<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from to
Commission File Number 1-5483
WHITEHALL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
DELAWARE 41-0838460
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
POST OFFICE BOX 29709 75229
2659 NOVA DRIVE (Zip Code)
DALLAS, TEXAS
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: 972-247-8747
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $0.10 PAR VALUE
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 for 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 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 24, 1997, was $60,280,955.
On March 24, 1997, there were issued and outstanding 5,508,400 shares of the
registrant's Common Stock, $0.10 par value, excluding 2,161,312 shares of
treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the annual meeting of
stockholders presently scheduled to be held on May 12, 1997, are incorporated
into Part III by reference.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
Whitehall Corporation ("Whitehall" or the "Company" hereinafter) was
incorporated under the laws of Delaware in 1963 as a successor to a Minnesota
corporation organized in 1960.
The Company operated in three segments during 1996: Aircraft Maintenance,
Electronics and Ocean Systems. Reference is made to Note L of the Notes to
Consolidated Financial Statements herein for pertinent financial data of each
segment as well as information regarding the Company's major customers.
AIRCRAFT MAINTENANCE SEGMENT: The Company's wholly-owned subsidiary, Aero
Corporation ("Aero"), located in Lake City, Florida, rebuilds, modifies and
maintains turboprop and jet aircraft. Aero operates as a service business.
Aero's primary business is the modification and maintenance of commercial
passenger and freighter aircraft. Aero has invested heavily in a major
renovation of its 650,000 sq. ft. facilities and has expanded its employee base
in order to attract additional commercial customers. Aero's facility can
accommodate most narrow-body aircraft and has undergone modification to
accommodate nearly all wide-body aircraft in current production. The Company's
customer base includes airlines, cargo carriers and private and corporate
executive jets. The Company believes that the commercial market represents a
significant opportunity because of the potential associated with the maintenance
and modification of aging aircraft in commercial fleets and because the current
downsizing trend in the airline industry could lead to the outsourcing of
maintenance work to low cost facilities. As an FAA-approved repair station, Aero
is qualified to work on DC-8, DC-9, DC10, 707, 727, 737, L-100, L-188, C-130 and
other military and commercial aircraft. During 1994 Aero acquired a 40% interest
in AvAero, a joint venture which developed jet engine Hushkits for Boeing
737-100/200 aircraft; see Note D. In 1996, after a rigorous selection process,
Southwest Airlines chose the AvAero Hushkit for 20 of its aircraft, with options
for an additional 14. Aero is also selectively pursuing military contracts. The
Company intends to focus its efforts exclusively in the Aircraft Maintenance
segment.
ELECTRONICS SEGMENT: Crystek Crystals Corporation, ("Crystek") a subsidiary
of the Company located in Fort Myers, Florida, manufactures and distributes
quartz crystals and oscillators. The products are utilized in various electronic
end products including communications equipment, computers and timing devices.
The Electronics segment provides products to customers in the computer and
communication industries. In February 1997, the Company signed an agreement to
sell the Electronics segment to a private investor group for $2,714,000. The
agreement, which is dependent upon the buyer securing financing, calls for the
Company to receive $1,867,000 in cash and promissory notes totaling $847,000
bearing interest at 10% per annum. See Note P.
OCEAN SYSTEMS SEGMENT: The subsidiary of the Company constituting the Ocean
Systems segment is Hydroscience, Inc. ("Hydroscience"), which is engaged in the
design and manufacture of marine sensor systems for geophysical and military
applications. In November 1996, substantially all of the assets of Hydroscience
were sold to Hydroscience Technologies, Inc. ("HTI") in exchange for 818,182
shares of Preferred Stock of HTI and limited assumption by HTI of the potential
warranty liabilities of Hydroscience. All patents relating to Hydroscience and
Ocean Systems segment products were transferred to HTI. The aggregate amount of
HTI Preferred Stock received by Hydroscience was equal to the book value of the
assets transferred by it to HTI. The HTI Preferred Stock carries a liquidation
preference of $5.50 per share. At Hydroscience's election, the HTI Preferred
Stock is convertible after 1997 into 45% of the Common Stock of HTI. HTI is a
new corporation not previously affiliated with the Company or with Hydroscience,
though a former senior management employee and officer of Hydroscience is a
shareholder of HTI. Such individual was not an officer or director of the
Company. See Note D.
RAW MATERIALS: The primary basic raw materials utilized by the Company are
wire, plastics and electronic components primarily used in the Ocean Systems
segment. The Company is not dependent upon any single supplier or group of
suppliers for any of the raw materials it uses in manufacturing its products and
has encountered no difficulties in purchasing sufficient quantities in the open
market.
1
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ITEM 1. BUSINESS (CONTINUED)
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS: The Company
holds no patents, franchises or concessions, as of December 31, 1996.
COMPETITIVE CONDITIONS: The Company is subject to severe competitive
conditions in all segments of its business. The Company believes other companies
have substantially greater resources available with which to compete. Although
the Company does not have data available to determine its exact relative market
position, the Company does not believe that it presently has a substantial
position in any of the markets for its products and services. Competition in
each segment is primarily related to price and quality of service.
CUSTOMERS: The Company has three customers in the Aircraft Maintenance
segment that account for at least 10% of 1996 consolidated revenues: Valujet
Airlines, Continental Airlines and Emery Worldwide. Valujet Airlines accounted
for approximately 26% of consolidated net sales in 1996, 30% of consolidated net
sales in 1995 and 11% of consolidated net sales in 1994. Continental Airlines
accounted for approximately 15% of consolidated net sales in 1996 and 21% of
consolidated net sales in 1995. Emery Worldwide accounted for approximately 14%
of consolidated net sales in 1996, 9% of consolidated net sales in 1995 and 25%
of consolidated net sales in 1994. Southern Air Transport accounted for
approximately 5% of consolidated net sales in 1996, 2% of consolidated net sales
in 1995 and 18% of consolidated net sales in 1994.The United States Government
accounted for approximately 2% of consolidated net sales in 1995 and 10% of
consolidated net sales in 1994. The Company made no sales to the United States
Government in 1996.
ENVIRONMENTAL REGULATION: Aero is taking remedial action pursuant to
Environmental Protection Agency ("EPA") regulations at the Lake City, Florida
facility. The Company does not anticipate any material direct effects upon the
capital expenditures, earnings and competitive position of the Company from
compliance with present Federal, State and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment. The Company does
expect, however, that compliance with such regulations will require, from time
to time, both increased operating costs and capital expenditures which may be
substantial. As of December 31, 1996 and 1995, the Company had reserved
approximately $379,000 and $625,000 respectively for anticipated environmental
remediation costs at the Aero facility. The decrease in accrued environmental
remediation costs was due to expenditures and additional information obtained
relating to the nature and extent of required remediation. Actual costs to be
incurred in future periods may vary from the estimate, given the inherent
uncertainties in evaluating environmental exposures. These uncertainties
included the extent of required remediation based on testing and evaluation not
yet completed and the varying costs and effectiveness of remediation methods.
BACKLOG: Though the Company has in previous years reported backlog in its
10-K and 10-Q filings, management has determined that the Company is not able to
calculate and report with any certainty or reliability for investors the backlog
of orders which is believed to be firm. Though Aero generally enters into
written customer contracts, which define the obligations of the parties when an
aircraft is input for service, those contracts usually do not firmly obligate
the customer to any certain number of aircraft or any certain time schedule for
inputting aircraft for service. Any estimate would also be subject to the
difficulties of estimating the likelihood of success of Aero's outstanding bids,
the inability to predict services to be provided in the future to drop-in
aircraft, and the fact that anticipated aircraft input dates often extend beyond
a single fiscal period. Further, estimates of the dollar value of service to be
rendered on any particular aircraft are difficult to make until the aircraft is
actually input and inspected.
RESEARCH AND DEVELOPMENT EXPENDITURES: Reference is made to Note A of the
Notes to Consolidated Financial Statements herein for the amounts of research
and development expenditures during the past three calendar years.
NUMBER OF EMPLOYEES: The Company and its subsidiaries employed a total of
752 persons at December 31, 1996. The Company has generally enjoyed good
relations with its employees.
2
<PAGE> 4
ITEM 2. PROPERTIES
The following are the locations and general character of the principal
plants and other materially important physical properties of the Company and its
subsidiaries:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE SQUARE FEET
INDUSTRY SEGMENT TOTAL OF FLOOR OWNED OR
AND LOCATION ACREAGE SPACE DESCRIPTION LEASED
---------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
CORPORATE OFFICES................. 5.3 80,000 Executive offices of the Company Owned
Dallas, Texas
AIRCRAFT MAINTENANCE.............. 120.0 650,000 Offices and aircraft rebuilding and Lease
Lake City, Florida modification facilities of Aero expiring 2022
Corporation
ELECTRONICS....................... 3.0 20,000 Offices and manufacturing facilities Owned
Fort Myers, Florida of Crystek Crystals Corporation
</TABLE>
Approximately 70,000 sq. ft. of the Dallas, Texas facility is on lease to
Hydroscience Technologies, Inc.
The Ft. Myers facility, owned by Crystek, is a part of the agreement to
sell the Electronics segment; see Note P.
The Company believes that its plants and other physical properties are
adequate for its intended operations. Aero has undertaken significant
renovations to the Lake City, Florida property in order to position itself to
attract additional commercial customers.
ITEM 3. LEGAL PROCEEDINGS
On May 10, 1991, an action was filed in the District Court of Dallas
County, Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and
President of Whitehall, against the Company, each of its directors (other than
Mr. Webster) and Cambridge Capital Fund, L.P., alleging, among other things,
that (i) the defendants' actions, both individually and in concert, constituted
willful interference with Mr. Webster's employment relationship with the Company
and was the direct cause of Mr. Webster's termination as its President and
Chairman of the Board, and (ii) the defendants' actions forced Mr. Webster into
retirement without providing Mr. Webster with retirement benefits which Mr.
Webster was purportedly promised. On August 17, 1994, the defendants were
granted a partial summary judgment. On October 24, 1994, Mr. Webster filed a
third amended petition and alleged the following causes of action: tortious
interference with contractual relations against Cambridge Capital Fund, L.P.,
and directors George F. Baker and John J. McAtee; intentional infliction of
emotional distress and breach of oral contracts. The third amended petition
sought compensatory and punitive damages in excess of $35 million. On January
12, 1995, the Court entered an abatement on one of the breach of oral contract
claims against the Company and entered a summary judgment in the defendants'
favor on all remaining claims alleged by Mr. Webster. On February 26, 1996, the
Court granted a summary judgment in favor of the defendants on Mr. Webster's
remaining claims and entered a take nothing final judgment which dismissed all
of Mr. Webster's claims with prejudice to refiling. On March 26, 1996, Mr.
Webster appealed the final judgment to the Dallas, Texas Court of Appeals.
Management intends to vigorously defend the appeal.
On September 22, 1992, Mr. Webster filed an action in the District Court of
Dallas County, Texas, against First City, Texas-Dallas ("First City"), the
Company and a former employee of the Company. As receiver for First City, the
Federal Deposit Insurance Corporation intervened and removed this case to the
U.S. District Court for the Northern District of Texas. The petition alleged,
among other things, that (i) the Company interfered with Mr. Webster's existing
and prospective contractual relationship with the former employee and First
City, a national banking institution; (ii) the Company has converted to its own
use the former employee's Company stock which allegedly was owned by Mr.
Webster; (iii) the Company, First City and the former employee conspired to
commit fraud against Mr. Webster; and (iv) the actions of the Company, First
City, and the former employee were intentionally done to cause Mr. Webster
emotional distress. The petition sought, among other things, not less than $1
million in compensatory damages, not less than $5 million in exemplary damages
and not less than $1 million as damages for emotional distress. By
3
<PAGE> 5
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
orders dated June 2, 1994 and June 20, 1994, the Company was granted a summary
judgment on all claims alleged by Mr. Webster. On July 31, 1995, the Court
entered a final judgment disposing of all claims alleged against all parties.
Mr. Webster appealed the final judgment to the United States Court of Appeals
for the Fifth Circuit. On June 10, 1996, the United States Court of Appeals for
the Fifth Circuit affirmed the lower Court ruling. This is the final ruling in
this case.
The Company is also involved in certain legal proceedings in the normal
course of its business. After consultation with counsel, management is of the
opinion that the outcome of the above-mentioned proceedings will not have a
material effect on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 17, 1997, shareholders' approved an amendment to the Company's
Restated Certificate of Incorporation increasing the number of authorized shares
of Common Stock from 5,000,000 shares to 20,000,000 shares. Of the 2,754,200
shares outstanding, 2,364,866 were represented at the special meeting of
stockholders. A total of 2,155,866 votes were cast in favor of the proposal,
206,050 against and 2,600 abstained. Following the meeting, the Certificate of
Amendment to the Restated Certificate of Incorporation of the Company was filed
with the State of Delaware.
The approval by stockholders of the amendment to the Company's certificate
of incorporation was a condition to implementing the two-for-one stock split of
the Company's common stock declared by the Board of Directors on January 29,
1997. The stock split was effected by a distribution of stock to all
stockholders of record on March 25, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names and ages of all executive officers of
the Company, all positions and offices of the Company presently held by such
persons, the commencement of the period of continuous service as an executive
officer, and the business experience of each operating officer during the past 5
years.
<TABLE>
<CAPTION>
NAME AGE OFFICES WITH COMPANY AND BUSINESS EXPERIENCE DURING PAST 5 YEARS
---- --- ----------------------------------------------------------------
<S> <C> <C>
George F. Baker................... 57 Chairman of the Board and Chief Executive Officer of the Company
since April 1991; President of the Company from October 1991
until April 1995; a Managing Partner of Cambridge Capital
Fund, L.P. since its formation in 1988; a Managing Partner of
Baker Nye Investments, L.P., since 1967.
John H. Wilson.................... 54 President of the Company since May 1995; Director of the Company
since July 1983. Served as interim President of the Company
from April 1991 until October 1991. Director of Capital
Southwest Corporation, Encore Wire Corporation, Norwood
Promotional Products, Inc. and Palm Harbor Homes, Inc. and has
been President of U. S. Equity Corporation since 1983.
E. Forrest Campbell............... 40 Vice President and Treasurer of the Company since June 1990;
Assistant Treasurer of the Company since 1985; various other
positions with the Company since 1975.
Daniel R. Donham.................. 43 Vice President and Controller of the Company since June 1990;
Assistant Controller of the Company since 1985; various other
positions with the Company since 1981.
</TABLE>
There are no family relationships between any of the executive officers.
Executive officers of the Company are not elected for a fixed term but
serve subject to the earlier of their resignation or removal by the Board of
Directors and until their respective successors are elected and qualified. The
Board of Directors is required to elect officers annually.
4
<PAGE> 6
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $0.10 par value (the "Common Stock") is listed
on the New York Stock Exchange ("NYSE"), the principal market in which these
securities are traded. The Company's only listing agreement is with the NYSE. At
March 24, 1997, the Company had 625 stockholders of record.
The table below shows the high and low sales prices of the Common Stock as
reported for the NYSE Composite Transactions for each quarter during the two
most recent calendar years. These historical prices have been adjusted to
reflect the 2 for 1 stock split declared January 29, 1997 in the form of a 100%
stock dividend to stockholders of record at the close of business on March 25,
1997.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
--------------- --------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996.................. $16.75 $13.75 $21.69 $15.75 $20.00 $15.69 $22.13 $18.50
1995.................. $12.13 $10.19 $16.56 $11.38 $19.50 $15.00 $19.88 $16.50
</TABLE>
The Company has not paid any cash dividends on its Common Stock, and its
policy is to retain earnings for use in its business.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales................................. $ 70,170 $ 56,229 $ 32,098 $ 30,910 $ 25,612
Cost of sales............................. 59,809 48,385 27,586 26,455 22,474
Gross profit.............................. 10,361 7,844 4,512 4,455 3,138
Income (loss) before taxes................ 6,523 3,838 (1,224) (3,190) (2,276)
Net income (loss)......................... 4,317 2,949 (1,224) (1,868) (1,486)
Net income (loss) per share*.............. 0.75 0.52 (0.23) (0.34) (0.24)
Average shares outstanding*............... 5,735,118 5,642,304 5,397,230 5,562,348 6,127,548
Cash flow from (used in) operations....... (4,084) (1,802) 1,990 (2,001) 2,187
Capital expenditures...................... 4,438 1,668 467 2,313 1,735
YEAR-END POSITION:
Total assets.............................. 44,936 41,182 32,213 32,863 37,858
Working capital........................... 19,223 21,398 17,739 20,813 26,869
Current ratio............................. 3.0 3.0 4.5 5.7 7.6
Property, plant and equipment -- net...... 9,654 6,869 6,384 7,099 6,209
Common shareholders' equity............... 34,825 30,099 26,989 28,239 33,548
Per share outstanding*.................... 6.33 5.54 4.99 5.22 5.75
YEAR-END STATISTICS:
Common shares outstanding*................ 5,505,400 5,439,800 5,412,600 5,412,000 5,841,200
Number of shareholders.................... 640 661 740 793 867
Number of employees....................... 752 682 512 528 538
Plant area (thousand sq. ft.)............. 680 750 767 846 846
</TABLE>
- ---------------
* Adjusted to reflect the 2 for 1 stock split declared January 29, 1997.
5
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Operating Results
Consolidated sales totaled $70,170,000 for 1996, an increase of 25% over
sales of $56,229,000 in 1995. Aircraft Maintenance segment sales increased by
$22,699,000 to $65,340,000 in 1996, primarily as a result of its continued
expansion into the third party commercial aircraft maintenance market. Sales in
the Ocean Systems segment decreased by $8,002,000 to $1,946,000 in 1996.
Revenues in the Ocean Systems segment decreased primarily as a result of
contract completions with no follow-on contract awards. In November 1996, the
Company sold substantially all of the assets of the Ocean Systems segment, see
Note D. Sales in the Electronics segment decreased by $756,000 to $2,884,000 in
1996. In February of 1997, the Company signed an agreement to sell the
Electronics segment, see Note P. Information about the Company's operations in
each segment is summarized in Note L.
Consolidated sales totaled $56,229,000 for 1995, an increase of 75% over
sales of $32,098,000 in 1994. Aircraft Maintenance segment sales increased by
$17,238,000 to $42,641,000 in 1995, primarily as a result of its continued
expansion into the third party commercial aircraft maintenance market. Sales in
the Ocean Systems segment increased by $6,126,000 to $9,948,000 in 1995.
Revenues in the Ocean Systems segment increased primarily as a result of new
product sales in the commercial geophysical market. Sales in the Electronics
segment increased by $767,000 to $3,640,000 in 1995.
The Company recorded an operating profit of $5,705,000 in 1996 compared to
an operating profit of $2,875,000 in 1995. The Aircraft Maintenance segment
reported an operating profit of $7,026,000 in 1996 compared to an operating
profit of $3,430,000 in 1995. The improved profitability in the Aircraft
Maintenance segment resulted primarily from the increase in sales. The Ocean
Systems segment reported an operating loss of $789,000 in 1996 compared to an
operating profit of $419,000 in 1995. The decline in sales was the primary
reason for the 1996 operating loss in the Ocean Systems segment. The Electronics
segment reported an operating profit of $557,000 in 1996 compared to an
operating profit of $796,000 in 1995. The decline in sales was the primary
reason for the lower 1996 operating profit in the Electronics segment. Corporate
office general and administrative expenses decreased to $968,000 in 1996
compared to $2,128,000 in 1995 primarily as a result of reductions in legal and
insurance expenses.
