exxon and
Shell. Such customers exemplify users with unique communications needs related
to the remote, difficult-access nature of their operating locations. By
providing a wide range of communications solutions to its oil and gas customers,
the Company has developed a high level of expertise and a unique skill set in
planning, designing and implementing total communications solutions for
multi-site customers with operations located in remote regions or underdeveloped
areas where the existing communications infrastructure is insufficient to meet
advanced telecommunications needs. The Company intends to leverage this skill
set and expertise by supplying communications services to multi-site customers
outside of the oil and gas industry, particularly customers with operations
located near the Company's existing and planned telecommunications
infrastructure. Potential additional customers include health care providers,
financial institutions and other multi-location communication-intensive
companies, such as large publishing companies.
The Company recently installed a tandem switch and a value-added services
platform in Houston, Texas. This switch and platform enable the Company to
connect its digital network with the networks of other carriers, thereby
permitting the routing of phone calls in a cost-competitive manner. As the
Company's communications network in the U.S. Gulf Coast expands, the Company
intends to install additional switches in other strategic locations. The Company
recently has received approval to serve as a competitive local exchange carrier
("CLEC") in select locations in Texas and has applied for CLEC status in
Louisiana, although no assurances can be made that such authority will be
received. As a result, the Company believes that it is well positioned to use
the full capacity of its existing and planned infrastructure by providing call
routing to other carriers and, in select locations, by providing call completion
services at profit margins that the Company believes will be higher than those
achievable without CLEC status. As a CLEC offering competitive rates for call
completion services, the Company believes that providers of cellular and
personal communication services ("PCS") and other long distance carriers will
become additional customers.
The Company provides or will shortly provide its telecommunications services
through a satellite network, a microwave network, two-way radio licenses and
carrier agreements for long distance service combined with a switch-based
network. The IWL satellite network includes Very Small Aperture Terminal
("VSAT") networks, including two 5.6 meter Ku band hub earth stations and access
agreements for Orion and GTE Spacenet satellites. The Company's microwave
network includes a system that has been built by the Company onshore in the
Texas Gulf Coast region and extends offshore into the Gulf of Mexico. Through
various agreements, the Company has access to capacity from other microwave
systems owned by carriers throughout the Texas and Louisiana Gulf Coast region.
In order to provide its wireless mobile services, the Company owns various radio
systems that provide two-way voice communications and has obtained approximately
30 Federal Communication Commission ("FCC") licenses with approximately 250
frequency pairs. The Company's long distance services are provided through the
recently-installed tandem switch as well as through agreements with other long
distance carriers. The CLEC services that the Company intends to provide will be
obtained from (i) existing local exchange carriers ("LECs") on a reseller basis
and (ii) the Company's provision of such services through the use of its own
end-office switch and through leased or owned transmission facilities, including
fiber optic cable. The Company's relationship with international oil and gas
company customers has created an opportunity to expand its operations
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globally by providing communications solutions for these customers' other
facilities located in remote or underdeveloped locations around the world. The
Company currently has domestic offices in Houston and Friendswood, Texas and
Lafayette and New Orleans, Louisiana and an international office in Moscow,
Russia. A portion of the Company's sales to date have been made to customers
located outside of the United States, including customers located in Moscow,
Russia and Quito, Ecuador. See Note 7 of Notes to the Company's Consolidated
Financial Statements.
The Company's goal is to become a leading provider of total communications
solutions to end users with operations in remote, difficult-access regions or in
areas around the world where government deregulation has created new market
opportunities and to leverage this position by providing carrier services to
additional customers located in these same regions. To reach this goal, the
Company intends to pursue the following strategies: (i) develop additional
Company-owned infrastructure; (ii) vertically integrate its service offerings;
(iii) diversify its customer base; (iv) capitalize on opportunities created by
government deregulation and globalization trends in various industries; and (v)
expand existing strategic alliances and establish new alliances.
MARKET OPPORTUNITY
The telecom services industry is being transformed by the deregulation of
telecommunications markets around the world. In the United States, efforts at
deregulating the telecommunications industry resulted in the separation of the
long distance market from the local exchange services market, with the outcome
being an opening of the long distance market to competition. The enactment of
the Telecommunications Act of 1996 (the "1996 Telecommunications Act")
established an expansive framework for greater competition, including within the
local exchange services market. Under the 1996 Telecommunications Act, state
laws prohibiting competition are preempted and CLECs, such as the Company, have
legal rights to interconnect with the facilities of the Bell Operating Companies
("BOCs") and GTE Operating Companies ("GTOCs"), resell local services that were
previously provided only by the BOCs and GTOCs and deliver CLEC-provided local
services as well as long distance services. International deregulation has also
gained momentum, as demonstrated by the recent 69-nation World Trade
Organization ("WTO") agreement on communications services, which reflects
efforts to eliminate barriers to competition in basic telecommunications
services throughout Europe, Asia and India.
The introduction and proliferation of new communications technologies,
together with global socioeconomic development, are also contributing to
significant increases in demand for telecommunications services throughout the
world. While the demand for telecommunications services is increasing worldwide,
the Company believes that the exploration and development activities
characteristic of the oil and gas industry have placed that industry, in
particular, at the forefront in applying modern communications technologies in
remote regions of the world or regions that lack a developed telecommunications
infrastructure. The Company also believes that numerous other industries are
taking advantage of technological advances and socioeconomic development by
pursuing opportunities to expand their operations into remote regions or areas
with an underdeveloped telecommunications infrastructure. Following the
installation of additional infrastructure in these regions, the local
communities in such regions may be able to make use of the available extra
carrier capacity, even though the additional infrastructure might have been
installed originally as a specific communications solution for a particular
company or end user. The Company believes that a significant opportunity exists
to provide advanced communications services to end users outside the oil and gas
industry by delivering effective temporary or permanent solutions at competitive
rates and, in doing so, the Company intends to position itself to serve the
telecommunications carrier service needs of neighboring communities and
businesses.
SERVICE OFFERINGS
The Company's service offerings consist of telecom and carrier services,
land mobile services and product resales.
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TELECOM AND CARRIER SERVICES
The Company currently offers its customers a single source for voice, data
and Internet communications services. The Company provides telecommunications
services in remote, difficult-access regions and in areas around the world where
government deregulation has created new market opportunities. The Company,
utilizing a broad range of analog and digital technologies, provides or will
shortly provide its telecom and carrier services through a satellite network, a
microwave network, two-way radio licenses, and carrier agreements for long
distance service combined with a switch-based network.
Related services provided by the Company include project engineering,
telecom installation and maintenance, network management and telecom product
sales and equipment rentals. To provide its customers with total, integrated
communications services, IWL performs many functions, including system
specification, engineering, integration, test and installation. IWL's dedicated
project management and engineering staff has experience in network design and
implementation and has the expertise to engineer, design and install systems
that meet its customers' requirements.
The Company's expertise and unique skill set in planning, designing and
implementing total communications solutions for customers with operations in
remote regions or underdeveloped areas allow the Company, from time to time, to
provide communications services for special projects with critical-timing
requirements or other extreme and unusual challenges. These special projects
offer the Company opportunities to realize higher than its usual gross margins.
The Company's telecom services also provide the connection between other
carriers' network and a customer's location. Although this connection can span
large distances, it is commonly referred to as last-mile connectivity. The
Company's Offshore Dedicated Digital Services Program ("ODDS"), which delivers
connectivity to offshore locations, exemplifies the Company's last-mile
connectivity services in the Gulf of Mexico. ODDS is a fully digital
communications system that is flexible enough to be reconfigured to a new
location after the customer's drilling rig changes locations.
In order to provide last-mile connectivity in remote locations, the Company
utilizes a variety of equipment and services. Satellite services are used where
access to the public switched network is not available on other transmission
media and other means of connectivity, such as microwave or fiber optic cable,
are cost prohibitive based on the volume of the data being transmitted. The
public switched network is a direct distance dialing telephone network available
for public use, which consists of an integrated system of transmission and
switching facilities, signaling processors and associated operations support
systems, that is shared by customers. The Company owns and operates two
satellite earth stations in Friendswood, Texas and has space segment agreements
with Orion and GTE Spacenet to use their respective satellites. The Company's
earth stations receive signals from and transmit signals to orbital satellites,
which have footprints covering parts of the U.S. and Europe.
The Company-owned digital microwave network in the Gulf of Mexico consists
of five microwave repeaters that cover over 40 drilling sites in a 100 mile
radius. The Company has installed microwave infrastructure where capacity is
required for data transmissions and there is no existing infrastructure or, if
there is such infrastructure, it cannot be used cost effectively. In areas not
served by the Company's microwave network, the Company leases the right to
install microwave repeaters on other companies' digital microwave networks. In
addition, for onshore remote communications, radio telephone is used between the
microwave backbone (such as microwave radios) and destinations within the line
of sight of such backbone.
In addition to providing its customers with project-specific communications
solutions, in recent years the Company has expanded the provision of its long
distance carrier services, including international services, through its IWL
Connect-TM- division to provide long distance carrier services. The Company
recently installed a tandem switch and a value-added services platform in
Houston, Texas, thus enabling the Company to operate as a switch-based reseller,
rather than a switchless reseller. The Company's
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domestic and international switched access services include a full range of
services with enhanced features, including: direct dial switched domestic
service, which enables the Company to originate and terminate long distance
service in all equal access locations in the U.S. and in the Gulf of Mexico;
direct dial switched international service, which enables the Company to
originate calls into the U.S. and to terminate calls in virtually every country
in the world; dedicated access services which connect a customer's location to
the Company's facilities and other high speed dedicated access; 800/888 switched
and dedicated service, which is provided from the U.S. and Canada and allows
phone calls to terminate to switched access facilities or over DS1 connections;
calling card service, which allows phone calls to originate in the North
American Numbering Plan Area and terminate worldwide, and which is provided via
800/888 access using authorization codes; and debit card service, which is
provided via 800/888 access providing online services including voice mail,
follow-me-number portability and 1+ dialing. The Company expects to add
additional value-added switched access services in the future, including ISDN
(integrated services digital network), ATM (asynchronous transfer mode) and
frame relay services, which the Company believes will allow it to leverage its
infrastructure investment through a larger customer base. The Company began
providing long distance services through its own network in the fourth quarter
of fiscal 1997.
Because many of the Company's customers require connectivity to locations
along the Texas and Louisiana Gulf Coast region, the Company currently is
installing additional Company-owned infrastructure in that region, which
includes microwave towers, fiber optic cable and leased capacity. The Company
intends to use this installed network to offer long distance and local exchange
services throughout the Texas and Louisiana Gulf Coast region.
The Company intends to begin providing CLEC services in the Texas and
Louisiana Gulf Coast region through the resale of incumbent LEC local services
and through its transition to arrangements that utilize the Company's own
switched and leased facilities. The Company currently is providing similar
services in the Gulf of Mexico. CLEC services will include dial tone service and
call termination, which will allow customers to obtain new or additional phone
lines under a basic service plan. In addition, the Company will be able to
provide value-added services such as: DS3 connectivity for large corporations
with heavy traffic, which need a 45 megabyte DS3 line; DS1 services for WAN
(wide area network) connections or interconnections to other carriers at a 1.544
megabyte rate; and DS0, or 64 kilobyte, connections for specific voice and data
uses over FX (foreign exchange) lines, tie lines and PBXs (private branch
exchanges). Before it can provide CLEC services, the Company will need to obtain
the appropriate authority from the public service commissions ("PSCs") in each
state in which it intends to provide service. Currently, the Company has
obtained authority to provide dedicated access services in Louisiana and CLEC
and long distance service in Texas. The Company has applied to provide CLEC and
long distance service in Louisiana, which it expects to receive by the end of
the second quarter of fiscal 1998, although no assurances can be made that such
authority will be received.
LAND MOBILE SERVICES
The Company provides two-way radio sales and maintenance services to oil and
gas companies, governmental agencies and petrochemical plants located on the
Texas and Louisiana Gulf Coast through its land mobile radio division ("LMR
Division"). IWL offers a broad line of two-way and trunking radios, paging
products and wireless systems for both voice and data applications. The Company
resells these products, which include: portables; mobiles; two-way repeaters
(repeaters repeat the signal so it can be carried over greater distances); base
stations (which are used to communicate to mobile and portable units); RF (radio
frequency) data modules (which are used for transmitting remote data to a
central site); customized radio consoles; single side band, high-frequency
radios (which are used for long distances that are not in the line of sight);
paging networks; and trunking systems (which allow individual communications
over radios). The Company also engineers and designs new systems and modifies
existing systems to meet its customers' specifications. In addition, the Company
provides complete turnkey design and implementation of conventional and trunking
radio networks, integrates new equipment into existing
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networks, and engineers and designs new systems or updates existing systems to
meet new FCC regulations as they are adopted.
The Company maintains a fleet of rental radio equipment for short- or
long-term rentals. Customers rent this equipment from the Company to support
temporary communication needs for plant maintenance, shutdowns, disaster
recovery, sporting events and conventions. The Company's inventory of radio
equipment includes intrinsically safe ("IS") portables, which are important to
oil and gas companies because they require the use of IS-rated radio products in
the hazardous or explosive atmospheres typically found in petrochemical plants.
The Company employs factory-trained licensed technicians on call 24-hours a day,
seven days a week. These personnel are trained in safety procedures for on-site
service in petrochemical plants. The Company's Land Mobile facility located in
Friendswood, Texas has special approval certification from Factory Mutual System
to repair any IS-rated radio products manufactured by Motorola, EF Johnson or
Ericsson-GE.
PRODUCT RESALES
Product resales currently consist of sales of telecom products to Shell.
Shell has a purchasing contract with the Company for Alcatel radios and other
related equipment and hardware. Sales to Shell under the contract were
approximately $10.6 million and $7.6 million for the years ended June 30, 1996
and June 30, 1997, respectively. The Shell project was substantially completed
in fiscal 1997 and, therefore, is not expected to contribute in a material
manner to the Company's total sales in future periods. It is possible that the
Company may have other large projects consisting primarily of product resales
that will be included in product resales in the future.
SALES AND MARKETING
Since its inception, the Company has utilized a direct sales approach in
marketing its services to its customers. The Company currently has a sales force
of approximately 23 sales representatives, with sales offices located in
Houston, Texas, New Orleans, Louisiana and Moscow, Russia. The Company's direct
sales approach enables it to provide a high level of customer service. To
complement the Company's direct sales efforts, the Company often participates in
various domestic and international industry trade shows and conducts advertising
campaigns in trade publications. The Company plans to expand its existing sales
force and develop new market areas as opportunities for projects arise and as
its infrastructure grows.
The Company targets domestic and international customers that require
turnkey system solutions and other telecommunications services. The Company's
sales force sells frequency bandwidth and call completion and system solutions,
which allows the Company to further develop its own telecommunications
infrastructure. Current and prospective customers are assigned to account
managers, who are principally responsible for providing high levels of contact
and customer service. In addition, the Company utilizes business development
managers to focus on specific customer requirements and opportunities. The
business development manager typically is involved in major projects and the
installation of infrastructure domestically or internationally.
STRATEGIC RELATIONSHIPS AND ALLIANCES
Recognizing the importance of strategic alliances in the telecom services
industry, IWL has negotiated several agreements with various manufacturers to
resell their products or to combine their facilities and relationships with the
Company's expertise. Certain of these key alliances are described below:
ALCATEL. The Company has entered into an agreement with Alcatel under which
the Company serves as the exclusive representative for the sale of Alcatel's
fiber and radio system products to companies in the U.S. oil and gas industry.
In return for Alcatel's agreement not to accept orders directly from such
companies, the Company has agreed to actively pursue purchase orders for
Alcatel's products and to propose only Alcatel's products to its prospective
customers in the U.S. oil and gas industry, except where
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the Alcatel products do not meet the technical requirements of the prospective
customers. Although the Company is an exclusive sales representative for such
products, Alcatel has other authorized distributors that are not part of the
Alcatel agreement, and those distributors may or may not provide quotations and
accept orders from oil and gas industry companies. Furthermore, in international
transactions, other divisions of Alcatel or its affiliates and other resellers
of Alcatel products outside of the U.S. have been in the past, and in the future
may be, competitive with the Company using Alcatel or non-Alcatel products. The
Alcatel agreement expires on December 31, 1999.
ITAR-TASS. The Company has established a strategic relationship with
ITAR-TASS, the Russian News Agency, in order to provide information and
communications services using INTELSAT satellite capacity and other facilities.
Under its agreement with ITAR-TASS, the Company has agreed to provide marketing
services, develop proposals for customers, engineer, purchase, ship, install and
test equipment, and provide monitoring and maintenance services on systems owned
or leased by customers. In return, ITAR-TASS has agreed to provide marketing and
sales support and to implement, monitor and maintain a communications backbone
network in the Russian Federation (including purchasing or leasing from the
Company equipment associated with earth stations, cable systems and the
network). Through their collaborative efforts, the Company and ITAR-TASS provide
services to major Western oil companies with operations in Russia such as Amoco,
Conoco/Polar Lights and Exxon.
The ITAR-TASS agreement further provides that the Company will have a right
of first refusal on 6.0 MHz of bandwidth on the Atlantic Ocean Region, 4.5 MHz
of bandwidth on the Indian Ocean Region and 3.0 MHz of bandwidth on the
Asia-Pacific Region INTELSAT satellites. These bandwidths enable the Company to
provide international access to space segments as required. ITAR-TASS has a
right of first refusal on all contracts for communications services to the
Russian Federation that are proposed by the Company. Each party has agreed that
it will not compete for projects proposed by the other party and will coordinate
with the other party to provide communications services to customers. However,
the agreement is not exclusive, and either party can work with other entities
if, in the opinion of such party, financial or technical considerations dictate
a different working arrangement. The agreement provides that it will terminate
in May 1999, unless either party terminates it sooner. Either party may end the
agreement by giving 60 days written notice if, in the opinion of that party,
business or political conditions call for an earlier termination. No early
termination will affect any existing agreements that the Company has entered
into, and notwithstanding such termination, ITAR-TASS will be required to
provide marketing support and other services with respect to existing agreements
for the remainder of their respective terms.
ENTERGY. In July 1996, the Company entered into a Memorandum of
Understanding ("MOU") with Interstate FiberNet operating on its behalf and on
behalf of Entergy Technology Corporation for the purpose of defining a
contractual relationship between the parties for the interconnection,
co-location, and leasing capacity of each of the parties' fiber optic cable
networks in Louisiana. The MOU reflects the parties' mutual intent to provide
each other with transport capacity on a leased basis at prevailing carriers'
rates. The MOU also provides that the parties will mutually agree to a formal
set of policies to be provided to customers and that they will move forward
expeditiously to conclude a final agreement embodying the intent set forth in
the MOU. The MOU provides that such final agreement will be for an initial term
of five years, with two additional five-year option terms. There can be no
assurance that the parties will enter into a definitive agreement.
CUSTOMER SERVICE
The Company provides customer support for products and services through its
full-service support teams in Friendswood, Texas, Lafayette and New Orleans,
Louisiana, and Moscow, Russia. Support services include: (i) on-site
maintenance, with over 50 technical specialists on call for immediate dispatch
when customers' communications systems require maintenance; (ii) a Network
Operations Center where IWL professionals remotely monitor customers'
communications systems throughout the Gulf of Mexico and around the world seven
days a week, 24 hours a day; (iii) customer support through its LMR Division,
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which includes rental packages of portable microwave and satellite systems,
two-way radios, fax machines and cellular phones for customers whose
communications needs are temporary or do not justify the purchase of such
equipment; (iv) training programs designed to maximize the customers'
communications investment, classroom training at customers' sites and multimedia
video training tools; and (v) research and development for unique applications
where the Company's engineers can custom design or modify hardware to improve
its performance within a particular system.
COMPETITION
The nature of the Company's competition is diverse due to the breadth of the
services offered by the Company and the geographic regions in which such
services are provided. The Company is subject to intense competition with
respect to each of its individual service offerings. Many of the Company's
competitors have significantly greater financial, technical, manufacturing,
personnel and marketing resources than the Company. To date, however, the
Company believes that these large competitors generally have not made it a
priority to provide telecommunications services in remote, difficult-access
regions. Should one or more of such companies focus on such services, it likely
would have a material adverse effect on the financial condition, results of
operations and cash flow of the Company. Currently, the Company believes it
competes directly with Autocomm Communications Engineering Corp., Sola
Communications, Inc. and Datacom for the sale of telecommunications services to
oil and gas companies in the Gulf of Mexico. Shell Oil Company, whose subsidiary
is a customer of the Company, also competes with the Company through services
provided over Shell Oil Company's microwave network in the Gulf of Mexico
region. Shell Oil Company has announced plans to become a full service
telecommunications provider to the oil and gas industry, including in the Gulf
Coast region currently served by the Company. The Company believes that its
ability to compete in the markets in which it operates depends on such factors
as reputation, technical expertise, quality, customer service, knowledge of the
business, ease of use, reliability, marketing and distribution channels and the
array of services and products that it can provide. Although the Company
believes that it competes favorably with respect to these factors, there can be
no assurance that the Company will be able to compete successfully in the
future. As the Company pursues new markets, the Company likely will encounter
new competitors.
DOMESTIC AND INTERNATIONAL LONG DISTANCE. The Company has provided long
distance carrier services which originate in the United States and which
terminate both domestically and internationally. It has been providing these
services as a switchless reseller since 1994. The Company began offering these
services as a switch-based carrier in the fourth quarter of its 1997 fiscal
year. The Company resells long distance service provided by other long distance
carriers and is in the process of developing a switch-based network from New
Orleans, Louisiana to Corpus Christi, Texas, which, if completed, will deliver
long distance service between the various cities and communities on the network.
The long distance markets are characterized by intense competition with a number
of companies, including very large companies that have greater name recognition
and greater financial, technical, network and marketing resources than the
Company. There can be no assurance that the Company will not encounter intense
competition in the provision of such services or that it will be successful in
attracting customers for its new services.
LOCAL EXCHANGE SERVICE. The Company is expanding its operations to provide
local exchange services typically provided by LECs. The local service market
only recently has been opened to new service providers following enactment of
the 1996 Telecommunications Act; however, competition within this market likely
will be as intense as competition within the long distance market. The services
offered by the Company will compete with those offered by LECs, such as
BellSouth and Southwestern Bell, who currently dominate the provision of local
services in their respective markets. In entering the local services market, the
Company initially intends to serve as a reseller of LEC services as permitted
under the 1996 Telecommunications Act, which allows it to purchase such services
at a discount and then resell them to the public. However, the Company believes
that LECs have long-standing relationships with their customers, have the
ability to subsidize competitive services with revenues from a variety of other
services and benefit
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from existing state and federal regulations that currently favor LECs over new
service providers such as the Company in certain respects. While legislative and
regulatory changes have provided increased business opportunities for
competitive telecommunications providers such as the Company, the impact on the
Company of the implementation of this legislation and corresponding market
developments cannot be predicted.
The Company also may face competition in the provision of local
telecommunications services from cable companies, electric utilities, LECs
operating outside their current local service areas, long distance carriers and
start-up telecommunications ventures. In light of the consolidation of
telecommunications, uncertainty regarding the FCC's implementation of the 1996
Telecommunications Act and changing technology, there can be no assurance that
the Company will be able to compete effectively in the local service markets.
INTERNATIONAL AND FOREIGN MARKET SERVICES. The Company offers
telecommunications service to and from remote and difficult-access locations
outside of the United States for its customers. Such services include the
provision of telecommunications services between domestic corporate offices and
remote sites. Therefore, the Company has not competed in a full range of
services with the incumbent telecommunications providers in a particular country
and has faced competition from international telecommunications providers
generally and others who provide telecommunications services to remote and
difficult-access locations. The Company provides private-line telecommunications
services in Russia. In Russia, the major competitors for networks are SOVAMTEL,
ROSTELECOM, AMRUSCOM and Global One. Although the Company believes that its
alliance with ITAR-TASS will allow it to compete favorably in Russia, there can
be no assurance that such alliance will continue on favorable terms to the
Company, if at all. In Russia, as well as in each other country where the
Company elects to compete, the Company may have to compete with the incumbent
service providers, which may have substantially greater financial resources,
governmental support both financially and otherwise, greater installed
infrastructure, long-standing relationships with their customers, favorable
governmental regulations, better understanding of local business practices and
customers and no foreign currency risks. Additionally, to the extent these
foreign markets are identified by the Company, they may be identified by other
companies that have significantly greater financial and other resources than the
Company. As a result, there can be no assurance that the Company will be able to
compete effectively in these markets.
GOVERNMENT REGULATION
UNITED STATES. In the United States, the Company's services are subject to
the Communications Act of 1934, as amended (the "1934 Communications Act"), the
1996 Telecommunications Act and the FCC regulations thereunder, as well as the
applicable laws and regulations of the various states and state PSCs. Generally,
the FCC exercises jurisdiction over all facilities of, and services offered by,
telecommunications common carriers to the extent such services involve
interstate or international communications, while state regulatory authorities
retain jurisdiction over intrastate communications. The FCC also regulates the
licensing and use of the electromagnetic spectrum (I.E., wireless services)
pursuant to Title III of the 1934 Communications Act.
FEDERAL REGULATION
FCC REGULATION OF WIRELESS LICENSES: The Company holds numerous radio
station licenses which are subject to FCC regulation pursuant to Title III of
the 1934 Communications Act. The FCC regulates the licensing, construction,
operation, acquisition and sale of the Company's wireless facilities and
services, including the Company's microwave, satellite earth station and land
mobile systems. In recent years, Congress and the FCC have made significant
changes in the regulation of the wireless industry in order to promote
competition and expand the scope of services that wireless service providers can
offer.
9
<PAGE>
Facilities licensed by the FCC to provide microwave, satellite earth station
and land mobile service are subject to a variety of detailed licensing,
operational and technical requirements specific to each service. Among other
requirements, licensees seeking to continue operating beyond the expiration date
of the licenses must renew their authority. FCC rules also impose prior approval
requirements on proposed transfers of control or license assignments. The FCC
continues to refine its wireless rules for each service area to accommodate
advances in technology, developing markets and new service arrangements, to
implement certain provisions of the 1996 Telecommunications Act and to eliminate
confusing, outdated, redundant or otherwise burdensome regulation. The outcome
of FCC regulatory activities or decisions affecting wireless services cannot be
predicted and, therefore, there can be no assurances that FCC actions or
decisions in this area will not limit the Company's services or operating plans
or have a material adverse effect upon the Company's financial condition,
results of operations and cash flow.
TWO-WAY RADIO: The FCC regulates the Company's two-way business radio
systems under Part 90 of the FCC's rules and regulations. Business radio service
providers traditionally have been regulated by the FCC as private carriers
subject to minimal regulation in comparison to other wireless common carriers,
such as cellular service providers. However, recent legislation mandated
regulatory parity for "commercial mobile radio services" ("CMRS"), later defined
by the FCC to include business radio services that offer customers for-profit
interconnected service. Accordingly, certain for-profit business radio systems
are now subject to common carrier obligations. The Company's licenses are also
subject to various operational, technical and filing requirements, including
requirements that the Company renew its licenses and seek prior approval of
transfers of control and frequency assignments.
MICROWAVE SERVICES: The Company holds various common carrier and private
microwave licenses. The FCC regulates common carrier and private fixed microwave
services under Part 101 of its rules and regulations. Generally, a private
carrier's provision of telecommunications services is limited to the
transmission of its own internal communications or its customers' private
communications, while a common carrier microwave service provider offers
services indifferently to all potential users. Under the FCC's rules, private
microwave carriers are not permitted to transmit common carrier services over
their network. IWL's microwave licenses are subject to various operational,
technical and filing requirements, including requirements that the Company renew
its licenses prior to their expiration and seek prior approval of transfers of
control or frequency assignments.
SATELLITE EARTH STATIONS: The Company holds various earth station licenses.
The FCC regulates earth stations including VSAT facilities and services under
Part 25 of the FCC's rules and regulations, which includes detailed requirements
regarding licensing, operation, technical standards, renewals and restrictions
on transfers of control for earth station facilities and services. The Company's
earth station and VSAT authorizations permit the Company to provide both
domestic and international voice and data services. Under this authority, the
Company provides service between the U.S. and Bosnia pursuant to its private
carrier earth station license.
DOMESTIC WIRELINE SERVICE REGULATION: As a common carrier offering
interstate long distance telephone service to the public, the Company is subject
to additional FCC regulation. Specifically, the Company is subject to the common
carrier obligations to offer service on a non-discriminatory basis at just and
reasonable rates. The FCC generally has sought to minimize regulations that
apply to nondominant carriers such as the Company, and thus domestic regulation
of such carriers' long distance service occurs primarily through the FCC's
complaint procedures. Until recently, carriers such as the Company have been
required to file tariffs with the FCC containing the rates, terms and conditions
of interstate service. Pursuant to a recent FCC order, as of December 1997,
nondominant carriers will no longer be able to file tariffs with the FCC with
respect to their long distance services. That FCC order is subject to court
challenge. There can be no assurance of whether the appeal or stay will be
successful, or if successful, what effect such decisions may have on the
Company.
10
<PAGE>
The 1996 Telecommunications Act is intended to remove and minimize many of
the formal barriers between the long distance and local telecommunications
services markets allowing service providers from each market (as well as
providers of cable television and other services) to compete in all
telecommunications markets. LECs are now required to permit interconnection to
their networks and satisfy obligations with respect to unbundled access, resale,
number portability, dialing parity, access to rights-of-way, mutual compensation
and other matters. In addition, the legislation codifies the LECs' equal access
and nondiscrimination obligations and preempts inconsistent state regulation. As
required by the legislation, the FCC is conducting a large number of proceedings
to adopt rules and regulations to implement the new statutory provisions and
requirements. In August 1996, the FCC adopted new rules implementing certain
provisions of the 1996 Telecommunications Act (the "Interconnection Orders").
These rules are designed to implement the pro-competitive, deregulatory national
policy framework of the new statute by removing or minimizing the regulatory,
economic and operational impediments to competition for facilities-based and
resold local services, including switched local exchange service.
Certain provisions of the Interconnection Decisions have been vacated by the
U.S. Eighth Circuit Court of Appeals. Specifically, the Court determined that
the FCC had exceeded its jurisdiction and vacated provisions of the
Interconnection Decisions permitting carriers to "pick and choose" among
individual provisions of arbitrated interconnection agreements, and certain
provisions relating to the purchase of unbundled access elements. Although the
decision does not prevent the Company from negotiating LEC interconnection
agreements, it does create uncertainty about the rules governing pricing terms
and conditions of interconnection agreements. The rules affected by the Court's
decision may be subject to further judicial and regulatory proceedings. There
can be no assurance as to how the Interconnection Orders will be implemented or
enforced or the effect that such orders will have on competition within the
telecommunications industry generally or on the competitive position of the
Company specifically.
Other matters addressed by the 1996 Telecommunications Act may affect the
Company's operations. For example, the FCC has issued new rules that reform the
universal service support program and LEC access charges.
The legislation also contains special provisions that eliminate the
restrictions on the BOCs and GTOCs from providing long distance services. There
can be no assurance as to how the 1996 Telecommunications Act will be
implemented or enforced or the effect that it will have on competition within
the telecommunications industry generally or on the competitive position of the
Company specifically.
INTERNATIONAL SERVICE REGULATION: International common carriers, such as
the Company, are required to obtain authority under Section 214 of the 1934
Communications Act and file a tariff containing the rates, terms and conditions
applicable to their services prior to initiating their international
telecommunications services. The Company has also obtained authorization from
the FCC to resell the switched capacity of several underlying carriers to
provide international message telecommunications services. Under
recently-revised FCC rules, the Company has also obtained broader global
authority from the FCC to provide resold and facilities-based international
private line and switched service to virtually every foreign point in the world.
Under current tariff rules applicable to international carriers, nondominant
international carriers such as the Company must file their international tariffs
prior to commencing services. The Company has filed an international tariff for
switched services with the FCC. The FCC's rules also require the Company to file
carrier contracts, foreign operating agreements and periodically a variety of
reports regarding its international traffic flows and use of international
facilities.
The Company also must conduct its international business in compliance with
the FCC's international settlements policy, which establishes the permissible
boundaries for U.S. facilities-based carriers and their foreign correspondents
to settle the cost of terminating each other's traffic over their respective
networks. The FCC recently revised its rules to permit more flexibility in its
international settlements policy as a
11
<PAGE>
method of achieving lower cost-based accounting rates as more competition is
introduced in foreign markets and proposed new rules to lower the price of
providing international services. These and other changes may provide more
flexibility to the Company and its competitors to respond more rapidly to
changes in the global telecommunications market. The Company intends, where
possible, to take advantage of lowered accounting rates and flexible
arrangements. The Company cannot predict how the FCC will resolve pending
international policy issues or how such resolution will affect its international
business.
With respect to foreign ownership limitations, the 1934 Communications Act
limits the ownership of an entity holding a common carrier radio license by
non-U.S. citizens, foreign corporations and foreign governments. The FCC also
currently regulates the entry and participation of foreign entities in non-radio
telecommunications services in the U.S. telecommunications market. The Company
holds FCC authority to provide international services and therefore is subject
to the FCC's rules on foreign affiliations. Under those rules, the FCC may
trigger certain regulations if an ownership interest greater than 25%, or a
controlling interest at any level, in a U.S. carrier is held by a dominant
foreign carrier, including regulations requiring a determination whether the
destination market of the foreign carrier offers "effective, competitive
opportunities" ("ECO").
Regulation of the telecommunications industry is changing rapidly. In
February 1997, 69 nations, including the United States, entered into the WTO
agreement whereby participating countries agreed to eliminate barriers to
competition in basic telecommunications by January 1, 1998. The FCC has proposed
new rules that will reflect the WTO policies relating to entry and participation
of foreign entities in the U.S. telecommunications market. The proposed new
rules, if adopted, would eliminate the ECO test for foreign carriers from WTO
countries proposing to enter the U.S. market, establish certain safeguards and
substantially relaxes the foreign ownership rules. There can be no assurance
that the WTO agreement and its implementation will eliminate all restrictions
currently applicable to the Company or will not result in increased competition
in the Company's markets. There can be no assurance that future regulatory
changes will not have a material adverse impact on the Company's financial
condition, results of operations and cash flow.
REGULATORY OVERSIGHT: The FCC imposes a variety of reporting and annual fee
requirements. The FCC and the state regulatory agencies with jurisdiction over
the Company and its services have discretion to, among other things, impose
fines, conditions or revoke the Company's authority to the extent that such
agencies find that the Company has violated regulatory requirements. The FCC
also has authority to address violations of the foreign ownership limitation by,
among other things, requiring divestiture or restructuring of the Company's
radio station licenses.
STATE REGULATION
Some of the Company's services may be classified as intrastate and therefore
subject to state regulation. Such services are regulated by the applicable
individual state PSCs. Governing regulations at the state level differ from
state to state and, sometimes, by the telecommunications service provided. The
majority of states require carriers to apply for certification to provide CLEC
and intrastate telecommunications service. The Company has sought and obtained
authority to provide long distance service in Texas and to provide high capacity
dedicated services in Louisiana. An application to provide CLEC and long
distance services in Louisiana is pending, although no assurances can be made
that such authority will be received. To the extent that such services can be
interpreted to be intrastate in nature, the Company would be required to obtain
the appropriate certification or other authority from the relevant PSC. If any
state PSC were to conclude that the Company is or was providing intrastate
service without the appropriate authority, the PSC could initiate enforcement
actions, which could include, but need not be limited to, the imposition of
fines or the refusal to grant the regulatory authority necessary for the future
provision of intrastate telecommunications services. Although the Company
intends to obtain operating authority in
12
<PAGE>
each jurisdiction in which such authority is required, there can be no assurance
that one or more jurisdictions will not deny the Company's request for operating
authority. It is possible that any adverse PSC action would have a material
adverse effect on the Company.
PSCs also regulate access charges and other pricing for telecommunications
services within each state. The BOCs and other local exchange carriers have been
seeking reduction of state regulatory requirements, including greater pricing
flexibility. If regulations are changed to allow variable pricing of access
charges based on volume, the Company could be placed at a competitive
disadvantage over larger long distance carriers. The Company also could face
increased price competition from the BOCs and other local exchange carriers for
local and long distance services, which competition may be increased by the
removal of former restrictions on long distance service offerings by the BOCs as
a result of the 1996 Telecommunications Act. The impact of such rule changes on
the Company cannot be predicted.
EMPLOYEES
As of September 15, 1997, the Company employed approximately 139 people,
including approximately 23 in sales and marketing, 79 in engineering and
technical services and 37 in management, administration and finance. None of the
Company's employees is represented by a labor union or is subject to a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
COMPANY LICENSES AND CERTIFICATIONS
The Company has owned and maintained a variety of telecommunications
infrastructures and holds many FCC and international licenses to transmit voice
and data. FCC radio licenses issued to the Company allow it to provide land
mobile, microwave and satellite communications services. The Company currently
holds approximately 30 FCC licenses, with approximately 250 frequency pairs, for
commercial mobile radio service. These licenses have varying terms which expire
and will require renewal between July 1997 and March 2001. These licenses allow
the Company to provide two-way wireless radio services along the Texas and
Louisiana Gulf Coast region and offshore to oil and gas-related companies. Each
frequency pair allows two-way transmission and reception. The Company holds five
microwave FCC licenses providing voice and data services along the Texas and
Louisiana Gulf Coast region and offshore to drilling, production and related
companies. The Company holds and operates seven Ku band and two C band fixed
earth stations and holds FCC licenses that allow the Company to locate earth
stations in Texas and other U.S. locations.
The Company operates as a FCC licensed 214 carrier to provide resold
switched telecommunications services. The Company has also obtained broader
common carrier authority from the FCC to provide global resale of switched and
private line services as well as global facilities-based service. The Company
currently provides international facilities-based private line service on a
private carrier basis into Bolivia, Bosnia, Croatia, Ecuador, Hungary and
Russia. The Company recently installed a Class 4 tandem switch and value-added
services platform at its facility in Houston, Texas as part of its new
point-of-presence for its IWL Connect-TM- division. As part of the Company's
plans to increase its service offerings, the Company has obtained authority to
provide dedicated services in Louisiana and CLEC and long distance services in
Texas. An application to provide CLEC and long distance service in Louisiana is
pending. The Company expects to receive this additional Louisiana authority by
the end of the second quarter of fiscal 1998, although no assurances can be made
that such authority will be received. In addition, the Company has been approved
to have pole attachment rights to existing or future facilities of Entergy,
BellSouth and the State of Louisiana. Pole attachment rights allow the Company
to attach its own fiber optic cable to such parties' respective utility poles.
13
<PAGE>
ITEM 2. PROPERTIES
The Company occupies buildings that contain approximately 64,110 square feet
of floor space. The Company owns an office building in Friendswood, Texas and
Lafayette, Louisiana and leases additional space in Friendswood and Houston,
Texas, New Orleans, Louisiana and Moscow, Russia under agreements that expire at
various dates through 2004. The principal facilities are located as follows:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET DESCRIPTION
<S> <C> <C>
Houston, Texas (Aerospace) 18,940 Corporate headquarters for administration,
finance and sales functions, and IWL Connect.
Friendswood, Texas 12,500 Engineering, Research and Development, Network
Operations Center, Production, and Warehouse.
Lafayette, Louisiana 8,450 Administration, Sales, Production,
Shipping/Receiving, and Warehouse.
Friendswood, Texas 6,875 Administration, Sales, Production and Warehouse.
New Orleans, Louisiana 6,470 Administration, Sales, Production,
Shipping/Receiving, and Warehouse.
Friendswood, Texas 5,000 Procurement, Inventory, Shipping/Receiving and
Warehouse.
</TABLE>
The Company considers its current facilities adequate for its current needs
and believes that suitable additional space will be available, as needed, to
accommodate further physical expansion of corporate operations and for
additional sales and service.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to ordinary litigation incidental to its business, none
of which is expected to have a material adverse effect on the results of
operations, financial position or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Prior to the consummation of the Company's initial public offering on June
18, 1997, the Board of Directors of the Company circulated to the shareholders
of the Company on June 1, 1997 a Written Consent in Lieu of Annual Meeting of
the Shareholders to approve the election of Ignatius W. Leonards, Byron M.
Allen, and Richard H. Roberson as directors of the Company and the ratification
of KPMG Peat Marwick LLP as independent public accountants of the Company. The
Board of Directors of the Company circulated such consent to the shareholders of
the Company because, as of such date, it had been one year since the Company's
last annual meeting. All of the Company's shareholders at such time signed such
consent effective as of June 1, 1997.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
STOCK PRICES
On June 12, 1997, the Company's common stock, par value $0.01 per share (the
"Common Stock"), was admitted for trading on the Nasdaq National Market under
the symbol "IWLC." For the fourth quarter (commencing on June 12, 1997) of the
fiscal year ended June 30, 1997, the high and low closing sale prices for the
Common Stock on the Nasdaq National Market were $6.00 and $5.250, respectively.
As of September 15, 1997, there were approximately 11 holders of record of the
Common Stock, including brokers holding shares in nominee or street name
accounts for an indeterminate number of beneficial holders.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
anticipate paying dividends on the Common Stock in the foreseeable future. In
addition, under the terms of the Company's bank line of credit, the Company may
not pay dividends without the prior consent of the lending bank. The Company
expects that it will retain all available earnings generated by the Company's
operations for the development and growth of its business. Any future
determination as to the payment of dividends will be made in the discretion of
the Board of Directors of the Company and will depend upon the Company's
operating results, financial condition, capital requirements, general business
conditions and such other factors as the Board of Directors deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1996, Keith Johnson, Vice President--Marketing of the Company,
purchased 2,808 shares of Common Stock for $3.56 per share for an aggregate
purchase price of approximately $10,000. Such shares were issued in reliance
upon an exemption from registration under the Securities Act by reason of
Section 4(2) or 3(b) of the Securities Act and/or the rules and regulations
promulgated thereunder. In connection with that transaction, Mr. Johnson was
provided access to all relevant information regarding the Company and
represented to the Company that the shares were purchased for investment
purposes only and with no view toward distribution.
USES OF PROCEEDS FROM REGISTERED SECURITIES
On June 12, 1997 (the "Effective Date"), the Company's Registration
Statement on Form S-1 (Registration No. 333-22801) relating to its initial
public offering (the "IPO") was declared effective and the offering of up to
1,667,500 shares of the Company's Common Stock covered by such Registration
Statement commenced. The IPO, which has been completed, was managed by
Cruttenden Roth Incorporated, as the representative (the "Representative") of
the several underwriters (the "Underwriters") of the IPO. All of the securities
registered were sold, except for 55,005 shares of Common Stock subject to an
overallotment option granted by the Company to the Underwriters that were not
sold. 100,000 shares of Common Stock were registered and sold for the account of
Ignatius W. Leonards, the Company's Chief Executive Officer and Chairman of the
Board, at an aggregate offering price of $600,000 and 1,567,500 shares of Common
Stock at an aggregate offering price of $9,405,000 were registered for the
account of the Company, of which 1,512,495 shares of Common Stock at an
aggregate offering price of $9,074,970 were sold. Of the shares of Common Stock
sold by the Company, 1,450,000 shares were sold in June 1997, and 62,495 shares
(which were subject to an overallotment option granted by the Company to the
Underwriters) were sold in July 1997, after the end of the Company's 1997 fiscal
year. The 100,000 shares sold by Mr. Leonards were sold in July 1997.
15
<PAGE>
From the Effective Date of the IPO until June 30, 1997, total expenses of
approximately $1,703,495 were incurred for the Company's account in connection
with the 1,450,000 shares of Common Stock sold in June 1997, which expenses
consisted of: (i) $609,000 representing underwriting discounts and commissions
paid to the Underwriters; (ii) $261,000 representing a nonaccountable expense
allowance paid to the Representative; and (iii) other offering expenses,
including without limitation, attorney's fees, accountants' fees, printing costs
and filing fees, of approximately $833,495. None of such expense payments were
direct or indirect payments to directors or officers of the Company or their
associates or to persons owning 10 percent or more of any class of equity
securities of the Company or to affiliates of the Company. The net offering
proceeds of such shares, after deducting such total expenses, was approximately
$6,996,505 all of which was invested at June 30, 1997 in a money market account
with the Company's lending bank pending application of such proceeds by the
Company.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sales:
Telecom and carrier(1)................................... $ 13,642 $ 14,566 $ 15,683 $ 19,705
Land mobile(1)........................................... 1,218 1,228 1,559 2,996
Product resales(1)(2).................................... -- -- 10,554 7,641
--------- --------- --------- --------- ---------
Total sales(1)......................................... 12,960 14,860 15,794 27,796 30,342
Cost of sales.............................................. 8,641 10,071 9,639 10,743 14,710
Cost of sales--product resales............................. -- -- -- 9,672 7,027
--------- --------- --------- --------- ---------
Gross profit............................................... 4,319 4,789 6,155 7,381 8,605
Selling expenses........................................... 724 892 862 842 1,141
General and administrative expenses........................ 2,408 3,178 3,537 4,257 4,704
Depreciation and amortization.............................. 359 571 820 1,003 1,403
--------- --------- --------- --------- ---------
Income from operations..................................... 828 148 936 1,279 1,357
Net interest expense....................................... 10 215 244 270 514
Other expense (income)..................................... 86 (252) (138) (41) (129)
--------- --------- --------- --------- ---------
Income before income taxes................................. 732 185 830 1,050 972
Income tax expense......................................... 249 41 294 316 283
--------- --------- --------- --------- ---------
Net income................................................. $ 483 $ 144 $ 536 $ 734 $ 689
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share....................................... $ 0.24 $ 0.07 $ 0.24 $ 0.33 $ 0.30
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding(3)..................... 2,011 2,011 2,233 2,233 2,323
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 72 $ -- $ 291 $ 361 $ 7,660
Working capital................................................ 709 (367) (265) 1,811 9,721
Total assets................................................... 5,748 7,437 8,232 12,409 26,062
Notes payable, noncurrent portion.............................. 533 1,108 1,329 2,944 7,692
Shareholders' equity........................................... 1,511 2,419 2,955 3,698 11,394
</TABLE>
- ------------------------
(1) The breakdown of sales between telecom and carrier, land mobile, and product
resales for fiscal 1993 is not available.
16
<PAGE>
(2) Comprised of the resale of Alcatel products and other equipment and hardware
to Shell.
(3) Weighted average shares outstanding have been restated to reflect a
200-for-one stock split of the Common Stock effected in November 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in this report. See
"Item 8--Financial Statements."
OVERVIEW
The Company's total sales are derived from the provision of a variety of
services, including telecom and carrier services, land mobile services and
product resales. Telecom and carrier services include the resale of long
distance telecommunications services, the provision of private leased lines, the
resale of equipment and the provision of related services to furnish and install
telecommunications systems. The Company recently installed a tandem switch at
its facility in Houston, Texas to provide services as a switch-based long
distance carrier. Land mobile services consist of the rental, sale, service and
maintenance of two-way radio communications systems.
In connection with product resales, the Company serves as the exclusive
manufacturer's representative of Alcatel products to the U.S. oil and gas
industry. In fiscal 1996 and 1997, the Company provided services to Shell, which
included the resale of a significant amount of Alcatel products. For the years
ended June 30, 1996 and 1997, Shell purchased from the Company approximately
$10.6 million and $7.6 million of Alcatel products and other equipment and
hardware, representing approximately 38.0% and 25.2%, respectively, of total
sales during such periods. Although profitable, the sale of Alcatel products to
Shell significantly reduced the Company's gross margin in these periods. The
Shell project was substantially completed in fiscal 1997 and, therefore, is not
expected to contribute in a material manner to the Company's total sales in
future periods.
The Company was founded in 1981 as a contract supplier of communications
technology installation and equipment leasing services, and over the ensuing
years broadened the scope of its service offerings to include microwave, two-way
radio and related wireless services and technologies for an expanded customer
base, primarily comprised of major oil and gas companies operating in the Gulf
of Mexico region. During this period, the Company began to provide an increasing
variety of services to its oil and gas customers in other remote and
underdeveloped regions around the world, including communications services for
special projects with critical timing and other extreme or unusual challenges.
To support its international expansion, in 1994 the Company began providing
telecommunications services and network support inside the former Soviet Union
to United States oil and gas customers. As the Company expanded its service
offerings and developed greater infrastructure, it commenced service as a
switchless reseller of long distance services in the United States in 1994. The
Company is continuing to expand its network through a recently-acquired tandem
switch and the installation of fiber optic cable and microwave radios in
targeted service areas. In connection with such expansion, the Company has also
received CLEC status in Texas and has applied for CLEC status in Louisiana.
While annual growth rates of the Company's total sales since 1992 have
ranged from 6.3% to 76.0%, the Company's quarterly operating results have varied
significantly in the past, and can be expected to vary in the future. These
fluctuations in operating results generally are caused by a number of factors,
including changes in the Company's services and product mix, levels of product
resales, adverse weather conditions in customer locations, the degree to which
the Company encounters competition in its existing or target markets, general
economic conditions, the volume and timing of orders received during the period,
sales and marketing expenses related to entering new markets, the timing of new
product or service introductions by the Company or its competitors and changes
in billing rates by the Company or its competitors.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total sales represented by certain items included in the Company's Consolidated
Statements of Income.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales:
Telecom and carrier......................................... 92.2% 56.4% 64.9%
Land mobile................................................. 7.8 5.6 9.9
Product resales............................................. -- 38.0 25.2
----- ----- -----
Total sales............................................... 100.0 100.0 100.0
Cost of sales................................................. 61.0 38.7 48.5
Cost of sale--product resales................................. -- 34.8 23.1
Gross margin.................................................. 39.0 26.5 28.4
Selling expenses.............................................. 5.5 3.0 3.8
General and administrative expenses........................... 22.4 15.3 15.5
Depreciation and amortization................................. 5.2 3.6 4.6
----- ----- -----
Total operating expenses...................................... 33.1 21.9 23.9
----- ----- -----
Income from operations........................................ 5.9 4.6 4.5
Net interest expense.......................................... 1.5 1.1 1.7
Other income, net............................................. 0.9 0.2 .4
----- ----- -----
Income before income taxes.................................... 5.3 3.7 3.2
Income tax expense............................................ 1.9 1.1 .9
----- ----- -----
Net income.................................................... 3.4% 2.6% 2.3%
----- ----- -----
----- ----- -----
</TABLE>
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
TOTAL SALES. Total sales increased $2.5 million or 9.0% to $30.3 million
for fiscal 1997 from $27.8 million for fiscal 1996. This increase was comprised
of an increase of $4.0 million or 25.7% in the Company's telecom and carrier
services, an increase of $1.4 million or 92.1% in the Company's land mobile
services and a decrease of $2.9 million or 27.6% in product resales to a single
customer. The increase in telecom and carrier revenues was largely attributable
to increased traffic on the Company's telecom network in the Gulf of Mexico, an
increase in the number of ODDS units in the Gulf of Mexico, and expansion of the
Company's business outside the Gulf of Mexico. The increase in land mobile sales
was largely due to increased demand which the Company believes was favorably
impacted by increased marketing activities. The product resales were
substantially completed in fiscal 1997 and, therefore, are not expected to
contribute in a material manner to the Company's total sales in future periods.
GROSS MARGIN. Gross profit increased $1.2 million or 16.6% to $8.6 million
for fiscal 1997 from $7.4 million for fiscal 1996, representing gross margins of
28.4% and 26.6%, respectively. The increase in margin was due in principal part
to the completion of the product resale to a single customer in May 1997.
Excluding product resales, gross profit for fiscal 1997 and fiscal 1996 would
have been approximately $8.0 million and $6.5 million, respectively,
representing a gross margin of 35.2% and 37.7%, respectively. The decrease in
margin was attributable to the increase of land mobile services (which yield
lower margins) in the Company's overall service mix.
SELLING EXPENSES. Selling expenses increased $299,000 or 35.5% to $1.1
million for fiscal 1997 from $842,000 for fiscal 1996. Selling expenses as a
percentage of total sales increased to 3.8% from 3.0% during
18
<PAGE>
these respective periods. The increase in selling expenses resulted from the
addition of sales personnel and from increases in travel and advertising.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $447,000 or 10.5% to $4.7 million for fiscal 1997 from $4.3 million
for fiscal 1996. As a percentage of total sales, general and administrative
expenses increased to 15.5% for fiscal 1997 from 15.3% for fiscal 1996. The
increase in general and administrative expenses as a percentage of sales was
primarily due to the decline in product resales overall. The increases in the
dollar amount of general and administrative expenses over these periods were due
in principal part to increased telephone expense, insurance expense, rent
expense and legal expense relating to facilities and personnel additions in
Houston, Texas and Lafayette, Louisiana.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$400,000 or 39.9% to $1.4 million for fiscal 1997 from $1.0 million in fiscal
1996. This increase was primarily attributable to the acquisition of an
additional $5.9 million of property, plant and equipment, comprised of $4.7
million in equipment for satellite, microwave and other equipment, $936,000 for
computers, furniture and fixtures, service vehicles and test equipment and
$285,000 for buildings and improvements.
NET INTEREST EXPENSE. Net interest expense increased $244,000 or 90.4% to
$514,000 for fiscal 1997 from $270,000 for fiscal 1996. The Company's borrowings
increased to $8.7 million for fiscal 1997 from $3.9 million for fiscal 1996.
Borrowings were reduced in fiscal 1996 due to the receipt of $2.0 million from
Shell as a deposit under a product resale contract. The increase in borrowings
was used to fund acquisitions of property, plant and equipment.
OTHER INCOME, NET. Other income for fiscal 1997 and 1996 resulted from the
Company's 50% ownership interest in Kenwood, as well as certain asset
dispositions effected in such periods. Such items were not material to the
Company's operating results for fiscal 1997 and 1996.
INCOME TAX EXPENSE. Provision for income taxes decreased $33,000 or 10.4%
to $283,000 for fiscal 1997 from $316,000 for fiscal 1996 which represents an
effective tax rate of 29.0% and 30.1% for each period, respectively.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
TOTAL SALES. Total sales increased by $12.0 million or 75.9% to $27.8
million for fiscal 1996 from $15.8 million for fiscal 1995. Of this increase,
$1.1 million or 9.3% resulted from increases in the Company's telecom and
carrier services. Land mobile services accounted for $300,000 or 2.7% of this
increase while $10.6 million, or 88%, resulted in part from product resales to a
single customer. While revenues related to land mobile services were relatively
constant, the increase in sales of telecom and carrier services reflected
continued growth of the Company's core business. Excluding product resales,
total sales for fiscal 1996 would have been $17.3 million. Since such product
resales are expected to be substantially completed in fiscal 1997, they are not
expected to contribute in a material manner to the Company's total sales in
future periods after fiscal 1997.
GROSS MARGIN. Gross profit increased $1.2 million or 19.7% to $7.3 million
in fiscal 1996 from $6.1 million in fiscal 1995, representing gross margins of
26.5% and 39.0%, respectively. The decrease in gross margin primarily was due to
the lower profit margin from product resales. Excluding product resales, gross
profit would have been approximately $6.5 million in fiscal 1996, representing a
gross margin of 37.7%.
SELLING EXPENSES. Selling expenses decreased $20,000 or 2.4% to $842,000,
or 3.0% of total sales, in fiscal 1996 from $862,000, or 5.5% of total sales, in
fiscal 1995. Advertising and promotion expenditures increased $81,000, travel
increased $21,000 and salaries and employee benefits decreased $110,000, which
reflected the reassignment of certain employees to other departments.
19
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $720,000 or 20.4% to $4.2 million in fiscal 1996 from $3.5 million in
fiscal 1995. As a percentage of total sales, general and administrative expenses
decreased to 15.3% for fiscal 1996 from 22.4% for fiscal 1995. The increase in
general and administrative expenses was primarily due to a higher level of
expenses in fiscal 1996 associated with the expansion of the Company's
international operations and related travel, including increased activity in
Russia and South America as well as a project in Bosnia that was started and
completed in fiscal 1996. In addition, general and administrative expenses were
higher in fiscal 1996 due to increased development of the Company's
infrastructure to accommodate growth, which resulted in increases in insurance
costs and employee compensation through an increased number of employees,
increased telephone expenses relating to increased activity in the Company's
international operations and costs associated with opening offices in Lafayette
and New Orleans, Louisiana.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$183,000 or 22.3% to $1.0 million in fiscal 1996 from $820,000 in fiscal 1995.
This increase was principally attributable to an additional $1.2 million of
property, plant and equipment, comprised of $621,000 for satellite, microwave
and other telecommunications equipment, and $579,000 for computers, furniture
and fixtures, service vehicles and test equipment.
NET INTEREST EXPENSE. Net interest expense increased $26,000 or 10.6% to
$270,000 in fiscal 1996 from $244,000 in fiscal 1995. The increase in interest
expense was due to an increase of $350,000 in borrowings under the Company's
credit lines. Interest expense was minimized during fiscal 1996 as a result of a
$2.0 million deposit received from Shell under a product resale contract.
OTHER INCOME, NET. Other income in fiscal 1996 and fiscal 1995 resulted
from the Company's 50% ownership interest in Kenwood, as well as certain asset
dispositions effected in such periods. Such items were not material to the
Company's operating results in fiscal 1996 or fiscal 1995.
INCOME TAX EXPENSE. Provision for income taxes increased $23,000 or 7.8% to
$316,000 in fiscal 1996, representing an effective income tax rate of 30.0%,
from $293,000 in fiscal 1995, representing an effective tax rate of 35.4%. The
decrease in the effective tax rate in fiscal 1996 primarily was due to the
availability of foreign tax credits in such year.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, the Company generated $1.6 million of cash from
operating activities, borrowed an additional net amount of $4.7 million from
credit facilities, and received $7.0 million from the sale and issuance of
Common Stock. The Company invested $5.9 million on property and equipment (net
of proceeds of $119,000 from certain dispositions of assets) and increased its
investment in an unconsolidated subsidiary by $50,000. These activities provided
an increase in the Company's cash balance of $7.3 million to a balance of $7.7
million at June 30, 1997.
The Company's working capital increased to $9.7 million at June 30, 1997
from $1.8 million at June 30, 1996. Accounts receivable increased from $5.5
million at June 30, 1996 to $5.7 million at June 30, 1997, while inventory
increased from $851,000 at June 30, 1996 to $1.9 million at June 30, 1997. The
inventory increase is comprised of increases in work-in-process and stock levels
necessary to support increased sales. In addition, the current portion of notes
payable decreased from $998,000 at June 30, 1996 to $964,000 at June 30, 1997,
while deferred revenue and customer deposits decreased from $632,000 at June 30,
1996 to $77,000 at June 30, 1997.
During fiscal 1996, the Company generated $737,000 of cash from operating
activities, borrowed an additional net amount of $350,000 from credit
facilities, received payment of $264,000 from collections on outstanding notes
receivable (net of new notes issued for $396,000), and received $10,000 from the
sale and issuance of Common Stock to an employee. The Company also invested $1.3
million on property, plant and equipment (net of proceeds of $202,000 from
certain dispositions of assets). These activities
20
<PAGE>
provided an increase in the Company's cash balance of $70,000 at June 30, 1995
to a balance of $361,000 at June 30, 1996.
The Company's working capital increased to $1.8 million at June 30, 1996,
representing an increase of $2.1 million from the negative working capital
position of $265,000 at June 30, 1995. The Company restructured its credit
facility to reclassify some borrowings as long term in fiscal 1996 that were
considered current obligations in fiscal 1995. The increased working capital was
used to support growth in the Company's core business as well as an increase in
accounts receivable from $2.0 million in fiscal 1995 to $5.5 million in fiscal
1996 and an increase in inventory from $601,000 at June 30, 1995 to $987,000 at
June 30, 1996. Offsetting these increases was a higher balance of accounts
payable and accrued liabilities to $3.9 million in fiscal 1996 from $1.1 million
in fiscal 1995. The current portion of notes payable for this period decreased
to $1.0 million in fiscal 1996 from $2.3 million in fiscal 1995.
The Company amended its then-existing credit agreement with its then-current
bank lender in the third quarter of fiscal 1997, which increased the bank line
of credit by $2.0 million for a total borrowing capacity of $4.5 million, all of
which was advanced at June 30, 1997. In December 1996, the Company violated a
financial covenant under the credit agreement. The bank lender did not declare
the Company in default and waived the violation. In addition, the bank lender
amended the financial covenant at issue. In May 1997, the Company and the bank
lender entered into a Second Amendment to Loan and Security Agreement further
amending the agreement to allow for the IPO and to amend other covenants that
were or would have been in default upon completion of the IPO. In addition, the
bank lender waived any such defaults existing at the effective date of such
Second Amendment.
The Company recently completed three credit facilities with a new lender to
refinance its prior credit facility, provide working capital and finance
equipment to be leased by the Company to its customers. In May 1997, the Company
entered into a commitment to obtain a secured revolving line of credit (the
"Working Capital Loan"), a secured guidance line of credit (the "Guidance
Line"), and a term facility (the "Term Loan") from Bank One, Texas, N.A. The
Working Capital Loan and Guidance Line were finalized as of August 1, 1997, and
the Term Loan was finalized as of August 28, 1997.
The maximum amount of the Working Capital Loan is $5.0 million subject to a
borrowing base based on accounts receivables and inventory. The proceeds of the
Working Capital Loan are to be used for working capital needs and general
corporate purposes. Proceeds of the Working Capital Loan were used initially to
extinguish the Company's then-existing revolving credit facility with Marine
Midland Business Loans, Inc., which required a prepayment penalty payable by the
Company in the amount of 1% of the maximum amount of the Marine Midland line of
credit facility. The maximum amount of the Guidance Line is $5.0 million, which
will be used to finance the Company's purchase and subsequent lease of
telecommunications equipment. The Term Loan and the Working Capital Loan are
collateralized by substantially all of the personal property of the Company. The
Guidance Line is secured specifically by the equipment purchased with the
proceeds thereof and by an assignment of the leases of such equipment, as well
as the other personal property of the Company. The interest rate on each
facility is, at the Company's option, Bank One's base rate or 30, 60 or 90 day
adjusted LIBOR plus 2.40% (2.50% in the case of the Guidance Line). The interest
rate will be subject to downward adjustment in certain circumstances as
specified in the credit agreement. The entire unpaid principal balance and
accrued but unpaid interest for the Working Capital Loan will be due on October
31, 1998 and for the Guidance Loan will be due on May 1, 1998. The Term Loan
matures on September 1, 2001.
Borrowing availability under the Working Capital Loan is based upon eligible
accounts receivable and inventory, and a fee equal to 0.25% will be charged on
any unused portion of the Working Capital Loan. In addition, fundings under the
Guidance Line will only be permitted with respect to communications equipment
and installation pursuant to leases which (a) have a term of not more than 60
months or the estimated useful life of the leased equipment, (b) have been
assigned to the lender as collateral for the Loans and (c) have as lessees
companies formed and with principal offices in the United States. The Loans
21
<PAGE>
will be collateralized by substantially all of the Company's assets. The Company
is able to reduce the commitment under the Working Capital Loan and is able to
make voluntary prepayments on the Guidance Line without prepayment penalty. The
Loans are cross-defaulted and cross-collateralized. The credit agreement
prohibits the payment of dividends without prior approval of the lender and
requires the Company to maintain certain covenants and financial ratios
including working capital and net worth ratios. The credit agreement also
prohibits certain changes in the Company's basic business or in its Chief
Executive Officer, Chief Financial Officer and President positions, without
prior lender approval.
The Company entered into an agreement in December 1996 to acquire microwave
radios from a customer. The purchase price for the radios was $1.1 million, of
which $25,000 was paid by the Company upon execution of the agreement, $225,000
was paid on April 1, 1997, and the balance due is evidenced by a note payable by
the Company. The balance will be carried in a note payable to the customer
bearing interest at 6.75% with monthly principal and interest payments to begin
in July 1997, with a final payment of principal and interest to be made in June
2007.
The Company anticipates that, based on current plans and assumptions
relating to its operations, its financial resources and equipment financing
arrangements will be sufficient to fund the Company's growth and operations
through the end of its fiscal year ending June 30, 1998. The Company believes
that its capital needs at the end of such period will continue to be significant
and, therefore, the Company will continue to seek additional sources of capital.
Further, in the event the Company's plans or assumptions change or prove to be
inaccurate, or if the Company consummates any unplanned acquisitions of
businesses or assets, the Company may be required to seek additional sources of
capital sooner than currently anticipated. Sources of additional capital may
include public and private equity and debt financings, sales of nonstrategic
assets and other financing arrangements.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." As a result of this statement,
the Company began to provide additional disclosures related to its stock-based
compensation plans in its fiscal 1997 financial statements. Adoption of SFAS No.
123 did not have a material effect on the Company's financial position or
results of operations. The Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share" in February 1997, which will not have a material effect
on the Company's calculation of primary and fully diluted earnings per share.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS.
Information called for by this item is set forth in the Company's
Consolidated Financial Statements contained in this report. The Company's
Consolidated Financial Statements begin at page F-1 hereunder.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table provides certain information regarding the directors and
executive officers of the Company as of September 15, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- --------------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Ignatius W. Leonards............. 44 Chairman, Chief Executive Officer and Director
Byron M. Allen................... 49 President and Director
Richard H. Roberson.............. 38 Chief Financial Officer, Secretary and Director
James T. Gordon.................. 59 Vice President--Telecom Operations
J. Keith Johnson................. 35 Vice President--Marketing
Bryan L. Olivier................. 35 Vice President--IWL Connect Division
Errol J. Olivier................. 35 Vice President--Telecom Sales
Christopher J. Amenson........... 47 Director
Myron J. Goins................... 37 Director
</TABLE>
- ------------------------
MR. IGNATIUS W. LEONARDS has served as Chairman of the Board, Chief
Executive Officer and a director of the Company since founding the Company in
1981 and served as President from 1981 until February 1997. Mr. Leonards was
employed by Bibbins & Rice Electronics as Telecom Service Manager until 1981.
Mr. Leonards has an industrial electronics degree from the T.H. Harris Technical
Institute in Opelousas, Louisiana.
MR. BYRON M. ALLEN has served as President and a director of the Company
since February 1997 and served as a Vice President of the Company from December
1993 until February 1997. From 1986 to 1993, Mr. Allen served as Executive Vice
President of SBS Technologies, Inc., a manufacturer of computer components. Mr.
Allen was a co-founder of SBS Technologies, Inc. In 1985 and 1986, Mr. Allen
served as a senior principal staff member at BDM Corporation, a defense
consulting firm. In 1984 and 1985, he served as manager of Navy New Business
Development for the Singer Link Corporation. From 1983 to 1984, Mr. Allen served
as the managing director of European operations of Intermetrics, Inc. He served
as manager of Houston operations of Intermetrics, Inc. from 1977 to 1983. Mr.
Allen graduated from the University of Alabama with a degree in Mathematics. He
attended graduate school at Wright State University in Dayton, Ohio where he
studied systems engineering.
MR. RICHARD H. ROBERSON has served as Chief Financial Officer of the Company
since joining the Company in October 1996 and has served as a director of the
Company since February 1997. From November 1995 until October 1996, Mr. Roberson
was Director of Administration at Weaver and Tidwell, LLP., a certified public
accounting firm. From May 1989 until October 1995, Mr. Roberson was Chief
Financial Officer and Controller of Local and Western of Texas, Inc., a
wholesaler of meat and other food products. Mr. Roberson has a BBA in Accounting
from the University of Texas at Austin and is also a certified public
accountant.
MR. JAMES T. GORDON has served as Vice President--Telecom Operations of the
Company since October 1996. Prior to joining the Company, he was an independent
telecommunications consultant. From September 1992 through December 1994, Mr.
Gordon was Director--Installation and Test Engineering Services for Alcatel
Network Systems, Inc. and, from April 1991 to September 1992, he served as
Manager--Customer Account Services--Independent Operating Cos. for Alcatel
Network Systems, Inc. Mr. Gordon was employed by Rockwell International
Corporation in various capacities from 1970 until 1991. Mr. Gordon received a
BBA in Production Management from the University of North Texas.
23
<PAGE>
MR. J. KEITH JOHNSON has served as Vice President of Marketing since
December 1992 and was Director of Sales and Marketing of the Company from
December 1986 to December 1992. From June 1985 to December 1986, Mr. Johnson was
an Account Executive with ARGO Communications, Inc., a long distance carrier,
where he sold long-distance voice and data lines to medium and large commercial
users. Mr. Johnson worked for AT&T from May 1983 until June 1985, where he sold
telephone systems to small and medium-sized companies. Mr. Johnson graduated
from Houston Baptist University with a double major in marketing and management.
MR. BRYAN L. OLIVIER has served as a Vice President of the Company's IWL
Connect-TM- division since January 1996. Prior thereto, he served as Director of
Engineering for Spacelink Systems, Inc. from May 1992 to December 1995. From
January 1992 to March 1992, he was a member of the strategic planning group of
Wiltel Communications, a long distance carrier. From May 1981 to December 1988,
he was the manager of the International Telecommunications Group of Tenneco Oil
E&P/Operators Inc. Mr. Olivier graduated with a B.S. Degree in Electrical
Engineering from the University of Southwest Louisiana with a concentration in
telecommunications management and from T.H. Harris Technical Institute in
Opelousas, Louisiana in the field of industrial engineering.
MR. ERROL J. OLIVIER has served as Vice President of Telecom Sales since
September 1996 and served as Vice President of Telecom Services from July 1995
until September 1996. From February 1995 until July 1995, Mr. Olivier served as
Director of Telecom Services and was responsible for the opening of the
Company's Lafayette and New Orleans offices. Mr. Olivier joined the Company in
March 1990 and served as an Account Manager from March 1990 until January 1992
and as the Regional Manager of the Company's New Orleans office from January
1992 until February 1995. Mr. Olivier has an electronics technology degree from
T.H. Harris Technical Institute in Opelousas, Louisiana.
MR. CHRISTOPHER J. AMENSON has served as a director of the Company since
June 1997. Mr. Amenson has served as President and Chief Operating Officer of
SBS Technologies, Inc. since April 1992 and as a director since August 1992. In
October 1996, he became the Chief Executive Officer of SBS Technologies,
Inc. For five years prior to joining SBS Technologies, Inc., Mr. Amenson was
President of Industrial Analytics, Inc., a Boston-based investment banking firm.
Mr. Amenson holds a B.A. Degree in Government from the University of Notre Dame
and a Master's Degree in Business Management from the Sloan Fellows Program at
the Massachusetts Institute of Technology.
MR. MYRON J. GOINS has served as a director of the Company since June 1997.
Mr. Goins has served as a Managing Director of Seruus Ventures LLC, an
investment firm specializing in telecommunications-related investments, since
September 1996. From September 1995 until the founding of Seruus, Mr. Goins was
employed by National Telemanagement Corporation, a diversified telecom company,
as its Chief Financial Officer. From April 1994 until Corporate Telemanagement
Group's sale to LCI International in September of 1995, Mr. Goins was Vice
President of Corporate Development for Corporate Telemanagement Group, a long
distance company. From 1988 to April 1994, Mr. Goins was Director of Financial
Analysis at Sprint Corp. where he was involved in numerous merger and
acquisition transactions including the $3.5 billion merger of Sprint and Centel
and various local, long distance, satellite and other infrastructure
investments. Mr. Goins received his BBA degree from the University of Memphis
and his MBA from Vanderbilt University's Owen Graduate School of Management.
Each director serves until the next annual meeting of shareholders and until
his successor is duly elected and qualified. The Company's Board of Directors is
currently composed of five directors. Officers serve at the discretion of the
Board of Directors. There are no family relationships among any of the directors
or named executive officers of the Company.
Pursuant to the Company's By-Laws, the next annual meeting of shareholders
of the Company will be held in 1998.
24
<PAGE>
BOARD COMMITTEES
Effective upon the consummation of the Company's initial public offering in
June 1997, the Board of Directors established two standing committees: the Audit
Committee and the Compensation Committee. The functions of the Audit Committee,
of which Mr. Amenson and Mr. Goins are the initial members, is to make
recommendations regarding the engagement of the Company's independent auditors
and to review with management and the independent auditors the Company's
financial statements, basic accounting and financial policies and practices,
audit scope and competency of control personnel. The functions of the
Compensation Committee, of which Mr. Amenson and Mr. Goins are the initial
members, is to review and recommend to the Board of Directors the compensation
of executive officers of the Company and to administer and make awards and take
all other action as prescribed under the employee benefit plans of the Company
(other than the 1997 Director Option Plan, which is administered by the entire
Board of Directors of the Company). All members of the Compensation Committee
are and will continue to be "non-employee directors" within the meaning of Rule
16b-3(b) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and "outside directors" as contemplated by Section
162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as amended (the "Code").
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership on Form 3 and
changes in ownership on Form 4 or Form 5 with the Securities and Exchange
Commission (the "SEC"). Such officers, directors and ten percent stockholders
are also required by SEC rules to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that, during the fiscal year ended June 30, 1997, the Company's
officers, directors and ten percent shareholders complied with all applicable
Section 16(a) filing requirements.
LIMITATION OF LIABILITY
As permitted by the Texas Business Corporation Act, the Company's Restated
Articles of Incorporation provide that the directors of the Company shall not be
liable to the Company or its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except that such provision
does not authorize the elimination or limitation of liability of a director to
the extent the director is found liable for (i) a breach of the director's duty
of loyalty to the Company or its shareholders, (ii) any act or omission not in
good faith or that constitutes a breach of duty of the director to the Company
or an act or omission that involves intentional misconduct or a knowing
violation of law, (iii) any transaction from which the director derived any
improper personal benefit, whether or not the benefit resulted from an action
taken within the scope of the director's office or (iv) any act or omission for
which the liability of the director is expressly provided by statute.
As a result of this provision, the Company and its shareholders may be
unable to obtain monetary damages from a director for breach of the duty of
care. Although shareholders may continue to seek injunctive or other equitable
relief for an alleged breach of fiduciary duty by a director, shareholders may
not have any effective remedy against the challenged conduct if equitable
remedies are unavailable.
In addition, the Company's Restated Articles of Incorporation and Amended
and Restated Bylaws provide certain rights of indemnification for all officers
and directors.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
DIRECTOR COMPENSATION
Non-employee directors of the Board of Directors of the Company are paid
$1,000 per meeting for attending or participating in meetings of the Board of
Directors or any committee thereof, and receive reimbursement for out-of-pocket
expenses incurred for attendance at meetings. Non-employee directors will also
receive from time to time non-statutory stock options under the 1997 Director
Option Plan (as defined below). The Company granted options to acquire 10,000
shares of Common Stock at a per share exercise price of $6.00 under the 1997
Director Option Plan to each of Messrs. Amenson and Goins effective upon their
commencing to serve as directors of the Company in June 1997. The Company's
policy is not to pay any additional compensation to employees of the Company for
their services as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Amenson and Goins were the sole members of the Compensation
Committee during the fiscal year ended June 30, 1997. The Board of Directors
established the Compensation Committee effective upon consummation of the
Company's initial public offering in June 1997. Prior thereto, the Company had
no Compensation Committee or other committee of the Board of Directors
performing similar functions, and accordingly, the Board of Directors determined
the compensation for the executive officers and related matters.
During the last fiscal year, no executive officer of the Company served as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
Caroline Fontenot, the sister of Mr. Leonards, the Company's Chairman of the
Board and Chief Executive Officer, lent the Company $75,000 on June 1, 1992, of
which a balance of $43,693, bearing interest at the rate of 12% per annum,
remained outstanding as of June 30, 1997.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
compensation awarded or paid by the Company to its Chairman of the Board and
Chief Executive Officer and the other executive officers of the Company whose
total annual salary and bonus for services to the Company exceeded $100,000 in
the fiscal year ended June 30, 1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------- ---------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEARS SALARY BONUS OPTIONS (SHARES) COMPENSATION
- ------------------------------------------------- --------- ---------- --------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Ignatius W. Leonards............................. 1997 $ 157,427 $ -- -- $ 21,946(1)
Chairman of the Board and 1996 150,000 -- -- 29,214(2)
Chief Executive Officer
J. Keith Johnson................................. 1997 115,485 -- 5,000(3) 1,801(4)
Vice President--Marketing 1996 100,604 12,250 36,141(5) 1,655(6)
</TABLE>
- ------------------------
(1) Represents (i) $8,998 earned by Mr. Leonards pursuant to an agreement (the
"Kenwood Agreement") between the Company and Kenwood Americas Corporation
("KAC") whereby Mr. Leonards is paid 10% of the net profits of Kenwood
Systems Group, Inc. (the Company owns 50% of the outstanding capital stock
of Kenwood Systems Group, Inc., with the other 50% owned by KAC); (ii)
$2,448 of matching payments made by the Company to Mr. Leonards' account
under the
26
<PAGE>
Company's Retirement and Savings Plan (the "401(k) Plan"); and (iii) $10,500
in management fees paid to Mr. Leonards by the Company for management rights
granted by Mr. Leonards to the Company with respect to one of Mr. Leonards'
properties.
(2) Represents (i) $9,000 earned by Mr. Leonards pursuant to the Kenwood
Agreement; (ii) $2,214 of matching payments made by the Company to Mr.
Leonards' account under the Company's 401(k) Plan; and (iii) $18,000 in
management fees paid to Mr. Leonards by the Company for management rights
granted by Mr. Leonards to the Company with respect to one of Mr. Leonards'
properties.
(3) Represents stock options granted pursuant to the Company's 1997 Stock Option
Plan, which have an exercise price of $6.00 per share and are subject to
vesting requirements.
(4) Represents matching payments made by the Company to Mr. Johnson's account
under the Company's 401(k) Plan.
(5) Represents stock options granted pursuant to the Company's Employee
Incentive Stock Option Plan, which have an exercise price of $3.56 per
share. The vesting of all such options was accelerated upon consummation of
the Company's initial public offering in June 1997.
(6) Represents matching payments made by the Company to Mr. Johnson's account
under the Company's 401(k) Plan.
OPTION GRANTS TABLE. The following table provides information on grants of
stock options pursuant to the Company's 1997 Stock Option Plan during the fiscal
year ended June 30, 1997 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED TO EXERCISE OR OPTION TERM (1)
UNDERLYING EMPLOYEES IN FISCAL BASE PRICE EXPIRATION --------------------
NAME OPTIONS GRANTED YEAR (PER SHARE) DATE 5% 10%
- --------------------------------- ---------------- ------------------- -------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
J. Keith Johnson................. 5,000(2) 3.6% 6.00(3) 5/8/07 $ 18,867 $ 77,813
</TABLE>
- ------------------------
(1) The 5% and 10% assumed annual compound rates of stock appreciation are
mandated by the rules of the Securities and Exchange Commission (the "SEC")
and do not represent the Company's estimate or projection of future Common
Stock prices. The actual value realized may be greater or less than the
potential realizable value set forth in the table.
(2) These options were granted to Mr. Johnson in May 1997 pursuant to the
Company's 1997 Stock Option Plan and vest in five installments of 20% each
and become fully vested five years after due date of grant.
(3) These options were granted at a price per share of $6.00, which was equal to
the initial public offering price of the Company's Common Stock in its
initial public offering and, accordingly, was at least equal to the fair
market value of the Common Stock on the date of grant, as determined by the
Board of Directors of the Company.
27
<PAGE>
FISCAL YEAR-END OPTION VALUES TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Keith Johnson................................ 36,141(2) 5,000 $ 65,596 --
</TABLE>
- ------------------------
(1) Based on the fair market value of the Common Stock of $5.375 per share as
reported on the Nasdaq National Market on June 30, 1997.
(2) The Board of Directors accelerated the vesting of all outstanding options
granted under the Employee Incentive Stock Option Plan effective upon
completion of the Company's initial public offering in June 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 15, 1997 by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's Named Executive
Officers, directors and director nominees, and (iii) all of the current
executive officers and directors of the Company as a group. The information
contained in this table with respect to beneficial ownership reflects
"beneficial ownership" as defined in Rule 13d-3 under the Exchange Act. Shares
of Common Stock not outstanding but deemed beneficially owned by virtue of the
right of an individual or group to acquire shares within 60 days after September
15, 1997 are treated as outstanding only when determining the amount and
percentage of Common Stock owned by such individual or group. Except as
otherwise noted or pursuant to community property laws, each person has sole
voting and sole investment power with respect to the shares shown. The address
of each person listed is 12000 Aerospace Avenue, Suite 200, Houston, Texas
77034, except as otherwise indicated.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
-----------------------
PERCENTAGE
NAME NUMBER OWNERSHIP
- ------------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Ignatius W. Leonards........................................................... 1,900,000 50.8%
Byron M. Allen................................................................. 222,200 5.9
J. Keith Johnson(1)............................................................ 39,249 1.0
Richard H. Roberson............................................................ 400 *
Christopher J. Amenson ........................................................ 2,000 *
c/o SBS Technologies, Inc.
2400 Louisiana Boulevard, NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
Myron J. Goins ................................................................ -- --
200 North Main Street, Suite 301
Greenville, South Carolina 29601
All executive officers and directors as a group (nine persons)(2).............. 2,236,455 58.2
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of the class.
(1) Includes 36,141 shares of Common Stock subject to currently exercisable
options.
(2) Includes 102,807 shares of Common Stock subject to currently exercisable
options granted to the executive officers of the Company, as a group.
28
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Caroline Fontenot, the sister of Mr. Leonards, the Company's Chairman of the
Board and Chief Executive Officer, lent the Company $75,000 on June 1, 1992, of
which a balance of $43,693, bearing interest at the rate of 12% per annum,
remained outstanding as of June 30, 1997.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a)
(1) Financial Statements. The financial statements filed as a part of this
Annual Report on Form 10-K are listed in the "Index to Consolidated
Financial Statements" on page F-1 hereof.
(2) Financial Statement Schedules.
The financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) Exhibits.
The following exhibits are filed as a part of this Annual Report on Form
10-K.
<TABLE>
<C> <S>
+3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant. (Incorporated by reference
from Exhibit 3.3 to the Company's Form S-1 filed March 5, 1997, as
amended, file no. 333-22801.)
+4.1 Specimen certificate for the Common Stock of the Registrant.
+10.1 IWL Communications, Incorporated Employee Incentive Stock Option Plan.
+10.2 IWL Communications, Incorporated 1997 Stock Option Plan.
+10.3 IWL Communications, Incorporated 1997 Director Stock Option Plan.
*10.4 Telecommunications Equipment Lease Agreement dated as of June 1, 1997
between the Registrant and Diamond Offshore Company.##
+10.5 Office Lease Agreement dated May 22, 1996, by and between Ellington Field,
Ltd., a Texas limited partnership and the Registrant.
+10.6 Authorized Distributor Agreement dated February 16, 1997, by and between
Radio Frequency Systems, Inc., a Cablewave Systems Division, and the
Registrant.#
+10.7 License Agreement dated November 25, 1996, between Entergy Services, Inc.
and the Registrant d/b/a IWL Connect.#
+10.8 Memorandum of Understanding dated July 11, 1996, between Interstate
FiberNet (IFN) operating on its behalf and on behalf of Entergy
Technology Corporation and the Registrant.#
+10.9 Satellite Information Network Service Agreement dated May 1, 1994, by and
between the Registrant and the Information Telegraphy Agency of Russia
ITAR-TASS.#
+10.10 Reseller Agreement dated December 31, 1996, by and between Alcatel Network
Systems, Inc. and the Registrant.#
+10.11 Select Partner Agreement dated effective October 11, 1996, by and between
Newbridge Networks, Inc. and the Registrant.#
+10.12 Form of Service Agreement.
+10.13 Lease Agreement dated November 18, 1996, by and between the Registrant and
CLG, Inc.
+10.14 License Agreement for Pole Attachments and/or Conduit Occupancy between
BellSouth Telecommunications, Inc. and the Registrant.
+10.15 Promissory Note dated September 20, 1996 payable by the Registrant to
First Bank and Trust, Cleveland, Texas.
</TABLE>
30
<PAGE>
<TABLE>
<C> <S>
+10.16 Loan Agreement and Security Agreement dated December 20, 1995 between the
Registrant and Marine Midland Business Loans, Inc.
+10.17 Promissory Note dated May 4, 1995 payable by the Registrant to Byron M.
Allen.
+10.18 Letter Agreement dated February 28, 1997, by and between the Registrant
and Marine Midland Bank as successor-in-interest to Marine Midland
Business Loans, Inc.
+10.19 Reseller Agreement dated December 31, 1995, by and between Alcatel Network
Systems, Inc. and the Registrant.#
+10.20 Second Amendment to Loan and Security Agreement dated as of May 7, 1997,
between the Registrant and Marine Midland Business Loans, Inc.
+10.21 Commitment Letter dated May 20, 1997 for financing arrangements between
the Registrant and Bank One, Texas, N.A.
*10.22 Credit Agreement, dated August 1, 1997, executed by and between the
Registrant and Bank One, Texas, N.A. ("Lender").
*10.23 Promissory Note, dated August 1, 1997, in the principal amount of
$822,000.00, executed by the Registrant, and made payable to Lender.
*10.24 Promissory Note, dated August 1, 1997, in the principal amount of
$605,000.00, executed by the Registrant, and made payable to Lender.
*10.25 Collateral Assignment and Security Agreement, dated August 1, 1997,
executed by Registrant, as assignor, and Lender, as assignee.
*10.26 Revolving Credit Agreement, dated August 1, 1997, executed by and between
the Registrant and Lender.
*10.27 Promissory Note, dated August 1, 1997, in the principal amount of
$5,000,000.00, executed by the Registrant, and made payable to Lender.
*10.28 Security Agreement, dated August 1, 1997, executed by the Registrant, as
debtor, and Lender, as secured party.
*10.29 Amended and Restated Credit Agreement, dated August 28, 1997, executed by
and between the Registrant and Lender.
*10.30 Promissory Note, dated August 28, 1997, in the principal amount of
$1,055,000.00, executed by the Registrant, and made payable to lender.
*23.1 Consent of KPMG Peat Marwick LLP, independent auditors.
*27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith.
# Confidential treatment has been granted.
+ Incorporated by reference from the exhibit of the same number in the
Company's Form S-1 filed March 5, 1997, as amended, file no. 333-22801.
## Confidential treatment requested. A series of ***s have been inserted in this
exhibit to indicate redactions in such exhibit for which confidential
treatment has been requested. The redacted portions of this agreement have
been separately filed with the Secretary of the Commission.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the fiscal
year ended June 30, 1997.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
IWL COMMUNICATIONS, INCORPORATED
By: /s/ IGNATIUS W. LEONARDS
-----------------------------------------
Ignatius W. Leonards, Chief Executive
Officer
Date: September 29, 1997
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------ ----------------------
<C> <S> <C>
/s/ IGNATIUS W. LEONARDS Chief Executive Officer, Chairman
--------------------------------- of the Board, and Director September 29, 1997
Ignatius W. Leonards (Principal Executive Officer)
/s/ BYRON M. ALLEN
--------------------------------- President and Director September 29, 1997
Byron M. Allen
/s/ RICHARD H. ROBERSON Chief Financial Officer and Director
--------------------------------- (Principal Financial and September 29, 1997
Richard H. Roberson Accounting Officer)
/s/ CHRISTOPHER J. AMENSON
--------------------------------- Director September 29, 1997
Christopher J. Amenson
--------------------------------- Director September , 1997
Myron J. Goins
</TABLE>
32
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets at June 30, 1997 and 1996................................. F-3
Consolidated Statements of Operations for the Years ended June 30, 1997, 1996 and
1995................................................................................ F-4
Consolidated Statements of Stockholders' Equity for the Years ended June 30, 1997,
1996 and 1995....................................................................... F-5
Consolidated Statements of Cash Flows for the Years ended June 30, 1997, 1996 and
1995................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
IWL Communications, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of IWL
Communications, Inc. and Subsidiaries (the Company) as of June 30, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IWL Communications, Inc. and Subsidiaries as of June 30, 1997 and 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
September 9, 1997
F-2
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 7,659,983 $ 360,930
Accounts receivable:
Trade, less allowance for doubtful accounts of $100,936 and $74,513 respectively.. 5,710,344 5,501,317
Affiliate......................................................................... 67,074 73,234
Other............................................................................. 116,020 7,172
Notes receivable--trade, current portion............................................ -- 230,429
Inventory........................................................................... 1,856,617 851,380
Costs and estimated earnings in excess of billings on uncompleted contracts......... 242,862 135,675
Deferred tax asset--current......................................................... 242,317 74,659
Prepaid expenses and deposits....................................................... 388,272 132,266
------------ ------------
Total current assets............................................................ 16,283,489 7,367,062
------------ ------------
Property, plant and equipment......................................................... 14,281,182 8,385,538
Accumulated depreciation............................................................ (5,164,829) (3,894,863)
------------ ------------
Net property, plant and equipment............................................... 9,116,353 4,490,675
------------ ------------
Investment in unconsolidated subsidiary............................................... 428,374 297,153
Notes receivable--trade, noncurrent portion........................................... -- 112,118
Other assets.......................................................................... 233,527 142,330
------------ ------------
Total assets.................................................................... $ 26,061,743 $ 12,409,338
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--current portion...................................................... $ 963,595 $ 997,904
Trade accounts payable and accrued expenses......................................... 5,436,445 3,907,185
Customer deposits................................................................... 23,365 388,993
Federal income taxes payable........................................................ -- 37,418
Deferred revenue--current portion................................................... 53,480 175,977
Billings in excess of costs and estimated earnings on uncompleted contracts......... 85,553 48,892
------------ ------------
Total current liabilities....................................................... 6,562,438 5,556,369
------------ ------------
Notes payable, noncurrent portion..................................................... 7,692,332 2,943,837
Deferred revenue, noncurrent portion.................................................. -- 66,748
Deferred income taxes................................................................. 413,071 144,034
------------ ------------
Total liabilities............................................................... 14,667,841 8,710,988
------------ ------------
Stockholders' equity:
Common stock, $.01 par value; 100,000,000 authorized, issued and outstanding
3,677,816 and 2,225,008 shares in 1997 and 1996, respectively..................... 36,778 22,250
Preferred stock, $.01 par value; 10,000,000 authorized, no shares issues and
outstanding in 1997 and 1996...................................................... -- --
Additional paid-in capital.......................................................... 7,251,600 259,626
Retained earnings................................................................... 4,105,524 3,416,474
------------ ------------
Total stockholders' equity...................................................... 11,393,902 3,698,350
Commitment and contingencies
Total liabilities and stockholders' equity...................................... $ 26,061,743 $ 12,409,338
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Sales:
Telecom and carrier............................................ $ 19,705,290 $ 15,683,375 $ 14,565,699
Land mobile.................................................... 2,995,512 1,558,858 1,228,375
Product resales................................................ 7,640,788 10,553,846 --
-------------- -------------- --------------
Total sales.................................................. 30,341,590 27,796,079 15,794,074
Cost of sales (exclusive of items shown separately below)........ (14,709,249) (10,743,266) (9,639,347)
Cost of sales--product resales................................... (7,027,061) (9,672,078) --
-------------- -------------- --------------
Gross profit................................................. 8,605,280 7,380,735 6,154,727
Selling expenses................................................. 1,140,953 842,038 862,183
General and administrative expenses.............................. 4,704,302 4,257,067 3,537,004
Depreciation and amortization.................................... 1,403,036 1,003,296 820,957
-------------- -------------- --------------
Income from operations....................................... 1,356,989 1,278,334 934,583
-------------- -------------- --------------
Other income and (expense):
Interest income................................................ 20,374 46,300 52,036
Interest expense............................................... (534,218) (316,412) (296,299)
Equity in earnings (loss) of unconsolidated subsidiary......... 81,221 (25,873) 105,829
Gain from sale of assets....................................... 47,690 67,021 24,926
Other.......................................................... -- -- 8,123
-------------- -------------- --------------
Total other income (expense)................................. (384,933) (228,964) (105,385)
-------------- -------------- --------------
Income before income taxes................................... 972,056 1,049,370 829,198
Income tax expense............................................... 283,006 315,708 293,557
-------------- -------------- --------------
Net income................................................. $ 689,050 $ 733,662 $ 535,641
-------------- -------------- --------------
-------------- -------------- --------------
Net income per share............................................. $ 0.30 $ 0.33 $ 0.24
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares outstanding.............................. 2,323,330 2,232,967 2,232,751
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PREFERRED PAID-IN RETAINED
SHARES AMOUNT STOCK CAPITAL EARNINGS TOTAL
---------- --------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1994................... 2,222,200 $ 22,222 $ -- $ 249,658 $ 2,147,171 $ 2,419,051
Net income.................................. -- -- -- -- 535,641 535,641
---------- --------- ----- ------------ ------------ -------------
Balances at June 30, 1995................... 2,222,200 22,222 -- 249,658 2,682,812 2,954,692
Issuance of stock........................... 2,808 28 -- 9,968 -- 9,996
Net income.................................. -- -- -- -- 733,662 733,662
---------- --------- ----- ------------ ------------ -------------
Balances at June 30, 1996................... 2,225,008 22,250 -- 259,626 3,416,474 3,698,350
Issuance of stock........................... 2,808 28 -- 9,969 -- 9,997
Proceeds from initial public common stock
offering, net of expenses................. 1,450,000 14,500 -- 6,982,005 -- 6,996,505
Net income for the period................... -- -- -- -- 689,050 689,050
---------- --------- ----- ------------ ------------ -------------
Balances at June 30, 1997................... 3,677,816 $ 36,778 $ -- $ 7,251,600 $ 4,105,524 $ 11,393,902
---------- --------- ----- ------------ ------------ -------------
---------- --------- ----- ------------ ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 689,050 $ 733,662 $ 535,641
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 1,403,036 1,003,296 820,957
Gain from sale of assets............................................. (47,690) (67,021) (24,926)
Deferred income taxes................................................ 101,379 (9,528) 78,903
Equity in earnings (loss) of unconsolidated subsidiary............... (81,221) 25,873 (105,829)
Changes in operating assets and liabilities:
Accounts receivable................................................ (311,715) (3,903,405) (296,166)
Inventory.......................................................... (1,005,237) (253,022) 374,297
Costs and estimated earnings in excess of billings................. (107,187) (132,794) (2,881)
Prepaid expenses and deposits...................................... (256,006) (58) (43,997)
Other assets....................................................... (91,197) (101,611) 32,274
Trade accounts payable and accrued expenses........................ 1,871,807 2,762,020 (640,238)
Customer deposits.................................................. (365,628) 327,692 (118,485)
Deferred revenue................................................... (189,245) (130,359) 177,296
Billings in excess of costs and estimated earnings................. 36,661 48,892 --
Federal income taxes payable....................................... (37,418) 37,418 (90,559)
----------- ----------- -----------
Net cash provided by operating activities........................ 1,609,389 341,055 696,287
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment............................. (6,052,544) (1,492,487) (1,585,103)
Proceeds from disposal of property, plant, and equipment............... 119,210 201,550 70,525
Proceeds from notes receivable......................................... -- 659,972 283,755
Investment in unconsolidated subsidiary................................ (50,000) -- --
----------- ----------- -----------
Net cash used in investing activities............................ (5,983,334) (630,965) (1,230,823)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from debt..................................................... 5,912,609 8,352,398 2,350,729
Debt payments.......................................................... (1,236,116) (8,002,183) (1,496,470)
Proceeds from issuance of common stock................................. 6,996,505 9,996 --
Decrease in cash overdraft............................................. -- -- (29,094)
----------- ----------- -----------
Net cash provided by financing activities........................ 11,672,998 360,211 825,165
----------- ----------- -----------
Net increase in cash for period.......................................... 7,299,053 70,301 290,629
Cash and cash equivalents at beginning of period......................... 360,930 290,629 --
----------- ----------- -----------
Cash and cash equivalents at end of period............................... $ 7,659,983 $ 360,930 $ 290,629
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest................................. $ 509,931 $ 298,546 $ 317,404
Cash paid during the year for income taxes............................. 320,424 150,866 367,267
----------- ----------- -----------
----------- ----------- -----------
Supplemental schedule of noncash investing activities:
Conversion of accounts receivable to notes receivable.................. $ -- $ 395,637 $ 331,983
Offset of notes receivable in lieu of accounts payable to vendor....... 342,547 -- --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company provides communications solutions to customers with operations
in remote, difficult-access regions and in areas around the world where
government deregulation has created new market opportunities. The Company
delivers communications services to its customers by utilizing a broad range of
analog and digital technologies, including satellite, microwave radio,
conventional two-way radio and fiber optic cable. The Company has operations in
Friendswood and Houston, Texas, New Orleans and Lafayette, Louisiana and Moscow,
Russia.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of IWL
Communications, Inc. and its wholly-owned subsidiaries, Spacelink Systems, Inc.,
Spacelink Systems FSC, Inc. and IWL Communications Ltd. (Russia). All material
intercompany accounts and transactions have been eliminated. The Company's
investment in and operating results of Kenwood Systems Group, which is a 50%
owned entity, are included in the accompanying financial statements on the basis
of the equity method of accounting.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The company performs credit evaluations of its customers, but does not
require collateral.
MAJOR CUSTOMERS AND SUPPLIES
For the year ended June 30, 1997, approximately $9,818,000 (32%) of the
Company's sales were from one customer. At June 30, 1997, accounts
receivable--trade included balances of approximately $880,100 and $594,200 from
two of the Company's major customers.
The majority of these sales ($7,640,800) were attributable to a one-time
project, which includes a significant equipment resale component, that the
Company substantially completed in 1997, and, therefore, is not expected to
contribute in a material manner to the Company's revenue in future periods.
The Company purchases substantially all of its telecommunciations equipment
for use in the oil and gas industry from one supplier pursuant to an exclusive
distributorship agreement.
INVENTORY
Inventory substantially consists of parts and equipment held for resale.
Inventory that can be specifically identified using a unique identification
number is stated at the lower of specific cost or market. Inventory that cannot
be specifically identified is stated at the lower of cost or market where cost
is determined using the first in--first out method. Market value, in all cases,
represents the lower of replacement cost or net realizable value.
F-7
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT/DEPRECIATION
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as indicated
below:
<TABLE>
<S> <C>
Buildings and improvements.............................. 7-31 years
Vehicles................................................ 5 years
Furniture and fixtures.................................. 5-7 years
Leasehold improvements.................................. Lease term
Equipment for rent/lease................................ 7-10 years
Computers, office and test equipment.................... 5-7 years
</TABLE>
Significant expenditures that add materially to the utility or useful lives
of property, plant and equipment are capitalized. All other maintenance and
repair costs are charged to current operations. The cost and related accumulated
depreciation of assets replaced, retired or otherwise disposed of are eliminated
from the property accounts and any gain or loss is reflected as other income and
expense.
REVENUE RECOGNITION
The Company provides services such as telecom and carrier services and land
mobile services whose revenue is recognized based on the monthly service
provided. Lease revenues from equipment rentals are recorded over the life of
the lease contract. Communication systems contracts are typically fixed price
and revenue is recognized based on the percentage-of-completion method,
primarily based on contract cost incurred to date compared with total estimated
contract costs. Costs and estimated earnings or losses, if any, recognized in
excess of amounts billed are classified as current assets. It is anticipated
that the incurred costs associated with work in progress at the end of the
respective periods will be billed and collected within the next year. Amounts
received from clients in excess of revenues recognized to date are classified as
current liabilities.
The following are components of revenues for the respective periods:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Service revenue................................. $ 14,707,698 $ 10,711,342 $ 10,004,504
Rental revenue.................................. 7,993,104 6,530,891 5,789,570
Product resales revenue......................... 7,640,788 10,553,846 --
------------- ------------- -------------
$ 30,341,590 $ 27,796,079 $ 15,794,074
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Both telecom and carrier and landmobile revenues are comprised of service
and rental activities.
STOCK OPTION PLAN
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provision of Accounting Principles Board (APB) Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as
F-8
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.
123 commencing in its June 30, 1997 financial statements. The effect of applying
the requirements of SFAS No. 123 is not considered to be material to the
financial statements.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rate and laws that will be in effect when
the differences are expected to reverse.
The provision for income taxes includes federal, foreign, state and local
income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities.
FAIR VALUE
The Company believes that the carrying amounts of its financial instruments
included in current assets and current liabilities approximate the fair value of
such items due to their short-term nature. The carrying amount of long-term
notes payable approximates their fair value because interest rates approximate
market.
ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare this balance sheet in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
NET INCOME PER SHARE
Net income per common share is based on the weighted average number of
common stock outstanding during the respective periods adjusted for common stock
equivalents when dilutive and significant except as described below. Pursuant to
certain Securities and Exchange Commission (SEC) Staff Accounting Bulletins,
common stock issued for consideration below the initial public offering (IPO)
price and stock options and warrants granted with exercise prices below the IPO
price during the 12-month period prior to the date of the initial filing of the
Registration Statement, even when antidulitive, have been included in the
calculation of net income per share, using the treasury stock method based on
the IPO price, as if they were outstanding for all periods presented prior to
their issuance or grant.
Fully diluted earnings per share are not presented for 1997, 1996 and 1995
because they do not materially differ from primary earnings per share.
F-9
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On November 1, 1995, the Board of Directors declared a two hundred-for-one
common stock split effective November 1, 1995. All share amounts and numbers of
shares have been restated to reflect the stock split.
(2) NOTES RECEIVABLE
Notes receivable due from customers on the sale of communications equipment
at June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Note dated May 1, 1996, at 10.5% interest, with the first 12 monthly
payments of principal and interest of $18,243, and the next 24 monthly
payments of principal and interest of $5,377............................ $ -- $ 297,352
Note dated November 16, 1994, at 12.5% interest, with 24 fixed monthly
payments of principal and interest of $9,461............................ -- 45,195
--------- ----------
-- 342,547
Less current portion.................................................... -- 230,429
--------- ----------
$ -- $ 112,118
--------- ----------
--------- ----------
</TABLE>
(3) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Costs incurred on uncompleted contracts............................. $ 958,295 $ 271,100
Estimated earnings.................................................. 315,106 127,332
------------ ----------
1,273,401 398,432
Less billings to date............................................... 1,116,092 311,649
------------ ----------
$ 157,309 $ 86,783
------------ ----------
------------ ----------
</TABLE>
Included in accompanying balance sheets under the following captions:
<TABLE>
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. $ 242,862 $ 135,675
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. (85,553) (48,892)
--------- ---------
$ 157,309 $ 86,783
--------- ---------
--------- ---------
</TABLE>
(4) INVESTMENT IN KENWOOD SYSTEMS GROUP
The Company owns 50% of the voting common stock of Kenwood Systems Group,
Inc. (KSG), a California corporation. The remaining 50% of the voting common
stock is owned by Kenwood Americas Corporation (KAC). The Company and KAC are
the original owners of KSG which began operations on
F-10
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVESTMENT IN KENWOOD SYSTEMS GROUP (CONTINUED)
May 1, 1994. KSG engineers and fabricates turnkey solutions of 800 and 900 Mhz
truck radio systems under the Kenwood brand name.
The investment is recorded using the equity method in which the original
investment, adjusted for the Company's proportionate share of KSG's income,
losses and dividend distributions, is recorded as a long-term investment. The
Company's original investment in KSG was $200,000. An additional investment of
$50,000 was made during the year ended June 30, 1997. The Company's
proportionate share of KSG's (losses)/earnings for the years ended June 30, 1997
and 1996 were $81,221 and $(25,873), respectively.
The Company receives a management fee from KSG equal to 2% of gross sales
that is paid quarterly. For the years ended June 30, 1997 and 1996, the Company
earned a management fee of $82,476 and $58,253, respectively. In addition, KSG
is covered by worker's compensation, property, medical, dental and general
liability insurance policies maintained by the Company. KSG also purchases
various supplies and computer equipment from the Company from time to time.
Employees of KSG are eligible to participate in a 401(k) plan maintained by the
Company. Billings by the Company to KSG for the year ended June 30, 1997 for
insurance, supplies, equipment and management fees totaled approximately
$199,000. At June 30, 1997 and 1996, $67,074 and $73,234, respectively, is
included on the accompanying balance sheet as account receivable--affiliate
which is due from KSG.
Pertinent financial data (unaudited) of KSG, for the years ended June 30,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Total assets...................................................... $ 1,812,491 $ 1,248,217
------------ ------------
------------ ------------
Stockholders' equity.............................................. $ 869,745 $ 594,307
------------ ------------
------------ ------------
Revenues.......................................................... $ 4,121,335 $ 2,912,637
------------ ------------
------------ ------------
Net earnings (loss)............................................... $ 159,115 $ (51,746)
------------ ------------
------------ ------------
</TABLE>
(5) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity is the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING COSTS AND NET OF THE END OF
OF PERIOD EXPENSES RECOVERIES PERIOD
----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1995........................ $ 85,000 $ 29,510 $ (86,529) $ (27,981)
Year ended June 30, 1996........................ 27,981 46,532 -- 74,513
Year ended June 30, 1997........................ 74,513 26,423 -- 100,936
</TABLE>
F-11
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Assets:
Land........................................................... $ 41,046 $ 41,046
Equipment for rent/lease....................................... 10,678,277 6,355,557
Building and improvements...................................... 767,327 456,355
Computer, office and test equipment............................ 1,919,700 889,326
Vehicles....................................................... 570,716 475,353
Furniture and fixtures......................................... 304,116 167,901
------------- ------------
14,281,182 8,385,538
Accumulated depreciation and amortization:
Equipment for rent/lease....................................... 4,285,492 3,316,813
Building and improvements...................................... 170,631 144,548
Computer, office and test equipment............................ 268,159 100,283
Vehicles....................................................... 306,219 234,601
Furniture and fixtures......................................... 134,328 98,618
------------- ------------
5,164,829 3,894,863
------------- ------------
Net property, plant and equipment................................ $ 9,116,353 $ 4,490,675
------------- ------------
------------- ------------
</TABLE>
(7) SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: provision of advanced
communication solutions. The Company markets and sells its products and services
in the United States and in foreign countries through its direct sales
organization.
The following table presents information about the Company by geographic
area. Export sales and certain income and expense items are reported in the
geographic area where the transaction originates. Substantially all identifiable
assets of the Company are held in the United States.
F-12
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
All significant transactions and agreements of the Company are conducted in
U.S. dollars; therefore, no foreign currency translation gains or losses are
included in the accompanying financial statements.
<TABLE>
<CAPTION>
NORTH
AMERICA RUSSIA OTHER TOTAL
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
For the year ended June 30,
1997:
Revenues.......................................... $ 27,457 $ 2,323 $ 562 $ 30,342
Operating income (loss)........................... 578 555 224 1,357
Identifiable assets............................... 26,062 -- -- 26,062
1996:
Revenues.......................................... 25,306 2,281 209 27,796
Operating income (loss)........................... 908 436 (66) 1,278
Identifiable assets............................... 12,409 -- -- 12,409
1995:
Revenues.......................................... 11,956 3,262 576 15,794
Operating income (loss)........................... 520 190 225 935
Identifiable assets............................... 8,232 -- -- 8,232
</TABLE>
(8) NOTES PAYABLE AND FINANCING ARRANGEMENTS
Borrowing under the Company's credit facility and long-term notes payable at
June 30, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Borrowings under a revolving credit facility, bearing interest at prime plus
.75% (9.25% at June 30, 1997), due in December 1998, secured by specific
underlying accounts receivable, equipment and inventory. Maximum
borrowings are $4,500,000 under the facility. The weighted average
interest rate was 9.25% for the year ended June 30, 1997.................. $ 4,521,024 $ 1,426,598
Note payable to bank, principal and interest due monthly in the amount of
$22,500, interest at 9.0% due in November 2001, secured by specific
underlying equipment. .................................................... 1,192,500 --
Note payable to financing company, principal and interest due monthly in the
amount of $9,200, interest at 6.75%, due in June 2007, secured by specific
underlying equipment. .................................................... 801,248 --
Note payable to bank, principal due monthly in the amount of $15,833, plus
interest at prime plus .75% (9.75% at June 30, 1997), due in December
1998, secured by specific underlying equipment. .......................... 680,839 870,835
</TABLE>
F-13
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Note payable to bank, principal due monthly in the amount of $24,306, plus
interest at prime plus 1% (9.5% at June 30, 1997), due in December 1997,
secured by specific underlying accounts receivable, equipment and
inventory. ............................................................... $ 101,598 $ 440,233
Note payable to leasing company, principal and interest due monthly in the
amount of $13,699, interest at 10.7%, due in February 1998, secured by
specific underlying equipment. ........................................... 102,428 247,040
Note payable to mortgage company, varying principal and interest due monthly
($1,669 at June 30, 1997), principal and interest adjusted quarterly to
prime plus 2.5% (11.0 % at June 30, 1997), due in April 2015, secured by
specific underlying property. ............................................ 182,702 185,462
Note payable to leasing company, principal and interest due monthly in the
amount of $5,595, interest at 9%, due in December 1998, secured by
specific underlying equipment. ........................................... 94,069 149,963
Note payable to finance company, principal and interest due monthly in the
amount of $3,180, interest at 10.2%, due in February 2000, secured by
specific underlying equipment. ........................................... 81,655 108,657
Note payable to bank, principal due monthly beginning July 1, 1997 in the
amount of 2.1% of the amount outstanding plus interest at prime plus .75%
(9.25% at June 30, 1997), due in December 1998, secured by specific
underlying equipment and inventory. ...................................... 500,000 90,473
Note payable to bank, principal due monthly in the amount of $10,556 plus
interest at prime plus 1%. Note was fully paid in February 1997. ......... -- 84,444
Note payable to leasing company, principal and interest due monthly in the
amount of $4,831, interest at 10%, due in December 1997, secured by
specific underlying equipment. ........................................... 32,272 84,210
Note payable to finance company, principal and interest due monthly in the
amount of $1,916, interest at 8.8%, due in June 1999, secured by specific
underlying equipment. .................................................... 37,258 56,203
Notes payable to individuals, who are employees and relatives of the
principal shareholder, principal and interest due monthly in the amount of
$4,296, interest rates ranging from 9% - 12%, due in August 2001,
unsecured. ............................................................... 43,693 54,818
Note payable to bank, principal and interest due monthly in the amount of
$8,959, interest at 6.98%, due in December 1996, secured by a certificate
of deposit. .............................................................. -- 52,694
Note payable to benefit plan, principal and interest due monthly in the
amount of $5,500, interest at 10%, due in February 1997, unsecured. ...... -- 43,399
</TABLE>
F-14
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Notes payable to bank, principal and interest due monthly in the amount of
$1,090, interest at 8.5%, due in March 1998, secured by vehicles. ........ $ 7,885 $ 19,735
Note payable to finance company, principal and interest due monthly in the
amount of $499, interest at 12.1%, due in June 1999, secured by specific
underlying equipment. .................................................... 10,652 14,777
Notes payable to finance company, principal and interest due monthly in the
amount of $3,520, interest at 8.5%, due in September 1999, secured by
specific underlying equipment. ........................................... 83,589 --
Note payable to bank, principal and interest due monthly in the amount of
$1,220, interest at prime plus .75% (9.25% at June 30, 1997), due in
December 1998, secured by specific underlying property. .................. 168,198 --
Other....................................................................... 14,317 12,200
------------ ------------
8,655,927 3,941,741
Less current portion........................................................ 963,595 997,904
------------ ------------
Total long-term debt...................................................... $ 7,692,332 $ 2,943,837
------------ ------------
------------ ------------
</TABLE>
The following is a summary of maturities of notes payable and financing
arrangements at June 30, 1997 during the next five years:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
- ----------------------------------------------------------------------
<S> <C>
1998.................................................................. $ 963,595
1999.................................................................. 5,694,148
2000.................................................................. 580,759
2001.................................................................. 484,365
2002.................................................................. 210,454
Thereafter............................................................ 722,606
------------
Total............................................................... $ 8,655,927
------------
------------
</TABLE>
The Company's revolving credit facility (the Revolver) allows the Company to
borrow the lessor of (i) 4.5 million or (ii) eighty percent of the receivables
borrowing base (as defined) plus the lessor of $500,000 or the amount of the
inventory borrowing base (as defined). Interest rate on the borrowings under the
Revolver is at prime plus .75% (9.25% at June 30, 1997), and a fee of .5% is
charged on any unused portion of the Revolver, which was $190,034 at June 30,
1997. The Revolver is secured by specific underlying accounts receivable,
equipment and inventory. The revolver provides for certain reporting and
financial covenants including minimum net worth and maximum debt to net worth
requirements. The Company was in compliance with such covenants at June 30,
1997.
F-15
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
Under the terms of the Company's revolving credit facility, the Company may
not pay dividends without prior consent of the lending bank.
The Company capitalized financing costs of $54,764 for the year ended June
30, 1997 and is amortizing such costs over the life of the respective loan.
These financing costs are included in other assets on the balance sheet.
Amortization expense for the year ended June 30, 1997 amounted to $18,252.
(9) INCOME TAXES
Income tax expense attributable to income consists of:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
United States Federal
Current income tax expense....................................... $ 59,989 175,404 214,654
Deferred income tax expense...................................... 81,607 (9,528) 78,903
Foreign--current income tax expense................................ 141,410 149,832 --
---------- ---------- ----------
$ 283,006 315,708 293,557
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Foreign income tax expense results from taxes withheld on sales related to
the Russian operations. Operating income from such operations for the years
ended June 30, 1997 and 1996 were $555,000 and $436,000, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts................. $ 34,318 25,335
Accrued vacation pay........................................................ 27,200 30,497
Deferred revenue............................................................ 12,467 41,521
Alternative minimum tax credit carryforward................................. 105,267 74,918
Foreign tax credit.......................................................... 63,066 --
Equity in losses of affiliates.............................................. -- 8,796
----------- -----------
Total deferred tax assets................................................. 242,318 181,067
Deferred tax liabilities:
Property, plant and equipment............................................... (381,170) (250,442)
Equity in income of affiliates.............................................. (12,130) --
----------- -----------
Total deferred tax liabilities............................................ (393,300) (250,442)
----------- -----------
Net deferred tax liability................................................ $ (150,982) (69,375)
----------- -----------
----------- -----------
</TABLE>
There was no valuation allowance on deferred tax assets as of June 30, 1997
and 1996, as management has determined that it is more likely than not that
these tax assets will be utilized.
The Company also has alternative minimum tax credit carryforwards of
$105,267 at June 30, 1997 which are available to reduce future federal regular
income taxes, if any, over an indefinite period.
F-16
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) INCOME TAXES (CONTINUED)
The difference between the actual income tax provision and the tax provision
computed by applying the statutory Federal income tax rate to income before
taxes is attributable to the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income tax provision at 34%........................................ $ 330,499 356,789 281,927
Expenses not deductible for tax purposes........................... 6,463 11,990 11,630
Effect of foreign operations, including foreign tax credits........ (53,956) (53,071) --
---------- ---------- ----------
Actual income tax provision........................................ $ 283,006 315,708 293,557
---------- ---------- ----------
---------- ---------- ----------
Effective tax rate................................................. 29.1% 30.1% 35.4%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(10) EMPLOYEE BENEFITS
The Company has a 401(k) profit sharing plan covering employees with six or
more months of tenure. The plan allows employee contributions of zero to 15% of
applicable employee wages. The Company makes matching contributions to the plan
as a percentage of the employee's contribution. The Company's contribution is
subject to the employee meeting certain vesting requirements. The Company's net
contributions to the plan (after forfeitures) for the years ended June 30, 1997,
1996 and 1995 were $15,035, $30,287 and $23,367, respectively.
(11) INCENTIVE STOCK OPTION PLANS
During the year ended June 30, 1996, the Company adopted an Employee
Incentive Stock Option Plan (the Plan). The Plan provides for the granting of a
maximum of 258,600 options to purchase shares of common stock to key employees
of the Company. The option price per share may not be less than the fair market
value of a share on the date the option is granted. Options generally vest at
the rate of 20% per year over a five year period, however, the Board at its
discretion may accelerate the vesting schedule. All options under the Plan
granted on or prior to the IPO date, June 12, 1997, vested in full on the
offering date. Stock options will expire ten years from the date of grant.
For the year ended June 30, 1997, there were options for 160,614 shares
granted under the Plan with an option price ranging from $3.56 to $4.49. All
options granted were outstanding and exercisable at June 30, 1997. On June 30,
1997, there were 97,986 additional shares available for grant.
The Company adopted a 1997 Stock Option Plan and a 1997 Director Stock
Option Plan in February 1997 (the Plans). Options granted under the 1997 Stock
Option Plan may be either Incentive Stock Options or non-statutory stock options
under the Code. Incentive Stock Options may be granted under the 1997 Stock
Option Plan to any person who is an officer or other employee of the Company or
any of its subsidiaries. A total of 300,000 shares of Common Stock have been
reserved for issuance upon the exercise of options which may be granted under
the 1997 Stock Option Plan.
The 1997 Director Stock Option Plan was adopted to encourage ownership of
the Company by eligible non-employee directors. All options granted will be
non-qualified and not eligible for treatment as Incentive Stock Options under
Section 422 of the Code. A total of 100,000 shares of Common Stock have been
reserved for issuance under the 1997 Director Option Plan.
For the year ended June 30, 1997, there were options for 129,900 shares
granted under the 1997 Stock Option and 1997 Director Stock Option Plans with an
option price of $6.00. All options granted were
F-17
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) INCENTIVE STOCK OPTION PLANS (CONTINUED)
outstanding and none were exercisable at June 30, 1997. On June 30, 1997, there
were 270,100 additional shares available for grant under the Plans.
The per share weighted-average value of stock options granted during 1997
and 1996 was $.35 and $.24, respectively, on the date of grant, using the Black
Scholes model with the following assumptions: risk-free interest rate of 5.77%
for the 1996 options and 5.89% for the 1997 options, expected life of 2 to 3
years, expected volatility of 22%, and no expected dividend yield.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net income (loss)
As reported..................................................................... 689 734
Pro Forma....................................................................... 592 729
Earnings (loss) per share
As reported..................................................................... .30 .33
Pro Forma....................................................................... .25 .33
</TABLE>
At June 30, 1997 the range of exercise prices and weighted-average remaining
contractual life of outstanding options was $3.56 - $6.00 and 9.27 years,
respectively. Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Balance at June 30, 1996.................................................. 152,836 $ 3.59
Granted................................................................. 137,678 5.90
----------- -----
Balance at June 30, 1997.................................................. 290,514 $ 4.68
----------- -----
----------- -----
</TABLE>
(12) LEASE CONTRACTS
The Company provides telecommunications services to various customers under
operating leases with typical terms of one to five years. The services may
include communications equipment, line/satellite charges and/or maintenance
charges. These leases impose certain obligations on both the lessor and lessee
which must be met during the term of the lease.
A significant portion of these services requires that the Company have
access to international communication satellites. The Company has contracted
with a Russian entity for rights to access its portion of an international
communications satellite. The Company has agreed to pay a recurring monthly fee
to the entity based on the amount of satellite space segment utilized by each
lessee. Additionally, the Company has sold communication equipment to the
entity. The Company utilizes those facilities to
F-18
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) LEASE CONTRACTS (CONTINUED)
provide communication services to various United States energy oil and gas
companies and other customers doing business in Russia.
The following is a summary of the expected revenue to be earned during the
next five years by the Company on lease agreements executed on or before June
30, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 1,186,526
1999............................................................................ 3,838,991
2000............................................................................ 1,674,693
2001............................................................................ 1,225,222
2002............................................................................ 819,756
Thereafter...................................................................... 862,741
------------
Total......................................................................... $ 9,607,929
------------
------------
</TABLE>
(13) COMMITMENTS
The Company leases office space, equipment and communication services for
its operations under leases expiring through 2004. Rental expense under the
leases for the years ended June 30, 1997, 1996 and 1995 was $896,354, $555,033
and $348,184, respectively.
Future minimum lease payments as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 2,065,003
1999............................................................................ 1,594,869
2000............................................................................ 1,330,536
2001............................................................................ 1,064,428
2002............................................................................ 915,884
Thereafter...................................................................... 545,974
------------
Total......................................................................... $ 7,516,694
------------
------------
</TABLE>
(14) STOCKHOLDERS' EQUITY
(A) PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock which may be
issued by the Board of Directors in one or more series and the Board is
authorized to fix the designations, relative powers, preferences, rights,
qualifications, limitations and restrictions of all shares of each of such
series, including without limitation dividend rates, preemptive rights,
conversion rights, voting rights, redemption and sinking fund provisions,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the shareholders. The Company's Articles
of Incorporation grant the Board of Directors power to establish the rights,
preferences and privileges of authorized and unissued preferred stock. The
issuance of shares of preferred stock pursuant to the Board of Director's
authority
F-19
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) STOCKHOLDERS' EQUITY (CONTINUED)
described above could decrease the amount of earnings and assets available for
distribution to holders of common stock.
(B) COMMON STOCK
The Company amended and restated its Articles of Incorporation to restate
the common stock authorized, issued and outstanding from no par value to a $0.01
par value per common share. All share amounts have been restated to reflect this
amendment.
The Company completed an initial public offering (IPO) of common stock on
June 12, 1997, issuing 1,450,000 shares at $6.00 per share. The proceeds, net of
commissions and expenses, from this IPO totaled $6,996,505.
(C) REPRESENTATIVE'S WARRANT
The Company agreed to sell to the Representative or its designees, for
nominal consideration, the Representative's Warrant to purchase up to 145,000
shares of Common Stock as an exercise price equal to 120% of the IPO price. The
Representative has certain demand and "piggy-back" registration rights that may
require the Company to register for resale the shares of Common Stock issuable
under the Representative's Warrant. The Representative's Warrant is exercisable
for a period of four years, beginning June 12, 1998.
(15) SUBSEQUENT EVENTS
(A) EXERCISE OF OPTIONS
On July 27, 1997, the overallotment for 100,000 common shares granted by the
selling shareholder was exercised. The overallotment for an additional 62,495
common shares granted by the Company was exercised on the same date. Proceeds,
net of commissions totaled $337,573. The Company did not receive any proceeds
from the options granted by the selling shareholder. The remaining 55,005 common
shares subject to overallotment expired on July 27, 1997.
(B) FINANCING ARRANGEMENTS
In August 1997, the Company entered into a secured revolving line of credit
(Working Capital Loan) and a secured guidance line of credit (Guidance Line)
from Bank One, Texas, N.A. The maximum amount of the Working Capital Loan is
$5.0 million subject to a borrowing base based on accounts receivable and
inventory. The proceeds of the Working Capital Loan are to be used for working
capital needs and general corporate purposes. Proceeds of the Working Capital
Loan were used initially to extinguish the Company's current revolving credit
facility (note 8). The maximum amount of the Guidance Loan is $5.0 million and
the proceeds will be used to finance the Company's purchase and subsequent lease
of communications equipment. The interest rate on both lines is at the Company's
option, Bank One's base rate or 30, 60 or 90 day adjusted LIBOR plus 2.40%. The
interest rate is subject to adjustment as specified in the loan agreement. The
entire unpaid principal balance and accrued and unpaid interest for the Working
Capital Loan will be due on October 31, 1998 and for the Guidance Loan will be
due on May 1, 1998. The credit agreement prohibits the payment of dividends
without prior approval of the lender and requires the Company to maintain
certain covenants and financial ratios including working capital and net worth
ratios. The definitive credit agreement prohibits certain changes in the
Company's basic business or in its Chief Executive Officer, Chief Financial
Officer and President positions, without prior lender approval.
F-20
<PAGE>
IWL COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
Legend: Confidential Treatment Requested. A series of ***'s has been
inserted in this exhibit to indicate redactions for which
confidential treatment has been requested. The redacted
portions of this exhibit have been separately filed with the
Commission.
TELECOMMUNICATION EQUIPMENT LEASE AGREEMENT
THIS CONTRACT CONTAINS PROVISIONS RELATED TO INDEMNITY, RELEASE
OF LIABILITY AND ALLOCATION OF RISK
In consideration of the mutual promises contained herein, IWL Communications,
Inc. (hereinafter "IWL"), 12000 Aerospace Avenue, Suite 200, Houston, Texas
77034, agrees to provide an Offshore Dedicated Digital System (hereinafter
"ODDS") to Diamond Offshore Company (hereinafter "Diamond Offshore") 15415 Katy
Freeway, Suite 100, Houston, Texas 77094. For purposes of this Agreement, the
term "Diamond Offshore" shall refer to Diamond Offshore, its affiliates,
assignees, and/or subsidiaries. Diamond Offshore agrees to pay monthly equipment
lease charges based on the schedule contained in Section IV. The effective date
of this Agreement is June 1, 1997.
I. AGREEMENT TERM
The term of this Agreement shall be thirty-six (36) months from the effective
date of the installation of the ODDS package on each individual rig as stated in
Attachment A (see activation date and term). At the end of the initial
thirty-six (36) month term, a * * * * * * * * * month option may be exercised
by Diamond Offshore upon thirty (30) days written notice prior to the
expiration of the initial term indicating its intent to exercise said
* * * * * * * * * month option at the prices contained in Section IV.
This Agreement shall contain a Special Provision Option that allows Diamond
Offshore to convert the thirty-six (36) month term within the first year to a
* * * * * * * term. As of the date the Special Provision Option is exercised,
Diamond Offshore shall then pay monthly equipment lease charges based on the
schedule contained in Section IV - Line Item 12.
At the end of the initial or the option period (combined * * * * * * * * *),
this Agreement shall be renewed automatically, on a month-to-month basis,
without action required by either part at the prices contained in Section IV
herein, unless this Agreement is terminated in writing with thirty (30) days
written notice by either party.
II. IWL RESPONSIBILITIES
1. IWL shall provide Telecommunication Equipment, for each drilling vessel,
consisting of, but not limited to, the following items:
a) * * * *
b) * * * *
c) * * * *
d) * * * *
e) * * * *
1
<PAGE>
IWL COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
2. IWL shall provide the associated Hub equipment, consisting of, but not
limited to, the following items:
a) * * * *
b) * * * *
c) * * * *
3. IWL shall provide * * * * at * * * * and * * * * at
* * as a part of the Standard Package. Voice and data circuits will be routed
to * * * * for connection to local Houston, Texas and
Lafayette, Louisiana phone lines and will provide a * * * * to
access the * * * * in Houston. The local business phone line shall
be capable of * * * * . Additional
circuits are optional to the Standard Package as indicated in Section IV.
4. IWL shall install the telecommunication equipment on Diamond Offshore's
drilling vessels in accordance with the prices contained in Section IV. Cost for
the installation of the telecommunications equipment at IWL facilities and on
Diamond Offshore's drilling vessels is priced separately from the monthly rental
prices contained in Section IV. This equipment and cabling shall be installed in
a good and workmanlike manner, under the direction of authorized rig personnel.
IWL shall install the telecommunication equipment on the designated drilling
vessel shown in Attachment A.
5. Maintenance of the telecommunications equipment at IWL facilities and on
Diamond Offshore's drilling vessels is offered through a maintenance contract or
at the * * rates contained in Section IV. A Maintenance Contract shall include
repair or replacement of equipment deemed defective due to equipment failure or
normal wear and tear. Replacement or repair of equipment deemed to be damaged by
wilful misuse or accident by any personnel other than IWL personnel on the
drilling vessels shall not be covered under the Maintenance Contract. The
Maintenance Contract shall include parts and labor * * * *
* * * * * * * * * * * * Any work
performed by IWL to correct such damage will be charged from "portal-to-portal".
6. Prior to ingress at Diamond Offshore's facilities, IWL shall provide the
names, purpose, and other reasonably necessary information to Diamond Offshore,
of personnel that shall require access to the drilling vessel for the
installation, operation, maintenance, and removal of telecommunication
equipment. IWL shall also make requests to Diamond Offshore for transportation
of personnel to perform these tasks.
7. IWL shall provide training and technical documentation during the
installation of the telecommunication equipment to Diamond Offshore or its
designated personnel on the alignment and operation of the telecommunication
equipment. IWL will offer two scheduled sessions of classroom and hands on
training at the hub facility to Diamond Offshore personnel at no cost.
Additional classroom training will be offered and quoted on a case-by-case basis
determined by number of students attending the training.
8. The Standard Package Telecommunication Equipment shall provide * * * *
* * * * for the Diamond Offshore drilling vessels in the Gulf of Mexico
identified in Attachment A, throughout a year's time provided that Diamond
Offshore provides the
2
<PAGE>
IWL COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
required power and maintenance defined in Section III. Calculations are based
on a 365-day period. The availability computation shall not include service
time loss due to: acts of nature, acts of God, catastrophic failures of the
satellite spacecraft or terrestrial backhaul, stabilized antenna relocation
due to rig move, improper gyro compass operation, obstruction of the
satellite line of sight, or maintenance by Diamond Offshore, travel and
standby time, or failures caused by negligent or intentional acts by Diamond
Offshore or other third parties. The system shall provide Group III
facsimile transmission over the standard voice line.
9. IWL shall have, at its sole option, the right to have debit/credit card
phones installed on each Diamond Offshore drilling vessel. Under this Agreement,
the Standard Package allows IWL to install up to * * * * debit/credit card
phones on each Diamond Offshore drilling vessel with additional debit/credit
card phones requiring mutual consent by Diamond Offshore. These phones may be
based on satellite, cellular, microwave, or radio infrastructure.
10. IWL shall provide an option, that may be exercised by Diamond Offshore, for
the addition of * * * *
* * * * at any time during the term of this Agreement, subject to availability
of satellite bandwidth. The price for * * * * is contained
in Section IV. IWL shall allow Diamond Offshore to * * * *
only under the pricing schedule for the * * * * in
Section IV.
11. IWL shall provide an option, that may be exercised by Diamond Offshore, for
the addition of * * * * capable of operation * * * *
* * * * at any time during the term of the Agreement for short-term use and
subject to availability of satellite bandwidth. The price for these * * * *
* * * * is contained in Section IV. Higher * * * * can be exercised, and a
quotation shall be provided to Diamond Offshore on an "as needed" basis.
12. IWL will market to mutual customers * * * *
* * * * onboard Diamond Offshore's drilling
vessels, as long as these services do not interfere with Diamond Offshore's
contracted services. These such services will be negotiated between IWL and
that mutual customer with no liability on Diamond Offshore for performance of
these services. IWL will be responsible for directly billing the mutual customer
for all services contracted for under this paragraph.
13. IWL shall remove all telecommunication equipment after the termination of
this Agreement. The parties shall negotiate in good faith a * * * *
* * * * rate prior to the equipment being removed from the drilling
vessels. IWL shall then invoice Diamond Offshore for the cost of the removal of
the equipment upon contract expiration or termination.
14. IWL shall require UCC-1 filings and other financial documents for all
equipment leased by Diamond Offshore. The intent of the UCC-1 filings shall
clearly show that IWL retains title to all leased equipment that has been
installed on designated Diamond Offshore rigs.
3
<PAGE>
IWL COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
III. DIAMOND OFFSHORE RESPONSIBILITIES
1. Diamond Offshore shall provide free facility access (ingress and egress) to
all required areas on all drilling vessels to IWL, or its agent, to allow
installation, operation, maintenance, and removal of the satellite antenna,
indoor equipment, and credit/debit card phones, and other required equipment,
for the term of this Agreement. Diamond Offshore shall also provide this same
access to IWL, or its agent, after termination of this Agreement for removal of
all telecommunication equipment. IWL shall begin equipment removal within
thirty (30) days of the termination of this Agreement.
2. Diamond Offshore shall provide all offshore transportation, cost free, to
and from each drilling vessel to IWL or its designated agent, for installation,
maintenance, repair, and removal (at the end of this Agreement term) of
telecommunication equipment. Transportation is subject to availability.
Furthermore, if an equipment failure occurs on the same equipment within a
48-hour period under normal wear and tear or as a result of poor workmanship
by IWL personnel, IWL will be liable for transportation cost.
3. Diamond Offshore shall provide a mounting structure and enclosed equipment
rooms in accordance with IWL specifications. Diamond Offshore shall provide the
mounting structure in a location surveyed for maximum visibility to the
satellite. A site survey on each rig will be required to determine the final
specifications and will be performed on a time and material basis. However, the
general specifications required are as follows. IWL will need a footprint area
large enough to accommodate the mounting of a * * * *
for all Semi-type rigs and a * * * * for all Jack-up type rigs.
Depending on obstructions, that may limit the visibility to the satellite, a
King Post may be required to lift the terminal above the obstructions. A typical
King Post mounting structure would be approximately 8 feet tall and 12 inches in
diameter with a top mounting surface allowing the * * * to be securely attached
and a ladder for service and maintenance access. If any mounting structures are
required after completing the site survey, IWL will provide drawings specific to
each drilling vessel. Indoor equipment rooms shall be free from dust and weather
and shall be air conditioned with 110 volt AC power source. AC power source
should be within the operating specifications of the UPS and be free from
spikes, surges, brown outs and extended power outages. The UPS is used for
filtering only and short term backup.
4. Diamond Offshore agrees that the Standard Package * * * *
* * * * are for business purposes only.
5. Diamond Offshore shall provide personnel, during the initial installation
period, for training on alignment and basic system operation of the system and
two of Diamond Offshore's designated personnel to assist with complete field
installation of each drilling vessel.
6. Diamond Offshore shall be responsible to perform alignment of the satellite
antenna and basic system operation after the initial installation in accordance
with the technical documents provided by IWL.
7. Diamond Offshore shall make available the onboard PABX, when such system
exists, for debit phone services and use with circuits subscribed to by mutual
customers
4
<PAGE>
IWL COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
through IWL. Diamond Offshore shall allow IWL to market and sell * * * *
* * * * installed on
board Diamond Offshore's drilling vessels, as long as these services do not
interfere with Diamond Offshore's contracted services. Diamond Offshore
further agrees that IWL shall have access to the Diamond Offshore PABX (when
its exists) as required for the provision of services and shall not accept
any liability for performance of services to these mutual customers.
8. Diamond Offshore agrees not to install or make agreement with any other
third party for the acquisition of telecommunication systems for use on the rigs
set forth in Attachment A during the term of this Agreement, to replace the
services as provided by IWL for Diamond Offshore and mutual customers of Diamond
Offshore and IWL without IWL's written consent. Additional equipment or services
procured by Diamond Offshore shall not be a substitute for services as provided
by IWL under this Agreement to the mutual customers of Diamond Offshore and IWL.
Diamond Offshore agrees to allow IWL * * * *
* * * * to include satellite, microwave, cellular, and trunking-based systems
on each rig with an ODDS system under contract.
9. Diamond Offshore shall have the option to * * * * to
mutual customers during the term of this Agreement. Diamond Offshore agrees that
the pricing for these circuits will be in accordance with the * * * *
* * * * contained in Section IV. Diamond Offshore further agrees not
to * * * * of this
Agreement. Should Diamond Offshore chose the option * * * * , payment
shall be made on a monthly basis for the monthly service and any offshore
installation, initialization, and network setup that might apply to this option.
10. Diamond Offshore shall make payment, to IWL, for the installation, monthly
rental, long distance usage, required maintenance, and final removal of the
telecommunication equipment on each drilling vessel.
11. Diamond Offshore shall make payment, to IWL, for channel upgrades, and
system configuration changes in accordance with the prices contained in Section
IV. All field changes performed by IWL will be invoiced to Diamond Offshore on a
* * * basis in accordance with the prices contained in Section IV.
12. Diamond Offshore shall make payment, to IWL, for all travel, standby, and
maintenance time in accordance with the prices contained in Section IV.
13. Diamond Offshore shall sign all UCC-1 or other financial documents as
required by IWL for all equipment leased by Diamond Offshore. The intent of the
UCC-1 filings shall clearly show that IWL retains title to all leased equipment
that has been installed on designated Diamond Offshore rigs.
IV. PRICES/PAYMENT
Prices contained in Section IV are based on a minimum of * * * *
drilling vessels in the U.S. Gulf of Mexico (refer to IWL Quotation Number
97-05-2039-292-1 dated May 20,1997). IWL will allow Diamond Offshore to
activate the minimum drilling vessels over a * * * * period from
the date of the initial installation. If
5
<PAGE>
IWL COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
Diamond Offshore elects to not activate the minimum drilling vessels, the
prices contained in the Standard Package will be subject to a **** ****
increase.
- --------------------------------------------------------------------------------
JACK-UP DRILLING SEMI-DRILLING
ITEM DESCRIPTION RIG PRICE RIG PRICE
- --------------------------------------------------------------------------------
US GULF OF MEXICO STANDARD PACKAGE
- --------------------------------------------------------------------------------
01 STANDARD PACKAGE - 36 MONTH TERM ****/Month ****/Month
Provision of **** at ****
and ****
at ****. Voice and
data circuits will be routed
to ****
for connection to
local Houston, Texas and
Lafayette, Louisiana phone
lines and will provide
**** TO ACCESS
THE **** in
Houston. The local business
phone line shall be capable of
****.
The standard package price
includes ****.
IWL shall provide Diamond
Offshore with a ***
for review to determine
whether certain items will be
****.
Initial ADDITIONAL OPTIONS
Standard Package **** ****/Month ****/Month
- -----
Standard Package ****
- ----- **** ****/Month ****/Month
Standard Package ****
- ----- **** ****/Month ****/Month
- --------------------------------------------------------------------------------
02 STANDARD PACKAGE - **** MONTH
EXTENSION OPTION ****/Month ****/Month
Initial ADDITIONAL OPTIONS
Standard Package with **** ****/Month ****/Month
- -----
Standard Package with ****
- ----- & Maintenance ****/Month ****/Month
Standard Package with **** ****/Month ****/Month
- ----- ****
- --------------------------------------------------------------------------------
03 INSTALLATION (ESTIMATED) **** ****
- --------------------------------------------------------------------------------
04 MAINTENANCE
Initial **** maintenance ****/Month ****/Month
agreement to include ****
- ----- ****
****
**** This agreement
shall include ****.
Standard **** ****/Hour* ****/Hour*
charges ****
****
****
****
- --------------------------------------------------------------------------------
6
IWL Initials Diamond Offshore Initials
------ ------
<PAGE>
IWL COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JACK-UP DRILLING SEMI-DRILLING
ITEM DESCRIPTION RIG PRICE RIG PRICE
- --------------------------------------------------------------------------------
(*Maximum rate increase
allowed shall be **** per year
for the duration of this
Agreement. The maximum amount
of BILLABLE standby time is ****
hours for each **** hour
period.)
- --------------------------------------------------------------------------------
05 INITIALIZATION AND NETWORK **** ****
SETUP FEE
- --------------------------------------------------------------------------------
06 LOCAL CHANNEL UPGRADES ****/UPGRADE ****/UPGRADE
- --------------------------------------------------------------------------------
07 SYSTEM CONFIGURATION CHANGES **** ****
- --------------------------------------------------------------------------------
08 LONG DISTANCE TRAFFIC **** ****
CHARGES (IWL CONNECT) **** ****
- --------------------------------------------------------------------------------
MONTH-TO MONTH DROP AND ADD OPTIONS
- --------------------------------------------------------------------------------
09 ADDITIONAL PHONE LINES ****/Month ****/Month
-Diamond Offshore shall have Based on Per Based on Per
the right to obtain **** Line, Per Line, Per
**** Vessel Vessel
**** in
addition to the ****
****
****
****
****
- --------------------------------------------------------------------------------
10 DEDICATED DATA LINES - Diamond
Offshore shall have the right
to obtain ****
****
**** in addition to the
****
****
****
****
**** (Per Line, Per ****/Month ****/Month
Vessel)
**** (Per Line, Per ****/Month ****/Month
Vessel)
**** (Per Line, Per ****/Month ****/Month
Vessel)
11 SITE SURVEY AND INSTALLATION **** ****
CHARGES - Additional Circuits
- --------------------------------------------------------------------------------
SPECIAL PROVISION OPTION
- --------------------------------------------------------------------------------
12 **** MONTH LEASE ****/Month ****/Month
- --------------------------------------------------------------------------------
PARTIAL MONTHLY SERVICES. In the event that service (Line Items 01, 02,
09, or 10) is activated during the month, the first month's service
price shall be prorated at a daily rate of **** of the
monthly rate.
SPECIAL PROVISION OPTION. In the event that the ****
****, the service price for **** shall
become effective on the date ****.
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, IWL and Diamond Offshore have executed this Agreement,
effective on the date first above written.
IWL COMMUNICATIONS, INC. DIAMOND OFFSHORE COMPANY
By: /s/ Errol Olivier By: /s/ Lawrence R. Dickerson
--------------------------- ---------------------------
Name: Errol Olivier Name: Lawrence R. Dickerson
--------------------------- ---------------------------
Title: Vice President of Sales Title: Vice President
--------------------------- ---------------------------
6/27/97
7
IWL Initials Diamond Offshore Initials
------ ------
<PAGE>
ATTACHMENT A
Drilling Rigs Owned by Diamond Offshore Company
Subject to the Terms and Conditions of That
Telecommunication Equipment Lease Agreement dated June 1, 1997
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LEASE LEASE
DIAMOND RIG # IWL UNIT # START DATE TERMINATION DATE
- ------------------------------------------------------------------------------
New Era
- ------------------------------------------------------------------------------
Quest
- ------------------------------------------------------------------------------
Spartan
- ------------------------------------------------------------------------------
Voyager
- ------------------------------------------------------------------------------
Columbia
- ------------------------------------------------------------------------------
Worker
- ------------------------------------------------------------------------------
Summit
- ------------------------------------------------------------------------------
Winner
- ------------------------------------------------------------------------------
Spur
- ------------------------------------------------------------------------------
Nugget
- ------------------------------------------------------------------------------
Clipper
- ------------------------------------------------------------------------------
Star
- ------------------------------------------------------------------------------
Titan
- ------------------------------------------------------------------------------
Whittington
- ------------------------------------------------------------------------------
Endeavor
- ------------------------------------------------------------------------------
Drake
- ------------------------------------------------------------------------------
King
- ------------------------------------------------------------------------------
Crusader
- ------------------------------------------------------------------------------
Tower
- ------------------------------------------------------------------------------
Ambassador
- ------------------------------------------------------------------------------
Saratoga
- ------------------------------------------------------------------------------
Prospector
- ------------------------------------------------------------------------------
Rover
- ------------------------------------------------------------------------------
Concord
- ------------------------------------------------------------------------------
America
- ------------------------------------------------------------------------------
Champion
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
8
<PAGE>
IWL COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
ATTACHMENT B
SERVICE LEVEL AGREEMENT (SLA)
This document is prepared for Diamond Offshore by IWL as a metrics for
performance of such service elements as reliability and availability of the
telecommunications network provided by IWL. It is designed with a service
partnership approach that will bring benefits to all parties involved. The said
telecommunications network is hereinafter referred to as Offshore Dedicated
Digital Services (hereinafter "ODDS").