The Company recorded income from operations of $2,875,000 in 1995 compared
to an operating loss of $2,588,000 in 1994. This improvement resulted from
increased profitability in the Aircraft Maintenance segment (operating profit of
$3,430,000 in 1995 compared to operating profit of $743,000 in 1994),
accomplished through stringent cost control measures coupled with the increase
in sales volume. The Ocean Systems segment's improvement (operating profit of
$419,000 in 1995 compared to an operating loss of $2,156,000 in 1994) resulted
from the increase in sales coupled with a reduction in research and development
spending. The Electronics segment's profitability improved (operating profit of
$796,000 in 1995 compared to operating profit of $580,000 in 1994) through the
increase in sales volume. Corporate office general and administrative expenses
totaled $2,128,000 in 1995 compared to $1,672,000 in 1994.
Other income in 1996 includes interest earned of $307,000 and investment
income of $440,000. Other income in 1995 includes gains on sales of fixed assets
of $650,000 and interest earned of $671,000. Other income in 1994 includes gains
on sales of fixed assets of $512,000 and interest earned of $791,000.
The Company recorded net income tax expense of $2,206,000 for 1996 and
$889,000 in 1995. The Company did not record a net income tax benefit related to
the loss before income taxes in 1994 since the Company had used all available
loss carrybacks and any tax benefits resulting from losses must now be carried
forward. (See Note H).
Liquidity and Capital Resources
During 1996, cash used in operating activities totaled $4,084,000 compared
to cash used in operating activities of $1,802,000 in 1995.
6
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company made capital expenditures during 1996 of approximately
$4,438,000 compared to $1,668,000 and $467,000 in 1995 and 1994, respectively.
The majority of the capital expenditures in 1996 and 1995 relate to the Aircraft
Maintenance segment and were made to renovate the Aero facility in Lake City,
Florida. The 1994 expenditures mainly relate to test equipment in the Ocean
Systems segment. The Company will make capital and other expenditures during
1997 as conditions warrant. The Company believes its cash balances and line of
credit facility are sufficient to meet its short and long-term capital
requirements. Any future acquisitions may require additional capital.
Cash and cash equivalents decreased from approximately $7,382,000 in 1995
to $2,656,000 in 1996. The decrease is primarily the result of capital
expenditures ($4,438,000).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... 8
Consolidated Balance Sheets at December 31, 1996 and 1995... 9
Consolidated Statements of Operations and Retained Earnings
for the Years Ended December 31, 1996, 1995 and 1994...... 10
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.......................... 11
Notes to Consolidated Financial Statements.................. 12
Schedule II -- Valuation and Qualifying Accounts............ 25
</TABLE>
7
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Whitehall Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Whitehall
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations and retained
earnings and cash flows for the three years in the period then ended December
31, 1996. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule 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 financial statements referred to above present fairly,
in all material respects, the financial position of Whitehall Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the three years in the period then ended December 31,
1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 14, 1997
8
<PAGE> 10
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 2,656,000 $ 7,382,000
Accounts receivable, net.................................. 18,461,000 17,397,000
Income taxes receivable................................... 458,000 --
Inventories............................................... 6,440,000 7,137,000
Prepaid expenses and other................................ 656,000 397,000
------------ ------------
Total Current Assets.............................. 28,671,000 32,313,000
Investments................................................. 4,611,000 --
Property, Plant and Equipment:
Land...................................................... 399,000 399,000
Buildings................................................. 1,293,000 1,282,000
Machinery and equipment................................... 11,790,000 16,723,000
Leasehold improvements.................................... 8,710,000 6,777,000
------------ ------------
22,192,000 25,181,000
Allowances for depreciation and amortization.............. 12,538,000 18,312,000
------------ ------------
9,654,000 6,869,000
Notes Receivable............................................ 2,000,000 2,000,000
------------ ------------
Total Assets...................................... $ 44,936,000 $ 41,182,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.................. $ 6,239,000 $ 9,104,000
Bank line of credit....................................... 2,550,000 --
Current portion of long term debt......................... 280,000 --
Accrued environmental costs............................... 379,000 625,000
Federal income tax liability.............................. -- 1,186,000
------------ ------------
Total Current Liabilities......................... 9,448,000 10,915,000
Other Non-current Liabilities............................... 117,000 168,000
Long Term Debt.............................................. 546,000 --
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $5.00 par value:
Authorized 500,000 shares -- none issued.................. -- --
Common stock, $.10 par value:
Authorized 20,000,000 shares, issued 7,666,712 and
3,800,556 at December 31, 1996 and 1995.............. 767,000 380,000
Additional paid-in capital................................ 1,766,000 1,360,000
Retained earnings......................................... 48,437,000 44,504,000
------------ ------------
50,970,000 46,244,000
Less -- treasury stock (2,161,312 shares at December 31,
1996 and 1,080,656 at December 31, 1995), at cost...... (16,145,000) (16,145,000)
------------ ------------
34,825,000 30,099,000
------------ ------------
Total Liabilities and Shareholders' Equity........ $ 44,936,000 $ 41,182,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
9
<PAGE> 11
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Services............................................ $65,340,000 $42,641,000 $25,403,000
Products............................................ 4,830,000 13,588,000 6,695,000
----------- ----------- -----------
70,170,000 56,229,000 32,098,000
Cost of sales:
Services............................................ 56,033,000 37,510,000 23,115,000
Products............................................ 3,776,000 10,875,000 4,471,000
----------- ----------- -----------
59,809,000 48,385,000 27,586,000
Gross Profit........................................ 10,361,000 7,844,000 4,512,000
Selling, engineering and administrative............... 4,656,000 4,969,000 7,100,000
----------- ----------- -----------
Income (loss) from operations....................... 5,705,000 2,875,000 (2,588,000)
Other income, net..................................... 818,000 963,000 1,364,000
----------- ----------- -----------
Income (loss) before income taxes................... 6,523,000 3,838,000 (1,224,000)
Income taxes.......................................... (2,206,000) (889,000) --
----------- ----------- -----------
Net income (loss)................................... 4,317,000 2,949,000 (1,224,000)
Retained earnings at beginning of year................ 44,504,000 41,555,000 42,779,000
2 for 1 stock split effected in the form of a 100%
stock dividend...................................... (384,000) -- --
----------- ----------- -----------
Retained earnings at end of year.................... $48,437,000 $44,504,000 $41,555,000
=========== =========== ===========
Net income (loss) per share........................... $ 0.75 $ 0.52 $ (0.23)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 12
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 4,317,000 $ 2,949,000 $(1,224,000)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities --
Depreciation and amortization.................. 1,096,000 1,097,000 982,000
Gain on sale of fixed assets................... (11,000) (650,000) (512,000)
Investment (income) loss....................... (440,000) 329,000 --
Changes in operating assets and liabilities
excluding disposition --
Accounts receivable, net..................... (1,064,000) (10,409,000) (1,322,000)
Income taxes receivable...................... (458,000) -- 3,910,000
Federal income tax liability................. (1,186,000) 1,186,000 --
Deferred income taxes........................ -- (390,000) 77,000
Inventories.................................. (3,246,000) (833,000) (1,601,000)
Prepaid expenses and other................... 70,000 (144,000) 1,157,000
Accounts payable and accrued liabilities..... (2,865,000) 5,006,000 598,000
Other liabilities............................ (297,000) 57,000 (75,000)
----------- ----------- -----------
Total adjustments......................... (8,401,000) (4,751,000) 3,214,000
----------- ----------- -----------
Cash provided by (used in) operating
activities.............................. (4,084,000) (1,802,000) 1,990,000
Cash flows from investing activities:
Sales of marketable securities.................... -- -- 4,463,000
Capital expenditures.............................. (4,438,000) (1,668,000) (467,000)
Notes receivable.................................. -- 500,000 (2,541,000)
Proceeds from sale of fixed assets................ 11,000 735,000 711,000
----------- ----------- -----------
Cash provided by (used in) investing
activities.............................. (4,427,000) (433,000) 2,166,000
Cash flows from financing activities:
Net increase in line of credit.................... 2,550,000 -- --
Net increase in long term debt.................... 826,000 -- --
Issuance of common stock from exercise of stock
options........................................ 409,000 161,000 149,000
Purchases of treasury stock....................... -- -- (174,000)
----------- ----------- -----------
Cash provided by (used in) financing
activities.............................. 3,785,000 161,000 (25,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (4,726,000) (2,074,000) 4,131,000
Cash and cash equivalents at beginning of period.... 7,382,000 9,456,000 5,325,000
----------- ----------- -----------
Cash and cash equivalents at end of period.......... $ 2,656,000 $ 7,382,000 $ 9,456,000
=========== =========== ===========
Supplemental Information:
Cash paid during the year for:
Income taxes...................................... $ 3,720,000 $ -- $ --
Interest.......................................... 61,000 -- 22,000
Supplemental Schedule of Noncash Investing and Financing Activities:
Disposition of Ocean Systems segment inventory and fixed assets in exchange for Hydroscience
Technologies, Inc. Preferred stock:
Inventory...................................... $ 3,943,000 $ -- $ --
Fixed assets, net.............................. 557,000 -- --
Investment in Hydroscience Technologies, Inc.
Preferred stock.............................. (4,500,000) -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 13
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES AND PRACTICES
Consolidation: The consolidated financial statements of Whitehall
Corporation and subsidiaries (the "Company") include the accounts of all
subsidiaries after elimination of intercompany accounts and transactions.
Use of Estimates: Generally accepted accounting principles require
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications: Certain reclassifications have been made to 1995 and
1994 amounts to conform with the 1996 presentation.
Long-term Contracts: Revenue on long-term contracts is recognized using the
percentage of completion or unit of delivery method. On contracts where the
percentage of completion method is applied, revenue is accrued in the proportion
that costs incurred bear to management's estimate of total contract costs. Any
known or anticipated losses are provided for currently.
Concentration of Credit Risk: Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
temporary cash investments and accounts receivable. The Company places its
temporary cash investments with creditworthy financial institutions and, thus,
limits the amount of credit exposure to any one entity. The Company's customer
base is comprised primarily of U.S. airlines and air transport companies.
Inventories: Inventories are carried at average cost, not in excess of
market.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. Provisions for depreciation and amortization have been computed generally
using the straight-line method over the estimated useful lives of the assets.
Research and Development: Research and development costs are included in
selling, engineering and administrative expenses and amounted to approximately
$41,000 in 1996, $45,000 in 1995 and $1,993,000 in 1994.
Federal Income Taxes: The Company accounts for income taxes using an asset
and liability approach for financial accounting and income tax reporting.
Deferred tax liabilities and assets are recognized for the estimated future tax
effects attributable to temporary differences and carryforwards and are adjusted
whenever tax rates or other provisions of income tax statutes change.
The Company and all subsidiaries file a consolidated Federal income tax
return. Deferred Federal income taxes have been provided for temporary
differences between tax and financial reporting resulting primarily from
depreciation provisions, allowances and expense accruals.
Per Share Amounts: Per share computations are based on the weighted average
number of common shares outstanding, after giving effect to the 2 for 1 stock
split declared January 29, 1997 in the form of a 100% stock dividend to
stockholders of record at the close of business on March 25, 1997, of 5,735,118
in 1996, 5,642,304 in 1995, and 5,397,230 in 1994.
Joint Venture Investment: See Note D.
Accounting Changes: In 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Under SFAS No.
121, impairment losses are recognized when information indicates the carrying
amount of long-lived assets will not be recovered through future operations or
sale.
12
<PAGE> 14
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- ACCOUNTING POLICIES AND PRACTICES -- (CONTINUED)
Impairment losses for assets to be held or used in operations will be based on
the excess of the carrying amount of the asset over the asset's fair value. No
impairment losses were recorded in 1996.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." SFAS No. 123 requires the use of an option pricing model to
calculate the value of stock-based compensation transactions, but then allows
for two alternative methods of reporting the transactions. One method recognizes
this value as a cost of compensation and as an expense for the current period.
The alternative method permits footnote disclosure of the compensation cost,
without charging the amount against earnings. The Company has elected the
footnote disclosure alternative. See Note I.
Cash Equivalents: Cash equivalents consist of highly liquid debt
instruments purchased with an original maturity of three months or less.
Treasury Shares: During 1991, the Board of Directors authorized the
repurchase of up to 1,000,000 shares of the Company's common stock. An
additional authorization of 500,000 shares was made by the Board of Directors in
March 1993. As of December 31, 1994, a total of 1,257,800 shares had been
purchased under these authorizations. The Company did not acquire any treasury
stock during 1995 or 1996. The Company acquired 25,800 shares of its common
stock in 1994 at prices averaging $6.76 per share.
Other Income: Other income includes interest earned of $307,000 in 1996,
$671,000 in 1995 and $791,000 in 1994. Other income also includes gains on sales
of fixed assets of $11,000 in 1996, $650,000 in 1995 and $512,000 in 1994.
Employee Benefits: The Company offers no significant post-employment or
post-retirement benefits.
NOTE B -- ACCOUNTS RECEIVABLE, NET
Accounts receivable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Commercial accounts:
Accrued sales not billed.............................. $ 6,578,000 $ 6,607,000
Billed................................................ 10,916,000 9,821,000
----------- -----------
17,494,000 16,428,000
Receivables from foreign governments.................... 206,000 231,000
Receivables from U.S. Government........................ 184,000 450,000
----------- -----------
390,000 681,000
Advances to joint venture (see Note D).................. 1,095,000 1,020,000
Less -- allowance for doubtful accounts................. 518,000 732,000
----------- -----------
$18,461,000 $17,397,000
----------- -----------
</TABLE>
Accrued sales not billed will be billed on the basis of contract terms and
deliveries. All accrued amounts at December 31, 1996, are expected to be billed
and collected in 1997.
13
<PAGE> 15
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Finished goods............................................ $1,175,000 $2,849,000
Work in process........................................... 5,000 75,000
Raw materials............................................. 5,260,000 4,213,000
---------- ----------
$6,440,000 $7,137,000
========== ==========
</TABLE>
Costs included in inventories include raw materials and related labor and
overhead costs.
NOTE D -- INVESTMENTS
In November 1996, the Company sold substantially all of the assets related
to its Ocean Systems segment to Hydroscience Technologies, Inc. ("HTI") in
exchange for 818,182 shares of HTI Preferred Stock, which carries a liquidation
preference of $5.50 per share. At the Company's election, the HTI Preferred
Stock is convertible after December 31, 1997, into 45% of HTI's Common Stock.
The Company has no significant influence on the operations of HTI. Thus, the
Company's investment in HTI is accounted for under the cost method. Management
periodically evaluates the realizability of its investment.
The pro forma financial information presented below is for the years ended
December 31, 1996 and 1995. The pro forma financial information gives effect to
the sale of the Ocean Systems segment as if such transaction had occurred as of
January 1, 1995.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net sales................................................. $68,224,000 $46,281,000
Net income................................................ 5,007,000 2,949,000
Net income per share...................................... $ 0.87 $ 0.53
</TABLE>
The pro forma financial information does not purport to represent what the
results of operations of the Company would have actually been if the
aforementioned transaction had occurred on January 1, 1995, nor does it project
the results of operations for any future periods.
During 1994, the company obtained 40% ownership of a joint venture involved
in the development of aircraft-related technology for an initial investment of
$1,000. The Company accounts for its investment in the joint venture under the
equity method. In 1994, the Company obtained a promissory note for an advance of
$2,000,000 to the joint venture. The principal balance of the promissory note
accrues interest at a maximum rate of 5% per annum and the principal balance
with accrued interest is due January 5, 1999. The note is secured by certain
assets of the joint venture. During 1996 and 1995, the Company advanced an
additional $75,000 and $1,020,000 to the joint venture. These advances are
included in accounts receivable.
NOTE E -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Accounts payable............................................ $5,403,000 $8,207,000
Salaries, wages and payroll taxes........................... 836,000 897,000
---------- ----------
$6,239,000 $9,104,000
========== ==========
</TABLE>
14
<PAGE> 16
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- DEBT
The Company entered into a long term note and a credit facility during 1996
with a bank. The long term note is payable over three years at an interest rate
of 7.98% and is secured by property valued at $850,000. The credit facility
consists of a $5,000,000 line of credit agreement and a $3,000,000 standby
letter of credit agreement. Advances under the line of credit agreement accrue
interest at the prime interest rate. The Company also pays an annual commitment
fee of 1/4 of 1% on the unused portion of the line of credit. At December 31,
1996, the unused portion of the line of credit was $2,450,000. A $2,900,000
standby letter of credit was issued, pursuant to the standby letter of credit
agreement, in order to comply with the annual financial assurances required by
the Florida Department of Environmental Protection and related to the
environmental remediation being performed at the Company's Lake City, Florida
facility (See Note N). The standby letter of credit agreement has an annual
commitment fee of 1% of the amount of the letter of credit. The long term debt
consists of the following:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Note payable with interest at 7.98%, payable in monthly
installments of $23,611 principal plus interest on the
outstanding balance to maturity in November 1999, at which
time the remaining principal balance is due............... $826,000
Less: amounts payable within one year....................... 280,000
--------
$546,000
========
</TABLE>
This debt was incurred to finance the acquisition of certain fixed assets.
The total debt principal payments are $280,000 in 1997, $283,000 in 1998,
$263,000 in 1999, and zero thereafter.
The credit facility is unsecured and contains certain financial covenants
related to working capital, consolidated net income and consolidated tangible
net worth, among other restrictions. The Company is in compliance with the debt
covenants at December 31, 1996.
NOTE G -- SHAREHOLDERS' EQUITY
On January 29, 1997, the Board of Directors declared a 2 for 1 stock split
to be effected in the form of a 100% stock dividend to shareholders of record at
the close of business March 25, 1997. This stock split has been retroactively
accounted for by transferring $384,000 from retained earnings to common stock.
For all years presented, earnings per share and common stock equivalents reflect
this stock split.
Additionally, on March 17, 1997, the shareholders approved an amendment to
the Company's Restated Certificate of Incorporation increasing the number of
authorized shares of Common Stock from 5,000,000 shares to 20,000,000 shares.