For the purpose of this document, the ODDS network provided by IWL will consist
of all electronics hardware that is IWL-owned and located at Diamond Offshore or
IWL facilities and that is directly associated with the services provided under
the ODDS Equipment Lease Agreement. Also included is the satellite space
segment and terrestrial backhaul circuits carrying the aggregate digital traffic
between the offshore remote facilities and Diamond Offshore's Houston office.
This document does not include nor address service, maintenance, or credit for
problems beyond the de-mark points of the IWL-provided network or for problems
of hardware or circuits provided by a third party other than those that make up
IWL's digital backbone infrastructure.
SECTION 1. CUSTOMER EXPECTATIONS
Diamond Offshore expects that IWL will provide the following services to Semi
Drilling Rigs, Drill Ships, Jack-Up Drilling Rigs, and other vessels contracted
from time to time:
* * * *
* * * *
* * * *
The interface of these circuits on the remote end will be * * * *
* * * * as mutually agreed between IWL and Diamond Offshore on a
case-by-case basis for each facility. Final determination of the interface type
will be made allowing enough time to specify, order, program, integrate, and
test prior to installation.
The interface of these circuits at the customer's Houston office located at
15415 Katy Freeway will be * * * *
The above services will be provided through IWL's satellite, microwave, and
digital backbone infrastructure.
Calculated on a 365-day period with a Link Budget engineered for systems
operating in the U.S. Gulf of Mexico, an overall * * * *
* * * * is guaranteed provided that Diamond Offshore provides the required
environmental controlled indoor equipment room, clean AC power source with
minimal surge, spikes, brown-outs or outages all within the operating
specifications of the UPS, and general system maintenance. The availability
computation shall not include service time loss due to: act of nature, acts of
God, catastrophic failure of the satellite space craft or terrestrial backbone,
stabilized antenna relocation, obstruction to the satellite line of site,
improper facility gyro compass, maintenance by Diamond Offshore, travel time or
standby time, or failures caused by negligent or intentional acts by Diamond
Offshore or other third parties.
9
<PAGE>
IWL COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
Expectations shall be met when:
* * * *
* * * *
* * * *
SECTION 2. RESPONSE TO OUTAGES
IWL provides full-time hub electronic monitoring with Field and Network
Operations Center (NOC) Technicians on-call twenty-four hours a day 365 days per
year. The NOC is manned during normal business hours on Monday through Friday
excluding Holidays with extended attendance during normal week nights. When the
IWL NOC is unmanned, IWL's answering service will receive calls from Diamond
Offshore personnel reporting trouble and the answering service will immediately
notify IWL NOC personnel that a trouble call has been received. IWL technicians
will respond within two hours of the beginning of the outage period, which such
beginning is defined as the time the answering service received the call, to
determine the cause of the problem.
For the purpose of this SLA, normal business hours will refer to the hours of
7:00 AM through 6:00 PM on Monday through Friday less Holidays.
An outage period begins when a report is received by IWL's NOC from Diamond
Offshore by telephone that service has been interrupted and that such circuit is
released for repair or when an outage is detected by IWL personnel. An outage
period ends when IWL notifies Customer by telephone that service has been
restored.
During normal business hours technicians will respond to outages within two
hours of the beginning of the outage period to determine the cause of the
problem.
Outside of normal business hours technicians will respond to outages within four
hours of the beginning of the outage period to determine the cause of the
problem.
Upon determining the cause and location of the problem IWL will dispatch
technicians to the site at fault to restore service. Should the problem be at an
offshore site, IWL will make arrangements with Diamond Offshore's Marine
Logistics personnel for transportation to the offshore facility and dispatch
satellite technicians from the nearest IWL facility.
SECTION 3. CREDITS FOR OUTAGES
Credits for outages will only apply when IWL fails to meet the performance
criteria set forth in the previous paragraphs of Section 1 or when the following
occurs:
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IWL COMMUNICATIONS, INC.
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When a failure related to the * * * *
has an outage,
Credits apply when:
* * * *
* * * *
* Such an event could occur when Diamond Offshore personnel has
advised IWL of an outage but does not want to disrupt normal marine or
helicopter transportation and will transport IWL technicians on a
convenient trip at a later date. Should IWL be prepared to travel and
service the network and the outage period exceeds the maximum listed
above due to Diamond Offshore's scheduling, then Diamond Offshore will
not be eligible for credits of this outage.
In such events of failures mentioned above, IWL will pro rate credit of the
total monthly outages based on one hour minimums. The calculation will be the
monthly lease cost of the allocated bandwidth (i.e. directly tied to individual
circuit lost) that has experienced an outage divided by * * * *
hours multiplied by the total number of hours of the outage period. IWL reserves
the right to charge back to Diamond Offshore any standby time incurred in excess
of six hours due to delays such as marine transportation, crane operation hold
ups, etc. at the Equipment Lease Agreement time and material rates.
SECTION 4. ESCALATION PROCEDURES
HOUSTON NETWORK OPERATIONS CENTER (NOC)
- -------------------------------------------
Telephone: (800) 324-4495 or (713) 482-0289
Facsimile: (713) 482-0621
TROUBLE REPORTING
- -----------------
When a customer has circuit trouble, they will call the NOC and provide the
following:
- - Company name
- - Circuit Identification
- - Trouble being experienced
- - Name of person reporting trouble
- - Call back phone number
The Customer will then either release the circuit for Trouble Isolation or
request a non-intrusive monitor of circuit.
The on-duty NOC technician will in turn:
- - Open a trouble ticket.
- - Give ticket number to person reporting trouble.***
- - Commence trouble isolation
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IWL COMMUNICATIONS, INC.
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***This number is to be used by the customer when referring to trouble.
ESCALATION
- ----------
The NOC is currently manned Monday through Friday from 0600 to 2300 Houston
time.
After hours and weekend calls are handled by the On-call IWL Technician.
LEVEL 1 -- IWL NETWORK OPERATIONS TECHNICIAN
- --------------------------------------------
- - During Manned-hours, Response to call should be within two hour
- - After Manned-hours, Response should be within four hours of initial call
- - If after four hours trouble is not resolved, IWL will escalate to Level 2
LEVEL 2 -- IWL NETWORK OPERATIONS MANAGER
- -----------------------------------------
- - If after 4 hours trouble is not resolved, IWL will escalate to Level 3
LEVEL 3 -- IWL DIRECTOR OF ENGINEERING
- --------------------------------------
- - If after 12 hours trouble is not resolved, IWL will escalate to Level 4
LEVEL 4 -- IWL TECHNICAL OPERATIONS MANAGER
- -------------------------------------------
- - If after 18 Hours trouble is not resolved, IWL will escalate to Level 5
LEVEL 5 -- IWL VICE PRESIDENT OR PRESIDENT
- ------------------------------------------
Note: customer has the option to request escalation to next level at their
discretion, however all phone numbers released to Diamond Offshore will be kept
confidential and the escalation can only be exercised by a Rig Tool Pusher,
Electrician, Superintendent or higher ranking personnel of Diamond Offshore.
Diamond Offshore will also provide IWL with names, phone numbers, pager numbers,
etc. and an escalation procedure for reaching company personnel during and
after business hours for building access, fault finding assistance or for
answers to questions critical to the outage.
12
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IWL COMMUNICATIONS, INC.
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ATTACHMENT C
SPECIAL TERMS AND CONDITIONS
In consideration of the mutual promises contained herein, IWL Communications,
Inc. (hereinafter "IWL"), 12000 Aerospace Avenue, Suite 200, Houston, Texas
77034, agrees to provide communication services to Diamond Offshore Company
(hereinafter "Diamond Offshore") 15415 Katy Freeway, Suite 100, Houston,
Texas 77094. The effective date of this Master Service Agreement
(hereinafter "Agreement") is June 1, 1997,
1. INVOICING
IWL shall invoice Diamond Offshore once per month for all services associated
with Work Orders in progress. The invoices shall include Work Order Numbers
and be addressed to:
Diamond Offshore Company
15415 Katy Freeway, Suite 100
Houston, Texas 77094
Attn: Accounts Payable
2. PAYMENT
Diamond Offshore shall make payment to IWL, to be received at IWL, within
thirty (30) days after receipt of invoice, on all invoices, to:
IWL Communications, Inc.
P.O. Box 201810
Houston, Texas 77216-1810
3. LATE PAYMENTS
IWL will assess a late charge of 1 1/2% per month on payments not received by
the due date. In addition to any other right IWL may have under this
Agreement, IWL may suspend Diamond Offshore's service upon twenty-four (24)
hour notice for failure to pay any sums due to IWL hereunder. IWL may
terminate this Agreement within ten (10) days after providing written notice
to Diamond Offshore, if Diamond Offshore defaults in making any payment due
hereunder and does not cure such default within ten (10) days after written
notice to Diamond Offshore.
4. ACCESS RIGHTS
Diamond Offshore shall grant to IWL easement rights, at no cost, for
ingress/egress and installation/placement of equipment on all of its drilling
rigs in which IWL will and/or has installed telecommunication equipment for
the purposes of installation, operation, maintenance, or removal of
telecommunication equipment.
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IWL COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
5. COMMUNICATION EQUIPMENT OWNERSHIP
The IWL provided telecommunication equipment is deemed to be personal
property of IWL, regardless of the manner in which it may be attached to any
other property. IWL shall be deemed to have retained title to the
telecommunication equipment at all times, unless IWL transfers title by sale.
IWL shall require UCC-1 filings for all telecommunication equipment leased
by Diamond Offshore. The intent of the UCC-1 filings shall clearly show that
IWL retains title to all leased telecommunications equipment that has been
installed at the designated Diamond Offshore facilities. Diamond Offshore
shall immediately advise IWL regarding any notice of claim, levy, lien, or
legal process issued against the equipment.
6. NO WARRANTY
No warranties, expressed, implied, or statutory, including any warranty of
merchantability or fitness for a particular purpose, apply to the system
provided hereunder or the equipment and facilities used to provide such
system.
7. RISK OF LOSS
Diamond Offshore shall be responsible for any loss or damage, with the
exception of normal wear and tear, to IWL provided telecommunication
equipment for all foreseen and unforeseen causes, by all parties other than
IWL (any third party) including acts of God and natural catastrophes. Diamond
Offshore shall not be responsible for any loss or damage to the
telecommunication equipment caused by IWL's sole negligence or willful acts
of IWL, its employees and agents.
8. NOTIFICATION OF LOSS OR DAMAGE
Diamond Offshore shall notify IWL within twenty-four (24) hours or within a
reasonable period of time of any damage and/or destruction of the
telecommunication equipment. IWL, at its option, shall either repair and/or
replace the damaged/destroyed equipment and shall invoice the cost of this
repair/replacement on a T&M basis to be invoiced to Diamond Offshore at the
prices negotiated for each individual Work Order.
9. OTHER LOSSES/LIABILITY
In no event shall IWL be liable to Diamond Offshore, its employees, agents,
contractors, assigns, or anyone claiming under or through this Agreement for
any loss or damage caused by the malfunctioning or failure of the system
supplied by IWL or its agents. In addition, in no event shall IWL ever be
responsible for incidental, consequential, or punitive damages, including
loss of profit under any circumstances and Diamond Offshore and its
successors and assigns hereby expressly waive all such claims of incidental
or consequential damages including loss of profit arising through or under
IWL's relations or Agreements with Diamond Offshore. Diamond Offshore agrees
that IWL's entire liability for damages or losses arising out of mistakes,
omissions, interruptions, delays, errors, or defects of any kind with respect
to its performance of this Agreement or the use or operation of the
telecommunication equipment or system furnished to Diamond Offshore by IWL,
or anything done in connection therewith,
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IWL COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
regardless of whether occasioned by IWL's negligence, shall be limited to a
refund or waiver of the applicable charges for the system.
10. INDEMNIFICATION
IN ORDER TO ALLOCATE RESPECTIVE RESPONSIBILITIES OF DIAMOND OFFSHORE AND IWL
FOR LIABILITIES ARISING OUT OF PERSONAL INJURY AND PROPERTY DAMAGE, IT IS
AGREED BETWEEN DIAMOND OFFSHORE AND IWL THAT CERTAIN RESPONSIBILITIES AND
LIABILITIES FOR PERSONAL INJURIES AND PROPERTY DAMAGE ARISING OUT OF THE
PERFORMANCE OF THIS AGREEMENT SHOULD BE ALLOCATED BETWEEN THEM IN ORDER TO
AVOID PROTRACTED LITIGATION BETWEEN DIAMOND OFFSHORE AND IWL ALONG WITH THE
ASSOCIATED LEGAL EXPENSES AND SO THAT INSURANCE OR SELF-INSURANCE MAY BE
ARRANGED BY EACH PARTY AS NECESSARY TO PROTECT THEM AGAINST EXPOSURES TO
LOSS. THE FOLLOWING SETS OUT THE SPECIFICS OF THE AGREEMENTS BETWEEN DIAMOND
OFFSHORE AND IWL AS TO THE ALLOCATION OF THE RESPONSIBILITIES AND
LIABILITIES. THIS PARAGRAPH ON INDEMNIFICATION DOES NOT SUPERSEDE TERM AND
CONDITION PARAGRAPH 7, "RISK OF LOSS". IN THE EVENT OF CONFLICT BETWEEN TERM
AND CONDITION PARAGRAPH 10, "INDEMNIFICATION" AND TERM AND CONDITION
PARAGRAPH 7, "RISK OF LOSS", THEN TERM AND CONDITION PARAGRAPH 7, "RISK OF
LOSS", SHALL TAKE PRECEDENCE.
a) IWL AGREES TO PROTECT, DEFEND, INDEMNIFY, AND HOLD HARMLESS DIAMOND
OFFSHORE, ITS OFFICERS, DIRECTORS, EMPLOYEES, OR ITS INVITEES, AND ANY
PARTY OR PARTIES FOR WHOM DIAMOND OFFSHORE IS PERFORMING SERVICES, FROM AND
AGAINST ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION OF EVERY KIND AND
CHARACTER WITHOUT LIMIT AND WITHOUT REGARD TO THE CAUSE OR CAUSES THEREOF
OR THE NEGLIGENCE OR FAULT (ACTIVE OR PASSIVE) OF ANY PARTY OR PARTIES,
INCLUDING THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE OF DIAMOND OFFSHORE,
ANY THEORY OF STRICT LIABILITY AND DEFECT OF PREMISES, ARISING IN
CONNECTION HEREWITH IN FAVOR OF IWL'S EMPLOYEES, IWL'S SUBCONTRACTORS OR
THEIR EMPLOYEES, OR IWL'S INVITEES ON ACCOUNT OF BODILY INJURY, DEATH, OR
DAMAGE TO PROPERTY.
b) DIAMOND OFFSHORE AGREES TO PROTECT, DEFEND, INDEMNIFY, AND HOLD HARMLESS
IWL, ITS OFFICERS, DIRECTORS, EMPLOYEES, OR ITS INVITEES, FROM AND AGAINST
ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION OF EVERY KIND AND CHARACTER
WITHOUT LIMIT AND WITHOUT REGARD TO THE CAUSE OR CAUSES THEREOF OR THE
NEGLIGENCE OR FAULT (ACTIVE OR PASSIVE) OF ANY PARTY OR PARTIES INCLUDING
THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE OF IWL, ANY THEORY OF STRICT
LIABILITY AND DEFECT OF PREMISES, ARISING IN CONNECTION HEREWITH IN FAVOR
OF DIAMOND OFFSHORE'S EMPLOYEES, DIAMOND OFFSHORE'S SUBCONTRACTORS (OTHER
THAN IWL) OR THEIR EMPLOYEES, OR DIAMOND OFFSHORE'S INVITEES ON ACCOUNT OF
BODILY INJURY, DEATH, OR DAMAGE TO PROPERTY.
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IWL COMMUNICATIONS, INC.
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c) EACH PARTY SHALL NOTIFY THE OTHER PARTY IMMEDIATELY OF ANY CLAIM, DEMAND,
OR SUIT THAT MAY BE PRESENTED TO OR SERVED UPON IT BY ANY PARTY ARISING OUT
OF OR AS A RESULT OF WORK PERFORMED PURSUANT HERETO, AFFORDING SUCH OTHER
PARTY FULL OPPORTUNITY TO ASSUME THE DEFENSE OF SUCH CLAIM, DEMAND, OR SUIT
AN TO PROTECT ITSELF UNDER THE OBLIGATION OF THIS PARAGRAPH.
d) IWL SHALL BE RESPONSIBLE FOR AND SHALL HOLD HARMLESS AND INDEMNIFY DIAMOND
OFFSHORE AGAINST ANY AND ALL LOSS OR LIABILITY ARISING FROM INFRINGEMENT OF
PATENTS COVERING EQUIPMENT FURNISHED BY IWL.
11. TAXES
IWL shall be responsible for the declaration and payment of taxes or
assessments against the telecommunications equipment installed on Diamond
Offshore's drilling rigs.
12. MODIFICATIONS
Diamond Offshore, its employees, agents, contractors, or assigns shall not
alter the configuration or installation, other than alignment of the antenna,
of the telecommunication equipment, nor shall Diamond Offshore, its
employees, agents, contractors, or assigns remove any telecommunications
equipment without the written authorization of IWL. All alterations shall be
the property of IWL and subject to the terms of this Agreement.
13. NOTICES/COMMUNICATIONS
All communications, other than invoice payments shall be submitted to the
following individuals:
IWL Communications, Inc.
Attn: Ms. Karen Beuchaw
Contracts Administrator
12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
Telephone: (281) 482-0289
Facsimile: (281) 482-9144
Diamond Offshore Company
Attn: Mr. Michael A. Trahan
Title: Manager Information Services
15415 Katy Freeway, Suite 100
Houston, Texas 77094
Telephone: (281) 647-2256
Facsimile: (281) 647-4025
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IWL COMMUNICATIONS, INC.
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14. SUITABILITY/INTERFERENCE
IWL's telecommunications equipment, its installation, and operation thereof:
a) Will in no way damage the drilling rig or enclosure;
b) Will not interfere with the maintenance of the drilling rig, its lighting
systems, or any existing equipment;
c) Will not interfere with the operation of any existing communication
equipment. In the event there is interference, IWL shall take all steps
necessary to correct and eliminate such interference. If said interference
cannot be eliminated within five (5) days, IWL shall remove the interfering
equipment from the drilling rig; and
d) Will comply with all applicable rules and regulations of the Federal
Communication Commission, and codes, laws, and ordinances of the City,
County, and/or State concerned.
15. ENTIRE AGREEMENT AND MODIFICATION
This Agreement including Attachment A - Drilling Vessel Schedule, Attachment B -
Service Level Agreement, and Attachment C - Special Terms and Conditions
constitutes the entire Agreement between the parties. No modification or
amendment of this Agreement shall be effective unless in writing and signed by
both parties. This Agreement replaces all prior Agreements between the parties.
16. GOVERNING/CHOICE OF LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE GENERAL MARITIME LAWS
OF THE UNITED STATES, NOT INCLUDING, HOWEVER, ANY OF ITS CONFLICTS OF LAW RULES
WHICH WOULD DIRECT OR REFER TO THE LAWS OF ANOTHER JURISDICTION.
17. SEVERABILITY
If any portion of this Agreement shall be held to be invalid or unenforceable
for any reason, the remaining provisions shall continue to be valid and
enforceable. If a court finds that any provision of this lease is invalid or
unenforceable, but that by limiting such provision, it would become valid and
enforceable, then such provision shall be deemed to be written, construed, and
enforced as so limited.
18. WAIVER
The failure of either party to enforce any provision of this Agreement shall not
be construed as a waiver or limitation of that party's right to subsequently
enforce and compel strict compliance with every provision of this Agreement.
17
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IWL COMMUNICATIONS, INC.
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19. ARBITRATION
ANY CONTROVERSY OR CLAIM RELATING TO THIS AGREEMENT, INCLUDING THE CONSTRUCTION
OR APPLICATION OF THIS AGREEMENT, WILL BE SETTLED BY BINDING ARBITRATION UNDER
THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION, AND ANY JUDGMENT GRANTED BY
THE ARBITRATOR(S) MAY BE ENFORCED IN ANY COURT OF PROPER JURISDICTION.
20. INSPECTION
At the consent of Diamond Offshore, IWL shall have the right to inspect the
equipment during Diamond Offshore's normal business hours.
21. RIGHTS ON DEFAULT
If Diamond Offshore is in default of any material obligation under this
Agreement, then after written notice to Diamond Offshore, IWL may take
possession of the equipment as provided by law, and hold Diamond Offshore
responsible for any costs of recovery (including attorney fees and legal costs),
repair, and related costs.
22. ASSIGNMENT
Diamond Offshore shall not assign any interest in this Agreement without IWL's
prior written consent.
23. REGULATION
This Agreement shall at all times be subject to change or modification as
required by the regulatory authority of the State of Texas, the Federal
Communication Commission, or any other authorized governmental agency.
24. SATELLITE OR MICROWAVE SERVICE FAILURE
In the event that IWL's supplier of satellite or microwave carrier service fails
to provide the required satellite communication services, for any reason, IWL
shall propose alternate solutions for approval by Diamond Offshore.
25. CONTENT OF TRANSMITTED COMMUNICATIONS
Diamond Offshore will not use the telecommunication service, and will not
authorize or permit its designees to use the telecommunication service to
transmit unlawful programming of any nature. Diamond Offshore and its designee
will not transmit communications containing "sexually explicit conduct" as
defined in 18 USC Section 2256(2) unless the depiction or description of such
conduct in a communication is integrally related to and advances the thematic
content of the communication and such content has serious literary, artistic,
political, or scientific value.
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IWL COMMUNICATIONS, INC.
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26. OPTIONS
Except as otherwise provided, Diamond Offshore may exercise the following
options under the following circumstances:
a) Diamond Offshore may terminate this Agreement at any time by written notice
and advance payment of the monthly amounts due under Section IV of the
Telecommunications Equipment Lease Agreement for the balance of the period
remaining of the initial period of the Agreement and the removal charges as
contemplated in the Lease Agreement, or
b) In the event the rig is sold, transferred or exchanged to a third party not
affiliated with Diamond Offshore, this Agreement may transfer to a third
party provided that IWL and Diamond Offshore and the third party mutually
consent to an agreement on novation of this Agreement with respect to the
equipment. In the event of such transaction without mutual consent of the
transfer of this Agreement, IWL shall remove the equipment.
c) In the event the rig is anticipated to be stacked or is stacked, in excess
of ninety (90) days, IWL will either suspend this Agreement until the rig
is mobilized without liability to Diamond Offshore for any monthly access
fee, with IWL retaining the option to keep equipment operational and
provide debit phone services, or to remove the equipment.
d) In the event that the rig is contracted for work outside of the US Gulf of
Mexico unless the ODDS system is capable of performing to the standard
provided by in such location, properly licensed and permitted by IWL and
operation is not prohibited by the laws, regulations and administrative
actions of any government exercising jurisdiction over the rig, IWL will
either suspend this Agreement until the rig returns to the ODDS coverage
area at which time IWL will re-activate the services and continue with
monthly invoicing or remove the equipment.
However, prior to termination under subparagraphs (b), (c) and (d) Diamond
Offshore shall endeavor, but not be obliged to, relocate the equipment to
another rig in its Gulf of Mexico fleet. In the event IWL removes the equipment
pursuant to subparagraphs (b), (c) and (d), this Agreement will terminate with
respect to that particular unit without further liability except as provided
below. Diamond Offshore shall then be liable to pay the removal charges as
contemplated in the Telecommunications Equipment Lease Agreement. Further, IWL
shall endeavor to relocate the equipment among other customers or incorporate
the equipment among its base spare parts inventory. Except as the equipment is
relocated or incorporated into a lease with a term equal to the balance of
Diamond Offshore's Lease Agreement, Diamond Offshore shall be obliged to
continue payment of the monthly amounts due under Section IV of the
Telecommunications Equipment Lease Agreement for the balance of term remaining
on the Agreement.
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IWL COMMUNICATIONS, INC.
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27. RIG EXCHANGE
Diamond Offshore, with the assistance of IWL, may relocate equipment from one of
its rigs to another rig (including rigs other than jack-up rigs) under the
applicable provisions of the Telecommunications Equipment Lease Agreement. In
such event, Diamond Offshore shall be liable to pay the installation and removal
charges as contemplated in the Telecommunications Equipment Lease Agreement.
28. INSURANCE
IWL shall acquire and maintain for the duration of this Agreement the insurance
coverages as stipulated in Diamond Offshore's Master Service Agreement.
29. RELATIONSHIP
Nothing contained in this Agreement shall be deemed or construed by IWL or
Diamond Offshore or by any third party to create any rights, obligations, or
interest in third parties; or to create the relationship of principal and agent,
partnership or joint venture, or any other fiduciary relationship or association
between IWL and Diamond Offshore.
20
<PAGE>
CREDIT AGREEMENT
BETWEEN
IWL COMMUNICATIONS, INC.
AND
BANK ONE, TEXAS, N.A.
AUGUST 1, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I TERMS DEFINED. . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS . . . . . . . . . . . . 12
SECTION 1.3. GENDER AND NUMBER . . . . . . . . . . . . . . . . . . . . . 12
SECTION 1.4. REFERENCES TO CREDIT AGREEMENT. . . . . . . . . . . . . . . 12
ARTICLE II ADVISED GUIDANCE FACILITY . . . . . . . . . . . . . . . . . 12
SECTION 2.1. COMMITMENT. . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.2. METHOD OF BORROWING . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.3. INTEREST RATE . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.4. AGF NOTE. . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.5. PRINCIPAL PAYMENTS; TERMINATION OF ADVISED
GUIDANCE FACILITY . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III GENERAL PROVISIONS RELATED TO LOAN PAYMENTS . . . . . . . . 17
SECTION 3.1. GENERAL PROVISIONS AS TO PAYMENTS . . . . . . . . . . . . . 17
SECTION 3.2. OVERDUE PRINCIPAL AND INTEREST. . . . . . . . . . . . . . . 18
SECTION 3.3. MAXIMUM LAWFUL RATE . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.4. INCREASED COSTS AND LEGAL RESTRICTIONS APPLICABLE
TO THE ADVISED GUIDANCE FACILITY. . . . . . . . . . . . . . 18
SECTION 3.5. PREPAYMENTS OF LOANS; REDUCTION OF ADVISED
GUIDANCE FACILITY . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV COLLATERAL FOR THE ADVISED GUIDANCE FACILITY. . . . . . . . 20
SECTION 4.1. SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.2. LEASE AND OPERATION OF EQUIPMENT. . . . . . . . . . . . . . 20
ARTICLE V CONDITIONS PRECEDENT TO ADVANCES. . . . . . . . . . . . . . 21
SECTION 5.1. ALL ADVANCES. . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.2. PARTICULAR ADVANCES . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.3. CLOSING DATE REQUIREMENTS . . . . . . . . . . . . . . . . . 22
ARTICLE VI REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . 22
SECTION 6.1. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.2. CORPORATE EXISTENCE AND POWER.. . . . . . . . . . . . . . . 23
<PAGE>
SECTION 6.3. CORPORATE AND GOVERNMENTAL AUTHORIZATION;
CONTRAVENTION . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.4. BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.5. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . 23
SECTION 6.6. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.7. TAXES AND FILING OF TAX RETURNS . . . . . . . . . . . . . . 24
SECTION 6.8. BUSINESS; COMPLIANCE. . . . . . . . . . . . . . . . . . . . 24
SECTION 6.9. LICENSES, PERMITS, ETC. . . . . . . . . . . . . . . . . . . 24
SECTION 6.10. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.11. FULL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.12. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.13. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . 25
SECTION 6.14. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VII COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.1. INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.2. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.3. CONSOLIDATIONS, MERGERS, SALES OF ASSETS,
AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.4. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.5. RIGHT OF INSPECTION; RIGHT OF AUDIT . . . . . . . . . . . . 27
SECTION 7.6. LIMITATION ON DEBT. . . . . . . . . . . . . . . . . . . . . 28
SECTION 7.7. LIMITATION ON SALE OF PROPERTIES. . . . . . . . . . . . . . 28
SECTION 7.8. LIMITATIONS ON LIENS. . . . . . . . . . . . . . . . . . . . 28
SECTION 7.9. MAINTENANCE OF INSURANCE. . . . . . . . . . . . . . . . . . 28
SECTION 7.10. PAYMENT OF TAXES AND CLAIMS . . . . . . . . . . . . . . . . 29
SECTION 7.11. COMPLIANCE WITH LAWS AND DOCUMENTS. . . . . . . . . . . . . 29
SECTION 7.12. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNITY. . . . . . . . . 29
SECTION 7.13. ADDITIONAL DOCUMENTS. . . . . . . . . . . . . . . . . . . . 30
SECTION 7.14. QUANTITY OF DOCUMENTS . . . . . . . . . . . . . . . . . . . 30
SECTION 7.15. INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 7.16. TRANSACTIONS WITH AFFILIATES. . . . . . . . . . . . . . . . 31
SECTION 7.17. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 7.18. ERISA.. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 7.19. CHANGES IN MANAGEMENT . . . . . . . . . . . . . . . . . . . 32
SECTION 7.20. REPURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . 32
SECTION 8.1. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 34
<PAGE>
SECTION 9.1. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9.2. NO WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9.3. EXPENSES; INDEMNIFICATION . . . . . . . . . . . . . . . . . 35
SECTION 9.4. RIGHT AND SHARING OF SET-OFFS . . . . . . . . . . . . . . . 35
SECTION 9.5. AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . 36
SECTION 9.6. SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 9.7. LIMITATION ON INTEREST. . . . . . . . . . . . . . . . . . . 36
SECTION 9.8. INVALID PROVISIONS. . . . . . . . . . . . . . . . . . . . . 36
SECTION 9.9. CONFLICT OF TERMS . . . . . . . . . . . . . . . . . . . . . 37
SECTION 9.10. REVOLVING LOAN. . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 9.11. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . 37
SECTION 9.12. TEXAS LAW . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 9.13. COUNTERPARTS; EFFECTIVENESS . . . . . . . . . . . . . . . . 37
SECTION 9.14. NO THIRD PARTY BENEFICIARIES. . . . . . . . . . . . . . . . 37
SECTION 9.15. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . 38
EXHIBITS
EXHIBIT A - Form of Request for Advance
SCHEDULE I - Debt of Borrower
SCHEDULE II - Liens of Borrower
SCHEDULE III - Subsidiaries
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "CREDIT AGREEMENT") is entered into as of
the 1st day of August, 1997, between IWL COMMUNICATIONS, INC., a Texas
corporation ("BORROWER"), and BANK ONE, TEXAS, N.A., a national banking
association ("LENDER").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender provide for a discretionary
guidance line of credit to Borrower in an amount not to exceed $5,000,000.00
which is and shall be used for Borrower's purchase and subsequent lease of
certain types of communications equipment; and
WHEREAS, Lender has agreed to such request on the terms and conditions
herein contained.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
TERMS DEFINED
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Adjusted LIBOR Rate" shall mean on the applicable Effective Date, with
respect to a LIBOR Rate Loan, a rate per annum equal to the SUM OF (a) the
quotient of (i) the LIBOR Rate on the applicable Effective Date, divided by
(ii) the remainder of 1.00 minus the LIBOR Reserve Requirement, if any, on
the applicable Effective Date, plus (b) the FDIC Percentage in effect on the
applicable Effective Date, together with any additional impositions,
CREDIT AGREEMENT 1
<PAGE>
assessments, fees or surcharges that may be imposed on Lender (expressed as a
percentage), to the extent such impositions, assessments, fees or surcharges
are not reflected in the FDIC Percentage or the LIBOR Reserve Requirement and
are generally imposed on banks with capitalization and supervisory risk
factors comparable to Lender, plus (c) the LIBOR Margin.
"Advance" means each advance made by Lender under the Advised Guidance
Facility and evidenced by a Request for Advance submitted by Borrower to
Lender pursuant to the terms and conditions of this Credit Agreement.
"Advised Guidance Facility" has the meaning set forth in SECTION 2.1.
"Affiliate" of any corporation shall mean any Person which, directly or
indirectly, controls or is controlled by or is under common control with such
corporation and, without limiting the generality of the foregoing, shall
include any Person which beneficially owns or holds five percent (5%) or more
of any class or series of voting securities of such corporation (or in case
of a Person which is not a corporation, five percent (5%) or more of the
equity interest) of which is beneficially owned or held by such corporation.
For the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise. As used herein the term "controlling
persons" means the parties having the possession of the authority, direct or
indirect, or the power to direct or cause the direction of the management and
policies of a person, trust, corporation, partnership, or other entity,
whether through the ownership of voting securities, by agreement, or
otherwise.
"AGF Note" means each AGF Note to be executed by Borrower and payable to
the order of Lender evidencing a Loan under the Advised Guidance Facility.
"Applicable Base Rate" means (a) prior to the Interest Reduction Date,
the Base Rate, and (b) after the Interest Reduction
CREDIT AGREEMENT 2
<PAGE>
Date, (i) the Base Rate, minus (ii) the Base Rate Adjustment.
"Applicable Environmental Law" has the meaning set forth in SECTION 7.12.
"Applicable Rate" has the meaning set forth in SECTION 2.3.
"Approved Equipment Lease" means an Equipment Lease (a) with a term of
not more than the lesser of (i) sixty (60) months, or (ii) the estimated
useful life of the applicable Equipment, (b) the lessee of which is an entity
organized under the laws of the United States or any state thereof, and (c)
with respect to which either (i) such lessee's financial condition is
acceptable to Lender, or (ii) such Equipment Lease is guaranteed by a Person
acceptable to Lender.
"Assets" means all of the assets of any Person, real or personal, which
are included on a balance sheet of such Person prepared in accordance with
GAAP.
"Authorized Officer" means, as to any Person that is a corporation, any
of its Chairman, Vice-Chairman, President, Vice President(s), Chief Executive
Officer, Chief Financial Officer, Chief Accounting Officer or Treasurer, or
as to any other Person, if such Person is a partnership, the partnership's
general partner or other Person authorized by appropriate action to execute
the Loan Documents or any other documents or certificates to be executed by
such Person hereunder or in connection with any Loan.
"Base Rate" means the base interest rate as announced or published by
Lender from time to time, and may not be the lowest interest rate charged by
Lender.
"Base Rate Adjustment" means a percentage to be determined by Lender in
the exercise of Lender's reasonable business judgment based upon the credit
quality of the Person leasing the equipment to be purchased with the proceeds
of the applicable Loan, provided, that such percentage shall not exceed 1.00%.
"Base Rate Loan" shall mean a Loan or any portion of a Loan computed
with reference to the Applicable Base Rate.
CREDIT AGREEMENT 3
<PAGE>
"Borrower" has the meaning set forth in the first paragraph of this
Credit Agreement.
"Business Day" means any day except a Saturday, Sunday or other day on
which national banks in Dallas, Texas are authorized by law to close.
"Cash Equivalents" means (a) cash and obligations issued or guaranteed
by the United States of America, (b) obligations issued or guaranteed by any
person controlled or supervised by and acting as an agency or instrumentality
of the United States of America pursuant to authority granted by the Congress
of the United States, (c) certificates of deposit issued, or banker's
acceptances drawn on and accepted by, or money market accounts or time
deposits in, commercial banks which are members of the Federal Deposit
Insurance Corporation and which have a combined capital, surplus and
undistributed profits of at least $50,000,000, (d) repurchase agreements with
any such commercial bank, or with broker-dealers or other institutions, that
are secured by obligations issued or guaranteed by the United States of
America or an agency or instrumentality thereof, (e) other money market
instruments and mutual funds, substantially all of the assets of which are
invested in any or all of the investments described in clauses (a) through
(d) above, and (f) commercial paper rated P-1 by Moody's Investors Service,
Inc. or A-1 by Standard & Poor's Corporation on the date of acquisition.
"Closing Date" means the date of this Credit Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Assignment" means that certain Collateral Assignment and
Security Agreement, dated as of the date hereof, by and between Borrower and
Lender, pursuant to which Borrower has assigned all Equipment Leases to
Lender and granted to Lender a first priority security interest in all
Equipment as collateral security for the payment of the Obligations.
"Consequential Loss" has the meaning set forth in SECTION 3.5.
"Credit Agreement" means this Credit Agreement.
CREDIT AGREEMENT 4
<PAGE>
"Credit Period" means the period commencing on the date of this Credit
Agreement and ending on the Termination Date.
"Current Maturities" means, with respect to any Person, on any date of
calculation, the current liabilities of such Person attributable to its long
term indebtedness, determined in accordance with GAAP.
"Current Ratio" means, for any date of determination, the ratio of (a)
Borrower's current assets as shown on the balance sheet of Borrower prepared
in accordance with GAAP, to (b) Borrower's current liabilities as shown on
the balance sheet of Borrower prepared in accordance with GAAP.
"Debt" means, for any Person, without duplication, (a) all obligations
of such Person for borrowed money, (b) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (c) all
other indebtedness (including capitalized lease obligations) of such Person
on which interest charges are customarily paid or accrued, (d) all contingent
liabilities of such Person, (e) the unfunded or unreimbursed portion of all
letters of credit issued for the account of such Person, and (f) all
liability of such Person as a general partner or joint venturer for
obligations of the nature described in (a) through (e) preceding.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in SECTION 3.2.
"Distribution" by any Person, means (a) with respect to any stock issued
by such Person or any partnership or joint venture interest of such person,
the retirement, redemption, repurchase, or other acquisition for value of
such stock, partnership or joint venture interest, (b) the declaration or
payment (without duplication) of any dividend or other distribution, whether
monetary or in kind, on or with respect to any stock, partnership or joint
venture of any Person, and (c) any other payment or distribution of assets of
a similar nature or in respect of an
CREDIT AGREEMENT 5
<PAGE>
equity investment.
"EBITDA" means, for any period, determined in accordance with GAAP for
Borrower, the sum of net income before taxes, plus depreciation, plus
amortization, plus interest expense, plus any other non-cash expenses, each
as deducted in determining such net income before taxes.
"Effective Date" has the meaning set forth in SECTION 2.3.
"Employee Plan" means at any time an employee benefit plan as defined in
Section 3(3) of ERISA that is now or was previously maintained, sponsored or
contributed to by Borrower.
"Equipment" means all machinery, equipment (including, without
limitation, all communications equipment), tools, apparatus, furniture and
leasehold improvements, now owned or hereafter acquired by Borrower or in
which Borrower now has or hereafter may acquire any right, title or interest,
and any and all additions, substitutions and replacements thereof, wherever
located, together with all attachments, components, parts, equipment and
accessories installed therein or affixed thereto, including but not limited
to "equipment" as defined in Section 9.109(2) of the Uniform Commercial Code
leased by Borrower pursuant to an Equipment Lease and financed in whole or in
part by a Loan.
"Equipment Lease" means any lease by Borrower of Equipment purchased
with the proceeds of a Loan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all regulations issued pursuant
thereto.
"Event of Default" has the meaning set forth in SECTION 8.1.
"FDIC Percentage" shall mean, on any day, the net assessment rate
(expressed as a percentage rounded to the next highest 1/100 of 1%), if any,
which is in effect on such day (under the regulations of the Federal Deposit
Insurance Corporation or any successor) for determining the assessments paid
by Lender to the Federal Deposit Insurance Corporation (or any successor) for
insuring Eurocurrency deposits made in dollars at Lender's
CREDIT AGREEMENT 6
<PAGE>
principal offices. Each determination of said percentage made by Lender
shall, in the absence of manifest error, be binding and conclusive.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding
Business Day, and (b) if no such rate is so published on such next succeeding
Business Day, the Federal Funds Rate for such day shall be the average rate
quoted to Lender on such day on such transactions from three Federal funds
brokers of recognized standing.
"Fixed Charge Ratio" means, for any date of determination, the ratio of
(a) EBITDA for the immediately preceding four (4) calendar quarters, to (b)
the sum of (i) Current Maturities, plus (ii) Interest Expense, plus (iii)
Lease Expense, each for the immediately preceding four (4) calendar quarters.
"Fixed Rate" means for any Loan a rate of interest equal to the sum of
(a) the Treasury Rate, plus (b) a percentage to be determined by Lender in
the exercise of Lender's reasonable business judgment based upon the credit
quality of the Person leasing the Equipment to be purchased with the proceeds
of the applicable Loan, provided, that such percentage shall not exceed
2.40%, nor be less than 1.25%.
"Fixed Rate Loan" shall mean a Loan which bears interest computed with
respect to the Fixed Rate.
"GAAP" means generally accepted accounting principles consistently
applied as in effect at the time of application of the provisions hereof.
"Governmental Authority" means any government, any state or other
political subdivision thereof, or any Person exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
CREDIT AGREEMENT 7
<PAGE>
"Guarantor" means any Person executing a Guaranty of the Obligations in
favor of the Lender.
"Guaranty" means a continuing guaranty of payment of the Obligations
(subject to any limitations, reductions in liability, or termination thereof
therein contained), executed by each Guarantor in favor of Lender, as it may
from time to time be renewed, extended, amended or restated.
"Intangible Assets" means those assets of Borrower which are (a)
deferred assets, other than prepaid insurance and prepaid taxes, (b) patents,
copyrights, trademarks, trade names, franchises, goodwill, experimental
expenses and other similar assets which would be classified as intangible
assets on the balance sheet of Borrower, prepared in accordance with GAAP,
and (c) unamortized debt discount and expense (excluding any genuine
commitment or other loan fees paid by Borrower to obtain secured financing).
"Interest Adjustment Date" shall mean the earlier of either the last day
of an Interest Period or the Maturity Date for the AGF Note under which the
applicable LIBOR Rate Loan was made.
"Interest Expense" means, for any period, the interest expense which is
required to be shown as such on the financial statements of Borrower,
prepared in accordance with GAAP.
"Interest Period" shall mean, with respect to a LIBOR Rate Loan, a
period selected by Borrower of 30, 60 or 90 days, commencing on the Effective
Date of any LIBOR Rate Loan; provided that any Interest Period ending on a
date later than the Maturity Date for the AGF Note under which the applicable
LIBOR Rate Loan was made shall be deemed to end on such Maturity Date.
"Interest Reduction Date" means the date on which Borrower has delivered
to Lender Borrower's audited financial statements for Borrower's 1997 fiscal
year; provided, that (a) no Event of Default has occurred and is continuing;
and (b) Lender, in its sole discretion, approves a reduction in the interest
rate hereunder due to, among other reasons, a risk reduction in the Advised
Guidance Facility.
"Lease Expense" means, for any period, the lease expense under all
Operating Leases for Borrower.
CREDIT AGREEMENT 8
<PAGE>
"Lender" has the meaning set forth in the first paragraph of this Credit
Agreement.
"LIBOR Margin" means (a) prior to the Interest Reduction Date, 2.50%,
and (b) on and after the Interest Reduction Date, a percentage to be
determined by Lender in the exercise of Lender's reasonable business judgment
based upon the credit quality of the Person leasing the Equipment to be
purchased with the proceeds of the applicable Loan, provided, that such
percentage shall not exceed 2.50%, nor be less than 1.25%.
"LIBOR Rate" shall mean, with respect to a LIBOR Rate Loan for the
Interest Period applicable thereto, the rate of interest determined by Lender
at which deposits in dollars for the relevant Interest Period and comparable
in amount to the LIBOR Rate Loan in question are offered based on information
presented on the Telerate Screen as of 11:00 A.M. (London time) on the day
which is two (2) Business Days prior to the first day of such Interest
Period; PROVIDED, that if at least two such offered rates appear on the
Telerate Screen in respect of such Interest Period, the arithmetic mean of
all such rates (as determined by Lender) will be the rate used; PROVIDED,
FURTHER, that if Telerate ceases to provide LIBOR quotations, such rate shall
be the average rate of interest determined by Lender at which deposits in
U.S. dollars are offered for the relevant Interest Period by Lender (or its
successor) to banks with combined capital and surplus in excess of
$500,000,000 in the London interbank market as of 11:00 A.M. (London time) on
the applicable Effective Date.
"LIBOR Rate Loan" shall mean a Loan or any portion of a Loan which bears
interest computed with reference to the Adjusted LIBOR Rate.
"LIBOR Reserve Requirement" shall mean, on any day, that percentage
(expressed as a decimal fraction) which is in effect on such date, if any, as
provided by the Federal Reserve System for determining the maximum reserve
requirements generally applicable to financial institutions regulated by the
Federal Reserve Board comparable in size and type to Lender (including,
without limitation, basic supplemental, marginal and emergency reserves)
under Regulation D with respect to "Eurocurrency liabilities" as currently
defined in Regulation D, or under any similar or successor regulation with
respect to Eurocurrency liabilities or Eurocurrency funding (or, if reserves
for Eurocurrency liabilities
CREDIT AGREEMENT 9
<PAGE>
are not separately stated in such regulations, the other applicable category
of liabilities which includes deposits by reference to which the interest
rate on a LIBOR Rate Loan is determined). Each determination by Lender of
the LIBOR Reserve Requirement, shall, in the absence of manifest error, be
conclusive and binding.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Credit Agreement, a Person shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" means all Advances, whether one or more, to be made by Lender
under the Advised Guidance Facility related to a single AGF Note pursuant to
the terms and conditions of this Credit Agreement.
"Loan Documents" means (a) this Credit Agreement, (b) all AGF Notes, (c)
the Security Documents, (d) all other certificates, documents or instruments
delivered in connection with this Credit Agreement, the AGF Notes or the
Security Documents, and (e) any and all renewals, amendments, restatements or
supplements to all or any part of the foregoing.
"Margin Regulations" mean Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"Margin Stock" means "margin stock" as defined in Regulation U of the
Margin Regulations.
"Material Adverse Effect" means with respect to a Person (including,
without limitation, Borrower), an effect on the business, financial
condition, operations or assets of such Person, which does or could
materially and adversely affect Borrower's ability to pay and perform the
Obligations.
"Maturity Date" shall mean with respect to any AGF Note, the date on
which such AGF Note matures pursuant to the terms thereof.
"Maximum Lawful Rate" means the maximum rate (or, if the context so
permits or requires, an amount calculated at such rate) of interest which, at
the time in question would not cause the
CREDIT AGREEMENT 10
<PAGE>
interest charged on the portion of the Loans owed to Lender at such time to
exceed the maximum amount which Lender would be allowed to contract for,
charge, take, reserve, or receive under applicable law after taking into
account, to the extent required by applicable law, any and all relevant
payments or charges under the Loan Documents. To the extent the laws of the
State of Texas are applicable for purposes of determining the "Maximum Lawful
Rate," such term shall mean the "indicated rate ceiling" from time to time in
effect under Article 1.04, Title 79, Revised Civil Statutes of Texas, 1925,
as amended, or, if permitted by applicable law and effective upon the giving
of the notices required by such Article 1.04 (or effective upon any other
date otherwise specified by applicable law), the "quarterly ceiling" or
"annualized ceiling" from time to time in effect under such Article 1.04,
whichever Lender shall elect to substitute for the "indicated rate ceiling,"
and VICE VERSA, each such substitution to have the effect provided in such
Article 1.04, and Lender shall be entitled to make such election from time to
time and one or more times and, without notice to Borrower, to leave any such
substitute rate in effect for subsequent periods in accordance with
subsection (h)(1) of such Article 1.04.
"Minimum Notice Requirement" has the meaning set forth in SECTION 2.3.
"Obligations" means all present and future indebtedness, obligations and
liabilities, and all renewals and extensions thereof, or any part thereof, of
Borrower, to Lender arising pursuant to the Loan Documents, and all interest
accrued thereon and costs, expenses, and attorneys' fees incurred in the
enforcement or collection thereof, regardless of whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several.
"Operating Lease" means any operating lease, as defined in the Financial
Accounting Standard Board Statement of Financial Accounting Standards No. 13
dated November, 1976, or otherwise in accordance with GAAP.
"PBGC" means the Pension Benefit Guaranty Corporation, or its successors.
"Pension Plan" means any Employee Plan that is now or was
CREDIT AGREEMENT 11
<PAGE>
previously covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code.
"Permitted Disposition" means any sale of stock of Borrower in
connection with (a) an initial public offering, and (b) any stock option plan
approved by Borrower's board of directors in accordance with sound business
judgment and so long as any such plan does not require any fundings or stock
purchases by Borrower.
"Permitted Liens" means:
(a) Liens and encumbrances in favor of Lender;
(b) Liens for taxes, assessments or other governmental charges incurred
in the ordinary course of business and not yet past due or being contested in
good faith by appropriate proceedings and with proper reserves therefor
maintained in accordance with GAAP;
(c) Liens not delinquent created by statute in connection with worker's
compensation, unemployment insurance, social security and similar statutory
obligations;
(d) Liens of mechanics, materialmen, carriers, warehousemen or other
like statutory or common law liens securing obligations incurred in good
faith in the ordinary course of business that are not yet due and payable or
that are being contested in good faith by appropriate proceedings and with
proper reserves therefor maintained in accordance with GAAP;
(e) encumbrances consisting of easements, rights of way, zoning
restrictions or other similar restrictions on the use of real property, none
of which materially impairs the use of such property by Borrower or any
Subsidiary in the operation of the business for which it is used and none of
which is violated in any material respect by any existing or proposed
structure or land use; and
(f) Liens on furniture, fixtures and equipment for purchase money
financing (including loans and leases) hereafter existing.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or
organization, including a government or political
CREDIT AGREEMENT 12
<PAGE>
subdivision or an agency or instrumentality thereof.
"Regulatory Change" means the adoption after the date hereof of any
applicable law, rule or regulation, or any change after the date hereof in
any applicable law, rule or regulation, or any change after the date hereof
in the interpretation or administration thereof by any Governmental Authority
charged with the administration thereof.
"Reporting Date" means each March 31, June 30, September 30 and December
31, during the Credit Period.
"Request for Advance" means a request for an Advance from Lender in the
form attached hereto as EXHIBIT A.
"Security Documents" means (a) the Collateral Assignment, (b) all other
documents or instruments granting a Lien in favor of Lender as collateral for
the Loans, (c) all financing statements related thereto, and (d) any
documents executed in modification, renewal, extension or replacement of any
of the foregoing.
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions
(including that of a general partner) are at the time directly or indirectly
owned, collectively, by Borrower and any Subsidiaries of Borrower. The term
Subsidiary shall include Subsidiaries of Subsidiaries (and so on).
"Tangible Net Worth" means, as of any date, the total shareholder's
equity (including capital stock, additional paid-in capital and retained
earnings) which would appear on a balance sheet of Borrower prepared as of
such date in accordance with GAAP LESS the aggregate book value of Intangible
Assets shown on such balance sheet.
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or other charges of
any nature whatsoever, from time to time or at any time imposed by law or any
federal, state or local governmental agency, other than Taxes imposed upon
Lender with respect to any of its franchises, businesses, income or
CREDIT AGREEMENT 13
<PAGE>
profits.
"Telerate Screen" means the display designated as Screen 3750 on the
Telerate System or such other screen on the Telerate System as shall display
the London interbank offered rates for deposits in U.S. dollars quoted by
selected banks.
"Termination Date" means May 1, 1998.
"Total Revolving Commitment" means the $5,000,000 revolving credit
facility established by Lender for Borrower pursuant to that certain
$5,000,000 Revolving Credit Agreement, dated August 1, 1997, by and between
Lender and Borrower.
"Treasury Rate" means the fluctuating rate of interest per annum (as of
the date of determination) on U.S. Treasury Notes having a maturity of seven
(7) years as shown in the seven-year listing in the "this week" column under
the heading "Treasury Constant Maturities" of the Federal Reserve statistical
release Form H.15 or, if such published rate of interest is not available for
any reason at least ten (10) Business Days prior to the date of
determination, such other comparable rate of interest determined by Lender,
in its reasonable discretion.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared on a
consolidated basis with Borrower's Subsidiaries in accordance with GAAP as in
effect from time to time, applied on a basis consistent with the most recent
audited financial statements of Borrower.
SECTION 1.3. GENDER AND NUMBER. Words of any gender used in this
Credit Agreement shall be held and construed to include any other gender and
words in the singular number shall be held to include the plural, and vice
versa, unless the context requires otherwise.
SECTION 1.4. REFERENCES TO CREDIT AGREEMENT. Use of the words
"herein", "hereof", "hereinabove", and the like are and shall be construed as
references to this Credit Agreement. All references in this Credit Agreement
to Schedules, Exhibits, Articles, Section, subsections, paragraphs and
subparagraphs refer
CREDIT AGREEMENT 14
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to the respective subdivisions of this Credit Agreement,
unless such reference specifically identifies another document.
CREDIT AGREEMENT 15
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ARTICLE II
ADVISED GUIDANCE FACILITY
SECTION 2.1. COMMITMENT. During the Credit Period, Lender agrees,
subject to this SECTION 2.1 AND ARTICLE V and the other terms and conditions
set forth in this Credit Agreement, to have available sufficient proceeds to
make Loans to Borrower from time to time in an amount not to exceed
$5,000,000.00 in the aggregate at any one time outstanding (the "ADVISED
GUIDANCE FACILITY") to finance the purchase and subsequent lease of certain
types of communications equipment. All Loans under the Advised Guidance
Facility shall be made by Lender in its sole and absolute discretion,
Borrower hereby acknowledging and agreeing that Lender may elect not to make
any Loan or Loans under the Advised Guidance Facility with or without cause.
All Loans shall be cross-collateralized and cross-defaulted. Once Lender has
approved a Loan, Borrower shall be entitled to obtain Advances thereof in
amounts approved by lender and in accordance with the terms of this Credit
Agreement. Each Loan under the Advised Guidance Facility shall be in a
minimum principal amount of $250,000.00, and each Advance under a Loan shall
be in a minimum principal amount of $100,000.00 except for the final Advance
under a Loan which can be in a smaller amount. Subject to the foregoing
limitations, Borrower may borrow under this SECTION 2.1, repay or prepay the
applicable AGF Note (without premium or penalty, other than as set forth in
SECTION 2.3 with respect to LIBOR Rate Loans) and reborrow under this SECTION
2.1 at any time during the Credit Period.
SECTION 2.2. METHOD OF BORROWING. Borrower shall be entitled to
obtain Loans and Advances under Loans from Lender pursuant to SECTION 2.1 in
the following manner:
(a) APPLICABLE BASE RATE LOANS. In the case of any Advance which
shall initially bear interest with respect to the Base Rate, Borrower,
through an Authorized Officer, shall give Lender at least three Business Days
prior to the date of any such proposed Advance, a Request for Advance
specifying its desire to borrow such Advance hereunder. Notice shall be
given to Lender prior to 10:00 a.m., Dallas, Texas time, in order for such
Business Day to count toward the minimum number of Business Days required.
Such Request for Advance shall be accompanied by the documents required to be
delivered pursuant to ARTICLE V.
CREDIT AGREEMENT 16
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(b) LIBOR RATE LOANS. In the case of an Advance which shall
initially bear interest with respect to the LIBOR Rate, Borrower, through an
Authorized Officer, shall give Lender at least three Business Days prior to
the date of any such proposed Advance, a Request for Advance specifying its
desire to borrow such Advance hereunder. Notice shall be given to Lender
prior to 10:00 a.m., Dallas, Texas time, in order for such Business Day to
count toward the minimum number of Business Days required. LIBOR Rate Loans
shall in all cases be subject to availability and to SECTION 3.4 hereof. For
LIBOR Rate Loans, the Request for Advance shall specify the requested funding
date, which shall be a Business Day, the amount of the proposed Advance to be
made by Lender, the Interest Period selected (provided that no such Interest
Period shall extend past the Maturity Date for the AGF Note under which the
applicable LIBOR Rate Loan was made) and shall be accompanied by the
documents required to be delivered pursuant to ARTICLE V. Such Advance shall
be in an amount not less than Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00).
(c) FIXED RATE LOANS. If Borrower wants a Loan to bear interest with
respect to the Fixed Rate, Borrower, through an Authorized Officer, shall
give Lender at least five Business Days prior to the date of the initial
Advance under such proposed Loan a Request for Advance specifying its desire
to borrow such Advance hereunder. Notice shall be given to Lender prior to
10:00 a.m., Dallas, Texas time, in order for such Business Day to count
toward the minimum number of Business Days required. Lender shall notify
Borrower two Business Days after such Request for Advance of the Fixed Rate
which would be applicable to such Loan. Within one Business Day after Lender
notifies Borrower of the applicable Fixed Rate, Borrower shall notify Lender
as to whether Borrower elects to have such Fixed Rate applicable to such Loan
or whether Borrower elects to have the Applicable Base Rate or Adjusted LIBOR
Rate applicable to such Loan and initial Advance thereunder. If Borrower
elects to have the Adjusted LIBOR Rate applicable to such Loan and initial
Advance thereunder, Borrower shall also provide to Lender the information
required under clause (b) above with respect to such LIBOR Rate election.
Once Borrower has elected the interest rate to be applicable to such Loan
pursuant hereto, such election shall be irrevocable. Each Fixed Rate Loan
shall be in an amount not less than Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00) and the Fixed Rate shall apply to the entire Loan for
the full term thereof.
CREDIT AGREEMENT 17
<PAGE>
(d) APPROVAL OF LOANS. Borrower shall make a request for a Loan no
less than ten (10) Business Days prior to the date Borrower wants the initial
Advance to be made under such Loan. Such request for a Loan shall set forth
the proposed amount of the Loan, the Equipment to be purchased with the
proceeds thereof and the proposed Equipment Lease related thereto, together
with such information related to such Equipment, the lessee under the
proposed Equipment Lease and such other matters as Lender may request.
(e) LENDER'S APPROVAL. Within five (5) Business Days after receipt of
a request of a Loan pursuant to clause (d) above, Lender shall notify
Borrower as to whether Lender will make the Loan requested, which
determination shall be made in Lender's sole discretion. Within three (3)
Business Days (or five (5) Business Days with respect to a Fixed Rate Loan)
after receipt of a Request for Advance pursuant to clauses (a) through (c)
above and subject to Borrower's compliance with the conditions precedent set
forth in Article V hereof, Lender shall advance to Borrower that portion of
the Advance requested which relates to Equipment (and labor) approved by
Lender to be purchased and paid with the proceeds of the related Loan. If
Lender fails to notify Borrower within such five or three day period, as
applicable, that it is willing to make the Loan or Advance (or portion
thereof) being requested, Lender shall be deemed to have denied Borrower's
request for such Loan or Advance (or portion thereof), as applicable.
SECTION 2.3. INTEREST RATE.
(a) Interest on the Loans shall accrue at a rate per annum equal to
the lesser of (i) at Borrowers' option, the Applicable Base Rate, the
applicable Adjusted LIBOR Rate, or the Fixed Rate (the "APPLICABLE RATE"), or
(ii) the Maximum Lawful Rate. Without notice to Borrowers or anyone else,
the Applicable Base Rate and the Maximum Lawful Rate shall each automatically
fluctuate upward and downward as and in the amount by which the Base Rate and
Maximum Lawful Rate, respectively, fluctuate, subject always to limitations
contained in this Agreement.
(b) Upon at least three (3) Business Days' prior written notice to
Lender ("MINIMUM NOTICE REQUIREMENT"), Borrower may through an Authorized
Officer, on any Interest Adjustment Date (other than the Maturity Date for
the AGF Note under which the applicable LIBOR Rate Loan was made), convert
amounts of any LIBOR
CREDIT AGREEMENT 18
<PAGE>
Rate Loan into a Base Rate Loan with interest accruing thereon, with
reference to the Base Rate Loan, as provided in SECTION 2.2 above.
(c) Upon satisfaction by Borrower of the Minimum Notice
Requirement, and subject to the conditions provided in this Agreement or the
applicable AGF Note, Borrower may through an Authorized Officer, on any date
prior to the Maturity Date for the AGF Note under which the applicable Base
Rate Loan was made, convert amounts of not less than Two Hundred Fifty
Thousand and No/100 Dollars ($250,000.00) in the aggregate on the same date
of any Base Rate Loan into a LIBOR Rate Loan with interest accruing thereon
with reference to the applicable Adjusted LIBOR Rate as provided in SECTION
2.2 above, for the Interest Period selected in such notice.
(d) If the Fixed Rate is applicable to any Loan, such interest
rate shall not be subject to change by Borrower.
(e) To the extent Borrower has not made an effective election
under and in accordance with SUBPARAGRAPHS (a) OR (b) above (including,
without limitation, at the expiration of an Interest Period), the Applicable
Rate shall be the rate specified pursuant to the provisions contained herein
for a Base Rate Loan. If Borrower has failed to make such election at the
end of an Interest Period, Lender shall be deemed to have made a Base Rate
Loan in the amount, and in replacement, of the LIBOR Rate Loan then maturing.
Each notice of a LIBOR Rate election by Borrower must be given by
an Authorized Officer, must satisfy the Minimum Notice Requirement and shall
include the following: (i) Borrower's election of the applicable Adjusted
LIBOR Rate; (ii) Borrower's choice of an Interest Period during which the
Adjusted LIBOR Rate will apply; (iii) Borrower's election of the effective
date (the "EFFECTIVE DATE") on which the LIBOR Rate Loan shall begin; and
(iv) the amount of outstanding loan principal which for any LIBOR Rate Loan
shall not be less than Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00) (or any whole multiple of One Hundred Thousand and No/100
Dollars ($100,000.00) in excess thereof), to which the Adjusted LIBOR Rate
shall apply. Borrower shall give notice of such election to Lender.
Borrower's election to convert to a LIBOR Rate Loan is subject
CREDIT AGREEMENT 19
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to the following conditions: (1) the Interest Period shall be limited to a
period commencing on the Effective Date and ending on a date 30, 60 or 90
days later elected by Borrower in its notice to Lender; (2) Borrower's
written notice of an election shall be received by Lender in time to satisfy
the Minimum Notice Requirement; (3) the last day of the Interest Period will
not be subsequent in time to the Maturity Date for the AGF Note under which
the applicable LIBOR Rate Loan was made; (4) in the case of a continuation of
a LIBOR Rate Loan, the Interest Period applicable after such continuation
shall commence on the last day of the preceding Interest Period; (5) no LIBOR
Rate election shall be made if Lender notifies Borrower that it has
determined by reason of circumstances affecting the interbank Eurodollar
market that either adequate or reasonable means do not exist for ascertaining
the Adjusted LIBOR Rate for any Interest Period, or it becomes impracticable
for Lender to obtain funds by purchasing U.S. dollars in the interbank
Eurodollar market, or if Lender determines that the Adjusted LIBOR Rate will
not adequately or fairly reflect the costs to Lender of maintaining the
applicable LIBOR Rate Loan at such rate, or if as a result of any Regulatory
Change, it shall become unlawful or impossible for Lender to maintain any
such LIBOR Rate election; (6) there shall never be more than two (2) LIBOR
Rate Loans, in the aggregate, in effect at any one time under any AGF Note;
and (7) no LIBOR Rate election shall be made after the occurrence and during
the continuance of an Event of Default.
If, on or after the Effective Date, any Regulatory Change shall make it
unlawful or impossible for Lender (or its Eurodollar lending office) to make,
maintain or fund LIBOR Rate Loans or Fixed Rate Loans or if Lender determines
that it may not lawfully continue to maintain and fund any of its outstanding
LIBOR Rate Loans or Fixed Rate Loans to maturity, Borrower shall immediately
prepay in full the then outstanding principal amount of Lender's LIBOR Rate
Loans or Fixed Rate Loans, as applicable, together with accrued interest
thereon.
Borrower shall indemnify Lender against any Consequential Loss which
Lender may sustain or incur as a consequence of Borrower's failure to make a
payment on the date such payment is due hereunder or the payment, prepayment
or conversion of any LIBOR Rate Loan or Fixed Rate Loan hereunder on a day
other than an Interest Adjustment Date (with respect to LIBOR Rate Loans) or
applicable maturity date (with respect to Fixed Rate Loans).
CREDIT AGREEMENT 20
<PAGE>
Borrowers shall also indemnify Lender against and reimburse Lender for
increased costs to Lender, as a result of any Regulatory Change, in the
maintaining of any LIBOR Rate Loans or Fixed Rate Loans. All payments made
pursuant to this paragraph shall be made free and clear, without reduction
for, or account of, any present or future taxes or other levies of any
nature, excluding income, franchises, business, and profits taxes.
SECTION 2.4. AGF NOTE. Loans made under the Advised Guidance Facility
shall be evidenced by the AGF Notes. Each AGF Note shall set forth the
maximum principal amount of the Loan which may be funded pursuant to such AGF
Note. The applicable Advances under an AGF Note shall be funded by Lender in
such minimum amounts as set forth in SECTION 2.1; provided, that Lender's
obligation to make any Advances under the respective AGF Note shall terminate
upon the earlier of (a) the date on which the maximum amount of the Advances
as set forth in the applicable AGF Note has been funded and is outstanding,
or (b) a date occurring sixty (60) days after the date of such AGF Note.
SECTION 2.5. PRINCIPAL PAYMENTS; TERMINATION OF ADVISED GUIDANCE
FACILITY. The outstanding principal balance of each AGF Note, together with
all accrued but unpaid interest thereon, shall be due and payable in full as
provided in the applicable AGF Note, but in any event on or before the
earlier of (a) the termination of the Total Revolving Commitment, or (b) the
Maturity Date for each AGF Note. The Advised Guidance Facility shall
terminate on the Termination Date, and, after such date, Lender shall have no
obligation to make any additional Loans under this ARTICLE II.
ARTICLE III
GENERAL PROVISIONS RELATED TO LOAN PAYMENTS
SECTION 3.1. GENERAL PROVISIONS AS TO PAYMENTS. Borrower shall make
each payment of principal of, and interest on, the Loans and all fees payable
hereunder not later than 10:00 a.m. (Dallas, Texas time) on the date when
due, in immediately available funds in Dallas, Texas, to Lender at its
address referred to in SECTION 9.1. Upon payment by Borrower to Lender of
any amounts due and owing pursuant to this Credit Agreement, Borrower shall
be discharged from all obligations with respect to such payment. Whenever
any payment of principal of, or interest on, the Loans shall be due on
CREDIT AGREEMENT 21
<PAGE>
a day which is not a Business Day, the date for payment thereof shall be
extended to the next succeeding Business Day. Prior to the occurrence of an
Event of Default, all payments made on the Loans shall be applied first to
accrued but unpaid interest and then to principal. After the occurrence of
an Event of Default, all payments made on the Loans shall be applied in such
manner as Lender shall determine in its sole discretion.
SECTION 3.2. OVERDUE PRINCIPAL AND INTEREST. Any overdue principal of
and, to the extent permitted by law, overdue interest on any Loan (after
giving effect to all grace periods) shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the lesser of the
Maximum Lawful Rate or the sum of four percent (4%) plus the Base Rate (the
"DEFAULT RATE").
SECTION 3.3. MAXIMUM LAWFUL RATE. If at any time the Applicable Rate
(the "contract rate") is limited to the Maximum Lawful Rate, any subsequent
reductions in the contract rate shall not reduce the rate of interest on the
affected Loan below the Maximum Lawful Rate until the total amount of
interest accrued equals the amount of interest which would have accrued if
the contract rate had at all times been in effect. In the event that at
maturity (stated or by acceleration), or at final payment of any AGF Note,
the total amount of interest paid or accrued on the AGF Note is less than the
amount of interest which would have accrued if the contract rate had at all
times been in effect with respect thereto, then at such time, to the extent
permitted by law, Borrower shall pay to the holder of an AGF Note an amount
equal to the difference between (a) the lesser of the amount of interest
which would have accrued if the contract rate had at all times been in effect
and the amount of interest which would have accrued if the Maximum Lawful
Rate had at all times been in effect, and (b) the amount of interest actually
paid on the AGF Note.
SECTION 3.4. INCREASED COSTS AND LEGAL RESTRICTIONS APPLICABLE TO THE
ADVISED GUIDANCE FACILITY. If, after the date hereof, any Regulatory Change
shall occur which:
(a) imposes, modifies or deems applicable any reserve, special deposit,
compensatory loan, deposit insurance, capital adequacy, minimum capital,
capital ratio or similar requirement against all or any assets held by,
deposits or accounts with, credit extended by or to, or commitments to extend
credit or any other acquisition of funds by Lender which affects financial
CREDIT AGREEMENT 22
<PAGE>
transactions entered into by Lender similar to the transactions contemplated
by this Credit Agreement, or imposes on Lender any other condition affecting
the maintaining of the Advised Guidance Facility; or
(b) subjects Lender to, or causes the termination or reduction of a
previously granted exemption with respect to, any Taxes with respect to
maintaining its Advised Guidance Facility;
and the result of any of the foregoing events is to increase the cost to
Lender of maintaining the Advised Guidance Facility or to reduce the amount
of any sums received or receivable by it under this Credit Agreement or any
other Loan Document, or to reduce the rate of return on Lender's equity in
connection with this Credit Agreement, as the case may be, then, in any such
case, Lender shall notify Borrower within thirty (30) days of Lender's
becoming aware of such additional amount or amounts which Lender will require
to be paid to compensate Lender for any such additional cost, reduced
benefit, reduced amount received or reduced rate of return, and Borrower
shall pay such required amount within five (5) days after such notice from
Lender. Lender shall use its best efforts (consistent with its internal
policy and legal and regulatory restrictions) to avoid such additional cost,
reduced benefit, reduced amount received or reduced rate of return; provided,
however, that the failure of Lender to take any action shall not limit or
otherwise affect the obligations of Borrower under this SECTION 3.4. If
Lender sustains or incurs any additional cost, reduced benefit, reduced
amount received or reduced rate of return, its demand for payment pursuant to
this SECTION 3.4 shall include a written statement of the nature and amounts
thereof, which statement shall be presumed correct and prima facie evidence
of the amounts thereof. Lender will exercise reasonable efforts to provide
such statement promptly after learning of the basis therefore, but the
failure of Lender to act promptly shall not limit or otherwise affect the
obligations of Borrower under this SECTION 3.4.
SECTION 3.5. PREPAYMENTS OF LOANS; REDUCTION OF ADVISED GUIDANCE
FACILITY.