NOTE H -- INCOME TAXES
Federal and state income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994
--------------------- ---------------------- -------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
---------- -------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal......................... $2,086,000 $-- $1,279,000 $(390,000) $62,000 $ (62,000)
State........................... 120,000 -- -- -- -- --
---------- --- ---------- --------- ------- ---------
$2,206,000 $-- $1,279,000 $(390,000) $62,000 $ (62,000)
========== === ========== ========= ======= =========
</TABLE>
15
<PAGE> 17
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- INCOME TAXES -- (CONTINUED)
The benefit for income taxes differs from the amount computed by applying
the Federal income tax rate to income before income taxes. The following table
summarizes the reasons for this difference:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory
rate......................................... 2,217,000 $1,315,000 $(416,000)
State taxes.................................... 120,000
Tax-exempt interest income..................... -- -- (4,000)
Alternative minimum tax........................ -- (12,000) 62,000
Change in deferred tax allowance............... (158,000) (515,000) 343,000
Other items -- net............................. 27,000 101,000 15,000
---------- ---------- ---------
$2,206,000 $ 889,000 $ --
========== ========== =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Short-term --
Uniform cost capitalization............................ $ -- $ 19,000
Expense accruals not deducted for tax purposes......... 520,000 596,000
--------- ---------
Total short-term.................................. 520,000 615,000
Long-term --
Other.................................................. 37,000 37,000
--------- ---------
Total deferred tax assets......................... 557,000 652,000
Less -- Valuation allowance............................... (184,000) (342,000)
--------- ---------
Net deferred tax asset................................. $ 373,000 $ 310,000
========= =========
Deferred tax liabilities
Short-term --
Costs deducted for tax purposes........................ $ 24,000 $ 56,000
Long-term --
Difference for depreciation of property, plant, and
equipment............................................ 349,000 254,000
--------- ---------
Total deferred tax liability...................... $ 373,000 $ 310,000
========= =========
</TABLE>
NOTE I -- STOCK OPTION PLANS
In May 1992, the stockholders approved the Whitehall Corporation Incentive
Stock Option Plan ("Incentive Plan") and the Whitehall Corporation Non-Employee
Directors Stock Option Plan ("Directors Plan"). The Incentive Plan provides for
the grant of incentive stock options for up to 650,000 shares of Common Stock to
key employees. The Directors Plan provides for the grant of incentive stock
options for up to 130,000 shares of Common Stock to non-employee Directors of
the Company. Under the Plans, the exercise price for stock options will not be
less than the fair market value of the optioned stock at the date of grant.
Stock options expire ten years from the date of grant and generally vest over a
five year period with one-fifth of the shares becoming exercisable on each of
the five anniversaries of the date of grant. As December 31, 1996, 1995 and 1994
there were 218,600, 196,200 and 137,600 options exercisable, respectively. The
option
16
<PAGE> 18
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- STOCK OPTION PLANS -- (CONTINUED)
period under both Plans may not be more than ten years from the date the option
is granted. Transactions involving the Plans are summarized as follows:
<TABLE>
<CAPTION>
SHARES
--------
<S> <C>
Options outstanding, December 31, 1993...................... 544,000
Granted ($5.94-$6.31 per share)........................... 100,000
Canceled ($5.63-$8.50 per share).......................... (213,600)
Exercised ($5.63 per share)............................... (26,400)
--------
Options outstanding, December 31, 1994...................... 404,000
Granted ($14.13 per share)................................ 20,000
Canceled.................................................. --
Exercised ($5.63-$7.75 per share)......................... (27,200)
--------
Options outstanding, December 31, 1995...................... 396,800
Granted ($17.75-$19.53 per share)......................... 130,000
Canceled.................................................. --
Exercised ($5.81-$7.75 per share)......................... (65,600)
--------
Options outstanding, December 31, 1996...................... 461,200
</TABLE>
In 1996, the Company issued 65,600 shares of common stock in conjunction
with the exercise of employee stock options, resulting in a $6,000 increase in
common stock and a $406,000 increase in additional paid-in-capital.
The Company accounts for its stock option plans in accordance with
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized for stock option awards. In 1996, the Company adopted SFAS No.
123, which requires that options be priced using the fair value method, and has
elected the disclosure only alternative. The fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model. Using the fair value method to determine compensation costs, the
Company's pro forma net income and net income per share would be:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income:
As Reported............................................... $4,317,000 $2,949,000
Pro Forma................................................. 3,355,000 2,829,000
Net income per share:
As Reported............................................... $ 0.75 $ 0.52
Pro Forma................................................. 0.59 0.50
The following assumptions were used for the 1996 and 1995 grants:
Risk free interest rate................................... 7.03% 7.24%
Expected dividend yield................................... -- --
Expected life of options.................................. 10 years 10 years
Expected volatility....................................... 38.19% 38.33%
</TABLE>
17
<PAGE> 19
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- STOCK OPTION PLANS -- (CONTINUED)
The weighted average fair value of the stock options granted during 1996
and 1995 was $11.22 and $9.11, respectively. The weighted average exercise
prices of the stock options outstanding and exercisable in 1996, 1995 and 1994
are:
<TABLE>
<CAPTION>
1996 1994 1995
------ ------ -----
<S> <C> <C> <C>
Outstanding at beginning of the year...................... $ 6.80 $ 6.38 $6.28
Granted................................................. 18.30 14.13 6.09
Exercised............................................... 6.24 5.90 5.63
Canceled................................................ -- -- 6.09
Outstanding at end of year................................ 10.12 6.80 6.38
Exercisable at end of year................................ $ 6.67 $ 6.47 $6.40
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
NOTE J -- SAVINGS PLAN
The Company implemented a voluntary 401(k) savings plan for eligible
employees (as defined by the Plan document) effective September 1, 1992. The
Company contributed $50 per enrolling employee in 1995 and 1994. In 1995 and
1996 the Company contributed $0.10 for every $1 contributed by each employee.
The Company may make future matching contributions at its discretion. Company
contributions totaled approximately $40,000 in 1996, $25,000 in 1995 and $1,300
in 1994. The Company's contributions vest over a six-year period.
NOTE K -- LEASES
Total rental expense amounted to approximately $305,000 in 1996, $105,000
in 1995 and $219,000 in 1994.
The aggregate future minimum rental commitments as of December 31, 1996,
for all noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 29,000
1998........................................................ 25,000
1999........................................................ 30,000
2000........................................................ 30,000
2001........................................................ 30,000
Thereafter.................................................. 1,832,000
----------
............................................................ $1,976,000
==========
</TABLE>
NOTE L -- INDUSTRY SEGMENTS AND MAJOR CUSTOMERS
The Company operated in three segments during 1996: Aircraft Maintenance,
Electronics and Ocean Systems. The Aircraft Maintenance segment rebuilds,
modifies and maintains turboprop and jet aircraft. The Electronics segment
manufactures and distributes quartz crystals and oscillators. The Ocean Systems
segment designs and manufactures marine sensing systems for geophysical and
military applications. See Item 1 for a complete description of the business
segments.
18
<PAGE> 20
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- INDUSTRY SEGMENTS AND MAJOR CUSTOMERS -- (CONTINUED)
Operating profit represents total revenue less operating expenses,
excluding general corporate expenses and interest expense. Identifiable assets
are those assets used in each segment. Corporate assets are principally cash,
prepaid items and capital assets.
Information about the Company's operations in the different segments is
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Aircraft Maintenance................................ $65,340 $42,641 $25,403
Electronics......................................... 2,884 3,640 2,873
Ocean Systems....................................... 1,946 9,948 3,822
------- ------- -------
$70,170 $56,229 $32,098
======= ======= =======
Operating profit and income (loss) before taxes:
Aircraft Maintenance................................ $ 7,026 $ 3,430 $ 743
Electronics......................................... 557 796 580
Ocean Systems....................................... (789) 419 (2,156)
------- ------- -------
$ 6,794 $ 4,645 $ (833)
======= ======= =======
Corporate:
Interest income..................................... $ 307 $ 671 $ 791
Investment income................................... 440 -- --
Gain on sale of assets.............................. 11 650 512
General and administrative expenses................. (968) (2,128) (1,672)
Interest expense.................................... (61) -- (22)
------- ------- -------
Income (loss) before taxes.......................... $ 6,523 $ 3,838 $(1,224)
======= ======= =======
Identifiable assets:
Aircraft Maintenance................................ $32,507 $24,078 $14,520
Electronics......................................... 2,216 2,627 1,747
Ocean Systems....................................... 0 6,518 4,934
Corporate........................................... 10,213 7,959 11,012
------- ------- -------
$44,936 $41,182 $32,213
======= ======= =======
Depreciation and amortization:
Aircraft Maintenance................................ $ 776 $ 813 $ 757
Electronics......................................... 50 27 33
Ocean Systems....................................... 193 219 153
Corporate........................................... 77 38 39
------- ------- -------
$ 1,096 $ 1,097 $ 982
======= ======= =======
Capital expenditures:
Aircraft Maintenance................................ $ 3,395 $ 1,441 $ 164
Electronics......................................... 100 46 28
Ocean Systems....................................... 5 181 275
Corporate........................................... 938 -- --
------- ------- -------
$ 4,438 $ 1,668 $ 467
======= ======= =======
</TABLE>
19
<PAGE> 21
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- INDUSTRY SEGMENTS AND MAJOR CUSTOMERS -- (CONTINUED)
The Company has three customers in the Aircraft Maintenance segment that
account for at least 10% of 1996 consolidated revenues: Valujet Airlines,
Continental Airlines and Emery Worldwide. Valujet Airlines accounted for
approximately 26% of consolidated net sales in 1996, 30% of consolidated net
sales in 1995 and 11% of consolidated net sales in 1994. Continental Airlines
accounted for approximately 15% of consolidated net sales in 1996 and 21% of
consolidated net sales in 1995. Emery Worldwide accounted for approximately 14%
of consolidated net sales in 1996, 9% of consolidated net sales in 1995 and 25%
of consolidated net sales in 1994. Southern Air Transport accounted for
approximately 5% of consolidated net sales in 1996, 2% of consolidated net sales
in 1995 and 18% of consolidated net sales in 1994. The United States Government
accounted for approximately 2% of consolidated net sales in 1995 and 10% of
consolidated net sales in 1994. The Company made no sales to the U.S. Government
during 1996.
NOTE M -- SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MAR. 31 JUNE 30 SEP. 30 DEC. 31 TOTAL
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1996:
Net sales...................................... $20,187 $20,221 $16,318 $13,444 $70,170
Gross profit................................... 3,092 2,879 2,197 2,193 10,361
Net income..................................... 1,063 1,129 1,187 938 4,317
Net income per common share*................... $ 0.19 $ 0.20 $ 0.21 $ 0.16 $ 0.75
1995:
Net sales...................................... $14,299 $14,004 $12,705 $15,221 $56,229
Gross profit................................... 1,828 2,131 1,925 1,960 7,844
Net income..................................... 568 674 836 871 2,949
Net income per common share*................... $ 0.11 $ 0.12 $ 0.15 $ 0.15 $ 0.52
</TABLE>
- ---------------
* Restated to give effect to 100% stock dividend to stockholders' of record at
the close of business on March 25, 1997.
NOTE N -- COMMITMENTS AND CONTINGENCIES
On May 10, 1991, an action was filed in the District Court of Dallas
County, Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and
President of Whitehall, against the Company, each of its directors (other than
Mr. Webster) and Cambridge Capital Fund, L.P., alleging, among other things,
that (i) the defendants' actions, both individually and in concert, constituted
willful interference with Mr. Webster's employment relationship with the Company
and was the direct cause of Mr. Webster's termination as its President and
Chairman of the Board, and (ii) the defendants' actions forced Mr. Webster into
retirement without providing Mr. Webster with retirement benefits which Mr.
Webster was purportedly promised. On August 17, 1994, the defendants were
granted a partial summary judgment. On October 24, 1994, Mr. Webster filed a
third amended petition and alleged the following causes of action: tortious
interference with contractual relations against Cambridge Capital Fund, L.P.,
and directors George F. Baker and John J. McAtee; intentional infliction of
emotional distress and breach of oral contracts. The third amended petition
sought compensatory and punitive damages in excess of $35 million. On January
12, 1995, the Court entered an abatement on one of the breach of oral contract
claims against the Company and entered a summary judgment in the defendants'
favor on all remaining claims alleged by Mr. Webster. On February 26, 1996, the
Court granted a summary judgment in favor of the defendants on Mr. Webster's
remaining claims and entered a take nothing final judgment which dismissed all
of Mr. Webster's claims with prejudice to refiling. On March 26, 1996, Mr.
Webster appealed the final judgment to the Dallas, Texas Court of Appeals.
Management intends to vigorously defend the appeal.
20
<PAGE> 22
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
On September 22, 1992, Mr. Webster filed an action in the District Court of
Dallas County, Texas, against First City, Texas-Dallas ("First City"), the
Company and a former employee of the Company. As receiver for First City, the
Federal Deposit Insurance Corporation intervened and removed this case to the
U.S. District Court for the Northern District of Texas. The petition alleged,
among other things, that ( i ) the Company interfered with Mr. Webster's
existing and prospective contractual relationship with the former employee and
First City, a national banking institution; (ii) the Company has converted to
its own use the former employee's Company stock which allegedly was owned by Mr.
Webster; (iii) the Company, First City and the former employee conspired to
commit fraud against Mr. Webster; and (iv) the actions of the Company, First
City, and the former employee were intentionally done to cause Mr. Webster
emotional distress. The petition sought, among other things, not less than $1
million in compensatory damages, not less than $5 million in exemplary damages
and not less than $1 million as damages for emotional distress. By orders dated
June 2, 1994 and June 20, 1994, the Company was granted a summary judgment on
all claims alleged by Mr. Webster. On July 31, 1995, the Court entered a final
judgment disposing of all claims alleged against all parties. Mr. Webster
appealed the final judgment to the United States Court of Appeals for the Fifth
Circuit. On June 10, 1996, the United States Court of Appeals for the Fifth
Circuit affirmed the lower Court ruling. This is the final ruling in this case.
Aero is taking remedial action pursuant to Environmental Protection Agency
("EPA") regulations at the Lake City, Florida facility. The Company does not
anticipate any material direct effects upon the capital expenditures, earnings
and competitive position of the Company from compliance with present Federal,
State and local provisions which have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment. The Company does expect, however, that compliance
with such regulations will require, from time to time, both increased operating
costs and capital expenditures which may be substantial. As of December 31, 1996
and 1995, the Company had reserved approximately $379,000 and $625,000
respectively for anticipated environmental remediation costs at the Aero
facility. The decrease in accrued environmental remediation costs was due to
expenditures and additional information obtained relating to the nature and
extent of required remediation. Actual costs to be incurred in future periods
may vary from the estimate, given the inherent uncertainties in evaluating
environmental exposures. These uncertainties included the extent of required
remediation based on testing and evaluation not yet completed and the varying
costs and effectiveness of remediation methods.
To comply with the financial assurances required by the Florida Department
of Environmental Protection (FDEP), the Company requested and a bank issued a
$2,900,000 standby letter of credit in favor of the FDEP. This letter of credit
meets all conditions required by the FDEP.
The Company is also involved in certain legal proceedings in the normal
course of its business. After consultation with counsel, management is of the
opinion that the outcome of the above-mentioned proceedings will not have a
material effect on the financial position or results of operations of the
Company.
NOTE O -- RELATED PARTY TRANSACTIONS
On December 31, 1996, two officers of the Company were indebted to the
Company in the aggregate amount of approximately $363,000. This amount is
classified as accounts receivable and is fully reserved.
NOTE P -- SUBSEQUENT EVENT
In February 1997, the Company signed an agreement, which is dependent upon
the buyer securing financing, to sell its Electronics segment to a group of
private investors for $2,714,000. The purchase consideration consists of
$1,867,000 in cash and $847,000 in promissory notes bearing interest at a rate
of 10% per annum.
21
<PAGE> 23
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- SUBSEQUENT EVENT -- (CONTINUED)
The pro forma financial information presented below is for the years ended
December 31, 1996 and 1995, and gives effect to the sale of the Electronics
segment and the Ocean Systems segment as if such transactions had occurred on
January 1, 1995.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net sales................................................... $65,340,000 $42,641,000
Net income.................................................. 4,694,000 2,484,000
Net income per share........................................ 0.82 0.44
</TABLE>
The pro forma financial information does not purport to represent what the
results of operations of the Company would have actually been if the
aforementioned transactions had occurred on January 1, 1995, nor does it project
the results of operations for any future periods.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Executive Officers of the Registrant is
contained in Part I of this Annual Report under the caption "Executive Officers
of the Registrant." Information with respect to the Directors of the Registrant
is contained in the definitive proxy statement under the captions "Election of
Directors," "Nominees for Election as Directors," "Security Ownership of Certain
Beneficial Owners," "Security Ownership of Management" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" in the definitive proxy statement is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners" and "Security Ownership
of Management" in the definitive proxy statement are incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Certain Relationships and Related Transactions" in the definitive proxy
statement are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following consolidated financial statements of the Company and
its subsidiaries are included in Item 8:
Consolidated Balance Sheets at December 31, 1996 and 1995
22
<PAGE> 24
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K --
(CONTINUED)
Consolidated Statements of Income and Retained Earnings for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. The following consolidated financial statement schedule of the Company
and its subsidiaries is included herewith on page 25:
Schedule II -- Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE TO DESCRIPTION
------- ---------------------------- -----------
<C> <S> <C>
(3) Form 10-K December 31, 1987 a. Restated Certificate of Incorporation
Form 10-K December 31, 1996 b. Amendment to Restated Certificate of
Incorporation
Form 10-K December 31, 1992 c. Restated bylaws
(10) MATERIAL CONTRACTS
Form 10-K December 31, 1987 a. Resolutions adopted by the Compensation
Committee of the Board of Directors of
Whitehall Corporation on March 14, 1988,
approved by the full Board of Directors on
March 22, 1988, relating to benefits payable
to survivors of Mr. Lee D. Webster.
Form 10-K December 31, 1974 b. Whitehall Corporation Management Security
Agreements
Form 10-K December 31, 1992 c. Whitehall Corporation Incentive Stock Option
Plans
Form 10-K December 31, 1992 d. Whitehall Corporation Non-Employee Directors
Stock Option Plan, as amended by Amendment No.
1 thereto
Form 10-K December 31, 1992 e. Lease between Aero Corporation and City of Lake
City, Florida dated December 30, 1992
Form 10-K December 31, 1996 f. Line of Credit Agreement between Comerica Bank
and Whitehall Corporation dated January 24,
1996
(21) -- SUBSIDIARIES OF THE REGISTRANT
(23) -- CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(27) -- FINANCIAL DATA SCHEDULE
</TABLE>
The Registrant will furnish, upon request, a copy of any Exhibit upon the
payment of its reasonable expenses for duplicating and mailing such Exhibit.
(b) Reports on Form 8-K
The Company has not filed a report on Form 8-K during the last quarter of
the period covered by this report.
23
<PAGE> 25
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.
WHITEHALL CORPORATION
By /s/ G.F. BAKER
-----------------------------------
George F. Baker
Chairman of the Board
Date: March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ G.F. BAKER Chairman of the Board (Principal March 26, 1996
- ----------------------------------------------------- executive officer)
George F. Baker
/s/ JOHN H. WILSON President March 26, 1996
- -----------------------------------------------------
John H. Wilson
/s/ E. F. CAMPBELL III Vice President and Treasurer March 26, 1996
- ----------------------------------------------------- (Principal financial officer)
E. Forrest Campbell, III
/s/ DANIEL R. DONHAM Vice President and Controller March 26, 1996
- ----------------------------------------------------- (Principal accounting officer)
Daniel R. Donham
/s/ BRUCE C. CONWAY Director March 26, 1996
- -----------------------------------------------------
Bruce C. Conway
/s/ ARTHUR H. HUTTON Director March 26, 1996
- -----------------------------------------------------
Arthur H. Hutton
/s/ JOHN J. MCATEE Director March 26, 1996
- -----------------------------------------------------
John J. McAtee, Jr.