(a) At any time, Borrower may by notice to Lender prior to 10:00
a.m. (Dallas, Texas time) at least three Business Days prior to the date on
which prepayment under this SECTION 3.5 is to be made, voluntarily prepay
outstanding Loans from time to time and
CREDIT AGREEMENT 23
<PAGE>
at any time, in whole or in part, other than Fixed Rate Loans; provided, that
(i) each such partial payment with respect to any Loan must be in a minimum
amount of at least Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00), and (ii) Borrower shall pay any related Consequential Losses
within ten days after Lender's demand therefor. Borrower must obtain
Lender's prior written consent to prepay a Fixed Rate Loan.
(b) Borrower may terminate the Advised Guidance Facility at any
time and from time to time provided that (i) notice of such termination must
be received by Lender by 10:00 a.m. Dallas, Texas, time on the first Business
Day preceding the effective date of such termination, and (ii) in no event
shall Borrower be entitled to reduce the Advised Guidance Facility, unless
Borrower has elected to terminate the Advised Guidance Facility in full.
(c) If Borrower shall prepay any LIBOR Rate Loan or Fixed Rate
Loan prior to the expiration of its applicable Interest Period or maturity,
as the case may be, Borrower shall pay Lender a prepayment fee in an amount
equal to the consequential loss (the "CONSEQUENTIAL LOSS") incurred by Lender
as a result of any such prepayment, such Consequential Loss to be an amount
equal to any losses, costs or expenses incurred by Lender by virtue of such
prepayment, which such loss, cost or expense shall include that which Lender
may sustain or incur in liquidating or employing deposits from Lender or
third parties acquired to effect, fund or maintain any such LIBOR Rate Loan
or Fixed Rate Loan. Such loss or expense shall include, without limitation,
(i) any expense or penalty incurred by Lender in redepositing such principal
amount, plus (ii) any "breakage" fees that Lender is required to pay by
reason of the early breakage of any customary LIBOR or other contract entered
into by Lender in connection with providing funds for such LIBOR Rate Loan or
Fixed Rate Loan. Any prepayment fee required to be paid by Borrower pursuant
to this SECTION 3.5 or any other provisions of this Agreement or of the other
Loan Documents in connection with the prepayment of any LIBOR Rate Loan or
Fixed Rate Loan shall be due and payable whether such prepayment is being
made voluntarily or involuntarily, including, without limitation, as a result
of an acceleration of sums due under LIBOR Rate Loans or Fixed Rate Loans or
any part thereof due to an Event of Default.
ARTICLE IV
CREDIT AGREEMENT 24
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COLLATERAL FOR THE ADVISED GUIDANCE FACILITY
SECTION 4.1. SECURITY. In order to secure the Obligations under or
related to all AGF Notes and the Advised Guidance Facility, Borrower shall:
(a) execute and deliver to Lender the Collateral Assignment, pursuant
to which Borrower shall assign to Lender each Equipment Lease and grant to
Lender a first priority security interest in all Equipment; and
(b) execute and deliver all necessary financing statements and such
other documents, instruments and agreements as Lender shall deem reasonably
necessary or appropriate to (i) create and perfect in favor of Lender a first
and prior Lien in and to the Equipment Leases and all Equipment, and (ii)
enforce the obligation of Borrower to assign the Equipment Leases.
SECTION 4.2. LEASE AND OPERATION OF EQUIPMENT. Borrower shall not
lease the Equipment except pursuant to Approved Equipment Leases, and shall
deliver to Lender as soon as practicably possible all information requested
by Lender related to any Equipment proposed to be purchased by Borrower with
the proceeds of a Loan (including, any purchase orders, invoices or receipts
related thereto).
ARTICLE V
CONDITIONS PRECEDENT TO ADVANCES
The obligation of Lender to make an Advance hereunder is subject to the
satisfaction of the following conditions:
SECTION 5.1. ALL ADVANCES. In the case of each Advance:
(a) timely receipt by Lender of a Request for Advance;
(b) immediately before and after giving effect to such Advance, no
Default shall have occurred and be continuing and the making of any Advance
shall not cause a Default;
(c) the representations and warranties contained in this
CREDIT AGREEMENT 25
<PAGE>
Credit Agreement and in the other Loan Documents shall be true and correct in
all material respects on and as of the date of such Advance subject to any
changes in such representations and warranties not prohibited in this
Agreement, except that all representations and warranties that speak as of a
particular date shall only be required on the date of each such advance to be
true and correct in all material respects as of the date to which such
representation or warranty speaks and not as of any subsequent date; and
(d) receipt by Lender of (i) a description of the Equipment to be
purchased with the proceeds of the Advance, and (ii) any other information
requested by Lender pursuant to SECTION 4.2.
Each Advance hereunder shall be deemed to be a representation and
warranty by Borrower on the date of such Advance as to the facts specified in
SECTIONS 5.1(b) AND (c).
SECTION 5.2. PARTICULAR ADVANCES. In the case of the first Advance
under each AGF Note:
(a) all conditions set forth in SECTION 5.1 shall be satisfied;
(b) Borrower shall have executed and delivered to Lender the AGF Note
with respect to the Loan under which such Advance was made; and
(c) receipt by Lender of (i) a description of the Equipment to be
purchased with the proceeds of the Loan, (ii) a copy of the fully executed
Equipment Lease covering such Equipment, (iii) a fully executed consent to
the assignment of such Equipment Lease executed by Borrower and the
applicable lessee, and (iv) any other information requested by Lender
pursuant to SECTION 4.2.
SECTION 5.3. CLOSING DATE REQUIREMENTS. On or before the Closing
Date, Borrower shall deliver to Lender:
(a) this Credit Agreement, duly executed by Borrower;
(b) any applicable AGF Note, duly executed by Borrower;
(c) the Collateral Assignment, duly executed by Borrower;
CREDIT AGREEMENT 26
<PAGE>
(d) all other Security Documents required by Lender as of the Closing
Date, duly executed;
(e) an opinion of counsel for Borrower favorably opining as to the due
organization and existence of Borrower, the enforceability of each of the
Loan Documents and otherwise being in form and substance reasonably
satisfactory to Lender; and
(f) all resolutions, certificates or documents Lender may request
relating to the existence of Borrower, the corporate authority for the
execution and validity of this Credit Agreement and the other Loan Documents
and any other matters relevant hereto, all in form and substance reasonably
satisfactory to Lender.
The documents, certificates and opinions referred to in this SECTION 5.2
shall be delivered to Lender no later than the Closing Date. The
certificates, opinions and documents referred to in this SECTION 5.2 shall,
where Lender deems appropriate, be dated the Closing Date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
SECTION 6.1. USE OF PROCEEDS. Borrower will use the proceeds of the
Loans for the purposes set forth in SECTION 2.1 hereof. Borrower will not,
directly or indirectly, use any of the proceeds of the Loans for the purpose
of purchasing or carrying, or retiring any Debt which was originally incurred
to purchase or carry, any "margin stock" as defined in the Margin
Regulations, or to purchase or carry any "security that is publicly-held"
within the meaning of Regulation T of the Board of Governors of the Federal
Reserve System, or otherwise take or permit any action which would involve a
violation of such Margin Regulations or any other regulation of such Board of
Governors. The Loans are not secured, directly or indirectly, in whole or in
part, by collateral that includes any "margin stock" within the meaning of
the Margin Regulations. Borrower will not engage principally, or as one of
its important activities, in the business of extending credit for the purpose
of purchasing or carrying any "margin stock" within the
CREDIT AGREEMENT 27
<PAGE>
meaning of the Margin Regulations.
SECTION 6.2. CORPORATE EXISTENCE AND POWER. Borrower is a
corporation, duly organized, validly existing and in good standing under the
laws of the state of its organization, and has all power and authority
necessary to carry on its business as now conducted.
SECTION 6.3. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance of this Credit Agreement and the
other Loan Documents by Borrower are within its corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable
law or regulation (including, without limitation, the Margin Regulations) or
of the articles of incorporation or bylaws of Borrower or of any material
judgment, injunction, order, decree or material agreement binding upon
Borrower or its assets, or result in the creation or imposition of any Lien
on any asset of Borrower, except as contemplated thereby.
SECTION 6.4. BINDING EFFECT. This Credit Agreement constitutes a
valid and binding agreement of Borrower. Each AGF Note and each other Loan
Document when executed and delivered in accordance with this Credit
Agreement, will constitute a valid and binding obligation of Borrower, each
enforceable in accordance with its terms except as (a) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors rights generally, and (b) the availability of equitable remedies
may be limited by equitable principles of general applicability.
SECTION 6.5. FINANCIAL INFORMATION.
(a) The current financial statements of Borrower and all the other
financial reports and information of Borrower that have been delivered to
Lender are true and correct in all material respects as of the date of such
current financial statements and other reports and information.
(b) Except as disclosed in writing to Lender prior to the Closing
Date, since the later of March 31, 1997, or the date of the most recent
quarterly financial statements delivered to Lender, there has been no
material adverse change in the business,
CREDIT AGREEMENT 28
<PAGE>
financial position or results of operations of Borrower; and, there exists no
condition, event or occurrence that could reasonably be expected to have a
Material Adverse Effect on Borrower.
SECTION 6.6. LITIGATION. There is no action, suit or proceeding
pending against, or to the knowledge of Borrower, threatened against or
affecting Borrower before any court or arbitrator, any governmental body,
agency or official which could reasonably be anticipated to have a Material
Adverse Effect on Borrower, or which could in any manner draw into question
the validity of the Loan Documents.
SECTION 6.7. TAXES AND FILING OF TAX RETURNS. Borrower has filed all
tax returns required to have been filed and has paid or has made adequate
provision for payment of all Taxes shown to be due and payable on such
returns, including interest and penalties, and all other Taxes which are
payable by Borrower, to the extent the same have become due and payable.
Borrower has no knowledge of any proposed Tax assessment against it other
than customary ad valorem taxes or other Taxes to become due in the normal
course of business, and Borrower has made adequate provisions for all Tax
liabilities. No income tax liability of Borrower has been asserted by the
Internal Revenue Service for Taxes in excess of those already paid.
SECTION 6.8. BUSINESS; COMPLIANCE. Borrower has performed and abided
by all obligations required to be performed by it under all agreements to
which it is a party, if its failure to so perform would have a Material
Adverse Effect.
SECTION 6.9. LICENSES, PERMITS, ETC. Borrower possesses such valid
franchises, certificates, licenses, permits, consents, authorizations,
exemptions and orders of tribunals as are necessary to carry on its business
as now being conducted and as proposed to be conducted, and which if not
possessed by Borrower would have a Material Adverse Effect.
SECTION 6.10. COMPLIANCE WITH LAW. The business and operations of
Borrower have been and are being conducted in accordance with all applicable
laws, rules and regulations of all tribunals, other than violations which
could not (either individually or collectively) have a Material Adverse
Effect.
CREDIT AGREEMENT 29
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SECTION 6.11. FULL DISCLOSURE. No written information heretofore
furnished by Borrower or, to the knowledge of Borrower, on behalf of Borrower
to Lender for the purposes of this Credit Agreement or any transaction
contemplated hereby, contained and no written information hereafter furnished
by Borrower to Lender for purposes of this Credit Agreement or any
transaction contemplated hereby will contain, any untrue statement of a
material fact or omit a material fact necessary to make the statements
therein not materially misleading in light of the facts and circumstances
existing at the time.
SECTION 6.12. FISCAL YEAR. Borrower's fiscal year ends on June 30th of
each year.
SECTION 6.13. ENVIRONMENTAL MATTERS. Except as otherwise disclosed to
Lender, Borrower (i) does not know of any environmental condition or
circumstance, such as the presence of any hazardous substance (as defined in
SECTION 7.12), adversely affecting the properties or operation of Borrower,
(ii) has not received any report of a violation by Borrower of any Applicable
Environmental Law, or (iii) do not know that Borrower is under any obligation
to remedy any violation of any Applicable Environmental Law.
SECTION 6.14. ERISA.
(a) Each Employee Plan has been maintained and administered in
substantial compliance with the applicable requirements of the Code and ERISA
except to the extent that the failure to have done so would not have a
Material Adverse Effect on Borrower. No circumstances exist with respect to
any Employee Plan that could have a Material Adverse Effect on Borrower.
(b) With respect to each Pension Plan, (i) no accumulated funding
deficiency (within the meaning of Section 412(a) of the Code), whether waived
or unwaived, exists; (ii) the present value of accrued benefits (based on the
most recent actuarial valuation prepared for each such plan, if any, in
accordance with ongoing assumptions) does not exceed the current value of
plan assets allocable to such benefits by a material amount; (iii) no
reportable event (within the meaning of Section 4043 of ERISA) other than
purchases and sales of securities from a plan trustee as reported in the
audited financial statements
CREDIT AGREEMENT 30
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of such plan has occurred; (iv) no uncorrected prohibited transactions
(within the meaning of Section 4975 of the Code) exist; (v) to the extent
such plan is covered by PBGC, no material liability to the PBGC exists and no
circumstances exist that could reasonably be expected to result in any such
liability; and (vi) no material withdrawal liability (within the meaning of
Section 4201(a) of ERISA) exists and no circumstances exist that could
reasonably be expected to result in any such liability; except, with respect
to each of the foregoing clauses in this subparagraph (b), where such
existence, excess or occurrence, as applicable, does not have and could not
have a Material Adverse Effect on Borrower.
(c) As of the date hereof, Borrower has no obligation under any
Employee Plan to provide post-employment health care benefits to any of its
current or former employees that could have a Material Adverse Effect on
Borrower, except as may be required by Section 4980B of the Code.
ARTICLE VII
COVENANTS
Borrower agrees that so long as Lender has any obligation under ARTICLE
II hereof or any amount payable under any AGF Note remains unpaid:
SECTION 7.1. INFORMATION. Borrower will deliver, or cause to be
delivered, to Lender:
(a) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of Borrower, an audited balance sheet of Borrower
as of the end of such fiscal year and the related audited statements of
income and changes in cash flow for such fiscal year, all reported by
Borrower in accordance with GAAP, and audited by an independent public
accountant acceptable to Lender;
(b) as soon as available and in any event within forty-five (45) days
after the end of each quarter in each fiscal year of Borrower, an unaudited
balance sheet of Borrower as of the end of such quarter and the related
unaudited statements of income and
CREDIT AGREEMENT 31
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cash flow for such quarter, all reported by Borrower in accordance with GAAP,
subject to year-end audit adjustment;
(c) simultaneously with the delivery of each set of financial
statements referred to in SECTIONS 7.1(a) AND (b), a certificate of Borrower
as to compliance with the financial covenants contained in SECTIONS 7.12
signed by an Authorized Officer of Borrower;
(d) as soon as available, any and all public filings and any reports or
other information delivered to Borrower's shareholders generally as such; and
(e) from time to time such additional financial statements and
financial information regarding the financial position or business of
Borrower as Lender may reasonably request.
SECTION 7.2. FINANCIAL COVENANTS. Borrower covenants and agrees that:
(a) MINIMUM TANGIBLE NET WORTH. In no event shall Borrower permit its
Tangible Net Worth to be less than the sum of (i) $3,200,000.00, plus (ii)
the proceeds from any equity offering by Borrower, plus (iii) as of the end
of each fiscal quarter commencing with September 30, 1997, the product of (A)
fifty percent (50%) times (B) the net income of Borrower for the immediately
preceding fiscal quarter; provided, that in no case shall such sum be less
than the minimum Tangible Net Worth calculated hereunder for the previous
quarter.
(b) DEBT TO WORTH RATIO. In no event shall Borrower permit the ratio
of its Debt to Tangible Net Worth to be in excess of 1.65 to 1.
(c) FIXED CHARGE RATIO. In no event shall Borrower permit its Fixed
Charge Ratio to be less than 1.25 to 1.
(d) CURRENT RATIO. In no event shall Borrower permit its Current Ratio
to be less than 1.15 to 1.
(e) RESTRICTION ON DISTRIBUTIONS. Borrower shall not declare, make or
incur any liability to make any Distribution.
SECTION 7.3. CONSOLIDATIONS, MERGERS, SALES OF ASSETS, AND
CREDIT AGREEMENT 32
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MAINTENANCE. Neither Borrower nor any Subsidiary of Borrower will (a)
consolidate or merge with or into any other Person unless immediately
following such consolidation or merger no Default will have occurred and
Borrower is the surviving entity, (b) sell, lease, abandon or otherwise
transfer all or any material part of Borrower's or any Subsidiary's assets to
any other Person except in the ordinary course of business, (c) terminate, or
fail to maintain, its existence, or (d) terminate, or fail to maintain, its
good standing and qualification to transact business in all jurisdictions
where the failure to maintain its good standing or qualification to transact
business could reasonably be expected to have a Material Adverse Effect.
SECTION 7.4. USE OF PROCEEDS. Borrower will use the proceeds of the
Loans solely for the purposes represented in this Credit Agreement and shall
not use such proceeds, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any Margin Stock
and none of such proceeds will be used in violation of applicable law
(including, without limitation, the Margin Regulations).
SECTION 7.5. RIGHT OF INSPECTION; RIGHT OF AUDIT. Borrower will
permit any officer, employee or agent of Lender, upon reasonable notice (a)
to visit and inspect any of the assets of Borrower and each Subsidiary, (b)
to examine Borrower's and each Subsidiary's books of record and accounts and
take copies and extracts therefrom, (c) to discuss the affairs, finances and
accounts of Borrower and each Subsidiary with Borrower's and each
Subsidiary's officers, accountants and auditors, and (d) to communicate
directly with any lessee under any Equipment Lease concerning the financial
condition of such lessee and any matters related to the Equipment Lease.
SECTION 7.6. LIMITATION ON DEBT. Neither Borrower nor any Subsidiary
shall incur any Debt, except for (a) the Obligations, (b) trade payables or
trade letters of credit incurred in the ordinary course of business, (c) the
Debt described on SCHEDULE I attached hereto and any refinancings or
extensions of such Debt so long as the amount of any such Debt is not
increased by any such refinancing or extension, (d) purchase money Debt, (e)
capital lease obligations, and (f) Debt between and among Borrower and its
Subsidiaries (subject, however to the limitation contained in SECTION 7.15).
CREDIT AGREEMENT 33
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SECTION 7.7. LIMITATION ON SALE OF PROPERTIES. Neither Borrower nor
any Subsidiary shall sell, assign, convey, exchange, lease or otherwise
dispose of any of its properties, rights, assets or business, whether now
owned or hereafter acquired, except (a) in the ordinary course of its
business, (b) obsolete or worn out property, or equipment sold in
contemplation of the acquisition of replacement equipment of at least equal
value or utility, and (c) sale of any other property not included as
collateral for the Obligations.
SECTION 7.8. LIMITATIONS ON LIENS. Neither Borrower nor any
Subsidiary shall create, incur, assume or suffer to exist any Lien upon any
of its assets other than Liens existing as of the Closing Date and described
in SCHEDULE II and Permitted Liens; provided that with respect to the
Collateral the only Liens permitted shall be Liens in favor of Lender and
liens for taxes, assessments or other governmental charges not delinquent.
SECTION 7.9. MAINTENANCE OF INSURANCE. Borrower and each Subsidiary
will at all times maintain or cause to be maintained insurance covering such
risks as are customarily carried by businesses similarly situated including,
without limitation, the following: (a) worker's compensation insurance; (b)
employer's liability insurance; (c) comprehensive general public liability
and property damage insurance in respect of all activities in which Borrower
or any Subsidiary might incur personal liability for the death or injury of
an employee or third person, or damage to or destruction of another's
property; (d) insurance against loss or damage by fire, lightning, hail,
tornado, explosion and other similar risk; (e) comprehensive automobile
liability insurance, and (f) business interruption insurance; PROVIDED that
any worker's compensation, similar insurance required by applicable law, and
other aspects of its business and operations may be self-insured by Borrower
or any Subsidiary in accordance with the provisions of, and to the extent
permitted by applicable law, or insured by any insurance company, a majority
of whose voting shares are owned by Borrower or any Affiliate of Borrower.
Borrower shall deliver to Lender each insurance policy or certificates
evidencing the policies carried by Borrower or any Subsidiary which show,
among other things, the name of the insurer, the amount of coverage, the
risks insured against, and such other related information as Lender may
reasonably request.
CREDIT AGREEMENT 34
<PAGE>
SECTION 7.10. PAYMENT OF TAXES AND CLAIMS. Borrower and each
Subsidiary will pay (a) all Taxes imposed upon it or any of its assets or
with respect to any of its franchises, businesses, income or profits before
any material penalty or interest accrues thereon and (b) all material claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a Lien on any of its assets; provided, however, no payment of
Taxes or claims shall be required if (i) the amount, applicability or
validity thereof is currently being contested in good faith by appropriate
action promptly initiated and diligently conducted in accordance with good
business practices and no material part of the property or assets of Borrower
or any Subsidiary are subject to levy or execution, (ii) Borrower or the
applicable Subsidiary, as required in accordance with GAAP, shall have set
aside on its books reserves (segregated to the extent required by GAAP)
deemed by it to be adequate with respect thereto, and (iii) Borrower has
notified Lender of such circumstances, in detail reasonably satisfactory to
Lender.
SECTION 7.11. COMPLIANCE WITH LAWS AND DOCUMENTS. Neither Borrower nor
any Subsidiary will directly or indirectly, violate the provisions of any
laws, its organizational documents or any agreement to which it is a party,
if such violation, alone or when combined with all other such violations,
could reasonably be expected to have a Material Adverse Effect.
SECTION 7.12. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNITY. Borrower and
each Subsidiary agree to promptly pay and discharge when due all debts,
claims, liabilities and obligations with respect to any clean-up measures
necessary for it to comply with Applicable Environmental Laws affecting it.
Borrower hereby indemnifies and agrees to defend and hold Lender and its
successors and assigns harmless from and against any and all claims, demands,
causes of action, loss, damage, liabilities, costs and expenses (including
reasonable attorneys' fees and court costs) of any and every kind or
character, known or unknown, fixed or contingent, asserted against or
incurred by Lender at any time and from time to time including, without
limitation, those asserted or arising subsequent to the payment or other
satisfaction of all AGF Notes, by reason of, arising out of or related in any
way to Lender's entering into this Agreement and the transactions herein
contemplated, INCLUDING MATTERS ARISING OUT OF THE ORDINARY
CREDIT AGREEMENT 35
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NEGLIGENCE OF LENDER (WHETHER SOLE, CONTRIBUTORY, COMPARATIVE OR OTHERWISE),
BUT EXCLUDING MATTERS ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF LENDER. It shall not be a defense to the covenant of Borrower
to indemnify that the act, omission, event or circumstance did not constitute
a violation of any Applicable Environmental Law at the time of its existence
or occurrence. The terms "HAZARDOUS SUBSTANCE" and "RELEASE" shall have the
meanings specified in the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), and the terms "SOLID WASTE" and "DISPOSED" shall have the
meanings specified in the Resource Conservation and Recovery Act of 1976
("RCRA"); provided, to the extent that any other applicable laws of the
United States of America or political subdivision thereof establish a meaning
for "hazardous substance," "release," "solid waste," or "disposed" which is
broader than that specified in either SARA or RCRA, such broader meaning
shall apply. As used in this Agreement, "APPLICABLE ENVIRONMENTAL LAW" shall
mean and include the singular, and "APPLICABLE ENVIRONMENTAL LAWS" shall mean
and include the collective aggregate of the following: Any law, statute,
ordinance, rule, regulation, order or determination of any governmental
authority or any board of fire underwriters (or other body exercising similar
functions), or any restrictive covenant or deed restriction (recorded or
otherwise) affecting Borrower pertaining to health, safety or the
environment, including, without limitation, all applicable flood disaster
laws and health, safety and environmental laws and regulations pertaining to
health, safety or the environment, including without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1976, the Superfund
Amendments and Reauthorization Act of 1986, the Occupational Safety and
Health Act, the Texas Water Code, the Texas Solid Waste Disposal Act, the
Texas Workers' Compensation Laws, and any federal, state or municipal laws,
ordinances, regulations or law which may now or hereafter require removal of
asbestos or other hazardous wastes from any property of Borrower or any
Subsidiary or impose any liability on Lender related to asbestos or other
hazardous wastes in any property of Borrower or any Subsidiary. The
provisions of this SECTION 7.12 shall survive the repayment of each AGF Note.
In the event of the transfer of any AGF Note or any portion thereof, Lender
or any prior holder of any AGF Note and any participants shall continue to be
benefitted by this indemnity and agreement with respect to the period of such
holding of the applicable AGF Note.
CREDIT AGREEMENT 36
<PAGE>
SECTION 7.13. ADDITIONAL DOCUMENTS. Borrower shall execute and deliver or
cause to be executed and delivered such other and further instruments or
documents as in the judgment of Lender may be required to better effectuate the
transactions contemplated herein.
SECTION 7.14. QUANTITY OF DOCUMENTS. All certificates, opinions, reports
and documents to be delivered from time to time hereunder shall be in such
number of counterparts as Lender may reasonably request.
SECTION 7.15. INVESTMENTS. Neither Borrower nor any Subsidiary will,
directly or indirectly, make any loans, advances, extensions of credit,
guarantees in favor of or capital contributions to, make any investment in,
purchase any stock or securities of, or interests in, any Person, or incur Debt
to finance the acquisition of any Person or all or a material part of the assets
of any Person, except (a) investments by Borrower in, or Debt funded by Borrower
to, any Subsidiary listed in SCHEDULE III attached hereto, which investment and
Debt shall be limited, however, to an aggregate amount equal to the investments
and Debt existing as of the Closing Date plus $250,000.00, (b) investments in
Cash Equivalents, (c) travel advances to employees of Borrower or any Subsidiary
not to exceed $20,000.00 in the aggregate, and (d) accounts receivable incurred
in the ordinary course of business.
SECTION 7.16. TRANSACTIONS WITH AFFILIATES. Except with respect to a
transaction permitted under SECTIONS 7.3, 7.6 AND 7.15, Borrower will not engage
in any material transaction with an Affiliate unless such transaction is as
reasonably favorable to Borrower as could be obtained in an arm's length
transaction with an unaffiliated Person in accordance with prevailing industry
customs and practices.
SECTION 7.17. FISCAL YEAR. Neither Borrower nor any Subsidiary will
change its fiscal year.
SECTION 7.18. ERISA.
(a) Borrower shall, and shall cause each member of its Controlled
Group (as that term is defined in the Code) to, maintain and administer any
Employee Plan in accordance with the applicable
CREDIT AGREEMENT 37
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requirements of the Code and ERISA except to the extent that the failure to
do so would not have a Material Adverse Effect on Borrower. Borrower shall
not permit or suffer to exist any circumstances with respect to any Employee
Plan that could have a Material Adverse Effect on Borrower.
(b) With respect to any Pension Plan, Borrower shall not (i) permit
any accumulated funding deficiency (within the meaning of Section 412(a) of the
Code), whether waived or unwaived, to exist; (ii) permit the present value of
accrued benefits (based on the most recent actuarial valuation prepared for each
such plan, if any, in accordance with ongoing actuarial assumptions) to exceed
the current value of plan assets allocable to such benefits by a material
amount; (iii) permit any reportable event (within the meaning of Section 4043 of
ERISA) to occur, other than purchases and sales of securities from a plan
trustee as reported in the audited financial statements of such plan;
(iv) permit a prohibited transaction (within the meaning of Section 4975 of the
Code) to occur; (v) incur any material liability to the PBGC; or (vi) incur any
material withdrawal liability (within the meaning of Section 4201(a) of ERISA);
except, with respect to each of the foregoing clauses in this subparagraph (b),
where such existence, excess or occurrence, as applicable, does not have or
could not have a Material Adverse Effect on Borrower.
(c) Borrower shall not incur a material obligation to provide
post-employment health care benefits to any of its current or former employees
that could have a Material Adverse Effect on Borrower, except as may be required
by Section 4980B of the Code or otherwise required by law.
SECTION 7.19. CHANGES IN MANAGEMENT. Borrower shall not voluntarily
change its chief executive officer, chief financial officer or president without
the prior written consent of Lender.
SECTION 7.20. REPURCHASE OF STOCK. Borrower shall not purchase any of its
own stock without the prior written consent of Lender, except to the extent any
holder of any stock options may choose to pay for shares by tendering shares.
ARTICLE VIII
DEFAULTS AND REMEDIES
CREDIT AGREEMENT 38
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SECTION 8.1. EVENTS OF DEFAULT. If one or more of the following events
(collectively "EVENTS OF DEFAULT" and individually an "EVENT OF DEFAULT") shall
have occurred and be continuing:
(a) Borrower shall fail to pay when due any principal of or interest on
any AGF Note or any monetary amount due under this Credit Agreement or any other
Loan Document and such failure continues for ten (10) days after written notice
thereof has been given to Borrower by Lender;
(b) any covenant, agreement or condition contained in this Credit
Agreement or in any other Loan Document is not fully and timely performed,
observed or kept in all material respects, and the continuation of such failure
for twenty (20) days after written notice thereof has been given to Borrower by
Lender;
(c) any representation, warranty, certification or statement made or
deemed to have been made by Borrower in this Credit Agreement or by Borrower or
any other Person in any certificate, financial statement or other document
delivered pursuant to this Credit Agreement, including, without limitation, any
other Loan Document, shall prove to have been incorrect in any material respect
when made;
(d) any event or condition shall occur and continue unremedied or unwaived
for a period beyond any applicable cure period provided pursuant to the terms of
any Debt of Borrower in excess of $100,000.00, which entitles (or, with the
giving of notice or lapse of time or both, would entitle) the holder of any such
Debt to accelerate the maturity thereof;
(e) Borrower shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing;
CREDIT AGREEMENT 39
<PAGE>
(f) an involuntary case or other proceeding shall be commenced against
Borrower seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) days; or an order for relief
shall be entered against Borrower under the federal bankruptcy laws as now or
hereafter in effect;
(g) one (1) or more final judgments or orders for the payment of money in
an aggregate amount outstanding at any time in excess of $100,000 shall be
rendered against Borrower and such judgment or order (i) shall continue
unsatisfied and unstayed (unless bonded with a supersedeas bond at least equal
to such judgment or order) for a period of thirty (30) days or (ii) is not fully
paid and satisfied at least ten (10) days prior to the date on which any of its
assets may be lawfully sold to satisfy such judgment or order;
(h) one (1) or more judgments or orders for the payment of money shall be
rendered against Borrower, whether or not otherwise bonded or stayed, which has
a Material Adverse Effect;
(i) the sale, pledge, encumbrance, assignment or transfer, voluntarily or
involuntarily, of any interest in Borrower (if any such entity is not a natural
person but is a corporation, partnership, trust or other legal entity), without
the prior written consent of Lender, except for Permitted Dispositions; or
(j) the occurrence of a default or event of default under any Equipment
Lease and the failure of Borrower to pay in full the related Loan within five
(5) days following such default or event of default;
then, and in every such event, Lender may without presentment, notice or demand
(unless expressly provided for herein) of any kind (including, without
limitation, notice of intention to accelerate and acceleration), all of which
are hereby waived, (w) terminate the Advised Guidance Facility and it shall
thereupon terminate, and (x) take such other actions as may be permitted by the
Loan Documents including, declaring all AGF Notes (together with accrued
interest thereon) to be, and the AGF Notes shall thereupon become,
CREDIT AGREEMENT 40
<PAGE>
immediately due and payable; PROVIDED THAT in the case of any of the Events
of Default specified in SECTION 8.1(e) or (f), without any notice to Borrower
or any other act by Lender, the Advised Guidance Facility shall thereupon
terminate and all AGF Notes (together with accrued interest thereon) shall
become immediately due and payable.
Nothing herein or in any other Loan Document shall operate or be construed
to add on or make cumulative any cure or grace periods specified in any of the
Loan Documents.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing and shall be given to such party at its
address set forth on the signature pages hereof or such other address as such
party may hereafter specify for such purpose by notice to Lender and Borrower.
Each such notice, request or other communication shall be effective (a) if given
by mail, three (3) Business Days after deposit in the mails with first class
postage prepaid, addressed as aforesaid or (b) if given by any other means, when
delivered at the address specified in this SECTION 9.1; PROVIDED THAT notices to
Lender under ARTICLE II or VIII shall not be effective until received.
SECTION 9.2. NO WAIVERS. No failure or delay by Lender in exercising any
right, power or privilege hereunder or under the AGF Note or other Loan Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law or in
any of the other Loan Documents.
SECTION 9.3. EXPENSES; INDEMNIFICATION. (a) Borrower shall pay all
out-of-pocket expenses of Lender, including all fees and disbursements of
counsel for Lender, in connection with the preparation of this Credit Agreement,
the other Loan Documents,
CREDIT AGREEMENT 41
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and, if applicable, the recordation of the Loan Documents (provided, that
Lender has agreed to pay $4,000 of the fees of its counsel in connection with
the preparation of this Credit Agreement and the other Loan Documents), any
waiver or consent hereunder or any amendment hereof or any Default or alleged
Default hereunder, and, if an Event of Default occurs, Borrower shall pay all
out-of-pocket expenses incurred by Lender, including fees and disbursements
of counsel in connection with such Event of Default and collection and other
enforcement proceedings resulting therefrom, fees of auditors and consultants
incurred in connection therewith and investigation expenses incurred by
Lender in connection therewith.
(b) Borrower agrees to indemnify Lender and hold Lender harmless from and
against any and all liabilities, losses, damages, costs and expenses of any kind
(including, without limitation, all fees and disbursements of counsel for Lender
in connection with any investigative, administrative or judicial proceeding,
whether or not Lender shall be designated a party thereto) which may be incurred
by Lender, relating to or arising out of this Credit Agreement or any actual or
proposed use of proceeds of Loans hereunder; PROVIDED THAT LENDER SHALL NOT HAVE
THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, IT BEING THE INTENTION HEREBY THAT LENDER SHALL BE INDEMNIFIED FOR
THE CONSEQUENCES OF ITS NEGLIGENCE (WHETHER SOLE, CONTRIBUTORY, COMPARATIVE OR
OTHERWISE).
SECTION 9.4. RIGHT AND SHARING OF SET-OFFS. (a) Upon the occurrence and
during the continuance of any Event of Default, Lender is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Lender to or for the credit or the account of Borrower against any and all of
the obligations of Borrower now or hereafter existing under this Credit
Agreement and the AGF Notes held by Lender, irrespective of whether or not
Lender shall have made any demand under this Credit Agreement or either of the
AGF Notes, unless such demand is required by the other terms of this Credit
Agreement or the AGF Notes. Lender agrees promptly to notify Borrower after any
such setoff and application made by Lender, provided that the failure to give
such notice shall not affect the validity of such setoff and application. The
rights of Lender under this SECTION
CREDIT AGREEMENT 42
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9.4(a) are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which Lender may have.
(b) Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in any AGF Note may
exercise rights of setoff or counterclaim and other rights with respect to
such participation as fully as if such holder of a participation were a
direct creditor of Borrower in the amount of such participation.
SECTION 9.5. AMENDMENTS AND WAIVERS. Any provision of this Credit
Agreement, the AGF Notes or the other Loan Documents may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by
Borrower and Lender.
SECTION 9.6. SURVIVAL. All representations, warranties and covenants
made by Borrower herein or in any certificate or other instrument delivered by
it or in its behalf under the Loan Documents shall be considered to have been
relied upon by Lender and shall survive the delivery to Lender of such Loan
Documents or the extension of the Loans (or any part thereof), regardless of any
investigation made by or on behalf of Lender, but shall terminate upon payment
in full of the Obligations and the termination of any obligation of Lender to
make any future Loans.
SECTION 9.7. LIMITATION ON INTEREST. Regardless of any provision
contained in the Loan Documents, Lender shall never be entitled to receive,
collect, or apply, as interest on the Loans, any amount in excess of the Maximum
Lawful Rate, and in the event Lender ever receives, collects or applies as
interest any such excess, such amount which would be deemed excessive interest
shall be deemed a partial prepayment of principal and treated hereunder as such;
and if the Loans are paid in full, any remaining excess shall promptly be paid
to Borrower. In determining whether or not the interest paid or payable under
any specific contingency exceeds the Maximum Lawful Rate, Lender shall, to the
extent permitted under applicable law, (a) characterize any nonprincipal payment
as an expense, fee or premium rather than as interest, (b) exclude voluntary
prepayments and the effects thereof and (c) amortize, prorate, allocate and
spread, in equal parts, the total amount of the interest throughout the entire
contemplated term of each AGF Note, so that the interest rate is the Maximum
Lawful Rate throughout the entire term of such AGF Note; PROVIDED, HOWEVER,
CREDIT AGREEMENT 43
<PAGE>
that if the unpaid principal balance thereof is paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum
Lawful Rate, Lender shall refund to Borrower the amount of such excess and,
in such event, Lender shall not be subject to any penalties provided by any
laws for contracting for, charging, taking, reserving or receiving interest
in excess of the Maximum Lawful Rate.
SECTION 9.8. INVALID PROVISIONS. If any provision of the Loan Documents
is held to be illegal, invalid, or unenforceable under present or future laws
effective during the term thereof, such provision shall be fully severable, the
Loan Documents shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of the Loan Documents a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 9.9. CONFLICT OF TERMS. The provisions of the other Loan
Documents and any Schedule or Exhibit hereto are incorporated in this Credit
Agreement for all purposes by this reference thereto. Except as otherwise
provided in this Credit Agreement and except as otherwise provided in the other
Loan Documents by specific reference to the applicable provision of this Credit
Agreement, if any provision contained in this Credit Agreement is in conflict
with, or inconsistent with, any provision in the other Loan Documents the
provision contained in this Credit Agreement shall govern and control.
SECTION 9.10. REVOLVING LOAN. Pursuant to Article 15.10(b) of Chapter 15,
Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended, Borrower agrees
that such Chapter 15 shall not govern or in any manner apply to the Loans.
SECTION 9.11. SUCCESSORS AND ASSIGNS. The provisions of this Credit
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that Borrower may not assign
or otherwise transfer any of
CREDIT AGREEMENT 44
<PAGE>
its rights under this Credit Agreement. Lender may assign or participate all
or any part of its interest in the Advised Guidance Facility. Lender shall
notify Borrower of any assignments or participations by Lender of any of its
interest in the Advised Guidance Facility.
SECTION 9.12. TEXAS LAW. THIS CREDIT AGREEMENT, THE AGF NOTE AND ALL
OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS.
SECTION 9.13. COUNTERPARTS; EFFECTIVENESS. This Credit Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Credit Agreement shall become effective when Lender shall have
received counterparts hereof signed by all of the parties hereto.
SECTION 9.14. NO THIRD PARTY BENEFICIARIES. It is expressly intended that
there shall be no third party beneficiaries of the covenants, agreements,
representations or warranties herein contained other than transferees or
assignees of all or any part of Lender's interest hereunder.
SECTION 9.15. ENTIRE AGREEMENT. This Credit Agreement and the other Loan
Documents constitute the entire understanding and agreement between Borrower and
Lender with respect to the transactions arising in connection with the Loans and
supersede all prior written or oral understandings and agreements between
Borrower and Lender with respect to the matters addressed in the Loan Documents.
Borrower hereby acknowledges that, except as incorporated in writing in the Loan
Documents, there are not, and were not, and no Persons are or were authorized by
Lender to make, any representations, understandings, stipulations, agreements or
promises, oral or written, with respect to the matters addressed in the Loan
Documents.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
CREDIT AGREEMENT 45
<PAGE>
CREDIT AGREEMENT 46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to
be duly executed as of the day and year first above written.
BORROWER:
IWL Communications, Inc. IWL COMMUNICATIONS, INC., a
12000 Aerospace Avenue Texas corporation
Suite 200
Houston, Texas 77034 By: /s/ Richard H. Roberson
Attn: Chief Financial Officer -----------------------------------
Name: Richard H. Roberson
--------------------------------
Title: CFO
-------------------------------
LENDER:
1717 Main Street BANK ONE, TEXAS, N.A., a
3rd Floor national banking association
Dallas, Texas 75201
Attn: Mark Wade, By: /s/ Mark Wade
Vice President ----------------------------------
Mark Wade
Vice President
CREDIT AGREEMENT 47
<PAGE>
PROMISSORY NOTE
$822,000.00 Dallas, Texas August 1, 1997
IWL COMMUNICATIONS, INC., a Texas corporation with its principal office
located at 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034 ("BORROWER"),
for value received, hereby promises to pay to the order of BANK ONE, TEXAS,
N.A., a national banking association ("LENDER"), at its Dallas Banking Center at
1717 Main Street, 3rd Floor, Dallas, Texas 75201, or at such other address given
to Borrower by Lender, in immediately available funds and in lawful money of the
United States of America, the principal sum of EIGHT HUNDRED TWENTY-TWO THOUSAND
and No/100 Dollars ($822,000.00), or such lesser sum as may be advanced and
outstanding hereunder, on May 1, 2000, (the "MATURITY DATE"), or sooner as
provided in the Credit Agreement, together with interest on the unpaid principal
balance of this Note from time to time outstanding at the Applicable Rate.
Unless prohibited by applicable law and subject to the terms hereof limiting
interest to the Maximum Lawful Rate, interest on this Note shall be calculated
on the basis of actual days elapsed, but as if each year consisted of 360 days.
This Note is made pursuant to the Credit Agreement of even date herewith
between Borrower and Lender (as the same may be amended, supplemented, renewed,
extended or restated from time to time, the "CREDIT AGREEMENT"), and is one of
the "AGF Notes" defined and described therein, the terms and provisions of the
Credit Agreement related to this Note being incorporated herein by reference for
all purposes. Each capitalized term used but not expressly defined herein shall
have the meaning given to such term in the Credit Agreement. Reference is
hereby expressly made to the Credit Agreement for a statement of the rights and
obligations of Lender and the duties and obligations of Borrower in relation
thereto; but neither this reference to the Credit Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of
Borrower to pay unpaid principal of and interest on this Note when due.
AGF NOTE (TRANSOCEAN) Page 1
<PAGE>
This Note is secured by the Collateral Assignment, the guaranty of
Guarantor and all the other Loan Documents, and all liens and security interests
created or evidenced thereby. Any holder shall be entitled to all benefits,
remedies and security set forth in the Credit Agreement and all the other Loan
Documents.
AGF NOTE (TRANSOCEAN) Page 2
<PAGE>
1. INTEREST AND PAYMENT.
(a) MATURITY. The principal of this Note and all accrued but unpaid
interest hereon shall be due and payable in full on the Maturity Date or sooner
as provided in the Credit Agreement.
(b) ACCRUAL OF INTEREST. Subject to Paragraph 1(e) below, interest
on this Note shall accrue pursuant to the terms provided in the Credit
Agreement, at Borrower's election, at a rate per annum equal to either the
Applicable Base Rate or the Adjusted LIBOR Rate with the Base Rate Adjustment
being 0%, and the LIBOR Margin being 2.40%.
(c) AGREEMENTS CONCERNING PRICING ELECTION. Reference should be made
to the provisions of SECTION 2.3 of the Credit Agreement concerning the terms,
manner and agreements related to the interest rate elections available to
Borrower under this Note.
(d) PRINCIPAL AND INTEREST PAYMENTS. Principal and Interest payments
hereon shall be due and payable in equal monthly installments of $30,053, on the
1st day of each month, commencing on October 1, 1997.
(e) DEFAULT RATE. Any past due principal on, and, to the extent
permitted by applicable law, past due interest on this Note (after giving effect
to all grace periods) shall, at the option of Lender, bear interest at the
lesser of the Maximum Lawful Rate or the Default Rate, as provided in the Credit
Agreement.
2. DEFAULT. The occurrence of a Default or an Event of Default, under
and as defined in the Credit Agreement, shall constitute, respectively, a
Default or an Event of Default under this Note.
3. REMEDIES.
(a) ALL REMEDIES AVAILABLE. Upon the occurrence of an Event of
Default, the holder hereof, in accordance with the terms of the Credit
Agreement, shall have the right to declare the entire unpaid principal balance
of, and all accrued unpaid interest on,
AGF NOTE (TRANSOCEAN) Page 3
<PAGE>
this Note at once due and payable (and upon such declaration, the same shall
be at once due and payable), to foreclose any and all liens and security
interests securing payment hereof, to offset against this Note any sum or
sums owed by it to Borrower, and to exercise any of its other rights, powers
and remedies under this Note, under the Credit Agreement or any other Loan
Document, or at law or in equity.
(b) NO WAIVER. Neither the failure by the holder hereof to exercise,
nor delay by the holder hereof in exercising, the right to accelerate the
maturity of this Note or any other right, power or remedy upon any Default or
Event of Default shall be construed as a waiver of such Default or Event of
Default or as a waiver of the right to exercise any such right, power or remedy
at any time. No single or partial exercise by the holder hereof of any right,
power or remedy shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right, power or remedy may be exercised at any
time and from time to time. All rights and remedies provided for in this Note
and in any other Loan Document are cumulative of each other and of any and all
other rights and remedies existing at law or in equity, and the holder hereof
shall, in addition to the rights and remedies provided herein or in any other
Loan Document, be entitled to avail itself of all such other rights and remedies
as may now or hereafter exist at law or in equity for the collection of the
indebtedness owing hereunder, and the resort to any right or remedy provided for
hereunder or under any such other Loan Document or provided for by law or in
equity shall not prevent the concurrent or subsequent employment of any other
appropriate rights or remedies. Without limiting the generality of the
foregoing provisions, the acceptance by the holder hereof from time to time of
any payment under this Note which is past due or which is less than the payment
in full of all amounts due and payable at the time of such payment, shall not
(i) constitute a waiver of or impair or extinguish the rights of the holder
hereof to accelerate the maturity of this Note or to exercise any other right,
power or remedy at the time or at any subsequent time, or nullify any prior
exercise of any such right, power or remedy, or (ii) constitute a waiver of the
requirement of punctual payment and performance, or a novation in any respect.
4. USURY SAVINGS PROVISIONS.
AGF NOTE (TRANSOCEAN) Page 4
<PAGE>
(a) GENERAL LIMITATION. Notwithstanding anything herein or in any
other Loan Documents, expressed or implied, to the contrary, in no event shall
any interest rate charged hereunder or under any of the other Loan Documents, or
any interest contracted for, collected or received by Lender or any holder
hereof, exceed the Maximum Lawful Rate.
(b) INTENT OF PARTIES. It is expressly stipulated and agreed to be
the intent of Borrower and Lender at all times to comply with the applicable law
governing the maximum rate or amount of interest payable on or in connection
with this Note. If the applicable law is ever judicially interpreted so as to
render usurious any amount called for under this Note or under any of the other
Loan Documents, or contracted for, charged, taken, reserved or received with
respect to this Note, or if acceleration of the maturity of this Note, any
prepayment by Borrower, or any other circumstance whatsoever, results in Lender
having been paid any interest in excess of that permitted by applicable law,
then it is the express intent of Borrower and Lender that all excess amounts
theretofore collected by Lender be credited on the principal balance of this
Note (or, if this Note has been or would thereby be paid in full, refunded to
Borrower), and the provisions of this Note and the other applicable Loan
Documents immediately be deemed reformed and the amounts thereafter collectible
hereunder and thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and thereunder.
The right to accelerate the maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Lender does not intend to collect any unearned interest in the
event of acceleration. All sums paid or agreed to be paid to Lender for the
use, forbearance or detention of the indebtedness evidenced hereby or by any
other Loan Document shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the Maximum Lawful Rate. The term
"APPLICABLE LAW" as used herein shall mean the laws of the State of Texas, or
any applicable United States federal law to the extent that it permits Lender to
contract for, charge, take, reserve or
AGF NOTE (TRANSOCEAN) Page 5
<PAGE>
receive a greater amount of interest than under Texas law. The provisions of
this paragraph shall control all agreements between Borrower and Lender.
5. GENERAL PROVISIONS.
(a) BUSINESS DAYS. Whenever any payment shall be due under this Note
on a day which is not a Business Day, the date on which such payment is due
shall be extended to the next succeeding Business Day, and such extension of
time shall be included in the computation of the amount of interest then
payable.
(b) MANNER OF PAYMENT. The manner in which payments are to be made
on this Note shall be governed by the provisions hereof and the Credit
Agreement, including, without limitation, ARTICLE III of the Credit Agreement.
(c) PREPAYMENTS. Prepayments may be made on this Note subject to and
in accordance with SECTION 3.5 of the Credit Agreement.
(d) APPLICATION OF PAYMENTS. All payments made on this Note shall be
applied in accordance with SECTION 3.1 of the Credit Agreement. Nothing herein
shall limit or impair any rights of any holder hereof to apply as provided in
the Loan Documents any past due payments, any proceeds from the disposition of
any collateral by foreclosure or other collections after default.
(e) COSTS OF COLLECTION. If any holder of this Note retains an
attorney in connection with any default or at maturity or to collect, enforce or
defend this Note or any other Loan Document in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if Borrower sues any holder
of this Note in connection with this Note or any other Loan Document and does
not prevail, then Borrower agrees to pay to each such holder, in addition to
principal and interest, all costs and expenses incurred by such holder in trying
to collect this Note or in any such suit or proceeding, including reasonable
attorneys' fees as and to the extent provided in the Credit Agreement.
AGF NOTE (TRANSOCEAN) Page 6
<PAGE>
(f) WAIVERS AND ACKNOWLEDGMENTS. Borrower and all sureties,
endorsers, guarantors and any other party now or hereafter liable for the
payment of this Note in whole or in part, hereby severally (i) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest, notice
of protest, notice of intent to accelerate, notice of acceleration and all other
notice (except only for any notice that is specifically required by the terms of
the Credit Agreement or any other Loan Document), filing of suit and diligence
in collecting this Note or enforcing any of the security herefor; (ii) agree to
any substitution, subordination, exchange or release of any such security or the
release of any party primarily or secondarily liable hereon; (iii) agree that
the holder hereof shall not be required first to institute suit or exhaust its
remedies against Borrower or others liable or to become liable hereon or to
enforce its rights against them or any security herefor; (iv) consent to any
extension or postponement of time of payment of this Note for any period or
periods of time and to any partial payments, before or after maturity, and to
any other indulgences with respect hereto, without notice thereof to any of
them; and (v) submit (and waive all rights to object) to personal jurisdiction
in the State of Texas, and venue in Dallas County, Texas, for the enforcement of
any and all obligations under the Loan Documents.
(g) AMENDMENTS IN WRITING. This Note may not be changed, amended or
modified except in a writing expressly intended for such purpose and executed by
the party against whom enforcement of the change, amendment or modification is
sought.
(h) PURPOSE OF PROCEEDS. The proceeds of this Note will be used
solely for business purposes and not for personal, family, household or
agricultural purposes.
(i) NOTICES. Any notice required or which any party desires to give
under this Note shall be given and effective as provided in SECTION 9.1 of the
Credit Agreement.
(j) ASSIGNMENTS/PARTICIPATIONS. Borrower acknowledges and agrees
that the holder of this Note may, at any time and from time to time, assign all
or a portion of its interest in the Advised Guidance Facility or transfer to any
Person a participation
AGF NOTE (TRANSOCEAN) Page 7
<PAGE>
interest in the Advised Guidance Facility, subject to and in accordance with
the terms and conditions of the Credit Agreement, including SECTION 9.11
thereof.
(k) SUCCESSORS AND ASSIGNS. All of the covenants, stipulations,
promises and agreements contained in this Note by or on behalf of Borrower shall
bind their successors and assigns and shall be for the benefit of Lender and any
holder hereof, and their successors and assigns, as and to the extent provided
in the Credit Agreement.
(l) GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY TEXAS LAW, EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER
JURISDICTION GOVERN THE CREATION, PERFECTION OR ENFORCEMENT OF INTERESTS, OR THE
REMEDIES RELATED TO ANY PART OF THE COLLATERAL, OR TO THE EXTENT THAT UNITED
STATES FEDERAL LAW APPLIES.
(m) TIME OF THE ESSENCE. Time shall be of the essence in this Note
with respect to all of Borrower's obligations hereunder.
(n) INTEGRATION. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed as of the date first written above.
BORROWER:
IWL COMMUNICATIONS, INC., a Texas corporation
By: /s/ Richard H. Roberson
--------------------------------------
Name: Richard H. Roberson
--------------------------------------
Title: CFO
--------------------------------------
AGF NOTE (TRANSOCEAN) Page 8
<PAGE>
PROMISSORY NOTE
$605,000.00 Dallas, Texas August 1, 1997
IWL COMMUNICATIONS, INC., a Texas corporation with its principal office
located at 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034
("BORROWER"), for value received, hereby promises to pay to the order of BANK
ONE, TEXAS, N.A., a national banking association ("LENDER"), at its Dallas
Banking Center at 1717 Main Street, 3rd Floor, Dallas, Texas 75201, or at
such other address given to Borrower by Lender, in immediately available
funds and in lawful money of the United States of America, the principal sum
of SIX HUNDRED FIVE THOUSAND and No/100 Dollars ($605,000.00), or such lesser
sum as may be advanced and outstanding hereunder, on December 1, 1999, (the
"MATURITY DATE"), or sooner as provided in the Credit Agreement, together
with interest on the unpaid principal balance of this Note from time to time
outstanding at the Applicable Rate. Unless prohibited by applicable law and
subject to the terms hereof limiting interest to the Maximum Lawful Rate,
interest on this Note shall be calculated on the basis of actual days
elapsed, but as if each year consisted of 360 days.
This Note is made pursuant to the Credit Agreement of even date herewith
between Borrower and Lender (as the same may be amended, supplemented,
renewed, extended or restated from time to time, the "CREDIT AGREEMENT"), and
is one of the "AGF Notes" defined and described therein, the terms and
provisions of the Credit Agreement related to this Note being incorporated
herein by reference for all purposes. Each capitalized term used but not
expressly defined herein shall have the meaning given to such term in the
Credit Agreement. Reference is hereby expressly made to the Credit Agreement
for a statement of the rights and obligations of Lender and the duties and
obligations of Borrower in relation thereto; but neither this reference to
the Credit Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of Borrower to pay unpaid principal of
and interest on this Note when due.
This Note is secured by the Collateral Assignment, the guaranty of
Guarantor and all the other Loan Documents, and all
AGF NOTE (GLOBAL) Page 1
<PAGE>
liens and security interests created or evidenced thereby. Any holder shall
be entitled to all benefits, remedies and security set forth in the Credit
Agreement and all the other Loan Documents.
AGF NOTE (GLOBAL) Page 2
<PAGE>
1. INTEREST AND PAYMENT.
(a) MATURITY. The principal of this Note and all accrued but
unpaid interest hereon shall be due and payable in full on the Maturity Date
or sooner as provided in the Credit Agreement.
(b) ACCRUAL OF INTEREST. Subject to Paragraph 1(e) below, interest
on this Note shall accrue pursuant to the terms provided in the Credit
Agreement, at Borrower's election, at a rate per annum equal to either the
Applicable Base Rate or the Adjusted LIBOR Rate with the Base Rate Adjustment
being 0%, and the LIBOR Margin being 2.40%.
(c) AGREEMENTS CONCERNING PRICING ELECTION. Reference should be
made to the provisions of SECTION 2.3 of the Credit Agreement concerning the
terms, manner and agreements related to the interest rate elections available
to Borrower under this Note.
(d) PRINCIPAL AND INTEREST PAYMENTS. Principal and Interest
payments hereon shall be due and payable in equal monthly installments of
$25,707, on the 1st day of each month, commencing on October 1, 1997.
(e) DEFAULT RATE. Any past due principal on, and, to the extent
permitted by applicable law, past due interest on this Note (after giving
effect to all grace periods) shall, at the option of Lender, bear interest at
the lesser of the Maximum Lawful Rate or the Default Rate, as provided in the
Credit Agreement.
2. DEFAULT. The occurrence of a Default or an Event of Default, under
and as defined in the Credit Agreement, shall constitute, respectively, a
Default or an Event of Default under this Note.
3. REMEDIES.
(a) ALL REMEDIES AVAILABLE. Upon the occurrence of an Event of
Default, the holder hereof, in accordance with the terms of the Credit
Agreement, shall have the right to declare the entire unpaid principal
balance of, and all accrued unpaid interest on,
AGF NOTE (GLOBAL) Page 3
<PAGE>
this Note at once due and payable (and upon such declaration, the same shall
be at once due and payable), to foreclose any and all liens and security
interests securing payment hereof, to offset against this Note any sum or
sums owed by it to Borrower, and to exercise any of its other rights, powers
and remedies under this Note, under the Credit Agreement or any other Loan
Document, or at law or in equity.
(b) NO WAIVER. Neither the failure by the holder hereof to
exercise, nor delay by the holder hereof in exercising, the right to
accelerate the maturity of this Note or any other right, power or remedy upon
any Default or Event of Default shall be construed as a waiver of such
Default or Event of Default or as a waiver of the right to exercise any such
right, power or remedy at any time. No single or partial exercise by the
holder hereof of any right, power or remedy shall exhaust the same or shall
preclude any other or further exercise thereof, and every such right, power
or remedy may be exercised at any time and from time to time. All rights and
remedies provided for in this Note and in any other Loan Document are
cumulative of each other and of any and all other rights and remedies
existing at law or in equity, and the holder hereof shall, in addition to the
rights and remedies provided herein or in any other Loan Document, be
entitled to avail itself of all such other rights and remedies as may now or
hereafter exist at law or in equity for the collection of the indebtedness
owing hereunder, and the resort to any right or remedy provided for hereunder
or under any such other Loan Document or provided for by law or in equity
shall not prevent the concurrent or subsequent employment of any other
appropriate rights or remedies. Without limiting the generality of the
foregoing provisions, the acceptance by the holder hereof from time to time
of any payment under this Note which is past due or which is less than the
payment in full of all amounts due and payable at the time of such payment,
shall not (i) constitute a waiver of or impair or extinguish the rights of
the holder hereof to accelerate the maturity of this Note or to exercise any
other right, power or remedy at the time or at any subsequent time, or
nullify any prior exercise of any such right, power or remedy, or (ii)
constitute a waiver of the requirement of punctual payment and performance,
or a novation in any respect.
4. USURY SAVINGS PROVISIONS.
AGF NOTE (GLOBAL) Page 4
<PAGE>
(a) GENERAL LIMITATION. Notwithstanding anything herein or in any
other Loan Documents, expressed or implied, to the contrary, in no event
shall any interest rate charged hereunder or under any of the other Loan
Documents, or any interest contracted for, collected or received by Lender or
any holder hereof, exceed the Maximum Lawful Rate.
(b) INTENT OF PARTIES. It is expressly stipulated and agreed to be
the intent of Borrower and Lender at all times to comply with the applicable
law governing the maximum rate or amount of interest payable on or in
connection with this Note. If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under this Note or
under any of the other Loan Documents, or contracted for, charged, taken,
reserved or received with respect to this Note, or if acceleration of the
maturity of this Note, any prepayment by Borrower, or any other circumstance
whatsoever, results in Lender having been paid any interest in excess of that
permitted by applicable law, then it is the express intent of Borrower and
Lender that all excess amounts theretofore collected by Lender be credited on
the principal balance of this Note (or, if this Note has been or would
thereby be paid in full, refunded to Borrower), and the provisions of this
Note and the other applicable Loan Documents immediately be deemed reformed
and the amounts thereafter collectible hereunder and thereunder reduced,
without the necessity of the execution of any new document, so as to comply
with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder and thereunder. The right to accelerate
the maturity of this Note does not include the right to accelerate any
interest which has not otherwise accrued on the date of such acceleration,
and Lender does not intend to collect any unearned interest in the event of
acceleration. All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of the indebtedness evidenced hereby or by any other
Loan Document shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest on account of
such indebtedness does not exceed the Maximum Lawful Rate. The term
"APPLICABLE LAW" as used herein shall mean the laws of the State of Texas, or
any applicable United States federal law to the extent that it permits Lender
to contract for, charge, take, reserve or
AGF NOTE (GLOBAL) Page 5
<PAGE>
receive a greater amount of interest than under Texas law. The provisions of
this paragraph shall control all agreements between Borrower and Lender.
5. GENERAL PROVISIONS.
(a) BUSINESS DAYS. Whenever any payment shall be due under this
Note on a day which is not a Business Day, the date on which such payment is
due shall be extended to the next succeeding Business Day, and such extension
of time shall be included in the computation of the amount of interest then
payable.
(b) MANNER OF PAYMENT. The manner in which payments are to be made
on this Note shall be governed by the provisions hereof and the Credit
Agreement, including, without limitation, ARTICLE III of the Credit
Agreement.
(c) PREPAYMENTS. Prepayments may be made on this Note subject to
and in accordance with SECTION 3.5 of the Credit Agreement.
(d) APPLICATION OF PAYMENTS. All payments made on this Note shall
be applied in accordance with SECTION 3.1 of the Credit Agreement. Nothing
herein shall limit or impair any rights of any holder hereof to apply as
provided in the Loan Documents any past due payments, any proceeds from the
disposition of any collateral by foreclosure or other collections after
default.
(e) COSTS OF COLLECTION. If any holder of this Note retains an
attorney in connection with any default or at maturity or to collect, enforce
or defend this Note or any other Loan Document in any lawsuit or in any
probate, reorganization, bankruptcy or other proceeding, or if Borrower sues
any holder of this Note in connection with this Note or any other Loan
Document and does not prevail, then Borrower agrees to pay to each such
holder, in addition to principal and interest, all costs and expenses
incurred by such holder in trying to collect this Note or in any such suit or
proceeding, including reasonable attorneys' fees as and to the extent
provided in the Credit Agreement.
AGF NOTE (GLOBAL) Page 6
<PAGE>
(f) WAIVERS AND ACKNOWLEDGMENTS. Borrower and all sureties,
endorsers, guarantors and any other party now or hereafter liable for the
payment of this Note in whole or in part, hereby severally (i) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest,
notice of protest, notice of intent to accelerate, notice of acceleration and
all other notice (except only for any notice that is specifically required by
the terms of the Credit Agreement or any other Loan Document), filing of suit
and diligence in collecting this Note or enforcing any of the security
herefor; (ii) agree to any substitution, subordination, exchange or release
of any such security or the release of any party primarily or secondarily
liable hereon; (iii) agree that the holder hereof shall not be required first
to institute suit or exhaust its remedies against Borrower or others liable
or to become liable hereon or to enforce its rights against them or any
security herefor; (iv) consent to any extension or postponement of time of
payment of this Note for any period or periods of time and to any partial
payments, before or after maturity, and to any other indulgences with respect
hereto, without notice thereof to any of them; and (v) submit (and waive all
rights to object) to personal jurisdiction in the State of Texas, and venue
in Dallas County, Texas, for the enforcement of any and all obligations under
the Loan Documents.
(g) AMENDMENTS IN WRITING. This Note may not be changed, amended
or modified except in a writing expressly intended for such purpose and
executed by the party against whom enforcement of the change, amendment or
modification is sought.
(h) PURPOSE OF PROCEEDS. The proceeds of this Note will be used
solely for business purposes and not for personal, family, household or
agricultural purposes.
(i) NOTICES. Any notice required or which any party desires to
give under this Note shall be given and effective as provided in SECTION 9.1
of the Credit Agreement.
(j) ASSIGNMENTS/PARTICIPATIONS. Borrower acknowledges and agrees
that the holder of this Note may, at any time and from time to time, assign
all or a portion of its interest in the Advised Guidance Facility or transfer
to any Person a participation
AGF NOTE (GLOBAL) Page 7
<PAGE>
interest in the Advised Guidance Facility, subject to and in accordance with
the terms and conditions of the Credit Agreement, including SECTION 9.11
thereof.
(k) SUCCESSORS AND ASSIGNS. All of the covenants, stipulations,
promises and agreements contained in this Note by or on behalf of Borrower
shall bind their successors and assigns and shall be for the benefit of
Lender and any holder hereof, and their successors and assigns, as and to the
extent provided in the Credit Agreement.
(l) GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY TEXAS LAW, EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER
JURISDICTION GOVERN THE CREATION, PERFECTION OR ENFORCEMENT OF INTERESTS, OR
THE REMEDIES RELATED TO ANY PART OF THE COLLATERAL, OR TO THE EXTENT THAT
UNITED STATES FEDERAL LAW APPLIES.
(m) TIME OF THE ESSENCE. Time shall be of the essence in this Note
with respect to all of Borrower's obligations hereunder.
(n) INTEGRATION. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed as of the date first written above.
BORROWER:
IWL COMMUNICATIONS, INC., a Texas corporation
By: /s/ Richard H. Roberson
--------------------------------------------
Name: Richard H. Roberson
------------------------------------------
Title: CFO
-----------------------------------------
AGF NOTE (GLOBAL) Page 8
<PAGE>
<PAGE>
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
THIS COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT (this "SECURITY
AGREEMENT") is executed and effective as of the 1st day of August, 1997, by
IWL COMMUNICATIONS, INC., a Texas corporation ("DEBTOR"), in favor of BANK
ONE, TEXAS, N.A., a national banking association ("LENDER").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement (as modified from
time to time, the "CREDIT AGREEMENT") dated as of August 1, 1997, by and
between Lender and Debtor, as borrower, Lender has agreed to make the Advised
Guidance Facility available to Debtor upon the terms and conditions set forth
therein (unless otherwise defined herein, each term used herein with its
initial letter capitalized shall have the meaning given to such term in the
Credit Agreement); and
WHEREAS, as a condition to and in consideration for the agreement of
Lender to make monies available to Debtor and in order to provide collateral
security for the Obligations, Lender has requested that Debtor, and Debtor
has agreed to, enter into this Agreement pursuant to which Debtor will assign
to Lender the Lease Collateral (as hereafter defined) and grant to Lender a
first priority security interest in the Equipment Collateral (as hereafter
defined).
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged and confessed, Debtor agrees with Lender as
follows:
ARTICLE I
ASSIGNMENT AND GRANT
1.01. ASSIGNMENT AND GRANT OF SECURITY. Debtor (a) has ASSIGNED,
TRANSFERRED and CONVEYED, and by these presents does hereby ASSIGN, TRANSFER
and CONVEY unto Lender, the Lease Collateral (as set forth below) of Debtor,
and all rights, titles and interests of Debtor therein, and (b) hereby
GRANTS, PLEDGES AND ASSIGNS to Lender a security interest in the Equipment
Collateral (as set forth below) of Debtor, and all rights, titles and
interests of Debtor therein, wherever located and whether now owned or
hereafter acquired by Debtor or in which Debtor now has or at any time in the
future may acquire any right, title or interest (the Lease Collateral and
Equipment Collateral are collectively referred to herein as the
"COLLATERAL"). The following assets of Debtor shall be included in the
Collateral:
(i) All oral and written leases with, or other agreements for use made
by, any person or entity more particularly described in SCHEDULE 2 attached
hereto as such schedule may be amended or modified from time to time, and any
and all amendments, extensions, renewals,
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 1
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modifications and replacements thereof pertaining to, any portion of the
Equipment, whether such leases or other agreements have been heretofore or
are hereafter made or agreed to (such leases and other use agreements being
collectively referred to herein as the "LEASES");
(ii) The rents which are due or may hereafter become due pursuant to any
of the Leases and any other payments in addition to rent made by or due from
any and all lessees, or users under the Leases including, without limitation,
security deposits and any monies, awards, damages or other payments made or
due under the Leases (which rents and payments together with any and all
other rents, issues and profits which may now or hereafter arise in
connection with the ownership or operation of the Equipment are herein
collectively referred to as the "RENTS"); it being intended that this
granting clause shall constitute an absolute and present assignment of the
Rents;
(iii) All rights, powers, privileges, options and other benefits
(collectively, "RIGHTS") of Debtor under the Leases, including, without
limitation:
(A) The immediate and continuing right to receive and
collect all rents, income, revenues, issues, profits, insurance
proceeds, condemnation awards, monies and security deposits or
the like;
(B) The right to make all waivers and agreements,
including any waivers pertaining to the obligations of lessees;
(C) The right to give all notices, permissions,
consents and releases;
(D) The right to take such action upon the happening
of a default under the Leases (including the commencement,
conduct and consummation of proceedings at law or in equity) as
shall be permitted under any provisions of the Leases or by law;
(E) The right to do any and all other things
whatsoever which Debtor is or may become entitled to do under the
Leases including, without limitation, the right to cancel or
alter leases;
(F) The right to exercise any option required or
permitted under any of the Leases;
(G) The right to execute new leases of the Equipment;
and
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 2
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(H) The rights, powers, privileges and other benefits
of Debtor under any and all guaranties (the "GUARANTIES") of any
of the Leases;
(the Leases, Rents and Rights being sometimes collectively referred to as the
"LEASE COLLATERAL");
(iv) all machinery, equipment, tools, apparatus, furniture and
leasehold improvements, now owned or hereafter acquired by Debtor or in which
Debtor now has or hereafter may acquire any right, title or interest which
have been leased pursuant to any Lease and which have been purchased in whole
or in part with the proceeds of the Advised Guidance Facility, and any and
all additions, substitutions and replacements thereof, wherever located,
together with all attachments, components, parts, equipment and accessories
installed therein or affixed thereto (collectively, the "EQUIPMENT").
(v) all rights, claims and benefits of Debtor against any Person
arising out of, relating to or in connection with the Equipment (the
"EQUIPMENT RIGHTS"); and
(vi) all accessions to, all substitutions for and replacements of, and
all proceeds and products of any and all of the foregoing Equipment
(including, without limitation, proceeds which constitute property of the
types described in this SECTION 1.01) and, to the extent not otherwise
included, all payments under insurance (whether or not Lender is the loss
payee thereof), or any indemnity, warranty or guaranty, payable by reason of
loss or damage to or otherwise with respect to any of the foregoing Equipment
(the "EQUIPMENT PROCEEDS") (the Equipment, Equipment Rights and Equipment
Proceeds sometimes collectively referred to as the "EQUIPMENT COLLATERAL").
1.02. DESCRIPTION OF OBLIGATIONS. This Agreement creates a security
interest in the Collateral securing the payment and performance of the
Obligations, which includes, without limitation, all obligations and
indebtedness arising under or pursuant to the Credit Agreement, the AGF Notes
and the other Loan Documents.
1.03. DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Lender of any of
the Rights or Equipment Rights hereunder shall not release Debtor from any of
its duties or obligations under the contracts and agreements included in the
Collateral, and (c) Lender shall not have any obligation or liability under
the contracts and agreements included in the Collateral by reason of this
Agreement, nor shall Lender be obligated to perform any of the obligations or
duties of Debtor thereunder or to take any action to correct or enforce any
claim for payment assigned hereunder, make any payment, to make any inquiry
as to the nature or the sufficiency of any payment received by it or as to
the sufficiency of any performance by any party under any Lease, account or
other receivable (or any agreement giving rise thereto) or under any
contract, to
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 3
<PAGE>
present or file any claim, to take any action to enforce any performance or
to collect the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
1.04. DELIVERY OF SECURITY COLLATERAL. All certificates or
instruments representing or evidencing the Collateral shall be delivered to
and held by or on behalf of Lender pursuant hereto, including, without
limitation, the original of each Lease set forth on SCHEDULE 2, and shall be
in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Lender. After the occurrence of an Event of
Default, Lender shall have the right, at any time in its discretion and
without notice to Debtor, to transfer to or to register in the name of Lender
or any of its nominees any or all of the Collateral.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01. REPRESENTATIONS AND WARRANTIES. Debtor represents and
warrants, with respect to itself and the Collateral, as follows:
(a) The chief place of business and chief executive office of Debtor
and the office where Debtor keeps all of its records concerning the Leases
and Equipment are located at the offices specified in SCHEDULE 1 hereto. To
the best of Debtor's knowledge, the Equipment is located at the places
specified by Debtor in writing to Lender from time to time.
(b) Debtor is the legal and beneficial owner of all the Collateral free
and clear of any lien or security interest, option or other charge or
encumbrance except for the security interest created by this Agreement and
the rights of the lessees under the Leases and inchoate tax liens, if any.
No effective financing statement or other similar document used to perfect
and preserve a security interest under the laws of any jurisdiction covering
all or any part of the Collateral is on file in any recording office, except
such as may have been filed in favor of Lender relating to this Agreement.
(c) This Agreement and the pledge of the Lease Collateral pursuant
hereto creates a valid first priority security interest in the Lease
Collateral securing the payment of the Obligations, and upon filing of
financing statements in accordance with the Uniform Commercial Code in effect
in the State of Texas (the "UCC"), and any other necessary actions to perfect
such security interest, such first priority security interest in such Lease
Collateral will be duly perfected; and all filings and other actions
necessary or desirable to perfect and protect such security interest and such
priority have been duly taken (or will be taken).
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 4
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(d) No consent of any other Person and no authorization, approval or
other action by, and no notice to or filing with, any Governmental Authority
is required (i) for the pledge by Debtor of the Collateral pledged by it
hereunder, for the grant by Debtor of the security interest granted hereby or
for the execution, delivery or performance of this Agreement by Debtor, (ii)
as to the Lease Collateral, for the perfection or maintenance of the pledge,
assignment and security interest created hereby (including the first priority
nature of such pledge, assignment and security interest) except for UCC
filings or any other action required by the UCC or other applicable
perfection statutes, or (iii) for the exercise by Lender of the Rights or
Equipment Rights provided for in this Agreement or the remedies in respect of
the Collateral pursuant to this Agreement.
(e) Debtor has delivered to Lender all Leases that it has entered into
covering Equipment which has been purchased with the proceeds of the Advised
Guidance Facility, and SCHEDULE 2 is a true and correct list of all such
Leases.
(f) This Agreement constitutes a legal, valid and binding obligation of
Debtor enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and by general principles of
equity.
(g) The execution, delivery and performance of this Agreement will not
violate any provision of any applicable law, rule, regulation or contractual
obligations of Debtor and will not result in the creation or imposition of
any lien on any of the properties or revenues of Debtor pursuant to any
applicable law, rule, regulation or contractual obligations of Debtor, except
as contemplated hereby and except as would not have a Material Adverse Effect.
(h) No action, suit or proceeding of or before any court, arbitrator or
any governmental body, agency or official is pending or, to the knowledge of
Debtor, threatened by or against Debtor or against any of its properties or
revenues with respect to this Agreement or any of the transactions
contemplated hereby.
ARTICLE III
COVENANTS
Debtor hereby covenants and agrees with respect to the Collateral now
owned or hereafter acquired by Debtor as follows:
3.01. FURTHER ASSURANCES. (a) Debtor will from time to time at its
expense promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary, or that Lender may
reasonably request, in order to perfect and protect any pledge, assignment or
security interest granted or purported to be granted hereby, and the priority
thereof,
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 5
<PAGE>
or to create or preserve the full benefits of this Agreement and the rights
and powers of Lender herein granted, or to enable Lender to exercise and
enforce its rights and remedies hereunder with respect to any of the
Collateral. Without limiting the generality of the foregoing, upon written
request by Lender, Debtor will (i) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary, or as Lender may request, in order to perfect
and preserve the pledge, assignment and security interest granted or
purported to be granted hereby with respect to any and all the Collateral and
(ii) take all other actions which Lender reasonably requires to perfect
Lender's security interest in the Equipment Collateral.
(b) Debtor hereby authorizes Lender to file one or more financing or
continuation statements, and amendments thereto, relating to all or any part
of the Collateral without the signature of Debtor where and to the extent
permitted by applicable law. A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where and to the extent
permitted by applicable law.
(c) Debtor will furnish to Lender from time to time, upon the written
request of Lender, statements and schedules further identifying and
describing the Collateral, and such other reports in connection with the
Collateral, as Lender may reasonably request.
(d) In addition to such other information as shall be specifically
provided for herein, Debtor shall furnish to Lender such other information
with respect to the Collateral as Lender may reasonably request from time to
time in connection with the Collateral, or the protection, preservation,
maintenance or enforcement of the security interest or the Collateral,
including, without limitation, all documents and things in Debtor's
possession, or subject to its demand for possession, related to the
Collateral.
3.02. LEASES.
(a) Unless otherwise stated herein, no Leases or Rents have been or
will be assigned, or pledged.
(b) No Rents have been or will be anticipated, waived, released,
discounted, set off or compromised.
(c) Debtor shall perform all of its obligations under the Leases and
enforce the applicable lessee's obligations under the Leases.
(d) Except as provided in the Credit Agreement, Debtor will not modify
or amend any Lease without Lender's prior written consent.
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 6
<PAGE>
(e) Debtor will not terminate or consent to the cancellation or
surrender of any Lease without Lender's prior written consent.
(f) Debtor shall defend, at Debtor's expense, any proceeding pertaining
to any Lease, including, if Lender so requests, any such proceeding to which
Lender is a party.
(g) Debtor shall not receive or collect Rents more than one (1) month
in advance.
3.03. TAXES. Debtor shall pay all taxes, assessments and
governmental charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Collateral pledged by it
hereunder as provided in the Credit Agreement.
3.04. INSURANCE. Debtor will, at its own expense, maintain, or
cause to be maintained, insurance on the Collateral as provided in the Credit
Agreement, with Lender being named as loss payee and additional insured on
all insurance policies which pertain to the Collateral. If Debtor fails to
perform or observe any applicable covenants as to insurance on any of such
Collateral, Lender may at its own option obtain insurance on such Collateral,
and any premium therefor paid by Lender shall become part of the Obligations
and shall bear interest prior to the occurrence of an Event of Default at the
interest rate then applicable under the related AGF Note, and after the
occurrence of an Event of Default, at the Default Rate. In the event Lender
maintains such substitute insurance, the additional premium for such
insurance shall be due on demand and payable by Debtor to Lender in
accordance with any notice delivered to Debtor by Lender. Debtor hereby
grants Lender a security interest in any refunds of unearned premiums in
connection with any cancellation, adjustment or termination of any policy of
insurance required by Lender and in all proceeds of such insurance and hereby
appoints Lender its attorney-in-fact to, after the occurrence and during the
continuance of an Event of Default, endorse any check or draft that may be
payable to Debtor in order to collect such refunds or proceeds. Any such
sums collected by Lender shall be credited, except to the extent applied to
the purchase by Lender of similar insurance, to any amounts then owing on the
Obligations.
ARTICLE IV
RIGHTS AND POWERS OF LENDER
4.01. LENDER MAY PERFORM. If Debtor fails to perform any agreement
contained herein, Lender may, after the occurrence of an Event of Default,
itself perform, or cause performance of, such agreement, and the expenses of
Lender incurred in connection therewith shall be payable by Debtor as
provided in SECTION 4.05.
4.02. LIMITATION ON LENDER'S DUTIES. The powers conferred on Lender
hereunder are solely to protect the interests of Lender in the Collateral and
shall not impose any duty upon Lender to exercise any such powers. Lender
shall not have any duty as to any of the Collateral,
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 7
<PAGE>
as to ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders, options or other matters relative to any
Collateral, whether or not Lender has or is deemed to have knowledge of such
matters, or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any reasonable care
in the custody and preservation of any Collateral in the possession of Lender
if such Collateral is accorded treatment substantially equal to that which
Lender accords its own property. Lender shall not have any duty or liability
to protect or preserve any Collateral or to preserve rights pertaining
thereto. Nothing contained in this Agreement shall be construed as requiring
or obligating Lender, and Lender shall not be required or obligated, to (a)
present or file any claim or notice or take any action, with respect to any
Collateral or in connection therewith or (b) notify Debtor of any decline in
the value of any Collateral. Lender shall not, nor shall any of its
respective directors, officers, employees or agents be, liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of Debtor or otherwise.
4.03. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) POWERS. Debtor hereby irrevocably constitutes and appoints Lender
and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of Debtor and in the name of Debtor or in its own name,
after the occurrence of an Event of Default (but not prior thereto), for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement,
and, without limiting the generality of the foregoing, Debtor hereby gives
Lender after the occurrence and during the continuance of an Event of Default
the power and right, on behalf of Debtor, without notice to or assent by
Debtor, to do the following:
(1) in the case of any Collateral, in the name of Debtor or its own
name, or otherwise, to take possession of and indorse and collect any
checks, drafts, notes, acceptances or other instruments for the payment of
moneys due under, or with respect to, any Collateral and to file any claim
or to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Lender for the purpose of collecting any
and all such moneys due or with respect to such Collateral whenever
payable;
(2) to pay or discharge taxes and liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of this Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and
(3) (i) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to Lender or as Lender shall direct; (ii) to ask or
demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (iii) to sign and indorse any
invoices, freight
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 8
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or express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications, notices and other documents
in connection with any of the Collateral; (iv) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any portion thereof
and to enforce any other right in respect of any Collateral; (v) to
defend any suit, action or proceeding brought against Debtor with respect
to any Collateral; (vi) to settle, compromise or adjust any suit, action or
proceeding described in the preceding clause and, in connection therewith,
to give such discharges or releases as Lender may deem appropriate; and
(vii) generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option and Debtor's expense, at any time,
or from time to time, all acts and things which Lender deems necessary to
protect, preserve or realize upon the Collateral and the liens of Lender
thereon and to effect the intent of this Agreement, all as fully and
effectively as Debtor might do.
This power of attorney is power coupled with an interest and shall be
irrevocable until (i) the Obligations shall have been paid in full and the
Advised Guidance Facility terminated or (ii) this Agreement shall have been
terminated.
(b) OTHER POWERS. Debtor also authorizes Lender after the occurrence
of and during the continuance of an Event of Default, at any time and from
time to time, to execute, in connection with any sale provided for in SECTION
4.04, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) NO DUTY ON THE PART OF LENDER. The powers conferred on Lender
hereunder are solely to protect the interests of Lender in the Collateral and
shall not impose any duty upon Lender to exercise any such powers. Lender
shall be accountable only for amounts that it actually receives as a result
of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to Debtor for any act or
failure to act hereunder, except for its own gross negligence or willful
misconduct, IT BEING THE INTENT OF THE PARTIES HERETO THAT LENDER SHALL NOT
BE ACCOUNTABLE FOR ITS OWN NEGLIGENCE (WHETHER SOLE, CONTRIBUTORY,
COMPARATIVE OR OTHERWISE).
4.04. REMEDIES. The occurrence of an Event of Default under the
Credit Agreement shall constitute a default of this Agreement. If an Event
of Default shall occur and be continuing, Lender may exercise, in addition to
all other rights and remedies granted to Lender in this Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the UCC.
Without limiting the generality of the foregoing, Lender, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon
Debtor or any other Person (all and each of which demands,
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 9
<PAGE>
offenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or office of Lender or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any credit
risk. Lender shall have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity
of redemption in Debtor, which right or equity is hereby waived and released.
Debtor further agrees, at Lender's request, to assemble the Collateral and
make it available to Lender at places which Lender shall reasonably select,
whether at Debtor's premises or elsewhere. Lender shall apply the net
proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of
every kind incurred therein or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of
Lender hereunder, including, without limitation, reasonable attorneys' fees
and disbursements, to the payment in whole or in part of the Obligations, in
such order as Lender may elect, and only after such application and after the
payment by Lender of any other amount required by any provision of law, need
Lender account for the surplus, if any, to Debtor. To the extent permitted
by applicable law, Debtor waives all claims, damages and demands it may
acquire against Lender arising out of the exercise of any rights hereunder.
If any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given
at least ten (10) days before such sale or other disposition. Debtor shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by Lender to collect such
deficiency.
4.05. INDEMNITY AND EXPENSES. (a) Debtor agrees to indemnify Lender
from and against any and all claims, damages, losses, liabilities, costs and
expenses of any kind (including reasonable attorneys' fees) arising out of or
resulting from this Agreement or the security interest granted herein, or any
of the Collateral (including, without limitation, enforcement of this
Agreement), EXPRESSLY INCLUDING SUCH CLAIMS, LOSSES OR LIABILITIES ARISING
OUT OF THE MERE NEGLIGENCE OF LENDER (WHETHER SOLE, CONTRIBUTORY,
COMPARATIVE, OR OTHERWISE), except claims, losses or liabilities resulting
from the gross negligence or willful misconduct of Lender.
(b) Debtor will upon demand pay to Lender the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Lender or, as to the matters
described in clauses (iii) or (iv) below, Lender may incur in connection with
(i) the administration of this Agreement, (ii) the custody, preservation, use
or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights
of Lender hereunder or (iv) the failure by Debtor to perform or observe any
of the provisions hereof. Any such amounts so made shall be a part
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 10
<PAGE>
of the Obligation, shall be payable upon demand, and if not paid upon demand
shall bear interest at the Default Rate.
ARTICLE V
MISCELLANEOUS
5.01. CUMULATIVE RIGHTS. All Rights and Equipment Rights of Lender
under the Loan Documents are cumulative of each other and of every other
Right which Lender may otherwise have at law or in equity or under any other
contract or other writing for the enforcement of the security interest herein
or the collection of the Obligations. The exercise of one or more Rights or
Equipment Rights shall not prejudice or impair the concurrent or subsequent
exercise of other Rights or Equipment Rights.
5.02. MODIFICATIONS; AMENDMENTS; SCHEDULES; ETC. No amendment or
waiver of any provision of this Agreement, and no consent to any departure by
Debtor herefrom, shall in any event be effective unless the same shall be in
writing and signed by Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given. Upon the submission by Debtor of each Request for Advance in
connection with the Advised Guidance Facility, Debtor shall attach to each
such Request for Advance a replacement schedule for SCHEDULE 2, in form and
substance satisfactory to Lender, listing each new Lease and the lessee
thereunder, and Debtor shall file any amendments to and additional financing
statements as Lender may require to preserve and perfect a first priority
security interest in the Collateral.
5.03. CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall remain in full force
and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Agreement and (ii) the
expiration or termination of the obligations of Lender to extend credit to
Debtor. Upon any such termination, Lender will, at Debtor's expense, execute
and deliver to Debtor such documents as Debtor shall reasonably request to
evidence such termination.
5.04. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. UNLESS OTHERWISE
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 11
<PAGE>
DEFINED HEREIN OR IN THE CREDIT AGREEMENT, TERMS USED IN ARTICLE 9 OF THE UCC
ARE USED HEREIN AS THEREIN DEFINED.
5.05. WAIVER OF JURY TRIAL. DEBTOR HEREBY WAIVES TRIAL BY JURY IN
ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED
TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
5.06. RIGHT TO USE AGENT. Lender may exercise its Rights or
Equipment Rights under or with respect to this Agreement through an agent,
representative, attorney or other designee.
5.07. WAIVERS OF RIGHTS INHIBITING ENFORCEMENT. Debtor waives (a)
any claim that a public sale, in and of itself, of all or any part of the
Collateral is not a commercially reasonable method of sale for such
Collateral, (b) except as otherwise provided in this Agreement, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE HAVE
UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE,
AND ALL OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE WITH
RESPECT TO THE ENFORCEMENT OF LENDER'S AND ALL OTHER RIGHTS HEREUNDER and (c)
all rights of redemption, appraisal or valuation.
5.8. NOTICES AND DELIVERIES.
(a) MANNER OF DELIVERY. All notices, communications and materials to
be given or delivered pursuant to this Agreement shall be delivered in
accordance with SECTION 9.1 of the Credit Agreement.
5.9. ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES.
5.10. SUCCESSORS AND ASSIGNS. All of the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns as and to the extent
provided in the Credit Agreement.
5.11. SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future laws during the
term hereof, such provision shall be fully severable, this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part hereof, and the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 12
<PAGE>
unenforceable provision or by its severance herefrom. Furthermore, in lieu
of such illegal, invalid, or unenforceable provision there shall be added
automatically as a part of this Agreement a legal, valid, and enforceable
provision as similar in terms to the illegal, invalid, or unenforceable
provision as may be possible.
5.12. COUNTERPARTS. This Agreement may be executed in any number of
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.
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 13
<PAGE>
IN WITNESS WHEREOF, Debtor and Lender have duly executed and delivered
this Agreement effective as of the date first above written.
Address of Debtor: DEBTOR:
12000 Aerospace Avenue IWL COMMUNICATIONS, INC., a Texas
Suite 200 corporation
Houston, Texas 77034
Attn: Chief Financial Officer By: /s/ Richard H. Roberson
---------------------------------
Name: Richard H. Roberson
-------------------------------
Title: CFO
------------------------------
Address of Lender: LENDER:
BANK ONE, TEXAS, N.A., a
1717 Main Street, 3rd Floor national banking association
Dallas, Texas 75201
Attention: Mr. Mark Wade By: /s/ Mark Wade
---------------------------------
Name: Mark Wade
-------------------------------
Title: Vice President
------------------------------
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT Page 14
<PAGE>
SCHEDULE 1
Collateral Locations
- ------------------------------------------------------------------------------
1. Chief Place of Business and Executive Office of Debtor:
SCHEDULE 1 Page 1
<PAGE>
SCHEDULE 2
Leases
- ------------------------------------------------------------------------------
SCHEDULE 2 Page 1
<PAGE>
$5,000,000.00 REVOLVING CREDIT AGREEMENT
BETWEEN
IWL COMMUNICATIONS, INC.
AND
BANK ONE, TEXAS, N.A.
AUGUST 1, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I TERMS DEFINED . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS . . . . . . . . . . . 16
SECTION 1.3. GENDER AND NUMBER . . . . . . . . . . . . . . . . . . . . 17
SECTION 1.4. REFERENCES TO CREDIT AGREEMENT. . . . . . . . . . . . . . 17
ARTICLE II TOTAL REVOLVING COMMITMENT. . . . . . . . . . . . . . . . . . . 17
SECTION 2.1. COMMITMENT. . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.2. METHOD OF BORROWING . . . . . . . . . . . . . . . . . . . 17
SECTION 2.3. INTEREST RATE . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.3. REVOLVING NOTE. . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.4. TERMINATION OF TOTAL REVOLVING COMMITMENT . . . . . . . . 21
SECTION 2.5. INTEREST RATE . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.6. USAGE FEE . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE III GENERAL PROVISIONS RELATED TO LOAN PAYMENTS; FEES . . . . . . . 22
SECTION 3.1. GENERAL PROVISIONS AS TO PAYMENTS . . . . . . . . . . . . 22
SECTION 3.2. OVERDUE PRINCIPAL AND INTEREST. . . . . . . . . . . . . . 22
SECTION 3.3. MAXIMUM LAWFUL RATE . . . . . . . . . . . . . . . . . . . 22
SECTION 3.4. INCREASED COSTS AND LEGAL RESTRICTIONS APPLICABLE
TO TOTAL REVOLVING COMMITMENT . . . . . . . . . . . . . . 23
ARTICLE IV COLLATERAL FOR THE TOTAL REVOLVING COMMITMENT . . . . . . . . . 25
SECTION 4.1. SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.2. DOCUMENTATION . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE V CONDITIONS PRECEDENT TO ADVANCES. . . . . . . . . . . . . . . . 26
SECTION 5.1. ALL ADVANCES. . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 5.2. CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . 27
SECTION 6.1. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.2. CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . 28
SECTION 6.3. CORPORATE AND GOVERNMENTAL AUTHORIZATION;
CONTRAVENTION . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.4. BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.5. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . 29
SECTION 6.6. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.7. TAXES AND FILING OF TAX RETURNS . . . . . . . . . . . . . 29
SECTION 6.8. BUSINESS; COMPLIANCE. . . . . . . . . . . . . . . . . . . 30
SECTION 6.9. LICENSES, PERMITS, ETC. . . . . . . . . . . . . . . . . . 30
SECTION 6.10. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . 30
<PAGE>
SECTION 6.11. FULL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.12. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.13. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . 30
SECTION 6.14. SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.15. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.1. INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.2. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . 33
SECTION 7.3. CONSOLIDATIONS, MERGERS, SALES OF ASSETS,
AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7.4. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7.5. RIGHT OF INSPECTION; RIGHT OF AUDIT . . . . . . . . . . . 34
SECTION 7.6. LIMITATION ON DEBT. . . . . . . . . . . . . . . . . . . . 34
SECTION 7.7. LIMITATION ON SALE OF PROPERTIES. . . . . . . . . . . . . 35
SECTION 7.8. LIMITATIONS ON LIENS. . . . . . . . . . . . . . . . . . . 35
SECTION 7.9. MAINTENANCE OF INSURANCE. . . . . . . . . . . . . . . . . 35
SECTION 7.10. PAYMENT OF TAXES AND CLAIMS . . . . . . . . . . . . . . . 35
SECTION 7.11. COMPLIANCE WITH LAWS AND DOCUMENTS. . . . . . . . . . . . 36
SECTION 7.12. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNITY. . . . . . . . 36
SECTION 7.13. ADDITIONAL DOCUMENTS. . . . . . . . . . . . . . . . . . . 38
SECTION 7.14. QUANTITY OF DOCUMENTS . . . . . . . . . . . . . . . . . . 38
SECTION 7.15. INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.16. TRANSACTIONS WITH AFFILIATES. . . . . . . . . . . . . . . 38
SECTION 7.17. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.18. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.19. CHANGES IN MANAGEMENT . . . . . . . . . . . . . . . . . . 39
SECTION 7.20. REPURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . 39
SECTION 7.21. ADDITIONAL SUBSIDIARIES . . . . . . . . . . . . . . . . . 39
ARTICLE VIII DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.1. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . 40
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.1. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.2. NO WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 9.3. EXPENSES; INDEMNIFICATION . . . . . . . . . . . . . . . . 43
SECTION 9.4. RIGHT OF SET-OFF. . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.5. AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . 44
SECTION 9.6. SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.7. LIMITATION ON INTEREST. . . . . . . . . . . . . . . . . . 45
SECTION 9.8. INVALID PROVISIONS. . . . . . . . . . . . . . . . . . . . 45
SECTION 9.9. CONFLICT OF TERMS . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.10. REVOLVING LOAN. . . . . . . . . . . . . . . . . . . . . . 46
<PAGE>
SECTION 9.11. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . 46
SECTION 9.12. TEXAS LAW . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.13. COUNTERPARTS; EFFECTIVENESS . . . . . . . . . . . . . . . 47
SECTION 9.14. NO THIRD PARTY BENEFICIARIES. . . . . . . . . . . . . . . 47
SECTION 9.15. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . 47
SCHEDULES AND EXHIBITS
SCHEDULE I - Debt of Borrower
SCHEDULE II - Liens of Borrower
SCHEDULE III - Subsidiaries of Borrower
EXHIBIT A - Form of Request for Advance
EXHIBIT B - Form of Borrowing Base Certificate
EXHIBIT C - Form of Compliance Certificate
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT (this "CREDIT AGREEMENT") is entered into
as of the 1st day of August, 1997, between IWL COMMUNICATIONS, INC., a Texas
corporation ("BORROWER"), and BANK ONE, TEXAS, N.A., a national banking
association ("LENDER").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender make a revolving credit loan to
Borrower in an amount not to exceed $5,000,000.00 which shall be used for
working capital purposes and for other general corporate purposes; and
WHEREAS, Lender has agreed to such request on the terms and conditions
herein contained.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
TERMS DEFINED
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Account" means any and all "Accounts" as that term is defined in the
Security Agreement.
"Accounts Receivable Report" has the meaning set forth in SECTION 6.1(D).
"Adjusted LIBOR Rate" shall mean on the applicable Effective Date, with
respect to a LIBOR Rate Portion, a rate per annum equal to the SUM OF (a) the
quotient of (i) the LIBOR Rate on the applicable Effective Date, divided by
(ii) the remainder of 1.00 minus the LIBOR Reserve Requirement, if any, on the
applicable
REVOLVING CREDIT AGREEMENT 1
<PAGE>
Effective Date, plus (b) the FDIC Percentage in effect on the applicable
Effective Date, together with any additional impositions, assessments, fees
or surcharges that may be imposed on Lender (expressed as a percentage), to
the extent such impositions, assessments, fees or surcharges are not
reflected in the FDIC Percentage or the LIBOR Reserve Requirement and are
generally imposed on banks with capitalization and supervisory risk factors
comparable to Lender, plus (c) the LIBOR Margin.
"Advance" means each advance made by Lender under the Total Revolving
Commitment and evidenced by a Request for Advance submitted by Borrower to
Lender pursuant to the terms and conditions of this Credit Agreement.
"Affiliate" of any corporation shall mean any Person which, directly or
indirectly, controls or is controlled by or is under common control with such
corporation and, without limiting the generality of the foregoing, shall include
any Person which beneficially owns or holds five percent (5%) or more of any
class or series of voting securities of such corporation (or in case of a Person
which is not a corporation, five percent (5%) or more of the equity interest) of
which is beneficially owned or held by such corporation. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"AGF Credit Agreement" means that certain Credit Agreement, dated August 1,
1997, by and between Borrower and Lender, pursuant to which Lender agreed,
subject to the terms and conditions therein contained, to make available to
Borrower an advised guidance facility.
"AGF Note" means any promissory note executed by Borrower pursuant to the
AGF Credit Agreement.
"Applicable Base Rate" means (a) prior to the Interest Reduction Date, the
Base Rate, and (b) after the Interest Reduction Date, (i) the Base Rate, minus
(ii) one-half of one percent (.50%).
REVOLVING CREDIT AGREEMENT 2
<PAGE>
"Applicable Environmental Law and Laws" has the meaning set forth in
SECTION 6.13.
"Applicable Rate" has the meaning set forth in SECTION 2.3.
"Assets" means all of the assets of any Person, real or personal, which are
included on a balance sheet of such Person prepared in accordance with GAAP.
"Authorized Officer" means, as to any Person that is a corporation, any of
its Chairman, Vice-Chairman, President, Vice President(s), Chief Executive
Officer, Chief Financial Officer, Chief Accounting Officer or Treasurer, or as
to any other Person, if such Person is a partnership, the partnership's general
partner or other Person authorized by appropriate action to execute the Loan
Documents or any other documents or certificates to be executed by such Person
hereunder or in connection with any Advance.
"Base Rate" means the base interest rate as announced or published by
Lender from time to time, and may not be the lowest interest rate charged by
Lender.
"Base Rate Advance" shall mean an Advance or any portion of an Advance
which bears interest computed with reference to the Applicable Base Rate.
"Base Rate Portion" shall mean that portion or portions of the Total
Revolving Commitment which bears interest computed with reference to the
Applicable Base Rate.
"Borrower" has the meaning set forth in the first paragraph of this Credit
Agreement.
"Borrowing Base" means an amount equal to the sum of (a) eighty percent
(80%) of the combined book value of Borrower's Eligible Accounts as shown in the
monthly Borrowing Base Certificate, plus (b) the lesser of (i) fifty percent
(50%) of the combined book value of Borrower's Eligible Inventory as shown in
the monthly Borrowing Base Certificate, or (ii) $1,000,000.
"Borrowing Base Certificate" means a certificate, in the form
REVOLVING CREDIT AGREEMENT 3
<PAGE>
attached hereto as EXHIBIT B, completed in all appropriate respects and
executed by an Authorized Borrowing Officer.
"Business Day" means any day except a Saturday, Sunday or other day on
which national banks in Dallas, Texas are authorized by law to close.
"Cash Equivalents" means (a) cash and obligations issued or guaranteed by
the United States of America, (b) obligations issued or guaranteed by any person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America pursuant to authority granted by the Congress of the
United States, (c) certificates of deposit issued, or banker's acceptances drawn
on and accepted by, or money market accounts or time deposits in, commercial
banks which are members of the Federal Deposit Insurance Corporation and which
have a combined capital, surplus and undistributed profits of at least
$50,000,000, (d) repurchase agreements with any such commercial bank, or with
broker-dealers or other institutions, that are secured by obligations issued or
guaranteed by the United States of America or an agency or instrumentality
thereof, (e) other money market instruments and mutual funds, substantially all
of the assets of which are invested in any or all of the investments described
in clauses (a) through (d) above, and (f) commercial paper rated P-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Corporation on the date of
acquisition.
"Closing Date" means the date of this Credit Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Compliance Certificate" means a certificate, in the form attached hereto
as EXHIBIT C, completed in all appropriate respects and executed by an
Authorized Borrowing Officer.
"Consequential Loss" has the meaning set forth in SECTION 3.5.
"Credit Agreement" means this Credit Agreement.
"Credit Period" means the period commencing on the date of this Credit
Agreement and ending on the Termination Date.
REVOLVING CREDIT AGREEMENT 4
<PAGE>
"Current Maturities" means, with respect to any Person, on any date of
calculation, the current liabilities of such Person attributable to its long
term indebtedness, determined in accordance with GAAP.
"Current Ratio" means, for any date of determination, the ratio of
(a) Borrower's current assets as shown on the balance sheet of Borrower prepared
in accordance with GAAP, to (b) Borrower's current liabilities as shown on the
balance sheet of Borrower prepared in accordance with GAAP.
"Debt" means, for any Person, without duplication, (a) all obligations of
such Person for borrowed money, (b) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (c) all other
indebtedness (including capitalized lease obligations) of such Person on which
interest charges are customarily paid or accrued, (d) all contingent liabilities
of such Person, (e) the unfunded or unreimbursed portion of all letters of
credit issued for the account of such Person, and (f) all liability of such
Person as a general partner or joint venturer for obligations of the nature
described in (a) through (e) preceding.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar
laws, domestic or foreign, including but not limited to those in Title 11 of the
United States Code, affecting the rights or remedies of creditors generally, as
in effect from time to time.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in SECTION 3.2.
"Distribution" by any Person, means (a) with respect to any stock issued by
such Person or any partnership or joint venture interest of such person, the
retirement, redemption, repurchase, or other acquisition for value of such
stock, partnership or joint venture interest, (b) the declaration or payment
(without
REVOLVING CREDIT AGREEMENT 5
<PAGE>
duplication) of any dividend or other distribution, whether monetary or in
kind, on or with respect to any stock, partnership or joint venture of any
Person, and (c) any other payment or distribution of assets of a similar
nature or in respect of an equity investment.
"EBITDA" means, for any period, determined in accordance with GAAP for
Borrower, the sum of net income before taxes, plus depreciation, plus
amortization, plus interest expense, plus any other non-cash expenses, each as
deducted in determining such net income before taxes.
"Effective Date" has the meaning set forth in SECTION 2.3.
"Eligible Accounts" means, at the time of any determination thereof, each
Account as to which the following requirements have been fulfilled to the
satisfaction of Lender:
(a) Borrower has lawful and absolute title to such Account;
(b) Such Account is a valid, legally enforceable obligation of the
Person who is obligated under such Account (the "ACCOUNT DEBTOR") for goods
or services previously delivered or rendered to such Person by Borrower;
(c) There has been excluded from such Account any portion that is
subject to any dispute, offset, counterclaim or other claim or defense on
the part of the account debtor or to any claim on the part of the account
debtor denying liability under such Account;
(d) Borrower has the full and unqualified right to assign and grant a
security interest in such Account to Lender as security for the
Obligations;
(e) Such Account is payable in dollars and is evidenced by an invoice
rendered to the account debtor and such Account is not evidenced by any
chattel paper, promissory note or other instrument;
(f) Such Account is subject to a fully perfected first
REVOLVING CREDIT AGREEMENT 6
<PAGE>
priority security interest in favor of Lender, pursuant to the Loan
Documents, prior to the rights of, and enforceable as such against,
any other Person (including holders of a purchase money security interest);
(g) Such Account is not subject to any lien in favor of any Person
other than the lien of Lender pursuant to the Loan Documents;
(h) Such Account arose from a transaction in the ordinary course of
business of Borrower;
(i) Such Account has not been due and payable for more than ninety
(90) days from the invoice date;
(j) No account debtor in respect of such Account is (i) primarily
conducting business in any jurisdiction located outside the United States
of America, (ii) any foreign government, (iii) an Affiliate of Borrower,
(iv) the subject of a proceeding under any Debtor Relief Laws, or (v) the
United States of America or any state;
(k) No account debtor in respect of such Account is an account debtor
on other Accounts of Borrower and either (i) more than ten percent (10%) of
all such other Accounts have been due and payable for more than ninety (90)
days, or (ii) after including such Account as an Eligible Account, the
aggregate of account debtor's Accounts is more than twenty-five percent
(25%) of all Eligible Accounts; and
(l) Lender has not determined in good faith that there is a
legitimate concern with respect to the timing or collection of such
Account.
"Eligible Inventory" means, at the time of any determination thereof, each
item of raw material or finished goods inventory as to which the following
requirements have been fulfilled to the satisfaction of Lender:
(a) Borrower has lawful and absolute title to such item of inventory;
REVOLVING CREDIT AGREEMENT 7
<PAGE>
(b) Borrower has the full and unqualified right to assign and grant a
security interest in such item of inventory to Lender as security for the
Obligations;
(c) Such item of inventory is subject to a fully perfected first
priority security interest in favor of Lender pursuant to the Loan
Documents, prior to the rights of, and enforceable as against, any other
Person (including holders of a purchase money security interest); and
(d) Such item of inventory is not subject to any lien in favor of any
Person other than the lien of Lender pursuant to the Loan Documents.
The following items shall be excluded from Eligible Inventory:
(e) Work in process inventory or any overhead that might be allocable
to work in process inventory;
(f) Any inventory in the possession of a bailee, warehouseman,
consignee or similar third party;
(g) Any inventory that is damaged, defective, unmerchantable,
outdated or obsolete;
(h) Any inventory subject to a title vesting clause under a contract
with the United States of America or any department or agency thereof;
(i) Any inventory produced in violation of the Fair Labor Standards
Act and subject to the so-called "hot-goods" provisions contained in Title
25 U.S.C. 215(a)(i);
(j) Any merchandise sold which has been returned by the customer for
whatever reason and is not immediately saleable for a price approximately
equal to or greater than the original sales price of such merchandise;
(k) Any inventory not located in a jurisdiction in which Bank has
filed an appropriate financing statement;
(l) Any inventory that is in transit for any reason; and
REVOLVING CREDIT AGREEMENT 8
<PAGE>
(m) Any inventory reasonably rejected by Lender as unsuitable.
"Employee Plan" means at any time an employee benefit plan as defined in
Section 3(3) of ERISA that is now or was previously maintained, sponsored or
contributed to by Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all regulations issued pursuant
thereto.
"Event of Default" has the meaning set forth in SECTION 8.1.
"FDIC Percentage" shall mean, on any day, the net assessment rate
(expressed as a percentage rounded to the next highest 1/100 of 1%), if any,
which is in effect on such day (under the regulations of the Federal Deposit
Insurance Corporation or any successor) for determining the assessments paid by
Lender to the Federal Deposit Insurance Corporation (or any successor) for
insuring Eurocurrency deposits made in dollars at Lender's principal offices.
Each determination of said percentage made by Lender shall, in the absence of
manifest error, be binding and conclusive.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to Lender
on such day on such transactions from three Federal funds brokers of recognized
standing.
"Fixed Charge Ratio" means, for any date of determination, the ratio of (a)
EBITDA for the immediately preceding four (4) calendar quarters, to (b) the sum
of (i) Current Maturities, plus (ii) Interest Expense, plus (iii) Lease Expense,
each for the immediately preceding four (4) calendar quarters.
REVOLVING CREDIT AGREEMENT 9
<PAGE>
"GAAP" means generally accepted accounting principles consistently applied
as in effect at the time of application of the provisions hereof.
"Governmental Authority" means any government, any state or other political
subdivision thereof, or any Person exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Guarantor" means each of Spacelink I, Spacelink II, IWL Ltd, and any other
Person executing a Guaranty of the Obligations in favor of the Lender.
"Guaranty" means a continuing guaranty of payment of the Obligations
(subject to any limitations, reductions in liability, or termination thereof
therein contained), executed by each Guarantor in favor of Lender, as it may
from time to time be renewed, extended, amended or restated.
"Intangible Assets" means those assets of Borrower which are (a) deferred
assets, other than prepaid insurance and prepaid taxes, (b) patents, copyrights,
trademarks, trade names, franchises, goodwill, experimental expenses and other
similar assets which would be classified as intangible assets on the balance
sheet of Borrower, prepared in accordance with GAAP, and (c) unamortized debt
discount and expense (excluding any genuine commitment or other loan fees paid
by Borrower to obtain secured financing).
"Interest Adjustment Date" shall mean the earlier of either the last day of
an Interest Period or the Termination Date.
"Interest Expense" means, for any period, the interest expense which is
required to be shown as such on the financial statements of Borrower, prepared
in accordance with GAAP.
"Interest Period" shall mean, with respect to a LIBOR Rate Portion, a
period selected by Borrower of 30, 60 or 90 days, commencing on the Effective
Date of any LIBOR Rate Portion; provided that any Interest Period ending on a
date later than the Maturity Date for the Note under which the applicable LIBOR
Rate Portion was made shall be deemed to end on such Maturity Date.
"Interest Reduction Date" means the date on which Borrower delivers to
Lender Borrower's audited financial statements for Borrower's 1997 fiscal year;
provided, that, (a) no Event of
REVOLVING CREDIT AGREEMENT 10
<PAGE>
Default has occurred and is continuing, and (b) Lender, in its sole
discretion, approves a reduction in the interest rate hereunder due to, among
other reasons, a risk reduction of the Total Revolving Commitment.
"Inventory Report" has the meaning set forth in SECTION 6.1(D).
"IWL Ltd" means IWL Communications Ltd., a Subsidiary of Borrower.
"Lease Expense" means, for any period, the lease expense under all
Operating Leases for Borrower.
"Lender" has the meaning set forth in the first paragraph of this Credit
Agreement.
"LIBOR Margin" means (a) prior to the Interest Reduction Date, 2.40%, and
(b) on and after the Interest Reduction Date, 2.00%.
"LIBOR Rate" shall mean, with respect to a LIBOR Rate Portion for the
Interest Period applicable thereto, the rate of interest determined by Lender at
which deposits in dollars for the relevant Interest Period and comparable in
amount to the LIBOR Rate Portion in question are offered based on information
presented on the Telerate Screen as of 11:00 A.M. (London time) on the day which
is two (2) Business Days prior to the first day of such Interest Period;
PROVIDED, that if at least two such offered rates appear on the Telerate Screen
in respect of such Interest Period, the arithmetic mean of all such rates (as
determined by Lender) will be the rate used; PROVIDED, FURTHER, that if Telerate
ceases to provide LIBOR quotations, such rate shall be the average rate of
interest determined by Lender at which deposits in U.S. dollars are offered for
the relevant Interest Period by Lender (or its successor) to banks with combined
capital and surplus in excess of $500,000,000 in the London interbank market as
of 11:00 A.M. (London time) on the applicable Effective Date.
"LIBOR Rate Advance" shall mean an Advance or any portion of an Advance
which bears interest computed with reference to the Adjusted LIBOR Rate.
"LIBOR Rate Portion" shall mean that portion or portions of the Total
Revolving Commitment which bears interest computed with reference to the
Adjusted LIBOR Rate.
REVOLVING CREDIT AGREEMENT 11
<PAGE>
"LIBOR Reserve Requirement" shall mean, on any day, that percentage
(expressed as a decimal fraction) which is in effect on such date, if any, as
provided by the Federal Reserve System for determining the maximum reserve
requirements generally applicable to financial institutions regulated by the
Federal Reserve Board comparable in size and type to Lender (including, without
limitation, basic supplemental, marginal and emergency reserves) under
Regulation D with respect to "Eurocurrency liabilities" as currently defined in
Regulation D, or under any similar or successor regulation with respect to
Eurocurrency liabilities or Eurocurrency funding (or, if reserves for
Eurocurrency liabilities are not separately stated in such regulations, the
other applicable category of liabilities which includes deposits by reference to
which the interest rate on a LIBOR Rate Portion is determined). Each
determination by Lender of the LIBOR Reserve Requirement, shall, in the absence
of manifest error, be conclusive and binding.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Credit Agreement, a Person shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan Documents" means (a) this Credit Agreement, (b) the Note, (c) the
Security Documents, (d) each Guaranty, (e) all other certificates, documents or
instruments delivered in connection with this Credit Agreement, the Note, or the
Security Documents, as such may hereafter be renewed, amended, restated or
supplemented from time to time, and (f) any and all future renewals, amendments,
restatements or supplements to, all or any part of the foregoing.
"Margin Regulations" mean Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"Margin Stock" means "margin stock" as defined in Regulation U of the
Margin Regulations.
"Material Adverse Effect" means with respect to a Person (including,
without limitation, Borrower), an effect on the business, financial condition,
operations or assets of such Person, which does or could materially and
adversely affect Borrower's ability to pay and perform the Obligations.
REVOLVING CREDIT AGREEMENT 12
<PAGE>
"Maximum Lawful Rate" means the maximum rate (or, if the context so
permits or requires, an amount calculated at such rate) of interest which, at
the time in question would not cause the interest charged on the portion of
the Advances owed to Lender at such time to exceed the maximum amount which
Lender would be allowed to contract for, charge, take, reserve, or receive
under applicable law after taking into account, to the extent required by
applicable law, any and all relevant payments or charges under the Loan
Documents. To the extent the laws of the State of Texas are applicable for
purposes of determining the "Maximum Lawful Rate," such term shall mean the
"indicated rate ceiling" from time to time in effect under Article 1.04,
Title 79, Revised Civil Statutes of Texas, 1925, as amended, or, if permitted
by applicable law and effective upon the giving of the notices required by
such Article 1.04 (or effective upon any other date otherwise specified by
applicable law), the "quarterly ceiling" or "annualized ceiling" from time to
time in effect under such Article 1.04, whichever Lender shall elect to
substitute for the "indicated rate ceiling," and VICE VERSA, each such
substitution to have the effect provided in such Article 1.04, and Lender
shall be entitled to make such election from time to time and one or more
times and, without notice to Borrower, to leave any such substitute rate in
effect for subsequent periods in accordance with subsection (h)(1) of such
Article 1.04.
"Minimum Notice Requirement" has the meaning set forth in SECTION 2.3.
"Note" means that certain promissory note, dated the date hereof,
executed by Borrower in favor of Lender evidencing the Total Revolving
Commitment and the Advances.
"Obligations" means all present and future indebtedness, obligations and
liabilities, and all renewals and extensions thereof, or any part thereof, of
Borrower, to Lender arising pursuant to the Loan Documents, and all interest
accrued thereon and costs, expenses, and attorneys' fees incurred in the
enforcement or collection thereof, regardless of whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several.
"Operating Lease" means any operating lease, as defined in the Financial
Accounting Standard Board Statement of Financial Accounting Standards No. 13
dated November, 1976, or otherwise in
REVOLVING CREDIT AGREEMENT 13
<PAGE>
accordance with GAAP.
"PBGC" means the Pension Benefit Guaranty Corporation, or its successors.
"Pension Plan" means any Employee Plan that is now or was previously
covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code.
"Permitted Disposition" means any sale of stock of Borrower in
connection with (a) an initial public offering, and (b) any stock option plan
approved by Borrower's board of directors in accordance with sound business
judgment and so long as any such plan does not require any fundings or stock
purchases by Borrower.
"Permitted Liens" means:
(a) Liens and encumbrances in favor of Lender;
(b) Liens for taxes, assessments or other governmental charges incurred
in the ordinary course of business and not yet past due or being contested in
good faith by appropriate proceedings and with proper reserves therefor
maintained in accordance with GAAP;
(c) Liens not delinquent created by statute in connection with worker's
compensation, unemployment insurance, social security and similar statutory
obligations;
(d) Liens of mechanics, materialmen, carriers, warehousemen or other
like statutory or common law liens securing obligations incurred in good
faith in the ordinary course of business that are not yet due and payable or
that are being contested in good faith by appropriate proceedings and with
proper reserves therefor maintained in accordance with GAAP;
(e) encumbrances consisting of easements, rights of way, zoning
restrictions or other similar restrictions on the use of real property, none
of which materially impairs the use of such property by Borrower or any
Subsidiary in the operation of the business for which it is used and none of
which is violated in any material respect by any existing or proposed
structure or land use; and
(f) Liens on furniture, fixtures and equipment for purchase
REVOLVING CREDIT AGREEMENT 14
<PAGE>
money financing (including loans and leases) hereafter existing.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Regulatory Change" means the adoption after the date hereof of any
applicable law, rule or regulation, or any change after the date hereof in
any applicable law, rule or regulation, or any change after the date hereof
in the interpretation or administration thereof by any Governmental Authority
charged with the administration thereof.
"Reporting Date" means each March 31, June 30, September 30 and December
31, during the Credit Period.
"Request for Advance" has the meaning set forth in SECTION 2.2.
"RCRA" has the meaning set forth in SECTION 6.13.
"SARA" has the meaning set forth in SECTION 6.13.
"Security Agreement" means that certain Security Agreement, dated the
date hereof, by and between Borrower and Lender, pursuant to which Borrower
has granted a fist lien security interest to Lender in all of its equipment,
machinery, accounts receivable, inventory and other assets now or hereafter
owned by Borrower as security for payment of the Obligations.
"Security Documents" means (i) the Security Agreement, (ii) all other
documents or instruments granting a Lien in favor of Lender as collateral for
the Advances, (iii) all financing statements related thereto, and all
modifications, renewals or extensions thereof, and (iv) any documents
executed in modification, renewal, extension or replacement of any of the
foregoing.
"Spacelink I" means Spacelink Systems, Inc., a Subsidiary of Borrower.
"Spacelink II" means Spacelink Systems FSC, Inc., a Subsidiary of
Borrower.
REVOLVING CREDIT AGREEMENT 15
<PAGE>
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions
(including that of a general partner) are at the time directly or indirectly
owned, collectively, by Borrower and any Subsidiaries of Borrower. The term
Subsidiaries shall include, without limitation, all entities set forth in
SCHEDULE III attached hereto, and Subsidiaries of Subsidiaries (and so on).
"Tangible Net Worth" means, as of any date, the total shareholder's
equity (including capital stock, additional paid-in capital and retained
earnings) which would appear on a balance sheet of Borrower prepared as of
such date in accordance with GAAP LESS the aggregate book value of Intangible
Assets shown on such balance sheet.
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or other charges of
any nature whatsoever, from time to time or at any time imposed by law or any
federal, state or local governmental agency, other than Taxes imposed upon
Lender with respect to any of its franchises, businesses, income or profits.
"Telerate Screen" means the display designated as Screen 3750 on the
Telerate System or such other screen on the Telerate System as shall display
the London interbank offered rates for deposits in U.S. dollars quoted by
selected banks.
"Termination Date" means October 31, 1998.
"Total Revolving Commitment" has the meaning set forth in SECTION 2.1.
"Usage Fee" has the meaning set forth in SECTION 2.6.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared on a
consolidated basis with Borrower's Subsidiaries in accordance with GAAP as in
effect from time to time, applied on a basis consistent with the most recent
audited
REVOLVING CREDIT AGREEMENT 16
<PAGE>
financial statements of Borrower.
SECTION 1.3. GENDER AND NUMBER. Words of any gender used in this
Credit Agreement shall be held and construed to include any other gender and
words in the singular number shall be held to include the plural, and vice
versa, unless the context requires otherwise.
SECTION 1.4. REFERENCES TO CREDIT AGREEMENT. Use of the words
"herein", "hereof", "hereinabove", and the like are and shall be construed as
references to this Credit Agreement. All references in this Credit Agreement
to Schedules, Exhibits, Articles, Section, subsections, paragraphs and
subparagraphs refer to the respective subdivisions of this Credit Agreement,
unless such reference specifically identifies another document.
REVOLVING CREDIT AGREEMENT 17
<PAGE>
ARTICLE II
TOTAL REVOLVING COMMITMENT
SECTION 2.1. COMMITMENT. During the Credit Period, Lender agrees,
subject to SECTIONS 2.1(c) AND ARTICLE V and the other terms and conditions
set forth in this Credit Agreement, to make Advances to Borrower from time to
time for working capital and other general corporate purposes in an aggregate
amount not to exceed the lesser of (a) $5,000,000.00 in the aggregate at any
one time outstanding (the "TOTAL REVOLVING COMMITMENT") or (b) the Borrowing
Base. Each Advance under the Total Revolving Commitment shall be in the
principal amount of not less than $100,000.00, with respect to Base Rate
Advances, and $500,000, with respect to LIBOR Rate Advances. Subject to the
foregoing limitations, Borrower may borrow under this SECTION 2.1, repay or
prepay the Note and reborrow under this SECTION 2.1 at any time during the
Credit Period.
SECTION 2.2. METHOD OF BORROWING.
Borrower shall be entitled to obtain Advances under the Total Revolving
Commitment from Lender pursuant to SECTION 2.1 in the following manner:
(a) BASE RATE ADVANCES. In the case of any Advance which shall
initially bear interest with respect to the Applicable Base Rate, Borrower,
through an Authorized Officer, shall give Lender on the date of any such
proposed Advance, a Request for Advance specifying its desire to borrow such
Advance hereunder. Notice shall be given to Lender prior to 1:00 p.m.,
Dallas, Texas time. Such Request for Advance shall be accompanied by the
documents required to be delivered pursuant to ARTICLE V.
(b) LIBOR RATE ADVANCES. In the case of any Advance which shall
initially bear interest with respect to the LIBOR Rate, Borrower, through an
Authorized Officer, shall give Lender at least three (3) Business Days prior
to the date of any such proposed Advance, a Request for Advance specifying
its desire to borrow such Advance hereunder. Notice shall be given to Lender
prior to 10:00 a.m., Dallas, Texas time, in order for such Business Day to
count toward the minimum number of Business Days required. LIBOR Rate
Advances shall in all cases be subject to availability and to SECTION 3.4
hereof. For LIBOR Rate Advances, the Request for Advance shall specify the
requested funding date, which shall be a
REVOLVING CREDIT AGREEMENT 18
<PAGE>
Business Day, the amount of the proposed Advance to be made by Lender, the
Interest Period selected (provided that no such Interest Period shall extend
past the Termination Date and shall be accompanied by the documents required
to be delivered pursuant to ARTICLE V. Such Advance shall be in an amount
not less than Five Hundred Thousand and No/100 Dollars ($500,000.00).
SECTION 2.3. INTEREST RATE.
(a) Interest on the Advances shall accrue at a rate per annum
equal to the lesser of (i) at Borrowers' option, the Applicable Base Rate or
the Adjusted LIBOR Rate (the "APPLICABLE RATE"), or (ii) the Maximum Lawful
Rate. Without notice to Borrowers or anyone else, the Applicable Base Rate
and the Maximum Lawful Rate shall each automatically fluctuate upward and
downward as and in the amount by which the Applicable Base Rate and Maximum
Lawful Rate, respectively, fluctuate, subject always to limitations contained
in this Agreement.
(b) Upon at least three (3) Business Days' prior written notice to
Lender ("MINIMUM NOTICE REQUIREMENT"), Borrower may through an Authorized
Officer, on any Interest Adjustment Date (other than the Termination Date),
convert amounts of any LIBOR Rate Portion into a Base Rate Portion with
interest accruing thereon, with reference to the Base Rate Portion, as
provided in SECTION 2.2 above.
(c) Upon satisfaction by Borrower of the Minimum Notice
Requirement, and subject to the conditions provided in this Agreement or the
Note, Borrower may through an Authorized Officer, on any date prior to the
Termination Date, convert amounts of not less than Five Hundred Thousand and
No/100 Dollars ($500,000.00) in the aggregate on the same date of any Base
Rate Portion into a LIBOR Rate Portion with interest accruing thereon with
reference to the Adjusted LIBOR Rate as provided in SECTION 2.2 above, for
the Interest Period selected in such notice.
(d) To the extent Borrower has not made an effective election
under and in accordance with SUBPARAGRAPHS (A) OR (B) above (including,
without limitation, at the expiration of an Interest Period), the Applicable
Rate shall be the rate specified pursuant to the provisions contained herein
for a Base Rate Portion. If Borrower has failed to make such election at the
end of an Interest Period, Lender shall be deemed to have made a Base Rate
Portion in the amount, and in replacement, of the LIBOR Rate
REVOLVING CREDIT AGREEMENT 19
<PAGE>
Portion then maturing.
Each notice of a LIBOR Rate election by Borrower must be given by
an Authorized Officer, must satisfy the Minimum Notice Requirement and shall
include the following: (i) Borrower's election of the Adjusted LIBOR Rate;
(ii) Borrower's choice of an Interest Period during which the Adjusted LIBOR
Rate will apply; (iii) Borrower's election of the effective date (the
"EFFECTIVE DATE") on which the LIBOR Rate Portion shall begin; and (iv) the
amount of outstanding loan principal which for any LIBOR Rate Portion shall
not be less than Five Hundred Thousand and No/100 Dollars ($500,000.00), to
which the Adjusted LIBOR Rate shall apply. Borrower shall give notice of
such election to Lender.
Borrower's election to convert to a LIBOR Rate Portion is subject to the
following conditions: (1) the Interest Period shall be limited to a period
commencing on the Effective Date and ending on a date 30, 60 or 90 days later
elected by Borrower in its notice to Lender; (2) Borrower's written notice of
an election shall be received by Lender in time to satisfy the Minimum Notice
Requirement; (3) the last day of the Interest Period will not be subsequent
in time to the Termination Date; (4) in the case of a continuation of a LIBOR
Rate Portion, the Interest Period applicable after such continuation shall
commence on the last day of the preceding Interest Period; (5) no LIBOR Rate
election shall be made if Lender notifies Borrower that it has determined by
reason of circumstances affecting the interbank Eurodollar market that either
adequate or reasonable means do not exist for ascertaining the Adjusted LIBOR
Rate for any Interest Period, or it becomes impracticable for Lender to
obtain funds by purchasing U.S. dollars in the interbank Eurodollar market,
or if Lender determines that the Adjusted LIBOR Rate will not adequately or
fairly reflect the costs to Lender of maintaining the applicable LIBOR Rate
Portion at such rate, or if as a result of any Regulatory Change, it shall
become unlawful or impossible for Lender to maintain any such LIBOR Rate
election; and (6) no LIBOR Rate election shall be made after the occurrence
and during the continuance of an Event of Default.
If, on or after the Effective Date, any Regulatory Change shall make it
unlawful or impossible for Lender (or its Eurodollar lending office) to make,
maintain or fund LIBOR Rate Portions or if Lender determines that it may not
lawfully continue to maintain and fund any of its outstanding LIBOR Rate
Portions to maturity, Borrower shall immediately prepay in full the then
outstanding
REVOLVING CREDIT AGREEMENT 20
<PAGE>
principal amount of Lender's LIBOR Rate Portions, together with accrued
interest thereon.
Borrower shall indemnify Lender against any Consequential Loss which
Lender may sustain or incur as a consequence of Borrower's failure to make a
payment on the date such payment is due hereunder or the payment, prepayment
or conversion of any LIBOR Rate Portion hereunder on a day other than an
Interest Adjustment Date.
Borrowers shall also indemnify Lender against and reimburse Lender for
increased costs to Lender, as a result of any Regulatory Change, in the
maintaining of any LIBOR Rate Portions. All payments made pursuant to this
paragraph shall be made free and clear, without reduction for, or account of,
any present or future taxes or other levies of any nature, excluding income,
franchises, business, and profits taxes.
SECTION 2.3. REVOLVING NOTE. The Advances shall be evidenced by the
Note.
SECTION 2.4. TERMINATION OF TOTAL REVOLVING COMMITMENT. The Total
Revolving Commitment shall terminate on October 31, 1998, and, after such
date, Lender shall have no obligation under this ARTICLE II.
SECTION 2.5. INTEREST RATE. Interest shall accrue on the outstanding
principal balance of the Note at a rate per annum equal to the lesser of (a)
at Borrower's option, (i) the Applicable Base Rate in effect from day to day,
or (ii) the Adjusted LIBOR Rate, or (b) the Maximum Lawful Rate, each change
in the Applicable Base Rate to be effective without notice to Borrower on the
effective date of each such change, PROVIDED THAT in no event shall the rate
charged hereunder or under the Note exceed the Maximum Lawful Rate. Interest
on the Note shall be due and payable on or before the first (1st) day of each
calendar month during the Credit Period, commencing with the first (1st) day
of the month immediately following the initial Advance and continuing on the
first (1st) day of each successive month thereafter until maturity. Interest
shall be computed based on the number of actual days elapsed assuming that
each calendar year consisted of 360 days.
SECTION 2.6. USAGE FEE. Borrower shall pay to Lender a usage fee at a
rate per annum equal to the product of (a) three-eighths of one percent
(.375%), multiplied by (b) the average daily unused portion of the Total
Revolving Commitment. Such
REVOLVING CREDIT AGREEMENT 21
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average daily unused portion shall be reduced by the daily outstanding Letter
of Credit Exposure and shall be computed based on the number of actual days
elapsed assuming each calendar year consisted of 360 days. Such Usage Fee
shall be due and payable on each January 1, April 1, July 1 and October 1 of
each year during the Credit Period and, upon maturity of the Note.
ARTICLE III
GENERAL PROVISIONS RELATED TO LOAN PAYMENTS; FEES
SECTION 3.1. GENERAL PROVISIONS AS TO PAYMENTS. Borrower shall make
each payment of principal of, and interest on, the Advances and all fees
payable hereunder not later than 10:00 a.m. (Dallas, Texas time) on the date
when due, in immediately available funds in Dallas, Texas, to Lender at its
address referred to in SECTION 9.1. Upon payment by Borrower to Lender of
any amounts due and owing pursuant to this Credit Agreement, Borrower shall
be discharged from all obligations with respect to such payment. Whenever
any payment of principal of, or interest on, the Advances or of fees shall be
due on a day which is not a Business Day, the date for payment thereof shall
be extended to the next succeeding Business Day. Prior to the occurrence of
an Event of Default, all payments made on the Advances shall be applied first
to accrued but unpaid interest and then to principal. After the occurrence
of an Event of Default, all payments made on the Advances shall be applied in
such manner as Lender shall determine in its sole discretion.
SECTION 3.2. OVERDUE PRINCIPAL AND INTEREST. Any overdue principal of
and, to the extent permitted by law, overdue interest on any Advance (after
giving effect to all grace periods) shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the lesser of the
Maximum Lawful Rate or the sum of four percent (4%) plus the Base Rate (the
"DEFAULT RATE").
SECTION 3.3. MAXIMUM LAWFUL RATE. If at any time the Applicable Rate
(the "contract rate") is limited to the Maximum Lawful Rate, any subsequent
reductions in the contract rate shall not reduce the rate of interest on the
affected Advance below the Maximum Lawful Rate until the total amount of
interest accrued equals the amount of interest which would have accrued if
the contract rate had at all times been in effect. In the event that at
maturity (stated or by acceleration), or at final payment of the Note, the
total amount of interest paid or accrued on such Note is
REVOLVING CREDIT AGREEMENT 22
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less than the amount of interest which would have accrued if the contract
rate had at all times been in effect with respect thereto, then at such time,
to the extent permitted by law, Borrower shall pay to the holder of the Note
an amount equal to the difference between (a) the lesser of the amount of
interest which would have accrued if the contract rate had at all times been
in effect and the amount of interest which would have accrued if the Maximum
Lawful Rate had at all times been in effect, and (b) the amount of interest
actually paid on such Note.
SECTION 3.4. INCREASED COSTS AND LEGAL RESTRICTIONS APPLICABLE TO
TOTAL REVOLVING COMMITMENT. If, after the date hereof, any Regulatory Change
shall occur which:
(a) imposes, modifies or deems applicable any reserve, special deposit,
compensatory loan, deposit insurance, capital adequacy, minimum capital,
capital ratio or similar requirement against all or any assets held by,
deposits or accounts with, credit extended by or to, or commitments to extend
credit or any other acquisition of funds by Lender which affects financial
transactions entered into by Lender similar to the transactions contemplated
by this Credit Agreement, or imposes on Lender any other condition affecting
the maintaining its Total Revolving Commitment; or
(b) subjects Lender to, or causes the termination or reduction of a
previously granted exemption with respect to, any Taxes with respect to
maintaining its Total Revolving Commitment;
and the result of any of the foregoing events is to increase the cost to
Lender of maintaining the Total Revolving Commitment or to reduce the amount
of any sums received or receivable by it under this Credit Agreement or any
other Loan Document, or to reduce the rate of return on Lender's equity in
connection with this Credit Agreement, as the case may be, then, in any such
case, Borrower shall, within five (5) days of demand by Lender pay such
additional amount or amounts as will compensate Lender for any such
additional cost, reduced benefit, reduced amount received or reduced rate of
return. Lender shall use its best efforts (consistent with its internal
policy and legal and regulatory restrictions) to avoid such additional cost,
reduced benefit, reduced amount received or reduced rate of return; provided,
however, that the failure of Lender to take any action shall not limit or
otherwise affect the obligations of Borrower under this SECTION 3.4. If
Lender sustains or incurs any additional cost, reduced benefit, reduced amount
REVOLVING CREDIT AGREEMENT 23
<PAGE>
received or reduced rate of return, its demand for payment pursuant to this
SECTION 3.4 shall include a written statement of the nature and amounts
thereof, which statement shall be presumed correct and prima facie evidence
of the amounts thereof. Lender will exercise reasonable efforts to provide
such statement promptly after learning of the basis therefore, but the
failure of Lender to act promptly shall not limit or otherwise affect the
obligations of Borrower under this SECTION 3.4.
SECTION 3.5. PREPAYMENTS OF ADVANCES; REDUCTION OF TOTAL REVOLVING
COMMITMENT.
(a) In the event that the outstanding principal balance of the
Note exceeds the Borrowing Base, Borrower shall immediately make a payment to
Lender in an amount sufficient to reduce the outstanding principal balance
under the Note to an amount which would be equal to or less than the
Borrowing Base.
(b) Borrower may terminate the Total Revolving Commitment at any
time and from time to time provided that notice of such termination must be
received by Lender by 10:00 a.m. Dallas, Texas, time on the first Business
Day preceding the effective date of such termination; provided, that upon
termination of the Total Revolving Commitment, any amounts outstanding under
any AGF Note shall be due and payable in full.
(c) Borrower shall be entitled to reduce the Total Revolving
Commitment provided that Borrower prepays an amount sufficient to reduce the
outstanding principal balance under the Note to an amount equal to or less
than the reduced amount of the Total Revolving Commitment. Any such
reduction shall be in a minimum amount of at least One Million and No/100
Dollars ($1,000,000.00), and in whole multiples of One Million and No/100
Dollars ($1,000,000.00) thereafter; provided, that Borrower may not reduce
the Total Revolving Commitment below $2,000,000 unless Borrower has elected
to terminate the Total Revolving Commitment in full. Borrower shall also pay
to Lender any Consequential Losses incurred by Lender as a result of such
reduction in the Total Revolving Commitment.
(d) If Borrower shall prepay any LIBOR Rate Portion prior to the
expiration of its applicable Interest Period, Borrower shall pay Lender a
prepayment fee in an amount equal to the consequential loss (the
"CONSEQUENTIAL LOSS") incurred by Lender as a result of any such prepayment,
such Consequential Loss to be an
REVOLVING CREDIT AGREEMENT 24
<PAGE>
amount equal to any losses, costs or expenses incurred by Lender by virtue of
such prepayment, which such loss, cost or expense shall include that which
Lender may sustain or incur in liquidating or employing deposits from Lender
or third parties acquired to effect, fund or maintain any such LIBOR Rate
Portion. Such loss or expense shall include, without limitation, (i) any
expense or penalty incurred by Lender in redepositing such principal amount,
plus (ii) any "breakage" fees that Lender is required to pay by reason of the
early breakage of any customary LIBOR or other contract entered into by
Lender in connection with providing funds for such LIBOR Rate Portion. Any
prepayment fee required to be paid by Borrower pursuant to this SECTION 3.5
or any other provisions of this Agreement or of the other Loan Documents in
connection with the prepayment of any LIBOR Rate Portion shall be due and
payable whether such prepayment is being made voluntarily or involuntarily,
including, without limitation, as a result of an acceleration of sums due
under LIBOR Rate Portions or any part thereof due to an Event of Default.
ARTICLE IV
COLLATERAL FOR THE TOTAL REVOLVING COMMITMENT
SECTION 4.1. SECURITY. The Total Revolving Commitment and the Note
shall be secured by (a) a first priority security interest in all of the
inventory, accounts, equipment and other personal property of Borrower, and
(b) the joint and several guaranty of payment of the Obligations made by each
Subsidiary of Borrower.
SECTION 4.2. DOCUMENTATION. In order to evidence the security for the
Obligations set forth in SECTION 4.1, Borrower shall:
(a) execute and deliver to Lender the Security Agreement, pursuant to
which Borrower shall grant to Lender a first priority security interest in
all of the personal property of Borrower;
(b) execute and deliver all necessary financing statements and such
other documents, instruments and agreements as Lender shall deem reasonably
necessary or appropriate to create and perfect in favor of Lender a first and
prior Lien in and to all of the personal property of Borrower; and
(c) cause each Guarantor to execute and deliver a Guaranty.
REVOLVING CREDIT AGREEMENT 25
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO ADVANCES
The obligation of Lender to make a Advance hereunder is subject to the
satisfaction of the following conditions:
SECTION 5.1. ALL ADVANCES. In the case of each Advance:
(a) timely receipt by Lender of a Request for Advance;
(b) immediately before and after giving effect to such Advance, no
Default shall have occurred and be continuing and the making of any Advance
shall not cause a Default;
(c) the representations and warranties contained in this Credit
Agreement and in the other Loan Documents shall be true and correct in all
material respects on and as of the date of such Advance subject to any
changes in such representations and warranties not prohibited in this
Agreement, except that all representations and warranties that speak as of a
particular date shall only be required on the date of each such Advance to be
true and correct in all material respects as of the date to which such
representation or warranty speaks and not as of any subsequent date; and
(d) a written certificate of Borrower as of the date of such Advance as
to (i) the solvency of Borrower (determined in accordance with SECTION
6.5(b)) and (ii) the intended use of the proceeds of such Advance.
Each Advance hereunder shall be deemed to be a representation and
warranty by Borrower on the date of such Advance as to the facts specified in
SECTIONS 5.1(b) AND (c).
SECTION 5.2. CLOSING DATE. On or before the Closing Date:
(a) if an Advance is requested for disbursement on the Closing Date,
satisfaction of all conditions contained in SECTION 5.1;
(b) receipt by Lender of this Credit Agreement, duly executed by
Borrower;
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(c) receipt by Lender of the Note, duly executed by Borrower;
(d) receipt by Lender of a Guaranty of the Obligations in favor of
Lender, duly executed by each Guarantor;
(e) receipt by Lender of the Security Agreement, duly executed by
Borrower;
(f) receipt by Lender of all other Security Documents required by
Lender as of the Closing Date, duly executed;
(g) receipt by Lender of an opinion of counsel for Borrower, favorably
opining as to the due organization and existence of Borrower, the
enforceability of each of the Loan Documents and otherwise being in form and
substance satisfactory to Lender; and
(h) receipt by Lender of all resolutions, certificates or documents it
may request relating to the existence of Borrower, the corporate authority
for the execution and validity of this Credit Agreement and the other Loan
Documents and any other matters relevant hereto, all in form and substance
satisfactory to Lender.
The documents, certificates and opinions referred to in this SECTION 5.2
shall be delivered to Lender no later than the Closing Date. The
certificates, opinions and documents referred to in this SECTION 5.2 shall,
where Lender deems appropriate, be dated the Closing Date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
SECTION 6.1. USE OF PROCEEDS. Borrower will use the proceeds of the
Advances for the purposes set forth in SECTION 2.1 hereof. Borrower will
not, directly or indirectly, use any of the proceeds of the Advances for the
purpose of purchasing or carrying, or retiring any Debt which was originally
incurred to purchase or carry, any "margin stock" as defined in the Margin
Regulations, or to purchase or carry any "security that is publicly-held"
within the meaning of Regulation T of the Board of Governors of the Federal
Reserve System, or otherwise take or permit any action which would involve a
violation of such Margin Regulations or any
REVOLVING CREDIT AGREEMENT 27
<PAGE>
other regulation of such Board of Governors. The Advances are not secured,
directly or indirectly, in whole or in part, by collateral that includes any
"margin stock" within the meaning of the Margin Regulations. Borrower will
not engage principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying any
"margin stock" within the meaning of the Margin Regulations.
SECTION 6.2. CORPORATE EXISTENCE AND POWER. Borrower is a
corporation, duly organized, validly existing and in good standing under the
laws of the state of its organization, and has all power and authority
necessary to carry on its business as now conducted.
SECTION 6.3. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance of this Credit Agreement and the
other Loan Documents by Borrower are within its corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable
law or regulation (including, without limitation, the Margin Regulations) or
of the articles of incorporation or bylaws of Borrower or of any material
judgment, injunction, order, decree or material agreement binding upon
Borrower or its assets, or result in the creation or imposition of any Lien
on any asset of Borrower, except as contemplated thereby.
SECTION 6.4. BINDING EFFECT. This Credit Agreement constitutes a
valid and binding agreement of Borrower. The Note and each other Loan
Document when executed and delivered in accordance with this Credit
Agreement, will constitute a valid and binding obligation of Borrower, each
enforceable in accordance with its terms except as (a) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors rights generally, and (b) the availability of equitable remedies
may be limited by equitable principles of general applicability.
SECTION 6.5. FINANCIAL INFORMATION.
(a) The current financial statements of Borrower and all the other
financial reports and information of Borrower that have been delivered to
Lender are true and correct in all material respects as of the date of such
current financial statements and other reports and information.
REVOLVING CREDIT AGREEMENT 28
<PAGE>
(b) Except as disclosed in writing to Lender prior to the Closing
Date, since the later of March 31, 1997, or the date of the most recent
quarterly financial statements delivered to Lender, there has been no
material adverse change in the business, financial position or results of
operations of Borrower; and, there exists no condition, event or occurrence
that could reasonably be expected to have a Material Adverse Effect on
Borrower.
SECTION 6.5. LITIGATION. There is no action, suit or proceeding
pending against, or to the knowledge of Borrower, threatened against or
affecting Borrower before any court or arbitrator, any governmental body,
agency or official which could reasonably be anticipated to have a Material
Adverse Effect on Borrower, or which could in any manner draw into question
the validity of the Loan Documents.