/s/ J.S. PARKER Director March 26, 1996
- -----------------------------------------------------
Jack S. Parker
/s/ LEWIS S. WHITE Director March 26, 1996
- -----------------------------------------------------
Lewis S. White
</TABLE>
24
<PAGE> 26
SCHEDULE II
WHITEHALL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
----------------------------------------------------------------------
BALANCE AT CHARGES CHARGED TO BALANCE AT
BEGINNING TO COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ------------ -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1996:
Reserves and allowances
deducted from asset
accounts --
Allowance for uncollectible
accounts................. $ 732,000 $ -- $ -- $214,000(1) $ 518,000
Allowance for obsolete
inventory................ 300,000 -- -- 300,000(4) --
---------- ---------- -------- -------- ----------
Totals.............. $1,032,000 $ -- $ -- $514,000 518,000
========== ========== ======== ======== ==========
Accrued environmental cost.... $ 625,000 $ -- $ -- $246,000(2) $ 379,000
========== ========== ======== ======== ==========
YEAR ENDED
DECEMBER 31, 1995:
Reserves and allowances
deducted from asset
accounts --
Allowance for uncollectible
accounts................. $ 858,000 $ 748,000 $ -- $874,000(1) $ 732,000
Allowance for obsolete
inventory................ -- 300,000 -- -- 300,000
---------- ---------- -------- -------- ----------
Totals.............. $ 858,000 $1,048,000 $ -- $874,000 $1,032,000
========== ========== ======== ======== ==========
Accrued environmental cost.... $ 736,000 $ 416,000 $ -- $527,000(2) $ 625,000
========== ========== ======== ======== ==========
YEAR ENDED
DECEMBER 31, 1994:
Reserves and allowances
deducted from asset
accounts-- --
Allowance for uncollectible
accounts................. $ 828,000 $ 94,000 $ -- $ 64,000(1) $ 858,000
Allowance for obsolete
inventory................ 30,000 -- -- 30,000(3) --
---------- ---------- -------- -------- ----------
Totals.............. $ 858,000 $ 94,000 $ -- $ 94,000 $ 858,000
========== ========== ======== ======== ==========
Accrued environmental cost.... $ 538,000 $ 416,000 $ -- $ 218,00(2) $ 736,000
========== ========== ======== ======== ==========
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Environmental clean up costs incurred.
(3) Inventory cost adjustments
(4) Reserve adjustment
25
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE TO DESCRIPTION
------- ---------------------------- -----------
<C> <S> <C>
(3) Form 10-K December 31, 1987 a. Restated Certificate of Incorporation
Form 10-K December 31, 1996 b. Amendment to Restated Certificate of
Incorporation
Form 10-K December 31, 1992 c. Restated bylaws
(10) MATERIAL CONTRACTS
Form 10-K December 31, 1987 a. Resolutions adopted by the Compensation
Committee of the Board of Directors of
Whitehall Corporation on March 14, 1988,
approved by the full Board of Directors on
March 22, 1988, relating to benefits payable
to survivors of Mr. Lee D. Webster.
Form 10-K December 31, 1974 b. Whitehall Corporation Management Security
Agreements
Form 10-K December 31, 1992 c. Whitehall Corporation Incentive Stock Option
Plans
Form 10-K December 31, 1992 d. Whitehall Corporation Non-Employee Directors
Stock Option Plan, as amended by Amendment No.
1 thereto
Form 10-K December 31, 1992 e. Lease between Aero Corporation and City of Lake
City, Florida dated December 30, 1992
Form 10-K December 31, 1996 f. Line of Credit Agreement between Comerica Bank
and Whitehall Corporation dated January 24,
1996
(21) -- SUBSIDIARIES OF THE REGISTRANT
(23) -- CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(27) -- FINANCIAL DATA SCHEDULE
</TABLE>
<PAGE> 1
EXHIBIT 3(b)
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
WHITEHALL CORPORATION
Whitehall Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. At a meeting of the Board of Directors of Whitehall Corporation
lawfully convened, a resolution was unanimously adopted setting forth a proposed
amendment to the Restated Certificate of Incorporation of said Special Meeting
of stockholders. The resolution is as follows:
RESOLVED, that Section 4.01 of Article IV of the Restated Certificate of
Incorporation of the Corporation be amended by changing said Section in its
entirety so as to read as follows:
"Section 4.01. The total number of shares of capital stock
which the corporation shall have authority to issue is
20,500,000 consisting of 500,000 shares of preferred stock, par
value $5.00 per share, and 20,000,000 shares of common stock,
par value $0.10 per share."
2. A Special Meeting of Stockholders of said Corporation was, on
proper notice in accordance with Section 222 of the General Corporation Law of
the State of Delaware, duly called and held on March 17, 1997, at which Special
Meeting the necessary number of stockholders required by statute cast their
votes in favor of the foregoing amendment.
3. Said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation law of the State of
Delaware.
4. The capital of said Corporation will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said Whitehall Corporation has caused this
certificate to be signed by George F. Baker, its Chairman of the Board, this
17th day of March, 1997.
WHITEHALL CORPORATION
By: /s/ GEORGE F. BAKER
-------------------------
George F. Baker
Chairman of the Board
<PAGE> 1
EXHIBIT 10(f)
CREDIT AGREEMENT
This Agreement is entered into as of January 24, 1996 by and between
WHITEHALL CORPORATION, a Delaware corporation ("Borrower"), whose address is
2659 Nova Drive, Dallas, Texas 75229, and COMERICA BANK - TEXAS, ("Lender")
whose address is 1601 Elm Street, Dallas, Texas 75201. In consideration of
Lender's making the following described loans, the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto,
Borrower and Lender agree as follows:
SECTION 1. DEFINED TERMS
As used in this Agreement, the following terms shall have the
following meanings, unless the context otherwise requires:
"Agreement" means this Credit Agreement, as the same may from time to
time be amended or supplemented.
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls or is controlled by or is under common control
with such Person and without limiting the generality of the foregoing, includes
(a) each Person that owns or controls, whether beneficially, or as trustee,
guardian or other fiduciary, five percent (5%) or more of any class of voting
securities of such Person, (b) each Person in which five percent (5%) or more
of any class or series of voting securities (or in the case of a Person that is
not a corporation, five percent (5%) or more of the equity interest) is owned
or controlled by such Person, and (c) each of such Person's officers,
directors, joint venturers and partners. For the purpose of this definition,
"control" (including, with correlative meanings the terms "controlled by" and
"under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through
ownership of voting securities or by contract or otherwise.
"AvAero" means AvAero Noise Reduction Joint Venture, a joint venture
organized under the laws of the State of Delaware.
"Business Day" means a day (other than Saturday, Sunday or a legal
holiday) on which commercial banks are open for business in Dallas, Texas;
provided, however, if such date relates to a borrowing of, a payment or
prepayment of principal of or interest on, a conversion of or into, or LIBOR
Interest Period for, a LIBOR Loan or a notice by Borrower with respect to any
such borrowing, payment, prepayment or LIBOR Interest Period, the term
"Business Day" shall also exclude any day on which banks are not open for
dealings in Dollar deposits in the London interbank market.
"Commitments" mean the Line of Credit Commitment and the Letter of
Credit Commitment.
"Commitment Fee" means the fee payable by Borrower to Lender pursuant
to Section 2.11 of this Agreement.
PAGE 1
<PAGE> 2
"Consolidated Current Assets" means all assets of Borrower and the
Subsidiaries that, in accordance with GAAP, would be included as current assets
on a consolidated balance sheet of Borrower and the Subsidiaries.
"Consolidated Current Liabilities" means all liabilities of Borrower
and the Subsidiaries that, in accordance with GAAP, would be included as
current liabilities on a consolidated balance sheet of Borrower and the
Subsidiaries.
"Consolidated Net Income" means, for any period, the consolidated net
income of Borrower and the Subsidiaries during such period as determined in
accordance with GAAP.
"Consolidated Tangible Effective Net Worth" means, at any particular
time, all amounts which, in conformity with GAAP, would be included as
shareholder equity on a consolidated balance sheet of Borrower and the
Subsidiaries, plus Subordinated Debt; provided, however, there shall be
excluded therefrom; (a) notes receivable and/or accounts receivable from any
director, officer or employee of Borrower or any Subsidiary, (b) the amount of
all loans and advances to, and investments in, AvAero and the Joint Venturers
in excess of $2,500,000.00, in the aggregate, (c) any amount attributable to
treasury shares, (c) goodwill, including any amounts however designated, that
represent the excess of the purchase price paid for assets or stock over the
value assigned thereto, (d) patents, trademarks, trade names and copyrights,
and (e) all other assets which are properly classified as intangible assets.
"Consolidated Tangible Net Worth" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as shareholder equity
on a consolidated balance sheet of Borrower and the Subsidiaries; provided,
however, there shall be excluded therefrom; (a) notes receivable and/or
accounts receivable from any director, officer or employee of Borrower or any
Subsidiary, (b) the amount of all loans and advances to, and investments in,
AvAero and the Joint Venturers in excess of $2,500,000.00, in the aggregate,
(c) any amount attributable to treasury shares, (c) goodwill, including any
amounts however designated, that represent the excess of the purchase price
paid for assets or stock over the value assigned thereto, (d) patents,
trademarks, trade names and copyrights, and (e) all other assets which are
properly classified as intangible assets.
"Consolidated Total Liabilities" means, at any particular time, all
amounts which in conformity with GAAP, would be included as liabilities on a
consolidated balance sheet of Borrower and the Subsidiaries.
"Conversion Election Notice" means the written notice given by
Borrower to Lender of Borrower's election to create a Tranche in accordance
with Section 2.1(e) hereof. Each Conversion Election Notice shall be in the
form of Exhibit "A" attached hereto.
"Debt" means, with respect to any Person, all liabilities, obligations
and reserves of such Person, contingent or otherwise, which in accordance with
GAAP, would be reflected as a liability on a balance sheet or would be required
to be disclosed in a financial statement, including, without limitation or
duplication (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes and other
similar instruments, (c) all obligations of such Person issued or assumed as
the deferred purchase price of property or services, (d) all obligations under
leases which shall have been or should be, in accordance with GAAP, recorded as
capital leases in respect of which such Person is liable as lessee, (e) all
guarantees, endorsements, and other contingent obligations of such Person with
respect to the
PAGE 2
<PAGE> 3
obligations of other Persons of the type described in (a) through (d) preceding
including, but not limited to, any obligations to acquire any of such
obligations, to purchase, sell, or furnish property or services primarily for
the purpose of enabling such other Person to make payment of any of such
obligations and/or to assure the owner of any of such obligations against loss
with respect thereto, (f) all reimbursement obligations, contingent or
otherwise, in respect of letters of credit, surety and appeal bonds and
performance bonds or similar instruments assuring any other Person of the
performance of any act or acts or the payment of any obligation, (g) all Debt
referred to in clauses (a), (b), (c), (d), (e) or (f) above secured by (or for
which the holder of such Debt has an existing right, contingent or otherwise,
to be secured by) any lien, security interest or other charge or encumbrance
upon or in property owned by such Person, even though such Person has not
assumed or become liable for the payment of such Debt, and (h) liabilities in
respect of unfunded vested benefits under any Plans.
"Default" means any of the events or conditions specified in Section
6.1 of this Agreement, whether or not any requirement for notice or lapse of
time or any other condition has been satisfied.
"Documentary Letters of Credit" means the letters of credit issued by
Lender for the account of Borrower and for any of its Subsidiaries pursuant to
Section 2.1 hereof.
"Dollar" and "$" each mean the lawful money of the United States of
America.
"Drawdown Termination Date" means April 15, 1997.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means any of the events or conditions specified in
Section 6.1 of this Agreement, provided that any requirement for notice or
lapse of time or any other condition has been satisfied.
"Financial Statements" means the financial statements of Borrower and
the Subsidiaries described or referred to in Section 3.9 of this Agreement.
"Fluctuating Rate" means a varying rate of interest per annum equal at
all times to the Prime Rate (but in no event to exceed the Maximum Rate), with
adjustments in such varying rate to be on the same date as any change in the
Prime Rate.
"Fluctuating Rate Loan" means any Loan with respect to which Borrower
shall have selected the Fluctuating Rate in accordance with Section 2.1 hereof.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their successors
which are applicable in the circumstances as of the date in question; provided,
however, for purposes of determining compliance with any covenant set forth in
Article 4 hereof, such terms shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a basis consistent with the
application used in Borrower's audited financial statements referred to in
Section 3.8 hereof. Accounting principles are applied on a "consistent basis"
when the accounting principles applied in a current period are comparable in
all material respects to those accounting principles applied in a preceding
period.
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<PAGE> 4
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty Agreements" means the guaranty agreements executed and
delivered to Lender pursuant to Section 7.1 of this Agreement and all other
guaranty agreements hereafter executed which guarantee the payment of the
Indebtedness.
"Indebtedness" means any and all amounts owing and to be owing by
Borrower and each of the Subsidiaries in connection with this Agreement, the
Note, and the other Loan Documents and all other liabilities and indebtedness
of Borrower and each of the Subsidiaries to Lender from time to time existing,
whether in connection with this or other transactions.
"Interest Payment Date" means (a) with respect to each Fluctuating
Rate Loan (i) the first (1st) day of each calendar month commencing February 1,
1996, (ii) the Drawdown Termination Date, and (iii) any day on which past due
interest or principal is owed hereunder and is unpaid, and (b) with respect to
each LIBOR Loan (i) the first (1st) day of each calendar month commencing
February 1, 1996, (ii) the day on which the LIBOR Interest Period related to
such LIBOR Loan ends and (iii) any day on which past due interest or principal
is owed hereunder and is unpaid.
"Joint Venturers" mean Aero Hushkit Corporation, Aero Corporation and
WDW Aviation Management, Inc.
"LIBOR Base Rate" means the rate of interest per annum determined
pursuant to the following formula:
LIBOR
---------------------------------
LIBOR Base Rate = 1 - LIBOR Reserve Percentage
WHERE:
(a) "LIBOR" means the interest rate per annum equal to
the arithmetic average (rounded upwards, if necessary, to the nearest
1/16 of 1%) of the rates at which Dollar deposits approximately equal
in principal amount to the applicable LIBOR Loan or Tranche and for a
maturity equal to the applicable LIBOR Interest Period are offered for
delivery on the first (1st) day of such LIBOR Interest Period by four
(4) major banks in the London interbank market, chosen by Lender, at
approximately 10:00 a.m., New York time, two (2) Business Days prior
to the commencement of such LIBOR Interest Period; and
(b) "LIBOR Reserve Percentage" means, relative to any
LIBOR Interest Period for a LIBOR Loan made by lender, the reserve
percentage (expressed as a decimal) equal to the actual aggregate
reserve requirements (including marginal, special, emergency,
supplemental, and other reserves and taking into account any
transactional adjustments or other scheduled changes in reserve
requirements) applicable to a member of the Federal Reserve System
specified under regulations issued from time to time by the Federal
Reserve Board and then applicable to assets or liabilities consisting
of and including
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<PAGE> 5
"Eurocurrency Liabilities" as currently defined in Regulation D of the
Federal Reserve Board. The LIBOR Reserve Percentage shall be adjusted
automatically on and as of the effective date of any change in such
reserve requirements.
"LIBOR Fixed Rate" means a rate per annum equal to the sum of the
LIBOR Base Rate plus one and one-half percent (1.50%).
"LIBOR Interest Period" means a period commencing on any date upon
which, pursuant to a Request for Loan, a Conversion Election Notice or
otherwise pursuant to the provisions of this Agreement, the principal amount of
any LIBOR Loan begins to accrue interest at the LIBOR Fixed Rate and ending on
the numerically corresponding day (or, if there is no numerically corresponding
day, on the last day) in the calendar month that is one, two, three or six
months thereafter, as Borrower may elect in accordance with Section 2.1(d) or
Section 2.1(e) hereof; provided, however (a) if any LIBOR Interest Period would
end on a day other than a Business Day, such LIBOR Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such LIBOR
Interest Period shall end on the next preceding Business Day, (b) if any LIBOR
Interest Period would end later than the Drawdown Termination Date, such LIBOR
Interest Period shall end on the Drawdown Termination Date, (c) no LIBOR
Interest Period shall have a duration of less than one month, and (d) interest
shall accrue from and including the first day of a LIBOR Interest Period to and
including the last day of such LIBOR Interest Period.
"LIBOR Loan" means a Loan with respect to which Borrower shall have
selected an interest rate based on the LIBOR Base Rate in accordance with
Section 2.1 hereof.
"Letters of Credit" means the Documentary Letters of Credit and the
Standby Letters of Credit.
"Lien" means any mortgage, lien (statutory or others), pledge,
hypothecation, assignment, security interest, title retention arrangement,
levy, assessment, claim, encumbrance, preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement or any capital or financing lease having lawfully the same effect as
any of the foregoing), and the filing of any financing statement under the UCC
or comparable law of any jurisdiction in respect of any of the foregoing, other
than notice filings to reflect true leases and lease consignments.
"Line of Credit Commitment" means the obligation of Lender to make the
Loans to, and/or to issue the Documentary Letters of Credit for the account of,
Borrower pursuant to Section 2.1 of this Agreement.
"Loan Documents" mean this Agreement, the Note, the Guaranty
Agreements, the letter of credit applications and agreements and any and all
other certificates, documents and agreements executed and delivered pursuant to
or in connection with this Agreement and any future amendments hereto or
thereto.
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<PAGE> 6
"Loans" mean the loans made by Lender to Borrower from the Line of
Credit Commitment.
"Material Adverse Effect" means with respect to any set of
circumstances or events and their effect on a Person, the reasonable likelihood
of a material and adverse effect on (a) such Person's financial condition,
property, assets, operations, prospects or profits, (b) the validity or
enforceability against such Person of any of the Loan Documents or any of the
transactions contemplated thereby, or (c) the ability of such Person to perform
its obligations under any of the Loan Documents to which it is a party.
"Maximum Rate" means the maximum lawful rate of interest permitted by
applicable usury laws now or hereafter enacted, which interest rate shall
change when and as said laws change, to the extent permitted by said laws,
effective on the day such change in said laws becomes effective, provided,
however, that the term "Maximum Rate" means a rate of interest equal to five
percentage points above the Prime Rate as it varies if there is no Maximum
Rate.
"Note" means the promissory note of Borrower payable to the order of
Lender described in Section 2.1 of this Agreement and being in form and
substance satisfactory to Lender, together with any and all renewals,
extensions and/or rearrangements thereof.
"Permitted Liens" means (a) Liens in favor of Lender, (b) Liens for
taxes, assessments and other governmental charges arising by law in the
ordinary course of business for sums which are not yet due and payable, (c)
Liens of mechanics, materialmen, and warehousemen arising by law in the
ordinary course of business for sums which are not yet due and payable, (d)
Liens, not delinquent, created by statute in connection with workers'
compensation, unemployment insurance and social security obligations, (e)
encumbrances consisting of minor easements, zoning restrictions or other
restrictions on the use of real property that do not (individually or in the
aggregate) materially affect the value of the property encumbered thereby or
materially impair the ability of Borrower or any Subsidiary to use such
property in its business, and (f) existing Liens disclosed to Lender in
Schedule 1.1 attached hereto.
"Person" means any individual, sole proprietorship, corporation,
partnership, joint venture, trust, joint stock company, unincorporated
organization, association, institution, entity, party or Governmental Authority
(whether national, federal, state, county, city, municipal or otherwise
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Plan" means any employee benefit or other plan established or
maintained by Borrower or any ERISA Affiliate and which is covered by Title IV
of ERISA.
"Prime Rate" means the interest rate per annum announced by Lender
from time to time as its prime rate. The Prime Rate is set by Lender as a
general reference rate of interest taking into account such factors as Lender
may deem appropriate, it being understood that it is not necessarily the lowest
or best rate actually charged to any customer or a favored rate, that it may
not correspond to any future increases or decreases of interest rates charged
by other lenders, or
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<PAGE> 7
market rates in general, and Lender may make various commercial or other loans
at rates of interest having no relationship to such rate.