SECTION 6.7. TAXES AND FILING OF TAX RETURNS. Borrower has filed all
tax returns required to have been filed and has paid or has made adequate
provision for payment of all Taxes shown to be due and payable on such
returns, including interest and penalties, and all other Taxes which are
payable by Borrower, to the extent the same have become due and payable.
Borrower has no knowledge of any proposed Tax assessment against it other
than customary ad valorem taxes or other Taxes to become due in the normal
course of business, and Borrower has made adequate provisions for all Tax
liabilities. No income tax liability of Borrower has been asserted by the
Internal Revenue Service for Taxes in excess of those already paid.
SECTION 6.8. BUSINESS; COMPLIANCE. Borrower has performed and abided
by all obligations required to be performed by it under all agreements to
which it is a party, if its failure to so perform would have a Material
Adverse Effect.
SECTION 6.9. LICENSES, PERMITS, ETC. Borrower possesses such valid
franchises, certificates, licenses, permits, consents, authorizations,
exemptions and orders of tribunals as are necessary to carry on its business
as now being conducted and as proposed to be conducted, and which if not
possessed by Borrower would have a Material Adverse Effect.
SECTION 6.10. COMPLIANCE WITH LAW. The business and operations of
Borrower have been and are being conducted in accordance with all applicable
laws, rules and regulations of all tribunals, other than violations which
could not (either
REVOLVING CREDIT AGREEMENT 29
<PAGE>
individually or collectively) have a Material Adverse Effect.
SECTION 6.11. FULL DISCLOSURE. No written information heretofore
furnished by Borrower or, to the knowledge of Borrower, on behalf of Borrower
to Lender for the purposes of this Credit Agreement or any transaction
contemplated hereby, contained and no written information hereafter furnished
by Borrower to Lender for purposes of this Credit Agreement or any
transaction contemplated hereby will contain, any untrue statement of a
material fact or omit a material fact necessary to make the statements
therein not materially misleading in light of the facts and circumstances
existing at the time.
SECTION 6.12. FISCAL YEAR. Borrower's fiscal year ends on June 30th of
each year.
SECTION 6.13. ENVIRONMENTAL MATTERS. Except as otherwise disclosed to
Lender, Borrower (i) does not know of any environmental condition or
circumstance, such as the presence of any hazardous substance (as defined in
SECTION 6.12), adversely affecting the properties or operation of Borrower,
(ii) has not received any report of a violation by Borrower of any Applicable
Environmental Law, or (iii) do not know that Borrower is under any obligation
to remedy any violation of any Applicable Environmental Law.
SECTION 6.14. SUBSIDIARIES. Borrower has no Subsidiaries other than
those set forth in SCHEDULE III attached hereto. Borrower's ownership
percentages in such Subsidiaries is as set forth in SCHEDULE III.
SECTION 6.15. ERISA.
(a) Each Employee Plan has been maintained and administered in
substantial compliance with the applicable requirements of the Code and ERISA
except to the extent that the failure to have done so would not have a
Material Adverse Effect on Borrower. No circumstances exist with respect to
any Employee Plan that could have a Material Adverse Effect on Borrower.
(b) With respect to each Pension Plan, (i) no accumulated funding
deficiency (within the meaning of Section 412(a) of the Code), whether waived
or unwaived, exists; (ii) the present value of accrued benefits (based on the
most recent actuarial valuation prepared for each such plan, if any, in
REVOLVING CREDIT AGREEMENT 30
<PAGE>
accordance with ongoing assumptions) does not exceed the current value of
plan assets allocable to such benefits by a material amount; (iii) no
reportable event (within the meaning of Section 4043 of ERISA) other than
purchases and sales of securities from a plan trustee as reported in the
audited financial statements of such plan has occurred; (iv) no uncorrected
prohibited transactions (within the meaning of Section 4975 of the Code)
exist; (v) to the extent such plan is covered by PBGC, no material liability
to the PBGC exists and no circumstances exist that could reasonably be
expected to result in any such liability; and (vi) no material withdrawal
liability (within the meaning of Section 4201(a) of ERISA) exists and no
circumstances exist that could reasonably be expected to result in any such
liability; except, with respect to each of the foregoing clauses in this
subparagraph (b), where such existence, excess or occurrence, as applicable,
does not have and could not have a Material Adverse Effect on Borrower.
(c) As of the date hereof, Borrower has no obligation under any
Employee Plan to provide post-employment health care benefits to any of its
current or former employees that could have a Material Adverse Effect on
Borrower, except as may be required by Section 4980B of the Code.
REVOLVING CREDIT AGREEMENT 31
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ARTICLE VII
COVENANTS
Borrower agrees that so long as Lender has any obligation under ARTICLE
II hereof or any amount payable under the Note remains unpaid:
SECTION 7.1. INFORMATION. Borrower will deliver, or cause to be
delivered, to Lender:
(a) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of Borrower, an audited balance sheet of Borrower
as of the end of such fiscal year and the related audited statements of
income and changes in cash flow for such fiscal year, all reported by
Borrower in accordance with GAAP, and audited by an independent public
accountant acceptable to Lender;
(b) as soon as available and in any event within forty-five (45) days
after the end of each quarter in each fiscal year of Borrower, an unaudited
balance sheet of Borrower as of the end of such quarter and the related
unaudited statements of income and cash flow for such quarter, all reported
by Borrower in accordance with GAAP, subject to year-end audit adjustment;
(c) simultaneously with the delivery of each set of financial
statements referred to in SECTIONS 7.1(a) AND (b), a Compliance Certificate
of Borrower as to compliance with the financial covenants contained in
SECTIONS 7.2 signed by an Authorized Officer of Borrower;
(d) as soon as available and in any event within thirty (30) days after
the end of each calendar month, (i) a Borrowing Base Certificate, dated as of
the last day of the immediately preceding month, (ii) a report showing, as
of such date, the Accounts of Borrower and the Eligible Accounts (the
"ACCOUNTS RECEIVABLE REPORT") in such detail as shall be acceptable to Lender
and the aging of all of such Accounts in categories of current, thirty (30)
days past due, sixty-one (61) or more days past due and ninety (90) or more
days past due, and (iii) a report showing, as of such date, the inventory of
Borrower and the Eligible Inventory (the "INVENTORY REPORT") in such detail
as shall be acceptable to Lender (each such report shall be certified as
being complete and correct in all material respect by the chief financial
officer of Borrower
REVOLVING CREDIT AGREEMENT 32
<PAGE>
or another authorized officer or representative of such party reasonably
acceptable to Lender);
(e) as soon as available, any and all public filings and any reports or
other information delivered to Borrower's shareholders generally as such; and
(f) from time to time such additional financial statements and
financial information regarding the financial position or business of
Borrower as Lender may reasonably request.
SECTION 7.2. FINANCIAL COVENANTS. Borrower covenants and agrees that:
(a) MINIMUM TANGIBLE NET WORTH. In no event shall Borrower permit its
Tangible Net Worth to be less than the sum of (i) $3,200,000.00, plus (ii)
the proceeds from any equity offering by Borrower, plus (iii) as of the end
of each fiscal quarter commencing with September 30, 1997, the product of (A)
fifty percent (50%) times (B) the net income of Borrower for the immediately
preceding fiscal quarter; provided, that in no case shall such sum be less
than the minimum Tangible Net Worth calculated hereunder for the previous
quarter.
(b) DEBT TO WORTH RATIO. In no event shall Borrower permit the ratio
of its Debt to Tangible Net Worth to be in excess of 1.65 to 1.
(c) FIXED CHARGE RATIO. In no event shall Borrower permit its Fixed
Charge Ratio to be less than 1.25 to 1.
(d) CURRENT RATIO. In no event shall Borrower permit its Current Ratio
to be less than 1.15 to 1.
(e) RESTRICTION ON DISTRIBUTIONS. Borrower shall not declare, make or
incur any liability to make any Distribution.
SECTION 7.3. CONSOLIDATIONS, MERGERS, SALES OF ASSETS, AND
MAINTENANCE. Neither Borrower nor any Subsidiary of Borrower will (a)
consolidate or merge with or into any other Person unless immediately
following such consolidation or merger no Default will have occurred and
Borrower is the surviving entity, (b) sell, lease, abandon or otherwise
transfer all or any material part of Borrower's or any Subsidiary's assets to
any other Person except in the ordinary course of business, (c) terminate, or
fail to
REVOLVING CREDIT AGREEMENT 33
<PAGE>
maintain, its existence, or (d) terminate, or fail to maintain, its good
standing and qualification to transact business in all jurisdictions where
the failure to maintain its good standing or qualification to transact
business could reasonably be expected to have a Material Adverse Effect.
SECTION 7.4. USE OF PROCEEDS. Borrower will use the proceeds of the
Advances solely for the purposes represented in this Credit Agreement and
shall not use such proceeds, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any Margin Stock
and none of such proceeds will be used in violation of applicable law
(including, without limitation, the Margin Regulations).
SECTION 7.5. RIGHT OF INSPECTION; RIGHT OF AUDIT. Borrower will
permit any officer, employee or agent of Lender, upon reasonable notice (a)
to visit and inspect any of the assets of Borrower and each Subsidiary, (b)
to examine Borrower's and each Subsidiary's books of record and accounts and
take copies and extracts therefrom, (c) to discuss the affairs, finances and
accounts of Borrower and each Subsidiary with Borrower's and each
Subsidiary's officers, accountants and auditors, and (d) to conduct or have
conducted at Lender's expense an audit of Borrower's inventory and accounts
receivable.
SECTION 7.6. LIMITATION ON DEBT. Neither Borrower nor any Subsidiary
shall incur any Debt, except for (a) the Obligations, (b) trade payables or
trade letters of credit incurred in the ordinary course of business, (c) the
Debt described on SCHEDULE I attached hereto and any refinancings or
extensions of such Debt so long as the amount of any such Debt is not
increased by any such refinancing or extension, (d) purchase money Debt, (e)
capital lease obligations, and (f) Debt between and among Borrower and its
Subsidiaries (subject, however to the limitation contained in SECTION 7.15).
SECTION 7.7. LIMITATION ON SALE OF PROPERTIES. Neither Borrower nor
any Subsidiary shall sell, assign, convey, exchange, lease or otherwise
dispose of any of its properties, rights, assets or business, whether now
owned or hereafter acquired, except (a) in the ordinary course of its
business, and (b) obsolete or worn out property, or equipment sold in
contemplation of the acquisition of replacement equipment of at least equal
value or utility.
SECTION 7.8. LIMITATIONS ON LIENS. Neither Borrower nor any
REVOLVING CREDIT AGREEMENT 34
<PAGE>
Subsidiary shall create, incur, assume or suffer to exist any Lien upon any
of its assets other than Liens existing as of the Closing Date and described
in SCHEDULE II and Permitted Liens.
SECTION 7.9. MAINTENANCE OF INSURANCE. Borrower and each Subsidiary
will at all times maintain or cause to be maintained insurance covering such
risks as are customarily carried by businesses similarly situated including,
without limitation, the following: (a) worker's compensation insurance; (b)
employer's liability insurance; (c) comprehensive general public liability
and property damage insurance in respect of all activities in which Borrower
or any Subsidiary might incur personal liability for the death or injury of
an employee or third person, or damage to or destruction of another's
property; (d) insurance against loss or damage by fire, lightning, hail,
tornado, explosion and other similar risk; (e) comprehensive automobile
liability insurance, and (f) business interruption insurance; PROVIDED that
any worker's compensation, similar insurance required by applicable law.
Borrower shall deliver to Lender each insurance policy or certificates
evidencing the policies carried by Borrower or any Subsidiary which show,
among other things, the name of the insurer, the amount of coverage, the
risks insured against, and such other related information as Lender may
reasonably request.
SECTION 7.10. PAYMENT OF TAXES AND CLAIMS. Borrower and each
Subsidiary will pay (a) all Taxes imposed upon it or any of its assets or
with respect to any of its franchises, businesses, income or profits before
any material penalty or interest accrues thereon and (b) all material claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a Lien on any of its assets; provided, however, no payment of
Taxes or claims shall be required if (i) the amount, applicability or
validity thereof is currently being contested in good faith by appropriate
action promptly initiated and diligently conducted in accordance with good
business practices and no material part of the property or assets of Borrower
or any Subsidiary are subject to levy or execution, (ii) Borrower or the
applicable Subsidiary, as required in accordance with GAAP, shall have set
aside on its books reserves (segregated to the extent required by GAAP)
deemed by it to be adequate with respect thereto, and (iii) Borrower has
notified Lender of such circumstances, in detail reasonably satisfactory to
Lender.
SECTION 7.11. COMPLIANCE WITH LAWS AND DOCUMENTS. Neither
REVOLVING CREDIT AGREEMENT 35
<PAGE>
Borrower nor any Subsidiary will directly or indirectly, violate the
provisions of any laws, its organizational documents or any agreement to
which it is a party, if such violation, alone or when combined with all other
such violations, could reasonably be expected to have a Material Adverse
Effect.
SECTION 7.12. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNITY. Borrower and
each Subsidiary agree to promptly pay and discharge when due all debts,
claims, liabilities and obligations with respect to any clean-up measures
necessary for it to comply with Applicable Environmental Laws affecting it.
Borrower hereby indemnifies and agrees to defend and hold Lender and its
successors and assigns harmless from and against any and all claims, demands,
causes of action, loss, damage, liabilities, costs and expenses (including
reasonable attorneys' fees and court costs) of any and every kind or
character, known or unknown, fixed or contingent, asserted against or
incurred by Lender at any time and from time to time including, without
limitation, those asserted or arising subsequent to the payment or other
satisfaction of the Note, by reason of, arising out of or related in any way
to Lender's entering into this Agreement and the transactions herein
contemplated, INCLUDING MATTERS ARISING OUT OF THE ORDINARY NEGLIGENCE OF
LENDER (WHETHER SOLE, CONTRIBUTORY, COMPARATIVE OR OTHERWISE), BUT EXCLUDING
MATTERS ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LENDER.
It shall not be a defense to the covenant of Borrower to indemnify that the
act, omission, event or circumstance did not constitute a violation of any
Applicable Environmental Law at the time of its existence or occurrence. The
terms "HAZARDOUS SUBSTANCE" and "RELEASE" shall have the meanings specified
in the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), and the
terms "SOLID WASTE" and "DISPOSED" shall have the meanings specified in the
Resource Conservation and Recovery Act of 1976 ("RCRA"); provided, to the
extent that any other applicable laws of the United States of America or
political subdivision thereof establish a meaning for "hazardous substance,"
"release," "solid waste," or "disposed" which is broader than that specified
in either SARA or RCRA, such broader meaning shall apply. As used in this
Agreement, "APPLICABLE ENVIRONMENTAL LAW" shall mean and include the
singular, and "APPLICABLE ENVIRONMENTAL LAWS" shall mean and include the
collective aggregate of the following: Any law, statute, ordinance, rule,
regulation, order or determination of any governmental authority or any board
of fire underwriters (or other body exercising similar functions), or any
restrictive covenant or deed restriction (recorded or otherwise) affecting
Borrower
REVOLVING CREDIT AGREEMENT 36
<PAGE>
pertaining to health, safety or the environment, including, without
limitation, all applicable flood disaster laws and health, safety and
environmental laws and regulations pertaining to health, safety or the
environment, including without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), the Resource
Conservation and Recovery Act of 1976, the Superfund Amendments and
Reauthorization Act of 1986, the Occupational Safety and Health Act, the
Texas Water Code, the Texas Solid Waste Disposal Act, the Texas Workers'
Compensation Laws, and any federal, state or municipal laws, ordinances,
regulations or law which may now or hereafter require removal of asbestos or
other hazardous wastes from any property of Borrower or any Subsidiary or
impose any liability on Lender related to asbestos or other hazardous wastes
in any property of Borrower or any Subsidiary. The provisions of this
SECTION 7.12 shall survive the repayment of the Note. In the event of the
transfer of the Note or any portion thereof, Lender or any prior holder of
the Note and any participants shall continue to be benefitted by this
indemnity and agreement with respect to the period of such holding of the
Note.
SECTION 7.13. ADDITIONAL DOCUMENTS. Borrower shall execute and deliver
or cause to be executed and delivered such other and further instruments or
documents as in the judgment of Lender may be required to better effectuate
the transactions contemplated herein.
SECTION 7.14. QUANTITY OF DOCUMENTS. All certificates, opinions,
reports and documents to be delivered from time to time hereunder shall be in
such number of counterparts as Lender may reasonably request.
SECTION 7.15. INVESTMENTS. Neither Borrower nor any Subsidiary will,
directly or indirectly, make any loans, advances, extensions of credit,
guarantees in favor of or capital contributions to, make any investment in,
purchase any stock or securities of, or interests in, any Person, or incur
Debt to finance the acquisition of any Person or all or a material part of
the assets of any Person, except (a) investments by Borrower in, or Debt
funded by Borrower to, any Subsidiary listed in SCHEDULE III attached hereto,
which investment and Debt shall be limited, however, to an aggregate amount
equal to the investments and Debt existing as of the Closing Date plus
$250,000.00, (b) investments in Cash Equivalents, (c) travel advances to
employees of Borrower or any Subsidiary not to exceed $20,000.00 in the
aggregate, and (d) accounts receivable incurred in the ordinary course of
REVOLVING CREDIT AGREEMENT 37
<PAGE>
business.
SECTION 7.16. TRANSACTIONS WITH AFFILIATES. Except with respect to a
transaction permitted under SECTION 7.3, 7.6, AND 7.15, Borrower will not engage
in any material transaction with an Affiliate unless such transaction is as
reasonably favorable to Borrower as could be obtained in an arm's length
transaction with an unaffiliated Person in accordance with prevailing industry
customs and practices.
SECTION 7.17. FISCAL YEAR. Neither Borrower nor any Subsidiary will
change its fiscal year.
SECTION 7.18. ERISA.
(a) Borrower shall, and shall cause each member of its Controlled
Group (as that term is defined in the Code) to, maintain and administer any
Employee Plan in accordance with the applicable requirements of the Code and
ERISA except to the extent that the failure to do so would not have a Material
Adverse Effect on Borrower. Borrower shall not permit or suffer to exist any
circumstances with respect to any Employee Plan that could have a Material
Adverse Effect on Borrower.
(b) With respect to any Pension Plan, Borrower shall not (i) permit
any accumulated funding deficiency (within the meaning of Section 412(a) of the
Code), whether waived or unwaived, to exist; (ii) permit the present value of
accrued benefits (based on the most recent actuarial valuation prepared for each
such plan, if any, in accordance with ongoing actuarial assumptions) to exceed
the current value of plan assets allocable to such benefits by a material
amount; (iii) permit any reportable event (within the meaning of Section 4043 of
ERISA) to occur, other than purchases and sales of securities from a plan
trustee as reported in the audited financial statements of such plan;
(iv) permit a prohibited transaction (within the meaning of Section 4975 of the
Code) to occur; (v) incur any material liability to the PBGC; or (vi) incur any
material withdrawal liability (within the meaning of Section 4201(a) of ERISA);
except, with respect to each of the foregoing clauses in this subparagraph (b),
where such existence, excess or occurrence, as applicable, does not have or
could not have a Material Adverse Effect on Borrower.
(c) Borrower shall not incur a material obligation to provide
post-employment health care benefits to any of its current
REVOLVING CREDIT AGREEMENT 38
<PAGE>
or former employees that could have a Material Adverse Effect on Borrower,
except as may be required by Section 4980B of the Code or otherwise required
by law.
SECTION 7.19. CHANGES IN MANAGEMENT. Borrower shall not voluntarily
change its chief executive officer, chief financial officer or president without
the prior written consent of Lender.
SECTION 7.20. REPURCHASE OF STOCK. Borrower shall not purchase any of its
own stock without the prior written consent of Lender, except to the extent any
holder of any stock options may choose to pay for shares by tendering shares.
SECTION 7.21. ADDITIONAL SUBSIDIARIES. Borrower shall not create,
purchase or otherwise establish any additional Subsidiary without the prior
written consent of Lender. Borrower acknowledges and agrees that if any such
additional Subsidiary is created, purchased or otherwise established, such
Subsidiary shall become a Guarantor hereunder.
ARTICLE VIII
DEFAULTS AND REMEDIES
SECTION 8.1. EVENTS OF DEFAULT. If one or more of the following events
(collectively "EVENTS OF DEFAULT" and individually an "EVENT OF DEFAULT") shall
have occurred and be continuing:
(a) Borrower shall fail to pay when due any principal of or interest on
the Note or any monetary amount due under this Credit Agreement or any other
Loan Document and such failure continues for ten (10) days after written notice
thereof has been given to Borrower by Lender;
(b) any covenant, agreement or condition contained in this Credit
Agreement or in any other Loan Document is not fully and timely performed,
observed or kept in all material respects, and the continuation of such failure
for twenty (20) days after written notice thereof has been given to Borrower by
Lender;
(c) any representation, warranty, certification or statement made or
deemed to have been made by Borrower in this Credit Agreement or by Borrower or
any other Person in any certificate, financial statement or other document
delivered pursuant to this Credit Agreement, including, without limitation, any
other Loan
REVOLVING CREDIT AGREEMENT 39
<PAGE>
Document, shall prove to have been incorrect in any material respect when
made;
(d) any event or condition shall occur and continue unremedied or unwaived
for a period beyond any applicable cure period provided pursuant to the terms of
any Debt of Borrower in excess of $100,000.00, which entitles (or, with the
giving of notice or lapse of time or both, would entitle) the holder of any such
Debt to accelerate the maturity thereof;
(e) Borrower shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing;
(f) an involuntary case or other proceeding shall be commenced against
Borrower seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) days; or an order for relief
shall be entered against Borrower under the federal bankruptcy laws as now or
hereafter in effect;
(g) one (1) or more final judgments or orders for the payment of money in
an aggregate amount outstanding at any time in excess of $100,000 shall be
rendered against Borrower and such judgment or order (i) shall continue
unsatisfied and unstayed (unless bonded with a supersedeas bond at least equal
to such judgment or order) for a period of thirty (30) days or (ii) is not fully
paid and satisfied at least ten (10) days prior to the date on which any of its
assets may be lawfully sold to satisfy such judgment or order;
(h) one (1) or more judgments or orders for the payment of money shall be
rendered against Borrower, whether or not otherwise
REVOLVING CREDIT AGREEMENT 40
<PAGE>
bonded or stayed, which has a Material Adverse Effect;
(i) the sale, pledge, encumbrance, assignment or transfer, voluntarily or
involuntarily, of any interest in Borrower (if any such entity is not a natural
person but is a corporation, partnership, trust or other legal entity), without
the prior written consent of Lender, except for Permitted Dispositions; or
(j) the occurrence of a default or an event of default under the AGF
Credit Agreement or any AGF Note;
then, and in every such event, Lender may without presentment, notice or demand
(unless expressly provided for herein) of any kind (including, without
limitation, notice of intention to accelerate and acceleration), all of which
are hereby waived, (w) terminate the Total Revolving Commitment and it shall
thereupon terminate, and (x) take such other actions as may be permitted by the
Loan Documents including, declaring the Note (together with accrued interest
thereon) to be, and the Note shall thereupon become, immediately due and
payable; PROVIDED THAT in the case of any of the Events of Default specified in
SECTION 8.1(e) or (f), without any notice to Borrower or any other act by
Lender, the Total Revolving Commitment shall thereupon terminate and the Note
(together with accrued interest thereon) shall become immediately due and
payable.
Nothing herein or in any other Loan Document shall operate or be construed
to add on or make cumulative any cure or grace periods specified in any of the
Loan Documents.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telecopy or
similar writing), except for any telephone notices as specifically provided for
herein, may be personally served or sent by telecopier, mail or the express mail
service of the United States Postal Service, Federal Express or other equivalent
overnight or expedited delivery service, and (a) if given by personal service or
telecopier (confirmed by telephone), it shall be deemed to have been given upon
receipt; (b) if sent by telecopier without telephone confirmation, it shall
REVOLVING CREDIT AGREEMENT 41
<PAGE>
be deemed to have been given twenty-four (24) hours after being given; (c) if
sent by mail, it shall be deemed to have been given upon the earlier of (i)
actual receipt, or (ii) three (3) Business Days after deposit in a depository
of the United States Postal Service, first class mail, postage prepaid; (d)
if sent by Federal Express, the express mail service of the United States
Postal Service or other equivalent overnight or expedited delivery service,
it shall be deemed given upon the earlier of (i) actual receipt or (ii)
twenty-four (24) hours after delivery to such overnight or expedited delivery
service, delivery charges prepaid, and properly addressed to Borrower or
Lender; provided that notices to Lender under ARTICLE II and ARTICLE VIII
shall not be effective until received. For purposes hereof, the address of
the parties to this Credit Agreement shall be as set forth on the signature
page of this Agreement. Any party may, by proper written notice hereunder to
the other parties, change the address to which notices shall thereafter be
sent to it. The provisions of this SECTION 9.1 shall control over any
conflicting contractual notice provisions contained in the Loan Documents.
SECTION 9.2. NO WAIVERS. No failure or delay by Lender in exercising any
right, power or privilege hereunder or under the Note or other Loan Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law or in
any of the other Loan Documents.
SECTION 9.3. EXPENSES; INDEMNIFICATION. (a) Borrower shall pay all
out-of-pocket expenses of Lender, including all fees and disbursements of
counsel for Lender, in connection with the preparation of this Credit Agreement,
the other Loan Documents, and, if applicable, the recordation of the Loan
Documents (provided, that Lender has agreed to pay $4,000 of the aggregate fees
of its counsel in connection with the documentation of all loans to Borrower by
Lender), any waiver or consent hereunder or any amendment hereof or any Default
or alleged Default hereunder, and, if an Event of Default occurs, Borrower shall
pay all out-of-pocket expenses incurred by Lender, including fees and
disbursements of counsel in connection with such Event of Default and collection
and other enforcement proceedings resulting therefrom, fees of auditors and
consultants incurred in connection therewith and investigation expenses incurred
by Lender in connection therewith.
REVOLVING CREDIT AGREEMENT 42
<PAGE>
(b) Borrower agrees to indemnify Lender and hold Lender harmless from and
against any and all liabilities, losses, damages, costs and expenses of any kind
(including, without limitation, all fees and disbursements of counsel for Lender
in connection with any investigative, administrative or judicial proceeding,
whether or not Lender shall be designated a party thereto) which may be incurred
by Lender, relating to or arising out of this Credit Agreement or any actual or
proposed use of proceeds of Advances hereunder; PROVIDED THAT LENDER SHALL NOT
HAVE THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR ITS OWN GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, IT BEING THE INTENTION HEREBY THAT LENDER SHALL BE
INDEMNIFIED FOR THE CONSEQUENCES OF ITS NEGLIGENCE (WHETHER SOLE, CONTRIBUTORY,
COMPARATIVE OR OTHERWISE).
SECTION 9.4. RIGHT OF SET-OFF. (a) Upon the occurrence and during the
continuance of any Event of Default, Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by Lender to or for
the credit or the account of Borrower against any and all of the obligations of
Borrower now or hereafter existing under this Credit Agreement and the Note held
by Lender, irrespective of whether or not Lender shall have made any demand
under this Credit Agreement or the Note, unless such demand is required by the
other terms of this Credit Agreement or the Note. Lender agrees promptly to
notify Borrower after any such setoff and application made by Lender, provided
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of Lender under this SECTION 9.4(a) are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which Lender may have.
(b) Borrower agrees, to the fullest extent it may effectively do so under
applicable law, that any holder of a participation in the Note may exercise
rights of setoff or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of Borrower in the amount of such participation.
SECTION 9.5. AMENDMENTS AND WAIVERS. Any provision of this Credit
Agreement, the Note or the other Loan Documents may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by Borrower and
Lender.
REVOLVING CREDIT AGREEMENT 43
<PAGE>
SECTION 9.5. SURVIVAL. All representations, warranties and covenants
made by Borrower herein or in any certificate or other instrument delivered by
it or in its behalf under the Loan Documents shall be considered to have been
relied upon by Lender and shall survive the delivery to Lender of such Loan
Documents or the extension of the Advances (or any part thereof), regardless of
any investigation made by or on behalf of Lender, but shall terminate upon
payment in full of the Obligations and the termination of any obligation of
Lender to make any future Advances.
SECTION 9.7. LIMITATION ON INTEREST. Regardless of any provision
contained in the Loan Documents, Lender shall never be entitled to receive,
collect, or apply, as interest on the Advances, any amount in excess of the
Maximum Lawful Rate, and in the event Lender ever receives, collects or applies
as interest any such excess, such amount which would be deemed excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and if the Advances are paid in full, any remaining excess shall
promptly be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds the Maximum Lawful Rate,
Lender shall, to the extent permitted under applicable law, (a) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (b)
exclude voluntary prepayments and the effects thereof and (c) amortize, prorate,
allocate and spread, in equal parts, the total amount of the interest throughout
the entire contemplated term of the Note, so that the interest rate is the
Maximum Lawful Rate throughout the entire term of the Note; PROVIDED, HOWEVER,
that if the unpaid principal balance thereof is paid and performed in full prior
to the end of the full contemplated term thereof, and if the interest received
for the actual period of existence thereof exceeds the Maximum Lawful Rate,
Lender shall refund to Borrower the amount of such excess and, in such event,
Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving or receiving interest in excess of
the Maximum Lawful Rate.
SECTION 9.8. INVALID PROVISIONS. If any provision of the Loan Documents
is held to be illegal, invalid, or unenforceable under present or future laws
effective during the term thereof, such provision shall be fully severable, the
Loan Documents shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect
REVOLVING CREDIT AGREEMENT 44
<PAGE>
and shall not be affected by the illegal, invalid, or unenforceable provision
or by its severance therefrom. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision there shall be added automatically as a
part of the Loan Documents a provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be possible and be legal, valid
and enforceable.
SECTION 9.9. CONFLICT OF TERMS. The provisions of the other Loan
Documents and any Schedule or Exhibit hereto are incorporated in this Credit
Agreement for all purposes by this reference thereto. Except as otherwise
provided in this Credit Agreement and except as otherwise provided in the other
Loan Documents by specific reference to the applicable provision of this Credit
Agreement, if any provision contained in this Credit Agreement is in conflict
with, or inconsistent with, any provision in the other Loan Documents the
provision contained in this Credit Agreement shall govern and control.
SECTION 9.10. REVOLVING LOAN. Pursuant to Article 15.10(b) of Chapter 15,
Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended, Borrower agrees
that such Chapter 15 shall not govern or in any manner apply to the Advances.
SECTION 9.11. SUCCESSORS AND ASSIGNS. The provisions of this Credit
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that Borrower may not assign
or otherwise transfer any of its rights under this Credit Agreement. Lender may
assign or participate all or any part of its interest in the Total Revolving
Commitment. Lender shall notify Borrower of any assignments or participations
by Lender of any of its interest in the Total Revolving Commitment.
SECTION 9.12. TEXAS LAW. THIS CREDIT AGREEMENT, THE NOTE AND ALL OTHER
LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS.
SECTION 9.13. COUNTERPARTS; EFFECTIVENESS. This Credit Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Credit Agreement shall become effective when Lender shall have
received counterparts hereof signed by all of the parties hereto.
SECTION 9.14. NO THIRD PARTY BENEFICIARIES. It is expressly
REVOLVING CREDIT AGREEMENT 45
<PAGE>
intended that there shall be no third party beneficiaries of the covenants,
agreements, representations or warranties herein contained other than
transferees or assignees of all or any part of Lender's interest hereunder.
SECTION 9.15. ENTIRE AGREEMENT. This Credit Agreement and the other Loan
Documents constitute the entire understanding and agreement between Borrower and
Lender with respect to the transactions arising in connection with the Advances
and supersede all prior written or oral understandings and agreements between
Borrower and Lender with respect to the matters addressed in the Loan Documents.
Borrower hereby acknowledges that, except as incorporated in writing in the Loan
Documents, there are not, and were not, and no Persons are or were authorized by
Lender to make, any representations, understandings, stipulations, agreements or
promises, oral or written, with respect to the matters addressed in the Loan
Documents.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
REVOLVING CREDIT AGREEMENT 46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to
be duly executed as of the day and year first above written.
BORROWER:
IWL Communications, Inc. IWL COMMUNICATIONS, INC., a
12000 Aerospace Avenue Texas corporation
Suite 200
Houston, Texas 77034 By: /s/ Richard H. Roberson
Attn: Chief Financial Officer -----------------------------------
Name: Richard H. Roberson
---------------------------------
Title: CFO
--------------------------------
LENDER:
1717 Main Street BANK ONE, TEXAS, N.A., a
3rd Floor national banking association
Dallas, Texas 75201
Attn: Mark Wade, By: /s/ Mark Wade
Vice President -----------------------------------
Mark Wade
Vice President
REVOLVING CREDIT AGREEMENT 47
<PAGE>
PROMISSORY NOTE
$5,000,000.00 Dallas, Texas August 1, 1997
IWL COMMUNICATIONS, INC., a Texas corporation with its principal office
located at 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034 ("BORROWER"),
for value received, hereby promises to pay to the order of BANK ONE, TEXAS,
N.A., a national banking association ("LENDER"), at its Dallas Banking Center at
1717 Main Street, 3rd Floor, Dallas, Texas 75201, or at such other address given
to Borrower by Lender, in immediately available funds and in lawful money of the
United States of America, the principal sum of Five Million and No/100 Dollars
($5,000,000.00), or such lesser sum as may be advanced and outstanding
hereunder, on the Termination Date (as established by the Credit Agreement), or
sooner as provided in the Credit Agreement, together with interest on the unpaid
principal balance of this Note from time to time outstanding at the Applicable
Rate. Unless prohibited by applicable law and subject to the terms hereof
limiting interest to the Maximum Lawful Rate, interest on this Note shall be
calculated on the basis of actual days elapsed, but as if each year consisted of
360 days.
This Note is made pursuant to the Revolving Credit Agreement of even date
herewith between Borrower and Lender (as the same may be amended, supplemented,
renewed, extended or restated from time to time, the "CREDIT AGREEMENT"), and is
the "Note" defined and described therein, the terms and provisions of the Credit
Agreement related to this Note being incorporated herein by reference for all
purposes. Each capitalized term used but not expressly defined herein shall
have the meaning given to such term in the Credit Agreement. Reference is
hereby expressly made to the Credit Agreement for a statement of the rights and
obligations of Lender and the duties and obligations of Borrower in relation
thereto; but neither this reference to the Credit Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of
Borrower to pay unpaid principal of and interest on this Note when due.
REVOLVING NOTE Page 1
<PAGE>
This Note is secured by the Security Agreement, the guaranty of Guarantor
and all the other Loan Documents, and all liens and security interests created
or evidenced thereby. Any holder shall be entitled to all benefits, remedies
and security set forth in the Credit Agreement and all the other Loan Documents.
REVOLVING NOTE Page 2
<PAGE>
1. INTEREST AND PAYMENT.
(a) MATURITY. The principal of this Note and all accrued but unpaid
interest hereon shall be due and payable in full on the Termination Date or
sooner as provided in the Credit Agreement.
(b) ACCRUAL OF INTEREST. Subject to Paragraph 1(f) below, interest
on this Note shall accrue at a rate and on the terms provided in the Credit
Agreement.
(c) AGREEMENTS CONCERNING PRICING ELECTION. Reference should be made
to the provisions of SECTION 2.3 of the Credit Agreement concerning the terms,
manner and agreements related to the interest rate elections available to
Borrower under this Note.
(d) PRINCIPAL AND INTEREST PAYMENTS. Principal and interest hereon
shall be due and payable as provided in ARTICLE II of the Credit Agreement.
(e) DEFAULT RATE. Any past due principal on, and, to the extent
permitted by applicable law, past due interest on this Note (after giving effect
to all grace periods) shall, at the option of Lender, bear interest at the
lesser of the Maximum Lawful Rate or the Default Rate, as provided in the Credit
Agreement.
2. DEFAULT. The occurrence of a Default or an Event of Default, under
and as defined in the Credit Agreement, shall constitute, respectively, a
Default or an Event of Default under this Note.
3. REMEDIES.
(a) ALL REMEDIES AVAILABLE. Upon the occurrence of an Event of
Default, the holder hereof, in accordance with the terms of the Credit
Agreement, shall have the right to declare the entire unpaid principal balance
of, and all accrued unpaid interest on, this Note at once due and payable (and
upon such declaration, the same shall be at once due and payable), to foreclose
any and all liens and security interests securing payment hereof, to offset
against this Note any sum or sums owed by it to Borrower, and to
REVOLVING NOTE Page 3
<PAGE>
exercise any of its other rights, powers and remedies under this Note, under
the Credit Agreement or any other Loan Document, or at law or in equity.
(b) NO WAIVER. Neither the failure by the holder hereof to exercise,
nor delay by the holder hereof in exercising, the right to accelerate the
maturity of this Note or any other right, power or remedy upon any Default or
Event of Default shall be construed as a waiver of such Default or Event of
Default or as a waiver of the right to exercise any such right, power or remedy
at any time. No single or partial exercise by the holder hereof of any right,
power or remedy shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right, power or remedy may be exercised at any
time and from time to time. All rights and remedies provided for in this Note
and in any other Loan Document are cumulative of each other and of any and all
other rights and remedies existing at law or in equity, and the holder hereof
shall, in addition to the rights and remedies provided herein or in any other
Loan Document, be entitled to avail itself of all such other rights and remedies
as may now or hereafter exist at law or in equity for the collection of the
indebtedness owing hereunder, and the resort to any right or remedy provided for
hereunder or under any such other Loan Document or provided for by law or in
equity shall not prevent the concurrent or subsequent employment of any other
appropriate rights or remedies. Without limiting the generality of the
foregoing provisions, the acceptance by the holder hereof from time to time of
any payment under this Note which is past due or which is less than the payment
in full of all amounts due and payable at the time of such payment, shall not
(i) constitute a waiver of or impair or extinguish the rights of the holder
hereof to accelerate the maturity of this Note or to exercise any other right,
power or remedy at the time or at any subsequent time, or nullify any prior
exercise of any such right, power or remedy, or (ii) constitute a waiver of the
requirement of punctual payment and performance, or a novation in any respect.
4. USURY SAVINGS PROVISIONS.
(a) GENERAL LIMITATION. Notwithstanding anything herein or in any
other Loan Documents, expressed or implied, to the contrary, in no event shall
any interest rate charged hereunder or
REVOLVING NOTE Page 4
<PAGE>
under any of the other Loan Documents, or any interest contracted for,
collected or received by Lender or any holder hereof, exceed the Maximum
Lawful Rate.
(b) INTENT OF PARTIES. It is expressly stipulated and agreed to be
the intent of Borrower and Lender at all times to comply with the applicable law
governing the maximum rate or amount of interest payable on or in connection
with this Note. If the applicable law is ever judicially interpreted so as to
render usurious any amount called for under this Note or under any of the other
Loan Documents, or contracted for, charged, taken, reserved or received with
respect to this Note, or if acceleration of the maturity of this Note, any
prepayment by Borrower, or any other circumstance whatsoever, results in Lender
having been paid any interest in excess of that permitted by applicable law,
then it is the express intent of Borrower and Lender that all excess amounts
theretofore collected by Lender be credited on the principal balance of this
Note (or, if this Note has been or would thereby be paid in full, refunded to
Borrower), and the provisions of this Note and the other applicable Loan
Documents immediately be deemed reformed and the amounts thereafter collectible
hereunder and thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and thereunder.
The right to accelerate the maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Lender does not intend to collect any unearned interest in the
event of acceleration. All sums paid or agreed to be paid to Lender for the
use, forbearance or detention of the indebtedness evidenced hereby or by any
other Loan Document shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the Maximum Lawful Rate. The term
"APPLICABLE LAW" as used herein shall mean the laws of the State of Texas, or
any applicable United States federal law to the extent that it permits Lender to
contract for, charge, take, reserve or receive a greater amount of interest than
under Texas law. The provisions of this paragraph shall control all agreements
between Borrower and Lender.
REVOLVING NOTE Page 5
<PAGE>
5. GENERAL PROVISIONS.
(a) BUSINESS DAYS. Whenever any payment shall be due under this Note
on a day which is not a Business Day, the date on which such payment is due
shall be extended to the next succeeding Business Day, and such extension of
time shall be included in the computation of the amount of interest then
payable.
(b) MANNER OF PAYMENT. The manner in which payments are to be made
on this Note shall be governed by the provisions hereof and the Credit
Agreement, including, without limitation, ARTICLE III of the Credit Agreement.
(c) PREPAYMENTS. Prepayments may be made as provided in SECTION 3.5
of the Credit Agreement.
(d) APPLICATION OF PAYMENTS. All payments made on this Note shall be
applied in accordance with SECTION 3.1 of the Credit Agreement. Nothing herein
shall limit or impair any rights of any holder hereof to apply as provided in
the Loan Documents any past due payments, any proceeds from the disposition of
any collateral by foreclosure or other collections after default.
(e) COSTS OF COLLECTION. If any holder of this Note retains an
attorney in connection with any default or at maturity or to collect, enforce or
defend this Note or any other Loan Document in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if Borrower sues any holder
of this Note in connection with this Note or any other Loan Document and does
not prevail, then Borrower agrees to pay to each such holder, in addition to
principal and interest, all costs and expenses incurred by such holder in trying
to collect this Note or in any such suit or proceeding, including reasonable
attorneys' fees as and to the extent provided in the Credit Agreement.
(f) WAIVERS AND ACKNOWLEDGMENTS. Borrower and all sureties,
endorsers, guarantors and any other party now or hereafter liable for the
payment of this Note in whole or in part, hereby severally (i) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest, notice
of protest, notice of intent to accelerate, notice of acceleration and all other
REVOLVING NOTE Page 6
<PAGE>
notice (except only for any notice that is specifically required by the terms of
the Credit Agreement or any other Loan Document), filing of suit and diligence
in collecting this Note or enforcing any of the security herefor; (ii) agree to
any substitution, subordination, exchange or release of any such security or the
release of any party primarily or secondarily liable hereon; (iii) agree that
the holder hereof shall not be required first to institute suit or exhaust its
remedies against Borrower or others liable or to become liable hereon or to
enforce its rights against them or any security herefor; (iv) consent to any
extension or postponement of time of payment of this Note for any period or
periods of time and to any partial payments, before or after maturity, and to
any other indulgences with respect hereto, without notice thereof to any of
them; and (v) submit (and waive all rights to object) to personal jurisdiction
in the State of Texas, and venue in Dallas County, Texas, for the enforcement of
any and all obligations under the Loan Documents.
(g) AMENDMENTS IN WRITING. This Note may not be changed, amended or
modified except in a writing expressly intended for such purpose and executed by
the party against whom enforcement of the change, amendment or modification is
sought.
(h) PURPOSE OF PROCEEDS. The proceeds of this Note will be used
solely for business purposes and not for personal, family, household or
agricultural purposes.
(i) NOTICES. Any notice required or which any party desires to give
under this Note shall be given and effective as provided in SECTION 9.1 of the
Credit Agreement.
(j) ASSIGNMENTS/PARTICIPATIONS. Borrower acknowledges and agrees
that the holder of this Note may, at any time and from time to time, assign all
or a portion of its interest in the Total Revolving Commitment or transfer to
any Person a participation interest in the Total Revolving Commitment, subject
to and in accordance with the terms and conditions of the Credit Agreement,
including SECTION 9.11 thereof.
(k) SUCCESSORS AND ASSIGNS. All of the covenants, stipulations,
promises and agreements contained in this Note by or on behalf of Borrower shall
bind their successors and assigns and shall be for the benefit of Lender and any
holder hereof, and their
REVOLVING NOTE Page 7
<PAGE>
successors and assigns, as and to the extent provided in the Credit Agreement.
(l) GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY TEXAS LAW, EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER
JURISDICTION GOVERN THE CREATION, PERFECTION OR ENFORCEMENT OF INTERESTS, OR THE
REMEDIES RELATED TO ANY PART OF THE COLLATERAL, OR TO THE EXTENT THAT UNITED
STATES FEDERAL LAW APPLIES.
(m) TIME OF THE ESSENCE. Time shall be of the essence in this Note
with respect to all of Borrower's obligations hereunder.
(n) INTEGRATION. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed as of the date first written above.
BORROWER:
IWL COMMUNICATIONS, INC., a Texas
corporation
By: /s/ Richard H. Roberson
------------------------------------
Name: Richard H. Roberson
----------------------------------
Title: CFO
---------------------------------
REVOLVING NOTE Page 8
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "SECURITY AGREEMENT"), dated as of August
1, 1997, is made and entered into by and between IWL COMMUNICATIONS, INC., a
Texas corporation ("DEBTOR"), and BANK ONE, TEXAS, N.A., a national banking
association ("SECURED PARTY").
RECITALS:
A. Borrower and Secured Party have entered into a Revolving Credit
Agreement of even date herewith, pursuant to which Secured Party has agreed
to provide a revolving loan to Borrower in an aggregate amount not to exceed
Five Million and No/100 Dollars ($5,000,000.00) (the "LOAN"), the proceeds of
which are being used for working and other general corporate purposes,
pursuant to the terms thereof (such Credit Agreement, as the same may be
amended, modified, supplemented, extended or restated and in effect from time
to time, being hereinafter referred to as the "CREDIT AGREEMENT"). Each
capitalized term used but not expressly defined herein shall have the meaning
given such term in the Credit Agreement.
B. In order to induce Secured Party to enter into the Credit Agreement
and to provide security for the Loan, Debtor shall have executed and
delivered this Security Agreement.
C. It is the intention of the parties hereto that this Security
Agreement create a first priority security interest securing the payment of
the obligations set forth in SECTION 1.02 hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in order to induce Secured Party to enter
into the Credit Agreement, Debtor hereby agrees with Secured Party as follows:
ARTICLE I
GRANT
1.01. ASSIGNMENT AND GRANT OF SECURITY. Debtor hereby grants,
pledges and assigns to Secured Party, and hereby grants to Secured Party a
security interest in, the following assets of Debtor, and all rights, titles
and interests of Debtor therein, wherever located and whether now
SECURITY AGREEMENT Page 1
<PAGE>
owned or hereafter acquired by Debtor or in which Debtor now has or at any
time in the future may acquire any right, title or interest (collectively,
the "COLLATERAL"):
(a) all inventory in all of its forms, wherever located, now or
hereafter existing, including, but not limited to, (i) all raw materials and
work in process therefor, finished goods thereof, and materials used or
consumed in the manufacture or production thereof, (ii) goods in which Debtor
has an interest in mass or a joint or other interest or right of any kind
(including, without limitation, goods in which Debtor has an interest or
right as consignee), and (iii) goods which are returned to or repossessed by
Debtor, and all accessions thereto and products thereof and documents
therefor (any and all such inventory, accessions, products and documents
being referred to herein collectively as "INVENTORY");
(b) any right to payment for services rendered or for goods sold or
leased which is not evidenced by an instrument or chattel paper, whether or
not it has been earned by performance ("ACCOUNTS"), and all customer lists,
subscription lists, invoices, agings, verification reports and other records
relating in any way to such Accounts, and all of Debtor's rights in, to and
under all purchase orders or contracts now owned or hereafter received or
acquired by it for goods or services, and all of Debtor's rights to any goods
represented by any of the foregoing (including returned or repossessed goods
and unpaid seller's rights) and all moneys due or to become due to Debtor
under all contracts for the sale or lease of goods and/or the performance of
services by it (whether or not yet earned by performance) or in connection
with any other transaction, now in existence or hereafter arising;
(c) all contract rights, chattel paper, documents, instruments and
letters of credit (each as defined in the Uniform Commercial Code as from
time to time in effect in the State of Texas or other applicable jurisdiction
pursuant to SECTION 5.04 hereof [the "UCC"]), and (whether or not included in
such definitions); all promissory notes, drafts, bills of exchange and trade
acceptances (collectively, the "INSTRUMENTS") of any kind owing to Debtor,
now or hereafter existing, arising out of or in connection with the sale or
lease of goods or the rendering of services or otherwise, and all rights now
or hereafter existing in and to all security agreements, leases, and other
contracts securing or otherwise relating to any such contract rights, chattel
paper, documents, instruments or obligations (any and all such contract
rights, chattel paper, documents, instruments, and obligations described in
this SECTION 1.01(b) being sometimes referred to herein collectively as the
"RECEIVABLES");
(d) all machinery, equipment, tools, apparatus and furniture, now owned
or hereafter acquired by Debtor or in which Debtor now has or hereafter may
acquire any right, title or interest, and any and all additions,
substitutions and replacements thereof, wherever located, together with all
attachments, components, parts, equipment and accessories installed therein
or affixed thereto, including but not limited to all "equipment" as defined
in Section 9.109(2) of the UCC (collectively, the "EQUIPMENT");
SECURITY AGREEMENT Page 2
<PAGE>
(e) all writings which evidence both a monetary obligation and a
security interest in or a lease of specific goods (collectively, the "CHATTEL
PAPER");
(f) all contracts and agreements (collectively, the "CONTRACTS") to
which Debtor is a party or to which Debtor has any rights, including, without
limitation, (i) all modifications, amendments or replacements of any of the
foregoing, (ii) all rights of Debtor to receive moneys due and to become due
to it thereunder or in connection therewith, (iii) all rights of Debtor to
damages arising out of, or for, breach or default in respect thereof and (iv)
all rights of Debtor to perform and to exercise all remedies thereunder;
provided, that the grant, pledge or assignment herein made shall not include
any right or interest in any contract or agreement to the extent such grant
requires the consent of any Person other than Debtor which has not been
obtained, and the failure to obtain such consent causes or could cause the
termination of said contract or agreement (provided, further, that
notwithstanding the exclusion of a security interest with respect to any
contract or agreement, the Debtor shall continue to grant to Secured Party a
security interest in the proceeds received pursuant to any such contract or
agreement);
(g) all documents, warehouse receipts, bills of lading, including,
without limitation, documents of title (as defined in the UCC) or other
receipts covering, evidencing or representing collateral;
(h) all general intangibles (as defined in the UCC), and (whether or
not included in such definition) all contract rights other than Receivables;
all inventions, processes, production methods, proprietary information, trade
secrets and know-how; all patents and applications for patents, copyrights
and trademarks of Debtor, and all licenses or other agreements granted to
Debtor with respect to any of the foregoing; all information, customer lists,
advertising lists, advertising contracts, identification of suppliers, data,
plans, blueprints, specifications, designs, drawings, recorded knowledge,
surveys, engineering reports, test reports, manuals, materials standards,
processing standards, performance standards, telephone numbers and telephone
listings, catalogs, books, records, computer and automatic machinery software
and programs, and the like pertaining to operations by or the business of
Debtor and all licenses with respect thereto; all field accounting
information and all media in which or on which any of the information or
knowledge or data or records, may be recorded or stored and all computer
programs used for the compilation or printout of such information, knowledge,
records or data; all licenses, consents, permits, variances, certifications
and approvals of all Tribunals now or hereafter held by Debtor pertaining to
operations or business now or hereafter conducted; all rights to receive
return of deposits and trust payments; all rights to payment under letters of
credit and similar agreements; all tax refunds (including, without
limitation, all federal and state income tax refunds and benefits of net
operating loss carry forwards); and all causes of action, rights, claims and
warranties now or hereafter owned or acquired by Debtor;
(i) all rights, claims and benefits of Debtor against any Person
arising out of, relating to or in connection with Collateral purchased by
Debtor, including, without limitation, any such rights, claims or benefits
against any Person storing or transporting such Collateral;
SECURITY AGREEMENT Page 3
<PAGE>
(j) the balance of every bank account and deposit account of Debtor,
including without limitation all accounts on deposit with or under the
control of Secured Party or any affiliate of Secured Party, and any other
claim of Debtor against Secured Party, now or hereafter existing, liquidated
or unliquidated, and all money, instruments, securities, documents, chattel
paper, credits, claims, demands, income, and any other property, rights and
interests of Debtor which at any time shall come into the possession or
custody or under the control of Secured Party or any of its agents,
affiliates or correspondents, for any purpose, and the proceeds of any
thereof (Secured Party shall be deemed to have possession of any of the
Collateral in transit to or set apart for it or any of its agents, affiliates
or correspondents);
(k) all equity interest in any Person, any debt instrument issued by
any Person and any instrument convertible into any equity or debt interest
(whether owned beneficially or of record), including but not limited to all
shares of capital stock of whatever class, all partnership and joint venture
interests, all debentures and debt instruments (collectively, the
"SECURITIES"); all shares, securities, monies or properties representing a
Distribution (defined below) on any Securities or representing a distribution
or return of capital upon or in respect of any Securities or any part
thereof, or resulting from a split-up, revision, reclassification or other
like change of the Securities, or otherwise received in exchange therefor;
all subscription rights, warrants or options issued to the holders of, or in
respect of, the Securities; each certificate or other instrument evidencing
any of the foregoing;
(l) any declaration or payment of any distribution or dividend
(including a stock dividend) on, or the making of any pro rata distribution,
loan, advance, or investment to or in any holder (in its capacity as a
partner, shareholder or other equity holder) of, any partnership interest or
shares of capital stock or other equity interest of such Person; any
purchase, redemption, or other acquisition or retirement for value of any
shares of partnership interest or capital stock or other equity interest of
such Person; and any payments of principal of, and interest on, and all other
payments in respect of any debt issued by any Person (all of the foregoing
being herein referred to as collectively "DISTRIBUTIONS");
(m) all accounts of Debtor maintained with or through any other Person
or Persons related to the acquisition, ownership, sale or other disposition
of any interest in any security or interest in any security (including but
not limited to all interest in any equity or debt security, option, warrant,
put, call, futures agreements, commodity agreements, margin accounts, short
positions and partnership interests), each deposit account (time, demand or
other) in which any proceeds of or income from the foregoing may be on
deposit, all general intangibles consisting of the foregoing and each
agreement, document or instrument governing or evidencing any of the
foregoing and all amendments and restatements thereof, and all claims of
Debtor against any Person with respect to any of the foregoing (all of the
foregoing being herein referred to as "BROKERAGE AGREEMENTS");
(n) all agreements with vendors and distributors of Inventory;
SECURITY AGREEMENT Page 4
<PAGE>
(o) all insurance policies and bonds and claims relating to any
property described in this SECTION 1.01 and payments thereunder;
(p) all cars, trucks, trailers, construction and earth moving equipment
and other vehicles, whether or not covered by a certificate of title under
the law of any state, and all tires and other appurtenances to any of the
foregoing (collectively "VEHICLES");
(q) all other personal property now owned or hereafter acquired by
Debtor; and
(r) all accessions to, all substitutions for and replacements of, and
all proceeds and products of any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of the
types described in this SECTION 1.01) and, to the extent not otherwise
included, all (i) payments under insurance (whether or not Secured Party is
the loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral and (ii) all cash.
1.02. DESCRIPTION OF OBLIGATIONS. This Security Agreement creates a
first priority security interest securing the payment and performance of any
and all obligations, indebtedness and/or liabilities whether now existing or
hereafter arising, of Debtor to Secured Party, including, without limitation,
any and all obligations, indebtedness and/or liabilities of Debtor under the
Credit Agreement, the Note and the other Loan Documents, including any
extensions, modifications, substitutions, amendments, renewals and
restatements thereof, whether for principal, interest, fees, premium,
expenses, indemnification or otherwise (all such obligations, indebtedness
and/or liabilities being referred to herein as the "OBLIGATIONS"). Without
limiting the generality of the foregoing, this Security Agreement secures the
payment of all amounts which constitute part of the Obligations and would be
owed to Secured Party, but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving Debtor or any other Person.
1.03. DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Security Agreement had not been executed, (b) the exercise by Secured
Party of any of the Rights hereunder shall not release Debtor from any of its
duties or obligations under the contracts and agreements included in the
Collateral, and (c) Secured Party shall not have any obligation or liability
under the contracts and agreements included in the Collateral by reason of
this Security Agreement, nor shall Secured Party be obligated to perform any
of the obligations or duties of Debtor thereunder or to take any action to
correct or enforce any claim for payment assigned hereunder, to make any
payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any
party under any account or Receivable (or any agreement giving rise thereto)
or under any contract, to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.
SECURITY AGREEMENT Page 5
<PAGE>
1.04. DELIVERY OF SECURITY COLLATERAL. All certificates or
instruments representing or evidencing the Collateral shall be delivered to
and held by or on behalf of Secured Party pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Secured Party. After the occurrence of an Event of
Default, Secured Party shall have the right, at any time in its discretion
and without notice to Debtor, to transfer to or to register in the name of
Secured Party or any of its nominees any or all of the Collateral. In
addition, after the occurrence of any Default, Secured Party shall have the
right at any time to exchange certificates or instruments representing or
evidencing Collateral for certificates or instruments of smaller or larger
denominations.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01. REPRESENTATIONS AND WARRANTIES. Debtor represents and
warrants, with respect to itself and the Collateral, as follows:
(a) All of the Inventory and Equipment pledged by Debtor hereunder
(other than any Inventory pledged by Debtor to Secured Party pursuant to the
Collateral Assignment [as defined below]) is located at the places specified
on SCHEDULE 1 hereto or in transit to a place specified on SCHEDULE 1 hereto,
or in transit for sale to a third-party purchaser that upon such sale will
become the obligor under a Receivable in the ordinary course of Debtor's
business. The chief place of business and chief executive office of Debtor
is located at 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034, and
such location is where Debtor keeps all of its books and records. All
promissory notes or other instruments evidencing the Receivables have been
delivered and pledged to Secured Party duly endorsed and accompanied by such
duly executed instruments of transfer or assignment as are necessary for such
pledge, to be held as pledged collateral. Debtor has possession and control
of the Inventory and Equipment pledged by it hereunder.
(b) Debtor is the legal and beneficial owner of all the Collateral free
and clear of any lien or security interest, option or other charge or
encumbrance except for (i) the security interest created by this Security
Agreement and (ii) any Permitted Liens. No effective financing statement or
other similar document used to perfect and preserve a security interest under
the Laws of any jurisdiction covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in favor of
Secured Party relating to (A) this Security Agreement, and (B) that certain
Collateral Assignment and Security Agreement (the "COLLATERAL ASSIGNMENT"),
dated August 1, 1997, by and between Debtor and Secured Party.
(c) As of the date hereof, Debtor has the trade names set forth on
SCHEDULE 2 and no others.
SECURITY AGREEMENT Page 6
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(d) This Security Agreement and the pledge of the Collateral pursuant
hereto creates a valid first priority security interest (subject only to such
Permitted Liens as may cover the Collateral) in the Collateral (other than
deposit accounts in financial institutions which are not Secured Party),
securing the payment of the Obligations, and upon filing of financing
statements with the Texas Secretary of State and any other necessary actions
to perfect such security interest, such first priority security interest in
such Collateral will be duly perfected; and all filings and other actions
necessary or desirable to perfect and protect such security interest and such
priority have been duly taken (or will be taken).
(e) The amount represented by Debtor to Secured Party from time to time
as owing by each account debtor or by all account debtors in respect of the
Accounts and Receivables will at such time be the correct amount actually
owing by such account debtor or debtors thereunder. No amount payable to
Debtor under or in connection with Accounts or Receivables is evidenced by
any Instrument or Chattel Paper, other than checks and other similar
negotiable instruments, which has not been delivered to Secured Party.
(f) No consent of any other Person and no authorization, approval or
other action by, and no notice to or filing with, any tribunal is required
(i) for the pledge by Debtor of the Collateral pledged by it hereunder, for
the grant by Debtor of the security interest granted hereby or for the
execution, delivery or performance of this Security Agreement by Debtor,
other than as permitted by SECTION 1.01(e) hereof, (ii) for the perfection or
maintenance of the pledge, assignment and security interest created hereby
(including the first priority nature of such pledge, assignment and security
interest) or (iii) for the exercise by Secured Party of the Rights provided
for in this Security Agreement or the remedies in respect of the Collateral
pursuant to this Security Agreement; provided, that if at any time subsequent
to the Closing Date Lender requests that Debtor obtain any consent not
required under clause (i) above, Debtor agrees pursuant to SECTION 3.01(a) to
use its best efforts in obtaining such consent.
(g) Debtor owns no Securities or Instruments except as listed on
SCHEDULE 3, and Debtor has no interest in any Brokerage Agreements except as
listed on SCHEDULE 4. Debtor is the sole legal and beneficial owner of the
Securities and Instruments listed on SCHEDULE 3 and the Brokerage Agreements
listed on SCHEDULE 4, and no Lien upon such Securities, Instruments or
Brokerage Agreements exists, except for those Liens in favor of Secured Party
created or provided for herein. To Debtor's knowledge, no event has occurred
which has or could cause the termination of any Brokerage Agreement.
(h) All Vehicles owned by Debtor are described on SCHEDULE 5.
(i) All Inventory produced in the United States of America has been
produced in compliance in all material respects with the Fair Labor Standards
Act.
(j) Debtor has the corporate power and authority and the legal right to
execute and deliver, to perform its obligations under, and to grant the
security interest in the Collateral
SECURITY AGREEMENT Page 7
<PAGE>
pursuant to, this Security Agreement, and Debtor has taken all necessary
corporate action to authorize its execution, delivery and performance of, and
grant of the security interest in the Collateral pursuant to this Security
Agreement. The board of directors of Debtor have determined that the
execution and delivery of this Security Agreement by Debtor is in the best
interests of Debtor and Debtor will derive substantial benefit, directly or
indirectly, from the extensions of credit by Secured Party to Borrower under
the Credit Agreement and the Note.
(k) This Security Agreement constitutes a legal, valid and binding
obligation of Debtor enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
(l) The execution, delivery and performance of this Security Agreement
will not violate any provision of any applicable law, rule, regulation or
contractual obligations of Debtor and will not result in the creation or
imposition of any lien on any of the properties or revenues of Debtor
pursuant to any applicable law, rule, regulation or contractual obligations
of Debtor, except as contemplated hereby.
(m) No consent or authorization of, filing with, or other act by or in
respect of, any tribunal, and no consent of any other person (including,
without limitation, any stockholder or creditor of Debtor), is required in
connection with the execution, delivery, performance, validity or
enforceability of this Security Agreement.
(n) No action, suit or proceeding of or before any court, arbitrator or
any governmental body, agency or official is pending or, to the knowledge of
Debtor, threatened by or against Debtor or against any of its properties or
revenues with respect to this Security Agreement or any of the transactions
contemplated hereby.
(o) There are no conditions precedent to the effectiveness of this
Security Agreement that have not been satisfied or waived.
ARTICLE III
COVENANTS
3.01. FURTHER ASSURANCES. (a) Debtor agrees that, where any
agreement existing as of the date hereof or hereafter to which Debtor is a
party contains any restriction prohibiting Debtor from granting any security
interest under this Security Agreement, Debtor will use its best efforts to
obtain the necessary consent to or waiver of such restriction from any Person
so as to enable Debtor to effectively grant to Secured Party such security
interest under this Security Agreement.
(b) Debtor will from time to time at its expense promptly execute and
deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that Secured Party may reasonably
request, in order to perfect and protect any pledge,
SECURITY AGREEMENT Page 8
<PAGE>
assignment or security interest granted or purported to be granted hereby,
and the priority thereof, or to create or preserve the full benefits of this
Security Agreement and the rights and powers of Secured Party herein granted,
or to enable Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any of the Collateral. Without limiting the
generality of the foregoing, upon written request by Secured Party, Debtor
will: (i) mark conspicuously each item of Chattel Paper included in
Receivables and each of its records pertaining to any other items of the
Collateral with the following legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO A
SECURITY AGREEMENT DATED AUGUST 1, 1997 (AS THE SAME MAY BE MODIFIED OR
RESTATED) MADE BY IWL COMMUNICATIONS, INC., IN FAVOR OF BANK ONE, TEXAS,
N.A.
or such other legend, in form and substance satisfactory to and as specified
by Secured Party, indicating that such item of Chattel Paper or Collateral is
subject to the pledge, assignment and security interest granted hereby; (ii)
if any Collateral shall be evidenced by a promissory note or other Instrument
or be Chattel Paper, deliver to Secured Party such note, Instrument or
Chattel Paper, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Secured
Party; and (iii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may request, in order to perfect
and preserve the pledge, assignment and security interest granted or
purported to be granted hereby with respect to any and all of the Collateral.
(c) Debtor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of Debtor where and to
the extent permitted by applicable law. A photocopy or other reproduction of
this Security Agreement or any financing statement covering the Collateral or
any part thereof shall be sufficient as a financing statement where and to
the extent permitted by applicable law.
(d) Debtor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral, and such
other reports in connection with the Collateral, as Secured Party may
reasonably request.
(e) Debtor shall not establish or maintain any deposit or similar bank
account not listed on SCHEDULE 6 unless Secured Party receives prior written
notice thereof, Debtor executes and delivers to Secured Party assignments of
such account in such form as Secured Party may request, and the financial
institution in which such account will be maintained delivers to Secured
Party an acknowledgment of the assignment of such account in form and
substance satisfactory to Secured Party.
SECURITY AGREEMENT Page 9
<PAGE>
(f) Debtor shall not permit any amendment, restatement or termination
of any Brokerage Agreement without the prior written consent of Secured
Party, which consent shall not be unreasonably withheld.
(g) In addition to such other information as shall be specifically
provided for herein, Debtor shall furnish to Secured Party such other
information with respect to the Collateral as Secured Party may reasonably
request from time to time in connection with the Collateral, or the
protection, preservation, maintenance or enforcement of the security interest
in the Collateral, including, without limitation, all documents and things in
Debtor's possession, or subject to its demand for possession, related to the
production and sale by Debtor, or any subsidiary, licensee or subcontractor
thereof, of products or services sold by or under the authority of Debtor,
including by way of example, without limiting the interest granted by this
Security Agreement: (i) all lists and ancillary documents which identify and
describe any of Debtor's customers, advertisers, or those of its subsidiaries
or licensees, for products sold or services rendered, including without
limitation, such existing lists and ancillary documents which contain each
customer's full name and address, the identity of the Person or Persons
having the principal responsibility on each customer's behalf for ordering
products or services of the kind supplied by Debtor, the credit, payment,
discount, delivery and other material sale terms applicable to such customer,
together with detailed information setting forth the total purchases and the
patterns of such purchases; (ii) all product and service specification
documents and production and quality of services sold; (iii) all documents
which reveal the names and addresses of all sources of supply, and all terms
of purchase and delivery, for all materials and components used in the
production of products or provision of services sold; and (iv) all documents
constituting or concerning the then current or proposed advertising and
promotion by Debtor or its subsidiaries, licensees or subcontractors of
products or services sold, including, by way of example and not in
limitation, all documents which reveal the media used or to be used and the
cost for all such advertising conducted within the described period or
planned for such products or services. In connection with its enforcement of
the security interest, Secured Party may use such information or transfer it
to any assignee or sublicensee permitted hereunder for such assignee's or
sublicensee's use.
(h) Debtor shall, if any of the shares, securities, monies or property
pledged or required to be pledged under SECTION 1.01 are received by Debtor,
forthwith transfer and deliver to Secured Party such shares, securities,
monies or property so received by Debtor (together with the certificates for
any such shares and securities duly endorsed in blank or accompanied by
undated stock powers duly executed in blank), all of which thereafter shall
be held by Secured Party, pursuant to the terms of this Security Agreement,
as part of the Collateral.
(i) Debtor shall, insofar as possible, upon the request of Secured
Party (if Secured Party deems such action necessary or advisable for the
perfection or priority of the security interest in the Securities and
Brokerage Agreements), cause the Securities and Brokerage Agreements to be
transferred, registered or otherwise put into the name or names of such
nominee or nominees of Secured Party as Secured Party shall from time to time
direct. So long as no Event of Default shall have occurred and be continuing
(and after any Event of Default until, by
SECURITY AGREEMENT Page 10
<PAGE>
notice to Debtor, Secured Party elects while the Event of Default is
continuing to exercise the right to vote or consent), Debtor shall retain the
right to exercise all voting, consensual and other power of ownership
pertaining to the Securities and Brokerage Agreements owned by it for all
purposes not inconsistent with the terms of this Security Agreement or any
other Loan Document; and Secured Party shall execute and deliver to Debtor or
cause to be executed and delivered to Debtor all such proxies, powers of
attorney, dividend and other orders, and all such instruments, without
recourse, as Debtor may reasonably request for the purpose of enabling Debtor
to exercise the rights and powers which it is entitled to exercise pursuant
to this SECTION 3.01(i). After the occurrence of a Default, whether or not
Secured Party exercises any available right to declare any Obligations due
and payable or seeks or pursues any other relief or remedy available under
applicable Laws or under any agreement relating to such Obligations, all
distributions and dividends on the Securities and payments and distributions
in respect of each Brokerage Agreement shall be paid directly to Secured
Party and retained by it as part of the Collateral subject to the terms of
this Security Agreement, and, if Secured Party shall so request, Debtor
agrees to execute and deliver to Secured Party appropriate additional
dividend, distribution and other orders and documents to that end.
3.02. INVENTORY AND EQUIPMENT.
(a) Debtor shall keep all of the Inventory and Equipment (other than
Inventory sold in the ordinary course of business or pledged to Secured Party
pursuant to the Collateral Assignment) at the place or places specified
therefor in SECTION 2.01(A) or, upon fifteen days' prior written notice to
Secured Party, at such other places in such jurisdiction where all action
required by SECTION 3.01 shall have been taken with respect to such
transferred Inventory and Equipment.
(b) Debtor shall pay promptly when due or before penalty all property
and other taxes, assessments and governmental charges or levies imposed upon,
and all claims (including claims for labor, materials and supplies) against,
the Collateral pledged by it hereunder, except such taxes as are being
contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP. Debtor shall comply
with, and shall cause its licensees to comply in all material respects with,
all requirements of the Fair Labor Standards Act.
3.03. INSURANCE. Debtor will, at its own expense, maintain, or
cause to be maintained, insurance on the Collateral as is reasonable and
customary, with Secured Party being named as loss payee and additional
insured on all insurance policies which pertain to the Collateral. If Debtor
fails to perform or observe any applicable covenants as to insurance on any
of such Collateral, Secured Party may at its own option obtain insurance on
such Collateral, and any premium therefor paid by Secured Party shall become
part of the Obligations and shall bear interest prior to the occurrence of an
Event of Default at the interest rate then applicable to the Note, and after
the occurrence of an Event of Default, at the Default Rate. In the event
Secured Party maintains such substitute insurance, the additional premium for
such insurance shall be due on demand and payable by Debtor to Secured Party
in accordance with any notice delivered to Debtor by Secured Party. Debtor
hereby grants Secured Party, a security interest in any refunds
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<PAGE>
of unearned premiums in connection with any cancellation, adjustment or
termination of any policy of insurance required by Secured Party and in all
proceeds of such insurance and hereby appoints Secured Party its
attorney-in-fact to, after a Default, endorse any check or draft that may be
payable to Debtor in order to collect such refunds or proceeds. Any such
sums collected by Secured Party shall be credited, except to the extent
applied to the purchase by Secured Party of similar insurance, to any amounts
then owing on the Obligations.
3.04. PLACE OF PERFECTION; RECORDS; COLLECTION OF RECEIVABLES,
CHATTEL PAPER AND INSTRUMENTS.
(a) Debtor will not (i) change the location of its chief executive
office from that specified in SECTION 2.01(a), or (ii) change its name,
identity or corporate structure to such an extent that any financing
statement filed by Secured Party in connection with this Security Agreement
would become seriously misleading, or (iii) use any trade name other than
those listed on SCHEDULE 2, unless Debtor shall have given prior written
notice as soon as practicable thereof, and prior to effecting any such change
Debtor shall have taken such steps as Secured Party may deem necessary or
advisable to continue the perfection and priority of the security interest
granted pursuant hereto.
(b) Except as otherwise provided in this SECTION 3.04(b) or in any of
the other Loan Documents, Debtor shall continue to collect, at its own
expense, all amounts due or to become due Debtor under the Chattel Paper and
Instruments. In connection with such collections, Debtor may take (and, at
Secured Party's direction, shall take) such action as Debtor or Secured Party
may deem reasonably necessary or advisable to enforce collection of the
Chattel Paper and Instruments; PROVIDED, HOWEVER, that Secured Party shall
have the right upon the occurrence of an Event of Default (without notice to
Debtor) to notify the account debtors or obligors under any or all of the
Collateral of the assignment of such Collateral to Secured Party and to
direct such account debtors or obligors to make payment of all amounts due or
to become due to Debtor thereunder directly to Secured Party and, after the
occurrence of a Default, at the expense of Debtor, to enforce collection of
any such Collateral and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Debtor shall have been
entitled. After the occurrence of a Default, all Instruments, amounts and
proceeds received by Debtor in respect of the Collateral shall be received in
trust for the benefit of Secured Party hereunder, shall be segregated from
other funds of Debtor and shall be forthwith paid over to Secured Party in
the same form as received (with any necessary endorsement) to be held as
collateral or applied to the Obligations, or such portion of the Obligations
as the Secured Party shall deem necessary or appropriate. Except prior to
the occurrence of a Default and in accordance with Debtor's normal business
policies and practices in effect on the date hereof, Debtor shall not adjust,
settle or compromise the amount or payment of any Receivable, Chattel Paper
or Instrument, release wholly or partly any account debtor or obligor
thereof, or allow any credit or discount thereon.
SECURITY AGREEMENT Page 12
<PAGE>
3.05. TRANSFERS AND OTHER LIENS. Debtor shall not (i) sell, assign
(by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral, or (ii) create or permit to
exist any lien, security interest, option or other charge or encumbrance upon
or with respect to any of the Collateral, except for the security interests
in favor of Secured Party under this Security Agreement and the Collateral
Assignment or any Permitted Lien.
3.06. RIGHTS TO DIVIDENDS AND DISTRIBUTIONS. With respect to any
certificates, bonds, or other instruments or securities (including but not
limited to any certificate or participation issued in any proceeding under
any Debtor Relief Law constituting a part of the Collateral, Secured Party
shall have authority after the occurrence of an Event of Default, without
notice to Debtor, either to have the same registered in Secured Party's name
or in the name of a nominee, and, with or without such registration, to
demand of the issuer thereof, and to receive any and all Distributions
(including any stock or similar dividend or distribution) payable in respect
thereof, whether they be ordinary or extraordinary. If Debtor shall become
entitled to receive or shall receive any interest in or certificate
(including, without limitation, any interest in or certificate representing a
Distribution or a distribution in connection with any reclassification,
increase, or reduction of capital, or issued in connection with any
reorganization), or any option or rights arising from or relating to any of
the Collateral, whether as an addition to, in substitution of, as a
conversion of, or in exchange for any of the Collateral, or otherwise, Debtor
agrees to accept the same as Secured Party's agent and to hold the same in
trust on behalf of and for the benefit of Secured Party, and to deliver the
same immediately to Secured Party in the exact form received, with
appropriate undated stock or similar powers, duly executed in blank, to be
held by Secured Party, subject to the terms hereof, as Collateral. After the
occurrence of a Default, Secured Party shall be entitled to all
Distributions, and to any sums paid upon or in respect of any Collateral,
upon the liquidation, dissolution, or reorganization of the issuer thereof
which shall be paid to Secured Party to be held by it as additional
collateral security for the Obligations and application to the Obligations at
the discretion of Secured Party. All Distributions paid or distributed in
respect of the Collateral which are received by Debtor in violation of this
Security Agreement shall, until paid or delivered to Secured Party, be held
by Debtor in trust as additional Collateral for the Obligations.
3.07. RIGHT OF SECURED PARTY TO NOTIFY ISSUERS. After the
occurrence of an Event of Default, Secured Party may notify issuers of the
Instruments and Securities to make payments of all Distributions directly to
Secured Party, and Secured Party may take control of all proceeds of any
Instruments and/or Securities. Until Secured Party elects to exercise such
Rights, Debtor, as agent of Secured Party, shall collect and segregate all
Distributions and other amounts paid or distributed with respect to the
Instruments and Securities.
3.08. MAINTENANCE OF RECORDS. Debtor will keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all
credits granted with respect to the Accounts and Receivables. Debtor will
mark its books and records pertaining to the Collateral to evidence this
Security Agreement and the security interests granted hereby.
SECURITY AGREEMENT Page 13
<PAGE>
3.09. RIGHT OF INSPECTION. Secured Party and its officers, agents
and representatives shall have the right to inspect Debtor's books and
records upon request of Secured Party. Upon notice to Debtor, Secured Party
and its officers, agents and representatives shall at all reasonable times
also have the right to enter into and upon any premises where any of the
Inventory or Equipment is located for the purpose of inspecting the same,
observing its use or otherwise protecting its interests therein; provided,
that each such inspection shall be conducted during normal business hours.
It is understood and agreed, however, that Debtor may operate its facilities
under restrictions as a "secured area" for classified governmental projects,
and in such event Secured Party agrees to abide by the rules generally
imposed on access to such areas, including advance notice and use of escorts.
3.10. COMPLIANCE WITH TERMS OF CONTRACTS, ETC. Debtor will perform
and comply in all material respects with all its obligations under all its
other contractual obligations relating to the Collateral, including, without
limitation, Debtor's contractual obligations pursuant to each of the
Contracts listed on SCHEDULE 3.
3.11. PAYMENT OF OBLIGATIONS. Debtor will pay promptly when due all
taxes and claims with respect to the Collateral, or in respect of its income
or profits therefrom.
3.12. LIMITATION ON LIENS ON COLLATERAL. Debtor will not create,
assume or permit to exist, will defend the Collateral against, and will take
such other action as is necessary to remove, any lien, security interest or
claim in or to the Collateral, other than the security interest and liens
created hereby and any Permitted Liens, and will defend the right, title and
interest of Secured Party in and to any of the Collateral against the claims
and demands of all Persons whomsoever.
3.13. LIMITATIONS ON DISPOSITIONS OF COLLATERAL. Debtor will not
sell, transfer, lease, abandon or otherwise dispose of any of the Collateral,
or attempt, offer or contract to do so, other than in the ordinary course of
business and for full and fair consideration as provided in the Credit
Agreement. Debtor will not sell, transfer, lease, abandon or otherwise
dispose of any of the Collateral, or attempt, offer or contract to do so
without the prior written consent of Lender, except for sales of Inventory in
the ordinary course of business and for full and fair consideration.
3.14. LIMITATIONS ON MODIFICATIONS, WAIVERS, EXTENSIONS OF
AGREEMENTS GIVING RISE TO ACCOUNTS AND CONTRACTS. Debtor will not (i) amend,
modify, terminate or waive any provision of any contract or any agreement
giving rise to a Receivable in any manner, except in the ordinary course of
business, (ii) fail to exercise promptly and diligently each and every
material right which it may have under each contract and each agreement
giving rise to a Receivable (other than any right of termination), unless
prior to the occurrence of an Event of Default Debtor, in the exercise of its
reasonable business judgment, determines to do so, or (iii) fail to deliver
to Secured Party a copy of each material demand, notice or document received
by it relating in any way to any contract or any agreement giving rise to a
Receivable.
SECURITY AGREEMENT Page 14
<PAGE>
3.15. MAINTENANCE OF EQUIPMENT. Debtor will maintain in good
working order each item of Equipment which is necessary for the operation of
Debtor's business.
3.16. FURTHER IDENTIFICATION OF COLLATERAL. Debtor will furnish to
Secured Party from time to time upon request statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as Secured Party may reasonably request, all
in reasonable detail and in form satisfactory to Secured Party.
3.17. NOTICES. Debtor will advise Secured Party promptly, in
reasonable detail, (i) of any lien or security interest on, or claim asserted
against, any of the Collateral, and (ii) of the occurrence of any other event
which could reasonably be expected to have a material adverse effect on the
aggregate value of the Collateral hereunder.
ARTICLE IV
RIGHTS AND POWERS OF SECURED PARTY
4.01. SECURED PARTY MAY PERFORM. If Debtor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Debtor as provided in SECTION 4.05.
4.02. LIMITATION ON SECURED PARTY'S DUTIES. The powers conferred on
Secured Party hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon it or any Secured Party to exercise any
such powers. Except for the safe custody of any Collateral in its possession
and the accounting for moneys actually received by it hereunder, Secured
Party shall have no duty as to any of the Collateral, as to ascertaining or
taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Collateral, whether or not Secured
Party has or is deemed to have knowledge of such matters, or as to the taking
of any necessary steps to preserve rights against prior parties or any other
rights pertaining to any reasonable care in the custody and preservation of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Secured Party accords its own property.
Except as provided in this SECTION 4.02, Secured Party shall not have any
duty or liability to protect or preserve any Collateral or to preserve rights
pertaining thereto. Nothing contained in this Security Agreement shall be
construed as requiring or obligating Secured Party, and Secured Party shall
not be required or obligated, to (a) present or file any claim or notice or
take any action, with respect to any Collateral or in connection therewith or
(b) notify Debtor of any decline in the value of any Collateral. Secured
Party's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under SECTION 9.207 of the
UCC or otherwise, shall be to deal with it in the same manner as Secured
Party deals with similar property for its own account. Neither Secured
Party, nor any of its directors, officers, employees or agents shall be
liable for failure to demand, collect or realize upon all or any part
SECURITY AGREEMENT Page 15
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of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
Debtor or otherwise.
4.03. SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) POWERS. Debtor hereby irrevocably constitutes and appoints Secured
Party and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Debtor and in the name of Debtor or in
its own name, after the occurrence of an Event of Default, for the purpose of
carrying out the terms of this Security Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Security
Agreement, and, without limiting the generality of the foregoing, Debtor
hereby gives Secured Party the power and right, on behalf of Debtor, without
notice to or assent by Debtor, to do the following:
(1) in the case of any Collateral, in the name of Debtor or its own
name, or otherwise, to take possession of and endorse and collect any
checks, drafts, notes, acceptances or other instruments for the payment of
moneys due under, or with respect to, any Collateral and to file any claim
or to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Secured Party for the purpose of
collecting any and all such moneys due or with respect to such Collateral
whenever payable;
(2) to pay or discharge taxes and liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of this Security Agreement and to pay all or any
part of the premiums therefor and the costs thereof; and
(3) (i) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to Secured Party or as Secured Party shall direct;
(ii) to ask or demand for, collect, receive payment of and receipt for,
any and all moneys, claims and other amounts due or to become due at any
time in respect of or arising out of any Collateral; (iii) to sign and
endorse any invoices, freight or express bills, bills of lading, storage
or warehouse receipts, drafts against debtors, assignments, verifications,
notices and other documents in connection with any of the Collateral;
(iv) to commence and prosecute any suits, actions or proceedings at law or
in equity in any court of competent jurisdiction to collect the Collateral
or any portion thereof and to enforce any other right in respect of any
Collateral; (v) to defend any suit, action or proceeding brought against
Debtor with respect to any Collateral; (vi) to settle, compromise or
adjust any suit, action or proceeding described in the
SECURITY AGREEMENT Page 16
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preceding clause and, in connection therewith, to give such discharges or
releases as Secured Party may deem appropriate; (vii) to assign any
trademark (along with the goodwill of the business to which any such
trademark pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as Secured Party shall in its sole
discretion determine; and (viii) generally, to sell, transfer, pledge and
make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Secured Party were the
absolute owner thereof for all purposes, and to do, at Secured Party's
option and Debtor's expense, at any time, or from time to time, all acts
and things which Secured Party deems necessary to protect, preserve or
realize upon the Collateral and the liens of Secured Party thereon and to
effect the intent of this Security Agreement, all as fully and effectively
as Debtor might do.
This power of attorney is power coupled with an interest and shall be
irrevocable until the Obligations shall have been paid in full or this
Security Agreement shall have been terminated.
(b) OTHER POWERS. Debtor also authorizes Secured Party, at any time
and from time to time, to execute, in connection with any sale provided for
in SECTION 4.04, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
(c) NO DUTY ON THE PART OF SECURED PARTY. The powers conferred on
Secured Party hereunder are solely to protect the interests of Secured Party
in the Collateral and shall not impose any duty upon Secured Party to
exercise any such powers. Secured Party shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees or agents shall
be responsible to Debtor for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct, IT BEING THE INTENT OF THE
PARTIES HERETO THAT SECURED PARTY SHALL NOT BE ACCOUNTABLE FOR ITS OWN
NEGLIGENCE.
4.04. REMEDIES. If an Event of Default shall occur and be
continuing, Secured Party may exercise, in addition to all other rights and
remedies granted to it in this Security Agreement and in any other instrument
or agreement securing, evidencing or relating to the Obligations, all rights
and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, Secured Party, without demand of performance or
other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon Debtor or
any other Person (all and each of which demands, advertisements and notices
are hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or
contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, at any exchange, broker's board or office of Secured
Party or elsewhere upon such terms and conditions as it may deem advisable
and at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. Secured Party shall have the
right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale
SECURITY AGREEMENT Page 17
<PAGE>
or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in Debtor, which right or equity is
hereby waived and released. Debtor further agrees, at Secured Party's
request, to assemble the Collateral and make it available to Secured Party at
places which Secured Party shall reasonably select, whether at Debtor's
premises or elsewhere. Secured Party shall apply the net Proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of Secured Party hereunder,
including, without limitation, reasonable attorneys' fees and disbursements,
to the payment in whole or in part of the Obligations, in such order as
Secured Party may elect, and only after such application and after the
payment by Secured Party of any other amount required by any provision of
law, need Secured Party account for the surplus, if any, to Debtor. To the
extent permitted by applicable law, Debtor waives all claims, damages and
demands it may acquire against Secured Party arising out of the exercise by
them of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least five (5) days before such sale
or other disposition. Debtor shall remain liable for any deficiency if the
Proceeds of any sale or other disposition of the Collateral are insufficient
to pay the Obligations and the fees and disbursements of any attorneys
employed by Secured Party to collect such deficiency.
4.05. INDEMNITY AND EXPENSES. (a) Debtor agrees to indemnify Secured
Party from and against any and all claims, damages, losses, liabilities,
costs and expenses of any kind (including reasonable attorneys' fees) arising
out of or resulting from this Security Agreement or the security interest
granted herein, or any of the Collateral (including, without limitation,
enforcement of this Security Agreement), EXPRESSLY INCLUDING SUCH CLAIMS,
LOSSES OR LIABILITIES ARISING OUT OF MERE NEGLIGENCE OF SECURED PARTY, except
claims, losses or liabilities resulting from Secured Party's gross negligence
or willful misconduct.
(b) Debtor will upon demand pay to Secured Party the amount of any and
all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Secured Party may incur in
connection with (i) the administration of this Security Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder or (iv) the
failure by Debtor to perform or observe any of the provisions hereof. Any
such amounts so made shall be a part of the Obligation, shall be payable upon
demand, and if not paid upon demand shall bear interest at the Default Rate
(as defined in the Notes).
ARTICLE V
MISCELLANEOUS
SECURITY AGREEMENT Page 18
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5.01. CUMULATIVE RIGHTS. All Rights of Secured Party under the Loan
Documents are cumulative of each other and of every other Right which Secured
Party may otherwise have at Law or in equity or under any other contract or
other writing for the enforcement of the security interest herein or the
collection of the Obligations. The exercise of one or more Rights shall not
prejudice or impair the concurrent or subsequent exercise of other Rights.
5.02. MODIFICATIONS; AMENDMENTS; SCHEDULES; ETC. No amendment or
waiver of any provision of this Security Agreement, and no consent to any
departure by Debtor herefrom, shall in any event be effective unless the same
shall be in writing and signed by Secured Party and Debtor, and then such
waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. Upon any change in any information
disclosed on any Schedule hereto, Debtor shall promptly prepare and deliver
to Secured Party a replacement schedule, indicating its effective date, in
form and substance satisfactory to Secured Party, and amendments to and
additional financing statements as Secured Party may require to preserve and
perfect a first priority security interest in the Collateral.
5.03. CONTINUING SECURITY INTEREST. This Security Agreement shall
create a continuing security interest in the Collateral and shall be in full
force and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Security Agreement and (ii)
the expiration or termination of the obligations of Secured Party to extend
credit to Debtor. Upon any such termination, Secured Party will, at Debtor's
expense, execute and deliver to Debtor such documents as Debtor shall
reasonably request to evidence such termination.
5.04. GOVERNING LAW; TERMS. THIS SECURITY AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. UNLESS
OTHERWISE DEFINED HEREIN OR IN THE CREDIT AGREEMENT, TERMS USED IN ARTICLE 9
OF THE UCC ARE USED HEREIN AS THEREIN DEFINED.
5.05. WAIVER OF JURY TRIAL. DEBTOR HEREBY WAIVES TRIAL BY JURY IN
ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED
TO, OR CONNECTED WITH THIS SECURITY AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
5.06. SECURED PARTY'S RIGHT TO USE AGENTS. Secured Party may
exercise its Rights under this Security Agreement through an agent,
representative, attorney or other designee.
SECURITY AGREEMENT Page 19
<PAGE>
5.07. NO INTERFERENCE, COMPENSATION OR EXPENSE. Secured Party may
exercise its Rights under this Security Agreement (a) without resistance or
interference by Debtor and (b) without payment of any rent, license fee or
compensation of any kind to Debtor.
5.08. WAIVERS OF RIGHTS INHIBITING ENFORCEMENT. Debtor waives (a)
any claim that, as to any part of the Collateral, a public sale, should the
Secured Party elect so to proceed, is, in and of itself, not a commercially
reasonable method of sale for such Collateral, (b) except as otherwise
provided in this Security Agreement, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION
OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, AND ALL OTHER
REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE WITH RESPECT TO THE
ENFORCEMENT OF SECURED PARTY'S AND ALL OTHER RIGHTS HEREUNDER and (c) all
rights of redemption, appraisal or valuation.
5.09. NOTICES AND DELIVERIES. All notices, communications and
materials to be given or delivered pursuant to this Security Agreement shall
be delivered in accordance with SECTION 7.6 of the Credit Agreement.
5.10. ENTIRE AGREEMENT. THIS SECURITY AGREEMENT, TOGETHER WITH THE
OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES.
5.11. SUCCESSORS AND ASSIGNS. All of the provisions of this
Security Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
5.12. LOAN DOCUMENT. This Security Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof.
5.13. SEVERABILITY. If any provision of this Security Agreement is
held to be illegal, invalid, or unenforceable under present or future Laws
during the term hereof, such provision shall be fully severable, this
Security Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof, and
the remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or
by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of this
Security Agreement a legal, valid, and enforceable provision as similar in
terms to the illegal, invalid, or unenforceable provision as may be possible.
SECURITY AGREEMENT Page 20
<PAGE>
5.14. OBLIGATIONS NOT AFFECTED. To the fullest extent permitted by
applicable Law, the obligations of Debtor under this Security Agreement shall
remain in full force and effect without regard to, and shall not be impaired
or affected by:
(a) any amendment or modification or addition or supplement to any Loan
Document, any instrument delivered in connection therewith or any assignment
or transfer thereof;
(b) any exercise, non-exercise, or waiver by Secured Party of any
Right, remedy, power or privilege under or in respect of, or any release of
any guaranty, any collateral or the Collateral or any part thereof provided
pursuant to, this Security Agreement or any other Loan Document;
(c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Security Agreement or any other Loan Document or
any assignment or transfer of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Debtor, or any other
Person, whether or not Debtor shall have notice or knowledge of any of the
foregoing.
5.15. COUNTERPARTS. This Security Agreement may be executed in any
number of 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.
SECURITY AGREEMENT Page 21
<PAGE>
IN WITNESS WHEREOF, Debtor and Secured Party have duly executed and
delivered this Security Agreement effective as of the date first above
written.
Address of Debtor: DEBTOR:
IWL Communications, Inc. IWL COMMUNCATIONS, INC. a Texas corporation
12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
Attention: Mr. Ric Roberson By: /s/ Richard H. Roberson
Telecopy No.: (281) 482-9144 ----------------------------------------
Name: Richard H. Roberson
--------------------------------------
Title: CFO
-------------------------------------
Address of Secured Party: SECURED PARTY:
Bank One, Texas, N.A. BANK ONE, TEXAS, N.A.
1717 Main Street
Dallas, Texas 75201
Attention: Commercial Banking By: /s/ Mark Wade
Department ----------------------------------------
Telecopy No.: (214) 290-2305 Name: Mark Wade
--------------------------------------
Title: Vice President
-------------------------------------
SECURITY AGREEMENT Page 22
<PAGE>
SCHEDULE 1
Inventory Locations
- ------------------------------------------------------------------------------
Debtor maintains the following locations where Inventory and Equipment
pledged under this Security Agreement are kept:
1.
2.
3.
SCHEDULE 1 TO SECURITY AGREEMENT Page 1
<PAGE>
SCHEDULE 2
Trade Names
- ------------------------------------------------------------------------------
The following trade names are used by Debtor:
SCHEDULE 2 TO SECURITY AGREEMENT Page 1
<PAGE>
SCHEDULE 3
Securities and Instruments; Contracts
- ------------------------------------------------------------------------------
Debtor owns or is a party to the following securities or instruments:
Debtor is a party to the following contracts:
SCHEDULE 3 TO SECURITY AGREEMENT Page 1
<PAGE>
SCHEDULE 4
Brokerage Agreements
- ------------------------------------------------------------------------------
SCHEDULE 4 TO SECURITY AGREEMENT Page 1
<PAGE>
SCHEDULE 5
Vehicles
- ------------------------------------------------------------------------------
SCHEDULE 5 TO SECURITY AGREEMENT Page 1
<PAGE>
SCHEDULE 6
Bank Accounts
- ------------------------------------------------------------------------------
SCHEDULE 6 TO SECURITY AGREEMENT Page 1
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
between
IWL COMMUNICATIONS, INC.
and
BANK ONE, TEXAS, N.A.
August 28, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
TERMS DEFINED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. . . . . . . . . . . 13
SECTION 1.3. GENDER AND NUMBER. . . . . . . . . . . . . . . . . . . . 13
SECTION 1.4. REFERENCES TO CREDIT AGREEMENT . . . . . . . . . . . . . 13
ARTICLE II
COMMITMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.1. COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.2. METHOD OF BORROWING. . . . . . . . . . . . . . . . . . . 14
SECTION 2.3. INTEREST RATE. . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.3. REVOLVING NOTE; TERM NOTE. . . . . . . . . . . . . . . . 16
SECTION 2.4. TERMINATION OF TOTAL REVOLVING COMMITMENT. . . . . . . . 16
SECTION 2.5. INTEREST RATE. . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.6. USAGE FEE. . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III
GENERAL PROVISIONS RELATED TO LOAN PAYMENTS; FEES . . . . . . . . . . . 17
SECTION 3.1. GENERAL PROVISIONS AS TO PAYMENTS. . . . . . . . . . . . 17
SECTION 3.2. OVERDUE PRINCIPAL AND INTEREST . . . . . . . . . . . . . 18
SECTION 3.3. MAXIMUM LAWFUL RATE. . . . . . . . . . . . . . . . . . . 18
SECTION 3.4. INCREASED COSTS AND LEGAL RESTRICTIONS APPLICABLE
TO TOTAL REVOLVING COMMITMENT . . . . . . . . . . . . . 18
ARTICLE IV
COLLATERAL FOR THE TOTAL REVOLVING COMMITMENTAND THE TERM LOAN. . . . . 20
SECTION 4.1. SECURITY . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.2. DOCUMENTATION. . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.3. SECURITY AGREEMENT AS SECURITY FOR THE TERM LOAN . . . . 20
ARTICLE V
CONDITIONS PRECEDENT TO ADVANCES. . . . . . . . . . . . . . . . . . . . 20
SECTION 5.1. ALL ADVANCES . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.2. CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.1. USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.2. CORPORATE EXISTENCE AND POWER. . . . . . . . . . . . . . 22
SECTION 6.3. CORPORATE AND GOVERNMENTAL AUTHORIZATION;
CONTRAVENTION . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.4. BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.5. FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . 22
SECTION 6.6. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.7. TAXES AND FILING OF TAX RETURNS. . . . . . . . . . . . . 23
SECTION 6.8. BUSINESS; COMPLIANCE . . . . . . . . . . . . . . . . . . 23
SECTION 6.9. LICENSES, PERMITS, ETC . . . . . . . . . . . . . . . . . 23
SECTION 6.10. COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . 23
SECTION 6.11. FULL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.12. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.13. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . 24
SECTION 6.14. SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.15. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VII
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 7.1. INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 7.2. FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . 25
SECTION 7.3. CONSOLIDATIONS, MERGERS, SALES OF ASSETS,
AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.4. USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.5. RIGHT OF INSPECTION; RIGHT OF AUDIT. . . . . . . . . . . 26
SECTION 7.6. LIMITATION ON DEBT . . . . . . . . . . . . . . . . . . . 26
SECTION 7.7. LIMITATION ON SALE OF PROPERTIES . . . . . . . . . . . . 27
SECTION 7.8. LIMITATIONS ON LIENS . . . . . . . . . . . . . . . . . . 27
SECTION 7.9. MAINTENANCE OF INSURANCE . . . . . . . . . . . . . . . . 27
SECTION 7.10. PAYMENT OF TAXES AND CLAIMS. . . . . . . . . . . . . . . 27
SECTION 7.11. COMPLIANCE WITH LAWS AND DOCUMENTS . . . . . . . . . . . 27
SECTION 7.12. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNITY . . . . . . . 27
SECTION 7.13. ADDITIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . 28
SECTION 7.14. QUANTITY OF DOCUMENTS. . . . . . . . . . . . . . . . . . 29
SECTION 7.15. INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 7.16. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . 29
SECTION 7.17. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 7.18. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 7.19. CHANGES IN MANAGEMENT. . . . . . . . . . . . . . . . . . 30
SECTION 7.20. REPURCHASE OF STOCK. . . . . . . . . . . . . . . . . . . 30
SECTION 7.21. ADDITIONAL SUBSIDIARIES. . . . . . . . . . . . . . . . . 30
<PAGE>
ARTICLE VIII
DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.1. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 30
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.1. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.2. NO WAIVERS . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.3. EXPENSES; INDEMNIFICATION. . . . . . . . . . . . . . . . 32
SECTION 9.4. RIGHT OF SET-OFF . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.5. AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . 33
SECTION 9.6. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.7. LIMITATION ON INTEREST . . . . . . . . . . . . . . . . . 34
SECTION 9.8. INVALID PROVISIONS . . . . . . . . . . . . . . . . . . . 34
SECTION 9.9. CONFLICT OF TERMS. . . . . . . . . . . . . . . . . . . . 34
SECTION 9.10. REVOLVING LOAN . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9.11. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . 34
SECTION 9.12. TEXAS LAW. . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 9.13. COUNTERPARTS; EFFECTIVENESS. . . . . . . . . . . . . . . 35
SECTION 9.14. NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . 35
SECTION 9.15. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . 35
SECTION 9.16. AMENDMENT AND RESTATEMENT. . . . . . . . . . . . . . . . 35
SCHEDULES AND EXHIBITS
SCHEDULE I - Debt of Borrower
SCHEDULE II - Liens of Borrower
SCHEDULE III - Subsidiaries of Borrower
EXHIBIT A - Form of Request for Advance
EXHIBIT B - Form of Borrowing Base Certificate
EXHIBIT C - Form of Compliance Certificate
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "CREDIT AGREEMENT") is
entered into as of the 28th day of August, 1997, between IWL COMMUNICATIONS,
INC., a Texas corporation ("BORROWER"), and BANK ONE, TEXAS, N.A., a national
banking association ("LENDER").
W I T N E S S E T H:
WHEREAS, Borrower and Lender entered into that certain Revolving Credit
Agreement (the "EXISTING CREDIT AGREEMENT") dated as of August 1, 1997,
whereby Lender made a revolving loan to Borrower in an amount not to exceed
$5,000,000.00 to be used by Borrower for working capital purposes and for
other general corporate purposes; and
WHEREAS, Borrower has requested that Lender make a term loan to Borrower
in the amount of $1,055,000.00 (the "TERM LOAN"), the proceeds of which are
to be used for the finance or refinance of the acquisition cost of certain
specified equipment; and
WHEREAS, Lender has agreed to amend the Existing Credit Agreement to
accommodate Borrower's request on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto amend and restate the
Existing Credit Agreement in its entirety as follows:
ARTICLE I
TERMS DEFINED
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Account" means any and all "Accounts" as that term is defined in the
Security Agreement.
"Accounts Receivable Report" has the meaning set forth in SECTION 6.1(d).
"Adjusted LIBOR Rate" shall mean on the applicable Effective Date, with
respect to a LIBOR Rate Portion, a rate per annum equal to the SUM OF (a) the
quotient of (i) the LIBOR Rate on the applicable Effective Date, divided by
(ii) the remainder of 1.00 minus the LIBOR Reserve Requirement, if any, on
the applicable Effective Date, plus (b) the FDIC Percentage in effect on the
AMENDED AND RESTATED CREDIT AGREEMENT Page 1
<PAGE>
applicable Effective Date, together with any additional impositions,
assessments, fees or surcharges that may be imposed on Lender (expressed as a
percentage), to the extent such impositions, assessments, fees or surcharges
are not reflected in the FDIC Percentage or the LIBOR Reserve Requirement and
are generally imposed on banks with capitalization and supervisory risk
factors comparable to Lender, plus (c) the LIBOR Margin.
"Advance" means (i) the advance under the Term Note on the Closing Date,
and (ii) each advance made by Lender under the Total Revolving Commitment and
evidenced by a Request for Advance submitted by Borrower to Lender pursuant
to the terms and conditions of this Credit Agreement.
"Affiliate" of any corporation shall mean any Person which, directly or
indirectly, controls or is controlled by or is under common control with such
corporation and, without limiting the generality of the foregoing, shall
include any Person which beneficially owns or holds five percent (5%) or more
of any class or series of voting securities of such corporation (or in case
of a Person which is not a corporation, five percent (5%) or more of the
equity interest) of which is beneficially owned or held by such corporation.
For the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"AGF Credit Agreement" means that certain Credit Agreement, dated August
1, 1997, by and between Borrower and Lender, pursuant to which Lender agreed,
subject to the terms and conditions therein contained, to make available to
Borrower an advised guidance facility.
"AGF Note" means any promissory note executed by Borrower pursuant to the
AGF Credit Agreement.
"Applicable Base Rate" means (a) with respect to the Revolving Note (i)
prior to the Interest Reduction Date, the Base Rate, and (ii) after the
Interest Reduction Date, the Base Rate, minus one-half of one percent (.50%),
and (b) with respect to the Term Note, the Base Rate.
"Applicable Environmental Law and Laws" has the meaning set forth in
SECTION 6.13.
"Applicable Rate" has the meaning set forth in SECTION 2.3.
"Assets" means all of the assets of any Person, real or personal, which
are included on a balance sheet of such Person prepared in accordance with
GAAP.
"Authorized Officer" means, as to any Person that is a corporation, any
of its Chairman, Vice-Chairman, President, Vice President(s), Chief Executive
Officer, Chief Financial Officer, Chief Accounting Officer or Treasurer, or
as to any other Person, if such Person is a partnership, the partnership's
general partner or other Person authorized by appropriate action to execute
the Loan
AMENDED AND RESTATED CREDIT AGREEMENT Page 2
<PAGE>
Documents or any other documents or certificates to be executed by such
Person hereunder or in connection with any Advance.
"Base Rate" means the base interest rate as announced or published by
Lender from time to time, and may not be the lowest interest rate charged by
Lender.
"Base Rate Advance" shall mean an Advance or any portion of an Advance
which bears interest computed with reference to the Applicable Base Rate.
"Base Rate Portion" shall mean that portion or portions of the Total
Revolving Commitment or the Term Loan, as applicable, which bears interest
computed with reference to the Applicable Base Rate.
"Borrower" has the meaning set forth in the first paragraph of this
Credit Agreement.
"Borrowing Base" means an amount equal to the sum of (a) eighty percent
(80%) of the combined book value of Borrower's Eligible Accounts as shown in
the monthly Borrowing Base Certificate, plus (b) the lesser of (i) fifty
percent (50%) of the combined book value of Borrower's Eligible Inventory as
shown in the monthly Borrowing Base Certificate, or (ii) $1,000,000.
"Borrowing Base Certificate" means a certificate, in the form attached
hereto as EXHIBIT B, completed in all appropriate respects and executed by an
Authorized Borrowing Officer.
"Business Day" means any day except a Saturday, Sunday or other day on
which national banks in Dallas, Texas are authorized by law to close.
"Cash Equivalents" means (a) cash and obligations issued or guaranteed by
the United States of America, (b) obligations issued or guaranteed by any
person controlled or supervised by and acting as an agency or instrumentality
of the United States of America pursuant to authority granted by the Congress
of the United States, (c) certificates of deposit issued, or banker's
acceptances drawn on and accepted by, or money market accounts or time
deposits in, commercial banks which are members of the Federal Deposit
Insurance Corporation and which have a combined capital, surplus and
undistributed profits of at least $50,000,000, (d) repurchase agreements with
any such commercial bank, or with broker-dealers or other institutions, that
are secured by obligations issued or guaranteed by the United States of
America or an agency or instrumentality thereof, (e) other money market
instruments and mutual funds, substantially all of the assets of which are
invested in any or all of the investments described in clauses (a) through
(d) above, and (f) commercial paper rated P-1 by Moody's Investors Service,
Inc. or A-1 by Standard & Poor's Corporation on the date of acquisition.
"Closing Date" means the date of this Credit Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
AMENDED AND RESTATED CREDIT AGREEMENT Page 3
<PAGE>
"Compliance Certificate" means a certificate, in the form attached hereto
as EXHIBIT C, completed in all appropriate respects and executed by an
Authorized Borrowing Officer.
"Consequential Loss" has the meaning set forth in SECTION 3.5.
"Credit Agreement" means this Credit Agreement, which amends and restates
in its entirety the Existing Credit Agreement, as the same may be amended or
restated from time to time.
"Credit Period" means the period commencing on the date of the Existing
Credit Agreement and ending on the Termination Date.
"Current Maturities" means, with respect to any Person, on any date of
calculation, the current liabilities of such Person attributable to its long
term indebtedness, determined in accordance with GAAP.
"Current Ratio" means, for any date of determination, the ratio of (a)
Borrower's current assets as shown on the balance sheet of Borrower prepared
in accordance with GAAP, to (b) Borrower's current liabilities as shown on
the balance sheet of Borrower prepared in accordance with GAAP.
"Debt" means, for any Person, without duplication, (a) all obligations of
such Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c) all other
indebtedness (including capitalized lease obligations) of such Person on
which interest charges are customarily paid or accrued, (d) all contingent
liabilities of such Person, (e) the unfunded or unreimbursed portion of all
letters of credit issued for the account of such Person, and (f) all
liability of such Person as a general partner or joint venturer for
obligations of the nature described in (a) through (e) preceding.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar
laws, domestic or foreign, including but not limited to those in Title 11 of
the United States Code, affecting the rights or remedies of creditors
generally, as in effect from time to time.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in SECTION 3.2.
"Distribution" by any Person, means (a) with respect to any stock issued
by such Person or any partnership or joint venture interest of such person,
the retirement, redemption, repurchase, or other acquisition for value of
such stock, partnership or joint venture interest, (b) the declaration or
payment (without duplication) of any dividend or other distribution, whether
monetary or in kind, on or with respect to any stock, partnership or joint
venture of any Person, and (c) any other payment or distribution of assets of
a similar nature or in respect of an equity investment.
AMENDED AND RESTATED CREDIT AGREEMENT Page 4
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"EBITDA" means, for any period, determined in accordance with GAAP for
Borrower, the sum of net income before taxes, plus depreciation, plus
amortization, plus interest expense, plus any other non-cash expenses, each
as deducted in determining such net income before taxes.
"Effective Date" has the meaning set forth in SECTION 2.3.
"Eligible Accounts" means, at the time of any determination thereof, each
Account as to which the following requirements have been fulfilled to the
satisfaction of Lender:
(a) Borrower has lawful and absolute title to such Account;
(b) Such Account is a valid, legally enforceable obligation of the
Person who is obligated under such Account (the "ACCOUNT DEBTOR") for goods
or services previously delivered or rendered to such Person by Borrower;
(c) There has been excluded from such Account any portion that is
subject to any dispute, offset, counterclaim or other claim or defense on
the part of the account debtor or to any claim on the part of the account
debtor denying liability under such Account;
(d) Borrower has the full and unqualified right to assign and grant a
security interest in such Account to Lender as security for the
Obligations;
(e) Such Account is payable in dollars and is evidenced by an invoice
rendered to the account debtor and such Account is not evidenced by any
chattel paper, promissory note or other instrument;
(f) Such Account is subject to a fully perfected first priority
security interest in favor of Lender, pursuant to the Loan Documents, prior
to the rights of, and enforceable as such against, any other Person
(including holders of a purchase money security interest);
(g) Such Account is not subject to any lien in favor of any Person
other than the lien of Lender pursuant to the Loan Documents;
(h) Such Account arose from a transaction in the ordinary course of
business of Borrower;
(i) Such Account has not been due and payable for more than ninety
(90) days from the invoice date;
(j) No account debtor in respect of such Account is (i) primarily
conducting business in any jurisdiction located outside the United States
of America, (ii) any foreign government, (iii) an Affiliate of Borrower,
(iv) the subject of a proceeding under any Debtor Relief Laws, or (v) the
United States of America or any state;
AMENDED AND RESTATED CREDIT AGREEMENT Page 5
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(k) No account debtor in respect of such Account is an account debtor
on other Accounts of Borrower and either (i) more than ten percent (10%) of
all such other Accounts have been due and payable for more than ninety (90)
days, or (ii) after including such Account as an Eligible Account, the
aggregate of account debtor's Accounts is more than twenty-five percent
(25%) of all Eligible Accounts; and
(l) Lender has not determined in good faith that there is a
legitimate concern with respect to the timing or collection of such
Account.
"Eligible Inventory" means, at the time of any determination thereof,
each item of raw material or finished goods inventory as to which the
following requirements have been fulfilled to the satisfaction of Lender:
(a) Borrower has lawful and absolute title to such item of inventory;
(b) Borrower has the full and unqualified right to assign and grant a
security interest in such item of inventory to Lender as security for the
Obligations;
(c) Such item of inventory is subject to a fully perfected first
priority security interest in favor of Lender pursuant to the Loan
Documents, prior to the rights of, and enforceable as against, any other
Person (including holders of a purchase money security interest); and
(d) Such item of inventory is not subject to any lien in favor of any
Person other than the lien of Lender pursuant to the Loan Documents.
The following items shall be excluded from Eligible Inventory:
(e) Work in process inventory or any overhead that might be allocable
to work in process inventory;
(f) Any inventory in the possession of a bailee, warehouseman,
consignee or similar third party;
(g) Any inventory that is damaged, defective, unmerchantable,
outdated or obsolete;
(h) Any inventory subject to a title vesting clause under a contract
with the United States of America or any department or agency thereof;
(i) Any inventory produced in violation of the Fair Labor Standards
Act and subject to the so-called "hot-goods" provisions contained in Title
25 U.S.C. 215(a)(i);
AMENDED AND RESTATED CREDIT AGREEMENT Page 6
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(j) Any merchandise sold which has been returned by the customer for
whatever reason and is not immediately saleable for a price approximately
equal to or greater than the original sales price of such merchandise;
(k) Any inventory not located in a jurisdiction in which Bank has
filed an appropriate financing statement;
(l) Any inventory that is in transit for any reason; and
(m) Any inventory reasonably rejected by Lender as unsuitable.
"Employee Plan" means at any time an employee benefit plan as defined in
Section 3(3) of ERISA that is now or was previously maintained, sponsored or
contributed to by Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all regulations issued pursuant
thereto.
"Event of Default" has the meaning set forth in SECTION 8.1.
"Existing Credit Agreement" has the meaning set forth in the Recitals on
Page 1 hereof.
"Existing Equipment" means the equipment described on Schedule I attached
hereto and incorporated herein by this reference.
"FDIC Percentage" shall mean, on any day, the net assessment rate
(expressed as a percentage rounded to the next highest 1/100 of 1%), if any,
which is in effect on such day (under the regulations of the Federal Deposit
Insurance Corporation or any successor) for determining the assessments paid
by Lender to the Federal Deposit Insurance Corporation (or any successor) for
insuring Eurocurrency deposits made in dollars at Lender's principal offices.
Each determination of said percentage made by Lender shall, in the absence of
manifest error, be binding and conclusive.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding
Business Day, and (b) if no such rate is so published on such next succeeding
Business Day, the Federal Funds Rate for such day shall be the average rate
quoted to Lender on such day on such transactions from three Federal funds
brokers of recognized standing.
"Fixed Charge Ratio" means, for any date of determination, the ratio of
(a) EBITDA for the immediately preceding four (4) calendar quarters, to (b)
the sum of (i) Current Maturities, plus (ii) Interest Expense, plus (iii)
Lease Expense, each for the immediately preceding four (4) calendar quarters.
AMENDED AND RESTATED CREDIT AGREEMENT Page 7
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"GAAP" means generally accepted accounting principles consistently
applied as in effect at the time of application of the provisions hereof.
"Governmental Authority" means any government, any state or other
political subdivision thereof, or any Person exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantor" means each of Spacelink I, Spacelink II, IWL Ltd, and any
other Person executing a Guaranty of the Obligations in favor of the Lender.
"Guaranty" means a continuing guaranty of payment of the Obligations
(subject to any limitations, reductions in liability, or termination thereof
therein contained), executed by each Guarantor in favor of Lender, as it may
from time to time be renewed, extended, amended or restated.
"Intangible Assets" means those assets of Borrower which are (a) deferred
assets, other than prepaid insurance and prepaid taxes, (b) patents,
copyrights, trademarks, trade names, franchises, goodwill, experimental
expenses and other similar assets which would be classified as intangible
assets on the balance sheet of Borrower, prepared in accordance with GAAP,
and (c) unamortized debt discount and expense (excluding any genuine
commitment or other loan fees paid by Borrower to obtain secured financing) .
"Interest Adjustment Date" shall mean the earlier of either the last day
of an Interest Period or the Termination Date.
"Interest Expense" means, for any period, the interest expense which is
required to be shown as such on the financial statements of Borrower,
prepared in accordance with GAAP.
"Interest Period" shall mean, with respect to a LIBOR Rate Portion of
either the Revolving Note or the Term Note, as applicable, a period selected
by Borrower of 30, 60 or 90 days, commencing on the Effective Date of any
such LIBOR Rate Portion; provided that any Interest Period ending on a date
later than the maturity date for the Note under which the applicable LIBOR
Rate Portion was made shall be deemed to end on such maturity date.
"Interest Reduction Date" means the date on which Borrower delivers to
Lender Borrower's audited financial statements for Borrower's 1997 fiscal
year; provided, that, (a) no Event of Default has occurred and is continuing,
and (b) Lender, in its sole discretion, approves a reduction in the interest
rate hereunder due to, among other reasons, a risk reduction of the Total
Revolving Commitment.
"Inventory Report" has the meaning set forth in SECTION 6.1(D).
"IWL Ltd" means IWL Communications Ltd., a Subsidiary of Borrower.
AMENDED AND RESTATED CREDIT AGREEMENT Page 8
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"Lease Expense" means, for any period, the lease expense under all
Operating Leases for Borrower.
"Lender" has the meaning set forth in the first paragraph of this Credit
Agreement.
"LIBOR Margin" means (a) with respect to the Revolving Note, (i) prior to
the Interest Reduction Date, 2.40%, and (ii) on and after the Interest
Reduction Date, 2.00%, and (b) with respect to the Term Note, 2.40%.
"LIBOR Rate" shall mean, with respect to a LIBOR Rate Portion for the
Interest Period applicable thereto, the rate of interest determined by Lender
at which deposits in dollars for the relevant Interest Period and comparable
in amount to the LIBOR Rate Portion in question are offered based on
information presented on the Telerate Screen as of 11:00 A.M. (London time)
on the day which is two (2) Business Days prior to the first day of such
Interest Period; PROVIDED, that if at least two such offered rates appear on
the Telerate Screen in respect of such Interest Period, the arithmetic mean
of all such rates (as determined by Lender) will be the rate used; PROVIDED,
FURTHER, that if Telerate ceases to provide LIBOR quotations, such rate shall
be the average rate of interest determined by Lender at which deposits in
U.S. dollars are offered for the relevant Interest Period by Lender (or its
successor) to banks with combined capital and surplus in excess of
$500,000,000 in the London interbank market as of 11:00 A.M. (London time) on
the applicable Effective Date.
"LIBOR Rate Advance" shall mean an Advance or any portion of an Advance
which bears interest computed with reference to the Adjusted LIBOR Rate.
"LIBOR Rate Portion" shall mean that portion or portions of the Total
Revolving Commitment or the Term Note, as applicable, which bears interest
computed with reference to the Adjusted LIBOR Rate.
"LIBOR Reserve Requirement" shall mean, on any day, that percentage
(expressed as a decimal fraction) which is in effect on such date, if any, as
provided by the Federal Reserve System for determining the maximum reserve
requirements generally applicable to financial institutions regulated by the
Federal Reserve Board comparable in size and type to Lender (including,
without limitation, basic supplemental, marginal and emergency reserves)
under Regulation D with respect to "Eurocurrency liabilities" as currently
defined in Regulation D, or under any similar or successor regulation with
respect to Eurocurrency liabilities or Eurocurrency funding (or, if reserves
for Eurocurrency liabilities are not separately stated in such regulations,
the other applicable category of liabilities which includes deposits by
reference to which the interest rate on a LIBOR Rate Portion is determined).
Each determination by Lender of the LIBOR Reserve Requirement, shall, in the
absence of manifest error, be conclusive and binding.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Credit Agreement, a Person shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
AMENDED AND RESTATED CREDIT AGREEMENT Page 9
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"Loan Documents" means (a) this Credit Agreement, (b) the Revolving Note,
(c) the Term Note, (d) the Security Documents, (e) each Guaranty, (f) all
other certificates, documents or instruments delivered in connection with
this Credit Agreement, the Revolving Note, the Term Note, or the Security
Documents, as such may hereafter be renewed, amended, restated or
supplemented from time to time, and (g) any and all future renewals,
amendments, restatements or supplements to, all or any part of the foregoing.
"Margin Regulations" mean Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"Margin Stock" means "margin stock" as defined in Regulation U of the
Margin Regulations. "Material Adverse Effect" means with respect to a
Person (including, without limitation, Borrower), an effect on the business,
financial condition, operations or assets of such Person, which does or could
materially and adversely affect Borrower's ability to pay and perform the
Obligations.
"Maximum Lawful Rate" means the maximum rate (or, if the context so
permits or requires, an amount calculated at such rate) of interest which, at
the time in question would not cause the interest charged on the portion of
the Advances owed to Lender at such time to exceed the maximum amount which
Lender would be allowed to contract for, charge, take, reserve, or receive
under applicable law after taking into account, to the extent required by
applicable law, any and all relevant payments or charges under the Loan
Documents. To the extent the laws of the State of Texas are applicable for
purposes of determining the "Maximum Lawful Rate," such term shall mean the
"indicated rate ceiling" from time to time in effect under Article 1.04,
Title 79, Revised Civil Statutes of Texas, 1925, as amended, or, if permitted
by applicable law and effective upon the giving of the notices required by
such Article 1.04 (or effective upon any other date otherwise specified by
applicable law), the "quarterly ceiling" or "annualized ceiling" from time to
time in effect under such Article 1.04, whichever Lender shall elect to
substitute for the "indicated rate ceiling," and VICE VERSA, each such
substitution to have the effect provided in such Article 1.04, and Lender
shall be entitled to make such election from time to time and one or more
times and, without notice to Borrower, to leave any such substitute rate in
effect for subsequent periods in accordance with subsection (h)(1) of such
Article 1.04.
"Minimum Notice Requirement" has the meaning set forth in SECTION 2.3.
"Note" means each of (i) the Revolving Note and (ii) the Term Note.
"Obligations" means all present and future indebtedness, obligations and
liabilities, and all renewals and extensions thereof, or any part thereof, of
Borrower, to Lender arising pursuant to the Loan Documents, and all interest
accrued thereon and costs, expenses, and attorneys' fees incurred in the
enforcement or collection thereof, regardless of whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several.
AMENDED AND RESTATED CREDIT AGREEMENT Page 10
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"Operating Lease" means any operating lease, as defined in the Financial
Accounting Standard Board Statement of Financial Accounting Standards No. 13
dated November, 1976, or otherwise in accordance with GAAP.
"PBGC" means the Pension Benefit Guaranty Corporation, or its successors.
"Pension Plan" means any Employee Plan that is now or was previously
covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code.
"Permitted Disposition" means any sale of stock of Borrower in connection
with (a) an initial public offering, and (b) any stock option plan approved
by Borrower's board of directors in accordance with sound business judgment
and so long as any such plan does not require any fundings or stock purchases
by Borrower.
"Permitted Liens" means:
(a) Liens and encumbrances in favor of Lender;
(b) Liens for taxes, assessments or other governmental charges incurred
in the ordinary course of business and not yet past due or being contested in
good faith by appropriate proceedings and with proper reserves therefor
maintained in accordance with GAAP;
(c) Liens not delinquent created by statute in connection with worker's
compensation, unemployment insurance, social security and similar statutory
obligations;
(d) Liens of mechanics, materialmen, carriers, warehousemen or other
like statutory or common law liens securing obligations incurred in good
faith in the ordinary course of business that are not yet due and payable or
that are being contested in good faith by appropriate proceedings and with
proper reserves therefor maintained in accordance with GAAP;
(e) encumbrances consisting of easements, rights of way, zoning
restrictions or other similar restrictions on the use of real property, none
of which materially impairs the use of such property by Borrower or any
Subsidiary in the operation of the business for which it is used and none of
which is violated in any material respect by any existing or proposed
structure or land use; and
(f) Liens on furniture, fixtures and equipment for purchase money
financing (including loans and leases) hereafter existing.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Regulatory Change" means the adoption after the date hereof of any
applicable law, rule or regulation, or any
AMENDED AND RESTATED CREDIT AGREEMENT Page 11
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change after the date hereof in any applicable law, rule or regulation, or
any change after the date hereof in the interpretation or administration
thereof by any Governmental Authority charged with the administration thereof.
"Reporting Date" means each March 31, June 30, September 30 and December
31, during the Credit Period.
"Request for Advance" has the meaning set forth in SECTION 2.2.
"Revolving Note" means that certain promissory note, dated as of August
1, 1997, executed by Borrower in favor of Lender evidencing the Total
Revolving Commitment and the Advances.
"RCRA" has the meaning set forth in SECTION 6.13.
"SARA" has the meaning set forth in SECTION 6.13.
"Security Agreement" means that certain Security Agreement, dated as of
August 1, 1997, by and between Borrower and Lender, pursuant to which
Borrower has granted a fist lien security interest to Lender in all of its
equipment, machinery, accounts receivable, inventory and other assets now or
hereafter owned by Borrower as security for payment of the Obligations.
"Security Documents" means (i) the Security Agreement, (ii) all other
documents or instruments granting a Lien in favor of Lender as collateral for
the Advances, (iii) all financing statements related thereto, and all
modifications, renewals or extensions thereof, and (iv) any documents
executed in modification, renewal, extension or replacement of any of the
foregoing.
"Spacelink I" means Spacelink Systems, Inc., a Subsidiary of Borrower.
"Spacelink II" means Spacelink Systems FSC, Inc., a Subsidiary of
Borrower.
"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions
(including that of a general partner) are at the time directly or indirectly
owned, collectively, by Borrower and any Subsidiaries of Borrower. The term
Subsidiaries shall include, without limitation, all entities set forth in
SCHEDULE III attached hereto, and Subsidiaries of Subsidiaries (and so on).
"Tangible Net Worth" means, as of any date, the total shareholder's
equity (including capital stock, additional paid-in capital and retained
earnings) which would appear on a balance sheet of Borrower prepared as of
such date in accordance with GAAP LESS the aggregate book value of Intangible
Assets shown on such balance sheet.
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or other charges of
any nature whatsoever, from time to time or at any time imposed by law
AMENDED AND RESTATED CREDIT AGREEMENT Page 12
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or any federal, state or local governmental agency, other than Taxes imposed
upon Lender with respect to any of its franchises, businesses, income or
profits.
"Telerate Screen" means the display designated as Screen 3750 on the
Telerate System or such other screen on the Telerate System as shall display
the London interbank offered rates for deposits in U.S. dollars quoted by
selected banks.
"Term Loan" has the meaning set forth in the Recitals on Page 1 hereof.
"Term Loan Maturity Date" means September 1, 2001.
"Term Note" means that certain Promissory Note dated of even date
herewith in the original principal amount of the Term Loan executed by
Borrower and payable to the order of Lender, which Term Note evidences the
Term Loan.
"Termination Date" means October 31, 1998.
"Total Revolving Commitment" has the meaning set forth in SECTION 2.1.
"Usage Fee" has the meaning set forth in SECTION 2.6.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared on a
consolidated basis with Borrower's Subsidiaries in accordance with GAAP as in
effect from time to time, applied on a basis consistent with the most recent
audited financial statements of Borrower.
SECTION 1.3. GENDER AND NUMBER. Words of any gender used in this
Credit Agreement shall be held and construed to include any other gender and
words in the singular number shall be held to include the plural, and vice
versa, unless the context requires otherwise.
SECTION 1.4. REFERENCES TO CREDIT AGREEMENT. Use of the words
"herein", "hereof", "hereinabove", and the like are and shall be construed as
references to the Existing Credit Agreement, as amended and restated hereby.
All references in this Credit Agreement to Schedules, Exhibits, Articles,
Section, subsections, paragraphs and subparagraphs refer to the respective
subdivisions of the Existing Credit Agreement, as amended and restated
hereby, unless such reference specifically identifies another document.
ARTICLE II
COMMITMENT
SECTION 2.1. COMMITMENT.
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(a) TOTAL REVOLVING COMMITMENT. During the Credit Period, Lender
agrees, subject to ARTICLE V and the other terms and conditions set forth in
this Credit Agreement, to make Advances to Borrower from time to time for
working capital and other general corporate purposes in an aggregate amount
not to exceed the lesser of (i) $5,000,000.00 in the aggregate at any one
time outstanding (the "TOTAL REVOLVING COMMITMENT") or (ii) the Borrowing
Base. Each Advance under the Total Revolving Commitment shall be in the
principal amount of not less than $100,000.00, with respect to Base Rate
Advances, and $500,000, with respect to LIBOR Rate Advances. Subject to the
foregoing limitations, Borrower may borrow under this SECTION 2.1(a), repay
or prepay the Revolving Note and reborrow under this SECTION 2.1(a) at any
time during the Credit Period.
(b) TERM LOAN. Lender agrees, subject to ARTICLE V and the other terms
and conditions set forth in this Credit Agreement, to make the Term Loan to
Borrower in one Advance on the Closing Date. The proceeds of the Term Loan
shall be used to refinance or finance the acquisition cost of the Existing
Equipment and for no other purpose. Borrower understands and agrees that as
a condition to making the Advance of the Term Loan, Lender shall be entitled
to receive all invoices, purchase orders, bills of sale or other evidence
satisfactory to Lender of the purchase of the Existing Equipment for the
purchase price set forth in Schedule I attached hereto.
SECTION 2.2. METHOD OF BORROWING.
Borrower shall be entitled to obtain Advances under the Total Revolving
Commitment from Lender pursuant to SECTION 2.1 in the following manner:
(a) BASE RATE ADVANCES. In the case of any Advance which shall
initially bear interest with respect to the Applicable Base Rate, Borrower,
through an Authorized Officer, shall give Lender on the date of any such
proposed Advance, a Request for Advance specifying its desire to borrow such
Advance hereunder. Notice shall be given to Lender prior to 1:00 p.m.,
Dallas, Texas time. Such Request for Advance shall be accompanied by the
documents required to be delivered pursuant to ARTICLE V.
(b) LIBOR RATE ADVANCES. In the case of any Advance which shall
initially bear interest with respect to the LIBOR Rate, Borrower, through an
Authorized Officer, shall give Lender at least three (3) Business Days prior
to the date of any such proposed Advance, a Request for Advance specifying
its desire to borrow such Advance hereunder. Notice shall be given to Lender
prior to 10:00 a.m., Dallas, Texas time, in order for such Business Day to
count toward the minimum number of Business Days required. LIBOR Rate
Advances shall in all cases be subject to availability and to SECTION 3.4
hereof. For LIBOR Rate Advances, the Request for Advance shall specify the
requested funding date, which shall be a Business Day, the amount of the
proposed Advance to be made by Lender, the Interest Period selected (provided
that no such Interest Period shall extend past the Termination Date and shall
be accompanied by the documents required to be delivered pursuant to ARTICLE
V. Such Advance shall be in an amount not less than Five Hundred Thousand
and No/100 Dollars ($500,000.00).
SECTION 2.3. INTEREST RATE.
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(a) Interest on the Advances shall accrue at a rate per annum equal
to the lesser of (i) at Borrower's option, the Applicable Base Rate or the
Adjusted LIBOR Rate (the "APPLICABLE RATE"), or (ii) the Maximum Lawful Rate.
Without notice to Borrower or anyone else, the Applicable Base Rate and the
Maximum Lawful Rate shall each automatically fluctuate upward and downward as
and in the amount by which the Applicable Base Rate and Maximum Lawful Rate,
respectively, fluctuate, subject always to limitations contained in this
Credit Agreement.
(b) Upon at least three (3) Business Days prior written notice to
Lender ("MINIMUM NOTICE REQUIREMENT"), Borrower may through an Authorized
Officer, on any Interest Adjustment Date (other than the Termination Date
with respect to the Total Revolving Commitment and other than the Term Loan
Maturity Date with respect to the Term Loan), convert amounts of any LIBOR
Rate Portion into a Base Rate Portion with interest accruing thereon, with
reference to the Base Rate Portion, as provided in SECTION 2.2 above.
(c) Upon satisfaction by Borrower of the Minimum Notice
Requirement, and subject to the conditions provided in this Credit Agreement
or the Note, Borrower may through an Authorized Officer, on any date prior to
(i) the Termination Date with respect to the Total Revolving Commitment and
(ii) the Term Loan Maturity Date with respect to the Term Loan, convert
amounts of not less than Five Hundred Thousand and No/100 Dollars
($500,000.00) in the aggregate on the same date of any Base Rate Portion into
a LIBOR Rate Portion with interest accruing thereon with reference to the
Adjusted LIBOR Rate as provided in SECTION 2.2 above, for the Interest Period
selected in such notice.
(d) To the extent Borrower has not made an effective election under
and in accordance with SUBPARAGRAPHS (A) OR (B) above (including, without
limitation, at the expiration of an Interest Period), the Applicable Rate
shall be the rate specified pursuant to the provisions contained herein for a
Base Rate Portion. If Borrower has failed to make such election at the end
of an Interest Period, Lender shall be deemed to have made a Base Rate
Portion in the amount, and in replacement, of the LIBOR Rate Portion then
maturing.
Each notice of a LIBOR Rate election by Borrower must be given by an
Authorized Officer, must satisfy the Minimum Notice Requirement and shall
include the following: (i) Borrower's election of the Adjusted LIBOR Rate;
(ii) Borrower's choice of an Interest Period during which the Adjusted LIBOR
Rate will apply; (iii) Borrower's election of the effective date (the
"EFFECTIVE DATE") on which the LIBOR Rate Portion shall begin; (iv) the
amount of outstanding loan principal, which for any LIBOR Rate Portion shall
not be less than Five Hundred Thousand and No/100 Dollars ($500,000.00), to
which the Adjusted LIBOR Rate shall apply; and (v) whether such election
shall be with respect to the Total Revolving Commitment or the Term Loan.
Borrower shall give notice of such election to Lender.
Borrower's election to convert to a LIBOR Rate Portion is subject to the
following conditions: (1) the Interest Period shall be limited to a period
commencing on the Effective Date and ending on a date 30, 60 or 90 days later
elected by Borrower in its notice to Lender; (2) Borrower's written notice of
an election shall be received by Lender in time to satisfy the Minimum Notice
Requirement; (3) the last day of the Interest Period will not be subsequent
in time
AMENDED AND RESTATED CREDIT AGREEMENT Page 15
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to (a) the Termination Date with respect to the Total Revolving Commitment
and (b) the Term Loan Maturity Date with respect to the Term Loan; (4) in the
case of a continuation of a LIBOR Rate Portion, the Interest Period
applicable after such continuation shall commence on the last day of the
preceding Interest Period; (5) no LIBOR Rate election shall be made if Lender
notifies Borrower that it has determined by reason of circumstances affecting
the interbank Eurodollar market that either adequate or reasonable means do
not exist for ascertaining the Adjusted LIBOR Rate for any Interest Period,
or it becomes impracticable for Lender to obtain funds by purchasing U.S.
dollars in the interbank Eurodollar market, or if Lender determines that the
Adjusted LIBOR Rate will not adequately or fairly reflect the costs to Lender
of maintaining the applicable LIBOR Rate Portion at such rate, or if as a
result of any Regulatory Change, it shall become unlawful or impossible for
Lender to maintain any such LIBOR Rate election; and (6) no LIBOR Rate
election shall be made after the occurrence and during the continuance of an
Event of Default.
If, on or after the Effective Date, any Regulatory Change shall make it
unlawful or impossible for Lender (or its Eurodollar lending office) to make,
maintain or fund LIBOR Rate Portions or if Lender determines that it may not
lawfully continue to maintain and fund any of its outstanding LIBOR Rate
Portions to maturity, Borrower shall immediately prepay in full the then
outstanding principal amount of Lender's LIBOR Rate Portions, together with
accrued interest thereon.
Borrower shall indemnify Lender against any Consequential Loss which
Lender may sustain or incur as a consequence of Borrower's failure to make a
payment on the date such payment is due hereunder or the payment, prepayment
or conversion of any LIBOR Rate Portion hereunder on a day other than an
Interest Adjustment Date.
Borrower shall also indemnify Lender against and reimburse Lender for
increased costs to Lender, as a result of any Regulatory Change, in the
maintaining of any LIBOR Rate Portions. All payments made pursuant to this
paragraph shall be made free and clear, without reduction for, or account of,
any present or future taxes or other levies of any nature, excluding income,
franchises, business, and profits taxes.
SECTION 2.3. REVOLVING NOTE; TERM NOTE. The Advances under the Total
Revolving Commitment shall be evidenced by the Revolving Note; the Advance
under the Term Loan shall be evidenced by the Term Note.
SECTION 2.4. TERMINATION OF TOTAL REVOLVING COMMITMENT. The Total
Revolving Commitment shall terminate on October 31, 1998, and, after such
date, Lender shall have no obligation with respect to the Total Revolving
Commitment under this ARTICLE II.
SECTION 2.5. INTEREST RATE.
(a) TOTAL REVOLVING COMMITMENT. Interest shall accrue on the
outstanding principal balance of the Revolving Note at a rate per annum equal
to the lesser of (a) at Borrower's option, (i) the Applicable Base Rate in
effect from day to day, or (ii) the Adjusted LIBOR Rate, or (b) the
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Maximum Lawful Rate, each change in the Applicable Base Rate to be effective
without notice to Borrower on the effective date of each such change,
PROVIDED THAT in no event shall the rate charged hereunder or under the
Revolving Note exceed the Maximum Lawful Rate. Interest on the Revolving Note
shall be due and payable on or before the first (1st) day of each calendar
month during the Credit Period, commencing with the first (1st) day of the
month immediately following the initial Advance and continuing on the first
(1st) day of each successive month thereafter until maturity. Interest shall
be computed based on the number of actual days elapsed assuming that each
calendar year consisted of 360 days.
(b) TERM LOAN. Interest shall accrue on the outstanding principal
balance of the Term Note at a rate per annum equal to the lesser of (a) at
Borrower's option, (i) the Applicable Base Rate in effect from day to day, or
(ii) the Adjusted LIBOR Rate, or (b) the Maximum Lawful Rate, each change in
the Applicable Base Rate to be effective without notice to Borrower on the
effective date of each such change, PROVIDED THAT in no event shall the rate
charged hereunder or under the Term Note exceed the Maximum Lawful Rate.
Commencing on October 1, 1997 and continuing on the first (1st) day of each
successive calendar month thereafter until the Term Note is paid in full,
Borrower shall(i) pay Lender an accrued but unpaid interest owing under the
Term Note and (ii) make payment of principal under the Term Note to Lender in
the amount of Twenty-One Thousand Nine Hundred Seventy-Nine and 17/100
Dollars ($21,979.17). Borrower shall pay to Lender the entire outstanding
principal balance of the Term Note, together with all accrued but unpaid
interest thereon and all other amounts owing with respect thereto, on the
Term Loan Maturity Date Interest shall be computed based on the number of
actual days elapsed assuming that each calendar year consisted of 360 days.
SECTION 2.6. USAGE FEE. Borrower shall pay to Lender a usage fee at a
rate per annum equal to the product of (a) three-eighths of one percent
(.375%), multiplied by (b) the average daily unused portion of the Total
Revolving Commitment. Such average daily unused portion shall be computed
based on the number of actual days elapsed assuming each calendar year
consisted of 360 days. Such Usage Fee shall be due and payable on each
January 1, April 1, July 1 and October 1 of each year during the Credit
Period and, upon maturity of the Revolving Note.
ARTICLE III
GENERAL PROVISIONS RELATED TO LOAN PAYMENTS; FEES
SECTION 3.1. GENERAL PROVISIONS AS TO PAYMENTS. Borrower shall make
each payment of principal of, and interest on, the Advances and all fees
payable hereunder not later than 10:00 a.m. (Dallas, Texas time) on the date
when due, in immediately available funds in Dallas, Texas, to Lender at its
address referred to in SECTION 9.1. Upon payment by Borrower to Lender of
any amounts due and owing pursuant to this Credit Agreement, Borrower shall
be discharged from all obligations with respect to such payment. Whenever
any payment of principal of, or interest on, the Advances or of fees shall be
due on a day which is not a Business Day, the date for payment thereof shall
be extended to the next succeeding Business Day. Prior to the occurrence of
an Event of Default, all payments made on the Advances shall be applied first
to accrued but unpaid interest
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and then to principal. After the occurrence of an Event of Default, all
payments made on the Advances shall be applied in such manner as Lender shall
determine in its sole discretion.
SECTION 3.2. OVERDUE PRINCIPAL AND INTEREST. Any overdue principal of
and, to the extent permitted by law, overdue interest on any Advance (after
giving effect to all grace periods) shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the lesser of the
Maximum Lawful Rate or the sum of four percent (4%) plus the Base Rate (the
"DEFAULT RATE").
SECTION 3.3. MAXIMUM LAWFUL RATE. If at any time the Applicable Rate
(the "contract rate") is limited to the Maximum Lawful Rate, any subsequent
reductions in the contract rate shall not reduce the rate of interest on the
affected Advance below the Maximum Lawful Rate until the total amount of
interest accrued equals the amount of interest which would have accrued if
the contract rate had at all times been in effect. In the event that at
maturity (stated or by acceleration), or at final payment of the Note, the
total amount of interest paid or accrued on such Note is less than the amount
of interest which would have accrued if the contract rate had at all times
been in effect with respect thereto, then at such time, to the extent
permitted by law, Borrower shall pay to the holder of the Note an amount
equal to the difference between (a) the lesser of the amount of interest
which would have accrued if the contract rate had at all times been in effect
and the amount of interest which would have accrued if the Maximum Lawful
Rate had at all times been in effect, and (b) the amount of interest actually
paid on such Note.
SECTION 3.4. INCREASED COSTS AND LEGAL RESTRICTIONS APPLICABLE TO TOTAL
REVOLVING COMMITMENT. If, after the date hereof, any Regulatory Change shall
occur which:
(a) imposes, modifies or deems applicable any reserve, special deposit,
compensatory loan, deposit insurance, capital adequacy, minimum capital,
capital ratio or similar requirement against all or any assets held by,
deposits or accounts with, credit extended by or to, or commitments to extend
credit or any other acquisition of funds by Lender which affects financial
transactions entered into by Lender similar to the transactions contemplated
by this Credit Agreement, or imposes on Lender any other condition affecting
the maintaining its Total Revolving Commitment; or
(b) subjects Lender to, or causes the termination or reduction of a
previously granted exemption with respect to, any Taxes with respect to
maintaining its Total Revolving Commitment;
and the result of any of the foregoing events is to increase the cost to
Lender of maintaining the Total Revolving Commitment or to reduce the amount
of any sums received or receivable by it under this Credit Agreement or any
other Loan Document, or to reduce the rate of return on Lender's equity in
connection with this Credit Agreement, as the case may be, then, in any such
case, Borrower shall, within five (5) days of demand by Lender pay such
additional amount or amounts as will compensate Lender for any such
additional cost, reduced benefit, reduced amount received or reduced rate of
return. Lender shall use its best efforts (consistent with its internal
policy and legal and regulatory restrictions) to avoid such additional cost,
reduced benefit, reduced amount received or reduced rate of return; provided,
however, that the failure of Lender to take any action shall not limit or
otherwise affect the obligations of Borrower under this SECTION 3.4. If
Lender sustains or incurs any additional
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cost, reduced benefit, reduced amount received or reduced rate of return, its
demand for payment pursuant to this SECTION 3.4 shall include a written
statement of the nature and amounts thereof, which statement shall be
presumed correct and prima facie evidence of the amounts thereof. Lender
will exercise reasonable efforts to provide such statement promptly after
learning of the basis therefore, but the failure of Lender to act promptly
shall not limit or otherwise affect the obligations of Borrower under this
SECTION 3.4.
SECTION 3.5. PREPAYMENTS OF ADVANCES; REDUCTION OF TOTAL REVOLVING
COMMITMENT.
(a) In the event that the outstanding principal balance of the
Revolving Note exceeds the Borrowing Base, Borrower shall immediately make a
payment to Lender in an amount sufficient to reduce the outstanding principal
balance under the Revolving Note to an amount which would be equal to or less
than the Borrowing Base.