"Property" means any interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Quick Ratio" means, at any particular time, the ratio of (a) the sum
of Borrower's and Subsidiaries' (i) cash, (ii) cash equivalents, and (iii)
account receivables after deducting from the amount of such receivables all
applicable bad debt reserves applicable thereto as determined by GAAP to (b)
the sum of (i) Consolidated Current Liabilities and (ii) the aggregate amount
of the Standby Letters of Credit issued and outstanding (after deducting from
such aggregate amount accrued liability already outstanding for environmental
expense covered by the Standby Letters of Credit). For purposes of this ratio,
the Indebtedness and all other indebtedness and obligations of Borrower to
Lender shall be included in the computation of Consolidated Current
Liabilities.
"Request for Documentary Letter of Credit" means the written request
delivered by Borrower and/or a Subsidiary to Lender requesting a Documentary
Letter of Credit in accordance with Section 2.1 hereof. Each Request for
Documentary Letter of Credit shall be in the form of Exhibit "B" attached
hereto.
"Request for Loan" means the written request delivered by Borrower to
Lender requesting a Loan in accordance with Section 2.1 hereof. Each Request
for Loan shall be in the form of Exhibit "C" attached hereto.
"Request for Standby Letter of Credit" means the written request
delivered by Borrower to Lender requesting a Standby Letter of Credit in
accordance with Section 2.2 hereof. Each Request for Standby Letter of Credit
shall be in the form of Exhibit "D" attached hereto.
"Standby Letters of Credit" means the letters of credit issued by
Lender for the account of Borrower pursuant to Section 2.2 hereof.
"Standby Letter of Credit Commitment" means the obligation of Lender
to issue the Standby Letters of Credit pursuant to Section 2.2 hereof.
"Subordinated Debt" means, with respect to Borrower, the Debt of
Borrower, calculated in accordance with GAAP, heretofore or hereafter incurred,
that, by the express terms of the instrument evidencing or creating such Debt
or by the terms of a subordination agreement, in form and substances
satisfactory to Lender, is validly and effectively made subordinate and subject
in right to payment, to whatever extent Lender may require, to the prior
payment of the Indebtedness to Lender.
"Subsidiary" means Aero Corporation, Hydroscience, Inc., Crystek
Crystals Corporation and any other corporation of which more than fifty percent
(50%) of the issued and outstanding securities having ordinary voting power for
the election of directors is owned or controlled, directly or indirectly, by
Borrower and/or one or more of its Subsidiaries.
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<PAGE> 8
"Subsidiary Guarantor" means a Subsidiary which has executed and
delivered to Lender a Guaranty Agreement.
"Tranche" has the meaning assigned that term in Section 2.1(e) hereof.
"Working Capital" means, at any particular time, the excess of
Consolidated Current Assets over Consolidated Current Liabilities.
SECTION 2. AMOUNT AND TERMS OF CREDIT
2.1. The Line of Credit Commitment.
(a) Loans and Documentary Letters of Credit. Subject to
the terms and conditions and relying on the representations and
warranties contained in this Agreement, Lender agrees, from the date
of this Agreement up to but not including the Drawdown Termination
Date, to make Loans to Borrower and/or to issue Documentary Letters of
Credit for the account of Borrower or any Subsidiary from time to time
on any Business Day in such amounts as Borrower may request up to but
not exceeding an aggregate principal sum at any time outstanding equal
to $5,000,000.00; provided, however, the aggregate amount of the
Documentary Letters of Credit issued and outstanding at any time shall
not exceed $100,000.00. Within such limits and during such period,
Borrower may borrow, repay (subject to the provisions of Section
2.1(k) hereof) and reborrow hereunder.
(b) Note. To evidence the Loans made by Lender pursuant
to this Section, Borrower will issue, execute and deliver the Note
dated of even date with this Agreement in the principal amount of
$5,000,000.00 and payable to the order of Lender. The outstanding
principal balance of the Note shall be payable on the Drawdown
Termination Date. Interest on the Loans shall accrue and be due and
payable as provided herein.
(c) Interest Rate Option. Subject to the terms of this
Article 2, each Loan shall accrue interest prior to maturity or an
Event of Default at either the Fluctuating Rate or the LIBOR Fixed
Rate as Borrower may request pursuant to Section 2.1(d) or Section
2.1(e) hereof.
(d) Making the Loans. For each Loan, Borrower shall give
Lender written notice by means of a Request for Loan (or telephonic
notice promptly confirmed by means of a Request for Loan)
appropriately completed and executed by Borrower (i) in the case of a
LIBOR Loan, not later than 10:00 a.m, Central time, three (3) Business
Days before the date the proposed Loan and (ii) in the case of a
Fluctuating Rate Loan, not later than 10:00 a.m., Central time, on the
date of the proposed Loan. Each such notice shall be irrevocable and
shall in each case specify (i) whether the Loan is to accrue interest
at the Fluctuating Rate or the LIBOR Fixed Rate, (ii) the proposed date
of such Loan (which shall be a Business Day) and the amount thereof and
(iii) if such Loan is to be a LIBOR Loan, the LIBOR Interest Period
with respect thereto. If the Request for Loan fails to specify whether
the Loan is to accrue interest at the Fluctuating Rate or the LIBOR
Fixed
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<PAGE> 9
Rate, then the requested Loan shall bear interest at the Fluctuating
Rate. If no LIBOR Interest Period with respect to a LIBOR Loan is
specified in any such Request for Loan, then Borrower shall be deemed
to have selected a LIBOR Interest Period of one month's duration. If
Borrower shall not have given notice in accordance with this Section
2.1(d) or Section 2.1(e) of its election to refinance a LIBOR Loan
prior to the end of the LIBOR Interest Period in effect for such LIBOR
Loan, then Borrower shall (unless such LIBOR Loan is repaid at the end
of such LIBOR Interest Period) be deemed to have given notice to Lender
of an election to refinance such LIBOR Loan with a Fluctuating Rate
Loan.
Each LIBOR Loan made hereunder must be in a minimum amount of
$500,000.00 or an integral multiple of $100,000.00 in excess thereof.
(e) Conversions. Borrower may from time to time elect to
designate all or any portion of the outstanding Loans (whether
Fluctuating Rate Loans or existing LIBOR Loans) as a "Tranche" which
after such election shall consist of one or more outstanding Loans
with an identical LIBOR Fixed Rate and LIBOR Interest Period. Without
the consent of Lender, Borrower may not make such an election during
the continuance of a Default hereunder, and Borrower may make such an
election with respect to an outstanding LIBOR Loan only if such
election will take effect at or after the termination of the LIBOR
Interest Period applicable thereto. Each election by Borrower to
designate a Tranche shall:
(i) be in writing by means of a Conversion
Election Notice appropriately completed and executed by
Borrower;
(ii) specify the aggregate amount of the
outstanding Line of Credit Loans which Borrower elects to
designate as a Tranche, the first day of the LIBOR Interest
Period which is to apply thereto, and the length of such LIBOR
Interest Period; and
(iii) be received by Lender not later than 10:00
a.m., Central time, three (3) Business Days prior the first
day of the specified LIBOR Interest Period.
Each Conversion Election Notice shall be irrevocable. Borrower may
not make any conversion election which does not specify a LIBOR
Interest Period complying with the definition of LIBOR Interest Period
in Section 1 hereof, and the aggregate amount of the Tranche elected
in any Conversion Election Notice must be in a minimum amount of
$500,000.00 or an integral multiple of $100,000.00 in excess thereof.
Each Tranche shall be deemed a LIBOR Loan and subject to all
provisions of this Agreement governing LIBOR Loans. If Borrower shall
not have given notice in accordance with Section 2.1(d) of its
election to refinance the Tranche prior to the end of the LIBOR
Interest Period in effect for such Tranche, then Borrower shall
(unless such Tranche is repaid at the end of such LIBOR Interest
Period) be deemed to have given notice to Lender of an election to
refinance such Tranche with a Fluctuating Rate Loan and shall
thereafter be subject to all provisions of this Agreement governing
Fluctuating Rate Loans.
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(f) Limitation on LIBOR Loans. Notwithstanding any
provision to the contrary in this Agreement, without the prior written
consent of Lender, Borrower shall not in any Request for Loan,
Conversion Election Notice or otherwise request, and there shall not
be made any LIBOR Loans or any election to designate a Tranche which,
if made, would result in more than three (3) separate LIBOR Loans
and/or Tranches being outstanding hereunder at any one time. For
purposes of the foregoing, LIBOR Loans or Tranches having different
LIBOR Interest Periods, regardless of whether they commence on the
same date, shall be considered separate LIBOR Loans and Tranches.
(g) Funding the Loans. Subject to Section 2.1(i) hereof,
upon fulfillment of the applicable conditions set forth in Section 7
hereof, Lender will make the requested Loan available to Borrower at
Lender's offices designated at the beginning of this Agreement.
(h) Limitation on LIBOR Interest Period. Notwithstanding
any other provision of this Agreement, Borrower shall not be entitled
to request any LIBOR Loan or elect to designate a Tranche if the LIBOR
Interest Period requested with respect thereto would end after the
Drawdown Termination Date.
(i) Refinancing of LIBOR Loans. Borrower may refinance
all or any part of a LIBOR Loan or a Tranche with a new LIBOR Loan or
a Fluctuating Rate Loan, subject to the limitations and conditions set
forth in this Agreement. Any LIBOR Loan or Tranche or part thereof so
refinanced shall be deemed to be repaid or prepaid in accordance with
the terms of this Agreement with the proceeds of a new Loan, and the
proceeds of the new Line of Credit Loan, to the extent they do not
exceed the principal amount of the LIBOR Loan or Tranche being
refinanced, shall not be paid by Lender to Borrower pursuant to
Section 2.1(g).
(j) Interest on Loans.
(i) Each Fluctuating Rate Loan shall bear
interest from the date of advancement until the earlier of
(aa) maturity or an Event of Default or (bb) the date of
conversion into a Tranche, at the Fluctuating Rate.
(ii) Each LIBOR Loan (whether funded individually
or comprising a Tranche) shall bear interest from the date of
advancement until maturity or an Event of Default at a rate
per annum equal to the LIBOR Fixed Rate for the LIBOR Interest
Period in effect for such LIBOR Loan, subject, however, to the
provisions of Section 2.1(j)(iii).
(iii) In the event that any quarterly or annual
financial statements delivered to Lender pursuant to Section
4.1 of this Agreement reflect that the cumulative Consolidated
Net Income after provision for income and other taxes of
Borrower and the Subsidiaries is less than the following
amounts as of the dates indicated during the term of this
Agreement (the "Minimum Cumulative Net Income Amounts"):
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<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 31 of each fiscal year of Borrower $ 250,000.00
June 30 of each fiscal year of Borrower $ 500,000.00
September 30 of each fiscal year of Borrower $ 750,000.00
December 31 of each fiscal year $1,000,000.00
</TABLE>
then, for a period from and after the date of Lender's receipt
of such financial statements (or the date such financial
statements were required to be delivered to Lender pursuant to
this Agreement, if earlier) until the date of Lender's receipt
of a subsequent quarterly or annual financial statement
delivered to Lender pursuant to Section 4.1 hereof which
reflects that Borrower is in compliance with the Minimum
Cumulative Net Income Amounts (each such period of time is
herein called the "Non- Compliance Period") all outstanding
LIBOR Loans (whether funded individually or comprising a
Tranche) and each LIBOR Loan made and each Tranche designated
during the Non-Compliance Period shall accrue interest until
maturity or an Event of Default at a rate per annum equal to
the LIBOR Fixed Rate plus one-half of one percent (1/2 of 1%)
for the Interest Period in effect for such LIBOR Loan or
Tranche.
(iv) Interest on each Loan shall be payable on the
Interest Payment Dates applicable to such Line of Credit Loan
except as otherwise provided in this Agreement. The
applicable LIBOR Base Rate for each LIBOR Interest Period
shall be determined by Lender, and such determination shall be
conclusive absent manifest error. Lender shall promptly
advise Borrower of such determination.
(k) Payment and Prepayment of Principal of Loans.
(i) Borrower shall pay to Lender the outstanding
principal amount of the Loans (and the outstanding principal
amount of the Loans shall be due and payable) on the Drawdown
Termination Date.
(ii) Subject to the provisions of Section 2.10
hereof, Borrower shall have the right at any time and from
time to time to prepay any Loan, in whole or in part, without
premium or penalty, upon at least one (1) Business Day's prior
written or telephone (promptly confirmed in writing) notice to
Lender; provided, however, that (aa) each such partial
prepayment shall be in an amount not less than an integral
multiple of $100,000.00 and (bb) no LIBOR Loan may be prepaid
except on the last day of the LIBOR Interest Period with
respect to such LIBOR Loan unless the indemnification required
to be paid by Borrower in connection with such prepayment
pursuant to Section 2.10 has been paid in full.
(iii) Each prepayment pursuant to this Section
2.1(k) shall be accompanied by a notice from Borrower which
shall specify the prepayment date and the principal amount of
each Loan (or portion thereof) to be prepaid. Each
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notice of prepayment provided by Borrower shall be irrevocable
and shall commit Borrower to prepay such Loan or part thereof
by the amount stated therein on the date stated therein. All
prepayments under this Section 2.1(k) shall be subject to
Section 2.10. All prepayments under Section 2.1 shall be
applied to the outstanding principal of the Loans being
prepaid.
(l) Availability. In the event and on each occasion
that, on the day two (2) Business Days prior to the commencement of
any LIBOR Interest Period for a LIBOR Loan, Lender shall have
determined that Dollar deposits in the principal amounts of such LIBOR
Loans are not generally available in the London interbank market, or
that the rates at which Dollar deposits are being offered will not
adequately and fairly reflect the cost to Lender of making or
maintaining the principal amount of the LIBOR Loan during such LIBOR
Interest Period, or reasonable means do not exist for ascertaining the
LIBOR Base Rate, Lender shall as soon as practicable thereafter give
written or telephone (promptly confirmed in writing) notice of such
determination to Borrower, and any request by Borrower for a LIBOR
Loan or Tranche pursuant to this Section 2.1, shall, until the
circumstances giving rise to such notice no longer exist, be deemed to
be a request for a Fluctuating Rate Loan. Each determination of
Lender regarding the circumstances referred to in this Section 2.1(l)
shall be conclusive absent manifest error.
(m) Documentary Letters of Credit.
(i) Issuance of Documentary Letters of Credit.
Borrower and/or any Subsidiary shall give Lender prior written
notice of at least two (2) Business Days prior to the date on
which the issuance of each Documentary Letter of Credit is
requested by means of a Request for Documentary Letter of
Credit. Upon satisfaction of the conditions specified in
Section 7 of this Agreement and subject to the limitations of
the Line of Credit Commitment, Lender will issue the
Documentary Letter of Credit requested to be issued on the
date specified in the written request; provided, however, that
Lender shall not be obligated to issue or permit a Documentary
Letter of Credit having a term beyond the Drawdown Termination
Date.
(ii) Fees.
(aa) Letter of Credit Fees. Borrower
hereby agrees to pay to Lender a non- refundable
Letter of Credit fee for the term of each Letter of
Credit computed on a daily basis at the rate of two
percent (2%) per annum of the aggregate face amount
of the Documentary Letter of Credit, but in no event
less than $100.00. The fee for each Documentary
Letter of Credit shall be payable on the date of
issuance of such Documentary Letter of Credit and on
each anniversary date thereof, if applicable.
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(bb) Additional Fees. Borrower hereby
agrees to pay all other applicable fees, expenses and
charges with respect to the Documentary Letters of
Credit in the amounts set forth on Schedule 2.1
attached hereto.
(iii) Reimbursement Obligation. Borrower agrees
unconditionally, irrevocably and absolutely to pay immediately
to Lender the amount of each draft which may be drawn under a
Documentary Letter of Credit, or purport to be so drawn. If
at any time Borrower fails immediately to repay the amount of
a draft drawn under a Documentary Letter of Credit, pursuant
to this Section 2.1(m)(iii), Borrower shall be deemed to have
elected to borrow, as of the date of the honoring of a draft
from Lender a Fluctuating Rate Loan equal in amount to the
unpaid amount of such draft and fees. The proceeds of the
Loan shall be used to repay the unpaid portion of the draft
drawn under the Documentary Letter of Credit, together with
the amount of the unpaid fees.
2.2. Standby Letter of Credit Commitment.
(a) Standby Letters of Credit. Subject to the terms and
conditions and relying on the representations and warranties contained
in this Agreement, Lender agrees to issue, from the date of this
Agreement through the Drawdown Termination Date, Standby Letters of
Credit for the account of Borrower from time to time on any Business
Day in such amounts as Borrower may request up to but not exceeding an
aggregate amount issued and outstanding at any time of $3,000,000.00.
(b) Issuance of Standby Letters of Credit. Borrower
shall give Lender prior written notice of at least two (2) Business
Days prior to the date on which the issuance of each Standby Letter of
Credit is requested by means of a Request for Standby Letter of
Credit. Upon satisfaction of the conditions specified in Section 7 of
this Agreement and subject to the limitations of the Standby Letter of
Credit Commitment, Lender will issue the Standby Letter of Credit
requested to be issued on the date specified in the written request;
provided, however, that Lender shall not be obligated to issue or
permit a Standby Letter of Credit having a term beyond the earlier of
(i) one (1) year from the date of its issuance or (ii) April 15, 1997.
(c) Fees.
(i) Standby Letter of Credit Fees. Borrower
hereby agrees to pay to Lender a non-refundable Standby
Letter of Credit fee for the term of each Standby Letter of
Credit computed on a daily basis at the rate of one percent
(1%) per annum of the aggregate face amount of the Standby
Letter of Credit, but in no event less than $300.00. The fee
for each Standby Letter of Credit shall be payable on the date
of issuance of such Standby Letter of Credit and on each
anniversary date thereof, if applicable.
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(ii) Additional Fees. Borrower hereby agrees to
pay all other applicable fees, expenses and charges with
respect to the Standby Letters of Credit in the amounts set
forth on Schedule 2.1 attached hereto.
(d) Reimbursement Obligation. Borrower agrees
unconditionally, irrevocably and absolutely to pay immediately to
Lender the amount of each draft which may be drawn under a Standby
Letter of Credit, or purport to be so drawn.
2.3. Letters of Credit.
(a) Increased Costs.
(i) If any change or phase-in shall occur in any
applicable domestic or foreign law, treaty, rule or regulation
(whether now in effect or hereinafter enacted or promulgated)
or in the interpretation or administration thereof by any
court or administrative or Governmental Authority (whether or
not having the force of law), or in GAAP, which change or
phase-in shall either (aa) change, impose, modify or deem
applicable any reserve, special deposit or similar requirement
against letters of credit issued by, or assets held by, or
deposits in or for the account of, Lender or (bb) impose on
Lender any special condition relating, directly or indirectly,
to this Agreement, the Letters of Credit or any of the Loan
Documents and the result of any event referred to in subclause
(aa) or (bb) of this Section 2.3(a)(i) shall be to increase
the cost to Lender of issuing or maintaining the Letters of
Credit, then, within a reasonable period of time thereafter,
Lender will notify Borrower of the occurrence of any such
event. Upon demand by Lender (which demand shall be
accompanied by the certificate specified in Section
2.3(a)(iii) below), Borrower shall pay to Lender, from time to
time as specified by Lender, such additional amounts as Lender
shall determine are necessary to compensate Lender (on an
after tax basis) for such increased cost together with
interest on each such amount from the date of such demand
until payment in full at a fluctuating rate per annum at all
times equal to the Prime Rate (but in no event to exceed the
Maximum Rate), with adjustments in such fluctuating rate to be
made on the same date as any change in the Prime Rate;
provided, however, such demand shall be made by Lender only in
the event similar demands are being made on other customers of
Lender for similar reasons.
(ii) If either (aa) the enactment, issuance,
implementation or phase-in of or any change in or in the
interpretation of any law, rule or regulation, or (bb)
compliance with or implementation of any request, directive or
guideline from any central bank or other Governmental
Authority (whether or not having the force of law) affects or
would affect the amount of capital required to be maintained
by Lender or any corporation controlling Lender and Lender
determines that the amount of such capital is increased (or
that the rate of return on Lender's capital is reduced) by or
based on the existence of its obligations under the Letters of
Credit, then, within a reasonable period of time thereafter,
Lender will notify
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Borrower of the occurrence of such event. Upon demand by
Lender, Borrower shall pay to Lender, from time to time as
specified by Lender such additional amount or amounts Lender
shall determine are necessary to compensate Lender or any
corporation controlling Lender in light of such circumstances,
to the extent that Lender reasonably determines such increase
in capital to be allocable to the existence of the Letters of
Credit. All amounts required to be paid pursuant to this
Section 2.3(a)(ii) shall bear interest thereon from the date
of such demand until payment in full at a fluctuating rate per
annum equal at all times to the Prime Rate (but in no event to
exceed the Maximum Rate), with adjustments in such fluctuating
rate to be made on the same date as any change in the Prime
Rate.
(iii) Together with any demand by Lender pursuant
to Subsection (i) or (ii) above, Lender shall provide Borrower
with a certificate signed by an authorized officer of Lender
(aa) describing the event giving rise to such demand by
Lender, and (bb) showing the method (which may include any
reasonable averaging, attribution or allocation procedure)
used by Lender to determine the amount demanded by Lender,
which shall be final, conclusive and binding, absent manifest
error, upon the parties hereto.
(b) Indemnification. Borrower hereby agrees to indemnify
and hold harmless Lender from and against any and all claims, damages,
and liabilities whatsoever which Lender may incur (or which may be
claimed against Lender by any person or entity whatsoever) (i) by
reason of or in connection with the execution and delivery or transfer
of, or payment or failure to pay under any Letter of Credit or (ii) by
reason of this Agreement or any of the other Loan Documents or the
transactions and events at any time associated therewith (including,
without limitation, the enforcement of this Agreement and any of the
other Loan Documents). Borrower agrees to pay all expenses
(including, without limitation, fees and disbursements of counsel)
reasonably incurred by Lender in investigating, defending or preparing
to defend against any such claim, damage or liability and for all
costs of settlement made with the written consent of Borrower in
connection with any such claim, damage or liability. Notwithstanding
any provision to the contrary contained herein, Lender shall not be
relieved of liability arising in connection with its gross negligence
or willful misconduct.
(c) Limited Liability of Lender.
(i) Borrower assumes all risk of the acts or
omissions of the beneficiary(ies) and any transferee of any of
the Letters of Credit with respect to its use of the Letters
of Credit. Neither Lender, its correspondents, its Affiliates
nor any of their officers or directors shall be liable or
responsible for: (aa) the use which may be made of the
Letters of Credit or for any actions or omissions of the users
of the Letters of Credit; (bb) the existence or nonexistence
of a default under any instrument secured or supported by any
Letter of Credit or any other event which gives rise to a
right to call upon any Letter of Credit; (cc) the validity,
sufficiency or genuineness of any document delivered in
connection with any Letter
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of Credit, even if such document should in fact prove to be in
any or all respects invalid, fraudulent or forged; (dd) except
as specifically required by the Letter of Credit, failure of
any instrument to bear any reference or adequate reference to
the Letter of Credit, or failure of documents to accompany any
draft at negotiation, or failure of any Person to note the
amount of any draft on the reverse of the Letter of Credit or
to surrender or take up the Letter of Credit; or (ee) errors,
omissions, interruptions or delays in transmission or delivery
of any messages by mail, cable, telegraph, wireless, or
otherwise. Neither Lender nor its Affiliates shall be
responsible for any act, error, neglect or default, omissions,
insolvency or failure in the business of any of Lender's
correspondents, for any refusal by Lender or any of Lender's
correspondents to pay or honor drafts drawn under the Letters
of Credit because of any applicable law, decree or edict,
legal or illegal, of any governmental agency now or hereafter
enforced, or for any matter beyond the control of Lender and
its Affiliates. The happening of any one or more of the
contingencies referred to in the preceding clauses of this
paragraph shall not affect, impair or prevent the vesting of
any of the rights or powers Lender under this Agreement or any
of the other Loan Documents or the obligation of Borrower to
make reimbursement hereunder. In furtherance and extension
and not in limitation of the specific provisions hereinabove
set forth, Borrower agrees that any action, not contrary to
the terms of the Letter of Credit, which is taken by Lender or
any of its Affiliates or any of its correspondents shall be
binding on Borrower and shall not put Lender or its affiliates
under any resulting liability to Borrower and Borrower makes a
like agreement as to any inaction or omission unless in breach
of good faith.
(ii) Borrower agrees that if the maturity of any
Letter of Credit is extended by its terms or by law or
governmental action, if any extension of the maturity or time
for presentation of drafts or any other modification of the
terms of any Letter of Credit is made at the request of
Borrower, this Agreement shall be binding upon Borrower with
respect to the Letter of Credit as so extended or otherwise
modified.
(iii) Borrower agrees that Lender is authorized and
instructed to accept and pay drafts under the Letters of
Credit issued by Lender without requiring, and without
responsibility for, the determination as to the existence of
any event giving rise to said draft, either at the time of
acceptance or payment or thereafter. Borrower agrees that
Lender is under no duty to determine the proper identity of
anyone presenting such a draft or making such a demand
(whether by tested telex or otherwise) as the officer,
representative or agent of any beneficiary under the Letters
of Credit issued by Lender, and payment by Lender to any such
beneficiary in accordance with the terms of the Letter of
Credit when requested by any such purported officer,
representative or agent is hereby authorized and approved by
Borrower.
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(d) Uniform Customs and Practice for Documentary Credits.
Except as otherwise expressly provided in this Agreement or as
Borrower and Lender may otherwise expressly agree with regard to, and
prior to the issuance of, a Letter of Credit, the "Uniform Customs and
Practice for Documentary Credits (1983 Revision), International
Chamber of Commerce Publication No. 400", as hereafter amended,
revised, supplemented, or replaced by other publications of similar
effect, shall in all respects be deemed a part hereof as fully as if
incorporated herein and shall apply to each Letter of Credit.
2.4. Default Interest. If Borrower shall default in the payment of
the principal of or interest on any Loan or any other amount becoming due
hereunder, by acceleration or otherwise, Borrower shall, on demand by Lender
made from time to time, pay interest, to the extent permitted by law, on such
defaulted amount up to the date of actual payment (after as well as before
judgment) at the Maximum Rate.
2.5. Computation of Interest. All payments of interest and
commitment fees shall be computed on the per annum basis of a year of 360 days,
but to the extent such computations of interest might cause the rate of
interest to exceed the Maximum Rate, such interest shall be computed on the
basis of a year of 365 or 366 days, as applicable.
2.6. Payment on Non-Business Day. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
payment of interest hereunder and under the Note.
2.7. Manner of Paying and Prepaying. All payments of principal,
interest, fees and expenses under this Agreement and the Note shall be made to
Lender in lawful currency of the United States of America and in immediately
available funds not later than 11:00 a.m. (Dallas, Texas time) on the date
called for hereunder and under the Note, at Lender's address set forth in the
opening recital hereof.
2.8. Taxes and Increased Costs. In the event that Lender shall
incur increased costs or reductions in the amounts received or receivable
hereunder with respect to any Loan because of (a) any change after the date of
this Agreement in any applicable law or governmental rule, regulation, order or
request (whether or not having the force of law) (or in the interpretation or
administration thereof and including the introduction of any new law or
governmental rule, regulation, order or request), including, without
limitation, (i) a change in the basis of taxation of payments to Lender of the
principal of or interest on the Loans or any other amounts payable hereunder
(except for changes in the rate of tax on, or determined by reference to, the
net income or profits of Lender imposed by the jurisdiction in which its
principal office is located) or (ii) a change in official reserve requirements,
but, in all events, excluding reserves required under Regulation D of the Board
to the extent included in the computation of the LIBOR Base Rate or (b) other
circumstances affecting Lender or the London interbank market or the position
of Lender in such market; then and in any event, Lender shall promptly give
notice (by telephone confirmed in writing) to Borrower of such increased costs
or reductions in amounts received or receivable
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hereunder. Thereafter, Borrower shall pay to Lender, within thirty (30) days
from written demand therefor, such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as Lender in its sole discretion shall determine) as shall be required to
compensate Lender for such increased costs or reductions in amounts received or
receivable hereunder (a written notice as to the additional amounts owed to
Lender, showing the basis for the calculation thereof, submitted to Borrower by
Lender shall, absent manifest error, be final and conclusive and binding on all
the parties hereto).
2.9. Change in Legality.
(a) Notwithstanding anything to the contrary contained
herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful,
impossible or impracticable for Lender to make or maintain any LIBOR
Loan or to give effect to its obligations as contemplated hereby with
respect to any LIBOR Loan, then, by written notice to Borrower, Lender
may:
(i) declare that LIBOR Loans will not thereafter
be made by Lender hereunder, whereupon any request by Borrower
for a LIBOR Loan shall be deemed a request for Fluctuating
Rate Loan unless such declaration shall be subsequently
withdrawn; and
(ii) require that all outstanding LIBOR Loans made
by Lender be converted to Fluctuating Rate Loans, in which
event all such LIBOR Loans shall be automatically converted to
Fluctuating Rate Loans as of the effective date of such notice
as provided in Section 2.9(b), notwithstanding the provisions
of Section 2.1(k).
In the event Lender shall exercise its rights under clause (i) or (ii)
immediately preceding, all payments and prepayments of principal which
would otherwise have been applied to repay the LIBOR Loans shall
instead be applied to repay the Fluctuating Rate Loans resulting from
the conversion of such LIBOR Loans and shall be prepayable only at the
times the converted LIBOR Loans would have been prepayable,
notwithstanding the provisions of Section 2.1(k).
(b) For purposes of Section 2.9(a), a notice to Borrower
by Lender shall be effective as to each LIBOR Loan, if lawful, on the
last day of the then current LIBOR Interest Period or, if there are
then two or more current LIBOR Interest Periods, on the last day of
each such LIBOR Interest Period, respectively; otherwise, such notice
shall be effective on the date of receipt by Borrower.
2.10. Indemnity. Borrower shall indemnify Lender against any loss
or expense which Lender may sustain or incur as a consequence of (a) any
failure by Borrower to borrow hereunder after irrevocable notice of such
borrowing has been given pursuant to Section 2.1 hereof, (b) any payment,
prepayment or conversion of a LIBOR Loan required by any other provision of
this
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Agreement or otherwise made on a date other than the last day of the applicable
LIBOR Interest Period (other than as may be required pursuant to the terms of
Section 2.9(a)(ii), or (c) any loss or reasonable expense sustained or incurred
or to be sustained or incurred in liquidating or employing deposits from third
parties acquired to effect or maintain a Loan or any part thereof as a LIBOR
Loan upon the occurrence of any Event of Default. Such loss or reasonable
expense shall include, without limitation, an amount equal to the excess, if
any, as reasonably determined by Lender of (i) its cost of obtaining the funds
for the Loan being paid, prepaid or converted or not borrowed (based on the
LIBOR Base Rate applicable thereto) for the period from the date of such
payment, prepayment or conversion or failure to borrow to the last day of the
LIBOR Interest Period for such LIBOR Loan (or, in the case of a failure to
borrow, convert or continue, the LIBOR Interest Period for such LIBOR Loan
which would have commenced on the date of such failure) over (ii) the amount of
interest (as reasonably determined by Lender that could be realized by Lender
in reemploying during such period the funds so paid, prepaid or converted or
not borrowed.
2.11. Commitment Fee. For the period from the date hereof through
the Drawdown Termination Date, Borrower agrees to pay to Lender on the last day
of each fiscal quarter of each fiscal year of Borrower commencing with the
fiscal quarter ending March 31, 1996, and on the Drawdown Termination Date, a
commitment fee of one-quarter of one percent (1/4 of 1%) per annum on the daily
average of the unadvanced portion of the Line of Credit Commitment for the
then-ending fiscal quarter or portion thereof, as applicable.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In addition to any other representations or warranties made by
Borrower in any of the other Loan Documents, Borrower hereby represents and
warrants that:
3.1. Organization of Borrower and Subsidiaries. Borrower and each
Subsidiary (a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and (b) has the
power and authority to own and operate its properties and to carry on its
business in each jurisdiction in which it conducts business.
3.2. Organization of AvAero. AvAero (a) is a joint venture duly
organized and validly existing under the laws of the State of Delaware, (b) has
the power and authority to own and operate its properties and to carry on its
business, and (c) is comprised solely of the Joint Venturers.
3.3. Power and Authority. Borrower and each Subsidiary has full
power and authority to enter into, execute, deliver and perform this Agreement
and the other Loan Documents to which it is a party, to consummate the
transactions contemplated in this Agreement and the other Loan Documents to
which it is a party, and to incur the obligations provided for herein and
therein, all of which have been duly authorized by all necessary and proper
corporate action.
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3.4. Consents. No consent or approval of any public authority or
third party, or of any stockholders of Borrower or any Subsidiary, is required
as a condition to the validity of any of the Loan Documents which has not been
obtained.
3.5. Binding Obligations. The Loan Documents constitute valid and
legally binding obligations of Borrower and each Subsidiary, enforceable in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors' rights.
3.6. No Legal Bar, Etc. The execution and delivery of this
Agreement and the other Loan Documents, the performance by Borrower and each
Subsidiary of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby, do not and will not (i)
conflict with any provision of any law, rule, regulation, order, writ,
injunction or decree of any court or Governmental Authority, the Articles
and/or Certificate of Incorporation or Bylaws of Borrower or any Subsidiary,
any shareholders' agreement or other similar document or agreement affecting
Borrower or any Subsidiary, any agreement, judgment, license, order or permit
applicable to or binding upon Borrower or any Subsidiary or any of their
respective assets or properties, (ii) result in the acceleration of any Debt
owed by Borrower or any Subsidiary, or (iii) result in or require the creation
of any Lien upon any assets or properties of Borrower or any Subsidiary. No
consent, approval, authorization, or order of, and no notice to or filing with,
any court or governmental authority or third party is required in connection
with the execution, delivery or performance of this Agreement or any of the
other Loan Documents or to consummate any transaction contemplated hereby and
thereby.
3.7. Trade Names, Place of Business. Except for Florida Aero
Corporation and Seismic Engineering Company, neither Borrower nor any
Subsidiary has, during the preceding five (5) years, been known by or used any
other name. The chief executive office and principal place of business of
Borrower and Hydroscience, Inc., is located at 2659 Nova Drive, Dallas, Texas
75229. The chief executive office and principal place of business of Aero
Corporation is 5530 E. U.S. Highway 90, Lake City Municipal Airport, Lake
City, Florida 32055. The chief executive office and principal place of
business of Crystek Crystals Corporation is 2351/71 Crystal Drive, Fort Myers,
Florida 33906.
3.8. Litigation. Except as disclosed on Schedule 3.8 attached
hereto, there are no actions, suits or proceedings pending or, to the knowledge
of Borrower, threatened against Borrower, any Subsidiary or AvAero in any court
or before any Governmental Authority which on the date of this Agreement, or
which if adversely determined against Borrower, any Subsidiary or AvAero, would
have a Material Adverse Effect on Borrower, any Subsidiary or AvAero.
3.9. Financial Statements. The audited consolidated financial
statements of Borrower and the Subsidiaries for the fiscal year ended December
31, 1994, and the corresponding unaudited interim consolidated financial
statements as of September 30, 1995, (collectively, the "Initial Financial
Statements") which have been delivered to Lender have been prepared in
accordance with GAAP and present fairly the financial condition and results of
the operation of Borrower and the Subsidiaries as at the dates and for the
periods covered (subject only to normal year-end audit
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adjustments with respect to such unaudited interim statements). Since
September 30, 1995, no adverse change has occurred in the condition, financial
or otherwise, of Borrower or any of the Subsidiaries.
3.10. Taxes. All income taxes and other taxes due and payable by
the Borrower and each Subsidiary through the date hereof have been paid prior
to becoming delinquent.
3.11. Title. Borrower and each Subsidiary has good and indefeasible
title to all its properties and assets, free and clear of any Liens and
security interests, except for Permitted Liens.
3.12. No Defaults. Neither Borrower nor any Subsidiary is in
violation of any term of its Articles and/or Certificate of Incorporation or
Bylaws and neither Borrower nor any Subsidiary is in violation of any term of
any indenture, promissory note, contract, agreement, or undertaking to which it
is a party or by which it or any of its Property may be bound or subject.
3.13. Use of Proceeds. The proceeds of the Loans and the
Documentary Letters of Credit shall be used for working capital and other
general corporate purposes of Borrower and each Subsidiary. The Standby
Letters of Credit shall be used to secure Borrower's environmental liabilities
in the State of Florida, as determined by the Florida Department of
Environmental Protection.
3.14. Margin Securities. Under no circumstances will any part of
the proceeds of the Loans or Letters of Credit be used directly or indirectly
for the purpose, whether immediate, incidental, or ultimate, of purchasing,
carrying or trading in any "margin stock" or any "margin securities" (as such
terms are defined respectively in Regulation U and Regulation G promulgated by
the Board of Governors of the Federal Reserve System) or to extend credit to
others directly or indirectly for the purpose of purchasing or carrying any
such margin stock or margin securities. Borrower is not engaged principally,
or as one of Borrower's important activities, in the business of extending
credit to others for the purpose of purchasing or carrying such margin stock or
margin securities.
3.15. Compliance With Laws. Other than as set forth in Schedule
3.15 attached hereto, Borrower, each Subsidiary and AvAero are conducting their
businesses in material compliance with all applicable federal, state, and local
laws, rules, regulations and statutes, including without limitation those
pertaining to environmental matters; none of the operations of Borrower, any
Subsidiary or AvAero is the subject of any federal, state or local
investigation evaluating whether any material remedial action is needed to
respond to a release of any hazardous or toxic waste, substance or constituent
into the environment; neither Borrower, any Subsidiary nor AvAero has, and (to
the best knowledge of Borrower) no other Person has, filed any notice under any
federal, state or local Law indicating that Borrower, any Subsidiary or AvAero
is responsible for the release into the environment, or the improper storage,
of any hazardous or toxic waste, substance or constituent or that such waste,
substance or constituent has been released, or is improperly stored, upon any
property of Borrower, any
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Subsidiary or AvAero; neither Borrower, any Subsidiary nor AvAero has any known
material contingent liability in connection with the release into the
environment, or the improper storage, of any such waste, substance or
constituent.