(b) Borrower may terminate the Total Revolving Commitment at any
time and from time to time provided that notice of such termination must be
received by Lender by 10:00 a.m. Dallas, Texas, time on the first Business
Day preceding the effective date of such termination; provided, that upon
termination of the Total Revolving Commitment, any amounts outstanding under
any AGF Note shall be due and payable in full.
(c) Borrower shall be entitled to reduce the Total Revolving
Commitment provided that Borrower prepays an amount sufficient to reduce the
outstanding principal balance under the Revolving Note to an amount equal to
or less than the reduced amount of the Total Revolving Commitment. Any such
reduction shall be in a minimum amount of at least One Million and No/100
Dollars ($1,000,000.00), and in whole multiples of One Million and No/100
Dollars ($1,000,000.00) thereafter; provided, that Borrower may not reduce
the Total Revolving Commitment below $2,000,000 unless Borrower has elected
to terminate the Total Revolving Commitment in full. Borrower shall also pay
to Lender any Consequential Losses incurred by Lender as a result of such
reduction in the Total Revolving Commitment.
(d) If Borrower shall prepay any LIBOR Rate Portion prior to the
expiration of its applicable Interest Period, Borrower shall pay Lender a
prepayment fee in an amount equal to the consequential loss (the
"CONSEQUENTIAL LOSS") incurred by Lender as a result of any such prepayment,
such Consequential Loss to be an amount equal to any losses, costs or
expenses incurred by Lender by virtue of such prepayment, which such loss,
cost or expense shall include that which Lender may sustain or incur in
liquidating or employing deposits from Lender or third parties acquired to
effect, fund or maintain any such LIBOR Rate Portion. Such loss or expense
shall include, without limitation, (i) any expense or penalty incurred by
Lender in redepositing such principal amount, plus (ii) any "breakage" fees
that Lender is required to pay by reason of the early breakage of any
customary LIBOR or other contract entered into by Lender in connection with
providing funds for such LIBOR Rate Portion. Any prepayment fee required to
be paid by Borrower pursuant to this SECTION 3.5 or any other provisions of
this Credit Agreement or of the other Loan Documents in connection with the
prepayment of any LIBOR Rate Portion shall be due and payable whether such
prepayment is being made voluntarily or involuntarily, including, without
limitation,
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as a result of an acceleration of sums due under LIBOR Rate Portions or any
part thereof due to an Event of Default.
ARTICLE IV
COLLATERAL FOR THE TOTAL REVOLVING COMMITMENT
AND THE TERM LOAN
SECTION 4.1. SECURITY. The Total Revolving Commitment, the Term Loan,
the Revolving Note and the Term Note shall be secured by (a) a first priority
security interest in all of the inventory, accounts, equipment (including,
without limitation, the Existing Equipment) and other personal property of
Borrower, and (b) the joint and several guaranty of payment of the
Obligations made by each Subsidiary of Borrower.
SECTION 4.2. DOCUMENTATION. In order to evidence the security for the
Obligations set forth in SECTION 4.1, Borrower shall:
(a) execute and deliver to Lender the Security Agreement, pursuant to
which Borrower shall grant to Lender a first priority security interest in
all of the personal property of Borrower;
(b) execute and deliver all necessary financing statements and such
other documents, instruments and agreements as Lender shall deem reasonably
necessary or appropriate to create and perfect in favor of Lender a first and
prior Lien in and to all of the personal property of Borrower; and
(c) cause each Guarantor to execute and deliver a Guaranty.
SECTION 4.3. SECURITY AGREEMENT AS SECURITY FOR THE TERM LOAN.
Borrower and Lender each acknowledge and agree that the term Obligations as
defined in the Security Agreement includes the Term Loan and that the Term
Loan is secured by the Security Agreement. At the time when the Security
Agreement was executed by Borrower, Lender and Borrower contemplated that (i)
Lender would make additional loans to Borrower, and (ii) such loans would be
secured by the Security Agreement. Lender and Borrower agree that the Term
Loan is such a Loan.
ARTICLE V
CONDITIONS PRECEDENT TO ADVANCES
The obligation of Lender to make an Advance hereunder is subject to the
satisfaction of the following conditions:
SECTION 5.1. ALL ADVANCES. In the case of each Advance:
(a) timely receipt by Lender of a Request for Advance;
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(b) immediately before and after giving effect to such Advance, no
Default shall have occurred and be continuing and the making of any Advance
shall not cause a Default;
(c) the representations and warranties contained in this Credit
Agreement and in the other Loan Documents shall be true and correct in all
material respects on and as of the date of such Advance subject to any
changes in such representations and warranties not prohibited in this Credit
Agreement, except that all representations and warranties that speak as of a
particular date shall only be required on the date of each such Advance to be
true and correct in all material respects as of the date to which such
representation or warranty speaks and not as of any subsequent date; and
(d) a written certificate of Borrower as of the date of such Advance as
to (i) the solvency of Borrower (determined in accordance with SECTION
6.5(b)) and (ii) the intended use of the proceeds of such Advance.
Each Advance hereunder shall be deemed to be a representation and
warranty by Borrower on the date of such Advance as to the facts specified in
SECTIONS 5.1(b) AND (c).
SECTION 5.2. CLOSING DATE. On or before the Closing Date:
(a) satisfaction of all conditions contained in SECTION 5.1;
(b) receipt by Lender of this Credit Agreement, duly executed by
Borrower;
(c) receipt by Lender of the Term Note, duly executed by Borrower;
(d) receipt by Lender of an opinion of counsel for Borrower, favorably
opining as to the due organization and existence of Borrower, the
enforceability of each of the Loan Documents and otherwise being in form and
substance satisfactory to Lender; and
(e) receipt by Lender of all resolutions, certificates or documents it
may request relating to the existence of Borrower, the corporate authority
for the execution and validity of this Credit Agreement and the other Loan
Documents and any other matters relevant hereto, all in form and substance
satisfactory to Lender.
The documents, certificates and opinions referred to in this SECTION 5.2
shall be delivered to Lender no later than the Closing Date. The
certificates, opinions and documents referred to in this SECTION 5.2 shall,
where Lender deems appropriate, be dated the Closing Date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants that:
SECTION 6.1. USE OF PROCEEDS. Borrower will use the proceeds of the
Advances for the purposes set forth in SECTION 2.1 hereof. Borrower will
not, directly or indirectly, use any of the proceeds of the Advances for the
purpose of purchasing or carrying, or retiring any Debt which was originally
incurred to purchase or carry, any "margin stock" as defined in the Margin
Regulations, or to purchase or carry any "security that is publicly-held"
within the meaning of Regulation T of the Board of Governors of the Federal
Reserve System, or otherwise take or permit any action which would involve a
violation of such Margin Regulations or any other regulation of such Board of
Governors. The Advances are not secured, directly or indirectly, in whole or
in part, by collateral that includes any "margin stock" within the meaning of
the Margin Regulations. Borrower will not engage principally, or as one of
its important activities, in the business of extending credit for the purpose
of purchasing or carrying any "margin stock" within the meaning of the Margin
Regulations.
SECTION 6.2. CORPORATE EXISTENCE AND POWER. Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
state of its organization, and has all power and authority necessary to carry
on its business as now conducted.
SECTION 6.3. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance of this Credit Agreement and the
other Loan Documents by Borrower are within its corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable
law or regulation (including, without limitation, the Margin Regulations) or
of the articles of incorporation or bylaws of Borrower or of any material
judgment, injunction, order, decree or material agreement binding upon
Borrower or its assets, or result in the creation or imposition of any Lien
on any asset of Borrower, except as contemplated thereby.
SECTION 6.4. BINDING EFFECT. This Credit Agreement constitutes a valid
and binding agreement of Borrower. The Note and each other Loan Document
when executed and delivered in accordance with this Credit Agreement, will
constitute a valid and binding obligation of Borrower, each enforceable in
accordance with its terms except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors rights
generally, and (b) the availability of equitable remedies may be limited by
equitable principles of general applicability.
SECTION 6.5. FINANCIAL INFORMATION.
(a) The current financial statements of Borrower and all the other
financial reports and information of Borrower that have been delivered to
Lender are true and correct in all material respects as of the date of such
current financial statements and other reports and information.
(b) Except as disclosed in writing to Lender prior to the Closing
Date, since the later of March 31, 1997, or the date of the most recent
quarterly financial statements delivered to Lender, there has been no
material adverse change in the business, financial position or results of
AMENDED AND RESTATED CREDIT AGREEMENT Page 22
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operations of Borrower; and, there exists no condition, event or occurrence
that could reasonably be expected to have a Material Adverse Effect on
Borrower.
SECTION 6.5. LITIGATION. There is no action, suit or proceeding
pending against, or to the knowledge of Borrower, threatened against or
affecting Borrower before any court or arbitrator, any governmental body,
agency or official which could reasonably be anticipated to have a Material
Adverse Effect on Borrower, or which could in any manner draw into question
the validity of the Loan Documents.
SECTION 6.7. TAXES AND FILING OF TAX RETURNS. Borrower has filed all
tax returns required to have been filed and has paid or has made adequate
provision for payment of all Taxes shown to be due and payable on such
returns, including interest and penalties, and all other Taxes which are
payable by Borrower, to the extent the same have become due and payable.
Borrower has no knowledge of any proposed Tax assessment against it other
than customary ad valorem taxes or other Taxes to become due in the normal
course of business, and Borrower has made adequate provisions for all Tax
liabilities. No income tax liability of Borrower has been asserted by the
Internal Revenue Service for Taxes in excess of those already paid.
SECTION 6.8. BUSINESS; COMPLIANCE. Borrower has performed and abided
by all obligations required to be performed by it under all agreements to
which it is a party, if its failure to so perform would have a Material
Adverse Effect.
SECTION 6.9. LICENSES, PERMITS, ETC. Borrower possesses such valid
franchises, certificates, licenses, permits, consents, authorizations,
exemptions and orders of tribunals as are necessary to carry on its business
as now being conducted and as proposed to be conducted, and which if not
possessed by Borrower would have a Material Adverse Effect.
SECTION 6.10. COMPLIANCE WITH LAW. The business and operations of
Borrower have been and are being conducted in accordance with all applicable
laws, rules and regulations of all tribunals, other than violations which
could not (either individually or collectively) have a Material Adverse
Effect.
SECTION 6.11. FULL DISCLOSURE. No written information heretofore
furnished by Borrower or, to the knowledge of Borrower, on behalf of Borrower
to Lender for the purposes of this Credit Agreement or any transaction
contemplated hereby, contained and no written information hereafter furnished
by Borrower to Lender for purposes of this Credit Agreement or any
transaction contemplated hereby will contain, any untrue statement of a
material fact or omit a material fact necessary to make the statements
therein not materially misleading in light of the facts and circumstances
existing at the time.
SECTION 6.12. FISCAL YEAR. Borrower's fiscal year ends on June 30th of
each year.
SECTION 6.13. ENVIRONMENTAL MATTERS. Except as otherwise disclosed to
Lender, Borrower (i) does not know of any environmental condition or
circumstance, such as the presence of any hazardous substance (as defined in
SECTION 6.12), adversely affecting the properties or
AMENDED AND RESTATED CREDIT AGREEMENT Page 23
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operation of Borrower, (ii) has not received any report of a violation by
Borrower of any Applicable Environmental Law, or (iii) do not know that
Borrower is under any obligation to remedy any violation of any Applicable
Environmental Law.
SECTION 6.14. SUBSIDIARIES. Borrower has no Subsidiaries other than
those set forth in SCHEDULE III attached hereto. Borrower's ownership
percentages in such Subsidiaries is as set forth in SCHEDULE III.
SECTION 6.15. ERISA.
(a) Each Employee Plan has been maintained and administered in
substantial compliance with the applicable requirements of the Code and ERISA
except to the extent that the failure to have done so would not have a
Material Adverse Effect on Borrower. No circumstances exist with respect to
any Employee Plan that could have a Material Adverse Effect on Borrower.
(b) With respect to each Pension Plan, (i) no accumulated funding
deficiency (within the meaning of Section 412(a) of the Code), whether waived
or unwaived, exists; (ii) the present value of accrued benefits (based on the
most recent actuarial valuation prepared for each such plan, if any, in
accordance with ongoing assumptions) does not exceed the current value of
plan assets allocable to such benefits by a material amount; (iii) no
reportable event (within the meaning of Section 4043 of ERISA) other than
purchases and sales of securities from a plan trustee as reported in the
audited financial statements of such plan has occurred; (iv) no uncorrected
prohibited transactions (within the meaning of Section 4975 of the Code)
exist; (v) to the extent such plan is covered by PBGC, no material liability
to the PBGC exists and no circumstances exist that could reasonably be
expected to result in any such liability; and (vi) no material withdrawal
liability (within the meaning of Section 4201(a) of ERISA) exists and no
circumstances exist that could reasonably be expected to result in any such
liability; except, with respect to each of the foregoing clauses in this
subparagraph (b), where such existence, excess or occurrence, as applicable,
does not have and could not have a Material Adverse Effect on Borrower.
(c) As of the date hereof, Borrower has no obligation under any
Employee Plan to provide post-employment health care benefits to any of its
current or former employees that could have a Material Adverse Effect on
Borrower, except as may be required by Section 4980B of the Code.
ARTICLE VII
COVENANTS
Borrower agrees that so long as Lender has any obligation under ARTICLE
II hereof or any amount payable under the Note remains unpaid:
SECTION 7.1. INFORMATION. Borrower will deliver, or cause to be
delivered, to Lender:
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(a) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of Borrower, an audited balance sheet of Borrower as
of the end of such fiscal year and the related audited statements of income and
changes in cash flow for such fiscal year, all reported by Borrower in
accordance with GAAP, and audited by an independent public accountant acceptable
to Lender;
(b) as soon as available and in any event within forty-five (45) days
after the end of each quarter in each fiscal year of Borrower, an unaudited
balance sheet of Borrower as of the end of such quarter and the related
unaudited statements of income and cash flow for such quarter, all reported by
Borrower in accordance with GAAP, subject to year-end audit adjustment;
(c) simultaneously with the delivery of each set of financial statements
referred to in SECTIONS 7.1(a) AND (b), a Compliance Certificate of Borrower as
to compliance with the financial covenants contained in SECTIONS 7.2 signed by
an Authorized Officer of Borrower;
(d) as soon as available and in any event within thirty (30) days after
the end of each calendar month, (i) a Borrowing Base Certificate, dated as of
the last day of the immediately preceding month, (ii) a report showing, as of
such date, the Accounts of Borrower and the Eligible Accounts (the "ACCOUNTS
RECEIVABLE REPORT") in such detail as shall be acceptable to Lender and the
aging of all of such Accounts in categories of current, thirty (30) days past
due, sixty-one (61) or more days past due and ninety (90) or more days past due,
and (iii) a report showing, as of such date, the inventory of Borrower and the
Eligible Inventory (the "INVENTORY REPORT") in such detail as shall be
acceptable to Lender (each such report shall be certified as being complete and
correct in all material respect by the chief financial officer of Borrower or
another authorized officer or representative of such party reasonably acceptable
to Lender);
(e) as soon as available, any and all public filings and any reports or
other information delivered to Borrower's shareholders generally as such; and
(f) from time to time such additional financial statements and financial
information regarding the financial position or business of Borrower as Lender
may reasonably request.
SECTION 7.2. FINANCIAL COVENANTS. Borrower covenants and agrees that:
(a) MINIMUM TANGIBLE NET WORTH. In no event shall Borrower permit its
Tangible Net Worth to be less than the sum of (i) $3,200,000.00, plus (ii) the
proceeds from any equity offering by Borrower, plus (iii) as of the end of each
fiscal quarter commencing with September 30, 1997, the product of (A) fifty
percent (50%) times (B) the net income of Borrower for the immediately preceding
fiscal quarter; provided, that in no case shall such sum be less than the
minimum Tangible Net Worth calculated hereunder for the previous quarter.
(b) DEBT TO WORTH RATIO. In no event shall Borrower permit the ratio of
its Debt to Tangible Net Worth to be in excess of 1.65 to 1.
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(c) FIXED CHARGE RATIO. In no event shall Borrower permit its Fixed
Charge Ratio to be less than 1.25 to 1.
(d) CURRENT RATIO. In no event shall Borrower permit its Current Ratio to
be less than 1.15 to 1.
(e) RESTRICTION ON DISTRIBUTIONS. Borrower shall not declare, make or
incur any liability to make any Distribution.
SECTION 7.3. CONSOLIDATIONS, MERGERS, SALES OF ASSETS, AND MAINTENANCE.
Neither Borrower nor any Subsidiary of Borrower will (a) consolidate or merge
with or into any other Person unless immediately following such consolidation or
merger no Default will have occurred and Borrower is the surviving entity, (b)
sell, lease, abandon or otherwise transfer all or any material part of
Borrower's or any Subsidiary's assets to any other Person except in the ordinary
course of business, (c) terminate, or fail to maintain, its existence, or (d)
terminate, or fail to maintain, its good standing and qualification to transact
business in all jurisdictions where the failure to maintain its good standing or
qualification to transact business could reasonably be expected to have a
Material Adverse Effect.
SECTION 7.4. USE OF PROCEEDS. Borrower will use the proceeds of the
Advances solely for the purposes represented in this Credit Agreement and shall
not use such proceeds, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any Margin Stock
and none of such proceeds will be used in violation of applicable law
(including, without limitation, the Margin Regulations).
SECTION 7.5. RIGHT OF INSPECTION; RIGHT OF AUDIT. Borrower will permit
any officer, employee or agent of Lender, upon reasonable notice (a) to visit
and inspect any of the assets of Borrower and each Subsidiary, (b) to examine
Borrower's and each Subsidiary's books of record and accounts and take copies
and extracts therefrom, (c) to discuss the affairs, finances and accounts of
Borrower and each Subsidiary with Borrower's and each Subsidiary's officers,
accountants and auditors, and (d) to conduct or have conducted at Lender's
expense an audit of Borrower's inventory and accounts receivable.
SECTION 7.6. LIMITATION ON DEBT. Neither Borrower nor any Subsidiary
shall incur any Debt, except for (a) the Obligations, (b) trade payables or
trade letters of credit incurred in the ordinary course of business, (c) the
Debt described on SCHEDULE I attached hereto and any refinancings or extensions
of such Debt so long as the amount of any such Debt is not increased by any such
refinancing or extension, (d) purchase money Debt, (e) capital lease
obligations, and (f) Debt between and among Borrower and its Subsidiaries
(subject, however to the limitation contained in SECTION 7.15).
SECTION 7.7. LIMITATION ON SALE OF PROPERTIES. Neither Borrower nor any
Subsidiary shall sell, assign, convey, exchange, lease or otherwise dispose of
any of its properties, rights, assets or business, whether now owned or
hereafter acquired, except (a) in the ordinary course of its
AMENDED AND RESTATED CREDIT AGREEMENT Page 26
<PAGE>
business, and (b) obsolete or worn out property, or equipment sold in
contemplation of the acquisition of replacement equipment of at least equal
value or utility.
SECTION 7.8. LIMITATIONS ON LIENS. Neither Borrower nor any Subsidiary
shall create, incur, assume or suffer to exist any Lien upon any of its assets
other than Liens existing as of the Closing Date and described in SCHEDULE II
and Permitted Liens.
SECTION 7.9. MAINTENANCE OF INSURANCE. Borrower and each Subsidiary will
at all times maintain or cause to be maintained insurance covering such risks as
are customarily carried by businesses similarly situated including, without
limitation, the following: (a) worker's compensation insurance; (b) employer's
liability insurance; (c) comprehensive general public liability and property
damage insurance in respect of all activities in which Borrower or any
Subsidiary might incur personal liability for the death or injury of an employee
or third person, or damage to or destruction of another's property; (d)
insurance against loss or damage by fire, lightning, hail, tornado, explosion
and other similar risk; (e) comprehensive automobile liability insurance, and
(f) business interruption insurance; PROVIDED that any worker's compensation,
similar insurance required by applicable law. Borrower shall deliver to Lender
each insurance policy or certificates evidencing the policies carried by
Borrower or any Subsidiary which show, among other things, the name of the
insurer, the amount of coverage, the risks insured against, and such other
related information as Lender may reasonably request.
SECTION 7.10. PAYMENT OF TAXES AND CLAIMS. Borrower and each Subsidiary
will pay (a) all Taxes imposed upon it or any of its assets or with respect to
any of its franchises, businesses, income or profits before any material penalty
or interest accrues thereon and (b) all material claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or might become a Lien on any
of its assets; provided, however, no payment of Taxes or claims shall be
required if (i) the amount, applicability or validity thereof is currently being
contested in good faith by appropriate action promptly initiated and diligently
conducted in accordance with good business practices and no material part of the
property or assets of Borrower or any Subsidiary are subject to levy or
execution, (ii) Borrower or the applicable Subsidiary, as required in accordance
with GAAP, shall have set aside on its books reserves (segregated to the extent
required by GAAP) deemed by it to be adequate with respect thereto, and (iii)
Borrower has notified Lender of such circumstances, in detail reasonably
satisfactory to Lender.
SECTION 7.11. COMPLIANCE WITH LAWS AND DOCUMENTS. Neither Borrower nor
any Subsidiary will directly or indirectly, violate the provisions of any laws,
its organizational documents or any agreement to which it is a party, if such
violation, alone or when combined with all other such violations, could
reasonably be expected to have a Material Adverse Effect.
SECTION 7.12. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNITY. Borrower and
each Subsidiary agree to promptly pay and discharge when due all debts, claims,
liabilities and obligations with respect to any clean-up measures necessary for
it to comply with Applicable Environmental Laws affecting it. Borrower hereby
indemnifies and agrees to defend and hold Lender and its successors and assigns
harmless from and against any and all claims, demands, causes of action, loss,
AMENDED AND RESTATED CREDIT AGREEMENT Page 27
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damage, liabilities, costs and expenses (including reasonable attorneys' fees
and court costs) of any and every kind or character, known or unknown, fixed or
contingent, asserted against or incurred by Lender at any time and from time to
time including, without limitation, those asserted or arising subsequent to the
payment or other satisfaction of the Note, by reason of, arising out of or
related in any way to Lender's entering into this Credit Agreement and the
transactions herein contemplated, INCLUDING MATTERS ARISING OUT OF THE ORDINARY
NEGLIGENCE OF LENDER (WHETHER SOLE, CONTRIBUTORY, COMPARATIVE OR OTHERWISE), BUT
EXCLUDING MATTERS ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
LENDER. It shall not be a defense to the covenant of Borrower to indemnify that
the act, omission, event or circumstance did not constitute a violation of any
Applicable Environmental Law at the time of its existence or occurrence. The
terms "HAZARDOUS SUBSTANCE" and "RELEASE" shall have the meanings specified in
the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), and the terms
"SOLID WASTE" and "DISPOSED" shall have the meanings specified in the Resource
Conservation and Recovery Act of 1976 ("RCRA"); provided, to the extent that any
other applicable laws of the United States of America or political subdivision
thereof establish a meaning for "hazardous substance," "release," "solid waste,"
or "disposed" which is broader than that specified in either SARA or RCRA, such
broader meaning shall apply. As used in this Credit Agreement, "APPLICABLE
ENVIRONMENTAL LAW" shall mean and include the singular, and "APPLICABLE
ENVIRONMENTAL LAWS" shall mean and include the collective aggregate of the
following: Any law, statute, ordinance, rule, regulation, order or
determination of any governmental authority or any board of fire underwriters
(or other body exercising similar functions), or any restrictive covenant or
deed restriction (recorded or otherwise) affecting Borrower pertaining to
health, safety or the environment, including, without limitation, all applicable
flood disaster laws and health, safety and environmental laws and regulations
pertaining to health, safety or the environment, including without limitation,
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 ("CERCLA"), the Resource Conservation and Recovery Act of 1976, the
Superfund Amendments and Reauthorization Act of 1986, the Occupational Safety
and Health Act, the Texas Water Code, the Texas Solid Waste Disposal Act, the
Texas Workers' Compensation Laws, and any federal, state or municipal laws,
ordinances, regulations or law which may now or hereafter require removal of
asbestos or other hazardous wastes from any property of Borrower or any
Subsidiary or impose any liability on Lender related to asbestos or other
hazardous wastes in any property of Borrower or any Subsidiary. The provisions
of this SECTION 7.12 shall survive the repayment of the Note. In the event of
the transfer of the Note or any portion thereof, Lender or any prior holder of
the Note and any participants shall continue to be benefitted by this indemnity
and agreement with respect to the period of such holding of the Note.
SECTION 7.13. ADDITIONAL DOCUMENTS. Borrower shall execute and deliver or
cause to be executed and delivered such other and further instruments or
documents as in the judgment of Lender may be required to better effectuate the
transactions contemplated herein.
SECTION 7.14. QUANTITY OF DOCUMENTS. All certificates, opinions, reports
and documents to be delivered from time to time hereunder shall be in such
number of counterparts as Lender may reasonably request.
AMENDED AND RESTATED CREDIT AGREEMENT Page 28
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SECTION 7.15. INVESTMENTS. Neither Borrower nor any Subsidiary will,
directly or indirectly, make any loans, advances, extensions of credit,
guarantees in favor of or capital contributions to, make any investment in,
purchase any stock or securities of, or interests in, any Person, or incur Debt
to finance the acquisition of any Person or all or a material part of the assets
of any Person, except (a) investments by Borrower in, or Debt funded by Borrower
to, any Subsidiary listed in SCHEDULE III attached hereto, which investment and
Debt shall be limited, however, to an aggregate amount equal to the investments
and Debt existing as of the Closing Date plus $250,000.00, (b) investments in
Cash Equivalents, (c) travel advances to employees of Borrower or any Subsidiary
not to exceed $20,000.00 in the aggregate, and (d) accounts receivable incurred
in the ordinary course of business.
SECTION 7.16. TRANSACTIONS WITH AFFILIATES. Except with respect to a
transaction permitted under SECTION 7.3, 7.6, AND 7.15, Borrower will not engage
in any material transaction with an Affiliate unless such transaction is as
reasonably favorable to Borrower as could be obtained in an arm's length
transaction with an unaffiliated Person in accordance with prevailing industry
customs and practices.
SECTION 7.17. FISCAL YEAR. Neither Borrower nor any Subsidiary will
change its fiscal year.
SECTION 7.18. ERISA.
(a) Borrower shall, and shall cause each member of its Controlled
Group (as that term is defined in the Code) to, maintain and administer any
Employee Plan in accordance with the applicable requirements of the Code and
ERISA except to the extent that the failure to do so would not have a Material
Adverse Effect on Borrower. Borrower shall not permit or suffer to exist any
circumstances with respect to any Employee Plan that could have a Material
Adverse Effect on Borrower.
(b) With respect to any Pension Plan, Borrower shall not (i) permit
any accumulated funding deficiency (within the meaning of Section 412(a) of the
Code), whether waived or unwaived, to exist; (ii) permit the present value of
accrued benefits (based on the most recent actuarial valuation prepared for each
such plan, if any, in accordance with ongoing actuarial assumptions) to exceed
the current value of plan assets allocable to such benefits by a material
amount; (iii) permit any reportable event (within the meaning of Section 4043 of
ERISA) to occur, other than purchases and sales of securities from a plan
trustee as reported in the audited financial statements of such plan;
(iv) permit a prohibited transaction (within the meaning of Section 4975 of the
Code) to occur; (v) incur any material liability to the PBGC; or (vi) incur any
material withdrawal liability (within the meaning of Section 4201(a) of ERISA);
except, with respect to each of the foregoing clauses in this subparagraph (b),
where such existence, excess or occurrence, as applicable, does not have or
could not have a Material Adverse Effect on Borrower.
(c) Borrower shall not incur a material obligation to provide
post-employment health care benefits to any of its current or former employees
that could have a Material Adverse
AMENDED AND RESTATED CREDIT AGREEMENT Page 29
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Effect on Borrower, except as may be required by Section 4980B of the Code or
otherwise required by law.
SECTION 7.19. CHANGES IN MANAGEMENT. Borrower shall not voluntarily
change its chief executive officer, chief financial officer or president without
the prior written consent of Lender.
SECTION 7.20. REPURCHASE OF STOCK. Borrower shall not purchase any of its
own stock without the prior written consent of Lender, except to the extent any
holder of any stock options may choose to pay for shares by tendering shares.
SECTION 7.21. ADDITIONAL SUBSIDIARIES. Borrower shall not create,
purchase or otherwise establish any additional Subsidiary without the prior
written consent of Lender. Borrower acknowledges and agrees that if any such
additional Subsidiary is created, purchased or otherwise established, such
Subsidiary shall become a Guarantor hereunder.
ARTICLE VIII
DEFAULTS AND REMEDIES
SECTION 8.1. EVENTS OF DEFAULT. If one or more of the following events
(collectively "EVENTS OF DEFAULT" and individually an "EVENT OF DEFAULT") shall
have occurred and be continuing:
(a) Borrower shall fail to pay when due any principal of or interest on
either Note or any monetary amount due under this Credit Agreement or any other
Loan Document and such failure continues for ten (10) days after written notice
thereof has been given to Borrower by Lender;
(b) any covenant, agreement or condition contained in this Credit
Agreement or in any other Loan Document is not fully and timely performed,
observed or kept in all material respects, and the continuation of such failure
for twenty (20) days after written notice thereof has been given to Borrower by
Lender;
(c) any representation, warranty, certification or statement made or
deemed to have been made by Borrower in this Credit Agreement or by Borrower or
any other Person in any certificate, financial statement or other document
delivered pursuant to this Credit Agreement, including, without limitation, any
other Loan Document, shall prove to have been incorrect in any material respect
when made;
(d) any event or condition shall occur and continue unremedied or unwaived
for a period beyond any applicable cure period provided pursuant to the terms of
any Debt of Borrower in excess of $100,000.00, which entitles (or, with the
giving of notice or lapse of time or both, would entitle) the holder of any such
Debt to accelerate the maturity thereof;
(e) Borrower shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or
AMENDED AND RESTATED CREDIT AGREEMENT Page 30
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other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, or shall consent to any such relief or
to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to
pay its debts as they become due, or shall take any corporate action to
authorize any of the foregoing;
(f) an involuntary case or other proceeding shall be commenced against
Borrower seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) days; or an order for relief
shall be entered against Borrower under the federal bankruptcy laws as now or
hereafter in effect;
(g) one (1) or more final judgments or orders for the payment of money in
an aggregate amount outstanding at any time in excess of $100,000 shall be
rendered against Borrower and such judgment or order (i) shall continue
unsatisfied and unstayed (unless bonded with a supersedeas bond at least equal
to such judgment or order) for a period of thirty (30) days or (ii) is not fully
paid and satisfied at least ten (10) days prior to the date on which any of its
assets may be lawfully sold to satisfy such judgment or order;
(h) one (1) or more judgments or orders for the payment of money shall be
rendered against Borrower, whether or not otherwise bonded or stayed, which has
a Material Adverse Effect;
(i) the sale, pledge, encumbrance, assignment or transfer, voluntarily or
involuntarily, of any interest in Borrower (if any such entity is not a natural
person but is a corporation, partnership, trust or other legal entity), without
the prior written consent of Lender, except for Permitted Dispositions; or
(j) the occurrence of a default or an event of default under the AGF
Credit Agreement or any AGF Note;
then, and in every such event, Lender may without presentment, notice or demand
(unless expressly provided for herein) of any kind (including, without
limitation, notice of intention to accelerate and acceleration), all of which
are hereby waived, (w) terminate the Total Revolving Commitment and it shall
thereupon terminate, and (x) take such other actions as may be permitted by the
Loan Documents including, declaring the Note (together with accrued interest
thereon) to be, and the Note shall thereupon become, immediately due and
payable; PROVIDED THAT in the case of any of the Events of Default specified in
SECTION 8.1(e) or (f), without any notice to Borrower or any other act by
Lender, the Total Revolving Commitment shall thereupon terminate and the Note
(together with accrued interest thereon) shall become immediately due and
payable.
Nothing herein or in any other Loan Document shall operate or be construed
to add on or make cumulative any cure or grace periods specified in any of the
Loan Documents.
AMENDED AND RESTATED CREDIT AGREEMENT Page 31
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telecopy or
similar writing), except for any telephone notices as specifically provided for
herein, may be personally served or sent by telecopier, mail or the express mail
service of the United States Postal Service, Federal Express or other equivalent
overnight or expedited delivery service, and (a) if given by personal service or
telecopier (confirmed by telephone), it shall be deemed to have been given upon
receipt; (b) if sent by telecopier without telephone confirmation, it shall be
deemed to have been given twenty-four (24) hours after being given; (c) if sent
by mail, it shall be deemed to have been given upon the earlier of (i) actual
receipt, or (ii) three (3) Business Days after deposit in a depository of the
United States Postal Service, first class mail, postage prepaid; (d) if sent by
Federal Express, the express mail service of the United States Postal Service or
other equivalent overnight or expedited delivery service, it shall be deemed
given upon the earlier of (i) actual receipt or (ii) twenty-four (24) hours
after delivery to such overnight or expedited delivery service, delivery charges
prepaid, and properly addressed to Borrower or Lender; provided that notices to
Lender under ARTICLE II and ARTICLE VIII shall not be effective until received.
For purposes hereof, the address of the parties to this Credit Agreement shall
be as set forth on the signature page of this Credit Agreement. Any party may,
by proper written notice hereunder to the other parties, change the address to
which notices shall thereafter be sent to it. The provisions of this
SECTION 9.1 shall control over any conflicting contractual notice provisions
contained in the Loan Documents.
SECTION 9.2. NO WAIVERS. No failure or delay by Lender in exercising any
right, power or privilege hereunder or under the Note or other Loan Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law or in
any of the other Loan Documents.
SECTION 9.3. EXPENSES; INDEMNIFICATION. (a) Borrower shall pay all
out-of-pocket expenses of Lender, including all fees and disbursements of
counsel for Lender, in connection with the preparation of this Credit Agreement,
the other Loan Documents, and, if applicable, the recordation of the Loan
Documents (provided, that Lender has agreed to pay $4,000 of the aggregate fees
of its counsel in connection with the documentation of all loans to Borrower by
Lender), any waiver or consent hereunder or any amendment hereof or any Default
or alleged Default hereunder, and, if an Event of Default occurs, Borrower shall
pay all out-of-pocket expenses incurred by Lender, including fees and
disbursements of counsel in connection with such Event of Default and collection
and other enforcement proceedings resulting therefrom, fees of auditors and
consultants incurred in connection therewith and investigation expenses incurred
by Lender in connection therewith.
AMENDED AND RESTATED CREDIT AGREEMENT Page 32
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(b) Borrower agrees to indemnify Lender and hold Lender harmless from and
against any and all liabilities, losses, damages, costs and expenses of any kind
(including, without limitation, all fees and disbursements of counsel for Lender
in connection with any investigative, administrative or judicial proceeding,
whether or not Lender shall be designated a party thereto) which may be incurred
by Lender, relating to or arising out of this Credit Agreement or any actual or
proposed use of proceeds of Advances hereunder; PROVIDED THAT LENDER SHALL NOT
HAVE THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR ITS OWN GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, IT BEING THE INTENTION HEREBY THAT LENDER SHALL BE
INDEMNIFIED FOR THE CONSEQUENCES OF ITS NEGLIGENCE (WHETHER SOLE, CONTRIBUTORY,
COMPARATIVE OR OTHERWISE).
SECTION 9.4. RIGHT OF SET-OFF. (a) Upon the occurrence and during the
continuance of any Event of Default, Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by Lender to or for
the credit or the account of Borrower against any and all of the obligations of
Borrower now or hereafter existing under this Credit Agreement and the Note held
by Lender, irrespective of whether or not Lender shall have made any demand
under this Credit Agreement or the Note, unless such demand is required by the
other terms of this Credit Agreement or the Note. Lender agrees promptly to
notify Borrower after any such setoff and application made by Lender, provided
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of Lender under this SECTION 9.4(a) are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which Lender may have.
(b) Borrower agrees, to the fullest extent it may effectively do so under
applicable law, that any holder of a participation in the Note may exercise
rights of setoff or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of Borrower in the amount of such participation.
SECTION 9.5. AMENDMENTS AND WAIVERS. Any provision of this Credit
Agreement, the Note or the other Loan Documents may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by Borrower and
Lender.
SECTION 9.6. SURVIVAL. All representations, warranties and covenants
made by Borrower herein or in any certificate or other instrument delivered by
it or in its behalf under the Loan Documents shall be considered to have been
relied upon by Lender and shall survive the delivery to Lender of such Loan
Documents or the extension of the Advances (or any part thereof), regardless of
any investigation made by or on behalf of Lender, but shall terminate upon
payment in full of the Obligations and the termination of any obligation of
Lender to make any future Advances.
SECTION 9.7. LIMITATION ON INTEREST. Regardless of any provision
contained in the Loan Documents, Lender shall never be entitled to receive,
collect, or apply, as interest on the Advances, any amount in excess of the
Maximum Lawful Rate, and in the event Lender ever receives, collects or applies
as interest any such excess, such amount which would be deemed
AMENDED AND RESTATED CREDIT AGREEMENT Page 33
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excessive interest shall be deemed a partial prepayment of principal and
treated hereunder as such; and if the Advances are paid in full, any
remaining excess shall promptly be paid to Borrower. In determining whether
or not the interest paid or payable under any specific contingency exceeds
the Maximum Lawful Rate, Lender shall, to the extent permitted under
applicable law, (a) characterize any nonprincipal payment as an expense, fee
or premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof and (c) amortize, prorate, allocate and spread, in equal
parts, the total amount of the interest throughout the entire contemplated
term of the Note, so that the interest rate is the Maximum Lawful Rate
throughout the entire term of the Note; PROVIDED, HOWEVER, that if the unpaid
principal balance thereof is paid and performed in full prior to the end of
the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Lawful Rate, Lender
shall refund to Borrower the amount of such excess and, in such event, Lender
shall not be subject to any penalties provided by any laws for contracting
for, charging, taking, reserving or receiving interest in excess of the
Maximum Lawful Rate.
SECTION 9.8. INVALID PROVISIONS. If any provision of the Loan Documents
is held to be illegal, invalid, or unenforceable under present or future laws
effective during the term thereof, such provision shall be fully severable, the
Loan Documents shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of the Loan Documents a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 9.9. CONFLICT OF TERMS. The provisions of the other Loan
Documents and any Schedule or Exhibit hereto are incorporated in this Credit
Agreement for all purposes by this reference thereto. Except as otherwise
provided in this Credit Agreement and except as otherwise provided in the other
Loan Documents by specific reference to the applicable provision of this Credit
Agreement, if any provision contained in this Credit Agreement is in conflict
with, or inconsistent with, any provision in the other Loan Documents the
provision contained in this Credit Agreement shall govern and control.
SECTION 9.10. REVOLVING LOAN. Pursuant to Article 15.10(b) of Chapter 15,
Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended, Borrower agrees
that such Chapter 15 shall not govern or in any manner apply to the Advances.
SECTION 9.11. SUCCESSORS AND ASSIGNS. The provisions of this Credit
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that Borrower may not assign
or otherwise transfer any of its rights under this Credit Agreement. Lender may
assign or participate all or any part of its interest in the Total Revolving
Commitment or the Term Loan. Lender shall notify Borrower of any assignments or
participations by Lender of any of its interest in the Total Revolving
Commitment or the Term Loan.
AMENDED AND RESTATED CREDIT AGREEMENT Page 34
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SECTION 9.12. TEXAS LAW. THIS CREDIT AGREEMENT, THE NOTE AND ALL OTHER
LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS.
SECTION 9.13. COUNTERPARTS; EFFECTIVENESS. This Credit Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Credit Agreement shall become effective when Lender shall have
received counterparts hereof signed by all of the parties hereto.
SECTION 9.14. NO THIRD PARTY BENEFICIARIES. It is expressly intended that
there shall be no third party beneficiaries of the covenants, agreements,
representations or warranties herein contained other than transferees or
assignees of all or any part of Lender's interest hereunder.
SECTION 9.15. ENTIRE AGREEMENT. This Credit Agreement and the other Loan
Documents constitute the entire understanding and agreement between Borrower and
Lender with respect to the transactions arising in connection with the Advances
and supersede all prior written or oral understandings and agreements between
Borrower and Lender with respect to the matters addressed in the Loan Documents.
Borrower hereby acknowledges that, except as incorporated in writing in the Loan
Documents, there are not, and were not, and no Persons are or were authorized by
Lender to make, any representations, understandings, stipulations, agreements or
promises, oral or written, with respect to the matters addressed in the Loan
Documents.
SECTION 9.16. AMENDMENT AND RESTATEMENT. This Credit Agreement amends and
restates, but does not extinguish or constitute a novation of, the Existing
Credit Agreement. None of the execution, delivery, and performance of any
other documents executed in connection with this Credit Agreement, including but
not limited to execution of the Term Note, shall constitute a novation of any
indebtedness already existing, including, without limitation, that indebtedness
which is evidenced by the Revolving Note.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
AMENDED AND RESTATED CREDIT AGREEMENT Page 35
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IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to
be duly executed as of the day and year first above written.
BORROWER:
IWL Communications, Inc. IWL COMMUNICATIONS, INC., a
12000 Aerospace Avenue Texas corporation
Suite 200
Houston, Texas 77034 By: /s/ Richard H. Roberson
Attn: Chief Financial Officer -----------------------------------
Name: Richard H. Roberson
--------------------------------
Title: CFO
--------------------------------
LENDER:
1717 Main Street BANK ONE, TEXAS, N.A., a
3rd Floor national banking association
Dallas, Texas 75201
Attn: Mark Wade, By: /s/ Mark Wade
Vice President ----------------------------------
Mark Wade, Vice President
AMENDED AND RESTATED CREDIT AGREEMENT Page 36
<PAGE>
EXHIBIT A
REQUEST FOR ADVANCE FORM
TO: Bank One, Texas, N.A.
1717 Main Street, 3rd Floor
Dallas, Texas 75201
Attention: Mark Wade
DATE: , 19
------------------------ ---
Ladies & Gentlemen:
The undersigned ____________________, _________________ of IWL
COMMUNICATIONS, INC., a Texas corporation ("BORROWER"), hereby delivers this
certificate pursuant to that certain Amended and Restated Credit Agreement (the
"CREDIT AGREEMENT") dated August __, 1997, between Borrower and Bank One, Texas,
N.A. ("LENDER"). All terms defined in the Credit Agreement shall have the same
meaning herein. Borrower hereby requests a Advance in accordance with the Credit
Agreement.
In connection with the foregoing and pursuant to the terms and provisions
of the Credit Agreement, the undersigned hereby certifies that to the best of
his or her knowledge:
(a) The representations and warranties contained in the Credit
Agreement and the other Loan Documents are true and correct in all material
respects with the same force and effect on and as of the date hereof as
though made on the date hereof.
(b) Immediately before and after giving effect to the Advance
requested herein, no Default has occurred and is continuing and the making
of such Advance shall not cause a Default.
(c) The amount of the Advance made or to be made pursuant to this
request does not exceed the difference between (i) the lesser of (1) Total
Revolving Commitment and (2) the Borrowing Base, minus (ii) the total
outstanding amount of the Advances.
(d) All information supplied below is true, correct, and complete as
of the date hereof.
ADVANCE REQUEST INFORMATION
EXHIBIT A TO AMENDED AND RESTATED CREDIT AGREEMENT (REQUEST FOR ADVANCE) Page 1
<PAGE>
(1) Total Revolving Commitment
("TRC") $5,000,000.00
(2) Aggregate Outstanding principal
amount of Advances ("LOANS") $
----------
(3) Borrowing Base ("BB") $
----------
(4) Lesser of TRC and BB $
----------
(5) Net availability of credit:
[(4) - (Loans)] $
----------
(6) Amount of Advance requested $
----------
(7) Date of requested Advance , 19
---------------- ---
BORROWER:
IWL COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
EXHIBIT A TO AMENDED AND RESTATED CREDIT AGREEMENT (REQUEST FOR ADVANCE) Page 2
<PAGE>
EXHIBIT B
BORROWING BASE REPORT AND COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he/she is the duly elected Chief
Financial Officer of IWL COMMUNICATIONS, INC., a Texas corporation ("BORROWER")
and that he/she is authorized to execute this Certificate on behalf of Borrower
in connection with that certain Amended and Restated Credit Agreement, dated as
of August __, 1997, (as amended from time to time, the "CREDIT AGREEMENT"),
between Borrower and Lender. All terms used but not defined herein shall have
the meanings set forth in the Credit Agreement. This Certificate is submitted
on a monthly basis on the thirtieth (30th) day of each month for the period
ended _________________, 199__. The undersigned hereby further certifies to the
following as of the date set forth below:
1. The representations and warranties of Borrower under the Credit
Agreement are true and complete in all material respects, before and after
giving effect to all Advances.
2. No event has occurred which constitutes a default.
3. The outstanding principal amount under the Total Revolving Commitment
(giving effect to any Advances being borrowed as of the date hereof) as of the
date hereof is $____________.
4. The Borrowing Base as of the date hereof is $_____________. The
Borrowing Base is determined as follows:
(a) Total Accounts of Borrower, per the
attached Accounts Receivable Report $
----------------
(b) All Accounts of Borrower that have
been due and payable for 91 days or
more from invoice date, per the
attached Accounts Receivable Report $
----------------
(c) All other Accounts of Borrower that
do not constitute Eligible Accounts $
----------------
(d) Eligible Accounts of Borrower (Item
(a) minus Items (b) and (c)) $
----------------
(e) Eligible Inventory, per the attached
Inventory Report $
----------------
(f) 80% of Item (d) $
----------------
(g) 50% of (e) $
----------------
Borrowing Base (sum of Items (f) and
(g)) $
----------------
----------------
EXHIBIT B TO AMENDED AND RESTATED CREDIT AGREEMENT:
BORROWING BASE CERTIFICATE
<PAGE>
5. As of __________________, 19___ (being the last day of Borrower's most
recently ended fiscal quarter) Borrower is in compliance with the financial
covenants contained in SECTION 7.2 of the Credit Agreement.
6. I hereby certify, in my capacity as the Chief Financial Officer of IWL
Communications, Inc., that the information set forth herein and on the
attachments hereto is true and correct in all material respects to the best of
my knowledge and prepared in accordance with GAAP.
IN WITNESS WHEREOF, I have executed this Certificate as of the ______ day
of _________________, 19___.
IWL COMMUNICATIONS, INC.
By:
-----------------------------------
Print Name:
------------------------
Print Title:
------------------------
EXHIBIT B TO AMENDED AND RESTATED CREDIT AGREEMENT:
BORROWING BASE CERTIFICATE
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he/she is the duly elected Chief
Financial Officer of IWL COMMUNICATIONS, INC., a Texas corporation ("BORROWER")
and that he/she is authorized to execute this Certificate on behalf of Borrower
in connection with that certain Amended and Restated Credit Agreement, dated as
of August __, 1997, (as amended from time to time, the "CREDIT AGREEMENT"),
between Borrower and Lender. All terms used but not defined herein shall have
the meanings set forth in the Credit Agreement. This Certificate is submitted
on a monthly basis on the thirtieth (30th) day of each month for the period
ended _________________, 199__. The undersigned hereby further certifies to the
following as of the date set forth below:
1. The representations and warranties of Borrower under the Credit
Agreement are true and complete in all material respects, before and after
giving effect to any Advances or Letters of Credit.
2. No event has occurred which constitutes a Default or Event of Default.
3. As of __________________, 19___ (being the last day of the most recent
calendar quarter) Borrower is in compliance with the financial covenants
contained in SECTION 7.2 of the Credit Agreement and the following information
is true, accurate and complete as of such date:
(a) Borrower's Tangible Net Worth is $___________;
(b) The Debt to Worth Ratio for the immediately preceding four (4)
consecutive fiscal quarters is _____________ to 1.00; and
In calculating the foregoing Debt to Worth Ratio, I have determined
the following for the four (4) consecutive fiscal quarters immediately
preceding _________________, 19____ (being the last day of Borrower's most
recently ended fiscal quarter) in accordance with the provisions of the
Credit Agreement, Borrower's aggregate Debt was $_________.
(c) The Fixed Charge Ratio for the immediately preceding four (4)
consecutive fiscal quarters is _____________ to 1.00; and
In calculating the foregoing Fixed Charge Ratio, I have determined the
following for the four (4) consecutive fiscal quarters immediately
preceding _________________, 19____ (being the last day of Borrower's most
recently ended fiscal quarter) in accordance with the provisions of the
Credit Agreement:
(i) Borrower's aggregate Interest Expense was
$__________________;
EXHIBIT C TO AMENDED AND RESTATED CREDIT AGREEMENT:
(COMPLIANCE CERTIFICATE) Page 1
<PAGE>
(ii) Borrower's aggregate Lease Expense was $__________________;
and
(iii) Borrower's aggregate EBITDA was $________________.
(b) The Current Ratio is _____________ to 1.00.
In calculating the foregoing Current Ratio, I have determined the
following as of _________________, 19____ (being the last day of Borrower's
most recently ended fiscal quarter) in accordance with the provisions of
the Credit Agreement:
(i) The aggregate amount of all current assets required to be
shown as such on the balance sheet of Borrower prepared in
accordance with GAAP was $__________________; and
(ii) The aggregate amount of all current liabilities required to
be shown as such on the balance sheet of Borrower prepared
in accordance with GAAP was $__________________.
6. I hereby certify, in my capacity as the Chief Financial Officer of IWL
Communications, Inc., that the information set forth herein and on the
attachments hereto is true and correct in all material respects to the best of
my knowledge and prepared in accordance with GAAP.
IN WITNESS WHEREOF, I have executed this Certificate as of the ______ day
of _________________, 19___.
IWL COMMUNICATIONS, INC.
By:
-------------------------------------
Print Name:
------------------------
Print Title:
-----------------------
EXHIBIT C TO AMENDED AND RESTATED CREDIT AGREEMENT:
(COMPLIANCE CERTIFICATE) Page 2
<PAGE>
PROMISSORY NOTE
$1,055,000.00 Dallas, Texas August 28, 1997
IWL COMMUNICATIONS, INC., a Texas corporation with its principal office
located at 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034
("BORROWER"), for value received, hereby promises to pay to the order of BANK
ONE, TEXAS, N.A., a national banking association ("LENDER"), at its Dallas
Banking Center at 1717 Main Street, 3rd Floor, Dallas, Texas 75201, or at
such other address given to Borrower by Lender, in immediately available
funds and in lawful money of the United States of America, the principal sum
of One Million Fifty-Five Thousand and No/100 Dollars ($1,055,000.00), or
such lesser sum as may be advanced and outstanding hereunder, on September 1,
2001, or sooner as provided in the Credit Agreement, together with interest
on the unpaid principal balance of this Note from time to time outstanding at
the applicable Agreed Interest Rate. Unless prohibited by Applicable Law and
subject to the terms hereof limiting interest to the Highest Lawful Rate,
interest on this Note shall be calculated on the basis of actual days
elapsed, but as if each year consisted of 360 days.
This Note is made pursuant to the Amended and Restated Credit Agreement
of even date herewith between Borrower and Lender (as the same may be
amended, supplemented, renewed, extended or restated from time to time, the
"CREDIT AGREEMENT"), and is the "Term Note" defined and described therein,
the terms and provisions of the Credit Agreement related to this Note being
incorporated herein by reference for all purposes. Each capitalized term
used but not expressly defined herein shall have the meaning given to such
term in the Credit Agreement. Reference is hereby expressly made to the
Credit Agreement for a statement of the rights and obligations of Lender and
the duties and obligations of Borrower in relation thereto; but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of Borrower to pay unpaid
principal of and interest on this Note when due.
Lender is entitled to the benefits of and security provided for in the
Credit Agreement including, without limitation, all liens and security
interests arising under the any of the Loan Documents.
For the purposes of this Note, the following terms have the respective
meanings assigned to them below:
"ADJUSTED LIBOR RATE" means on the applicable Effective Date (as
herein defined), with respect to a LIBOR Rate Portion, a rate per annum
equal to the SUM OF (A) the quotient of (i) the LIBOR Rate on the
applicable Effective Date, divided by (ii) the remainder of 1.00 minus the
LIBOR Reserve Requirement on the applicable Effective Date, plus (B) the
FDIC Percentage in effect on the applicable Effective Date, plus (C) two
and four-tenths percent (2.40%).
"AGREED INTEREST" means with respect to any Interest Payment Date, the
amount of interest which would have accrued had the unpaid principal of
this Note from time to time
PROMISSORY NOTE (IWL COMMUNICATIONS, INC.) Page 1
<PAGE>
outstanding during the period from the date of this Note to but not
including such Interest Payment Date borne interest each day during such
period at the applicable Agreed Interest Rate.
"AGREED INTEREST RATE" means a rate per annum applicable to the Term
Loan or portion thereof pursuant to the provisions of this Note, which
interest rate shall be equal to either (i) the Base Rate as in effect from
time to time or (ii) the Adjusted LIBOR Rate, as provided in this Note.
"BASE RATE" means the base interest rate as announced or published by
Lender from time to time, and may not be the lowest interest rate charged
by Lender.
"BASE RATE PORTION" means that portion of the Term Loan which will
bear interest computed with reference to the Base Rate.
"FDIC PERCENTAGE" means, on any day, the net assessment rate
(expressed as a percentage rounded to the next highest 1/100 of 1%) which
is in effect on such day (under the regulations of the Federal Deposit
Insurance Corporation or any successor) for determining the assessments
paid by Lender to the Federal Deposit Insurance Corporation (or any
successor) for insuring time deposits made in dollars at Lender's principal
offices in Dallas, Texas. Each determination of said percentage made by
Lender shall, in the absence of manifest error, be binding and conclusive.
"INTEREST ADJUSTMENT DATE" means the earlier of either the last day of
an Interest Period or the Term Loan Maturity Date.
"INTEREST PERIOD" means, with respect to a LIBOR Rate Portion, a
period selected by Borrower of 30, 60 or 90 days, commencing on the
Effective Date (hereinafter defined) of any LIBOR Rate Portion; provided
that, unless the Loan is renewed and extended prior to the maturity date of
this Note, no Interest Period shall end after the Term Loan Maturity Date.
"LIBOR RATE" means, with respect to a LIBOR Rate Portion, the rate of
interest per annum equal to the interest settlement rate for U.S. Dollars
as published by the British Bankers Association as of 11:00 a.m. London
time two business days (on which commercial banks are open for
international business in London) before the first day of such Interest
Period, for the approximate principal amount of the applicable LIBOR
Portion, and for a period comparable to the applicable Interest Period. If
no such rate is published by the British Bankers Association, then the
LIBOR Rate shall be the arithmetic mean (rounded upward to the nearest
1/16th of one percent) of the offered quotations that appear on the
Reuter's Screen LIBO page for dollar deposits in the London interbank
market for a length of time approximately equal to the Interest Period for
the LIBOR Portion sought by Borrower. If the Reuter's Screen LIBO page is
not available or has been discontinued, the LIBOR Rate shall be the rate
per annum that Lender determines to be the arithmetic mean (rounded as
aforesaid) of the per annum rates of interest at which deposits in dollars
in an
PROMISSORY NOTE (IWL COMMUNICATIONS, INC.) Page 2
<PAGE>
amount approximately equal to the amount of, and for a length of time
approximately equal to the Interest Period for, the LIBOR Portion sought by
Borrower are offered to Lender in immediately available funds in the London
interbank market at 11:00 a.m., London time, on the date which is two
Business Days prior to the first day of an Interest Period.
"LIBOR RATE PORTION" means that portion or those portions of the Term
Loan which bear interest computed with reference to the LIBOR Rate.
"LIBOR RESERVE REQUIREMENT" means, on any day, that percentage
(expressed as a decimal fraction) which is in effect on such date, under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System for determining the maximum reserve requirements
generally applicable to financial institutions regulated by the Board of
Governors of the Federal Reserve System comparable in size and type to
Lender (including, without limitation, basic supplemental, marginal and
emergency reserves) under Regulation D with respect to "Eurocurrency
liabilities" as currently defined in Regulation D, or under any similar or
successor regulation with respect to Eurocurrency liabilities or
Eurocurrency funding (or other category of liabilities which includes
deposits by reference to which the interest rate on a LIBOR Rate Portion is
determined or any category of extensions of credit which includes loans by
a non-United States office of Lender to United States residents). Each
determination by Lender of the LIBOR Reserve Requirement, shall, in the
absence of manifest error, be conclusive and binding.
"MAXIMUM INTEREST" means, with respect to any Interest Payment Date,
the amount of interest which would have accrued had the unpaid principal of
this Note from time to time outstanding during the period from the date of
this Note to but not including such Interest Payment Date borne interest
each day during such period at the Highest Lawful Rate in effect on such
day.
"REGULATORY CHANGE" means any change after the date hereof in
applicable law or regulation, or in the interpretation thereof by any
governmental authority charged with the administration thereof.
Interest on the Term Loan shall accrue at a rate per annum equal to the
lesser of (1) at Borrower's option, the Base Rate or the Adjusted LIBOR Rate,
subject, however, to the provisions of this Note, or (2) the Highest Lawful
Rate; provided, however, if at any time the Agreed Interest Rate exceeds the
Highest Lawful Rate, resulting in the charging of interest hereunder to be
limited to the Highest Lawful Rate, then any subsequent reduction in the
Agreed Interest Rate shall not reduce the rate of interest below the Highest
Lawful Rate until the total amount of interest accrued on the indebtedness
evidenced hereby equals the amount of interest which would have accrued on
such indebtedness if the Agreed Interest Rate had at all times been in
effect. Interest on this Note shall be calculated at a daily rate equal to
1/360 of the annual percentage rate which this Note bears, subject to the
provisions hereof limiting interest to the maximum permitted by applicable
law.
PROMISSORY NOTE (IWL COMMUNICATIONS, INC.) Page 3
<PAGE>
Upon at least three (3) business days' prior written notice from Borrower
to Lender ("MINIMUM NOTICE REQUIREMENT"), Borrower may, on any Interest
Adjustment Date (other than the Term Loan Maturity Date), convert amounts of
not less than $250,000.00 (or any whole multiple of $250,000.00 in excess
thereof) of any LIBOR Rate Portion into a Base Rate Portion with interest
accruing thereon at the Base Rate.
Upon satisfaction of the Minimum Notice Requirement, and subject to the
conditions provided in this Note, Borrower may, on any date prior to the Term
Loan Maturity Date, convert amounts of not less than $250,000.00 (or any
whole multiple of $250,000.00 in excess thereof) of any Base Rate Portion
into a LIBOR Rate Portion with interest accruing thereon at the Adjusted
LIBOR Rate, for the Interest Period selected in such notice.
To the extent Borrower has not made an effective election under and in
accordance with the preceding provisions, the Agreed Interest Rate shall be
the rate specified pursuant to the provisions contained herein for a Base
Rate Portion.
Each notice of LIBOR Rate Portion election by Borrower must satisfy the
Minimum Notice Requirement and shall include the following: (i) Borrower's
election of the Adjusted LIBOR Rate; (ii) Borrower's choice of an Interest
Period during which the Adjusted LIBOR Rate will apply; (iii) Borrower's
election of the date (the "EFFECTIVE DATE") on which the LIBOR Rate Portion
shall begin; and (iv) the amount of outstanding loan principal which shall
not be less than $250,000.00 (or any whole multiple of $250,000.00 in excess
thereof) to which the Adjusted LIBOR Rate shall apply.
Borrower's election to convert to the Adjusted LIBOR Rate is subject to
the following conditions: (1) the Interest Period shall be limited to a
period commencing on the Effective Date and ending on a date 30, 60 or 90
days later elected by Borrower in its notice to Lender; (2) Borrower's
written notice of an election shall be received by Lender in time to satisfy
the Minimum Notice Requirement; (3) the last day of the Interest Period will
not end after the Term Loan Maturity Date; (4) in the case of a continuation
of an Interest Period, the Interest Period applicable after such continuation
shall commence on the last day of the preceding Interest Period; (5) no LIBOR
Rate election shall be made if Lender determines by reason of circumstances
affecting the interbank Eurodollar market that either adequate or reasonable
means do not exist for ascertaining the Adjusted LIBOR Rate for any Interest
Period, or it becomes impracticable for Lender to obtain funds by purchasing
U.S. dollars in the interbank Eurodollar market, or if Lender determines that
the Adjusted LIBOR Rate will not adequately or fairly reflect the costs to
Lender of maintaining the applicable LIBOR Rate Portion at such rate, or if
as a result of any Regulatory Change, it shall become unlawful or impossible
for Lender to maintain any such LIBOR Rate Portion; and (6) there shall never
be more than three (3) LIBOR Rate Portions, in the aggregate, in effect at
any one time hereunder.
Borrower shall indemnify Lender against any actual loss or expense which
Lender may, as a consequence of Borrower's failure to make a payment on the
date such payment is due hereunder or the payment, prepayment or conversion
of any LIBOR Rate Portion hereunder on a day other than an Interest
Adjustment Date, sustain or incur in liquidating or employing deposits from
third parties acquired to effect, fund or maintain any such LIBOR Rate
Portion or any part thereof. Such loss or
PROMISSORY NOTE (IWL COMMUNICATIONS, INC.) Page 4
<PAGE>
expense shall include, without limitation, (i) the interest which, but for
such failure, payment, prepayment or conversion, Lender would have earned in
respect of such LIBOR Rate Portion so paid, for the remainder of the Interest
Period applicable to such LIBOR Rate Portion, reduced, if Lender is able to
redeposit such principal amount so paid for the balance of such Interest
Period, by the interest earned by Lender as a result of so redepositing such
principal amount, plus (ii) any expenses or penalty incurred by Lender on
redepositing such principal amount. In the event any such loss or expense is
incurred by Lender, Lender shall furnish Borrower with a certificate
detailing the basis upon which such loss or expense is computed and
certifying that such claim is consistent with Lender's treatment of similar
customers for similar provisions generally in their agreements with Lender.
Any such certificate shall establish the amount of such expense or loss for
purposes of this paragraph, in the absence of manifest error in calculation,
provided, however, that upon the discovery of any error, appropriate
adjustments shall be made between Lender and Borrower.
Borrower shall also indemnify Lender against and reimburse Lender for
increased costs to Lender (except taxes based on Lender's income), as a
result of any Regulatory Change, in the maintaining of any LIBOR Rate
Portion. Lender shall give Borrower written notice of such costs within
ninety (90) days of its implementation and/or compliance with any such
Regulatory Change and such costs shall be reimbursed to Lender prior to the
earlier of (i) the Term Loan Maturity Date or (ii) ten (10) days following
written notice thereof from Lender to Borrower. All payments made pursuant
to this paragraph shall be made free and clear, without reduction for, or
account of, any present or future taxes or other levies of any nature,
excluding net income and franchise taxes.
Except as otherwise required to be paid earlier pursuant to the Credit
Agreement or the other Loan Documents, Borrower shall pay to Lender the
principal amount of this Note on September 1, 2001. Commencing on October 1,
1997 and continuing on the first day of each calendar month thereafter until
this Note is paid in full, Borrower shall (A) make an interest payment to
Lender hereunder in an amount equal to (i) the lesser of the Agreed Interest
or the Maximum Interest, minus (ii) all interest (if any) previously paid on
this Note and (B) make a principal payment to Lender hereunder in the amount
of $21,979.17.
All past due principal and/or interest shall, at Lender's option, bear
interest from maturity until paid at the lesser of (i) the sum of the Base
Rate plus 4% or (ii) the Highest Lawful Rate. Notwithstanding the foregoing
and all other provisions of this Note and any documents and instruments
executed in connection with this Note, in no event shall the interest payable
hereon, whether before or after maturity, exceed the maximum amount of
interest which, under Applicable Law, Lender is permitted to charge to
Borrower.
The manner in which payments are to be made on this Note shall be
governed by the provisions hereof and the Credit Agreement, including,
without limitation, SECTIONS 2.5 AND 3.1 of the Credit Agreement.
All payments made on this Note as scheduled shall be applied, to the
extent thereof, first to accrued but unpaid interest and the balance to
unpaid principal. Nothing herein shall limit or impair any rights of Lender
or any other holder hereof to apply as provided in the Loan Documents any
past due payments, any proceeds from the disposition of any collateral by
foreclosure or other collections
PROMISSORY NOTE (IWL COMMUNICATIONS, INC.) Page 5
<PAGE>
after default. Except to the extent specific provisions are set forth in
this Note or another Loan Document with respect to application of payments,
all payments received by the holder hereof shall be applied, to the extent
thereof, to the indebtedness owing by Borrower to Lender in such order and
manner as Lender or any other holder hereof shall deem appropriate, any
instructions from Borrower or anyone else to the contrary notwithstanding.
Borrower shall be entitled to prepay this Note in whole or in part at any
time, except that Borrower shall not be entitled to prepay any LIBOR Rate
Portion on a day which is not the last day of the Interest Period applicable
thereto. Any principal payments which Borrower desires to make shall first
be applied by Lender against the Second Term Note, and the remainder, if any,
may be applied to the principal balance of this Note. Any prepayments of this
Note as provided in the preceding sentence shall be applied first to accrued
but unpaid interest, and then to the principal balance hereof in the inverse
order of maturity.
All agreements between Borrower and Lender, or any subsequent holder of
this Note, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of the maturity of this Note or otherwise,
shall the amount paid or agreed to be paid to the holder of this Note for the
use, forbearance, or detention of the funds advanced pursuant to this Note or
for the performance or payment of any covenant or obligation contained herein
or in any other document evidencing, securing or pertaining to this Note,
exceed the maximum amount permissible under Applicable Law. If from any
circumstance whatsoever fulfillment of any provision hereof or of any such
other document, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by Applicable Law, then
IPSO FACTO, the obligation to be fulfilled shall be reduced to the limit of
such validity, and if from any circumstance the holder hereof shall ever
receive anything of value deemed excess interest by Applicable Law, an amount
equal to any such excess interest shall be applied to the reduction of the
principal amount owing under this Note, and not to the payment of interest,
or if such excess interest exceeds the unpaid principal balance of this Note,
such excess interest shall be refunded to Borrower. All sums paid or agreed
to be paid to any holder of this Note for the use, forbearance or detention
of any funds advanced pursuant to this Note shall, to the extent permitted by
Applicable Law, be amortized, prorated, allocated and spread throughout the
full term of this Note until payment in full so that the rate of interest on
account of the indebtedness evidenced by this Note is uniform throughout the
term hereof. The terms and provisions of this paragraph shall control and
supersede every other provision of all agreements between Borrower and any
holder of this Note.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally
agree to pay reasonable attorneys' fees and collection costs to the holder
hereof in addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment for payment, protest, notice of protest,
notice of acceleration of and notice of
PROMISSORY NOTE (IWL COMMUNICATIONS, INC.) Page 6
<PAGE>
intention to accelerate the maturity of this Note, diligence in collecting,
the bringing of any suit against any party and any notice of or defense on
account of any extensions, renewals, partial payments or changes in any
manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any trustee or any holder hereof, whether before or after
maturity.
Neither the failure by the holder hereof to exercise, nor delay by the
holder hereof in exercising, the right to accelerate the maturity of this
Note or any other right, power or remedy upon any default or event of default
shall be construed as a waiver of such default or event of default or as a
waiver of the right to exercise any such right, power or remedy at any time.
No single or partial exercise by the holder hereof of any right, power or
remedy shall exhaust the same or shall preclude any other or further exercise
thereof, and every such right, power or remedy may be exercised at any time
and from time to time. All rights and remedies provided for in this Note and
in any other Loan Document are cumulative of each other and of any and all
other rights and remedies existing at law or in equity, and the holder hereof
shall, in addition to the rights and remedies provided herein or in any other
Loan Document, be entitled to avail itself of all such other rights and
remedies as may now or hereafter exist at law or in equity for the collection
of the indebtedness owing hereunder, and the resort to any right or remedy
provided for hereunder or under any such other Loan Document or provided for
by law or in equity shall not prevent the concurrent or subsequent employment
of any other appropriate rights or remedies. Without limiting the generality
of the foregoing provisions, the acceptance by the holder hereof from time to
time of any payment under this Note which is past due or which is less than
the payment in full of all amounts due and payable at the time of such
payment, shall not (i) constitute a waiver of or impair or extinguish the
rights of the holder hereof to accelerate the maturity of this Note or to
exercise any other right, power or remedy at the time or at any subsequent
time, or nullify any prior exercise of any such right, power or remedy, or
(ii) constitute a waiver of the requirement of punctual payment and
performance, or a novation in any respect.
This Note may not be changed, amended or modified except in a writing
expressly intended for such purpose and executed by the party against whom
enforcement of the change, amendment or modification is sought.
Any notice required or which any party desires to give under this Note
shall be given and effective as provided in SECTION 9.1 of the Credit
Agreement.
Time shall be of the essence in this Note with respect to all of
Borrower's obligations hereunder.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE
GOVERNED BY THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO
NATIONAL BANKS. THE BOOKS AND RECORDS OF LENDER SHALL CONSTITUTE PRIMA FACIE
EVIDENCE OF ALL SUMS DUE LENDER HEREUNDER.
PROMISSORY NOTE (IWL COMMUNICATIONS, INC.) Page 7
<PAGE>
THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed as of the date first written above.
BORROWER:
IWL COMMUNICATIONS, INC.,
a Texas corporation
By: /s/ Richard H. Roberson
---------------------------------------------
Name: Richard H. Roberson
-------------------------------------------
Title: CFO
------------------------------------------
PROMISSORY NOTE (IWL COMMUNICATIONS, INC.) Page 8
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in the Registration Statement on
Form S-8 of IWL Communications, Inc. of our report dated September 9, 1997,
relating to the consolidated balance sheets of IWL Communications, Inc. and
Subsidiaries as of June 30, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of
the years in the three-year period ended June 30, 1997 which report appears
in the Form 10-K filed with the Securities and Exchange Commission on
September 29, 1997.
KPMG PEAT MARWICK LLP
Houston, Texas
September 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1996 AND THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 7,660
<SECURITIES> 0
<RECEIVABLES> 5,893
<ALLOWANCES> 101
<INVENTORY> 1,857
<CURRENT-ASSETS> 16,283
<PP&E> 14,281
<DEPRECIATION> 5,165
<TOTAL-ASSETS> 26,062
<CURRENT-LIABILITIES> 6,562
<BONDS> 7,692
0
0
<COMMON> 37
<OTHER-SE> 11,571
<TOTAL-LIABILITY-AND-EQUITY> 26,062
<SALES> 0
<TOTAL-REVENUES> 30,342
<CGS> 21,736
<TOTAL-COSTS> 28,985
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 534
<INCOME-PRETAX> 972
<INCOME-TAX> 283
<INCOME-CONTINUING> 689
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<CHANGES> 0
<NET-INCOME> 689
<EPS-PRIMARY> .30
<EPS-DILUTED> 0
</TABLE>