3.16. Misstatements. No statement or information contained in any
of the Loan Documents or in any financial statement, appraisal, certificate,
statement or other information delivered herewith or heretofore to Lender in
connection with the negotiation of this Agreement or in connection with any
transaction contemplated hereby contains any untrue statement of a material
fact or omits to state any material fact necessary to make such statement or
information not misleading. Borrower has disclosed to Lender in writing all
contingent liabilities, commitments, pending or threatened legal proceedings,
and unusual legal or contractual restrictions which could materially and
adversely affect the properties, business, prospects or condition (financial or
otherwise) of Borrower or any Subsidiary;
3.17. Solvency. Neither Borrower nor any Subsidiary (a) is
insolvent on the date of this Agreement nor will become insolvent as a result
of entering into this Agreement and the other Loan Documents, nor (b) intends
to incur Debt that will be beyond the ability of Borrower or any Subsidiary to
pay as such Debt matures; and
3.18. ERISA. Neither Borrower nor any Subsidiary has (a) incurred
an accumulated funding deficiency under any Plan in an amount which could have
an adverse effect on the condition, financial or otherwise, of Borrower or of
any Subsidiary, (b) incurred material liability to the Pension Benefit Guaranty
Corporation in connection with any Plan, (c) withdrawn in whole or in part from
participation in a multi-employer pension plan (as defined in ERISA) or (d)
committed, permitted or suffered a "prohibited transaction" or "reportable
event" (as such terms are defined in ERISA).
SECTION 4. AFFIRMATIVE COVENANTS AND AGREEMENTS
Until payment and performance in full of the Note and the other
Indebtedness, unless Borrower receives prior written approval of a deviation
therefrom from Lender, Borrower agrees that:
4.1. Business and Financial Information - Borrower will promptly
furnish to Lender from time to time such information regarding the business and
affairs and financial condition of Borrower and each Subsidiary as Lender may
reasonably request, and will furnish Lender:
(a) Quarterly Financial Statements - as soon as available
and in any event within forty-five (45) days after end of each of the
first three (3) fiscal quarters of each fiscal year of Borrower,
during the term of this Agreement, the consolidated and consolidating
balance sheets (including, without limitation, a statement of
contingent liabilities) of Borrower and the Subsidiaries as of the
close of such fiscal quarter and the consolidated and consolidating
statements of income, cash flows and shareholders' equity of Borrower
and the Subsidiaries for such fiscal quarter, setting forth in each
case in comparative form the figures for the corresponding periods in
the previous fiscal year as well as year-to-date figures, all in such
detail as Lender may reasonably request and accompanied by a
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statement of an authorized financial officer of Borrower certifying
that such financial statements fairly present the financial position of
Borrower and the Subsidiaries at the close of such period and the
results of their operations for such period;
(b) Annual Financial Statements - as soon as available
and in any event within ninety (90) days after the close of each
fiscal year of Borrower during the term of this Agreement, the audited
consolidated and consolidating balance sheets (including, without
limitation, a statement of contingent liabilities) of Borrower and the
Subsidiaries as at the end of such fiscal year and the audited
consolidated and consolidating statements of income, cash flows, and
shareholders' equity of Borrower and the Subsidiaries for such fiscal
year, setting forth, in each case in comparative form, the figures for
the previous fiscal year, all in reasonable detail and audited and
certified by independent certified public accountants of recognized
standing acceptable to Lender, to the effect that such report has been
prepared in accordance with GAAP and accompanied by a certificate of
such independent certified public accountants to Lender (i) stating
that to their knowledge no Default has occurred and is continuing, or
if in their opinion a Default has occurred and is continuing, a
statement as to the nature thereof, and (ii) confirming the
calculations set forth in the Borrower's compliance certificate
delivered simultaneously therewith;
(c) Other Statements - promptly upon becoming available,
a copy of (i) all other financial statements, reports, notices and
proxy statements sent by Borrower and each Subsidiary to stockholders
and (ii) all other regular and periodic reports filed by Borrower and
each Subsidiary with any securities exchange or with the Securities
and Exchange Commission or any Governmental Authority succeeding to
any or all of the functions of said Commission;
(d) Backlog and Forecast Report - as soon as available
and in any event within forty-five (45) days after the end of each
fiscal quarter of Borrower, a written report setting forth separately,
with respect to Borrower and each Subsidiary insofar as is possible,
(i) orders or contracts pending with respect to goods to be sold or
services rendered as of the end of the immediately preceding fiscal
quarter specifying the customers and the amounts relating thereto,
(ii) active proposals with respect to goods to be sold or services
rendered as of the end of the immediately preceding fiscal quarter
specifying the customers and the amounts relating thereto, (iii)
prospects with respect to goods to be sold or services rendered as of
the end of the immediately preceding fiscal quarter specifying the
names and the types or items of goods or services to be performed, and
(iv) forecasts of the anticipated shipment of goods and/or performance
of services which among other things specifies the names of those
potential customers whose expected annual volume would be more than
ten percent (10%) of the anticipated sales of the particular
Subsidiary reported on and the projected amounts and dates of
anticipated sales with respect thereto;
(e) Notice of Default - immediately upon becoming aware
of the existence of any Default under this Agreement or any of the
other Loan Documents, a written notice specifying the nature and
period of existence thereof and what action Borrower is taking or
proposes to take with respect thereto;
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(f) Notice of Claimed Default - immediately upon becoming
aware that any Person has given notice or taken any other action with
respect to a claimed default under any mortgage, deed of trust,
promissory note, contract, agreement or undertaking to which Borrower,
any Subsidiary or AvAero is a party or by which any of their
respective Properties may be bound or subject, a written notice
specifying the notice given or action taken by such Person and the
nature of the claimed default and what action Borrower, such
Subsidiary or AvAero is taking or proposes to take with respect
thereto;
(g) Litigation - immediately upon becoming aware of any
action, suit, or proceeding pending or threatened against or affecting
Borrower, any Subsidiary or AvAero in any court or before any
Governmental Authority, which if adversely determined could have a
Material Adverse Effect on Borrower, any Subsidiary or AvAero a
written notice specifying the nature thereof and what action Borrower,
such Subsidiary or AvAero is taking or proposes to take with respect
thereto; and
(h) Change in Condition - immediately upon becoming aware
of any material adverse change in the property assets, liabilities,
financial condition, business or operations of Borrower, any
Subsidiary or AvAero from those reflected in the Initial Financial
Statements or by the facts warranted or represented in this Agreement
or any of the other Loan Documents or a written notice specifying the
nature thereof and what action Borrower or such Subsidiary is taking or
proposes to take with respect thereto.
4.2. Compliance Certificate. Borrower will furnish, or cause to be
furnished, to Lender concurrently with the furnishing of the quarterly and
annual financial statements pursuant to Section 4.1 hereof, a certificate in
the form of certificate attached hereto as Exhibit "E" signed by an authorized
financial officer of Borrower stating:
(a) that a review of the activities of Borrower and each
Subsidiary has been made under his supervision with a view to
determining whether Borrower and each Subsidiary have fulfilled all of
their respective obligations under this Agreement and the other Loan
Documents; and
(b) that Borrower and each Subsidiary have fulfilled all
of their respective obligations under this Agreement and the other
Loan Documents and that all representations made herein and therein
can continue to be true and correct (or specifying the nature of any
change) or if Borrower or any Subsidiary shall be in default,
specifying any default and the nature and status thereof and showing
in detail the computations required by the provisions of Sections
2.1(j)(iii), 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 5.1 and 5.11 of the
Agreement based on the figures which appeared on the books of account
of Borrower at the close of such respective period.
4.3. Taxes and Other Liens. Borrower will pay, and will cause each
Subsidiary to pay, before they become delinquent:
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(a) all taxes, assessments and governmental charges and
levies imposed upon it or upon its income or Property or any part
thereof; and
(b) all claims of any kind (including claims for labor,
material, supplies and rent) which, if unpaid, might result in the
creation of a Lien upon any Property of Borrower or any Subsidiary;
provided, that items of the foregoing description need not be paid while being
contested in good faith by appropriate proceedings diligently conducted and
provided, further, that reserves adequate under GAAP shall have been
established with respect thereto.
4.4. Maintenance. Borrower will, and will cause each Subsidiary to:
(a) Existence and Rights - maintain, and cause each
Subsidiary to maintain, its corporate existence, rights, and
franchises, and continue to be duly authorized and qualified to
transact business in each jurisdiction wherein the Property owned or
the business transacted by it makes such qualification necessary;
(b) Property - maintain, and cause each Subsidiary to
maintain, its Property in good and workable condition at all times;
and
(c) Financial Records - maintain and keep books of record
and account in which full, true and correct entries in accordance with
GAAP will be made of all dealings and transactions in relation to the
business and activity of Borrower and each Subsidiary.
4.5. Compliance with Laws, Environmental Indemnity. Borrower will
comply with, and conduct its business and affairs in compliance with, and cause
each Subsidiary to comply with and conduct its business and affairs in
compliance with, all federal, state, and local laws, statutes, codes, acts,
regulations, rules, orders, ordinances and requirements, including, without
limitation, those pertaining to pollution or other environmental matters and
all ERISA requirements and obtain all permits, licenses, or similar approvals
required by all such laws pertaining to the environment. Borrower shall
indemnify Lender and hold Lender harmless from and against any claim, loss or
damage to which Lender is subjected as a result of any past, present or future
existence, use, handling, storage, transportation, or disposal of any hazardous
waste or substance or toxic substance by Borrower or any Subsidiary. This
indemnification shall survive the termination of this Agreement and payment of
the Indebtedness.
4.6. Insurance. Borrower will maintain, and cause each Subsidiary
to maintain, insurance with responsible insurance companies on such of its
properties, in such amounts and against such risks, as is customarily
maintained by similar businesses operating in the same vicinity, specifically
to include a policy of fire and extended coverage insurance covering all
assets, business interruption insurance and liability insurance, all to be with
such companies and in such amounts satisfactory to Lender, and evidence of such
insurance shall be supplied to Lender.
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4.7. Further Assurances. Borrower will promptly cure any defects
in the creation and issuance of the Note and the execution and delivery of this
Agreement and the other Loan Documents.
4.8. Reimbursement of Expenses. Borrower will pay all reasonable
legal fees incurred by Lender in connection with the preparation of this
Agreement and the other Loan Documents and promptly reimburse Lender for all
amounts expended, advanced or incurred by Lender to satisfy any obligation of
Borrower or any Subsidiary under this Agreement or any of the other Loan
Documents, or to collect the Note, or to enforce the rights of Lender under
this Agreement or any of the other Loan Documents, which amounts will include
all court costs, reasonable attorney's fees, fees of auditors and accountants,
and investigation expenses reasonably incurred by Lender in connection with any
such matters.
4.9. Inspection. At any and all reasonable times, upon the request
of Lender, Borrower will permit Lender or any agents or representatives
designated by Lender:
(a) to examine the books of accounts, records, reports
and other papers of Borrower and each Subsidiary (and to make copies
and extracts therefrom);
(b) to inspect any Property of Borrower and each
Subsidiary; and
(c) to discuss the business and affairs of Borrower and
each Subsidiary with its officers and its independent certified public
accountants.
4.10. Location of Books and Records. Unless written notice of
another location is given to Lender, Borrower will maintain, and cause each
Subsidiary to maintain, the location of its books and records at the respective
addresses set forth above.
4.11. Performance of Obligations. Borrower will pay all amounts due
under the Loan Documents in accordance with the terms thereof;
4.12. Working Capital. Borrower will maintain Working Capital of
not less than $12,500,000.00 as of the end of each fiscal quarter of Borrower
during the term of this Agreement.
For the purpose of this covenant, Consolidated Current
Liabilities shall include the aggregate amount of the Standby Letters
of Credit issued and outstanding after deducting from such aggregate
amount accrued liability already outstanding for environmental expense
covered by the Standby Letters of Credit.
4.13. Current Ratio. Borrower will maintain a ratio of Consolidated
Current Assets to Consolidated Current Liabilities of at least 2.0 to 1.0 as of
the end of each fiscal quarter of Borrower during the term of this Agreement.
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For the purpose of this covenant, Consolidated Current
Liabilities shall include the aggregate amount of the Standby Letters
of Credit issued and outstanding after deducting from such aggregate
amount accrued liability already outstanding for environmental expense
covered by the Standby Letters of Credit.
4.14. Consolidated Total Liabilities to Consolidated Tangible
Effective Net Worth. Borrower will maintain a ratio of Consolidated Total
Liabilities to Consolidated Tangible Effective Net Worth of not greater than
0.75 to 1.0 as of the end of each fiscal quarter of Borrower during the term of
this Agreement.
For purposes of this covenant, Consolidated Total Liabilities
shall include the aggregate amount of the Standby Letters of Credit
issued and outstanding after deducting from such aggregate amount
accrued liability already outstanding for environmental expense
covered by the Letters of Credit.
4.15. Quick Ratio. Borrower will maintain a Quick Ratio of
not less than 1.25 to 1.00 as of the end of each fiscal quarter of
Borrower during the term of this Agreement.
4.16. Consolidated Net Income. Borrower will maintain Consolidated
Net Income after provision for income and other taxes on a cumulative basis of
not less than the following amounts at the dates indicated for each fiscal year
of Borrower during the term of this Agreement:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 31 of each fiscal year of Borrower $500,000.00
June 30 of each fiscal year of Borrower $1,000,000.00
September 30 of each fiscal year of Borrower $1,500,000.00
December 31 of each fiscal year of Borrower $2,000,000.00
</TABLE>
4.17. Consolidated Tangible Net Worth. Borrower will cause its
Consolidated Tangible Net Worth as of the end of each fiscal year of Borrower
during the term hereof commencing with the fiscal year ending December 31, 1995
to increase in each fiscal quarter of the subsequent fiscal year of Borrower
during the term of this Agreement by at least the amounts set forth in Section
4.16 of this Agreement.
4.18. Guarantor Financial Statements. Borrower will cause each
Guarantor to deliver to Lender the financial statements of such Guarantor in
accordance with the terms of the Guaranty Agreements.
SECTION 5. NEGATIVE COVENANTS
Until payment and performance in full of the Note and all other
Indebtedness, unless Borrower receives prior written approval of a deviation
therefrom from Lender, Borrower agrees that:
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5.1. Debt. Borrower will not and will not permit any Subsidiary
to, create, incur, assume or permit to exist any Debt, except for (a) the Note
and other Indebtedness, (b) normal trade debts incurred in the ordinary course
of business, (c) Debt existing on the date of this Agreement which is reflected
in the Initial Financial Statements, (d) liabilities for taxes, assessments,
governmental charges or levies which are not yet due and payable or which are
being contested in good faith by appropriate proceedings diligently conducted
if reserves adequate under GAAP shall have been established therefor, (e)
endorsements of negotiable documents for collection in the ordinary course of
business, (f) Debt of the Subsidiary Guarantors to Borrower, and (g) Debt of
Borrower including operating lease obligations which in the aggregate does not
exceed $5,000,000.00 at any one time outstanding.
5.2. Liens. Borrower will not, and will not permit any Subsidiary
to, grant, create, assume or permit Liens on or security interests in its
Property (now owned or hereafter acquired), except Permitted Liens.
5.3. Loans, Advances, Investments. Borrower will not and will not
permit any Subsidiary to, make or permit to remain outstanding any loans,
advances or investments to or in any Person, except for (a) loans, advances and
investments existing on the date of this Agreement which are reflected in the
Initial Financial Statements, (b) loans and advances by Borrower to any
Subsidiary Guarantor, (c) loans, advances and investments by Borrower in and to
AvAero, (d) loans and advances by Borrower to any Joint Venturer provided the
proceeds thereof are used by such Joint Venturer in the operation of AvAero,
and (e) loans and advances by Borrower and the Subsidiaries to their respective
employees (other than existing loans reflected in the Initial Financial
Statements), provided such loans and advances do not exceed $100,000.00 in any
fiscal year of Borrower and $300,000 in the aggregate of any one time
outstanding.
5.4. Mergers, Etc. Borrower will not, and will not permit any
Subsidiary to, amend its Articles and/or Certificate of Incorporation or
otherwise change its corporate name or structure, (b) form a Subsidiary, (c)
consolidate with a merge into, or acquire any Person, (d) permit any Person to
consolidate with or merge into, or acquire Borrower or any Subsidiary, (e)
acquire any stock of any corporation, or (f) acquire all or substantially all
of the assets of another Person.
5.5. Disposition of Assets. Borrower will not, and will not permit
any Subsidiary to, sell, lease, assign or otherwise dispose of or transfer any
assets, except (a) equipment which is worthless or obsolete or which is
replaced by equipment of equal suitability and value, (b) inventory which is
sold in the ordinary course of business on ordinary trade terms, (c) the
offshore vessel registered in the name of M.V. Midnight Dancer, and (d) other
personal property, provided the aggregate value thereof does not exceed
$250,000.00 during the term of this Agreement.
5.6. Dividends. Borrower will not declare or pay any dividends or
distributions (other than dividends payable in capital stock of Borrower) on
any shares of any class of capital stock or other securities of Borrower or any
Subsidiary, or apply any of its properties or assets to the purchase,
redemption or other retirement of any shares of any class of capital stock or
other security of Borrower or any Subsidiary, or in any way amend its capital
structure.
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5.7. Nature of Business. Borrower will not, and will not permit
any Subsidiary to, change its name, address or the general character of
business as conducted on the date hereof, or engage in any type of business not
reasonably related to its business as presently and normally conducted.
5.8. Prepayment of Debt. Borrower will not, and will not permit
any Subsidiary to, prepay, purchase, redeem, retire or otherwise acquire, or
make any optional payment on account of any principal of, interest on, or
premium payable in connection with the optional prepayment, redemption or
retirement of any of its Debt, except for the Note and other Indebtedness.
5.9. Transactions with Subsidiaries and Affiliates. Borrower will
not, and will not permit any Subsidiary to, engage in any transaction with an
Affiliate or a Subsidiary on terms less favorable to it than would be
obtainable at the time in comparable transactions with Persons not affiliated
with Borrower.
5.10. ERISA Compliance. Borrower will not at any time permit any
Plan maintained by Borrower or any Subsidiary to:
(a) engage in any "prohibited transaction" (as defined in
ERISA and in Section 4975 of the Internal Revenue Code of 1986, as
amended);
(b) incur any "accumulated funding deficiency" (as
defined in Section 412 of the Internal Revenue Code of 1986, as
amended); or
(c) terminate any such Plan in a manner that could result
in the imposition of a Lien on the Property of Borrower or any
Subsidiary pursuant to ERISA.
5.11. Write-Offs. Borrower will not permit the aggregate amount of
write-offs of assets, whether tangible or intangible, charge-offs, costs,
expenses or losses associated with the discontinuance of the operations of
Borrower or any Subsidiary to exceed $4,000,000.00 during the term of this
Agreement.
SECTION 6. DEFAULTS
6.1. Events. Any of the following events shall be considered an
"Event of Default" as that term is used herein:
(a) default is made in the payment of the Note or any of
the other Indebtedness, whether principal or interest or any
installment thereof, when due and payable and such default continues
unremedied for a period of ten (10) days;
(b) any statement, representation or warranty of Borrower
or any Subsidiary in this Agreement or in any of the other Loan
Documents proves to have been incorrect or incomplete in any material
respect when made, or any representation, statement (including
financial statements), certificate or data furnished or made by
Borrower or any
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Subsidiary (or any officer, accountant or attorney of Borrower or any
Subsidiary) hereunder or thereunder proves to have been untrue in any
material respect as of the date as of which the facts therein set
forth were stated or certified;
(c) default is made in the due observance or performance
by Borrower of any of the covenants or agreements contained in
Sections 4.1, 4.2, 4.3, 4.4(b), 4.4(c), 4.5, 4.6, 4.7, 4.8, 4.9, 4.10,
4.11 or 4.18 of this Agreement and such default continues unremedied
for a period of thirty (30) days after notice thereof is given by
Lender to Borrower;
(d) default is made in the due observance or performance
by Borrower of any of the covenants or agreements contained in
Sections 4.4(a), 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 5.1, 5.2, 5.3,
5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10 or 5.11 of this Agreement;
(e) default is made in the due observance or performance
by Borrower or any Subsidiary of any of the covenants, terms or
agreements contained in any of the other Loan Documents and such
default continues unremedied beyond any applicable period of grace, if
any;
(f) Borrower dissolves or terminates its existence or
discontinues its usual business or is enjoined, restrained or in any
way prevented by court order or order of any governmental authority
from conducting all or any material part of its business and such
order is not lifted within thirty (30) days;
(g) any involuntary case or other proceeding is commenced
against Borrower which seeks liquidation, reorganization or other
relief with respect to Borrower or its debts and liabilities under any
bankruptcy, insolvency or similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of Borrower or any substantial part of its
property, or for the winding-up or liquidation of Borrower's affairs;
(h) Borrower commences a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to Borrower or its debts and liabilities 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 Borrower or any substantial part of its property
or consents 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 Borrower, or makes a general assignment
for the benefit of creditors, or fails generally to, or admits in
writing Borrower's inability to, pay its debts generally as they
become due or takes any action to authorize or effect any of the
foregoing;
(i) any Subsidiary takes or permits to exist any event or
condition specified in (f), (g) or (h) of this Section 6.1; or
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(j) any event or condition occurs which constitutes a
default or event of default under any of the other Loan Documents;
(k) Borrower or any Subsidiary defaults in the payment of
principal of or interest on any other Debt of Borrower or any
Subsidiary to any Person beyond the period of grace, if any, provided
with respect thereto;
(l) any of the Loan Documents at any time after their
respective execution and delivery and for any reason, cease to be in
full force and effect or are declared null and void or the validity or
enforceability thereof are contested or challenged by Borrower or any
Subsidiary, or Borrower or any Subsidiary denies that it has further
liability or obligation under any of the Loan Documents; or
(m) a notice is filed of record disclosing a Lien with
respect to all or any Property of Borrower or any Subsidiary by the
United States, or any department, agency or instrumentality thereof,
or by any state, county, municipal or other Governmental Authority,
including, without limitation, the Pension Benefit Guaranty
Corporation, or if any taxes or debts owing at any time hereafter to
any one of these becomes a Lien upon any Property of Borrower or any
Subsidiary; or
(n) Borrower fails to (i) furnish Lender, within fifteen
(15) days after discovery thereof using reasonable diligence, written
notice of the occurrence of any of the following events: (aa) the
happening of a "reportable event" or a "prohibited transaction" (as
such terms are defined in ERISA) with respect to any Plan of Borrower
or any Subsidiary, (bb) the termination of any Plan which could result
in the imposition of a Lien on the Property of Borrower or any
Subsidiary, (cc) the appointment of a trustee by an appropriate United
States district court to administer any Plan, or (dd) the institution
of any proceedings by the Pension Benefit Guaranty Corporation to
terminate any Plan or to appoint a trustee to administer any Plan; or
(ii) notify Lender promptly upon receipt by Borrower of any notice of
the institution of any proceeding or other action which may result in
the termination of any Plan.
6.2. Remedies Upon Default.
(a) Acceleration.
(i) Upon the occurrence of any Event of Default
described in Section 6.1 (f), (g), (h) or (i) of this
Agreement, the Commitments and all other lending obligations,
if any, of Lender under this Agreement shall immediately
terminate, and the entire aggregate principal amount of the
Note then outstanding together with interest then accrued
thereon and all other Indebtedness to Lender shall become
immediately due and payable, all without demand, presentment,
notice of dishonor, notice of acceleration, notice of intent
to accelerate, notice of intent to demand, protest, or other
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notice of default of any kind, all of which are hereby
expressly waived by Borrower.
(ii) Upon the occurrence and at any time
during the continuance of any other Event of Default specified
in Section 6.1 of this Agreement, Lender may, by written
notice to Borrower, (aa) declare the entire aggregate
principal amount of the Note then outstanding together with
interest then accrued thereon and all other Indebtedness to
Lender to be immediately due and payable without demand,
presentment, notice of dishonor, notice of acceleration,
notice of intent to accelerate, notice of intent to demand,
protest, or other notice of default of any kind, all of which
are hereby expressly waived by Borrower, and/or (bb) terminate
the Commitments and other lending obligations, if any, of
Lender under this Agreement unless and until Lender shall
reinstate the same in writing.
(b) Other Rights. In addition, upon the occurrence of
any Event of Default, Lender may, at its election, do any one or more
of the following:
(i) reduce any claim to judgment;
(ii) exercise the rights of offset and/or banker's
lien 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
Indebtedness of Borrower, irrespective of whether or not
Lender shall have made any demand under this Agreement or the
Note and although such Indebtedness may be unmatured;
(iii) foreclose any and all Liens in favor of
Lender and/or otherwise realize upon any and all of the rights
Lender may have in and to any Collateral, or any part thereof;
or
(iv) exercise any and all other rights afforded by
any applicable laws, or by the Loan Documents, at law or in
equity, or otherwise, including but not limited to, the rights
to bring suit or other proceedings before any court of
competent jurisdiction, either for specific performance of any
covenant or condition contained in the Loan Documents or in
aid of the exercise of any right granted to Lender in the Loan
Documents, all as Lender shall deem appropriate in its sole
discretion.
(c) Event of Default with Respect to Letters of Credit.
If an Event of Default under this Agreement shall occur and the same
shall have been declared by Lender, then Borrower shall be required to
deposit immediately with Lender, in immediately available funds, an
amount equal to (i) the aggregate amount of all then outstanding
Letters of Credit, plus (ii) the aggregate amount of all other sums
due and payable under the Loan
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Documents regarding the Letters of Credit (the "Deposit"). Borrower's
obligation to pay the Deposit is absolute and unconditional and the
Deposit will be deposited in a special account with Lender to ensure
reimbursement of any drawings under such Letters of Credit and payment
of all other amounts due and payable under any of the Loan Documents
regarding the Letters of Credit.
6.3. No Waiver or Exhaustion. No waiver by Lender of any of its
rights or remedies hereunder or in any of the other Loan Documents shall be
considered a waiver of any other or subsequent right or remedy of Lender; no
delay or omission in the exercise or enforcement by Lender of any rights or
remedies shall ever be construed as a waiver of any right or remedy of Lender;
and no exercise or enforcement of any such rights or remedies shall ever be
held to exhaust any right or remedy of Lender.
SECTION 7. CONDITIONS PRECEDENT
7.1. Documents and Other Items to be Delivered. Lender has no
obligation to make the initial Loan or to issue the initial Letter of Credit
unless Lender shall have received all of the following at Lender's office in
Dallas, Texas, all in form, substance and date satisfactory to Lender:
(a) the Note executed by Borrower;
(b) guaranty agreements executed by the Subsidiaries
("Guaranty Agreements"), in form, scope and content satisfactory to
Lender, unconditionally guaranteeing the prompt payment of the
Obligations, when due;
(c) guaranty agreement executed by Borrower, in form,
scope and content satisfactory to Lender, unconditionally guaranteeing
the payment of all indebtedness incurred by a Subsidiary to Lender
under this Agreement, when due;
(d) Corporate Certificate of the Secretary of Borrower,
containing the names and signatures of the officers of Borrower
authorized to execute Loan Documents and certifying to the truth and
completeness of the following exhibits attached thereto: (1) a copy
of resolutions duly adopted by the Board of Directors of Borrower and
in full force and effect at the time this Agreement is entered into,
authorizing the execution of this Agreement and the other Loan
Documents and the consummation of the transactions contemplated herein
and therein, (2) a copy of the Articles and/or Certificate of
Incorporation of Borrower and all amendments thereto, and (3) a copy
of the Bylaws of Borrower;
(e) Corporate Certificate of the Secretary of each
Subsidiary, containing the names and signatures of the officers of
each Subsidiary authorized to execute Loan Documents and certifying to
the truth and completeness of the following exhibits attached thereto:
(1) a copy of resolutions duly adopted by the Board of Directors of
the Subsidiary and in full force and effect at the time this Agreement
is entered into, authorizing the
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execution of the Loan Documents to which it is a party and the
consummation of the transactions contemplated therein, (2) a copy of
the Articles and/or Certificate of Incorporation of the Subsidiary and
all amendments thereto, and (3) a copy of the Bylaws of the
Subsidiary;
(f) a certificate (or certificates) of the due
incorporation and valid existence of Borrower and each Subsidiary in
its state of incorporation, issued by the appropriate authorities of
such jurisdiction;
(g) certificates of good standing and due qualification
to do business of Borrower and each Subsidiary, issued by appropriate
officials in each state in which Borrower and each Subsidiary owns
property subject to the Loan Documents;
(h) search certificates from the Secretary of State of
Texas (and, upon request by Lender, such other governmental
authorities as may be repositories in any state, county or parish
where Borrower and each Subsidiary conducts its business or where any
Collateral may be located), setting forth all Uniform Commercial Code
filings, financing statements, chattel mortgages, assignments and
other pledges of personal property and any and all mechanics' or
repairmens' liens and federal, state and county tax filings against
Borrower and each Subsidiary, which certificates shall be in form,
scope and content satisfactory to Lender and accompanied by copies of
the filed financial statements, chattel mortgages and/or assignments
and shall confirm that the Collateral is free and clear of all
pledges, assignments, security interest and liens other than those in
favor of Lender; and
(i) each other Loan Document.
7.2. Additional Conditions Precedent. Lender has no obligation to
make any Loan or to issue any Letter of Credit unless the following additional
conditions precedent have been satisfied:
(a) all representations and warranties made by Borrower
and each Subsidiary in any Loan Document are true on and as of the
date of such Loan as if such representations and warranties had been
made as of the date of such Loan or Letter of Credit;
(b) no Default under this Agreement exists at the date of
such Loan or Letter of Credit;
(c) there have been no material adverse changes, either
in any case or in the aggregate in the assets, liabilities, business,
operations or financial condition of Borrower or any Subsidiary since
the date of the Initial Financial Statements;
(d) with respect to each Letter of Credit, Lender shall
have received (i) payment of the Letter of Credit fees as provided in
this Agreement and (ii) an application and agreement for issuance of
Letter of Credit and/or reimbursement agreement relating to
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such Letter of Credit duly executed by Borrower or the appropriate
Subsidiary for whose account the Letter of Credit is issued on
Lender's standard form; and
(e) a duly executed Request for Loan, Request for
Documentary Letter of Credit or Request for Standby Letter of Credit,
as appropriate, has been provided to Lender.
SECTION 8. ENFORCEABILITY
If any provision of this Agreement is held to be unenforceable, this
Agreement shall be considered divisible and inoperative as to such provision to
the extent it is deemed to be unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if
such provision may be made enforceable by limitations thereof, then such
provision shall be enforceable to the maximum extent permitted by law.
SECTION 9. PERFORMANCE; NOTICE
The Loan Documents are performable by Borrower and each Subsidiary
entirely in the county where Lender's main office is located. Any notice
required to be provided to Borrower or any Subsidiary hereunder that is mailed
postage prepaid to the respective addresses shown above or at the most recent
changed address on file with Lender at least ten (10) days before the time of
the event to which such notice relates shall be deemed reasonable unless any
longer period is required by Law.
SECTION 10. MISCELLANEOUS
The terms of this Agreement shall be binding upon the successors and
assigns of Borrower, the Subsidiaries and Lender. Lender reserves the right to
assign the Loan Documents in whole or in part to any person or entity. In the
event more than one party executes this Agreement, the obligations of the
parties under this Agreement shall be joint and several. Section headings
herein are included solely for convenience, are not intended to be full or
accurate descriptions of the content thereof and shall not be construed to
enlarge, limit, or otherwise change the express provision thereof. Pronouns in
masculine, feminine, or neuter genders shall be construed to include any other
gender, and words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. If the Loan Documents
are given in renewal and extension of a prior obligation to Lender, all Liens
and other security interests granted to secure such prior obligation, if any,
are hereby carried over and renewed to secure the Indebtedness.
SECTION 11. INDEMNIFICATION
Borrower shall indemnify Lender and its officers, directors,
employees, attorneys, and agents from, and hold each of them harmless against,
any and all losses, liabilities, claims, damages, penalties, judgments,
disbursements, costs and expenses (including reasonable attorneys' fees) to
which any of them may become subject which directly or indirectly arise from or
relate
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<PAGE> 36
to (a) the negotiation, execution, delivery, performance, administration or
enforcement of any of the Loan Documents, (b) any of the transactions
contemplated by the Loan Documents, or (c) any breach by Borrower or any
Subsidiary of any representation, warranty, covenant, or other agreement
contained in any of the Loan Documents, except for losses, liabilities, claims,
damages, penalties, judgments, disbursements, costs and expenses which are
caused by Lender's gross negligence or willful misconduct.
SECTION 12. APPLICABLE LAW; SUBMISSION TO PROCESS
THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE LOAN DOCUMENTS
MAY BE GOVERNED BY THE LAWS OF THE UNITED STATES. NOTWITHSTANDING ANY
PROVISION OF THIS AGREEMENT, THE NOTE, OR ANY OF THE OTHER LOAN DOCUMENTS TO
THE CONTRARY, CHAPTER 15 AND CHAPTER 4 OF THE TEXAS CREDIT CODE SHALL NOT BE
APPLICABLE TO THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS.
BORROWER AND EACH SUBSIDIARY HEREBY IRREVOCABLY SUBMITS ITSELF TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE
OF TEXAS AND TO THE VENUE OF DALLAS COUNTY AND AGREES AND CONSENTS THAT SERVICE
OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS
AGREEMENT BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW.
SECTION 13. LIMITATION ON INTEREST
It is the intent of Lender and Borrower in the execution of this
Agreement and all other instruments now or hereafter evidencing or securing the
Indebtedness to contract in strict compliance with applicable usury law. In
furtherance thereof, Lender and Borrower stipulate and agree that none of the
terms and provisions contained herein or in any other Loan Documents shall ever
by construed to create a contract to pay, for the use, forbearance or detention
of money, interest at a rate in excess of the Maximum Rate. Neither Borrower
nor any co-makers, endorsers, sureties, guarantors or other parties now or
hereafter becoming liable for payment of any of the Indebtedness shall ever be
required to pay interest or finance charges at a rate in excess of the Maximum
Rate, and the provisions of this Section shall control over all other
provisions of the Loan Documents and any other instruments now or hereafter
executed in connection herewith which may be in apparent conflict herewith.
Lender and any other holder of any or all of the Indebtedness expressly disavow
any intention to charge or collect excessive unearned interest or finance
charges in the event the maturity of any of the Indebtedness is accelerated.
If demand is made or if the maturity of any Indebtedness shall be accelerated
for any reason or if the principal of any of the Indebtedness is prepaid, and
as a result thereof the interest or finance charge received for the actual
period of existence of the Indebtedness exceeds the Maximum Rate, the holder of
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<PAGE> 37
any or all of the Indebtedness shall, at its option, either refund to Borrower
the amount of such excess or credit the amount of such excess against the
principal balance of the Indebtedness then outstanding, and thereby shall
render inapplicable any and all penalties of any kind provided by applicable
law as a result of such excess interest. In the event that Lender or any other
holder of any or all of the Indebtedness shall collect monies and/or any other
thing of value which are deemed to constitute interest which would increase the
effective interest rate on the Indebtedness to a rate in excess of the Maximum
Rate, all such sums deemed to constitute interest in excess of the Maximum Rate
shall, upon such determination, at the option of the holder of the
Indebtedness, be either immediately returned to Borrower or credited against
the principal balance of the Indebtedness, then outstanding, in which event any
and all penalties of any kind under applicable law as a result of such excess
interest shall be inapplicable. In determining whether or not the interest
paid or payable, under any specific circumstance, exceeds the Maximum Rate,
Lender and Borrower shall to the greatest extent permitted by applicable law
(a) characterize any non-principal 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 the total amount of interest
throughout the entire contemplated term hereof in accordance with the amounts
outstanding from time to time thereunder and the Maximum Rate from time to time
in effect under applicable law in order to lawfully charge the maximum amount
of interest permitted under applicable law. By execution of this Agreement,
Borrower acknowledges that it believes the Indebtedness to be non-usurious and
agrees that if, at any time, Borrower should have reason to believe that this
Agreement, the Note or any of the other Loan Documents is in fact usurious, it
will give the holder of the Indebtedness notice of such condition and Borrower
agrees that said holder shall have ninety (90) days in which to make
appropriate refund or other adjustment in order to correct such condition if in
fact such exists. The term "applicable law" as used in this Agreement shall
mean the laws of the State of Texas or the laws of the United States, whichever
laws allow the greater rate of interest, as such laws now exist or may be
changed or amended or come into effect in the future.
SECTION 14. NO ORAL AGREEMENTS
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A WRITTEN
AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE
LOANS.
WITNESS THE EXECUTION HEREOF, as of the date first above written.
LENDER:
------
COMERICA BANK - TEXAS
By: /s/ CARTER B. STACK
--------------------------------------
Name: Carter B. Stack
------------------------------------
Title: Vice President
-----------------------------------
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<PAGE> 38
BORROWER:
--------
WHITEHALL CORPORATION
By: /s/ E.F. CAMPBELL
-------------------------------------------
Name E. Forrest Campbell
------------------------------------------
Title: Vice President
----------------------------------------
By:/s/ DANIEL R. DONHAM
-------------------------------------------
Name Daniel R. Donham
------------------------------------------
Title: Vice President
----------------------------------------
PAGE 38
<PAGE> 1
EXHIBIT 21
WHITEHALL CORPORATION
ANNUAL REPORT ON FORM 10K
ITEM 14(a)3
(22) Subsidiaries of the Registrant
The following table lists the subsidiaries of the Registrant and the
jurisdiction of incorporation of each subsidiary:
Name Jurisdiction of Incorporation
---- -----------------------------
Aero Corporation Florida
Hydroscience, Inc. Texas
Crystek Crystals Corporation Florida
Each of the subsidiaries conducts business only under its corporate
name.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10K into the Company's previously filed
Registration Statement on Form S-8 No. 33-48215.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000106827
<NAME> WHITEHALL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,656
<SECURITIES> 0
<RECEIVABLES> 18,979
<ALLOWANCES> 518
<INVENTORY> 6,440
<CURRENT-ASSETS> 28,671
<PP&E> 22,192
<DEPRECIATION> 12,538
<TOTAL-ASSETS> 44,936
<CURRENT-LIABILITIES> 9,448
<BONDS> 0
0
0
<COMMON> 767
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 44,936
<SALES> 70,170
<TOTAL-REVENUES> 70,170
<CGS> 59,809
<TOTAL-COSTS> 64,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 6,523
<INCOME-TAX> 2,206
<INCOME-CONTINUING> 4,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,317
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.75
</TABLE>
